Product Information

About Wolters Kluwer, CCH

Wolters Kluwer, CCH is a leading provider of accurate, authoritative
and timely information services for professionals across the globe. We
create value by combining information, deep expertise, and
technology to provide our customers with solutions that contribute to
the quality and effectiveness of their services. Professionals turn to us
when they need actionable information to better serve their clients.
With the integrity and accuracy of over 45 years’ experience in
Australia and New Zealand, and over 175 years internationally,
Wolters Kluwer is lifting the standard in software, knowledge, tools
and education.
Wolters Kluwer, CCH — When you have to be right.
Creators: Lambiris, Michael, author. ; Griffin, Laura, co-author.
Title: CommLaw1: Australian Legal Systems / Michael Lambiris and
Laura Griffin
Edition: 3rd edition
ISBN 978-1-925554-42-7
First edition............2014
Second edition............2016
Third edition............2017
Reproduced by permission of Oxford University Press Australia from
First Principles of Business Law by Michael Lambiris © Oxford
University Press, www.oup.com.au
All rights reserved. No part of this work covered by copyright may be
reproduced or copied in any form or by any means (graphic, electronic
or mechanical, including photocopying, recording, recording taping, or
information retrieval systems) without the written permission of the
publisher.
Enquiries are welcome on 1300 300 224. For more information, visit
www.cch.com.au.
Publisher’s note
The publisher advises that Acts and Regulations in this publication are
not the authorised official versions of those Acts or Regulations. In
their preparation, however, the greatest care has been taken to
ensure exact conformity with the law as enacted or gazetted.
Important disclaimer
Brief statements of principle, case summaries and selected extracts
from legislation cannot give a fully accurate or complete statement of
the law. The contents of this publication are only intended to be
introductory and of a broad explanatory nature. No person should do
any act, fail to act, make any decisions based on, or rely on the
information in this publication without first obtaining full advice from a
qualified professional person. This publication is sold on the terms and
understanding that (1) the publisher, authors, consultants, editors and
any person associated with marketing this publication are not
responsible for the results of any actions taken on the basis of
information in this publication, nor for any error in or omission from this
publication; and (2) the publisher is not engaged in rendering legal,
accounting, professional or other advice or services. The publisher,
and the authors, consultants, editors and any person associated with
marketing this publication, expressly disclaim all and any liability and
responsibility to any person, whether a purchaser or reader of this
publication or not, in respect of anything, and of the consequences of
anything, done or omitted to be done by any such person in reliance,
whether wholly or partially, upon the whole or any part of the contents
of this publication. Without limiting the generality of the above, no
author, consultant or editor shall have any responsibility for any act or
omission of any other author, consultant or editor.
Commonwealth legislation reproduced
© Commonwealth of Australia (2017)
All legislation herein is reproduced by permission, but does not purport
to be the official or authorised version. It is subject to Commonwealth
of Australia copyright. The Copyright Act 1968 permits certain
reproduction and publication of Commonwealth legislation and
judgments. In particular, section 182A of the Act enables a complete
copy to be made by or on behalf of a particular person. For
reproduction or publication beyond that permitted by the Act,
permission should be sought from the relevant Australian Government
agency.

About the Authors

Michael Lambiris
LLB (Hons) Lond, PhD (Rhodes)
Michael Lambiris is a director of
Australian Law Courseware Pty
Ltd. He was formerly an
Associate Professor and Reader
in the Melbourne Law School
where he taught Business Law.
He has taught, researched and
published in various areas of law
in Australia, South Africa and
Zimbabwe and has been involved
in the development and
promotion of computer-based
learning materials for over 20
years.

Laura Griffin
LLB (Hons) Murdoch, BA (Sust
Dev) Murdoch, PhD (University of
Melbourne)
Laura Griffin is a Lecturer in the
Law School at La Trobe
 University, where she teaches
Introduction to Business Law,
Tort law, Contract law, and Legal
Institutions and Methods. She
formerly taught at Melbourne Law
School, having completed her
doctoral thesis there in 2010. Her
current research concerns the
rule of law, development and the
state.

AUTHOR ACKNOWLEDGEMENTS
The authors wish to thank all those who have contributed to the
production of these materials.
These materials are adapted from First Principles of Business Law.
Special acknowledgment is also due to the many students who, over
the years, have contributed to the development of First Principles of
Business Law materials by means of their constructive comments and
often insightful questions.

Wolters Kluwer, CCH Acknowledgments

Wolters Kluwer, CCH wishes to thank the following who contributed to
and supported this publication:
Managing Director: Michelle Laforest
Content Director: Scott Abrahams
Head of Content — Books: Alicia Cohen
Editor: Emma Gleeson
Production Team Leader: Katherine Joy Aguado
Subeditor: Joshua Albert Patlin
Production Editor: Florie Mae Luz
Cover Designer: Eric Truong

HOW TO USE THIS EBOOK

This ebook explains the fundamental topics of business law clearly
and concisely. Each chapter provides an easy-to-follow narrative and
a framework that builds understanding in careful steps. The basic
principles are illustrated and amplified by summaries of decided
cases. Technical words and phrases are clearly explained. Tables,
diagrams, and flowcharts are also included. This ebook is useful as an
adjunct to lectures and tutorials, for writing assignments, for revision
purposes and as a resource in open-book examinations.

Contents
Module 1: Australian Legal Systems and Processes
Chapter The Organisation of Law and Government in Australia
1
Chapter Sources of Law: Legislation
2
Chapter Sources of Law: Case Law
3
Module 2: The Law of Torts
Chapter The Scope of Tort Law
4
Chapter The Tort of Negligence
5
Chapter Remedies in Tort
6
Module 3: Contracts in Australian Commercial Law
Chapter Making a Contract
7
Chapter The Contents of a Contract
8
Chapter Performance and Breach of Contract
9
Module 4: Remedies for Breach of Contract
Chapter Remedies for Breach of Contract
10
Chapter Circumstances that may Invalidate Legal Transactions
11
Table of selected law report series
Table of authorised law reports (Australia)
Table of medium neutral citations
Glossary
What is an eBook?
An eBook is a book in digital format. Throughout history, books have
been hand scribed texts, mass-printed with movable type, read aloud
as audio books, photocopied, purchased, borrowed, annotated and
indexed. And now books can be read online on a wide variety of
devices anywhere, anytime!
CCH eLending provides access to hundreds of eBooks in a variety of
subject areas. You can access eBooks wherever and whenever you
need them.
To see the eBooks available via your specific library, you’ll need to be
registered for online access. Once logged in, you’ll be able to browse
the range of eBooks available using the search bar, browse books
panel and search filters, in the same way as print titles.
Reading eBooks
eBooks are easy to read online using a computer or a mobile device
such as an eBook reader, tablet or smart phone. CCH eLending
includes the option of searching for keywords or phrases within the
book, and some content has enhanced features such as hyperlinks
and inbuilt dictionaries.
To read an eBook online, usually all you need is:
• a computer with an Internet connection

• an up-to-date web browser.

Browser Reading
Reading eBooks via CCH eLending and your browser reader offers
users a rich and immersive reading experience.
There is no need for additional software, there are many ways to
customize how eBooks are displayed, and your eBooks are available
even after you’ve disconnected from the internet.
To read an eBook you have selected through the browser reader, just
follow these simple steps.
1. Borrow your desired eBook in the usual way

2. Click the ‘Read’ button

3. Begin reading through your web browser

The browser reader offers a growing variety of features for users,
including:
• Highlighting sections of text

• Adding notes to sections of text

• Dictionary to look up the definitions of words

• Thesaurus to look up synonyms of words

• Links to Google search results for selected words

• Bookmarks

Why read through the browser reader?

Here’s why we recommend reading eBooks through the browser
reader.
1. No need for additional software
The browser reader has been designed to not require an Adobe ID,
which is needed when reading a downloaded book. In order to have
an Adobe ID a user must be at least 13 years old, and Adobe has
recently looked to validate this by implementing a change to the sign
up process requiring users to enter their date of birth when signing up.
No such steps are required with the browser reader.
2. Read your own way
You’ll have almost full control over how your eBook is displayed when
read using the browser reader.
Don’t like the fonts or background colour used? Find the character or
line spacing too tight? Just use the customisable settings to change
them to your own preferences. Background colours, font sizes and
styles, and spacing between lines and characters can all be changed
to best suit readers.

Once within the eBook click the right hand tab labelled “Settings” to
change your view. Your settings will remain the same across all the
eBooks you use.

If you’ve been reluctant to read because of poor eyesight or reading

challenges like dyslexia, the ability to customize your eBooks will help
you to re-discover the joy of reading. Research-based
recommendations are available in ePlatform to offer some guidance
on which fonts and styles are most suitable.
3. Your eBooks are available even after you’ve disconnected from the
internet
When you use the browser reader the entire eBook is cached. That is,
as soon as you open the book it begins downloading into a type of
‘History’ on your computer or device.
Within a matter of seconds the entire book will be cached, and you’ll
be able to happily read the entire book even if you’re offline.
4. Browser friendly
Regardless of your preferred browser, the browser reader will happily
work with them all, meaning you can read eBooks via recent versions
of Chrome, Safari, Internet Explorer, Firefox and more, even Silk (on
the Kindle Fire)
5. Search and Table of Contents
Click on Contents to use the ‘Search’ functionality and use the Table
of Content to navigate.

Borrowing eBooks
CCH eLending platform allows borrows to borrow the eBook for the
duration of the semester.
Highlight, Copy, Annotate, Printing, Copying eBooks
Copyright applies to eBooks.
CCH permits the copying/printing of 10% of each eBook (standard fair
use). For eBooks & journal articles the Copyright Act considers it ‘fair’
to copy/print a reasonable portion which is defined as 10% or one
chapter if the work is a published edition of 10 pages or more; or 10%
of the words if the work is in electronic form. This is automatically
applied to the eBooks.
Printing
Click on the print button within the browser:
Highlight/Annotate/Copy
To add a new highlight or Copy text, select a word (or sentence or
paragraph) by holding and dragging your finger/cursor across the text.
In the popup menu, select Highlight, then add notes or change the
colour as desired. Press Save when complete. Any previous
Highlights or Annotations can be reviewed by clicking on Bookmarks.
To Copy text follow the above procedure, click on Copy in the popup
menu.

Check out your bookmarks/annotations at a later date by using the

Bookmarks tab.

Referencing eBooks
eBooks must be referenced and citation correctly if you refer to them.
Use the Referencing Style specified for your course or School, and
follow the examples available from the Library’s Referencing Guides.
Module 1: Australian legal
systems and processes
The organisation of law and government in
Australia
¶1.1 Introduction

Most students of business law have not studied law before. For you,
the law may be a new subject with many strange concepts and a
language all of its own. It is important, therefore, that some
foundational facts, ideas and terminologies are explained at the start.
In this chapter, the concept of law, and its nature and purpose, are
analysed and explained. The way in which laws are classified and
organised is set out. The origins of Australian law are described. The
relationship between government and law is explained. The organs of
government in Australia are described and their law-making functions
outlined. You will find that an understanding of these matters is
essential to the study of law.

¶1.2 The Concept of Law

1.2.1 Different kinds of law

Everyone will have some idea of what law is and how it works. But not
everybody will have thought about the true nature of law or how best
to define it. We can begin to understand what law is by saying that law
provides authoritative rules for how we are to behave. However, this
description is not quite precise enough. This is because there are
different kinds of ‘law’. Reference is often made to concepts such as
‘natural laws’, ‘moral laws’, ‘laws of God’, ‘custom’ and ‘national law’.
What is the difference between these various kinds of law? The
answer lies in how they are identified and how they are enforced.
 • Natural laws are those rules of conduct that accord with our
realised experiences of the physical world. We obey these laws
because, in our experience, that is how things work. An example
is the natural responsibility of parents to look after their offspring.
This law of nature can be widely disregarded only at the peril of
the species.

• Moral and religious laws are rules of conduct derived from belief
systems, sometimes recorded in authoritative texts, sometimes
passed on by oral tradition. Such rules are obeyed as a matter of
individual conscience or as part of a religious community. An
example would be the dietary rules prescribed by particular
religions.

• Custom consists of rules of conduct that have been established by

long usage and are obeyed because of peer pressure, or
because they are convenient. An example would be the rituals,
music and clothing styles commonly associated with marriage
ceremonies. Obeying such rules provides continuity with tradition
and a sense of shared identity.

• National law is made up of those rules of conduct that the

government of a particular country or ‘state’ recognises and
enforces as law. The key concept here is ‘rules recognised and
enforced by the authority of the state’. If the government of a state
recognises a rule of conduct and enforces it, then that rule
becomes part of the national law.

It is important to realise that there may be some overlap between the

rules of national law and the rules of other kinds of law. Many rules of
conduct originate as customary, moral or natural laws, but become
part of the national law when a government decides to recognise and
enforce those same rules. For example, most religions prohibit the
killing of one human being by another, and governments in most
countries recognise and enforce this same rule.
Each country has its own national law. Unless otherwise specified, the
word ‘law’ in what follows is used to refer to the rules of national law
that have been established and are enforced in Australia.

¶1.3 Law as a Regulator of Behaviour

1.3.1 How law regulates conduct

Rules of law often regulate the behaviour of individuals to benefit the
greater community. This is done in different ways. For example,
particular rules of law might either restrict, prohibit, punish, permit or
reward specified behaviour. For instance:
• The law generally restricts the use of force by individuals and
forbids unauthorised violence. This is the foundation of peace and
good order in society.

• Some laws prohibit and punish particular kinds of undesirable

behaviour. For example, it is a rule of law that one person should
not wrongfully take another person’s property. This is called theft
or stealing. It is prohibited, and people who are caught stealing
are punished by the state.

• Other laws permit or reward particular behaviour that the

government thinks is desirable. For example, a person may be
allowed by law to import various kinds of goods into Australia.
They may be further encouraged to do so by laws that give
financial assistance (in the form of subsidies) to those who
actually do so.

• Laws generally provide for the creation of rights and duties that
can be enforced by an individual in court, without resorting to
force. Laws provide appropriate remedies when rights are
interfered with or when duties are not discharged. The creation of
legally enforceable rights and duties allows individuals to plan for
the future with reasonable certainty.

¶1.4 ‘Law’ and ‘Justice’

1.4.1 The relationship between law and justice
The relationship between law and justice is an important one, but it is
not simple. It is a relationship that has to take account of practicalities
and realities that sometimes may be in conflict.
1.4.1(a) Justice as the objective of law
It has often been suggested that the ideal purpose of law is to achieve
outcomes that are considered good and fair by the community. This is
what the Roman Emperor Justinian, a great law-giver, meant when he
said: ‘Law is the art of the good and the just’. It is the objective of
achieving justice that morally underpins using the power of the state to
enforce legal rules. And, on a practical level, a community will more
willingly support and conform to laws that are considered just.
Of course, governments do not always make and enforce laws for
good and just purposes. Governments can use their power to enforce
unfair rules, such as discriminatory laws which favour one racial group
or a particular gender. However, the fact that unjust laws exist from
time to time does not diminish the validity of the idea that law ought to
aim at achieving good and fair outcomes.
1.4.1 (b) Balancing justice and predictability
One important aspect of modern law is that it can be discovered with a
degree of clarity and certainty that makes its application predictable.
This is very useful. If we can find out the rules that govern particular
kinds of behaviour, then we can choose to act in accordance with
those rules and avoid unwanted consequences. This means that law
is most useful as a regulator of conduct when the rules are clear and
their application is predictable. Sometimes, however, it is not possible
to find a rule of law that clearly applies to the exact situation that has
arisen. Many rules of law are expressed quite broadly and do not take
account of special detailed circumstances. A rule of law that has
worked well enough in the past might not seem to provide a fair or just
outcome when additional or new circumstances are taken into
account. When this happens, the requirements of justice and
predictability may conflict and the judges who apply the law may have
to make difficult choices. Sometimes justice is given preference; in
other cases certainty and predictability are seen as more important.
The old adage ‘hard cases make bad law’ is a reminder that treating
too many cases as exceptional in the pursuit of justice can damage
the predictability and certainty of the legal system overall.

¶1.5 ‘Law’ and ‘Ethics’

1.5.1 The nature of ethics
Law is also influenced by what are called ‘ethics’. Ethics refers to
ideas about right and wrong conduct, or what is moral or immoral,
based on the idea of avoiding unjustified and unnecessary harm to
other beings. The word derives from the Ancient Greek word ethos,
meaning habit or custom which reminds us that ethical views can, and
do, differ between communities, depending on their circumstances
and traditions. Ethics are concerned with identifying guiding values,
such as honesty, fairness and empathy, and with establishing
standards of conduct. An ethical question focuses on what is the right
choice or conduct in a particular situation. This is a different question
to what is legal or illegal: conduct may, strictly speaking, be legal (that
is, within the law), but not ethical and vice versa. In some
circumstances, where harm may be caused to another person, it may
be necessary to choose between what the law allows or requires, and
what ethical considerations dictate.
1.5.2 Ethics in specific settings
Particular ethical values and standards of conduct apply to specific
activities or professions. For lawyers, ethical questions might be how
best to represent a client’s case while still fulfilling their duties, as
lawyers, to the court. For accountants, ethical rules might relate to
carrying out an audit accurately, or keeping a client’s information
confidential. For students at a university or college, ethical standards
require honesty and completing one’s own work to the best of one’s
ability. Submitting another person’s work as your own for the purposes
of assessment is called plagiarism and is clearly unethical.
1.5.3 Ethics and the world of business
We need to consider ‘business ethics’ — that is, the ethical values and
standards relevant to business entities and business activities.
Persons engaged in businesses tend to be motivated by profit. But
profit is not the only thing which should guide business activities.
Businesses are also expected to act ethically, for example by treating
their employees fairly, marketing their goods and services honestly,
and providing customers with safe and appropriate products. Most
people also expect businesses to minimise any harmful impacts that
their activities may have more broadly, such as on the natural
environment or on wider communities. Unfortunately there are many
historical instances of business persons engaging in unethical conduct
and causing widespread harm, for instance, by price-fixing, bribing
corrupt government officials, or obtaining contracts through unethical
means such as dishonesty or threats.
1.5.4 Ethics and law
Ethics are not created and enforced in the same way that law is. But
ethical standards are sometimes compiled into what are called
‘voluntary Codes of Conduct’. A business might agree to comply with
such a Code and to be held accountable for behaving in accordance
with the ethical principles contained in the Code.
It must also be remembered that many rules of law also reflect ethical
norms, by requiring or prohibiting specific kinds of conduct as
acceptable or unacceptable. In this way, enforcement of the law
reinforces what is seen as ethical or unethical. For instance, the
Australian Consumer Law targets a range of dishonest or otherwise
unethical business practices, like falsely offering gifts or prizes. In the
chapters that follow, attention will be drawn to those circumstances
where laws relate to particular aspects of business ethics.

¶1.6 The Classification and Organisation of Law

1.6.1 Classifying laws
In a modern country, there are many thousands of legal rules. These
rules arose over many years, and developed from traditional legal
forms or processes. As a result, legal rules tend to be classified,
organised and collected in particular ways. This has the benefit of
making those rules manageable, orderly and easily locatable. Broadly
speaking, each rule of law is classified as belonging to a particular
category (or area) of law. These categories of law are named to
indicate the theme or nature of the rules grouped within them. The
categories of law are arranged systematically, in accordance with
traditional and well-known legal concepts, to provide an overall
structure.
1.6.2 Categories of law
There are many established categories (or areas) of law. Some may
be familiar to non-legal audiences, for example, criminal law and
contract law. Others may be less familiar, such as tort law or
administrative law. The table below sets out some of the traditional
categories of law and briefly describes the rules of law that are found
within them. The basic categories will help you to put individual topics
you study in business law into context and will help you to find
particular rules of law when you need them.

¶1.7 The Anatomy of Law

1.7.1 Terms and phrases that describe the law
While studying law, you will find references not just to ‘the law’ as a
whole and to ‘categories (or areas) of law’, but also to things such as
‘legal concepts’, ‘legal principles’, ‘legal rules’ and ‘legal meanings’.
These terms help to describe how law is structured and organised.
Knowing what these terms mean will help you to understand legal
materials.
• Categories (or areas) of law. These are a convenient way of
grouping together particular laws which are considered to be
related, usually because they refer to the same type of concept,
situation or conduct. The following table explains some of the
commonly found categories of law.

Category of law Description

Jurisprudence The science or
philosophy of law.
International law Agreements (treaties)
 between sovereign
states and
internationally observed
customs.
National law Law as applied within
the borders of a
particular country
(state), eg Australian
law.
Public law Constitutional law The organisation,
powers and processes
of government.
Administrative Rules governing the
law processes of official
decision making.
Criminal law The prohibition and
punishment by the state
of conduct considered
harmful to the general
community.
Private law Civil law The creation and
Traditional enforcement of private
categories of law legal rights and duties
between individuals.
This category of law is
very large,
encompassing some of
the other categories,
such as contract law,
tort law and property
law.
Tort law Liability for harm
wrongfully caused by
one person to another
 person or to their
property.

Contract law Private agreements that

give rise to legally
enforceable rights and
duties.
Agency The use of a
representative to
acquire or discharge
legal rights or duties.
Consumer Legal protections for
protection law consumers in their
dealings with suppliers
of goods or services.
Corporations law The creation,
organisation and
administration of
companies.
Property law The acquisition and
transfer of private rights
in goods and land.
Specialist Business law Rules that are
categories of law particularly relevant to
business activities,
taken selectively from
the more traditional
categories of law, such
as contract law, agency,
tort law, banking law,
insurance law,
employment law,
corporations law and tax
law.
 • Legal concepts. These are the ideas that determine the scope and
nature of a particular category of law. For example, in contract
law, there is the broad concept of ‘contract formation’, under
which fall the more precise concepts of ‘agreement’, ‘intention to
be bound’ and ‘consideration’. Identifying and organising key
concepts will enable you to build a mental framework of a specific
area of law.

• Legal principles. These are the broad precepts that recognise and
give effect to a particular point of view, value or policy. For
example, in Australian law, the concept of contract formation is
based in part on the principle that a contract is only made if the
parties intend to be legally bound by their agreement. It is a
further principle that an intention to be legally bound is
ascertained objectively rather than subjectively.

• Legal rules. These provide the detailed mechanisms by which

legal principles are given effect. Rules specify particular
requirements or provide what should happen in specific
situations. For example, there are many rules in contract law that
specify the different ways in which agreement may be reached or
what should happen if performance of an agreement becomes
impossible.

• Legal meanings. These refer to the particular meaning or

significance that words or phrases have in law. For example, in
contract law, the words ‘party’, ‘consideration’ and ‘frustration’
have specific legal meanings that differ from their ordinary
meanings.

• Legal authorities are the sources of particular legal principles,

rules or meanings. For example, a legal rule may originate in a
particular decision of a court or in an Act of Parliament.

¶1.8 The Development of Western European Legal

Systems
1.8.1 The origins of Australian Law
You have already learned that the law of a particular country (its
national law) consists of the rules of conduct that are recognised and
enforced by the government of that country. You might expect the
laws of each country to be very different, but in fact they often turn out
to be quite similar in many ways. This similarity suggests that they
were not developed independently, but that they share a common
origin, and this is in fact the case. The story of the development of the
laws which have been adopted by so many modern states goes back
a long way in western European history. It begins in the Roman
Empire with Roman law (sometimes called ‘Roman civil law’ or ius
civilis Romanus) and is continued later, in England, with what is
known as English law (sometimes called ‘common law’). If you
examine the laws of the states that make up the modern political
world, you will find that most of those laws have been derived from, or
strongly influenced by, either Roman law or English law—and
sometimes both. For that reason, a short explanation of the
development and spread of Roman law, and then English law, is
necessary for a proper understanding of modern law.
1.8.2 Roman law
Roman law began its development in 753 BC when Rome was
established as a small city state. Over the next 1,200 years, as Rome
expanded into a large and commercially active empire, its laws
developed and grew until they became the most sophisticated or
complex system of law the Western world had yet seen. In 533 AD,
the Emperor Justinian decided that this vast body of law should be
reorganised and collected in a Digest. This Digest, together with some
other collections of law, are collectively known as the Corpus Iuris
Civilis (Compendium of the Civil Law).
Not long before the completion of the Corpus Iuris Civilis, the western
part of the Roman Empire was invaded by tribes from the north. In 476
AD, the Western Empire collapsed and Europe entered a period
known as the Dark Ages. Roman law was largely forgotten for
hundreds of years. Then, in the 12th century AD, copies of the Corpus
Iuris Civilis were discovered in libraries in Italy. Scholars took a
renewed interest in Roman law and knowledge of it quickly spread. As
a result, Roman law became influential in the legal developments that
took place in the emerging states of modern Europe. In particular, the
Corpus Iuris Civilis served as the foundation for several new European
codes of law: the French Code Napoleon of 1804, the Austrian code of
1811, the German code of 1889, and the Swiss codes of 1889 and
1907. In later years, these codes were used as models by countries
outside of Europe. For example, the Code Napoleon was taken as the
basis for the law of the French parts of Canada, the state of Louisiana
in the USA and many countries in South America. The German code
was the model for the law of Hungary, Brazil, Greece and Japan.
Turkey has adopted the Swiss code. The Republic of South Africa, Sri
Lanka, Zimbabwe and Scotland also have legal systems based on
Roman law.
1.8.3 English law
English law also has a long history, going back to the 12th century.
Instead of adopting Roman law as other European countries had
done, England chose to develop its own local laws and customs. Over
the years, English common law (law that was ‘common’ to all of
England) became a complex system of law. England also became a
powerful nation with a large empire and worldwide trade relations.
When England invaded and colonised various parts of the world,
English law was introduced as the law of those colonies. These legal
foundations have, in the main, been retained since the colonies have
become independent. This is what happened in Australia. For the
same reasons, common law is also the foundational law of most of the
states that make up the United States of America, the English
speaking parts of Canada and many countries in Africa and Asia.
Because modern Australian law derives much of its content from
English law, Australian law is similar to the laws of other countries that
share the same heritage. Australian law is less similar to the law of
countries that have received or been influenced by Roman or other
legal systems. As with most common law countries, there are two
main sources of law in Australia: cases (legal disputes) decided by
courts and legislative Acts created by parliaments.
The extent to which either English or Roman law has been received,
and the extent to which that law has been modified since its reception,
vary markedly between countries. A good example is Malaysia, whose
legal system contains substantial elements inherited from English law,
but whose sources of law also include legislation enacted in Malaysia,
local laws deriving from custom and Muslim law (the last-mentioned
being applied only to Muslims in sharia courts).
1.8.4 Indigenous custom and law
In Australia, the received English law, now considerably adapted and
expanded since independence, exists alongside indigenous custom
and law. Indigenous Australians, who occupied the land for tens of
thousands of years before colonisation, lived in defined groups, each
with their own laws and customs. These laws were not written down
but were passed on orally to each generation and have survived to the
present day. Indigenous law is particularly important in relation to
family and community issues and land rights; less so in relation to
commercial matters.

¶1.9 The Establishment of the Australian

Commonwealth, States and Territories
1.9.1 The first Australians and British occupation of Australia
Australia has been inhabited by its aboriginal peoples for thousands of
years. European occupation of Australia began in 1788 when the
British established the colony of New South Wales. Over the next 50
years or so, other colonies were established: Queensland, Victoria,
Tasmania, Western Australia and South Australia. In more recent
times, Australia’s non-indigenous population has been further
augmented by the arrival of people of many different nationalities,
making modern Australians a diverse mix of cultural and ethnic
identities.
1.9.2 Government of the Australian colonies
Though Britain initially ruled its Australian colonies directly, during the
1800s the colonies were allowed by Britain to become self-governing
with general powers to administer, enforce and make new law.
Specifically, each colony was given the general power ‘to make laws
for the peace, welfare and good government of the colony’, but with
some important restrictions: they could not make law that was
inconsistent with laws made by the British parliament, and they could
not generally make laws to operate outside their own borders.
1.9.3 Establishment of the Commonwealth of Australia
The Commonwealth of Australia was formed in 1901 after lengthy
negotiation during the 1890s between the Australian colonies and with
Britain. The Commonwealth was established by the Commonwealth of
Australia Constitution Act 1900, a law enacted by the British
parliament. This law contains both the detailed provisions of the
constitution of the Commonwealth and the ‘covering clauses’ that
authorise the new arrangements for government in Australia.
1.9.4 The Australian states and territories
As part of the process of forming the Commonwealth of Australia, the
colonies became ‘states’. The states are New South Wales (NSW),
Queensland (Qld), South Australia (SA), Tasmania (Tas), Victoria
(Vic) and Western Australia (WA). The Commonwealth of Australia is
a confederation of states rather than a unitary state. Notwithstanding
the formation of the Commonwealth, each new state retained the
power to govern within its own borders, with responsibility for a wide
range of matters. But they also agreed to give specified powers to a
new federal Australian government, which would have responsibility
for matters of national importance throughout the whole of the
Commonwealth.
Map of the Australian states and self-governing territories
In addition to the six states, there are 10 ‘territories’ in the
Commonwealth of Australia. The mainland territories are the Northern
Territory and the Australian Capital Territory. The external territories
are: Ashmore and Cartier Islands; Christmas Island; the Cocos
(Keeling) Islands; the Coral Sea Islands; Jervis Bay Territory; Heard
Island and McDonald Island; Norfolk Island; and the Australian
Antarctic Territory.

¶1.10 The Structure of Government in Australia

1.10.1 The meaning of ‘government’
It is necessary, at this point, to explain the different meanings of the
word ‘government’. In one sense, the word refers to the institutions or
‘organs’ that have been created within the Australian states and
territories. These institutions provide the formal structures of
government and allow for the division of governmental power.
Examples of organs of government are the Crown, the executive, the
courts and legislatures. These are explained below.
In another sense, the word ‘government’ refers to the elected
representatives, appointees and employees who, at any particular
time, occupy positions within the institutions of government and
exercise the day-to-day powers of governing.
As long as these possible meanings are kept in mind, the sense in
which the word is used can normally be understood from its context.
1.10.2 Constitutions of the Commonwealth and the states
A ‘constitution’ consists of the rules by which a state is formed and
governed. The Commonwealth of Australia has its own constitution,
and so does each Australian state.1 Australian constitutions are
written documents, formally enacted as law. For historical reasons, the
constitutional arrangements in Australia closely resemble the British
model of government (in the sense of the formal institutions of
governmental power), from where they were directly received. This is
often called the ‘Westminster’ system of government, a name that
refers to the site of the British parliament.
The constitution of the Commonwealth of Australia is contained in the
British Commonwealth of Australia Constitution Act 1900. To change
the provisions of this constitution requires obtaining the consent of the
Australian voters in a national referendum.
The state governments have each enacted their own constitutions,
acting in terms of a power granted to them by the United Kingdom
parliament. An example is the Constitution Act 1975 (Vic). The
relevant government can change state constitutions without the need
for a special referendum.
The Australian Commonwealth and state constitutions do not contain
all the necessary rules of constitutional law and practice—there are
many other important laws that regulate the more detailed aspects of
government, including some unwritten rules and practices
(conventions).
1.10.3 Constitutional arrangement of the territories
Two of the Australian territories have been given the power of self-
government by means of laws enacted by the Commonwealth
(federal) government.2 The self-governing territories are the Australian
Capital Territory (ACT) and the Northern Territory (NT). Norfolk Island
(NI) enjoyed limited rights of self-government between 1979 and 2015.
However, the Norfolk Island Legislation Amendment Act 2015 (Cth)
put an end to self-government and placed Norfolk Island under similar
governance arrangements as Australia’s other offshore territories. The
territories that are not self-governing are governed directly by the
Commonwealth government.
1.10.4 Constitutional monarchy in Australia
The head of the Commonwealth of Australia, and of the various
states, is not democratically elected but is a hereditary monarch. At
present the monarch is Queen Elizabeth II. She will be succeeded by
her lawful heirs in accordance with established rules. Somewhat
unusually, the Australian monarch is also the monarch of the United
Kingdom, a consequence of arrangements that seemed convenient
when the Commonwealth of Australia was established.
Because Australia’s hereditary monarch governs according to the
rules and structures established by the constitution, Australia’s
government can be described as a ‘constitutional monarchy’.
The self-governing territories do not have a constitutional monarch:
they are headed by an administrator appointed by the Commonwealth
government. The territories that are not self-governing are governed
directly by the Commonwealth government.
1.10.5 Local governments
In addition to the Commonwealth, state and territory governments,
most regions of Australia have what are termed ‘local governments’.
Local governments are responsible for a particular region or district
within a state or territory, and exist in the form of municipal councils,
regional councils or district councils. Local governments, established
under legislation enacted by state governments, typically have
responsibility for looking after the social, economic and environmental
needs of their particular area. They have a limited power to make
laws, which are known as ‘local laws’ or ‘by-laws’.

Footnotes
1 Commonwealth of Australia Constitution Act 1900; New
South Wales: Constitution Act 1902; Queensland:
Constitution of Queensland 2001; South Australia:
Constitution Act 1934; Tasmania: Constitution Act 1934;
 Victoria: Constitution Act 1975; Western Australia:
Constitution Act 1889.

2 Australian Capital Territory (Self-Government) Act 1988

(Cth); Northern Territory (Self-Government) Act 1978 (Cth).

¶1.11 The Institutions and Powers of Australian

Governments

1.11.1 The law-related powers and responsibilities of

governments
Australian law does not remain unchanged for long; it constantly
grows and changes in response to ever-changing circumstances. In
Australia, laws are declared, created or changed by the relevant
government, acting through its various institutions, following
recognised procedures and acting within its legal powers. As indicated
above, in Australia there are nine separate governments with law-
making powers.
Following the English model, Australian governmental power is
separated between various branches that have different functions and
responsibilities: this is known as the doctrine of ‘separation of powers’.
It is important to know about the structures of Australian governments,
what law-making institutions exist, and what law-making powers and
responsibilities those various institutions hold. The typical institutions
(or ‘organs’) of Australian governments can be represented in a simple
diagram. Each of these organs of government is explained below.
1.11.2 The Crown
A ‘head of state’ is the supreme authority in a government. In
Australia, the head of state of the Commonwealth and state
governments is Queen Elizabeth II. In her constitutional capacity, the
Queen is referred to as ‘the Crown’.
In Australia, most powers of government are exercised by organs of
government other than the Crown, or by the Crown following the
advice of other organs of government. For example, whereas the
monarch originally decided disputes between his or her subjects, this
function has been taken over by the courts. However, the Crown,
which historically enjoyed complete and unrestricted power to rule, is
considered to retain any powers that have not been given to other
organs of government. These remaining powers are referred to as the
Crown’s ‘reserve’ powers and are exercised at the discretion of the
Crown.
In Australia, the Queen acts through appointed representatives. At the
federal level, the Queen’s representative is called the Governor-
General. At the state level, the representative is called a Governor. As
the Queen’s representatives, the Governor-General and Governors
have various specified powers in Australian constitutional law.
• They are the formal heads of state of the Commonwealth and the
six states.

• They exercise certain executive powers on the advice of the

government, such as appointing people to particular offices,
signing treaties and granting licences and permits.
 • They exercise some legislative powers. One of these is giving
Royal assent to laws passed by the legislatures.

• They commission the judges who are appointed by the

governments of the day to preside over the courts.

1.11.3 The executive

Federal and state governments in Australia have what is called an
‘executive’ organ of government. An executive consists of the Crown,
the chief minister and other ministers of government, and statutory
bodies and offices.
• The Governor-General and Governors represent the Crown in the
federal and state executives.

• The chief minister (called ‘Prime Minister’ at the federal level and
‘Premier’ in the state governments) is elected by the political party
forming the government of the day. The chief minister appoints
other ministers and allocates to them responsibility for specified
departments of government.

• The chief minister and senior ministers of government form an

executive body called the ‘cabinet’. The cabinet decides the
policies of the government of the day at any particular point in
time.

• Statutory bodies or offices can be created to perform tasks which

ministers or public servants are not well equipped to handle.
Members of an executive have important law-making powers and
functions:

• The cabinet discusses any proposal for new legislation and

approves it in draft form, ensuring that it has the necessary
political support before it is introduced into the legislature.

• The Crown must formally assent to legislation enacted by a

legislature before it becomes law.
 • Ministers and other members of the executive may be given the
power to make legal regulations on their own authority. These
regulations are referred to as ‘delegated legislation’ because the
power to make them is given (delegated) to the executive by the
legislature.

1.11.4 Legislatures
A legislature is a body with authority to make law. The Commonwealth
(federal) government of Australia, each state and each self-governing
territory has its own legislature. The Commonwealth and state
legislatures can be called ‘parliaments’, but this term is not used for
territory legislatures.
The persons who make up the legislatures are elected by winning the
support of a majority of voters at an election. The members of the
legislatures ‘represent’ the voters who elected them until the next
election. For this reason Australian governments are generally
described as ‘representative democracies’.
Australian legislatures are generally ‘bicameral’, consisting of an
‘upper’ and a ‘lower’ House. Queensland is the exception, having a
single (unicameral) legislature.
• The upper House of the Commonwealth legislature is called the
Senate and the lower House is called the House of
Representatives.

• The upper Houses of state parliaments are all called Legislative

Councils. In New South Wales, Queensland, Victoria and
Western Australia the lower Houses are called Legislative
Assemblies. In South Australia and Tasmania the lower Houses
are called Houses of Assembly.

When a legislature enacts law, the resulting document is referred to as

‘legislation’, an ‘Act’, an ‘Act of Parliament’ or a ‘statute’. The
Commonwealth of Australia Constitution Act 1900 is an example of
this type of law. Law made by a legislature is distinguished from other
types of law, such as the law laid down by judges when deciding
cases (the common law or general law), and customary law.
The Commonwealth legislature is given its legislative power by the
Commonwealth Constitution. Although it has legislative power only in
relation to carefully specified matters, Commonwealth legislation
applies throughout the whole of Australia.
State legislatures derive their power to enact laws from their various
state constitutions. The legislative power is a general one, but state
laws are subject to other limitations. Firstly, state laws generally
operate only within the borders of that state. Secondly, the state
governments have agreed to share some of their legislative power
with the federal government and so have a ‘concurrent’ power in those
matters, rather than an exclusive one. Thirdly, in relation to a few
matters, the Commonwealth government has exclusive powers to
legislate.
The legislative assemblies of the self-governing territories have a
broadly expressed power to make law. In this sense, the self-
governing territories have more governmental power than the other
territories. However, under the Commonwealth Constitution, the
Commonwealth government can override any territory legislation by
enacting contrary legislation. As a result, the ‘self-governing’ territories
have less legislative autonomy than the states.
1.11.5 Resolving conflicts arising from shared legislative powers
Because there is some overlap between the law-making powers of the
Australian governments, it is possible for legislation on the same
matter to be enacted by the legislatures of the Commonwealth,
government and a state or territory. The provisions of such legislation
may or may not conflict with each other. If there is no conflict or
inconsistency between federal and state or territory legislation, both
Acts co-exist, and either of them may be applied to any situation
covered by their provisions.
However, if the provisions of Commonwealth legislation conflicts with
state legislation on the same matter, section 109 of the federal
Constitution provides that validly enacted Commonwealth law prevails
over state law, but only to the extent that the state law is inconsistent
with the Commonwealth law.3 This rule applies regardless of which
legislation was enacted first. In effect, the rule means that if the
conflicting sections in the state legislation can be excised or ‘severed’
without unduly affecting the remaining sections of the Act, then the
remainder of the Act continues to be valid. But if excising the
conflicting sections radically affects the remaining provisions, the
entire Act will be invalidated. The following summary of a decision by
the High Court of Australia illustrates the application of s 109.
Bell Group N.V. (in liquidation) v Western Australia; W.A.
Glendinning & Associates Pty Ltd v Western Australia;
Maranoa Transport Pty Ltd (in liq) v Western Australia [2016]
HCA 21
Constitutional law; inconsistency between Commonwealth and
state laws; application of section 109.
Facts: In 2015 the Parliament of Western Australia enacted the
Bell Group Companies (Finalisation of Matters and Distribution of
Proceeds) Act 2015 (WA) (‘the Bell Act’). This Act provided a
framework for the dissolution and administration of property of
The Bell Group Ltd and its subsidiary companies, all of which
were insolvent and in the process of being wound up. The Bell
Act set up a fund into which all of the assets of the companies
would be transferred. The Act also created an ‘authority’ which
was given an almost unlimited discretion to determine the
liabilities of each company.
Issue: Was the Bell Act inconsistent with Commonwealth
legislation, specifically federal tax legislation which determined
the tax liabilities for companies?
Decision: The Bell Act was inconsistent with federal tax
legislation and was therefore invalid.
Reason: By giving a new authority unlimited power to determine
each company’s liabilities, the Bell Act ignored and contradicted
the tax liabilities which had already accrued for each company
under federal tax legislation. The High Court found that many
provisions of the Bell Act were inconsistent with federal tax
legislation. The court said (at [70]) that merely severing these
provisions, as allowed by s 109 of the Commonwealth
 Constitution, ‘would result in a radically different and essentially
ineffective residue’ which the Western Australian parliament had
never intended to create. Because the offending provisions were
‘so fundamental to the scheme of the Bell Act’, the entire
legislation was invalid.
As regards territory legislation, the Commonwealth constitution gives
the Commonwealth government the power to override any territory
legislation. It can do this simply by enacting contrary legislation.
The overall effect of these provisions is that state and territory
parliaments are careful not to enact legislation that conflicts with
existing federal legislation, or in relation to which the federal
government clearly has a different policy. This helps maintain a
uniformity of laws throughout Australia.
You should also note that law enacted by a local government is invalid
to the extent that it is inconsistent with either Commonwealth law or
the law of the state or territory within which that local government is
situated.
1.11.6 The courts
Australia has a large number of courts, each presided over by
professional legal decision makers variously called judges,
magistrates or Justices of the Peace. The courts are established
under provisions in the relevant constitutions and other laws of the
various Australian governments. The function of courts is to hear and
decide disputes in accordance with the law. When a case comes to
trial for the first time, the hearing is referred to as ‘original’ or a hearing
at ‘first instance’. When the decision of one court is taken to a higher
court to be reconsidered, this is known as an ‘appeal’.
There is a separate court system for the Commonwealth, for each of
the states and self-governing territories, and for Norfolk Island. The
courts in each system have carefully defined powers to hear cases
brought before them and, depending on the nature of the case, to
make and enforce orders or impose penalties. The power to hear and
decide cases is broadly referred to as a court’s ‘jurisdiction’. The
jurisdiction of different courts is based on factors such as the location
where the dispute arose, the seriousness of the dispute or crime and
whether the case is being heard for the first time.
The courts in each system (Commonwealth, state and territory) are
ranked in a strict hierarchy, according to their power to hear cases and
make orders. In outline, the courts in the Commonwealth, state and
territory hierarchies consist of the High Court of Australia, superior
courts and inferior courts. This structure is shown in a simple diagram
below. For a more detailed diagram, see Chapter 3.

1.11.6 (a) The High Court of Australia

The High Court of Australia is the highest court in all Australian court
hierarchies. It consists of seven judges appointed by the Governor-
General on the advice of the Prime Minister. One of the judges is
appointed Chief Justice.
The High Court is given its power to hear and decide cases by the
Commonwealth constitution. It has some original jurisdiction to hear
cases at first instance, but most of the cases dealt with by the High
Court are appeals. To bring an appeal in the High Court, the appellant
must seek ‘special leave’ from the High Court. Leave will normally only
be granted if the case involves an important or uncertain point of law.
All seven judges of the High Court sit to hear a case involving the
interpretation of the constitution, a case involving an important
principle of law, or a case in which a previous decision might be
changed (an appeal). In other cases, a lesser number of judges make
up the court. The judges presiding over a case are collectively referred
to as ‘the bench’.
1.11.6 (b) Superior courts
In the Commonwealth court hierarchy, the superior court is the
Federal Court of Australia. A special superior federal court called the
Family Court also exists, with jurisdiction to hear and decide matters
of family law. Federal judges are appointed by the Governor-General
on the advice of the government.
In state and territory court hierarchies, the superior courts are called
Supreme Courts. Judges are appointed to these courts by the state
Governor on the advice of the state government. Territory judges are
appointed by the executive branch of the territory government.
Superior courts have original jurisdiction, that is, the power to hear
cases at first instance. When hearing cases at first instance, the
superior courts are presided over by a single judge. Superior courts
may also sit as a court of appeal, to hear appeals from decisions
made by lower courts or from a single judge of a superior court. A
court of appeal is presided over by either three or five judges and is
referred to as a ‘Full Court’. In the Commonwealth, the appeal court is
known as the ‘Full Court of the Federal Court’. The Family Court also
has a ‘Full Court’ to hear appeals. The state courts of appeal are
organised in various ways and have different names, for example,
‘Court of Appeal’, ‘Full Court of the Supreme Court’ or ‘Court of
Criminal Appeal’.
1.11.6 (c) Inferior courts
The inferior courts in Australia are ranked as either ‘intermediate’ or
‘lower’.
• Intermediate courts. At the federal level, an intermediate court
called the Federal Circuit Court is presided over by judges
appointed by the Commonwealth government. This court hears
cases involving family law and child support, administrative law,
bankruptcy, human rights, consumer matters, privacy, migration,
copyright, industrial law and admiralty law.
In the states, intermediate courts are called ‘County’ or ‘District’
courts. They are presided over by judges appointed by the
various state governments. These courts have original jurisdiction
in various kinds of cases, or in which the amount involved is less
than $200,000 (the amount varies somewhat between states).
 They also have limited power to hear appeals from the decisions
of lower courts such as magistrates’ courts. The territories do not
have intermediate courts.

• Lower courts. Lower courts are found in the states and self-
governing territories. They are called either ‘Magistrates’’ or
‘Local’ courts or ‘Courts of Petty Sessions’. They are presided
over by magistrates or Justices of the Peace. The most senior
magistrate is called the Chief Magistrate. Magistrates and
Justices of the Peace are not judges but are judicial officers of a
lower rank than judges. They are appointed by the various state
governments. Magistrates and Justices of the Peace have
restricted powers. Under state law, they hear particular kinds of
disputes, or disputes that involve a limited amount of money
(typically $40,000–$60,000, depending on the particular
jurisdiction). Magistrates’ courts do not have the power to hear
appeals.

1.11.7 How judges decide cases

It has already been stated that the function of courts is to hear and
decide disputes in accordance with the law. Rules of law provide
answers to cases that come before the courts. In criminal matters, the
law identifies behaviour that is prohibited, the defences that might be
available in some circumstances, and the appropriate penalties.
In civil cases, the law sets out the legal rights and duties that an
individual person can acquire and how these rights can be enforced.
For example, if one person (a creditor) claims that another person (a
debtor) owes them a sum of money, and the debtor denies that the
money is owed.
Legal cases are normally resolved in the following way:
• First, all the important (material) facts of the case are ascertained.
The important facts are those that reveal the origins, scope and
nature of the case.

• Second, the relevant rules of law are found and interpreted. The
relevant rules are those that apply to the particular kind of legal
 case in question.

• Third, the relevant rules are applied to the material facts, to work
out (deduce) what the appropriate outcome should be. A result
should be sought that is consistent with similar cases decided in
the past, and which will generally be considered to be fair and
reasonable.

To carry out these processes, a court begins a trial by hearing each

party’s evidence. This is how the facts of the case are established.
The court then reviews the relevant rules of law and applies these
rules to the facts to work out what the result of the trial should be.
Finally, the court makes an order in favour of one party or the other.4
It is important to realise that, although the courts do not have a direct
power to make new law in the way that legislatures do, judges create
law indirectly when they decide particular cases. How this happens is
explained in Chapter 3. For now, it is sufficient to know that law can be
made by judges when they decide cases and that this law is referred
to as ‘case law’, ‘common law’ or ‘general law’ to distinguish it from
legislation.
1.11.8 The Civil Service, Statutory Officers and Statutory Bodies
Much of the administrative work of government is carried out by
persons employed to work in what is known as the ‘civil’ or ‘public’
service. The civil service is divided into a number of and agencies and
departments, such as Health, Education, Finance, Industry and Law
and Order. The employees of the civil service provide information,
services and support to the general public as well as to the other
organs of government. In addition to the civil service, there are also
various officers and boards created by legislation with administrative
functions, such as the board of the Australian Broadcasting
Corporation which exists to oversee and manage the national
broadcasting service.
1.11.9 Local government
Each of the six states and the Northern Territory has established a
third level or ‘tier’ of government known as ‘local’ governments. The
various local government bodies are referred to by different names:
city councils, rural councils or shire councils, depending on the area
they serve. They are made up of elected councillors.
There are a large number of local government bodies in each state
and the Northern Territory. They each typically have responsibility for
looking after the social, economic and environmental needs of their
area. For example, they provide streets and street signs, footpaths,
drains, traffic control, sporting grounds and libraries. Local
government bodies also monitor and control things such as local
business activities, land zoning, parking and building standards.
1.11.10 Political parties
There are a number of political parties in Australia. Most members of
parliament belong to one of the two major parties—the Australian
Labor Party and the Liberal Party of Australia. A few belong to smaller
parties, such as the Australian Greens, or are elected as
independents.
The political party with the majority of seats in the lower House of a
parliament is the party that forms the government of the day. Its voting
majority in parliament enables it to control the legislative process and,
by enacting laws, to give effect to its policies. The political party with
the second largest number of seats in the lower House is known as
the opposition. If no political party has enough seats in the lower
House of parliament to form a majority in its own right, two or more
political parties may join forces in a ‘coalition’ government. An
example of this is the current coalition between the Liberal Party of
Australia and the National Party of Australia.

Footnotes
3 In references to legislation, the word ‘section’ is normally
abbreviated to the letter ‘s’.

4 This is an extremely abstract description of the judicial

reasoning process. It takes no account of the more detailed
procedures and practices followed in Australian courts.
 Generally, when a case comes before a court, each of the
parties, usually represented by a lawyer, presents the
evidence they rely on, either through the testimony of
witnesses or the production of documents. Each party also
has the right to question and test the evidence led by the
opposing party. Both parties also have the right to argue
what law is relevant and what the outcome should be. The
presiding judicial officer (sometimes assisted by a jury) then
decides what evidence to accept, what law is relevant to the
case, and what the outcome should be.

Sources of law: legislation

¶2.1 Introduction
2.1.1 What is ‘legislation’?
‘Legislation’ means law that is enacted by a legislature. A particular
legislative enactment is referred to as an ‘Act’ or ‘statute’. In Australia,
the Commonwealth, the states and the self-governing territories all
have legislatures that are capable of making law in the form of
legislation. Local councils have a similar power to enact subsidiary
legislation known as ‘local laws’ or ‘by-laws’.
Law made in the form of legislation is the most prolific source of new
law in most modern countries, including Australia. Hundreds of new
Acts become part of Australian law each year, adding to and changing
the law almost continuously.
2.1.2 What aspects of legislation need explanation?
There are various aspects of legislation that need to be explained.
Important questions are: Where does the power to enact legislation
come from, and what is the extent of that power? Is it the same for all
the Australian governments? What processes or procedures must be
followed by a legislature to validly enact new law? What additional
requirements must be satisfied before the enactments of a legislature
become operative as law?
There are other important matters too. When legislation has been
enacted, you need to be able to find a copy of it so that you can read it
and see what it says. You will also need to know what rules and
techniques exist to help you properly ascertain the meaning and
scope of the provisions in an Act. The meaning and scope may not be
clear because, for example, the particular question you want to
answer may not be explicitly covered in the Act. Or the Act may
contain words that are not easily understood or which have more than
one meaning. Such circumstances may make it necessary to
‘interpret’ the legislation to establish its proper meaning.
This chapter explains the legislative powers of Australian
governments, the legislative process, how to find particular legislation,
and how to read and understand the provisions in an Act.
2.1.3 What legislatures exist in Australia?
In the previous chapter, it was explained that there are nine
governments in Australia with law-making powers. This means that
there are nine different legislatures. The table below shows the
different legislatures. You should notice that most of them are
‘bicameral’, consisting of two ‘Houses’ or ‘chambers’. However, the
legislatures of Queensland and the two self-governing territories are
‘unicameral’, with only a single House.
¶2.2 The Legislative Powers of the Australian
Legislatures

2.2.1 The legislative powers of state governments

It was explained in the previous chapter that the legislature of each
state is given a general legislative power by the relevant constitution
‘to make law for peace, order and good government’. This is a very
wide power. However, it is limited by the fact that legislation enacted
by a state or territory only operates within its particular borders, not
throughout the whole of Australia. For example, Victorian law does not
operate in the other Australian states or territories. Another limitation
on state and territory legislatures is that, in terms of the
Commonwealth constitution, they share some legislative powers with
the Commonwealth parliament.
2.2.2 The legislative powers of the territories
The self-governing territories have a broad power to legislate similar to
that of the states, but it is subject to the overriding power of the
Commonwealth government. This means that the self-governing
territories cannot validly enact laws that are contrary to
Commonwealth law.
2.2.3 The legislative powers of the Commonwealth government
To the extent that it is properly enacted in accordance with its
constitutional powers, Commonwealth legislation applies throughout
Australia. However, the Commonwealth government has legislative
powers that are more limited in their scope than the state and territory
governments. These powers are specified in the Commonwealth
constitution. Some of the powers are exclusive to the Commonwealth
parliament while others are shared with the states.
• Various sections of the Constitution (including s 52, 90, 114, 115,
121 and 122) lay down a limited number of matters in relation to
which only the Commonwealth government has the power to
legislate. These are called ‘exclusive’ powers.

• Section 51 of the Constitution lists a large number of matters in

relation to which the Commonwealth government shares
legislative power with the state governments. Because
Commonwealth legislation enacted under the shared powers will
override any contrary state or territory legislation to the extent of
any inconsistency, the shared powers operate as a limitation on
state and territory legislative powers.
¶2.3 The Legislative Process in Outline
2.3.1 Understanding the legislative process
For a legislature to validly enact new legislation, the legislatures of the
commonwealth, states and terriories must follow recognised rules and
procedures. This is referred to as the ‘legislative process’. The details
of this process are long and complex, but we do not need to be
concerned with all the details. Our goal is to be able to find,
understand and apply legislation, and to do this, we need only know
about the legislative process in broad outline. In particular, you need
to understand the difference between a ‘Bill’ and an ‘Act’, know what is
meant by a ‘House of origin’ and a ‘House of review’, distinguish
between a first, second and third ‘reading’ of a Bill, know what a
‘second reading speech’ is, explain the importance of ‘Royal assent’,
and distinguish between Royal assent and ‘commencement’. The
following outline is sufficient to answer these questions.
2.3.2 Bills
Drafting a new law
A government proposal for a new law is first considered by the cabinet
(the Prime Minister and the top-ranking government Ministers) to
settle any policy issues. Then experts in legal drafting, employed by
the government as parliamentary counsel, are asked to prepare a
draft of the proposed law with all the provisions needed to give effect
to the government’s policy. The completed draft of the proposed
legislation is called a ‘Bill’.
The explanatory memorandum
In addition to drafting the Bill, parliamentary counsel may also prepare
an explanatory memorandum, summarising the Bill and explaining the
effect of each provision.
Review of the Bill
Once drafted, the Bill is reviewed by the relevant minister, by
government party committees and by the relevant government
department in case changes are thought necessary. After any
changes have been made, the Bill is ready to be introduced into the
legislature.
2.3.3 Procedure in the legislature
The first reading of the Bill
Except for financial Bills, which must be introduced into the lower
House of a bicameral parliament, Bills can generally be first
introduced into either House. The House into which a Bill is first
introduced can be referred to as the ‘House of origin’. The House to
which the Bill then proceeds can be referred to as the ‘House of
review’.
A Bill is introduced into a legislature by having it listed for its first
reading. At the first reading, a member of the House proposes that
‘the Bill be read a first time’. The House votes to approve the
introduction of the Bill. Only the ‘long title’ of the Bill is then read out,
and no debate takes place at this stage. After the first reading, printed
copies of the Bill are distributed to all the members of the House.
The second and third readings of the Bill
After the first reading, the second reading of the Bill takes place. The
minister responsible for the relevant portfolio moves that the Bill be
read a second time. The minister then delivers a speech outlining the
provisions of the Bill, providing reasons for its introduction and
explaining what the proposed legislation will achieve. Debate of the
Bill may then take place, after which the members of the House vote
on the motion that the Bill be read a second time. If the motion is
approved, the title of the Bill is read out again.
If a more detailed examination of the Bill is required, the House
becomes what is known as a ‘committee of the whole’ and the
members consider the Bill clause by clause. As an alternative, the Bill
can be sent to a smaller committee (a ‘select’ or ‘standing’ committee),
which will examine the Bill and report back to the full House.
After the Bill passes the second reading (and after the committee
stage, if any) the Bill proceeds to a third reading. The minister moves
that the Bill be read a third time and the House votes on the motion.
There is rarely any debate at this stage.
Procedure in the House of review
In bicameral legislatures, the process of a first, second and third
reading is then repeated in the House of review. If the House of review
passes the Bill without any amendments, then the Bill proceeds to the
next stage. But if any amendments have been made, the Bill must be
returned to the House of origin, which may then accept or reject the
amendments. In the rare case that agreement cannot be reached, the
government can either abandon the legislation, or resolve the
deadlock by dissolving the government and calling a general election.
2.3.4 Royal assent
In the case of commonwealth and state legislation, once both Houses
have approved the Bill without further changes, the Bill is then sent to
the Queen’s representative to receive Royal assent. The Crown has a
theoretical power to reject laws passed by an Australian legislature but
this does not happen in practice; approval by the Crown is, by
convention, only a formality.
To become law, bills enacted by the NT Assembly requires assent
from the Administrator of the territory, acting on the advice of the
Government. This is analogous to Royal assent.
Bills enacted by the ACT legislature do not require Royal assent to
become law. The Clerk of the Assembly certifies a copy as a true copy
of the bill and the Act is then ‘notified’ on the ACT Legislation Register.
2.3.5 Commencement
After receiving Royal assent (or the equivalent procedures in the
territories), the Bill becomes an Act and is published in the
Government Gazette. The Act may state when its provisions are to
become operational. For example, it may specify that operation will
commence on a particular date, when a specific event occurs, or on a
date to be announced by the government in a Gazette. If the Act does
not specify when it will become operational, then there is a default
time at which it will come into effect. In the Commonwealth and the
New South Wales legislatures, this is 28 days after receiving Royal
assent. In Victoria it is one year after Royal assent. In the remaining
states and the self-governing territories an Act which does not specify
commencement will come into effect on the day that it receives Royal
assent or equivalent.
Study the diagram of the legislative process until you have a clear
idea of the sequence of events.
¶2.4 The Structure of an Act
2.4.1 Finding information in legislation
Reading and understanding legislation is easier if you understand the
usual structure of Acts and know where to look for particular
information. Acts generally follow a well-established form. An Act will
have a title and a table of the provisions it contains. The provisions of
the Act are set out in numbered sections, each section normally
setting out a particular rule or related rules. Sections usually have
headings to indicate their content. They are sometimes further divided
into subsections. To make the arrangement of sections clear and
assist in finding them, they are sometimes grouped into ‘Divisions’ or
‘Parts’ of the Act. Other information is also to be found in an Act, such
as the date on which the Act received Royal assent.
In legal texts, ‘section’ is usually abbreviated to the letter ‘s’ and
‘subsection’ to ‘ss’ or ‘sub-s’.
The example following is a short Act which illustrates the commonly
found features of legislation. The features are labelled a–i and are
explained in the notes that follow.

(a) Title
The title of an Act indicates broadly what the legislation is about and
the year in which it was enacted. Modern Acts have fairly brief titles.
Older Acts tend to have much longer and more explanatory titles,
which can be cumbersome. In these older Acts, special provision is
made for a ‘short title’ by which the Act can be referred to more
conveniently. In addition to their titles, Acts are also numbered, which
can be useful when looking for an Act in a library or database.
(b) Table of provisions
Acts usually begin with a table of provisions. A table of provisions is
like an index—it shows the structure and contents of the Act in
summary. This is particularly useful when an Act is very long, with
provisions covering many different topics. The table of provisions is
also a convenient way of getting an overview of an Act and finding
your way to the part of the Act that you need.
(c) Notes
The notes that may be found at the end of an Act provide useful
information that is not included in the legislation itself, such as the
dates on which the minister gave the second reading speech.
(d) Royal assent
The date on which an Act received Royal assent is sometimes shown
immediately below the title. This indicates that the legislation has
completed the required processes to become law. It may also be
relevant in determining the commencement date of the Act.
(e) Parts and Divisions
The various sections of an Act are often grouped into separate ‘Parts’
depending on their subject matter. Parts can be further divided into
‘Divisions’ and ‘Subdivisions’. The headings given to Parts and
Divisions are a useful indication of the nature and scope of the
sections within them.
(f) Purpose section
Near the beginning of most modern Acts is a ‘purpose’ section, which
sets out the broad objectives of the Act as a whole. This is useful,
firstly, in assessing the relevance of an Act to a particular question you
may be researching. Secondly, the purpose section is also useful in
interpreting ambiguous or unclear provisions in the Act.
(g) Commencement section
An Act may indicate the date on which its provisions become
operational. Always check to see if there is a commencement section.
If not, remember that there are rules particular to each legislature
regarding when the Act will begin to operate — for instance 28 days
after receiving Royal assent.
(h) Definitions section
Most Acts have a section (or sections) in which important words and
phrases are given special meanings. Properly understanding the
sections in which these words are used requires knowing these
special meanings. Generally, whenever you refer to an Act, make sure
to find and read through the definition section.
(i) Other sections
The various sections of an Act are numbered and usually have
headings. The section numbers are useful for referring to a specific
section. Note: sections are sometimes referred to as ‘provisions’ or
‘clauses’. The headings briefly indicate the content of individual
sections and are useful if you are looking to find relevant provisions in
a long or complicated Act. Sections may be divided into subsections.

¶2.5 Citing and Finding Legislation

2.5.1 How legislation is cited
Each particular piece of legislation is properly referred to by its
‘citation’. The citation of an Act contains three important elements.
Firstly, it contains the name of the Act. Secondly, it includes the year
in which the legislation was enacted. Thirdly, it contains an
abbreviated reference to the Commonwealth, state or territory
legislature that enacted it.
For example, the legislation that governs the sale of goods in New
South Wales is cited as the Sale of Goods Act 1923 (NSW). The
equivalent legislation in Victoria is cited as the Goods Act 1958 (Vic).
The legislation enacted by the Commonwealth government to protect
consumers is cited as the Competition and Consumer Act 2010 (Cth).
2.5.2 How to find legislation
If you know the citation of an Act, you have sufficient information to
locate that Act quite easily, either in a law library or in an electronic
database.
In a law library, the volumes containing legislation are collected
together and are usually well signposted. Most legislation is also
available on the internet, through the relevant legislature’s website,
such as the Commonwealth parliament’s ComLaw at
www.comlaw.gov.au. Most Australian and some overseas legislation
are also available free of charge through the Australasian Legal
Information Institute (AustLII).
The process of finding a particular Act follows the same pattern
regardless of whether you are looking in printed volumes or an
electronic database. Suppose you are looking to find the Competition
and Consumer Act 2010 (Cth). You can locate the 2010 volumes of
Commonwealth legislation in a library and look in the index for the Act
you want; or you can go to the AustLII home page, select the
database of Commonwealth consolidated legislation, and then find the
Act by name using the electronic alphabetical index. You should
experiment with connecting to AustLII (www.austlii.edu.au) and
browsing until you become familiar with its structure.

¶2.6 Interpreting Legislation

2.6.1 Why the meaning of legislation may not always be clear
Every effort is made to draft legislation in clear and precise language,
and each Bill is carefully scrutinised by the legislature enacting it.
However, it quite often happens that when the provisions of legislation
are to be applied to a particular case, there is some doubt as to
whether it should be applied or how it should be understood.
When judges have to decide what legislation means, there are legal
rules to help them. Some of these rules originate in common law (case
law) while others have been provided by legislation. Properly applied,
these rules ensure a degree of consistency and predictability to
interpretation questions. The rules are explained below in outline.
2.6.2 The ‘literal’ approach to interpretation
When deciding the meaning of words or phrases in an Act, a court will
begin by giving words their ordinary meaning. The court asks: ‘What
does the language of the statute mean, in its ordinary and natural
sense?’ This is sometimes called the ‘literal’ approach to
interpretation. The popular or ordinary meaning of words is found by
consulting a good dictionary. A court is also required to take account
of the purpose the legislature had when enacting the legislation. How
the court does this is explained below, but for now the point is that a
court interprets the literal meaning of the Act in the light of the
enacting legislature’s purpose.
If the literal approach gives a result that seems absurd, judges apply
the ‘golden rule’. According to the golden rule, words in an Act need
not be given their ordinary meaning if doing so would result in an
‘objective absurdity’. The golden rule is used sparingly, only to avoid
the effect of obvious drafting errors in legislation. In such
circumstances, the court chooses a meaning that is consistent with
the overall intent of the legislation.
Some words have both a popular and a technical or specialised
meaning. For example, the word ‘offer’ has both a general and a more
specialised legal meaning. Judges interpret such words in their
context and according to the intent of the legislature.
2.6.3 Specially defined words
When interpreting legislation, the court will always check to see
whether special definitions of particular words are included in the Act.
These special definitions override the meaning that might otherwise
be attached to those words, such as their ordinary meaning.
Special definitions of words or phrases are usually collected together
in what is called a ‘definitions section’, usually found near the
beginning of an Act.
2.6.4 The relevance of the legislature’s purpose
When interpreting legislation, a court will take account of the apparent
purpose which the relevant legislature had when enacting it. Judges
must choose a meaning that is consistent with the overall purpose or
objective of the Act. This rule of interpretation, originating in the
common law, has now been codified in legislation.1
The courts decide what the legislature’s intention was by looking at
certain kinds of evidence. Evidence of the purpose of the legislature
might be found in the Act itself (‘intrinsic evidence’ of purpose).
Intrinsic evidence of purpose may be found in the objects section of an
Act, in the Act’s titles, in the Divisions and headings of an Act, or in
schedules or annexations to the Act. Further evidence of the
legislature’s purpose might also be available in documents that are not
part of the Act. Such evidence is called ‘extrinsic evidence’ of purpose.
Examples of relevant extrinsic materials are Law Reform Commission
and Royal Commission reports, draft Bills, records of parliamentary
debates and the relevant minister’s second reading speech.
2.6.5 Other statutory rules of interpretation
In addition to the rule that requires a court to take account of a
legislature’s purpose, the Interpretation Acts that have been enacted
in all the Australian jurisdictions contain additional rules that assist
interpretation. An example is the Interpretation of Legislation Act 1984
(Vic).
These rules typically include the following:
• singular nouns include the plural, and vice versa

• a definition of a word applies to other grammatical forms of that

word

• generally, the word ‘may’ leaves room for judicial discretion, while
the word ‘shall’ does not, and

• the definitions of words in a particular Act also apply when

interpreting associated delegated legislation.

2.6.6 Some common law principles of interpretation

There are various common law principles that may help to resolve
particular interpretation questions. These are often referred to by Latin
phrases. The special principles must be used in conjunction with other
relevant interpretation approaches, especially giving effect to the
purpose of the legislation. The principles must be applied with caution
because, in some cases, more than one of them might be applicable,
with differing results.
 • Noscitur a sociis: This means ‘a thing is known by its companions’.
When a provision contains a number of words with similar
meanings, each individual word should be understood in light of
the surrounding words.

• Ejusdem generis: This means ‘of the same kind’. When a statutory
provision refers to a specific thing or class of thing, followed by
words of wider or more general meaning, the more general words
should be interpreted in a way that limits them to the same
category of things indicated earlier.

• Expressio unius est exclusio alterius: When particular or specific

things are mentioned or listed in the provisions of an Act, other
specific things not mentioned are treated as excluded (but see the
following principle).

• Ex abundanti cautela: In some circumstances, it may seem that

details are included in the provisions of legislation as examples of
what is intended, rather than to limit the operation of the
legislation. The examples are said to be given through ‘an
abundance of caution’.

• Leges posteriores priores contrarias abrogant: When more than

one statutory provision might reasonably be applied to a case,
this principle asserts that the later statutory provisions abrogate
(override) earlier contrary or inconsistent enactments.

• Generalia specialibus non derogant: If an earlier provision in

legislation deals with a specific situation, and later legislation
provides a much more general rule, then, unless it is clear that
the later provision was intended to override the earlier provision,
the later general provision does not affect or limit the earlier, more
specific one.

2.6.7 Presumptions that assist interpretation

Certain presumptions may assist the interpretation of legislation.
These presumptions are based on principles that are generally
observed by a legislature, unless the legislature enacts express
provisions to the contrary.
The fundamental presumptions are:
• Rules of natural justice will be adhered to. One such rule is that
everybody has a right to a fair trial before an impartial court.
Another is that each party to a case has the right to be heard.
Natural justice also requires that appropriate notice be given of a
hearing where a person’s rights are at issue; reasonable
opportunity must be given to prepare and present a case,
including calling relevant witnesses; and a person cannot be the
judge in a case or dispute in which they have a personal interest.
A legislature has the power to override these ‘rules’ if it wishes to
do so, but it must do so expressly or by necessary implication.
Otherwise, the courts will adhere to the rules of natural justice
when interpreting legislation.

• New law does not have retrospective effect. It is presumed that

legislation is intended to operate prospectively, that is, from the
time of its commencement, rather than retrospectively to things
that happened in the past. Great uncertainty and possible
injustice would result if it were easy to interfere with past legal
rights and obligations. The presumption does not apply to purely
procedural rules, that is, rules which determine the processes by
which rights are enforced. But it does apply wherever legislation
affects legal rights that are enforceable by bringing an action. In
these circumstances, if a legislature wishes to pass legislation
that is to apply retrospectively, it must do so expressly, or by
necessary implication.

• Legal rights may be enforced by bringing a legal action in court.

Section 93(1) of the Transport Accident Act 1986 (Vic) illustrates
how this presumption is displaced by express provisions to the
contrary. It says: ‘A person shall not recover any damages in any
proceedings in respect of the injury or death of a person as a
result of a transport accident occurring on or after the
commencement of section 34 except in accordance with this
 section’.

• A legislature has the power to enact laws that interfere with

property rights (for example, by expropriating land), but the courts
presume that no such interference is intended unless that
intention is made clear. Section 51 (xxxi) of the Commonwealth
constitution requires the federal government to pay compensation
for interference with property rights. State legislatures are not
prohibited in the same way. However, any ambiguity in state
legislation will be construed (interpreted) in favour of the
presumption requiring compensation.

• It is presumed that legislation does not bind the Crown. However,

this presumption is frequently displaced by express provisions,
such as s 9 of the Transport Accident Act 1986 (Vic).

• Legislation is presumed to be consistent with the constitution

under which the enacting legislature is established—either the
Commonwealth Constitution, or the constitution of a state or self-
governing territory. This is because a constitution is a special type
of Act containing foundational laws which ordinary laws should
not contradict. A person who wishes to assert that an Act is not
consistent with the relevant constitution has the onus of proving
the unconstitutionality.

• Penal provisions are construed strictly. This means that the

interpretation is to favour the accused person. This presumption
is used cautiously and as a ‘last resort’. It only comes into play
after other presumptions and rules of construction have been
considered and applied. It will often confirm conclusions reached
using other approaches, rather than yield a result on its own.

Footnotes
1 Acts Interpretation Act 1901 (Cth); Interpretation Act 1987
(NSW); Acts Interpretation Act 1954 (Qld); Acts
Interpretation Act 1915 (SA); Acts Interpretation Act 1931
(Tas); Interpretation of Legislation Act 1984 (Vic);
 Interpretation Act 1984 (WA); Legislation Act 2001 (ACT);
Interpretation Act (NT).

¶2.7 Applying Legislation to Resolve Cases

The following checklist, provides a useful approach if you need to

apply legislation to resolve a case. By asking yourself these questions
and thinking carefully about the answers, you will be able to take
account of the many relevant factors in a logical and efficient way.
Sources of law: case law
¶3.1 Introduction
3.1.1 Do judges have the power to make law?
Australia has an extensive system of courts presided over by
professional judges and magistrates. Each court in Australia has
carefully defined powers to hear and decide cases brought before
them and, depending on the nature of the case, to make orders or
impose penalties. These powers are conferred on the courts by
legislation.
The extent of the power given to a court to hear and decide cases
according to the law is referred to as a court’s ‘jurisdiction’. The same
word is used to refer to the geographical area within which a court
exercises its power. A court’s jurisdiction can also be qualified as
either civil or criminal, or by reference to some other category of law.
A court may also have jurisdiction to hear either original or appeal
cases. Which particular meaning is intended can usually be inferred
from the context.
It is important to realise that Australian courts do not have any direct
law-making power given to them by legislation. Accordingly, when
cases are brought before a court, we would expect judges to decide
them by finding and applying existing rules of law. This is a good
approach to decision making because it makes it possible to predict
the outcome of a case in advance with reasonable certainty.
Nevertheless, it must be acknowledged that, on some occasions,
judges go beyond applying existing rules of law and do make new law
when deciding a case. We will explain when this happens in the next
section. But first, the mechanism by which judges create law must be
understood. It is called the ‘doctrine of precedent’. This doctrine
basically says that whenever a case is decided, it provides a model
(precedent) of how a case based on similar facts ought to be decided
in the future. In other words, the precedent set by a decided case in
effect establishes a rule, either expressly or impliedly, that will be
followed in future cases involving the same circumstances. These
rules, established under the doctrine of precedent, are referred to as
‘case law’. Although legislation is now the most prolific source of new
law, judges have historically played a major role in law-making, and
case law continues to be an important source of law.
3.1.2 When do judges have the opportunity to make law?
In routine cases, judges decide cases by finding established rules of
law and applying them to the case in a straightforward way. But
sometimes cases arise where it is not possible simply to apply existing
law, and such cases provide the opportunity to set new precedents.
For example:
• An opportunity to make law arises when the meaning of an
existing law is unclear, uncertain or ambiguous and needs to be
interpreted. When choosing the correct meaning of a rule of law,
the judge is effectively shaping the law. Although interpretation is
guided by rules, there is an element of discretion that judges use
to ensure the law is understood and applied in the way they think
is most appropriate in the circumstances of the case before them.

• Another opportunity to make law arises when the judge who is

deciding the case finds an existing law that seems appropriate,
but which has not previously been applied to the exact kind of
case now being decided. In such circumstances, the judge can
extend the application of the existing law to the new kind of case.
By applying that rule in new circumstances, the judge is
developing the law.

• Sometimes, a rule that the judge wants to apply to the case may
not previously have been stated or declared as a rule of
Australian law. It may be a rule of natural law, a moral precept or
an established custom. By recognising and applying that rule to
the case, the judge is in effect declaring it to be a rule of
Australian law.

• In some cases, a judge may be unable to find an existing rule at

all. There may be no unwritten rule for the judge to declare as
law; no rule that can be interpreted to cover the new case; and no
 rule that might be given extended application. In such
circumstances, the judge may choose to decide the case on its
facts, without making direct reference to any rule. However, even
when a decision is made purely on the basis of particular facts, an
underlying rule can be inferred. For example, if a person who
lights up a cigarette in another person’s house is asked to go
outside, it can be inferred that there is a rule that says ‘no
smoking indoors’. Cases decided purely on their facts are,
therefore, another source of new (inferred) rules which can be
applied to decide similar cases in the future.

3.1.3 What are ‘common law’ and ‘equity’?

The terms ‘common law’ and ‘equity’ are often encountered in a
discussion of case law and need to be understood.
• Common law: Before the 14th century, there was no single system
of legal rules that were applied throughout the whole of England.
Instead, local laws and customs operated in different parts of
England. After the 14th century, when sufficient central authority
had been established in England, the King’s judges, who were
appointed to decide cases throughout the whole of England,
began to develop and apply more uniform rules. These new
uniform rules eventually replaced local laws and became known
as the ‘common law’ of England.

• Equity: Another kind of court also existed in England. Certain kinds

of cases, and appeals from the common law courts, were heard
by a court called the Court of Chancery. When deciding cases,
this court paid special attention to notions of justice or fairness
(equity). For this reason, the rules originally established by the
Court of Chancery are known as ‘rules of equity’, or simply
‘equity’. These rules exist alongside the rules of the common law.

There are no longer separate common law courts and courts of equity.
Now, in England and in Australia, all courts apply the rules of both
common law and equity when deciding cases.
Common law and equity can be referred to jointly as ‘case law’ or ‘the
general law’, as distinct from legislation.

¶3.2 Basic Procedure in a Court

3.2.1 Understanding court procedures

To understand how case law is made requires an understanding of the
processes and procedures that are typically followed in a court. The
terms used to describe the parties and the court procedures differ
somewhat, depending on the circumstances. Some of the most
important terms you will need to know are explained below. Generally,
Australia’s legal system is ‘adversarial’, in which the parties to the
dispute compete against each other to establish and argue their case.
This contrasts with what are known as ‘inquisitorial’ court processes,
more common in legal systems based on Roman civil law, in which
court officials rather than the parties are responsible for investigating
and examining all available evidence to establish the truth of the
matter.
3.2.2 Civil and criminal cases
It is important to distinguish between civil and criminal cases. In a civil
case, one person brings a private action against another to establish
or enforce a legal right. For example, if one party to a contract fails to
carry out their promises, the other party can bring a civil action for
breach of contract. If the breach is established, the court will provide a
remedy, for instance, by requiring the party who is in breach to pay a
sum of money to the person they have harmed, broadly referred to as
‘compensation’ or ‘damages’.
In a criminal case, a person is charged with a breach of the criminal
law, for example, theft. If found guilty, the accused person is likely to
be sentenced to a penalty such as imprisonment or payment of a sum
of money to the government, called a ‘fine’.
3.2.3 Original hearings and appeals
When a case comes to court for the first time, the hearing is referred
to as ‘original’ or a hearing at ‘first instance’. In original hearings, the
terms used to refer to the parties will depend upon the type of case.
Commonly used terms in civil cases include ‘plaintiff’ and ‘defendant’,
and ‘applicant’ and ‘respondent’. In criminal cases heard by a judge
and jury, the parties are called the ‘prosecutor’ and the ‘accused’. In
cases heard by a magistrate, an ‘informant’ brings charges against a
‘defendant’.
When a party who is unhappy with the decision takes the matter to
another court to review the earlier decision, this is known as an
‘appeal’. In appeal cases, the parties are commonly referred to as
‘appellant’ and ‘respondent’.
3.2.4 An outline of procedure in a civil case
Although there are many important details and rules regarding court
processes, for our purposes it is sufficient to broadly outline the
procedures followed in an original civil action.
• The purpose of a trial: A trial before a court is essentially
concerned with resolving one or more issues (questions) that
have arisen in the dispute between the plaintiff (the person
bringing the action) and the defendant (the person who is
defending the action). In Latin, the word for an issue is ‘lis’, from
which we get the word ‘litigation’.

• Exchange of pleadings: The first stage of litigation involves an

exchange of written documents (pleadings) in order to define the
nature and extent of the dispute. The plaintiff sends a statement
of claim to the defendant, setting out the basis and the extent of
what is being claimed. The defendant replies with a written plea,
indicating their intention to defend the claim and setting out what
matters they dispute. Further documents might be exchanged
until the exact issues between the parties have been sufficiently
clarified. The case is then ready to go to trial.

• Proving the facts: When the case comes to trial in court, the court
will first ascertain the facts relied on by the plaintiff and the
defendant. Facts are ascertained by leading evidence from
witnesses, or by producing documents or artefacts. When facts
are in dispute, the court must decide what the true facts are. This
is done by weighing the conflicting evidence, taking into account
 the probabilities, the credibility of the witnesses, inconsistencies
in the evidence and so on. In the case of jury trials, the jury rather
than the judge has responsibility for deciding what facts have
been proved. Juries are more common in criminal than civil trials.

• Ascertaining the law: Once all the evidence has been heard, it is
time for argument. Each side is given an opportunity to address
the court and suggest what rules of law are relevant, what these
rules mean, and how they should be applied. In this way, the
court is fully informed of all the legal rules that both parties think
should be used for deciding the case.

• Deciding the case: Having heard argument, the court then decides
what facts have been proved and can be relied on. The court also
decides what rules of law are indeed relevant and what those
rules mean. The case is decided by applying the law to the
proved facts in a logical way, to decide the case in favour of either
the plaintiff or the defendant. An appropriate order is then made,
for instance for the defendant to pay compensation to the plaintiff.

¶3.3 Law Reports

3.3.1 The importance of law reports
When a court has heard and decided a case, the judges record their
decision and reasons in a written ‘judgment’. This is then compiled
into a ‘report’ of the case. Reports make it possible to find out how
previous cases were decided. By locating and reading the report of a
previous case, you can find out what the facts of the case were, what
rules the judges applied, and how the judges reasoned their way to
the decision. The decision can then be used as a precedent for later
cases if that is appropriate.
3.3.2 Collections of law reports
A vast number of individual law reports are published in different
collections or ‘series’. Some series report decisions from a particular
area, such as New South Wales or Victoria, or from a particular court,
such as the High Court of Australia. Other series report only cases in
a particular area of law, such as taxation, criminal or torts cases.
Each series has its own name and its own abbreviated reference,
usually comprising the initial letters of the series name. For example,
the New South Wales Law Reports is abbreviated to ‘NSWLR’. In
early times, case reports were published under the name of particular
reporters, for example, Meeson and Welsby (M&W). These reports
are referred to as ‘nominate reports’. A list of selected law reports is
available at the end of this ebook. You will quickly become familiar
with the abbreviations that you encounter most frequently.
Some decisions are reported in more than one reports series. It is
important to know that some of the law report series are more
authoritative than others, because the reports they contain have been
selected and thoroughly checked by members of the legal profession,
including judges. These reports are described as ‘authorised’. All
Australian jurisdictions have an authorised law reports series. For
example, the authorised series for the Supreme Court of Queensland
is the Queensland Reports (Qd R). See the table of Australian
authorised law reports series at the end of this ebook. Preference
should be given to the reports contained in authorised series rather
than to reports in alternative unauthorised series. Unauthorised
reports should only be used if there is no authorised report of that
case.
Judicial decisions in other countries may also be reported in both
authorised and unauthorised reports series. In England, for example,
cases from the Supreme Court of the United Kingdom, the highest
court of appeal in that country, and those of the Judicial Committee of
the Privy Council are reported in a segment of authorised law reports
called Appeal Cases (AC). But they are also reported in unofficial
series, such as the All England Law Reports (All ER) or Weekly Law
Reports (WLR). It is important to know this because Australian courts
still routinely rely on English case law.

¶3.4 Information in Law Reports

3.4.1 Finding information in law reports
A written account of the decisions that courts make can be found in
law reports. These reports are published both in printed form and
electronically. Law reports contain a great deal of information, so they
are typically quite long, wide-ranging and complex. You need to know
what information to look for, where to find it and how to understand
what it means.
Consider the example of the law report below. It has been shortened
for our purposes but still illustrates the appearance and structure of a
typical report. The various parts of the report are indicated by the
letters in brackets next to the paragraphs. An explanation of each part
follows.
3.4.2 Parts of a law report
(a) The court and key dates
A law report will begin by indicating which court decided the case,
along with various dates. If two dates are shown, the earlier date is
when the court heard argument from counsel at the end of the
hearing. The later date (or a single date) indicates when judgment was
given. This date is the date on which the case became a precedent for
new cases.
(b) The name of a case
Each reported case has a name. Case names consist of the names of
the parties involved in the case. In civil cases, the plaintiff’s and the
defendant’s surnames are used, separated by the letter ‘v’ (for ‘versus’
or ‘against’). In Australia, when speaking the name of a case, it is
conventional to say ‘and’ rather than ‘versus’ or ‘vee’. In criminal
cases, the case name refers to ‘the State’ or the person representing
the state, and the name of the accused person. The order of the
names in the case name depends on whether the report concerns an
original hearing or an appeal. Generally, it is necessary to read the
report to work out which names belong to which particular parties.
(c) Catchwords
At the beginning of a law report there appear ‘catchwords’. These are
lists of the key words and phrases used in a law report. They provide
a succinct summary of the subject matter and concepts referred to in a
reported decision.
(d) Headnotes
After the catchwords in a law report there appears a ‘headnote’ or
‘abstract’. A headnotes is an outline of the report. Headnotes usually
include a summary of the facts of the case and a statement of the
issues under consideration. If the case is an appeal, the procedural
history of the case may also be outlined. Sometimes headnotes
summarise the court’s reasoning and conclusions. A list of previous
cases relied on, or legislation applied, may also be provided.
(e) The judges
The names of the judges who decided the case are usually listed at
the beginning of the report and where the judgment given by each
judge begins. Each name is followed by an abbreviation that indicates
the judge’s seniority, for example, CJ for Chief Justice, and J for
Justice. The names of the lawyers representing the parties are also
recorded in reports.
(f) Judgments
The judgments set out the judges’ reasoning and their conclusions. A
judgment normally starts with a summary of the material facts of the
case. The judge will then state the particular question or questions
that need to be decided to resolve the case—the legal issue(s). The
judge will then review the relevant law, sometimes very briefly, but
often describing the historical origins and development of particular
rules in detail. They may explain why or how a legal rule is being
interpreted, extended or modified, in deciding the new case. Then the
judge will apply the relevant rules to the facts of the case and draw
conclusions. Finally, the judge will make an order to give effect to the
decision reached.
If you are aware of the normal structure of a judgment, you will find it
easier to locate and understand its contents.
Although the trend is towards plain speaking in law, you may
encounter various special legal terms, phrases and abbreviations in a
law report, often in Latin. The meanings of such words and phrases
can be found in a legal dictionary.

¶3.5 Citing and Locating a Law Report

3.5.1 How particular cases are referred to
Individual cases are referred to by what is known as a ‘citation’.
Citations follow strict conventions. It is important, when writing about
cases, to cite them accurately and correctly. The best way is to follow
the citation in published tables and indexes.
3.5.1(a) Citing cases that are published in a law report series
The citation of a case published in a law report series consists of the
case name together with a reference to the particular law report series
in which it is published and the relevant volume and page number. For
example, the citation Taylor v Johnson (1983) 151 CLR 422 begins
with the name of the parties and indicates that the report of the case
can be found in volume 151 of the Commonwealth Law Reports,
starting on page 422. The year of the decision (1983) is shown in
round brackets, because the volume number, 151, does not indicate
the year of the decision. The citation Watt v Rama [1972] VR 353
begins with the name of the parties and indicates that the report can
be found in the 1972 volume of the Victorian Reports on page 353.
Square brackets are used in this citation because the volume number
reflects the year of the decision.
With practice, you can often tell quite a lot about a case just from the
information in its citation, such as the jurisdiction of the court that
decided the case and its level in the relevant court hierarchy.
3.5.1(b) Medium neutral citations
On occasion you may come across a citation that does not contain a
reference to a law report series (whether an authorised series or not),
but which instead has an abbreviated reference to the particular court
that decided the case. Citations of this kind are known as ‘medium
neutral’ citations because they do not depend on where and how the
case is published. For this reason, medium neutral citations are useful
for finding cases published on electronic databases and cases that are
not published in a printed reports series.
A medium neutral citation follows a similar pattern to traditional
citations. It begins with a case name, followed by the relevant year, an
abbreviated reference to the court that decided the case and the file
number of the case, indicating which number case it was decided in
that year. An example is Cohen v Cohen [1929] HCA 15. In this
citation, HCA refers to the High Court of Australia rather than to a law
report series. Other courts have their own medium neutral
abbreviations, for example FCA for the Federal Court of Australia;
NSWCA for the New South Wales Court of Appeal and VSC for the
Supreme Court of Victoria.
3.5.1(c) Multiple (or parallel) citations
Sometimes, more than one citation is given for a particular case, for
example, a medium neutral citation together with a traditional citation
to an authorised law report series or an unauthorised series. In such
instances, the individual citations follow each other, separated by a
semi-colon. An example is: Cohen v Cohen [1929] HCA 15; (1929) 42
CLR 91.
3.5.2 Finding a law report
A citation provides all the information necessary to find a reported
case, either in a law library or in an electronic database. In a library,
you find the area where law reports are collected. Next, look for the
law report series mentioned in the citation. Then find the required
volume and page number. In an electronic database, the process is
much the same. If you log on to www.austlii.edu.au (the Australasian
Legal Information Institute), you will find links to Commonwealth, state
and territory case law. Select the alphabetical index and then the letter
of the alphabet with which the case name begins. All the cases
starting with that letter appear in a list and you can easily find the one
you need.

¶3.6 The System of Courts in Australia

The system of courts in Australia is complex. The following general

points need to be understood.
3.6.1 Applying common law and equity
Historically, in England, there were separate courts that applied what
is referred to as the ‘common law’ and ‘equity’. That is no longer the
case. In both Australia and England, all courts now apply the rules of
both common law and equity (and legislation) to decide cases.
Typically, the courts will begin with legislation, because legislation will
override case law if that is what the legislature intended. In the
absence of contrary legislation, the courts will then consider rules of
common law, these being the ordinary rules, before going on to take
account of any relevant rules that originated in equity.
3.6.2 Court systems in Australia
In Australia, there are separate court systems for the Commonwealth,
for each of the states, the two self-governing territories and for Norfolk
Island. The courts operate within their own geographical jurisdiction.
Commonwealth courts decide cases arising throughout Australia that
involve the application of Commonwealth law. State and territory
courts hear cases that have a sufficient connection to their state or
territory and which involve the application of their state and territory
law.
3.6.3 Court hierarchies
Within each court system, there are courts with greater and lesser
powers to hear and decide cases. The courts can be ranked in
accordance with their powers into what is known as a ‘hierarchy’ of
courts, with the least powerful courts at the bottom and the most
powerful court at the top. The hierarchy of courts and their separate
jurisdictions (Commonwealth, state and territory) are essential to
understanding how case law is made and applied.
Depending on their seniority, courts have greater or lesser powers to
hear civil and criminal cases, to make particular orders (such as
imprisonment, fines or the payment of compensation) and to hear
cases on appeal (and perhaps reverse the decision of a lower court).
The following tables set out the structure of the court hierarchies in the
various Australian jurisdictions. You should keep the following points
in mind:
– These diagrams do not include specialist courts and tribunals that
exist in the various hierarchies, eg the Commonwealth Family
Court.

– Although Norfolk Island is no longer a self-governing territory, its

court system has been retained.

– There are no District Courts in the Commonwealth, Tasmania, the

Australian Capital Territory, the Northern Territory or Norfolk
Island.

– The various courts shown generally have the power to hear both
criminal and civil matters.

– The courts of each state and territory generally hear cases arising
under the law of their particular jurisdiction. However, cross
vesting legislation has been enacted which enables one court to
deal with cases that involve the laws of more than one
jurisdiction.

– Appeals from the lower courts generally proceed to a higher court

within the same jurisdiction. The High Court of Australia is the
highest appeal court in all jurisdictions.
¶3.7 The Doctrine of Precedent
3.7.1 The elements of the doctrine
It was said at the start of this chapter that the doctrine of precedent
requires that a judge who is deciding a new case should decide it in
the same way that similar cases have been decided in the past.
Requiring a court to follow previous decisions ensures that the law
remains certain, predictable and consistent.
It is now time to restate the doctrine of precedent more fully. The
doctrine requires that a previous decision must be followed by a court
that is deciding a new case when:
(a) the material facts of the two cases are sufficiently similar and
cannot reasonably be distinguished, and

(b) the previous decision is a decision of a superior (higher ranking)

court in the same court hierarchy as the court deciding the new
case.

These elements need some explanation.

3.7.1 (a) Similarity of the material facts of the cases
The facts of previously decided cases need not match the facts of the
new case in exact detail. It is sufficient, for the doctrine of precedent,
that the two cases are similar in all significant and relevant respects
(the material facts). Cases that are sufficiently similar on their material
facts should be decided in the same way, despite any differences of
minor or irrelevant detail.
If a past case can be distinguished on its facts in some significant
way, then the application of a different rule may be justified to decide
the new case.
3.7.1 (b) The seniority of the court that decided the previous case
It is the seniority of a court within a particular court hierarchy
(Commonwealth, state or territory) that determines whether a previous
decision of that court must be followed by the court deciding the new
case. Previous decisions of a court are only binding on courts lower
down in the same hierarchy. A court is not bound by its own previous
decisions or by the decisions of lower courts. For example, when
deciding a new case, the Supreme Court of Victoria would be bound
by a relevant past decision from the High Court of Australia but not by
a past decision by the Victorian County Court or by the Supreme
Court of New South Wales. It would not be bound by a previous
decision of its own, if it believed that earlier decision was wrong.

¶3.8 Binding and Persuasive Precedents

3.8.1 Binding precedents
When the material facts of a new case cannot be distinguished from
the material facts of a previously decided case, and the older case
was decided by a higher court in the same court hierarchy, then the
past decision is described as a ‘binding’ precedent. The lower court
has no choice; it must follow the same reasoning to decide the new
case.
3.8.2 Persuasive precedents
If a previous decision is not sufficiently similar on its facts to a new
case, or if it was not decided by a higher court in the same court
hierarchy as the court deciding the new case, then the decision is not
binding on the court deciding the new case. However, a court may
treat such a decision as ‘persuasive’ on its merits, thus providing a
suitable rule of law which the court deciding the new case may choose
to follow.
Australian courts often treat the decisions of courts outside of their
own court hierarchy as persuasive. This is particularly so when the
decisions are those of other Australian courts. Because of the close
ties between English and Australian law, Australian courts also often
follow the persuasive precedents set by English courts. For the same
reason, decisions from New Zealand, the United States of America or
Canada are sometimes treated as persuasive by Australian courts.

¶3.9 The Ratio Decidendi of a Case

3.9.1 Identifying the ratio decidendi of a case
When a previously decided case provides either a binding or
persuasive precedent, it is necessary to identify exactly what rule of
law is laid down by the earlier case. The binding part of a previous
decision is called the ratio decidendi, a Latin phrase that means ‘the
reason for the decision’ — that is, the reasoning or thinking that was
applied to decide the case on its facts. The ratio decidendi of a case
consists of two elements. Firstly, it contains the material facts which
define the type of situation in which a particular rule applies. Secondly,
it contains the precise rule of law which the court has applied to
resolve the issue raised by the material facts.
For example, the ratio decidendi in Taylor v Johnson (summarised at
3.4.1 above) can be stated as follows: ‘If one party to a contract is
seriously mistaken as to the terms of the contract, and the other party
was aware of circumstances that indicate the first party is mistaken,
then, in accordance with the rules of equity, it is contrary to good
conscience to enforce that contract and it will not be enforced’.
3.9.2 Identifying Obiter dicta
Usually, when delivering a judgment, a court does not simply state the
ratio decidendi. A judgment often includes a good deal of explanatory
discussion, historical perspective and an account of the judge’s
reasoning. Although useful in understanding the decision, these parts
of a judgment fall outside of the ratio decidendi. They are referred to
as obiter dicta (roughly translated as ‘surrounding words’) to
distinguish them from the essential facts and rules of law on which the
outcome of the case was decided.
3.9.3 Alternative Dispute Resolution
It is the disputes that come before the courts that lead to trials and
reported judgments. Because of this, the law reports give the general
impression that all legal disputes come before the courts. However,
this is not the case. Most legal disputes are resolved without formal
court proceedings, through alternative dispute resolution processes.
These include mediation, arbitration and agreed settlements based on
compromise. Such processes are often quicker and cheaper than
court proceedings, and they tend to create less ill-feeling between the
parties which can be important if they need to deal with each other
again in the future.

¶3.10 The Process of Using Case Law

The following checklist provides a useful approach if you need to
apply case law to resolve an issue. The step-by-step approach will
help you to take account of the many relevant factors in a logical and
efficient way.
Module 2: Law of torts
The scope of tort law
¶4.1 Introduction

4.1.1 How are obligations created in tort law?

In previous chapters we have seen how, in contract law, legally
binding obligations between people can arise by agreement. In this
chapter we will see that, in tort law, legally binding obligations arise in
a different way: not by agreement, but when one person’s conduct can
foreseeably cause harm to another person.
The essential concern of tort law is wrongful conduct by a person that
causes harm to others. Tort law is designed to discourage conduct of
this kind, primarily by making the person who caused the harm legally
liable to pay compensation to the victim. If you are liable to pay for the
harmful consequences of particular kinds of conduct, you are much
less likely to behave in that way. Both natural persons and
corporations can be liable for wrongful conduct causing harm. This
makes tort law a powerful tool of social and business regulation.
The word ‘tort’ is an unusual one. Its origins in English can be traced
through French to the Latin word tortus meaning twisted, crooked or
wrong. This provides a reminder that the essential focus of tort law is
wrongful conduct.
4.1.2 What is the nature of obligations created in tort law?
In tort law, when wrongful conduct by one person causes harm to
another, the wrongdoer becomes legally obligated to compensate the
victim for harm they have suffered as a result. For example, if a victim
has suffered physical injury, they can claim compensation in the form
of damages for their medical expenses, loss of earnings, pain and
suffering, and so on. We can say that the wrongdoer has an obligation
to compensate the victim and the victim has a corresponding right to
claim compensation.
Although compensation for harm suffered is the most common remedy
in tort law, there are others. For example, if harm has not yet occurred
but is likely to happen, or if the wrongful conduct is taking place on a
continuing basis, the victim can seek a court order (injunction) to
prevent or stop it.
4.1.3 Is tort law different from criminal law?
The obligations that arise in tort law are private, in that they arise
between, and are enforceable by, the particular persons involved (the
person harmed and the wrongdoer). This realisation allows a clear
distinction to be drawn between tort law and criminal law. Criminal law
prohibits particular kinds of conduct, and the government identifies,
apprehends and punishes those who breach these rules. Criminal law
is public law; it is enforced by the state in the interests of the general
public. Its purpose is not to assert the rights of the victim of a crime,
but to prevent and punish criminal conduct. In contrast, tort law
operates to distribute risks and losses for various kinds of harm.
Although there is often an overlap between the criminal law and
conduct recognised as wrongful in tort law, they are two distinct areas
of law and involve different legal processes.
4.1.4 What are the sources of tort law?
Tort law has a long history. In early societies, the development of tort
law generally came before the development of contract law. It is not
surprising, therefore, that a great deal of tort law has been developed
by the courts, in the form of case law. More recently, legislation has
been enacted to clarify, consolidate or reform aspects of tort law. The
result is that modern Australian tort law is found in a mix of state and
territory case law and legislation.
4.1.5 How general is the liability for wrongful conduct that causes
harm?
The concept of imposing liability to compensate a victim for wrongful
harm is potentially very broad. If that liability were not limited in some
way, many of the activities on which a modern society depends would
be seriously discouraged or abandoned. One example is the practice
of competing in business. Competition in business may well cause
harm to the less successful competitor, but this is not considered
‘wrongful’ because of the economic benefits that such competition is
thought to bring to society generally. Liability in tort must also be
restricted to prevent the courts being overwhelmed by the likely
number of cases that would otherwise arise.
These considerations explain why liability in tort only exists when
particular kinds of harm are caused by particular recognised types of
conduct. Most of the recognised kinds of conduct are quite specific,
and are designed to protect a right that is clearly identified and quite
specific. Only one of the torts, the tort of Negligence, is more generally
conceived and therefore much broader in its scope.
You will need to know these different kinds of conduct, recognise
when they exist, and decide whether, in a particular case, all the
elements of liability are present. The following tables provide an
overview of the scope of recognised torts in Australian law.
Torts based on specific kinds of positive conduct
Trespass to land or chattels Protection of owners and
occupiers of property against
wrongful interference with land or
chattels
Conversion
Detinue
Assault Protection against wrongful
conduct in the form of trespass to
the person
Battery
False imprisonment
Private nuisance Protection of the right of quiet
and peaceful enjoyment of
property
Liability for animals Protection against harm caused
by another person’s dangerous
property
Deceit Protection against deliberate
fraud
Defamation Protection of an individual’s
reputation
Liability in tort for broadly defined conduct

Negligence Protection against harm caused

by many different kinds of
careless conduct, in a wide
variety of situations
Tort law is a major area of law in its own right. This chapter provides
an overview of tort law, making clear its nature and scope. The
additional chapter on the tort of Negligence can be used as required
for more detailed study.

¶4.2 Trespass to Land

4.2.1 Protection of interests in ‘real’ property
The tort of trespass to land protects a person’s interests in real
property against physical intrusion by another person. Real property
includes land, structures built on the land and things attached to the
soil. It also includes the air space above the land (to a reasonable
extent) and the earth below the surface (subject to mineral rights).
An action for trespass to land is available not only to an owner of the
property, but also to a person who is in lawful possession of that
property, such as a tenant.
4.2.2 Voluntary intrusion required
An alleged trespasser may avoid liability if they can prove that they did
not intrude onto the other person’s land voluntarily. However if they
intruded onto the property in question by choice, either intentionally or
negligently, they will be liable, even if they did so under some
mistaken belief.
4.2.3 No trespass when there is implied consent to enter property
It may be implied in some circumstances that the possessor of
property consents to others entering their property. For example, it
can be implied that the owner of a retail store consents to potential
customers entering the store. In such circumstances, entry into or onto
the property does not constitute trespass. However, that consent may
be withdrawn by giving appropriate notice to the individual concerned.
If the entrant does not leave when requested, their continued
presence will constitute trespass.
4.2.4 Remedies for trespass to land
If trespass causes harm, the plaintiff can claim compensatory
damages. Otherwise, a declaration of rights may be sought to
establish the plaintiff’s legal rights beyond dispute. An ‘injunction’ can
also be sought to prevent further intrusions. An occupier of land also
has the right to use reasonable force to eject a trespasser, but the
trespasser should first be given an opportunity to leave voluntarily.

¶4.3 Trespass to Chattels

4.3.1 Wrongful interference with moveable property
The term ‘chattels’ means moveable things, and the tort of trespass to
chattels protects possession of a person’s movable property from
wrongful interference by another person. An action is available not
only to the owner of the property, but to anyone whose right of
possession or physical control of goods is interfered with. The
interference must be direct (rather than indirect) and must be either
intentional or negligent.
4.3.2 Circumstances that amount to trespass
There is trespass to chattels if the goods in question are damaged or
destroyed, or if they are taken away by the defendant. It is also a
trespass to chattels if the goods in question are merely moved, or if
the defendant intentionally comes into contact with them in a way that
interferes with the plaintiff’s possession.
4.3.3 Remedies for trespass to chattels
A plaintiff can only claim substantial damages if the interference
causes loss, such as when the property in question is either damaged
or destroyed by the interference. Even if substantial damages cannot
be claimed, a court might nevertheless award purely ‘nominal’
damages (ie, a very small amount of damages) or issue a declaration
of rights to clearly establish the plaintiff’s legal position. The plaintiff
can also seek an injunction to stop any future recurrence of the
trespass.

¶4.4 Conversion
4.4.1 Conversion of property defined
‘Conversion’ consists of intentionally exercising control over goods
(chattels) so as to deny another person’s right to take immediate
possession of those goods. Conversion involves a person ‘converting’
another’s goods to their own use, such as when a finder of goods
keeps or sells those goods instead of returning them to the owner.
Merely damaging, moving or interfering with goods is not conversion,
although it may be a trespass. There is no conversion unless the
person does something to assume ownership or possession of the
goods.

4.4.2 Remedies for conversion

A plaintiff can sue for the full value of the chattel at the date of the
conversion and is also entitled to claim compensation for any further
loss that may have resulted from the conversion. In addition, a court
may award punitive damages (ie damages intended to punish the
defendant) if the conversion is deemed a particularly serious one.

¶4.5 Detinue
4.5.1 Detinue of property defined
‘Detinue’ is the intentional or negligent failure to relinquish control of
goods. It occurs when one person wrongfully keeps goods after the
person entitled to possess them has demanded their return. There can
be an overlap between conversion and detinue, depending upon the
facts of the case. To establish detinue, it must be shown that, for
whatever reason, the defendant has refused unconditionally and
unequivocally to return the goods as requested.

4.5.2 Remedies for detinue

There are various remedies available for detinue. The plaintiff can ask
the court to order the actual return of the goods. Alternatively, the
court can order that the value of the goods at the date of judgment be
paid by the defendant. Damages can also be awarded to compensate
for any loss the plaintiff has suffered as a result of the failure to restore
the goods when asked.

¶4.6 Assault
4.6.1 Conduct causing fear of physical contact
The tort of assault occurs when a defendant behaves in a way that
makes the plaintiff fear or expect imminent (immediate) physical
contact. It is an instance of trespass to the person. The threatened
physical contact might be of an obviously harmful nature, such as a
threatened blow, push or wound, but assault can occur even if the
threatened, unwelcome conduct is superficially friendly, such as a hug
or kiss.
4.6.2 An expectation of immediate physical contact required
The defendant’s conduct must be such that it would raise an
expectation of immediate physical contact or harm in the mind of a
reasonable person in the plaintiff’s position. Verbal threats of carrying
out some act might be construed as threatening conduct sufficient to
inspire the necessary fear of harm.
4.6.3 Remedies for assault
Assault occurs even if the expected contact does not actually occur
and even if no harm can be proved. However, compensatory damages
will only be awarded if the plaintiff suffers actual harm as a result of
the assault.

¶4.7 Battery

4.7.1 Conduct resulting in physical contact

Battery consists of any intentional or negligent conduct that results in
some physical contact with a plaintiff’s body. It is an instance of
trespass to the person. It is a requirement that the contact take place
either with a hostile intent or without the plaintiff’s consent. Since it is
practically impossible to avoid physical contact with others during
everyday activities, everyone is presumed to consent to a certain
amount of physical contact with others, such as when one person
unavoidably brushes or bumps against another in a crowded elevator,
passage or stairway.
4.7.2 Remedies for battery
Because battery is based on the notion of trespass to the person, a
plaintiff need not prove that they have suffered any physical harm as a
result of the unlawful contact. It is the act of interference with the
person that is actionable. However, compensatory damages will only
be awarded if the plaintiff suffers actual harm as the result of the
battery.

¶4.8 False Imprisonment

4.8.1 Unlawful deprivation of liberty
The tort of false imprisonment exists to protect an individual’s liberty. It
is another instance of trespass to the person. A plaintiff need only
prove that another person has unlawfully deprived them of their liberty,
either intentionally or negligently, in any circumstances. If a defendant
can prove that the imprisonment of the plaintiff was lawful — such as
when a policeman detains a suspected criminal on reasonable
grounds — there will be no liability for false imprisonment. It is,
however, possible for false imprisonment to have occurred even if the
plaintiff was unaware of the imprisonment at the time.
4.8.2 The means of constraint
False imprisonment does not require the use of physical force or
barriers. It would be sufficient for a plaintiff to show that they were
constrained by psychological means, for example, by threats or deceit
that caused them to submit to the defendant’s power.
4.8.3 The possibility of escape
Generally if there is a reasonable means of escaping or evading the
restraint, there is no false imprisonment. However, the available
means of escape must be one that the plaintiff could reasonably be
expected to take. It should not involve physical danger, humiliation or
perhaps even embarrassment.

¶4.9 Private Nuisance

4.9.1 The right to peaceful use and enjoyment of property
Private nuisance involves one person interfering with another person’s
recognised rights in their property, such as the use or enjoyment of
their land. The right to an action for nuisance belongs to the person
who is entitled to possession of the property in question.
4.9.2 The degree of interference required
Interference is only actionable as private nuisance if it is unreasonable
and substantial. This requires a greater interference than a plaintiff
should be expected to put up with in the circumstances. In deciding
this question, a court will take account of factors such as the type of
interference; its timing, duration, seriousness and extent; and the
nature of the locality where it occurs. For example, more traffic noise
must be tolerated in industrial and urban areas, or during daylight
hours or when it is caused by public transport, such as trains.

¶4.10 Liability for Animals

4.10.1 Damage done by cattle

An owner’s liability for damage done by their animals varies between
jurisdictions. In the case of damage caused by cattle, the general tort
of Negligence is applied in New South Wales, South Australia and the
Australian Capital Territory. In the other states and territories, there is
a long-established tort of ‘cattle trespass’. The advantage of cattle
trespass over Negligence is that it imposes strict liability—a plaintiff
need not prove that the defendant knew or ought to have known that
their cattle might stray and cause damage.
Cattle trespass makes the owner liable not only for damage done by
cattle to a neighbour’s crops, but also for any other damage caused by
the wandering cattle, such as passing on an infection or injury to
persons or other animals.
4.10.2 Damage by other domesticated animals
The principles of cattle trespass have been extended to animals other
than cattle, such as horses, goats and pigs. The principles apply to
animals that are domesticated and normally subject to individual
ownership. Some animals, particularly cats and dogs, are not included
because they are hard to keep within restricted boundaries. They are
also less likely to cause the type of damage that is produced by
grazing animals. Cattle trespass also does not apply to wild animals,
which are subject to different rules.
4.10.3 Damage by dogs
Apart from Queensland, all the Australian states and territories have
statutes governing the liability of dog owners and persons in control of
dogs. In some jurisdictions it is necessary to prove that the owner
knew the particular animal might cause injury. In other jurisdictions (eg
New South Wales and the Northern Territory) liability is strict, and
such knowledge is not necessary. Some jurisdictions provide for
specific defences, for instance that the plaintiff was injured while
unlawfully on the defendant’s premises or that the plaintiff failed to
take reasonable care. In other jurisdictions similar defences are
available by implication.
4.10.4 Damage by wild animals
When damage is caused by an animal that is by its nature wild rather
than domesticated, its owner may be liable. In New South Wales,
South Australia and the Australian Capital Territory such cases are
dealt with under the tort of Negligence; this is a possibility in other
jurisdictions too. In the other jurisdictions there are also special rules
that apply in such cases. These rules apply even when an individual
‘wild’ animal has been tamed, because anyone who acquires or takes
control of animals classed as ‘wild’ is presumed to know that they are
dangerous.
¶4.11 Deceit
4.11.1 Deliberate fraud
Deceit consists of knowingly leading another person into error. A
plaintiff who brings an action for deceit must prove: that the defendant
made a representation knowing it was false (or with reckless disregard
for the truth); that the defendant intended the plaintiff to rely and act
on the statement; and that the plaintiff actually did so.
4.11.2 Liability for fraudulent representations made indirectly
A fraudulent representation made by a defendant to a third party and
conveyed indirectly to a plaintiff (by the third party) can give rise to an
action in deceit, if the defendant made the statement intending the
plaintiff to rely and act on it.
4.11.3 The need to prove loss
To succeed in an action for deceit, a plaintiff must be able to prove
that they have suffered actual loss as a result of the
misrepresentation. If they can do this, the plaintiff is entitled to
damages sufficient to put them in the position they would have been in
had they not relied on the false statement. This includes both
immediate and consequential losses.

¶4.12 Defamation
4.12.1 Protection of reputation
Broadly speaking, the law of defamation protects a person’s reputation
from being wrongfully harmed by others. The basic idea is that a
defendant is made liable for defamation if they publish material that
both identifies the plaintiff and has the capacity to harm the plaintiff’s
reputation. Since 2006, the various states and territories of Australia
have enacted almost uniform defamation legislation, based on older
common law principles.
4.12.2 Identification of the person defamed
To succeed in an action for defamation, a plaintiff does not have to
prove that they were identified by name in the published material. It is
sufficient to establish that, in the known circumstances, an ordinary
and reasonable person would have known or believed that the
statement or material referred to the plaintiff.

4.12.3 The requirement of publication

Defamation requires that the defamatory material be ‘published’ in the
sense of being communicated to at least one person. This means a
person other than the plaintiff, and other than the defendant’s spouse.
4.12.4 Defences
The defendant may be able to escape liability by establishing one of
the recognised defences. It would be a defence to prove that the
plaintiff consented to the publication of the statement, or that it was an
honest opinion based on reasonable evidence. It would also be a
defence for the defendant to show that the statement was true or that
its publication was in the public interest. Another defence, absolute
privilege, applies to all statements by members of parliament in the
House, and to judges, barristers and witnesses in court proceedings.
Another lesser, qualified, privilege may apply if a person made the
statement in their official capacity to someone who had an interest in
receiving it, such as a communication between government officials,
provided that in the circumstances the statement was reasonably
made.

¶4.13 Negligence

4.13.1 The scope of the tort of Negligence

The tort of Negligence does not involve one particular type of conduct
or situation. It is based on a broader concept, which means that
liability for Negligence may arise in a broad range of circumstances. In
very general terms, it can be said that Negligence consists of a failure
by a defendant to take reasonable care in particular circumstances
where such carelessness causes foreseeable harm to another person.
A legal duty to take reasonable care to avoid foreseeable harm is
called a ‘duty of care’. If a duty of care is owed to a plaintiff, and the
defendant fails to do what was reasonably required to avoid the harm
occurring, then the defendant has breached that duty of care. The
breach makes the defendant liable in Negligence to the plaintiff, and
the plaintiff is entitled to claim compensation from the defendant for
the harm they have suffered as a result of the breach.
The tort of Negligence is potentially very wide in its application, and it
has developed rapidly to become the single most important cause of
action in tort law. The challenge for both courts and legislatures has
been to put realistic limits on liability for Negligence. The remainder of
this chapter briefly describes the situations in which liability for
Negligence might arise and outlines the essential elements for
establishing liability in particular cases. For a more detailed account of
the tort of Negligence, see Chapter 5.
4.13.2 Identifying different types of conduct and harm
Different types of conduct and different types of harm can give rise to
liability in Negligence. Examples of the possible combinations are
shown in the following table. Although all of the different combinations
of conduct and harm listed can give rise to liability in Negligence,
special rules apply in some circumstances in order to appropriately
limit the extent of the liability. These rules will be explained below in
this chapter.
Type of conduct
Acts of a positive nature (eg
driving fast on a busy road)
A failure to act (an omission) (eg
failing to put a barrier around an
excavation)
Positive acts or omissions (as
illustrated above)
Giving, or failing to give,
information or advice; or giving
wrong information or advice (eg
supply of incorrect data)
Professional services (eg
services provided by a banker or
accountant)
Type of harm caused
Bodily injury to a person or
physical harm to property
Bodily injury to a person or
physical harm to property
Economic harm but no physical
harm to a person or property
Either physical or purely
economic harm
Purely economic harm

4.13.3 The essential requirements for establishing liability in

Negligence
There are three essential requirements that must be satisfied on the
facts of the case to establish liability in Negligence. Broadly stated,
they are:
(a) that the defendant owed the plaintiff a duty of care

(b) that the defendant breached the duty of care by being careless,
and

(c) that, as the result of the defendant’s breach, the plaintiff suffered
a loss or injury that was reasonably foreseeable.

These requirements are explained in turn below.

4.13.3(a) Establishing a duty of care
The first requirement of liability in Negligence is to show that, in the
circumstances, the defendant owed the plaintiff a duty of care.
For a duty of care to arise the following requirements must be
satisfied:
(i) The foreseeability of some kind of harm
It must be shown that, in the circumstances of the case, it was
reasonably foreseeable that harm of some kind could result from the
conduct in question. Stated more precisely, it must have been
reasonably foreseeable to a person in the defendant’s position that
injury or harm of some kind may happen to someone as a result of the
kind of conduct engaged in by the defendant. It need not be
foreseeable exactly what type of harm could be caused, nor exactly
how it will occur.
Note: The approach taken by Australian courts falls somewhere between these two extremes.
In general, liability for Negligence only arises where the relationship between the plaintiff and
defendant fits within a recognised ‘duty of care’ category. However, in rare cases it may be
possible for a duty of care to arise even outside these recognised categories, and this is when
Lord Atkin’s more general principle helps the court to decide whether liability should be
recognised or not.

(ii) Foreseeing who might be harmed

To establish a duty of care, it need not be foreseeable exactly who
might be injured. It is sufficient if the plaintiff is a person or a member
of the class of persons who might foreseeably suffer harm as a result
of the defendant’s conduct. The extent to which different groups of
persons might foreseeably be harmed by particular conduct can be
quite wide.
A defendant only owes a duty of care to someone who belongs to a
class or group of persons whom it can be reasonably foreseen would
be harmed by the defendant’s conduct. If harm is caused to a person
outside this class, there is no liability because no duty of care was
owed to that plaintiff.

(iii) The existence of a recognised ‘duty situation’

Even when harm is foreseeable, a duty of care to prevent that harm
usually only arises in recognised situations or circumstances. Specific
situations that give rise to a duty of care to prevent foreseeable harm
(‘duty situations’) include the following:
 • an occupier of property owes a duty to persons entering the
property, in relation to harm which may be caused by the state of
the premises

• a road user owes a duty to other road users

• a person within a fiduciary relationship owes a duty to the other

person in that relationship

• a person within a contractual relationship owes a duty to the other

party to the contract, and

• a manufacturer owes a duty to a consumer of that manufacturer’s

product. See Donoghue v Stevenson [1932] AC 562 above in this
section.

For more examples of specific duty situations, see Chapter 5.

In unusual cases where there may not be a recognised duty situation,
the courts weigh up various factors which may point to a relationship
giving rise to a duty of care. These factors include:
• considerations of policy and fairness

• the extent to which the harm was foreseeable

• the potential number of similar cases that might arise, and the
possible extent of liability

• the likelihood of interfering with another existing area of law

• the likelihood of conflicting with a defendant’s existing statutory

duty

• the likelihood of creating an unreasonable commercial burden by

recognising a duty of care, and

• important features of the relationship between the plaintiff and

defendant, such as whether the defendant was in a position of
control over the risk, and the plaintiff in a position of vulnerability.
(iv) A duty of care to prevent purely economic loss
Special rules apply in cases involving purely economic harm —
financial loss which is not accompanied by any personal injury or
property damage. To establish a duty of care in such cases it must be
shown that plaintiff and defendant were in a relationship which made
the plaintiff vulnerable, dependent or powerless while the defendant
was in a position of control or power. It is also important that
recognising a duty of care in the circumstances would not lead to a
defendant having potentially unlimited liability to a potentially unlimited
number of claimants.
(v) A duty of care when giving information or advice
Another situation where special rules apply to determine the existence
of a duty of care is when wrong information or advice given by one
person causes purely economic loss to another. The courts have been
concerned to limit the existence of a duty of care for misstatements or
misrepresentations that cause purely economic harm to avoid being
overwhelmed by litigation. To establish a duty of care in such cases, it
must be established that:
• the plaintiff relied on the person giving advice to exercise care,

• the person giving the advice ought to have realised in the

circumstances that they were being relied on to give accurate
 information or advice on the basis of which the other party might
decide to act, and

• it was reasonable in the circumstances for the plaintiff to act on the

information or advice given.
(vi) A duty of care owed by professionals
Note: In Hill v Van Erpv, the High Court held a solicitor liable when that solicitor prepared a
will negligently and as a result it was legally invalid. The plaintiff lost the benefit she would
have obtained under the will. Although the plaintiff was not the solicitor’s client, the court held
that the solicitor owed the plaintiff a duty of care.

(vii) Alternative proceedings under the Australian Consumer Law

It can be seen, from what has been said in the preceding section, that
establishing a duty of care in cases involving misstatements or
misrepresentations for the purposes of bringing an action in
Negligence is a highly technical and complex matter. Since 1974, the
legislative provisions originally in the Trade Practices Act 1974 (Cth)
and now found in the Australian Consumer Law prohibit misleading
conduct in trade or commerce and make a wide range of remedies
available for any breach of these provisions. Provided that a
misrepresentation, such as giving wrong information or advice, takes
place ‘in trade or commerce’, it is likely that an action for misleading
conduct under s 18 of the Australian Consumer Law would be
preferable to an action in tort for negligent misrepresentation. See
Chapter 11.
4.13.3(b) Establishing a breach of the duty of care
The second essential requirement of liability in Negligence is that the
defendant breached the duty of care they owed to the plaintiff. A
person who owes a duty of care is required to take reasonable steps
to prevent the foreseeable harm from occurring. What should be done
in particular circumstances is determined by asking: ‘What would an
ordinary, prudent person do in the circumstances to avoid the harm?’
To answer this question, account is taken of various factors, including
the following:
• How likely was the harm? There is no need to guard against very
remote possibilities.

• How great would the harm be? You must guard more carefully
against the risk of very great harm.

• How difficult is it to avoid the harm? You need not adopt

impractical measures.

• Do the circumstances justify taking the risk of harm? In particular,

do the steps needed to avoid the harm themselves pose a further
risk of harm?

• Do policy considerations excuse the conduct in question?

4.13.3(c) Establishing the cause of harm
Liability in Negligence only exists if the harm suffered by the plaintiff
can be sufficiently attributed to the wrongdoer’s breach of their duty of
care. In other words, it must be established that the wrongdoer’s
conduct was the legal cause of the harm for which the plaintiff is
claiming compensation. The common law provides a test (called the
‘but for’ test) to establish the necessary causal link. The test asks:
‘Would the harm have occurred but for the defendant’s conduct?’ If
not, the necessary causal link is established. That is, if the harm would
have happened even without the breach, then the defendant is not
liable.
4.13.4 Legislative provisions regarding causation
State and territory legislation now sets out similar principles. To
determine whether a breach of duty caused particular harm, it should
be asked:
• Was the negligence a necessary condition of the occurrence of the
harm? and

• Is it appropriate for the scope of the negligent person’s liability to

extend to the harm so caused?

The plaintiff has the onus of proving, on the balance of probabilities,

any fact relevant to the issue of causation.
4.13.5 Other factors affecting causation
There are other factors that might affect the liability of a person whose
negligence is alleged to have caused harm. One is that, after the
defendant has acted or failed to act in breach of their duty of care,
some other event may intervene as the real cause of the harm
suffered by the plaintiff. For example, suppose that Edith negligently
fails to arrive on time to collect Adam, an elderly man, and take him to
his doctor. While waiting on the pavement for Edith, Adam is struck by
a car driven negligently by Boris. While it was Edith’s negligence that
caused Adam to be at the place where he was struck down, Boris’
negligence was the real cause of the harm.
Another way in which causation might be affected is when a plaintiff
somehow contributes in part to their own harm. This is called
contributory negligence, and the plaintiff will only be able to claim a
proportion of their loss from the defendant, the rest being attributable
to their own negligence.

4.13.6 Remoteness of harm

For a plaintiff to successfully claim compensation from a wrongdoer
for harm caused, it must be shown that the harm was not too remote.
This means that a person in the defendant’s position must have
contemplated, as a real possibility, the particular kind of harm that has
occurred. A defendant is not liable for harm caused if that harm was a
kind of harm that would not have been reasonably contemplated as a
possible result of their careless conduct.
4.13.7 Remedies for Negligence
A plaintiff who has suffered harm as a result of the defendant’s
Negligence can claim damages to restore them financially to the
position they would have been in if no wrongful conduct had occurred.
Depending on the circumstances, other remedies may be available,
such as an injunction to prevent threatened or continuing Negligence.
If you need to know more about the tort of Negligence, see the next
chapter which explains the tort in more detail

¶4.14 Vicarious Liability

4.14.1 Responsibility for harm caused by another’s acts or
omissions
In Australian law, a person can be held liable in tort for the acts or
omissions of another person. This is referred to as ‘vicarious’ liability.
It can arise in relation to any tort, not just the tort of Negligence.
Transferring liability in this way is useful to give plaintiffs access to a
defendant more able to pay compensation, to spread loss throughout
the community, and to deter dangerous practices. To establish
vicarious liability, the plaintiff must prove that a relationship existed
between the defendant and the wrongdoer, making the defendant
responsible for the harm caused by the wrongdoer. There are various
relationships of this kind. Principals can be vicariously liable for the
acts of their agents, partners for the acts of their fellow partners, and
employers for the acts of their employees.
4.14.2 Employees and independent contractors
In establishing vicarious liability in tort, one of the relevant factors is
the distinction drawn between employees and independent
contractors. Employers will be vicariously liable for the acts or
omissions of their employees, but will not usually be liable for conduct
by an independent contractor.
For an employer to be vicariously liable for the acts of an employee,
the wrongdoer must have performed the harmful act in the course of,
or pursuant to, their employment, or within the employment
relationship rather than outside of it. If an employee engages in some
activity unrelated to their work (sometimes referred to as ‘a frolic of
their own’), then the employer is not vicariously liable for harm that
ensues.
A person is not normally vicariously liable for the acts of independent
contractors. However, in some situations involving a protective
relationship (eg hospital and patient, or school and students), a duty of
care exists that cannot be delegated to another person, and the
principal of an independent contractor may be liable for harm caused
even by an independent contractor.
4.14.3 Distinguishing employees from independent contractors
In order to determine whether a person is engaged as an employee or
independent contractor, the best approach is to examine whether the
person in question can be identified as part of the defendant’s
enterprise or not. Relevant factors are: whether the defendant can
control what the person in question does and how they do it; whether
the person in question uses their own tools and materials; the method
of payment and tax deductions; whose uniforms (if any) are worn; the
building up of business goodwill by the person in question; and the
employed person’s relative freedom to work when they choose.
¶4.15 Establishing Liability for Negligence

The essential elements of the tort of Negligence are complex and

need to be considered systematically. If you follow the checklist below,
the questions will help you to find and apply the correct rules properly.
The tort of negligence
¶5.1 Introduction

In the previous chapter, the overall scope of tort law was explained
and the various recognised torts were briefly outlined. You will have
seen that most of the recognised torts are concerned with very
specific types of conduct, such as assault, battery, deceit and
defamation. Only one tort is more broadly conceived: the tort of
Negligence. The broad underlying principle of Negligence is that a
defendant may be liable in a wide range of circumstances for a failure
to take reasonable care which causes harm to a plaintiff’s protected
interests.
This chapter deals with the tort of Negligence in more detail than in
the previous chapter.
5.1.1 What are the sources of the law of Negligence?
Over the years, the tort of Negligence has been developed mainly by
the courts. It has been a rapidly expanding area of law. Since 2002,
state and territory legislation has also been enacted, either to clarify or
to modify some of the common law rules that determine liability for
Negligence. These statutory provisions now exist alongside the
common law. The legislation in the various jurisdictions largely follows
the model of the New South Wales legislation. For that reason, the
examples in this book of particular sections are taken from the Civil
Liability Act 2002 (NSW), but care should be taken to compare the
equivalent provisions of other jurisdictions.
It should be noted that the legislation does not apply, or applies only in
part, to certain situations. Examples include: intentional acts done with
intent to cause injury or death or acts that constitute sexual assault;
situations where injury or death resulted from smoking or other use of
tobacco products; or where civil liability is governed by other statutes,
such as motor accident legislation and workers compensation
legislation.
5.1.2 What are the essential elements of the tort of Negligence?
In the previous chapter it was stated that, to establish liability for
Negligence, the following elements must be proved to exist:
(a) the defendant owed a duty of care to the plaintiff

(b) the defendant breached that duty of care, and

(c) the defendant’s breach caused foreseeable harm to the plaintiff’s

protected interests.

In this chapter, we will discuss each of these three essential elements

in more detail.

¶5.2 The Element of a Duty of Care

5.2.1 Limiting the scope of Negligence
Liability for Negligence is limited by the requirement of a ‘duty of care’.
This requirement is important because without it the concept of
Negligence is enormously wide. By restricting liability for Negligence
to those circumstances in which a duty of care is considered to exist,
the scope of the tort is made manageable.
Whether or not a duty of care exists in particular circumstances is
worked out by taking account of a number of factors, for example, the
type of conduct and harm that has occurred, the foreseeability of the
harm in question, and the existence of a recognised ‘duty relationship
or situation’ between the plaintiff and the defendant. How these factors
are satisfied in particular cases is explained in this chapter.
5.2.2 The importance of different categories of conduct and harm
A duty to take reasonable care can arise in many different
circumstances. Account must be taken of different types of conduct
and harm to apply the correct rules for establishing a duty of care. For
example, a duty of care in relation to a failure to act (an omission) is
more limited than liability for positive acts. So too, a duty of care in
relation to purely economic loss caused by misrepresentations is
subject to special limiting rules. To understand the rules that
determine when a duty of care exists, you will need to distinguish
between the following categories of conduct and harm:
• A positive act causing physical harm to persons or property:
Physical harm has long been recognised as giving rise to liability
for Negligence. Physical harm consists of either injury to a
plaintiff’s person or damage to their property. Because this type of
conduct and harm has natural limits, no special rules are needed
to circumscribe the duty of care.

• A failure to act causing physical harm to persons or property:

Generally, there is no liability in Negligence for omissions unless,
in particular circumstances, a defendant is considered to have a
positive legal duty to act. This may arise when the person who
fails to act has previously assumed a responsibility, for example,
by undertaking a task, and the injured person relied on that task
being carried out properly. A positive duty to act may also exist
when a plaintiff relies or depends on a defendant to take positive
action to avoid potential harm, such as in a patient and doctor
relationship. It has also been held to exist in the relationship
between a student and school authority, a prisoner and prison
authority, a client and their solicitor, and users of municipal
facilities and the relevant city council.
• Statements or advice causing physical harm to persons or
property: Making a statement is a special type of act. But when
statements result in physical harm then statements made or
advice given can be treated in the same way as other acts or
omissions. Therefore a duty of care towards the plaintiff can exist
in these situations, based on the same rules as other acts
causing physical harm.

• A positive act causing purely economic loss: Australian law

recognises that a duty of care can arise in relation to positive acts
that cause purely economic harm. Potentially, this opens the door
to many claims. While this is desirable from a plaintiff’s point of
view, it would impose unwelcome costs on the community and the
courts. Special rules are therefore applied in such cases to limit
the scope of the duty of care.

• A failure to act causing purely economic loss: As with

omissions that cause physical harm, the law recognises the
possibility of liability for omissions causing purely economic loss
when the defendant had a positive duty to act because of special
circumstances. These include situations where a plaintiff relied or
depended on a defendant to take positive action to avoid potential
harm.

• Statements or advice causing purely economic loss: In

Australian law, negligent misstatements causing purely economic
loss are treated as a special type of case because it would be
very easy for negligent misstatements or advice to be
communicated to others and cause widespread economic harm.
The courts historically refused to impose liability on a defendant in
such circumstances. They now do so but, to keep the potential
liability within reasonable limits, special factors are taken into
account to limit the duty of care. In particular, a duty of care only
arises if, in the circumstances, the person responsible for the
misstatement should have realised that they were being relied on
to give accurate information or advice on the basis of which the
other party might act, and it was reasonable for the plaintiff to
 have relied on that information or advice.

5.2.3 The foreseeability of harm

A defendant only owes a duty of care if, in the circumstances, it was
foreseeable that the conduct engaged in by the defendant would likely
cause harm to the plaintiff. It need not be foreseeable exactly how
harm might be caused to the plaintiff. It is sufficient that harm of some
kind is foreseeable, even if it cannot be foreseen exactly how that
harm will come about or what the exact nature of that harm will be.

5.2.4 Objective foreseeability of harm required

The question of whether harm is foreseeable is determined
objectively. The courts have developed the notion of a ‘reasonable
person’ (once called a ‘reasonable man’) and ask whether such a
person would have foreseen the danger in the circumstances.
The ‘reasonable man’ is also sometimes called ‘the man on the
Clapham omnibus’, to suggest an average, ordinary person of no
special distinction. Deane J has suggested, as an Australian
equivalent, ‘the hypothetical person on a hypothetical Bondi tram’
(Papatonakis v Australian Telecommunications Commission (1985)
156 CLR 7 at 36).
5.2.5 A reasonable person ‘in the position of the defendant’
The concept of a ‘reasonable person’ cannot be a wholly objective
one. In defining a reasonable person, the court will consider what a
reasonable person in the position of the defendant would foresee. This
means taking into account any relevant knowledge, capacity for care
and foresight that the particular defendant had.
5.2.6 Foreseeability of a ‘real risk’ of harm
An event must be foreseen as ‘not unlikely to occur’ rather than
merely as a theoretical possibility. Thus it need not be probable that
the event will occur, but it must be shown that there is a ‘real risk’ that
what is foreseeable will happen if due care is not taken to prevent it.
5.2.7 Who might foreseeably be harmed?
For a duty of care to arise, the individual identity of the person harmed
need not be foreseeable. It is sufficient if the person harmed is,
generally, a person, or a member of a class of persons, who might
foreseeably suffer harm as a result of the defendant’s conduct.
5.2.8 The foreseeability of psychiatric harm
Psychiatric harm is a recognised type of harm in the tort of
Negligence. However, a plaintiff claiming damages for psychiatric
harm must establish that they are suffering from a recognised
psychiatric illness and not merely from grief, distress or other such
ordinary emotions.
See Mount Isa Mines Ltd v Pusey (1970) 125 CLR 383 above at 5.2.5.
Recent legislative changes in most states have now further clarified
the factors that are relevant to establishing a duty of care in cases
involving psychiatric or ‘mental’ harm. See, for example, Civil Liability
Act 2002 (NSW) s 30.
5.2.9 Establishing a recognised ‘duty situation or relationship’
The law does not make a person liable for all of the foreseeable harm
their conduct may cause. This would be an impractical standard and, if
it were adopted, the courts would be swamped by claims and people
would refrain from many socially useful activities. Accordingly, a duty
of care to prevent foreseeable harm usually only arises when the
wrongdoer and the person harmed are in a recognised ‘duty situation
or relationship’. Historically, the courts have recognised various
specific duty situations and relationships that give rise to a duty of
care. These are listed and explained in the following section. For now,
two examples will serve to illustrate the concept and how it developed
in the modern law of Negligence.
Note: The approach taken by Australian courts falls somewhere between these two extremes.
In general, liability for Negligence only arises where the relationship between the plaintiff and
defendant fits within a recognised ‘duty of care’ category. However, in rare cases it may be
possible for a duty of care to arise even outside these recognised categories, and this is when
Lord Atkin’s more general principle helps the court to decide whether liability should be
recognised or not.

5.2.10 Factors indicative of a duty relationship in unusual cases

There are certain well-established situations and relationships that the
courts have long recognised as giving rise to a duty of care. Examples
are the relationship between:
• the parties to a contract

• a manufacturer and a consumer of their products

• a statutory authority and members of the public

• a road user and other road users

• persons in a fiduciary relationship, such as principals and their

agents

• a person who has handed their property over to another person (a

bailee) for safekeeping, loan, use, cleaning, repair or some other
agreed purpose

• a person who occupies premises for harm to others because of the

state of the premises

Sometimes more unusual cases arise, where the particular situation in

which harm has occurred has not previously been recognised as
giving rise to a duty of care. In such cases, the courts use a ‘multi-
faceted’ approach, weighing up various factors which point to the
existence of a situation in which a duty of care should be recognised.
The factors that a court will take into account include the following:
• considerations of policy and fairness

• the extent to which the harm was foreseeable in the circumstances

• the potential number of similar cases if the duty of care is

recognised

• the likelihood of interfering with another existing area of law

• the likelihood of conflicting with a defendant’s existing statutory

duty
• whether to recognise a duty of care would impose an
unreasonable commercial burden on the defendant, and

• whether the wrongdoer was in a position of control and the person

harmed in a position of vulnerability.
5.2.11 Special rules if the harm suffered is purely economic
When conduct may cause purely economic harm to one or more
plaintiffs, the wrongdoer’s potential liability is very great. For this
reason the courts have decided that, in such cases, the defendant’s
liability should be somewhat limited. The courts have identified the
concept of ‘vulnerability’ as a relevant limiting factor. A duty of care to
avoid purely economic harm will only arise if, in the circumstances of
their relationship, a plaintiff is vulnerable, dependent or powerless and
the defendant is in a position of control or power. In such cases, the
defendant will likely owe the plaintiff a duty of care to avoid the
foreseeable economic harm that is likely to result from the defendant’s
acts or omissions.
5.2.12 Duty relationships that are subject to special rules
There are some other specific situations in which the existence of a
duty of care is subject to special considerations. Some of these
situations are described below.
5.2.12(a) ‘Abnormal’ plaintiffs
In Australia, it has been held by the Supreme Court of New South
Wales that no special duty of care arises towards persons with
abnormal disabilities or sensitivities. However, ‘persons with
disabilities’ may be a class of persons to which harm is foreseeable in
particular circumstances.
5.2.12(b) Rescuers
The common law does not impose a duty on people to go to the
rescue of others. However, it is also true that rescuers are owed a
duty of care which allows them to recover damages if they are injured
during a rescue. The courts have held that, for the duty of care to
arise, the injury to the rescuer must be a reasonably foreseeable
consequence of the defendant’s act or omission. This involves not
only the reasonable foreseeability about the likelihood of rescue, but
also the reasonable foreseeability in relation to the likelihood of harm
to the rescuer.
Note: Almost all states and territories now have legislation providing rescuers acting in good
faith with immunity from liability in Negligence. However, exceptions may apply in certain
circumstances, for instance if the rescuer was the person who originally caused the risk of
injury.

5.2.12(c) Statutory authorities

In Australia, statutory authorities are liable for positive acts in the
same way as natural persons. Statutory authorities can also be liable
for omissions, particularly if a statute imposes a positive duty on the
statutory authority to act. However, the courts have indicated that
particular circumstances may affect the existence of a duty of care
owed by a statutory authority.
When a statutory authority is responsible for the control or
management of land or a highway, it may be liable for omissions in the
same way as other occupiers of land. State and territory legislation
now provides special provisions that define and limit the extent of the
liability of a statutory authority.1 See, for example, Pt 5 of the Civil
Liability Act 2002 (NSW).
5.2.12(d) Product liability
The common law liability of manufacturers has been clearly
recognised since Donoghue v Stevenson [1932] AC 562. However, in
the common law the plaintiff must prove that the manufacturer was
careless, even if the products in question are defective, dangerous in
themselves or dangerous in particular circumstances. Statutory
provisions now provide an alternative basis for liability. In particular,
the Australian Consumer Law makes a manufacturer and an importer
of defective goods liable in certain circumstances for injuries caused if
the goods had a safety defect, that is, if they were not as safe as
persons generally are entitled to expect. Some defences are available
to the manufacturer or importer, for example, if the state of scientific or
technical knowledge at the time would not have allowed the defect to
be discovered.
5.2.12(e) Occupiers
Special rules used to apply to occupiers of land or premises to decide
the extent of the duty of care owed to persons who enter property and
are injured. However in 1987, the High Court decided that the ordinary
rules of Negligence should be followed in such cases. And, in some
jurisdictions, legislation has been enacted that outlines the particular
rules applicable to occupiers — eg Wrongs Act 1958 (Vic) s 14B.
5.2.12(f) Employees
The relationship between employer and employee is one in which a
common law duty of care arises, requiring the employer to take
reasonable precautions to avoid causing the worker foreseeable harm.
In addition, workers compensation schemes exist to provide
compensation to injured workers. Although the sums awarded under
the schemes are lower than might be claimed under the common law,
the advantage is that the employee does not have to prove negligence
on the employer’s part. An injured worker could originally choose to
bring a common law action or to make a claim under a workers
compensation scheme. Since the 1980s, that choice has been either
removed or limited in some way, for example, by limiting the damages
that are recoverable under the common law. This area of law is still in
a state of change, with differences of detail between the various
jurisdictions.
5.2.12(g) The ‘unborn’ plaintiff
Australian courts have held that a duty of care can be owed, in
appropriate circumstances, to an unborn child, provided that the child
is born alive in due course. There is a duty to prevent both
foreseeable harm that may occur after the child is born and harm that
may affect the unborn foetus. It is possible for a mother herself to be
liable for antenatal injuries to her unborn child, at least in some
circumstances where policy considerations do not require immunity.
One such case is where the mother has driven negligently.

Note: In Australia, a disabled child is now entitled to an allowance paid by the state,
irrespective of the cause of the disability. This financial assistance might make it unnecessary
to bring an action in Negligence for damages.

5.2.12(h) Negligent misstatements causing economic loss

In Australian law, a duty of care can arise in relation to negligent
misstatements, such as giving wrong information or advice, on which
a plaintiff may rely and thereby suffer economic loss. However, the
duty of care only arises if, in the circumstances, the person
responsible for the misstatement should have realised that they were
being relied on to give accurate information or advice on the basis of
which the other party might act, and it was reasonable for the plaintiff
to have relied on that information or advice.
5.2.12(i) Liability for negligent misstatements passed on to third
parties
If incorrect information or advice is given by the defendant to one
person and is then passed on to a third party who relies on it, the
defendant may owe a duty of care to that third party, but only if:
(a) the defendant knew, or should have known, that the information
or advice would be communicated to the third party, either as an
individual or as a member of an identified class of persons
(b) the information or advice was communicated to the third party
for a purpose that would very likely lead that person to enter a
transaction of the kind they did in fact enter, and

(c) it was very likely that the third party would enter the transaction
relying on the information or advice given, and by so doing risk
economic loss if the advice or information was wrong or unsound.
Note: If a misrepresentation takes place ‘in trade or commerce’, an action for misleading
conduct under s 18 of the Australian Consumer Law would usually be preferable to an action
in tort for negligent misrepresentation, because the requirements of an action for breach of s
18 are normally easier to satisfy.
Note: This case also involved an action against both S&P and ABN Amro for misleading and
deceptive conduct.

5.2.14 Immunity from liability

In some circumstances, even though harm to a particular class of
persons is reasonably foreseeable, policy considerations intervene to
prevent a legal duty of care from arising. In most states, specific
immunities have been introduced by statute, for example, when
people cause injury to others while acting as ‘good Samaritans’, food
donors or volunteers. See, for example, Pt 8, 8A and 9 of the Civil
Liability Act 2002 (NSW).

Footnotes
1 Civil Liability Act 2002 (NSW), Pt 8; Civil Liability Act 1936
(SA), s 74; Wrongs Act 1958 (Vic), Pt VIA; Civil Liability Act
2002 (WA), s 5AD; Civil Law (Wrongs) Act 2002 (ACT), Pt
2.1; Personal Injuries (Liabilities and Damages) Act (NT), s
8.

¶5.3 The Element of a Breach of the Duty of Care

A duty of care is breached when the defendant fails to discharge their

duty of care to the plaintiff. Whether the defendant’s conduct amounts
to a breach of this duty is determined by applying various rules. These
rules involve weighing different considerations and reaching a
balanced conclusion.
5.3.1 Discharging a duty of care
A legal obligation is created when a duty of care is owed by a
defendant to a plaintiff. In broad terms, the obligation requires the
defendant to take reasonable steps to prevent foreseeable harm from
occurring. Depending on the circumstances, this may require the
defendant to act or to refrain from acting. Alderson B explained the
concept in Blyth v Birmingham Waterworks Co (1856) 11 Exch 781.
He said:
Negligence is the omission to do something which a reasonable
man, guided upon those considerations which ordinarily regulate
the conduct of human affairs, would do, or doing something which
a prudent and reasonable man would not do.
State and territory legislation sets out the principles for assessing
whether a defendant has taken reasonable care or breached a duty of
care.2 The principles are consistent with those established by the
courts. Section 5B(1) of the Civil Liability Act 2002 (NSW) is
illustrative. It says that a person is not negligent in failing to take
precautions against a risk of harm unless:
(a) the risk was foreseeable (that is, it is a risk of which the person
knew or ought to have known), and

(b) the risk was not insignificant, and

(c) in the circumstances, a reasonable person in the person’s

position would have taken those precautions.

5.3.2 Attributing special expertise to a reasonable person

If a defendant is an expert or professional, with special expertise, then
legal questions relying on the notion of a ‘reasonable person’ take
account of this by assuming that the reasonable person has the same
training, expertise, skills and knowledge as the defendant.
State and territory legislation now requires that the conduct of a
person practising a profession should be judged according to the
views current within their profession.3 Section 5O of the Civil Liability
Act 2002 (NSW) is illustrative. It says that a person practising a
profession is not negligent if they acted in a manner that (at the time
the service was provided) was widely accepted in Australia in the
professional opinion of peers as competent professional practice.
However, the court can disregard peer professional opinion if the court
thinks that opinion is irrational. Also, if the case concerns careless
advice given (rather than some other action or inaction causing harm)
the question of negligence will be decided by the court rather than by
reference to the views of the profession.
5.3.3 Other factors that may be attributed to a reasonable person
Just as the notional reasonable person is taken to have a particular
defendant’s knowledge, capacity for care and foresight, so too
inescapable attributes, such as youth, are relevant in deciding what
ought to have been foreseeable in a particular case.
It is not altogether clear whether the courts will attribute any disability,
incapacity or infirmity of the defendant to the notional reasonable
person.
Until recently, the courts followed the approach in Cook v Cook (1986)
162 CLR 376, taking into account a defendant’s individual lack of
experience or qualification to determine the standard of care owed to
a plaintiff. However in Imbree v McNeilly; McNeilly v Imbree (2008)
236 CLR 510, the High Court disapproved of this approach, stating
that the standard of care owed by an adult is to be judged objectively,
without reference to the individual defendant’s lack of experience or
qualification.
5.3.4 Deciding what a reasonable person would do to avoid harm
The law does not require that foreseeable harm be avoided at all costs
or in any circumstances. The common law has recognised a variety of
factors that are taken into account and weighed against each other in
order to assess whether or not a reasonable person would have taken
precautions to prevent foreseeable harm from occurring.
These factors have now been enshrined in state and territory
legislation. Section 5B of the Civil Liability Act 2002 (NSW) is
illustrative. It says that in deciding the question of breach, a court is to
consider:
• the probability that the harm would occur if care were not taken

• the likely seriousness of the harm

• the burden of taking precautions to avoid the risk of harm, and

• the social utility of the activity that creates the risk of harm.
The various factors that are taken into account to establish a breach of
a duty of care now need to be considered in more detail.
5.3.5 Probability of harm
Even when a duty of care exists, this does not impose a legal
obligation to avoid every possibility of harm, however remote. The
courts have adopted a more realistic requirement than this. They have
said that an obligation to avoid harm arises if there is ‘a real risk’ that
the harm will occur-a risk that is not so ‘negligible or remote that a
reasonable person would reject it as unworthy of consideration’.

5.3.6 Seriousness of harm

The more serious the harm, the more likely it is that the law will
impose an obligation to prevent that harm from occurring. The law
does not simply distinguish between trivial and non-trivial harm.
Rather, the courts will take account of the degree of seriousness of
the potential harm in the circumstances of each case. The more
serious the likely harm, the greater the extent of the obligation to
prevent it from occurring. In addition, the seriousness of the harm may
be assessed in light of some characteristic or vulnerability of the
plaintiff, of which the defendant was or ought to have been aware.

5.3.7 Practicality of avoiding harm

The law will not require a defendant to take impractical measures to
avoid harm. In Australia, the courts have made it clear that when
weighing what practical steps could have been taken to avoid potential
harm, considerations of convenience, expense, efficiency and difficulty
can be taken into account. Practical does not mean just ‘theoretically
possible’; it means that reasonable options are available, taking
account of all the circumstances. The practicality of what might be
done to avoid harm is closely weighed against the other factors that
are taken into account, such as the probability and gravity of the
potential harm.
5.3.8 Justifiability and policy considerations
It is possible that taking the risk of particular foreseeable harm is
justified. This might be the case when the action needed to prevent
the particular harm will most likely cause some other harm. It depends
on the exact circumstances whether a reasonable person might
decide to take the risk of causing this other harm.
Note: This case also illustrates the importance of considering the available medical knowledge
and state of accessible technology at the time when the breach is alleged to have occurred,
rather than using hindsight.

Some types of conduct have a public or social usefulness that

outweighs the harm that they will inevitably cause. Such harm may be
excused on policy grounds. There are many examples of this: the use
of machinery, equipment or dangerous substances in manufacturing
and agriculture; the use of motor cars and other modes of transport; or
organising sporting or other activities, eg in schools.
5.3.9 Proving a breach of a duty of care
It is a basic principle that the burden of proving facts lies on the
person alleging those facts. Therefore, the plaintiff must normally
produce evidence that the defendant failed to do what was required in
the circumstances to prevent the harm from occurring. This may not
be easy to do.
5.3.10 Drawing reasonable inferences from known facts
In many cases, there is no direct evidence of what the defendant
actually did or did not do, but it may be possible to draw the necessary
conclusions indirectly. A court is entitled to draw reasonable
inferences from the known circumstantial facts.

5.3.11 Circumstances that justify drawing an inference

Res ipsa loquitur means ‘the situation speaks for itself’. The phrase is
used to describe the rare situations where, in the absence of an
explanation, the mere facts are enough to raise an inference of the
defendant’s responsibility for what has occurred. Res ipsa loquitur
only applies in very rare circumstances. One example may be when a
surgical tool is found to have been left inside a patient. The following
requirements must be met:
• There must be no evidence that explains why the events in
question occurred. Any such evidence precludes the application
of res ipsa loquitur.

• The events in question must be of a type that would not ordinarily

happen if proper care had been taken.

• The facts must indicate that the defendant (and no one else) is to
blame for what has happened. This involves the question of
control, because if the defendant is not in exclusive control of a
situation, it is difficult to conclude that they are responsible for
what happened.

Footnotes
 Footnotes
2 Civil Liability Act 2002 (NSW), s 5B and 5C; Civil Liability
Act 2003 (Qld), s 9 and 10; Civil Liability Act 1936 (SA), s
32; Civil Liability Act 2002 (Tas ), Pt 6, Div 2; Wrongs Act
1958 (Vic), s 48 and 49; Civil Liability Act 2002 (WA), s 5B;
Civil Law (Wrongs) Act 2002 (ACT), Ch 4, Part 4.2.

3 Civil Liability Act 2002 (NSW), Pt 1A, Div 6; Civil Liability

Act 2003 (Qld), Ch 2, Pt 1, Div 5; Civil Liability Act 1936
(SA), Pt 6, Div 4; Civil Liability Act 2002 (Tas), Pt 6, Div 6;
Wrongs Act 1958 (Vic), s 59.

¶5.4 The Element of Causation of Harm

5.4.1 Actionable kinds of harm

To succeed in an action for Negligence, the defendant’s breach of
their duty of care must be shown to have caused a kind of harm to the
plaintiff that the law recognises as giving rise to legal liability. In tort
law, ‘harm’ may be physical harm to a person, physical harm to
property or purely economic harm. Psychiatric illness is also a
recognised type of harm. By contrast, mere grief, distress or any other
normal emotion does not fall within the concept of compensable harm.
See Mount Isa Mines Ltd v Pusey (1970) 125 CLR 383 above at 5.2.5.
5.4.2 Harm in the form of a lost opportunity
Can damages be claimed for harm that consists of a lost chance? This
has been a difficult question for courts, and the decisions are not all
uniform in their approach. Generally, a plaintiff cannot recover for the
loss of a chance of a better medical outcome, for instance, as a result
of a doctor’s negligent failure to make an early diagnosis. This would
be seen as circumventing the ‘but for’ test of causation. However, the
loss of a financial opportunity may be compensable in some
circumstances.
5.4.3 Trivial harm
If a plaintiff suffers merely trivial harm, a court may apply the principle
de minimis non curat lex to bar any claim for relief. Roughly translated,
the phrase means that the law does not concern itself with small
matters.

5.4.4 Actual harm

Sometimes, a person engages in conduct that is likely to cause harm
to another person or their property, but no actual harm occurs
immediately. The rule is that some actual harm must have been
caused before any liability to pay compensation arises. This is
because damage is said to be the ‘gist’ of an action in Negligence. In
other words, until some actual harm is caused, there can be no liability
in Negligence for damages.
Note: Even before actual harm occurs, legal remedies other than a claim for damages may be
available. Thus, if it is obvious from the circumstances that harm is imminent if steps are not
taken to prevent it, the plaintiff may be entitled to an injunction that will compel the defendant
to do whatever is required to prevent the threatened harm from happening. To succeed in a
claim for such injunctive relief, the plaintiff would need to show that the threatened harm is
both likely and imminent.

5.4.5 Establishing the causal link between the breach of the duty
of care and harm
Whether or not a particular breach of a duty of care is the cause of
harm is a question of fact to be determined by taking account of
common sense, experience, policy and value judgments. In some
cases it is not difficult to conclude that the harm suffered by a plaintiff
is the result of the defendant’s breach of duty. In other cases, the
causal link between the defendant’s conduct and the harm suffered is
not so obvious and the plaintiff must prove that the defendant’s breach
of duty was a necessary cause of the particular harm suffered by a
plaintiff. Otherwise the defendant will not be liable in Negligence for
that harm.

5.4.6 Legislative provisions regarding causation

State and territory legislation now sets out the principles to be applied
to decide whether the necessary causal link exists between the
defendant’s conduct and the harm suffered by the plaintiff. The
principles are consistent with those established by the common law.
Section 5D(1) of the Civil Liability Act 2002 (NSW) is illustrative. It
says that a determination that negligence caused particular harm
comprises the following elements:
 (a) that the negligence was a necessary condition of the occurrence
of the harm (‘factual causation’), and

(b) that it is appropriate for the scope of the negligent person’s

liability to extend to the harm so caused (’scope of liability’).

Section 5E places the onus on the plaintiff to prove, on the balance of

probabilities, any fact relevant to the issue of causation.
5.4.7 Single and combined causes of harm
It must be shown that the harm suffered by the plaintiff was caused to
some extent by the defendant’s negligent conduct. The most basic
and useful test that can be applied to decide this is the ‘but for’ test.
This test asks: ‘Would the harm have occurred but for the defendant’s
conduct?’ If not, it can be concluded that the defendant’s conduct was
a necessary condition of the harm. That is, if the harm would have
occurred even without the defendant’s conduct, then the defendant is
not liable.
If various causes combine to produce particular harm, the ‘but for’ test
does not give sensible results. Legislation has simplified the issues by
allowing a court to divide (apportion) responsibility for the harm,
depending on the extent to which each party was responsible for
causing it. The courts commonly apportion blame by using
percentages.
5.4.8 Multiple independent causes of harm
If two incidents of negligent conduct occur independently of each other
and each of them could have caused the harm on its own, liability will
be decided by asking whether the later conduct caused further harm
or not. If the later conduct did not in any way affect the extent of that
harm caused, it does not entail liability.

5.4.9 Assessing the full extent of harm

A court may need to assess the extent of the harm that will eventually
be suffered by the plaintiff as a result of a particular injury. This
requires making estimates about future events and factors, which is a
difficult process. Courts do not like simply to speculate about future
possibilities. When, at the time of trial, actual events have occurred
that affect the extent to which initial negligent conduct has impacted
on the victim’s life, those events must be taken into account. Then,
once damages have been assessed and awarded, later events that
occur are irrelevant.
5.4.10 Omissions that cause harm
When conduct consists of a failure to act, such as a failure to give a
warning of danger, the necessary causal link between the conduct and
the harm will only exist if the plaintiff can prove that they would have
taken notice of the warning and avoided the danger. This is because
the law does not attach liability to failure to do something that would
not have been effective.
See Rogers v Whitaker (1992) 175 CLR 479 above at 5.3.2.
5.4.11 New intervening causes
Even if a defendant’s conduct has created the situation in which harm
occurred, a court may decide that another event, such as another
person’s free and deliberate act, has intervened as the cause of the
harm. The court considers an event as a novus actus interveniens —
or ‘new intervening act’ — when it was sufficient to break the causal
link between the defendant’s conduct and the eventual harm. In such
cases, the defendant is not liable because the harm is no longer
causally linked to the defendant’s negligent conduct. To break the
chain of causation between the defendant’s conduct and the plaintiff’s
harm, the new event needs to have been something unforeseeable or
extraordinary, beyond the usual course of events.

5.4.12 No liability unless consequences were reasonably

foreseeable
Simply identifying that the defendant’s negligence was a cause of the
plaintiff’s harm can make it very difficult to decide exactly where the
effect of a defendant’s conduct finally ends. This means that
defendants are potentially liable for all the future consequences of
their acts. However, courts place a limit on this potentially very wide
liability, by using the concept of foreseeability. Under the concept of
remoteness of harm, a defendant is liable for the harm that results
from a breach of a duty of care owed to the plaintiff only if the kind of
harm or consequence was reasonably foreseeable as a result of the
breach. Any kind of harm which was not reasonably foreseeable is
said to be too remote to be recoverable.

Under recent legislation, the court is to consider whether or not and

why responsibility for the harm should be imposed on the negligent
party. While this gives a court wide discretion on this issue, the courts
have largely continued to follow the common law approach.
5.4.13 No liability for kinds of harm that were not foreseeable
A defendant is liable in Negligence for damage of the kind or type that
was reasonably foreseeable, but not for damage of a different type
that could not have been reasonably foreseen. The precise manner in
which the harm comes about need not be foreseeable, as long as the
kind of harm suffered was foreseeable.
See Mount Isa Mines Ltd v Pusey (1970) 125 CLR 383 above at 5.2.5.
5.4.14 Liability under the ‘eggshell skull’ rule
A defendant is liable for damage of a foreseeable kind, even if some
particular weakness or frailty of the particular plaintiff has exacerbated
the harm that would have been suffered by a stronger person. This is
known as the ‘eggshell skull’ rule. It is based on the principle that a
defendant cannot answer the plaintiff’s claim for damages by arguing
that the plaintiff would have suffered less injury, or no injury at all, if he
had not had an unusually thin skull or an unusually weak heart, for
example.
¶5.5 Defences
5.5.1 Contributory negligence
A defendant’s liability for a plaintiff’s injury or loss may be limited if the
plaintiff has contributed to that injury or loss through their own
negligence. Contributory negligence is concerned with a plaintiff’s
failure to take reasonable care for their own interests and safety and
whether such a failure contributed to the harm they suffered.
The standard of care expected of a plaintiff is now enshrined in
legislation.4 It is the standard of ‘a reasonable person in the position of
the plaintiff’, judged on ‘the basis of what that person knew or ought to
have known at the time’. Section 5R of the Civil Liability Act 2002
(NSW) is illustrative.
The extent to which liability should be shared between a defendant
and a plaintiff, each of whose conduct has contributed to harm, is also
laid down in the legislation. The damages recoverable from the
defendant will be reduced to the extent the court thinks just and
equitable having regard to the claimant’s share in the responsibility for
the damage.
5.5.2 Assuming the risk of harm
A person may suffer harm while participating in an activity or situation
knowing there was a risk of such harm and accepting that risk. This
situation is known as ‘volenti non fit injuria’, which can broadly be
translated as ‘one who consents cannot suffer a legal wrong’. In other
words, a person who voluntarily accepts a known risk of injury does
not acquire a legal right to any compensation if the harm occurs.
To succeed, a defendant must show that the plaintiff perceived the
existence of the danger, fully appreciated the nature and extent of the
danger, and voluntarily accepted the risk involved, either expressly or
impliedly. In many cases, these requirements are difficult to satisfy
and the courts have been somewhat reluctant to apply this doctrine. If
the alternative defence of contributory negligence is available on the
facts, a court will generally prefer to rely on that defence instead.

See Haynes v G Harwood & Son [1935] 1 KB 146 above at 5.2.13(b).

5.5.3 Legislative provisions governing the assumption of risk
State and territory legislation now gives greater effect to a policy that
persons who knowingly engage in situations involving obvious risks of
harm should themselves bear responsibility for the harm that they may
suffer. Sections 5F–5I of the Civil Liability Act 2002 (NSW) are
illustrative. A risk is obvious when it would have been obvious to a
reasonable person in the position of the plaintiff, including risks that
are patent or a matter of common knowledge; a risk can be obvious
despite having a low probability of occurring; and it need not be
prominent, conspicuous or physically observable. An injured person is
presumed to have been aware of obvious risks, and the defendant is
under no duty to warn of such risks except in certain specified cases.
5.5.4 Risks of harm in recreational activities
In terms of state and territory legislation, persons who knowingly
engage in recreational activities that involve a significant risk of
physical harm also now bear responsibility for the harm that may
occur. Sections 5K–5N of the Civil Liability Act 2002 (NSW) are
illustrative.
Recreational activities include sports and other activities undertaken
for leisure, relaxation or enjoyment. If a plaintiff engages in a
recreational activity that involves a significant risk of physical harm,
the defendant will not owe a duty of care in relation to risks of which
the plaintiff has received warning. The warning must be given in a way
that is reasonably likely to inform people of the risk before they
engage in the activity. The sections detail several exceptional
circumstances, such as when the plaintiff is unable to understand a
risk warning because of young age or mental disability.

Footnotes
4 Civil Liability Act 2002 (NSW), Pt 1A, Div 8; Civil Liability
Act 2003 (Qld), Ch 2, Part 1, Div 6; Civil Liability Act 1936
(SA), Pt 7; Civil Liability Act 2002 (Tas), Pt 6, Div 7; Wrongs
Act 1958 (Vic), s 62; Civil Liability Act 2002 (WA), s 5K;
Civil Law (Wrongs) Act 2002 (ACT), Ch 4, Part 4.4.

¶5.6 Establishing liability for Negligence

The following checklist provides a carefully structured approach to
deciding whether or not liability for Negligence exists in particular
circumstances. If you think about each of the questions in the order
they are given, you will find it easier to find and apply the relevant law.
Remedies in tort
¶6.1 INTRODUCTION

6.1.1 What remedies are available to a plaintiff who brings an

action in tort law?
It is important to know what remedy is available to a plaintiff who is
able to establish a defendant’s liability for wrongful conduct in tort law.
There are various possible remedies, including compensatory
damages, non-compensatory damages, injunctions and other
remedies. The various remedies are explained in more detail in this
chapter.
6.1.2 Compensatory damages
A plaintiff is entitled to claim monetary compensation for the harm
suffered as a result of the defendant’s wrongful conduct. Such
damages are appropriate if the plaintiff has already suffered actual
harm or loss. The aim of the monetary award is to put the party who
has been injured in the same position as they would have been had
the defendant’s tortious conduct not occurred.
Calculating the appropriate amount of damages can be a complex and
difficult task, with many factors playing a part. State and territory
legislation now sets out detailed rules for quantifying (and in some
cases limiting) awards of damages. The provisions of Pt 2-11 of the
Civil Liability Act 2002 (NSW) illustrate the various situations where
these rules apply:
• personal injury damages

• damages for mental harm

• proportionate liability

• the relevance of self-defence, and

• the recovery of damages by criminals.

The details of these many provisions (and equivalent provisions in the

legislation of the other states and territories) are beyond the scope of
this work, but should be reviewed selectively as required.
6.1.3 Non-compensatory damages
The common law allows non-compensatory damages of various kinds
to be awarded against a defendant, including nominal damages,
exemplary damages, contemptuous damages and aggravated
damages. Nominal damages merely signal that the defendant has
committed a breach of a legal duty, although no harm has been
suffered. Exemplary, contemptuous and aggravated damages are
awarded as a mark of the court’s disapproval of particular conduct.
However, legislation may now limit the award of such damages, as
illustrated by s 21 of the Civil Liability Act 2002 (NSW). It provides
that, in an action for the award of personal injury damages, where the
act or omission that caused the injury or death was Negligence, a
court cannot award exemplary or punitive damages or damages in the
nature of aggravated damages.
6.1.4 Injunction
An injunction is a court order requiring a defendant to do something or
not to do something. Injunctions are an appropriate remedy when the
harm to a plaintiff is continuing or when it has not yet happened. Thus,
a prohibitory injunction can be sought to prevent likely harm from
happening in the future or from continuing.
6.1.5 Other remedies
There are various other remedies that are appropriate in particular
cases. They include restitution, a return of property, a declaration of
rights and self-help.
6.1.6 Can a plaintiff seek a remedy from more than one
defendant?
In some cases, more than one person may be liable as a defendant.
When two or more persons join in wrongful conduct that causes harm
to a plaintiff, they are known as ‘joint tortfeasors’ and are jointly liable
to the plaintiff.

Note: Where there is no community of design between persons, but

their acts combine to produce harm, the wrongdoers are referred to as
‘several’ tortfeasors as opposed to ‘joint’ tortfeasors.
Joint tortfeasors can be sued either jointly or individually for the harm
they cause. Either one may be liable for the total amount of the loss.
The plaintiff can recover the full amount from either one of them, or
can recover an appropriate amount from each tortfeasor according to
their blame and what is ‘just and equitable’. How to apportion liability
is governed by legislation (see, for example, Pt 4 of the Civil Liability
Act 2002 (NSW)).
Joint tortfeasors should be distinguished from ‘several’ (or
‘concurrent’) tortfeasors and ‘independent’ tortfeasors.
• Several (or concurrent) tortfeasors do not act ‘in concert’ but
contribute independently to the same damage suffered by a
plaintiff. This situation commonly arises in motor car accidents.

• Independent tortfeasors is the term used when two or more

tortfeasors inflict separate damage on a plaintiff. They do not
share any liability unless the second tort is causally related to the
first.

A plaintiff is entitled to bring an action against each several or

independent tortfeasor, to the extent that each one has caused harm.
6.1.7 Does a plaintiff have alternatives to bringing an action
against a wrongdoer?
If a person can prove that the harm they have suffered was due to
another person’s negligence, they can claim damages in tort from that
person. As an alternative, it might be possible to claim compensation
through what is known as a ‘compensation system’ or scheme. There
are various such schemes, such as private insurance, social security,
workers’ compensation schemes, motor accident compensation
schemes and criminal injuries compensation schemes.
Under such schemes, compensation is payable to an injured person
whether or not the accident was due to anyone’s negligence. The
drawback of claiming under such ‘no-fault’ schemes is that the
compensation paid is always less than full compensation and almost
always less than might be obtainable in a successful common law
action in tort.
In addition, the National Disability Insurance Scheme Act 2013 (Cth)
has recently established a scheme whereby people suffering from a
disability are entitled to various forms of assistance.

¶6.2 Compensatory Damages for Personal Injury

6.2.1 The meaning of ‘personal injury’
The term ‘personal injury’ covers consequences of bodily injury,
nervous shock, disease and illness. It thus includes the economic and
other consequences of such injury, such as medical costs, costs of
future care, lost earnings, pain and suffering, loss of amenity and
shortened life expectancy.
6.2.2 Common law principles governing compensation for
personal injury
At common law, the following principles apply to an award of
compensatory damages for personal injury:
• Plaintiffs should be awarded a sum of money that will, as nearly as
possible, put them in the same position as if the tort had not
occurred.

• Damages for one particular cause of action must be recovered

once and forever, and (in the absence of any statutory exception)
must be awarded in a lump sum.

• The court has no concern with the way plaintiffs use the sum
awarded to them; they are free to do what they like with it.

• A plaintiff bears the burden of proving the injury or loss for which
they seek damages.

6.2.3 Legislative provisions

Legislation in most of the states and territories has significantly altered
the common law principles set out above.1 In many cases, limits or
‘caps’ have been placed on damages for loss of future earning
capacity. In other cases, a minimum degree of harm is laid down as a
‘threshold’, below which damages may not be claimed for non-
economic losses (such as physical injury). See, for example, Pt 2 and
3 of the Civil Liability Act 2002 (NSW).
6.2.4 General and special damages
The damages that a plaintiff can seek are described as either ‘general
damages’ or ‘special damages’. General damages compensate for
loss that is difficult to assess precisely in financial terms and for loss
that is not of a monetary nature, such as pain and suffering. Special
damages compensate for loss which can be precisely assessed, such
as medical expenses actually suffered up to the date of the verdict.
Special damages require proof of the loss.
6.2.5 Damages awarded as a lump sum
At common law, plaintiffs can expect only one single payment to
compensate them for their injuries.
A lump sum is awarded, which is intended to compensate the plaintiff
for both past and future harm. This makes it necessary for a court to
calculate what damages should be awarded for harm that can be
predicted but that has not yet occurred. Once the award of damages is
made, that is the end of the matter, even if some of the predicted harm
does not occur or if the actual harm becomes greater than predicted.
6.2.6 Legislative provision for periodic payments of damages
Because it is difficult to assess damages for predicted harm, some
Australian states have made statutory changes to the law.2 In Western
Australia, South Australia and New South Wales, the courts are
authorised to make interim assessments and to order periodic
payments in certain circumstances. In Victoria, courts can approve an
agreement by the parties to make periodic payments.
6.2.7 Legislative limits on compensation claimable
Awards of damages may be so large that they become economically
unsustainable (eg by making insurance premiums unaffordable).
Legislation has now been passed in the various Australian
jurisdictions to limit the amounts (or specify the methods used to
determine the amounts) payable as compensation in personal injury
cases. Such limitations may disadvantage individual plaintiffs but
Australian governments have been more concerned to ensure that
economically and socially beneficial activities are not stopped because
of the threat of massive personal injury claims.3
6.2.8 Compensation for ‘pecuniary harm’
A plaintiff who has suffered personal injury can claim damages for
harm of a financial or monetary nature (’pecuniary harm’). Pecuniary
harm includes loss of the plaintiff’s earning capacity and costs
associated with the plaintiff’s care.
6.2.9 Assessing compensatory damages for lost earnings
Assessing damages to compensate a plaintiff for earnings lost before
the trial is reasonably straightforward because all the facts are known.
The usual principle of full compensation is applied, although Australian
courts take net earnings into account to calculate loss of earnings, not
gross earnings. The amount of damages for earning capacity that will
be lost after the trial is more difficult to calculate. The award has to be
based on an estimate of what may happen in the future, comparing
that figure with an estimate of what might have happened had the
plaintiff not been injured.
Note: This common law discount rate has since been adjusted by legislation in the various
jurisdictions. For instance, s 14 of the Civil Liability Act 2002 (NSW) sets a discount rate of 5%
for future economic loss in damages for personal injury.

6.2.10 Compensation for medical and associated costs

Costs associated with the plaintiff’s care include the cost of medical
and nursing care and other similar costs, such as those associated
with reasonable modification of a home to accommodate a wheelchair.
Both past and future costs may be claimed, but because future costs
cannot be proved, the court must estimate a likely sum. When
assessing the costs associated with future care of the plaintiff, the
court will rely on market values rather than inquiring as to an individual
plaintiff’s access to such care, for example from family members.
6.2.11 Taking account of other benefits received
An injured plaintiff may have received benefits from some other
source because of the harm suffered, such as through a no-fault
compensation scheme. In such cases, federal and state legislation
determines what effect this should have on an award of damages
made against the defendant. For example, such legislation may
prevent a plaintiff from receiving repeated compensation for the same
harm.4
6.2.12 Compensation for non-pecuniary harm
A plaintiff may have suffered non-pecuniary harm such as pain and
suffering, a shortened life expectancy, or loss of physical or mental
capabilities (amenities). The courts have long recognised that a
plaintiff should be entitled to recover some sort of monetary
compensation for non-pecuniary harm, even though it is difficult to
place a precise monetary value on it.
A lump sum is awarded for all of the non-pecuniary harm a plaintiff
has suffered. By statute in most states and territories, there are
‘thresholds’ (minimum levels of harm) which must have been suffered
by a plaintiff before any award can be made. There are also ‘caps’ that
limit the maximum amount of damages that can be awarded.5

Footnotes
1 Civil Liability Act 2002 (NSW), s 12; Civil Liability Act 2003
(Qld), s 54; Civil Liability Act 1936 (SA), s 54; Civil Liability
Act 2002 (Tas), s 26; Wrongs Act 1958 (Vic), Part VB; Civil
Liability Act 2002 (WA), s 11; Civil Law (Wrongs) Act 2002
(ACT), s 98; Personal Injuries (Liabilities and Damages) Act
(NT), s 20.

2 Motor Vehicle (Third Party Insurance) Act 1943 (WA);

 Supreme Court Act 1935 (SA); Motor Accidents Act 1988
(NSW).

3 Civil Liability Act 2002 (NSW), s 14; Civil Proceedings Act

2011 (Qld), s 6; Civil Liability Act 1936 (SA), s 3 and s 55;
Civil Liability Act 2002 (Tas), s 28A; Wrongs Act 1958 (Vic),
s 28I; Law Reform (Miscellaneous Provisions) Act 1941
(WA), s 5; Personal Injuries (Liabilities and Damages) Act
2003 (NT), s 22.

4 Civil Liability Act 2002 (NSW), s 15; Civil Liability Act 2003
(Qld), s 59; Civil Liability 1936 (SA), s 58; Wrongs Act 1958
(Vic), s 28IA and 28IB.

5 Civil Liability Act 2002 (NSW), s 16; Civil Liability Act 2003
(Qld), s 62; Civil Liability Act 1936 (SA), s 52; Civil Liability
Act 2002 (Tas), s 27; Wrongs Act 1958 (Vic), Pt VBA; Civil
Liability Act 2002 (WA), s 9 and 10; Civil Law (Wrongs) Act
2002 (ACT); Personal Injuries (Liabilities and Damages) Act
(NT), s 27.

¶6.3 Compensatory Damages for Wrongful Death

6.3.1 Statutory rights to compensation for wrongful death

At common law, if a person is killed because of another’s tortious
conduct, the deceased’s surviving dependants have no right of action
against the person who caused the death. Nor can an action be
brought on behalf of the deceased’s estate. However, statutory
provisions now exist to give certain specified dependants a right to
claim damages in such circumstances.6
The wording and effect of the legislation varies between jurisdictions,
but all relevant Acts give a right of action to the dead person’s spouse
(de facto or de jure), parents, step-parents, grandparents, children
(including step-children and ex-nuptial children) and grandchildren.
In Victoria it is not necessary to establish one of these specified
relationships; it need only be shown that the claimant was wholly,
mainly or partly dependent on the deceased at the time the injury
occurred.
All jurisdictions except Queensland include full-and half-blood siblings
of the victim. All except Tasmania and South Australia include persons
with whom the deceased had an in loco parentis relationship. Western
Australia and the two territories include the divorced spouse of the
deceased.
6.3.2 Compensation for loss of financial support
The main pecuniary loss suffered by most dependants is the loss of
financial support from the deceased’s earnings. In calculating this, the
courts deduct from the deceased’s gross earnings the amount the
deceased would have spent on their own needs. Adjustments are also
made in relation to the period of time during which family members
could reasonably have expected to benefit from the deceased’s
earnings or services.
6.3.3 Survival of a deceased person’s claims for personal injury
suffered before death
In early common law, when a person was killed as a result of a
defendant’s tort, any personal rights of action died with the deceased.
Legislation in Australia has since changed the law. A deceased’s right
to damages for personal injury now ‘survives’ their death, and the
deceased’s representatives can bring an action claiming the damages
to which the deceased would have been entitled.
Although the legislative provisions differ somewhat among the
different jurisdictions, they generally allow the deceased’s survivors to
recover damages for medical and similar expenses incurred by the
deceased after the accident and before death, for the deceased’s lost
earning capacity during the same period and for the deceased’s
funeral expenses.7

Footnotes
 6 Compensation to Relatives Act 1897 (NSW); Civil
Proceedings Act 2011 (Qld), Pt 10; Civil Liability Act 1936
(SA), Pt 5; Fatal Accidents Act 1934 (Tas); Wrongs Act
1958 (Vic), Pt 3; Fatal Accidents Act 1959 (WA); Civil Law
(Wrongs) Act 2002 (ACT), Pt 3.1; Compensation (Fatal
Injuries) Act 1974 (NT).

7 Law Reform (Miscellaneous Provisions) Act 1944 (NSW),

Pt 2; Succession Act 1981 (Qld), s 66; Survival of Causes
of Action Act 1940 (SA); Administration and Probate Act
1935 (Tas), s 27; Administration and Probate Act 1958
(Vic), s 29(1); Law Reform (Miscellaneous Provisions) Act
1941 (WA), s 4; Civil Law (Wrongs) Act 2002 (ACT), s 15;
Law Reform (Miscellaneous Provisions) Act 1956 (NT), s 5.

¶6.4 Compensatory Damages for Harm to Property

6.4.1 Assessing loss in cases of harm to property

When tortious conduct causes harm to property, damages are
awarded to put the plaintiff into the position they would have been in if
the defendant’s tort had not occurred. The amount of damages
claimable is calculated either by reference to the decrease in market
value of the property or by reference to the cost of repairing or
restoring the property.
To assess a decrease in market value of property, a court must first
assess how much the property in question would sell for if it were put
on the market in an undamaged condition and bought by a willing
buyer. The court must then assess how much the property would sell
for in its damaged state. The plaintiff is entitled to the difference
between these two values.
6.4.2 Damages for the costs of repairs to and restoration of
property
To estimate the cost of repairs or restoration, the court must assess
what would be the reasonable cost of restoring the property to the
condition it was in before it was damaged or the cost of providing the
plaintiff with a reasonably suitable replacement.
6.4.3 Compensation for consequential losses flowing from
damage to property
Losses resulting from damage to property are also recoverable (such
as the cost of accommodation while a house is undergoing repair).

¶6.5 Non-compensatory Damages

6.5.1 Damages awarded for non-compensatory purposes
Although the normal aim of damages is to compensate a plaintiff for
the harm they have suffered, in some situations, a court may award
damages that have a non-compensatory purpose. Such damages are
referred to variously as ‘nominal’ damages, ‘contemptuous’ damages,
‘exemplary’ damages and ‘aggravated’ damages, depending on the
circumstances in which they are awarded.
6.5.2 Nominal damages
Nominal damages are awarded where a plaintiff can prove that an
actionable tort has occurred, even though the plaintiff has not suffered
any actual harm or loss. Nominal damages are a way of confirming
that the plaintiff’s legal rights have been infringed. ‘Nominal’ means ‘in
name only’, so only a very small amount of damages is actually
awarded.
6.5.3 Contemptuous damages
Contemptuous damages are those awarded when, although the
plaintiff has established that the defendant is liable in tort, the jury
considers that the plaintiff’s conduct has been reprehensible. In such
cases, the damages awarded are of a trifling sum and are called
contemptuous damages. Contemptuous damages are most commonly
awarded in defamation cases.
6.5.4 Exemplary damages
Exemplary damages are awarded to punish the defendant’s behaviour
and make a public example of them. Such damages can be awarded if
a defendant has behaved in a particularly outrageous manner, for
example, by subjecting the plaintiff to humiliation or distress. The more
outrageous the defendant’s deliberate behaviour, the greater the
exemplary damages. Such damages are sometimes called punitive
damages, vindictive damages or retributory damages.
6.5.5 Aggravated damages
Aggravated damages are awarded to compensate a plaintiff for any
extra indignity they have suffered. Aggravated damages also indicate
a court’s disapproval of the defendant’s behaviour and seek to deter
such behaviour.
6.5.6 Legislative provisions
Legislation may now limit the award of non-compensatory damages.
For example, s 21 of the Civil Liability Act 2002 (NSW) provides that,
in an action for the award of personal injury damages, where the act
or omission that caused the injury or death was Negligence, a court
cannot award exemplary or punitive damages or damages in the
nature of aggravated damages.

¶6.6 Injunctions
6.6.1 The nature of an injunction
An injunction is a court order, normally addressed to a particular
person. In the context of tort law, an injunction is made to prevent
injury or loss from occurring. Failure to obey the terms of an injunction
may be punished as a contempt of court. Injunctions are probably the
most important alternative remedy to damages in tort law.
6.6.2 Types of injunction
If a court orders a person to perform an act, the injunction is described
as ‘mandatory’. Orders that forbid something, or stop something from
continuing, are called ‘prohibitory’ injunctions. If, prior to the full
hearing of a case, a plaintiff wants to stop the defendant from
continuing the conduct which the plaintiff alleges is tortious, the
plaintiff can seek a temporary injunction called an ‘interlocutory’ or
‘interim’ injunction. If a plaintiff has grounds to fear that the defendant
may do something in the future that will cause harm (although it has
not happened yet), a quia timet injunction may be sought to restrain
the defendant. A ‘perpetual’ (or final) injunction can be granted at the
end of a trial, providing permanent relief to the plaintiff.

¶6.7 Restitution
6.7.1 Restitution distinguished from compensation
When a defendant has been enriched by committing a tort, the plaintiff
may prefer to seek restitution rather than compensation. The plaintiff
claims the money which the defendant has made from the tortious
behaviour. Because this is based upon the defendant’s enrichment,
rather than the plaintiff’s harm, the plaintiff need not prove that they
have suffered a loss. Instead the plaintiff must establish that, because
of the defendant’s tortious behaviour, the defendant has been unjustly
enriched at the plaintiff’s expense. It can be an advantage to sue in
restitution if the compensatory damages that could be claimed are
less than the defendant’s unjust enrichment.
6.7.2 Instances of unjust enrichment
Unjust enrichment can occur in different ways. For example, a
defendant might have wrongfully converted a plaintiff’s goods, selling
them to a third party. In such circumstances, the owner of the goods
can seek to recover the proceeds of the sale from the defendant. Or a
defendant might, by trespassing on the plaintiff’s land, save the
transport costs involved in using a different route. In such
circumstances, the plaintiff can seek to recover the amount of the
expenses that the defendant saved.

¶6.8 Other Remedies

6.8.1 Remedies available in special circumstances

There are certain other remedies available in appropriate
circumstances to a plaintiff who can establish a tort against a
defendant. These include:
• Return of property: In some cases, a court may order the
defendant to return property to the plaintiff, rather than ordering
the payment of damages.

• Declaration of rights: Sometimes, to resolve a dispute, a plaintiff

needs only an authoritative statement of their legal position or
rights. Once these are known, the defendant might be willing to
do voluntarily what is required. In such cases, the court can make
a declaration of the plaintiff’s legal rights.

• Self-help: In some circumstances, plaintiffs are entitled to assist

themselves. For example, a plaintiff may deal with trespassers by
ejecting them, provided the plaintiff uses only reasonable force. A
plaintiff can also take direct action against animals that stray onto
the plaintiff’s land, by detaining them.

¶6.9 Claiming Damages in Tort Law

The following checklist will help you to take proper account of the
various factors that should be considered when claiming a remedy in
tort law.
Module 3: Contracts in
Australian commercial law
Making a contract
¶7.1 Introduction

7.1.1 What is a contract?

A contract is a legally enforceable agreement between two or more
persons who are called the ‘parties’ to the contract. When a contract is
made, the parties become legally obliged to do what they have
promised. If they fail to carry out their promises, they can be taken
before the courts and, if the case against them is proved, ordered to
pay compensation for the breach of their obligations.1
This chapter explains how contracts are created.
7.1.2 What makes a contract legally enforceable?
A contract is said to be enforceable at law because, when a contract is
made, the parties become subject to legal ‘obligations’. An obligation
is a legally binding duty to give or do something. For example, if a
farmer enters into a contract to sell 100 bags of potatoes to a shop-
owner in exchange for $400, both the farmer and the shop-owner
become bound by legal obligations to do what they have promised.
The farmer has the duty to deliver the potatoes to the shop-owner and
pass ownership of the potatoes to the shop-owner, and the shop-
owner has the duty to pay the agreed price to the farmer. It can be
seen from this example that each of the duties owed involves a
corresponding right. Thus, the shop-owner has the right to delivery
and to become owner of the potatoes, and the farmer has the right to
be paid the agreed price. In summary, we can say that when a
contract is made, it creates legally enforceable rights and duties,
which we refer to as ‘obligations’.
7.1.3 Who has the power to bind themselves by contract?
A contract can only be made by persons who have the capacity to
acquire legal rights and obligations. Generally speaking, both natural
persons (human beings) and artificial persons (legal entities such as
corporations and government bodies) are capable of acquiring legal
rights and obligations. However, some persons lack such capacity.
For example, persons who are not yet adults have only a limited
capacity to contract, and some adults may have their legal capacity
restricted by a mental disability, by the effect of intoxicating drugs or
by insolvency. This aspect of contract formation is dealt with in more
detail later in this chapter.
7.1.4 Is every agreement a contract?
Not every agreement that is entered into is a contract, even if the
parties have capacity to acquire legal rights and obligations. Many
agreements are considered not to be legally binding, such as social
agreements between friends or domestic agreements between family
members. Such agreements are not enforceable at law and you
cannot bring an action in court for damages if they are not carried out.
It is the enforceability of contracts at law that distinguishes contracts
from these other ‘non-contractual’ agreements.
7.1.5 How are contractual duties discharged?
When contractual obligations are created, they bind the parties until
the relevant duties are fulfilled, or ‘discharged’. Duties are normally
discharged by the parties carrying out the promises contained in their
contract. In our example, as soon as the farmer delivers the potatoes
to the shop-owner and makes the shop-owner the owner, the farmer
has discharged those obligations. And when the shop-owner has paid
the agreed price, they have discharged that obligation. When all the
obligations created by the contract have been discharged, we say that
the contract itself is discharged.
7.1.6 How is a contract enforced?
What if the parties fail to carry out or ‘perform’ their promises, either at
all, or in the promised way? In that case, there is a ‘breach of contract’
and the legal obligations remain undischarged. It is these
undischarged obligations that provide the basis for a legal action to
enforce the agreement. The party to whom an undischarged
contractual obligation is owed can sue the defaulting party on grounds
of breach of contract and seek an appropriate remedy—normally an
award of ‘damages’, meaning compensation.
7.1.7 Why are legally enforceable agreements important?
Because contracts are legally enforceable, people who enter into
contracts are more likely than not to carry out their promises. It follows
that contracts are a valuable tool for doing business with persons you
may not know well enough to trust and with whom you have no other
relationship that would encourage them to do what they promised.
Contracts are also important when agreements involve carrying out
promises over time, such as when leasing premises or hiring
employees; and when promises are to be carried out in the future,
such as when goods or services are to be supplied at a later date. The
parties to such contracts become legally bound from the moment the
contract is first made, and these obligations guarantee that the
promises will be carried out or, if there is a failure to perform, a right to
claim damages for breach of contract.
7.1.8 How are contracts made?
From what has been said, we can see that it is important to know
exactly how and when a contract is made and at what precise moment
an agreement becomes legally enforceable. We call this aspect of
contract law ‘formation’ because it deals with how contracts are made
and the particular requirements for the creation of a valid contract.
There are several things to consider. For example, it is important to
understand that, in many cases, a pre-contractual phase or process
takes place before a contract is made. We can call this the
‘negotiation’ phase, during which the parties exchange information
and explore the possibilities to see if they can reach an agreement to
which they are prepared to bind themselves. The legal consequences
of what is said during negotiations vary, but in the end, the
fundamental question to be decided is: Was a contract made and, if
so, what promises does it contain? Only at that point do the parties
become bound by the obligations to carry out their promises.
7.1.9 What are the essential requirements of contract formation?
Another important question to consider is: What requirements must be
satisfied before it is possible to say ‘now we have a contract’? If we
know what the requirements are, we can match them against the
known facts of the individual case and decide whether or not a
contract was made. The requirements of contract formation are easy
to state. Contracts come into existence when (and only when) the
facts of the case allow you to conclude that three essential elements
are all present. These are:
1. It can be inferred that the parties intend to be legally bound.

2. There is either formal execution of the agreement in a deed, or,

as an alternative, the exchange of ‘something of value’ when the
contract is made, generally called ‘consideration’.

3. There is a sufficient degree of agreement on the terms of the

contract.

To understand the nature of these requirements and what details may

be important in deciding whether or not they are satisfied in particular
circumstances, we will consider each of these essential elements in
this chapter.
7.1.10 What is meant by an ‘objective’ approach to ascertaining
facts?
One final point must be made clear before proceeding further. When
we consider the known facts of a particular case and ask whether or
not these facts satisfy some legal requirement or not, we must almost
always adopt an ‘objective’ approach rather than a ‘subjective’ one.
This means that we must ask: ‘What conclusions would a reasonable
person be able or likely to draw from the observable facts of the
case?’ Take, for example, the requirement of contract formation that
the parties must intend to be legally bound. To decide whether or not
such an intention existed in a particular case, we do not concern
ourselves with what the parties may have had in mind subjectively.
We ask whether the objectively observable or known facts allow us
reasonably to draw the conclusion (or infer) that, in the circumstances,
the parties must have had such an intention. This objective approach
is applied in many different circumstances and is the key to
understanding many of the decided cases that are discussed below.

Footnotes
1 A legal action brought against another person is often
referred to as a ‘suit’. A plaintiff can be said to ‘sue’ a
defendant on grounds of breach of contract.

¶7.2 Capacity to Contract

7.2.1 Persons with full power to bind themselves by contract

For a valid contract to be made, it is necessary that the parties have
the capacity as individuals to enter into legally binding agreements,
that is, the power to subject themselves to obligations that are
enforceable at law. Adult persons of sound mind have full contractual
capacity. Section 124 of the Corporations Act 2001 (Cth) gives
corporations the same legal capacity and powers as a natural adult
person. Government bodies may also have the capacity to enter into
contracts.
7.2.2 The contractual capacity of minors
Minors (persons under the age of 18 years) have only a limited
capacity to bind themselves by contract, either to acquire ‘necessities’
or in agreements that are for their benefit. This protects young
persons from the dangers of entering into contracts that may
disadvantage them.
If ‘necessities’ are sold and delivered to a minor (or other persons with
similarly limited contractual capacity), the minor will be bound to pay a
reasonable price for what was received. Necessities may comprise
things such as food, clothes, equipment, accommodation, medical
services and even transport.

Note: It is obvious that the court reached this decision partly on policy grounds. To have
denied the enforceability of the agreement would have left the seller in difficult circumstances.

A minor also has the capacity to be bound by a contract for

employment, an apprenticeship, training or education, as long as the
agreement is, on balance, for the minor’s benefit. If not, the agreement
will not be enforceable against the minor.
7.2.3 Avoidance of certain contracts by minors
When a minor enters into a contract that gives them an interest in
property of a permanent nature or which involves a continuing
obligation, the contract can be avoided if the minor so chooses, at any
time before reaching the age of 18 or within a reasonable time after
turning 18 years of age. If the minor does not decide to avoid the
contract within this time, they are considered to have decided to
continue with it and it becomes a permanently enforceable agreement.
7.2.4 Legislative provisions regarding the capacity of minors
Some Australian states have legislation that affects the extent to
which minors may or may not be bound by various types of
agreement.2
7.2.5 The contractual capacity of mentally disabled persons
Mental disabilities can affect an individual’s capacity to contract. In
some cases, individuals are declared by a court to be permanently
unable to manage their own affairs. Such persons cannot validly enter
into a binding contract. However, if a mental disability does not
permanently impair the individual’s understanding and awareness,
they will be bound by a contract unless, at the time they entered into it,
their disability prevented them from understanding what they were
doing and the other person was aware (or should have been aware) of
their impaired mental condition.
7.2.6 Other circumstances involving limited capacity to contract
There are various other circumstances in which a person’s capacity to
contract may be limited or restricted. In particular, a person who is
insolvent (bankrupt) has a restricted capacity to enter into contracts. A
person under the influence of intoxicating drugs may also be so
unaware of what they are doing that they cannot bind themselves
contractually.

Footnotes
2 See, for example, Minors (Property and Contracts) Act
1970 (NSW), s 47; Minors Contracts (Miscellaneous
Provisions) Act 1979 (SA), s 5; Minors Contracts Act 1988
(Tas), s 4; and Supreme Court Act 1986 (Vic), s 49–51.

¶7.3 The Essential Elements of Contract Formation

There are three essential requirements or ‘elements’ that must be

satisfied before a valid contract comes into existence. The first is that
the parties have the intention to be legally bound by their agreement.
The second is that the agreement is either formalised in a document
called a deed, or alternatively, that it involves an exchange of
something of value to all the parties. Thirdly, it is required that all the
terms needed for a workable transaction are agreed with sufficient
certainty. Each of these elements will be discussed in turn.
7.3.1 Intention to be legally bound
7.3.1(a) Inferring an intention to be legally bound
The first essential element of contract formation is the existence of an
intention by the parties to create and take on legally binding
obligations. This intention to be legally bound is important because it
allows us to distinguish between legally enforceable agreements
(contracts) and agreements that are not enforceable in the courts
(non-contractual agreements). The existence of an intention to be
legally bound is ascertained by having regard to the objectively
knowable facts of the case and drawing the appropriate inference.

7.3.1(b) Agreements between family members

When close family members reach domestic agreements, it is
normally inferred from the facts that these agreements are not
intended to be legally binding. It should be noted that, historically at
least, women were more likely than men to be dependant upon such
domestic agreements. The fact that courts took the view that the
agreements were not intended to be enforced as contracts reinforced
the dependant status of women. While the legal reasoning underlying
such cases may be correct, it is important to recognise the social
consequences of the law.
A person who wants to treat an agreement with a close family relation
as legally binding will need to prove additional circumstances which
indicate an intention to be legally bound.
7.3.1(c) Agreements between friends
The likely inference is that agreements made between friends, and
agreements to provide volunteer or charitable services, are not
intended to be legally binding. In such cases, the person wishing to
treat the agreement as legally binding bears the onus of proving any
additional circumstances from which an intention to be legally bound
can be inferred.
7.3.1(d) Agreements reached in a commercial context
When agreements are reached in a commercial context, it will usually
be inferred that the parties intend to be legally bound. If a party to an
agreement reached in a commercial context wishes to argue that it
was not intended to be legally binding, they bear the onus of proving
facts to establish this, for example, by showing that the particular
agreement was intended to rely only on feelings of honour or
friendship.
7.3.1(e) Conditional agreement
If the parties want to, they can delay the final creation of a contract, for
example, until some event has taken place such as the signing of a
formal written agreement. However, care must be taken to ascertain
exactly what the parties intended. The surrounding facts may indicate
an intention to avoid being legally bound at all until formalities are
completed. In other circumstances, the facts may show that only
performance of their agreement is intended to be delayed, in which
case the agreement becomes legally binding even before it is
formalised.
In the present case, the words ‘subject to’ the preparation of a formal
contract were sufficient to indicate that Cameron did not intend to be
legally bound by the agreement at all until a formal contract was
prepared and signed.
Note: In GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR
631, the court recognised a fourth category of case. If the parties have agreed on sufficient
terms for a workable transaction and intend to be immediately bound by that informal
agreement, even though they propose thereafter to execute a formal contract which may
contain additional terms yet to be agreed, then the initial agreement is legally binding even
before the formal contract is executed.
Note: This case is dealt with in more detail later, but is useful now as an illustration of a case
in which performance, rather than formation, of a contract can be made conditional.

7.3.1(f) Letters of comfort

A ‘letter of comfort’ is a written assurance given to a creditor that a
debtor will perform his or her obligations. The party giving the
assurance may or may not intend to be legally bound by the
assurance, depending on the circumstances of the case and exactly
what is written in the letter. If the statements in the letter are not
promissory in nature, then no intention to create legal obligations will
be inferred and no contractual liability arises.
7.3.2 Either execution of the contract in a deed, or the exchange
of consideration
7.3.2(a) Alternative ways of satisfying the second requirement
The second element of contract formation can be satisfied in one of
two ways. One possibility is to execute (create) the agreement in a
special formal document. The alternative is for each party to the
contract to give ‘something of value’ to the other parties at the time the
contract is being made.
7.3.2(b) Formal agreements executed in a deed
Historically, judges have distinguished between ‘formal’ and ‘informal’
agreements. Formal agreements are those that are executed in a
‘deed’. Any agreement executed in this way is considered to satisfy
the second essential requirement of contract formation.
Execution in the form of a deed is not difficult. These days, a written
document is a deed if it is signed and said to be sealed by its maker. It
must also be witnessed by someone who is not a party to the
agreement. A wax seal does not have to be actually affixed: it is
enough that the document says ‘signed and sealed’. The maker of the
deed must intend to deliver the deed to the other party and to be
bound by it.
7.3.2(c) Informal agreements and the need for an ‘exchange’
An agreement that is not executed in a deed is called an ‘informal’
agreement. In Australian law, not all informal agreements are
enforceable. An informal agreement is treated as legally enforceable
only if, at the time of contracting, each party gives something in
exchange for what they are getting. Whatever is given in exchange for
a promise is generally called ‘consideration’. Thus it is said that an
informal agreement must be ‘supported by consideration’ to satisfy the
second essential requirement of contractual formation. This element
was developed by the courts to provide moral justification for using the
power of the state to enforce rights created by informal private
agreements between individuals.
7.3.2(d) Consideration must be ‘of some value’
In Currie v Misa (1876) 1 AC 554, Lush J discussed the concept of
consideration. He said (at 162): ‘A valuable consideration, in the
sense of the law, may consist either in some right, interest, profit, or
benefit accruing to the one party, or some forbearance, detriment,
loss, or responsibility, given, suffered, or undertaken by the other’.
The consideration given by one party to the other does not have to be
‘adequate’ in the sense of being equal, or even close in value, to what
is given in exchange. The rule is that consideration only has to be of
some value and it must at least be ‘real’ rather than ‘illusory’. In other
words, it can be a mere token of the bargain.
7.3.2(e) Types of consideration
Consideration can consist of giving a thing, or doing something, that is
of some value to the other party, or that is burdensome or detrimental
to the person undertaking it. What is given as consideration can be a
promise rather than an actual thing.
However, the thing given in exchange for another person’s promise
cannot consist of something previously given for another reason. Put
another way, a thing already given cannot be given again later as
consideration. The thing already given is referred to as ‘past
consideration’, and the rule is that ‘past consideration is not good
consideration’.
Note: The result in this case may seem hard on the sailors, but the decision is clearly correct
based on a strict application of the established requirements of consideration.

Note: 7.3.2(h) below explains how these days courts are somewhat more flexible with regard
to the inadequacy of past consideration and, where appropriate, try to find ways around the
strict application of the rule.
7.3.2(f) Consideration in bilateral and unilateral contracts
In ‘bilateral’ contracts (that is, agreements where each party makes a
promise to the other), the exchange of promises is sufficient to provide
the necessary consideration for a binding contract to arise. An
example is a contract of employment, where the employer promises to
pay an agreed wage to the employee, and the employee promises to
do the agreed work for the employer.
In ‘unilateral’ contracts, there is no mutual exchange of promises at
the time of the agreement. In unilateral contracts, one party promises
to be bound to do something only if the other party has already carried
out some specified task. For example, one person might promise to
pay a reward of $100 to whoever provides them with certain
information. If a person, knowing of the promised reward, provides the
information, does the promise to pay the reward become legally
binding? The problem is that, before they actually supply the
information, the information provider does not appear to have given
anything that can be counted as consideration to the person who is
promising the reward. And they will have already provided the
information before the promise to pay the reward becomes legally
binding. The normal rule is that something already done prior to
contracting is ‘past consideration’ and past consideration does not
make the other person’s promise legally binding. However, the courts
treat unilateral contracts as a special case. If an act has been
performed by one person in the expectation that another person’s
promise in exchange for that act would become legally binding as
soon as the act is done, then the act (for example, providing the
information) is regarded as ‘executed’ consideration rather than as
‘past’ consideration. Executed consideration is good consideration,
sufficient to make the other person’s promise legally binding.
7.3.2(g) Performing an act as consideration
The same principle applies if one person asks another to perform an
act and indicates that a binding promise will be made at a later date in
exchange for the act. In such circumstances, the act performed in
reliance on the assurance may be treated as consideration for the
later promise, when it is made. The courts treat the first party’s
performance of the act not as ‘past’ consideration but as ‘executed’
consideration, that is, something done in the expectation that a
binding promise will be made sometime later in return.
7.3.2(h) A practical benefit as consideration
Because the rule in Stilk v Myrick (1809) 170 ER 1168 can lead to
unfortunate decisions, the courts have developed the idea that, in
some circumstances, where it may seem that only past consideration
has been given in exchange for a promise, a closer analysis shows
that the promisee has obtained some ‘practical benefit’, or that the
promisor has undertaken some ‘practical detriment’ by giving the
promise. Such practical benefit or detriment may be treated as
sufficient consideration.
7.3.2(i) A compromise as consideration
If there is a genuine disagreement about existing legal obligations and
the parties negotiate a compromise, the compromise is a sufficient
benefit and/or detriment to be good consideration, making the
agreement enforceable. However, the parties must have had a
genuine belief in the validity of their original claims, otherwise the
apparent compromise is illusory and does not provide consideration.
7.3.2(j) A promise made to a third party as consideration
A promise made by a third party may be sufficient consideration.
Suppose Ali has a contract with Ben in terms of which Ali will perform
some service for Ben. Ben’s friend Carly wants to ensure that Ali will
perform his obligations to Ben. Carly agrees to lend Ali $1,000 and in
return, Ali promises Carly that he will carry out his promises to Ben.
Since Ali was already contractually bound to Ben, has Ali provided
consideration for his agreement with Carly? The courts have held that
there is sufficient consideration in such circumstances. This is
because Ali has made a new promise to Carly: Ali has made himself
liable directly to Carly if he fails to render the promised services to
Ben, and Carly obtains a legal right to sue Ali for damages if Ali does
not discharge his obligations to Ben.
7.3.3 The element of agreement
7.3.3(a) The need for sufficiently complete agreement
The third essential requirement for the formation of a contract is the
reaching of sufficiently complete agreement between the parties.
Agreement is sometimes referred to by the Latin phrase ‘consensus
ad idem’ meaning a ‘meeting of the minds’. On the objective evidence
available, the parties must appear to have the same understanding of
what has been agreed.
Agreement is ‘sufficient’ when all the things that are needed for a
workable transaction have been agreed. The parties must also have
reached agreement on any other matter that either party has indicated
must be agreed upon before they will be bound. It must be understood
that judges will not themselves add terms to an incomplete agreement
so as to make it enforceable.
Agreement is ‘complete’ when what has been agreed is certain and
not either vague, illusory or conditional.
If the parties have failed to reach agreement to this extent, the courts
would be unable to enforce the agreement. This is a matter of
practicality. For example, a contract to buy and sell goods cannot be
created and enforced unless the parties have reached agreement on
what is being bought and sold, how much money is to be paid for it,
and that the transaction is a purchase and sale rather than some other
transaction.
7.3.3(b) Illusory promises
When the details of a promise are left to be fixed later at the discretion
of the promisor alone, the apparent promise may be illusory because,
on analysis, it may be shown that nothing of substance has been
agreed. Illusory promises cannot be enforced.
This does not mean that every promise must be expressed in exact
detail or in exactly measurable terms to be enforceable. The courts
will do their best to give effect to what has been agreed, even if the
agreement is open to different interpretations. In particular, a court can
take account of relevant industry standards, or past dealings between
the parties, to ascertain details not expressly included in the
agreement.
7.3.3(c) Conditional agreement
If the parties make the creation of a legally binding agreement
conditional on an event that may or may not happen, the contract is
created only if and when the condition is fulfilled (ie when the event
happens).
See Masters v Cameron (1954) 91 CLR 353 above at 7.3.1(e).
When no time is laid down within which a condition is to be fulfilled, it
must happen within a reasonable time. What is a reasonable time
depends on the circumstances of each case. Generally, the parties to
a conditional agreement are obliged to do whatever they may have
promised to bring about the fulfilment of a condition or, if nothing in
particular was promised, to do what is reasonably required, within
such time.
7.3.3(d) Reaching agreement by means of offer and acceptance
Reaching sufficiently complete agreement may take a lot of
negotiation or very little, but no contract is created unless the parties
clearly signal that they have finished negotiating and are ready to bind
themselves on particular terms. The process of reaching this important
point is often described as consisting of an ‘offer’ made by one party
(the offeror) to another (the offeree) and ‘acceptance’ of this offer by
the person to whom it was made.
An ‘offer’ consists of an indication by the offeror that they are ready to
contract on particular terms. If, in response, the offeree also indicates
a readiness to contract on the offered terms, this is ‘acceptance’ of the
offer. When there is both an offer and acceptance of specified terms, it
can be concluded that the parties have reached agreement. In the
case of parties who negotiate face-to-face and are communicating
directly with each other, for example by talking, agreement is reached
as soon as the acceptance of an offer is communicated to the offeror.
7.3.3(e) Advertisements and displays not generally ‘offers’
Advertisements for goods or services are not usually ‘offers’. Even
when an advertisement seems to contain all the information necessary
for a workable transaction, the courts are unlikely to consider it as an
offer because they tend to presume, as a matter of policy, that
advertisements are not intended to signal a readiness to be bound.
Advertisements are more likely to be construed as an invitation to
negotiate, asking potential customers to make an offer to buy. This is
known as an ‘invitation to treat’. The same is true of displays of goods
in shops.

Note: Compare Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (7.3.1 above) where, in
different circumstances, an advertisement was held to constitute an offer capable of
acceptance.
Also see Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 below.
7.3.3(f) Identifying those to whom an offer is made
It is important to identify the person or persons to whom an offer is
made, because an offer can only be accepted by the person or
persons to whom it is addressed. Any attempt by a third party to
accept an offer made to another person is best understood as an offer
by the third party to the original offeror.
Depending on what the offeror intends, an offer may be made to a
single person, to a number of specified persons, or to anyone
belonging to a group of persons. An offer can be also be validly made
to ‘any person in the world at large’ or to ‘any member of the general
public’.

7.3.3(g) Expiry and withdrawal of offers

An offeror can set the period of time after which their offer will expire.
If they do not set such a limit, then the offer expires after a reasonable
time. Furthermore, an offeror can withdraw the offer at any time before
it is accepted. To prevent this from happening, a person who wants
time to consider an offer would need to obtain an ‘option’. An option is
a separate binding contract which obliges the person making an offer
to keep it open for a specified period.
7.3.3(h) Counter-offers
For the process of offer and acceptance to result in agreement, the
terms of the offer must be accepted by the offeree without material
changes. This is reasonable because the offer consists of the terms
on which the offeror is ready to be bound. If an offeree indicates that
they are willing to contract, but on different terms to those contained in
the offer, this amounts to making a counter-offer, which destroys the
original offer. In the past, unless exactly the same language was used
in an offer and acceptance, the courts would construe an offeree’s
response as a counter-offer (the mirror approach). Nowadays, courts
are more flexible: provided that the response does not materially differ
from the language of the offer, it will be construed as acceptance
rather than a counter-offer.
7.3.3(i) Acceptance of an offer by post
Normally, to be effective, an acceptance must be communicated to the
person who made the offer. However, acceptance by post is an
exceptional case: acceptance by post takes effect when the letter of
acceptance is posted, not when it is received.
7.3.3(j) Acceptance by fax or telex
The normal rule that acceptance is only effective when communicated
to the offeror applies to acceptance by fax or telex. These types of
communication are considered instantaneous, so the contract, if any,
is made when and where the message is received, not when and
where it is sent.
7.3.3(k) Acceptance by email
In the case of email, special statutory rules exist to determine when
receipt of an electronic communication takes place.3 In terms of the
legislation, it depends on whether the person receiving the
communication designated an information system (for example, by
providing an email address) for the purposes of communications. If so,
the receipt takes place when the communication reaches that system.
If not, the receipt takes place only when the communication comes to
the attention of the addressee. An example is s 13–13B of the
Electronic Transactions (Victoria) Act 2000. There is equivalent
legislation in the other states and territories.
7.3.3(l) Acceptance by conduct
Acceptance can take place by conduct as well as by words. When an
offer is made inviting the offerees to accept the terms by performing
specified acts, an offeree who responds to the offer and performs the
required acts will be held to have validly accepted the offer.

An act can only be effective as acceptance of an offer if the person

acting knows of the offer and acts in expectation of receiving what was
promised. If the act is done for an entirely different purpose, or if the
promise is only discovered after the act is done, then the act is not
treated as acceptance and no enforceable agreement is created.
7.3.3(m) Silence or inaction not valid as acceptance
Although a specified positive act can be stipulated as the means of
accepting an offer, an offeror cannot validly stipulate that either
silence or inaction on the part of the offeree will be taken as
acceptance.
 Footnotes
3 Electronic Transactions Act 1999 (Cth); Electronic
Transactions Act 2000 (NSW); Electronic Transactions
(Queensland) Act 2001 (Qld); Electronic Transactions Act
2000 (SA); Electronic Transactions Act 2000 (Tas);
Electronic Transactions (Victoria) Act 2000 (Vic); Electronic
Transactions Act 2011 (WA); Electronic Transactions Act
2001 (ACT); Electronic Transactions (Northern Territory)
Act 2000 (NT).

¶7.4 Privity of Contract

7.4.1 The personal nature of contractual obligations
A contract creates obligations only between those persons who agree
to be bound to each other. These persons are called the parties to the
contract. Anyone else is a stranger to the contract and is referred to as
a ‘third party’.
7.4.2 Privity of contract
The doctrine of ‘privity’ of contract means that a contract is a private
matter between the parties to the agreement. This means that only the
parties acquire rights and duties under the contract and the resultant
obligations can only be enforced by the parties.

Anyone who is not a party to a contract does not acquire legally

enforceable rights, even if the performance of the contract would
benefit the third party.
7.4.3 Exceptions to the strict doctrine of privity
There are some important exceptions to the privity doctrine. If a
contract has the effect of creating an ‘equitable interest’ for a third
party, then that third party will be allowed to enforce the contract. An
example of this is an insurance contract, where a third party is the
beneficiary of the contract. Despite not being a party to the contract,
the third party can bring an action to enforce it and obtain their
equitable interest.
Note: The exceptional nature of insurance contracts is now provided for by s 48 of the
Insurance Contracts Act 1984 (Cth). However, this provision had not yet been enacted when
McNiece was injured.

7.4.4 Agency and privity

The doctrine of privity does not apply when one person makes a
contract as an agent for another person (the principal). In such cases
the agent is only acting as the representative of the principal, so the
agent does not become a party to the contract. It is the principal who
becomes bound by the contract, just as if they had made it personally.

¶7.5 Promissory Estoppel

7.5.1 The doctrine of estoppel

We have seen what is required to create contractual obligations and
what factors or circumstances can delay or prevent the successful
formation of a contract. Normally, it is open to any person who is sued
on a contract to plead that no valid contract was ever created and to
lead evidence to support their position. However, account must
sometimes be taken of the doctrine of ‘estoppel’. This is a doctrine
with a long history in common law and equity, and unfortunately
Australian courts have not spoken with much clarity or consistency on
the modern doctrine.
7.5.2 Ordinary estoppel
The ordinary concept of estoppel is relevant when a person enters into
a legal transaction, or fails to do so, in reliance on an erroneous
assumption or belief about an existing fact. If that erroneous
assumption or belief was the result of a representation made in some
way by another person, and if it would be unconscionable to permit
that person from establishing the true facts in a legal action, then they
will be prevented (estopped) from doing so. The court will instead
decide the case on the basis that the person’s assumption or belief
was true, even though it was in fact wrong. The fairness of this is
obvious. For example, if A misrepresents to B that he has a licence to
supply certain copyrighted materials to B, and B relies on this
assurance when entering into a contract with A for the supply of such
materials, A will be estopped from relying on his lack of a licence to
avoid liability on the contract.
7.5.3 Equitable (promissory) estoppel
Promissory estoppel is a variety of estoppel which arises when one
person causes another to make a wrong assumption about a future
event or state of affairs. If the person who makes the wrong
assumption relies on it and acts on it to their detriment, and if it would
be unconscionable in the circumstances to allow the person whose
behaviour gave rise to the assumption to rely on the true position, then
they will be prevented from doing so. The result is that the future event
or state of affairs is treated as having taken place, even if in fact it has
not.
Promissory estoppel is a fairly recent development. The decided
cases are rife with opposing views as to the essence of the doctrine
and its finer points, which are beyond the scope of this chapter.
However, the following cases provide a good illustration of the basic
concept.
The doctrine of estoppel is a reminder that although contracting
parties are entitled to rely on the established rules of law and use
these rules to pursue and protect their own interests, this does not
excuse conduct that a court considers is contrary to good conscience.

¶7.6 Establishing the Existence of a Contract

The following checklist summarises the processes of contract
formation. Thinking about the questions will help you to take proper
account of the relevant principles and rules. When considering the
questions, make sure you can recall the relevant rules of law and
decided cases.
The contents of a contract
¶8.1 Introduction

8.1.1 What are the ‘contents’ of a contract?

A contract is made up of the promises to which the parties are legally
bound. These promises are conventionally referred to as the ‘contents’
or ‘terms’ of the contract. As explained in the previous chapter, the
terms of a contract create enforceable obligations to give or do
something. By identifying and analysing the terms of the contract, a
court can work out exactly what legal obligations have been created
and what needs to be done by the parties to discharge them.
This chapter outlines the principles and rules by which the contents of
a contract are determined.
8.1.2 What is meant by ‘freedom of contract’?
It must be understood that much of contract law was originally
developed with commercial transactions in mind. This has had a
significant effect on many aspects of the law. One aspect of this is the
underlying doctrine of ‘freedom of contract’. This doctrine asserts that
the parties to a contract are generally free to negotiate and agree to
any lawful terms that serve their own interests. This approach is
widely considered to be commercially efficient and desirable. The
doctrine worked well in the period during which mercantile law was
incorporated into the legal systems of Europe, between the 16th and
18th centuries. In those times, most parties to commercial contracts
had a reasonable amount of bargaining power and were able to
negotiate effectively to protect their individual interests. But this
equality of bargaining power is no longer typical in consumer
transactions, where suppliers are generally in a position to dictate
terms and, in more recent times, very large corporations have held
much greater bargaining power than smaller ones. For these reasons,
special provisions exist in modern Australian law to modify the
doctrine of freedom of contract. However, the doctrine continues as an
underlying principle of contract law, and it explains much about how
the law developed and how it is structured.
8.1.3 How do terms become part of a contract?
The most obvious way in which terms become part of a contract is by
agreement. The previous chapter explains how a contract is created:
when the parties agree to be legally bound by at least those terms that
are needed for a practically workable transaction. Of course, the
parties can agree to more than just the minimum terms, and they can
agree to terms either expressly or by implication. But agreement is not
the only way that terms can become part of a contract. The law can
also insert terms into a contract, either to fill gaps in the agreed terms
or to regulate aspects of the contract in appropriate ways. We can
refer to these as terms implied or imposed into a contract by operation
of law. Some of the terms implied by law become part of all contracts;
others only become part of particular kinds of contract. It is important
to know about these terms.
8.1.4 Does everything said during the negotiation of a contract
become a ‘term’?
In the process of creating a contract, the parties may make many
statements, for example, to indicate the limits of their bargaining
position, to suggest different possibilities that may assist in reaching
agreement, to provide facts or viewpoints, or to encourage the other
party to agree to the transaction. Not all of these statements will
necessarily become terms of the contract. To distinguish non-
contractual statements from terms, a court asks whether or not it can
reasonably be inferred that such statements were promissory and
intended to legally bind the parties. A good example is an expression
of opinion. The courts take the view that, by its very nature, an
expression of opinion cannot be taken to be intended as a
contractually binding promise and cannot be relied on as such. There
are other kinds of statements which are treated in a similar way, and it
is important to be able to identify these when they arise.
8.1.5 How are the terms of a contract proved?
The terms of a contract may be put into writing, either in whole or in
part, but this is not an essential requirement of contract formation. A
contract can be created wholly orally. When an action is brought to
enforce a contract, any disputed terms of that contract must be
proved. This is done by leading evidence such as written documents
or the testimony of persons who were present at the time the contract
was made and who saw and heard what happened. Witnesses include
the parties to the contract. However, what evidence is allowed in
particular cases depends on whether the contract is completely in
writing, partly in writing, or completely oral. The importance of these
evidentiary rules is explained later in this chapter.
8.1.6 Are all the terms of a contract treated as equally important?
A distinction is drawn in contract law between those terms in a
contract that are of fundamental importance to the parties, and those
terms that are of lesser importance. The significance of this distinction
is that, although a failure to perform any term gives rise to a breach of
contract, the legal consequences of the breach differ depending on
the importance of the term that was breached. It will be explained in
this chapter how the courts go about deciding whether or not a
particular term in a contract is of fundamental importance or not.

¶8.2 Terms, Opinions, Puffery and Representations

distinguished
8.2.1 Identifying the terms in a contract
Whether something said during negotiations becomes a term of the
contract and is enforceable at law depends on both the nature of the
statement made and the circumstances in which it is made. A
statement made during the formation of a contract becomes a term of
the contract only if it can be inferred from the circumstances that the
statement was intended to be a legally binding promise. This is made
explicit in some cases, but in other cases the intention can only be
gathered from the words used and the context in which they were
uttered.
8.2.2 Opinions distinguished from terms
Expressions of personal opinion must be distinguished from
statements of fact. It is generally understood that personal views may
be incorrect and should not be relied on. Accordingly, it will not be
inferred that opinions expressed during the formation of a contract are
intended as promises. Phrases such as ‘I believe’, ‘in my view’, ‘I
think’ and ‘in my opinion’ indicate that a statement is an opinion.
Note: If a person misrepresents their actual opinion, their statement is treated as a
representation rather than an opinion. In such cases, tort law or s 18, 29 and 30 of the
Australian Consumer Law may provide relief.

8.2.3 Puffery distinguished from terms

Suppliers of goods and services often use statements of exaggerated
praise to excite buyers and encourage sales, such as descriptions of
goods as ‘amazing’ or ‘the world’s best’. Such statements are not
intended to be taken seriously and this is generally recognised by
contracting parties. Such statements are often referred to as ‘puffs’ or
‘puffery’ because, on analysis, they are without any real or
measurable substance; they consist of nothing but ‘hot air’.
8.2.4 Representations distinguished from terms
Sometimes, during negotiations, one party makes statements of fact
that may encourage the other to enter the agreement, but without
intending that the statements be contractual promises. When the
circumstances in which a statement is made do not justify treating it as
a promise, the statement is called a ‘representation’.
Because representations are not terms of the contract, there is no
liability for breach of contract if a representation proves to have been
untrue (a ‘misrepresentation’). However, there may be other legal
remedies for misrepresentations, particularly in tort law and under s
18, 29 and 30 of the Australian Consumer Law.

8.2.5 The relative importance of particular terms in a contract

The individual terms of a contract are sometimes classified as
‘conditions’ or ‘warranties’ to indicate the importance of those
particular terms.
The word ‘condition’ properly describes those terms without which the
party for whose benefit the term was included would not have entered
the agreement. Whether or not they would have done so is inferred
from the objectively known facts at the time the contract was made.
Conditions are sometimes described as the ‘fundamental’ terms of the
contract or as terms that go ‘to the root’ of the contract.

The word ‘warranty’ is used to describe terms of lesser importance

than conditions. Simply because a term is described in the contract as
a ‘warranty’, does not make it so. Rather, the same test is applied as
for identifying conditions: whether or not it can be inferred that the
party benefitting from the term would have entered into the contract
without it. If they would have, the term is considered a warranty rather
than a condition.
8.2.6 Innominate terms
Although the distinction between conditions and warranties is well
established in Australian law, the courts do not always classify terms
as either conditions or warranties. Sometimes the courts avoid this
terminology, leaving particular terms unnamed (innominate) or treating
them as ‘intermediate’ terms. The legal consequences of breaching
such a term are determined by how seriously the breach affected the
intended benefit of the contract. If the breach substantially deprives
the non-defaulting party of the intended benefit of the contract, it will
be treated as a breach of a condition. However, if the effect of the
breach on the intended benefit is not substantial, it will be treated as a
breach of a warranty.

¶8.3 Express and Implied Agreement to Terms

8.3.1 Objective agreement to terms
When a person signs a document that they know contains contractual
terms, it appears, objectively speaking, that they are agreeing to be
bound by those terms. This is sufficient to bind them to the terms in
the document. It does not matter whether or not the person has read
through the document before signing it. The law only asks whether a
reasonable person observing the situation would conclude that, in the
circumstances, the person signing the document appears to consent
to the terms.
8.3.2 Terms are final when the contract is created
A contract includes only those obligations or promises made by the
parties at the moment of formation. Terms cannot be added to a
contract after it has been made. Any additional undertakings would
have to be incorporated in a new contract, which would itself need to
meet all the essential requirements of formation.
Note: If it had been established that the Olleys had stayed at the hotel before, it might have
been argued that, when contracting, they were aware of the notice in the room and that they
impliedly agreed to it as part of the contract. This was not the case.

8.3.3 Terms agreed to by reference

The law allows terms to be incorporated into a contract simply by
referring to them and making clear where they may be found, rather
than setting them out in full. It is usually irrelevant if one party does not
take the opportunity to actually examine those terms. A good example
of this is when an agreement is being entered into online, and the
terms of the contract are agreed to by clicking on a button on the
computer screen. The terms may be available to read, but they are
often long and complex and are often assented to without being read,
in the expectation that they contain nothing unusual or onerous.
However, recent cases suggest that, if the terms referred to are
unusual or onerous, it may be necessary to point them out with
greater visibility than normal, in order for them to become part of the
contract.
8.3.4 Notice of terms that are not immediately available
It will often be enough for a party to be given reasonable notice of the
existence of terms, even if they are not told exactly what the terms
are. For example, under long-established law, terms referred to on a
ticket or in a notice are often regarded as incorporated into a contract.

Note: In particular circumstances terms referred to on a ticket may not become part of the
contract, such as if the tickets are only made available after the contract is created.

8.3.5 Agreement to terms contained in written documents

If terms are contained in a document that is made available to the
parties at the time of contracting, and the document is one that can
reasonably be expected to contain contractual terms, the party
receiving the document will be held to have objectively agreed to the
terms, even if they do not read or sign it. However, if the document
containing terms is not a type of document that would generally be
expected to contain contractual terms, then the person receiving it
cannot reasonably be expected to read what is printed on it. As a
result, it will not be inferred that such persons have assented to the
terms unless those terms are actually drawn to their attention, or a
reasonable attempt is made to do so.
8.3.6 Delivery notes as contractual documents
A delivery note is a document that contracting parties should expect
may contain contractual terms. In such cases, the normal rule is that
the terms contained in a delivery note become terms of the contract
without further notice. However, this only applies to terms that the
parties might reasonably expect to find in such a document.
8.3.7 Terms agreed to by implication ‘ad hoc’
In addition to those terms that are actually expressed in words by the
parties when the contract is made (expressly agreed terms), the
courts may recognise that other terms have become part of the
contract by agreement without being put into words or specifically
referred to. Such terms are agreed to by implication in the
circumstances. They are therefore referred to as ‘terms implied ad
hoc’. For a term to be implied ad hoc, the court must first decide that it
was obvious in the circumstances that this is what the parties must
have intended when they contracted.
The officious bystander test
To decide whether or not it is sufficiently obvious that a particular term
was agreed to without being expressly stated, the ‘officious bystander’
test is applied. This test involves imagining that, when the contract
was being made, a bystander asked the parties whether the
suggested term was also part of their contract. If it can be inferred
from the objectively known circumstances that the parties would have
answered ‘of course’, then the suggested term is sufficiently obvious
to be implied ad hoc into the contract.
Further requirements for a term implied ad hoc
In addition to the requirement that it was sufficiently obvious that the
parties would have intended to include the suggested term in their
contract, all of the following requirements must also be satisfied before
any term is implied into a contract ad hoc:
• that the suggested term is reasonable and fair,

• that it is needed to make the contract workable or ‘commercially

complete’,

• that the suggested term can be clearly expressed, and

• that it is compatible with the expressly agreed terms of the

contract.
It should be noted that the requirements for terms implied into a
contract ad hoc are not applied as strictly to oral contracts as they are
to written contracts. Terms may therefore be implied ad hoc more
easily into oral contracts.
8.3.8 Limitations on the evidence that may be led to prove terms
implied ad hoc
The necessity in a contract for terms implied ad hoc must arise from
an analysis of the written (or expressly agreed) terms of the contract
and not by reference to any extrinsic (external) evidence. The court
will examine the expressly agreed terms to decide whether or not any
further terms need to be implied ad hoc.
8.3.9 Terms that limit or exclude liability
Some contracts contain terms of a special kind. These are terms that
have the effect of excluding or limiting a legal liability that would
otherwise exist. For example, it is quite common for contracting
parties to exclude liability for a breach of one or more contractual
terms, or for representations made in the course of negotiating a
contract. A contractual term can also limit or exclude liability that
would arise outside of contract law, such as liability for negligence.
The terms of a contract might also place agreed limits on the amount
of damages payable in the event of a breach of contract, or restrict
liability to the replacement of faulty goods or services. As with other
terms, a term which limits or excludes liability must also be properly
incorporated into the contract.
Because of the general doctrine of freedom of contract, limitation and
exclusion clauses will generally be enforced by the courts, provided
that they are sufficiently clear and certain, and provided there has
been no deliberate fraud. However, there are some important
exceptions to this general policy. In particular, legislation now prevents
a supplier of goods or services to a consumer from excluding or
restricting liability for the special guarantees provided by legislation.
8.3.10 Interpretation of exclusion and limitation clauses ‘contra
proferentem’
Because of their particular nature and effect, the courts subject such
terms to particular scrutiny when determining their meaning and
scope. The courts are reluctant to give exclusion and limitation
clauses any more effect than is absolutely necessary. They will
therefore interpret such clauses strictly (that is, narrowly) and, in the
case of any ambiguity or doubt, contrary to the interests of the person
who stands to benefit from the exclusion or limitation of liability. This is
called interpretation contra proferentem.
8.3.11 The ‘four corners’ rule
A limitation or exclusion clause in a contract will be understood as
intended to operate within the parameters (the ‘four corners’) of the
agreement. This means it does not extend to activities or events that
go beyond, or occur outside of, the scope of the contract.

¶8.4 Proving the Existence of Agreed Terms

8.4.1 Written and oral contracts
The evidence that is admissible in court for proving the contents of a
contract depends on whether the contract is entirely in writing, entirely
oral, or partly in writing and partly oral.
8.4.2 The parol evidence rule
When a written contract appears on its face to be a complete
agreement, the courts will presume that the parties intended their
written contract to contain all the agreed terms. Evidence of additional
oral terms will not be allowed. This is the ‘parol (or oral) evidence rule’.
The rule forbids leading evidence of orally agreed terms when the
contract in question is recorded in writing and appears to be complete.
See Codelfa Construction Pty Ltd v State Rail Authority of NSW
(1982) 149 CLR 337 above at 8.3.8.
8.4.3 Displacing the presumption that a contract is wholly written
Even when a written contract initially appears complete, if what was
agreed orally is of obvious importance in the type of transaction in
question, the court may conclude (depending on the circumstances)
that the oral undertaking was intended to be a term. This then
displaces the presumption (which is the basis for the parol evidence
rule) that the written contract is the complete agreement. Once the
presumption is displaced, evidence of the orally agreed term is
admissible.
8.4.4 Ambiguous contracts and the parol evidence rule
Agreements containing a latent (hidden) ambiguity are treated as an
exception to the parol evidence rule. In such cases, evidence may be
led of oral terms that resolve the ambiguity, provided the ambiguity
relates to the identity of the thing agreed and not its quality.
8.4.5 Mistakes and the parol evidence rule
If the terms recorded in the written contract are not those that the
parties actually agreed on, the court may allow other evidence in order
to rectify the written contract and substitute the terms actually agreed.
A court will only rectify a written contract if the term to be substituted is
precise, certain and clearly agreed.
8.4.6 Collateral contracts and the parol evidence rule
Courts sometimes avoid the parol evidence rule by recognising that a
separate oral contract containing the additional terms has been
created alongside the main written contract. The separate contract is
called a ‘collateral contract’ or ‘collateral warranty’. It consists of
promises intended to be binding, in exchange for which the other party
agrees to enter the main contract. It is not easy to establish a
collateral contract. All the ordinary requirements of contractual
formation must be satisfied in relation to the collateral contract,
namely, agreement on sufficiently certain terms, the intention to be
contractually bound by the promises, and the exchange of
consideration.
Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016)
HCA 26
Contract; commercial lease; collateral contract; promissory
statement; illusory promise.
Facts: Crown Melbourne Ltd (Crown) owned the Melbourne
Casino and Entertainment Complex. In 2005 Cosmopolitan Hotel
(CH) was interested in leasing two restaurants within this complex
but needed leases long enough to recover the costs of
refurbishing the restaurants. The leases, which were signed in
November 2005 and were for a period of five years, did not
contain any option to renew. However, during negotiations for the
leases, a representative of Crown stated that CH would be
“looked after at renewal time”. In 2009 Crown gave notice
requiring CH to vacate the premises. CH claimed that the original
statement, that they would be ‘looked after at renewal time’, was
 a contractually binding promise.
Issue: Although not a term of the lease, was the statement that
CH would be “looked after at renewal time” a promissory
statement which gave rise to a binding collateral contract?
Decision: There was no collateral contract.
Reason: It is possible for a statement made in the course of
negotiations to create an agreement that is ‘collateral’ to the main
contract. For a collateral contract to exist, it must satisfy all the
usual elements of contract formation. In particular, it must be
shown objectively — based on the words and conduct of the
parties — that the parties intended the statement to be a
contractually binding promise rather than a mere representation.
In the present case, the statement made by Crown was not a
promise because it was impossible to say what would be involved
in “looking after” CH at renewal time. A reasonable person would
not have understood the statement to mean that Crown would
offer CH a further five-year lease. If Crown was saying that it
would offer CH another lease on new terms to be decided by
Crown alone, then this was only an ‘illusory promise’, insufficiently
certain to create a contract.

¶8.5 Terms Put (Implied) by Law in All Contracts

8.5.1 Universally implied terms

Terms may become part of a contract by operation of law rather than
by agreement. Such terms may be referred to as terms ‘implied’,
‘imposed’ or ‘provided for’ by law. It is established in Australian law
that some terms should be put by law into every contract. Because
they are part of every contract, such terms are sometimes called
‘universal’ implied terms. However, such implied terms will not be
recognised where they contradict any express terms of the contract.
It is not discussed in every case whether the universally implied terms
are conditions of the contract rather than warranties, but it is likely that
they are conditions.
8.5.2 Cooperation
One ‘universal’ implied term requires the parties to cooperate in the
performance of the agreement, so that both parties get the expected
benefit of the contract.
8.5.3 Good faith
Another ‘universal’ implied term requires the parties to act in
accordance with the dictates of good faith, that is, to exercise their
contractual powers honestly and reasonably, and not capriciously or
for extraneous purposes.
The extent to which Australian courts will recognise a universal
implied duty of good faith has not yet been fully clarified.

¶8.6 Terms Put (Implied) by Law to Fill Gaps in Particular

Kinds of Contract
8.6.1 Generic implied terms
When the agreed terms of a contract do not extend to the more
detailed aspects of the transaction, we may say that there are ‘gaps’ in
the terms. The law may provide additional terms to fill these gaps. It is
important to understand that any such implied terms are not intended
to displace the doctrine of freedom of contract. Generally, terms that
might be implied into a contract can be excluded or varied by
agreement between the parties.
Some terms are implied by law to fill gaps only in particular types of
contract (for example, a contract of sale, a goods lease, bailment or
contracts for the provision of services). These terms are called
‘generic’ terms because they fill the gaps in certain classes (genera) of
contract.
There are many generic terms that are implied into contracts when
they are needed. The few examples below illustrate when such terms
might become part of a contract.
8.6.2 Generic terms in doctor/patient contracts
In a contract between a doctor and patient, it is unlikely that the
parties will discuss and agree on the degree of care and skill that the
doctor will exercise. If a dispute arises, this may turn out to be an
important question and the law provides a generic term to fill the gap
in the agreed terms. Specifically, the common law requires a doctor to
exercise reasonable care and skill in treating their patient.

A similar contractual duty to exercise reasonable care and skill is

implied by law into contracts with other providers of professional
services, such as lawyers, accountants, bankers, consultants and
advisers.
8.6.3 Generic terms in bailment contracts
‘Bailment’ exists when a person has possession of another’s goods
and undertakes to deal with them according to the owner’s
instructions, for example, to store, repair, transport or clean the goods.
If the relevant contract contains no agreed terms regarding the
bailee’s liability, it is a generic term implied by the common law that
the bailee will exercise reasonable care, as judged in the
circumstances.
8.6.4 Generic terms in employment contracts
In Australia, employment contracts operate within a framework of rules
created by federal, state and territory legislation, and common law.
The courts have the power to add to this law in appropriate
circumstances when deciding cases, but they remain mindful of the
proper division that exists between judicial and legislative law-making.
On the question whether a term is implied by law into employment
contracts requiring the parties to avoid acting in a way that would
seriously damage or destroy mutual trust and confidence between
them, the courts have held that such a term is not essential to the
working of such contracts and have therefore declined to recognise
such an implied term. Further, the courts have said that, should such a
term be desirable, it would be more appropriate for the relevant
legislatures to enact the change than for the courts to do so.
8.6.5 Generic terms in contracts for the sale of goods
In addition to the examples of generic terms already given in this
chapter, there are many important generic terms that the law provides
to fill gaps in the agreed terms of contracts for the sale of goods.

¶8.7 Determining the Contents of a Contract

The following checklist will help you to take proper account of the
matters that should be considered when resolving issues related to
the contents of a contract. When you think about the questions, make
sure you can accurately recall the rules and decided cases that are
relevant.
Performance and breach of contract
¶9.1 Introduction
9.1.1 How do the terms of a contract determine the duties of
performance?
This chapter outlines the rules that determine what duties of
performance bind the parties to a contract and how those duties are
discharged.
In Chapter 8 it was explained that the ‘terms’ of a contract contain all
the promises made by the parties. Because they are contained in a
contract, these promises give rise to obligations that are legally
enforceable. The obligations bind the parties as soon as the contract
is made and continue to bind them until they are discharged.
Normally, contractual obligations are discharged by performance-in
other words, by the person who made the promise doing what it is
they undertook to give or do. When all the terms of the contract have
been performed, we can say that the contract is discharged and
nothing further remains to be done. This sequence of events can be
illustrated.
The ‘life-cycle’ of a contract

9.1.2 Breach of contract

A ‘breach of contract’ occurs if there is a failure to perform as
promised. In the event of a breach, the contractual obligations are not
discharged—they continue to bind the defaulting party, and a plaintiff
can enforce them by bringing a legal action (’suing’ the other party for
contractual breach).
In an action for breach of contract, the ordinary remedy is to make the
defaulting party pay damages to compensate the plaintiff for any
losses that the plaintiff has suffered as a result of the breach. Other
remedies for breach of contract may also be available in particular
circumstances, depending on how serious the breach was and what
the court thinks is appropriate. The remedies for breach of contract
are discussed in detail in the next chapter.
9.1.3 How does a court decide what the terms of a contract
mean?
In order to perform their contractual duties properly, the parties must
understand exactly what is required of them. This will depend on a
proper analysis of the terms of the contract. For example, if a seller
promises to sell ‘this Compaq laptop computer’ to the buyer, then the
seller must deliver that particular computer to the buyer. But if the
seller promises to sell ‘a Compaq laptop computer’ to the buyer, then
delivery of any Compaq laptop computer is sufficient to discharge the
promise. This simple example highlights that ascertaining the
requirements of performance by carefully analysing the terms of the
contract is extremely important.
While the meaning and scope of the terms of a contract are often clear
and beyond dispute, that is not always the case. Sometimes the
meaning of a term in the contract is ambiguous or uncertain, and in
such cases the courts will ‘interpret’ the term to ascertain its true
meaning. Particular rules have been laid down by the courts, to
govern the way in which the interpretation (or ‘construction’) of
contracts is carried out. These rules are explained below. You can use
them to predict the way a court would interpret a particular contract.
9.1.4 How might a breach of contract occur?
We have already said that a breach of contract arises when a party to
the contract fails to carry out the terms of the contract. What must also
be understood is that the law distinguishes between the various ways
in which a breach of contract can occur and provides appropriate rules
for each type of breach. For example, when performance is due to
take place, the party required to perform may do nothing at all. A total
failure to do anything is called ‘non-performance’. By contrast, the
party required to perform might not do what was promised at the
correct time, but might seek instead to perform after the duties in
question should have been carried out. This is called ‘late
performance’. The different types of breach of contract that can occur
are explained in this chapter. If you know about them and can
remember their names, it will help you to recognise them when they
arise and to work out the legal consequences of a particular breach.
9.1.5 Why are some breaches of contract treated as more serious
than others?
A contract may contain many terms. Some of these terms may be so
important to the parties that they would not have agreed to the
contract without them being included. Such terms are referred to as
‘conditions’ or ‘fundamental’ terms of the contract. Other terms may be
of less importance to the parties, so that they would have entered the
contract even if there was no guarantee of strict performance of these
terms. Such terms are referred to as ‘warranties’ or ‘non-fundamental’
terms of the contract. The consequences of a breach of contract
depend on the importance of the term that was breached. If the term
was a ‘condition’ then the consequences of the breach are more
serious and more remedies are available than if the breach was only a
breach of ‘warranty’.
Another way of determining the seriousness of a breach is to assess
its effect on the intended outcome of the contract. If a breach has the
effect of depriving the plaintiff of the intended benefit which they
expected to get from the contract, it is a serious breach, equivalent to
a breach of ‘condition’. If, despite the breach, the plaintiff still receives
the intended benefit of the contract, the breach is less serious,
equivalent only to a breach of ‘warranty’.
9.1.6 What are ‘divisible’ contracts?
Sometimes parties will enter into what might initially appear to be a
single contract but which, on closer analysis, can properly be treated
as divisible into two or more separate contracts. This is significant
because each of the separate contracts stands alone, to be performed
and enforced independently of the others. In particular, a breach of
one of the separate contracts does not necessarily affect the others.
The way in which the courts decide whether or not a divisible contract
exists is explained in this chapter.
9.1.7 Is performance the only way to discharge contractual
obligations?
Until now, we have said that contractual obligations are usually
discharged by performance. But there are other possibilities. Suppose
there is a failure to perform and that the plaintiff sues the defaulting
party for damages on grounds of breach of contract. If the court finds
there was a breach and awards damages to the plaintiff, the payment
of these damages by the defendant serves to discharge the contract.
Another way in which contractual obligations can be discharged is
through the ‘frustration’ of the contract. If, after the contract is made,
circumstances change in a way that the parties had not contemplated
and which makes performance impossible to carry out, then the law
treats the contract as if it had been discharged. The obligations that
existed before the frustrating event are no longer enforceable.
Obviously, it is important to be on the lookout for this possibility. The
various factors that must be taken into account before a contract can
be treated as frustrated are explained in this chapter.

¶9.2 Interpreting the Terms of a Contract

9.2.1 Giving words their ordinary, natural meaning
When courts decide what the words in a contract mean and what
duties of performance they create, the starting point is that words
should be given their ordinary and natural meaning in the context of
the contract as a whole.
9.2.2 The intention of the parties
When interpreting the terms of a contract, a court will also have regard
to the intention of the parties. The parties to a contract are free to
decide the nature and extent of their obligations, and the courts will
seek to give effect to their intentions. When deciding what has been
agreed, the courts apply an objective approach rather than a
subjective one. That is, the courts do not ask what the parties
subjectively intended their agreement to mean; instead they ask what
a third party would reasonably understand the terms to mean.
See Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990)
20 NSWLR 310 above at 9.2.1.
9.2.3 Commercial realism
If, after giving the words in a commercial contract their ordinary
meaning, the terms remain ambiguous, the courts will prefer an
interpretation that is not commercially inconvenient, unrealistic or
nonsensical. This is based on the assumption that the parties to a
commercial agreement would obviously intend to agree to convenient,
realistic or sensible terms. However, this principle cannot be used to
avoid giving effect to clearly expressed and unambiguous terms, even
if those terms prove inconvenient or disadvantageous.

9.2.4 Post-contractual behaviour

Some cases suggest that the post-contractual behaviour of the parties
provides a good indication of what has been agreed. The better view
is that the courts will not take account of such evidence when
interpreting a contract. This is because the parties’ behaviour may be
based on a mistaken view of what their agreement objectively means,
and this should not generally prevent either party from asserting their
actual rights. In addition, a farsighted party might tailor their behaviour
to influence what meaning a court might later be persuaded to give to
particular terms, and this would be undesirable.
See Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990)
20 NSWLR 310 above.

¶9.3 Discharge of Contractual Obligations by

Performance

9.3.1 Voluntary performance

Contractual obligations are normally discharged by voluntary
performance-that is, by carrying out the promises specified in the
terms of the contract. Complete performance of all the terms is
required in order to discharge the contract. The nature and extent of
the required performance depends on the exact nature of the terms.
An example is the different performance required depending on
whether a sale is of generic or specific goods.
9.3.1(a) Sale of generic goods
In contracts for the sale of goods, if the parties specify what is being
bought and sold by referring only to the category or type of goods, this
is known as a sale of ‘generic’ goods and the seller need only deliver
goods that belong to the specified class.1
9.3.1(b) Sale of specific goods
In contracts for the sale of goods, if the parties agree that particular
identified goods are bought and sold, the sale is of ‘specific’ goods
and the seller is obliged to deliver those very goods; no others will do.
9.3.2 Performance of terms implied by operation of law
When terms are implied into a contract by operation of law, the
performance due depends on what particular terms have been
implied. For example, if a buyer of goods has communicated why they
need the goods and that they were relying on the seller to supply
suitable goods, the sale of goods legislation requires the seller to
supply goods that are fit for the stated purpose.2
9.3.3 Performance of reciprocal duties
When there are reciprocal duties of performance, it is presumed that
the parties intended that these duties would be performed at the same
time. For example, when goods are sold, payment is due at the same
time as delivery.3 When services are rendered, payment is due when
the work is completed. This presumption applies unless the agreed
terms provide otherwise (such as when goods or services are supplied
on credit terms).
9.3.4 Performance of divisible contracts
Sometimes what appears to be a single contract turns out on proper
analysis to be ‘divisible’ into two or more separate contracts. A failure
to perform in accordance with the terms of one of these separate
contracts does not constitute a breach of the others. Contracts are
indivisible when what was contracted for was a single thing in a
business sense, or was agreed to be dependent or conditional on
something otherwise unrelated.
Note: This did not mean that Phillips was not entitled to any payment at all, only that he could
not claim the amount as specified in the original contract.
Note: This decision appears to be based on the concept of divisible contracts.

Footnotes
1 Sale of Goods Act 1923 (NSW), s 18; Sale of Goods Act
1896 (Qld), s 16; Sale of Goods Act 1895 (SA), s 13; Sale
of Goods Act 1896 (Tas), s 18; Goods Act 1958 (Vic), s 18;
Sale of Goods Act 1895 (WA), s 13; Sale of Goods Act
1954 (ACT), s 18; Sale of Goods Act 1972 (NT), s 1

2 Sale of Goods Act 1923 (NSW), s 19; Sale of Goods Act

1896 (Qld), s 17; Sale of Goods Act 1895 (SA), s 14; Sale
of Goods Act 1896 (Tas), s 19; Goods Act 1958 (Vic), s 19;
Sale of Goods Act 1895 (WA), s 14; Sale of Goods Act
1954 (ACT), s 19; Sale of Goods Act 1972 (NT), s 19.

3 Sale of Goods Act 1923 (NSW), s 31; Sale of Goods Act

1896 (Qld), s 30; Sale of Goods Act 1895 (SA), s 28; Sale
of Goods Act 1896 (Tas), s 33; Goods Act 1958 (Vic), s 35;
 Sale of Goods Act 1895 (WA), s 28; Sale of Goods Act
1954 (ACT), s 32; Sale of Goods Act 1972 (NT), s 31.

¶9.4 Breach of Contract

9.4.1 Identifying different kinds of breach
If there is a failure by a party to discharge contractual obligations by
means of proper performance, this constitutes a breach of contract by
the defaulting party. A breach of contract can occur in different ways.
There may be a complete failure to perform, a partial failure to
perform, performance that is defective in some way, or performance
that is late. A breach of contract may also take place in the form of an
anticipatory breach (or repudiation) of the contract.
9.4.2 Non-performance
A party to a contract might make no effort to perform at all.
Alternatively, the defaulting party might tender performance of
something that is completely different from what the contract required.
Both of these situations are treated as a complete failure to perform.
9.4.3 Partial performance
As a general rule, each party to a contract is entitled to complete
performance of all the terms of the contract. Anything less is only
partial performance, which is insufficient to discharge the contractual
obligations.
9.4.4 Substantial performance
Sometimes, although there is a failure to fully perform the terms of a
contract, the performance made comes close enough to complete
performance that the non-defaulting party substantially receives the
benefit they expected to get from the contract, albeit to a lesser extent
than was due. Substantial performance can be considered to be a
sub-category of partial performance, but because it comes so close to
complete performance it is treated as a special kind of breach.
9.4.5 Hidden defects
Sometimes goods or services supplied under a contract suffer from
hidden defects that only become apparent after delivery or after being
used for some time. If it can be shown that the defects were present at
the time of delivery or when the work was done, then the seller will be
in breach of contract.
9.4.6 Late performance
Performance must be tendered when it is due under the contract.
Failure to perform on time is a breach of contract even if the defaulting
party remains willing to perform.
9.4.7 Anticipatory breach
Before performance is due, one contracting party might indicate either
expressly or by conduct that they will not perform the contract, either
at all or in the manner required. This is called a ‘repudiation’ of the
contract. It gives rise to an ‘anticipatory’ breach of contract or ‘breach
by anticipatory repudiation’. The consequences of an anticipatory
breach are the same as for an actual breach.
¶9.5 Assessing the Seriousness of a Breach of Contract
9.5.1 The relative importance of terms
In order to determine how serious a particular breach of contract is,
the courts often distinguish between those terms in the contract that
are of fundamental importance (sometimes described as the terms
that ‘go to the root of the contract’) and those terms that are of lesser
importance.
9.5.2 Conditions and warranties
The fundamentally important terms in a contract are described as
‘conditions’. The less important terms in a contract are described as
‘warranties’. It follows that a breach of contract can be described
either as a breach of condition or as a breach of warranty, depending
on the importance of the term that has been breached.
Whether a term is a condition or warranty is determined by the
construction of the contract, in light of its commercial purpose and the
business relationship it has established. A term in a contract will be
classified as a condition when it appears that the promise is of such
importance to the promisee that they would not have entered into the
contract unless they had been assured of strict or substantial
performance of the promise, and that this should have been apparent
to the promisor. In assessing this question, a court will take account of
the general nature of the contract as a whole, as well as particular
terms.
Although, historically, some terms (such as terms stipulating the time
of performance) were presumed by the courts to be intended as
conditions rather than warranties, legislation in all jurisdictions now
gives preference to an equitable approach which says that stipulations
in contracts should be treated as non-essential terms (warranties)
unless the facts indicate that the parties intended otherwise.4
9.5.3 Innominate terms
The courts do not always classify terms as either conditions or
warranties. Sometimes they leave the terms unnamed (innominate) or
treat them as ‘intermediate’ terms rather than as conditions or
warranties. The courts are likely to treat a term as innominate or
intermediate (rather than classifying it as a condition or a warranty) if
the term could be breached either seriously or in a minor way.
When the courts adopt this approach, the legal consequences of a
breach are determined by assessing the effect of the breach. A
distinction is drawn between a breach that deprives the plaintiff of a
substantial part of the benefit for which they had contracted (treated
as a breach of a condition) and a breach that is less serious in its
consequences (treated as a breach of a warranty).
 Footnotes
4 Conveyancing Act 1919 (NSW), s 13; Property Law Act
1974 (Qld), s 62; Law of Property Act 1936 (SA), s 16;
Supreme Court Civil Procedure Act 1932 (Tas), s 11(7);
Property Law Act 1958 (Vic), s 41; Property Law Act 1969
(WA), s 21; Civil Law (Property) Act 2006 (ACT), s 501;
Supreme Court Act 1979 (NT), s 68.
¶9.6 The Consequences of a Breach of Contract

9.6.1 The enforcement of undischarged obligations

In general terms, it should be understood that a breach of contract
leaves the defaulting party’s outstanding contractual obligations
undischarged and the non-defaulting party is entitled to seek a remedy
for the breach of contract.
Depending on the circumstances in which a breach of contract occurs,
there are various remedies that may be available. These include: a
claim for damages to compensate for loss suffered as a result of the
breach; the right to reject the faulty performance and stop further
performance; an order of specific performance; or an injunction to stop
a continuing breach. The nature and availability of these remedies is
dealt with in the next chapter.

¶9.7 Risk and Frustration

9.7.1 Distinguishing ‘risk’ and ‘frustration’

Regardless of how carefully things are planned when a contract is
made, they sometimes go unexpectedly wrong before the contract can
be discharged by performance. The changed circumstances may
make performance of the contract either impossible (in whole or in
part) or wholly different from what the parties envisaged when
contracting. There are two important concepts that play a role in
resolving these types of situations: ‘risk’ and ‘frustration’. The rules of
risk determine where particular losses should fall (not only in the
context of contracts, but generally). The rules of frustration are used to
determine whether or not a contract remains enforceable when, after
the contract is made, circumstances change in a way that makes
performance of the contract either impossible or wholly different from
what was envisaged.
9.7.2 Risk
The general rule is that risk of accidental destruction of, or harm to,
property falls on the owner of the property. The risk of other
foreseeable loss or harm falls on the person who has taken on the risk
of that loss or harm.
When identified goods are bought and sold, ownership usually passes
to the buyer as soon as the contract is made, even if delivery is
postponed. A buyer therefore usually carries the risk of any accidental
damage to, or destruction of, the goods that happens after the
contract of sale is made, even if the buyer has not yet taken
possession of them.
However, if the goods sold have been destroyed before the contract
was made, a different rule applies: as it is impossible to validly buy
and sell something that does not exist, the contract is treated as void.
In such cases, the seller remains owner of the goods and bears the
loss.5
Furthermore, when, for some reason, ownership and risk do not pass
immediately to the buyer when a contract is made, and the goods sold
are destroyed after the agreement is made, the sale of goods
legislation says the contract is avoided.6
9.7.3 Frustration
Sometimes, after a contract is made, circumstances change to make
performance impossible or, if not impossible, then at least
fundamentally different from what the parties envisaged when
contracting. In such cases, if it cannot be inferred that the parties have
taken on the risk of the changed conditions and if it would be unjust to
enforce the contract in the changed circumstances, the contract is
said to be ‘frustrated’. When frustration occurs, the contract is not
made void, but all outstanding obligations under the contract are
treated as discharged. This means that any contractual obligations
that remain unperformed at the time of frustration can no longer be
enforced.
9.7.4 Frustration not an excuse if brought about deliberately
A person who has brought about a frustrating event or circumstance
because of their own decision or deliberate act cannot rely on the
doctrine of frustration to escape their liability under the contract.
9.7.5 Taking on the risk of frustrating events
In many cases, contracting parties are aware that the circumstances
in which they will perform their contractual obligations may change
after the contract is made. If it can be inferred that the parties intended
to assume (take on) the risk of changed circumstances and continue
to be bound even if the changes should occur, then the doctrine of
frustration does not operate to discharge a contract. This is the case
even if performance turns out to be more difficult or costly.
9.7.6 Frustration excuses only outstanding obligations
Under the common law, it is only the unperformed (outstanding)
obligations still existing at the time of frustration that are treated as
discharged. This means that any performance of the contract that has
already been made before frustration of a contract (such as delivery of
goods) cannot be recovered unless nothing at all was received in
return—circumstances referred to as ‘a total failure of consideration’.

9.7.7 Frustrated contracts legislation

If there was some performance made before a contract became
frustrated, but the other party has not provided payment or counter-
performance, there is generally no right under the common law to
claim counter-performance or compensation. However, in New South
Wales, Victoria and South Australia, legislation now allows a plaintiff
to recover money paid in expectation of a counter-performance that
has been frustrated, or to claim fair compensation for performance
rendered prior to the frustration of a contract. Selected sections from
the Australian Consumer Law and Fair Trading Act 2012 (Vic) are
reproduced as an example, but it must be noted that the approach in
the various state Acts is not uniform. Compare the Frustrated
Contracts Act 1978 (NSW) and the Frustrated Contracts Act 1988
(SA).
 Footnotes
5 Sale of Goods Act 1923 (NSW), s 11; Sale of Goods Act
1896 (Qld), s 9; Sale of Goods Act 1895 (SA), s 6; Sale of
Goods Act 1896 (Tas), s 11; Goods Act 1958 (Vic), s 11;
Sale of Goods Act 1895 (WA), s 6; Sale of Goods Act 1954
(ACT), s 11; Sale of Goods Act 1972 (NT), s 11.

6 Sale of Goods Act 1923 (NSW), s 12; Sale of Goods Act

1896 (Qld), s 10; Sale of Goods Act 1895 (SA), s 7; Sale of
Goods Act 1896 (Tas), s 12; Goods Act 1958 (Vic), s 12;
Sale of Goods Act 1895 (WA), s 7; Sale of Goods Act 1954
(ACT), s 12; Sale of Goods Act 1972 (NT), s 12.
¶9.8 Establishing a Breach of Contract

The following checklist will help you determine what duties of

performance arise from a particular contract and whether or not there
has been a breach of those duties. Work through the questions
carefully and ensure you can recall the rules and decided cases that
need to be taken into account at each stage.
Module 4: Remedies for breach
of contract
Remedies for breach of contract
¶10.1 Introduction

10.1.1 What remedies are available in the event of a breach of

contract?
Most contracts are discharged by voluntary performance, but when
one party fails to perform in accordance with the terms of the contract,
a breach of contract arises. The contracting party to whom the
performance was owed (the non-defaulting party) is entitled to enforce
the contract by seeking a remedy. There is more than one possible
remedy for breach of contract.
This chapter outlines and distinguishes between the available
remedies.
10.1.1(a) Common law remedies
The common law provides two remedies which are ordinarily available
when a contractual breach has occurred. The first of these is an award
of money (damages) payable by the defendant to the plaintiff to
compensate the plaintiff for any loss caused by the breach. This is the
most generally available remedy for breach of contract. The second
common law remedy is the plaintiff’s right to put a stop to (terminate)
the defendant’s right to perform the contract. This remedy is only
available for a serious breach of contract. It can be combined with a
claim for damages.
10.1.1(b) Equitable remedies
Because an award of damages and the right to terminate performance
might not provide adequate relief for a plaintiff in all cases, additional
remedies for breach of contract were developed in equity. These
remedies are only available in special circumstances and at the
court’s discretion. The first of them is an order of specific performance,
whereby the court requires the defendant to carry out the contractual
promises that have not been voluntarily performed. The second
equitable remedy is an injunction, which is an order made to prevent a
threatened or continuing breach of the law, including a breach of
contract.
10.1.1(c) Statutory remedies
In addition to the common law and equitable remedies, there are
various statutory remedies for breach of contract. For example, the
sale of goods legislation of the states and territories sets out the
remedies available in the event of a breach of the terms implied by
that legislation into a contract for the sale of goods.
10.1.1(d) Agreed remedies
Finally, there is the possibility that the parties to a contract have,
within the contract, made their own provisions regarding remedies for
breach. Such terms will be enforced by the courts in the same way as
other agreed terms in a contract. Agreed remedies can take many
forms, from the invention of new remedies not provided for by law, to
the modification of existing remedies or the exclusion of liability. See
Chapter 8.
10.1.2 Can a plaintiff choose whatever remedy they prefer?
Although various remedies are potentially available for breach of
contract, not all of them are available in every case. It will depend on
the circumstances of the case whether or not the plaintiff is restricted
to a claim for damages or whether some other remedy is available,
either in addition to damages or as an alternative. For example,
suppose that the owner of a computer supplies shop has purchased
1,000 USB flash drives from a supplier at a price of $3.00 each. The
supplier breaches the contract by failing to deliver the flash drives.
The shop owner brings an action for breach of contract against the
supplier. As a plaintiff, the shop owner could ask for an order of
specific performance but, because the court might not be prepared to
make such an order in the circumstances, the plaintiff might ask for an
award of damages as an alternative. And, in addition to that, the
plaintiff might be justified in terminating the supplier’s right to perform
the contract. This would be aside from any relevant agreed or
statutory remedies.
The circumstances in which particular remedies are available, and the
nature and scope of each remedy, are explained in the rest of this
chapter.

¶10.2 Common Law Remedies

10.2.1 An award of damages for breach of contract

10.2.1(a) The availability of damages as a remedy
An award of damages is the ordinary remedy for breach of contract. It
is available for any breach of contract that causes recognisable loss.
Damages may be claimed for losses flowing from a breach of
warranty, a breach of condition or a breach of an innominate term.
They can be claimed for a breach in the form of non-performance,
partial performance, substantial performance, defective performance,
or late performance. They can also be claimed following termination of
performance on grounds of anticipatory breach (see ‘Termination of
performance’ below at ¶8.2.2 and following).
10.2.1(b) The compensatory nature of damages
‘Damages’ means a sum of money paid to compensate someone for a
loss they have suffered. To successfully claim damages for breach of
contract, the non-defaulting party must be able to prove both that a
breach of contract took place and that the losses in question were
caused by that breach. This involves a court comparing what
happened as a result of the breach, with what would have happened if
no breach had occurred (that is, if the contract had been properly
performed). Damages for breach of contract are not awarded simply to
punish a breach that caused no loss.
10.2.1(c) The purpose of damages
An award of damages for breach of contract is calculated to put the
non-defaulting party in the same position financially as if the contract
had been properly performed.
10.2.1(d) Damages for wasted expenses
Damages can be claimed for reasonable expenses incurred in
expectation of proper performance of the defaulting party’s contractual
obligations. The non-defaulting party can only claim such damages to
the extent that the expenses would not have been wasted if the
contract had been properly performed.
Note: This case involves the sale of a non-existent thing, and such agreements are not
normally enforceable. However, in this case, the commission had, in effect, guaranteed the
existence of the tanker they sold to McRae.

10.2.1(e) Damages for immediate (direct) loss

An award of damages for breach of contract can include
compensation for a loss that flows naturally from the breach according
to the usual or normal course of events. Such a loss is called the
‘direct’ or ‘immediate’ loss.
10.2.1(f) Damages for consequential loss
An award of damages for breach of contract can include
compensation for losses that are not closely enough linked to the
breach to be direct loss, but which, even though more remote, would
have been in the parties’ minds when entering the contract as a
probable result of the breach. Such losses are called ‘indirect’ or
‘consequential’ losses.
10.2.1(g) Damages for distress or disappointment
An award of damages for breach of contract does not usually include
compensation for disappointment and distress resulting from the
breach. An exception to this rule is when the contract was for the
provision of enjoyment, entertainment or pleasure, such as a pleasure
cruise or holiday.
10.2.1(h) The duty to mitigate losses
When faced with a breach of contract, the non-defaulting party is
required to do everything reasonably possible to mitigate (minimise or
reduce) the losses that flow from the breach. If a non-defaulting party
fails to take steps to mitigate their losses, they cannot later claim as
damages any losses which they could reasonably have avoided.
Exactly what must be done to mitigate the loss will differ from case to
case, but the non-defaulting party is not obliged to take risks, or spend
money they cannot afford, in an effort to mitigate the losses.
10.2.1(i) Damages following a failure of efforts to mitigate
As long as the non-defaulting party acts reasonably in the
circumstances in taking mitigating action, then, even if the result is
counter-productive, the non-defaulting party is entitled to recover both
the actual loss suffered and any additional expenses incurred.
10.2.1(j) No damages without loss
If action taken to mitigate loss is effective, and the non-defaulting party
ends up avoiding all loss or even obtaining a benefit, then damages
cannot be claimed.
Note: Damages were allowed for losses UER had suffered while using the defective turbines.

A specific application of this principle is where goods are purchased

but not delivered. If the same goods can be purchased from another
supplier, either at the same price or more cheaply, then the buyer has
not suffered loss and cannot claim damages. However, if, at the time
of the breach, the market price is higher than the original contract
price, then the buyer has suffered a loss and can claim damages for
the difference in price. Indeed, in contracts for the sale of goods,
damages are calculated by reference to the market price at the time of
the breach regardless of whether or not the buyer actually purchases
alternative goods from another supplier.
10.2.2 Termination of performance
10.2.2(a) The nature of ‘termination of performance’
The right to terminate performance on grounds of breach of contract is
a remedy that originated in the common law courts. It consists of
rejecting a defaulting party’s flawed performance (for example, by
refusing to accept goods that have been delivered, or rejecting
services that have been provided) and/or putting a stop to further
performance of the contract (for instance, by refusing to allow any
outstanding contractual obligations to be discharged by performance).
10.2.2(b) The availability of termination
Termination of performance is only available as a remedy for relatively
serious breaches of contract. It is available for a breach of a term that
is a condition of the contract.

Termination is also available for a breach of an innominate

(intermediate) term if the breach substantially deprives the plaintiff of
an intended benefit of the contract.
10.2.2(c) No termination for non-fundamental breaches
In circumstances of a breach of a warranty, or a breach of an
innominate term that does not substantially deprive the plaintiff of an
intended benefit of the contract, the non-defaulting party can claim
damages but they are not entitled to terminate performance.
10.2.2(d) Wrongful termination is an act of repudiation
If a party attempts to terminate performance of a contract on grounds
of breach, but they are not able to prove a sufficiently serious breach,
their action of terminating performance will itself be treated as an act
of repudiation. This means that they may themselves be sued for
breach of the contract. It is therefore extremely important for a non-
defaulting party to be very sure that they have sufficient grounds to
terminate the defaulting party’s right to perform, before deciding to do
so.
10.2.2(e) Termination for different kinds of breach
The right to terminate performance in particular cases can be
considered in relation to the different types of breach that may occur.
Non-performance
Non-performance (that is to say, a complete failure to perform the
contract) justifies termination of the defaulting party’s right to perform.
Partial performance
If there is partial performance of one or more conditions in the
contract, or if partial performance gives rise to a sufficiently serious
breach of an innominate term, the non-defaulting party may reject that
performance and put a stop to any further performance. Partial
performance of a warranty, or performance that amounts to less than
a serious breach of an innominate term, does not justify termination of
performance. If a party who is entitled to reject partial performance
chooses to accept it, they must pay (on a pro rata basis) for what they
have received. However, the non-defaulting party will have an action
for damages for any losses caused by the failure to perform in full.
Substantial performance
In cases of substantial performance of a condition, although this is a
breach of contract, it would be unreasonable to allow performance to
be terminated. Accordingly, if there has been substantial performance
of a condition, the breach must be treated as a minor breach of
contract, for which the appropriate remedy is an adjustment in the
price payable or a claim for damages.
Hidden defects
If hidden defects in goods or services supplied amount to a breach of
condition or to a serious breach of an innominate term, the non-
defaulting party will be entitled to reject what was supplied and put a
stop to further performance. This right exists even though the goods or
services were received and used, if such use was required to discover
the defects. However, termination of performance is not an available
remedy for less serious hidden defects.
Late performance
Late performance is not always treated as sufficiently serious to justify
terminating performance. Although the common law generally treated
the time of performance as a fundamentally important term in a
contract, there is now legislation in all jurisdictions that gives
preference to an equitable approach.1 Equity says that stipulations in
contracts, whether as to time or otherwise, should be treated as non-
essential terms unless the facts indicate that the parties intended
otherwise. Section 62 of the Property Law Act 1974 (Qld) is an
example of such provisions.
Anticipatory breach
If there is an anticipatory breach of an entire contract, or of a condition
in a contract, or if there is a serious anticipatory breach of an
innominate term, the non-defaulting party has the right to terminate
performance immediately, even before performance is actually due.
10.2.2(f) Termination required within a reasonable time
A party who wishes to terminate performance on grounds of
anticipatory breach must decide to do so within a reasonable period of
time. A decision to terminate must be communicated clearly to the
other party by words or conduct.
See Holland v Wiltshire (1954) 90 CLR 409 above.
10.2.2(g) The effect of termination on the contract
Termination of performance for breach of contract does not invalidate
(make void) the entire contract. Any performance that has already
been satisfactorily made prior to the breach is not affected. Any
outstanding obligations remain enforceable at law, so that the non-
defaulting party may have a contractual right to claim for damages for
the defaulting party’s breach of contract. The payment of damages
has the effect of discharging these obligations in lieu of actual
performance.
10.2.2(h) A decision whether or not to terminate is binding
A decision not to terminate performance despite a serious breach is
binding on a non-defaulting party if the decision is made with
knowledge of the facts that gave rise to the right to terminate. This is
so regardless of whether the non-defaulting party had sought legal
advice and whether they knew of their legal right to terminate.
 Footnotes
1 Conveyancing Act 1919 (NSW), s 13; Property Law Act
1974 (Qld), s 62; Law of Property Act 1936 (SA), s 16;
Supreme Court Civil Procedure Act 1932 (Tas), s 11(7);
Property Law Act 1958 (Vic), s 41; Property Law Act 1969
(WA), s 21; Civil Law (Property) Act 2006 (ACT), s 501;
Supreme Court Act 1979 (NT), s 68.

¶10.3 Equitable Remedies

10.3.1 General limitations on the availability of equitable

remedies
The remedies known as ‘orders of specific performance’ and
‘injunctions’ are referred to as equitable remedies because they were
developed by the English Courts of Chancery as special remedies to
be available when considerations of fairness required it. There are
some general limitations on the availability of equitable remedies
which need to be taken into account.
Firstly, equitable remedies are considered to be available only when
the ordinary remedies provided by the common law do not, in the
court’s opinion, provide adequate relief to a plaintiff. The courts
exercise their discretion in deciding whether to allow equitable relief.
Thus, if a court thinks that, in a particular case, an award of damages
provides adequate relief, an equitable remedy such as specific
performance will not be ordered.
Secondly, equitable remedies will not be available to a plaintiff who
had delayed for too long before seeking relief. Undue delay is
considered inconsistent with asking for special remedies. Whether or
not delay has been unreasonable or not will depend on the
circumstances of each case.
Thirdly, a court will not provide equitable relief to a party who comes to
court with ‘unclean hands’ — in other words, to a party who is guilty of
some behaviour, related to the case, of which the court disapproves,
such as conduct that is unconscionable or unethical.
10.3.2 Orders of specific performance
10.3.2(a) The availability of an order of specific performance
An order of specific performance is an order that the defendant carry
out their contractual promises. In addition to the general restrictions on
the availability of equitable remedies outlined above, there are various
other circumstances in which a court will not order specific
performance.
10.3.2(b) Contracts requiring the performance of personal
services
The courts will not order specific performance of a contract requiring
personal services, such as those of a hairdresser, tailor or advisor,
because personal services depend on the goodwill of the performer.
This means that even if a court were to order such performance, it
might be carried out badly, leading to further disputes.
An example is the case of Lumley v Wagner (1852) 42 ER 687.
Wagner, a singer, had contracted to sing in a certain number of
performances in Lumley’s theatre. In considering another issue, the
court observed that it would not have ordered specific performance of
this promise (a promise for personal services) because it would have
involved too much supervision by the court and interfered too much
with Wagner’s personal liberty. Also see Buckenara v Hawthorn
Football Club Ltd [1988] VR 39, below.
10.3.2(c) Contracts requiring performance over an extended
period
Specific performance will not be ordered if a contract requires the
performance of services that will continue over an extended period of
time, and where there is no guarantee that both parties will perform as
required without ongoing supervision by the court.
10.3.2(d) Contracts for things that are freely available
The courts will not order specific performance if the thing that was
contracted for is freely available on the market from another supplier.
This is because specific performance is only ordered if damages
cannot provide an adequate remedy. If the same thing can readily be
acquired elsewhere, even at greater cost, damages will adequately
compensate for the increased cost. Specific performance will only be
ordered when the thing in question is not obtainable elsewhere.
10.3.3 Injunctions
10.3.3(a) The nature of an injunction
An injunction is a court order that forbids or stops particular conduct
that infringes another person’s legal rights, or which puts another
person’s legal rights at risk. Injunctions can be made in a wide variety
of circumstances, including where a breach of contract is threatened.
An injunction usually tries to preserve a situation as it is and prevent
any likely (or further) breach of legal rights. Injunctions normally only
give temporary relief, and additional litigation may be needed to
resolve the dispute fully.
10.3.3(b) Injunctions to enforce negative promises
Although the courts will not order specific performance of positive
undertakings to perform personal services, they might be prepared to
issue injunctions to enforce promises not to perform such services.
Such orders are relatively easy to enforce because it will not be
difficult to establish whether the court’s order is contravened.

10.3.3(c) Injunctions that indirectly require specific performance

of personal services
If an injunction would indirectly produce the same result as specifically
enforcing a promise to perform personal services, the courts will not
issue the injunction.
10.3.3(d) Injunctions and anticipatory breach
An injunction may be sought to prevent a breach of contract that is
threatened or seems likely to occur. However, before deciding
whether or not to issue an injunction, the court will consider whether
damages would be an adequate remedy should the breach occur.

¶10.4 Statutory Remedies

Statutory remedies are those that are made available by legislation. Of
particular importance in this regard are the statutory remedies
available in the case of contracts for the sale of goods.
10.4.1 Remedies provided by state and territory sale of goods
legislation
Some terms become part of a contract, not by agreement between the
parties, but because they are imposed (implied) by law. For example,
the sale of goods legislation imposes terms requiring goods to be of
merchantable quality, fit for the buyer’s stated purpose or equivalent in
quality to a sample. If terms implied by law are breached, the
remedies available are also prescribed by the relevant statute.2
The sale of goods legislation makes the same distinction as the
common law between conditions and warranties. The terms implied
into sale contracts by the legislation are usually conditions rather than
warranties, but the distinction remains important. In outline, the sale of
goods legislation provides as follows:
For a breach of a condition in a sale contract (including a
condition implied into the contract by the legislation), the sale of
goods Acts say that a buyer is entitled to ‘reject the goods and
treat the contract as repudiated’. However, the buyer loses this
right if they accept the goods as fulfilling the contract (or, in some
states, if the buyer becomes owner of the goods bought).
Damages for a breach of condition may also be claimed.
For a breach of a warranty in a sale contract, the buyer may not
reject the goods or stop further performance of the contract, but
may claim damages. This rule is generally convenient in
commercial sales.
If there is a breach of condition, but the buyer has already
accepted the goods or become owner of them, then the buyer’s
 normal right to terminate performance is lost and the buyer must
treat the breach of condition as if it were a breach of warranty.
This means that the buyer cannot reject the goods delivered or
put a stop to delivery, but must be satisfied with a claim for
damages.
Section 16 of the Goods Act 1958 (Vic) provides an example of these
provisions.
 Footnotes
2 Sale of Goods Act 1923 (NSW), s 16; Sale of Goods Act
1896 (Qld), s 14; Sale of Goods Act 1895 (SA), s 11; Sale
 of Goods Act 1896 (Tas), s 16; Goods Act 1958 (Vic), s 16;
Sale of Goods Act 1895 (WA), s 11; Sale of Goods Act
1954 (ACT), s 16; Sale of Goods Act 1972 (NT), s 16.

¶10.5 Agreed Remedies and Penalty Clauses

10.5.1 Terms of the contract that create or modify remedies

The doctrine of freedom of contract allows the parties to a contract to
agree on the nature and scope of the remedies that will be available in
the event of a breach of their contract. One possibility is that the
parties will adopt a remedy that is not otherwise provided for, for
example, by agreeing that any disputes should be referred to
arbitration or conciliation rather than bringing an action in court.
Another possibility is that the parties will agree, in advance, on the
amount of damages that should be payable in the event of particular
kinds of breach and restrict themselves to these claims. In other
cases, the parties agree to special procedures that must be followed
in the event of a dispute, such as requiring notice in writing and time to
respond. There may also be agreed terms that limit or exclude liability.
10.5.2 Pre-estimates of damages
The parties to a contract may agree in advance what losses will likely
be suffered if a particular breach of contract happens, and insert a
‘liquidated damages’ clause into their contract saying what amount will
be payable if the breach occurs. As long as the clause is a genuine
pre-estimate of the likely losses, the courts will enforce it, even if the
losses actually suffered are less (or more).
Liquidated damages must be distinguished from penalty clauses.
Penalty clauses do not estimate the likely loss, but attempt to
encourage proper performance by punishing a breach; they require
the payment of damages that bear no relationship to any likely loss. In
awarding damages the courts will disregard penalty clauses and
instead assess the extent of actual losses.
The courts have also said that a sum payable is only a penalty if it is
out of all proportion to the likely damage, or is extravagant, exorbitant
or unconscionable.
Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA
28
Contract; remedies for breach; penalty clauses; pre-estimates of loss;
other factors
Facts: Paciocco held two credit card accounts with the Australia and
New Zealand Banking Group Ltd (ANZ). One of the terms of the
contract specified a ‘Late Payment Fee’ which would be charged if
Paciocco failed to pay the monthly payment due. ANZ fixed the ‘Late
Payment Fee’ from time to time, without consulting with its customers.
At the time of this dispute, it was set to $20.00. In a class action
against ANZ, Paciocco argued that the term setting out the fee was a
penalty and was therefore unenforceable.
Issue: Was the Late Payment Fee of $20.00 a penalty and therefore
unenforceable?
Decision: The Late Payment Fee was not a penalty, because it was
not ‘extravagant’ or ‘unconscionable’ with regard to the business and
financial interests of ANZ in ensuring timely payments.
Reason: In many cases, the distinction between liquidated damages
and a penalty will be useful. A liquidated damages clause is one which
represents a genuine pre-estimate of loss or damage which would
result from a breach. But if a clause is not based on a pre-estimate of
loss, this does not necessarily mean that it is a penalty. A stipulated
sum might also reflect other kinds of loss or damage to the protected
party’s interests, beyond those directly caused by the breach. The
proper test to determine whether a clause is a penalty is whether or
not the sum is ‘extravagant’ or ‘unconscionable’ because it is plainly
excessive or ‘out of all proportion’ to the interest sought to be
protected by it. In this case, late payment was found to impact ANZ’s
interests in several respects: through operational costs, loss
provisioning, and increases in regulatory capital costs. Because the
sum of the Late Payment Fee was not ‘out of all proportion’ to these
interests, it was not a penalty.

¶10.6 Choosing an Available Remedy for Breach of

Contract
The following questions will help you to take account of the various
rules that need to be considered when deciding what remedies might
be available for a breach of contract. Go through the questions step-
by-step and make sure you can recall the rules and cases that should
be applied.
Circumstances that may invalidate a legal
transaction
¶11.1 Introduction
11.1.1 What different circumstances might invalidate a legal
transaction?
In most cases, provided that the parties attend to the essential
requirements to create a legal transaction, the transaction comes into
existence, or takes place, with all its legal consequences. However,
there are special circumstances that can affect this expectation. If any
of these special circumstances exist when the transaction is enacted,
they can affect the validity of that transaction, even if the normal
essential requirements are satisfied.
For example, the law does not allow a transaction to be brought about
when the consent of one or more parties is obtained by the use of
force or threats, or by the use of deliberate deceit. It does not allow a
stronger party to use improper influence over a weaker party to gain
their consent to a transaction. In some circumstances, the law takes
account of mistaken beliefs that have affected the consent given to
enter into a transaction. The law does not allow a person to obtain
consent from another person by means of conduct that is contrary to
good conscience or which is misleading. It may not recognise or
enforce transactions that contravene a legal requirement or
prohibition. Each of these circumstances is distinct and has its own
name in Australian law. Each of them potentially affects the validity of
a legal transaction.
It is important to note that, in this chapter, we are not talking only
about contracts. A contract is one kind of legal transaction, but it is not
the only one. There are many different types of legal transactions,
such as transferring property, granting a power or right, giving consent
or changing one’s status. The special circumstances discussed below
can affect the validity of any type of legal transaction.
11.1.2 What is meant by ‘invalidating’ a transaction?
If a legal transaction (such as a contract) is entered into in the sort of
circumstances described above, the legal validity of the transaction
may be affected. This can happen in different ways. One possibility is
that the special circumstances prevent a valid transaction from ever
coming into existence. In other words, the attempted transaction is
‘void’ (of no legal effect) ab initio (from the very beginning). In other
cases, the special circumstances do not make the transaction void ab
initio and a valid transaction is created, but it may later be set aside by
a court as invalid. We describe such transactions as being ‘voidable’,
to indicate that, although they exist, they can be made void at the
request of the disadvantaged party. Once a ‘voidable’ transaction has
been made void, the legal effect is the same as if the transaction had
been void ab initio (from the very beginning). Thus we can say that a
transaction is either ‘void’ ab initio or ‘voidable’ ab initio.
Because the special circumstances being considered make a legal
transaction void or voidable, they are sometimes referred to as
‘vitiating’ circumstances, meaning that they vitiate (render invalid) the
affected transaction.
It should be noted that invalidating a contract on grounds of vitiating
circumstances is a very different concept from the concept of a breach
of contract, which is not an invalidating circumstance and does not
vitiate the contract.
11.1.3 What happens after a transaction is made void?
If neither party has begun to carry out a transaction that is void, or that
is declared to be void, there is no difficulty: the parties are not bound
by any legal obligations and need not carry out the transaction. But it
may happen that the parties do not immediately realise that the
transaction they have entered into is either void or voidable, and they
may begin to carry it out or even complete it. What happens if the
transaction is then found to be legally void, or is made void ab initio by
a court?
The answer is that the parties must be restored to the position they
were in before they created (or attempted to create) the transaction.
This is done by reversing anything that had already been done, so that
neither party retains any benefit or advantage from the vitiated
transaction. Equity takes a reasonable approach to this requirement,
allowing financial adjustments to be made if, practically speaking,
actual physical restoration is impossible.
This process is called restitutio in integrum—a restoration of the
parties to their pre-transaction positions. Restitutio in integrum is
sometimes referred to as ‘rescission’ or ‘cancellation’ of the
transaction. This usage is acceptable, but keep in mind that the
situation is one where the parties to a transaction are being restored
back to their previous position because the transaction is invalid.
11.1.4 In what circumstances might relief be refused?
The remedy of rescission or restitutio in integrum originates in the law
of equity, which means that it is subject to certain limits. A party to a
transaction who relies on one or more vitiating circumstances to avoid
their obligations and be restored to their previous position must seek
relief within a reasonable time of having the opportunity to do so. If
they delay for too long, the court will treat their delay as a decision not
to avoid the transaction, and will not assist them. Nor will relief be
granted to a party if they have themselves engaged in improper
conduct because the rules of equity require that a party seeking relief
have ‘clean hands’. The right to avoid a transaction will also be lost if,
after discovering the facts, the party seeking to have the transaction
made void has done something that is inconsistent with an intention to
seek relief, or if a third party has, in good faith, already acquired legal
rights that would be affected by invalidating the transaction.
11.1.5 What particular ‘vitiating’ circumstances are recognised in
Australian law?
The various circumstances that have the potential to invalidate a legal
transaction are conceptually distinct from each other and arise in
different ways. It is important to distinguish between them, as outlined
below:
• Duress arises when consent to a transaction is obtained by the
use (or threatened use) of unlawful force or harm.

• Deceit exists when one party deliberately misleads another in

order to obtain their consent.
 • Undue influence arises when, because of some relationship
between the parties to a transaction, one of them has influence
over the other’s decision making and uses that influence
improperly.

• Mistake exists when one or more of the parties to a transaction

give their consent while holding a relevant belief that is not in fact
true.

• Unconscionable conduct occurs when one party to a transaction

is obviously at some disadvantage and the other knowingly
behaves contrary to good conscience to obtain their consent.

• Misleading conduct consists of any behaviour — whether

deliberate, careless or otherwise — which leads another person
into error or the likelihood of error.

• Illegality exists when a transaction involves something that is

restricted or prohibited by law, or which fails to comply with
special requirements.

It is obviously important to know about these various vitiating

circumstances, because they can seriously upset the plans of
transacting parties who fail to take them into account. In this chapter,
the different circumstances are described and illustrated in more
detail.

¶11.2 Duress
11.2.1 Threats or infliction of physical harm
Obtaining consent by compulsion is known as ‘duress’. Certain types
of persuasive behaviour are legitimate, but the law will not tolerate
threats of physical violence, or the actual infliction of physical harm, as
a way of getting another’s consent to enter a legal transaction. Threats
or infliction of violence or harm can amount to duress if they are made
directly against the other party, or against a person who is related or
close to that party.
11.2.2 The effect of duress
Even when consent is given under duress, the consent is considered
sufficient to give rise to a legally valid transaction. However, because
of the duress, the transaction is voidable ab initio, even if the duress
was not the only reason for giving that consent. If the party who was
subjected to the duress requests, a court can declare the transaction
void as from its beginning (ab initio) and the parties will then be
restored to their pre-contractual positions (restitutio in integrum).

11.2.3 Economic harm

The infliction or threats of economic harm (eg financial loss) rather
than physical harm may constitute duress. However, the courts
distinguish carefully between illegitimate compulsion and behaviour
falling within the accepted (often harsh) cut-and-thrust of normal
business activity. The critical question is whether the threat was in
some way unlawful.
11.2.4 Harm to property
Inflicting or threatening illegitimate harm to another person’s property
in an attempt to compel that person to consent to a transaction, may
justify setting aside the transaction on grounds of duress.
¶11.3 Undue Influence
11.3.1 Relationships that give rise to a controlling influence
The parties to a legal transaction may have some other pre-existing
relationship, such as that between a parent and child, a doctor and
patient or an employer and employee. As a result of the relationship
one of the parties may have a position of dominance, control or
influence over the other, who places their trust and confidence in
them. This trust and confidence can mean that the weaker party is not
genuinely able to exercise their independent judgment in deciding
whether or not to enter the transaction.
In such cases, if the control or influence of the stronger party is used
improperly to obtain the consent of the weaker party, the situation is
described as ‘undue influence’. The consent given by the weaker party
is sufficient to create a valid transaction, but the transaction is
voidable and may be set aside as void ab initio by a court, at the
request of the person who was influenced.
11.3.2 Presumption of a general controlling influence
Certain relationships are presumed to give one party a general
controlling influence over the other. Examples of such relationships
are parent and child, guardian and ward, doctor and patient, religious
advisor and believer, solicitor and client, trustee and beneficiary, and
probably any relationship that depends on trust (known as ‘fiduciary
relationships’). When such relationships exist between contracting
parties, the courts presume that a transaction between them is made
because the controlling party improperly used their general controlling
influence to obtain the consent of the weaker party. The onus is then
on the controlling party to rebut this presumption, by showing that the
other party made the decision independently — for instance that they
had obtained independent legal or financial advice. If the stronger
party cannot show this, the weaker party can have the transaction set
aside as void.
11.3.3 Proof of a general controlling influence
In some relationships, a general controlling influence is not presumed
but the weaker party can prove that, in their own particular case, the
relationship did in fact involve the stronger party exercising a general
controlling influence over the weaker party’s decision making.
Common examples of this sort of relationship are spouses, principal
and agent, accountant and client, banker and customer, dentist and
patient, and employer and employee. Even outside such categories, a
general controlling influence may be shown to have existed in a
particular relationship.
If the weaker party can prove that the relationship involved a general
controlling influence, the court presumes that any transaction entered
into with the stronger party is tainted by that undue influence. The
transaction may be set aside as void, unless the stronger party can
prove that the weaker party’s decision to enter the transaction was in
fact made independently and not because of any undue influence.
11.3.4 Cases where there is no general controlling influence
In cases where a general undue influence is neither inevitable nor
proven, it may still be possible for the weaker party to prove that their
consent to the particular transaction was given because, on that
occasion, the other party improperly exercised a controlling influence
that arose because of their relationship. This can be a difficult thing to
prove.

¶11.4 Unconscionable Dealing

11.4.1 The concept of ‘good conscience’

In modern Australian law, conduct that is contrary to good conscience
is not tolerated. The word ‘conscience’ means the inner sense of what
is right or wrong in one’s conduct or motives. Conduct is described as
‘unconscionable’ when it does not conform to what this conscience
prescribes. Of course, it does not matter what subjective conscience
an individual may have: the courts apply a generalised idea of what
kind of behaviour good conscience ought to dictate.
11.4.2 Taking advantage of the weaker party
Unconscionable conduct arises when one of the parties to a legal
transaction suffers from some disadvantage or disability that makes
them unable to judge properly whether consenting to the transaction is
in their own best interests or not. The disadvantage or disability can
take many different forms: it can result from age, illiteracy, physical
infirmity, etc. If the weakness is serious and obvious, and the stronger
party takes advantage of this to an extent that good conscience
should not allow, the weaker party can have the affected transaction
set aside as void, on grounds of unconscionable dealing.
11.4.3 Knowledge of the weaker party’s disadvantage
A contract will only be set aside for unconscionable dealing under the
general law if the disadvantage of the weaker party is obvious to the
stronger party, or if the circumstances make clear the likelihood of
some such disadvantage, putting the stronger party on inquiry. The
stronger party cannot simply ignore the weaker party’s disadvantage if
they were aware of it, or if they should have been aware of it in the
circumstances.

11.4.4 The disadvantage of a spouse who guarantees a partner’s

debts
In the general law, if a wife guarantees her husband’s debts without
understanding the essential effect of the transaction, the guarantee
can be set aside as unconscionable unless the creditor has ensured
that the wife was adequately informed of the obligations she was
undertaking. This is despite the wife not being under any obvious
disadvantage, because the relationship between spouses is one of
trust and confidence, making it unlikely that a full and proper
explanation of the transaction will have been demanded or given
between the spouses. In such circumstances, it is unlikely that the
wife was able to judge whether or not the transaction was in her own
best interests.
Note: There does not seem to be any reason in principle why the same rule should not apply if
it is the husband giving the guarantee of a debt owed by his wife.

¶11.5 Mistake

11.5.1 The concept of mistake

A mistake (or error) exists when one person believes or thinks
something that is not true. A party who has entered into a legal
transaction while under a misapprehension of fact may not wish to be
bound once they discover the truth. The law faces something of a
dilemma in such cases. On the one hand, it should not be too easy to
avoid legal consequences by claiming to have been mistaken. On the
other hand, a mistaken belief might deprive the transaction of some
essential requirement of validity, in which case it is void ab initio. In
special circumstances, the mistake may justify treating the transaction
as voidable or unenforceable.
In seeking appropriate outcomes, the law distinguishes between
different types of mistake and applies different rules to each one.
There are three basic situations to consider.
11.5.2 Where there is no objective agreement because of a
mutual mistake
In some cases, the parties subjectively think they have reached
agreement but it later becomes apparent that, at the relevant time,
each of them believed something that was untrue. The parties are at
cross-purposes. We refer to this situation as ‘mutual mistake’, when
each party makes a different mistake rather than sharing the same
mistaken belief.
The effect of mutual mistakes needs to be carefully analysed. If a
reasonable person made aware of the true facts would infer that,
because of the mutual mistakes, there was no objective agreement on
an essential aspect of the transaction, then the agreement is void ab
initio. But if, despite each party being mistaken about some aspect of
their transaction, there was sufficient agreement for a binding
transaction to have been created, the transaction is valid and will not
be set aside as void.
11.5.3 Where there is objective agreement, but it is based on a
common error
The term ‘common error’ is used to describe a situation where both
parties to a transaction share the same mistaken belief. This situation
can arise in many ways. For example, both parties may make the
same mistake about the identity of the thing they are transacting for,
or about the existence of the thing they are transacting for, or about
who owns the subject matter of the transaction.
11.5.3(a) The test of ‘objective conditionality’
If both parties to a transaction have the same mistaken belief about
something but, despite their error, they objectively appear to reach
sufficient agreement for a valid transaction, then the error will not
necessarily make the transaction void. To decide whether a
transaction is valid despite a common mistake, the courts ask whether
it can be inferred from the known facts that the consent or agreement
to the transaction was intended to be conditional on the truth of the
mistaken belief. If it can be inferred from the known facts that the
consent or agreement was intended to be conditional on the truth of
what was believed, then the mistake makes the transaction void ab
initio. But if the agreement was not objectively conditional on the truth
of the parties’ mistaken assumption, the contract remains valid,
despite the mistake.
11.5.3(b) Common mistakes going to the quality of the subject
matter
If there is a bilateral mistake that relates to a quality of a thing
transacted for (as compared with its identity, existence or ownership),
the common law is reluctant to treat the transaction as void. It will do
so only if the common error ‘makes the thing contracted for essentially
different from the thing that it was believed to be’. This may be a hard
test to satisfy.
11.5.4 Unilateral mistakes
If only one party is mistaken about an assumed fact, the mistake is
called a ‘unilateral’ (one-sided) mistake. The common law takes a
strict view of such cases. It applies an objective test to determine
whether the parties have reached sufficient agreement to create a
valid transaction. If objective agreement exists, the transaction is
binding, regardless of one party’s mistaken state of mind or belief.
This may seem very strict, but to hold otherwise would make it too
easy for someone to avoid a transaction by claiming unilateral
mistake.
In exceptional cases, equity may provide relief in cases of unilateral
mistake. If the party seeking to enforce a transaction knew, or must
have known, that the other party was transacting on disadvantageous
terms because of a misapprehension of fact, and deliberately tries to
prevent the discovery of the true facts until the transaction is assented
to, they will not be permitted to enforce the transaction. The basis of
this relief is that it would be unconscionable to enforce a transaction in
such circumstances.

¶11.6 Misrepresentation
11.6.1 Defining ‘representations’
A representation is a statement of fact, made with the intention of
inducing the other party to enter the contract, but which was not
intended to be contractually binding. If a representation is untrue it is
called a ‘misrepresentation’. Misrepresentations do not create liability
for breach of contract, because representations are not terms of the
contract. However, depending on the circumstances, non-contractual
remedies may be available. To determine what remedies may apply, it
is important to identify what kind of representation occurred, based on
what the person making the statement knew or intended (objectively
judged).
11.6.2 Deliberate misrepresentation
When a person makes a statement, knowing it is untrue, and with the
intent of misleading the other contracting party, this is deliberate fraud,
known as ‘deceit’. Fraud is not a breach of contract, but it provides the
legal basis for an action in tort for damages. Furthermore, if a contract
is made because of fraud, the common law allows the party who was
deceived to request that the court rescind the contract (ie the contract
is voidable ab initio).
11.6.3 Negligent misrepresentation
When a misrepresentation is made by one contracting party to another
in breach of a duty of care, this amounts to the tort of Negligence and
damages can be claimed. A negligent misrepresentation is not a
breach of contract. However, if a contract is made because of a
negligent misrepresentation, equity allows the contract to be set aside
as void ab initio.

¶11.7 Illegal Contracts

11.7.1 The effect of illegality on a transaction
The courts will not lend their weight and authority to assist in enforcing
a transaction that is unlawful (illegal). The courts treat such
transactions either as void (invalid) or as legally unenforceable. In
practice, illegality is usually raised as a defence when an action is
brought to enforce a transaction. If the defendant can establish that
the transaction was illegal, the court will refuse to assist the plaintiff.
11.7.2 Illegality on grounds of public policy
The courts classify a wide range of agreements as illegal at common
law because they are contrary to a general notion of ‘public policy’.
The list of such agreements includes those that unreasonably restrict
a person’s freedom to work or engage in trade and commerce. These
are known as agreements in ‘restraint of trade’. It is not against the
public interest to allow the protection of business interests by imposing
reasonable restraints on persons who, in one way or another, have
acquired information or skills that a competitor would value.
Agreements in restraint of trade will only be treated as void and
unenforceable only if they go beyond what is reasonably necessary to
protect the legitimate interests of the other party.
11.7.3 Change in public policy
It is left to the courts to determine whether particular conduct offends
against public policy and, as society changes, so do judicial views. In
the past, for example, the courts refused to enforce contracts that had
a purpose connected to prostitution.
Attitudes towards such things were stricter around the time of this
case than they are today, and what the courts will treat as contrary to
public policy on grounds of immorality must be constantly reviewed. In
Australia prostitution has been largely decriminalised and, within
limits, so has pornography. As a result, contracts relating to such
areas are now less likely to be treated by the courts as void or
unenforceable.
11.7.4 Statutory illegality
In addition to illegality under the common law, there are thousands of
statutory provisions that make all sorts of conduct unlawful. The effect
of each of these provisions depends on what the legislature intended
in each case. In some Acts, conduct is penalised, but not necessarily
invalidated. In other cases, a statute invalidates conduct without
punishing it. Sometimes conduct is both invalidated and penalised.
Which of these alternatives was intended is not always made explicit,
and the courts must interpret the relevant Act to decide the question.
Generally, the courts are reluctant to find an implied intention to
invalidate a contract, particularly if the statutory penalty appears to
provide a sufficient sanction.
¶11.8 Other Circumstances
11.8.1 Provisions of the Australian Consumer Law
Section 243 of the Australian Consumer Law empowers a court to set
aside a contract or arrangement as void, in whole or in part, because
of a breach of a provision of Ch 2, 3 or 4 of the Australian Consumer
Law, or because of an unfair term in a consumer contract.

¶11.9 Invalidating a Legal Transaction

The following checklist summarises the process for deciding whether

or not a legal transaction is likely to be treated as void or voidable on
grounds of a recognised vitiating circumstance. Think about the
questions carefully and make sure you can remember the relevant
rules and cases.
TABLE OF SELECTED LAW
REPORTS SERIES
A&E Adolphus and Ellis’s Reports, QB. 1834–1840
ABC Australian Bankruptcy Cases. 1929–1964
AC Law Reports, Appeal Cases. 1891 onwards
ACLC Australian Company Law Cases
ACLR Australian Company Law Reports
ACSR Australian Corporations and Securities Reports
ACTR Australian Capital Territory Reports (in Australian Law
Reports)
AILR Australian Industrial Law Review
AIPC Australian Intellectual Property Cases. 1982 onwards
AITR Australian Income Tax Reports
AJR Australian Jurist Reports. 1870–1874
ALJ Australian Law Journal. 1927 onwards
ALJR Australian Law Journal Reports
ALLR Australian Labour Law Reporter
ALMD Australian Legal Monthly Digest. 1967 onwards
Argus LR Argus Law Reports. 1895–1973
ALR Australian Law Reports. 1973 onwards
ALT Australian Law Times. 1879–1928
ANZ Insurance Cases Australian and New Zealand
Insurance Cases
AR (NSW) Industrial Arbitration Reports (NSW)
ATD Australasian Tax Decisions
All ER All England Law Reports. 1936 onwards
App Cas Law Reports, Appeal Cases. 1876–1890
AR (NSW) Arbitration Reports (New South Wales)
ASC Australian Consumer Sales and Credit Law Reporter
ATC Australian Tax Cases
ATPR Australian Trade Practices Reports. 1974 onwards
Aust Torts Australian Torts Reports
Reports
Austn Digest Australian Digest
B&Ad Barnewall and Adolphus’s, KB 1830–1834
B&Ald Barnewall and Alderson’s, KB 1817–1822
B&C Barnewall and Creswells, KB 1822–1830
BCL Building and Construction Law
BPR Butterworths Property Reports
Beav Beavan’s Reports, Rolls Court. 1838–1866
Bing Bingham’s Reports, CP 1822–1834
CAR Commonwealth Arbitration Reports
CB (NS) Common Bench, New Series. 1856–1865
CLR Commonwealth Law Reports. 1903 onwards
ConvR Conveyancing Law and Practice (New South Wales)
(NSW)
CPD Common Pleas Division. 1875–1880
C&P Carrington and Payne’s, NP 1823–1841
Ch Law Reports, Chancery. 1891 onwards
ChD Law Reports, Chancery Division. 1876–1890
ChApp Chancery Appeals. 1865–1875
Cr App R Criminal Appeal Reports
DCR (NSW) District Court Reports (NSW)
DLR Dominion Law Reports
E&B Ellis & Blackburn, QB 1852–1858
E&E Ellis & Ellis.
EB&E Ellis, Blackburn & Ellis
ER English Reports
Ex Exchequer Reports. 1848–1856
Ex D Exchequer Division. 1875–1880
F3d Federal Reporter, Third Series
FCR Federal Court Reports. 1984 onwards
FedAppx Federal Appendix
FLR Federal Law Reports. 1956 onwards
F Supp Federal Supplement
H&C Hurlstone and Coltman’s Exchequer. 1862–1866
H&N Hurlstone and Norman’s Exchequer. 1856–1862
HLC House of Lords Cases (Clark). 1847–1866
IAS Industrial Arbitration Service
ICR Industrial Court Reports
IIB Industrial Information Bulletin
IPR Intellectual Property Reports. 1982 onwards
IR Industrial Reports. 1982 onwards
IRLR Industrial Relations Law Review
KB King’s Bench
KB English Law Reports, King’s Bench. 1901 onwards
Knox Knox’s Reports (New South Wales)
LCC (NSW) Land Appeal Court Cases (NSW)
LGR (NSW) Local Government Reports (NSW)
LGRA Local Government Reports of Australia
LJ Ch Law Journal Reports. Chancery
LJ Ex Law Journal Reports. Exchequer
LJKB Law Journal Reports. King’s Bench
LJPC Law Journal Reports. Privy Council
LJQB Law Journal Reports. Queen’s Bench
LLR Lloyd’s List Law Reports. 1919 onwards
LR (NSW) Law Reports. New South Wales. 1880–1900
LR (No) HL Law Reports. English and Irish Appeals (House of
Lords)
LR (NSW) Law Reports. NSW Equity. 1880–1900
Eq
LR App Cas Law Reports. Appeal Cases. 1876–1890
LRCP Law Reports. Common Pleas. 1865–1875
LREq Law Reports. Equity. 1865–1875
LR Ex Law Reports. Exchequer. 1865–1875
LR Ex D Law Reports. Exchequer Div. 1876–1880
LRPC Law Reports. Privy Council, Appeal Cases. 1865–
1875
LRQB Law Reports. Queen’s Bench. 1865–1876
LSJS Law Society Judgment Scheme (South Australia)
LT Law Times. 1843 onwards
LT (NS) Law Times. New Series, from 1859
LT (OS) Law Times Reports (Old Series)
LTJo Law Times Journal
LW Land and Valuation Court Reports (NSW)
Legge Legge’s Supreme Court Cases, New South Wales.
1825–1862
Lloyd’s Rep Lloyd’s List Reports. 1951 onwards
M&W Meeson and Welsby’s Exchequer. 1836–1847
Moo Moody
Moo KB Moore (King’s Bench)
Moo PC Moore’s Privy Council Cases. 1836–1862
NSWLR New South Wales Law Reports. 1825–1900
NSWLR New South Wales Law Reports. 1970 onwards
NTLR Northern Territory Law Reports. 1992 onwards
NTR Northern Territory Reports. 1978 onwards, in
Australian Law Reports
NZLR New Zealand Law Reports. 1883 onwards
P Probate Division. 1891 onwards
PD Probate Division. 1875–1890
QB Queen’s Bench Reports. 1841–1852
QB Law Reports. Queen’s Bench. 1891 onwards
QBD Law Reports. Queen’s Bench. 1876–1890
QGIG Queensland Government Industrial Gazette

QJPR Queensland Justice of the Peace Reports

QLR Queensland Law Reports. 1876–1878
QSCR Supreme Court Reports (Queensland). 1860–1881
QSR State Reports (Queensland). 1902–1957
QWN Queensland Weekly Notes. 1902 onwards
Qd R Queensland Reports. 1958 onwards
RPC Reports of Patent Cases
SAIR South Australian Industrial Reports
SALR South Australian Law Reports. 1865–1892, 1899–
1920
SAPR South Australian Planning Reports
SASR South Australian State Reports. 1921 onwards
SCR (NSW) Supreme Court Reports, New South Wales. 1862–
1876
SCR (NS) Supreme Court Reports (New South Wales)
(NSW)
SCR (Can) Supreme Court Reports (Canada)
SJ Solicitors’ Journal. 1857 onwards
SR (NSW) New South Wales State Reports. 1901–1970
TLR Times Law Reports. 1855–1952
Tas LR Tasmanian Law Reports. 1905–1940
Tas SR Tasmanian State Reports. 1941 onwards
US United States Reports
VLR Victorian Law Reports. 1875 onwards
VR Victorian Reports. 1957 onwards
W&W Wyatt and Webb’s Victorian Reports. 1861–1863
WAIG Western Australia Industrial Gazette
WALR Western Australian Law Reports. 1898–1959
WAR Western Australian Reports. 1960 onwards
WCBD (WA) Workers’ Compensation Board Decisions (WA)
WCR (NSW) Workers’ Compensation Reports (NSW). 1926
onwards
WLR Weekly Law Reports. 1953 onwards
WN Weekly Notes, England. 1866–1952
WN (NSW) Weekly Notes, New South Wales. 1884–1970
WW & A’B Wyatt, Webb and A’Beckett’s Victorian Reports. 1863–
1869
WW & A’B Wyatt, Webb and A’Beckett’s Victorian Reports
(E) (Equity). 1863-K
TABLE OF AUTHORISED LAW
REPORTS (AUSTRALIA)
Court Law Report Series Abbreviation
High Court of Commonwealth Law Reports CLR
Australia
Federal Court of Federal Court Reports FCR
Australia
Court of the Australian Capital Territory Law ACTLR
Australian Capital Reports (2008 onwards)
Territory
Australian Capital Territory ACTR
Reports (1973–2008)
Supreme Court of New South Wales Law Reports NSWLR
New South Wales (1970 onwards)
State Reports New South Wales SR (NSW)
(1901–1970)
New South Wales Reports NSWR
(1960–1970)
Supreme Court of Northern Territory Law Reports NTLR
the Northern (1991 onwards)
Territory
Supreme Court of Queensland Reports (1958 QdR
Queensland onwards)
State Reports Queensland St R Qd
(1902–1957)
Supreme Court of South Australian State Reports SASR
South Australia (1971 onwards)
 State Reports South Australia SRSA
(1921–70)
South Australian Law Reports SALR
(1865–1920)
Supreme Court of Tasmanian Reports (1979 Tas R
Tasmania onwards)
Tasmanian State Reports Tas SR
(1941–1978)
Tasmanian Law Reports (1897– TLR
1940)
Supreme Court of Victorian Reports (1957 VR
Victoria onwards)
Victorian Law Reports (1875– VLR
1956)
Supreme Court of Western Australian Reports WAR
Western Australia (1960 onwards)
Western Australian Law Reports WALR
(1899–1959)
TABLE OF MEDIUM NEUTRAL
CITATIONS
AATA Administrative Appeal Tribunal of Australia
ACTCA Supreme Court of the ACT — Court of Appeal
ACTSC Supreme Court of the ACT
FamCA Family Court of Australia
FamCAFC Family Court of Australia Full Court
FamCWA Family Court of Western Australia
FCA Federal Court of Australia
FCAFC Federal Court of Australia Full Court
FCCA Federal Circuit Court of Australia
FMCA Federal Magistrates Court of Australia
HCA High Court of Australia
NSWCA New South Wales Court of Appeal
NSWCCA New South Wales Court of Criminal Appeal
NSWDC District Court of New South Wales
NSWSC Supreme Court of New South Wales
NTSC Supreme Court of Northern Territory
NTCA Supreme Court of the Northern Territory — Court of
Appeal
NTCCA Supreme Court of the Northern Territory — Court of
Criminal Appeal
QCA Queensland Court of Appeal
QDC District Court of Queensland
QSC Supreme Court of Queensland
SADC District Court of South Australia
SASC Supreme Court of South Australia
SASCFC Supreme Court of South Australia — Full Court
TASCCA Supreme Court of Tasmania — Court of Criminal
Appeal
TASFC Supreme Court of Tasmania — Full Court Decisions
TASSC Supreme Court of Tasmania
VCAT Victorian Civil and Administrative Tribunal
VCC County Court of Victoria
VSC Supreme Court of Victoria
VSCA Victorian Court of Appeal
WADC District Court of Western Australia
WASC Supreme Court of Western Australia
WASCA Supreme Court of Western Australia — Court of
Appeal
GLOSSARY
This glossary contains some of the terms and phrases commonly
encountered in the study of business law.
ab initio (Latin) From the beginning.
accused A person charged with a criminal offence.
acquittal A finding that an accused is not guilty of an
offence they have been charged with.
action A proceeding in a court.
Act of Parliament A law made by parliament; a statute.
adversarial system A legal system in which each party presents
and argues its case against the opposing party.
The judge does not play an active role in
conducting the case.
advocacy The act of presenting arguments before a court
on behalf of a party involved in litigation.
allege To claim or state that something is true when it
has not yet been proven.
analogy A form of reasoning in which a similarity
between two or more events, situations or
things becomes the basis for inferring other
similarities between them.
appeal An application to a higher court to review the
decision of a lower court.
appellant A person who appeals to a higher court against
the decision of a lower court.
appellate The authority of a court to hear and decide an
jurisdiction appeal case.
authoritative court A higher-ranking court whose previous
decisions are binding on a lower court in the
court system.
bankruptcy (1) The status of a person formally declared
unable to pay their debts in full.

(2) The process by which the property or

assets of a bankrupt person are distributed
among their creditors. Note: The term
‘bankruptcy’ is applied only to natural
persons; a company is said to ‘go into
liquidation’.

barrister A legal practitioner whose main function is to

present cases on behalf of clients in law courts
and tribunals.
Bill A document containing the provisions of
proposed legislation.
bill of lading A document issued by a shipping company
recording particulars of a contract for carriage
of goods by sea.
breach The violation of a legal obligation. In contract
law, a party is in breach of contract if they fail
to carry out a term of a contract properly. In
tort, a party breaches their duty of care by
failing to take reasonable care when a duty of
care is owed.
capacity The ability to acquire legally binding rights or
duties.
case (1) A civil or criminal proceeding in a court of
law.

(2) The arguments made in support of a

 party’s claim or defence during legal
proceedings.

case law Law established by judicial decision making.

cause of action (1) The legal basis of a claim, action or case.

(2) The circumstances giving rise to a right to

bring a legal action.

charge A formal accusation by the police against a

person they suspect has committed a crime.
charter A written instrument issued by a monarch or
government granting rights and privileges to a
person or other body, such as a university or
corporation.
civil law (1) Law based on Roman legal principles.

(2) Law governing disputes between private

persons such as in contract or tort, as
distinct from criminal law.

(3) The laws of a particular nation or state.

CJ Abbreviation of Chief Justice, used in law

reports. Note also: Judge (J); Judges (JJ); and
Judge of Appeal (JA).
committal hearing A hearing before a magistrate to decide
whether there is sufficient evidence for a jury to
possibly convict a person accused of a criminal
offence.
common law (1) Law derived from custom and judicial
decisions (as distinct from statutory law).
 (2) The law of England (as distinct from
Roman civil law).

(3) The law developed and applied by the

common law courts in England (as distinct
from the law developed by courts of
chancery, known as equity).

company (or A legal entity created by registration under the

corporation) Corporations Law. A company can acquire
legal rights and duties in its own name,
separately from its members.
compensation A payment of money to compensate for loss or
injury.
condition (1) An important contractual term.

(2) A specified limitation or restriction.

constitution The basic laws according to which a state is

organised and governed.
contravention A failure to comply with a rule.
court A forum for deciding disputes according to the
law, presided over by a judge or magistrate.
court order A command or direction given by a court or
tribunal.
creditor A person to whom money or some other legal
obligation is owed by a debtor.
crime Conduct that is prohibited and penalised by the
state to protect community interests.
damages An amount of money paid because of a breach
of a legal obligation.
debt Money or some other legal obligation owed to a
creditor.
debtor A person who owes money or some other legal
obligation to a creditor.
deceit (1) A deliberate misrepresentation.

(2) The tort of making a false statement.

deduction A process of reaching a conclusion by following

logical steps; in particular, by first stating
general propositions or rules and then applying
these to specific facts.
defendant A person against whom a civil case is brought
by a plaintiff.
delegated Law made not directly by a parliament but by
legislation some other person or body under the authority
of a statute. Examples are regulations and
statutory rules made by government ministers.
discharge (1) To bring an obligation to an end by
performing the relevant duties.

(2) To release a party from an obligation that

would otherwise require performance.

disclaimer A clause limiting or excluding a liability which

might otherwise exist.
dissenting A judgment in an appeal case in which one or
judgment(s) more judges disagree with the decision of the
majority.
distinguish A process or technique used in legal reasoning
to avoid following a precedent by pointing out
material differences between the facts of the
 two cases.
doctrine A set of related and consistent rules that give
effect to a legal principle or policy, for example,
the doctrine of precedent, the doctrine of
unconscionable dealing.
document of title A document establishing rights of ownership to
property, for example, a bill of lading.
duty of care A legal obligation to take care in relation to
another person or their property.
election (1) A choice between alternatives, for
example, different legal remedies.

(2) Process for choosing members of a

government.

equity Rules of law favouring notions of fairness and

justice as developed in the Court of Chancery
in England.
equitable In accordance with justice and fairness.
estoppel The loss of the right to rely on particular facts
when the person who wishes to do so has
previously acted in a way that contradicts those
facts.
ethics A code of conduct, based on notions of moral
correctness, intended to guide the behaviour of
individuals or members of a group.
excise A tax on the production of goods or supply of
services.
exclusion clause (or A term in a contract excluding a liability that
exemption clause) would otherwise exist.
execute (1) To carry out; complete; make effective
 (2) To sign a legal document as a deed
under seal.

extinguish To put an end to; discharge; render ineffective.

extrinsic evidence Evidence that assists the interpretation of a
document but which comes from a source
outside the document itself (compare intrinsic
evidence).
forum A place in which a dispute, debate or proposal
may be heard, for example, a law court.
fraud Conduct intended to deceive another person.
freedom of contract The right of contracting parties to enter into
binding agreements on terms negotiated and
agreed between themselves without outside
control.
frustration The effect on a contract when supervening
events make performance impossible.
good faith Honesty of purpose; openness.
government gazette A publication containing government notices,
proclamations, public service appointments,
etc.
Governor The Queen’s representative as head of
government of the Australian states.
Governor-General The Queen’s representative as head of the
government of the Commonwealth of Australia.
guarantee A legally binding promise to be liable for a
specified thing.
headnote A short summary of a case at the beginning of
a law report.
heads of agreement A document drawn up during contractual
 negotiations outlining the major points on which
agreement has so far been reached and the
matters on which the parties have agreed to
negotiate in the future. Generally, heads of
agreement are not intended to be contractually
binding.
indemnity An undertaking by one party to compensate
another party for loss or damage suffered or
expenses incurred with regard to a specific
event.
induction A process of reasoning by which a general
conclusion or principle is drawn from
experience or experimental evidence.
infringe To act contrary to; contravene; violate.
injunction An order issued by a court to prevent a likely or
threatened breach of law.
inquisitorial system A legal system in which the judge plays an
active role in the investigation and conduct of a
case (compare adversarial system).
insolvency A company being unable to pay debts as and
(bankruptcy) when they fall due.
insurance A contract in terms of which the insurer
promises to indemnify the insured person
against a specified risk of loss or harm.
intrinsic evidence Evidence from within a document that assists
in the interpretation of that document (compare
extrinsic evidence).
J Abbreviation in law reports of Judge or Justice.
Note also: Judges (JJ); Judge of Appeal (JA);
and Chief Justice (CJ).
jurisdiction The authority of a court to hear certain matters,
make orders or impose penalties.
jury A body of persons chosen at random from the
general public to assist in a trial by listening to
the evidence presented and deciding questions
of fact.
justice (1) Title given to a judge of a Supreme Court,
the Federal Court or the High Court of
Australia.

(2) Ensuring that each person receives what

they are properly due under the law.

laissez-faire (French) A policy of minimal government

regulation.
law report A published record of a case decided by a
court.
lease A contract in terms of which a lessor grants a
lessee the right to use the lessor’s property for
a period of time.
legislation A law enacted by a legislature.
limitation clause A clause limiting the extent of a legal liability
that might otherwise exist.
liquidation Process whereby the assets of an insolvent
company are sold by a court-appointed
liquidator, after which the proceeds are
distributed among the company’s creditors.
litigation The process of taking a dispute to court.
loan The giving of a thing or money by a lender to a
borrower for use or consumption by the
borrower, on the condition that the thing or an
equivalent thing will be returned to the lender
by the borrower.
majority judgment The decision of the greater number of judges
deciding an appeal case.
maxim A general principle or truth expressed in a brief
form of words (for example, ‘he who seeks
equity must do equity’).
misrepresentation A statement that is untrue.
mistake A belief in something that is untrue.
mitigation of loss Steps taken to minimise the extent of damage
or loss that would otherwise occur.
mortgage The designation of particular property as
security for the repayment of a loan, giving the
mortgagee the eventual right to sell the
property to recover the unpaid debt.
negligence (1) Carelessness.

(2) Failure to take reasonable care to avoid

foreseeable harm to somebody to whom a
duty of care is owed.

nuisance Interference with another person’s enjoyment,

comfort or convenience.
null Of no validity; invalid.
obiter dicta (Latin) Words in a reported judgment which are
not part of the essential judicial decision
(compare ratio decidendi).
objective Based on externally observable evidence, as
opposed to internal (subjective) thoughts,
beliefs or understandings.
obligation A duty to give or do something.
offence Behaviour contrary to the criminal law.
offeree A person to whom an offer to contract is made.
offeror A person who makes an offer to contract.
onus of proof The burden or responsibility of leading
evidence to establish particular facts.
original jurisdiction The authority of a court to hear a case that has
not previously been heard by any other court.
originating motion A method of commencing legal proceedings.
overrule The process whereby a court with appellate
jurisdiction decides that an earlier decision is
wrong and should not be followed.
parent company A company that controls one or more
subsidiary companies.
parol evidence rule A rule whereby evidence is not admitted to add
to, vary or contradict a written contract that
appears on its face to be a complete record of
the agreement.
party A person, group or organisation who takes part
in a legal transaction or proceeding.
per curiam (Latin) By the whole court.
plaintiff The person who brings a civil case against the
defendant.
precedent A previous judicial decision which provides an
authoritative rule to be followed in later similar
cases.
privity of contract The doctrine that excludes anyone from
acquiring rights or duties under a contract to
which they are not a party.
Privy Council The highest court in the English court
hierarchy.
proclamation A notice published in the Government Gazette,
 which states the date on which an Act of
Parliament will come into operation as law and
which also notes the Governor-General’s or
Governor’s consent to such legislation.
promisee A person to whom a promise is made.
promisor A person who makes a promise.
ratio decidendi (Latin) That part of a reported case which is
essential to the judicial decision reached; the
principle applied to decide a case.
rectification The process of correcting a legal document
that contains an error.
regulation Subsidiary rules made by a person or body
under an authority given by legislation.
remedies The means by which the courts provide relief to
a plaintiff whose legal rights have been
infringed or are likely to be infringed.
representation A statement of fact that is not intended to be a
legally binding promise.
repudiate To deny; to disavow; to treat as at an end.
rescission A remedy in terms of which a contract is made
void as from its beginning (ab initio).
reserve powers The sovereign powers of the head of Australian
governments that have not been given over to
other organs of government.
respondent The person against whom a case is taken on
appeal by an appellant.

restitution The relief granted to a person at whose

expense another person has been unjustly
enriched.
restitutio in (Latin) Restoration (putting back to) to a
integrum previous position.
rule of law The principle that no person or body is above
the law, in particular, that governments must
observe the established law of the state.
sanction A penalty or punishment imposed for a breach
of the law.
solicitor A general legal practitioner.
stare decisis (Latin) The decision stands. This is the
principle that underlies the doctrine of
precedent.
statute An enactment of a legislature, also called
legislation.
subjective Based on an individual’s internal thoughts,
beliefs or understandings, as opposed to
externally observable (objective) facts.
subsidiary A company which is under the control of a
parent company.
sue To bring an action in civil law.
supervening event An event which changes the previously existing
circumstances.
third party A person who is not a party to a legal
proceeding or transaction.
title A legal right to the ownership of property.
tortfeasor A person who is in breach of tort law.
trespass A tort concerning the wrongful interference with
another’s person, goods or land.

trial The initial hearing of a civil or criminal case (as

distinct from appeal proceedings).
tribunal Generally, a body that decides disputes.
trust An arrangement whereby one person holds or
controls property for the benefit of another
person.
unconscionable Against the dictates of good conscience;
contrary to what is generally known as right
and proper.
vis-à-vis (French) In relation to.
void Without any legal effect; not legally valid or
binding.
voidable Initially valid but subject to being made void,
normally by means of an order issued by a
court or tribunal.
warranty In contract law, a contractual term which is not
of fundamental importance. More generally, a
guarantee.
without prejudice A phrase used in the course of negotiating or
attempting to negotiate the settlement of a
legal claim. Anything said or done “without
prejudice” cannot later be used as evidence in
legal proceedings.
wrong An act in breach of civil or criminal law.