First Principles of Business Law (E-Book)

FIRST
PRINCIPLES
OF BUSINESS
LAW
Textbook and eStudy
modules
M IC H AE L L AMB I RI S AN D
L AU RA G RI F F I N
1
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First published February 2008 6th edition January 2013
Reprinted June 2008 7th edition January 2014
2nd edition January 2009 8th edition January 2015
3rd edition January 2010 9th edition January 2016
4th edition January 2011 10th edition January 2017
5th edition January 2012
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iii
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. He has been involved in the development and promotion of
computer-based learning materials for over 25 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 and Ethics, Law and Globalisation, and Legal Institutions
and Methods. She formerly taught at Melbourne Law School, and completed her doctoral
thesis there in 2011. Her current research concerns the rule of law, development and the
state.
iv
AUTHOR ACKNOWLEDGMENTS
The authors wish to thank all those who have contributed to the production of this new
edition of the First Principles of Business Law materials.
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.
The author and the publisher wish to thank the following copyright holders for
reproduction of their material.
Cover: Stocksy/Simone Becchetti
Figures 4.1–4.4 © State of Victoria, Australia Copyright in all legislation of the
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of Victoria, Australia.
Disclaimer: This product or service contains an unofficial version of the legislation
of the Parliament of State of Victoria. The State of Victoria accepts no responsibility for
the accuracy and completeness of any legislation contained in this product or provided
through this service, 26–7.
Every effort has been made to trace the original source of copyright material contained
in this book. The publisher will be pleased to hear from copyright holders to rectify any
errors or omissions.
v
HOW TO USE FIRST PRINCIPLES OF BUSINESS

LAW MATERIALS
The First Principles of Business Law (FPBL) textbook and eStudy modules offer a blend
of technologies and resources to help you learn business law. The textbook sets out 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 over 200 summaries of decided cases. There
are selected extracts from relevant legislation. Technical words and phrases are clearly
explained. Tables, diagrams, flowcharts and indexes are also included. The textbook is
useful as an adjunct to lectures and tutorials, for writing assignments, for revision purposes
and as a resource in open-book examinations.
The eStudy modules provide a further dimension to your learning experience. There
is an interactive module for each chapter of the textbook. The modules provide hundreds
of carefully sequenced questions, exercises and short case studies. You will receive instant
feedback as you answer questions. The modules will also help you to gain a proper
understanding of how the law works in everyday situations. They will help you to develop
your ability to apply the law realistically and appropriately. It may be constructive to work
through the modules with a friend, discussing the examples and answers until you are sure
you understand them. You can go over the questions as often as you like, at your own speed
and at your preferred time, until you have absorbed the fundamental concepts of business
law. With a little experimentation, you will soon discover how to use the FPBL materials
to your advantage.
vi
HOW TO ACCESS THE ESTUDY MODULES

The eStudy modules are accessed by means of a ‘reader’ that must be installed on your
computer. Download the reader from the ALC webpage at www.ALCware.com.
• Read the installation instructions at www.ALCware.com before you install the reader
onto your computer. Make sure that your computer satisfies the minimum technical
requirements.
• When you first use the reader to link to the FPBL eStudy modules you will be
prompted to register as a licensed user. Follow the on-screen prompts, using the
licence number on the inside cover of this book.
• Please note that a licence number can only be used once, giving you access to the
FPBL modules on one computer. To register another computer you can purchase an
additional licence from www.ALCware.com.
• WARNING: Reformatting your computer will destroy your registration and you will
not be able to re-register with your original licence number. You should read the terms
and conditions of the FPBL licence at www.ALCware.com before reformatting your
computer. However, as long as you do not reformat your computer, you can remove
the reader and reinstall it on the same computer without losing your registration.
• If you have any problems installing, registering or running the FPBL reader, please
see the troubleshooting section at www.ALCware.com.
• If you need further help, you can email alcware@netro.com.au.
vii
CONTENTS
About the Authors iii
Author Acknowledgments iv
How to Use First Principles of Business Law Materials v
How to Access the eStudy Modules vi
Table of Selected Law Reports Series xiv
Table of Authorised Law Reports (Australia) xix
Table of Medium Neutral Citations xx
Chapter 1 The Organisation of Law and Government in Australia

Introduction 1.1
The Concept of Law 1.2
Law as a Regulator of Behaviour 1.3
‘Law’ and ‘Justice’ 1.4
‘Law’ and ‘Ethics’ 1.5
The Classification and Organisation of Law 1.6
The Anatomy of Law 1.7
The Development of Western European Legal Systems 1.8
Indigenous custom and law 1.8.4
The Establishment of the Australian Commonwealth, States and Territories 1.9
The Structure of Government in Australia 1.10
The Institutions and Powers of Australian Governments 1.11
Questions for Revision 1.12
Chapter 2 Sources of Law: Legislation

Introduction 2.1
The Legislative Powers of the Australian Legislatures 2.2
The Legislative Process in Outline 2.3
The Structure of an Act 2.4
Citing and Finding Legislation 2.5
Interpreting Legislation 2.6
Checklist: Applying Legislation to Resolve Cases 2.7
Chapter 3 Sources of Law: Case Law

Introduction 3.1
Basic Procedure in a Court 3.2
viii
Law Reports 3.3

Information in Law Reports 3.4
Citing and Locating a Law Report 3.5
The System of Courts in Australia 3.6
The Doctrine of Precedent 3.7
Binding and Persuasive Precedents 3.8
The Ratio Decidendi of a Case 3.9
Alternative Dispute Resolution 3.10
Checklist: The Process of Using Case Law 3.11
Chapter 4 Finding Law Online

Introduction 4.1
Sources of Law 4.2
Electronic Databases 4.3
Finding Australian Legislation and Cases by Name 4.4
Using Simple Search Terms to Find Legislation and Cases 4.5
Boolean Searching 4.6
Advanced Techniques for Searching 4.7
Finding Legal Databases 4.8
Chapter 5 Making a Contract

Introduction 5.1
Capacity to Contract 5.2
The Essential Elements of Contract Formation 5.3
Intention to be legally bound 5.3.1
Either execution of the contract in a deed, or the exchange of consideration 5.3.2
The element of agreement 5.3.3
Privity of Contract 5.4
Promissory Estoppel 5.5
Checklist: Establishing the Existence of a Contract 5.6
Chapter 6 The Contents of a Contract

Introduction 6.1
Terms, Opinions, Puffery and Representations Distinguished 6.2
Express and Implied Agreement to Terms 6.3
Terms that limit or exclude liability 6.3.9
ix
Proving the Existence of Agreed Terms 6.4

The parol evidence rule 6.4.2
Collateral contracts and the parol evidence rule 6.4.6
Terms Put (Implied) by Law in All Contracts 6.5
Terms Put (Implied) by Law to Fill Gaps in Particular Kinds of Contract 6.6
Checklist: Determining the Contents of a Contract 6.7
Chapter 7 Statutory Provisions Affecting Contracts for Goods and Services

Introduction 7.1
Generic Terms: Goods Sold ‘By Description’ 7.2
Generic Terms: The Delivery of Goods Sold 7.3
Generic Terms: Payment for Goods Sold 7.4
Generic Terms: Ownership and Quiet Possession 7.5
Generic Terms: Inspection of Goods Delivered 7.6
Generic Terms: The Quality of Goods Sold 7.7
The Exclusion of Generic Terms 7.8
Special Protection for Consumers of Goods and Services 7.9
Checklist: Statutory Provisions in Contracts for Goods or Services 7.10
Chapter 8 Performance and Breach of Contract

Introduction 8.1
Interpreting the Terms of a Contract 8.2
Discharge of Contractual Obligations by Performance 8.3
Breach of Contract 8.4
Assessing the Seriousness of a Breach of Contract 8.5
The Consequences of a Breach of Contract 8.6
Risk and Frustration 8.7
Checklist: Establishing a Breach of Contract 8.8
Chapter 9 Remedies for Breach of Contract

Introduction 9.1
Common Law Remedies 9.2
An Award of Damages for Breach of Contract 9.2.1
Termination of Performance 9.2.2
x
Equitable Remedies 9.3

General Limitations on the Availability of Equitable Remedies 9.3.1
Orders of specific performance 9.3.2
Injunctions 9.3.3
Statutory Remedies 9.4
Agreed Remedies and Penalty Clauses 9.5
Checklist: Choosing an Available Remedy for Breach of Contract 9.6
Chapter 10 Circumstances that May Invalidate a Legal Transaction

Introduction 10.1
Duress 10.2
Undue Influence 10.3
Unconscionable Dealing 10.4
Mistake 10.5
Misrepresentation 10.6
Illegal Contracts 10.7
Other Invalidating Circumstances 10.8
Checklist: Invalidating a Legal Transaction 10.9
Chapter 11 Statutory Protection Against Unethical Conduct

Introduction 11.1
Protection Against Misleading Conduct 11.2
Protection Against Unconscionable Conduct 11.3
Protection Against Unfair Terms in Contracts 11.4
Protection Against Unfair Business Practices 11.5
Unsolicited Consumer Agreements 11.6
Safety Standards 11.7
Enforcement Provisions 11.8
Checklist: Applying the Australian Consumer Law 11.9
Chapter 12 The Scope of Tort Law

Introduction 12.1
Trespass to Land 12.2
Trespass to Chattels 12.3
Conversion 12.4
Detinue 12.5
xi
Assault 12.6
Battery 12.7
False Imprisonment 12.8
Private Nuisance 12.9
Liability for Animals 12.10
Deceit 12.11
Defamation 12.12
Negligence 12.13
Vicarious Liability 12.14
Checklist: Establishing Liability for Negligence 12.15
Chapter 13 The Tort of Negligence

Introduction 13.1
The Element of a Duty of Care 13.2
The Element of a Breach of the Duty of Care 13.3
The Element of Causation of Harm 13.4
Defences 13.5
Checklist: Establishing Liability for Negligence 13.6
Chapter 14 Remedies in Tort

Introduction 14.1
Compensatory Damages for Personal Injury 14.2
Compensatory Damages for Wrongful Death 14.3
Compensatory Damages for Harm to Property 14.4
Non-compensatory Damages 14.5
Injunctions 14.6
Restitution 14.7
Other Remedies 14.8
Checklist: Claiming Damages in Tort Law 14.9
Chapter 15 The Law of Agency

Introduction 15.1
Agency Relationships 15.2
Obtaining Authority to Act as an Agent 15.3
Ratification of Unauthorised Acts 15.4
An Agent’s Duties to their Principal 15.5
xii
A Principal’s Duties to their Agent 15.6

An Agent’s Contractual Liability to Third Parties 15.7
Acquisitions and Dispositions of Property by an Agent 15.8
A Principal’s Liability for Harm Caused by their Agent 15.9
Agency by Operation of Law 15.10
Termination of Agency 15.11
Checklist: Applying the Law of Agency 15.12
Chapter 16 Property Law

The Importance of Property Law 16.1
Foundational Property Concepts 16.2
Different Kinds of Property 16.3
Different Kinds of Property Rights 16.4
Property Rights in Land 16.5
Property Rights in Chattels 16.6
Property Rights in Intangible Things 16.7
Using Property as a Security 16.8
Enforcement of Property Rights 16.9
Checklist: An Approach to Property Law Questions 16.10
Chapter 17 Business Organisations

Introduction 17.1
Sole Traders 17.2
Trusts 17.3
Partnerships 17.4
Joint Ventures 17.5
Companies 17.6
Checklist: Choosing a Business Organisation 17.7
Chapter 18 Selected Legislative Provisions

Introduction 18.1
Australian Constitutions 18.2
Communication by Email 18.3
Consumer Protection 18.4
Equitable Rules of Contract Construction 18.5
Frustrated Contracts 18.6
xiii
Interpretation of Legislation 18.7

Sale of Goods 18.8
Third Party Rights Under Insurance Contracts 18.9
Tort Law 18.10

Glossary 533
Table of Cases 539
Table of Legislation 545
Index 551
xiv
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 Reports Australian Torts 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
xv
CAR Commonwealth Arbitration Reports

CB (NS) Common Bench, New Series. 1856–1865
CLR Commonwealth Law Reports. 1903 onwards
ConvR (NSW) Conveyancing Law and Practice (New South Wales)
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
xvi
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) Eq Law Reports. NSW Equity. 1880–1900
LR App Cas Law Reports. Appeal Cases. 1876–1890
LRCP Law Reports. Common Pleas. 1865–1875
LR Eq 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
xvii
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) (NSW) Supreme Court Reports (New South Wales)
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
xviii
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 (E) Wyatt, Webb and A’Beckett’s Victorian Reports (Equity). 1863–K
xix
TABLE OF AUTHORISED LAW REPORTS

(AUSTRALIA)
Court Law Report Series Abbreviation
High Court of Australia Commonwealth Law Reports CLR
Federal Court of Australia Federal Court Reports FCR
Court of the Australian Capital Territory Australian Capital Territory Law ACTLR
Reports (2008 onwards)
Australian Capital Territory Reports ACTR
(1973–2008)
Supreme Court of New South Wales New South Wales Law Reports NSWLR
(1970 onwards)
State Reports New South Wales SR (NSW)
(1901–1970)
New South Wales Reports (1960– NSWR
1970)
Supreme Court of Northern Territory Northern Territory Law Reports NTLR
(1991 onwards)
Supreme Court of Queensland Queensland Reports (1958 QdR
onwards)
State Reports Queensland (1902– St R Qd
1957)
Supreme Court of South Australia South Australian State Reports SASR
(1971 onwards)
State Reports South Australia( SRSA
1921–70)
South Australian Law Reports SALR
(1865–1920)
Supreme Court of Tasmania Tasmanian Reports (1979 onwards) Tas R
Tasmanian State Reports (1941– Tas SR
1978)
Tasmanian Law Reports (1897– TLR
1940)
Supreme Court of Victoria Victorian Reports (1957 onwards) VR
Victorian Law Reports (1875– VLR
1956)
Supreme Court of Western Australia Western Australian Reports (1960 WAR
onwards)
Western Australian Law Reports WALR
(1899–1959)
xx
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 Federal 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 Northern Territory —Court of Appeal
NTCCA Supreme Court of 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
CHAPTER 1
The Organisation of Law and Government

in Australia
In this chapter:
• The concept, nature and purpose of law
• Law as a tool of social regulation
• The relationship between law and justice
• Law and ethics
• How law is classified and organised
• Key legal terms and concepts
• The origins of Australian law
• The structure of the Commonwealth of Australia
• The organs of Australian governments and their law-making powers
– the Crown
– legislatures
– the executive
– the courts
– other organs of government.
[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.
1.1
2 The Organisation of Law and Government in Australia
In addition to this chapter, there is an FPBL eStudy module The organisation of law
and government in Australia that will help you learn and understand the legal concepts and
rules outlined here. There is also a separate quiz in the module Quizzes and case studies for
revision which you can use to test yourself when you think you have learned what you need
to know.
[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.
1.2
First Principles on Business Law
The Organisation of Law and Government in Australia3
[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.
1
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.
First Principles on Business Law 1.4

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
1.5
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
1
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 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 table opposite explains some of the commonly
found categories of 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.
1.7
Table 1.1 Categories of law
Category of law Description 1

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.
National public law Constitutional law The organisation, powers and processes of
government.
Administrative law Rules governing the processes of official
decision making.
Criminal law The prohibition and punishment by the
state of conduct considered harmful to the
general community.
National private law Civil law The creation and enforcement of
Traditional categories of law private 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 protection Legal protections for consumers in
law 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 categories of law Business law Rules that are 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.

[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
1.8
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.
1
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.
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
Figure 1.1 Map of the Australian states and self-governing territories
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.
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.

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.
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’.
2 Australian Capital Territory (Self-Government) Act 1988 (Cth); Northern Territory (Self-Government) Act 1978 (Cth).
1.10
[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
1
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.
Figure 1.2
Organs of Government in Australia
Head of State - The Crown
The Executive Legislatures (Parliaments) The Courts
The Civil Service, Statutory Officers, Statutory Boards etc.
Local Governments
Political Parties
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.
1.11
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
1
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 Constitution Act 1902 (NSW) 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 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 conflict 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.
3 In references to legislation, the word ‘section’ is normally abbreviated to the letter ‘s’.
1.11
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
1
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.
Figure 1.3
The Hierarchy of Australian Courts by Seniority
The High Court of Australia
Federal, State and Territory Superior Courts
Federal, State and Territory Inferior Courts

-Intermediate Courts
-Lower Courts

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.
1.11
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
1
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
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

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 public service, statutory officers and statutory bodies
The Commonwealth, states and territories each have a ‘public service’ consisting of
persons employed and paid by the government to carry out various aspects of government
administration. A public service is organised into departments with specified areas of
responsibility, such as the federal Department of Health; the Department of Education and
Training; the Attorney-general’s department; and the Department of Infrastructure and
Regional Development. Departments have responsibility for providing relevant services to
the public. They are responsible for administering legislation, implementing government
policies and managing finances. They also provide advice to government ministers. Public
services are large organisations and an essential part of effective government.
Statutory officers are persons who have been appointed to an office, created by
legislation, with specified responsibilities. Examples are the offices of the Auditor General
(responsible for the management of government finances and resources); the Electoral
Commissioner (responsible for the conduct of voting in elections and referenda); and the
Ombudsman (responsible for investigating the actions of public authorities).
Statutory bodies are organisations, created by legislation, consisting of persons
appointed to their positions by government. Statutory boards can be responsible for
ensuring compliance with particular legislation, for coordinating activities and planning,
or providing advice. Examples of statutory boards are the Australian Broadcasting
Corporations (ABC); the Australian Accounting Standards Board; and the Australian
Competition Tribunal.
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.
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.
1.11
1.11.10 Political parties
1
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.
[1.12] Questions for Revision

The following questions will help you to decide whether or not you have understood and
can remember the things you should have learned from this chapter. You can also improve
your knowledge by discussing these questions with another student or with your teacher.
1. What is ‘law’? What distinguishes a legal rule from other rules of conduct? What are
‘ethical’ rules of conduct?
2. How is the law organised? What is meant by an ‘area’ or ‘category’ of law?
3. Where does modern Australian law come from? How is law used to decide cases?
4. What is the Commonwealth of Australia? How was it created? What is the
relationship between the Commonwealth of Australia and the Australian states and
territories?
5. What is a constitution? Is there more than one constitution that operates in Australia?
What matters are dealt with in a constitution?
6. What are the institutions (or organs) of the various governments in Australia? Which
people are members of these different organs?
7. What functions do the various organs of government have in relation to the creation,
administration and enforcement of the law?
8. What law-making powers does each of the nine Australian legislatures have? What is
a ‘shared’ and an ‘exclusive’ power? What provisions exist to resolve potential conflicts
when the law-making powers of different governments overlap?
9. What is a ‘hierarchy of courts’? Is it true to say that the High Court of Australia is the
highest court in each of the Australian court hierarchies?
10. Explain broadly the different powers of the various courts. What is meant by ‘inferior’
and ‘superior’ courts? What is an ‘appeal’?

[1.13] Interactive learning

Once you have read through this chapter, you should work through the eStudy module
‘The organisation of law and government in Australia’. It will help you learn what you need
to know by asking you questions and giving immediate feedback to your answers.
Visit www.alcware.com for more information on how to access the FPBL

e modules.
1.13
CHAPTER 2
Sources of Law: Legislation

In this chapter:
• Legislation as a source of law
– The constitutional power to legislate
• The legislative process
– Bills
– Procedure in the lower and upper Houses
– Royal assent
– Commencement
• The structure of an Act
• Citing and finding an Act
• Basic principles of statutory interpretation.
[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?
2.1
24 Sources of Law: Legislation
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.
There is an FPBL eStudy module Sources of law: legislation that will help you
understand and apply the legal principles and rules outlined in this chapter. There is also a
quiz in the module Quizzes and case studies for revision which you can use to test yourself
when you think you have learned what you need to know.
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.
Figure 2.1 Australian legislatures
Lower House Upper House
COMMON WEALTH House of Representatives Senate
NEW SOUTH WALES Legislative Assembly Legislative Council
QUEENSLAND Legislative Assembly
SOUTH AUSTRALIA House of Assembly Legislative Council
TASMANIA House of Assembly Legislative Council
VICTORIA Legislative Assembly Legislative Council
WESTERN AUSTRALIA Legislative Assembly Legislative Council
AUSTRALIAN CAPITAL TERRITORY Legislative Assembly
NORTHERN TERRITORY Legislative Assembly
2.1
Sources of Law: Legislation25
[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
2
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.
Commonwealth of Australia Constitution Act 1900

Chapter I —The Parliament
…
Part V —Powers of the Parliament
51 Legislative powers of the Parliament
The Parliament shall, subject to this Constitution, have power to make laws for the
peace, order, and good government of the Commonwealth with respect to:
(i) trade and commerce with other countries, and among the States;

(ii) taxation; but so as not to discriminate between States or parts of States;

(iii) bounties on the production or export of goods, but so that such bounties shall
be uniform throughout the Commonwealth;
(iv) borrowing money on the public credit of the Commonwealth;
(v) postal, telegraphic, telephonic, and other like services;
(vi) the naval and military defence of the Commonwealth and of the several
States, and the control of the forces to execute and maintain the laws of the
Commonwealth;
(vii) lighthouses, lightships, beacons and buoys;
(viii) astronomical and meteorological observations;
(ix) quarantine;
(x) fisheries in Australian waters beyond territorial limits;
(xi) census and statistics;
(xii) currency, coinage, and legal tender;
(xiii) banking, other than State banking; also State banking extending beyond the
limits of the State concerned, the incorporation of banks, and the issue of
paper money;
(xiv) insurance, other than State insurance; also State insurance extending beyond
the limits of the State concerned;
(xv) weights and measures;
(xvi) bills of exchange and promissory notes;
(xvii) bankruptcy and insolvency;
(xviii) copyrights, patents of inventions and designs, and trade marks;
(xix) naturalization and aliens;
(xx) foreign corporations, and trading or financial corporations formed within the
limits of the Commonwealth;
(xxi) marriage;
(xxii) divorce and matrimonial causes; and in relation thereto, parental rights, and
the custody and guardianship of infants;
(xxiii) invalid and old-age pensions;
(xxiiiA) the provision of maternity allowances, widows’ pensions, child endowment,
unemployment, pharmaceutical, sickness and hospital benefits, medical and
dental services (but not so as to authorize any form of civil conscription),
benefits to students and family allowances;
(xxiv) the service and execution throughout the Commonwealth of the civil and
criminal process and the judgments of the courts of the States;
(xxv) the recognition throughout the Commonwealth of the laws, the public Acts
and records, and the judicial proceedings of the States;
(xxvi) the people of any race for whom it is deemed necessary to make special laws;
(xxvii) immigration and emigration;
(xxviii) the influx of criminals;
(xxix) external affairs;
(xxx) the relations of the Commonwealth with the islands of the Pacific;
2.2
(xxxi) the acquisition of property on just terms from any State or person for any
purpose in respect of which the Parliament has power to make laws;
(xxxii) the control of railways with respect to transport for the naval and military
purposes of the Commonwealth;
(xxxiii) the acquisition, with the consent of a State, of any railways of the State on
terms arranged between the Commonwealth and the State;
(xxxiv) railway construction and extension in any State with the consent of that
State;
2
(xxxv) conciliation and arbitration for the prevention and settlement of industrial
disputes extending beyond the limits of any one State;
(xxxvi) matters in respect of which this Constitution makes provision until the
Parliament otherwise provides;
(xxxvii) matters referred to the Parliament of the Commonwealth by the Parliament
or Parliaments of any State or States, but so that the law shall extend only
to States by whose Parliaments the matter is referred, or which afterwards
adopt the law;
(xxxviii) the exercise within the Commonwealth, at the request or with the
concurrence of the Parliaments of all the States directly concerned, of any
power which can at the establishment of this Constitution be exercised only by
the Parliament of the United Kingdom or by the Federal Council of Australasia;
(xxxix) matters incidental to the execution of any power vested by this Constitution
in the Parliament or in either House thereof, or in the Government of the
Commonwealth, or in the Federal Judicature, or in any department or officer
of the Commonwealth.
52 Exclusive powers of the Parliament
The Parliament shall, subject to this Constitution, have exclusive power to make
laws for the peace, order, and good government of the Commonwealth with respect
to:
(i) the seat of government of the Commonwealth, and all places acquired by the
Commonwealth for public purposes;
(ii) matters relating to any department of the public service the control of
which is by this Constitution transferred to the Executive Government of the
Commonwealth;
(iii) other matters declared by this Constitution to be within the exclusive power of
the Parliament.
[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 territories 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
2.3
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
2
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 require 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.

2.3
Figure 2.2 The legislative process
30

The legislative process
Bill drafted by parliamentary

Proposals for new legislation Development of policy Decision to legislate
draftspersons
Procedure in the Initiation: First Reading: Second Reading: Committee: Third Reading:
House of origin The clerk The House grants It is moved that the Bill be read a The members of the It is moved that the
of the House permission to second time. The relevant minister House form a committee Bill be read a third
lists the Bill introduce the Bill makes a speech explaining the to consider the Bill in time.
for its first and its long title is purpose of the Bill. Debate occurs, detail, or the House The House votes on
reading. read out. There is no and the motion is then voted on. refers the Bill for the motion. If agreed
debate at this stage. If agreed to, the title of the Bill consideration to a to, the title of the Bill
is read a second time. select committee. is read a third time.
Procedure in the Initiation: First Reading: Second Reading: Committee: Third Reading:
House of review As above As above As above As above As above
If the House of review passes the Bill with

amendments, the Bill is returned to the
If the House of review passes the Bill without
House of origin which may accept or reject
amendment, the Bill is returned to the House
the amendments. If agreement cannot be
of origin and then proceeds to the next stage.
reached, the government can be dissolved
Sources of Law: Legislation

and a general election called.
Royal assent:
Publication: Commencement:
Final stages before the Bill The Bill is sent to the Queen’s
The Act is published in the The Act commences
becomes operational as law representative to
Government Gazette. operation as law.
receive royal assent.
Note: The procedure described in this figure is typical of all Australian bicameral legislatures with lower and upper Houses. However, Queensland, the Australian
Capital Territory and the Northern Territory all have unicameral legislatures with a Legislative Assembly but no Legislative Council. The legislative procedure is modified
accordingly, with no ‘House of review’ stage.
[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.
2
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) Mutual Recognition (Victoria) Act 1998

Act No 62/1998
(b) Table of provisions
Part 1—Preliminary
1. Purpose
2. Commencement
Part 2—Mutual Recognition
3. Definition
4. Adoption of Commonwealth Act
5. Regulations for temporary exemptions for goods
6. Termination of reference
7. Transitional
8. Consequential amendments
(c) NOTES
(a) Mutual Recognition (Victoria) Act 1998
(d) [Assented to 27 October 1998]
The Parliament of Victoria enacts as follows:
(e) Part 1—Preliminary
(f) 1. Purpose
The main purpose of this Act is to continue the adoption of the Mutual
Recognition Act 1992 of the Commonwealth.
(g) 2. Commencement
(1) This Part, section 8 and Part 3 come into operation on the day on which
this Act receives the Royal Assent.
(2) Part 2 (except section 8) is deemed to have come into operation on 1 July
1998.
(e) Part 2—Mutual Recognition
(h) 3. Definition
In this part—
“Commonwealth Act” means the Mutual Recognition Act 1992 of the
Commonwealth.
(i) 4. Adoption of Commonwealth Act
(1) The Commonwealth Act, as originally enacted and as amended by
regulations made before the enactment of the Mutual Recognition
(Victoria) Act 1993, is adopted within the meaning of section 51 (xxxvii)
of the Commonwealth of Australia Constitution.
(2) The adoption under subsection (1) has effects for a period commencing
on I July 1998 and ending on the day fixed under section 6 as the day on
which the adoption terminates.
5. Regulations for temporary exemptions for goods
Without limiting any other power under any other Act, the Governor in
Council may make regulations for the purposes mentioned in section 15 of
the Commonwealth Act as adopted.
The Governor in Council, by proclamation published in the Government
Gazette, may fix a day as the day on which the adoption of the Commonwealth
Act under section 4 of this Act terminates.
2.4
The Governor in Council, by proclamation published in the Government
Gazette, may fix a day as the day on which the adoption of the Commonwealth
Act under section 4 of this Act terminates.
7. Transitional
Anything done or purporting to have been done after the expiry of the Mutual
Recognition (Victoria) Act 1993 and before the enactment of this Act is
deemed to have, and always to have had, the same effect as it would have had
if the Mutual Recognition (Victoria) Act 1993 had not expired.
8. Consequential amendments
(1) In section 170 of the Building Act 1993, subsections (3) and (4)
are repealed.
(2) Section 63D of the Legal Practices Act 1996 is repealed.
2
(3) Section 4 of the Medical Practice Act 1994 is repealed.
(4) Section 4 of the Nurses Act 1993 is repealed.
(c) NOTES
Minister‘s second reading speech—
Legislative Assembly: 3 September 1998
Legislative Council : 7 October 1998
The long title for the Bill for this Act was “to continue the adoption of
the Mutual Recognition Act 1992 of the Commonwealth, to amend
the Trans–Tasman Mutual Recognition (Victoria) Act 1998 and certain
other Acts and for other purposes”.
Disclaimer
This product or service contains an unofficial version of the legislation of
the Parliament of State of Victoria. The State of Victoria accepts no
responsibility for the accuracy and completeness of any legislation
contained in this product or provided through this service.
(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 definitions 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.
2.5
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. 2
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. For help with how to search AustLII for legislation,
see the eStudy module ‘Finding law on the internet’.
[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.
Examples of these interpretation principles in operation can be found in the eStudy
module: Legislation.
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
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).
2.6
• 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
2
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.
Examples of how these additional interpretation principles operate can be found in
the eStudy module Sources of law: legislation.
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.
2.6
[2.7] Checklist: 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.
Step 1
Is some particular legislation potentially relevant to the case that has
2
arisen?
• Which government enacted the potentially relevant legislation?
• In which parts of Australia does that legislation operate?
• Did the events in question take place where the legislation operates?
Step 2
When was the legislation enacted?
• Has the legislation commenced operation?
• Did the events in question take place after the Act commenced operation?
Step 3
Which section or sections of the legislation are relevant to deciding the case?
• What essential facts must be established for a particular section to
apply? Are any of those facts in dispute?
Step 4
Is there an interpretation question to be decided?
• Is the meaning of any of the words or phrases in the relevant sections
unclear or ambiguous?
• What is the literal meaning of those words? Does the literal meaning
produce an absurd or repugnant result?
• What was the purpose of the enacting legislature? Does that purpose
suggest that some particular meaning should be given to the words in
question?
• Are any of the other rules and principles of interpretation relevant or
helpful?
• Do any of the established presumptions assist in resolving the
interpretation question?
Step 5
What conclusion is appropriate?
• Applying the relevant sections of the legislation to the facts of the case,
and taking account of the probable interpretation of the words and
phrases in the legislation, what decision is a court likely to make?


The following questions will help you to know whether you can recall and explain the
things that you should have learned about legislation.
1. How is new legislation initiated? What procedures are followed in the legislature
when proposed legislation is introduced? What opportunities exist for debate on, and
changes to, the initial proposals?
2. What role does the head of state have in enacting new legislation?
3. After proceeding successfully through parliament, when and how does new legislation
come into operation as law?
4. Why is it important to take account of which legislature enacted particular legislation?
5. What is meant by each of the following terms used in relation to legislation: title,
sections, headings, Divisions, purpose clauses, Royal assent, commencement date and
definitions?
6. Where would you look to find the full text of a particular Act?
7. In the event of any uncertainty, how do judges establish the meaning of legislative
provisions? Is the literal meaning of the words in legislation always sufficient to
establish what legislation means? What additional rules, principles and presumptions
may be used to assist in interpreting legislation?

e modules.
2.8
CHAPTER 3
Sources of Law: Case Law

In this chapter:
• The power of judges to make law
• The origins of ‘common law’ and ‘equity’
• An outline of court proceedings
• Court hierarchies in Australia
• The doctrine of precedent
• The ‘ratio decidendi’ of a case
• Binding and non-binding precedents
• Citing decided cases
• Finding case law
• Reading and using case law
• Alternative dispute resolution.
[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
3.1
42 Sources of Law: Case Law
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.
In addition to this chapter, there is an FPBL eStudy module Sources of law: case law
that will help you understand and apply the legal principles and rules outlined here. There
is also a quiz in the module Quizzes and case studies for revision which you can use to test
yourself when you think you have learned what you need to know about case 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
3.1
Sources of Law: Case Law43
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
3
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
3.2
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 3
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 series is given on page xiv. 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 on page xix. 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 following. 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 letters in brackets in the column on the left. An
explanation of each part follows.
3.4
(a) [HIGH COURT OF AUSTRALIA.]

1982, Nov. 18,19,
1983, Feb. 23
(b) TAYLOR AND OTHERS.............................................APPELLANTS;

AND
JOHNSON...............................................................RESPONDENT.
(c) Vendor and Purchaser — Contract of sale of land — Mistake — Price — Sale of ten
acres for $15,000 — Vendor under mistaken belief that price was $15,000 per acre
— Purchaser aware of vendor’s misapprehension — Right to rescind. 3
(d) By a written contract a vendor sold two adjoining pieces of land, each of about
five acres, for a total price of $15,000. The vendor subsequently refused to
proceed on the ground that when she executed the contract she believed that it
provided for a price of $15,000 per acre. In the purchaser’s action for specific
performance the trial judge found that while the vendor had been so mistaken,
the purchaser was not aware of the mistake. He ordered the vendor to perform
the contract. On an appeal by the vendor, the Court of Appeal concluded that the
purchaser believed that the vendor was probably mistaken as to what the
contract stipulated as the price, and set aside the contract.
Held by Mason A.C.J., Murphy and Deane JJ., Dawson J. dissenting,
that the proper inference to be drawn from the evidence was that when
the vendor executed the option and when she executed the contract in the
mistaken belief about the price, the purchaser believed she was under some
serious mistake or misapprehension about either the price or the value of the
land and had deliberately set out to ensure that she was not disabused. Accord-
ingly, the contract had rightly been set aside.
Smith v. Hughes (1871), L.R. 6 Q.B. 597; Solle v. Butcher. [1950] K.B. 671;
McRae v. Commonwealth Disposals Commission (1951), 84 C.L.R. 377; and
Svanosio v. McNamara(1956), 96 C.L.R. 186, considered.
Decision of the Supreme Court of New South Wales (Court of Appeal) affirmed.
APPEAL from the Supreme Court of New South Wales.
On 27 March 1975, Ivy Johnson granted an option to Laurence Colin
Taylor or his nominee to purchase two adjoining pieces of land, each of about
five acres, at McGrath’s Hill in New South Wales for a total price of $15,000. The
option was exercised on 14 April, and on 7 May 1975 Taylor’s children entered
into a contract to purchase the land for $15,000. Subsequently the vendor
refused to proceed on the ground that when she executed the written contract
she believed that it provided for a consideration of $15,000 per acre.
D.M.J. Bennett Q.C. (with him B.W. Walker), for the appellants …
R.W. R. Parker Q.C. (with him P. Dowdy), for the respondent …
Cur. adv. vult.
(e) The following written judgments were delivered: —
MASON A.C.J., MURPHY AND DEANE JJ.
In our view, a general inference which flows from the evidence is that Mr. Taylor
and Mrs. Johnson each believed that the other was acting under a mistake or
misapprehension,
First Principles either as to price or value, in agreeing to a sale at the
on Business Law 3.4
purchase price which he or she believed the other had accepted. ... We also
consider that the evidence leads to an inference that Mr. Taylor, by refraining
R.W. R. Parker Q.C. (with him P. Dowdy), for the respondent …
48 The following written judgments were delivered: — Sources of Law: Case Law
MASON A.C.J., MURPHY AND DEANE JJ.
(f) In our view, a general inference which flows from the evidence is that Mr. Taylor
and Mrs. Johnson each believed that the other was acting under a mistake or
misapprehension, either as to price or value, in agreeing to a sale at the
purchase price which he or she believed the other had accepted. ... We also
consider that the evidence leads to an inference that Mr. Taylor, by refraining
from again mentioning price and by the manner in which he procured the
execution by Mrs. Johnson of the option, deliberately set out to ensure that Mrs.
Johnson was not disabused of the mistake or misapprehension under which he
believed her to be acting.
The judgments of Blackburn and Hannen JJ. in Smith v. Hughes (18)1 provide
support for the proposition that a contract is void if one party to the contract enters
into it under a serious mistake as to the content or existence of a fundamental term
and the other party has knowledge of that mistake.
… Denning L.J., in Solle v. Butcher,2 … likewise expressed the view that, in the
absence of fraud or misrepresentation, resort must be had to equity to escape
from the terms of the contract on the ground of unilateral mistake.
McRae and Svanosio, like Solle v. Butcher, were not cases involving a mistake
as to the existence or content of an actual term of the written contract. There is,
however, nothing in the joint judgments of Dixon C.J.
and Fullagar J. which would exclude such a case from their acceptance of the
general proposition that neither party to a contract ‘can rely on his own mistake
to say it was a nullity from the beginning, no matter that it was a mistake which
to his mind was fundamental, and no matter that the other party knew that he
was under a mistake’2 (25).
In the United States and Canada, the rule that relief from contractual
obligations on the ground of unilateral mistake will be granted where enforce-
ment of the contract would be unconscionable is well established …
The particular proposition of law which we see as appropriate and adequate
for disposing of the present appeal may be narrowly stated. It is that a party who
has entered into a written contract under a serious mistake about its contents in
relation to a fundamental term will be entitled in equity to an order rescinding
the contract if the other party is aware that circumstances exist which indicate
that the first party is entering the contract under some serious mistake or
misapprehension about either the content or subject matter of that term and
deliberately sets out to ensure that the first party does not become aware of the
existence of his mistake or misapprehension. … In such a situation it is unfair
that the mistaken party should be held to the written contract …
Applying the above-mentioned principle to the present case, it is apparent
that the appeal must fail. … At the time she signed both option and contract,
Mrs. Johnson mistakenly believed that the relevant document stipulated
that the purchase price was $15,000 per acre whereas the stipulated
purchase price was $15,000 in total. The stipulation as to price was plainly a
fundamental term of the contract … the proper inference to be drawn from
the evidence is that, both at the time when Mrs. Johnson executed the option
and at the time when she executed the contract, Mr. Taylor believed that she
was under some serious mistake or misapprehension about either the terms
(the price) or the subject matter (its value) of the relevant transaction.
1 (1871) LR 6 QB 597, at pp 607, 609.

2 [1950] 1 KB 671, at p 691.
The avoidance of mention of the purchase price after the ‘idle curiosity’ conver-
sation and the circumstances in which Mr. Taylor procured the execution of the
3.4
option, including his wrong statement that he did notFirst
havePrinciples
a copy ofon
theBusiness
option Law
which he could make available to Mrs. Johnson, lead, in our view, plainly to the
inference that he deliberately set out to ensure that Mrs. Johnson did not
mistake or misapprehension about either the terms (the price) or the subject
matter (its value) of the relevant transaction.
The avoidance of mention of the purchase price after the ‘idle curiosity’ conver-
sation and the circumstances in which Mr. Taylor procured the execution of the
option, including his wrong statement that he did not have a copy of the option
which he could make available to Mrs. Johnson, lead, in our view, plainly to the
inference that he deliberately set out to ensure that Mrs. Johnson did not
become aware that she was being induced to grant the option and, subsequent-
ly, to enter into the contract by some material mistake or misapprehension as to
its terms or subject matter.
The appeal should be dismissed with costs.
(e) DAWSON J.
3
(f) The fact that the price of $15,000 for the land was clearly set out in the option
agreement and that both Mr. and Mrs. Johnson were given full opportunity to
read that agreement before signing it is inconsistent with any trickery on the
part of Taylor. He could hardly have anticipated that the Johnsons would be
unable to read the document without their glasses and cannot have known at the
time that Mrs. Johnson, at least, did not read it.
It was not an inescapable conclusion that Taylor was aware of the true
value of the Johnsons’ land.
… Cleary [sic], $15,000 appeared at the time, as Taylor conceded, to be a
bargain price but, as events turned out, it was a great deal closer to the true value
of the land than the quite inflated value placed upon it by the Johnsons. It was not
such a price as pointed necessarily to a mistake on the part of the Johnsons,
particularly to a person not expert in the valuation of land. The fact that price was
not mentioned by Taylor or the Johnsons after an initial conversation is not
surprising.
Accepting, as I think the Court of Appeal ought to have done, the finding of the
trial judge that Taylor’s belief at the time the option agreement was signed and,
a fortiori, at the time the contracts were exchanged, was that it was the intention
of the Johnsons to sell the two lots in question for the full price of $15,000, there
is little room for debate as to the legal consequences which follow. The
Johnsons having intended to sell the land for $15,000 per acre, as the trial judge
also found, the case was indeed one of mutual mistake in the sense that each of
the parties to the bargain mistook the intention of the other. That did not prevent
the formation of a contract. The option and the sale being in writing, there was
sufficient evidence of agreement.
[T]he only reasonable conclusion to be drawn from Mrs. Johnson’s signature
of the option agreement, which was unambiguously expressed and which she
apparently read, was, as the trial judge found, that she intended to be bound by
its terms and by the terms of the contract of sale which she subsequently
signed.
For these reasons I would allow the appeal.
Appeal dismissed with costs.
(e) Solicitors for the appellants, Lobban, McNally & Harney.

Solicitors for the respondent, Pye, Shaddick & Baker.

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 headnote
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 and legal representatives
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
3.4
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 3
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. See the abbreviations in the Table of medium neutral citations on
page xx.
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
3.6
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 figures 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
3
hierarchies, eg the Family Court of Australia.
• 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.

Figure 3.1 Court hierarchies in Australia

COMMONWEALTH VICTORIA
High Court of Australia High Court of Australia
Full Court of the Federal Court Court of Appeal
Federal Court of Australia Supreme Court
Federal Circuit Court (Various jurisdictional divisions)
County Court
NEW SOUTH WALES Magistrates’ Court
High Court of Australia
Court of Appeal WESTERN AUSTRALIA
Court of Criminal Appeal High Court of Australia
Supreme Court Court of Appeal
(Various jurisdictional divisions)
Supreme Court
District Court
(Various jurisdictional divisions)
Local Court District Court
Magistrates’ Court
QUEENSLAND
Court of Appeal ACT
Supreme Court High Court of Australia
(Various jurisdictional divisions) Court of Appeal
District Court Supreme Court
Magistrates’ Court (Various jurisdictional divisions)
SOUTH AUSTRALIA
NORTHERN TERRITORY
Full Court of the Supreme Court
Supreme Court
(Various jurisdictional divisions) Court of Appeal
District Court Court of Criminal Appeal
Magistrates’ Court Supreme Court
TASMANIA
NORFOLK ISLAND
Full Court of the Supreme Court
Court of Criminal Appeal
Federal Court of Australia
Supreme Court
(Various jurisdictional divisions) Supreme Court
Magistrates’ Court Court of Petty Sessions
[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
3.7
(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.
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
3
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.
(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.
Finding and using case law is a skill that improves with practice. The examples in the
eStudy module will help you to understand how case law is used.
[3.10] 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.
[3.11] Checklist: 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.
3.11
Step 1
Find out the facts of the new case to be decided and identify the legal issues
that arise.
• What facts do the plaintiff and the defendant rely on? What is in dispute
between them?
Step 2
Look for previously decided cases that may indicate how the courts will
decide the present case.
3
• Do the earlier cases you have found raise the same issues as the new
case?
• Is there any relevant legislation? Does it override the case law you have
found?
Step 3
Check that the new case and the earlier decisions are sufficiently similar
on their material facts.
• Is the new case so similar to a previously decided case that they should
be decided in the same way?
• Is it likely that the previous cases and the new case can be distinguished
on their material facts?
Step 4
In which court was the reported case decided?
• Will the previous decision be treated as either binding or persuasive by
the court in which the new case will be heard?
Step 5
Identify the ratio decidendi of the previously decided cases.
• What were the material facts of the earlier case?
• What rule was applied to those facts?
Step 6
Apply the ratio decidendi to the new case.
• Are there any different circumstances that may affect the outcome?

The following questions will help you to know whether you can recall and explain the
things that you should have learned about case law.
1. What is a ‘law report’? What is a ‘law report series’? Give some examples of law
report series and their abbreviations.

2. What is meant by the ‘citation’ of a case? How does the citation help inform you of
the potential authority of the case? Where would you go to find a law report?
3. What are ‘catchwords’, ‘headnotes’ and ‘judgments’? What general structure do
judgments normally follow?
4. How do you find out when a case was decided?
5. How do you find and use previous cases as law? What is the ‘doctrine of precedent’?
What are the component ideas that are involved? What is the ‘ratio decidendi’ of a
case? What are ‘obiter dicta’?
6. Why is the hierarchy of the various court systems an integral part of the doctrine
of precedent? Are the previous decisions of a court binding only on inferior courts
within the same hierarchy?
7. What is meant when it is said that a previous decision is ‘persuasive’ rather than
‘binding’? Do Australian courts ever take account of foreign decisions?
8. What is meant by ‘common law’ and ‘equity’? Are both of these found in reported
cases? Do Australian courts apply both common law and equity to the cases they
decide?

e modules.
3.12
CHAPTER 4
Finding Law Online

In this chapter:
• The classification and organisation of legal materials
• Electronic databases
• The Australasian Legal Information Institute
• Finding legislation and cases using the information in their citation
• Searching databases for legal materials using simple key words and phrases
• Boolean searching
• Advanced search techniques.
[4.1] Introduction
4.1.1 Finding legal materials
When you begin studying law, some of the materials you are given will be short extracts
from longer documents or summaries of long documents. This makes it easier to get an
overview of the basic concepts, structures and principles of law. However, sooner or later,
you may need to find materials that are not available in abbreviated or summarised form.
Finding these materials requires you to know how legal documents are organised and
stored, and how to search through them selectively.
In the past, printed collections of materials in law libraries were the starting point of
all legal research. Libraries are still a useful place to go to find legal documents, but they
are no longer the only, or the most convenient, way to do so. These days, an excellent source
of legal materials is electronic databases. However, to use these successfully, you need to
know what databases exist, what materials the various databases contain and how to search
through very large databases effectively and efficiently.
This chapter outlines the processes of finding law online. The FPBL eStudy module
on this topic provides examples and exercises, as well as direct links to useful legal databases.
The module also demonstrates how to go about finding particular legal documents that
you may want.
4.1
60 Finding Law Online
[4.2] Sources of Law

4.2.1 The classification and organisation of legal materials
There are many different types of legal materials to which one can go to find Australian
law. They are typically described and organised in the manner outlined below. This type
of arrangement is often reflected in electronic databases and other collections of legal
materials, so knowing how different materials are classified will help you to locate them.
4.2.1(a) Primary sources
Primary sources are those texts or documents that are authoritative as law. They contain
statements of law originating from recognised law-making bodies. The following are all
primary sources of law:
• case law (also known as ‘common law’ and ‘judge made’ law)
• legislation (also called ‘Acts’ or ‘statutes’)
• subordinate (or delegated) legislation (also called ‘by-laws’), and
• treaties and conventions.
4.2.1(b) Secondary sources

Publications which refer to, discuss, analyse and critique laws, but which are not themselves
authoritative as law, are referred to as secondary sources of law. Some of the most common
secondary sources include:
• textbooks
• journal articles
• legal encyclopedias
• government reports
• explanatory memoranda, and
• law reform commission reports.
4.2.1(c) Research tools

Catalogues, indexes and databases that help you find and update the law are referred to as
research tools. They include:
• library catalogues
• internet sources (eg AustLII)
• case citators
• indexes and digests, and
• loose-leaf services.
4.2
Finding Law Online61
[4.3] Electronic Databases

4.3.1 Alternative online databases
There are a number of electronic databases that provide a very convenient way to find legal
materials. Some of these allow free access, others (like LexisNexis) require payment for
use. Which ones you choose to use is a matter of experience and preference. They are all
similar enough in their structure so that if you are familiar with one of them, you can find
your way around the others.
The most comprehensive of the free-access databases are those provided by provided
by the Australasian Legal Information Institute (AustLII). The AustlII databases contain
the legislation and case law of all the Australian jurisdictions, as well as that of many
foreign jurisdictions such as New Zealand, the United Kingdom (BAILII), Canada
(CanLII) and the South Pacific region (PacLII). AustlII also provides access to a variety
of other legal materials.
However, also important are the various free Australian government databases of
legislation, for example the Federal Register of Legislation, an authoritative source of
4
Commonwealth legislation and associated documents, such as Bills and explanatory
memoranda. The government databases are sometimes updated more quickly than the
AustlII legislation databases and so provide the most reliable source of recent legislation.1
There are some government databases of case law but they are less comprehensive
than the AustlII case law databases, so AustlII is usually the most convenient starting
point for finding Australian case law.2
In the following sections of this chapter, the AustlII website is used to illustrate the
use of online databases.
4.3.2 The AustLII interface
The structure and content of the AustLII databases is set out on the AustLII homepage at
www.austlii.edu.au, as shown below. You will see that, as regards Australian sources, there
are separate databases of legislation and case law for the Commonwealth, and for each of
the states and territories. There are also databases of law journal articles and law reform
reports. There are further links to libraries and catalogues.
AustLII provides further indexes to the contents of its databases. It also provides a
search interface that allows both simple and more advanced searches for specified materials.
The screenshots opposite show the list of available Victorian law resources and the
alphabetical index to the database of consolidated legislation.
1 Government databases of legislation can be found at the following sites: Commonwealth: https://www.legislation.
gov.au/Home; NSW: http://www.legislation.nsw.gov.au/#/; Qld: https://www.legislation.qld.gov.au/OQPChome.
htm; SA: https://www.legislation.sa.gov.au/index.aspx; Tas: http://www.thelaw.tas.gov.au/index.w3p; Vic: http://
www.legislation.vic.gov.au/; WA: https://www.slp.wa.gov.au/legislation/statutes.nsf/default.html; ACT: http://
www.legislation.act.gov.au/; NT: https://dcm.nt.gov.au/nt-legislation-and-publications/current-nt-legislation-
database
2 Government databases of case law can be found at the following sites: NSW: https://www.caselaw.nsw.gov.au/;
Qld: http://www.sclqld.org.au/caselaw/; ACT: http://www.courts.act.gov.au/supreme/judgment

Figure 4.1 The AustLII homepage
Figure 4.2 The AustLII list of Victorian law resources
4.3
Figure 4.3 The AustLII index to Victorian legislation
[4.4] Finding Australian Legislation and Cases by Name

4.4.1 Using indexes to find a known Act
If you know the citation of an Act you can find it on AustLII by looking in the relevant
index. Suppose you want to find the Damage by Aircraft Act 1999 (Cth). You can see from
the citation that this Act is Commonwealth legislation, and was enacted in 1999.
On the AustLII homepage, start by looking on the left of the screen for the list of
available databases and choose the links that take you to the databases of Commonwealth
legislation. When the alphabetical index appears, select the appropriate letter (D) and
scroll down to find the Act you want.
4.4.2 Using indexes to find a known law report
The same process is used to find the report of a law report for which you know the citation.
Suppose, for example, that you want to find the report of Taylor v Johnson (1983) 151 CLR
422. The citation tells you that this is a decision of the High Court of Australia, reported
in the Commonwealth Law Reports in 1983.
Start by connecting to AustLII and again choose the links that take you to the
databases of Commonwealth case law. Choose the link to High Court of Australia
decisions. When the alphabetical index appears, select the appropriate letter and scroll
down to find the case you want.

[4.5] Using Simple Search Terms to Find Legislation and Cases

4.5.1 Key words and phrases
If you do not know the name of a document, you can look for it on an electronic database
like AustLII by searching for a ‘key’ word or phrase that appears somewhere in the text of
the document. By doing a search for all documents containing your chosen key word as a
search term, you ought to be able to retrieve the document you are looking for.
Using a single word or short phrase as a search term works best if the document you
are looking for contains unique or unusual words and phrases that are unlikely to be found
in other documents.
4.5.2 Adjacency
When a phrase consisting of two or more words is used as a search term, there will not be a
match unless the words are found in the document next to each other and in exactly the same
order as they are listed in the search term. This ‘principle of adjacency’ may cause difficulties
when using phrases to find documents.
4.5.3 Overcoming the limitations of using simple key words and phrases
Where the only key words you can think of are fairly common words, and if the database
is large, using simple search terms and phrases will not produce good or reliable results.
Problems such as adjacency and commonly occurring key words can be overcome by using
Boolean search terms.
[4.6] Boolean Searching

4.6.1 Using connectors to specify relationships between search terms
Some databases allow you to opt to do a Boolean search rather than an ordinary search.
Boolean searching follows formal rules when interpreting the search terms used. These
rules involve giving special meaning to the ‘connectors’ or ‘operators’ that separate the
words used in a search term. The most common connectors recognised in a Boolean
search are the words ‘and’, ‘or’ and ‘not’. Each different connector used in a Boolean search
specifies the exact relationship between the other words used in the search term.
In a Boolean search, the words in the search term separated by connectors are not
treated as a phrase but as individual terms with a specified relationship. Connectors can be
used in various combinations to control exactly how the search term will operate. This can
be useful in overcoming the problem of adjacency.
For example, if you do an ordinary search using ‘jenkins and smith’ as your search
term to search a database containing the cases listed below, the search will only retrieve
documents that contain the exact phrase ‘Jenkins and Smith’ and none of the documents in
the list below would be found. However, if you do a Boolean search of the same database
using the term ‘jenkins and smith’, you would retrieve the one case indicated in bold text,
even though the names appear in reverse order in that document.
4.6
Thompson v Smith
Manzi v Smith
Smith v the Queen
Beaudesert Shire Council v Smith
Smith v Jenkins
LW Smith Pty Ltd v McErlane
Osborne v Smith
Williams v Smith
Radaich v Smith
Boolean searches are more precise and powerful than ordinary searches, but there are
limits to the effectiveness of Boolean searching. Advanced search techniques have been
developed that allow even more precise searching.
[4.7] Advanced Techniques for Searching

4.7.1 Truncation 4
To match different forms of the same word (eg ‘deport’ and ‘deportation’), the key word
can be shortened (truncated) to its stem. The stem is the part of the word that all the
different forms have in common. In the above example, the stem is ‘deport’. Key words are
commonly truncated by placing an asterisk after the chosen stem, for example, ‘deport*’.
Any word which starts with ‘deport’ will then be matched. An asterisk may also be placed
before the stem when appropriate, for example, ‘*solution’. This would match with ‘solution’,
‘resolution’, ‘dissolution’, etc.
4.7.2 Wildcards
A question mark inserted in a search term indicates that any single letter in that position is
acceptable in words sought. For example, ‘wom?n’ will retrieve both ‘woman’ and ‘women’.
4.7.3 Proximity operators
Proximity operators are used to specify the positional relationship of key words. The
letter ‘w’ (within), followed by a forward slash and number, specifies the number of words
within which key words must be found in relation to each other. For example, ‘murder w/
10 provocation’ means the key words must be within 10 words of each other (in either
direction).
To specify that one key word must occur before the other, the operator ‘pre’ (preceding),
followed by a forward slash and number, gives the required ‘ordered’ proximity. An example
is: ‘provocation pre/10 murder’.
4.7.4 Brackets
A search term with Boolean connectors such as ‘or’ and ‘and’ will carry out the search in
a prescribed sequence that depends on which connector has priority. Each search system
has its own inbuilt priority rules, but you can override these by stating your own priority
rules using brackets (parentheses) as you would in an algebraic equation, for instance: (A
or B) and (C or D). The expressions inside brackets will always be treated as an entity and
evaluated before other expressions.

[4.8] Finding Alternative Legal Databases

There are various online databases that provide access to Australian and international
legislation, case law, journals, international treaties and national constitutions. These can
be a useful starting point when you are trying to find new legal materials.
Section 9 of the eStudy module Finding law online provides direct links to some
of these sites. The relevant screen is shown below. To use these links, go to the eStudy
module: Finding law online.
Figure 4.4 Useful links to databases

The following questions will help you to review the main topics explained in this chapter.
1. What is AustLII? To what kinds of legal materials does it provide access? What legal
materials does it provide access to? What other databases of case law and legislation
might be worth visiting?
2. What is the difference between legislation and case law? Why is this distinction
important if you are looking for specific materials in the AustLII databases?
3. How would you go about finding an Act when you know its name? Test yourself by
connecting to AustLII and finding the Damage by Aircraft Act 1999 (Cth).
4.9
4. How would you look for a reported case when you know its name? Test yourself by
connecting to AustLII and finding Taylor v Johnson (1983) 151 CLR 422.
5. How would you search for cases or legislation relevant to a particular topic? Would
simple search terms and phrases be sufficient?
6. What is Boolean searching? Does Boolean searching resolve difficulties that arise
from the principle of adjacency?
7. In more advanced searching, what is meant by ‘truncation’, ‘wild cards’ and ‘proximity
operators’? What is the purpose of using brackets in search terms?

e modules.

CHAPTER 5
Making a Contract
In this chapter:
• The concept of a contract
• The importance of legally enforceable agreements
• The nature of contractual obligations
• How and when contractual obligations arise
• Limitations on contractual capacity
• The essential elements of contract formation:
– agreement
– intention to be bound
– formal execution or exchange of consideration
• The doctrine of privity of contract
• Promissory estoppel.
[5.1] Introduction
5.1.1 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. In addition, the FPBL eStudy
module Making a contract will help you understand and apply the legal principles and rules
outlined here. You will also find a quiz on contract formation in the module Quizzes and
case studies for revision, which you can use to test yourself when you think you have learned
what you need to know.
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.
5.1
70 Making a Contract
5.1.2 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’.
5.1.3 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.
5.1.4 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.
5.1.5 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.
5.1.6 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
5.1
Making a Contract71
owed can sue the defaulting party on grounds of breach of contract and seek an appropriate
remedy—normally an award of ‘damages’, meaning compensation.
5.1.7 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.
5.1.8 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.
5
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.
5.1.9 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.

5.1.10 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.
[5.2] Capacity to Contract

5.2.1 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.
5.2.2 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.
Scarborough v Sturzaker (1905) 1 Tas LR 117

Contract; formation; capacity; minors
Facts: Scarborough, who was under the age of 18, lived about 12 miles from the
place where he worked. He travelled to and from work by bicycle. While still a
minor, Scarborough purchased a new bicycle from Sturzaker, trading in his old one
on part payment. The purchase of the new bicycle was only legally enforceable
against Scarborough if a bicycle was a ‘necessity’.
Issue: Given that he already owned a bicycle, was a new bicycle a necessity?
5.2
Making a Contract73
Decision: In the circumstances, the new bicycle was a necessity and Scarborough
was therefore bound to pay for it.
Reason: Because of the distance Scarborough lived from his work, a bicycle was a
necessity. If what is needed is already sufficiently supplied to the minor, there will
be no necessity to acquire replacement goods. While he still had his old bicycle,
therefore, a new bicycle would not have been considered a necessity. However,
the court held that, because Scarborough had traded in his old bicycle before the
new one was delivered, he no longer had what he needed and a new bicycle was a
necessity.
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.
Hamilton v Lethbridge (1912) 14 CLR 236

Contract; formation; capacity; minors
5
Facts: Lethbridge, who was a minor, bound himself to serve for five years as an
articled clerk for the plaintiff, a lawyer practising in Toowoomba. As part of the
agreement, Lethbridge agreed that, after qualifying, he would not practise as a
solicitor within 50 kilometres of Toowoomba. However, a year after qualifying,
Lethbridge started practising as a solicitor in Toowoomba, claiming that, as a
minor, he lacked the capacity to be legally bound by the terms of the agreement
with Hamilton.
Issue: Was the clause restraining Lethbridge from practising in Toowoomba legally
enforceable?
Decision: The contract, including the restraint clause, was legally binding on
Lethbridge, despite the fact that he was a minor at the time of the agreement.
Reason: Taken overall, the contract for articles (a form of apprenticeship) was
substantially for the benefit of Lethbridge, even though it contained clauses, such
as the restraint clause, that might be regarded as prejudicial to his interests.
Barton J said (at 253):
The rule is that stated by Lord Esher M.R. in Corn v. Matthews at p. 314: —‘The
mere fact of some conditions in the deed being against the apprentice does
not enable the Court on that ground only to say that the agreement is void.
It is impossible to frame a deed, as between a master and an apprentice, in
which some of the stipulations are not in favour of the one and some in favour
of the other. But if we find a stipulation in the deed which is of such a kind that
it makes the whole contract an unfair one, then that makes the whole contract
void. The stipulation which is objected to must be so unfair that it makes the

whole contract between the apprentice, or the infant and the master, an unfair
one to the infant.’
5.2.3 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.
5.2.4 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
5.2.5 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.
5.2.6 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.
[5.3] 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.
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.
5.3
Making a Contract75
5.3.1 Intention to be legally bound

5.3.1(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.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Contract; formation; intention to be legally bound
Facts: During an influenza epidemic in England in 1891, the Carbolic Smoke Ball
Company produced patented ‘smoke balls’ made from certain chemicals. The
company marketed these smoke balls as an effective means of preventing influenza.
In particular, the company published an advertisement in a newspaper, offering
to pay a reward of £100 to anyone who purchased the smoke balls, used them
according to the instructions provided, but who nevertheless caught influenza. To 5
demonstrate the seriousness of their offer, the company deposited £1,000 in a bank
account from which to pay the rewards. Carlill saw the advertisement. She bought
and used a smoke ball as directed. When she nevertheless caught influenza, she
claimed the £100 reward promised by the company. The company refused to pay
her, denying that an enforceable contract with Carlill had been created in these
circumstances.
Issue: Could it be inferred from the circumstances that the promise to pay the
advertised reward was intended to be legally binding?
Decision: There were sufficient circumstances to infer that the promise was
intended to be contractually binding.
Reason: The advertisement was unlike other advertisements. The fact that it stated
that £1,000 had been deposited in a bank by the company expressly for the purpose
of making the promised payments demonstrated that the promise was intended to
be legally binding.
5.3.1(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 dependent upon such
domestic agreements. The fact that courts took the view that the agreements were not
intended to be enforced as contracts reinforced the dependent status of women. While the
legal reasoning underlying such cases may be correct, it is important to recognise the social
consequences of the law.

Balfour v Balfour [1919] 2 KB 571

Contract; formation; intention to be legally bound; agreements
between spouses
Facts: Balfour was employed in Ceylon (now Sri Lanka). He and his wife travelled to
England for a visit. When it was time to return to Ceylon, Ms Balfour was unwell and
her doctor advised her to remain in England and rejoin her husband only when she
was better. To provide for her while she remained in England, Mr Balfour promised
to pay her £30 each month until she rejoined him. However, Mr and Ms Balfour later
separated and divorced. Ms Balfour brought an action against Mr Balfour to enforce
the promise to pay maintenance.
Issue: Was an agreement of this type, made between married persons, legally
enforceable?
Decision: The agreement was not legally enforceable because, in the circumstances,
it could not be inferred that it was intended to be legally enforceable.
Reason: Spouses make many domestic agreements, but these agreements do not
become legally enforceable, ‘because the parties did not intend that they should be
attended by legal consequences’. The courts would be swamped if such agreements
could be sued on. Atkin LJ said (at 579):
[Such agreements] are not sued upon, not because the parties are reluctant
to enforce their legal rights when the agreement is broken, but because the
parties, in the inception of the arrangement, never intended that they should
be sued upon.
Cohen v Cohen (1929) 42 CLR 91

Contract; formation; intention to be legally bound; agreements
between spouses
Facts: Ms Cohen alleged that, before she married the defendant in 1918, he had
promised to pay her £100 a year as a dress allowance. The money was to be paid
in quarterly instalments of £25. The money was paid until early 1920. In 1923 the
parties separated. Ms Cohen then claimed that Mr Cohen owed her £278, being
unpaid instalments of the promised dress allowance.
Issue: Was the promise to pay a dress allowance intended to create a legally
enforceable agreement?
Decision: Dixon J concluded that in the circumstances it could not be inferred that
legally enforceable relations were intended.
Reason: On an arrangement between a couple engaged to be married, Dixon J said
(at 96):
But these matters only arise if the arrangement which the plaintiff made with
the defendant was intended to affect or give rise to legal relations or to be
attended with legal consequences (Balfour v Balfour [1919] 2 KB 571; Rose &
5.3
Making a Contract77
Frank Co v J R Crompton & Bros Ltd [1923] 2 KB 261). I think it was not so
intended. The parties did no more, in my view, than discuss and concur in a
proposal for the regular allowance to the wife of a sum which they considered
appropriate to their circumstances at the time of marriage …
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.
Merritt v Merritt [1970] 2 All ER 760

Contract; formation; intention to be bound; agreements between
spouses
Facts: Mr and Ms Merritt married in 1941 and borrowed money from a bank to
build a house. They lived in it over the years while jointly contributing to paying off
the loan. The house was originally owned by Mr Merritt alone but in 1966 it was put
into joint ownership with Ms Merritt. Some time thereafter, Mr Merritt began an
5
extramarital relationship with another woman and left his wife. Having separated,
Mr and Ms Merritt met to discuss their financial position. Ms Merritt agreed to
finish paying off the loan on the house, and in return Mr Merritt promised that when
the loan was completely repaid he would transfer the house to Ms Merritt’s sole
ownership. He signed a letter to this effect but, when the time came, he refused
to transfer the house to Ms Merritt. Ms Merritt brought a legal action to enforce it.
Issue: Was the promise to transfer the house to Ms Merritt intended to be a legally
enforceable one, despite the parties being spouses?
Decision: It could be inferred from the circumstances that the agreement was
intended to be legally enforceable.
Reason: Whether or not an agreement is intended to be legally enforceable is
something that is decided objectively. The court asks what intention can reasonably
be inferred from the circumstances at the time of the agreement. Lord Denning MR
said (at 762):
In all these cases the court does not try to discover the intention by looking
into the minds of the parties. It looks at the situation in which they were placed
and asks itself: would reasonable people regard the agreement as intended to
be binding?
In the present case, the court decided that when the facts of a case show
that the goodwill between married persons has broken down, it can be inferred
that they no longer rely on honourable understandings, and that they intend their
agreements to create legal obligations.

Wakeling v Ripley (1951) 51 SR (NSW) 183

Contract; formation; evidence of intention to be legally bound
Facts: Ripley, an elderly and wealthy man, lived in a large house in Sydney. His
sister and her husband (Wakeling) lived in England. Ripley wrote to the Wakelings
and invited them to leave England and live with him in Sydney. He promised that the
Wakelings could live rent-free in the house and that he would leave all his property
to them in his will. The Wakelings sold their home in Cambridge, Wakeling resigned
his lectureship, and he and his wife moved to Sydney. After about a year, a major
quarrel occurred between the Wakelings and Ripley. Ripley sold the house and
changed his will to exclude the Wakelings. They sued Ripley for breach of contract.
Issue: Was the agreement intended to be legally binding?
Decision: Even though this was an agreement between family members, it could
be inferred from the circumstances that it was intended to be legally enforceable.
Reason: The letters between the parties made it clear that the Wakelings wanted
the matter to be on a clear footing and in the form of a legal bargain before they
were prepared to emigrate. Street CJ said (at 187):
The consequences for the plaintiffs were so serious, in taking the step that
they did, that it would seem obvious that they were anxious to get a definite
assurance and a definite agreement as to the provision that was to be made
for them …
5.3.1(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.
Teen Ranch Pty Ltd v Brown (1995) 87 IR 308

Contract; formation; intention to be legally bound
Facts: Brown volunteered to work for ‘Teen Ranch’, a non- profit Christian
organisation. Teen Ranch agreed to provide Brown with accommodation, food
and the use of the camp facilities while he worked there, but did not promise to
pay him any wages. Brown was subject to the rules of the camp. While working at
the camp, Brown was injured. He claimed that he had entered into a contract of
employment with Teen Ranch and that he was therefore entitled to receive workers
compensation for his injuries.
Issue: Was the agreement between Brown and Teen Ranch intended to be a
legally binding contract of employment, entitling Brown to workers compensation
payments?
5.3
Making a Contract79
Decision: The New South Wales Court of Appeal held that no contract of employment
existed between the parties and Brown was not entitled to workers compensation
payments.
Reason: In the circumstances, there was ‘no positive indication’ of an intention by
Brown and Teen Ranch to create legally binding relations. Although he received
some benefits and was expected to obey camp rules while on duty, Brown’s work
was purely voluntary and there was no contract of employment.
Ermogenous v Greek Orthodox Community of SA Inc

(2002) 209 CLR 95
Contract; formation; intention to be legally bound; relevant factors
Facts: The Greek Orthodox Community of SA, an incorporated association which
organised cultural, social, sporting and religious activities for its members, invited
Ermogenous, then in America, to become the head of the Greek Orthodox Church
in Australia. He accepted the offer and came to Australia where he served as
archbishop for 23 years. During this time he was paid a salary by the Community. At
the end of his appointment, the Community refused to pay him for the accumulated 5
leave that Ermogenous would have been entitled to under a legally binding contract
of employment. The Community argued that their agreement with Ermogenous
was not intended to be legally binding.
Issue: Could it be inferred from the circumstances that the appointment of the
archbishop was intended to be a legally binding contract of employment?
Decision: The agreement was intended to be legally binding and Ermogenous was
entitled to payment for accumulated leave.
Reason: The existence of an intention to be legally bound is judged on the basis
of all relevant and available facts. The notion of ‘presumptions’ operating against
such an intention in particular types of cases can easily distract from the true task
of properly evaluating the particular circumstances. An agreement with a minister
of religion does not in itself mean the agreement is not intended to be legally
binding if other circumstances indicate otherwise, such as when an incorporated
non-religious body makes the agreement and provides monetary and economic
benefits to the minister.
5.3.1(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.

Esso Petroleum Co Ltd v Commissioners of Customs and Excise

[1976] 1 All ER 117
Contract; formation; intention to be legally bound; commercial
agreements
Facts: Esso Petroleum produced a set of commemorative ‘coins’ as collectors’
items. To promote sales of its petrol, Esso promised to give motorists a ‘free’ coin
with every four gallons of Esso petrol purchased. The Commissioner of Customs
and Excise argued that the ‘free’ coins were ‘produced in quantity for general sale’
and were therefore subject to a purchase tax.
Issue: Did Esso have the intention to be legally bound by the offer to give the coins
to motorists who purchased its petrol?
Decision: In a majority decision, the House of Lords held that the terms of the
promotion were intended to be a legally binding promise. The coins were therefore
subject to the purchase tax.
Reason: The offer of commemorative coins was a commercial promotion from
which Esso and its station operators stood to gain, and the coins were only offered
to its customers. Thus, although the offer of the coins was described as a ‘gift’, it
could be inferred from the commercial circumstances that it was a promise made
with an intention to be legally bound.
5.3.1(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.
Masters v Cameron (1954) 91 CLR 353

Contract; formation; intention to be legally bound; conditional
intention
Facts: Cameron agreed to sell her farm to Masters for £17,500. Both parties signed
a written agreement which described the property and set out other details of the
agreement. One of the provisions in the document was the following:
This agreement is made subject to the preparation of a formal contract of sale
which shall be acceptable to my [Cameron’s] solicitors on the above terms and
conditions …
5.3
Making a Contract81
Issue: Since the essential terms of a contract had been agreed by the parties
when they signed their initial agreement, was a contract created even before the
preparation of a formal contract by Cameron’s solicitors?
Decision: In the circumstances, it was clear that Cameron had intended not to be
bound until a formal contract was prepared and signed.
Reason: Making an agreement subject to a condition does not always have the same
effect. Depending on the circumstances, the facts may show one of the following
situations:
• the parties intended to be immediately bound by the agreement and required
to perform it, so that the written contract would only restate the agreed terms
more fully or precisely;
• the parties intended to be immediately bound by the agreement, but to
suspend any performance until formal documents are signed; or
• the parties did not intend to be legally bound by the agreement at all unless
and until the formal documents are prepared and signed.
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. 5
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.
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537

Contract; formation; agreement; conditional agreement
Facts: Perri agreed to buy a property in Cronulla from Coolangatta Investments
(CI). The performance of this contract was made subject to the condition that Perri
should first sell a property in Lilli Pilli that he owned. When Perri failed to sell his
property within a reasonable time, CI alleged a breach of contract.
Issue: Was Perri in breach of a contract that existed between himself and CI?
Decision: Perri was in breach of a contract that had been created between himself
and CI.
Reason: Mason J (at 552) said that courts should prefer to construe a condition
as merely a condition for performance, rather than a condition precedent to the
formation of a contract, ‘unless the contract read as a whole plainly compels this
conclusion’. in the present case it was only performance of the contract that was
made conditional, rather than the completion of the contract itself; the contract had
therefore come into existence.

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.
5.3.1(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.
Commonwealth Bank of Australia v TLI Management Pty Ltd

[1990] VR 510
Contract; formation; intention to be legally bound; letter of comfort
Facts: TLI Management was in the process of taking over a company called
Hovertravel Australia. In the meantime, Hovertravel needed to borrow money
to maintain its business. It applied for a loan from the Commonwealth Bank of
Australia. To support this application, TLI sent a letter to the bank saying:
We hereby acknowledge that the Commonwealth Bank of Australia has agreed
to make temporary credit facilities totalling two hundred and fifty thousand
Australian dollars ($250,000) available to Hovertravel Australia Pty Ltd which
represents payments for ongoing operating costs and salaries. We confirm that
the company [TLI Management] will complete takeover arrangements [subject
to shareholders’ approval] of Hovertravel Ltd as soon as legally possible. These
arrangements include the injection of sufficient capital to repay the temporary
facility as mentioned above by takeover date or within 30 days of this date.
Issue: Did this letter contain legally enforceable promises by TLI to the
Commonwealth Bank?
Decision: Tadgell J in the Victorian Supreme Court held that the letter created no
legally enforceable obligations.
Reason: The letter contained no promissory language or wording to indicate that
TLI was undertaking any contractual obligations. It contained only ambiguous
statements of TLI’s intention, which could not be construed as a binding guarantee.
Banque Brussels Lambert SA v Australian National Industries Ltd

(1989) 21 NSWLR 502
Contract; formation; intention to be legally bound; letter of comfort
Facts: Spedley Securities Ltd wanted to borrow US$5m from Banque Brussels.
The bank wanted an assurance that the loan would be repaid. Australian National
Industries (ANI), which had a controlling interest in Spedley’s parent company,
Spedley Holdings, wrote a letter to Banque Brussels saying:
5.3
Making a Contract83
We acknowledge that the terms and conditions of the arrangements have been
accepted with our knowledge and consent and state that it would not be our
intention to reduce our shareholding in Spedley Holdings Pty Ltd from the
current level of 45% during the currency of this facility. We would, however,
provide your Bank with ninety (90) days notice of any subsequent decisions
taken by us to dispose of this shareholding, and furthermore we acknowledge
that, should any such notice be served on your Bank, you reserve the right to
call for the repayment of all outstanding loans within thirty (30) days.
We take this opportunity to confirm that it is our practice to ensure that
our affiliate Spedley Holdings Limited will at all times be in a position to meet
its financial obligations as they fall due …
ANI sold its shares in Spedley without giving the required notice and did not
ensure that Spedley was in a position to repay its loan.
Issue: Did the letter contain contractually binding undertakings?
Decision: Rogers CJ held that the letter of comfort was an enforceable contract.
Reason: The agreement was entered into in commercial circumstances, in which it
will usually be inferred that promises are intended to be legally binding. The letter
contained three promises:
•
•
a promise not to reduce the defendant’s shareholding
a promise to give 90 days’ notice, and
5
• a promise to ensure that Spedley would be able to repay its loan.
5.3.2 Either execution of the contract in a deed, or the exchange

of consideration
5.3.2(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.
5.3.2(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.

5.3.2(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.
5.3.2(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.
Thomas v Thomas (1842) 114 ER 330

Contract; formation; token consideration sufficient
Facts: Before he died, Mr Thomas expressed the desire that, if his wife survived
him, she should be allowed to live in his house until her death. After his death, Mr
Thomas’s executors took account of this wish and entered into a lease agreement
with Ms Thomas, allowing her to occupy the house in return for her promising to
pay £1 a year (which would go towards the ground rent) and a promise to keep the
house in good repair.
Issue: Had sufficient consideration been provided by Ms Thomas to make the
agreement with the executors legally enforceable?
Decision: Ms Thomas was entitled to enforce the agreement.
Reason: The promise to pay £1 each year and keep the house in good condition
was not in any sense equivalent in value to the benefit that Ms Thomas received
under the agreement with the executors. However, there is no requirement that
consideration be of equivalent value: it is enough that it be of some value, even if
relatively small. Ms Thomas’s promise was therefore sufficient consideration for
the promise to let her occupy the house for life.
5.3
Making a Contract85
5.3.2(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’.
Stilk v Myrick (1809) 170 ER 1168

Contract; formation; insufficiency of past consideration
Facts: While on a voyage in the Baltic, two seamen deserted from their ship. The
captain made a promise to the remaining crew that they would share the deserters’
pay if they worked extra hard to get the ship safely back home. When the ship got
back to England, the shipowner refused to honour the captain’s promise. The crew
wished to enforce the promise, saying there was an enforceable contract for the
extra pay.
Issue: Had the crew given consideration for the captain’s promise, so as to create
5
a binding contract?
Decision: The crew had given nothing of value in exchange for the captain’s promise.
Accordingly, no binding contract for extra pay was created.
Reason: When they had originally signed on for the voyage, the crew had made a
promise to do whatever was necessary in case of any emergencies to bring the
ship home safely. The desertion of two crew members was an emergency, and the
crew was therefore already bound to do the extra work that was needed. When the
captain promised extra pay, the crew promised nothing in return beyond what they
were already legally bound to do.
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.
Roscorla v Thomas (1842) 3 QB 234

Contract; formation; insufficiency of past consideration
Facts: Roscorla bought a horse from Thomas at an auction. After purchasing it,
Roscorla spoke with Thomas and ‘in consideration of the sale’ obtained a promise
from Thomas that the horse was ‘sound and free from vice’. In fact, the horse was
vicious and unmanageable.
Issue: Was the promise made by Thomas after the auction that the horse was
‘sound and free from vice’ a legally enforceable promise?
Decision: The promise was not legally enforceable.

Reason: Although the promise was said to be made ‘in consideration of the sale’,
it was made after Roscorla had bought the horse. The consideration Roscorla
offered was therefore past consideration and insufficient to make Thomas’ promise
legally binding, in accordance with the rule that ‘past consideration is not good
consideration’.
Note: 5.3.2(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.
5.3.2(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.

Contract; formation; exchange of consideration
according to the instructions provided, but who nevertheless caught influenza. To
5.3
Making a Contract87
account from which to pay the rewards. Elizabeth Carlill saw the advertisement.
She bought and used a smoke ball as directed. When she nevertheless caught
influenza, she claimed the £100 reward promised by the company. The company
refused to pay her, denying that an enforceable contract with Carlill had been
created in these circumstances.
Issue: Had Carlill provided consideration in exchange for the company’s promise,
sufficient to create a legally binding agreement?
Decision: The act of buying and using the smoke ball provided the necessary
consideration to make the promise to pay the reward enforceable.
Reason: An act performed in expectation of a known promise may constitute the
consideration given in exchange for that promise, even though the act is necessarily
performed before the said promise becomes legally binding. In this case, the
company promised to pay a reward in exchange for the act of buying and using the
smoke ball, provided the user then caught influenza.
5.3.2(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,
5
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.
Pao On v Lau Yiu Long [1980] AC 614

Contract; formation; consideration; past and executed consideration;
promise to a third party as consideration
Facts: Pao On agreed to sell his private company to the Fu Chip Company, a public
company in which Lau Yiu Long was majority shareholder. In return, Pao On was to
receive 4.2 million shares in the Fu Chip Company at a price of $2.50 per share. Lau
Yiu Long was concerned that if the Fu Chip shares sold to Pao On were immediately
placed on the market, this would depress the share price. To meet this concern,
Pao On agreed not to sell 60% of his Fu Chip shares for a year. By promising to keep
the shares for a year, Pao On ran the risk of a loss if the market price fell below
$2.50 per share. To avoid this risk, Pao On and Lau Yiu Long entered a second
agreement whereby Lau Yiu Long agreed to re-purchase Pao On’s shares after a
year for $2.50 each.
Having entered this second agreement, Pao On realised that, while it protected
him from loss, it also meant he would not make a profit if the price of the shares
rose during the year. He therefore refused to proceed with the main agreement (the
sale of his company to Fu Chip) unless the contract to resell the shares to Lau Yiu

Long after a year at a fixed price of $2.50 was replaced with an agreement whereby
Lau Yiu Long would simply compensate Pao On for any fall in the share price below
$2.50 (an indemnity agreement).
Lau Yiu Long was reluctant to provide this indemnity but, fearing that a dispute
would damage public confidence in the Fu Chip Company, he agreed to give it. The
consideration given by Pao On in exchange for the indemnity was said to consist
of Pao On’s original agreement to sell his company to the Fu Chip Company and
not resell the Fu Chip shares for a year. A year later, the share price of the Fu
Chip Company had fallen to a price of 36 cents but Lau Yiu Long refused to honour
the indemnity, arguing it was not supported by consideration. Pao On sued Lau Yiu
Long to enforce the indemnity.
Issue: Was there sufficient consideration to make the indemnity legally enforceable?
Decision: Although the main agreement had been entered into before the indemnity
agreement, the promises referred to as consideration for the indemnity agreement
were not ‘past’ consideration.
Reason: Something done before a promise is finally given can be valid consideration
for that later promise if:
• the initial thing was done at the promisor’s request
• both parties had understood that the thing done would be paid for, and
• what is later promised is a benefit that would have been legally enforceable if
it had been promised before the thing was done.
These requirements were satisfied in relation to Lau Yiu Long’s promise of
indemnity.
Ipex Software Services Pty Ltd v Hosking [2000] VSCA 239

Contract; formation; consideration; past and executed consideration
Facts: Hosking owned a software company. He agreed with Schwalb to merge
his company with the Ipex group of companies which was controlled by Schwalb.
Schwalb indicated informally to Hosking that Hosking would get some shares in the
new group of companies. Before anything was done to formalise this undertaking,
Hosking transferred his business to the new group, assisting in the transfer of his
customers and accounts. Only after Hosking had done this did Schwalb make a
written promise to give Hosking a 5% share in the new group of companies. Schwalb
did not carry out this promise and Hosking sued to enforce it.
Issue: Given that Hosking had transferred his company to the group before the
written promise to give him a 5% share of the new group was made, had Hosking
given sufficient consideration for Schwalb’s promise?
Decision: In the circumstances, there was sufficient consideration to make the
agreement legally enforceable.
Reason: Hosking had performed services (transferring the customers and accounts
to the new group) because of, and relying on, the indication that he would be given
5.3
Making a Contract89
shares in the consolidated group of companies. In such circumstances, the services

already performed are sufficient consideration for the later promise. This is called
‘executed’ consideration rather than ‘past’ consideration.
5.3.2(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.
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723

Contract; formation; consideration; practical benefit or detriment as
consideration
Facts: Musumeci leased a shop in a mall from Winadell. Musumeci sold fruit and
vegetables in his shop. Some time later, Winadell leased another shop in the mall 5
to a competing fruit and vegetable retailer and Musumeci’s business declined.
Musumeci told Winadell that his shop was no longer viable and asked Winadell to
reduce the rent. Rather than lose Musumeci as a tenant, Winadell agreed to a 30%
reduction of rent. However, other issues between Musumeci and Winadell were not
resolved and in the end Winadell decided that he no longer wanted Musumeci as a
tenant. In an effort to evict Musumeci from the mall, Winadell argued that the new
lease at a reduced rental was not legally binding.
Issue: Had Musumeci given sufficient consideration in exchange for Winadell’s
promise to reduce the rental, so as to create a binding agreement?
Decision: The promise to reduce the rent was properly supported by consideration
and therefore legally binding. The consideration obtained by Winadell was the
practical benefit of keeping Musumeci as a tenant and the mall full of operating
shops.
Reason: Noting that there has been a continuing trend to sidestep the artificial
results of a strict doctrine of consideration, Santow J explained the present state
of Australian law (at 747). Suppose, he said, that A enters into a contract with B,
to supply work, goods or services to B, in return for payment. However, before
A completes the contract, B begins to doubt that A will in fact do what has been
promised. To ensure performance by A of the original undertaking, B promises
A some additional payment, or makes some concession to A, by means of which
B obtains the benefit of being in a better practical position than if he had to bring
an action against A for breach of contract. Or it may be that, by promising actual
performance in exchange for B’s additional promise, A puts himself in a worse
practical position than if he were to breach the contract by non-performance. Either

way, the practical benefit to B, or the detriment to A, is sufficient consideration to

make B’s promise of additional payment legally binding, as long as B’s promise
was not the result of any economic duress, fraud, undue influence, unconscionable
conduct or unfair pressure on A’s part.
5.3.2(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.
Ballantyne v Phillott (1961) 105 CLR 379

Contract; formation; consideration; agreement to compromise as
consideration
Facts: Ballantyne was Phillott’s mistress for many years. During this time he gave
her large sums of money. After they quarrelled, he began legal proceedings to
recover the money, saying it had been a loan, not a gift. She denied this, saying it
had been a gift. Before the trial, the parties met and discussed their differences.
Phillott then signed a document which stated that:
• he would discontinue the legal action against Ballantyne
• he gave up all rights and claims against her, and
• Ballantyne had no rights or claims against Phillott.
Although in writing, the agreement was not in the form of a deed, and
consideration was needed for it to be enforceable.
Issue: Had Ballantyne provided consideration to Phillott in exchange for his
promises?
Decision: In a majority decision, it was held that Ballantyne had not given anything
in exchange for Phillott’s promise to discontinue his claims.
Reason: The document simply stated that Ballantyne had no rights. She did not
actually give up any legal rights or claims. The agreement was not a genuine
compromise of competing claims, but a unilateral abandonment by Phillott of his
rights, for which he received no consideration.
5.3.2(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
5.3
Making a Contract91
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.
Pao On v Lau Yiu Long [1980] AC 614

Contract; formation; consideration; promise to a third party as
consideration
Facts: Pao On agreed to sell his private company to the Fu Chip Company, a public
company in which Lau Yiu Long was majority shareholder. In payment, Pao On
was to receive 4.2 million shares in the Fu Chip Company at a price of $2.50 per
share. Lau Yiu Long was concerned that if the Fu Chip shares sold to Pao On were
immediately placed on the market, this would depress the share price. To meet
this concern, Pao On agreed not to sell 60% of his Fu Chip shares for a year. By
promising to keep the shares for a year, Pao On ran the risk of a loss if the market
price fell below $2.50 per share. To avoid this risk, Pao On and Lau Yiu Long entered
5
a second agreement whereby Lau Yiu Long agreed to re-purchase Pao On’s shares
after a year for $2.50 each.
Having entered this second agreement, Pao On realised that, while it protected
him from loss, it also meant he would not make a profit if the price of the shares
rose during the year. He therefore refused to proceed with the main agreement (the
sale of his company to Fu Chip) unless the contract to resell the shares to Lau Yiu
Long after a year at a fixed price of $2.50 was replaced with an agreement whereby
Lau Yiu Long would simply compensate Pao On for any fall in the share price below
$2.50 (an indemnity agreement).
Lau Yiu Long was reluctant to provide this indemnity but, fearing that a dispute
would damage public confidence in the Fu Chip Company, he agreed to give it. The
consideration given by Pao On in exchange for the indemnity was said to consist
of Pao On’s original agreement to sell his company to the Fu Chip Company and
not resell the Fu Chip shares for a year. A year later the share price of the Fu
Chip Company had fallen to a price of 36 cents but Lau Yiu Long refused to honour
the indemnity, arguing it was not supported by consideration. Pao On sued Lau Yiu
Long to enforce the indemnity.
Issue: Could the promise that Pao On made to Lau Yiu Long that he (Pao On) would
perform his agreement with the Fu Chip Company constitute consideration for Lau
Yiu Long’s promise to indemnify Pao On against loss?
Decision: A new promise to perform obligations already owed to a third party can
be valid consideration.
Reason: Pao On’s promise gave Lau Yiu Long himself the benefit of a legally
enforceable right against Pao On if Pao On failed to perform the obligations owed
to Fu Chip.

5.3.3 The element of agreement

5.3.3(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.
5.3.3(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.
Placer Development Ltd v Commonwealth (1969) 121 CLR 353

Contract; formation; offer; illusion of promise
Facts: The Commonwealth government said that it would pay a subsidy to
companies that imported timber products into Australia. The subsidy was to be
‘of an amount or at a rate to be determined by the Commonwealth from time to
time’. The government made some initial payments to importers, but then stopped.
Placer, who had imported timber, wanted to enforce payment of the subsidy.
Issue: Was what the government had said about paying a subsidy to importers a
legally enforceable promise?
Decision: In a majority decision, the court held that what the government had said
was not a legally enforceable promise. What was said may have appeared to be a
promise, but on proper analysis it was not actually a promise at all.
Reason: Taylor and Owen JJ said (at [7]‌):
[A]‌promise to pay an unspecified amount of money is not enforceable where
it expressly appears that the amount to be paid is to rest in the discretion of
the promisor and the deficiency is not remedied by a subsequent provision that
5.3
Making a Contract93
the promisor will, in his discretion, fix the amount of the payment. Promises
of this character are treated … not as vague and uncertain promises—for their
meaning is only too clear—but as illusory promises …
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.
Ipex Software Services Pty Ltd v Hosking [2000] VSCA 239

Contract; formation; certainty of promises
Facts: Hosking owned a software company. He agreed with Schwalb to merge
his company with the Ipex group of companies, which was controlled by Schwalb.
Schwalb indicated informally to Hosking that Hosking would get some shares in the
new group of companies. Before anything was done to formalise this undertaking,
5
Hosking transferred his business to the new group, assisting in the transfer of his
customers and accounts. Only after Hosking had done this did Schwalb make a
written promise to give Hosking a 5% share in the new group of companies. Schwalb
did not carry out this promise and Hosking sued to enforce it.
Issue: Schwalb promised to give Hosking the 5% share in whatever form Schwalb
thought appropriate. Was this promise sufficiently certain to be enforceable?
Decision: The promise was sufficiently certain.
Reason: Eames AJA said (at [56]):
[T]‌he court will, if possible, give effect to [the parties’] intention by overcoming
difficulties said to arise from uncertainty or incompleteness … [T]hat the form
of words adopted may allow the other party a latitude of choice as to the manner
in which [they] will be carried into effect does not render the agreement void.
Nor does the fact that there may be more than one interpretation of what was
meant … so long as the relevant term is capable of being assigned a meaning
then the meaning is that which the court so assigns it. The task of the court is
to ascertain the intention of the parties and in so doing ‘no narrow or pedantic
approach is warranted, particularly in the case of commercial arrangements’.
5.3.3(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 5.3.1(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.

Contract; formation; agreement; conditional agreement; universal
terms; duty to cooperate; reasonable time for fulfilment of condition
Facts: In April 1978, Perri agreed to buy a property in Cronulla from Coolangatta
Investments (CI). The performance of this contract was made subject to the
condition that Perri should first sell a property in Lilli Pilli that he owned. Finding a
purchaser for the Lilli Pilli property proved difficult, especially since Perri initially
wanted a high price. In July 1978, CI asked Perri to complete the purchase of the
Cronulla property before August 8. When Perri failed to do so, CI told him that they
were terminating the contract. CI then sought a declaration from the court that
they had validly terminated performance. Perri said he still wanted to complete
the purchase of the Cronulla property, even though his Lilli Pilli property was not
yet sold.
Issue: Had CI validly terminated their contract with Perri?
Decision: In the circumstances, the contract had been validly terminated by CI
because Perri had failed to sell his Lilli Pilli property within a reasonable time,
thereby unduly delaying the completion of the Cronulla sale.
Reason: Perri had not promised to sell his house in Lilli Pilli within any specified
time, but the court held that it was an implied condition of the agreement that Perri
would do all that was reasonable to bring about the sale of the Lilli Pilli property
and would do so within a reasonable time, thereby allowing the Cronulla contract
to be completed. What is a reasonable time is treated as a question of fact and
depends on what is fair to both parties in the circumstances. In this case, in which
the seller could not deal with the Cronulla property while it remained subject to the
sale of the Lilli Pilli property, the court held that a reasonable time had passed and
that CI had therefore been entitled to terminate the contract.
5.3.3(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
5.3
Making a Contract95
other, for example by talking, agreement is reached as soon as the acceptance of an offer is
communicated to the offeror.
5.3.3(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.
Partridge v Crittenden [1968] 2 All ER 421

Contract; formation; offer; advertisement not an offer
Facts: Partridge put an advertisement in a magazine saying: ‘Bramblefinch cocks
and hens, 25/-each’. He was prosecuted by the RSPCA for the statutory offence of
5
unlawfully ‘offering’ wild birds for sale.
Issue: Was the advertisement an ‘offer’ in the legal sense, capable of ‘acceptance’
by any interested person (in which case an offence would have been committed) or
was the advertisement merely an ‘invitation to treat’, which did not amount to an
‘offer’ within the meaning of the relevant statute?
Decision: The court decided that, in the circumstances of this case, the advertisement
did not amount to an offer in the full legal sense, capable of acceptance to create a
binding contract. It was only an invitation to enter into negotiations with interested
buyers who might themselves offer to buy the advertised birds.
Reason: Lord Parker CJ said (at 424):
I think that when one is dealing with advertisements and circulars, unless
they indeed come from manufacturers, there is business sense in their being
construed as invitations to treat and not offers for sale.
Note: Compare Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (5.3.1 above) where,
in different circumstances, an advertisement was held to constitute an offer capable of
acceptance.
Pharmaceutical Society of Great Britain v Boots Cash Chemists

(Southern) Ltd [1953] 1 QB 401
Contract; formation; agreement; offer and acceptance; invitation to
treat
Facts: The Boots Cash Chemists shop was organised on a ‘self- service’
basis: packages of various drugs and medicines were displayed on shelves, with
a price marked on each one. Some of these drugs and medicines contained

dangerous substances, the sale of which was regulated by legislation requiring that
they be sold only under the supervision of a registered pharmacist. Customers who
wanted these drugs and medicines selected what they wanted from the shelves
and took them to cashiers at the two exits to pay for them. There was a registered
pharmacist in the shop who supervised the transactions at the stage where the
goods were brought to a cashier for payment. The Pharmaceutical Society of Great
Britain alleged that, in these circumstances, the regulated drugs were being ‘sold’
without the supervision of a registered pharmacist.
Issue: Were drugs and medicines selected by customers from the display shelves
‘sold’ to the customer before the customer took them to the cashier?
Decision: No sale of the drugs took place before the customer had taken the goods
they had chosen to a cashier. At the cashier, the customer made an offer to buy
the goods they had selected at the marked price, and the cashier would accept
the offer, thereby bringing a contract into existence. At the time these events took
place, they were properly subject to the supervision by the registered pharmacist
in the shop.
Reason: The display of goods in a shop, even at stated prices, is not to be construed
as an ‘offer’ to sell, which is accepted when a customer selects those goods from
the shelves. The display of the goods is construed only as an invitation to customers
to select goods and offer to buy them (sometimes referred to as an ‘invitation to
treat’). The contract of sale is made only at a later stage, when the customer’s
offer to buy is accepted by the seller. In exceptional cases the presumption may be
overturned. The question to ask is whether the advertisement indicates a readiness
to be bound by the stated terms without any express or implied reservation.
Also see Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 below.

5.3.3(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’.

Contract; formation; offers to anybody
5.3
Making a Contract97

Issue: Could an offer made to everyone in the world at large be validly accepted by
a specific individual who knew of the offer?
Decision: An offer made to ‘the world at large’ is capable of acceptance by any
member of the public who learns of it.
Reason: In the circumstances, the advertisement amounted to an offer that was
capable of acceptance. Although offers are usually made to specified persons or
to members of a specified group of persons, there is no reason they should not be
addressed to anyone in the whole world if that is what the offeror intends. The valid
acceptance of such an offer by any person will create an enforceable contract with
the company. 5
5.3.3(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.
5.3.3(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.
5.3.3(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.

Henthorn v Fraser [1892] 2 Ch 27

Contract; creation of a contract; offer and acceptance; acceptance by
post
Facts: Fraser offered to sell certain houses to Henthorn for a sum of £750, giving
Henthorn 14 days in which to accept the offer. The day after receiving the offer,
Henthorn posted a letter of acceptance to Fraser. After this letter of acceptance
had been posted, but before it was received by Fraser, Fraser was offered a higher
price for the houses by another buyer and he attempted to withdraw his offer to
Henthorn. He relied on the principle that an offer may be withdrawn at any time
before acceptance, arguing that acceptance by post had not been authorised and
that Henthorn’s acceptance was therefore not effective before it was delivered.
Issue: Had Henthorn already accepted the offer made by Fraser before Fraser’s
attempt to withdraw it?
Decision: Acceptance of the offer was effective as soon as the letter of acceptance
was posted by Henthorn, and this took place before Fraser’s attempt to withdraw
the offer.
Reason: Acceptance by post need not be specifically authorised for it to be effective
as soon as the letter is posted. Lord Herschell said (at 33):
Where the circumstances are such that it must have been within the
contemplation of the parties that, according to ordinary usage of mankind, the
post might be used as a means of communicating the acceptance of an offer,
the acceptance is complete as soon as it is posted.
Acceptance by post is as appropriate as any other way of communicating

acceptance, unless the person making the offer indicates that acceptance by post is
not permitted. In fact, it is always open to an offeror to state exactly how acceptance
must be made.
5.3.3(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.
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft

mbH [1983] 2 AC 34
Contract; formation; agreement; acceptance by telex
Facts: Brinkibon, a company based in London, England, wished to purchase steel
from Stahag, a company based in Vienna, Austria. In the course of negotiating
their contract, a number of telexes were exchanged between the parties. One of
these telexes, sent by Brinkibon to Stahag, constituted the acceptance of an offer
5.3
Making a Contract99
from Stahag. Some time thereafter a dispute between the parties arose and, for
procedural reasons, it became important to determine whether the contract for the
purchase of the steel had been made in England or in Austria.
Issue: In the case of an acceptance sent by telex from London and received in
Vienna, where was the contract made?
Decision: The acceptance took effect when the telex was received by Stahag in
Vienna. The contract was therefore made in Vienna.
Reason: Lord Wilberforce said (at 296):
Since 1955 the use of telex communication has been greatly expanded … The
senders and recipients may not be the principals to the contemplated contract
… The message may not reach, or be intended to reach, the designated recipient
immediately: messages may be sent out of office hours, or at night, with the
intention, or on the assumption, that they will be read at a later time. There
may be some error or default at the recipient’s end which prevents receipt at
the time contemplated or believed in by the sender … No universal rule can
cover all such cases …
The present case is … the simple case of instantaneous communication
between principals, and, in accordance with the general rule, involves that the
contract (if any) was made when and where the acceptance was received.
5
5.3.3(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.
Electronic Transactions (Victoria) Act 2000

13 Time of dispatch
(1) For the purposes of a law of this jurisdiction, unless otherwise agreed between
the originator and the addressee of an electronic communication, the time of
dispatch of the electronic communication is —
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).

(a)the time when the electronic communication leaves an information

system under the control of the originator or of the party who sent it on
behalf of the originator; or
(b) if the electronic communication has not left an information system under
the control of the originator or of the party who sent it on behalf of the
originator —the time when the electronic communication is received by
the addressee.
Note —Paragraph (b) would apply to a case where the parties exchange electronic
communications through the same information system.
(2) Subsection (1) applies even though the place where the information system
supporting an electronic address is located may be different from the place
where the electronic communication is taken to have been dispatched under
section 13B.
13A Time of receipt
the originator and the addressee of an electronic communication —
(a) the time of receipt of the electronic communication is the time when the
electronic communication becomes capable of being retrieved by the
addressee at an electronic address designated by the addressee; or
(b) the time of receipt of the electronic communication at another electronic
address of the addressee is the time when both —
(i) the electronic communication has become capable of being retrieved
by the addressee at that address; and
(ii) the addressee has become aware that the electronic communication
has been sent to that address.
(2) For the purposes of subsection (1), unless otherwise agreed between the
originator and the addressee of the electronic communication, it is to be
assumed that the electronic communication is capable of being retrieved by
the addressee when it reaches the addressee’s electronic address.
where the electronic communication is taken to have been received under
section 13B.
13B Place of dispatch and place of receipt
(a) the electronic communication is taken to have been dispatched at the
place where the originator has its place of business; and
(b) the electronic communication is taken to have been received at the place
where the addressee has its place of business.
(2) For the purposes of the application of subsection (1) to an electronic
communication —
5.3
Making a Contract101
(a) a party’s place of business is assumed to be the location indicated by

that party, unless another party demonstrates that the party making the
indication does not have a place of business at that location; and
(b) if a party has not indicated a place of business and has only one place
of business, it is to be assumed that that place is the party’s place of
business; and
(c) if a party has not indicated a place of business and has more than
one place of business, the place of business is that which has the
closest relationship to the underlying transaction, having regard to the
circumstances known to or contemplated by the parties at any time
before or at the conclusion of the transaction; and
(d) if a party has not indicated a place of business and has more than one
place of business, but paragraph (c) does not apply —it is to be assumed
that the party’s principal place of business is the party’s only place of
business; and
(e) if a party is a natural person and does not have a place of business —it is
to be assumed that the party’s place of business is the place of the party’s
habitual residence.
(3) A location is not a place of business merely because that is —
(a) where equipment and technology supporting an information system used
5
by a party are located; or
(b) where the information system may be accessed by other parties.
(4) The sole fact that a party makes use of a domain name or electronic mail
address connected to a specific country does not create a presumption that its
place of business is located in that country.
5.3.3(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.

Contract; formation; acceptance of an offer by conduct

Issue: Since Carlill had never communicated directly with the company before
catching influenza, how had she accepted the company’s offer of the reward?
Decision: Carlill had accepted the company’s offer by doing the acts of buying and
using the smoke ball.
Reason: The Carbolic Smoke Ball Company had, in their advertisement, made a
promise to pay a £100 reward to any person who caught influenza after buying and
using the smoke ball in the manner directed. Carlill had performed the required
acts after reading the advertisement and in response to that promise. Her acts
were therefore sufficient acceptance to bring about an enforceable agreement with
the company.
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.
R v Clarke (1927) 40 CLR 227

Contract; formation; agreement; acceptance by conduct
Facts: The Western Australian government offered a reward of £1,000 for
information leading to the capture and conviction of a murderer of two policemen.
The notice also stated that a free pardon would be granted to any accomplice who
gave information as long as they were not the person who actually committed or
participated in the murders. Clarke and another person were arrested and charged
with the murders. Shortly after his arrest and anxious to prove his innocence,
Clarke gave information which led to the arrest of a third person. The other two
arrested men were subsequently convicted of murdering the policemen. Clarke
was released without being charged. He then applied for the reward, claiming that
he had accepted the offer of the reward by giving information to the police.
Issue: Was giving the relevant information an act by Clarke which amounted to a
valid acceptance of the offer to pay a reward?
Decision: The High Court held that Clarke was not entitled to the reward.
Reason: The court found that Clarke gave the information only after he was arrested
and only to clear himself of a charge of murder. He did not act on reliance of the
offer of the reward, and at the time he gave the information the reward was not in
his mind. Higgins J stated (at 241):
There cannot be assent without knowledge of the offer; and ignorance of the
offer is the same thing whether it is due to never hearing of it or to forgetting
it after hearing.
5.3
5.3.3(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.
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988)
14 NSWLR 523
Contract; formation; agreement; silence not equivalent to acceptance;
acceptance by conduct
Facts: Empirnall Holdings, a property developer, wanted Machon Paull to agree
to do some building work but were reluctant to sign a formal contract. Machon
Paull insisted that a formal contract be completed and sent a detailed contract
to Empirnall requesting they sign it. Empirnall did nothing but Machon Paull
nevertheless began work in accordance with the formal agreement, and Empirnall
made payment. When Empirnall fell into arrears with payments, Machon Paull
sued to enforce the terms of the written agreement (which remained unsigned).
Issue: Had Empirnall accepted the terms in the unsigned contract?
Decision: Empirnall had accepted the terms.
5
Reason: Although one party cannot normally impose terms on another by saying
‘these are the terms unless you reject them’, there may be acceptance by conduct
in some circumstances. The ultimate test is whether a reasonable bystander
would regard the conduct of the offeree as signalling acceptance of the offer. In
the present case, Empirnall, knowing the terms of the written offer, had taken the
benefit of the offer, allowing the work to commence and making payments under
the agreement. This conduct amounted to acceptance of the written terms.
[5.4] Privity of Contract

5.4.1 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’.
5.4.2 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.

Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460
Contract; formation; privity; rights of third parties
Facts: In a contract entered into between Mr Coulls and the O’Neil Construction
Company, Mr Coulls gave O’Neil the right to dig up and remove stone from his
property. In exchange, O’Neil promised to pay royalties for the stone. The contract
authorised O’Neil to pay the royalties to Mr Coulls’ wife. Some time later, Mr
Coulls died. The contract for quarrying stone did not involve services of a personal
nature and accordingly it was not terminated by his death. The contract remained
enforceable against his estate. This meant that O’Neil could continue to quarry
the stone and the royalties would continue to be payable. The executor of Mr
Coulls’ estate wanted to know if Mrs Coulls had a contractual right to receive these
royalties.
Issue: Did Mrs Coulls have a legally enforceable right to the payment of the
royalties?
Decision: O’Neil owed no contractual obligations to Mrs Coulls because she was
not a party to the contract.
Reason: Although Mrs Coulls was present and had put her signature on the contract
when it was made, the majority of the court held that she had not signed it as a party
to the agreement. In particular, she had not provided any consideration to make the
agreement contractually binding between herself and O’Neill. Because she was not
a party to the contract, she had no contractual right to sue on or enforce the terms
of the contract. The royalties should therefore be paid to Mr Coulls’ estate, to be
distributed to his beneficiaries.
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.
Price v Easton (1833) 110 ER 518

Contract; formation; privity; parties
Facts: A builder owed money to Price but did not have the money to pay what he
owed. Easton agreed with the builder that if the builder did some work for Easton,
Easton would pay Price the money that the builder owed to Price. The builder did
the work, but Easton failed to pay Price. There was no point in Price suing the
builder for what the builder owed him because the builder still had no money. The
builder had no reason to enforce the contract against Easton, because Easton had
not promised to pay any money to the builder. Price therefore brought an action
against Easton to enforce the promise that Easton had made to the builder that
Easton would pay Price.
Issue: Was Price entitled to enforce Easton’s promise to the builder that Easton
would pay Price?
Decision: Price was not entitled to enforce the promise.
5.4
Reason: Price was not a party to the agreement between Easton and the builder and,
under the doctrine of privity of contract, Price did not acquire legally enforceable
rights under that contract.
5.4.3 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.
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd

(1988) 165 CLR 107
Contract; formation; privity; insurance contracts
Facts: Blue Circle Southern Cement entered into a contract of insurance with
5
Trident Insurance. Under the contract, Trident agreed to indemnify Blue Circle, its
related companies, contractors and suppliers against liability for injuries caused
to non-employees. McNiece, a crane driver employed by another company, who
was working at a construction site owned by Blue Circle, was injured and sought
to claim indemnity from Trident under the contract of insurance. Trident argued
that because McNiece was not a party to the insurance contract he could not sue
to enforce it.
Issue: Can a third party who is identified as a beneficiary under an insurance
contract sue to enforce payment of an indemnity due under that contract?
Decision: Insurance contracts are an exception to the general doctrine of privity of
contract.
Reason: Although the judges gave different reasons for their decisions, a majority
of the High Court held that the doctrine of privity of contract should not apply in
cases of insurance contracts. This is mainly because the reliance by third parties
on insurance policies is widespread and to deny them the right to sue would cause
great injustice.
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.
5.4.4 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.

[5.5] Promissory Estoppel

5.5.1 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.
5.5.2 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.
5.5.3 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.
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

Contract; formation; failure to complete transaction; promissory
estoppel
Facts: Maher owned a commercial property in Nowra which Waltons Stores
(Waltons) was interested in leasing, provided that the building was demolished
and reconstructed to their specifications. Maher and Waltons agreed on the new
specifications, the term of the lease and the rental, but made this contract subject
5.5
to the exchange of signed documents. Maher signed the contract and sent it to
Waltons for counter signature and return but received nothing back. Waltons
knew that Maher did not wish to demolish the existing building until the lease
was settled. When Maher enquired, Waltons gave assurances that everything was
agreed and that the exchange of signed documents was only a formality that would
be attended to. Maher began the demolition, and then the construction. When it
was 40% complete, Waltons informed Maher that they did not intend to complete
the lease. Maher claimed that it was too late, in the circumstances, for Waltons to
deny the existence of the contract of lease.
Issue: Although no contract had in fact been completed, was Waltons estopped
(prevented) from denying the existence of the lease?
Decision: Waltons was estopped from denying the existence of the lease and was
accordingly liable to pay damages to Maher for breach of this contract.
Reason: The court held that Maher had relied on a non-contractual promise to
his detriment. He did this because Waltons encouraged Maher’s belief that the
contract would be completed and because Waltons knew that Maher was acting on
that belief. It would be unconscionable in these circumstances to allow Waltons to
rely on the true facts of the case (ie that no contract had been completed). In these
circumstances, Waltons was estopped from denying the existence of the lease.
Brennan J said (at [26], [27]):
5
A non-contractual promise can give rise to an equitable estoppel only when
[1]‌the promisor induces the promisee to assume or expect that the promise
is intended to affect their legal relations and [2] he knows or intends that the
promisee will act or abstain from acting in reliance on the promise, and [3]
when the promisee does so act or abstain from acting and [4] the promisee
would suffer detriment by his action or inaction if the promisor were not to
fulfil the promise. When these [four] elements are present, equitable estoppel
almost wears the appearance of contract, for the action or inaction of the
promisee looks like consideration for the promise …
But there are differences between a contract and an equity created by
estoppel. A contractual obligation is created by the agreement of the parties;
an equity created by estoppel may be imposed irrespective of any agreement by
the party bound. A contractual obligation must be supported by consideration;
an equity created by estoppel need not be supported by what is, strictly
speaking, consideration. The measure of a contractual obligation depends
on the terms of the contract and the circumstances to which it applies; the
measure of an equity created by estoppel varies according to what is necessary
to prevent detriment resulting from unconscionable conduct.

Sidhu v Van Dyke (2014) 251 CLR 505

Equitable (promissory) estoppel; proof of detrimental reliance on a
non-contractual promise; the nature of relief for promissory estoppel
Facts: Prithvi Sidhu (PS) and his wife owned a 32-hectare property on which they
lived. Lauren Van Dyke (LVD) was married to Mrs Sidhu’s brother. She and her
husband lived as tenants in a cottage built on the Sidhu’s property. PS and LVD fell
in love and began a sexual relationship. PS promised LVD that, because he loved
her, he would look after her by subdividing the property he owned with his wife and
giving LVD the cottage she lived in. Later, when LVD’s marriage ended in divorce, PS
repeated this promise. PS also advised LVD that, on the basis of this promise, she
should not seek a property settlement from her husband. LVD followed this advice.
She continued to live as a tenant in the cottage, making substantial improvements
to it in the belief that it would eventually become hers. However, despite further
assurances from PS over the years that his promise would be kept, PS eventually
refused to subdivide the land and transfer the cottage to LVD. PS’s promises were
not formally executed contracts and LVD gave no consideration in support of an
informal contract. She sued to enforce the promises PS had made on the basis of
promissory estoppel.
Issue: Was it proved that LVD had, to a sufficient extent, relied on the promises made
by PS and, as a result, acted to her detriment? If so, what relief was appropriate?
Decision: On appeal the court held that LVD had established an equitable
(promissory) estoppel and that PS should not be allowed to depart from his
promises. In the circumstances, LVD was entitled to substantial fulfilment of the
promises.
Reason: The onus was on LVD to prove that she had been induced to rely on PS’s
promises and as a result acted to her detriment. LVD had discharged this onus
because it was likely, on the probabilities of human behaviour, that PS’s promises
influenced her to stay on as a tenant, to improve the cottage, and to give up seeking
a property settlement from her former husband at the time of her divorce. Even if
other factors had played a part in LVD’s decisions, it was sufficient that PS’s promises
had influenced her calculations to the extent that it would be unconscionable for
PS to depart from his promises. The normal remedy for a breach of contract is
the value of the promise (unless good conscience requires otherwise). LVD was
therefore entitled to be paid compensation by PS to the value of the cottage at the
date of judgement.
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.
5.5
[5.6] Checklist: 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.
Step 1
Is there sufficient agreement for a contract?
• What negotiation took place?
• Was there a valid offer?
• Was there proper acceptance?
• Are terms of the contract sufficiently certain? Are any promises illusory
or conditional?
Step 2
Do the parties intend to be legally bound by their agreement?
• What relevant facts exist?
• What objective inference can be drawn from those facts? 5
Step 3
Is the agreement formally executed in a deed?
OR
Was sufficient consideration provided by each party when the contract
was made?
• What was the consideration provided?
Step 4
Do the parties have sufficient capacity to enter the contract?
• Are any of the parties minors?
• Are any of the parties mentally disabled?
Step 5
If there is a contract, who are the parties?
• At what exact point were the contractual obligations created?
Step 6
If there is no contract, do the circumstances nevertheless give rise to
a promissory estoppel?


The following questions are intended to help you think more deeply about the topics
explained in this chapter.
1. To what degree must ‘consensus’ exist before a contract can come into existence?
How does ‘offer and acceptance’ help to determine whether or not there is sufficient
consensus?
2. What constitutes an offer? What is the difference between an ‘offer’ and an ‘invitation
to treat’? Can there be a valid offer if what is promised is uncertain or vague?
3. Can an offer be addressed to more than one person? Can it be addressed to any
member of the general public?
4. What constitutes effective acceptance of an offer? Has agreement been reached if the
acceptance of an offer remains subject to a condition? What is the result if acceptance
does not coincide exactly with the terms of the offer?
5. When does acceptance result in agreement if the parties are both present and
communicating directly to each other? What rules apply if acceptance is made by
telephone, post, fax, telex or email?
6. How does a court decide whether or not the parties to an agreement intended to be
legally bound by their agreement?
7. What are the requirements of creating a contract in the form of a deed? Is it actually
necessary to place a seal on a deed? Is consideration needed if the contract is recorded
in a deed?
8. What is an ‘informal’ agreement? What different things can constitute consideration
for an informal agreement? Is it necessary that consideration be of equal value to what
is given in exchange? Can consideration consist of something already given or done?
What is the difference between ‘past’ consideration and ‘executed’ consideration?
9. In what circumstances might a person be prevented from denying the existence of a
contract, even if, strictly speaking, the requirements of contract formation have not
been fully complied with?

e modules.
5.7
CHAPTER 6
The Contents of a Contract

In this chapter:
• Defining the concept of ‘terms’ of a contract
• The doctrine of freedom of contract
• Statements that become terms of a contract and other kinds of statements
• Terms that arise by express agreement
• Terms arising by implication ‘ad hoc’
• Terms that limit or exclude liability
• Terms put into a contract by operation of law
• Establishing the relative importance of particular terms in a contract
• Proving the terms of a contract.
[6.1] Introduction
6.1.1 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. The eStudy module The contents of a contract has lots of examples and
questions to help you develop your understanding further. There is also a quiz on the
contents of a contract in the module Quizzes and case studies for revision which you can use
to test yourself when you think you have learned what you need to know.
6.1.2 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
6.1
112 The Contents of a Contract
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.
6.1.3 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.
6.1.4 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.
6.1.5 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
6.1
The Contents of a Contract113
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.
6.1.6 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.
[6.2] Terms, Opinions, Puffery and Representations Distinguished

6.2.1 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
6
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.
Handbury v Nolan (1977) 13 ALR 339

Contract; contents; representations and terms
Facts: An auctioneer offered a cow, the Glen Nola, for sale at an auction. Before the
sale, the auctioneer announced that a pregnancy test had been done on the cow
and that the result of the test was ‘positive’. The buyer bid $3,200 to buy the cow.
However, the cow was not pregnant—and, worse, she proved to be infertile.
Issue: Was it an expressly agreed term of the contract of sale that the cow was
fertile and pregnant when sold?
Decision: The auctioneer’s statement was an express term of the contract.
Reason: The announcement of the test result was not a mere opinion. It was a
statement of fact that the cow had been tested and was pregnant. In deciding
whether this statement was intended to be contractually binding as a promise, the
court took account not only of the statement itself, but also of the circumstances
in which it was made. In particular, the statement was made at a breeders’ sale
where higher prices would be paid for a cow that was pregnant. Furthermore,
the statement was made just before bids were invited. These circumstances all

suggested that the statement was intended to be a legally binding promise, and it
therefore became an express term of the contract.
6.2.2 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 ss 18, 29 and 30 of the
Australian Consumer Law may provide relief.
6.2.3 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’.
6.2.4 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
ss 18, 29 and 30 of the Australian Consumer Law.
Oscar Chess Ltd v Williams [1957] 1 All ER 325

Contract; contents; terms and representations
Facts: Williams’ mother owned a second-hand Morris Minor motor car which she
believed was a 1948 model. In 1955, at his mother’s request, Williams took the
car to a used-car dealer to trade it in. The documents that Williams showed to the
dealer contained a statement that the car was a 1948 model. In fact it was a 1939
model. When the dealer discovered the true age of the car, he sued Williams for
breach of contract. The dealer claimed that the statement about the age of the car
in the document was a promise and was intended to be contractually binding.
Issue: Was the statement in the documents regarding the age of the car a term of
the contract?
6.2
Decision: Denning and Hodson LJJ held that the statement as to the age of the car
was a mere representation rather than a contractually binding promise.
Reason: Because the dealer had special knowledge of and expertise in cars
and Williams did not, it could not be inferred that the parties intended Williams’
statement to be a legally binding promise. A dealer would be expected to verify the
age of a vehicle if there was any doubt.
Morris LJ dissented, saying the statement as to age was vitally important and
therefore became a term of the contract. The different views of the judges in this
case show that it is not always easy to decide when a statement is intended to be
legally binding as a term of the contract.
6.2.5 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.
Associated Newspapers Ltd v Bancks (1951) 83 CLR 322

Contract; contents; terms; conditions and warranties; breach of 6
contract; remedies; termination of performance
Facts: Bancks, a cartoonist, agreed to produce a weekly full-page drawing for
Associated Newspapers. Associated Newspapers agreed to pay Bancks a salary
and to publish the drawing on the front page of the newspaper’s comic section.
However, for three weeks, because of paper shortages and consequent production
problems, Bancks’ drawings appeared on page 3 of the comic section. Bancks
protested but Associated Newspapers ignored him. Bancks then decided to
terminate further performance of the contract.
Issue: Was the promise to publish Bancks’ drawings on the front page of the comic
section an essential term, such that a breach would justify terminating further
performance of the contract?
Decision: The term was an essential one (a condition) and Bancks was therefore
justified in terminating further performance of the contract.
Reason: The court said (at [7]‌):
The test was succinctly stated by Jordan C.J. in Tramways Advertising Pty. Ltd.
v. Luna Park (N.S.W) Ltd. …. The decision was reversed on appeal …, but his
Honour’s statement of the law is not affected. He said …: ‘The test of essentiality
is whether it appears from the general nature of the contract considered as a
whole, or from some particular term or terms, that the promise is of such
importance to the promisee that he would not have entered into the contract

unless he had been assured of a strict or a substantial performance of the

promise, as the case may be, and that this ought to have been apparent to the
promisor …’
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.
Bettini v Gye (1876) 1 QBD 183

Contract; contents; terms; conditions and warranties
Facts: Bettini, a singer, contracted to sing for Gye, a promoter, at various events
over a 15-week period. It was a term of the contract that Bettini arrive six days
before the first engagement and attend rehearsals. Being ill, Bettini arrived late and
missed four days of rehearsals. Because of this breach, Gye wanted to terminate
the further performance of the contract.
Issue: Was the term requiring attendance at rehearsals for six days a condition,
breach of which would justify terminating performance of the contract, or a mere
warranty?
Decision: The term was a warranty, not a condition, and Gye was not entitled to
terminate further performance of the contract in response to Bettini’s breach.
Reason: Bettini had been engaged to sing at a number of events over a long period.
The requirement of attending rehearsals did not go ‘to the root’ of the contract
because, in view of the number of performances over a long period of time,
attendance at initial rehearsals would not vitally affect the whole contract.
6.2.6 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.
[6.3] Express and Implied Agreement to Terms

6.3.1 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
6.3
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.
L’Estrange v F Graucob Ltd [1934] 2 KB 394

Contract; contents; assent to express terms in signed document
Facts: Graucob Ltd agreed to sell a cigarette vending machine to L’Estrange.
To complete the transaction, Graucob gave L’Estrange a document to sign.
The document had the heading ‘Sales Agreement’ and it included a clause that
expressly excluded any implied warranties or conditions from the agreement.
L’Estrange signed the document without reading it. After delivery, the vending
machine proved unsatisfactory. L’Estrange brought an action for breach of contract
against Graucob, alleging breach of an implied condition that the machine would
be reasonably fit for the purpose for which it was bought. Although such a condition
would normally have become part of the contract by virtue of the relevant sale of
goods legislation, Graucob argued that the agreed terms of the ‘Sales Agreement’
excluded any such condition from becoming part of their contract.
Issue: Was L’Estrange bound by the provision in the contract that excluded any
additional implied warranties or conditions, even though she had not read the
6
contract before signing it?
Decision: L’Estrange was bound by the terms of the document she had signed.
Reason: When a person signs what is clearly a contractual document, and they
have not been induced to do so by any fraud or misrepresentation, they cannot later
say that they did not agree to be bound by the terms of that document, even if they
did not read them before signing. The reasonable inference in these circumstances
is that they agreed to be bound by the terms contained in the document they signed.
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Contract; contents; assent to express terms in signed document
Facts: Alphapharm imported a flu vaccine into Australia. The vaccine was sensitive
to heat and had to be kept within certain temperatures at all times. Alphapharm
entered into an agreement with Toll: Toll would collect the vaccine when it arrived
in Australia, store it and transport it to purchasers, all the while keeping it at proper
temperatures. Unfortunately, on various occasions, batches of the vaccine were
damaged by temperature changes while in Toll’s possession. Alphapharm sued Toll
for damages, alleging that Toll, as bailee of the vaccine, had been negligent. In its
defence, Toll argued that any such liability was excluded by the provisions of the
contract that had been signed. However, the person who had signed the contract for

Alphapharm had not read these conditions before signing the contract and claimed
not to be bound by them.
Issue: Had the clauses that excluded liability for negligence become terms of the
contract even though they had not been read before the agreement was signed?
Decision: The exclusion clauses became terms of the contract.
Reason: The terms of a contract are determined objectively, by taking account of
the words and conduct of the contracting parties and asking what a reasonable
person would believe the parties were assenting to. Signing a document known
to contain contractual terms would be understood by a reasonable person as an
indication that the terms contained in that document are agreed to. The result may
be different in exceptional cases, such as where a signature is obtained by fraud,
misrepresentation, duress, mistake or some other recognised vitiating factor. In
the absence of such factors (or a claim for equitable or statutory relief), a person
who signs a document knowing that it contains contractual terms is bound by those
terms whether or not they have read them.
6.3.2 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.
Olley v Marlborough Court Ltd [1949] 1 KB 532

Contract; contents; attempt to include express terms in notice
Facts: Mr and Ms Olley arrived at the Marlborough Court hotel. After paying in
advance and signing the register, they were shown to their room. On the wall of the
room was a notice saying: ‘The proprietors will not hold themselves responsible for
articles lost or stolen, unless handed to the manageress for safe custody’. Owing
to the negligence of the maid, who left the bedroom door unlocked, Ms Olley’s furs
were stolen. Mr Olley sued the hotel to recover the loss. Defending the action, the
hotel relied on the notice that excluded liability for such losses.
Issue: Did the notice effectively exclude the hotel proprietors’ liability for the loss?
Decision: The statement in the notice had not become a term of the contract.
Reason: The statement in the notice was not brought to the Olleys’ attention while
the contract was being made. The agreement between the Olleys and the hotel was
completed when they paid and signed the register, before they were taken to their
room where they saw the notice for the first time. The rights of the contractual
parties cannot be altered by later notice of additional terms brought to their
attention only after the contract has been entered into.
6.3
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.
6.3.3 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.
6.3.4 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.
Sydney Corporation v West (1965) 114 CLR 481

Contract; contents; terms; assent to express terms printed on ticket
6
Facts: West drove his car into Sydney City Council’s car park, obtaining a ticket
from a machine at the entrance. When West returned to the car park, his car was
gone. It turned out that, while West was away, another person had approached
the car park attendant. This person told the attendant that he had lost his parking
ticket and the attendant gave him a duplicate ticket. Without doing any checks, the
attendant allowed this person to drive West’s car away. The car having been lost,
West sued the Sydney City Council for damages. The council denied liability on the
basis that the ticket obtained by West when entering the car park contained an
express statement saying:
The council does not accept any responsibility for the loss or damage to any
vehicle … however such loss, damage or injury may arise or be caused.
Issue: Did the statement on the ticket that limited the Council’s liability become a
term of the contract?
Decision: The statement on the ticket had become a term of the contract.
Reason: This was a contract of bailment, whereby the Sydney City Council, for
reward, promised to retain custody of West’s car and to release it on presentation
of the parking ticket and not otherwise. It is common knowledge that certain types
of contract contain terms of a particular type, and it is widely expected that notice

of these terms may be given on tickets or in notices. Failure to reject such terms
amounts to acceptance of an offer to contract on those terms.
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.
6.3.5 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.
Causer v Browne [1952] VLR 1

Bailment; deposit of goods for cleaning; liability of bailee;
unsuccessful attempt to include express terms
Facts: Causer took his wife's dress to Browne for dry cleaning. When he gave the
dress to Browne, Causer was handed a ‘docket’ on which the following statement
was printed: ‘No responsibility is accepted for loss or injury to articles through any
cause whatsoever’. Causer did not read what was written on the docket and the
statement was not specifically drawn to his attention. During dry cleaning the dress
was stained. Causer claimed damages from Browne to compensate for the ruined
dress. As a bailee of goods deposited for cleaning, Browne would normally be liable
for damage caused to the goods. However, Browne defended the claim, relying on
the statement printed on the docket that expressly excluded his liability.
Issue: Had the statement on the docket that excluded Browne's liability become a
Decision: In the circumstances, the statement had not become a term of the
contract.
Reason: The document handed to Causer did not appear to be a contractual
document, or a document that was likely to contain contractual terms. It was
reasonable in the circumstances for Causer to assume that the document was only
an identifying docket which he would have to produce to collect the goods after
cleaning. It could not be inferred, therefore, that Causer was agreeing to exempt
Browne from liability for Negligence. The result would have been different if
Causer's attention had been drawn to the fact that the docket contained contractual
terms.
6.3
6.3.6 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.
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd

[1989] QB 433
Contract; contents; the need to draw attention to unusual terms in
contractual documents
Facts: Interfoto operated a photographic transparency library. They sent some
transparencies to Stiletto, together with a delivery note. The note said the
transparencies had to be returned by March 19 and advised Stiletto that a ‘holding
fee’ of £10 per day plus tax would be charged for each transparency retained after
this date. Stiletto did not read the note and failed to return any of the transparencies
until April 2. Interfoto invoiced the defendants for a large holding fee.
Issue: Given the serious consequences of the clause, had sufficient notice been
given for it to be effective?
Decision: Insufficient notice had been given to make the clause a term of the
contract.
Reason: The condition in the clause was not one that would be expected to be
contained in a delivery note. Because it imposed an unreasonable and extortionate
6
fee and was unusually onerous, it had to be clearly brought to the attention of the
defendants to become part of the contract. Instead of enforcing the clause, the
court ordered the defendant to pay a reasonable amount for the late return of the
transparencies.
6.3.7 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.
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977)

180 CLR 266
Contract; contents; terms implied ad hoc
Facts: The State Government of Victoria entered into an agreement with BP Refinery
(Westernport) for the development of an oil refinery on a site within the Shire of
Hastings. The Hastings Shire Council also entered into an agreement with BP
Refinery (Westernport) granting that company the right to pay lower than normal
municipal rates on the refinery site (a preferential rating agreement). The reduced
rates were intended to reduce the costs of the new development. Sometime later,
BP Refinery (Westernport) underwent a restructure and as a result the refinery site
was transferred to a subsidiary company called BP Australia. The Hastings Shire
Council charged BP Australia the full municipal rates on the site. The Hastings
Shire Council argued that, although not expressly agreed, it was an implied term
of the contract that the preferential rating agreement would come to an end if BP
Refinery (Westernport) ceased to occupy the site itself.
Issue: Was a term implied ad hoc into the preferential rating agreement that the
lower rates would be payable only while BP Refinery (Westernport) itself occupied
the refinery site?
Decision: In a majority decision, the Privy Council held that no such term was
implied ad hoc into the contract.
Reason: For a term to be implied ad hoc into a contract, the following conditions
(which may overlap) must be satisfied on the facts of the case:
• the suggested term must be reasonable and equitable
• it must be necessary to give business efficacy to the contract, meaning that no
term will be implied if the contract is effective without it
• it must be so obvious that ‘it goes without saying’
• it must be capable of clear expression, and
• it must not contradict any express term of the contract.
6.3
The Privy Council found that the suggested term was not needed to give
business efficacy to the contract; nor was it fair and equitable; nor could it be
inferred from the circumstances that the parties obviously intended to include any
such term. In fact, it was more likely, from the known circumstances, that a term
with the opposite effect would have been intended. The ‘officious bystander’ test
was used to decide whether it was obvious that the suggested term was intended
by the parties to be included in the contract. The court asked what the parties would
have replied if an officious bystander had asked them at the time of their agreement
whether the suggested term was part of their agreement. Only if it could be inferred
from the circumstances that the parties would have replied ‘of course’ would it be
obvious that the suggested term was intended to be included in the contract.
Moorhead v Brennan (t/as Primavera Press) (1991) 20 IPR 161

Contract; contents of a contract; agreed terms; terms implied ad hoc
Facts: Moorhead, author of the book ‘Remember the Tarantella’, entered into a
contract with a publisher, Brennan. The contract gave Brennan the exclusive right
to produce and sell the book, and to license other publishers to do so. Moorhead
was to receive a royalty of 50% of the receipts from editions published by other
publishers under licence. The contract also allowed Moorhead to terminate the
contract if Brennan failed to rectify any failure to comply with the terms of the
agreement within a period of 90 days. Brennan wrote an explanatory introduction 6
to the book, which Moorhead agreed to include in the Australian edition of the book.
An overseas publisher, The Women’s Press, offered to publish the book in England
under licence, provided Brennan’s explanatory introduction was dropped from their
edition. This was because The Women’s Press had a strict policy of only publishing
writing by women. When Brennan refused to allow the book to be published without
his introduction, The Women’s Press withdrew their offer and Moorhead lost the
opportunity to earn royalties. Moorhead sued Brennan for breach of a term implied
into their contract ad hoc.
Issue: Was a term implied into the contract ad hoc that Brennan would not obstruct
opportunities for Moorhead to receive royalties from persons publishing the book
under licence?
Decision: The suggested term, or one with equivalent effect, was implied into the
contract in the circumstances of the case. By refusing to drop his introduction from
the overseas edition, Brennan had breached the term. Moorhead was therefore
justified in terminating her contract with Brennan.
Reason: The only way the parties could have contemplated that Brennan might
pursue commercial opportunities outside Australia was by licensing an overseas
publisher. Having given Brennan the sole right to produce, publish and license
the book, Moorhead had no other way of exploiting her copyright in the book. In
these circumstances, the court held that all the requirements for establishing a

term implied ad hoc were satisfied: the term was reasonable and equitable; it was
necessary to give business efficacy to the contract; it was sufficiently obvious to
‘go without saying’; it was capable of clear expression; and it did not contradict any
express terms.
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.
6.3.8 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.
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982)

149 CLR 337
Contract; contents; terms implied ad hoc
Facts: Codelfa Construction agreed to build two tunnels in Sydney for the State Rail
Authority for an agreed price. When contracting, both parties believed that nothing
could prevent construction from continuing 24 hours a day. In particular, they
thought that state legislation protected Codelfa against the possibility of injunctions
for nuisance. However, the high levels of noise disturbed local residents, who
managed to obtain an injunction placing limits on the hours during which Codelfa
could work. Having to do the work more slowly would cost Codelfa extra money.
Codelfa therefore claimed extra payment from the State Rail Authority.
Issue: Was a term implied into the contract in the circumstances, obliging the State
Rail Authority to pay Codelfa for extra costs associated with the limited construction
hours?
Decision: Applying the principles laid down by the Privy Council in BP Refinery
(Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, the court held
that no such term was implied.
Reason: Because the parties had believed when contracting that nothing could
prevent construction from continuing 24 hours a day, it could not be inferred that
they intended to include a term in the contract regarding extra costs caused by
limited work hours. Nor was it clear what particular provision the parties might
have agreed on in the changed circumstances. Further, the necessity for implied
terms must be inferred from the expressly agreed terms and not from any extrinsic
evidence. Brennan J said (at [17], [18], [20]):
[W]‌here the term propounded is said to be implied in a contract, that term
must inhere in its express terms, and reference to extrinsic circumstances is
permissible only to construe the contract and to understand its operation …
6.3
The meaning and operation of the express terms, thus established, are
the sole foundation for implying a term which the parties have not expressed …
[The case of] B.P. Refinery should not be regarded as authorizing an
extension of the role of extrinsic evidence …
6.3.9 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. These guarantees are explained in the next chapter.
6.3.10 Interpretation of exclusion and limitation clauses ‘contra
proferentem’
6
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.
Handbury v Nolan (1977) 13 ALR 339

Contract; contents; representations and terms
Facts: An auctioneer offered a cow, the Glen Nola, for sale at an auction. Before the
sale, the auctioneer announced that a pregnancy test had been done on the cow
and that the result of the test was ‘positive’. The buyer bid $3,200 to buy the cow.
However, the cow was not pregnant—and, worse, she proved to be infertile.
Issue: Was it an expressly agreed term of the contract of sale that the cow was
fertile and pregnant when sold?
Decision: The auctioneer’s statement was an express term of the contract.
Reason: The announcement of the test result was not a mere opinion. It was a
statement of fact that the cow had been tested and was pregnant. In deciding

whether this statement was intended to be contractually binding as a promise, the

court took account not only of the statement itself, but also of the circumstances
in which it was made. In particular, the statement was made at a breeders’ sale
where higher prices would be paid for a cow that was pregnant. Furthermore,
the statement was made just before bids were invited. These circumstances all
suggested that the statement was intended to be a legally binding promise, and it
therefore became an express term of the contract.
Importantly, because the term in question was an express term, the court
held that another clause in the contract, which excused the seller from liability for
breach of implied terms, did not apply. Liability was not effectively excluded. This is
an instance of interpretation contra proferentem.
6.3.11 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.
Sydney Corporation v West (1965) 114 CLR 481

Contract; contents; terms; interpretation of exclusion clauses contra
proferentem; the ‘four corners’ rule
Facts: West drove his car into Sydney City Council’s car park, obtaining a ticket
from a machine at the entrance. When West returned to the car park, his car was
gone. It turned out that, while West was away, another person had approached
the car park attendant. This person told the attendant that he had lost his parking
ticket and the attendant gave him a duplicate ticket. Without doing any checks, the
attendant allowed this person to drive West’s car away. The car having been lost,
West sued the Sydney City Council for damages. The council denied liability on the
basis that the ticket obtained by West when entering the car park contained an
express statement saying:
The council does not accept any responsibility for the loss or damage to any
vehicle … however such loss, damage or injury may arise or be caused.
Issue: Did the statement on the ticket effectively exclude liability in these
circumstances?
Decision: The exclusion clause on the ticket had become a term of the contract but,
properly interpreted, it did not exclude liability for what had happened.
Reason: This was a contract of bailment, whereby the Sydney City Council, for
reward, promised to retain custody of West’s car and release the car on presentation
of the parking ticket and not otherwise. The clause in question excluded liability for
negligent acts done while carrying out the terms of this contract. It could not apply
to acts which were neither authorised nor permitted by the contract. Allowing the
thief to remove the car with a duplicate ticket was an unauthorised delivery of the
6.3
car, not negligence in the performance of an authorised act. The exclusion clause
did not cover this situation because it fell outside the ‘four corners’ of the contract.
The concept of the ‘four corners of a contract’ is not very precise and it may be
difficult to say in advance what acts or events will be found to fall within, or outside
of, the ‘four corners’ of a particular contract. However, the application of the rule
demonstrates the lengths judges will go to in their reasoning to avoid enforcing
exclusion or limitation of liability clauses when they think it is unfair to do so.
[6.4] Proving the Existence of Agreed Terms

6.4.1 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.
6.4.2 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 6.3.8.
6.4.3 Displacing the presumption that a contract is wholly written
6
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.
Van den Esschert v Chappell [1960] WAR 114

Contract; contents; terms; proving orally agreed terms of partly
written and partly oral contracts
Facts: Immediately before agreeing to buy van den Esschert’s house, Chappell
asked if it was free from infestation by white ants. Van den Esschert said it was,
but this assurance was not included in the written contract of sale that Chappell
then signed. Chappell sued van den Esschert for breach of contract when the house
turned out to be infested with white ants.
Issue: Was Chappell entitled to lead evidence of a term, orally agreed, that the
house was free of white ants?

Decision: The court was of the view that, taking all the circumstances into account,
the contract was partly written and partly oral. In such circumstances, the parol
evidence rule does not exclude evidence of additional orally agreed terms.
Reason: Wolff CJ said (at 116):
I would think that on the purchase of a house in this country an inquiry
regarding the presence of white ants was most important: when (as in this
case) the prospective purchaser immediately before signing a contract makes
a specific request to be informed about that matter and gets an affirmative
answer such as the purchaser got in this case it was intended to be made part
and parcel of the contract and was to be regarded as a term.
Chappell was therefore entitled to lead evidence to prove the existence of the
oral term in addition to the terms contained in the written portion of the contract.
6.4.4 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.
Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348

Contract; contents; terms; parol evidence rule; exceptions; ambiguity
Facts: Hope, who owned a movie theatre, hired movie equipment from RCA under
a written contract. The equipment supplied by RCA was second-hand, not new. The
written contract had listed the equipment being leased but contained no provisions
about whether it was to be new or not. Hope wanted to lead evidence that he and
RCA had negotiated about this matter and had intended that new equipment should
be supplied.
Issue: Did the failure of the written contract to stipulate whether the equipment
should be new create an ambiguity and thus allow evidence of further orally agreed
terms?
Decision: There was no ambiguity in the written terms which would allow the parol
evidence rule to be avoided and evidence introduced of additional oral terms.
Reason: Ambiguity is not created by the use of a general description of things (eg
referring to them only by their class or kind). A general class of things may contain
individual items with different attributes, but that does not mean that the general
description makes their identification uncertain. To allow evidence in such cases
of what particular attributes were discussed orally would be to add further terms
to an apparently complete written contract (which the parol evidence rule does not
allow) rather than resolving a real ambiguity (which the rule permits).
6.4
6.4.5 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.
Pukallus v Cameron (1982) 180 CLR 447

Contract; proof of terms; parol evidence rule; exceptions; rectification
of error
Facts: Pukallus entered into a written contract to buy ‘subdivision 1 of Portion
1154 Parish of Cumkillenbar in the County of Aubigny in Queensland’. Because
of a wrongly placed fence, both Pukallus and the seller, Cameron, thought that
subdivision 1 included a borehole and 27 acres of cultivated land. In fact, these
things were outside the subdivision. When the mistake was discovered, Pukallus
wanted the terms of the written contract changed to make it reflect what he said
had really been agreed with Cameron.
Issue: Should the written contract be rectified to include the borehole and 27 acres
of cultivated land?
Decision: In the light of the evidence, the contract should not be rectified.
Reason: There was no evidence that what had really been agreed was the sale of
land that included a borehole and cultivated land. Objectively, what was agreed
was simply the sale of subdivision 1, which was mistakenly thought to include 6
those things. Furthermore, what Pukallus said had been agreed was not proved
with sufficient precision to allow the court to formulate new terms. Accordingly, the
terms of the written contract could not be rectified.
6.4.6 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.

JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435
Contract; contents; terms; parol evidence rule; exceptions; collateral
contracts
Facts: Blakney entered a contract to buy a motor cruiser from JJ Savage. Before
agreeing to buy the boat, Blakney asked Savage for advice about alternative engines.
Savage wrote back setting out the details and estimated performance of different
engines. Relying on this advice Blakney chose a particular engine. Its performance
was less than expected.
Issue: Although the contract for the purchase of the boat contained no terms
guaranteeing its level of performance, was there a collateral (additional) contract
to this effect?
Decision: There was no collateral contract.
Reason: Blakney did not seek a promise from Savage about the level of performance.
The evidence showed that he had asked for advice, but had thereafter relied on
his own judgment in choosing an engine. In the circumstances, what Savage had
said amounted only to an expression of opinion. The court said (at [11], [13]) that a
collateral warranty could be established only if:
[T]‌he statement so relied on was promissory and not merely representational
…
That the statement actually made by the appellant was … upon a matter
of importance to the respondent can be conceded; that the respondent was
intended to act upon it, and that he did act upon it, is clearly made out. But those
facts do not warrant the conclusion that the statement was itself promissory.
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?
6.4
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.
[6.5] Terms Put (Implied) by Law in All Contracts

6.5.1 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.
6
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.
6.5.2 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.
Secured Income Real Estate (Australia) Ltd v St Martins Investments

Pty Ltd (1979) 144 CLR 596
Contract; contents; universal terms; duty to cooperate
Facts: St Martins purchased property from Secured Income (SI) for a price that
would be determined in part by the extent to which space in the building could be
successfully let to tenants during a specified period. Towards the end of this period,
when it was apparent that fewer tenants had signed leases than expected, and
anxious to maximise the purchase price, SI itself applied to lease the remaining
space. St Martins rejected this offer. SI sued for breach of an implied term that
St Martins should cooperate in securing tenants and should therefore not have
rejected SI’s offer to lease the remaining space in the building.
Issue: Was the rejection of SI’s offer a breach of contract?

Decision: There was an implied term of the contract to cooperate, but St Martins
had not breached this term.
Reason: Mason J said (at [25], [26]):
[T]‌he contract imposed an implied obligation on each party to do all that was
reasonably necessary to secure performance of the contract …
As Griffith CJ said in Butt v M’Donald:
‘It is a general rule applicable to every contract that each party agrees, by
implication, to do all such things as are necessary on his part to enable the
other party to have the benefit of the contract.’
Since St Martins had not acted ‘capriciously or arbitrarily’ in rejecting the

offer, but only after properly evaluating SI’s merits as a tenant, there had been no
breach of this duty.

Contract; formation; agreement; conditional agreement; universal
terms; duty to cooperate; reasonable time for fulfilment of condition
Facts: In April 1978, Perri agreed to buy a property in Cronulla from Coolangatta
Investments (CI). The performance of this contract was made subject to the
condition that Perri should first sell a property in Lilli Pilli that he owned. Finding a
purchaser for the Lilli Pilli property proved difficult, especially since Perri initially
wanted a high price. In July 1978, CI asked Perri to complete the purchase of the
Cronulla property before August 8. When Perri failed to do so, CI told him that they
were terminating performance of the contract. CI then sought a declaration from
the court that they had validly terminated performance. Perri said he still wanted to
complete the purchase of the Cronulla property, even though his Lilli Pilli property
was not yet sold.
Issue: Had CI validly terminated further performance of their contract with Perri?
Decision: In the circumstances, performance had been validly terminated by CI
because Perri had failed to sell his Lilli Pilli property within a reasonable time,
thereby unduly delaying the completion of the Cronulla sale.
Reason: Perri had not promised to sell his house in Lilli Pilli within any specified
time, but the court held that it was an implied condition of the agreement that Perri
would do all that was reasonable to bring about the sale of the Lilli Pilli property
and would do so within a reasonable time, thereby allowing the Cronulla contract
to be completed. What is a reasonable time is treated as a question of fact and
depends on what is fair to both parties in the circumstances. In this case, in which
CI could not deal with the Cronulla property while it remained subject to the sale of
the Lilli Pilli property, the court held that a reasonable time had passed and that CI
had therefore been entitled to terminate the contract.
6.5
6.5.3 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.
Meehan v Jones (1982) 149 CLR 571

Contract; contents; certainty of terms; universal terms; duty of good
faith
Facts: Meehan agreed to buy land owned by Jones, on which there was an oil
refinery. The agreement was subject to Meehan ‘receiving approval for finance on
satisfactory terms and conditions’. Meehan could not get the finance he needed,
and the completion of the sale was delayed. Jones, the seller, then decided to
avoid the contract and claimed it was void for uncertainty because Meehan had an
unfettered right to decide whether or not the terms of any finance offered to him
were satisfactory.
Issue: Did the terms regarding the finance give the buyer such complete discretion
that the agreement became unenforceable?
Decision: Although the buyer had a discretion to decide whether particular financial
terms were acceptable, that discretion had to be exercised honestly and reasonably,
that is, in accordance with good faith. A court could decide if the buyer had acted
honestly and reasonably and the agreement was therefore enforceable.
Reason: As a matter of general policy, the courts try to give effect to agreements 6
where possible. In this type of case, the buyer does not have a completely unfettered
right to decide what is satisfactory. Mason J said (at [22], [23]):
[T]‌he vendor can claim that the agreement … is not an option but a binding
contract which relieves the purchaser from performance only in the event that,
acting honestly, or honestly and reasonably, he is unable to obtain suitable
finance …
[T]‌he courts are quite capable of deciding whether the purchaser is
acting honestly and reasonably.
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349

Contract; contents; universal terms; duty of good faith; pursuit of
legitimate interests
Facts: Alcatel Australia leased a new seven-storey building from Scarcella for
50 years. The lease stipulated that Alcatel should maintain the building and pay for
any work on the building required by order of the local government authority. After
some years, Scarcella asked the local authority to inspect the building for fire safety
and, as a result of the inspection, the local authority ordered that the stairwell in
the building be insulated against fire. Alcatel believed that it was not obliged to

meet the costs of complying with this order because, Alcatel argued, Scarcella had
caused the local authority to impose unreasonable safety requirements.
Issue: Was a term implied into the contract by law, requiring Scarcella to act in
good faith and ensure Alcatel was not subjected to the expense of an unreasonable
fire order?
Decision: A duty of good faith may be implied by law as part of a contract. Such
a duty prevents a contractual power being exercised in a ‘capricious or arbitrary
manner or for an extraneous purpose’. However, seeking a fire safety inspection
was not an unreasonable exercise of Scarcella’s power and there was no breach
of the duty.
Reason: In a commercial context, it is not contrary to good faith for a lessor to
take steps to ensure that fire safety requirements are carried out. Scarcella had
a legitimate right to ensure the building was properly protected against fire, and
Alcatel had no grounds for avoiding its obligations under the lease.
Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558
Contract; contents; universal terms; duty of good faith; dishonest use
of contractual power
Facts: Hungry Jack’s (HJ) was a large Australian franchisee of Burger King Corp
(BK). However, over the years, difficulties emerged in the relationship between
the two companies. BK decided to force HJ to sell out of its franchising rights. To
achieve this, BK exercised certain of its contractual powers in a way that made it
impossible for HJ to perform its franchise obligations. In particular, BK refused to
approve new sub-franchise outlets that, in terms of the franchise agreement, HJ
was obliged to open each year. BK then gave HJ notice that it was terminating HJ’s
franchise rights because of HJ’s failure to open the required sub-franchise outlets.
Issue: Among other issues, the court considered whether BK owed a duty of good
faith to HJ and had breached that duty.
Decision: A duty of good faith was implied by law into this contract and had been
breached by the refusal to approve the sub-franchise outlets.
Reason: There are now numerous Australian cases recognising an implied duty
of good faith in appropriate contracts, perhaps in all commercial contracts. The
duty will exist if, without it, the rights conferred by a contract would be made
worthless or seriously undermined. In light of this duty, BK was obliged to exercise
its contractual powers (such as the power to approve sub-franchise agreements)
honestly and reasonably, and not for a purpose outside the contract (for example,
to thwart HJ’s contractual rights).
The extent to which Australian courts will recognise a universal implied duty of good
faith has not yet been fully clarified.
6.5
[6.6] Terms Put (Implied) by Law to Fill Gaps in Particular Kinds

of Contract
6.6.1 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.
6.6.2 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.
Breen v Williams (1996) 186 CLR 71

6
Contract; contents; generic terms; a doctor’s duty to act with
reasonable care and skill
Facts: After an operation to insert breast implants, Breen noticed troubling
symptoms and consulted Williams, a doctor. Williams treated Breen over a long
period but in the end the implants (which were faulty) had to be removed. Breen
wanted to join in a class action that was being brought against the manufacturers
of the implants. To join the class action, she required the medical records of
her treatment from Williams. He refused to hand them over unless Breen
first indemnified him against any possible liability. She refused to give him the
indemnity, but still wanted the records. She argued that, because it was in her best
interests that she have the records, Williams was contractually obliged to make
them available.
Issue: Does the law make it a term of a contract between doctor and patient that
the doctor must act in the best interests of the patient?
Decision: In the absence of agreed terms, the law only makes it a term of a contract
between a doctor and patient that the doctor exercise reasonable care and skill.
There is no implied term that a doctor must act in the patient’s best interests (which
is a higher level of care).
Reason: Gaudron and McHugh JJ said (at [12]):

If a doctor owed such a duty [to act in the patient’s best interests], he or she
would be liable for any act that objectively was not in the best interests of the
patient. The doctor would be liable for treatment that went wrong although he
or she had acted without negligence. That is not the law of Australia.
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.
6.6.3 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.
Pitt Son & Badgery Ltd v Proulefco (1984) 153 CLR 644
Bailment; generic terms implied by common law; duty of a bailee to
take reasonable care of goods entrusted to them
Facts: The owner of 86 bales of wool left them with Pitt Son & Badgery (PS&B),
a wool broking company, to be sold by auction. Proulefco purchased the wool at
the auction but, under the conditions of the sale, had to pay in full before taking
delivery. Payment was made on 5 December, but the wool was destroyed by fire in
the early morning of 6 December, while still being stored in PS&B’s shed. The shed
was in a complex enclosed by a paling fence, but a number of palings were missing.
The premises were unlit at night and unattended by any watchman or other means
of safeguarding against unauthorised entry. The fire in question was lit by a drifter
who, for an unknown reason, stuffed paper into a hole in the wall of the shed and
set fire to the paper. The wool was destroyed in the subsequent fire.
Issue: Had PS&B breached the duty, imposed on a bailee by the common law, to
take reasonable care of goods entrusted to them?
Decision: It was the duty of PS&B, as bailee of Proulefco’s goods, to take reasonable
care to prevent foreseeable damage to the wool. PS&B had breached that duty.
Reason: Gibbs CJ said (at [6]‌):
It can hardly be denied that the appellant’s duty required it to take reasonable
care to keep out intruders who might misappropriate or damage the wool.
Because of the size and weight of the bales the risk of theft was slight, but,
when regard is had to the value of the wool, it is impossible to say that no
precautions needed to be taken. It may also have been true that the risk of
damage by intruders was slight, but it was foreseeable that, under modern
conditions, there might be intruders who might, in one way or another, cause
damage to the wool. It was the duty of the appellant to take reasonable care to
prevent damage of that kind. In deciding what was reasonable, regard must, of
6.6
course, be had to the difficulty and expense of the possible precautions. The
provision of a secure fence is so obvious a precaution and so comparatively
inexpensive to provide, that failure to provide it was negligent.
6.6.4 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.
Commonwealth Bank of Australia v Barker (2014) 312 ALR 356

Contract law; terms implied in generic contracts by law; employment
contracts
Facts: Barker was employed by the Commonwealth Bank of Australia (CBA) from
1981 until 2009, when his position was made redundant. CBA gave Barker four
weeks’ notice of termination but gave him the option of finding suitable redeployment
6
in the bank within that time. Barker was told not to come to work during the four
weeks of notice and unfortunately Barker’s email and voicemail accounts were
also immediately stopped. Neither Barker nor the other employees at CBA were
informed of this disruption to their communications and so all efforts to find a
position to which Barker might be redeployed were fatally delayed. When the notice
period expired, Barker’s employment at CBA was terminated. Barker sued CBA for
breach of a term implied by law into his employment contract, which he argued
created a duty on the parties to maintain each other’s trust and confidence and not
behave so as to damage or destroy that trust and confidence.
Issue: Does Australian law make it a term of employment contracts that neither
party will act so as to destroy or seriously damage the relationship of trust and
confidence that exists between them?
Decision: No such term is implied by law into employment contracts.
Reason: In their majority judgment, French CJ, Bell and Keane JJ applied the test
for recognising the existence of an implied term in a class of contracts. This test
requires that such a term is ‘necessary’ for the effective working of such contracts,
rather than just being reasonable. The suggested term of maintaining mutual trust
and confidence is not necessary for employment contracts to function properly.
Although such a term is implied in employment contracts in the United Kingdom,
this is the result of a unique sequence of cases in that jurisdiction. French CJ,

Bell and Keane JJ also held that to imply such an obligation would be ‘beyond the
legitimate law-making function of the courts’ because it would involve the courts
assuming ‘a regulatory function’ better fulfilled by the legislature.
6.6.5 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. These terms are dealt with in the next chapter.
[6.7] Checklist: 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.
Step 1
What are the agreed terms of the contract?
• What terms were expressly agreed to? How was that agreement reached?
• Does either party seek to rely on statements that were made but which
did not become terms of the contract? What is the nature of those
statements?
• Were any terms agreed to by implication ad hoc? Are all the requirements
for the inclusion of such terms satisfied?
• Are the parties in dispute over the agreed terms of the contract?
• Are there any agreed terms which limit or exclude particular liability?
Step 2
What universal terms are implied into all contracts?
• Are any such terms relevant to the dispute that has arisen?
• What obligations do such terms create?
Step 3
Is the contract in question a particular kind (genus) of contract, for example,
a contract of lease, or employment?
• What generic terms might be implied into a contract of such a kind, either
by case law or by legislation?
• Are any such implied terms relevant to any dispute that has arisen?
• What obligations do such terms create?
6.7
Step 4
In the event of a dispute, how would the terms of the contract be proved?
• Is the contract written or oral? Or is it partly written and partly oral?
• Does the parol evidence rule apply to the contract in question?
• Do any of the exceptions to the parol evidence rule apply?

Think about the following questions, and use them to find out if you can remember and
explain the things you should have learned from this chapter.
1. How does a court decide whether or not a particular statement has become a term of
the contract? What are ‘puffs’, ‘opinions’ and ‘representations’?
2. Does signing a document that is known to contain contractual terms indicate
agreement to be bound by those terms, even if the terms are not read or understood?
3. Can binding terms be contained, or referred to, in a ticket or other document that is
given by one contracting party to another, but which is not signed?
4. What approach do the courts take when deciding whether or not to enforce terms in
a contract that limit or exclude particular liability?
5. Can terms be added to a contract after it has come into existence?
6. What is the ‘parol evidence rule’? In what circumstances does this rule prevent a
plaintiff from leading evidence to prove the existence of orally agreed terms? 6
7. What is the difference between expressly agreed terms and terms agreed by
implication?
8. What requirements limit the likelihood of a court finding that a term has been
implied into a contract ‘ad hoc’?
9. What is the difference between agreed terms and terms that become part of the
contract by operation of law?

e modules.

CHAPTER 7
Statutory Provisions Affecting Contracts

for Goods and Services
In this chapter:
• The need to fill gaps in contracts for the sale of goods
• State and territory sale of goods legislation
• Sales ‘by description’
• Terms regulating the delivery of goods
• Terms regulating payment for goods
• Guarantees of ownership and quiet possession
• Terms regulating the quality of goods sold
• Statutory guarantees for consumers who contract for goods and services.
[7.1] Introduction
7.1.1 The need for generic terms to fill gaps in a contract
In a contract for the sale of goods (as in other contracts) the agreed terms may not cover all
of the disputes that subsequently arise. In such cases, the law provides many generic terms
that, in the absence of agreed terms, fill these gaps. It should be clearly understood that,
although made part of a contract by law rather than by agreement, these terms become
part of the contract (usually as conditions) and thereafter operate in the same way as any
other terms.
This chapter explains the nature and scope of the generic terms found in sales
contracts. The FPBL eStudy module Statutory provisions affecting contracts for goods and
services will help you understand and properly apply the relevant principles and rules.
There is also a quiz on this topic in the module Quizzes and case studies for revision which
you can use to test yourself when you think you have learned what you need to know.
Some generic terms become part of a contract under the common law, others by
statute. Of particular importance now is the sale of goods legislation of every Australian
state and territory. All of the state and territory Acts are based on the Sale of Goods Act 1893
7.1
142 Statutory Provisions Affecting Contracts for Goods and Services
(UK). They consolidate, in statutory form, many of the rules originally worked out by the
courts. The following table sets out the various Australian Acts).
Table 7.1 Australian sale of goods legislation
NSW Sale of Goods Act 1923 Vic Goods Act 1958

Qld Sale of Goods Act 1896 WA Sale of Goods Act 1895
SA Sale of Goods Act 1895 ACT Sale of Goods Act 1954
Tas Sale of Goods Act 1896 NT Sale of Goods Act 1972
The content of all these various Acts is very similar, but the section numbers differ
somewhat. The equivalent numbers of selected sections is shown in the table below.
Table 7.2 Comparative table of selected sections—sale of goods legislation
NSW Qld SA WA Tas Vic ACT NT

5 3 A2 60 3 3 2 5
7 5 2 2 7 7 7 7
11 9 6 6 11 11 11 11
12 10 7 7 12 12 12 12
16 14 11 11 16 16 16 16
17 15 12 12 17 17 17 17
18 16 13 13 18 18 18 18
19 17 14 14 19 19 19 19
20 18 15 15 20 20 20 20
31 30 28 28 33 35 32 31
32 31 29 29 34 36 33 32
37 36 34 34 39 41 38 37
38 37 35 35 40 42 39 38
57 56 54 54 59 61 - 57
In the rest of this chapter, sections from the Goods Act 1958 (Vic) are given as examples.
[7.2] Generic Terms: Goods Sold ‘By Description’

7.2.1. The obligation to deliver goods as identified
Goods are sold ‘by description’ when they are identified as belonging to any named class
or category of goods, for example ‘a table’ or ‘these shoes’. Section 18 of the Goods Act 1958
(Vic) (and equivalent sections in the other states and territories) implies a condition into
a contract of sale that when goods are identified by description, the goods delivered must
be those that were identified in the description.1
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 18.
7.2
Statutory Provisions Affecting Contracts for Goods and Services143
Goods Act 1958 (Vic)

18 Sale by description
When there is a contract for the sale of goods by description there is an implied
condition that the goods shall correspond with the description; and if the sale be
by sample as well as by description it is not sufficient that the bulk of the goods
corresponds with the sample if the goods do not also correspond with the description.
Varley v Whipp [1900] 1 QB 513

Contract; contents; terms implied by legislation; sale of goods; duty to
deliver goods as identified
Facts: Varley and Whipp met in the town of Huddersfield. Varley offered to sell a
second-hand reaping machine to Whipp for £21. Varley said the machine was in the
town of Upjohn. He said the machine was a year old and had only been used to cut
50 or so acres of crops. Whipp had not seen the machine, but agreed to buy it. When
delivered, the machine proved to be a very old one which had obviously been broken
and mended. Whipp returned it and refused to pay the price.
Issue: Had the seller delivered what was promised, so that he was entitled to be paid
the agreed price?
Decision: The seller had not delivered what had been promised.
Reason: The thing sold was a specified machine, but it was bought unseen and it was
identified by description. The description was ‘a nearly new reaping machine then in
Upjohn’. The machine delivered was not ‘a nearly new machine’ and the court held
7
that it was not in the same class or category of goods as had been described. The
seller had therefore failed to deliver the particular goods as identified in the contract.
This was a breach of the condition, implied into sale contracts by law, that a seller
must deliver the goods as identified by description in the contract. Failure to deliver
goods as identified meant that the buyer did not become the owner of what had been
delivered. Whipp was therefore entitled to reject the machine and was not obliged to
pay for it.
[7.3] Generic Terms: the Delivery of Goods Sold

7.3.1 The time, place and manner of delivery
Section 36 of the Goods Act 1958 (Vic) (and equivalent sections in the other states and
territories) sets out various implied terms relating to delivery, in case the parties do not
agree other terms for themselves. For example, s 36(2) of the Victorian Act states that if
the time for delivery of goods sold is not an agreed term of the contract, then delivery must

take place within a reasonable time of contracting.2 What is ‘reasonable’ must be judged
in the circumstances of each case.
Note: Performance within a reasonable time is generally required in all contracts.

36 Rules as to delivery
(1) Whether it is for the buyer to take possession of the goods or for the seller to
send them to the buyer is a question depending in each case on the contract
express or implied between the parties. Apart from any such contract express
or implied the place of delivery is the seller’s place of business if he have one
and if not his residence: Provided that if the contract be for the sale of specific
goods which to the knowledge of the parties when the contract is made are in
some other place then that place is the place of delivery.
(2) Where under the contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send them
within a reasonable time.
(3) Where the goods at the time of sale are in the possession of a third person
there is no delivery by seller to buyer unless and until such third person
acknowledges to the buyer that he holds the goods on his behalf: Provided
that nothing in this section shall affect the operation of the issue or transfer of
any document of title to goods.
(4) Demand or tender of delivery may be treated as ineffectual unless made at a
reasonable hour. What is a reasonable hour is a question of fact.
(5) Unless otherwise agreed, the expenses of and incidental to putting the goods
into a deliverable state must be borne by the seller.
[7.4] Generic Terms: Payment for Goods Sold

7.4.1 Payment and delivery to take place concurrently
If the parties to a contract of sale do not discuss and agree when payment is to be made, s
35 of the Goods Act 1958 (Vic) (and equivalent sections in the other states and territories)
requires payment and delivery to happen at the same time.3 The obligation to pay is
reciprocal to the obligation to deliver, and the buyer is not entitled to delivery without
tendering payment.
7.4

35 Payment and delivery
Unless otherwise agreed, delivery of the goods and payment of the price are
concurrent conditions (that is to say) the seller must be ready and willing to give
possession of the goods to the buyer in exchange for the price, and the buyer must
be ready and willing to pay the price in exchange for possession of the goods.
Note: There are other generic terms implied by the sale of goods legislation regarding the
place and manner of payment.
[7.5] Generic Terms: Ownership and Quiet Possession

7.5.1 The seller’s obligation to guarantee property rights
It is common commercial practice for sellers to sell goods that they do not yet own at the
time of the sale, but which they intend to acquire and deliver to the buyer. The convenience
of this practice is recognised in s 17 of the Goods Act 1958 (Vic) (and equivalent sections in
the other states and territories).4 Section 17 only requires sellers to guarantee that they will
have the right to sell the goods at the time that property in those goods is intended to pass
to the buyer. Until then, the seller need not be the owner of whatever is being sold by them.
Section 17 also makes it a warranty of the contract that the buyer’s possession of the
goods will not be disturbed by a third party who has a superior claim to ownership (this is
called the ‘warranty of quiet possession’). Finally, s 17 makes it a warranty of the contract
that goods bought and sold are not burdened by any undisclosed charge or encumbrance
in favour of a third party (such as when goods sold are subject to a mortgage in favour of
a third party).

7
17 Implied undertakings
In a contract of sale, unless the circumstances of the contract are such as to show
a different intention, there is —
(a) an implied condition on the part of the seller that in the case of a sale he has a
right to sell the goods and that in the case of an agreement to sell he will have
a right to sell the goods at the time when the property is to pass;
(b) an implied warranty that the buyer shall have and enjoy quiet possession of
the goods;
(c) an implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party not declared or known to the buyer
before or at the time when the contract is made.

[7.6] Generic Terms: Inspection of Goods Delivered

7.6.1. The buyer’s right to inspect and reject goods
There is no generic term implied into contracts of sale requiring a buyer to inspect goods
when they are delivered. Section 41 of the Goods Act 1958 (Vic) (and equivalent sections
in the other states and territories) only gives buyers a right to inspect goods when they are
delivered; to do so is not a duty.5 However, s 42 of the Goods Act 1958 (Vic) (and equivalent
sections in the other states and territories) makes it clear that if a buyer chooses not to
inspect the goods, and the goods suffer from some fault or defect that could have been
discovered by examining them, the buyer will be taken to have accepted the goods and will
lose any right to subsequently reject them because of the faults. This means that a buyer
who chooses not to inspect goods delivered takes on the risk of the goods having a fault or
defect that they could have discovered.

41 Buyer’s right of examining goods
(1) Where goods are delivered to the buyer which he has not previously examined
he is not deemed to have accepted them unless and until he has had a
reasonable opportunity of examining them for the purpose of ascertaining
whether they are in conformity with the contract.
(2) Unless otherwise agreed when the seller tenders delivery of goods to the
buyer he is bound on request to afford the buyer a reasonable opportunity
of examining the goods for the purpose of ascertaining whether they are in
conformity with the contract.
[7.7] Generic Terms: The Quality of Goods Sold

7.7.1. The obligations of sellers who deal in goods
When the seller of goods is a person who deals in goods of the type being bought and
sold (that is, who sells them in the course of business), and if contracting parties do not
discuss and agree on the quality of goods to be supplied, the state and territory sale of
goods legislation provides terms, laying down the minimum required quality of the goods,
depending on the particular circumstances of the case. These provisions are particularly
important in commercial contracts to which the relevant provisions of consumer protection
laws may not apply. The special provisions that apply to consumer contracts are explained
below.
It should be noted that, when a seller is not a person who deals commercially in goods of
the type being sold (what we can call a private seller) the policy ‘caveat emptor’ (let the
7.7
buyer beware) applies. The sale of goods legislation does not imply terms regulating the
minimum quality of the goods when the seller is not a dealer in such goods. It is up to the
buyer to check that the goods are of satisfactory quality, or to ensure that express terms
are included in the contract specifying the quality required. This would be the case, for
example, when private sellers list goods for sale online.
7.7.2 Generic terms regarding ‘merchantable quality’
When goods are sold by a seller who deals in the type of goods sold (when the sale takes
place in the course of a business rather than being a private sale), then the sale of goods
legislation provides an implied condition that the goods delivered shall be of ‘merchantable
quality’.6 This condition becomes part of the contract unless the buyer inspected the goods
before buying them and the defects would have been obvious from such an inspection. See,
for example, s 19(b) of the Goods Act 1958 (Vic).

19 Implied conditions as to quality or fitness
Subject to the provisions of this Part and of any Act in that behalf there is no implied
warranty or condition as to the quality or fitness for any particular purpose of goods
supplied under a contract of sale, except as follows —
(a) …
(b) where goods are bought by description from a seller who deals in goods of
that description (whether he be the manufacturer or not) there is an implied
condition that the goods shall be of merchantable quality: Provided that if the
buyer has examined the goods there shall be no implied condition as regards
defects which such examination ought to have revealed;
(c) an implied warranty or condition as to quality or fitness for a particular
purpose may be annexed by the usage of trade;
7
(d) an express warranty or condition does not negative a warranty or condition
implied by this Part unless inconsistent therewith.
7.7.3 The meaning of merchantable quality

The sale of goods legislation in Australia does not define the phrase ‘merchantable quality’
but the courts have formulated various expressions of the proper approach to determining
this question. Three of these are explained below.
1. Goods are of merchantable quality when a buyer who knows all the facts, including
what hidden defects may exist in the goods, would buy them at the price such goods
would fetch when in reasonably sound order.

Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387

Contract; contents; terms implied by legislation; sale of goods; implied
condition requiring delivery of goods of merchantable quality
Facts: Grant purchased some woollen underwear manufactured by Australian
Knitting Mills. When he wore the underwear, Grant developed an itchy rash which
became acute general dermatitis. The skin condition was caused by small particles
of sulphur in the wool from which the underwear was made. As well as suing
Australian Knitting Mills in tort, Grant sued the retailer in contract for breach of a
condition requiring the goods sold to be of merchantable quality, as implied into the
contract of sale by s 14(2) of the Sale of Goods Act 1895 (SA).
Issue: Was the underwear sold by the retailer of merchantable quality?
Decision: The court held that the underwear was merchantable.
Reason: Dixon J said (at 418):
The condition that goods are of merchantable quality requires that they should
be in such an actual state that a buyer fully acquainted with the facts and,
therefore, knowing what hidden defects exist and not being limited to their
apparent condition would buy them without abatement of the price obtainable
for such goods if in reasonably sound order and condition and without special
terms.
Sulphur particles showed up in all specimens of woollen underwear that were

analysed. This same underwear was being sold as underwear in the market in large
quantities to people who were not affected by the sulphur. Therefore, despite the
‘defect’, the goods were merchantable as underwear.
Note: The decision that the underwear was merchantable was later reversed by
the Privy Council. However, after the right of appeal from Australian courts to the
Privy Council was discontinued, Dixon J confirmed his original test of merchantable
quality and other Australian judges have applied similar, though differently worded,
tests to determine whether goods are merchantable.
2. Goods are not of merchantable quality if they are of no use for any purpose for which
such goods are normally used, and therefore are not saleable under that description.
David Jones Ltd v Willis (1934) 52 CLR 110

Facts: Willis went to the shoe department in the David Jones store and said she
wished to see some shoes. She said she wanted comfortable walking shoes. She
inspected two or three pairs, tried on one pair and decided to buy them. The third
time she wore them, the heel of one shoe came off as she was walking down some
steps. As a result of this, Willis fell and broke her leg. Willis sued David Jones for
damages (including her injuries) on the basis of breach of contract.
7.7
Issue: Was it a term of the contract that the shoes be of merchantable quality, and
were the shoes supplied merchantable or not?
Decision: In the circumstances, it was a term of the contract that the shoes be
of merchantable quality. Whether or not the shoes supplied were merchantable
was a question of fact for a jury to decide. Here, the shoes were found to be not of
merchantable quality.
Reason: Starke J said (at 123):
The buyer has ‘a right to expect, not a perfect article, but an article which
would be saleable in the market’ under that description. Goods are not of
‘merchantable quality’ if, in the form in which they are tendered, they are of no
use for any purpose for which such goods are normally used, and hence are not
saleable under that description.
McTiernan J applied the same test as Starke J.

Dixon J restated the test he laid down in Australian Knitting Mills v Grant (1933)
50 CLR 387 and said that, in his view, this is not a different test.
3. Goods are of merchantable quality if they are of such a quality and in such a condition
that a reasonable person would, after examining them fully, accept delivery of them,
whether he or she buys them for personal use or to sell again.
George Wills & Co Ltd v Davids Pty Ltd (1957) 98 CLR 77

7
Facts: Davids Pty Ltd, a wholesale grocer, purchased 360 cases of beetroot canned
in vinegar from George Wills. Davids intended to resell the beetroot as a retail
product. However, only about a third of the cans were resold within a year. Some
time later, it was found that the remaining cans had swollen and started to leak, and
that bacteria had found its way into some of the cans. The cans were condemned
as unfit for human consumption and had to be destroyed. Davids sued George Wills
for breach of contract, alleging that the canned beetroot should have had a longer
shelf life, and that having gone bad after a year, the canned beetroot delivered to
them was not of merchantable quality.
Issue: Did the lack of ‘lasting quality’ make the canned beetroot unmerchantable?
Decision: The canned beetroot was of merchantable quality.
Reason: The court found that beetroot canned in vinegar has a normal shelf life of
12 months. The court said (at [7]‌):
The expression ‘merchantable quality’, in relation to goods the subject of a
contract of sale, must, obviously, constitute a reference to their condition or
quality. Consequently, goods are said to be of merchantable quality ‘if they are of
such a quality and in such a condition that a reasonable man, acting reasonably,
would, after a full examination, accept them under the circumstances of the

case in performance of his offer to buy them, whether he buys them for his
own use or to sell again’.
Applying this test, and because the tins of beetroot supplied to Davids had
a normal shelf life for this type of product, the court found that they were of
merchantable quality.
7.7.4 Generic terms regarding the suitability of goods for a buyer’s purpose
At the time of contracting, a buyer may tell the seller the purposes for which they require
the goods, and indicate that they are relying on the seller’s skill and judgment to supply
suitable goods. In such cases, and provided that the seller deals in goods of the type in
question, the sale of goods legislation of the various states and territories imposes (implies)
a condition into the contract that the goods will be reasonably fit for the buyer’s stated
purpose.7 See, for example, s 19(a) of the Goods Act 1958 (Vic).

(a) where the buyer expressly or by implication makes known to the seller the
particular purpose for which the goods are required so as to show that the
buyer relies on the seller’s skill or judgment and the goods are of a description
which it is in the course of the seller’s business to supply (whether he be the
manufacturer or not) there is an implied condition that the goods shall be
reasonably fit for such purpose: Provided that in the case of a contract for
the sale of a specified article under its patent or other trade name there is no
implied condition as to its fitness for any particular purpose;
(b)…
Expo Aluminium (NSW) Pty Ltd v WR Pateman Pty Ltd

(1990) ASC 55-978
deliver goods suitable for buyer’s purpose
Facts: Expo Aluminium asked WR Pateman, a manufacturer of window frames, to
supply some aluminium windows that Expo needed to install in a client’s house.
7.7
When ordering the windows, Expo told Pateman: ‘There is nothing between this
job and the South Pole’. This was an informal and indirect way of telling the
manufacturer that the house would be fully exposed to strong winds and rain.
When the windows were installed in the client’s house they were found to leak. Expo
alleged there was a term in their contract with Pateman that the windows would be
suitable to withstand strong winds and driving rain.
Issue: Had Expo sufficiently indicated the purpose for which the windows were
required, and shown that they were relying on Pateman to supply something
suitable to withstand exposure to strong wind and rain?
Decision: Taking account of what Expo had said to Pateman when ordering the
window frames, s 19(1) of the Sale of Goods Act 1923 (NSW) implied a term in the
contract that the goods would be suitable for the buyer’s purpose. This required the
windows to be weatherproof in an exposed situation. This implied term had been
breached by supplying windows that leaked.
Reason: The buyer had sufficiently indicated the purpose for which the goods were
required by saying, ‘There is nothing between this job and the South Pole’; this
statement could only have meant that the windows would need to be sufficiently
weatherproof to withstand strong winds and driving rain. The buyer’s reliance on
the seller to supply suitable goods can often be established by inference, and the
necessary inference can often be drawn from the buyer having stated his or her
purpose. The court held that this was so in the present case.
Goods purchased under their trade name are no exception. If a buyer has requested a
particular article only by using its trade name, there is no implied condition that the goods
be suitable for any particular purpose. But if the goods were purchased by reference to
7
their trade name, and the buyer has also explained their purpose to the seller and indicated
a reliance on them to provide something suitable, then there is an implied term that the
goods be suitable for that purpose.
Baldry v Marshall [1925] 1 KB 260

condition requiring delivery of goods suitable for buyer’s purpose; sale
by trade name
Facts: Marshall asked Baldry, a seller of Bugatti cars, for information about ‘the
eight cylinder Bugatti’. Baldry said the car was available and offered to supply
information. Marshall then explained why he wanted the car—he said he needed a
fast, easily managed and comfortable car, suitable for touring. Baldry and Marshall
then entered into a contract for ‘an eight cylinder Bugatti car fully equipped and
finished to standard specification as per the car inspected’. The car delivered
proved defective and Marshall claimed that it was not in fact suitable for his stated
purposes. Baldry argued that he was not obliged to deliver goods suitable for
Marshall’s purposes because the car had been bought under its trade name.

Issue: Was it an implied term of the contract that the car be suitable for the buyer’s
purpose, even though it had been bought under its trade name?
Decision: It was clear on the facts that the buyer had relied on the seller to supply
suitable goods, and this gave rise to an implied term requiring the car to be suitable
for the buyer’s purpose, regardless of the use of the trade name to describe the
goods.
Reason: The mere fact that goods are described by trade name does not necessarily
exclude the implied term regarding suitability of purpose. The test is: Did the buyer
themselves, in purchasing the goods by name, form the judgment that the goods
would be suitable for their own purpose, without reliance on the seller? If so, no
term regarding the suitability of the goods for the buyer’s purpose is implied into
the contract. Otherwise, such a term may be implied.
7.7.5 Generic terms regarding a sale ‘by sample’

Merely showing a sample of something to a buyer does not necessarily make the transaction
a ‘sale by sample’. A sale is only ‘by sample’ when it can be inferred that the parties have
agreed to define the quality of the goods by reference to a sample. Where such agreement
exists, the sale of goods legislation of the states and territories requires that the bulk of the
goods must not have any defect that was not apparent in the sample and which makes the
goods unmerchantable.8 See, for example, s 20 of the Goods Act 1958 (Vic).

20 Sale by sample
(1) A contract of sale is a contract for sale by sample where there is a term in the
contract express or implied to that effect.
(2) In the case of a contract for sale by sample —
(a) there is an implied condition that the bulk shall correspond with the
sample in quality;
(b) there is an implied condition that the buyer shall have a reasonable
opportunity of comparing the bulk with the sample;
(c) there is an implied condition that the goods shall be free from any
defect rendering them unmerchantable which would not be apparent on
reasonable examination of the sample.
7.7
LG Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/asia) Ltd
(1955) 56 SR (NSW) 81
Contract; contents; proving orally agreed terms; sale by sample; parol
evidence rule
Facts: Thorne bought 50 drums of Neatsfoot oil from Thomas Borthwick. The
sale came about after considerable discussion, and after Thorne requested and
was given a sample of oil to test. In particular, Thorne tested the ability of the
oil to withstand heat. After providing Thorne with the sample, Borthwick sent a
document to Thorne to sign. Describing itself as a contract, the document set out
quite detailed particulars about the oil to be supplied but made no mention of any
sample. When the 50 drums of oil were delivered, Thorne found that this oil was
not as resistant to heat as the sample he had tested. Thorne claimed it was a term
of the contract that the bulk of the oil should have been as heat resistant as the
sample.
Issue: Was it a term of the contract that the quality of the goods supplied would be
determined by reference to the sample provided?
Decision: It was not a term of the contract that the sale was ‘by sample’.
Reason: The written contract contained no reference to a sample. Furthermore, the
written contract appeared, on its face, to be a complete and workable agreement,
providing for all matters necessary for such a transaction. In these circumstances,
the court held that it had not been expressly or impliedly agreed that the quality of
the goods would be determined by reference to the sample that had been provided.
[7.8] The Exclusion of Generic Terms

7.8.1 The right to exclude liability by agreement
7
As with most generic terms, the terms implied by the provisions of the state and territory
sale of goods legislation into contracts for the sale of goods are only intended to provide
terms when the parties have not, by agreement, provided for the relevant matters. Section
61 of the Goods Act 1958 (Vic) (and equivalent sections in the other states and territories)
specifically states that any right, duty or liability that would otherwise be implied into a
contract of sale by the Act may be excluded or varied by agreement between the parties.9
This approach is consistent with the broad doctrine of freedom of contract and the general
assumption that parties to a contract have equal bargaining power and can best negotiate
for themselves the particular terms that suit them.
Act 1896 (Tas), s 59; Goods Act 1958 (Vic), s 61; Sale of Goods Act 1895 (WA), s 54; Sale of Goods Act 1972 (NT), s 57.


61 Exclusion of implied terms and conditions
Where any right duty or liability would arise under a contract of sale by implication of
law it may be negatived or varied by express agreement or by the course of dealing
between the parties or by usage if the usage be such as to bind both parties to the
contract.
[7.9] Special Protection for Consumers of Goods and Services

7.9.1. The need for special regulation of consumer contracts for goods and
services
The sale of goods legislation applies to all contracts that fall within the very broad definitions
sections of those Acts. Thus, the legislation generally applies to all contracts for the sale of
goods, but the protection offered by the sale of goods legislation may be less than adequate
in some circumstances. Suppliers of goods and services are usually much better organised
than individual buyers who purchase goods for their own consumption can possibly be. The
suppliers have appropriate business and financial structures, they control the availability
of the things consumers want, they know about the laws that regulate their industry, and
they use sophisticated advertising and marketing techniques. Generally speaking, individual
consumers have limited financial resources and little knowledge of the law. They often lack
detailed information and understanding about the goods or services they are obtaining. For
these reasons, a consumer is likely to have very little power to negotiate the terms of their
agreement and will normally agree to standard terms dictated by the supplier. By exercising
their greater bargaining power in consumer contracts, suppliers can put terms into their
contracts that exclude their legal liability for supplying inferior quality goods or services. In
particular, suppliers can exclude liability for the generic terms provided by the sale of goods
legislation, including those regulating the quality of goods.
To protect consumers from the abuse of exclusion of liability clauses, Trade Practices and
Fair Trading legislation was enacted in the 1970s. This legislation put terms into consumer
contracts that guaranteed the basic quality of what was contracted for. These terms were
similar to the terms regarding the quality of goods found in the sale of goods legislation.
Similar terms were provided in consumer contracts for services. Importantly, these terms
could not be excluded from consumer contracts by agreement. Unfortunately, these provisions
were very technical and proved difficult for consumers to understand and enforce. A simpler
approach was needed.
7.9.2. Statutory guarantees in consumer contracts
On 1 January 2011 the Australian Consumer Law (ACL) replaced the Trade Practices and
Fair Trading legislation. This new legislation is wide ranging, and its various provisions are
covered separately in chapter 11. However, it is convenient to explain here the provisions
7.9
of the ACL that protect consumers by guaranteeing the basic quality of goods and services
they contract for.10
The ACL creates a number of ‘statutory guarantees’ which give consumers specified
rights. The guarantees do not operate as terms of the contract. They are simply guarantees
provided by law for which the supplier of goods or services to a consumer is made liable.
This liability cannot be excluded by agreement: any attempt to do so is treated as void.
The statutory guarantees are similar to, but not identical with, the terms implied by
the sale of goods legislation into contracts for the sale of goods. It is important to consider
the wording of the statutory guarantees carefully. The particular statutory guarantees are
explained below.
The guarantees are provided only when goods or services are acquired by consumers
as defined by the ACL.
The guarantees are enforced by means of the remedies provided by the ACL (as
opposed to an action for breach of contract). The available remedies are wide-ranging and
go beyond the kind of relief that would be available in an action for breach of contract. The
remedies are explained later in this chapter.
Overall, the provisions of the ACL provide an effective way of ensuring that suppliers
meet appropriate standards when supplying goods or services to consumers.
7.9.3 Definition of a ‘consumer’
For the purposes of the guarantees provided by the ACL three factors are taken into
account to decide whether a person who acquires goods is a consumer: the price paid, the
kind of goods acquired, and the purpose for which they were acquired.
• The price and kind of goods: If the price of goods of any kind is less than or equal
to $40,000, the purchaser is assumed to have acquired those goods or services as a
consumer.
If the price of goods exceeds $40,000, the purchaser is only taken to be a
consumer if the goods are of a kind ordinarily acquired for personal, domestic or
7
household use or consumption.
Vehicles or trailers acquired for use principally in the transport of goods on
public roads are a special case; a person is taken to have acquired such goods as a
consumer, whatever their price.
• Purpose: A person is not taken to have acquired goods as a consumer, regardless of
the price paid, if the goods are acquired for the purposes of resupply (ie resale) or
to be used up (ie consumed) or transformed in commercial production, commercial
manufacturing, or as part of a business to repair or treat other goods or fixtures on
land.
In the following sections, the various statutory guarantees are explained. It should
be noted that similar guarantees in relation to the supply of services to a consumer are
provided by ss 60–62 of the ACL.
10 Australian Consumer Law, Ch 3, Pt 3-2, Div 1

7.9.4 Guarantee of correspondence with description

When goods are bought by description (ie by reference to a description of them as
belonging to a particular class or kind of goods) from a dealer in such goods, s 56 of the
ACL provides a guarantee that the goods supplied will accord with the description under
which they were sold.
7.9.5 Guarantee of acceptable quality
If a commercial supplier sells goods to a consumer, s 54 of the ACL provides a guarantee
that the goods are of ‘acceptable quality’. Goods are not of acceptable quality if:
• they are not fit for the purposes for which such goods are normally used;
• they are not durable, are unsafe or have defects;
• they don’t have an acceptable finish and appearance, to the extent that a reasonable
consumer who knows of their qualities would find them unacceptable.
In deciding what a reasonable consumer would find acceptable, account must be
taken of the nature and price of the goods and any statements made about them, either
on their packaging or by the supplier or manufacturer. If the supplier can show that the
consumer has subjected the goods in question to abnormal use, and has caused the goods
to become unacceptable (or has failed to take reasonable steps to prevent them from
becoming unacceptable), then the goods would not be considered unacceptable in quality.
7.9.6 Guarantee of suitability for a consumer’s purpose
If a commercial supplier supplies goods to a consumer and, at the time of the sale, the
consumer has disclosed to the supplier the particular purpose for which they want the
goods and has reasonably relied on the skill and judgment of the supplier, then s 55 of
the ACL provides a guarantee that the goods supplied are reasonably fit for the disclosed
purpose. It does not matter if the disclosed purpose is not a purpose for which the goods
in question are normally used.
7.9.7 Guarantee of correspondence with sample
If a commercial supplier supplies goods to a consumer by reference to a sample, s 57 of
the ACL provides a guarantee that the goods correspond with the sample in ‘quality, state
and condition’. The goods must also be free of any defect that was not apparent from a
reasonable examination of the sample, and which would make the goods of unacceptable
quality. The consumer is entitled to a reasonable opportunity to compare the goods supplied
with the sample shown.
7.9.8 Guarantee of good title and quiet possession
If goods are sold to a consumer, either by a commercial supplier or a private seller, ss 51, 52
and 53 of the ACL come into operation. Section 51 creates a guarantee that the supplier
will have the legal right to dispose of the property when the time comes to pass ownership
to the buyer. Section 52 guarantees that the consumer’s title (right of ownership) to the
goods will not be disturbed by third parties who have competing claims to those same
goods. This is known as a guarantee of ‘undisturbed possession’. Section 53 guarantees
that goods sold to a consumer are not subject to any security, charge or encumbrance that
7.9
was not disclosed in writing before the time of the sale or agreed to by the consumer. Nor
may the goods be made subject to any such security between the sale and the title being
transferred to the consumer.
7.9.9 Guarantee of the availability of spare parts and repairs
Section 58 of the ACL guarantees that, when goods are sold in trade or commerce to a
consumer, the manufacturer will take reasonable steps to ensure that repair facilities and
spare parts are reasonably available for a reasonable period after the goods are supplied.
This guarantee does not apply if the manufacturer took reasonable steps to ensure that the
consumer was notified in writing that repair facilities or spare parts would not be available
after a specified period.
7.9.10 Guarantees of express warranties
If goods are supplied in trade or commerce to a consumer, s 59 of the ACL provides a
guarantee that the manufacturer will comply with any express warranties they have given.
A guarantee is also provided that the supplier will comply with any express warranties that
they have given. This means that, rather than having to rely on contract or tort law, the
consumer can bring an action based on the failure to comply with the statutory guarantee.
7.9.11 Remedies for breach of statutory guarantees
The ACL provides a number of different remedies for a contravention of a provision of Ch
3 of the ACL (injunctions, damages, compensation orders, non-punitive orders and other
orders, such as declaring a transaction void). These remedies are explained in Chapter 11.
However, Ch 5, Pt 5-4 of the ACL sets out additional remedies available to a consumer for
breach of a statutory guarantee. The availability of these remedies depends on the nature
of the failure to comply. A distinction is drawn between a failure to comply that is not a
major failure and can be remedied, and a failure to comply that cannot be remedied or is a
major failure.
7
7.9.11 (a) A failure that can be remedied and is not a major failure
In the case of a failure to comply that can be remedied and is not a major failure, the
consumer can ask the supplier to remedy the failure. Depending on the circumstances, the
supplier can do this by repairing or replacing faulty goods, by refunding monies paid for
the goods, or by correcting any defect in title to the goods. If the supplier does not do what
is required to remedy the failure, either at all, or within a reasonable time, the consumer
can either:
• get the failure remedied by someone else, or by some other means, and then recover
the costs of doing this from the supplier, or
• notify the supplier that they are rejecting the goods on grounds of the failure.
However, a consumer cannot reject goods if they fail to do so within the period of
time within which any failure to comply with the relevant guarantee would have become
apparent, taking account of factors such as the type of goods and their likely use. This is
known as the ‘rejection period’.

If the consumer rejects the goods, they must be returned to the supplier, unless this
would be significantly costly for the consumer, in which case the supplier must collect
them from the consumer at the supplier’s expense. The supplier must then either refund
the money paid for the goods or replace them with goods that comply with the guarantee.
Provisions also exist to allow the termination of any contract for the supply of services
which are related to the rejected goods.
7.9.11 (b) A failure that cannot be remedied or is a major failure
In the case of a failure to comply that cannot be remedied or is a major failure, the consumer
can either:
• notify the supplier that they are rejecting the goods on grounds of the failure, or
• keep the goods and bring an action against the supplier to recover compensation for
the lower value of the goods below the agreed price.
Unless the failure to comply was due to an event beyond human control, the consumer
can also sue the supplier for damages to compensate for any losses caused by the failure
to comply with the guarantee, to the extent that these losses were reasonably foreseeable.
As in the case of a failure that can be remedied and is not a major failure, a consumer
must reject goods within the ‘rejection period’. A consumer who rejects goods must return
them to the supplier. See 7.9.11 (a) above for a fuller explanation of these requirements.
7.9.12 Liability of manufacturers
If there is a breach of s 54, 56, 58 or 59(1) of the ACL, then s 271 provides the consumer
with a right of action for damages against the manufacturer. The consumer can sue the
manufacturer for damages to compensate for any reduction in the value of the goods, and
any loss or damage suffered because of the failure, to the extent that such losses were a
reasonably foreseeable consequence of the failure.
[7.10] Checklist: Statutory Provisions in Contracts for Goods or

Services
The following checklist will help you to take proper account of the matters that need to
be considered when resolving issues related to statutory provisions affecting contracts for
goods and services. Make sure you can recall the exact rules of law and decided cases which
are relevant.
Step 1
• Is the contract in question a contract for the purchase and sale of goods?
• What are the expressly or impliedly agreed terms of the contract? Are
there agreed terms concerning any of the following:
– How and when the goods will be delivered from the seller to the
buyer?
– How and when payment for the goods will be made by the buyer?
– What rights the buyer has to inspect the goods delivered?
7.10
– How the quality of the goods is to be determined?

– What property rights in the goods is the buyer entitled to?
Step 2
In the absence of agreed terms on the matters listed in Step 1, what terms
are provided by the relevant sale of goods legislation?
• What obligations are created by terms that are implied into the contract
by the relevant sale of goods legislation with regard to delivery, payment,
inspection, the quality of the goods and property rights in the goods?
• Are any such implied terms relevant to any dispute that has arisen?
Step 3
Are there any exclusion or limitation of liability clauses in the contract?
• Are any of the terms that would otherwise be put into the contract by the
sale of goods legislation affected by any agreed term that seeks to limit
or exclude such liability?
• Does it appear that the exclusion clause has been properly included as a
Step 4
Is the contract a ‘çonsumer’ contract for either goods or services?
• Were the goods or services in question contracted for by a person who
qualifies as a ‘çonsumer’ for the purposes of the statutory guarantees
provided by the Australian Consumer Law?
• If so, what statutory guarantees would be provided to the consumer?
Step 5
What remedies are available? Which remedies are the most appropriate 7
in the circumstances? Is the failure a ‘major’ failure or not?

Think about the following questions, and use them to find out if you can remember and
explain the things you should have learned from this chapter.
1. What terms are implied into contracts for the sale of goods by state and territory sale
of goods legislation regarding the identity of goods bought and sold?
of goods legislation regarding delivery of goods bought and sold?
of goods legislation regarding payment for goods bought and sold?
of goods legislation regarding the buyer’s legal title to goods bought and sold?

5. What terms might be implied into contracts for the sale of goods by state and
territory sale of goods legislation regarding the quality of the goods bought and sold?
In what particular circumstances does it become a term of the contract that goods be
of merchantable quality, or suitable for the buyer’s purpose?
6. Can the terms that are implied into contracts for the sale of goods by state and
territory sale of goods legislation be excluded by agreement?
7. Which contracts attract the statutory guarantees provided by the Australian
Consumer Law? How are the statutory guarantees enforced? Can the seller exclude
liability for the guarantees by agreement?

e modules.
7.11
CHAPTER 8
Performance and Breach of Contract

In this chapter:
• The relationship between contractual terms and obligations
• The interpretation of contractual terms
• The discharge of a contract by performance
• Different ways in which a breach of contract can occur
– non-performance
– partial performance
– substantial performance
– hidden defects
– late performance
– actual and anticipatory breach of contract
• Assessing the seriousness of a breach
• Divisible contracts
• Excusing performance on grounds of initial and supervening impossibility.
[8.1] Introduction
8.1.1 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. The eStudy module Performance
and breach of contract provides many practical examples and questions that will help you
understand better what you need to know. There is also a quiz on the performance and
breach of a contract in the module Quizzes and case studies for revision which you can use
to test yourself when you think you have learned what you need to know.
In Chapter 6 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
8.1
162 Performance and Breach of Contract
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 .
Figure 8.1 The ‘life-cycle’ of a contract
1. A contract is 2. As soon as the 3. The parties 4. The contract

made. contract is made, must discharge is discharged
It contains legal obligations the contractual and comes to
various terms arise, making obligations. This an end.
(promises). performance of is usually done
the terms legally by carrying out
enforceable. their
undertakings.
8.1.2 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.
8.1.3 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.
8.1
Performance and Breach of Contract163
8.1.4 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.
8.1.5 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’.
8.1.6 What are ‘divisible’ contracts? 8
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.
8.1.7 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.
[8.2] Interpreting the Terms of a Contract

8.2.1 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.
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd
(1990) 20 NSWLR 310
Contract; performance; interpretation of terms
Facts: Hide & Skin (H&S) were exporters of animal products. The buyers of these
products often paid for them up to six months after purchase and, to finance their
ongoing business, H&S needed a third party to provide advance payment for goods
sold but not yet paid for. Oceanic arranged the necessary financial facility for a
period of two years. The facility was subject to termination on six months’ notice.
When Oceanic gave notice to terminate the facility, they argued that they were not
obliged to give advance payments to H&S for money that would only be repaid
by the purchasers after the facility had ended. H&S argued that they should be
given advances right up to the end of the period of notice, even if purchasers made
repayments up to six months thereafter.
Issue: Whose interpretation of the agreement was correct?
Decision: The agreement had the meaning suggested by H&S.
Reason: Although interpreting the agreement in the way suggested by H&S might
be disadvantageous to Oceanic, and might not be what Oceanic had subjectively
intended, the courts construe the terms of a contract: first, by giving the words used
their ordinary and natural meaning; second, by applying an objective (reasonable
third party) test to ascertain the intended meaning of terms; third, by resolving
ambiguities in commercial agreements by preferring alternatives that avoid
commercial inconvenience or nonsense; and fourth, by basing the decision on the
actual agreed terms in the contract rather than on any post-contractual behaviour
of the parties. Applying these rules favoured the interpretation suggested by H&S.
8.2
8.2.2 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 8.2.1.
8.2.3 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.
Australian Broadcasting Commission v Australasian Performing

Right Association Ltd (1973) 129 CLR 99
Contract; interpretation of terms; preference for commercially
convenient interpretation
Facts: The Australian Broadcasting Commission (ABC) bound itself by contract to
pay the Australasian Performing Right Association (APRA) an annual licence fee for
certain musical works performed on radio and television. The contract laid down a
formula for the calculation of the fee. After some years, APRA contended that the
agreement was intended to provide against depreciation in the value of money, and
the formula as implemented was not doing so. It argued that the formula must be
8
interpreted differently to ensure the constant value of the licence fee.
Issue: Was it open to the court to interpret the formula differently?
Decision: It is not the function of a court to attribute to the parties an intention for
which their express words do not provide.
Reason: The words in which the formula was expressed were clear and gave rise to
no ambiguity. The courts construe such agreements uncritically in accordance with
the text. Gibbs J said (at [3]‌):
If the words used are unambiguous the court must give effect to them,
notwithstanding that the result may appear capricious or unreasonable, and
notwithstanding that it may be guessed or suspected that the parties intended
something different. The court has no power to remake or amend a contract
for the purpose of avoiding a result which is considered to be inconvenient or
unjust. On the other hand, if the language is open to two constructions, that
will be preferred which will avoid consequences which appear to be capricious,
unreasonable, inconvenient or unjust.

8.2.4 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 at 8.2.1.
[8.3] Discharge of Contractual Obligations by Performance

8.3.1 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.
8.3.1(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
8.3.1(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.
McFarlane v Hall (1882) 16 SALR 126

Contract; performance; discharge; delivery of specific goods sold
Facts: Hall owned a quantity of chaff which was on railway trucks at Lucindale
Railway Station. McFarlane wanted chaff and was told by Hall’s agent that Hall
had some good chaff for sale. McFarlane and the agent went together to see the
chaff and the agent cut open a couple of bags, showing McFarlane a handful of the
contents. McFarlane then said he would buy the chaff. After delivery, large parts of
the chaff were found to be rotten.
Issue: Had the seller promised to supply good chaff?
8.3
Decision: Where a buyer has inspected particular goods and then purchases them
by description as belonging to a particular class of goods (such as ‘chaff’), the seller
is only obliged to deliver those particular goods and is not liable for their quality.
Reason: This was a sale of a specific chattel, described as chaff. The seller’s
obligation was to deliver those agreed goods. The seller gave no warranty as to the
quality of the chaff, leaving it to the buyer to form his own opinion by inspecting it.
The buyer chose to be satisfied with a less than thorough inspection. The sale of
goods legislation does not impose minimum requirements of quality in such cases.
The maxim caveat emptor (‘let the buyer beware’) applies in such circumstances,
and the buyer should make sure that the goods they choose are of an acceptable
quality.
8.3.2 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, as explained in Chapter 7, 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
Liaweena (NSW) Pty Ltd v McWilliams Wines Pty Ltd (1991)

ASC 56-038
Contract; performance; sale of goods; implied condition requiring
delivery of goods fit for the buyer’s purpose
Facts: McWilliams Wines bought half a million corks from Liaweena, a cork
merchant. The corks were described in the agreement in considerable detail, and
corks in accordance with those specifications were delivered. However, the corks
contained a substance which affected wine badly and made the wine unsaleable.
8
Issue: Was the seller obliged to deliver corks that, in addition to answering the
agreed specifications, were also suitable for the purpose of sealing bottles
containing wine?
Decision: In the circumstances, it was an implied term of the agreement that the
corks should be suitable for the buyer’s purpose.
Reason: The parties knew each other from previous transactions, and McWilliams
had made known to Liaweena that it was relying on Liaweena to supply corks that
were not contaminated in some unseen way that would damage wine. Liaweena
had failed to deliver corks in accordance with this obligation.

8.3.3 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).
8.3.4 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.
Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221

Contract; performance; divisible contracts
Facts: Phillips was employed to work as a manager for Ellinson Brothers for a
period of two years. At the end of his employment, he was to be paid a percentage
of the profits made by the company during that period. Under the agreement,
Phillips was obliged to spend 160 hours each month working for Ellinson Brothers.
However, after an initial period, Phillips reduced his work for Ellinson Brothers to
60 hours per month. This was done by informal arrangement between the parties,
but the original contract was not varied. At the end of the two-year period, Phillips
claimed the agreed payment.
Issue: Was Phillips entitled to claim payment?
Decision: Phillips was not entitled to claim payment under the contract because he
had not performed his obligations as specified under the contract.
Reason: The court treated the agreement as a single, indivisible contract for a
period of two years, during which Phillips was required to work 160 hours each
month. His failure to work these agreed hours for the whole period meant that he
had not performed his obligations. Starke J said (at 233–234):
It is a principle of English law that parties having contracted to do an entire
work for a specific sum can recover nothing unless the work be done or it can
be shown that it was the other party’s fault that the work was incomplete or
that there is something to justify the conclusion that the parties have entered
into a fresh contract … If the contract be indivisible and not severable, then
nothing can be recovered under the contract unless it be completed according
to its terms or a new contract is made or is to be implied from the acts of the
parties, giving rise to new rights …
8.3
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.
Government of Newfoundland v The Newfoundland Railway Co

(1888) 13 App Cas 199
Contract; performance; discharge; divisible contracts
Facts: The Newfoundland government contracted with the Newfoundland Railway
Co for the company to build a railway that was intended to eventually extend for a
substantial distance. Among the various terms, it was agreed that the government
would grant the company 25,000 acres of land on the completion of each five-mile
section of railway. The project came to an unexpected end after just seven sections
(35 miles) of railway had been constructed.
Issue: Was the company entitled to the 25,000 acres of land for each of the seven
sections that had been completed, even though the complete railway would no
longer be built?
Decision: The company was entitled to the grants of land for each of the seven
completed sections.
Reason: The wording of the contract made it clear that the grants of land were
dependent only on the completion of each five-mile section of the railway and not
on the completion of the entire railway. As each section was completed, therefore,
each grant of 25,000 acres of land became enforceable as a separate completed
contract.
Note: This decision appears to be based on the concept of divisible contracts.
[8.4] Breach of Contract

8.4.1 Identifying different kinds of breach
8
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.
8.4.2 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.


second-hand reaping machine to Whipp for £21. Varley said the machine was in
the town of Upjohn. He said the machine was a year old and had only been used to
cut 50 or so acres of crops. Whipp had not seen the machine, but agreed to buy it.
When delivered, the machine proved to be a very old one, which had obviously been
broken and mended. Whipp returned it and refused to pay the price.
Issue: Had the seller delivered what was promised, so that he was entitled to be
paid the agreed price?
Reason: The thing sold was a specified machine, but it was bought unseen and it
was identified by description. The description was ‘a nearly new reaping machine
then in Upjohn’. The machine delivered was not ‘a nearly new machine’ and the court
held that it was not in the same class or category of goods as had been described.
The seller had therefore failed to deliver the particular goods as identified in the
contract. This was a breach of the condition, implied into sale contracts by law, that
a seller must deliver the goods as identified by description in the contract. Failure
to deliver goods as identified meant that the buyer did not become the owner of
what had been delivered. Whipp was therefore entitled to reject the machine and
was not obliged to pay for it.
8.4.3 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.
Steele v Tardiani (1946) 72 CLR 386

Contract; breach; partial performance; acceptance of partial
performance; duty to pay pro rata for accepted performance
Facts: Tardiani and others were employed by Steele to cut firewood. The agreement
provided that payment would be made at the rate of six shillings per ton of wood cut
in six foot lengths and split six inches in diameter. Tardiani and the others cut 1,500
tons of timber but split it into pieces ranging from six to fifteen inches in diameter.
Issue: Was Tardiani entitled to payment for the work done?
Decision: Although performance was incomplete, Steele did not choose to reject
the work done. Having accepted it, he had to pay for the value of the work.
Reason: The contract was not substantially completed: it was only partly
performed. However, Steele was obliged to pay for the value of the work done by the
woodcutters. This was because, knowing that the woodcutters were splitting some
8.4
of the wood to a diameter of more than six inches, Steele had nevertheless said
he would pay the woodcutters when the wood was eventually sold to customers.
He had also allowed Tardiani to finish working without requiring him to split the
thicker logs properly. Accordingly, the court decided that Steele had chosen not
to exercise his right to insist on complete performance. Furthermore, because
Steele had accepted the benefit of the partial performance, he was bound to pay
the woodcutters on a quantum meruit basis, that is, payment for the actual value of
the work they had done (as distinct from the agreed price).
8.4.4 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.
Hoenig v Isaacs [1952] 2 All ER 176

Contract; breach; substantial performance; remedies for breach
Facts: Hoenig was contracted to paint Isaacs’ apartment and supply some furniture
for £750. After painting the apartment and supplying the furniture, Hoenig claimed
payment in full. Isaacs complained that the work had been badly done. It cost £55
to have another workman rectify the defects. In view of the imperfect work, Isaacs
paid only £400 to Hoenig. Hoenig sued Isaacs for the balance of the agreed price.
Issue: Was Isaacs obliged to pay the agreed price in full?
Decision: Isaacs was not obliged to pay the full price, but was only entitled to deduct
the actual cost of the necessary repairs (£55).
Reason: Payment of the agreed price by Isaacs was due in exchange for Hoenig’s
performance of his obligations under the contract. Although Hoenig had not
performed perfectly, the faults in his work were easily fixed at modest cost. In the
8
circumstances, he had performed substantially. Where substantial performance
has taken place, the failure to render complete performance, while still a breach
of contract, will be treated as a breach of a warranty rather than a breach of a
condition (unless the parties have expressly agreed otherwise). The substantial
performance must be accepted and paid for proportionately. Isaacs was therefore
required to pay the agreed price, less the amount needed to rectify the defects.

Connor v Stainton (1924) 27 WALR 72

Contract; performance of a contract; substantial performance; breach
of contract
Facts: Connor entered into a contract with Stainton, a fencer, in which Stainton
agreed to erect just over three miles of fencing with posts 12 feet apart. When the
fence was erected, many of the posts were found to be more than 12 feet apart, in
some cases up to 18 feet apart. When Stainton claimed the promised payment for
the fence, Connor refused to pay on the grounds that Stainton had not substantially
carried out the contract. Stainton did not deny that the posts were further apart
than promised, but claimed that, by adding ‘droppers’ between some of the posts,
the fence would be just as effective as if the posts were all 12 feet apart.
Issue: Was Stainton entitled to payment of the agreed price, less any expenditure
required to add droppers to the fence as required to make it effective?
Decision: Stainton had not substantially performed the contract and was not
therefore entitled to claim the agreed payment.
Reason: A contract to complete a whole task involves an obligation to do everything
necessary for the completion of the work and, except for trivial shortcomings, to do
it fully as described. Anything less is not substantial performance. It is not sufficient
to do something that is materially different, even if it can be argued that what was
done is just as good as what was promised. In the present case, the fence that was
erected was, and always would be, of an entirely different character from the one
that had been promised. Putting droppers in would not make the fence the same as
that agreed to in the contract. Stainton’s failure to render substantial performance
meant that he was not entitled to claim any agreed payment from Connor.
8.4.5 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.
Finch Motors Ltd v Quin (No 2) [1980] 2 NZLR 519

Contract; breach; delivery of defective goods; hidden defects;
opportunity to discover hidden defects
Facts: Quin bought a car that she wanted to use to tow a boat. The car was sold as
suitable for that purpose. Before the sale, Quin’s husband took the car for a short
test drive and looked under the bonnet at the engine. He saw nothing wrong. Quin
made payment by cheque and took the car. Soon thereafter she discovered that a
defective radiator caused the car to overheat when towing the boat. She stopped
payment on the cheque and returned the car to Finch Motors.
8.4
Issue: Since she had inspected the vehicle, accepted delivery and used the vehicle
for towing, was it too late for Quin to reject it?
Decision: Quin was entitled to reject the car.
Reason: The defect was a serious one that made the car unsuitable for towing.
If the defect had been obvious at the time of the sale, Quin would not have been
entitled to reject the car after inspecting it, taking delivery and driving it. However,
the defect was hidden (latent) and was not discoverable merely by looking at the car
or driving it without towing. In such cases, a delay in rejecting the goods until the
defect is discovered does not necessarily amount to an unconditional acceptance of
the goods as fulfilling the contract. Whether any delay is reasonable is a question
of fact which depends on the nature of the article sold and the nature of the defects
alleged.
8.4.6 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.
Holland v Wiltshire (1954) 90 CLR 409

Contract; breach; late performance; remedies; termination of
performance
Facts: Wiltshire sold some land to Holland for £3,750. The written agreement
provided for payment to be made ‘on the day fixed for settlement namely January
14th 1952’. At Holland’s request, Wiltshire agreed to an extended deadline, but
Holland failed to meet the extension. Holland then informed Wiltshire he did not
intend to proceed with the sale at all. Wiltshire did not immediately terminate
performance of the contract but said that if Holland did not settle by 28 March, he
(Wiltshire) would commence legal action for breach of contract.
8
Issue: Was Wiltshire entitled, failing payment by 28 March, to terminate further
performance of the sale, resell the land to a third party and claim any loss from
Holland?
Decision: Wiltshire was entitled to these remedies.
Reason: There were two breaches of contract by Holland. The first occurred
when Holland failed to perform at the agreed (extended) time. On the facts of this
case, the court held that the time of performance was agreed to be of essential
importance. This meant that Holland’s failure to perform on time amounted to a
breach of condition and entitled Wiltshire to terminate the contract immediately.
Wiltshire chose not to end performance of the contract immediately. It was only
after a second breach occurred, when Holland said he would not proceed with the
sale at all, that Wiltshire gave him a deadline for performance and then terminated
the contract when that deadline passed. Wiltshire then resold the property to a
third party, but at a lower price. He was entitled to claim as damages the difference
between the lower price on resale and the original contract price.

8.4.7 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.
Hochster v De la Tour (1853) 118 ER 922

Contract; anticipatory breach; immediate right to sue
Facts: In April 1852, De la Tour engaged Hochster as a courier to accompany him
on a trip. Hochster was to commence work on 1 June 1852. However, three weeks
before that date, De la Tour informed Hochster that he no longer required a courier.
De la Tour refused to compensate Hochster for cancelling the agreement. On 22
May, a week before his employment was due to begin, Hochster sued De la Tour for
breach of contract.
Issue: Had there already been a breach of contract by De la Tour on 22 May, giving
Hochster an immediate right to sue?
Decision: The court held there had been an anticipatory breach of contract by De la
Tour on 22 May and that Hochster was immediately entitled to sue.
Reason: When the time for performance of a contract has not yet arrived, but
one party expressly announces that they are not going to perform their future
obligations, the non-defaulting party is entitled to accept this repudiation of the
contract and sue immediately for damages on grounds of anticipatory breach.
[8.5] Assessing the Seriousness of a Breach of Contract

8.5.1 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.
8.5.2 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
8.5
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

Contract; contents; terms; conditions and warranties; breach of
Issue: Was the promise to publish Bancks’ drawings on the front page of the
comic section an essential term, breach of which would justify terminating further
justified in terminating further performance.
v. Luna Park (N.S.W.) Ltd. … The decision was reversed on appeal …, but his
importance to the promisee that he would not have entered into the contract 8
promisor …’
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.


before the first engagement and attend rehearsals. Being ill, Bettini arrived late
and missed four days of rehearsals. Because of this breach Gye wanted to terminate
future performance of the contract.
warranty?
8.5.3 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).
Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44

Contract; breach of contract; innominate terms; breach; remedies;
termination of performance
Facts: Bremer sold a quantity of citrus pellets to Cehave. The contract required the
pellets to be shipped ‘in good condition’. Bremer shipped pellets that were not in
good condition, and their value was accordingly less. However, the pellets were still
good enough to use for animal feed, which is how Cehave intended to use them.
Cehave alleged that, by not shipping pellets that were in good condition, Bremer
was in breach of contract. Relying on this breach, Cehave wanted to reject the
pellets that had been delivered to him.
Issue: In these circumstances, was Cehave entitled to reject delivery of the pellets
or was he obliged to accept the delivery and claim damages for the inferior quality?
8.5
Decision: Although delivering pellets that were not in good condition was a breach
of contract, Cehave had no right to reject the delivery.
Reason: The term that had been breached was an innominate term (or intermediate
term). Only a serious breach of such a term justifies rejecting performance, that
is, a breach that substantially deprives the non-defaulting party of the benefit
for which they entered the contract. Since the pellets were good enough for the
buyer’s purpose, Cehave was obliged to accept and pay for them; he would only
have a claim for damages to the extent that they were worth less than pellets of the
promised quality.
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007)

233 CLR 115
Contract; breach of contract; remedies for breach; the right to
terminate performance
Facts: The Koompahtoo Council and Sanpine entered into a joint venture agreement
to develop an area of land owned by the council, with the objective of then reselling
that land for residential purposes. Sanpine was to manage the project. The council
and Sanpine each had a 50% interest in the venture. The joint venture agreement
contained numerous other provisions, for example, requiring Sanpine to seek
funding, apply for approvals, provide progress reports and so on. In particular,
clause 16.5 of the contract required Sanpine to keep proper books of account
sufficient to allow the affairs of the joint venture to be assessed from time to time. In
fact, Sanpine failed to keep proper books of account or to provide progress reports
or to arrange adequate funding. The council, relying on these breaches, terminated
the joint venture agreement.
Issue: Had there been a breach of the joint venture contract sufficient to justify the
council’s decision to terminate further performance of the agreement?
Decision: Termination of the joint venture was justified because the consequences
of Sanpine’s breaches, particularly of clause 16.5, went to the root of the contract
8
and deprived the council of a substantial part of the benefit for which it had
contracted.
Reason: The majority of the court held that, on the evidence, clause 16.5 could
well have been treated as an essential term (condition) of the contract, but in
fact decided the case on the basis that the term was ‘intermediate’ rather than
being either a condition or warranty. Accordingly, the right to terminate arose from
the seriousness of the effects of the breach. The court reviewed the approach of
Australian law to deciding when termination is justified and said (at [68]):
The focus of attention should be the contract, and the nature and seriousness
of the breaches … the intention that is relevant is the common intention of
the parties, at the time of the contract, as to the importance of the relevant
terms and as to the consequences of failure to comply with those terms. This

is a question of construction of the contract to be decided in the light of its

commercial purpose and the business relationship it established.
[8.6] The Consequences of a Breach of Contract

8.6.1 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.
[8.7] Risk and Frustration

8.7.1 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.
8.7.2 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
8.7
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
8.7.3 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.
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982)

149 CLR 337
Contract; performance; frustration; discharge by frustration
Facts: Codelfa Construction agreed to build two tunnels in Sydney for the State Rail
Authority for an agreed price. When contracting, both parties believed that nothing
could prevent construction from continuing 24 hours a day. In particular, they
thought that state legislation protected Codelfa against the possibility of injunctions
for nuisance. However, the high levels of noise disturbed the local residents, who
managed to obtain an injunction placing limits on the hours during which Codelfa
could work. Having to do the work more slowly would cost Codelfa extra money.
Issue: Had performance of the contract become frustrated by the changed
circumstances in which construction now had to take place?
Decision: In a majority decision, the court held that performance as originally
agreed had become frustrated.
8
Reason: It was clear from what was said when negotiating the contract, that both
parties believed Codelfa would be able to work continuously. The unforeseen
injunction made performance possible only in a way that was fundamentally
different (and much more expensive) than what was originally contemplated. The
court took the view that it would be unfair to enforce the original agreement in
these changed circumstances, and the contract was discharged by frustration.
Codelfa was therefore not obliged to do the work for payment as originally agreed,
and it was open to the parties to negotiate a new agreement.

8.7.4 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.
Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524

Contract; performance; frustration; fault
Facts: Maritime National chartered the St Cuthbert, a trawler, from Ocean Trawlers.
To use the trawler for fishing, as was intended, it had to be licensed, but the
government issued only three licences to Maritime National, and that company had
five boats needing licences. Maritime National allocated licences to three of their
other boats and asked Ocean Trawlers to take back the St Cuthbert, claiming the
contract had been frustrated by the lack of a licence.
Issue: Did the unavailability of a licence for the St Cuthbert frustrate the contract?
Decision: The plaintiff was not entitled to rely on frustration in these circumstances.
Reason: It was Maritime National’s own decision not to allocate one of their
available licences to the St Cuthbert. In seeking to avoid the contract, Maritime
National was not entitled to rely on a situation they had deliberately brought about.
For frustration to discharge the contract, the changed situation must arise without
any fault or deliberate act by the party who is seeking relief.
8.7.5 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.
Davis Contractors Ltd v Fareham Urban District Council

[1956] AC 696
Contract; performance; frustration; risk of changed circumstances
Facts: Davis agreed to build 78 houses, within eight months, for the Fareham Urban
District Council. Because of a shortage of labour and materials, the work took
longer and cost £17,000 more than expected. Davis wanted the council to pay the
increased costs.
Issue: Was performance of the original contract frustrated by the shortage of
labour and materials?
Decision: Performance was not frustrated.
8.7
Reason: Disappointed expectations do not mean frustrated contracts. When a

contractor undertakes work for a fixed sum, he or she normally takes on the risk of
the cost being increased by delay. Frustration only occurs if the delay was caused
by a new and unforeseeable factor, and was greater than expected, so that the job
became one of a different kind from that contemplated in the original agreement.
In this case the delay was not unforeseeable, and the contractor should have made
provision in the contract if he had wished to avoid the risk.
Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93

Contract; performance; frustration; risk of changed circumstances
Facts: Tsakiroglou, a shipping company, sold some goods to Noblee and undertook
to deliver them by sea. The contract did not specify a particular time for delivery,
nor the route that the ship would sail. However, the shortest, quickest and cheapest
route was through the Suez Canal. After the contract was made, the Suez Canal
was closed by the outbreak of war in that region. Ships that would have used the
canal now had to take a long detour via the Cape of Good Hope. This added four
weeks to the length of the trip and increased the cost.
Issue: Had the contract been frustrated by these new circumstances?
Decision: The contract was not frustrated.
Reason: As no specified route had been agreed, the shipper was required to use the
best available route in the circumstances. Although the route now available would
cost more than the route envisaged by the shipper at the time of contracting, that
in itself was not sufficient reason to excuse performance on grounds of frustration.
8.7.6 Frustration excuses only outstanding obligations

Under the common law, it is only the unperformed (outstanding) obligations still existing
8
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’.
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd

[1943] AC 32
Contract; performance; frustration; effect in common law of discharge
by frustration
Facts: Fairbairn, an English manufacturer, agreed to build a machine for Fibrosa,
a Polish company. Before work on the machine began, Fibrosa paid a deposit to
Fairbairn, as required by the contract. Fairbairn began work but, two months later,
Germany invaded Poland and war broke out between England and Germany. In

these new circumstances, the contract could not be completed and was therefore
discharged by frustration. Fibrosa requested the return of the deposit they had paid
but Fairbairn refused to refund any money.
Issue: Since the contract had been frustrated, was Fibrosa entitled to reclaim the
deposit?
Decision: The deposit should be repaid.
Reason: Fibrosa had received nothing from Fairbairn in exchange for the deposit
and would not receive anything now that further performance of the contract was
frustrated. This amounted to a total failure of the consideration in exchange for
which the deposit had been paid. In these circumstances, the deposit needed to be
refunded. However, if Fibrosa had received some part of what had been contracted
for before the contract became frustrated, such as the delivery of some components
of the machine, then they could not have reclaimed the deposit.
8.7.7 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).
Australian Consumer Law and Fair Trading Act 2012 (Vic)

Part 3.2 —Frustrated contracts
…
Division 2 —Consequences of frustrated contract
36 Adjustment of amounts paid or payable to parties to discharged contracts
(1) All amounts paid to any party under a discharged contract before the time of
discharge are recoverable.
(2) All amounts payable to any party under a discharged contract before the time
of discharge cease to be payable.
37 Court may allow amounts paid or payable to be recovered or paid
Despite section 36, the court may, if it considers it just to do so having regard to all
the circumstances of the case, allow a party to a discharged contract —
(a) to whom amounts were paid or are payable under that contract before the
time of discharge; and
8.7
(b) who has incurred expenses before the time of discharge in or for the purpose
of the performance of that contract —
to retain or recover (as the case may be) the whole or any part of the amounts
paid or payable to that party under the contract in an amount not exceeding the
expenses incurred.
38 Parties to pay an amount for valuable benefits obtained
(1) This section applies if a party to a discharged contract obtained a valuable
benefit (other than a payment of money to which section 36 or 37 applies)
before the time of discharge because of anything done by another party in or
for the purpose of the performance of the contract.
(2) Despite section 36, the benefited party is liable to pay to that other party
any amount (not exceeding the value of the benefit obtained) that the court
considers just having regard to all the circumstances of the case.
(3) For the purpose of subsection (2), the court may have regard to —
(a) the amount of any expenses the benefited party incurred before the time of
discharge in or for the purpose of the performance of the contract, including
any amount paid or payable by the benefited party to any other party under the
contract and retained or recoverable by that party under section 36 or 37; or
(b) the effect, in relation to the benefit obtained, of the circumstances giving rise
to the frustration or avoidance of the contract.
(4) For the purpose of this section, if a party to the contract has assumed
obligations under the contract in consideration of the conferral of a benefit by
another party to the contract on any other person (whether or not that person
is a party to the contract), the court may, if in all the circumstances of the case
it considers it just to do so, treat any benefit conferred on that other person as
a benefit obtained by the party who has assumed those obligations.
39 Calculation of expenses incurred
In estimating, for the purposes of this Division, the amount of any expenses
incurred by any party to a discharged contract, the court may include an amount
that appears reasonable for —
(a) overhead expenses; and
8
(b) work or services performed personally by the party.
40 Circumstances in which amounts payable under contract of insurance excluded
In considering whether any amount is to be retained or recovered by any party to a
discharged contract, the court must not take into account any amounts payable to a
party under a contract of insurance because of the circumstances giving rise to the
frustration or avoidance of the contract unless an obligation to insure is imposed —
(a) by an express provision in the frustrated or avoided contract; or
(b) by or under any enactment.
Division 3 —General
41 Circumstances in which contract provisions continue to have effect despite
frustration

If any contract to which this Part applies contains a provision that on the true
construction of the contract —
(a) is intended to continue to have effect in circumstances that operate or would,
but for that provision, operate to frustrate or avoid the contract; or
(b) is intended to have effect whether or not circumstances that operate or would,
but for that provision, operate to frustrate or avoid the contract arise —the
court must give effect to that provision and must only give effect to Division 2
to the extent that the court is satisfied that it is consistent with the provision of
the contract.
42 Performed part of contract not frustrated
If it appears to the court that part of a contract to which this Part applies —
(a) is wholly performed before the time of discharge; or
(b) is wholly performed before the time of discharge except for payment in respect
of that part of the contract of amounts that are or can be ascertained under
the contract —the court must treat that part of the contract as if it were a
separate contract that had not been frustrated or avoided and Division 2 will
only apply to the remainder of that contract.
43 Nature of action
All actions and proceedings to recover amounts under this Part are taken to be
founded on simple contract.
44 Limitation period
Subject to Part II of the Limitation of Actions Act 1958, a cause of action under this
Part is taken to have first accrued at the time of discharge.
[8.8] Checklist: 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.
Step 1
What are the terms of the contract?
• What terms were agreed?
• What terms were implied by operation of law?
• Are there any exclusion or limitation of liability clauses that affect the
enforceability of the terms of the contract?
Step 2
Is the meaning of the various terms clear?
• If the terms are uncertain or ambiguous, how are they likely to be
interpreted?
8.8
Step 3
What duties of performance arise from the terms?
• Is there any dispute about the nature and scope of the duties owed by
each party?
Step 4
Has there been a breach of contract?
• If so, which term (or terms) has been breached?
• How important was the term that has been breached? Is the relevant
term a conditions or a warranty? Has the breach deprived the plaintiff of
the intended benefit of the contract?
Step 5
What kind of breach has occurred?
• Non-performance, late performance, partial performance, substantial
performance or hidden defects?
• Was the breach that occurred actual or anticipatory?
Step 6
Are there any circumstances which would excuse the failure to perform?
• Do the rules of risk apply?
• Do the rules of frustration apply?
• Does legislation provide relief if the contract is frustrated?

The questions below will help you to check whether you have learned the things you need
to know about performance and breach of contract.
1. What degree of performance is needed for contractual obligations to be discharged?
2. What is the difference between ‘non-performance’, ‘partial performance’, ‘substantial
performance’ and ‘late performance’?
8
3. If a seller promises to deliver specifically identified goods, but in fact delivers different
goods of exactly the same description and quality, is there a breach of contract?
4. If there is only partial performance of a ‘condition’, can the non-defaulting party
choose to reject that performance? If partial performance is accepted, must the full
contract price be paid?
5. What test is used to decide whether performance, although flawed, is substantial? Is
substantial performance sufficient to prevent a breach of contract?
6. If no time is agreed for performance to take place, when must performance be made
in order to avoid a breach of contract?

7. How do the courts decide whether or not late performance should be allowed? What
presumption will be applied when deciding such questions? Can the presumption be
rebutted?
8. What is an ‘anticipatory breach’? If there is an anticipatory breach of a condition, is
the plaintiff entitled to immediate relief for breach of contract?
9. What is a ‘divisible contract’? What test is applied to decide whether a contract is
divisible or indivisible? What is the importance of a contract being treated as divisible?
10. What is the effect of a ‘frustrating event’ on contractual obligations? What must be
established by a contracting party who wishes to rely on frustration to be excused
from further performance of the contract? Can compensation be recovered for partial
performance made before a frustrating event occurs?

e modules.
8.9
CHAPTER 9
Remedies for Breach of Contract

In this chapter:
The remedies available for breach of contract
• An award of damages
• Terminating performance
• Specific performance
• Injunctions
• Statutory remedies
• Agreed remedies
• The availability of particular remedies
• The extent of relief provided.
[9.1] Introduction
9.1.1 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. There is,
in addition, an eStudy module called Remedies for breach of contract that provides lots of
practical examples and questions that will help you better understand the law.
9.1.1(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
9.1
188 Remedies for Breach of Contract
perform the contract. This remedy is only available for a serious breach of contract. It can
be combined with a claim for damages.
9.1.1(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.
9.1.1(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.
9.1.1(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 6.3.9).
9.1.2 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.
9.1
Remedies for Breach of Contract189
[9.2] Common Law Remedies

9.2.1 An award of damages for breach of contract
9.2.1(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 9.2.2 and following).
9.2.1(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.
9.2.1(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.
Radford v de Froberville [1978] 1 All ER 33

Contract; remedies for breach; objective of damages
Facts: Radford owned two adjacent blocks of land. He sold one to de Froberville on
the condition that she build an expensive brick wall on the boundary. She failed to
build the wall, and resold her property to a third party. Radford sued de Froberville
for damages for breach of contract. He claimed the cost of actually constructing
9
the promised brick wall. De Froberville argued that Radford was only entitled to be
compensated for the reduction in the value of Radford's property as a result of her
failure to build the wall. This was less than the cost of actually building the wall.
Issue: What was the appropriate measure of damages?
Decision: Radford was entitled to claim damages equal to the cost of actually
constructing the wall.
Reason: The objective of an award of damages is to put the non-defaulting party in
the position that would have been occupied had the breach of contract not occurred.
If de Froberville had performed the contract, the wall would have been built, and it
was the cost of this that Radford was entitled to claim.

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd

(2009) 236 CLR 272
Contract; lease; remedies for breach; claim for damages; objective of
damages
Facts: Bowen Investments Pty Ltd (Bowen) leased a building to Tabcorp Holdings
Ltd (Tabcorp) for 10 years. It was a term of the lease that the tenant would not make
any substantial alteration or addition to the building without first obtaining the
landlord’s written consent. Six months into the lease, and without first obtaining
the landlord’s consent, the tenant demolished the foyer of the building and rebuilt
it in a way they preferred. The landlord sued for the cost of restoring the foyer to its
previous state, which amounted to just over $1.3m. The trial judge held the tenant
in breach of contract but only awarded damages of $34,820, being the difference
between the value of the building with the old foyer and the value of the building
with the new foyer. On appeal, Bowen claimed that they were entitled to the higher
amount.
Issue: Was the landlord entitled, on grounds of the tenant’s breach of contract, to
claim the full cost of restoring the foyer to its previous state?
Decision: The appropriate measure of damages was the cost of restoring the foyer
to its previous state.
Reason: The relevant principle is that, when a party suffers a loss because of a
breach of contract, damages may be claimed to put that party in the same situation
as if the contract had been performed, so far as money can do it. This does not
mean simply in the same ‘financial’ position, but in the same actual position, so
that the party has or can acquire what was actually contracted for. In this case,
that meant the cost of actually restoring the foyer to its original state, because
this is the position the landlord would have been in if the contract had not been
breached. There may be exceptional cases where to award such damages becomes
unreasonable, but that was not so in the present case.
Clark v Macourt (2013) 304 ALR 220

Contract; damages for breach of contract; the measure of damages
claimable
Facts: Clark, a medical practitioner specialising in assisted reproduction, purchased
the assets of the St George Fertility Centre Pty Ltd. These assets included a stock
of frozen sperm used in fertility treatments. The contract between Clark and St
George contained guarantees that the donors of the sperm were properly identified
as required by law. Macourt, the owner of St George, provided personal guarantees
to Clark that the contract would not be breached. However the identification of
the sperm donors was not properly documented as promised, and as a result
the sperm acquired by Clark from St George could not be used. Clark obtained
9.2
replacement sperm from the only other available source, an American company.
This replacement sperm was only available at a very high price, but Clark was
ultimately able to recoup these costs through higher charges to clients. She then
sued Macourt for damages for breach of contract. Although the breach of contract
and Macourt’s liability was not in issue, the amount of damages payable in the
circumstances was disputed.
Issues: What was the proper measure of damages claimable for the breach of
contract? To what extent had Clark's losses been mitigated by the purchase and
use of alternative sperm?
Decision: Damages for breach of contract should be calculated as the difference
between the value of the assets at the date of delivery and the cost of acquiring
replacement assets. The sperm delivered being unusable, it had no value. Acquiring
replacement assets properly mitigated the losses flowing from the breach.
Reason: Clark was entitled to the value of the assets contracted for, determined at
the date of delivery, regardless of the contract price. This value can be determined
by the cost of acquiring replacement assets. Damages for breach of contract have
the aim of putting the aggrieved party in the same position as if the contract had
been performed, which means the plaintiff is entitled to assets in compliance with
the contract or the market value of such assets in the form of damages. Acquiring
alternative goods falls within the category of mitigating loss, but what is done with
those goods thereafter in the course of business should not be taken into account
in assessing the quantum of damages. Clark was therefore entitled to recover the
high cost of acquiring alternative sperm as damages.
9.2.1(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.
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377

Contract; remedies for breach; damages for wasted expenses
Facts: The Commonwealth Disposals Commission asked interested persons to bid 9
for the purchase of an oil tanker that the commission said was lying wrecked on a
reef called Jourmaund Reef. McRae’s bid of £285 was accepted, and McRae spent
considerable sums of money searching for the reef and tanker, but it turned out
that neither of them actually existed. On discovering these facts, McRae sued the
commission for breach of contract. McRae claimed damages calculated to include
both the price paid for the tanker and the much larger expenses that had been
wasted searching for it.

Issue: Was McRae entitled to claim the wasted expenses as damages in addition to
the price paid for the tanker?
Decision: McRae was entitled to claim the wasted expenses.
Reason: The parties must have known when contracting that expenses would be
incurred searching for the tanker. McRae had a right to claim these as damages,
unless the commission could prove that the expenses would have been wasted even
if the contract had not been breached. McRae was awarded damages of £3,285.
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.
9.2.1(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.
Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350

Contract; remedies for breach; damages; immediate loss
Facts: Czarnikow entered into a contract with Koufos, chartering Koufos’ ship to
carry a cargo of sugar from Constanza in Romania to Basrah in Iraq. This journey
normally took about 20 days. However, because the ship made some unauthorised
deviations from its route, the trip took 10 days longer than normal. During this
additional 10 days, the price of sugar in Basrah dropped significantly, so that
when Czarnikow’s sugar arrived it was worth less than it would have been worth if
delivered 10 days earlier. In view of the later delivery, Czarnikow brought an action
for breach of contract against Koufos, claiming damages to compensate for the
drop in the market price of sugar.
Issue: Was Czarnikow entitled to claim damages from Koufos to compensate for
losses caused by the drop in the market price of sugar?
Decision: Damages could be claimed to compensate for the loss caused by the drop
in price.
Reason: Following a breach of contract, damages can be claimed to compensate for
direct (immediate) losses suffered by the plaintiff. Direct losses are those that are
fairly and reasonably considered to arise naturally (according to the usual course
of things) from the breach of contract itself. The court found that Koufos must, ‘as
a reasonable business man, have contemplated that [Czarnikow] would very likely
suffer loss, and that it would be or would be likely to be a loss referable to market
price fluctuations at Basrah’. The loss was therefore foreseeable as a loss flowing
in the usual course of events from the breach and constituted direct (or immediate)
loss for which Koufos was entitled to claim damages. This was one of the principles
9.2
laid down in Hadley v Baxendale (1854) 2 CLR 517 and is often referred to as the first
principle or ‘limb’ of that case.
9.2.1(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.
Hadley v Baxendale (1854) 2 CLR 517

Contract; remedies for breach; damages; consequential loss
Facts: The crankshaft of Hadley’s mill broke, bringing milling operations to
a complete halt. The manufacturers of the shaft said that they could make a
replacement, but they needed the broken shaft to copy it. Hadley consigned the
broken shaft to Baxendale, a carrier, telling him it was the broken shaft of a mill
and instructing him to take it to the manufacturer. Baxendale said he would deliver
it to the manufacturer the next day, but then he carelessly delayed for several days
before transporting it. During this whole period the mill stood idle. Hadley claimed
damages for breach of contract from Baxendale, to compensate for the loss of
profits caused by the delay.
Issue: Was Hadley entitled to compensation for the lost profits?
Decision: In the circumstances, Hadley was not entitled to such damages.
Reason: A plaintiff who establishes a breach of contract is not restricted to claiming
damages only for direct (immediate) losses. In appropriate circumstances, they
may also claim damages to compensate for more remote (or consequential)
losses. However, damages for consequential loss can only be claimed if the losses
may reasonably be supposed to have been in the contemplation of both parties,
at the time they made the contract, as a probable result of such a breach. The
court decided that Hadley’s loss of profits was not direct loss because normally it
would be expected that a mill would have, or could acquire, a spare shaft and so it
was not reasonably foreseeable that a broken shaft would cause a complete halt
of production. The court also decided that the lost profits could not be claimed
as consequential loss because Baxendale had not been told that the mill would 9
remain completely out of operation until the shaft was replaced. This meant that
the loss of profits was not something both parties would have contemplated at the
time of contracting.
9.2.1(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.
Baltic Shipping Company v Dillon (The Ship Mikhail Lermontov)

(1993) 176 CLR 344
Contract; remedies for breach; damages; distress and disappointment
Facts: Dillon booked and paid for a 14-day cruise on a passenger ship. Eight days
after the cruise began, the ship struck a rock and sank. Apart from physical injuries
and psychological trauma, Dillon suffered from disappointment and distress when
her planned holiday ended in catastrophe. She sued Baltic Shipping for damages
to compensate for this.
Issue: Was Dillon entitled to damages for distress and disappointment flowing from
a breach of contract?
Decision: The damages should be awarded.
Reason: This type of case provides an exception to the general rule that a plaintiff
cannot claim damages for disappointment, distress or injured feelings by reason of
a breach of contract. Where the defaulting party has expressly or impliedly agreed
to provide pleasure, relaxation and entertainment, or to prevent molestation or
vexation, then damages of this type are recoverable following a breach. The same
principle applies in cases of a breach of contract that causes a physical injury, or a
breach that causes physical inconvenience.
9.2.1(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.
Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653
Contract; remedies for breach; damages; mitigation of loss
Facts: MAN Automotive supplied a large commercial vehicle to Burns. The vehicle
supplied was defective. The defects became apparent after a year, but Burns
persisted in trying to use it and, by doing so, accumulated substantial operating
losses in the process. Burns sued for damages to compensate for lost profits
calculated over the four years during which the vehicle would have been expected
to have a useful operating life.
Issue: Had the plaintiff taken appropriate steps to mitigate the loss suffered?
9.2
Decision: A plaintiff is not required to take steps to mitigate loss if the plaintiff does
not have the necessary means to do so.
Reason: In discussing the need to mitigate loss, Gibbs CJ said (at [7]‌, [8]):
[T]‌he appellant was bound to take all reasonable steps to mitigate the loss,
and one course open to him to mitigate the damage … was to have the engine
reconditioned or to buy another to replace it. However his impecuniosity [lack
of money] prevented him from taking that course. The question arises whether
it should be held that the appellant is debarred from claiming such part of
the damages as is attributable to his failure to take the necessary steps in
mitigation, when he was unable to take those steps because of his lack of
means.
That question must be answered in the negative … [A]‌plaintiff’s duty
to mitigate his damage does not require him to do what is unreasonable and
it would seem unjust to prevent a plaintiff from recovering in full damages
caused by a breach of contract simply because he lacked the means to avert
the consequences of the breach.
9.2.1(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.
Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322

Facts: Simonius Vischer was a Swiss wool broker. It established a local firm in
Sydney to trade in the Sydney wool futures market. The Sydney firm was audited by
Holt & Thompson. Undetected by Holt & Thompson, the Sydney firm exceeded the
powers given to them by Simonius Vischer, entering into unauthorised contracts that
caused a loss of $200,000. On discovering the situation, Simonius Vischer decided
that the losses would be minimised by approving the unauthorised contracts. This
proved a wrong decision and even greater losses were suffered. Simonius Vischer
9
then sued Holt & Thompson for breach of the auditing contract, claiming damages
to compensate for the full extent of their losses.
Issue: Were the additional losses, incurred by the decision to keep the contracts,
recoverable?
Decision: The additional losses were recoverable.
Reason: The court rejected Holt & Thompson’s argument that Simonius Vischer had
failed to effectively mitigate their losses. It was held instead that Simonius Vischer
had acted reasonably in deciding to keep the contracts in the hope of minimising
the loss. Accordingly, when this hope did not materialise, Holt & Thompson were
liable for the additional losses that resulted.

9.2.1(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.
British Westinghouse Electric and Manufacturing Co Ltd v

Underground Electric Railways Co of London Ltd [1912] AC 673
Facts: British Westinghouse (BW) contracted to supply electric turbines to
Underground Electric Railways (UER). The turbines supplied were defective. UER
replaced them with turbines that were more powerful and efficient (and more
expensive) than the original ones. UER sued BW for damages to compensate for
the additional cost of the replacement turbines. However, the bigger turbines had
reduced UER’s costs and increased its profits.
Issue: In the circumstances, was UER entitled to the damages claimed?
Decision: Damages could not be claimed.
Reason: Taking account of the savings and increased profits, it was apparent that
UER had not suffered an overall loss in relation to the increased cost of the new
turbines.
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.
9.2.2 Termination of performance
9.2.2(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).
9.2
9.2.2(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.

Contract; contents; terms; conditions and warranties; breach of
Issue: Was the promise to publish Bancks’ drawings on the front page of the comic
section an essential term, such that a breach would justify terminating further
justified in terminating further performance.
v. Luna Park (N.S.W.) Ltd …. The decision was reversed on appeal …, but his
importance to the promisee that he would not have entered into the contract
promisor …’
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.
Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44

9
Contract; breach of contract; innominate terms; breach; remedies;
termination of performance
Facts: Bremer sold a quantity of citrus pellets to Cehave. The contract required the
pellets to be shipped ‘in good condition’. Bremer shipped pellets that were not in
good condition, and their value was accordingly less. However, the pellets were still
good enough to use for animal feed, which is how Cehave intended to use them.
Cehave alleged that, by not shipping pellets that were in good condition, Bremer

was in breach of contract. Relying on this breach, Cehave wanted to reject the
pellets that had been delivered to him.
Issue: In these circumstances, was Cehave entitled to reject delivery of the pellets
or was he obliged to accept the delivery and claim damages for the inferior quality?
Decision: Although delivering pellets that were not in good condition was a breach
of contract, Cehave had no right to reject the delivery.
Reason: The term that had been breached was an innominate term (or intermediate
term). Only a serious breach of such a term justifies rejecting performance, that
is, a breach that substantially deprives the non-defaulting party of the benefit
for which they entered the contract. Since the pellets were good enough for the
buyer’s purpose, Cehave was obliged to accept and pay for them; he would only
have a claim for damages to the extent that they were worth less than pellets of the
promised quality.

233 CLR 115
Contract; breach of contract; remedies for breach; the right to
terminate performance
Facts: The Koompahtoo Council and Sanpine entered into a joint venture agreement
to develop an area of land owned by the council, with the objective of then reselling
that land for residential purposes. Sanpine was to manage the project. The council
and Sanpine each had a 50% interest in the venture. The joint venture agreement
contained numerous other provisions, for example, requiring Sanpine to seek
funding, apply for approvals, provide progress reports and so on. In particular,
clause 16.5 of the contract required Sanpine to keep proper books of account
sufficient to allow the affairs of the joint venture to be assessed from time to time. In
fact, Sanpine failed to keep proper books of account or to provide progress reports
or to arrange adequate funding. The council, relying on these breaches, terminated
the joint venture agreement.
Issue: Had there been a breach of the joint venture contract sufficient to justify the
council’s decision to terminate further performance of the agreement?
Decision: Termination of the joint venture was justified because the consequences
of Sanpine’s breaches, particularly of clause 16.5, went to the root of the contract
and deprived the council of a substantial part of the benefit for which it had
contracted.
Reason: The majority of the court held that, on the evidence, clause 16.5 could
well have been treated as an essential term (condition) of the contract, but in
fact decided the case on the basis that the term was ‘intermediate’ rather than
being either a condition or warranty. Accordingly, the right to terminate arose from
the seriousness of the effects of the breach. The court reviewed the approach of
Australian law to deciding when termination is justified and said (at [68]):
9.2
The focus of attention should be the contract, and the nature and seriousness
of the breaches … the intention that is relevant is the common intention of
the parties, at the time of the contract, as to the importance of the relevant
terms and as to the consequences of failure to comply with those terms. This
is a question of construction of the contract to be decided in the light of its
commercial purpose and the business relationship it established.
9.2.2(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.

before the first engagement and attend rehearsals. Being ill, Bettini arrived late
and missed four days of rehearsals. Because of this breach Gye wanted to terminate
the future performance of the contract.
warranty?
9.2.2(d) Wrongful termination is an act of repudiation
9
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.
9.2.2(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.

second-hand reaping machine to Whipp for £21. Varley said the machine was in
the town of Upjohn. He said the machine was a year old and had only been used to
cut 50 or so acres of crops. Whipp had not seen the machine, but agreed to buy it.
When delivered, the machine proved to be a very old one, which had obviously been
broken and mended. Whipp returned it and refused to pay the price.
Issue: Had the seller delivered what was promised, so that he was entitled to be
paid the agreed price?
Reason: The thing sold was a specified machine, but it was bought unseen and it
was identified by description. The description was ‘a nearly new reaping machine
then in Upjohn’. The machine delivered was not ‘a nearly new machine’ and the court
held that it was not in the same class or category of goods as had been described.
The seller had therefore failed to deliver the particular goods as identified in the
contract. This was a breach of the condition, implied into sale contracts by law, that
a seller must deliver the goods as identified by description in the contract. Failure
to deliver goods as identified meant that the buyer did not become the owner of
what had been delivered. Whipp was therefore entitled to reject the machine and
was not obliged to pay for it.
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.
9.2
Steele v Tardiani (1946) 72 CLR 386

Contract; breach; partial performance; acceptance of partial
performance; duty to pay pro rata for accepted performance
Facts: Tardiani and others were employed by Steele to cut firewood. The agreement
provided that payment would be made at the rate of six shillings per ton of wood cut
in six foot lengths and split six inches in diameter. Tardiani and the others cut 1,500
tons of timber but split it into pieces ranging from six to fifteen inches in diameter.
Issue: Was Tardiani entitled to payment for the work done?
Decision: Although performance was incomplete, Steele did not choose to reject
the work done. Having accepted it, he had to pay for the value of the work.
Reason: The contract was not substantially completed: it was only partly
performed. However, Steele was obliged to pay for the value of the work done by the
woodcutters. This was because, knowing that the woodcutters were splitting some
of the wood to a diameter of more than six inches, Steele had nevertheless said
he would pay the woodcutters when the wood was eventually sold to customers.
He had also allowed Tardiani to finish working without requiring him to split the
thicker logs properly. Accordingly, the court decided that Steele had chosen not
to exercise his right to insist on complete performance. Furthermore, because
Steele had accepted the benefit of the partial performance, he was bound to pay
the woodcutters on a quantum meruit basis, that is, payment for the actual value of
the work they had done (as distinct from the agreed price).
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.
Hoenig v Isaacs [1952] 2 All ER 176

Contract; breach; substantial performance; remedies for breach
Facts: Hoenig was contracted to paint Isaacs’ apartment and supply some furniture 9
for £750. After painting the apartment and supplying the furniture, Hoenig claimed
payment in full. Isaacs complained that the work had been badly done. It cost £55
to have another workman rectify the defects. In view of the imperfect work, Isaacs
paid only £400 to Hoenig. Hoenig sued Isaacs for the balance of the agreed price.
Issue: Was Isaacs obliged to pay the agreed price in full?
Decision: Isaacs was not obliged to pay the full price, but was only entitled to deduct
the actual cost of the necessary repairs (£55).

Reason: Payment of the agreed price by Isaacs was due in exchange for Hoenig’s
performance of his obligations under the contract. Although Hoenig had not
performed perfectly, the faults in his work were easily fixed at modest cost. In the
circumstances, he had performed substantially. Where substantial performance
has taken place, the failure to render complete performance, while still a breach
of contract, will be treated as a breach of a warranty rather than a breach of a
condition (unless the parties have expressly agreed otherwise). The substantial
performance must be accepted and paid for proportionately. Isaacs was therefore
required to pay the agreed price, less the amount needed to rectify the defects.
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.
Finch Motors Ltd v Quin (No 2) [1980] 2 NZLR 519

Contract; breach; delivery of defective goods; hidden defects;
opportunity to discover hidden defects
Facts: Quin bought a car which she wanted to use to tow a boat. The car was sold
as suitable for that purpose. Before the sale, Quin’s husband took the car for a
short test drive and looked under the bonnet at the engine. He saw nothing wrong.
Quin made payment by cheque and took the car. Soon thereafter she discovered
that a defective radiator has caused the car to overheat when towing the boat. She
stopped payment on the cheque and returned the car to Finch Motors.
Issue: Since she had inspected the vehicle, accepted delivery and used the vehicle
for towing, was it too late for Quin to reject it?
Decision: Quin was entitled to reject the car.
Reason: The defect was a serious one that made the car unsuitable for towing.
If the defect had been obvious at the time of the sale, Quin would not have been
entitled to reject the car after inspecting it, taking delivery and driving it. However,
the defect was hidden (latent) and was not discoverable merely by looking at the car
or driving it without towing. In such cases, a delay in rejecting the goods until the
defect is discovered does not necessarily amount to an unconditional acceptance of
the goods as fulfilling the contract. Whether any delay is reasonable is a question
of fact which depends on the nature of the article sold and the nature of the defects
alleged.
9.2
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.
Property Law Act 1974 (Qld)

Part 6 —Deeds, covenants, instruments and contracts
…
62 Stipulations not of the essence of the contract
Stipulations in contracts, as to time or otherwise, which under rules of equity
are not deemed to be or to have become of the essence of the contract, shall be
construed and have effect at law under rules of equity.
Holland v Wiltshire (1954) 90 CLR 409

Contract; breach; late performance; remedies; termination of
performance
Facts: Wiltshire sold some land to Holland for £3,750. The written agreement
provided for payment to be made ‘on the day fixed for settlement namely January
14th 1952’. At Holland’s request, Wiltshire agreed to an extended deadline, but
Holland failed to meet the extension. Holland then informed Wiltshire he did not
intend to proceed with the sale at all. Wiltshire did not immediately terminate
performance of the contract but said that if Holland did not settle by 28 March, he
(Wiltshire) would commence legal action for breach of contract.
Issue (1): Was Wiltshire entitled, failing payment by 28 March, to terminate further
performance of the sale, resell the land to a third party and claim any loss from
9
Holland?
Decision (1): Wiltshire was entitled to these remedies.
Reason (1): There were two breaches of contract by Holland. The first occurred
when Holland failed to perform at the agreed (extended) time. On the facts of this
case, the court held that the time of performance was agreed to be of essential
importance. This meant that Holland’s failure to perform on time amounted to a
breach of condition and entitled Wiltshire to terminate the contract immediately.
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.

Wiltshire chose not to end performance of the contract immediately. It was only
after a second breach occurred, when Holland said he would not proceed with the
sale at all, that Wiltshire gave him a deadline for performance and then terminated
the contract when that deadline passed. Wiltshire then resold the property to a
third party, but at a lower price. He was entitled to claim as damages the difference
between the lower price on resale and the original contract price.
Issue (2): Had Wiltshire done what was required to terminate further performance
of the contract?
Decision (2): The contract had been effectively terminated.
Reason (2): When faced with a breach that justifies termination, the non-
defaulting party has a choice: to continue with the contract, or to terminate further
performance. The decision does not have to be made immediately, but once made
and communicated to the other party, the choice is binding. In this case, Wiltshire
had kept the contract alive for a short time after Holland’s repudiation, but made
it clear that any further failure would result in an action for breach. The eventual
decision to treat the contract as repudiated, and terminate further performance,
was communicated sufficiently by re-advertising and reselling the land.
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.
Hochster v De la Tour (1853) 118 ER 922

Contract; anticipatory breach; immediate right to sue
Facts: In April 1952, De la Tour engaged Hochster as a courier to accompany him
on a trip. Hochster was to commence work on 1 June 1852. However, three weeks
before that date, De la Tour informed Hochster that he no longer required a courier.
De la Tour refused to compensate Hochster for cancelling the agreement. On 22
May, a week before his employment was due to begin, Hochster sued De la Tour for
breach of contract.
Issue: Had there already been a breach of contract by De la Tour on 22 May, giving
Hochster an immediate right to sue?
Decision: The court held there had been an anticipatory breach of contract by De la
Tour on 22 May and that Hochster was immediately entitled to sue.
Reason: When the time for performance of a contract has not yet arrived, but
one party expressly announces that they are not going to perform their future
obligations, the non-defaulting party is entitled to accept this repudiation of the
contract and sue immediately for damages on grounds of anticipatory breach.
However, even if there is a serious anticipatory breach, the non-defaulting
party may choose to continue with the contract, hoping that performance will in
9.2
fact be made when it becomes due. If performance is not then made, an actual
breach of contract occurs, on the basis of which the non-defaulting party can sue.
Mahoney v Lindsay (1980) 33 ALR 601

Contract; anticipatory breach; the choice to terminate
Facts: Mahoney contracted to sell two blocks of land to Lindsay. Both contracts
required that ‘completion of the sale shall take place no later than the 29th day of
June 1979’. Before this date, Mahoney indicated he wanted to get out of the contracts.
Lindsay refused to accept this and gave notice that he intended to complete the
transaction, but Mahoney’s solicitor said he had no instructions to complete the
sale. Consequently, Lindsay did not attend a meeting to pay the purchase money,
something he was ordinarily required to do in exchange for transfer of the property.
Lindsay then brought an action to enforce specific performance of the contract.
Mahoney’s defence was that Lindsay had not properly tendered payment on the
agreed day.
Issue: Was Lindsay entitled to enforce the contract, even though he had not
tendered payment?
Decision: In the circumstances, Lindsay was entitled to enforce the agreement
even though he had not tendered payment on the date originally arranged.
Reason: Through his solicitor, Mahoney had made it clear that it was useless for
Lindsay to attend a meeting to pay the purchase money. In such circumstances,
Lindsay was excused from doing what he was otherwise required to do. He was
entitled to affirm the contract and seek its enforcement. The court ordered the
contracts to be performed and the sales completed.
9.2.2(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 at 9.2.2(e).
9.2.2(g) The effect of termination on the contract 9
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.

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457

Contract; remedies for breach; the effect on the contract of
terminating performance
Facts: This case involved a purchase of land, the price of which was payable in
instalments. After making some payments, the buyer failed to pay an instalment on
time. The seller treated this failure as a serious breach of contract and terminated
further performance. The buyer did not dispute this decision. However, because
the buyer was no longer entitled to complete the contract and become owner of the
land, he wanted to recover the instalments already paid. The seller wanted to keep
the instalments.
Issue: After terminating performance of the contract, was the seller entitled to
keep the instalments already paid while not being obliged to transfer the land to
the buyer?
Decision: The common law remedy of terminating performance of a contract on
grounds of breach of a condition does not make the entire contract void ab initio and
the seller could not keep both the money and the land.
Reason: Even after termination of the right to perform, a contract remains in
existence and undischarged obligations may be enforced in other ways. Since the
seller in this case was not prepared to complete the contract and transfer the land
to the buyer, he had no right to retain the instalments paid by the buyer, which
payments were conditional on the completion of the contract.
Dixon J said (at 476–477):
When a party to a simple contract, upon a breach by the other contracting party
of a condition of the contract, elects to treat the contract as no longer binding
upon him, the contract is not rescinded as from the beginning. Both parties
are discharged from the further performance of the contract, but rights are
not divested or discharged which have already been unconditionally acquired.
Rights and obligations which arise from the partial execution of the contract and
causes of action which have accrued from its breach alike continue unaffected
… [W]‌hen a contract … is dissolved at the election of one party because the
other has not observed an essential condition or has committed a breach going
to its root, the contract is determined [ended] so far as it is executory only and
the party in default is liable for damages for its breach.
9.2.2(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.
9.2
Sargent v ASL Developments Ltd; Turnbull v ASL Developments Ltd

(1974) 131 CLR 634
Contract; remedies for breach; election; knowledge of relevant facts
Facts: Sargent agreed to sell land to ASL Developments (ASL). The contract
provided that either party could terminate the contract if it were discovered before
completion of the contract that the land was subject to a planning scheme not
disclosed in the contract. Sargent was not aware of this provision. After buying the
land, Sargent discovered that it was subject to a planning scheme, but did nothing
to terminate the agreement. Much later, Sargent became aware of the contractual
right he had to terminate performance of the contract because of the planning
scheme.
Issue: Was Sargent bound by his decision to treat the contract as continuing after
discovering the planning scheme, even though at the time he was unaware of his
legal right to terminate the contract?
Decision: The failure to terminate the agreement within a reasonable time of
learning of the planning scheme amounted to a binding decision to continue with
the contract.
Reason: Some authorities have suggested that a choice to terminate or not
requires the non-defaulting party to be aware of the legal right to terminate. But
the better view is that it is enough for the non-defaulting party to know of the facts
that constitute the breach of condition (or serious breach of an innominate term)
if they behave in a way that induces the other party to believe that the contract is
continuing.
[9.3] Equitable Remedies

9.3.1 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
9
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 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.
9.3.2 Orders of specific performance
9.3.2(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.
9.3.2(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, at 9.3.3(b).
9.3.2(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.
JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282

Contract; remedies for breach; specific performance; discretionary
nature of remedy; adequacy of damages
Facts: Williamson operated a theatre in Melbourne and owned a confectionery shop
next door to the theatre. Williamson leased this shop to Lukey for five years. As
part of the deal, Williamson granted Lukey an exclusive right to sell sweets in the
theatre itself. Lukey exercised this right for three years. Then Williamson allowed
another person to sell sweets in the theatre, claiming that it had not been agreed
how long Lukey would have an exclusive right to do so. Lukey sued Williamson
for breach of contract, asking for various remedies, including an order of specific
performance of his exclusive right.
Issue: Would the court order specific performance of the exclusive right to sell
sweets in the theatre?
Decision: Specific performance would not be ordered in these circumstances.
9.3
Reason: In contracts where both parties owe repeated duties of performance, one
party will not be ordered to perform specifically if the performance they are owed in
return cannot also be guaranteed without continued supervision by the court. The
exclusive right to sell sweets in the theatre involved repeated acts by both parties
and this would have required constant supervision. The courts cannot efficiently
provide such supervision. Accordingly, specific performance was refused and Lukey
had to be satisfied with a claim for damages for breach of contract.
9.3.2(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.
Dougan v Ley (1946) 71 CLR 142

Contract; remedies for breach; orders of specific performance;
damages not an adequate remedy
Facts: Dougan sold a taxi cab, together with its operating licence, to Ley for £1,850.
After agreeing to the sale, Dougan changed his mind and refused to perform the
contract. Ley sued for specific performance. Dougan argued that he was only liable
to pay damages for his failure to perform the contract.
Issue: Was an order of specific performance an available remedy in these
circumstances?
Decision: Ley was entitled to an order of specific performance.
Reason: Normally, the courts will not decree specific performance if damages are
an adequate remedy. Damages are adequate where ordinary goods are purchased
because equivalent goods can easily be purchased elsewhere. Specific performance
will be ordered if the goods purchased are in some way unique, or have a special or
particular value. The same is true of goods of unusual beauty, rarity or distinction,
or where goods are sold as part of the equipment of a business. In the present case,
what was bought was not just a car but a specially adapted car together with the 9
operating licence. At the time, taxi licences were issued in limited numbers and
were not readily available on the market, even to those with the money to pay for
them. Accordingly, an award of damages was not an adequate remedy for breach of
contract and an order of specific performance was appropriate.

9.3.3 Injunctions
9.3.3(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.
9.3.3(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.
Buckenara v Hawthorn Football Club Ltd [1988] VR 39

Contract; remedies for breach; injunction to prevent threatened
breach
Facts: Buckenara was a football player contracted to play for the Hawthorn Football
Club. As part of the agreement, Buckenara promised not to play for any competing
club while contracted to play for Hawthorn. When it seemed that Buckenara
intended to play for a competing club, Hawthorn sought an injunction to prevent
the threatened breach of contract.
Issue: Would the court issue an injunction to prevent a breach of contract?
Decision: The court issued an injunction ordering Buckenara not to play for any
other club that was in competition with Hawthorn.
Reason: An injunction is an order issued to prevent a likely breach of the law,
including a threatened breach of contract. However, an injunction will not be
issued if it has the indirect effect of enforcing a contractual promise that the
court would be reluctant to enforce directly by an order of specific performance
(eg performance of a promise to render personal services). In this case, the court
was prepared to issue the injunction sought because preventing Buckenara from
playing for competing clubs would not indirectly force him to actually play football
for Hawthorn—he could earn his living in some other way if necessary.
9.3.3(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.
9.3
Warner Bros Pictures Inc v Nelson [1937] 1 KB 209

Contract; remedies for breach; injunction; limitations
Facts: Bette Davis, an actress, promised not to work ‘as an actress’ for any producer
other than Warner Brothers for a year. While this contract was still in effect, Davis
agreed to work as an actress for another producer. Warner Brothers sought an
injunction to stop her from breaching her contract with them.
Issue: Would the courts issue an injunction to prevent a breach of contract by Davis?
Decision: The injunction was issued to prevent Davis from working with the other
producer.
Reason: Davis had promised not to work ‘as an actress’ for anyone else for the
year. The court found that, even if she did not wish to act for Warner Brothers, she
could earn a living working (not as an actress) for someone else. An injunction in
the terms sought would not therefore have the effect of indirectly forcing her to
render personal services to Warner Brothers, which is something the courts would
not enforce directly.
Lumley v Wagner (1852) 42 ER 687

Contract; remedies for breach; injunction; limitations
Facts: Wagner, a singer, contracted to sing in Lumley’s theatre for a certain number
of performances. She also promised that, during this period, she would not perform
anywhere else. Wagner breached the first of these promises and was threatening
to breach the second.
Issue: Would the court issue an order to prevent a breach of Wagner’s second
promise not to sing elsewhere during the period of her contract with Lumley?
Decision: In the circumstances, the court would issue an order (injunction) to stop
Wagner singing elsewhere for that period.
Reason: An injunction will be issued in appropriate circumstances to prevent a
likely breach of the law, including a breach of contract. While an injunction will not
be issued if it has the indirect effect of enforcing a contractual promise that the
court would not enforce directly, by means of an order of specific performance, the
court was satisfied in this case that the injunction would not indirectly force Wagner
to sing in Lumley’s theatre. This was because she was able to make a living in other 9
ways for the period in question.
9.3.3(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.

[9.4] 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.
9.4.1 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. See Chapter 7. 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.

16 Treatment of condition as warranty
(1) Where a contract of sale is subject to any condition to be fulfilled by the
seller the buyer may waive the condition or may elect to treat the breach of
such conditions as a breach of warranty and not as a ground for treating the
contract as repudiated.
9.4
(2) Whether a stipulation in a contract of sale is a condition the breach of which

may give rise to a right to treat the contract as repudiated, or a warranty the
breach of which may give rise to a claim for damages but not to a right to reject
the goods and treat the contract as repudiated, depends in each case on the
construction of the contract. A stipulation may be a condition though called a
warranty in the contract.
(3) Where a contract of sale is not severable and the buyer has accepted the
goods or part thereof, or where the contract is for specific goods the property
in which has passed to the buyer, the breach of any condition to be fulfilled by
the seller can only be treated as a breach of warranty and not as a ground for
rejecting the goods and treating the contract as repudiated unless there be a
term of the contract express or implied to that effect.
(4) Nothing in this section shall affect the case of any condition or warranty
fulfilment of which is excused by law by reason of impossibility or otherwise.
…
42 Acceptance
The buyer is deemed to have accepted the goods when he intimates to the seller
that he has accepted them, or, subject to section 41, when the goods have been
delivered to him and he does any act in relation to them which is inconsistent with
the ownership of the seller, or when after the lapse of a reasonable time he retains
the goods without intimating to the seller that he has rejected them.
[9.5] Agreed Remedies and Penalty Clauses

9.5.1 Terms of the contract that create or modify remedies 9
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—see 6.3.9.
9.5.2 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.
O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359
Contract; remedies for breach; pre-estimate of damages; penalties
Facts: O’Dea leased a truck from Allstates Leasing System (ALS) for a period of
36 months. The monthly rental payable by O’Dea was $1,098. The lease provided
that if O’Dea was late with any payment, ALS could immediately recover possession
of the truck and claim all the monies due for the remainder of the lease. O’Dea
defaulted on the rental after seven months. ALS took possession of the truck and
sued O’Dea for over $31,000, being the difference between the instalments already
paid and the total due under the remainder of the lease.
Issue: Was the total amount claimed by ALS a penalty?
Decision: The amount claimed was a penalty rather than a genuine pre-estimate of
damages, and was therefore not enforceable. ALS was entitled to some damages,
but not the amount provided for in the contract
Reason: The agreed term allowed ALS to claim immediate payment of all the rental
money for the entire contract and to get back the truck without giving credit for its
value. This arrangement was ‘manifestly excessive in comparison with the greatest
loss that it [ALS] could possibly suffer as a result of the [breach]’. The term thus
amounted to a penalty.
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
9.5
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 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.
[9.6] Checklist: 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.
Step 1
Has there been a breach of contract? 9
• In what way did the breach occur?
• Was the breach actual or anticipatory?
Step 2
Does the plaintiff want the court to order specific performance of the
contract?
• Is there some reason a court might refuse to order specific performance?

Step 3
Does the plaintiff wish to terminate performance, either by rejecting
performance tendered or by stopping future performance?
• Is the breach in question sufficiently serious to justify termination?
• Is it too late to terminate?
• Are there any statutory limitations on the right to terminate?
• What must be done to terminate?
Step 4
Does the plaintiff wish to claim damages for breach of contract?
• Has the plaintiff suffered any loss as the result of the breach?
• Are the losses claimable as ‘direct’ or ‘consequential’ loss?
• Are there wasted expenses? Can damages be claimed in the circumstances
for distress?
• Has the plaintiff done what is required to mitigate the loss?
• What amount of damages is likely to be awarded in the known
circumstances?
Step 5
Does the plaintiff want an injunction to prevent a continuing or threatened
breach of contract?
• Is an injunction likely to be ordered in the circumstances of the case?
Step 6
Are there any terms in the contract that create special remedies, modify the
normally available remedies or limit the scope of any remedy?
Step 7
Are the remedies being sought available either together or as alternatives?
[9.7] Questions for revision

Thinking about the following questions will help you to discover whether you have
understood the content of this chapter. You should be able to answer these questions not
only by stating the principles, but also by recalling the basic facts of decided cases and the
provisions of the relevant legislation.
1. What is meant by ‘common law remedies’, ‘equitable remedies’ and ‘statutory
remedies’? Give examples of each.
2. What is the general objective of an award of damages for breach of contract?
3. What are ‘direct’ losses and ‘consequential’ losses? To what extent is a defendant liable
for such losses?
9.7
4. In what circumstances can a plaintiff claim damages to compensate for disappointment

or distress caused by a breach of contract?
5. What is meant by ‘mitigation of loss’? To what extent must a plaintiff take action to
mitigate their loss? How might efforts at mitigation affect the amount of damages to
be claimed?
6. Can damages ever be claimed in combination with other remedies for breach of
contract?
7. Describe the relief provided by the common law remedy of ‘termination of
performance’ on grounds of breach of contract. What must a plaintiff be able to
establish to be entitled to terminate?
8. If a plaintiff wants to terminate performance, what must they do? How is a contract
discharged after the defendant’s right to perform is terminated by a plaintiff ?
9. What relief is provided by an order of specific performance? In what circumstances
will a court order specific performance of a contract?
10. What relief is provided by an injunction? Can an injunction be used to prevent a
threatened breach of contract?
11. What statutory remedies are provided by the Goods Act 1958 (Vic) for breach of the
terms implied into contracts for the sale of goods?
12. What is meant by ‘agreed remedies’? What examples can you give of agreed remedies?
What is the difference between a ‘liquidated damages’ clause and a ‘penalty’ clause?

e modules.

CHAPTER 10
Circumstances That May Invalidate a Legal

Transaction
In this chapter:
• Different circumstances which may invalidate a legal transaction:
– duress
– undue influence
– unconscionable dealing
– mistake
– misrepresentation
– illegality
• The potential of such circumstances to make a transaction ‘void’ or ‘voidable’
• Restoration of parties to their pre-transactional position.
[10.1] Introduction
10.1.1 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
10.1
220 Circumstances That May Invalidate a Legal Transaction
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. In addition to this chapter, the eStudy
module Circumstances that may invalidate a legal transaction provides many examples and
questions designed to help you better understand the sometimes complicated concepts.
10.1.2 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.
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.
10.1.3 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
10.1
Circumstances That May Invalidate a Legal Transaction221
situation is one where the parties to a transaction are being restored back to their previous
position because the transaction is invalid.
10.1.4 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.
10.1.5 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 to a transaction.
• 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.
10
In this chapter, the different circumstances are described and illustrated in more detail.

[10.2] Duress
10.2.1 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.
10.2.2 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).
Barton v Armstrong [1973] 2 NSWLR 598

Contract; vitiating circumstances; duress; threats of physical harm
Facts: Barton purchased shares in a company from Armstrong. Barton then tried
to avoid the contract, saying that he had bought the shares because Armstrong
had threatened the life and safety of himself and his family. It was proved that the
alleged threats had been made, but the court found that Barton also had business
reasons for buying the shares.
Issue: Could the contract be set aside on grounds of duress, even though the
threats made were not the only reason for entering into the transaction?
Decision: On appeal, the Privy Council held that the threats had contributed to
Barton’s decision to enter into the contract. This was sufficient for the contract to
be set aside as void.
Reason: Once Barton had proved that Armstrong had made the threats, the onus
was upon Armstrong to show that the threats had not contributed to Barton’s
decision to enter the contract. The court found that even though there were other
reasons for agreeing to buy the shares, Armstrong had been unable to show that
his threats had not contributed to Barton’s decision. Barton could therefore avoid
the contract if he wished.
10.2.3 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.
10.2
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd

[1979] 1 QB 705
Contract; vitiating circumstances; duress; threats of economic harm
Facts: Hyundai agreed to build a tanker for North Ocean Shipping (NOS) for a price
that was fixed in US dollars. However, after a contract was created on these terms
there was a 10% devaluation of the US dollar, and to build the ship at the agreed
price would no longer be profitable for Hyundai. Hyundai said it would not build
the ship unless NOS agreed to a 10% increase in the contract price. NOS urgently
needed the tanker in order to perform another contract and would suffer financial
losses if the tanker was not built on schedule. NOS therefore agreed to pay the
additional sum demanded by Hyundai. Hyundai gave consideration for this promise,
creating a binding contract for the increased price.
Issue: Could the contract to pay the higher price be avoided on grounds of duress?
Decision: NOS had agreed to pay the higher price because of unlawful threats of
economic harm and this amounted to duress. The contract was voidable.
Reason: The threat by Hyundai to terminate the contract was unlawful. Furthermore,
the unlawful threat was made in circumstances that compelled NOS to agree to
Hyundai’s demands. This meant that NOS’s consent was given not voluntarily, but
rather under duress. In such circumstances, the party who was forced to enter
the contract can choose to have it set aside as void and recover any money paid.
However, this choice must be made within a reasonable time. The court found that
NOS had delayed unreasonably in seeking to set aside the agreement, and could
not therefore recover the additional 10% they had paid. Relief was denied. Compare
Pao On v Lau Yiu Long [1980] AC 614.
Cockerill v Westpac Banking Corporation (1996) 142 ALR 227

Contract; vitiating circumstances; duress; threats of economic harm
Facts: Acting on advice from Westpac Banking Corporation, Cockerill & Dingle
borrowed foreign currency from Westpac. A sharp decline in the value of the
Australian dollar then made the loan increasingly expensive for Cockerill.
Cockerill claimed Westpac should not have recommended a foreign currency loan.
Westpac denied any legal liability for its advice, but offered to refinance Cockerill’s
debt if Cockerill agreed to give up any legal claims against Westpac. Westpac
also threatened to wind up Cockerill’s business if Cockerill did not agree to this
arrangement. Cockerill agreed to give up his legal rights against Westpac, but later
decided to sue Westpac for losses arising from Westpac’s original advice.
10
Issue: Was Cockerill bound by his agreement to give up his legal rights against
Westpac?
Decision: Cockerill could avoid the agreement not to sue Westpac, because
Westpac’s threats to wind up Cockerill’s business amounted to economic duress.

Reason: The bank’s threat to wind up Cockerill’s business was not in itself unlawful,
being something the bank was entitled to do. In the circumstances, however, the
bank was taking unfair advantage of Cockerill’s position of weakness to extract
agreement, and this conduct was contrary to ‘good conscience’. Such conduct is
not allowed by law (see 10.4. below), and this made Westpac’s threats illegitimate.
10.2.4 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.
Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd

(1991) 22 NSWLR 298
Contract; vitiating circumstances; duress; threat to goods
Facts: Hawker Pacific agreed to paint Helicopter Charter’s (HC) helicopter for
$5,200. The job was poorly carried out. HC complained and refused to pay. The
helicopter was returned to Hawker Pacific for the defects in the paintwork to be
repaired. When HC came to collect the helicopter it was asked to sign a document
agreeing to pay $4,300 for the work done and releasing Hawker Pacific from any
further liability for the paint job. Believing it would not get the helicopter back
unless it signed the document, HC signed. It then refused to pay and sued Hawker
Pacific for defective workmanship.
Issue: Could HC avoid being bound by the signed document?
Decision: The document had been signed under duress and could be set aside as
void.
Reason: In Australian law, it is clearly established that a payment of money is
made under duress if that payment is compelled by unlawful acts or threats made
against the payer’s person, their property or their rights. The court held that the
same principles apply in deciding whether a contract has been entered into under
compulsion. Hawker Pacific’s implied threat that it would detain HC’s helicopter
therefore amounted to duress.
[10.3] Undue Influence

10.3.1 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.
10.3
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.
10.3.2 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.
Allcard v Skinner (1887) 36 Ch D 145

Contract; vitiating circumstances; undue influence; presumption of
undue influence; effect of delay in seeking relief
Facts: Allcard joined a religious order and took a vow of poverty. The vow required
her to give away all her property and she gave it to the religious order she had
joined. Allcard left the order in 1879, and five years after that she decided that
she wanted to get back the property she had given away. She claimed that she
had made the gift as a result of undue influence on the part of the order and that
accordingly the transaction should be set aside as void.
Issue: Could the transaction be avoided on grounds of undue influence?
Decision: Although the circumstances gave rise to a presumption of undue
influence, Allcard had ratified the transaction after ceasing to be under that
influence and could not recover her property.
Reason: The relationship between Allcard and the religious order was that of
devotee and religious adviser, one of the relationships giving rise to a presumption
of undue influence. If Allcard had sought to recover the gift while she was still
a member of the order, or shortly after leaving it, the presumption would have
applied and, unless the order could prove that the transaction was not the result of
undue influence, the contract would have been set aside as void. But Allcard had
waited too long after leaving the order before asking to get her property back. The
10
court held that, by failing to avoid the transaction within a reasonable time, Allcard
had in effect affirmed (ratified) the transaction when she was no longer under any
undue influence.

10.3.3 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.
Johnson v Buttress (1936) 56 CLR 113

Donation of property; vitiating circumstances; undue influence; proof
of general undue influence
Facts: Buttress was an elderly man, excitable, emotional, unable to read or write,
and very dependent on the help of others. After his wife’s death, Buttress began
to rely on Johnson. She cooked his meals and gave him advice about renting his
house. When he said he wanted to make a will in her favour, Johnson took him to
her own solicitor for this purpose. Later, after Buttress moved in to live with the
Johnson family, she again took him to her solicitor and he transferred ownership
of his house to her. After Buttress died, his son asked the court to set aside as void
the transfer of the house to Johnson.
Issue: Could the transfer of the house be set aside on grounds of undue influence?
Decision: In the circumstances, the transfer was voidable on grounds of undue
influence.
Reason: Buttress was an ignorant man who had come to confide in and depend
on a person he regarded as having the advantages of education and position. The
degree to which he trusted Johnson was shown by the fact that he was prepared to
make over his sole property to her. His affairs were managed by her or under her
supervision. In these circumstances a relationship of confidence and trust existed,
sufficient to establish a presumption of a general controlling influence. To avoid
having the contract set aside as void, Ms Johnson had to prove that the transfer of
the house was an exercise of Buttress’ free will, and she was not able to do so. The
visit to the lawyer did not constitute independent legal advice to Buttress because
it was Johnson’s lawyer they had visited.
10.3
10.3.4 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.
[10.4] Unconscionable Dealing

10.4.1 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.
10.4.2 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.
10.4.3 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.
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

Mortgage of land; vitiating circumstances; unconscionable dealing
Facts: Vincenzo Amadio owned a building company which was experiencing
financial difficulties, a fact well known to his bank. The Commercial Bank of
Australia froze Amadio's overdraft facilities. Amadio told the bank that his parents
would guarantee his debts by mortgaging their property in favour of the bank. The
bank agreed to give Amadio an overdraft of $270,000 if the mortgage was provided. 10
Amadio asked his parents to provide the mortgage. Amadio's parents believed that
Amadio's business was successful, and Amadio told them their liability under the
mortgage was limited to an amount of $50,000, neither of which fact was true.
The parents agreed to provide the security and the bank manager brought the

mortgage documents to their house to sign. He did not explain these documents to
the parents before they signed them, nor did he check that they understood the full
extent of their risk and liability. Months later, Amadio's company became insolvent
and the bank sought to enforce the mortgage against Amadio's parents. They faced
financial ruin.
Issue: Could the mortgage be set aside on grounds of unconscionable dealing?
Decision: The mortgage should be set aside.
Reason: Amadio's parents were in a position of special disadvantage because
they did not know of their son's true indebtedness, nor were they told of the real
extent of their liability under the mortgage, which was potentially ruinous for them.
They were elderly and spoke little English. Their age, background and reliance on
their son added to their inability to judge what was in their own best interests. The
bank knew enough about these circumstances to be put on inquiry, and should
have taken steps to ensure that the Amadios appreciated the nature and extent of
the mortgage and the risk before deciding to enter into the security agreement,
perhaps by obtaining independent advice.
10.4.4 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.
Garcia v National Australia Bank Ltd (1998) 194 CLR 395

Contract; vitiating circumstances; unconscionable dealing
Facts: Garcia owned a gold trading company, and wanted to borrow money from
the National Australia Bank to finance his business operations. The bank required
Garcia to find security for the loan. Garcia asked his wife to provide the security by
executing a mortgage in favour of the National Australia Bank over a house she
owned. Garcia assured his wife that there was no real risk involved because the
loans would be covered by gold purchased with the borrowed money. Ms Garcia
went with her husband to the bank and signed the necessary papers giving the bank
a mortgage over her property. Ms Garcia appeared to be ‘a capable and presentable
professional’. The bank did not explain the transaction to her. Nor did the bank
explain the extent of her liability. Garcia’s business failed, the loan was not repaid
and the bank wished to enforce the mortgage.
10.4
Issue: In these circumstances, could the mortgage be avoided on grounds of

unconscionable dealing?
Decision: The mortgage should be set aside as void.
Reason: Although it is now accepted that women are not necessarily subservient
or emotionally vulnerable to their husbands, the relationship between spouses is
one of trust and confidence. For this reason, one spouse is likely to leave business
judgments to the other, and make decisions without consultation or full and accurate
explanation. Therefore, if a spouse giving a guarantee did not understand its effect
and gained no financial benefit from the undertaking, and the creditor failed to
ensure that the transaction had been properly explained and understood, then the
transaction may be set aside as void. This is because it would be unconscionable to
enforce the security in such circumstances.
It is important to know that the general law doctrine of unconscionable dealing is
the foundation of important legislative provisions that have been enacted for the
purpose of setting appropriate standards of conduct in legal transactions, especially
in consumer transactions. These legislative provisions, which exist alongside the
general law doctrine, are explained in Chapter 11, section 3.
[10.5] Mistake
10.5.1 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.
10.5.2 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 10
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.

Raffles v Wichelhaus (1864) 2 H&C 906

Contract; vitiating circumstances; mistake; errors that affect
consensus
Facts: Wichelhaus agreed to buy some bales of cotton from Raffles. The cotton
was in India and it was a condition of the agreement that the seller would put the
cotton on board the ship Peerless for transport from Bombay to the buyer. After this
agreement was entered into, the parties discovered that there were two ships called
Peerless, both due in Bombay but at different times. When contracting, Raffles had
one of these ships in mind, Wichelhaus the other. The result was mutual mistake,
each party believing that the particular ship they had in mind was the only ship by
that name.
Issue: Was there a binding contract between Raffles and Wichelhaus?
Decision: No binding contract existed.
Reason: Because two ships had the same name, the word Peerless was latently
ambiguous and could be a reference to either ship. It could not therefore be said
that, objectively judged, the parties had reached agreement on which ship was to
be used. If there is no objective agreement because of mutual mistake, the contract
will be void in common law.
Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674

Contract; vitiating circumstances; mutual mistake; effect on
consensus
Facts: Quinn had leasehold rights over certain land and gave Goldsbrough Mort &
Co an option to purchase this land at a price of one pound ten shillings per acre
‘calculated on a freehold basis’. To convert the land from leasehold to freehold title
entailed some expense. Goldsbrough accepted the offer, thinking that Quinn had
agreed to pay the costs of conversion. Quinn said that it had not been agreed that he
would pay the costs as he believed that Goldsbrough would pay these costs.
Issue: Despite the mutual mistake, had there been agreement on who should pay
the costs of converting the title to the land purchased by Goldsbrough?
Decision: There had been sufficient agreement.
Reason: Applying the objective test, there was only one interpretation that a
reasonable person could put on the words used in the offer, namely that the seller
(Quinn) would pay the costs of conversion.
10.5.3 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,
10.5
or about the existence of the thing they are transacting for, or about who owns the subject
matter of the transaction.
10.5.3(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.
Leaf v International Galleries [1950] 2 KB 86

Contract; vitiating circumstances; mistake; objective unconditional
agreement
Facts: Leaf saw a painting of Salisbury Cathedral that International Galleries had
for sale. Leaf offered to buy this painting. When he bought it, both Leaf and the
seller believed the painting was the work of famous artist John Constable. After
buying it, Leaf discovered that the painting had been done by another artist. Leaf
wanted the sale made void on the grounds that both he and the seller had been
mistaken about who had done the painting.
Issue: Could the contract be avoided on grounds of the parties’ mistaken belief that
the painting was the work of John Constable?
Decision: In the circumstances, the mistake did not justify setting the contract
aside as void.
Reason: Basing the decision on the objective facts of the case, it was clear that
the subject matter of the contract was agreed simply as ‘this painting of Salisbury
Cathedral’. There was no objective evidence that the agreement had been for ‘a
painting by John Constable’. Thus the error as to the artist was irrelevant and the
contract was binding despite the common error. Put another way, the agreement
between Leaf and International Galleries was not objectively conditional on the
truth of their belief that the artwork was painted by John Constable.
10.5.3(b) Common mistakes going to the quality of the subject matter 10

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.
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd

[2003] QB 679
Contract; vitiating circumstances; mistake; conditionality of
agreement; mistakes regarding quality; special rules
Facts: A ship, the Cape Providence, was in danger of sinking and her owners
contracted with Tsavliris Salvage to send a tug and tow her to safety. The tug would
take five to six days to reach the Cape Providence and Tsavliris was worried that
the Cape Providence might sink before then. He looked to find a nearby ship that
could stand by and rescue the crew if necessary. A ship called Great Peace was in
the area. Thinking it was the closest available ship, Tsavliris contracted with the
owners of the Great Peace for the ship to stand by and render assistance. Then
Tsavliris discovered that the Great Peace was further away than he and its owners
had thought. He also found that another ship could get to the Cape Providence more
quickly. Accordingly Tsavliris tried to cancel his contract with the owners of the
Great Peace. They refused to agree to the cancellation. Tsavliris then claimed that
the contract was void or voidable because of both parties’ mistaken belief when
contracting that the Great Peace was the closest available ship.
Issue: Did the error make the contract void or voidable?
Decision: The contract was not void in common law, nor voidable in equity.
Reason: The common law takes a strict approach to the effect of mistake on
contracts because it is important to preserve the reliability of agreements.
Accordingly, a contract will only be made void if a mistake as to the quality of the
thing contracted for ‘makes the thing contracted for essentially different from the
thing that it was believed to be’. In this case, although the Great Peace was further
from the Cape Providence than the contracting parties had believed, it was close
enough to perform the task it was engaged to do (rescue the crew) and was not
therefore something ‘essentially different from the thing that it was believed to
be’. The contract was therefore valid despite the error. Further, although the case
of Solle v Butcher [1950] 1 KB 671 had suggested 50 years earlier that equity might
set aside a contract on grounds of an error as to a ‘fundamental’ quality of the thing
contracted for, the court held that this earlier decision was not based on sound
principle and should no longer be followed.
10.5.4 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
10.5
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.
Taylor v Johnson (1983) 151 CLR 422

Contract; vitiating circumstances; unilateral mistake; effect of
unconscionability
Facts: Johnson offered in writing to sell 10 acres of land to Taylor for $15,000.
Taylor must have known that the price was too good to be true but he said nothing
and quickly accepted the offer. Johnson then said she had been mistaken about the
terms of the offer. She said she had intended to offer the land for sale at $15,000
per acre, not $15,000 for the whole 10 acres. She was mistaken about what was
contained in the written offer she sent to Taylor.
Issue: Did Johnson’s mistake justify setting aside the contract?
Decision: In the circumstances the contract should be set aside.
Reason: This was a case of unilateral mistake, which on its own does not make a
contract void. However, if one party enters a contract under a serious mistake in
relation to a fundamental term, the contract will be made void if the other party was
aware of circumstances that indicate the first party is mistaken and deliberately set
out to ensure that the first party did not discover their error until it was too late. In
such cases, it is contrary to good conscience for the party who deliberately ignored
the signs and acted to prevent discovery of the error to hold the mistaken party to
the contract. The court found that Taylor had acted in this way.
[10.6] Misrepresentation
10.6.1 Defining ‘representations’
A representation is a statement of fact, made with the intention of inducing the other
party to enter a transaction, If a representation is untrue it is called a ‘misrepresentation’.
Misrepresentations do not create liability for breach of contract, because representations
10
are not terms of a 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).

10.6.2 Deliberate misrepresentation

When a person makes a statement, knowing it is untrue, and with the intent of misleading
another party to a transaction, this is deliberate fraud, known as ‘deceit’. Fraud provides
the legal basis for an action in tort for damages. Furthermore, if a transaction is entered
into because of fraud, the common law allows the party who was deceived to have the
transaction made void ab initio.
Derry v Peek (1889) 14 App Cas 337

Contract; vitiating circumstances; misrepresentation; tort; deceit
Facts: Derry issued a company prospectus in which it was claimed that the company
was authorised to use steam-driven trams. In fact, the necessary authority had
been applied for, but the Board of Trade had not yet granted it when the prospectus
was issued. Derry believed that obtaining the Board of Trade’s consent was a mere
formality. Peek, relying on the information in the prospectus, purchased shares in
the company. When the Board of Trade refused to grant the authority to use steam
trams, the company failed. Peek sued Derry, one of the directors of the company,
claiming damages for fraudulent misrepresentation.
Issue: Had there been a fraudulent misrepresentation?
Decision: The court held that, because Derry had honestly believed that obtaining
the necessary permission was only a formality, there had been no fraud.
Reason: Lord Herschell said (at 374):
[I]‌n order to sustain an action of deceit, there must be proof of fraud … [F]
raud is proved when it is shewn that a false representation has been made
(1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless
whether it be true or false … To prevent a false statement being fraudulent,
there must, I think, always be an honest belief in its truth.
The court held that in this case, while the directors had not been fraudulent, they
might have been negligent.
10.6.3 Negligent misrepresentation

When a misrepresentation is made by one transacting party to another in breach of a duty
of care, this amounts to the tort of Negligence and damages can be claimed. Further, if
a transaction is entered into because of a negligent misrepresentation, equity allows the
transaction to be set aside as void ab initio.
Alati v Kruger (1955) 94 CLR 216

Contract; vitiating circumstances; misrepresentation; restitutio in
integrum; special circumstances
Facts: During negotiations for the sale of his fruit-selling business, Alati told Kruger
that, on average, he took £100 each week. Kruger relied on this information and
10.6
bought the business, but in fact his takings never reached £100 per week. When
he investigated, Kruger found that the takings for the nine weeks before he took
over the business were less than £100 per week. Three weeks later, Kruger notified
Alati that he wanted to avoid the contract on grounds of Alati’s fraud. Kruger began
proceedings to recover the purchase price he had paid. Despite taking this action,
Kruger continued to run the business until it failed.
Issue: Was Kruger entitled to avoid the contract when he could no longer restore
the business to the seller?
Decision: Kruger was entitled to avoid the contract and recover the purchase price.
Reason: The court held that it would be unfair to deprive Kruger of the remedy he
wanted, even though he was no longer in a position to restore the operating business
he had taken over from Alati. Equity allows a contract induced by fraud to be avoided
even if precise restitution is impossible, as long as practical justice between the
parties is possible. Because the deterioration and failure of the business was not
Kruger’s fault, and because Alati had taken no action to help prevent this from
happening, Kruger could avoid the contract even though restoration of an operating
business was no longer possible.
It should be noted that the provisions of the Australian Consumer Law (ACL)
provide an alternative (and often preferable) basis for seeking relief for misrepresentation,
under the broad concept of ‘misleading conduct’. See Chapter 11.
[10.7] Illegal Contracts

10.7.1 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.
10.7.2 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 10
other party.

Lindner v Murdock’s Garage (1950) 83 CLR 628

Contract; vitiating circumstances; illegal contracts; restraint of trade
Facts: Murdock’s Garage operated its business of selling and repairing cars in two
towns, Crystal Brook and Wirrabara, which were about 10 miles apart. Murdock’s
Garage employed Lindner as a mechanic in its repair workshop in Crystal Brook. To
prevent Lindner from using his knowledge of the business if he left this employment,
the contract contained terms that would restrain Lindner from working in either
Crystal Brook or Wirrabara for a year after leaving Murdock’s employment. When
Lindner stopped working for Murdock’s Garage, Murdock wanted to enforce this
restraint.
Issue: Was the restraint clause enforceable?
Decision: In a majority decision, the restraint clause was held to be unreasonable
in extent, making it contrary to public policy and therefore unenforceable.
Reason: In the course of his employment, Lindner might acquire knowledge and
information that Murdock’s would reasonably wish to prevent him from using in
competition with it after leaving its employment. However, for a geographical
limitation on employment to be reasonable, it must relate to the information (eg the
customers, their creditworthiness, peculiarities, etc) that the employee is actually
likely to learn. The restraint clause in this contract extended to two towns, whereas
Lindner had been employed only in one. He was unlikely to have contact with, or
acquire information about, customers in the other. The extent of the restraint was
therefore unreasonable.
Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894]

AC 535
Contract; vitiating circumstances; illegal contracts; restraint of trade
Facts: Nordenfelt was a manufacturer of guns. His business was conducted
worldwide. He sold the business to the Maxim Nordenfelt Guns and Ammunition
Company and, as part of the agreement, promised not to engage in a competing
business anywhere in the world for 25 years.
Issue: Was the restraint clause reasonable and enforceable?
Decision: In the circumstances, the clause was reasonable and therefore
enforceable.
Reason: Although the clause was very extensive in both its geographical extent
(the whole world) and its length (25 years), the restriction was necessary to protect
the investment being made by the purchaser of the business. In return for the
restriction, Nordenfelt was able to sell his business for its full value. A worldwide
restraint was justified in the case of a business conducted on a worldwide basis,
with customers in many countries. The length of the restraint reasonably protected
10.7
the value of what the purchaser had bought. In these circumstances, the restraint
was not against the interests of the public.
10.7.3 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.
Pearce v Brooks (1866) LR 1 Exch 213

Contract; vitiating circumstances; illegal contracts; public policy;
immorality
Facts: Brooks purchased a carriage (a brougham) from Pearce. At the time of the
sale, Pearce knew that Brooks was a prostitute and that the carriage was to be
used by her in the course of her profession. When Brooks failed to pay the agreed
price for the carriage, Pearce sued to enforce the contract. It was argued that as
long as Pearce did not know that the price would be paid from the proceeds of
prostitution, the contract was enforceable.
Issue: Did the circumstances of the sale make the contract unenforceable on
grounds of public policy?
Decision: The contract was unenforceable.
Reason: The court held that any person who supplies something that will contribute
to the performance of an illegal or immoral act cannot recover the agreed price by
means of a legal action. Pearce’s knowledge of the immoral purpose for which
the carriage was to be used made the contract unenforceable, even if he did not
necessarily know that payment would be made from the proceeds of 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.
10.7.4 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
10
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.

Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215

Contract; vitiating circumstances; illegal contracts; regulation of land
use; effect of penalties and prohibition
Facts: Fitzgerald employed Leonhardt to drill boreholes on Fitzgerald's land. The
Water Act 1992 (NT) required landowners to acquire a permit in advance of drilling
any borehole. Fitzgerald was supposed to obtain the permits before Leonhardt
began drilling, but failed to do so. When Leonhardt had drilled seven holes,
Fitzgerald refused to pay him, arguing that, in the absence of the required permits,
the contract was performed illegally and was therefore unenforceable. Leonhardt
brought an action to enforce payment for the seven holes that he had drilled.
Issue: Was the contract unenforceable against Fitzgerald because the necessary
permits had not been obtained prior to the drilling?
Decision: The contract was enforceable despite the lack of permits, because
although the Water Act penalised such conduct it did not prohibit it.
Reason: When a statute penalises (punishes) conduct but does not expressly
prohibit it, the courts will consider whether prohibition was impliedly intended by
the legislature. If penalties are provided for a breach, good reason must exist before
a court will find that prohibition of the offending conduct was also implied, and
that associated contracts should be treated as unenforceable. Such reason may be
found if, without prohibition, the objectives of the Act would be frustrated. However
no such reason existed in the circumstances of this case, where the penalties alone
appeared sufficient to achieve the purposes of the Act.
Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101
Contract; illegality; contravention of industry code; effect of illegality
on the enforceability of a franchise agreement
Facts: Master Education Services Pty Ltd (MES), a franchisor, entered into a
franchise agreement with Jean Ketchell, the franchisee. Under the provisions
of the Trade Practices Act 1974 (Cth), the franchise industry was subject to a
mandatory (compulsory) Code of Conduct. This code imposed various requirements
on participants in the franchise industry, one of which was that a franchisor must
not enter into a franchise agreement without first providing the franchisee with a
disclosure document and a copy of the code, and obtaining from the franchisee a
written statement that they have read and understood these materials. MES had
provided Ketchell with the documents before entering into the franchise agreement,
but had not obtained the required statement from her. When MES claimed franchise
payments from Ketchell, she claimed that the failure to comply with the code made
the franchise illegal and the contract was therefore unenforceable.
Issue: Was the franchise contract made unenforceable at law because of the failure
to comply with the provisions of the Code of Conduct?
10.7
Decision: In light of s 51AD of the Trade Practices Act (which is now s 51AD of
the Competition and Consumer Act 2010 (Cth)), taken together with the provisions
of the code, the breach of the code that had occurred did not make the franchise
agreement unenforceable.
Reason: Although the code prohibited entering into a franchise agreement unless
the required statements were obtained, it should not necessarily be inferred that a
failure to comply with the requirements made the agreement unenforceable. The
legislation provided a wide range of remedies for such situations, which indicated
that the consequences of non-compliance need not be restricted to vitiating the
entire agreement. A court could instead vary the terms of the agreement, terminate
it or provide compensation for loss or damage caused by the contravention, as
appears suitable in the circumstances.
Failure to comply with the requirements of an industry code of conduct may also
give rise to unconscionable conduct under the Australian Consumer Law. See 11.3.3
and Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703.
[10.8] Other Invalidating Circumstances

10.8.1 Provisions of the Australian Consumer Law
When considering circumstances that may invalidate a legal transaction, it is important
to note that 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. The Australian Consumer Law is explained in the following chapter.
[10.9] Checklist: 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.
Step 1
What type of legal transaction was entered into?
• Who wants to enforce that transaction? Who wants to avoid it?
Step 2
Are there facts that suggest that one or more of the recognised vitiating
circumstances might affect the transaction in question?
10
• Recall and consider all the alternatives and choose the ‘best fit’: duress,
undue influence, unconscionable dealing, mistake, misrepresentation or
illegality.

• Do the provisions of the Australian Consumer Law (see Chapter 11)

provide additional or preferable grounds for invalidating the transaction?
Step 3
Do the facts satisfy all the elements of the most likely vitiating circumstance?
• Who will have the onus of establishing the necessary facts?
• Which of the required facts might be difficult to establish?
Step 4
If a vitiating circumstance can be established, what effect does it have on
the transaction?
• Is the transaction rendered void ab initio or voidable ab initio?
Step 5
If the transaction is voidable, has the person who seeks relief done anything
to ratify the transaction, such as delaying too long?
Step 6
Has the transaction been carried out, in whole or in part, before being found
to be void or being made void?
• Is restitutio in integrum required? If so, what will need to be done by each
party?

The following questions will help you to find out whether you have learned the things you
should know about vitiating factors. When answering these questions, make sure that you
can recall the decided cases that illustrate the principles.
1. What is ‘duress’? When consent to an agreement is given because of duress, does a
transaction come into existence?
2. What types of threat may amount to duress? Can duress consist of threatened physical
harm to a person or members of that person’s family? Can duress consist of a threat
to harm another person’s property rather than their person? Can duress consist of a
threat of harm to a person’s purely financial interests?
3. What is ‘undue influence’? How does undue influence affect a legal transaction? Why
is it important to establish whether there is a presumption of a general controlling
influence or not? If no such presumption arises, what alternatives are open to a
plaintiff ?
4. What is ‘unconscionable dealing’? What is the effect on a transaction entered into
because of unconscionable dealing?
5. What is the difference between ‘mutual’, ‘common’ and ‘unilateral’ mistakes?
6. In what circumstances does a mistake make a transaction void in common law?
10.10
7. What difference does it make if a common mistake concerns the quality of what was
contracted for?
8. In the case of unilateral mistake, what circumstances must be proved in order to
justify treating a transaction as void?
9. What are misrepresentations? Does a misrepresentation that induces a person to
enter into a contract give rise to an action for breach of contract?
10. Can a misrepresentation give rise to liability in tort law?
11. Is a misrepresentation ever grounds for setting a transaction aside as void?
12. When is a contract likely to be considered ‘illegal’? What is the effect of illegality on
a contract?

e modules.
10

CHAPTER 11
Statutory Protection Against Unethical

Conduct
In this chapter:
• The necessity of regulating legal transactions
• The nature and scope of the Australian Consumer Law (ACL)
• Misleading conduct
• Unconscionable conduct
• Unfair terms in contracts
• Unfair business practices
• Unsolicited consumer agreements
• Safety standards
• The enforcement of the ACL.
[11.1] Introduction
11.1.1 The need for legislation to regulate unethical conduct
In the previous chapter the various circumstances that might, in the common law,
invalidate a legal transaction were explained. Some of these invalidating circumstances
are clearly based on ethical principles but they do not cover all of the many types of
unethical, and therefore undesirable, conduct that is likely to occur in the course of trade
and commerce. It is not surprising, therefore, that legislation has been enacted to regulate
different kinds of unwanted behaviour. Over time, this legislation has taken various forms
and the law reports contain many cases decided under the older legislation. To understand
these cases and their continuing relevance, and to appreciate the nature and scope of the
current legislation, it is helpful to briefly review the historical position before dealing with
the latest provisions.
The eStudy module Statutory protection against unethical conduct has lots of examples
and questions that will help you better understand this topic.
11.1
244 Statutory Protection Against Unethical Conduct
11.1.2 Past regulation of unethical conduct

Past efforts to regulate unethical conduct focused on specific problems. For example:
• Suppliers of goods on credit terms often reserved their rights of ownership in the
goods until payment was made in full by the purchaser. Purchasers who failed in
making even one payment faced losing all the money they had paid, and had no rights
in the goods.
• Suppliers of goods often engaged in unfair practices calculated to encourage or
persuade unwary purchasers to buy goods or services they might later regret acquiring.
• Suppliers often put terms into their contracts excluding their legal liability for
supplying inferior goods or services.
• Suppliers often insisted on harsh and onerous terms in standard form contracts. These
terms went beyond what was reasonably necessary to protect the suppliers’ interests,
but individual purchasers had insufficient bargaining power to reject them.
Various attempts were made over the years to regulate such undesirable practices, but
on the whole, the attempts were unsatisfactory. They proved too narrow and technical to
provide adequate control. It became obvious that a more complete and uniform approach
to regulation was needed.
11.1.3 What is the Australian Consumer Law?
In a comprehensive reform, the Australian Consumer Law (ACL) came into operation
throughout Australia on 1 January 2011. The ACL replaced many provisions of the old
Trade Practices Act 1974 (Cth) and a large number of state and territory Acts that were
concerned with regulating unethical conduct, particularly in relation to consumers. It
should be noted that, despite its title, the provisions of the ACL operate more widely
than just in consumer transactions, for example, by prohibiting misleading conduct and
unconscionable conduct in trade or commerce generally.
The ACL has been enacted as a schedule (Sch 2) to the Competition and Consumer Act
2010 (Cth). The Commonwealth, states and territories have all adopted this schedule as
their law. The result of these arrangements is that the ACL applies uniformly throughout
Australia, both as the law of the Commonwealth and as the law of the states and territories.1
11.1.4 Who administers the ACL?
At the Commonwealth level, the ACL is administered by the Australian Competition and
Consumer Commission (ACCC). In each state and territory, the ACL is administered by
the relevant consumer law agency. Cases that arise under the provisions of the ACL can
therefore be heard in either Commonwealth, state or territory courts.
The ACL empowers a ‘regulator’ to carry out various functions, such as issuing public
warning notices. The ACCC is the regulator at Commonwealth level. The states and
territories are required to identify their own regulators.
1 The ACL is currently under review and it is likely that some changes will be made to its provisions as a result.
11.1
Statutory Protection Against Unethical Conduct245
[11.2] Protection Against Misleading Conduct

11.2.1 Misleading conduct in trade or commerce prohibited
Section 18(1) of the Australian Consumer Law (ACL) says: ‘A person must not, in trade
or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or
deceive’. The courts have held that there is no difference between conduct that is misleading
and conduct that is deceptive, so it is sufficient to use the single term ‘misleading’ conduct.
This prohibition against misleading conduct is not limited to cases involving
consumers, but certainly includes them. This provision of the ACL replaces the old s 52 of
the Trade Practices Act 1974 (Cth). Since the wording of the two sections is substantially
the same, previously decided cases that involved the older legislative provision are still
valid as precedents for interpreting and applying s 18 of the ACL.
11.2.2 The concept of ‘misleading conduct’
Conduct is misleading when it leads the persons at whom it is directed into error—that
is, to believe something that is not true. Misleading conduct can take many forms. It can
involve doing something, or failing to do something. It can also involve making, or failing
to make, a statement. Because the concept is so wide, it applies to a great many different
situations. The prohibition of misleading conduct has had a profound effect on the way
business is conducted in Australia.
There are two questions that need to be asked to decide whether or not specific
conduct is misleading. Firstly, it must be asked what group of persons (or audience) the
conduct was aimed at. Secondly, it must be able to be inferred that those persons were
likely, in the circumstances, to be misled (led to a false impression) because of the conduct
in question. The fact that someone is confused, or makes a mistake, does not necessarily
signify that the error is the result of another’s conduct: it may be their own fault, for
example, if they jump to unreasonable conclusions.
McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd

(1980) 33 ALR 394
Contract; vitiating circumstances; misleading conduct
Facts: McWilliam’s Wines (McWilliams) advertised a large cask of wine under the
name ‘Big Mac’. McDonald’s System of Australia (McDonalds) marketed a large
hamburger under the same name. McDonalds claimed that McWilliams’ use of the
name ‘Big Mac’ was misleading conduct in breach of s 52 of the Trade Practices
Act because consumers might think the ‘Big Mac’ cask of wine was a McDonalds’
product.
Issue: Was McWilliams’ conduct likely to mislead consumers to believe something
that was untrue?
Decision: McWilliams’ conduct was not likely to be the cause of any confusion that
might arise in the minds of consumers.
Reason: Potential consumers of the McWilliams’ product might be confused
or wonder whether there was a business connection between McWilliams and
11
McDonalds, but the advertisement did not in any way actually suggest such a
connection. If anyone did make a mistake of the type that McDonalds suggested, it
would not be because of McWilliams’ conduct. Accordingly, there was no misleading
conduct by McWilliams.
Campomar Sociedad Ltd v Nike International Ltd (2000) 202 CLR 45

Misleading conduct; likelihood of conduct causing error
Facts: The word ‘Nike’ was registered as a trade mark in different parts of the
world by two different corporations, one based in Spain, the other in the USA. The
Spanish company (Campomar) manufactured perfumes and related products. The
American company (Nike International) manufactured sportswear and related
products. Both companies marketed their goods in Australia. The Spanish company
launched a new perfume called ‘Nike Sport Fragrance’. This perfume was sold in
pharmacies and displayed next to other perfumes on shelves. One of the other
perfumes commonly sold in pharmacies was ‘Adidas’, which was manufactured
and marketed by the well-known Adidas sportswear company. Nike International
did not itself manufacture or market perfume products. Nevertheless, they argued
that Campomar was marketing ‘Nike Sport Fragrance’ in a way that was likely to
mislead or deceive prospective purchasers.
Issue: Was Campomar’s conduct likely to mislead or deceive members of the public
into thinking that their perfume was promoted or distributed by Nike International?
Decision: In the circumstances, Campomar’s conduct was likely to mislead
members of the public in this way.
Reason: Nike International itself did not produce and market perfumes, but other
sportswear manufacturers such as Adidas did so, a fact which was widely known by
members of the public. In these circumstances, placing the ‘Nike Sport Fragrance’
in the same area of pharmacies with other sports fragrances was likely to mislead
or deceive the ordinary or reasonable members in the classes of prospective
purchasers into thinking that the ‘Nike Sport Fragrance’ was in some way promoted
or distributed by Nike International, either itself, or with its consent and approval.
Australian Competition and Consumer Commission v TPG Internet

Pty Ltd (2013) 250 CLR 640
Australian Consumer Law; misleading or deceptive conduct; dominant
message in advertisement
Facts: In a series of advertisements published between September 2010 and
November 2011 on radio, television and in newspapers TPG Internet Pty Ltd
(TPG) promoted a broadband internet service with unlimited download data limit
for $29.99 per month. This offer was qualified in the less prominent parts of the
11.2
advertisements by the condition that the broadband service was only available at
this price when bundled with a fixed-line home telephone service for an additional
$30.00 per month. A setup fee and deposit were also payable. The Australian
Competition and Consumer Commission (ACCC) brought proceedings against
TPG alleging that the advertisements constituted misleading or deceptive conduct
contrary to s 52 of the Trade Practices Act and s 18 of the ACL. The court noted that
the relevant provisions in both Acts are, in practice, the same.
Issue: Although the advertisements contained all the relevant information for
an accurate understanding of the offer, did the advertisements, as presented,
constitute misleading or deceptive conduct?
Decision: The ‘headline’ or ‘dominant’ message of the advertisements had a
tendency to lead those at whom they were directed (members of the public who
had an interest in broadband internet services) into error as regards the nature of
the offer being made.
Reasons: A person may be led into error for the purposes of the Acts even if they do
not actually enter into any legal transaction as a result of the conduct in question.
It was sufficient that the persons targeted by the advertisements were ‘enticed into
“the marketing web” by their erroneous belief’. In addition, the court found that the
likely error would not, in the circumstances, be the result of the targeted persons’
failure to attend to all the details contained in the advertisement but rather to
the way in which the dominant message was emphasised and the other details
de-emphasised. The advertisements deliberately sought to present the headline
information selectively. The court also took into account that the target audience
would consist in part of persons who were not familiar with broadband services
and who might not expect the main offer to be conditional on additional bundled
services. It was not relevant that TPG had no intention to deceive. Accordingly,
TPG had engaged in misleading or deceptive conduct and a substantial pecuniary
penalty was imposed.
Australian Competition and Consumer Commission v Coles

Supermarkets Australia Pty Limited (2014) 317 ALR 73
Australian Consumer Law; misleading or deceptive conduct;
misleading representation
Facts: The supermarkets operated by Coles Supermarkets Australia Pty Ltd (Coles)
had in-store bakeries where bread was sold. Signs were displayed on the counter
of these bakeries, with phrases such as ‘Baked Today, Sold Today’, ‘Freshly Baked’,
‘Baked Fresh’, ‘Freshly Baked In-Store’ and ‘Coles Bakery’. All in-store bread was
also labelled with a ‘baked on’ date. One of the methods used to prepare bread in
some of these in-store bakeries involved dough which had already been prepared
and partially baked elsewhere by an outside supplier, then snap frozen and stored.
The partly-baked product was then thawed in the Coles store, where the final stage
11
of the baking process was completed. The Australian Competition and Consumer
Commission (ACCC) claimed that Coles was engaging in misleading conduct
because the signs and labels were making an express or implied representation
that the bread products had been entirely baked on the day they were offered for
sale.
Issue: Had Coles engaged in misleading conduct in contravention of the Australian
Consumer Law?
Decision: In the circumstances Coles’ conduct was misleading, in contravention of
both s 18(1) and s 33 of the ACL. Coles had also contravened s 29(1)(a) by making a
misleading representation that goods have a particular history.
Reason: The court noted that context in which the signs were displayed was
important because consumers buying bread are concerned about freshness and
how recently bread has been baked. The court said (at para 146):
To many reasonable and ordinary people, the phrase ‘baked today, sold today’
in the context that Coles uses it … would convey that the baking process, not
some heating or baking process, has taken place today. … [I]‌t was misleading
or deceptive, likely to mislead or deceive, and liable to mislead the public to
say to customers on the package or signage as was done, that par-baked
frozen product was ‘baked today’ if it was partly (indeed, substantially) baked
previously.
Similarly, the words ‘freshly baked’ and ‘baked fresh’ used in the displays were
also held to be misleading, as was the label showing the ‘baked on’ date on the
packaging.
Note: Coles was subsequently ordered (in Australian Competition and Consumer
Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540) to pay a
pecuniary penalty of $2.5 million for this misleading conduct.
11.2.3 No intention required for misleading conduct to occur

Because s 18 of the ACL does not make any reference to the intention of the person
responsible for the misleading or deceptive conduct, there is ‘strict liability’ for such
conduct. This means that it is not necessary to show that the conduct occurred with
deliberate or careless intent. Even if the conduct in question took place without any such
intent, it may constitute a breach of s 18.
Yorke v Lucas (1985) 158 CLR 661

Contract; vitiating circumstances; misleading conduct; liability of
principal and agent
Facts: Yorke entered into negotiations to purchase a record shop from Treasureway
Stores Pty Ltd. Treasureway appointed a company, Ross Lucas Pty Ltd, to act as
its agent in the negotiations. Ross Lucas Pty Ltd sought and obtained financial
information about the record store from Treasureway and passed this information
on to Yorke. However, some of the information given by Treasureway and passed
11.2
on to Yorke by Ross Lucas was wrong, in particular, a statement that the weekly
turnover of the record shop was $3,500. Yorke relied on this information and
suffered loss as a result. Yorke sued Treasureway and their agent, Ross Lucas Pty
Ltd, for conduct in breach of s 52 of the Trade Practices Act.
Issue: Were both Treasureway and Ross Lucas Pty Ltd liable for misleading
conduct?
Decision: The court held both Treasureway and Ross Lucas Pty Ltd liable for a
breach of s 52.
Reason: In the case of Ross Lucas Pty Ltd, it was no defence to claim that the
misleading information was given to Yorke without negligence and in the belief that
it was true. The court considered the comments of Gibbs CJ in Parkdale Custom
Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at p 197, where he said at
[7]‌:
A corporation which has acted honestly and reasonably may therefore
nevertheless be rendered liable to be restrained by injunction, and to pay
damages, if its conduct has in fact misled or deceived or is likely to mislead or
deceive. The liability imposed by s 52, in conjunction with ss 80 and 82, is thus
quite unrelated to fault …
Note: To avoid liability, Ross Lucas could have disclaimed responsibility for the accuracy
of the information when he passed it on to Yorke.
11.2.4 Intention as evidence of misleading conduct
Although intention is not required for a breach of s 18, the existence of a deliberate
or careless intention to mislead may be relevant to establishing that the conduct was
misleading or likely to mislead.
Twentieth Century Fox Film Corp v The South Australian Brewing Co

Ltd (1996) 66 FCR 451
Misleading conduct; relevance of intention of defendant
Facts: The Twentieth Century Fox Film Corporation was the producer of ‘The
Simpsons’, a well-known and highly successful television series. The creator of
this series, Matt Groening, had invented the name ‘Duff Beer’ for a fictional brand
of beer often referred to in the series. In 1995, South Australian Brewing began
producing and marketing beer under the name ‘Duff Beer’. Twentieth Century Fox
brought an action against South Australian Brewing, to stop them from marketing
their beer as ‘Duff Beer’, on the grounds that this constituted misleading conduct
in breach of s 52 of the Trade Practices Act.
Issue: Was marketing beer as ‘Duff Beer’ without the permission of Twentieth
Century Fox conduct likely to mislead members of the public?
11
Decision: Members of the public, many of whom were familiar with ‘The Simpsons’
television series, would likely be misled by South Australian Brewing using the
name ‘Duff Beer’.

Reason: Before launching the beer, South Australian Brewing conducted market
research into consumer reactions to the name ‘Duff Beer’. They found the name to
be widely recognised and strongly associated with the popular Simpsons program.
It was on this basis that South Australian Brewing decided to launch their beer
as ‘Duff Beer’. In a deceptive conduct case, where conduct may cause wonder or
confusion as to the true facts, a court will more readily conclude there has been
a misrepresentation or deceptive conduct where the conduct is accompanied by
an element of intention by the defendant. The evidence showed that the brewery
had intended to persuade consumers that there was a strong association between
their product and ‘The Simpsons’, and in this way obtain the full benefit of that
association. As a result of this, members of the public would likely assume that
Twentieth Century Fox had allowed the manufacture and marketing of the beer,
which was untrue.
11.2.5 Disclaimers
Liability for potentially misleading conduct can be avoided if the person engaging in the
conduct makes it clear that they take no responsibility for what may be said or done, for
example by issuing a disclaimer.
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Contract; vitiating circumstances; misleading conduct
Facts: Lachlan Elder, a real estate agent, published a two-page brochure describing
a waterfront property in Sydney that was for sale. The brochure contained a
survey diagram, provided by the seller’s solicitors. On both pages of the brochure,
Lachlan Elder inserted the following statement in small print: ‘All information
contained herein is gathered from sources we believe to be reliable. However we
cannot guarantee it’s [sic] accuracy and interested persons should rely on their
own enquiries’. Butcher was given the brochure and relied on the information it
contained without checking it. After agreeing to purchase the property, Butcher
found that the survey diagram was inaccurate in a way that seriously affected how
he could develop the property. Butcher wanted to avoid the contract and recover the
deposit paid, relying on a breach of s 52 of the Trade Practices Act.
Issue: Had the real estate agent engaged in misleading or deceptive conduct or
conduct ‘likely to mislead or deceive’?
Decision: In a majority decision, the court held that Lachlan Elder had not engaged
in conduct that amounted to a breach of s 52 of the Trade Practices Act.
Reason: The disclaimer was printed in small writing, but it was clear and legible,
and there was not a great deal of other information on the brochure. The disclaimer
would have been noticed by anyone who had taken the trouble to read the brochure
carefully. In such circumstances, the survey diagram should not have been relied
on by Butcher. The court said (at [51]):
11.2
[I]‌t would have been plain to a reasonable purchaser that the agent was not
the source of the information which was said to be misleading. The agent did
not purport to do anything more than pass on information supplied by another
or others. It both expressly and implicitly disclaimed any belief in the truth or
falsity of that information. It did no more than state a belief in the reliability of
the sources.
11.2.6 Conduct must take place ‘in trade or commerce’

Section 18 prohibits misleading conduct only if it takes place ‘in trade or commerce’. It
does not apply to transactions that are not part of business dealings. The words ‘trade or
commerce’ are defined in the ACL. Section 2(1) states that the phrase includes trade or
commerce within Australia, as well as trade or commerce between Australia and places
outside of Australia. The phrase includes ‘any business or professional activity (whether
or not carried on for profit)’. This definition seems consistent with what the courts have
previously said about the meaning of the phrase. In summary, the courts have said that
conduct takes place ‘in trade or commerce’ when it involves selling or dealing, particularly
for purposes of business or as a livelihood.
Note: The requirement that regulated conduct has taken place in trade or commerce
is a component of other sections of the ACL. The meaning of the phrase explained here
applies also to those other provisions.
O’Brien v Smolonogov [1983] FCA 305

Misleading conduct; meaning of ‘in trade or commerce’
Facts: O’Brien advertised in a newspaper that he wished to sell some land.
Smolonogov telephoned O’Brien to make inquiries. O’Brien made various untrue
comments about the land, in particular that the land was good land with a permanent
creek running through it and that a building permit had been issued. Smolonogov
bought the land but later repudiated the contract on the basis of having been
induced to enter it by the seller’s misleading representations. Smolonogov argued
that these representations amounted to a breach of s 53A of the Trade Practices
Act, which prohibited misleading conduct in the form of representations made in
relation to the sale of land ‘in trade or commerce’.
Issue: Had the sale taken place ‘in trade or commerce’?
Decision: The transaction had not taken place in trade or commerce: it was a
private sale and therefore not subject to s 53A of the Trade Practices Act.
Reason: Despite using a classified advertisement in the newspaper (an invitation
to the public at large to deal), the seller was not involved in the commercial selling
of land. An isolated sale of property by its owner does not constitute the conduct
of trade or commerce. To be so, the sale must be part of the business, vocation or
occupation of the seller.
11
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
Facts: Concrete Constructions was a company engaged in constructing a building
in Sydney. The foreman of the company gave misleading information to Nelson,
an employee of Concrete Constructions who was working on the site, about how a
grate at the entrance of a shaft was secured. As a result of this wrong information,
Nelson fell down the shaft and was injured. Nelson wished to claim damages from
Concrete Constructions for a breach of s 52 of the Trade Practices Act. He argued
that the company had, through its foreman, engaged in misleading conduct in trade
or commerce.
Issue: Did the act of giving misleading information to the employee take place ‘in
trade or commerce’?
Decision: Giving the information was not part of the company’s commercial or
trading activities; it was only something incidental to those activities. Accordingly,
the conduct in question did not take place ‘in trade or commerce’.
Reason: The phrase ‘in trade or commerce’ can be interpreted narrowly. This
includes only conduct that is itself an aspect or element of activities or transactions
which, of their nature, bear a trading or commercial character. It can also be
interpreted more widely, so as to include activities that are merely incidental to the
carrying on of an overall trading or commercial business. In the narrower sense,
driving a truck to deliver goods to a buyer would be conduct ‘in trade or commerce’,
whereas the failure of the driver of the truck to give a correct hand signal while
driving would not be. The wider interpretation goes beyond what was intended by
the legislature.
Taylor v Crossman (No 2) (2012) 199 FCR 363

Facts: While Taylor and Crossman were engaged to be married and were considering
buying a marina business to operate together, Taylor made a series of statements
to Crossman to convince her to provide the initial finances required. These
statements concerned how both would share the expenses in buying and setting
up the business, how they would make decisions about the business, and how
the marina business would be run. Taylor later admitted that his statements had
been misleading, but argued that they had not been made ‘in trade or commerce’
because the statements had been made before the parties formed a company and
trust to purchase and run the marina business.
Issue: Had the statements been made ‘in trade or commerce’, for the purpose of
liability under s 56 of the Fair Trading Act 1987 (SA) (equivalent to s 18 of the ACL)?
Decision: The statements had been made ‘in trade or commerce’. They were not
merely in connection with trade or commerce and were not of a private nature.
11.2
Reason: Cowdroy and Flick JJ said (at [47], [49], [52]):

[T]‌he representation[s] fell within trade or commerce, in that they related to
conduct of a business, of its financing and of its operation, even though the
business had not yet commenced in the name of the company …
In these circumstances it is immaterial that the company did not exist at
the time that the representations were made …
Further, it is not determinative that the parties were engaged to be
married and proposed to live together. The focus must be directed to the
statements concerning the business operations which the appellant made to
the respondent concerning its establishment, operation and financing. Such
statements were not of a private character but related to the business venture.
11.2.7 Application to natural persons, artificial persons and information

providers
Under the provisions of the ACL, misleading conduct is prohibited whether engaged
in by corporations or individuals. But s 18 generally does not apply to publications by
‘information providers’. The Australian Broadcasting Corporation (ABC), the Special
Broadcasting Service Corporation (SBS) and the holders of a broadcasting licence are
also ‘information providers’ when they publish material using radio or television. However,
there are some exceptions. For example, s 18 does apply to advertisements. This means that
an information provider can breach s 18 if their conduct in publishing an advertisement is
likely to mislead or deceive their audience.
11.2.8 Remedies for a breach of s 18
See below (at 11.8) for a general description of the remedies available for a contravention
of s 18 (injunctions, damages, compensation orders, non-punitive orders and other orders,
such as declaring a transaction void). A contravention of s 18 does not incur fines or civil
pecuniary penalties.
[11.3] Protection Against Unconscionable Conduct

11.3.1 Unconscionable conduct prohibited
Sections 20 and 21 of the Australian Consumer Law (ACL) prohibit ‘unconscionable
conduct’ in trade or commerce.2 These statutory provisions do not replace the general law
doctrine of unconscionable dealing that has been developed by the courts (see Chapter 9).
They exist alongside the general law doctrine and, to a certain extent, they depend on the
continued existence and development of the general law.
Statutory provisions prohibiting unconscionable conduct were originally contained in
s 51AA, 51AB and 51AC of the Trade Practices Act 1974 (Cth). These provisions have now
been relocated to Ch 2 of the ACL. Following amendments at the beginning of 2012, the
structure and wording of the original provisions have changed but, where these changes
11
2 See 11.2.6 above for the definition of the phrase ‘in trade or commerce’.

are not material, decided cases that involved the older legislative provisions remain valid
as relevant precedents.
11.3.2 The scope of unconscionable conduct in the ACL
Section 20(1) states: ‘A person must not, in trade or commerce, engage in conduct that is
unconscionable, within the meaning of the unwritten law from time to time’. This means
that conduct that would amount to unconscionable dealing in the general law (that is, the
rules of common law and equity) is also a breach of s 20 of the ACL. This creates an overlap
between the general law and the statutory law. The purpose of the overlap is to make the
various statutory remedies created by the ACL available for unconscionable conduct.
Australian Competition & Consumer Commission v CG Berbatis

Holdings Pty Ltd (2000) 96 FCR 491
Contract; vitiating circumstances; unconscionable conduct
Facts: The owners of a shopping mall made the renewal of a tenant’s lease
conditional on the tenant withdrawing legal proceedings it had begun against the
owners. The ACCC alleged that this amounted to unconscionable conduct in breach
of s 51AA of the Trade Practices Act.
Issue: What conduct is prohibited by s 51AA?
Decision: The section prohibits conduct that is unconscionable according to the
common law meaning of unconscionability.
Reason: French J said (at [26]):
Section 51AA prohibits corporations from engaging in conduct which is
unconscionable within the meaning of the common law of Australia. … What
the unwritten law does presently is to confine its operation to certain classes
of case. The reference in s 51AA to the ‘meaning of the unwritten law’ is a
reference to the classes of case in which the unwritten law will award remedies
for unconscionable conduct assessed by a court.
On this basis … the rules governing the relevant application of the term
‘unconscionable conduct’ and therefore the application of s 51AA are judge-
made rules that can change from time to time.
Note: To review the unwritten law, as found in reported cases, see Chapter 10, section 4.
Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392

Contract law; vitiating factors; unconscionable conduct
Facts: Harry Kakavas (HK), a wealthy Gold Coast businessman, was a recreational
gambler who frequented various casinos. In 2004 the executives of Crown Melbourne
invited HK to return to their casino, having excluded him in 1998 because of certain
charges involving HK that were being investigated. At Crown’s request, HK provided
psychological reports that stated that he was able to properly regulate his gambling
11.3
behaviour. HK also negotiated with Crown to obtain favourable terms as a ‘high

roller’ including the use of Crown’s private jet, free accommodation and free food
and drink. Between June 2005 and August 2006, HK lost over $20 million to Crown.
He sued to recover these losses on the basis that, while gambling, he was subject to
a pathological urge that made him unable to make worthwhile decisions in his own
best interests, that Crown was aware of this, and took unconscionable advantage of
his situation by allowing him to gamble.
Issue: Had Crown engaged in unconscionable conduct under the provisions of the
general law that underpin s 51AA of the Trade Practices Act (now s 20(1) of the
ACL)?
Decision: Taking account of the overall facts of the case, Crown had not engaged
in unconscionable conduct by allowing HK to gamble and accumulate substantial
losses.
Reason: In deciding whether there has been unconscionable conduct, account
must be taken of the whole course of dealing between the parties. In the present
case, HK had decided to attend Crown on many occasions over many months.
When so deciding, he was not affected by any pathological addiction. Further, both
HK and Crown were fully aware of the possibility that losses might be the result
of gambling. HK was a ‘high roller’ who bet significant sums and who at times
won significant amounts, even though in the end he lost more than he won. The
court found that ‘high rollers’ typically have a heightened interest in gambling
and are willing to risk substantial losses. HK appeared to have the resources to
gamble to the extent he did and did not complain of financial difficulty. He was able
to stay away altogether from Crown when he chose to do so. Crown had gone to
reasonable lengths to determine that HK had no psychological gambling problems.
HK’s behaviour was confident and charming. In these circumstances, HK was not
suffering from any special disability which was apparent to Crown and of which they
took unconscionable advantage. The gambling losses were not recoverable by HK.
11.3.3 Additional circumstances giving rise to unconscionable conduct

Section 21(1) of the ACL says that a person must not, in trade or commerce, and in
connection with the supply or acquisition of goods or services to a person (other than a
listed public company), engage in conduct that is, in all the circumstances, unconscionable.
This section is of wide application. It does not distinguish between ‘consumer’ and
‘commercial’ transactions. Nor does it make any distinctions on the basis of the type of
goods or services being acquired, or the purpose for which they are acquired, or their price.
Section 21(1) simply prohibits unconscionable conduct that occurs in trade or commerce
in connection with the supply or acquisition of goods or services.
The prohibition against unconscionable conduct contained in s 21 is intended to apply
in a much wider range of circumstances than the general law doctrine of unconscionable
conduct, including circumstances that may fall outside the definition of unconscionable
according to the ‘unwritten’ law. 11
Section 22 lists specified matters which a court may take into account when deciding
whether there has been a breach of s 21, either by a supplier or an acquirer of goods or
services. In outline, the specified factors are:
• the relative bargaining position of the parties
• whether, by their conduct, a party imposed conditions that were not reasonably
necessary to protect their interests
• whether a party was unable to understand any documents relating to the transaction
• whether any undue influence or pressure or any unfair tactics were used by a party
• the circumstances under which, and the amount for which, a party could have acquired
or supplied identical or equivalent goods or services from or to another person
• the extent to which a party’s conduct was consistent with their conduct in similar
transactions
• the requirements of any applicable industry code, or other relevant industry code
• the extent to which one party unreasonably failed to disclose their intention to engage
in conduct that might affect the interests of the other and any foreseeable risks to the
other party arising from that conduct
• in the case of contracts for the supply of goods or services:
– the extent to which a party was willing to negotiate the terms of any contract
– the terms and conditions contained in the contract
– the conduct of the parties in complying with the contract, and
– any conduct of the parties, in relation to their commercial relationship, engaged
in after entering into the contract
• whether a party has a contractual right to vary unilaterally a term of a contract, and
• the extent to which the parties acted in good faith.
Section 21 grants the court a very broad discretion to decide whether, in ‘all the
circumstances’, conduct is unconscionable. A court is not limited to the factors listed in s
22, and even when a listed factor is shown to exist, the court can exercise its discretion in
deciding whether or not it gave rise to unconscionable conduct in the circumstances of the
particular case.
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999)
ATPR 41-703
Contract; vitiating circumstances; unconscionable conduct
Facts: In 1991, Garry Rogers Motors (GRM) was appointed under a franchise
agreement with Subaru as an authorised dealer of Subaru cars for three years.
In 1994 the appointment was renewed. GRM indicated an unwillingness to comply
with some new requirements imposed by Subaru. As a result, Subaru decided to
terminate GRM’s appointment as a dealer. When informed of this decision, GRM
then said it would do whatever Subaru wanted, but Subaru refused to change its
mind.
11.3
Issue: Was Subaru’s decision to terminate the appointment a breach of s 51AC of

the Trade Practices Act?
Decision: There was no unconscionable conduct in breach of s 51AC.
Reason: Section 51AC listed failure to comply with an industry code of conduct
as a factor which may indicate unconscionable conduct. The relevant code in this
case required a franchisor to provide written reasons when terminating a franchise
agreement. In this case, Subaru had not provided written reasons. However,
despite the reasons for the termination not being put into writing, they were well-
known to the parties. The court held that while an aspect of the industry code had
not been complied with, this was insufficient in the circumstances to amount to
unconscionable conduct by Subaru.
Failure to comply with the requirements of an industry code of conduct may also give
rise to illegality. See 10.7.4 and Master Education Services Pty Ltd v Ketchell (2008) 236
CLR 101.
11.3.4 Enforcement
See below (at 11.8) for a general description of the remedies available for contraventions
of s 20 and 21 (injunctions, damages, compensation orders, non-punitive orders and other
orders, such as declaring a transaction void). A contravention of these sections does not
incur fines, but civil pecuniary penalties can be imposed.
[11.4] Protection Against Unfair Terms in Contracts

11.4.1 Regulation of terms in consumer contracts
When suppliers of goods or services have greater bargaining power than the individuals
or businesses they are contracting with, the suppliers might insist on terms in the contract
that are unduly harsh or burdensome. In such circumstances, the disadvantaged party needs
to be protected against ‘unfair’ terms. The provisions of Ch 2, Pt 2-3 of the Australian
Consumer Law (ACL) achieve this by invalidating ‘unfair’ terms within specially identified
contracts. There are two such contracts: ‘consumer contracts’ and ‘small business contracts’.
11.4.2 Identifying contracts that are regulated
For the purpose of regulating unfair terms in contracts. consumer contracts and small
business contracts are defined in s 23 of the ACL.
Consumer contracts are contracts for the ‘supply of goods or services’, or for a ‘sale
or grant of an interest in land’, to an individual who is acquiring them predominantly
for their own personal, domestic or household use or consumption. The price paid by the
consumer is irrelevant for the purposes of defining a consumer contract.
Small business contracts are contracts for a ‘supply of goods or services’, or a ‘sale
or grant of an interest in land’, where at least one party to the contract is a business
that employs fewer than 20 persons (excluding irregular casual employees) and either the
11
upfront price payable under the contract does not exceed $300,000; or the contract has a
duration of more than 12 months and the upfront price payable under the contract does
not exceed $1,000,000.

The ACL only protects a party to a consumer contract or small business contract from
being bound by an unfair term, if the contract in question is a ‘standard form’ contract.
A standard form contract is one in which one of the parties has most of the bargaining
power, and prepares the terms on which they are willing to deal, without giving the other
party any reasonable opportunity to discuss or negotiate the terms. The terms are presented
on a ‘take it or leave it’ basis, with no account being taken of the individual circumstances
of the particular transaction. If one party alleges that the contract they entered was a
standard form contract, it is up to the other party to disprove that fact.
11.4.3 Unfair term is of no legal effect
Section 23 of the ACL makes void any term in a consumer contract or small business
contract that is found to be an unfair term. Provided that the contract can continue
operating without the unfair term (ie if its remaining terms are sufficiently complete) then
the contract continues to bind the parties.
11.4.4 Defining ‘unfair term’
Section 24 of the ACL says that a term of a consumer contract or small business contract
is unfair if the term in question:
• would cause a significant imbalance in the parties’ contractual rights and duties
• are not reasonably necessary to protect the legitimate interests of the party who would
be advantaged by the term, and
• would cause a financial or other detriment to one of the parties if relied on.
These provisions do not apply to terms that define the price and subject matter of the
contract.
In deciding whether a particular term is unfair, the court must consider the contract
as a whole, and the extent to which the terms in question are transparent, that is, presented
clearly and legibly, in plain language, and made available to the disadvantaged party.
Section 25 sets out a number of examples of terms that are likely to be considered unfair.
One example is a term that permits one of the parties, but not another, to avoid or limit
the performance of the contract. Another example is a term that allows one party, but
not another, to vary the terms of the contract. The unfairness of such terms is obvious,
particularly when they are included in standard form agreements.
NRM Corporation Pty Ltd v Australian Competition and Consumer

Commission [2016] FCAFC 98
Australian Consumer Law; consumer contracts; unfair terms
Facts: Advanced Medical Institute (AMI) offered treatments for premature
ejaculation and erectile dysfunction, using nasal sprays and oral strips. Doctors
were employed as ‘independent consultants’ to prescribe these treatments and
were effectively directed to recommend treatment for 12 to 18 months. AMI’s
contract with customers who purchased the treatment included a term which
stated:
11.4
‘Sexual dysfunction is a chronic condition and treatment can take some time.
For this reason, we stipulate that your contract with us [is] for the period
decided in the first consultation with the AMI doctor. You may cancel your
treatment program with AMI at any time by giving AMI not less than 30 days’
notice. Cancelling your treatment program you will be entitled to a refund for
the unexpired period of your treatment program less an administrative fee
of 15% and less the cost of any medication already provided to or prepared
for you. No refund will be provided for the expired period of the treatment
program or the 30 day notice period. All cancellation must be communicated
to AMI in writing signed by you. Oral cancellation will not be accepted in any
circumstances.’
The NRM Corporation (NRM) purchased the AMI business. The ACCC brought
an action against NRM, arguing that the term in question was an unfair term as
defined in section 24 of the Australian Consumer Law (ACL).
Issue: Was the refund term an unfair contract term within the meaning of section
24 of the ACL?
Decision: Yes, the refund term was an unfair contract term, and was therefore void.
Reason: The term met all the requirements for unfair terms set out under section
24 of the ACL. It caused a significant imbalance in the parties’ rights and obligations
and was detrimental to the patient if relied upon by AMI. This was ‘self-evident from
the manner in which the term operated and was enforced’, including the fact (which
was not disclosed to customers) that the 15% administrative fee was calculated
on the basis of the entire program cost. The term also operated ‘irrespective of
whether the reason for the termination was a change of mind, a severe adverse
side effect, or where the medication proved ineffective.’ The term also appeared
unfair when viewed in the context of the contract as a whole; the context in which
patients entered into the agreements; and the manner in which the medications
were prescribed. The term was not brought to patients’ attention in a way which
practically informed them of its contents, being communicated by way of a lengthy
recorded message being read softly, monotonously and at a rapid pace. (Note: NRM
later changed the contractual terms offered to its customers.)
11.4.5 Enforcement
The inclusion of unfair terms in a consumer contract does not incur either fines or civil
pecuniary penalties. See below (at 11.8) for a description of the other remedies that are
available (injunctions, damages, compensation orders, non- punitive orders and other
orders, such as declaring a whole transaction void).
[11.5] Protection Against Unfair Business Practices

11.5.1 The regulation of business practices
11
In addition to targeting broad types of unethical conduct in trade or commerce, such as
misleading conduct and unconscionable conduct, the Australian Consumer Law (ACL)
identifies particular kinds of conduct which may occur in the competitive business of

selling goods and services to consumers, and prohibits them. There is often an overlap
between the broader provisions of the ACL and these more specific prohibitions, but they
are not inconsistent with each other, and the advantage of the specific provisions is that
they give a clear indication to everyone of what particular kinds of unethical behaviour are
not permitted. The following provisions are found in Ch 3, Pt 3-1 of the ACL.
11.5.2 False or misleading statements
Section 29 of the ACL prohibits the making of false or misleading statements in connection
with the supply of goods or services. For example, a person must not falsely represent that
goods are of a ‘particular standard, quality, value, grade, composition, style or model’, that
they have a particular history, that they are new, that they have been given some approval
or sponsorship, that they have particular performance characteristics, that they came from
a particular place of origin, or that they cost a particular price.
11.5.3 Offering gifts and prizes
Offering gifts and prizes or cash rebates to encourage consumers to acquire goods or
services is a common practice. According to s 32, such practices are only prohibited as
unfair if the offer is made without any intention of providing the gift, prize or rebate.
If this prohibition is breached, a pecuniary penalty can be imposed on the supplier. In
addition, if an offer of a gift, prize or rebate is made and what was promised is not actually
provided to the consumer within a reasonable time, a pecuniary penalty can be imposed
on the supplier. A failure to provide a gift, prize or rebate can be excused if the failure is
due to circumstances beyond the supplier’s control, and provided that the supplier took
reasonable precautions to avoid the failure.
11.5.4 Misleading conduct as to the nature of goods or services
Sections 33 and 34 of the ACL prohibit conduct that is likely to mislead the public as
to the nature, characteristics, suitability for purpose or quantity of particular goods or
services. Conduct that misleads the public as to the manufacturing process of particular
goods is also prohibited.
11.5.5 Bait advertising
Section 35 of the ACL prohibits advertising goods or services at specified prices if the
supplier has reasonable grounds for believing that they will not be able to supply those
things for reasonable periods of time and in reasonable quantities, taking into account the
nature of the market and what was said in the advertisement.
11.5.6 Wrongly accepting payment
Sections 36(1), (2) and (3) of the ACL say that a person shall not accept payment for
goods or services if, at the time of accepting payment, they do not intend to supply them at
all, or if they intend to supply something materially different from what is being paid for,
or if they have reasonable grounds to believe that the goods or services cannot be supplied
within the agreed time or within a reasonable time. Section 36(4) says that once payment
is accepted for goods or services, they must be supplied within the agreed time (or within
a reasonable time if no particular time was agreed). Failure to do so is a breach of s 36(4),
unless the failure was due to circumstances beyond the supplier’s control and the supplier
11.5
had taken reasonable precautions to avoid the failure, or unless different goods or services
are offered to the consumer as a replacement and are acceptable to the consumer.
11.5.7 Unsolicited cards
Under s 39 of the ACL, cards that can be used as credit cards must not be sent to persons
who have not requested them in writing. A credit card is any card that enables a consumer
to obtain goods, services or cash on credit terms, or a card which is commonly issued by
businesses to their customers to enable them to obtain goods or services from that business
on credit terms. No exceptions to the prohibition are made for cases where the person to
whom the card is sent must do something to accept or activate the card. Similar restrictions
are placed on debit cards, which are cards used to access money held in an account.
11.5.8 Unsolicited goods
Section 40 of the ACL prohibits a person from demanding payment for goods that have
been sent to a person who did not ask for them. The same prohibition applies to unsolicited
services. It is a defence for the person who is demanding payment to show that they had a
reasonable belief that they were entitled to payment. Section 41 states that a person who
receives unsolicited goods is not liable to pay for them. Nor are they liable for any loss of
or damage to those goods, unless that loss or harm results from a wilful and unlawful act
by that person (for example, deliberate destruction of the goods). Further, s 41 provides
that three months after the delivery of unsolicited goods, the person who sent them is not
entitled to recover them (and this period can be shortened by a recipient who gives the
sender written notice to remove the goods).
11.5.9 Pyramid schemes and referral selling
Participation in pyramid schemes is prohibited and penalised by s 44 of the ACL.
A pyramid scheme is defined by s 45 as a scheme whereby all persons joining the scheme as
a participant must provide a benefit of some sort to another participant, in the expectation
that, as new people join the scheme in the future, they will receive benefits from those new
participants.
Referral selling, which is also prohibited, occurs when a supplier persuades a consumer
to buy goods or services by promising them a reduction of the price, or some benefit, if
the consumer assists them in finding further customers and if the delivery of the rebate or
other benefit depends on events that will occur after the consumer has agreed to buy the
goods or services.
11.5.10 Multiple pricing
If more than one price is displayed for the same goods, the supplier should supply them
at the lowest price. Section 47 of the ACL prohibits the supply of goods, in trade or
commerce, at the higher of the displayed prices. Section 48 requires that, where goods
or services are supplied that are ordinarily acquired for personal, domestic or household
use or consumption, and the prices of the component parts of these goods or services are
displayed separately, the single price for the goods or services must also be prominently
displayed (excluding the cost of delivery). The single price is the minimum combined price
of the goods or services including all charges and taxes payable. 11
11.5.11 Harassment or coercion

Section 50 of the ACL prohibits the use of physical force, undue harassment or coercion in
connection with the supply of, or payment for, goods or services, or the sale of interests in
land. This section overlaps to an extent with the general law doctrine of duress but provides
a broader range of remedies and penalties.
11.5.12 Enforcement
A civil pecuniary penalty can be imposed for engaging in prohibited business practices,
and such conduct is also made a criminal offence, punishable by a fine. See below (at 11.8)
for a general description of the private remedies that are available in such circumstances
(injunctions, damages, compensation orders, non-punitive orders and other orders, such as
declaring a transaction void).
[11.6] Unsolicited Consumer Agreements

11.6.1 Regulating marketing by suppliers to consumers in their home
One approach to selling goods or services is to call in on consumers in their homes, either
by telephone or in person, to tell them about the goods or services in question and to
persuade them to enter into a contract. From the supplier’s point of view, the best time to
make such calls is after working hours or on weekends, when the consumer is most likely to
be at home. There is nothing inherently wrong with this approach to marketing, provided
that certain standards of conduct are observed. In particular, it is important to ensure that
calls are not made at inappropriate hours, that the caller is not overly persistent, that the
consumer is given adequate information to properly evaluate the transaction, and that they
are not rushed into a binding agreement that they later regret. Chapter 3, Pt 3-2, Div 2 of
the ACL regulates unsolicited consumer agreements.
11.6.2 Identifying unsolicited consumer agreements
Section 69 of the Australian Consumer Law (ACL) states that an agreement is an
unsolicited consumer agreement when:
• it involves the supply of goods or services to a consumer by a dealer. Section 71 says
that a ‘dealer’ is a person who enters into negotiations with a consumer with a view
to making an agreement for the supply of goods or services, even if they are not the
actual supplier
• the negotiations were conducted either by telephone or at a place that was not the
supplier’s place of business
• the consumer did not invite the dealer to visit or telephone them for the purposes of
supplying the goods or services in question, and
• the total price to be paid by the consumer under the agreement is either more than
$100 or cannot be ascertained at the time the transaction was entered into.
11.6.3 Restricted times for calls

Under the provisions of s 73, a dealer must not call on consumers in their homes to
negotiate an unsolicited consumer agreement on a Sunday or a public holiday. Nor are
11.6
they allowed to call before 9 am on other days, after 5 pm on a Saturday or after 6 pm on

weekdays.
11.6.4 Obligation on supplier to provide specified information
A dealer who calls on a consumer to negotiate an unsolicited consumer agreement must, as
soon as practically possible and before beginning to negotiate the contract, clearly advise
the consumer that their objective is to seek agreement for the supply of goods or services.
In addition, the dealer must inform the consumer of their right to ask the dealer to leave
the consumer’s premises immediately. The dealer must also provide the consumer with
their name and address (and the name and address of the supplier, if the dealer is not the
supplier).
11.6.5 Compliance with request to leave
Section 75 of the ACL empowers a consumer to end negotiations with a dealer by asking
the dealer to leave their premises. The dealer is required to comply immediately with this
request. The occupier of the premises is also entitled to ask the dealer to leave, even if
they are not the prospective consumer. A dealer who has been asked to leave a consumer’s
premises is not allowed to contact that consumer again for at least 30 days for the purpose
of negotiating an unsolicited consumer agreement.
11.6.6 Written copy of agreement to be supplied
Section 78 requires that a copy of any unsolicited consumer agreement that is entered into
must be given to the consumer. If the agreement is reached by telephone, the copy must be
sent to the consumer within five business days (or within any longer period agreed to by
the consumer). If the agreement is not entered into by telephone, the copy must be given
to the consumer as soon as it is signed by the consumer.
Section 79 says that the written agreement must include all the terms of the agreement.
Specifically, the agreement must include the total amount to be paid, the amount of postal
or delivery charges, and the supplier’s name, Australian Business Number (ABN) and
contact details. The agreement must be clearly set out. It must also inform the consumer
of their right to terminate the agreement and include a notice that can be filled out by the
consumer to terminate the agreement.
11.6.7 Enforcement
In addition to the general remedies that are available for a breach of a provision of Ch 3
of the ACL (injunctions, damages, compensation orders, non-punitive orders and other
orders), s 82 gives a consumer who has entered into an unsolicited consumer agreement
the right to terminate that agreement within specified periods of time if they wish to do
so. The specified periods are:
• if the agreement was not negotiated by telephone, within 10 business days after the
day on which the agreement was made, and
• if the agreement was negotiated by telephone, within 10 business days of the consumer
receiving their copy of the agreement.
Longer periods for termination are allowed in special circumstances. If the dealer
approached the consumer outside of the permitted hours, failed to disclose their purpose
11
or identity or did not cease to negotiate at the consumer’s request, the consumer has three
months in which to terminate the agreement.
The consumer may bring about the termination of the agreement by informing the
supplier of their decision, either orally or in writing. They can do this even if the agreement
has been carried out in whole or in part. The effect of termination is to rescind (cancel)
the agreement. The consumer must return any goods received to the supplier (which can
be done simply by notifying the supplier where they can be collected) and the supplier
must refund any monies paid by the consumer. The consumer is liable for any damage
to the goods for which they are responsible, but not for reasonable wear and tear. If,
after termination, the supplier fails to collect the goods within 30 days, they become the
property of the consumer.
Civil pecuniary penalties may be imposed for a breach of the prohibitions regarding
unsolicited consumer transactions.
11.6.8 No waiver of rights permitted
Section 90 of the ACL states that a consumer cannot waive any rights that are conferred
by the provisions of the ACL that deal with unsolicited consumer agreements.
[11.7] Safety Standards

11.7.1 Regulation of dangerous products
Particular goods or services may be inherently dangerous or unsafe, or might be used
in ways that are potentially harmful to consumers. Rather than simply giving individual
consumers or other persons who may be harmed a private right of action, Ch 3, Pt 3-3 of
the Australian Consumer Law (ACL) establishes a broad system of information sharing
and control over the marketing of such goods and services.
11.7.2 Setting safety standards
The Commonwealth minister responsible for the administration of the Competition and
Consumer Act 2010 (Cth) is empowered by s 104 and 105 of the ACL to publish safety
standards for particular consumer goods or product related services. Safety standards
consist of requirements in relation to how goods are to be designed, made, finished,
packaged and tested, so as to reduce or prevent the risk of harm to any person. As regards
services, safety standards consist of requirements in relation to how services are to be
supplied, the skills and qualifications of the supplier, the materials used in supplying the
services and the testing of the services. Safety standards for particular goods or services are
declared by the minister via publication on the internet. Once a safety standard is declared,
s 106 and 107 of the ACL prohibit a person from offering or supplying consumer goods or
services in trade or commerce that do not comply with the safety standard.
11.7.3 Bans on goods or services likely to cause injury
If it appears to the Commonwealth, state or territory minister who is responsible for the
administration of the ACL that particular consumer goods or services may cause injury
to a person, each minister is empowered by s 109 and 114 of the ACL to impose a ban
on those goods or services. The minister does this by publishing on the internet a written
11.7
notice of the ban. There are two kinds of bans: interim bans and permanent bans. Interim
bans imposed by a Commonwealth, state or territory minister last for 60 days from the
date on which they begin operating. They can be extended for a further 30 or 60 days
in some circumstances. Permanent bans, which only the Commonwealth minister can
impose, remain in force from the day on which they begin operation until they are revoked
at the minister’s discretion. While an interim or permanent ban is in effect, s 118 and 119
prohibit a person from supplying the banned goods or services.
11.7.4 Recall of goods
The Commonwealth, state or territory minister responsible for the administration of
the ACL is empowered by s 122 of the ACL to issue a recall notice if they decide that
particular consumer goods may cause injury to a person, that they do not comply with a
published safety standard, or if they are subject to an interim or permanent ban. A recall
notice may require the regulator (the ACCC and equivalent state and territory bodies) or
the suppliers of the goods to recall the goods from consumers and give a general notice of
the dangers posed by the goods or their use. Identified suppliers may be required to inform
consumers what the suppliers will do in relation to the recalled goods (for example, replace
them, repair them or refund the price paid). Any repairs or replacements must conform to
relevant safety standards. The minister may also direct that the recalled goods be destroyed
by the regulator. Failure to comply with a recall notice is a breach of s 127 of the ACL.
11.7.5 Safety warning notices
The Commonwealth, state or territory ministers who are responsible for the administration
of the ACL are empowered by s 129 of the ACL to publish a written notice on the
internet, warning that specified goods or services are under investigation to determine
whether they pose a risk of injury or to warn of possible risks. When any investigation has
been completed, and the goods have not been recalled or banned, the minister may publish
the results and give notice of any proposed action.
11.7.6 Notice of death, injury or illness
Sections 131 and 132 of the ACL require a supplier of goods or services who becomes
aware of the death, serious injury or illness of a person that may have been caused by the
use of consumer goods or services to make a report to the Commonwealth minister who
is responsible for the administration of the ACL, identifying the goods or services and
other relevant circumstances. This notice does not amount to an admission of liability for
the harm, but enables the minister to take appropriate action, for example, by recalling or
banning the goods or services.
11.7.7 Information standards
Sections 134 and 135 of the ACL empower the Commonwealth minister who is responsible
for the administration of the ACL to create and publish documents on the internet called
‘information standards’ for particular goods or services. These standards specify the content
and manner in which specified information is to be provided to consumers. A failure by a
supplier to comply with an information standard is prohibited by s 136 and 137.
11
11.7.8 Liability of manufacturers for safety defects

Sections 138, 139, 140 and 141 of the ACL make a manufacturer who supplies goods in
trade or commerce liable for injuries, death or property damage caused by a safety defect
in those goods. The manufacturer is made liable to pay compensation to:
• persons who directly suffer injury or death as the result of safety defects in the
manufacturer’s goods
• other persons who may suffer loss or damage indirectly as the result of safety defects
in the manufacturer’s goods
• persons who suffer loss or damage because safety defects in the manufacturer’s goods
cause damage to that person’s other personal, domestic or household goods, or
• persons whose private land or buildings are damaged as the result of safety defects in
the manufacturer’s goods.
If the person seeking compensation cannot identify the manufacturer of the goods,
they are entitled to request that information from the supplier of the goods. If the supplier
fails to provide the necessary information, the supplier becomes liable for the relevant loss
or damage in place of the manufacturer.
11.7.9 Enforcement
A civil pecuniary penalty can be imposed in the event of any of the following: the supply
of banned goods; a failure to comply with safety standards, a recall notice or information
standards; or a failure to give notice of a death, injury or illness. Such conduct is also
made a criminal offence, punishable by a fine. See below for a description of the general
remedies available for contraventions of the provisions of Ch 3 of the ACL (injunctions,
damages, compensation orders, non-punitive orders and other orders, such as declaring a
transaction void).
In addition to other penalties and remedies, a person who supplies goods which have
been recalled is liable for harm caused to another person as a result of the breach.
[11.8] Enforcement Provisions

11.8.1. How are the provisions of the ACL enforced?
The provisions of the ACL are enforced in various ways. A range of remedies is made
available to persons who wish to bring a private action against someone who has breached
the ACL. In addition, prescribed penalties can be imposed to punish persons who
contravene particular provisions.
11.8.1(a) Remedies in actions brought by private persons
In outline, the available remedies are:
• Injunctions: Section 232 empowers a court to issue an order called an ‘injunction’,
which prevents a threatened or continuing contravention of a provision of Ch 2, 3 or
4.
11.8
• Damages: Section 236 empowers a court to award damages to compensate a claimant

for loss or damage suffered as a result of a person’s contravention of a provision of Ch
2 or 3.
• Compensation orders: A court is empowered by s 237 and 238 to order the payment
of compensation to a person who has suffered, or is likely to suffer, loss or damage as
a result of a contravention of a provision of Ch 2, 3 or 4, or because of an unfair term
in a consumer contract.
• Other orders: Section 243 empowers a court to make a variety of other orders to
provide relief to a person who has suffered, or is likely to suffer, loss or damage as a
result of a contravention of a provision of Ch 2, 3 or 4, or because of an unfair term
in a consumer contract. These orders include: declaring a contract or arrangement
void in whole or in part; varying the terms of a contract or arrangement; refusing
to enforce any part of a contract or arrangement; ordering the refund of money;
ordering payment of damages; ordering the person who breached the ACL to pay
for repairs, the supply of spare parts or the supply of specific services; and varying or
reversing the transfer of land.
• Non-punitive orders: Section 246 empowers the court to impose a variety of ‘non-
punitive’ orders. These orders are not intended to punish the person against whom
they are made, but aim to rectify the situation that has resulted from the breach of the
ACL. The non-punitive orders include: directing the performance of a service for the
benefit of the community; the establishment of a compliance, education or training
program to ensure that no further breaches occur; the disclosure to particular persons
of information specified by the court; and the publication of an advertisement in
specified terms.
11.8.1(b) Penalties for contraventions of the ACL

The ACL imposes penalties for contravening many of its provisions. A person who
breaches the ACL may be subject to these penalties in addition to court orders sought
by an individual in a private action. Some contraventions attract civil pecuniary penalties.
Other contraventions are criminal offences, punishable by fines. Some contraventions
that attract pecuniary penalties are also made offences, but if a person is convicted of the
offence, the court cannot also order them to pay the pecuniary penalty.
• Civil pecuniary penalties: These are penalties that are made payable even if the
contravention in question is not made a criminal offence. The penalties are payable
to the Commonwealth, state or territory government, as appropriate. The amount
of the pecuniary penalty varies. The details are laid down in Ch 5, Pt 5-2 of the
ACL. The courts will determine the amount to be paid in a particular case by taking
into account the nature and extent of the act or omission which breached the ACL,
any loss or damage suffered as a result, the circumstances in which it occurred, and
any previous conduct of the same type. Maximum penalties are set out in s 224(3).
Generally, corporations face larger maximum penalties than individuals.
11
• Fines: Chapter 4 of the ACL makes certain contraventions of the ACL offences,
punishable by payment of fines. Separate sections deal with different types of conduct
and prescribe the maximum fines payable. The maximum fines are substantial,
typically $1.1 million for corporations and $220,000 for individuals.
Director of Consumer Affairs Victoria v Alpha Flight Services Pty Ltd

[2014] FCA 1434
Australian Consumer Law; safety standards; permanent ban;
penalties
Facts: From August to September 2013, Alpha Flight Services (Alpha) sold ‘Nano
Magnetics Nanodots’ to customers aboard Qantas international flights. The
Nanodots were small, high-powered magnets which could be used as a game or
puzzle. A permanent ban had been issued on such products in 2012, meaning that
they were sold in contravention of s 118 of the Australian Consumer Law. Neither
Alpha Flight Services nor Qantas were aware of the ban. It was brought to Qantas’
attention when a passenger on one of their flights, after seeing the product in
their in-flight catalogue, phoned Qantas to inform them that the products were
dangerous and should not be offered for sale.
Issue: Both Alpha Flight Services and Qantas accepted that they had contravened
s 118 of the ACL by supplying, offering to supply, possessing and controlling the
prohibited goods. However, the court had to decide what was an appropriate penalty
for the contravention.
Decision: Section 224 of the ACL provides a broad discretion for the court to
determine what pecuniary penalty, if any, should be imposed. It lists a range of
factors relevant to determine what is appropriate, including the nature and extent
of the contravention, any loss or damage suffered as a result, the circumstances,
and any history of similar conduct.
Reason: The court said (at para 23): ‘The fundamental cause of both Alpha and
Qantas contravening the provisions lay in the absence at the time in each company
of a system and process which would have prevented the contravention and which
would have ensured that each complied with the obligations imposed upon them by
law.’ Because of Alpha’s ‘exemplary and prompt behaviour’ once it became aware
of the ban, and its inclusion of a safety warning in the original catalogue, the court
held that Alpha’s penalty should be only $50,000. Although Qantas had played a
more limited role in the contraventions, it had attempted to ‘wash its hands’ of
its obligations once made aware of the ban. Given this behaviour, and Qantas’
‘very substantial resources’, a penalty of $200,000 was imposed. In addition to
the pecuniary penalties, the court also ordered a range of non-punitive measures
including Adverse Publicity Orders, refunds to all customers who purchased the
goods, and the destruction and disposal of the dangerous goods with costs to be
covered by Alpha and Qantas.
11.8
[11.9] Checklist: Applying the Australian Consumer Law

The provisions of the Australian Consumer Law (ACL) are complex and detailed. It can
be difficult to identify and distinguish between the particular rules that might be relied on
in a given case. One possible approach is summarised in the checklist below.
Step 1
Has unethical conduct taken place that is regulated by the ACL?
• Recall and consider the various types of unethical conduct that are
regulated by the ACL:
• misleading conduct
• unconscionable conduct
• unfair business practices
• unsolicited marketing
• supply of dangerous goods or services
• Do the circumstances of your case suggest that there has been conduct
of any of the kinds listed above?
• Do the known facts satisfy the essential requirements that must be
established for the type of conduct in question?
• Is the conduct in your case likely to constitute a breach of any of the
provisions that regulate the kind of behaviour in question?
• What relief is generally provided by the ACL for the kind of breach that you
can establish? What particular relief is most appropriate in your case?
Step 2
Has a consumer contract, as defined by the ACL, been entered into?
Recall and consider the various protections provided for consumers by the
ACL:
• Have any unfair terms, as defined by the ACL, been included in the
contract? What relief does the ACL provide if such terms have been
included in the contract?
• What relief is generally provided by the ACL for the kind of breach that you
can establish? What particular relief is most appropriate in your case?

The following questions will help you to discover whether or not you have learned some of
the things you need to know about the ACL.
1. Does the ACL apply uniformly throughout Australia?
2. What conduct amounts to misleading or deceptive conduct under s 18 of the ACL?
Is misleading conduct prohibited if it is neither intentional nor careless?
11
3. What conduct amounts to unconscionable conduct under s 20 and 21 of the ACL?

Are the provisions of either of these sections wider in their scope than the general law
doctrine of unconscionable dealing?
4. How are ‘unfair’ contractual terms defined? What is the effect of the ACL on such
terms if they are included in a standard form consumer contract? What kinds of
contract are covered by the provisions regarding unfair terms?
5. What particular business practices are prohibited by the ACL because they are
‘unfair’? How is the prohibition of such practices enforced?
6. What private remedies are available to consumers in the event of a breach of the
ACL?
7. To what extent are breaches of the ACL punishable? What is the difference between
civil pecuniary penalties and fines?

e modules.
11.10
CHAPTER 12
The Scope of Tort Law

In this chapter:
• The creation of obligations in tort law
• The nature and scope of specific torts recognised in Australian law
– Trespass to land and chattels
– Conversion
– Detinue
– Assault
– Battery
– Private nuisance
– Liability for animals
– Deceit
– Defamation
– Negligence
• The essential elements of Negligence
• Vicarious liability for another person’s wrongful conduct.
[12.1] Introduction
12.1.1 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. There is an eStudy module called The scope of tort
law, which will take you through the various torts, asking questions and giving feedback
that will help you understand the essential nature and scope of each individual tort.
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
12.1
272 The Scope of Tort Law
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.
12.1.2 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 obliged 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.
12.1.3 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.
12.1.4 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.
12.1.5 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
12.1
The Scope of Tort Law273
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
12
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
table provides an overview of the scope of recognised torts in Australian law.
Table 12.1 Torts in Australian law
Torts based on specific kinds of conduct

Trespass to land or chattels
Conversion Protection of owners and occupiers of property against
wrongful interference with land or chattels
Detinue
Assault
Battery Protection against wrongful conduct in the form of trespass to
the person
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.
[12.2] Trespass to Land

12.2.1 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.

Newington v Windeyer (1985) 3 NSWLR 555

Tort; trespass to land; rights of possessors
Facts: Windeyer (together with other persons) was the owner and occupier
of properties next to some land called The Grove. The Grove was an asset in a
deceased person's estate. Windeyer had no title to The Grove, but claimed to be
in possession of it. Windeyer had treated this land as his own for nearly 50 years,
pruning trees, employing someone to cut the grass, and paying the rates. Then
Newington, who owned another property adjoining The Grove, rebuilt her fence to
give herself access to The Grove. Windeyer brought an action in trespass against
her.
Issue: Did Windeyer, as possessor rather than owner of The Grove, have the right
to sue in trespass?
Decision: Windeyer was entitled to sue in trespass even though he did not own The
Grove.
Reason: The trial judge found that Windeyer was in legal possession of The Grove,
and was able to sue in trespass on the basis of his possessory title. The Court of
Appeal upheld this finding.
12.2.2 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.
12.2.3 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.
Plenty v Dillon (1991) 171 CLR 635

Tort; trespass; withdrawal of occupier's consent to entry
Facts: Plenty, the owner and occupier of a small farm, expressly forbade Dillon, a
constable, from entering his land. Dillon wanted to enter the land to serve some
legal documents on Plenty.
Issue: Did Plenty have the right, in these circumstances, to forbid entry onto his
land by Dillon?
Decision: Although there are some exceptions to an owner’s right to withdraw
consent to a policeman entering onto their property, depending on the nature of the
12.2
documents being served, in the present case Plenty had the right to forbid entry
onto his land by Dillon.
Reason: Gaudron and McHugh JJ said (at 647):
A person who enters the property of another must justify that entry by showing
12
that he or she either entered with the consent of the occupier or otherwise
had lawful authority to enter the premises ... In Robson v Hallett [1967] 2 QB
939 at 951, Lord Parker CJ said: 'The occupier of any dwelling-house gives
implied licence to any member of the public coming on his lawful business to
come through the gate, up the steps, and knock on the door of the house.' This
implied licence extends to the driveway of a dwelling house: Halliday [Halliday
v Nevill (1984) 155 CLR 1]. However, the licence may be withdrawn by giving
notice of its withdrawal. A person who enters or remains on property after the
withdrawal of the licence is a trespasser.
12.2.4 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.
[12.3] Trespass to Chattels

12.3.1 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.
Wilson v Lombank Ltd [1963] 1 All ER 740

Tort; trespass to chattels; wrongful interference with another’s right
of possession
Facts: Wilson bought a car from a person who did not own it. The seller was
therefore unable to make Wilson the owner. Wilson took the car to a garage for
repairs. Lombank approached the garage believing the car was his, claimed to
be the lawful owner of the car, and took it away. Later, Lombank discovered that
another person was the legal owner. Lombank handed the car to that person.
Wilson brought an action against Lombank for trespass to goods, claiming that
although he (Wilson) was not the owner of the car, he was entitled to possession of
the car at the time that Lombank took it away from the garage. Lombank argued
that Wilson was not in possession of the car.
Issue: Had Lombank wrongfully interfered with Wilson’s right of possession?

Decision: There had been a wrongful interference with Wilson’s right of possession.
Reason: The court held that, although Wilson had given the car to the garage for
repairs, he had retained the right to immediate possession. Lombank had therefore
dealt with the car wrongfully and this was a trespass to Wilson’s chattels. Wilson
was awarded damages.
12.3.2 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.
12.3.3 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.
[12.4] Conversion
12.4.1 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.
Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204

Tort; conversion; interference with proprietary rights
Facts: Penfolds sold its wines in bottles that were permanently embossed with
its name. Purchasers of the wine were supposed to return the empty bottles to
Penfolds, which remained owner of the bottles. Some purchasers of Penfolds wine
kept the bottles and used them to buy wine from Elliott, an hotelier, who would fill
empty bottles brought to him with his own bulk supplies of wine. Penfolds sought
an injunction against Elliott to stop him doing this.
Issue: Did Elliott’s conduct amount to conversion of Penfolds’ bottles?
Decision: Elliott’s conduct did not amount to conversion.
Reason: Dixon J said (at 229, 230):
12.4
The essence of conversion is a dealing with a chattel in a manner repugnant

to the immediate right of possession of the person who has the property or
special property in the chattel … [D]‌amage to the chattel is not conversion,
nor is use, nor is a transfer of possession otherwise than for the purpose of
12
affecting the immediate right to possession, nor is it always conversion to lose
the goods beyond hope of recovery. An intent to do that which would deprive
‘the true owner’ of his immediate right to possession or impair it may be said
to form the essential ground of the tort. There is nothing in the course followed
by the [defendant] in supplying wine to his customers who brought bottles
to receive it involving any deprival or impairment of property in the bottles,
that is of the immediate right to possession. The re-delivery of the bottles to
the persons who left them could not amount to a conversion … because … its
purpose was not to confer any right over the property … but merely to return or
restore them to the person who had left them there to be filled …
It was not an act derogating from the proprietary right of the [plaintiff].
12.4.2 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.
[12.5] Detinue
12.5.1 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.
Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust
Torts Reports 81-244
Tort; conversion and detinue; refusal to return another’s goods
Facts: Fytore leased three packaging machines from Flowfill. Fytore then defaulted
on the lease. This entitled Flowfill to demand the return of the machines within
10 days. After some delay, Flowfill formally terminated the lease and demanded the
return of the machines. Negotiations followed, but did not succeed. The machines
were not returned and Flowfill did not attempt to collect them.
Issue: Was Fytore liable for conversion or detinue of the machines?

Decision: In the circumstances, the failure to return the machines after the formal
termination of the lease constituted a conversion of the machines by Fytore, but
not detinue.
Reason: Detinue requires an unconditional and unambiguous refusal to return the
goods in question. The court held that it was sufficient for the defendant to make
the goods available to the plaintiff by saying where they were and indicating that
repossession would not be obstructed. Flowfill knew where the machines were and
could have collected them without hindrance.
12.5.2 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.
[12.6] Assault
12.6.1 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.
12.6.2 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.
Zanker v Vartzokas (1988) 34 A Crim R 11

Tort; assault; threat of physical contact
Facts: The plaintiff, a woman, accepted an offer of a lift from the defendant, a young
man. They drove off in his van. The defendant offered the plaintiff money for sexual
favours. When she refused and demanded that he stop so she could get out, the
defendant accelerated and said, ‘I am going to take you to my mate’s house. He
will really fix you up’. To avoid this threat the plaintiff jumped out of the moving car,
sustaining injuries.
Issue: Had the plaintiff been in fear of imminent (immediate) harm?
Decision: The court held that the defendant’s threat was imminent. Even though it
referred to future violence, the plaintiff reasonably believed that the violence would
take place as soon as her unlawful imprisonment ended.
12.6
Reason: White J said (at 13, 17):
12
In the case presently before me there was undoubtedly an unlawful
imprisonment. The question is whether there were present, in addition, all the
elements of the crime of assault …
The young woman here reasonably believed in the defendant’s intention
and power to inflict violence in due course with the help of his ‘mate’.
12.6.3 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.
[12.7] Battery
12.7.1 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.
McNamara v Duncan (1971) 26 ALR 584

Tort; battery; physical contact; plaintiff’s consent
Facts: The plaintiff and defendant were in opposing teams in a game of Australian
Rules football. The plaintiff had just kicked the ball when the defendant ran up to
him and struck him on the side of the head with his elbow, fracturing the plaintiff’s
skull. The plaintiff underwent emergency surgery for the removal of a potentially
fatal blood clot around his brain and was unconscious for 10 days. He was left with
a minor permanent disability. He sued the defendant for damages for trespass to
the person.
Issue: Had the plaintiff consented to possible injuries?
Decision: The plaintiff had not consented to prohibited acts that caused harm.
Reason: Fox J said (at 587, 589, 590):
[T]‌he striking of the plaintiff by the defendant was intentional … The striking
was an infringement, a serious infringement, of the rules … [A] player is not
to be taken as having consented to prohibited acts, even although it is known
that they may, and probably will occur … [T]he present case is concerned with
deliberate injury … [and] … the plaintiff is entitled to succeed.

12.7.2 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.
[12.8] False Imprisonment

12.8.1 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.
Myer Stores Ltd v Soo [1991] 2 VR 597

Tort; false imprisonment; total restraint of plaintiff
Facts: A store security officer and two policemen confronted Soo, a customer in
a Myer store, whom they suspected of shoplifting. They asked Soo to accompany
them to an office to ‘sort the matter out’. Although Soo denied the claim and was
unwilling to go to the office, the security officers insisted and kept him there for an
hour.
Issue: Did these circumstances amount to a false imprisonment of Soo?
Decision: Soo had been falsely imprisoned.
Reason: The court held that when the security officers escorted Soo to the office
and kept him there for questioning, he had been subjected to a total restraint
without legal authority and was thus falsely imprisoned. This was a serious wrong
and damages of $10,000 were awarded.
12.8.2 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.
12.8.3 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.
12.8
[12.9] Private Nuisance

12.9.1 The right to peaceful use and enjoyment of property
Private nuisance involves one person interfering with another person’s recognised rights
12
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.
12.9.2 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.
[12.10] Liability for Animals

12.10.1 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.
12.10.2 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.
12.10.3 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.

12.10.4 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.
Behrens v Bertram Mills Circus Ltd [1957] 2 QB 1

Tort; liability for animals; animals that are wild by nature
Facts: Mr Behrens, who was only 75 cm tall, performed in the Bertram Mills Circus
as ‘the smallest man on earth’. Ms Behrens played the music for her husband’s
act. One day, the circus elephant Bullu became annoyed by the circus manager’s
barking dog. Chasing after the dog, the elephant knocked over the booth where Mr
and Ms Behrens were located, injuring them as a result. They sued the circus for
damages, relying in part on the circus’ presumed knowledge of the danger posed
by wild animals.
Issue: For the purposes of establishing the liability of the circus, was Bullu a wild
or a tame animal?
Decision: Even though Bullu was a trained elephant, an elephant is, by definition,
a wild animal and on this basis her owners were liable for the harm she caused.
Reason: Devlin J said (at 588):
The particular rigidity in the scienter action which is involved in this case … is
the rule that requires the harmfulness of the offending animal to be judged
not by reference to its particular training and habits, but by reference to the
general habits of the species to which it belongs. The law ignores the world
of difference between the wild elephant in the jungle and the trained elephant
in the circus. The elephant ‘Bullu’ is … no more dangerous than a cow; she
reacted in the same way as a cow would do to the irritation of a small dog …
I am compelled to assess the defendants’ liability in this case in just the same
way as I would assess it if they had loosed a wild elephant into the funfair. This
is a branch of the law which … has been settled by authority rather than by
reason.
[12.11] Deceit
12.11.1 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.
12.11
Derry v Peek (1889) 14 App Cas 337

Contract; vitiating circumstances; misrepresentation; tort; deceit
Facts: Derry issued a company prospectus, which stated that the company was
12
authorised to use steam-driven trams. In fact, the necessary authority had been
applied for, but the Board of Trade had not yet granted it when the prospectus was
issued. Derry believed that obtaining the Board of Trade’s consent was a mere
formality. Peek, relying on the information in the prospectus, purchased shares in
the company. When the Board of Trade refused to grant the authority to use steam
trams, the company failed. Peek sued Derry, one of the directors of the company,
claiming damages for fraudulent misrepresentation.
Issue: Had there been a fraudulent misrepresentation?
Decision: The court held that, because Derry had honestly believed that obtaining
the necessary permission was only a formality, there had been no fraud.
Reason: Lord Herschell said (at 374):
[I]‌n order to sustain an action of deceit, there must be proof of fraud … [F]
raud is proved when it is shewn that a false representation has been made
(1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless
whether it be true or false … To prevent a false statement being fraudulent,
there must, I think, always be an honest belief in its truth.
The court held that in this case the directors had not been fraudulent, though
they might have been negligent.
12.11.2 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.
Commercial Banking Company of Sydney Ltd v RH Brown & Co

(1972) 126 CLR 337
Tort; deceit; indirect representations
Facts: RH Brown, a woolgrower, wanted to find out if a purchaser of wool was
in good financial standing. RH Brown asked its bankers to find out. The bankers
contacted the purchaser’s bank, the Commercial Banking Co of Sydney (CBCS),
and made the relevant inquiry. In reply, CBCS represented that the purchasers
were ‘safe for their trading engagements generally’. This was not in fact true, and
the manager of CBCS did not honestly believe it to be true. Having relied on the
incorrect information that had been given and having suffered loss as a result, RH
Brown sued CBCS in deceit.
Issue: Was CBCS liable to RH Brown for a representation made indirectly to RH
Brown?

Decision: The court held the bank liable in the circumstances.

Reason: The statement was made by CBCS with the intention that it should be
acted on by the plaintiff’s bank or by that bank’s customers who were concerned
with obtaining the information.
12.11.3 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.
[12.12] Defamation
12.12.1 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.
Hockey v Fairfax Media Publications Pty Limited [2015] FCA 652

Tort; defamation; headlines; qualified privilege
Facts: On 5th May 2014, three newspapers (Sydney Morning Herald, The Age and
The Canberra Times) published articles about Federal Treasurer Mr Joe Hockey.
The articles had headlines in prominent, bold type saying ‘Treasurer for Sale’ or
‘Treasurer Hockey for Sale’. The Sydney Morning Herald used a poster (‘placard’)
to promote the article, which said ‘Treasurer for Sale’ in large, bold font. The
Age released tweets saying ‘Treasurer for Sale’ or ‘Treasurer Hockey for Sale’
with hyperlinks to the full article. The full articles explained the existence of
a fundraising body called the North Sydney Forum (NSF). Individuals from the
business community paid large fees for membership in the NSF, and obtained the
opportunity to attend events or meetings with senior government ministers like
Mr Hockey. Because the NSF is an incorporated entity of the Liberal Party, the
membership fees ended up as donations to the Liberal Party.
Issue: Hockey argued that the articles were defamatory because they implied that
he accepted, or was willing to accept, bribes to influence his decision making as
Treasurer, or that he sold special access to himself. The newspapers denied that
any of the publications were defamatory and also argued the defence of qualified
privilege.
Decision: The full articles were not defamatory, but the tweets and the poster were
defamatory. No defence of qualified privilege was available. The court awarded
damages.
12.12
Reason: The test of whether published statements are defamatory is how ordinary
reasonable readers would understand them. The ordinary reasonable person
reads a whole newspaper article, not just the headline. If the conclusion of the
article negates the headline or earlier comments, this is to be taken into account.
12
In this case, the full articles were not defamatory, because they clearly stated that
payments were not made to Mr Hockey personally but as membership fees to the
NSF which were disclosed to the proper authorities as political donations. So the
articles explained legitimate fundraising activities, where what was being bought
was access to Hockey, but not the purchase of his judgment or discretion. However,
the poster and tweets were defamatory, because there was no further explanation
and the headlines by themselves did imply corrupt behaviour by Hockey. It was
relevant that other stories about corruption of public officials had emerged at the
same time, which would have made the ordinary reasonable reader more likely to
take unexplained headlines as implying corruption.
The court rejected the defence of qualified privilege because, although
Hockey’s performance of his public functions as Treasurer were a matter of public
interest, it was not reasonable for the newspapers to use the headlines they did.
12.12.2 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.
Cassidy v Daily Mirror Newspapers Ltd [1929] 2 KB 331

Tort; defamation; indirect identification of plaintiff
Facts: The Daily Mirror newspaper published a photograph that showed Cassidy,
a racehorse owner, together with a woman. The accompanying caption described
the lady as engaged to be married to Cassidy. Cassidy, however, was married to
another woman who, although she was not expressly identified in the newspaper,
sued the newspaper claiming that what they had published injured her reputation
and constituted defamation.
Issue: Had Cassidy’s wife been defamed even though she was not identified in the
newspaper?
Decision: It was held that Cassidy’s wife had been defamed.
Reason: Although not identified expressly by the newspaper, her friends and
acquaintances knew that she lived with the man in the photograph. They would
assume that, if Cassidy was engaged to another person, the person he was living
with must be his mistress.

12.12.3 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.
12.12.4 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.
[12.13] Negligence
12.13.1 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 13.
12.13.2 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.
12.13
Table 12.2 Types of conduct and harm
Type of conduct
Acts of a positive nature (eg driving fast on a
Type of harm caused
Bodily injury to a person or physical harm to
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busy road) property
A failure to act (an omission) (eg failing to put a Bodily injury to a person or physical harm to
barrier around an excavation) property
Positive acts or omissions (as illustrated above) Economic harm but no physical harm to a
person or property
Giving, or failing to give, information or advice; Either physical or purely economic harm
or giving wrong information or advice (eg supply
of incorrect data)
Professional services (eg services provided by a Purely economic harm
banker or accountant)
12.13.3 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.
12.13.3(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 might be caused,
nor exactly how it might occur.
Donoghue v Stevenson [1932] AC 562

Tort; Negligence; the duty of care; manufacturer’s duty to consumer;
product liability
Facts: Donoghue went to a cafe in Paisley with a friend. The friend bought a bottle
of ginger beer and an ice cream for Donoghue. Donoghue poured some of the
ginger beer over the ice cream and ate it. Then she poured the rest of the ginger

beer into a glass. Donoghue then noticed that the drink contained the remains of a
decomposed snail. She claimed that she suffered severe shock and became ill with
gastroenteritis as a result. She sued Stevenson, the manufacturer of the ginger
beer, for damages in Negligence on the basis that he had supplied contaminated
food that had caused harm to her as the consumer of that food.
Issue: In the circumstances, did Stevenson owe Donoghue a duty of care?
Decision: The House of Lords held that Stevenson owed Donoghue a duty of care.
Reason: Lord Atkin said (at 599):
A manufacturer of products, which he sells in such a form as to show that he
intends them to reach the ultimate consumer in the form in which they left
him, with no reasonable possibility of intermediate examination, and with the
knowledge that the absence of reasonable care in the preparation or putting up
of the products will result in an injury to the consumers life or property, owes a
duty to the consumer to take that reasonable care.
Lord Atkin described (at 579–580) the traditional approach of identifying ‘duty
situations’:
The Courts are concerned with the particular relations which come before
them in actual litigation, and it is sufficient to say whether the duty exists in
those circumstances. The result is that the Courts have been engaged upon an
elaborate classification of duties as they exist … In this way it can be ascertained
at any time whether the law recognises a duty, but only where the case can be
referred to some particular species which has been examined and classified.
In seeking a more general principle for establishing a duty of care, Lord Atkin
said (at 580):
[T]‌he duty which is common to all the cases where liability is established
must logically be based upon some element common to the cases where it is
found to exist. To seek a complete logical definition of the general principle is
probably to go beyond the function of the judge …
At present I content myself with pointing out that in English law there
must be, and is, some general conception of relations giving rise to a duty of
care, of which the particular cases found in the books are but instances. The
liability for negligence, whether you style it such or treat it as in other systems
as a species of ‘culpa’, is no doubt based upon a general public sentiment of
moral wrongdoing for which the offender must pay.
Note: The approach now taken by Australian courts takes account both of recognised duty
situations and more generalised principles. 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.
12.13
(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 12
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.
Palsgraf v Long Island Railroad Co 248 NY 339 (1928)

Tort; Negligence; the duty of care; the foreseeability of harm
Facts: Two guards, who were employed by a railway company at a railway station,
noticed a passenger running to catch a train that was leaving the station. The
guards tried to help the passenger board the train but, while doing so, one of the
guards bumped a small parcel wrapped in newspaper that the passenger was
holding under his arm. Unknown to the guard the unlabelled package contained
fireworks and, when it fell to the ground, it exploded. The explosion caused some
scales at the other end of the platform to fall over and strike a woman standing on
the platform, injuring her. The injured woman sued the railway company, claiming
that the guards had owed her a duty of care.
Issue: Was the possibility of harm to persons on the far end of the platform
foreseeable?
Decision: The court held that in these circumstances it was not foreseeable that the
guard’s carelessness in bumping the parcel might cause harm to people standing
far away at the other end of the platform.
Reason: Cardozo CJ said (at 341):
The conduct of the defendant’s guard, if a wrong in its relation to the holder
of the package, was not a wrong in its relation to the plaintiff, standing far
away. Relatively to her it was not negligence at all. Nothing in the situation
gave notice that the falling package had in it the potency of peril to persons
thus removed.
(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 13.
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.
Perre v Apand Pty Ltd (1999) 198 CLR 180

Tort; Negligence; the duty of care; establishing a duty of care in cases
of purely economic harm; ‘vulnerability’
Facts: Perre, a South Australian potato farmer, normally exported most of his
crop to buyers in Western Australia. To protect against the spread of diseases,
the Western Australian government prohibited the importation of potatoes grown
anywhere within 20 kilometres of an outbreak of potato disease. Unfortunately, a
disease known as bacterial wilt occurred on a farm owned by Sparnon, which was
near Perre’s farm. The outbreak happened when Sparnon planted seed potatoes
12.13
that were infected with the disease. Sparnon had acquired these seed potatoes
from Apand. Apand had grown the seeds in an area of Victoria which Apand knew
was prone to disease and unsuitable for seed production.
Although Perre’s potato crop was not itself affected by the disease, the
12
outbreak on Sparnon’s farm meant that Perre could not export his crop to Western
Australia. As a result, Perre suffered purely economic loss. He sued Apand in
Negligence.
Issue: Perre had suffered purely economic harm. In these circumstances, did
Apand owe Perre a duty of care?
Decision: Apand was held to owe a duty of care to Perre.
Reason: In deciding whether or not Apand owed Perre a duty of care, the court took
account of a number of factors. One was that Perre belonged to a limited class of
identifiable persons who might suffer harm (nearby potato farmers). He was not
merely a member of an indeterminate class of persons. Another factor was that
Perre was dependent on Apand acting responsibly. Perre could not protect himself
from the likely harm, which made him extremely vulnerable. Finally, Apand was
aware of the risk of disease and of Perre’s vulnerability, and could have very easily
foreseen the potential harm.
Woolcock Street Investments Pty Ltd v CDG Pty Ltd

(2004) 216 CLR 515
Facts: CDG, a firm of consulting engineers, designed foundations for a warehouse
and office complex which was to be built for the owner of a block of land. The owner
of the land decided against doing soil tests before the building work commenced.
Some years after the complex was completed, the owner sold it to Woolcock
Street Investments (Woolcock). A further year later, signs of structural stress in
the building became apparent. The stress was caused by the settling of the soil
or of the foundations. Fixing the problem would be expensive. Woolcock alleged
that CDG had owed it a duty of care to avoid economic loss and that CDG’s failure
to design adequate foundations for the site had caused such loss (the expense of
rectifying the problem).
Issue: Did CDG owe a duty of care to Woolcock, a subsequent purchaser of the
building?
Decision: In the circumstances, CDG did not owe a duty of care to Woolcock.
Reason: Gleeson CJ, Gummow, Hayne and Heydon JJ said (at [23]):
[T]‌he vulnerability of the plaintiff has emerged as an important requirement
in cases where a duty of care to avoid economic loss has been held to have
been owed. ‘Vulnerability’, in this context, is not to be understood as meaning
only that the plaintiff was likely to suffer damage if reasonable care was not

taken. Rather, ‘vulnerability’ is to be understood as a reference to the plaintiff’s

inability to protect itself from the consequences of a defendant’s want of
reasonable care, either entirely or at least in a way which would cast the
consequences of loss on the defendant.
In this case, Woolcock could have taken independent steps to avoid the risk
of harm, for example, by employing an engineer of its own to inspect the building
before buying it.
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288

(2014) 313 ALR 408
Tort law; Negligence; establishing a duty of care in relation to purely
economic loss
Facts: Chelsea Apartments Ltd (CA) a property developer, contracted with
construction company Brookfield Multiplex Ltd (BML) for the building of a block of
apartments on land owned by CA. When the building was completed, strata titles
to the apartments were offered by CA to investors. The contracts for the strata
titles contained provisions guaranteeing the building to be free of defects. In fact,
after the strata titles were sold, defects became apparent. The corporation that
represented the investors (OCSP) sued BML in Negligence, claiming that BML had
owed the investors a duty of care and that, as a result of a breach of that duty, they
had suffered an economic loss.
Issue: Did BML owe a duty of care to OCSP to prevent the occurrence of purely
economic loss?
Decision: No duty of care was owed by BML to OCSP because the requirement of
vulnerability of a person who suffers purely economic loss was not established in
the overall circumstances.
Reason: In tort law a duty of care to prevent foreseeable loss only arises when
recognised circumstances exist. In particular, when a person suffers purely
economic loss, a duty of care does not arise unless the person harmed was in
a position of vulnerability in the sense of having a limited capacity to take steps
to protect themselves from the particular risk of loss. In the present case, the
investors were not obviously unskilled or inexperienced in the complexities of real
estate investment and had included contractual warranties against building faults.
They could not be regarded as necessarily reliant or dependant on the builder
to protect them against the possibility of economic losses due to defects in the
building.
(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
12.13
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:
12
• 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.
Shaddock & Associates Pty Ltd v Parramatta City Council (No 1)

(1981) 150 CLR 225
Tort; Negligence; the duty of care; liability for misstatements causing
purely economic harm
Facts: Shaddock & Associates, a property development company, wanted to buy
some land and redevelop it. The company’s solicitor telephoned the Parramatta
City Council and asked if there were any road widening proposals that would affect
the land. He was told there were not. The solicitor also requested and was sent a
certificate from council which indicated there were no proposals to widen adjacent
roads. Shaddock then bought the land, but the information given on the phone
and in the certificate was wrong; the council had an existing proposal to acquire
a third of the land Shaddock had just bought, to widen a road. Shaddock suffered
financial loss as a result of relying on the wrong information and sued the council
in Negligence.
Issue: Did the council owe Shaddock a duty of care when providing the information?
Decision: The High Court held that no duty of care arose from advice given over
the telephone, because that advice was essentially informal. However, a duty of
care arose from the advice given in the written certificate and the council was
accordingly liable for the loss.
It would appear to accord with general principle that a person should be under
no duty to take reasonable care that advice or information which he gives to
another is correct, unless he knows, or ought to know, that the other relies
on him to take such reasonable care and may act in reliance on the advice or
information which he is given, and unless it would be reasonable for that other
person so to rely and act.

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg)

(1997) 188 CLR 241
purely economic harm; indirect representations
Facts: Esanda made loans of money to various companies. Repayment of those
loans was guaranteed by Excel. Before accepting Excel’s guarantees, Esanda had
relied on the financial information in Excel’s audited accounts, which were provided
to Esanda by Excel. The information in the audits was wrong and Esanda suffered
loss as a result. Esanda sued Peat Marwick Hungerfords, who had audited the
accounts, in Negligence on the basis that the accountants’ misstatements in the
accounts had caused Esanda’s economic loss.
Issue: Did Peat Marwick Hungerfords owe a duty of care to Esanda?
Decision: In the circumstances of this case, Peat Marwick Hungerfords did not owe
a duty of care to Esanda.
Reason: The court noted that Esanda had not requested the accounts directly from
Peat Marwick Hungerfords; the accounts had been passed on to Esanda by Excel.
McHugh J said (at 275) that in the absence of a request for information, liability for
purely economic loss caused by negligent misstatement requires:
…an intention to induce the recipient of the information or advice, or a class to
which the recipient belongs, to act or refrain from acting on it. Mere knowledge
by a defendant that the information or advice will be communicated to the
plaintiff is not enough.
For a duty of care to exist the following circumstances must be established:

(a) The defendant knew, or should have known, that the information or advice
would be communicated to the plaintiff, either as an individual or as a member
of an identified class of persons.
(b) The information or advice was communicated to the plaintiff for a purpose that
would very likely lead the plaintiff to enter a transaction of the kind the plaintiff
did in fact enter.
(c) It was very likely that the plaintiff 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.
If all these questions are answered positively, the person making the statement
is responsible for what they say and there is a duty of care even if they had no special
skill or knowledge. The requirements were not satisfied in the present case.
12.13
(vi) A duty of care owed by professionals
Hawkins v Clayton (1988) 164 CLR 539

12
Tort; Negligence; the duty of care; liability of professionals
Facts: Brasier asked Clayton, her solicitor, to prepare a will for her. In the will,
Brasier named Hawkins as executor and principal beneficiary of her estate. Brasier
left the will with Clayton for safekeeping. Brasier died, but although Clayton knew of
her death, he did not contact Hawkins until six years later. By that time, the house,
which was the main asset in the estate, had fallen into disrepair and was worth
much less than it had been. Hawkins sued Clayton in Negligence for damages.
Issue: Was Clayton liable in Negligence for his delay in contacting the plaintiff?
Decision: Clayton was liable in Negligence.
Reason: By a majority of three to two the court held that the solicitor owed Hawkins
a duty to find him without delay and inform him that he was executor and principal
beneficiary of the will. Clayton had failed in this duty and Hawkins was entitled to
recover damages to compensate for his economic loss.
Note: In Hill v Van Erp (1997) 188 CLR 159, 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 10.
12.13.3(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?
Waverley Council v Ferreira (2005) Aust Torts Reports 81-818

Tort; Negligence; breach of a duty of care; the standard of care;
statutory criteria
Facts: Martin Ferreira, aged 12, went to play in a park controlled and managed
by the Waverley Council. A toy he was playing with got stuck on the roof of the
community centre building in the park. Martin gained access to the roof by climbing
up an adjacent fence. While on the roof, he sat on a skylight, which collapsed. Martin
died as a result of the subsequent fall. As a result of Martin’s death, his father
suffered depression and chronic stress disorder. He sued the Waverley Council in
Negligence for damages for mental harm. It was not disputed that Mr Ferreira
had suffered actionable mental harm. Nor was it disputed that the council owed
Mr Ferreira a duty of care: the council ought to have foreseen that a parent might
suffer mental harm if a child died while in the park as a result of the council’s
failure to make the park safe.
Issue: What was the content of the duty of care owed by the council to Ferreira, and
had the council acted in accordance with the required standard of care?
Decision: Under both the common law and the Civil Liability Act 2002 (NSW), a
defendant must do what a reasonable person in the position of the defendant would
do to prevent foreseeable harm. The council had failed to do what was required.
Reason: Section 5B(1) of the Civil Liability Act 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.
The court held that, in the circumstances, the council ought to have foreseen
that a child might climb onto the roof and in some way suffer serious harm by
falling to the ground. In deciding what the council ought to have done to prevent
this harm, the court considered the factors listed in s 5B(2) of the Civil Liability Act:
• the probability of the harm
• the likelihood of it occurring
• the likely seriousness of the harm
• the difficulty of preventing it, and
• the social utility of taking any risk.
12.13
The court held that, in the circumstances, a reasonable person would have
removed the fence that allowed access to the roof and installed a grill under the
skylight to prevent the risk of the foreseeable harm.
There are circumstances in which the standard of care applied to assess
12
breach may be adjusted, rather than being based on the ordinary, reasonable
person. For instance, a person who professes some particular skill will be subject
to a higher standard of care, and the standard of care required of children is less
than the standard required of an adult.
Rogers v Whitaker (1992) 175 CLR 479

Tort; Negligence; the duty of care; breach of the duty of care; relevance
of defendant’s specialist skills
Facts: While still a child, Whitaker suffered an injury that left her blind in one eye.
Nonetheless she led a normal life until, at the age of 40, she consulted Rogers, an
eye surgeon. He advised her that an operation on her blind eye would improve its
appearance and probably restore significant sight. He did not warn her of any risks
associated with the operation. The operation was performed but failed to improve
the sight in Whitaker’s blind eye. The operation also caused her to develop a rare
condition that eventually led to blindness in her other eye. This condition was rare
and not always so catastrophic in effect.
Issue: Had the defendant, a specialist ophthalmic surgeon, breached the duty of
care that he owed his patient?
Decision: As a specialist ophthalmic surgeon, the defendant’s duty of care required
him to warn his patient of the possible risks involved in treatment, which he had
failed to do.
Reason: In considering the appropriate standard by which to judge the duties
owed by a defendant with specialist skill, Mason CJ, Brennan, Dawson, Toohey and
McHugh JJ said (at [6]‌):
The standard of reasonable care and skill required is that of the ordinary
skilled person exercising and professing to have that special skill … in this
case the skill of an ophthalmic surgeon specializing in corneal and anterior
segment surgery …
Imbree v McNeilly; McNeilly v Imbree (2008) 236 CLR 510

Tort; Negligence; breach of the duty of care; determining the standard
of care
Facts: Imbree, a licensed adult driver, allowed McNeilly, a 16-year-old unlicensed
driver, to drive a four-wheel-drive station wagon on a gravel road in the Northern
Territory. While driving, McNeilly saw some debris on the road. Instead of simply

straddling it, he swerved to avoid it, without slowing down. He lost control of the
car, which overturned. Imbree was severely injured in the accident and was left
paralysed. He sued McNeilly in Negligence.
Issue: What standard of care was owed by McNeilly, as the driver of the car, to his
passenger? Was the duty of care to be determined by reference to an unqualified
and inexperienced driver?
Decision: The court reversed the precedent set in Cook v Cook (1986) 162 CLR
376, and held that the standard of care was properly determined by reference
to a standard licensed driver, even though the particular driver in this case was
inexperienced and unlicensed.
Reason: It is well recognised that a motorist on a highway is subject to a duty of
care to avoid causing injury to the person or property of another. But in response
to the argument that the standard of care should be determined by reference to an
inexperienced unlicensed driver, Gummow, Hayne and Kiefel JJ said (at [53]):
[T]‌he standard to be applied is objective. It does not vary with the particular
aptitude or temperament of the individual … [I]t is, and must be, accepted
that a learner driver owes all other road users a duty of care that requires the
learner to meet the same standard of care as any other driver on the road.
12.13.3(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.
Adeels Palace Pty Ltd v Moubarak; Adeels Palace Pty Ltd v Bou
Najem (2009) 239 CLR 420
Tort; Negligence; elements of liability; causation of harm; the ‘but for’
test
Facts: Adeels Palace Pty Ltd operated a restaurant, with a bar and dance floor,
in Sydney. On 31 December 2002, the restaurant was full of people celebrating
the New Year. At some stage an argument began on the dance floor and quickly
escalated into a widespread brawl. One person who was involved in the fight was
struck in the face and began bleeding. He left the restaurant, returning later with
a gun. On re-entering the restaurant, he shot two people, Mr Bou Najem in the leg
and Mr Moubarak in the stomach. The gunman then left the restaurant. Bou Najem
and Moubarak sued the restaurant in Negligence. They argued that, by not having
12.13
security guards at the door, the restaurant had breached a duty of care owed to its
customers, and that this breach had resulted in their being shot by the gunman.
Issue: Was the absence of security guards at the restaurant a breach of a duty of
care owed to the plaintiffs, and was this breach the cause of the harm they suffered?
12
Decision: The court held that the restaurant owed each plaintiff a duty to take
reasonable care to prevent injury to patrons from the violent, quarrelsome or
disorderly conduct of other persons. However, the court held that the absence of
security guards, even if it amounted to a breach of this duty of care, had not caused
the harm suffered by the plaintiffs.
Reason: The court took the view that on the balance of probabilities, security
personnel would not have stopped the re-entry to the restaurant of a man armed
with a gun who was ready and willing to use the weapon to get revenge. The court
said (at [53]):
In the present case … the ‘but for’ test of factual causation was not established.
It was not shown to be more probable than not that, but for the absence of
security personnel (whether at the door or even on the floor of the restaurant),
the shootings would not have taken place. That is, the absence of security
personnel at Adeels Palace on the night the plaintiffs were shot was not a
necessary condition of their being shot.
Hole v Hocking [1962] SASR 128

Tort; Negligence; liability for physical harm caused; acceleration of
harm
Facts: The plaintiff, a passenger in a car, suffered injuries (including a blow to
the head) in an accident caused by the defendant, who was driving another car.
The plaintiff subsequently suffered a brain haemorrhage and brain damage. The
medical evidence suggested that although the accident probably contributed to the
haemorrhage happening when it did, the haemorrhage was going to occur at some
point anyway.
Issue: Was the driver liable to pay compensation for the haemorrhage suffered by
the plaintiff?
Decision: The plaintiff was only entitled to damages for harm that he would not
have suffered without the driver’s negligence.
Reason: The driver could not be held responsible for something that would have
occurred even if he had not been negligent. However, the court held that the plaintiff
was entitled to damages for the period in respect of which the haemorrhage was
accelerated (made to happen earlier than it otherwise would have) and for the
extent to which the haemorrhage was more severe than it might otherwise have
been.

12.13.4 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.
12.13.5 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.
Imbree v McNeilly; McNeilly v Imbree (2008) 236 CLR 510

Tort; Negligence; breach of the duty of care; contributory negligence
Facts: Imbree, a licensed adult driver, allowed McNeilly a 16-year-old unlicensed
Issue: Had Imbree’s own negligence contributed to the harm he suffered?
Decision: The court found that Imbree had contributed to his injuries by his own
negligence, to a significant extent. On this basis, responsibility for the harm was
apportioned between both parties.
Reason: The court found that, to take reasonable care for his own safety, Imbree
should have warned McNeilly not to make any sudden change of direction or speed
on a dirt road. He should also have instructed McNeilly to straddle the debris on the
road. His failure to do these things constituted contributory negligence, and he was
held responsible for 30% of the consequent harm.
12.13
12.13.6 Remoteness of harm
12
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.
12.13.7 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.
[12.14] Vicarious Liability

12.14.1 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.
12.14.2 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

12.14.3 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.
Hollis v Vabu Pty Ltd (2001) 207 CLR 21

Tort; vicarious liability; distinguishing employees and independent
contractors
Facts: As he was leaving a building where he had gone to pick up a parcel, Hollis was
struck and injured by an unidentified courier on a bicycle. The courier was wearing
a uniform issued by Vabu, a company that traded as Crisis Couriers. Hollis, whose
knee was permanently damaged in the collision, claimed damages from Vabu
for personal injury, alleging that the courier in question was not an independent
contractor, but an employee of Vabu for whom Vabu was liable in tort.
Issue: Was the courier an employee or an independent contractor?
Decision: The High Court held that the courier was an employee rather than an
Reason: The courier could not be regarded as running his own business or enterprise
and, in addition, he had no real independence in conducting his operations. Factors
which demonstrated this included his lack of any special qualifications, his lack of
control over how to perform his work, his lack of control over his working hours, his
use of Vabu’s uniforms, and the method by which he was paid by Vabu.
The court said (at [42]):
In general, under contemporary Australian conditions, the conduct by the
defendant of an enterprise in which persons are identified as representing that
enterprise should carry an obligation to third persons to bear the cost of injury
or damage to them which may fairly be said to be characteristic of the conduct
of that enterprise.
[12.15] Checklist: 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.
12.15
Step 1
Is Negligence the most applicable tort?
• What type of wrongful conduct is involved? What type of harm was 12
caused?
• Do any of the specific torts apply to the facts under consideration? If
so, does the specific tort provide the best option, taking account of the
available facts and the essential elements?
Step 2
Negligence
Did the wrongdoer owe the plaintiff a duty of care?
• Was it sufficiently foreseeable that harm of some kind could result from
the defendant’s conduct?
• Was the plaintiff sufficiently foreseeable as a person who could be
harmed?
• Did a recognised duty relationship exist between the plaintiff and the
defendant?
• Do any special rules arise in relation to establishing the required duty
relationship?
Step 3
Was the duty of care breached by the wrongdoer?
What would a reasonable person have done to avoid harm, taking account of
the following:
• the likelihood of the harm
• the seriousness of the harm
• the difficulty of avoiding the harm
• any justification for taking the risk of harm
• policy considerations that might excuse the harm?
Step 4
Did the breach of the duty of care cause the harm suffered by the plaintiff?
• Applying the ‘but for’ test, did the defendant’s conduct cause the harm
suffered by the plaintiff?
• Was some other person or event the more proximate cause of the
plaintiff’s harm?
• Was the harm caused too remote to have been within the contemplation
of the wrongdoer?
• Was the plaintiff’s own negligence responsible to any extent for the harm
suffered?

Step 5
To what extent can damages be claimed in the known circumstances
to compensate the plaintiff for the harm suffered?
• Is any other person vicariously liable for the harm caused by the
wrongdoer?
• Are any other remedies available in the circumstances?

The following questions will help you to revise what you have learned from this chapter.
1. What different specific torts are recognised in Australian law? What type of conduct
is involved in each case? What interests are protected by each of the specific torts?
2. What does it mean to say that in contract law obligations arise by agreement, whereas
in tort law they arise when wrongful conduct can cause harm?
3. Define the tort of Negligence. Why is this tort described as the most general of all the
recognised torts?
4. In relation to the tort of Negligence, what is a ‘duty of care’? To what extent must
harm be foreseeable for a duty of care to arise?
5. Can there be liability in Negligence for a failure to act, as distinct from some positive
conduct?
6. Can there be liability in Negligence for purely economic loss as distinct from physical
harm?
7. What is meant by a breach of a duty of care? How does a court decide whether or not
a person has breached the duty of care owed to a plaintiff ?
8. How does a court decide whether or not a wrongdoer caused the harm for which a
plaintiff is seeking compensation? What is meant by ‘contributory negligence’? What
is the significance of a finding that the kind of harm suffered by a plaintiff was too
remote to have been within the reasonable contemplation of the wrongdoer?
9. What is meant by ‘vicarious liability’? When is such liability likely to exist?

e modules.
12.16
CHAPTER 13
The Tort of Negligence

In this chapter:
• The duty of care in the tort of Negligence
• Categories of conduct and harm giving rise to a duty of care
• The foreseeability of harm
• Limits on the duty to prevent foreseeable harm
• Duty situations and relationships
• Breach of the duty of care
• Causation of harm.
[13.1] 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. There is also an eStudy module called The tort of Negligence with lots of examples
and questions to help you better understand this sometimes difficult topic.
13.1.1 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, in this book the examples of particular sections are
taken from the Civil Liability Act 2002 (NSW), but care should be taken to compare
13.1
306 The Tort of Negligence
the equivalent provisions of other jurisdictions. See the selected legislative provisions in
Chapter 18. Electronic links to the relevant Acts are provided in the eStudy modules.
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.
13.1.2 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.
[13.2] The Element of a Duty of Care

13.2.1 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.
13.2.2 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
13.2
The Tort of Negligence307
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.
13
• 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.
13.2.3 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.

Chapman v Hearse (1961) 106 CLR 112

Tort; Negligence; the duty of care; foreseeability of harm; harm to
rescuers; liability for harm occurring in an unexpected way
Facts: While driving his car, Chapman negligently collided into the rear of another
vehicle that had slowed down to turn. Chapman was flung from his vehicle onto
the road. A passing doctor, Cherry, stopped to give Chapman help. A fourth driver,
Hearse, then collided with Cherry, killing him. Hearse was ordered to pay damages
to Cherry’s surviving family. A further question arose: Was Chapman also liable in
Negligence for the death of Cherry? This depended on whether Chapman owed a
duty of care to Cherry, and this in turn depended on whether, in the circumstances,
harm to Cherry was foreseeable by Chapman as a consequence of his careless
acts.
Issue: Was the particular sequence of events that occurred coincidental, so that
what happened to Cherry was not reasonably foreseeable?
Decision: The court found (at [7]‌) that:
[I]‌t was reasonably foreseeable that subsequent injury by passing traffic to
those rendering aid after a collision on the highway would be by no means
unlikely.

[T]‌o establish the prior existence of a duty of care … it is not necessary for the
plaintiff to show that the precise manner in which his injuries were sustained
was reasonably foreseeable; it is sufficient if it appears that injury to a class
of persons of which he was one might reasonably have been foreseen as a
consequence … [I]t would be quite artificial to make responsibility depend upon
… the capacity of a reasonable man … to foresee the precise events leading to
the damage complained of.
13.2.4 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).
13.2.5 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.
13.2
Mount Isa Mines Ltd v Pusey (1970) 125 CLR 383

Tort; Negligence; the duty of care; psychiatric harm; limits of liability;
breach of the duty of care; foreseeability of harm; reasonable person;
relevance of defendant’s special knowledge or attributes
Facts: Pusey, an engineer employed by Mount Isa Mines, was working in the
company powerhouse when he heard an explosion. Pusey rushed to the scene,
where he found that another employee (whom he did not know) had been seriously
13
burned by a massive electrical short circuit that the injured worker and a co-worker
had carelessly caused. Pusey assisted the injured man to an ambulance but the
man died nine days later. Four weeks later Pusey developed symptoms of a serious
mental disturbance and was diagnosed as suffering from profound schizophrenia,
a ‘severe type of mental disturbance including disturbance of thought, disturbance
of mood and disturbance of behaviour and personality’.
Issue: Was this a type of foreseeable harm for which compensation could be
claimed in an action in Negligence brought against the employer company?
Decision: The law recognises liability in Negligence for foreseeable mental harm.
Reason: Windeyer J said (at [3]‌, [12]):
A plaintiff in an action of negligence cannot recover damages for a ‘shock’,
however grievous, which was no more than an immediate emotional response
to a distressing experience sudden, severe and saddening. It is, however,
today a known medical fact that severe emotional distress can be the starting
point of a lasting disorder of mind or body, some form of psychoneurosis or a
psychosomatic illness. For that, if it be the result of a tortious act, damages
may be had. It is in that consequential sense that the term ‘nervous shock’ has
come into the law …
Liability for nervous shock depends on foreseeability of nervous shock.
That, not some other form of harm, must have been a foreseeable result of the
conduct complained of.
Windeyer J also said (at [6]‌):
Foreseeability here predicates the foresight of a reasonable man. The
reasonable man is not here anyone on the Clapham omnibus. He is a man who
notionally stood in the shoes of the defendant and had such knowledge, and
capacity for care and foresight, as that defendant actually had and in addition
such as a reasonable man in that position is expected to have. He is, in the
words of Lord Wright in Bourhill v Young (1943) AC, at p 111, ‘a reasonable
hypothetical observer’. He is not a seer who can foretell future occurrences
that are quite unlikely according to the natural and ordinary course of events.
Happenings that were fortuitous, in the sense that no reasonable man would
have thought of them as within the range of possible consequences, cannot
be said to have been reasonably foreseeable. And knowledge after the event,
when it is easy to be wise, cannot shew that the event was foreseeable.

13.2.6 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.
Caterson v Commissioner of Railways (1973) 128 CLR 99

Tort; Negligence; the duty of care; foreseeability of harm; establishing
a real risk of harm
Facts: While helping a passenger carry their luggage onto a train, Caterson left
his 14-year-old son on the platform. The train began to leave the station without
warning and Caterson, anxious not to leave his son alone, jumped off the train
while it was moving. As a result Caterson suffered injury. He sued the railways in
Negligence.
Issue: The court considered whether the harm to Caterson was foreseeable in
these circumstances.
Decision: The High Court held that the harm was foreseeable.
Reason: Barwick CJ said (at [4]‌):
[L]‌iability in tort will be possible if the event which has occurred and the
damage therefrom which the claimant has suffered were both foreseeable by
the person sought to be made liable and of such a kind as he ought to have
realised were not unlikely to occur, subject only to the exception constituted
by the decision in Bolton v Stone [1951] UKHL 2; (1951) AC 850. Of the various
possible descriptions of the event and damage, I prefer ‘not unlikely to occur’
because on the one hand it denies the proposition that the event or damage
should be apprehended as more likely than not to occur or to be suffered and
on the other hand, by its negative form, it excludes possibilities which are
theoretical and unreal in all the circumstances: it accommodates the idea of a
real risk or danger …
13.2.7 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.
Palsgraf v Long Island Railroad Co 248 NY 339 (1928)

Tort; Negligence; the duty of care; the foreseeability of harm
Facts: Two guards, who were employed by a railway company at a railway station,
noticed two passengers running to catch a train that was leaving the station. The
guards tried to help the passengers board the train but, while doing so, one of the
guards bumped a small parcel wrapped in newspaper that one of the passengers
was holding under his arm. Unknown to the guard, the unlabelled package contained
13.2
fireworks and, when it fell to the ground, it exploded. The explosion caused some
scales at the other end of the platform to fall over and strike another passenger,
injuring her. The injured passenger sued the railway company, claiming that the
guards had owed her a duty of care.
Issue: Was the possibility of harm to persons on the far end of the platform
foreseeable?
Decision: The court held that in these circumstances it was not foreseeable that the
guard’s carelessness in bumping the parcel might cause harm to those passengers
13
standing far away at the other end of the platform.
Reason: Cardozo CJ said (at 341):
The conduct of the defendant’s guard, if a wrong in its relation to the holder
of the package, was not a wrong in its relation to the plaintiff, standing far
away. Relatively to her it was not negligence at all. Nothing in the situation
gave notice that the falling package had in it the potency of peril to persons
thus removed.
See also Sydney County Council v Dell’Oro (1974) 132 CLR 97, in which the High
Court excluded liability in circumstances where a person reasonably believed to be
a fully licensed electrician was electrocuted by uninsulated wires in an uncovered
‘links’ box. Barwick CJ said (at [4]‌):
[I]‌t was not foreseeable that a qualified tradesman would place himself, quite
unnecessarily, in fatal proximity to the conductors.
13.2.8 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 13.2.5.
Gifford v Strang Patrick Stevedoring Pty Ltd (2003) 214 CLR 269
Tort; Negligence; the duty of care; psychiatric harm; limits of liability
Facts: Gifford was employed by Strang Patrick Stevedoring Pty Ltd (SPS) as a
labourer and container location clerk on the wharf at Darling Harbour in Sydney. He
was killed in a forklift accident in the course of his employment. Gifford had three
children aged 14, 17 and 19. The children were informed the same day of Gifford’s
death and were shocked and distressed at the news. They claimed damages from
SPS for nervous shock, a type of psychiatric harm.
Issue: Had SPS owed a duty of care to the children in relation to the harm they
suffered?
Decision: SPS owed a duty of care to the children and had breached that duty.
However, it had not been proved that the children had suffered psychiatric harm.

Reason: SPS owed their employee (Gifford) a duty to provide a safe place of
employment and had failed to do so. Further, because of the close relationship
between Gifford and his children, SPS was bound to have in mind that causing harm
to Gifford carried the risk of causing psychiatric harm to his children, for example,
should they learn of his accidental death. SPS therefore also owed the children a
duty of care. By breaching the duty owed to Gifford himself, SPS had also breached
the duty it owed to the children. However, the evidence did not establish that the
children had actually suffered psychiatric harm and the proceedings were remitted
to the District Court for further evidence.
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.
13.2.9 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.
Heaven v Pender (1883) 11 QBD 503

Tort; Negligence; the duty of care; recognised situations
Facts: A shipowner brought his ship into the defendant’s dry dock for repair. The
defendant supplied the shipowner with certain equipment including a ‘stage’ or
platform that was slung over the side of the ship and held up by ropes. This stage
was used by painters who were employed by an independent contractor to paint the
ship. The defendant failed to ensure the ropes supplied were in good condition. One
of the painters was injured when the ropes holding the stage broke. The injured
painter sued the defendant. The court found that defendant had been careless in
not checking the condition of the ropes.
Issue: Did the defendant owe a duty of care to the painter?
Decision: Bowen and Cotton LJJ decided that the defendant, as dock owner, owed
the painter a duty of care.
Reason: The relationship between the defendant and the painter was that of
‘occupier of land’ and ‘invitee’, a relationship recognised as giving rise to a duty
of care. The invitation extended to the use of both the dock and the equipment
provided by the dock owner to the painter. Brett MR found that a wider principle
13.2
could be derived from existing cases to decide whether a duty of care existed in new
situations, but his more general approach was not favoured by the court.
Donoghue v Stevenson [1932] AC 562

Tort; Negligence; the duty of care; manufacturer’s duty to consumer;
product liability
13
Facts: Donoghue went to a cafe in Paisley with a friend. The friend bought a bottle
of ginger beer and an ice cream for Donoghue. Donoghue poured some of the
ginger beer over the ice cream and ate it. Then she poured the rest of the ginger
beer into a glass. Donoghue then noticed that the drink contained the remains of a
decomposed snail. She claimed that she suffered severe shock and became ill with
gastroenteritis as a result. She sued Stevenson, the manufacturer of the ginger
beer, for damages in Negligence on the basis that he had supplied contaminated
food that had caused harm to her as the consumer of that food.
Issue: In the circumstances, did Stevenson owe Donoghue a duty of care?
Decision: The House of Lords held that Stevenson owed Donoghue a duty of care.
Reason: Lord Atkin said (at 599):
A manufacturer of products, which he sells in such a form as to show that he
intends them to reach the ultimate consumer in the form in which they left
him, with no reasonable possibility of intermediate examination, and with the
knowledge that the absence of reasonable care in the preparation or putting up
of the products will result in an injury to the consumers life or property, owes a
duty to the consumer to take that reasonable care.
Lord Atkin described (at 579–580) the traditional approach of identifying ‘duty
situations’:
The Courts are concerned with the particular relations which come before
them in actual litigation, and it is sufficient to say whether the duty exists in
those circumstances. The result is that the Courts have been engaged upon an
elaborate classification of duties as they exist … In this way it can be ascertained
at any time whether the law recognises a duty, but only where the case can be
referred to some particular species which has been examined and classified.
In seeking a more general principle for establishing a duty of care, Lord Atkin
said (at 580):
[T]‌he duty which is common to all the cases where liability is established
must logically be based upon some element common to the cases where it is
found to exist. To seek a complete logical definition of the general principle is
probably to go beyond the function of the judge …
… At present I content myself with pointing out that in English law there
must be, and is, some general conception of relations giving rise to a duty of
care, of which the particular cases found in the books are but instances. The
liability for negligence, whether you style it such or treat it as in other systems

as a species of ‘culpa’, is no doubt based upon a general public sentiment of

moral wrongdoing for which the offender must pay.
Note: The approach now taken by Australian courts takes account both of recognised duty
situations and more generalised principles. 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.
13.2.10 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 and others who may be harmed 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.
13.2
Sullivan v Moody (2001) 207 CLR 562

Tort; Negligence; the duty of care; factors to be taken into account
Facts: Sullivan was suspected of sexually abusing his daughter. He denied the
allegations, but they were investigated by a doctor who examined the child and
formed the opinion she had been abused. Social workers employed by the
government also investigated the case and brought proceedings against Sullivan.
The Family Court decided the case in favour of Sullivan. Sullivan claimed to have
13
suffered psychiatric and other harm as a result of the investigations that were
carried out by the doctor and social workers.
Issue: The court considered whether the doctor and social workers owed Sullivan a
duty of care when deciding to carry out investigations that might cause him harm.
Decision: The High Court concluded that the doctor and social workers did not owe
Sullivan a duty of care.
Reason: The court found that there cannot be a duty of care that conflicts with a
statutory duty to carry out investigations. This would render the law incoherent,
because a conflict would arise between the duty to protect children from abuse
and any duty to avoid harm to those who are suspected of committing such abuse.
Policy considerations were also relevant.
Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540
Tort; Negligence; the duty of care; factors to be taken into account
Facts: The Barclay Company farmed oysters in Wallis Lake, New South Wales. In
1996 heavy rainfall increased the risk of contamination in the lake, but despite this
the company continued to harvest and sell their oysters. Ryan ate some of these
oysters and, as a result, contracted the hepatitis A virus with which the oysters
were contaminated. Ryan claimed damages not only from Graham Barclay Oysters,
but also from the New South Wales government. Ryan alleged the government
owed him a duty of care because they had the power to supervise and control the
oyster-growing industry in New South Wales.
Issue: Did the New South Wales government owe Ryan a duty of care in relation to
the possibility of harm from contaminated oysters?
Decision: The government did not owe such a duty of care to Ryan.
Reason: The existence of a duty of care depended on the nature of the New South
Wales government’s control of the Barclay Company’s operations. The court drew
a distinction between the general power of a government, which does not in itself
give a government the necessary control to create a duty of care, and the existence
of a statutory management responsibility or control, which may be sufficient to
create a duty of care. It was held that, in this case, the government did not have
management responsibility or control of the oyster industry and therefore did not
owe Ryan a duty of care in relation to the possibility of contaminated oysters.

13.2.11 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.
Perre v Apand Pty Ltd (1999) 198 CLR 180

Facts: Perre, a South Australian potato farmer, normally exported most of his
crop to buyers in Western Australia. To protect against the spread of diseases,
the Western Australian government prohibited the importation of potatoes grown
anywhere within 20 kilometres of an outbreak of potato disease. Unfortunately, a
disease known as bacterial wilt occurred on a farm owned by Sparnon, which was
near Perre’s farm. The outbreak happened when Sparnon planted seed potatoes
that were infected with the disease. Sparnon had acquired these seed potatoes
from Apand. Apand had grown the seeds in an area of Victoria which Apand knew
was prone to disease and unsuitable for seed production.
Although Perre’s potato crop was not itself affected by the disease, the
outbreak on Sparnon’s farm meant that Perre could not export his crop to Western
Australia. As a result, Perre suffered purely economic loss. He sued Apand in
Negligence.
Issue: Perre had suffered purely economic harm. In these circumstances, did
Apand owe Perre a duty of care?
Decision: Apand was held to owe a duty of care to Perre.
Reason: In deciding whether or not Apand owed Perre a duty of care, the court took
account of a number of factors. One was that Perre belonged to a limited class of
identifiable persons who might suffer harm (nearby potato farmers). He was not
merely a member of an indeterminate class of persons. Another factor was that
Perre was dependent on Apand acting responsibly. Perre could not protect himself
from the likely harm, which made him extremely vulnerable. Finally, Apand was
aware of the risk of disease and of Perre’s vulnerability, and could have very easily
foreseen the potential harm.
13.2
Woolcock Street Investments Pty Ltd v CDG Pty Ltd

(2004) 216 CLR 515
Facts: CDG, a firm of consulting engineers, designed foundations for a warehouse
and office complex which was to be built for the owner of a block of land. The owner
of the land decided against doing soil tests before the building work commenced.
13
Some years after the complex was completed, the owner sold it to Woolcock
Street Investments (Woolcock). A further year later, signs of structural stress in
the building became apparent. The stress was caused by the settling of the soil
or of the foundations. Fixing the problem would be expensive. Woolcock alleged
that CDG had owed it a duty of care to avoid economic loss and that CDG’s failure
to design adequate foundations for the site had caused such loss (the expense of
rectifying the problem).
Issue: Did CDG owe a duty of care to Woolcock, a subsequent purchaser of the
building?
Decision: In the circumstances, CDG did not owe a duty of care to Woolcock.
Reason: Gleeson CJ, Gummow, Hayne and Heydon JJ said (at [23]):
[T]‌he vulnerability of the plaintiff has emerged as an important requirement
in cases where a duty of care to avoid economic loss has been held to have
been owed. ‘Vulnerability’, in this context, is not to be understood as meaning
only that the plaintiff was likely to suffer damage if reasonable care was not
taken. Rather, ‘vulnerability’ is to be understood as a reference to the plaintiff’s
inability to protect itself from the consequences of a defendant’s want of
reasonable care, either entirely or at least in a way which would cast the
consequences of loss on the defendant.
In this case, Woolcock could have taken independent steps to avoid the risk
of harm, for example, by employing an engineer of its own to inspect the building
before buying it.
Western Districts Developments v Baulkham Hills Shire Council

(2008) 160 LGERA 422
Tort; Negligence; duty of care in cases involving purely economic
harm; the requirement of vulnerability
Facts: Western Districts Developments (WDD), a property development company,
purchased a block of land from Wati Pty Ltd. Prior to selling the land, Wati had
obtained the approval of the Baulkham Hills Shire Council for the subdivision of the
land. The council’s approval required compliance with various statutory provisions,
and unfortunately the council granted the approval without taking due care to
ensure that these requirements were met. As a result, after buying the land WDD

found itself liable to pay additional ‘developer charges’ of about $50,000. Had the
council properly carried out the statutory requirements, these charges would have
been payable by Wati before the sale to WDD.
Issue: Did the council owe a duty of care to prevent economic harm to future
purchasers of land, which the council had approved for subdivision?
Decision: The appeal court decided that, in the circumstances, the council owed a
duty of care to WDD because, as a future purchaser of a subdivision, WDD was in a
position of vulnerability.
Reason: As a purchaser, WDD was not in a position to protect itself from a failure
by the council to exercise reasonable care in the exercise of its powers to approve
subdivisions. It would be unreasonable to expect WDD to assume that the council
would not exercise its powers properly and unrealistic to expect WDD to be able to
protect themselves against this possibility.
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288

(2014) 313 ALR 408
Tort law; Negligence; establishing a duty of care to prevent purely
economic loss
Facts: Chelsea Apartments Pty Ltd (CA) a property developer, contracted with
Brookfield Multiplex Ltd (BML) a construction company, for the building of a block
of apartments on land owned by CA. When the building was completed, strata titles
to the apartments were offered by CA to investors. The contracts for the strata
titles contained provisions guaranteeing the building to be free of defects. In fact,
after the strata titles were sold, defects became apparent. The corporation that
represented the investors (OCSP) sued BML in Negligence, claiming that BML had
owed the investors a duty of care and that, as a result of a breach of that duty, they
had suffered an economic loss.
Issue: Did BML owe a duty of care to OCSP to prevent the occurrence of purely
economic loss?
Decision: No duty of care was owed by BML to OCSP because the requirement of
vulnerability of a person who suffers purely economic loss was not established in
the overall circumstances.
Reason: In tort law a duty of care to prevent foreseeable loss only arises when
recognised circumstances exist. In particular, when a person suffers purely
economic loss, a duty of care does not arise unless the person harmed was in a
position of vulnerability in the sense of having a limited capacity to take steps to
prevent the loss themselves. In the present case, the investors were not obviously
unskilled or inexperienced in the complexities of real estate investment and had
included contractual warranties against building faults. They could not be regarded
as necessarily reliant or dependant on the builder to protect them against the
possibility of economic losses due to defects in the building.
13.2
13.2.12 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.
13.2.12(a) ‘Abnormal’ plaintiffs
13
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.
Levi v Colgate-Palmolive Pty Ltd (1941) 41 SR (NSW) 48

Tort; Negligence; the duty of care; foreseeability of harm; ‘abnormal’
plaintiffs
Facts: Colgate-Palmolive sent Levi a box of free sample products, including a
sachet of bath salts. Levi dissolved the bath salts in water and soaked herself in
them for about 20 minutes. Afterwards she noticed that her skin had become red in
parts and this rash spread, causing a troublesome itch that lasted a long time. The
rash appeared to be the result of Levi’s skin sensitivity to the bath salts.
Issue: Did a duty of care exist in respect of harm resulting from the plaintiff’s
individual abnormality, that is, her hypersensitive skin?
Decision: In the circumstances, there was no duty of care to persons with individual
susceptibility to harm.
Reason: Jordan CJ said (at 52):
Where the act is incapable of injuring an ordinary normal person, or is so done
that, as done, it is incapable of injuring an ordinary normal person, the person
who does it owes no duty to do more by reason only of the possibility that a
person of abnormally accentuated susceptibility may be affected by it. Special
circumstances may, of course, give rise to a duty to take special precautions to
avoid injury to particular abnormal persons known to be likely to be affected
by a particular act …
13.2.12(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.

Haynes v G Harwood & Son [1935] 1 KB 146

Tort; Negligence; the duty of care; foreseeability of harm; harm to
rescuers; plaintiff’s consent to risk of harm
Facts: The driver of a horse-drawn van left it unattended. A boy threw a stone at the
horses, provoking them to run away. A policeman on duty at a police station some
distance away saw the bolting horses and, to protect people who were in danger, he
attempted to stop the horses. Although he succeeded in stopping them, one of the
horses fell on the policeman and injured him. The policeman sued the owner of the
van whose driver had left the horses unattended.
Issue: Did the owner of the van owe a duty of care to someone who might intervene
to rescue other persons from a danger arising from the negligence of the owner’s
employee?
Decision: The court held that the owner of the van owed the policeman a duty of
care.
Reason: The court held that it was no defence that the policeman had chosen
to intervene voluntarily. A duty of care is owed even when a person acts, either
deliberately or on impulse, to protect others (even strangers) from potential harm
arising from the defendant’s misconduct. An element of policy appears to have
influenced this decision, the courts being reluctant to refuse a remedy to a plaintiff
who has acted courageously.
See Chapman v Hearse (1961) 106 CLR 112 above at13.2.3.
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.
13.2.12(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.
Crimmins v Stevedoring Industry Finance Committee (1999) 200

CLR 1
Tort; Negligence; the duty of care; foreseeability of harm; liability of
statutory authorities for omissions
Facts: In the 1960s, Crimmins was employed as a waterside worker on the docks in
Melbourne. Crimmins’ employer did not supply safety equipment. While unloading
ships, Crimmins was exposed to asbestos dust and as a result contracted a fatal
13.2
lung disease. Crimmins’ executrix alleged that the Stevedoring Industry Finance
Committee (SIFC), the statutory authority in charge of the docks, had owed
Crimmins a duty of care in relation to this foreseeable harm.
Issue: Did the SIFC owe a duty of care to Crimmins?
Decision: The High Court found that the SIFC owed a duty of care to Crimmins.
Reason: The judges adopted different approaches but they commonly rejected the use
of public law notions to determine the common law liability of a statutory authority.
There was also an emphasis on Crimmins’ vulnerability in relation to the statutory
13
authority, which had knowledge of the risk and the power to protect workers.
Gaudron J said (at [46]):
Given the vulnerability of the late Mr Crimmins, the knowledge the Authority
had or should have had, and its position to control or minimise the risks
associated with the handling of asbestos, there was, in my view, a relationship
between Mr Crimmins and the Authority giving rise to a duty of care on the part
of the Authority …
McHugh J (at [93]) put forward the following series of questions to help decide
whether a duty of care exists:
1. Was it reasonably foreseeable that an act or omission of the defendant, including
a failure to exercise its statutory powers, would result in injury to the plaintiff or
his or her interests? If no, then there is no duty.
2. By reason of the defendant’s statutory or assumed obligations or control, did the
defendant have the power to protect a specific class including the plaintiff (rather
than the public at large) from a risk of harm? If no, then there is no duty.
3. Was the plaintiff or were the plaintiff ’s interests vulnerable in the sense that the
plaintiff could not reasonably be expected to adequately safeguard himself or
herself or those interests from harm? If no, then there is no duty.
4. Did the defendant know, or ought the defendant to have known, of the risk of
harm to the specific class including the plaintiff if it did not exercise its powers?
If no, then there is no duty.
5. Would such a duty impose liability with respect to the defendant’s exercise of
‘core policy making’ or ‘quasi-legislative’ functions? If yes, then there is no duty.
6. Are there any other supervening reasons in policy to deny the existence of a duty
of care (eg, the imposition of a duty is inconsistent with the statutory scheme, or
the case is concerned with pure economic loss and the application of principles in
that field deny the existence of a duty)? If yes, then there is no duty.
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).
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

13.2.12(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.
13.2.12(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.
Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479
Tort; Negligence; the duty of care; foreseeability of harm; occupiers
Facts: Zaluzna went to the Safeway supermarket to buy some cheese. It was a
rainy day and the floor at the shop entrance had become wet and slippery. Zaluzna
slipped on the wet floor, fell and was injured. Zaluzna sued the supermarket in
Negligence.
Issue: Do special rules apply when deciding whether occupiers of premises owe a
duty of care to persons entering their premises?
Decision: It was not appropriate to apply special rules. A court should apply the
ordinary principles of Negligence in such cases.
Reason: The court approved (at [11]) the following statement of Deane J in Hackshaw
v Shaw (1984) 155 CLR 614:
All that is necessary is to determine whether, in all the relevant circumstances
including the fact of the defendant’s occupation of premises and the manner
of the plaintiff’s entry upon them, the defendant owed a duty of care under
the ordinary principles of negligence to the plaintiff … The touchstone of its
existence is that there be reasonable foreseeability of a real risk of injury
to the visitor or to the class of person of which the visitor is a member. The
measure of the discharge of the duty is what a reasonable man would, in the
circumstances, do by way of response to the foreseeable risk.
Damages) Act (NT), s 8.
13.2
13.2.12(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.
Hamilton v Nuroof (WA) Pty Ltd (1956) 96 CLR 18 13

Tort; Negligence; the duty of care; foreseeability of harm; employers
and employees
Facts: Nuroof undertook to repair a flat roof on top of a six-storey building. The
work required the application of molten bitumen, a very hot and sticky substance.
Nuroof employed Hamilton as a labourer. His job involved handing heavy buckets
of the bitumen up to a person on a higher section of the roof. While Hamilton was
passing up one bucketful, it tipped over and the bitumen spilt on Hamilton, severely
burning him.
Issue: As Hamilton’s employer, did Nuroof owe Hamilton a duty of care in these
circumstances?
Decision: The court held that Nuroof owed Hamilton a duty of care.
Reason: Dixon CJ and Kitto J said (at [4]‌):
Now two things appear to be undeniable. In the first place there can be no
denial of the extremely injurious properties of molten bitumen if it is spilt over
any part of the human body. In the second place when a vessel containing
forty pounds weight of molten material is raised by hand in front of the body
high enough for a handle to be seized by a man above, there must be a greatly
increased risk of its spilling whether through mishandling or mistake or
mischance and the prospect of serious injury if that happens must be much
greater also. After full consideration we find ourselves unable to agree in the
view that these are not dangers which are both real and evident and in the view
that it is consistent with due care for an employer to disregard the likelihood
of their occurrence.
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.
13.2.12(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.
Lynch v Lynch (1991) 25 NSWLR 411

Tort; Negligence; the duty of care; foreseeability of harm; unborn
plaintiffs
Facts: While she was pregnant, Lynch drove her car negligently and, as a result,
was involved in an accident. The accident caused injuries to Lynch’s unborn child
who, as a result, suffered from cerebral palsy when born. An action was brought
on behalf of the child against her mother for breach of a duty of care owed to her
unborn child.
Issue: Could a duty of care be owed to an unborn child?
Decision: The court held that a duty of care may exist in relation to an unborn child.
Reason: There is no sufficient reason to deny a child the right to claim compensation
for antenatal injuries as a result of the mother’s negligent driving. The court
recognised that due to compulsory third party insurance for drivers, finding a duty
would not result in a mother becoming personally liable to pay damages. This
situation therefore seems to be an exception to policy considerations, which would
otherwise make a mother immune from such liability.
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.
13.2.12(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.

(1981) 150 CLR 225
purely economic harm
Facts: Shaddock & Associates, a property development company, wanted to buy
some land and redevelop it. The company’s solicitor telephoned the Parramatta
City Council and asked if there were any road widening proposals that would affect
13.2
the land. He was told there were not. The solicitor also requested and was sent a
certificate from council, which indicated there were no proposals to widen adjacent
roads. Shaddock then bought the land, but the information given on the phone
and in the certificate was wrong; the council had an existing proposal to acquire a
third of the land Shaddock had just bought, to widen a road. Shaddock suffered a
financial loss as a result of relying on the wrong information and sued the council
in Negligence.
Issue: Did the council owe Shaddock a duty of care when providing the information
13
to it?
Decision: The High Court held that no duty of care arose from advice given over
the telephone, because that advice was essentially informal. However, a duty of
care arose from the advice given in the written certificate and the council was
accordingly liable for the loss.
It would appear to accord with general principle that a person should be under
no duty to take reasonable care that advice or information which he gives to
another is correct, unless he knows, or ought to know, that the other relies
on him to take such reasonable care and may act in reliance on the advice or
information which he is given, and unless it would be reasonable for that other
person so to rely and act.
Mason J said (at [20]):

[W]‌henever a person gives information or advice to another upon a serious
matter in circumstances where the speaker realizes, or ought to realize, that
he is being trusted to give the best of his information or advice as a basis for
action on the part of the other party and it is reasonable in the circumstances
for the other party to act on that information or advice, the speaker comes
under a duty to exercise reasonable care in the provision of the information or
advice he chooses to give.
13.2.12(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

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg)

(1997) 188 CLR 241
Facts: Esanda made loans of money to various companies. Repayment of those
loans was guaranteed by Excel. Before accepting Excel’s guarantees, Esanda had
relied on the financial information in Excel’s audited accounts, which were provided
to Esanda by Excel. The information in the accounts was wrong and Esanda suffered
loss as a result. Esanda sued Peat Marwick Hungerfords, who had audited the
accounts, in Negligence on the basis that the accountants’ misstatements in the
accounts had caused Esanda’s economic loss.
Issue: Did Peat Marwick Hungerfords owe a duty of care to Esanda?
Decision: In the circumstances of this case, Peat Marwick Hungerfords did not owe
a duty of care to Esanda.
Reason: The court noted that Esanda had not requested the accounts directly from
Peat Marwick Hungerfords; the accounts had been passed on to Esanda by Excel.
McHugh J said (at 275) that in the absence of a request for information, liability for
purely economic loss caused by negligent misstatement requires:
[A]‌n intention to induce the recipient of the information or advice, or a class to
which the recipient belongs, to act or refrain from acting on it. Mere knowledge
by a defendant that the information or advice will be communicated to the
plaintiff is not enough.
For a duty of care to exist it must be shown that:

(a) the defendant knew, or should have known, that the information or advice
would be communicated to the plaintiff, either as an individual or as a member
of an identified class of persons
(b) the information or advice was communicated to the plaintiff for a purpose that
would very likely lead the plaintiff to enter a transaction of the kind the plaintiff
did in fact enter, and
(c) it was very likely that the plaintiff would enter the transaction relying on the
If all these questions are answered positively, the person making the statement
is responsible for what they say and there is a duty of care even if they had no special
skill or knowledge. The requirements were not satisfied in the present case.
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. See Chapter 11.
13.2
Bathurst Regional Council v Local Government Financial Services

Pty Ltd (No 5) [2012] FCA 1200
Facts: ABN Amro Bank created a new financial product, a complex type of
derivative. They retained Standard and Poor’s (S&P), a ratings agency, to rate the
product. They sought a triple A rating. S&P reviewed the product and gave it a triple
13
A rating. This rating was relied on by Local Government Financial Services Pty
Ltd (LGFS), who purchased the product and advised its clients, including various
local councils, to invest their money by doing the same. However, the asset value
of the derivatives fell, leading LGFS and the councils to lose millions of dollars. The
Bathurst Regional Council sued LGFS, S&P and ABN Amro Bank to recover their
losses. In part, they relied on negligent misrepresentation, alleging that the triple
A rating was given without a proper review of the product.
Issue: Did S&P owe a duty of care to purchasers of the product when issuing the
triple A rating?
Decision: In the circumstances, S&P owed a duty of care to prospective purchasers
of the product.
Reason: The court held that the potential liability of S&P was not indeterminate
because, in the circumstances, the class of potential purchasers of the financial
product was ascertainable and S&P only purported to rate each particular release
of the product as issued by ABN Amro Bank. S&P exercised control over the extent
of its liability because it was free to choose whether or not to issue a rating and
what conditions it might impose on the rating. On the relevance of Esanda Finance v
Peat Marwick Hungerfords, Jagot J explained (at 2758–2759):
Esanda Finance involved a different factual context. The purpose of an audit
of a company is one thing. The purpose of a rating to a financial instrument
is another. A rating is assigned to a financial instrument for the very purpose
of communication to the class of potential investors for them to take into
account, and rely upon, in deciding whether or not to invest. The same cannot
be said of a financial audit of a company which is undertaken by an auditor
for the company’s own purposes and to comply with the company’s statutory
obligations. … S&P knew that its rating was intended for these purposes … [It]
was paid for the very purpose (reliance by potential investors on the rating)
which it now seeks to deny.
The other elements of Negligence also being satisfied, S&P was held liable to
compensate the council.
Note: This case also involved an action against both S&P and ABN Amro for misleading
and deceptive conduct.

13.2.13 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).
[13.3] 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.
13.3.1 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:
have known), and
13.3.2 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.
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.
13.3
Voli v Inglewood Shire Council (1963) 110 CLR 74

Tort; Negligence; breach of the duty of care; foreseeability of harm;
reasonable person; relevance of defendant’s special expertise
Facts: A hall was built by the Inglewood Shire Council. This hall was designed by
a properly qualified architect and built in accordance with his plans. A year later,
the stage in the hall collapsed and several people, including Voli, were injured as
a result. It turned out that the architect’s plans provided for floor joists that were
13
too narrow to comply with Inglewood Shire Council’s by-laws or with Australian
Standards Association requirements. If the joists had been wide enough, the stage
would not have collapsed. Voli sued the council, the architect and the builder.
Issue: What standard of care was owed to Voli by the architect?
Decision: On appeal, it was held that the architect owed a duty of care to the injured
persons, and that the applicable standard of care is determined according to the
competence and skill that is usual among architects practising their profession.
Reason: Windeyer J said (at [8]‌):
An architect undertaking any work in the way of his profession accepts the
ordinary liabilities of any man who follows a skilled calling. He is bound
to exercise due care, skill and diligence. He is not required to have an
extraordinary degree of skill or the highest professional attainments. But he
must bring to the task he undertakes the competence and skill that is usual
among architects practising their profession. And he must use due care. If
he fails in these matters and the person who employed him thereby suffers
damage, he is liable to that person. This liability can be said to arise either
from a breach of his contract or in tort.
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.
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.

Rogers v Whitaker (1992) 175 CLR 479

Tort; Negligence; the duty of care; breach of the duty of care; relevance
of defendant’s specialist skills
Facts: While still a child, Whitaker suffered an injury that left her blind in one eye.
Nonetheless she led a normal life until, at the age of 40, she consulted Rogers,
an eye surgeon. He advised her that an operation on her blind eye would improve
its appearance and probably restore significant sight. He did not warn her of any
risks associated with the operation. In the result, the operation failed to improve
the sight in Whitaker’s blind eye. The operation also caused her to develop a rare
condition that eventually caused blindness in her other eye. This condition, as well
as being rare, was not always so catastrophic in effect.
Issue: Had the defendant, a specialist ophthalmic surgeon, breached the duty of
care that he owed his patient?
Decision: As a specialist ophthalmic surgeon, the defendant’s duty of care required
him to warn his patient of the possible risks involved in treatment, which he had
failed to do.
Reason: In considering the appropriate standard by which to judge the duties
owed by a defendant with specialist skill, Mason CJ, Brennan, Dawson, Toohey and
McHugh JJ said (at [6]‌, [12]):
The standard of reasonable care and skill required is that of the ordinary
skilled person exercising and professing to have that special skill … in this
case the skill of an ophthalmic surgeon specializing in corneal and anterior
segment surgery …
[T]‌hat standard is not determined solely or even primarily by reference
to the practice followed or supported by a responsible body of opinion in the
relevant profession or trade … [T]he courts have adopted … the principle that,
while evidence of acceptable medical practice is a useful guide for the courts,
it is for the courts to adjudicate on what is the appropriate standard of care.
13.3.3 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.
McHale v Watson (1966) 115 CLR 199

reasonable person; relevance of defendant’s youth
Facts: Barry Watson, a 12-year-old boy, took a sharp, six-inch piece of steel to
some open ground near his home and threw it at a wooden post, intending to make
it stick there. Instead of penetrating the post, the rod glanced off at a tangent and
13.3
struck McHale, a nine-year-old girl who was standing nearby, in her eye. McHale
sued Watson and his parents on grounds of Negligence.
Issue: Was the age of the defendant relevant in determining the defendant’s
negligence?
Decision: The court held that it could not disregard the boy’s age and that his
behaviour had to be judged according to the standard of other 12-year-old boys.
Reason: McTiernan ACJ said (at [4]‌):
I do not think that I am required to disregard altogether the fact that the
13
defendant Barry Watson was at the time only twelve years old. In remembering
that I am not considering ‘the idiosyncrasies of the particular person’. Childhood
is not an idiosyncrasy. It may be that an adult, knowing of the resistant qualities
of hardwood and of the uncertainty that a spike, not properly balanced as a
dart, will stick into wood when thrown, would foresee that it might fail to do
so and perhaps go off at a tangent. A person who knew, or might reasonably
be expected to know that might be held to be negligent if he were not more
circumspect than was this infant defendant. But whatever the position would
be if the facts were different, my conclusion on the facts of this case is that the
injury to the plaintiff was not the result of a lack of foresight and appreciation of
the risk that might reasonably have been expected, or of a want of reasonable
care in aiming the dart. I find that Barry Watson was not negligent in the legal
sense.
It is not altogether clear whether the courts will attribute any disability, incapacity or
infirmity of the defendant to the notional reasonable person.
Adamson v Motor Vehicle Insurance Trust (1957) 58 WALR 56

reasonable person; relevance of defendant’s disabilities
Facts: In 1955, Adamson was crossing an intersection where traffic was being
directed by a traffic pointsman. Adamson and a cyclist were struck by a car driven
through the crossing by Burt. Burt had stolen the car, acting under an irrational
belief that his workmates were trying to kill him and a compulsion to escape at all
costs to save his own life. The court found that Burt was insane at the time of the
accident.
Issue: Did Burt’s insanity excuse him from Negligence?
Decision: In the circumstances, Burt was liable for Negligence.
Reason: The court did not deal directly with the insanity question because it found
that Burt had understood what he was doing and he realised it was wrong. However,
the court seemed to suggest that a defendant’s insanity should not change the
‘reasonable person’ test that is applied to determine questions of negligence.
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.
Imbree v McNeilly ; McNeilly v Imbree (2008) 236 CLR 510

Tort; Negligence; breach of the duty of care; determining the standard
of care
Facts: Imbree, a licenced adult driver, allowed McNeilly, a 16-year-old unlicenced
Issue: What standard of care was owed by McNeilly, as the driver of the car, to his
passenger? Was the duty of care to be determined by reference to an unqualified
and inexperienced driver?
Decision: The court reversed the precedent set in Cook v Cook (1986) 162 CLR
376, and held that the standard of care was properly determined by reference
to an ordinary licenced driver, even though the particular driver in this case was
inexperienced and unlicensed.
Reason: It is well recognised that a motorist on a highway is subject to a duty of
care to avoid causing injury to the person or property of another. But in response
to the argument that the standard of care should be determined by reference to
an inexperienced unlicensed driver, Gummow, Hayne and Kiefel JJ said (at [528]):
[T]‌he standard to be applied is objective. It does not vary with the particular
aptitude or temperament of the individual … [I]t is, and must be, accepted
that a learner driver owes all other road users a duty of care that requires the
learner to meet the same standard of care as any other driver on the road.
13.3.4 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 burden of taking precautions to avoid the risk of harm, and
13.3
• the social utility of the activity that creates the risk of harm.
Waverley Council v Ferreira (2005) Aust Torts Reports 81-818

Tort; Negligence; breach of a duty of care; the standard of care;
statutory criteria
Facts: Martin Ferreira, aged 12, went to play in a park controlled and managed 13
by the Waverley Council. A toy he was playing with got stuck on the roof of the
community centre building in the park. Martin gained access to the roof by climbing
up an adjacent fence. While on the roof, he sat on a skylight, which collapsed. Martin
died as a result of the subsequent fall. As a result of Martin’s death, his father
suffered depression and chronic stress disorder. He sued the Waverley Council in
Negligence for damages for mental harm. It was not disputed that Mr Ferreira
had suffered actionable mental harm. Nor was it disputed that the council owed
Mr Ferreira a duty of care: the council ought to have foreseen that a parent might
suffer mental harm if a child died while in the park as a result of the council’s
failure to make the park safe.
Issue: What was the content of the duty of care owed by the council to Ferreira, and
had the council acted in accordance with the required standard of care?
Decision: Under both the common law and the Civil Liability Act 2002 (NSW), a
defendant must do what a reasonable person in the position of the defendant would
do to prevent foreseeable harm. The council had failed to do what was required.
Reason: Section 5B(1) of the Civil Liability Act says that a person is not negligent in
failing to take precautions against a risk of harm unless:
have known), and
The court held that, in the circumstances, the council ought to have foreseen
that a child might climb onto the roof and in some way suffer serious harm by
falling to the ground. In deciding what the council ought to have done to prevent
this harm, the court considered the factors listed in s 5B(2) of the Civil Liability Act:
• the probability of the harm
• the likelihood of it occurring
• the difficulty of preventing it, and
• the social utility of taking any risk.
The court held that, in the circumstances, a reasonable person would have
removed the fence that allowed access to the roof and installed a grill under the
skylight to prevent the risk of the foreseeable 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.
13.3.5 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’.
Romeo v Conservation Commission of the Northern Territory (1998)

192 CLR 431
Tort; Negligence; breach of the duty of care; assessing reasonable
care; factors; likelihood of harm
Facts: Romeo, a 16- year-
old girl, went with friends to a nature reserve (the
Dripstone Cliffs) in Darwin. At some point in the night, after drinking some rum,
she and a friend wandered near the unfenced edge of the cliffs. Romeo fell from
the top of the cliff to the beach and was badly injured. She sued the Conservation
Commission of the Northern Territory, the government authority responsible for
the reserve.
Issue: Had the commission breached a duty of care owed to Romeo?
Decision: The commission owed a duty of care to Romeo. However, the High Court
held that, in the circumstances, the risk of harm was so unlikely that by failing to
take action to avoid it, the commission had not breached its duty of care.
Reason: Kirby J said (at [128]):
Insufficient attention has been paid in some of the cases, and by some of the
critics, to the practical considerations which must be ‘balanced out’ before a
breach of the duty of care may be found … Thus, under the consideration of the
magnitude of the risk, an occupier would be entitled, in a proper case, to accept
that the risk of a mishap such as occurred was so remote that ‘a reasonable
man, careful of the safety of his neighbour, would think it right to neglect
it’. It is quite wrong to read past authority as requiring that any reasonably
foreseeable risk, however remote, must in every case be guarded against. …
Precautions need only be taken when that course is required by the standard of
reasonableness. Although it is true, as the appellant argued, that an occupier
is not entitled to ignore safeguards against dangers because of the absence
of past mishaps, it is equally true that years of experience without accidents
may tend to confirm an occupier’s assessment that the risks of harm were
negligible.
13.3.6 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
13.3
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.
Paris v Stepney Borough Council [1951] AC 367

13
care; factors; seriousness of harm
Facts: The Stepney Borough Council employed Paris to do maintenance work on
vehicles in its garage. The council knew that, as a result of a war injury, Paris was
blind in one eye. The council failed to give protective goggles to Paris. One day,
while working on a vehicle, Paris used a hammer to strike a rusty bolt, causing a
chip of metal to fly off. The chip struck his good eye and blinded him completely.
Paris sued the council for Negligence. The court held that the risk of harm was
foreseeable in the circumstances and so the council owed Paris a duty of care.
Issue: What was the council obliged to do in the circumstances to respond to the
foreseeable harm?
Decision: On appeal, the House of Lords held that the gravity of the likely harm
to the workman was a factor to be taken into account in assessing the council’s
obligation.
Reason: Because losing the sight in his remaining eye was extremely serious,
appropriate steps ought to have been taken to avoid that harm. The more serious
the likely harm, the more thorough the precautions to avoid that harm must be.
Lord Morton said (at 51):
In considering generally the precautions which an employer ought to take for
the protection of his workmen it must … be right to take into account both
elements, the likelihood of an accident happening and the gravity of the
consequences.
Thus, while the council did not necessarily need to provide safety goggles to
all its workers, it was reasonable for them to provide goggles to Paris, given the
seriousness of potential harm to him in particular.
13.3.7 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.

Caledonian Collieries Ltd v Speirs (1957) 97 CLR 202

care; factors; likelihood of harm
Facts: While driving, Speirs collided on a level crossing with some railway trucks
that were running out of control and had turned down a section of sloping line
owned by Caledonian Collieries. He died as a result. The evidence showed that no
mechanism had been created to prevent railway trucks from coming unexpectedly
onto the Caledonian Collieries line from other connected railway lines. Speirs’ wife
alleged that the collieries were liable in Negligence.
Issue: One aspect of the case was whether or not there was a practical way of
eliminating the danger of railway trucks coming onto the Caledonian Collieries line.
Decision: A majority of the court held that the available means of avoiding the harm
were fairly drastic, involving some expense and operating delays. However, when
balanced against the gravity of the potential harm, these preventive measures
would have been reasonable and therefore should have been implemented.
Reason: Dixon CJ, McTiernan, Kitto and Taylor JJ said (at [16]):
But when the danger to be guarded against is of the order of a level crossing
collision, it may well be that drastic measures are within the limits of
reasonable care.
Swain v Waverley Municipal Council (2005) 220 CLR 517

Tort; Negligence; breach of a duty of care; proof of reasonably
practical ways of avoiding foreseeable harm
Facts: Swain went swimming on a beach that was under the care, control and
management of the Waverley Council. There were lifeguards present and flags had
been placed to designate a swimming area. While swimming in the shallow waters
between the flags, Swain dived through a wave and struck an unexpected sandbar.
As a result Swain was rendered quadriplegic. He sued the Waverley Council in
Negligence.
Issue: Were there sufficient facts on which a jury could conclude that the council
had breached a duty of care owed to Swain?
Decision: In a majority decision, the court held that it was open to a jury to find that
the council had breached a duty of care owed to Swain, by failing to take reasonable
steps to prevent the foreseeable harm.
Reason: In order to establish a breach of a duty of care by a defendant, a plaintiff
has the onus of proving that reasonably practical ways of avoiding foreseeable harm
existed. In this case, the plaintiff did not do so, but the court held that, even so, a
jury could and did infer that the harm could have been avoided simply by moving
the swimming flags to another part of the beach. The council had left open the
validity of this inference by not leading any evidence to show why the flags had been
13.3
placed in the position they were or why they could not have been placed elsewhere.
Explaining this point, Gummow J said (at [153]):
While the plaintiff bears the ultimate burden of proving that his or her injuries
could have been avoided by some reasonably practicable alternative course
of conduct available to the defendant, in some cases, the evidentiary burden
which has come to rest upon the defendant may prove decisive of the outcome.
13
13.3.8 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.
Re ‘E’ v Australian Red Cross Society ; Australian Red Cross Society

New South Wales Division and Central Sydney Area Health Service
(1991) 31 FCR 299
Tort; Negligence; breach of the duty of care; assessing the need to
prevent harm; factors; justifiable risk
Facts: A blood donor gave blood to the Australian Red Cross Society in October 1984.
At that time, the Red Cross did not test for hepatitis B core antibodies. Scientific
opinion was divided at the time on whether such tests might indicate the presence
of the AIDS virus, HIV (for which there was no direct test). The untested blood was
given to E and, as a result, he developed AIDS. Among other claims, E sued the Red
Cross in Negligence, claiming they should have carried out the available tests on
the blood.
Issue: Had the Red Cross breached its duty of care to E by not carrying out the
available tests on donated blood?
Decision: In the circumstances prevailing at the time, the Red Cross had not
breached its duty of care.
Reason: The court held that it was proper to take into account that subjecting
blood donations to testing would have caused a shortage in the supply of blood.
A reasonable person would weigh the concern for contamination against the
detriment to the wider community that would ensue from reducing the blood
supply. This is one of the factors to be weighed in deciding whether or not there
has been a breach of a duty of care. Considering the totality of the circumstances,
the Red Cross had acted reasonably when not subjecting all blood donations to the
anti-hepatitis B core tests.
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.
13.3.9 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.
13.3.10 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.
Holloway v McFeeters (1956) 94 CLR 470

Tort; Negligence; breach of the duty of care; proof of breach;
inferences from circumstantial facts
Facts: One dark night, McFeeters was walking on a road towards his home when
he was struck by a motor vehicle and killed. The driver of the car did not stop and
was never identified. There were no witnesses. There was only evidence of some
tyre marks on the road, showing sudden braking, and a small pile of glass, mud
and some blood, showing where the impact had occurred near the middle of the
road. Tests showed some alcohol in McFeeters’ blood. McFeeters’ widow brought
an action for compensation against a nominal defendant appointed under the Motor
Car Act 1951 (Vic). To succeed in this action, Mrs McFeeters had to prove that the
unidentified driver had breached their duty of care.
Issue: Could the unidentified driver’s breach be inferred from the known facts?
Decision: The necessary inference could be drawn.
Reason: Williams, Webb and Taylor JJ remarked (at [8]‌):
[I]‌nferences sufficiently appear from the circumstances … that make it at least
more probable than not that the unidentified vehicle was being driven in a
negligent manner at the time of the accident and that this was the cause of
the accident …
Dixon CJ dissented, saying (at [10]):

[T]‌he real difficulty of the case lies not in finding a foundation for those
preliminary inferences, but in the next step. For the state of facts inferred itself
leaves room for conflicting conjectures or hypotheses as to the cause of the
accident.
13.3
13.3.11 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
13
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.
Schellenberg v Tunnel Holdings (2000) 200 CLR 121

Tort; Negligence; breach of the duty of care; proof of breach; res ipsa
loquitur; requirements
Facts: Schellenberg was a mechanic employed by Tunnel Holdings. His work
involved using tools driven by compressed air. One day, while working with a grinder
in his employer’s workshop, a compressed air hose became detached and began
waving about uncontrollably, causing injury when striking Schellenberg hard in the
face and back. As a result of the injury suffered, Schellenberg became unable to
work. He sued Tunnel Holdings in Negligence.
Issue: Could it be inferred from the circumstances that Tunnel Holdings had failed
to exercise reasonable care?
Decision: The proved facts were insufficient to draw an inference as to why the hose
had become detached.
Reason: It was held that Tunnel Holdings had the necessary control of the
workplace to be responsible for harm to its employees. However, no evidence
had been led that proved why the accident had happened. The court took the view
that a high pressure hose might become detached without any negligence by the
defendant employer, for example, because of a hidden defect in the machinery or
an unexpected surge of air pressure. The court found that in these circumstances,
res ipsa loquitur could not apply. The court pointed out that this maxim is not based
on any special principle and is in fact simply an aid to logical reasoning by inference.

[13.4] The Element of Causation of Harm

13.4.1 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.
13.4.2 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.
13.4.3 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.
Hunter v Canary Wharf Ltd [1997] AC 655

Tort; Negligence; harm; deposit of dust; principle of ‘de minimis non
curat lex’ not applied
Facts: The construction of a road caused significant amounts of dust to be deposited
in nearby houses. The residents sued the construction company for what they
claimed was damage to their property due to the dust.
Issue: Did causing deposits of dust create liability in Negligence?
Decision: Deposits of dust can create liability in Negligence only if the dust is
excessive and causes physical damage.
Reason: The English Court of Appeal said (at 676):
[T]‌he deposit of dust is capable of giving rise to an action in Negligence. Whether
it does depends on proof of physical damage … Dust is an inevitable incident
of urban life and the claim arises on the assumption that the defendants have
caused ‘excessive’ deposits. Reasonable conduct and a reasonable amount
of cleaning to limit the ill-effects of dust can be expected of householders.
Subject to that, if, for example, in ordinary use the excessive deposit is trodden
into the fabric of a carpet by householders in such a way as to lessen the value
of the fabric, an action would lie … The damage is in the physical change which
renders the article less useful or less valuable … rather than any general
concept of loss of utility.
13.4
13.4.4 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
13
harm is caused, there can be no liability in Negligence for damages.
Commissioner of Railways (WA) v Stewart (1936) 56 CLR 520

Tort; Negligence; the time at which legal right of action arises
Facts: In 1885, the government of Western Australia was not liable in common law
for tortious acts. In that year, the government built a railway embankment across
some low ground. Drainage holes in the embankment allowed rainwater to pass
through, but they were not made big enough to cope with exceptional rainfall that
would foreseeably occur. In 1898, legislation made Australian governments liable
for torts. In 1934, property belonging to Stewart near the embankment was flooded
when unusually heavy rainfall could not drain through the holes in the embankment.
Issue: Was the government of Western Australia liable in Negligence for the harm
to Stewart’s property or did the question of liability arise while the government was
still immune?
Decision: The tort occurred in 1934, at which time the government was no longer
immune from liability.
Reason: Dixon J said (at 534, 536):
[D]‌amage which occurred on 8th March 1934 [was] the gist of the particular
cause of action sued upon …
The cause of action now sued upon arose only when damage was suffered,
and the Crown Suits Act [1898 (WA)] appears to me to have deprived the Crown
of its former immunity from liability for civil wrong in all cases where the cause
of action became complete after its enactment.
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.
13.4.5 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.
Adeels Palace Pty Ltd v Moubarak ; Adeels Palace Pty Ltd v Bou
Najem (2009) 239 CLR 420
Tort; Negligence; elements of liability; causation of harm; the ‘but for’
test
Facts: Adeels Palace Pty Ltd operated a restaurant, with a bar and dance floor, in
Sydney. On 31 December 2002, the restaurant was full of people celebrating the
New Year. At some stage an argument began on the dance floor, which quickly
escalated into a widespread brawl. One person who was involved in the fight was
struck in the face and began bleeding. He left the restaurant, returning a while
later with a gun. On re-entering the restaurant, he shot two people, Mr Bou Najem
in the leg and Mr Moubarak in the stomach. The gunman then left the restaurant.
Bou Najem and Moubarak sued the restaurant in Negligence. They argued that, by
not having security guards at the door, the restaurant had breached a duty of care
owed to its customers, and that this breach had resulted in their being shot by the
gunman.
Issue: Was the absence of security guards at the restaurant a breach of a duty of
care owed to the plaintiffs, and was this breach the cause of the harm they suffered?
Decision: The court held that the restaurant owed each plaintiff a duty to take
reasonable care to prevent injury to patrons from the violent, quarrelsome or
disorderly conduct of other persons. However, the court held that the absence of
security guards, even if it amounted to a breach of this duty of care, was not the
cause of the harm suffered by the plaintiffs.
Reason: The court took the view that security personnel could not have stopped the
re-entry to the restaurant of a man armed with a gun who was ready and willing to
use the weapon to get revenge. The court said (at [53]):
In the present case … the ‘but for’ test of factual causation was not established.
It was not shown to be more probable than not that, but for the absence of
security personnel (whether at the door or even on the floor of the restaurant),
the shootings would not have taken place. That is, the absence of security
personnel at Adeels Palace on the night the plaintiffs were shot was not a
necessary condition of their being shot.
13.4.6 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:
13.4
(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.
13.4.7 Single and combined causes of harm 13
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.
March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506
Tort; Negligence; causation of harm; single and combined causes of
harm; the ‘but for’ test
Facts: One morning, while it was still dark, Stramare parked a large truck in the
middle of a six-lane highway for the purpose of loading it with boxes of vegetables.
The street was reasonably well lit and the truck’s parking and hazard lights were
on. Nevertheless, another user of the road, March, collided with the parked truck.
At the time, March was driving under the influence of alcohol, which substantially
affected his vision, coordination and judgment. March sustained personal injuries
in the collision and sued Stramare.
Issue: Whose negligence had caused the harm sustained by March?
Decision: On appeal, the High Court found that, in the circumstances, both March
and Stramare had been negligent and that the negligence of both parties had
contributed to March’s injuries.
Reason: The court concluded that 30% of March’s injuries were caused by
Stramare’s negligence and 70% by his own. The court considered various aspects
of causation.
Regarding causation and the ‘but for’ test, Mason CJ said (at [17], [20], [22]):
The common law tradition is that what was the cause of a particular occurrence
is a question of fact which ‘must be determined by applying common sense to
the facts of each particular case’ …
…

That said, the ‘but for’ test, applied as a negative criterion of causation,
has an important role to play in the resolution of the question [of causation in
fact] …
The ‘but for’ test gives rise to a well-known difficulty in cases where there
are two or more acts or events which would each be sufficient to bring about
the plaintiff’s injury. The application of the test ‘gives the result, contrary to
common sense, that neither is a cause’ … In truth, the application of the test
proves to be either inadequate or troublesome in various situations in which
there are multiple acts or events leading to the plaintiff’s injury … [T]‌he test
… yields unacceptable results … [which] must be tempered by the making of
value judgments and the infusion of policy considerations.
Regarding apportionment of liability, Mason CJ said (at [13], [16]):
These days courts readily recognize that there are concurrent and successive
causes of damage on the footing that liability will be apportioned as between
the wrongdoers …
[T]‌he law’s recognition that concurrent or successive tortious acts may
each amount to a cause of the injuries sustained by a plaintiff is reflected in
the proposition that it is for the plaintiff to establish that his or her injuries
are ‘caused or materially contributed to’ by the defendant’s wrongful conduct
… Generally speaking, that causal connection is established if it appears that
the plaintiff would not have sustained his or her injuries had the defendant not
been negligent.
13.4.8 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.
Performance Cars Ltd v Abraham [1962] 1 QB 33

Tort; Negligence; causation of harm; multiple independent causes
Facts: Early in February 1960, a director of Performance Cars was involved in
a collision between his own Rolls Royce car and another car. The other driver
admitted full responsibility. To fix the Rolls Royce, the lower half of the car had to
be resprayed. Two weeks later, before the repairs had been done, the Rolls Royce
was involved in another collision with a car driven by Abraham, who admitted fault.
This second accident also damaged the paint on the lower half of the Rolls Royce.
Because the driver of the car who had first collided with the Rolls Royce seemed
unable to pay for the damage, Performance Cars sued Abraham for the whole cost
of respraying the lower half of the car.
Issue: Was the need for respraying caused by Abraham’s careless driving?
13.4
Decision: The court held that since the car already needed respraying when
Abrahams collided with it, his negligence had not caused that harm and he was not
liable for the cost.
Reason: Lord Evershed MR said (at 416):
In my judgment in the present case the defendant should be taken to have
13
injured a motor car that was already injured in certain respects, that is,
in respect of the need for respraying; and the result is that to the extent of
that need or injury the damage claimed did not flow from the defendant’s
wrongdoing.
13.4.9 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.
Jobling v Associated Dairies Ltd [1982] AC 794

Tort; Negligence; causation of harm; estimate of future harm
Facts: Jobling, an employee of Associated Dairies, was injured as a result
of Associated Dairies’ Negligence. The injury (a slipped disk) made Jobling
permanently unable to do any but light work. He claimed damages from Associated
Dairies for the harm, including his loss of potential earnings. Before the trial,
Jobling developed an unrelated illness (myelopathy) that resulted in a permanent
and total incapacity to work.
Issue: The question was whether Associated Dairies should pay damages for
lost potential earnings only up to the time that the illness caused Jobling’s total
incapacity to work, or whether that illness and its effect should be ignored and the
damages calculated over a longer period of time.
Decision: The House of Lords held that Jobling’s illness and its effect should be
taken into account for the purpose of assessing damages.
Reason: When damages are calculated to compensate for future losses, a court is
entitled to take into account events that have actually occurred before the trial that
affect the extent to which the defendant’s conduct has actually caused harm to the
plaintiff. In this case, the plaintiff’s independently occurring illness meant that the
defendant’s conduct only deprived the plaintiff of the opportunity to work until that
illness was contracted, and not beyond that time.

13.4.10 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 13.3.2.
13.4.11 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.
March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506
Tort; Negligence; causation of harm; new intervening causes
Facts: One morning, while it was still dark, Stramare parked a large truck in the
middle of a six-lane highway for the purpose of loading it with boxes of vegetables.
The street was reasonably well lit and the truck’s parking and hazard lights were
on. Nevertheless, another user of the road, March, collided with the parked truck.
At the time, March was driving under the influence of alcohol, which substantially
affected his vision, coordination and judgment. March sustained personal injuries
in the collision and sued Stramare.
Issue: Whose negligence had caused the harm sustained by March?
Decision: On appeal, the High Court found that, in the circumstances, both March
and Stramare had been negligent and that the negligence of both parties had
contributed to March’s injuries. The court concluded that 30% of March’s injuries
were caused by Stramare’s negligence and 70% by his own.
Reason: The court considered various aspects of causation. Regarding new
intervening causes, Mason CJ said (at [23], [26]):
[T]‌he ‘but for’ test does not provide a satisfactory answer in those cases in
which a superseding cause, described as a novus actus interveniens, is said
to break the chain of causation which would otherwise have resulted from an
earlier wrongful act … In such a situation, A’s act [parking the truck] is not a
cause of that consequence, though it was an essential condition of it. No doubt
the explanation is that the voluntary intervention of B [driving while drunk] is,
in the ultimate analysis, the true cause …
It has been said that the fact that the intervening action was foreseeable
does not mean that the negligent defendant is liable for damage which results
13.4
from the intervening action … But it is otherwise if the intervening action was in
the ordinary course of things the very kind of thing likely to happen as a result
of the defendant’s negligence.
13.4.12 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 13
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.
Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd

(The Wagon Mound (No 1)) [1961] AC 388
Tort; Negligence; causation of harm; the harm foreseeable as a
consequence of the breach
Facts: While refuelling a ship, employees of the Overseas Tankship Co negligently
spilt fuel oil into Sydney Harbour. The oil spread, some of it to the wharf where the
plaintiff company was refitting a ship. However, as it was believed by all concerned
that fuel oil lying on water could not ignite, the plaintiff continued work on the
ship, including welding work. An unusual series of events then occurred: a piece of
molten metal fell onto a piece of floating cotton waste, which caught fire and ignited
the oil around the ship and dock. Extensive damage was caused.
Issue: Was there a sufficient connection between the defendant’s conduct and the
harm that had occurred, such that the defendant should be liable in Negligence?
Decision: The trial court held the defendant liable because there was a clear causal
link between the negligent act of spilling the fuel oil and the damage caused to the
ship and the dock when that oil ignited. On appeal, the Privy Council held that the
risk of harm caused by oil fouling the dock was reasonably foreseeable but the risk
of harm caused by the oil burning was not.
Reason: Although a causal link between the events was clear, that was not sufficient
in itself to hold the defendant liable. The true principle is that a defendant is liable
for harm caused by their negligent conduct, but only for harm of a kind that was
reasonably foreseeable.
Viscount Simonds said (at 413):
For, if it is asked why a man should be responsible for the natural or necessary
or probable consequences of his act … the answer is that it is not because
they are natural or necessary or probable, but because, since they have this
quality, it is judged, by the standard of the reasonable man, that he ought to
have foreseen them.

It was held that, on the facts found proved, the possibility of the oil igniting was
not foreseeable.
Although the courts are given a wide discretion by legislation to decide whether or
not responsibility for harm should be imposed on the negligent party, they have largely
continued to follow the approach laid down by the common law.
13.4.13 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.
Kavanagh v Akhtar (1998) 45 NSWLR 588

Tort; Negligence; causation of harm; liability for harm occurring in an
unexpected way
Facts: Akhtar, an Indian Muslim from Fiji, was injured by falling goods while shopping
in Kavanagh’s shop. Akhtar suffered permanent and painful injury to her left arm.
As a result she could no longer look after her long hair and, without consulting her
husband, she cut it. This greatly upset her husband’s religious and cultural beliefs
and caused a rapid and catastrophic deterioration of their relationship. As a result,
Akhtar became depressed to the point of psychiatric illness.
Issue: Was the harm suffered by Akhtar a kind of harm that was reasonably
foreseeable as a consequence of Kavanagh’s Negligence?
Decision: The psychiatric harm was reasonably foreseeable.
Reason: Mason P said (at 602):
It was perfectly foreseeable that a severe and continuing shoulder injury
would affect a plaintiff’s capacity to attend to matters of personal hygiene
and adornment, particularly in a context where she was a homemaker. And it
was equally foreseeable that this would put a strain on marital relations, as it
certainly did in the months prior to the hair cutting incident. That such strain
might lead to a severe breakdown of that marital relationship with extreme
psychiatric consequences for a vulnerable plaintiff was also foreseeable. The
fact that the breakdown occurred in consequence of a perhaps unforeseeable
step taken by the respondent (cutting her hair) or the perhaps unforeseeable
reaction of her husband is irrelevant …
13.4
Jolley v Sutton London Borough Council [2000] 3 All ER 409

Tort; Negligence; causation of harm; liability for harm occurring in an
unexpected way
Facts: An old boat was abandoned in the grounds of some flats owned by the Sutton
London Borough Council. The council placed a sticker on it, saying ‘Danger. Do
not touch this vehicle unless you are the owner’. No one claimed the boat and the
council did not remove it. Two young teenage boys decided to repair the boat and,
13
to do so, used a car jack to lift its front end. While one boy was working under the
boat, it slipped off the jack and injured the boy very seriously.
Issue: Was harm to the boy foreseeable in these circumstances?
Decision: The kind of harm was foreseeable, even though the precise way it
occurred was unexpected.
Reason: It was certainly foreseeable that children might play on the old boat and
suffer injury because of its poor condition, such as by falling through rotten planking,
but this is not what had happened. The harm to the boy occurred while he was trying
to repair the boat and the jack slipped. Even so, the court said the kind of harm was
foreseeable. Lord Hoffman found that the bad condition of the boat proclaimed it
was abandoned property and there for the taking. In such circumstances, the risk
of children meddling with it and so risking physical injury was a foreseeable risk of
harm of the kind that occurred, even if the precise manner in which the injury was
caused was unexpected.
13.4.14 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.
Stephenson v Waite Tileman Ltd [1973] 1 NZLR 152

Tort; Negligence; causation of harm; the extent of harm caused;
plaintiff’s individual frailty; ‘eggshell skull’ rule
Facts: Stephenson suffered a cut to his hand because of his employer’s negligent
conduct. This initial injury was of a kind that was reasonably foreseeable. However,
Stephenson was an unusually vulnerable person, and complications following the
cut resulted in him becoming very ill indeed, both physically and psychologically.
Issue: Was the defendant liable when the extent of the harm was due to the
plaintiff’s special susceptibility to the complications that followed the initial injury?
Decision: The defendant was liable for the harm suffered by the plaintiff because of
the plaintiff’s special susceptibility to complications.

Reason: Richmond J held that the ‘eggshell skull’ rule remains the law despite the
decision in Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon
Mound (No 1)) [1961] AC 388. This means that questions of foreseeability are limited
to the initial injury, after which a defendant will be liable for any further damage
resulting from any pre-existing special susceptibility of the plaintiff.
[13.5] Defences
13.5.1 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.
Froom v Butcher [1976] QB 286

Tort; Negligence; causation of harm; contributory negligence
Facts: The plaintiff was driving at moderate speed on the correct side of the road
when the defendant pulled out in front of the oncoming traffic. The defendant’s
car struck the plaintiff’s car head on. The plaintiff’s car was fitted with seat belts,
but he was not wearing one and at the time there was no legislation requiring that
seat belts be worn. If he had been wearing a seat belt, the plaintiff would have
experienced minor injuries but been spared the serious injuries caused when he
was slammed against his steering wheel.
Issue: Was the plaintiff’s failure to wear a seat belt contributory negligence that
partially caused his loss?
Decision: The plaintiff had partly caused his own loss.
Reason: The appeal court held that, to establish contributory negligence, it should
first be asked whether the plaintiff failed to take the precautions a reasonable
person would have taken for their own protection. In this case, the plaintiff had
failed to do so. Secondly, it should be asked if the plaintiff’s negligence contributed
to the injury. Clearly it had done so. Thirdly, it must be asked whether the injury
suffered fell within the scope of the risk taken. In this case it did. Accordingly, the
damages awarded by the trial court were reduced to take account of the plaintiff’s
contributory negligence, assessed at 20%.
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
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.
13.5
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.
13.5.2 Assuming the risk of harm 13
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.
Rootes v Shelton (1967) 116 CLR 383

Tort; Negligence; breach of the duty of care; plaintiff’s consent to risk
of harm
Facts: The defendant was driving a boat being used to tow three waterskiers,
one of whom was the plaintiff. While the plaintiff was performing a ‘cross-over’
manoeuvre, he crashed into a stationary boat, which he did not see because of
water spray in his eyes. The plaintiff claimed that the accident was the result of
the defendant driving too close to the stationary boat without giving the skiers any
warning.
Issue: Had the plaintiff voluntarily consented to the inherent risks of waterskiing
and the cross-over manoeuvre, such that he could not hold the defendant liable?
Decision: The plaintiff had consented to the inherent risks of waterskiing, but this
did not include consent to risks arising from the defendant’s negligent driving of
the boat.
Reason: Barwick CJ said (at 385–6):
By engaging in a sport or pastime the participants may be held to have accepted
risks which are inherent in that sport or pastime … No doubt there are risks
inherent in the nature of water skiing, which because they are inherent may
be regarded as accepted by those who engage in the sport … But neither the
possibility that the driver may fail to avoid, if practicable, or, if not, to signal
the presence of an observed or observable obstruction nor that the driver will
tow the skier dangerously close to such an obstruction is, in my opinion, a risk
inherent in the nature of the sport.

See Haynes v G Harwood & Son [1935] 1 KB 146 above at 13.2.13(b).

13.5.3 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.
13.5.4 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.
[13.6] 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.
Step 1
Does the plaintiff want to bring a legal action for negligence?
What type of conduct and what type of harm have occurred?
• Does the conduct consist of a positive act or a failure to act? Is the harm
physical harm, purely economic harm or psychiatric harm?
Step 2
Did the defendant owe the plaintiff a duty of care?
Was harm sufficiently foreseeable in the circumstances?
• Was some kind of harm objectively foreseeable as a consequence of the
defendant’s conduct?
• Was the risk of harm sufficiently likely?
13.6
• Was the plaintiff one of a class of persons who might foreseeably be

harmed?
• Are there special factors that need to be taken into account in establishing
a duty of care because of the nature of the conduct and harm?
Was there a duty situation or relationship between the plaintiff
and defendant?
•
•
Is such a relationship a clearly recognised one?
Is any such relationship subject to special rules or considerations?
13
• Is the situation an unusual one in which a duty relationship needs to be
determined on an individual basis by taking account of relevant factors?
Do statutory provisions affect the existence of a duty of care?
• Is any statutory immunity from liability relevant?
Step 3
Did the defendant breach the duty of care owed to the plaintiff?
Did the defendant take reasonable steps to prevent the foreseeable harm
from occurring?
• What would a reasonable person have done to prevent the likely harm?
What factors are relevant in deciding what a reasonable person would
have done?
• Who has the onus of proving that the defendant beached the duty of care?
Can any reasonable inferences be drawn in the circumstances?
Step 4
Did the breach of the duty of care cause the harm in question?
• Is the kind of harm suffered recognised as ‘actionable’ harm? Is the harm
sufficiently serious?
• Was the harm suffered by the plaintiff reasonable foreseeable? Does the
‘eggshell skull’ rule apply?
• Was the defendant’s breach a necessary condition of the plaintiff’s harm?
Step 5
Did the plaintiff assume the risk of the harm suffered?
• Did the plaintiff’s own negligence contribute to their harm? If so, to what
extent?

The following questions will help you to revise the major concepts dealt with in this
chapter and discover whether you can recall the things that you should know.
1. When deciding whether or not a duty of care exists, why is it important to take
account of the kind of conduct and harm that has occurred?

2. Why is it important to limit the circumstances in which a duty of care to prevent

foreseeable harm arises? How have courts ensured that a duty arises only in appropriate
situations?
3. To what extent must harm be foreseeable for a duty of care to arise? What test is
applied to decide when harm is foreseeable? How precisely must it be foreseeable that
harm of a particular kind will happen to a particular person?
4. What specific situations or relationships are recognised as giving rise to a duty of
care? What factors will be used to decide if a duty of care exists in more unusual cases
where there is no established duty relationship?
5. What is the difference between psychiatric harm and emotional distress? Are both of
these recognised as a kind of harm giving rise to a duty of care?
6. What special rules apply when establishing a duty of care to prevent purely economic
harm resulting from wrong information or advice given? Does s 18 of the Australian
Consumer Law provide a better alternative approach in such cases?
7. How is a breach of a duty of care defined in Australian law?
8. What standard of care is expected of a person who owes a duty of care? How is a
‘reasonable person’ defined in this context?
9. What factors are taken into account to decide whether foreseeable harm ought to
have been prevented?
10. Who has the onus of proving whether a duty of care has been breached?
11. Can a person claim compensation for harm suffered if they took part in the relevant
situation fully appreciating the risk of harm, having accepted that risk? To what
extent has legislation modified or clarified this area of law?
12. Why is it necessary to prove a causal link between the defendant’s conduct and the
harm suffered by the plaintiff ?
13. For what different kinds of harm can a plaintiff claim compensation?
14. Is a defendant liable for all the harm that can be causally linked to the defendant’s
wrongful conduct or are limits placed on the extent of the liability?
15. Is a plaintiff entitled to claim damages if they are in part responsible, by their own
negligence, or by engaging in a risky activity, for the harm they have suffered? To what
extent has legislation modified or clarified this area of law?

e modules.
13.7
CHAPTER 14
Remedies in Tort
In this chapter:
• The remedies available in tort law
• Compensatory damages for personal injury
• Compensatory damages for wrongful death
• Compensatory damages for harm to property
• Non-compensatory damages
– nominal damages
– exemplary damages
– aggravated and contemptuous damages
• Injunctions
• Restitution
• Return of property
• Declaration of rights
• Self-help.
[14.1] Introduction
14.1.1 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 and distinguished in this chapter.
The eStudy module Remedies in tort provides examples and questions to help you
better understand this topic.
14.1.2 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
14.1
356 Remedies in Tort
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.
14.1.3 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.
14.1.4 Injunctions
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.
14.1.5. 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.
14.1.6 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 both may be jointly liable to the plaintiff.
14.1
Remedies in Tort357
Brooke v Bool [1928] 2 KB 578

Tort; Negligence; joint and several tortfeasors
Facts: Two men searching for a gas leak tried to find it by applying a naked flame to
a gas pipe. By doing this, one of the men caused the leaking gas to explode.
Issue: Were both men liable for the harm caused by the explosion?
Decision: Both men were jointly liable.
Reason: The court decided that, although only one of the men had actually caused
the explosion, they were both jointly liable because their separate share in the
commission of the tort was done in furtherance of a common design.
Note: Where there is no community of design between persons, but their acts combine to
14
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
vehicle 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.
14.1.7 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.
[14.2] Compensatory Damages for Personal Injury

14.2.1 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.
14.2.2 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.
14.2.3 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).
14.2.4 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.
14.2.5 Damages awarded as a lump sum
At common law, plaintiffs can expect only one single payment to compensate them for
their injuries.
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.
14.2
Remedies in Tort359
Sharman v Evans (1977) 138 CLR 563

Tort; Negligence; remedies; damages; quantification of damages
Facts: The plaintiff, a 20-year-old woman, was a trained and experienced secretary
with bright prospects. She had begun a two-year college course and had been top
student in her first year. She planned to marry a fellow student and resume work
after her studies. However, she was seriously injured in a car accident. Her brain
stem was damaged and she was unconscious for nearly a month. She became a
quadriplegic and suffered from trauma-induced epilepsy. Her brain injury caused
severe breathing problems and an injury to her larynx caused an almost total loss
of the ability to speak. These injuries were permanent. The trial judge ordered the
defendant to pay damages of just over $300,000. The defendant appealed to the
14
High Court, claiming the damages were excessive.
Issue: Were the damages awarded excessive?
Decision: In a majority decision, the High Court held that the award of damages
should be reduced to $270,000.
Reason: The High Court considered the full range of losses for which the plaintiff
was claiming compensation. For example, the plaintiff needed ongoing intensive
nursing and medical treatment. She had completely lost her earning capacity,
the future enjoyment and amenities of her life were impaired, her life expectancy
was substantially reduced, and she would continue to experience severe pain and
suffering. Nevertheless, the High Court considered that the damages calculated by
the trial court were excessive and should be reduced.
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.
14.2.6 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.
14.2.7 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
2 Motor Vehicle (Third Party Insurance) Act 1943 (WA); Supreme Court Act 1935 (SA); Motor Accidents Act 1988
(NSW).

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
14.2.8 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.
14.2.9 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.
Todorovic v Waller (1981) 150 CLR 402

Tort; remedies; damages; allowance for future inflation
Facts: Waller, a man aged 35 at the date of the trial, suffered brain damage which
rendered him virtually unemployable.
Issue: In the assessment of damages for loss of earning capacity, and for the cost
of goods and services needed in the future because of the plaintiff’s injury, it is
proper to make allowance for future inflation and, if so, how is this to be done?
Decision: Damages for future economic loss that are awarded in the form of a lump
sum should be adjusted to bring future cash flows to present values.
Reason: Following some disagreement between the presiding judges, a consensus
was reached. The court issued a statement to provide a predictable and uniform
approach to making appropriate allowances for future inflation, changes in rates of
pay, changes in tax rates, etc. The statement said:
In an action for damages for personal injury, evidence as to the likely course
of inflation, or of possible changes in rates of wages or prices, is inadmissible.
Where there has been a loss of earning capacity which is likely to lead to
financial loss in the future, or where the plaintiff’s injuries will make it
necessary to expend in the future money to provide medical or other services,
or goods necessary for the plaintiff’s health or comfort, the present value of the
future loss ought to be quantified by adopting a discount rate of 3% in all cases,
subject, of course, to any relevant statutory provisions. This rate is intended
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.
14.2
Remedies in Tort361
to make the appropriate allowance for inflation, for future changes in rates
of wages generally or of prices, and for tax (either actual or notional) upon
income from investment of the sum awarded. No further allowance should be
made for these matters.
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.
14.2.10 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 14
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.
Van Gervan v Fenton (1992) 175 CLR 327

Tort; Negligence; remedies; calculation of damages; gratuitous
benefits
Facts: As a result of injuries from a motor vehicle accident, the plaintiff needed
almost constant care. His wife gave up her job as a nurse’s aide to provide that care.
The trial judge awarded damages for the cost of this nursing care even though it had
been given without charge. The judge calculated the amount as roughly equivalent
to the wife’s lost wages. A further sum was awarded for future care on the basis
that the wife would look after the plaintiff for another 5–10 years, after which time
he would be hospitalised. The defendant appealed against the amount of damages
awarded.
Issue: Should damages be assessed by reference to the market value of the
services provided, rather than by reference to the wages lost by the plaintiff’s wife
while she nursed him?
Decision: The market cost of any necessary care provided is the fair and reasonable
value of such services.
Reason: The High Court held that damages to compensate for the cost of the
necessary care were recoverable, but decided that the wages foregone by a care
provider are not the appropriate measure for determining the value of services
provided. As a general rule, the market cost or value of those services is the fair
and reasonable value of such services. This followed the approach of the High
Court in Griffiths v Kerkemeyer (1977) 139 CLR 161, which established that a plaintiff
should be compensated for the value of reasonable services and care, rather than
their actual cost.

14.2.11 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
14.2.12 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.
Skelton v Collins (1966) 115 CLR 94

Tort; Negligence; remedies; damages; compensation for loss of
amenities
Facts: The plaintiff, aged 17, was involved in an accident and suffered severe brain
damage that left him permanently unconscious. At the trial (which took place two
years after the accident), it was generally agreed that damages should be awarded
on the basis that the plaintiff would live for only another six months. The trial judge
awarded a sum for lost earnings and medical/hospital expenses up to the time of
the trial, and another sum for future lost earning capacity and future expenses,
both for a six-month period.
Issue: On appeal, the High Court had to consider various questions. One was
whether a plaintiff made permanently unconscious (or permanently deprived of
mental capacity) by his injuries is entitled to damages for the loss of enjoyment of
life.
Decision: The plaintiff’s unconsciousness should limit the damages awarded for
loss of enjoyment of life.
Reason: Although English courts evaluate loss of amenities objectively, the High
Court of Australia decided that a plaintiff is being compensated for their realisation
that they have been deprived of the ability to enjoy life in the same way as before the
accident—a subjective approach. Because the plaintiff in this case was permanently
unconscious, he was unaware of his own deprivation. Therefore only the modest
amount of approximately $6,000 was awarded for loss of amenities.
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)
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.
14.2
Remedies in Tort363
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
[14.3] Compensatory Damages for Wrongful Death

14.3.1 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 14
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.
14.3.2 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.
14.3.3 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.
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 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).

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
[14.4] Compensatory Damages for Harm to Property

14.4.1 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.
Murphy v Brown (1985) 1 NSWLR 131

Tort; remedies; compensatory damages for harm to property;
decrease in market value
Facts: The plaintiff owned a 1976 Toyota car. The defendant negligently damaged
the car in an accident. The cost of repairs was $4,271, a sum approved by an
assessor on behalf of an insurance company.
Issue: Was the plaintiff entitled to simply prove the reasonable cost of repair to
the damaged car and, in the absence of any further evidence, claim that figure? Or
must the plaintiff prove that the value of the car immediately before it was damaged
was greater than the amount required to repair it?
Decision: The trial judge decided that, because the plaintiff had only proved the
reasonable repair costs, no loss had been established. The plaintiff appealed.
On appeal, Priestley JA held that on the evidence it could be inferred that there
was nothing special about the car that would make the owner or the insurance
company adopt the uneconomic policy of paying more for the repairs than the cost
of a substantially identical car.
Reason: Priestley JA said (at 137):
In the absence of any evidence to the contrary … the trial judge should have
drawn the inference that the cost of repairs was no greater than the value
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.
14.4
Remedies in Tort365
of the car immediately before it was damaged and thus that the plaintiff had
proved his damage …
14.4.2 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.
Evans v Balog [1976] 1 NSWLR 36

Tort; remedies; compensatory damages for harm to property; estimate 14
of repair costs
Facts: The plaintiffs bought a house in 1964 and lived there happily as a family. In
1970 the defendant acquired the neighbouring property and started excavating to
build a basement car park for a new building. The excavations caused the ground
to subside along the plaintiffs’ boundary. It also caused cracking in the plaintiffs’
house and a partial ceiling collapse. By April 1971 the plaintiffs’ living room split
away completely from the rest of the building. In June 1971 the family left the house,
fearing it was unsafe to remain. The plaintiffs sued the defendant for damages.
Issue: What was the appropriate extent to which damages could be claimed?
Decision: The trial court awarded damages calculated as reasonably necessary to
restore the house to the condition it had been in before the damage. The defendant
appealed, arguing that the proper measure of damages was the extent to which the
value of the plaintiffs’ house had been diminished (a lesser amount than the cost
of restoration). The appeal court held that the plaintiffs were entitled to recover the
cost of having their home restored.
Reason: Samuels JA said (at 40):
The question is whether it was reasonable for the plaintiffs to desire to reinstate
their property … It undoubtedly was. They had, in effect, lost their family home.
That is the nature of their damage, and not some diminution in the value of
their land … There are cases … where the nature of the plaintiffs’ loss is such
that there is only one mode of fairly repairing it. If that turns out to be more
expensive than another, the wrongdoer has no one but himself to blame.
14.4.3 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).

[14.5] Non-compensatory Damages

14.5.1 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.
14.5.2 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.
14.5.3 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.
14.5.4 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.
Lamb v Cotogno (1987) 164 CLR 1

Tort; remedies; non-compensatory damages; exemplary damages
Facts: The defendant tried to serve a summons on the plaintiff at the plaintiff’s
house. A dispute ensued, during which the plaintiff threatened to kill the defendant.
When the defendant started to drive away from the plaintiff’s house, the plaintiff
threw himself across the car’s bonnet. The defendant drove on at speeds up
to 40 kph, weaving about in an attempt to throw the plaintiff off the car. After
approximately half a kilometre, the defendant’s sudden braking dislodged the
plaintiff, who fell onto the road. The defendant drove off and the injured plaintiff was
found by a neighbour. The plaintiff was hospitalised with bone fractures in both feet
and other less serious injuries. In addition to compensatory damages, the plaintiff
was awarded a sum of $5,000 as exemplary damages. The defendant appealed to
the High Court against the award of exemplary damages.
Issue: Should exemplary damages have been awarded in these circumstances?
14.5
Remedies in Tort367
Decision: The damages had been properly awarded.

Reason: The court (at [12]) approved the following passage from Mayne and
McGregor on Damages (12th edn, 1961, p 196):
Such damages … can apply only where the conduct of the defendant merits
punishment, which is only considered to be so where his conduct is wanton, as
where it discloses fraud, malice, violence, cruelty, insolence or the like, or, as
it is sometimes put, where he acts in contumelious disregard of the plaintiff’s
rights.
Note: The defendant also argued that because his insurance would cover the
14
exemplary damages, they would have no deterrent effect and thus should not be
awarded. The court rejected this argument, explaining that exemplary damages
also served to deter others from engaging in similar conduct.
14.5.5 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.
Henry v Thompson [1989] 2 Qd R 412

Tort; remedies; non-compensatory damages; aggravated damages
Facts: One evening Hunter, an Aboriginal man, was attending a dance with his de
facto wife. He was arrested for using obscene language, forcibly removed from the
dance hall and taken to the police watch house. There he was brutally beaten by two
police officers, with a third officer helping to prevent his escape. After the beating,
the third officer urinated on Hunter while he lay immobile. At trial the officers were
ordered to pay compensatory damages for the injuries inflicted, as well as large
sums for both exemplary and aggravated damages. They appealed these awards
of damages.
Issue: Had the amounts for exemplary and aggravated damages been excessive?
Decision: The damages awarded had not been excessive and, in the circumstances,
Hunter was entitled to large sums for both exemplary and aggravated damages.
Reason: Speaking for the court, Williams J considered the definition from Lamb v
Cotogno (1987) 164 CLR 1, that aggravated damages are ‘awarded for injury to the
plaintiff’s feelings caused by insult, humiliation and the like’. He went on to say (at
415–416):
This was, in my view, a classic case for a high award of aggravated damages …
In any circumstances the act of urination in the course of an assault would …
call for an award of aggravated damages. But when the guilty party is a police
officer, a person in authority, and the act is performed in the presence of other
senior ranking police officers, the incident cries out for an even higher award.
And finally, when one adds into the case the racial overtones present here, then

a jury assessment of the appropriate award for aggravated damages is largely

unrestrained.
14.5.6 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.
[14.6] Injunctions
14.6.1 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.
14.6.2 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.
[14.7] Restitution
14.7.1 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.
14.7.2 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
14.7
Remedies in Tort369
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.
[14.8] Other Remedies

14.8.1 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
14
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.
[14.9] Checklist: 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.
Step 1
Preliminary matters
• Which tort is the basis of the legal action brought by the plaintiff?
• Who is the defendant? Is there more than one possible defendant?
• Has actual harm of a recognised kind been suffered by the plaintiff?
Step 2
Compensation schemes
• Does a relevant compensation scheme exist from which compensation
can be sought as an alternative to bringing an action against the
defendant?
Step 3
Does the case involve personal injury?
• What injury has been inflicted on the plaintiff? Can the losses be assessed
with precision or will general damages need to be claimed? What is the
general objective of an award of damages?
• What pecuniary harm has been suffered? Will an assessment of future
losses need to be included in the award?

• What non-pecuniary harm has been suffered? To what extent are

damages likely to be awarded for such harm?
Step 4
Does the case involve wrongful death?
• What is the relationship of the plaintiff to the deceased? What pecuniary
loss have they suffered?
• What legislative provisions limit a claim for damages in these
circumstances?
Step 5
Does the case involve harm to property?
• What harm has been caused to the property? Has it been damaged or
destroyed? Can it be repaired or will it need to be replaced?
• How has the value of harmed property established? How is the claimable
cost of repairs assessed?
• Apart from the direct harm to the property, are there any further
consequential losses?
Step 6
Does the plaintiff wish to claim non-compensatory damages?
• What circumstances justify an award of nominal, contemptuous,
exemplary or aggravated damages?
• Does legislation limit the award of any such damages?
Step 7
Are other remedies also appropriate in the circumstances?
• Is continuing or threatened harm an issue? Can an injunction be sought
to prevent that harm?

The following questions will help you to discover whether you can recall and explain the
things you should have learned from this chapter.
1. When damages are claimed as a remedy, how are such damages quantified?
2. What is the difference between ‘compensatory’ and ‘non-compensatory’ damages?
What are examples of non-compensatory damages?
3. To what extent can compensatory damages be claimed for personal injury? What is
meant by personal injury? How are the long-term effects of personal injury assessed?
To what extent has legislation modified or clarified the available remedies?
4. To what extent can compensatory damages be claimed for wrongful death? What is
meant by the ‘survival’ of a deceased person’s claim for personal injury suffered before
death? To what extent has legislation modified or clarified the available remedies?
14.10
Remedies in Tort371
5. To what extent can compensatory damages be claimed for harm to property? Can
damages be claimed to cover the costs of repairs to property?
6. In what circumstances might an injunction be an appropriate remedy? What different
types of injunction are there?
7. What is involved in the remedy referred to as ‘restitution’? Is this the same as
‘compensation’?

e modules.
14

CHAPTER 15
The Law of Agency

In this chapter:
• The concept of ‘representation’
• Agency relationships
• How an agent acquires authority to represent another person
– actual authority
– implied authority
– ostensible authority
• Ratification of unauthorised acts of representation
• The liability of an agent when acting for an undisclosed principal
• The rights and duties between principals and agents
• Revocation of an agent’s power
• Ending an agency relationship.
[15.1] Introduction
15.1.1 Why is agency a useful concept?
Normally, a person is responsible for carrying out their own legal affairs. They create
their legal rights and discharge their legal duties personally, through their own acts and
intentions. Generally speaking, a person is not legally bound by the acts and intentions of
other persons.
However, in some circumstances it is useful to have an exception to this general rule.
Suppose that a person wishes to perform legal duties or create legal rights, but is unable
to carry out the necessary processes themselves, perhaps because they are busy with other
things or because they cannot be in two places at the same time. In such cases, it would
be useful for the person who cannot conduct their own legal transactions to engage the
services of another person, called an ‘agent’, to act on their behalf. This is a powerful and
useful concept. Agency underpins many of the practices that are commonly employed in
modern business. For example, corporations, which are artificial rather than real persons,
can only act through agents. This chapter outlines the essential concepts on which the
15.1
374 The Law of Agency
law of agency is founded. There is also an eStudy module called The Law of Agency which
contains lots of examples and questions to help you understand how the law operates in
practice.
15.1.2 What is meant by ‘representation’?
The law of agency is based on the idea that an agent has the legal power to represent
another person (called the ‘principal’) in the conduct of the principal’s legal transactions.
For example, an agent might be given the power to enter into a contract with another
person (called the ‘third party’) on behalf of the principal. The agent does everything
necessary to bring about the contract with the third party, but they do so as the principal’s
representative. The result is that a contract comes into existence between the principal and
the third party. The agent, who acts only as a representative, is not a party to the contract.
This example describes one possible type of transaction, but the law of agency allows
a representative to carry out almost all legal acts that a principal could validly do for
themselves, such as signing documents of transfer, obtaining loans, receiving and making
payments or writing letters.
15.1.3 What type of questions does the law of agency deal with?
Although the concept of representation is fairly easily explained, important questions are
raised. For example, it is essential to know how an agent obtains the power to represent a
principal. It is important to know if the extent of that power can be limited and controlled
by the principal, and how it can be ended. It is also important to know how the law
controls abuse of power by an agent. What happens, for example, if an agent fails to tell
the person they are dealing with that they are only acting as a representative? Or if the
agent exceeds the power of representation which they have been given? What legal duties
are created between a principal and agent? The answers to these questions are explained
in this chapter.
[15.2] Agency Relationships

15.2.1 The basic relationships in an agency situation
Because there are at least three persons involved in an agency situation, it can be difficult
to keep track of the relationships that exist. The agency situation can be usefully illustrated
in a diagram.
15.2
The Law of Agency375
Figure 15.1 Agency relationships
1. In commercial Principal 3. Legal

situations, the relationships
relationship between the
between the principal and the
principal and the third party are
agent is normally created or altered.
contractual (ie the 1 3 The agent is not a
principal employs party to these
the agent to transactions.
provide services,
for which the
agent is to be
paid).
In addition, the
2
agent has Agent 3rd Party
15
authority to
represent the
principal in the
conduct of the
principal’s legal 2. Legally binding acts are carried out by the agent
affairs. with the third party on behalf of the principal.
[15.3] Obtaining Authority to Act as an Agent

In order to have the power to enter into legal transactions on behalf of their principal, the
agent must have an authority to represent the principal. This authority can be given in
different ways. These are described below.
15.3.1 Express grants of authority
An agent’s authority is described as ‘express’ when it is explicitly granted to the agent by
being set out or stated in words by the principal, either orally or in writing. An agent who
is given express authority is empowered only to do the things stated.
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd

[1964] 2 QB 480
Agency; grant of authority; actual authority
Facts: Two businessmen, Kapoor and Hoon, formed a company (Buckhurst Park
Properties) to acquire and then resell a piece of land. Kapoor, Hoon and two
others were made directors of the company. The company’s articles of association
permitted the appointment of a managing director, but none was in fact appointed.
Kapoor took it upon himself to carry out certain managerial acts, in particular, by
employing Freeman & Lockyer to do work for the company. When their work was
completed, Freeman & Lockyer claimed payment from the company. A dispute
arose over whether Kapoor had the necessary authority, without any formal

appointment as managing director, to engage Freeman & Lockyer on behalf of the

company and to make the company liable on the contract.
Issue: Did Kapoor have actual authority to bind the company in a contract with
Freeman & Lockyer?
Decision: The court held that Kapoor had no actual authority to bind the company.
Reason: There was no evidence of any resolution of the company that specifically
authorised the transaction or that gave Kapoor any general power to enter such
transactions. In these circumstances, the court held that it could not be said that
‘Kapoor was ever clothed with actual authority to do what he did’.
Note: Although Kapoor had no actual authority to bind the company, the court went
on to consider whether he had a different kind of authority known as ‘apparent’ authority.
This is dealt with below in this chapter.
15.3.2 Powers of attorney
Generally, an agent can be appointed and given authority orally, without any written
formalities, but there are some exceptional cases. Where an agent is appointed for a
period exceeding one year, or to do an act which will not be completed within a year, the
appointment of the agent must be evidenced in writing. Generally, an agent must also be
appointed in writing if they are to buy or sell land, an interest in land or a business. In these
cases, a 'power of attorney' (a formal appointment in the form of a deed) may be required
to empower the agent to represent the principal.
Appointing an agent formally by executing a power of attorney may also be important
if the agent is required to sign a ‘deed’ on behalf of their principal. In the common law,
a contract executed in the form of a deed binds only the signatories to the deed, even
if one of the parties apparently signs as agent for a disclosed principal. This restriction
is commercially inconvenient. It has been loosened by statute, so that an agent who is
appointed by a power of attorney in the form of a deed under seal can now execute a
contract by deed on behalf of their principal.
There is legislation in the various states governing various aspects of powers of
attorney, such as their form and content.1
15.3.3 Authority granted by implication
Provided that an agent has been granted some express authority to represent their principal,
that agent may, in some circumstances, acquire an additional authority by implication.
Generally, an implied authority will arise when:
• the authority is required to do things that are necessarily or normally incidental to
acts that have been expressly authorised
• the authority is usually given to agents employed in a particular capacity, for example,
agents who are managers of a business, or
1 Powers of Attorney Act 2003 (NSW); Powers of Attorney Act 1998 (Qld); Powers of Attorney and Agency Act 1984 (SA);
Powers of Attorney Act 2000 (Tas); Powers of Attorney Act 2014 (Vic); Guardianship and Administration Act 1990
(WA); Powers of Attorney Act 2006 (ACT); Powers of Attorney Act 1980 (NT).
15.3
• the authority is customarily granted to agents employed in a particular market or type

of business.
When an implied authority exists, the principal is bound by an agent who acts in
terms of the implied authority just as if that authority had been expressly given.
Australia & New Zealand Bank Ltd v Ateliers de Constructions

Electriques de Charleroi [1966] 1 NSWR 19
Agency; grant of authority; implied authority; duties of an agent; duty
to keep principal’s funds separate
Facts: Ateliers de Constructions Electriques de Charleroi (ACEC) was a Belgian
manufacturer of electrical equipment. ACEC appointed an Australian company
called Helios as its agent in Australia, giving Helios certain express powers to sell
equipment on its behalf. Helios sold electrical equipment to various Australian
companies, including seven transformers sold to the Snowy Mountains Hydro 15
Electric Authority. Helios, as agent, had to obtain import licences, receive the
goods, pay customs duty, arrange insurance and transport, supervise installation
and make financial arrangements for payment. After delivery of the transformers,
the Snowy Mountains Authority sent a cheque to Helios, made payable to ACEC.
Because ACEC had no bank account in Australia, Helios paid the cheque into
its own account with the Australia & New Zealand Bank. Helios then forwarded
payment to ACEC, who received it without objection. Further cheques received by
Helios were similarly paid into Helios’ account. Unfortunately, not all of the money
received was forwarded to ACEC before Helios fell into financial difficulty and went
into liquidation.
Issue: Did Helios have authority to pay ACEC cheques into Helios’ bank account?
If not, was the bank liable to refund the amounts that had not yet been forwarded
to ACEC?
Decision: The court held that although Helios had no express authority to pay the
cheques into its own account, in the circumstances the authority to do so could be
implied from the necessity to make the contract commercially workable.
Reason:
[T]‌he only practical plan from a business point of view was for Helios to
endorse the cheques and pay them into the Helios account. This became the
only possible plan when the total amount of the cheques exceeded the sum
which exchange control permitted to be exported, or when it became proper for
Helios to retain part of the sum in any cheque to pay local expenses. Implied
authority was necessary to give business efficacy to the transactions.
15.3.4 Express and implied authority are ‘actual’ authority

Both express and implied authority are described as ‘actual’ authority because, in both
cases, the principal really gives the agent the power to represent them, either explicitly or

by implication. However, as explained below, it is possible for an agent to acquire a power

of representation that is not actually granted by the principal. This situation is referred to
as ‘apparent’ authority to distinguish it from ‘actual’ authority.
15.3.5 Apparent authority
Even when an agent has no ‘actual’ authority to represent a principal, the principal might
have behaved in a way that makes it appear to a third party that the agent has authority.
For example, a principal might employ an agent to manage their business, but instruct
the agent not to do some of the things that managers usually have the power to do. The
principal’s private instructions to the manager would not be obvious to third parties
dealing with the manager. To the third parties, it would appear as though the manager had
the normal authority of a person in that position.
For an apparent authority to arise, it must be shown that the principal’s behaviour
amounts to a representation that the agent has the relevant authority as their agent. If
a third party relies on the principal’s representation when dealing with the agent, so
that they would suffer a detriment if the agent’s authority were to be denied, then the
principal is not permitted to deny the agent’s apparent authority. This is so even if the acts
in question had been forbidden by the principal. When a principal is not allowed to deny
the existence of the agent’s apparent authority, the result is the same as if the agent had
actually been granted that authority, and the principal is bound to the third party by the
acts of the agent.
Note: Apparent authority is sometimes referred to as ‘ostensible authority’ or ‘authority
by estoppel’ because the principal is ‘estopped’ from denying that the agent has authority.
Tooth v Laws (1888) 9 LR (NSW) 154

Agency; grant of authority; apparent authority; estoppel
Facts: Laws was the licensee of a hotel and his name appeared as such above the
door to the hotel. However, Laws was not actually involved in the business that was
being carried on in the hotel by a person called Kinchela. Tooth and Co supplied
liquor to the hotel. They were not paid. They sued Laws on the contract. Kinchela
had no actual authority to act as Laws’ agent.
Issue: In the circumstances, should Laws be estopped from denying that Kinchela
acted as his agent when buying liquor to be sold at the hotel?
Decision: Laws should be estopped from denying that Kinchela acted as his agent.
Reason: The court asked what could reasonably be inferred from Laws’ conduct
(that is, allowing his name to remain above the door of the hotel). It was held that in
such circumstances, and since Tooth had not been informed to the contrary, it was
reasonable to infer that Laws was the licensee and that the person operating the
hotel was his agent. The court said (at 156–7):
If a man holds a licence for an hotel, and leaves his name upon the premises,
then, in the absence of evidence that any intimation to the contrary has been
given, a jury ought to find that the occupier of the premises is the agent for the
licensee, both for buying and selling, in the usual way of business.
15.3
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd

[1964] 2 QB 480
Agency; grant of authority; apparent authority
Facts: Two businessmen, Kapoor and Hoon, formed a company (Buckhurst Park
Properties) to acquire and then resell a piece of land. Kapoor, Hoon and two
others were made directors of the company. The company’s articles of association
permitted the appointment of a managing director, but none was in fact appointed.
Kapoor took it upon himself to carry out certain managerial acts, in particular, by
employing Freeman & Lockyer to do work for the company. When their work was
completed, Freeman & Lockyer claimed payment from the company. A dispute
arose over whether Kapoor had the necessary authority, without any formal
appointment as managing director, to engage Freeman & Lockyer on behalf of the
15
company and to make the company liable on the contract.
Issue: Did Kapoor have apparent authority to engage Freeman & Lockyer on behalf
of the company, making the company liable on the contract?
Decision: The court found that the board knew Kapoor was acting as the managing
director of the company. The company should therefore not be allowed to deny
liability to third persons who dealt in good faith with Kapoor while relying on his
apparent authority to act as an agent of the company.
Reason: To establish such ‘apparent authority’, four things need to be shown:
(1) That a representation was made to the third party that the agent had authority
to enter into the kind of transaction in question.
(2) That the representation was made by a person with actual authority to manage
the relevant aspects of the company’s business.
(3) That the third party was induced to enter the transaction by the representation
and in fact relied on it.
(4) That the company in fact had the power to enter into the type of transaction in
question.
These requirements were all satisfied in the present case, and the company was
therefore liable for the contracts entered into by Kapoor on the basis of his apparent
authority.
15.3.6 Putting an end to apparent authority

To avoid being bound by apparent authority, a principal needs to make third parties aware
that, despite the circumstances, the agent is not in fact authorised to do the acts in question.
This can be done by giving reasonable notice to third parties of any limits or restrictions
that have been placed on an agent’s authority.

[15.4] Ratification of Unauthorised Acts

15.4.1 A principal’s right to ratify
If an agent acts without any authority, or outside the limits of their actual authority, the
principal can still choose to assent to the transaction retrospectively, by ‘ratifying’ what the
agent has done. The result of doing so is the same as if the act was initially authorised. The
decision to ratify must be made within a reasonable time and in circumstances that do not
prejudice the interests of any third party. To ratify, a principal must have been made aware
of all material facts, unless the principal indicates an intention to ratify regardless of any
unknown circumstances.
The decision to ratify can be made expressly, or it can be implied from the conduct of
the principal, for example where the principal accepts the benefit of the unauthorised act
or fails to repudiate a transaction where such repudiation is reasonably required.
Bolton Partners v Lambert (1889) 41 Ch D 295

Agency; unauthorised acts by agent; ratification by principal
Facts: Lambert wrote to Bolton Partners, offering to lease Bolton Partners’
sugar factory. Scratchley, the managing director of Bolton Partners, replied to
Lambert, accepting the offer on behalf of Bolton Partners. However, at the time
he accepted the offer, Scratchley had not actually been given any authority to bind
Bolton Partners to this contract. A dispute then arose about certain aspects of the
agreement and Lambert withdrew his offer. Thereafter, the company directors
ratified Scratchley’s acceptance of Lambert’s offer.
Issue: Did the company’s ratification of Scratchley’s acceptance of Lambert’s offer
prevent Lambert from withdrawing it?
Decision: The court held that ratification operates retroactively, making the
unauthorised act valid as if it had been authorised when it was done. This meant
that Scratchley’s acceptance of Lambert’s offer gave rise to a completed contract,
and it was too late for Lambert to withdraw his offer.
Reason: Cotton LJ said (at 306):
The rule as to ratification by a principal of acts done by an assumed agent is
that the ratification is thrown back to the date of the act done, and that the
agent is put in the same position as if he had had the authority to do the act at
the time the act was done by him.
15.4.2 No ratification by an ‘undisclosed’ principal

A principal is said to be ‘undisclosed’ if the agent does not let the third party know that the
agent is acting as a representative. If the existence of the principal is not disclosed, the third
party will not contemplate the possibility of being legally bound to that principal. For this
reason, an undisclosed principal is not entitled to ratify an unauthorised act. Ratification
of an unauthorised act is only permitted when the third party is aware that the person
they are dealing with is acting on behalf of a principal and when the principal is either
15.4
identified or identifiable as a particular person. Only the person identified or identifiable

as the principal at the time of the transaction is then entitled to ratify.
Keighley, Maxsted & Co v Durant [1901] AC 240

Agency; unauthorised acts by agent; ratification; undisclosed principal
Facts: Keighley, Maxsted & Co authorised Roberts, a corn merchant, to buy wheat
at a certain price for their joint account. Roberts purchased wheat at a higher price
in his own name from Durant. Later, Roberts said that he had always intended
to purchase this wheat for his joint account with Keighley, Maxsted & Co and the
company assented to the acquisition. Durant was not paid for the wheat, and he
sued Keighley, Maxsted & Co for the price.
Issue: Had Keighley, Maxsted & Co effectively ratified Roberts’ unauthorised act,
15
and so become liable as a party to the contract with Durant?
Decision: The court held that, in the circumstances, Keighley, Maxsted & Co could
not validly ratify the contract.
Reason: Roberts had never told Durant that he was acting on behalf of any other
person. Because an undisclosed principal is a stranger to the contract that is
created, they cannot become a party by subsequent ratification. It is different
when, at the time of the agreement, the unauthorised agent informs the third party
that he or she is acting for an identified or identifiable principal, because then the
contract is entered into in the expectation that the disclosed principal is a party to
the contract.
15.4.3 No ratification of invalid transactions

A principal cannot, by ratification, give validity to any transaction for which the principal
lacked capacity or which was for some reason legally void, either at the time that the
transaction was entered into or at the time of attempted ratification.
[15.5] An Agent’s Duties to Their Principal

The relationship between a principal and agent gives rise to various rights and duties.
15.5.1 Duty to perform tasks in accordance with instructions
An agent must perform the tasks they have agreed to undertake, and they must do so in
accordance with the principal’s instructions. In the case of specific instructions, the agent
does not have any discretion and must do whatever the principal has instructed. If the
agent fails to carry out the principal’s instructions, the agent will be liable to the principal
for losses caused.

Bertram, Armstrong & Co v Godfray (1830) 12 ER 364

Agency; duties of the agent; duty to follow instructions
Facts: Godfray purchased Buenos Ayres stock through Bertram, Armstrong &
Co, who were mercantile agents. Sometime later, Godfray instructed Bertram,
Armstrong & Co to sell that stock when its market price reached ‘85 per cent or
above that price’. Bertram, Armstrong & Co accepted this instruction. However,
when the price of the stock reached 85%, Bertram, Armstrong & Co did not sell
immediately, because they expected the price to rise further. Unfortunately, after
two days, the price dropped again and stayed low. When Godfray discovered that the
price had risen to 85% and that Bertram, Armstrong & Co had not carried out his
instructions, he sued to recover the consequent loss.
Issue: In the circumstances, were Bertram, Armstrong & Co bound to sell the stock
at 85% or did they have a discretion to wait in expectation that a higher price would
be obtained?
Decision: The court held that the instruction given by Godfray was specific and that
accordingly the agent had no discretion to wait for a higher price.
Reason: As agents, Bertram, Armstrong & Co were required to carry out the
instruction as given to them by their principal. They were liable for the loss caused
by their failure to do so.
15.5.2 Duty to exercise discretion appropriately

If an agent has a general (rather than specific) authority to represent the principal, the
agent must exercise discretion in deciding whether or not to carry out a particular act.
Agents must exercise that discretion as if they were acting for themselves.
15.5.3 Duty to seek clarification of ambiguous instructions
In the event of uncertain or ambiguous instructions, the agent should seek clarification
from the principal, if this is possible, to find out what the principal intends. If clarification
cannot be sought (eg if communication with the principal is impossible for some reason),
then the agent must act on an honest and reasonable interpretation of the instructions.
15.5.4 Duty to act personally
An agent has a duty to carry out the principal’s instructions personally, especially if the
tasks entrusted to the agent involve a degree of personal confidence in the agent or an
exercise of personal discretion by the agent. In such circumstances, the agent is not entitled
to get another person (a sub-agent) to perform those tasks.
15.5.5 Duty to exercise care and skill
An agent must exercise the degree of skill and care which an agent in the same position
would usually be expected to exercise. Failure to exercise appropriate care and skill amounts
to Negligence, giving the principal a right of action against the agent in tort law.
15.5
Mitor Investments Pty Ltd v General Accident Fire & Life Assurance
Corp Ltd [1984] WAR 365
Agency; duties of the agent; duty to exercise care and skill.
Facts: Mitor Investments owned a hotel near the sea and employed an insurance
broker to obtain insurance against the risk of the hotel being damaged by storm,
tempest or flood. The broker obtained insurance, but the terms in the insurance
contract specifically excluded liability for ‘damage caused directly or indirectly
by the sea’. Sometime later, a severe storm caused the sea level to rise and the
hotel was flooded. The insurer refused to pay for repairs, relying on the terms in
the contract. Mitor sued the broker, both for breaching his instructions and for
Negligence in the performance of his duties.
Issue: Had the broker carried out his task as instructed, and with due care and
skill?
Decision: The broker had failed to carry out his instructions, and had not acted with
due care and skill.
15
Reason: The court held that the broker, as Mitor’s agent, had not carried out his
instructions properly. The court also held that the agent had failed to use reasonable
care and skill to obtain a policy that covered his principal’s foreseeable risks, and
for failing to inform his principal of that fact. Accordingly, the broker was held liable
to Mitor for the damage suffered.
15.5.6 Duty to act in accordance with good faith

As the agency relationship is based on trust (a ‘fiduciary relationship’), an agent must act
in accordance with the requirements of good faith. The concept of good faith gives rise to
a number of specific rules.
An agent must deal honestly and openly with their principal. In particular, an agent
must inform the principal of all known facts that may affect the principal’s position.
Blackham v Haythorpe (1917) 23 CLR 156

Agency; duties of an agent to their principal; disclosure of material
facts
Facts: The owner of a lease of 159 acres of Crown land appointed Mengerson, a
land agent, to sell the lease to the government of South Australia. Negotiations
were conducted with the government over a period of time, but without reaching
agreement on price. The owner of the land then gave Mengerson an option to
purchase the land himself, for about £2 per acre. Shortly after being given this
option, Mengerson discovered that the government would be willing to pay £5 per
acre for the land. Mengerson did not tell the owner about this. Instead, he exercised
his option to buy the land himself and then immediately resold it to the government
at a profit.

Issue: In failing to inform the owner of the land what he knew about the government’s
willingness to pay £5 per acre for the land, had Mengerson breached any duty owed
to his principal?
Decision: Mengerson had breached a duty owed to his principal.
Reason: Mengerson’s behaviour constituted a breach of the duty that requires an
agent to disclose all material facts and circumstances to their principal. Because
of this breach, the owner of the land was entitled to recover the difference between
what Mengerson had paid him for the land and what Mengerson had received for
the land when he resold it.
An agent is not entitled to receive or keep any secret profits, payments, commissions
or bribes. Any monies received by the agent in the course of the agency are received for the
benefit of the principal and must be handed over to the principal.
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134

Agency; duties of the agent; duty of good faith; secret profits
Facts: Gulliver and others were directors of Regal (Hastings) Ltd (RHL). As directors,
they were able to acquire shares in a subsidiary company being formed by RHL.
They immediately resold these same shares at a substantial profit. RHL brought an
action to recover the profits made by the directors.
Issue: Was RHL entitled to claim the profit that the directors had made on the
resale of the shares?
Decision: RHL was entitled to recover the profits the directors had made, even if the
directors had not acted dishonestly.
Reason: Persons in a fiduciary position are not allowed to enter into transactions
in which they have a personal interest that conflicts with the interests of those they
are meant to protect. If a director of a company (or an agent) acquires any property
or money as trustee, they must account for it—that is, disclose the profit and hand
it over. Lord Russell of Killowen said (at 386):
The liability arises from the mere fact of a profit having … been made. The
profiteer, however honest and well-intentioned, cannot escape the risk of
being called upon to account.
An agent is not permitted to be involved in any transaction that involves a conflict

between the principal’s interests and the agent’s interests, unless that conflict is disclosed
and the principal approves the transaction.
Lintrose Nominees Pty Ltd and Others v King [1995] 1 VR 574

Agency; duties of the agent; good faith; conflict of interest
Facts: Lintrose Nominees wished to sell some strata title units that it owned. It
entered into an arrangement with John Hopkins & Co, a real estate agent, requiring
15.5
John Hopkins to find a buyer for the strata title units at the asking price. Sometime
later, King appointed John Hopkins as his agent for investment advice. Without
disclosing that it was also acting for Lintrose Nominees, John Hopkins advised
King to purchase one of the Lintrose units. He did so. On discovering the facts, King
wished to avoid the contract.
Issue: Was King entitled to avoid the contract in these circumstances?
Decision: The court held that he was entitled to avoid the contract.
Reason: John Hopkins, as King’s agent, had breached the duty to avoid an
undisclosed conflict of interest. Tadgell J said (at 576):
The guiding principle is that the agent is not allowed to put his duty as agent in
conflict with his own interest. If the agent sells his own property to his principal,
without disclosing that he is vendor, his conflict of interest is evident: he will be
tempted to derogate from his duty to do his best for his principal.
The court held that the same rule applies when an agent is selling the property
of one principal to another principal, because an agent cannot conscientiously 15
serve two principals. Tadgell J said (at 576):
The temptation for the agent to favour one at the expense of the other exists
just as surely as if the agent were to put the interest of a single principal in
conflict with his own.
15.5.7 Duty to keep proper accounts

An agent is required to keep proper accounts of income and expenditure. The agent must
produce these accounts when requested to do so by the principal.
15.5.8 Duty to keep money separate
It is a rule that the principal’s money and property must be kept separate from those of
the agent, unless the principal authorises otherwise. This authority may be either express
or implied from the circumstances, but without it an agent is not permitted to deposit a
principal’s money into the agent’s own bank account.
See Australia & New Zealand Bank Ltd v Ateliers de Constructions Electriques de
Charleroi [1966] 1 NSWR 19 above at 15.3.3.
[15.6] A Principal’s Duties to Their Agent

The relationship between a principal and agent gives rise to various rights and duties. The
principal’s primary duties to their agent are set out in this section.
15.6.1 Duty to reimburse the agent for expenses
A principal must reimburse their agent for all expenses that the agent has properly incurred
in the course of carrying out the principal’s instructions.
15.6.2 Duty to pay agreed fees
Although it is possible for an agent to accept a mandate from a principal without any fee
being payable to the agent, this is fairly unusual in a commercial context. In most cases,

a fee will be payable by express or implied agreement. Implied agreement may arise from
trade custom or professional practice.
The principal must pay the agreed remuneration when the agent has fully carried out
the tasks as agreed. Exactly what is required will be determined according to what has been
agreed in each case. A principal who wrongly interferes with the agent’s ability to perform
the agreed work and earn the agreed remuneration may be liable in damages.
Generally, when an agent is engaged to find or introduce a buyer for an article that
the principal wishes to sell, this is interpreted to mean not only that a willing buyer be
found by the agent, but also that the buyer actually purchases the article. Only when this
happens does the principal’s reciprocal duty to pay the agent for finding a buyer arise.
Rasmussen & Russo Pty Ltd v Gaviglio [1982] Qd R 571

Agency; duties of the principal; payment of agreed commission
Facts: Gaviglio wanted to sell some land. He appointed Rasmussen & Russo as
agents, promising to pay them $3,500 commission if they found a purchaser willing
to buy the land and who actually completed the purchase. Rasmussen & Russo
found a willing purchaser, who signed a contract to purchase the land, but the
contract was subject to a condition that the buyer be granted a loan from the Bank
of New South Wales. The loan, although applied for, was not approved. According
to the terms of the contract, this brought the uncompleted transaction to an end.
Gaviglio then terminated Rasmussen & Russo’s agency. A few days later, the same
purchasers were referred to another estate agent who was able to introduce them
to a finance organisation willing to lend them the money needed to purchase
Gaviglio’s land. Accordingly, the purchasers entered into a second contract to buy
the same land, in terms of which a commission was payable to the second agent.
Rasmussen & Russo sued for payment of the commission they had been promised.
Issue: Were Rasmussen & Russo entitled to the commission on the grounds that it
was they who had found the buyer who eventually bought the land?
Decision: The court held that Rasmussen & Russo were not entitled to the
commission.
Reason: First, properly interpreted, the contract obliged the principal to pay
commission to the agent only if a sale was actually completed, and not simply if
a willing buyer was found. Second, there must be a proper ‘causal connection’
between the agent’s actions and the eventual sale. In the present case, the sale
was not brought about by anything Rasmussen & Russo had done: it was the result
of a completely independent set of events.
15.6
Moneywood Pty Ltd v Salamon Nominees Pty Ltd

(2001) 202 CLR 351
Agency; duties of the principal; payment of agreed commission
Facts: Salamon Nominees engaged Moneywood as an agent to find a purchaser for
a large parcel of land Salamon wished to sell. Salamon promised to pay Moneywood
commission at a rate of 2% of the sale price. Moneywood found a purchaser, BMD
Constructions, that signed a contract to buy the entire piece of land. That contract
was not completed, but a short time later the same buyer signed another contract
to buy about two-thirds of the land at a lower price. The remainder of the land
was sold to the local shire council. Although Moneywood was not mentioned as the
agent in the second contract signed by BMD Constructions, Moneywood claimed to
be entitled to 2% commission on the purchase price of the second sale on the basis
15
of its original agreement with Salamon.
Issue: Was Moneywood entitled to the commission claimed?
Decision: Moneywood’s introduction of BMD Constructions was the effective cause
of the second sale, and Moneywood was entitled to commission at the agreed rate
of 2% of the purchase price paid by BMD Constructions. However, Moneywood was
not the effective cause of the purchase of the remainder of the land to the shire
council and was not entitled to commission on that sale.
Reason: Even if a principal has agreed to pay a commission to an estate agent for
‘introducing’ or ‘finding’ a buyer, the agent is entitled to commission only if and
when a contract of sale is actually completed. Finding a willing buyer does not
in itself entitle the agent to commission. In addition, the agent must prove that
their introduction of the buyer was the effective cause of the sale. If these facts are
proved, the agent is entitled to the agreed commission, pro rata, even if the final
sale is on substantially different terms from those originally envisaged.
15.6.3 Duty to indemnify the agent for losses and liabilities

A principal must compensate the agent for liabilities and losses incurred, but only if the
agent was acting within the authority given, lawfully and not negligently.
An agent has a lien over any property of the principal that is lawfully in the agent’s
possession, to secure payment of monies owed to the agent by the principal. A lien is a
possessory security, giving the agent a right to retain possession of the principal’s property
until the principal has made any due payments.
[15.7] An Agent’s Contractual Liability to Third Parties

15.7.1 Agents not normally liable to third parties when the principal is
disclosed
If an agent makes it known that they are acting as a representative of a principal (even if the
principal is not identified as a particular individual), the principal is said to be ‘disclosed’ to
the third party. When a person enters into a contract on behalf of a disclosed principal, the

likely inference is that the agent does not intend to be a party to the contract—the agent
is acting in the place of the principal. Accordingly, the contract that is created exists only
between the principal and the third party.
The inference that an agent for a disclosed principal does not intend to be a party
to the contract can be rebutted if, in the circumstances, it can be shown that the agent
intended to become personally liable as a party to the contract in addition to the principal.
Cooper v Fisken (1912) 18 ALR 155

Agency; agent’s liability to third parties; presumption against personal
liability
Facts: Fisken rented a house in Melbourne that belonged to Jowett, who was living
in England. Fisken contacted Cooper, a contractor, and asked him to supply gravel
to resurface the driveway of the Melbourne house. Fisken made it clear to Cooper
that he was acting for Jowett and that he had no authority except to order gravel.
Fisken and Cooper agreed on a price and the gravel was supplied. However, neither
Fisken nor Jowett paid for it. Cooper sued Fisken for payment.
Issue: Could it be inferred in the circumstances that Fisken had intended to be
personally liable on the contract with Cooper?
Decision: In the circumstances it could be inferred that Fisken had intended to
become personally liable on the contract, even though he had acted for a disclosed
principal.
Reason: An intention on the part of the agent to be personally liable on a contract,
even when the existence of a principal is disclosed, may be properly inferred
from additional circumstances. In this case, because the price of the gravel was
relatively small and because the owner was out of the country, it could be inferred
that the agent intended to be personally liable for payment of the price. It would be
different if major repairs were contracted for at considerable cost, in which case
the inference would probably be that the agent did not intend to be personally liable
for payment.
15.7.2 An agent’s liability in the case of non-existent principals

If the agent discloses that they are representing a principal, but that principal does not
actually exist, a person who ostensibly contracts only as the agent of that principal will not
be personally liable on the contract. This only applies where both the agent and the third
party did not actually know, when contracting, that the principal did not exist.
Black v Smallwood (1966) 117 CLR 52

Agency; an agent’s liability to third parties; non-existent principal
Facts: A contract for the purchase and sale of land was executed in writing. Where
the contract provided for the signature of the purchaser, the name ‘Western
15.7
Suburbs Holdings Pty Ltd’ was written, and beneath this were added the signatures
of Smallwood and Cooper. These two signatures were bracketed together, with the
word ‘Directors’ written alongside. Although Smallwood and Cooper believed that
the company had already been incorporated when they signed the contract, it had
not been.
Issue: As the company did not actually exist when the contract was signed, were
Smallwood and Cooper personally liable on the contract?
Decision: The court held that it could be inferred that Smallwood and Cooper had
not intended to become personally liable on the sale. This is because they believed
the company was incorporated when they signed the contract and because they
signed it as agents of the company.
Reason: A person is only liable on a contract if it can be inferred from the
circumstances that they intended to be a party to the contract. When a person signs
a contract as an agent, on behalf of a principal, it cannot usually be inferred that
they intended to be personally liable on that contract. This is so even if the principal
does not actually exist, as long as the agent believed when signing that the principal
15
does exist. The result is different if a person signs a contract supposedly acting as
an agent for a principal they know does not exist. In such circumstances, it can be
inferred that the supposed agent did intend to be personally liable on the contract.
The court stated (at [4]‌):
[T]‌he fundamental question in every case must be what the parties intended or
must be fairly understood to have intended.
15.7.3 An agent’s liability when the principal is not disclosed

When a principal has not disclosed the agent, the third party will believe that they are
entering into a transaction with the agent. The law gives effect to this belief and the agent
is made personally liable on the transaction. Once the existence of the principal becomes
known, the third party can choose whether to enforce the contract against the agent or the
principal. When the third party makes an unequivocal choice to hold the principal liable
on such a contract, rather than the agent, then they lose the right to sue the agent. When
and whether such a choice has been made is a matter to be determined on the facts of the
case.
Clarkson Booker Ltd v Andjel [1964] 2 QB 775

Agency; an agent’s liability to third parties; liability to undisclosed
principals
Facts: Andjel purchased airline tickets from Clarkson for $728. Andjel had
previously purchased tickets from Clarkson, as a principal contracting party, and
had been allowed time to pay. This time, Andjel did not say he was acting on behalf
of anyone else but he did not pay Clarkson for the tickets when asked to. Then
Petropoulos, a director of a company, informed Clarkson that the tickets in question
had been bought for his company and that the company alone was responsible for

payment. However, the money was not paid, and Clarkson wrote to both Andjel and
Petropoulos threatening legal action. When payment was not received, Clarkson
began an action against Petropoulos’ company, but abandoned it when the company
went into liquidation. Clarkson then sued Andjel for the $728.
Clarkson relied on the argument that, since Andjel had not disclosed when
buying the tickets that he had been acting for a principal, Andjel was personally
bound by the agreement. Andjel argued that, even though he had not disclosed the
existence of a principal and had become liable on the contract, Clarkson had to
choose to sue either him or the principal, but could not sue both. Having brought an
action against Petropoulos’ company, argued Andjel, the choice had already been
made.
Issue: By bringing an action against Petropoulos’ company, had Clarkson made a
binding election that debarred him from later suing Andjel?
Decision: The court held that instituting proceedings against one of the alternative
parties who are liable on a contract creates a presumption that the plaintiff has
made a binding election as to whom to sue. However, this presumption can be
rebutted by appropriate facts.
Reason: In the present case, Clarkson had not withdrawn the threat to sue Andjel,
or lulled him into any such belief, and had not made a binding election before
abandoning his action against the company. Clarkson was therefore still entitled
to sue Andjel.
15.7.4 Right of an undisclosed principal to enforce a transaction

In some limited circumstances, it may be possible for an undisclosed principal to enforce the
contract against the third party. This only applies when the agent acted within their actual
authority and the agent intended to act on behalf of the principal. It is somewhat difficult
to justify this rule in terms of legal principle. It appears, initially at least, to contradict the
doctrine of privity of contract. But the courts have made it clear that this is a commercially
convenient rule, especially for insurance contracts, and it is clearly established.
Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199

Agency; undisclosed principals; an undisclosed principal’s right to
enforce a contract
Facts: A shipping agent obtained insurance from the Eastern Insurance Co on
behalf of the owners of a ship. Two crew members of that ship were accidentally
killed and the administrator of their estates sued the insurance company for the
compensation due under the policy of insurance. The insurance company denied
liability, arguing that when filling out the forms to apply for the insurance cover,
the shipping agent had put its own name down as the insured party, rather than
the name of the shipowners. The shipowners were therefore in the position of
undisclosed principals.
15.7
Issue: Were the shipowners entitled, despite being undisclosed principals, to

enforce the insurance contract against the insurance company?
Decision: There were no circumstances to indicate that the shipping agent was
intended to be the true principal of the contract of insurance. The contract could
therefore be enforced by the shipowner (and its employees).
Reason: Sometimes the agreed terms of a contract, or the particular circumstances
of the case, will operate to prevent an undisclosed principal from suing or being
sued under an agreement, for example, if there is no admissible evidence as to the
identity of the principal or if the contract precludes the possibility of an undisclosed
principal. But in the absence of such terms or circumstances, and particularly in
ordinary commercial contracts, an undisclosed principal may sue on a contract
made by an agent acting within the scope of its actual authority, provided the agent
intended to act on the principal’s behalf.
15.7.5 An agent’s warranty of authority 15

An agent who discloses that they are acting for a principal often expressly or impliedly
guarantees that they have been given the authority needed to enter into the transaction on
behalf of the principal. The agent may therefore be liable to the third party for a breach of
this warranty of authority, if they in fact had no such authority.
An agent who represents that they have authority when they do not may be liable
in tort, for deceit or Negligence. In Negligence, liability arises if the agent has breached a
duty of care owed to the third party. Failing to disclose a lack of authority to enter into a
contract for a supposed principal may well amount to a breach of a duty of care.
An agent who represents that they have authority when they do not is also likely to be
liable for breach of s 18 of the Australian Consumer Law for misleading conduct.
15.7.6 An agent’s authority to perform their principal’s obligations
An agent who has authority to create contractual obligations for a principal may or may
not have the authority to represent the principal in the performance and discharge of
those obligations. This may be important in relation to the question of making or receiving
payments due under a contract between a principal and third party. If the agent has
the necessary authority, then payment made by the third party to the agent is valid as a
payment to the principal. In the absence of the necessary authority, any payment to the
agent does not discharge the third party’s obligation to the principal.
The same rule applies in the case of obligations owed by a principal to third parties.
A principal must normally tender performance directly to the third party. If a principal
owes money to the third party and pays that money to their agent, with instructions that
the money is to be paid to the third party to discharge a contract debt, and the agent fails
to pay the third party, then the principal remains obligated to the third party.

[15.8] Acquisitions and Dispositions of Property by an Agent

15.8.1 An agent’s power to acquire and transfer property on behalf of the
principal
The general rule is that a person can use an agent to do most of the things that they
can lawfully do for themselves, including the acquisition and transfer of property rights
in relation both to land (real property) and to goods (chattels). Of course, any relevant
formalities must be complied with for the agent’s acts to be valid.
15.8.2 Acquisitions and dispositions of property made without authority
An agent must have the principal’s authority to acquire or dispose of the property in
question, otherwise the transaction will not be legally valid. If an agent disposes of the
principal’s property without authority, the principal may be entitled to recover that
property from the third party who has acquired it. This general rule is subject to some
important qualifications, as set out below.
In some circumstances, even if the agent lacked authority, the principal may not be
able to assert their right to property. This includes situations where the principal has vested
the agent with an apparent right to dispose of the goods, and the third party has relied on
that apparent right when acquiring the property and has given value in exchange for the
goods.
15.8.3 The apparent authority of a mercantile agent in possession of goods
A mercantile agent is an agent who is generally authorised to buy or sell goods on behalf of
their principal or to raise loans by using the principal’s goods as collateral. If a mercantile
agent is given possession of the principal’s goods or the documents of title to those
goods, this constitutes a representation by the principal to third parties that the agent has
authority to dispose of those particular goods. In such circumstances, the principal will be
estopped from denying that the agent had authority to dispose of them. These rules are
enshrined in the provisions of the relevant state and territory sale of goods legislation (eg
s 67 of the Goods Act 1958 (Vic)).
To clarify the legal title of third parties who purchase goods from an agent, the sale
of goods legislation in some jurisdictions lays down that, even if an agent acted without
authority to dispose of the principal’s goods, the third party obtains a good title to those
goods as owner. For this to happen, the goods must have been disposed of by the agent in
an open market, in accordance with the usages of that market, and the third party must
have acquired the goods in good faith (openly and honestly) and without any notice of the
agent’s lack of authority to sell.
[15.9] A Principal’s Liability for Harm Caused by Their Agent

15.9.1 Liability of an agent in tort law
A person who wrongfully causes harm to another will be personally liable for that harm,
even if they are acting as another’s agent when engaged in the conduct that causes the
harm.
15.9
15.9.2 Liability of a principal in tort law for the acts of their agent
Whether or not a principal is liable in tort law for the wrongful conduct of their agent
depends on a range of factors. Generally a principal is not liable in tort for the conduct of
an agent who is an independent contractor, who is not subject to the principal’s control
in the way they carry out the work. By contrast, a principal generally is liable in tort for
the conduct of their agent who is an employee and therefore subject to the principal’s
control. However, it must also be shown that the agent has caused harm while acting in the
course of their employment. That is, the agent’s conduct must have taken place while doing
something they were authorised or instructed to do, or while engaging in activity that is
incidental to something they have been authorised to do, even if they do it in an improper
way, for example, negligently.
A principal will not be liable for wrongful harm caused by an agent who does some
unauthorised act that has no connection with acts that they are authorised to do, or who is
15
attending to some interest or activity of their own.
Bugge v Brown (1919) 26 CLR 110

Agency; principal’s liability for Negligence by agent; unauthorised acts
Facts: Brown, a farmer, employed Winter to work on his farm. Winter was entitled
to cooked meat as part of his daily lunch. On one occasion Brown provided Winter
with uncooked meat. Winter cooked the meat at a convenient location on the farm,
close to where he was working, despite Brown having specifically instructed him
not to cook the meat at that location. Winter was careless in tending to his fire and,
as a result, the fire escaped and caused damage to a neighbour’s land.
Issue: Was Brown vicariously liable to his neighbour for the damage caused by
Winter’s negligence, despite the fact that Winter had been acting against his
express instructions?
Decision: The court held Brown vicariously liable for the damage caused by Winter’s
negligence, as Winter had been acting within the course of his employment.
Reason: Isaacs J said (at 121): ‘[T]‌he question of whether a given act of a servant
is or is not within the course of his employment is a question of fact dependent
entirely upon the circumstances of the particular case’. Here, cooking the meat
while on the farm was something that Winter had done in connection with his
employment, even though he did it at a different location than instructed. Isaacs J
explained the rationale underlying this requirement (at 117), saying:
The principle upon which the responsibility rests is that it is more just to
make the person who has entrusted his servant with the power of acting in
his business responsible for the injury occasioned to another in the course of
so acting, than that the other and entirely innocent party should be left to bear
the loss.

15.9.3 Liability of principal and agent for misleading conduct

A principal and an agent may both be liable under s 18 of the Australian Consumer Law
for misleading or deceptive conduct engaged in by the agent.
Yorke v Lucas (1985) 158 CLR 661

Contract; vitiating circumstances; s 52 Trade Practices Act 1974 (Cth);
misleading conduct; liability of principal and agent
Facts: Yorke entered into negotiations to purchase a record shop from Treasureway
Stores Pty Ltd. Treasureway appointed a company, Ross Lucas Pty Ltd (Ross
Lucas), to act as its agent in the negotiations. Ross Lucas sought and obtained
financial information about the record store from Treasureway and passed this
information on to Yorke. However, some of the information given by Treasureway
and passed on to Yorke by Ross Lucas was incorrect, in particular, a statement that
the weekly turnover of the record shop was $3,500. Yorke relied on this information
and suffered loss as a result. Yorke sued Treasureway and its agent, Ross Lucas, for
conduct in breach of s 52 of the Trade Practices Act.
Issue: Were both Treasureway and Ross Lucas liable for misleading conduct?
Decision: The court held both Treasureway and Ross Lucas liable for a breach of s
52 of the Trade Practices Act.
Reason: In the case of Ross Lucas, it was no defence to claim that the misleading
information was given to Yorke without negligence and in the belief that it was true.
The court quoted Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd
(1982) 149 CLR 191 at p 5, where he said:
A corporation which has acted honestly and reasonably may therefore
nevertheless be rendered liable to be restrained by injunction, and to pay
damages, if its conduct has in fact misled or deceived or is likely to mislead or
deceive. The liability imposed by s 52, in conjunction with ss 80 and 82, is thus
quite unrelated to fault.
Note 1: To avoid liability, Ross Lucas should have disclaimed responsibility for the
accuracy of the information when he passed it on to Yorke.
Note 2: Although this case concerns s 52 of the Trade Practices Act, it continues to be
relevant with regard to s 18 of the Australian Consumer Law.
[15.10] Agency by Operation of Law

15.10.1 Agency of necessity
Authority to act on behalf of another person may arise by law as a result of necessity in
situations of emergency. This is termed ‘agency of necessity’. When agency of necessity
arises, the agent is entitled to be reimbursed by the principal for reasonable expenses
incurred. The principal is also bound to third parties who have dealt with the agent of
necessity. An agency of necessity only arises if all of the following requirements are met:
15.10
• The principal and agent have some recognised relationship, such as a shipowner and
the owner of cargo, or other carriers of goods and bailees generally. The courts do not
recognise that agency of necessity can arise between complete strangers.
• In the circumstances, an emergency has arisen in which the principal will suffer harm
unless action is taken. The harm may consist of a loss of or damage to property, or
economic harm.
• The principal is absent, so they cannot act for themselves and, practically speaking, it
is not possible for the agent to contact the principal for instructions.
• The agent acts for the benefit and in the best interests of the principal, rather than for
any self-interest.
Burns, Philp & Co Ltd v Gillespie Brothers Pty Ltd (1947) 74 CLR
148
Agency; authority; agency of necessity.
15
Facts: In 1941, during the Second World War, Burns Philp contracted to transport
a consignment of flour for Gillespie Bros by ship from Australia to Singapore.
However, before reaching Singapore, the ship returned to Australia to avoid the
likelihood of capture or destruction by Japanese forces. The return voyage was not
authorised by Gillespie Bros.
Issue: Did Burns Philp have the authority to transport the flour back to Australia
and to claim payment from Gillespie Bros for that voyage?
Decision: In the circumstances, an ‘agency of necessity’ arose, giving Burns Philp
authority to return to Australia with the flour and claim reasonable payment for
that voyage from Burns Philp.
Reason: Describing agency of necessity, Latham CJ said (at 175):
[T]‌he phrase ‘agent of necessity’ is … a ‘shorthand’ method of saying that such
[emergency] circumstances may create an authority to act in relation to the
property of another person or to impose a liability upon him which would not
exist in ordinary circumstances … The so-called agency arises as what has
been described an irrebuttable presumption of law … In the case of masters
of ships, the rule is … that in circumstances where the cargo will be lost or
destroyed unless some exceptional action is taken, there is not merely a power
given but a duty is cast on the master to act for the safety of the cargo in such
manner as may be best under the circumstances. If he does so act, then the
shipowner is entitled to be paid a reasonable remuneration for the services
rendered. This rule … is based upon necessity, and is not part of the law of
contract.
Note: In the past, the common law presumed an agency of necessity between spouses who
lived together, for the purpose of purchasing necessities. This has been abolished by statute
in New South Wales, South Australia, the Northern Territory and the Australian Capital
Territory.

[15.11] Termination of Agency

15.11.1 Different ways of ending an agency
An agency relationship or authority can be terminated in a variety of ways depending on
the circumstances of the case.
• Completion of mandate: Once an agent has completed the specified tasks with
which they were entrusted, the agent has no authority to do anything further, and the
agency power ends.
• Expiry of a fixed term: When an agent is given authority for a fixed period of time,
the authority automatically expires at the end of that period. It will depend on the
terms of the particular contract whether the agency was for a fixed period. A fixed
term for an agency may be implied into a contract by custom or trade usage.
• Revocation of authority: A principal can revoke (withdraw) an agent’s authority to
represent them, simply by notifying the agent of their decision. The notice can be oral,
even if the agent’s original authority was given in writing. Although it effectively puts
an end to the agent’s power of representation, the principal’s revocation of an agent’s
authority may be a breach of contract, giving the agent a right to claim damages.2
• Renunciation of authority: Just as the principal can act unilaterally to revoke an
agent’s authority, the agent can decide to renounce their authority by telling their
principal that they no longer intend to carry out the mandate. Doing so effectively
ends the agency. It may, however, amount to a breach of the contract with the principal,
in which case the principal may have a claim for damages against the agent.
• Irrevocable agency power: In some cases, the principal might agree to make the
grant of authority to the agent irrevocable. Despite this, an agent’s power is not
actually made irrevocable simply by the principal agreeing that it should be so. If it is
a term of the agency agreement that the agent’s authority is not to be revoked for a
specified period or while particular circumstances exist, the agency power may still be
revoked by the principal or renounced by the agent, though potentially giving rise to
liability for breach of contract.
An agent’s power is only made truly irrevocable (so that any attempt to revoke it
is legally ineffective) if the grant of authority to the agent was made for the purpose
of securing some interest of the agent. This is the case when an agency power is given
to provide security for the repayment of a debt owed by the principal to the agent.
A debtor might give their creditor an agency power to enable the creditor to sell the
debtor’s property if the debtor fails to repay the debt owed. Such a power, intended as
a security for the benefit of the creditor, cannot be revoked before the debt is repaid.
Note: There are various legislative provisions dealing with aspects of irrevocable
agency but these go beyond the scope of this chapter.
2 The terms of an agency agreement, including its termination, are subject to the principles established in case law.
However, if the agent’s authority is being exercised under a power of attorney, the legislative provisions governing
powers of attorney will apply.
15.11
• Mental incapacity: Unless an agency is irrevocable (ie where it is given in the agent’s
interest), the authority given to an agent by a principal of sound mind is terminated if
the principal is subsequently afflicted by mental incapacity. For the purposes of agency
law, a person is considered mentally incapacitated if they are unable to appreciate the
nature and quality of their actions.
A business agency relationship that has been terminated by the principal’s
mental incapacity will generally occur in a context where the business itself faces
sale or restructuring. On a personal level, legislation provides for what is called an
‘enduring power of attorney’ (financial or medical) which remains valid despite any
subsequent mental incapacity of the principal. It is often executed at the same time as
a will to enable the legal personal representative of the appointor/testator to manage
their affairs when they die or become mentally incapacitated.
• Death: The death of the principal normally terminates the agent’s power, such that
15
the agent is no longer authorised to do anything on behalf of their former principal.
Similarly, the death of an agent terminates the agency relationship. If an agency
is irrevocable (ie where it is given in the agent’s interest), the agent’s power is not
terminated by the death of the principal, and the agent will be entitled to continue
to act as if authorised and to enforce their rights against the administrators of the
deceased principal’s estate.
[15.12] Checklist: Applying the Law of Agency

The following checklist can be used when applying the rules of agency. The questions will
help you take into account the relevant concepts and rules. Make sure you can recall the
more detailed aspects of the rules and decided cases that are relevant.
Step 1
Does the case you are dealing with involve a person acting as a representative
in the conduct of another’s legal affairs?
• In what legal transaction did the agent represent the principal?
Step 2
Was the representative appointed as an agent and given authority
by the principal?
• If not, did agency arise in circumstances of necessity?
• Otherwise, did the principal act in a way that gave the agent an apparent
authority?
• If there was no authority, was the existence of a principal disclosed and
has the principal ratified any unauthorised act?

Step 3
If authority was given to the agent, what express authority was given and
what additional implied authority might exist in the circumstances?
• Was it required, in the circumstances, for the authority to be in writing or
in a deed?
• Was the authority given to the agent for the purpose of securing some
interest of the agent (eg as a security)?
• Do circumstances exist which would have terminated the agent’s power
of representation?
Step 4
Has the agent carried out their mandate properly, in accordance with the
principal’s instruction?
• Has the agent failed in any of the other duties owed to the principal? If so,
which specific duties have been breached by the agent?
• Has the principal failed in any of the duties owed to the agent? If so, which
specific duties have been breached by the principal?
Step 5
What remedies are available to the principal or the agent
in the circumstances?
• Has the agent’s authority been revoked by the principal or renounced by
the agent?
• If not, do the circumstances prevent this from being done?
• Will there be liability for breach of contract if the agent’s authority is
revoked or renounced?
Step 6
In the circumstances, is the agent personally liable to the third party?
• What is the basis of any such liability? What is the extent of the liability?

These questions will help you discover whether you can recall the things that you should
have learned from this chapter, and that you need to be able to explain accurately using the
relevant terms and concepts.
1. What is ‘actual’ authority? In what different ways can an agent acquire actual authority
to represent a principal?
2. When might a principal be bound by the acts of an agent even if the principal has not
actually authorised the agent to do those acts?
3. When might an agent become liable to a third party, either as well as the principal or
instead of the principal?
15.13
4. What duties, arising out of the agency relationship, do a principal and agent owe to
each other?
5. What does it mean to say that an agent has a ‘fiduciary’ relationship with their
principal?
6. How can agency be terminated by the principal or the agent? Is agreement between
the principal and agent needed to terminate the agent’s power of representation or
can either party act unilaterally? What other circumstances can bring about the end
of an agency?
7. What is an ‘enduring power of attorney’? Why is it useful?

e modules.
15

CHAPTER 16
Property Law
In this chapter:
• The importance of property law
• Foundational property concepts
• Different kinds of property
• Different kinds of property rights
• Property rights in land (ownership, leases and easements)
• Property rights in chattels (ownership, bailment)
• Property rights in intangible things (trade marks, copyright, patents and designs)
• Security transactions using land and chattels
• The enforcement of property rights.
[16.1] The Importance of Property Law

It is commonly accepted, in most societies, that private persons can acquire legally protected
rights in ‘things’. A ‘thing’ is a non-specific way of referring to some entity, object, creature
or area of land. In Australian law, ‘things’ are more generally referred to as ‘property’, and
so we speak of ‘property law’ rather than ‘the law of things’. Property law is concerned with
the nature of property rights, the extent to which they can be acquired, and the ways in
which they are created and protected.
It is difficult to overstate the social and commercial importance of property law. The
existence of legally protected rights in property minimises disputes that would otherwise
arise, and enables the undertaking of all kinds of economically useful activities that can
benefit both individuals and society as a whole.
In this chapter, we will learn how, in Australian law, property rights are acquired
and regulated. This is a large and complex topic. There are, for instance, different kinds
of property to be distinguished, different rights that can exist over property, and different
modes of acquiring, exercising and protecting those rights, depending on the exact
circumstances. This chapter explains the basic concepts, terminology and principles of
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402 Property Law
property law. The eStudy module Property law provides examples and questions to help
you properly understand and apply the rules of this area of law.
[16.2] Foundational Property Concepts

16.2.1 ‘Property’ right
A property right can be defined as a legal right that exists between a person and a ‘thing’.
Ownership is one of the most familiar rights that can exist between a person and a thing.
The Latin word for ‘thing’ is ‘res’ and this explains why property rights are sometimes
referred to as ‘real’ rights—legal rights that exist in relation to a ‘res’.
The French word for ‘thing’ is ‘chose’ and this word has also found its way into
Australian property law, via English law. For example, some kinds of thing can be referred
to as a ‘chose in possession’.
The law protects property rights by giving the holder of the right a legal action against
anyone who wrongly interferes with it.
It is important to distinguish between ‘property’ rights and what are called ‘personal’
rights. Property rights exist between a person and a thing, whereas personal rights are the
legal rights that exist between one person and another person (or persons). Examples of
personal rights are those arising in tort law where legal rights exist between a wrongdoer
and the person they have injured; and contract law, where legal rights exist between the
parties to the contract. It is possible for both personal rights and property rights to exist
alongside each other in particular circumstances and it is important to distinguish them.
16.2.2 ‘Original’ and ‘derivative’ acquisition of property
The law distinguishes between different circumstances in which property rights are
acquired. Original acquisition of a thing occurs when a person is the first to acquire a
property right in that thing. One example is the right of ownership acquired by the maker
of a new thing.
But when a person obtains a property right from a person who held it previously,
we describe this situation as ‘derivative’ acquisition of a legal right, to distinguish it from
‘original’ acquisition.
The distinction is important, because different rules apply to derivative and original
acquisition of property rights.
Johnson v Buttress (1936) 56 CLR 113 (at 10.3.3 above) is an example of derivative
acquisition. In this case, Johnson acquired ownership of a house from Buttress, who
transferred his rights to her as a gift.
[16.3] Different Kinds of Property

‘Property’ can be thought of as any thing over which legal rights may be obtained.
However, within this very broad definition, there are various kinds of property that are
distinguished, and to which different rules apply. It is important to be able to recognise
different categories of property.
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Property Law403
16.3.1 ‘Immoveable’ or ‘fixed’ property

Property such as a particular area of land is considered to be immoveable or fixed. In fact,
because land is the prime example of immoveable property, the whole category of fixed
property is sometimes simply referred to as ‘land’. But you must remember that fixed
property includes all things that are fixed and cannot be moved to a different location
without harming or destroying them—for example, permanent buildings on land (houses,
walls, outbuildings etc) and things growing on land (trees, crops etc).
16.3.2 ‘Moveable’ property
All property that is not permanently fixed in a particular location is considered to be
moveable property. In Australian law, moveable property is often referred to as a ‘chattel’.
The word chattel is derived from the old French word for cattle. Livestock is obviously
moveable, as are crops that have been reaped, timber that has been cut, cars, caravans,
clothing, books etc—the list is endless. Items of furniture (tables, chairs and the like) are
considered to be chattels even though they are normally placed within a house. This is
because furniture is not permanently attached to the house and does not form part of the
house itself.
16.3.3 ‘Intangible’ or ‘incorporeal’ property 16
Intangibles are things which have no physical existence, but which nevertheless can be the
subject of property rights. For example, the law recognises that the author of an original
work such as a novel has a property right in that work. This ‘thing’ is called ‘copyright’.
Copyright has no physical existence. It is separate from any manuscript or electronic file in
which the written work has taken form—copyright is a legal entity without a ‘body’. There
are other intangible things recognised in Australian law, such as patents and trade marks.
16.3.4 Money
Money can be created in various different ways. It can be minted in rare metals with an
intrinsic value (gold or silver coins). Or it can be represented in a non-valuable metal or
paper form that has a nominal value. For our purposes, we can regard money as a ‘thing’
that can be possessed, but it is a special kind of thing. On the one hand, a specific coin or
note can be carried and possessed just like any other article of tangible, moveable property.
On the other hand, when cash is deposited into a bank account or loaned to another
person, the owner does not expect to receive back the specific coins or notes handed over.
In such situations, the owner is entitled to the relevant sum of money rather than the
specific object.
Unlike other property, which may be valuable in itself, money that is represented
in a non-valuable metal or paper form is valuable because it can be exchanged for goods
and services. Another unusual aspect of money is that it is illegal for the owner of cash to
damage or destroy it, whereas the owner of other property generally has such a right.

404 Property Law
[16.4] Different Kinds of Property Rights

It is important to realise that there is more than one property right that can exist between
a person and property.
16.4.1 Full ownership
Ownership of a thing consists of the ultimate power and control of that thing, whether
land or chattels. There is no superior property right beyond ownership—full ownership is
the supreme property right. In relation to land, ownership is often referred to as ‘title’. Full
ownership exists when the owner of the property has all of the rights normally associated
with ownership. There are many particular rights an owner of property enjoys. One of the
most important is the right to possess the property. Another is the right to use and enjoy
the property. An owner is also entitled to sell or otherwise dispose of their property, to
consume it and even to destroy it. These rights are perpetual: they do not expire after any
specified term.
Taylor v Johnson (1983) 151 CLR 422 (at 10.5.4 above) provides an example of an
owner of property exercising their right to sell that property.
16.4.2 Restricted ownership
The fundamental concept of ownership is separate from the various particular rights that
an owner of property normally enjoys. This means that specific rights such as possession, or
use and enjoyment, can be transferred by an owner of property to another person, normally
for a stated time. A common example of this is when an owner of property gives another
person the right to possess and use their property. During the agreed period, the rights
of the owner are restricted to the extent that they have been granted to the other person.
In Thomas v Thomas (1842) 114 ER 330 (at 5.3.2(d) above) the executors of Mr
Thomas’ estate were left with restricted ownership of his house after they agreed to give
the possession and use of the house to his widow for her lifetime.
16.4.3 Bare ownership
It has already been explained how an owner of property can transfer some of the rights of
ownership to another person. And in fact, it is possible for an owner of property to divest
themselves of all of the rights associated with owning a property (possession, use and
enjoyment, the right of disposal etc) and yet still retain the right of ownership itself—the
‘bare’ title to the property.
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 (at 16.3.6
below) is an example of bare ownership rights held by a trustee in the trust assets. In this
situation the trustee can deal with the assets (for example, by investing, buying and selling)
but all the benefits of those assets accrue to the beneficiary of the trust. The ownership
rights are thus split between the trustee, who has ‘bare ownership’ and the beneficiary, who
has ‘beneficial ownership’.
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Property Law405
16.4.4 Possession with rights of use and enjoyment

Possession means having physical custody and control of a thing, whether land or chattels.
A distinction must be drawn between the mere fact of possession, and the concept of a
legal right to possession. It is possible to have one without the other. Generally speaking,
the person with the legal right to possession is entitled to possession in fact.
Possession is a distinct real right, separate from ownership. However, possession and
ownership are closely linked, in that the owner of a thing is presumed to have the right
of possession, unless the owner has given that right to someone else, for example, on loan.
The extent of the possessor’s rights depends on the particular circumstances. The most
complete right of possession gives the possessor the right to use and enjoy the thing in
question. But a possessor cannot consume or destroy the property: they must preserve it
and return it in a proper condition to the owner at the agreed time.
In Thomas v Thomas (1842) 114 ER 330 (at 5.2.2(d) above) the executors of Mr
Thomas’ estate agreed to give the possession and use of Mr Thomas’ house to his surviving
widow for her lifetime.
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 (at 9.2.1(c)
above) illustrates the duty of a person who possesses another person’s property to preserve
it and return it in a proper condition to its owner.
16.4.5 Possession of another’s chattels for an agreed purpose
16
In some circumstances, an owner gives possession of their chattels to another person for
an agreed purpose. Giving possession of chattels to another person in this way is often
referred to as ‘bailment’.
The law recognises different kinds of bailment, such as bailment for the purpose of
having the property looked after or stored; or for the purpose of carrying out some work
on the property for the owner such as a renovation or repair; or for the purpose of use and
enjoyment.
Causer v Browne [1952] VLR 1 (at 6.3.5 above) is an example of bailment of clothing
for the purpose of cleaning.
16.4.6 Easements
An easement is a right held by one landowner to enjoy a specified benefit over land owned
and possessed by another. There are various recognised easements, for example, a right to
use a private road through another person’s land; the right to lead water across another’s
land; or to discharge water onto another’s land; or the right to run a drain through another
person’s land.
Easements can exist both in relation to urban and rural property.
Deanshaw v Marshall (1978) 20 SASR 146 (at 16.5.3(c) below) is an example of an
easement in the form of a right of way across another’s land.
16.4.7 Security interests in property
A property right can be used to guarantee the performance of a personal obligation.
Suppose A borrows a sum of money from B. B has a contractual right to repayment, but

406 Property Law
an additional guarantee of performance can be provided using A’s property. For instance
A might give B possession of some property belonging to A, and agree that B has the right
to keep possession of that property until the debt is paid, and perhaps to sell it and use the
proceeds to satisfy the debt if A fails to pay.
Security interests based on property rights are called real securities. Depending on
the property right involved, and the agreed powers of the creditor, such arrangements are
variously called mortgages, pledges, liens or charges. These security interests are described
in more detail later in this chapter.
Commercial Bank of Australia v Amadio (1983) 151 CLR 447 (at 10.4.3 above)
provides an example of a security in the form of a registered mortgage given by a borrower
to a lender.
Hammerstone Pty Ltd v Lewis [1994] 2 Qd R 267 (at 16.8.2(a) below) provides an
example of a possessory lien.
[16.5] Property Rights in Land

There are various property rights in land that can be acquired and transferred by private
individuals. The particular property rights to be considered now are:
• Private ownership of land
• Private leases of land
• Easements over another person’s land.
16.5.1 Private ownership of land

16.5.1(a) Proving ownership of land
One of the most important questions that arise in relationship to private ownership of
land is how such rights are proved. Historically, land ownership by individuals was not
registered in Australia. A person’s right to land could only be proved if they possessed
documents showing each transfer of the land from the first (colonial) owner onwards—
that is, the ‘chain of title’.
From 1858 onwards, legislation was enacted throughout Australia which established
a system of registering land interests. This system is known as the Torrens system, named
after Sir Robert R. Torrens, who first introduced the system in South Australia. The
Torrens system relies on the registration of land ownership in a central register kept in
each Australian jurisdiction. The applicable rules are now found in the Acts listed below.1
Most land in Australia has a record (or ‘folio’) in the relevant central register where
ownership of that land is recorded. We call such land ‘Torrens system’ land.
The register is publicly searchable, and from the register it is possible for the owner of
a parcel of land to get a document confirming their title. This is known as the ‘Certificate
of Title’. See the example opposite.
1 Real Property Act 1900 (NSW); Land Title Act 1994 (Qld); Real Property Act 1886 (SA); Land Titles Act 1980 (Tas);
Transfer of Land Act 1958 (Vic); Transfer of Land Act 1893 (WA); Land Titles Act 1925 (ACT); Land Title Act 2000
(NT).
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Figure 16.1 Certificate of Title
16
However, even today not all land in Australia is registered. Those areas of land not
governed by the Torrens system are still subject to the old common law rules about land
ownership. Such land is known as ‘old system’ or ‘general law’ land. But most land in
Australia, especially for business purposes, is Torrens system land and, for the remainder
of this chapter, you can assume it is Torrens land being referred to unless otherwise stated.
16.5.1(b) Registration of encumbrances on land
In addition to having evidence of ownership of land, it is important that other property
interests in land are also recorded. Various property interests in Torrens system land can be
registered in addition to ownership. This includes mortgages and charges over a particular
parcel of land. A search of the relevant register will disclose these ‘encumbrances’.

408 Property Law
Figure 16.2 Register Search Statement
Not all interests in land are registrable (for example, interests that are recognised only
in equity) but, in some circumstances, it is possible to get a special notation called a ‘caveat’
put on the register, which gives notice of such interests. The name ‘caveat’ comes from the
Latin word meaning ‘beware’. If a caveat is entered on the folio of a parcel of land, this will
prevent anyone else, such as a purchaser, registering another interest in the land.
16.5.1(c) The nature of private title to land
For historical reasons, there is more than one kind of title to land in Australia.
From the business perspective, the most important kind of land ownership is that
established by registered title. But this kind of title requires some explanation. Although
we commonly refer to individuals as landowners, it is theoretically only the Crown which
‘owns’ land. This is because Australia was declared by English explorers to be ‘terra nullius’
(unoccupied land) when Australia was established as an English colony. This meant
that under English law, the Crown became absolute owner of all the land. Following
the example of English law, individuals in Australia were only able to hold or occupy
land if the Crown granted it to them as tenants. This system is known as the ‘doctrine of
tenure’. In this system, an individual can either acquire ‘freehold’ title, which lasts forever,
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or ‘leasehold’ title, which expires after a stated term (normally 99 years) when the land then
reverts to its residual owner (the Crown).
In this chapter, all references are to freehold title, unless otherwise stated.
There is also another concept of title or interest, based on the indigenous law of
Aboriginal Australians. This is known as ‘native title’ and has been recognised in the
Australian legal system since the 1990s. This type of ownership covers mainly rural parts
of Australia and is an important component of Aboriginal community life. Land held
by native title can be put to various uses, such as mining, by agreement with the relevant
native title group, but such arrangements fall outside the scope of this chapter as they are
usually of less relevance for business purposes.
16.5.1(d) The law regulating acquisition of title to Torrens system land
Torrens system land is regulated by legislation in each Australian jurisdiction. This
includes rules about transferring land title from one person to another. Another word for
this process is ‘conveyancing’. Common law rules also exist to supplement the legislative
provisions.
The agreed terms of the contract between the buyer and seller of land may also affect
16
the details of the transfer. If the contract is silent on various matters, then legislation may
come in to fill the gaps. For instance, legislation creates an assumption that a seller intends
to transfer their whole interest in the land. (This reverses the old common law rules.)
Legislation in all Australian states requires any transfer (conveyance) of land to be
made in writing.2 Most states even require the parties to execute the conveyance in a deed.
A deed is a formal document that has been signed and witnessed, and which is said to be
sealed by its maker.
16.5.1(e) How ownership rights in land are transferred
For a transfer of Torrens system land to be effective in giving the buyer legal title to the
land, the transfer must be registered. In a transfer of land, payment of the purchase price is
irrelevant to the question of when legal ownership passes to the buyer. But as a matter of
practice, payment usually takes place at the same time as registration so that both parties’
interests are secured.
Registration of title in the Torrens system has important legal consequences. It gives
the registered titleholder ‘indefeasible title’. The word ‘indefeasible’ means that something
cannot be defeated, challenged or made void. Indefeasibility of title therefore means that,
except in limited situations such as fraud, the person registered as owner of land has a
paramount, or indefeasible, interest in the land.
Registration has the effect of curing any defects in the previously registered owner’s
title. This means that the buyer obtains clear title to the land. A person who may have any
unregistered interests cannot enforce them against the new registered owner. If rights in
2 Conveyancing Act 1919 (NSW), s 23B; Property Law Act 1974 (Qld), s 10 (by deed or in writing and signed); Law
of Property Act 1936 (SA), s 28; Conveyancing and Law of Property Act 1884 (Tas), s 60; Property Law Act 1958 (Vic),
s 52; Property Law Act 1969 (WA), s 33; Civil Law (Property) Act 2006 (ACT), s 201 (by deed or in writing and
signed); Law of Property Act 2000 (NT), s 9 (by deed or in writing and signed).

410 Property Law
land are not registered, the holder of such rights only acquires an equitable interest. This
means that their rights are only recognised in equity, and only equitable remedies are
available, which depend on considerations of fairness in the circumstances. An equitable
interest in land is less secure than a legal interest.
16.5.1(f) Ownership of things permanently attached to land
‘Land’ is defined by legislation as including buildings on the land.3 Land also includes
various other things, but only if they are permanently attached to the ground, such as
fountains or decking, and things growing on the land, such as crops and trees.
16.5.1(g) Restrictions on an owner’s use of land
Although a person who owns land can generally use and enjoy the land as they see fit,
there may be restrictions on this right. Various kinds of laws and regulations may limit the
use of land, and ‘zoning’ is one example of this. Under zoning laws, particular areas may
be set aside for particular uses, such as industrial, residential, or commercial use. Zoning
regulations may also limit the type and size of buildings which can be constructed.
Planning schemes may also impact on land use, or permits may be required for a
landowner to do specific things on their land.
Sargent v ASL Developments Ltd; Turnbull v ASL Developments Ltd (1974) 131 CLR
634 (at 9.2.2(h) above) provides an example of land being subject to planning scheme
rules.
Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 (at 10.7.4 above) is an
example of the regulation of land use by means of permits being required, enforced by
criminal sanctions.
It should be noted that the private owner of land does not acquire the right to minerals
in the soil, which are reserved to the Crown, and only has rights to airspace above the land
to the extent of what is reasonable for ordinary use and enjoyment of the land.
Bernstein of Leigh v Skyviews & General Ltd [1978] 1 QB 479

Property law; real property; extent of owners’ rights in land; airspace
Facts: Skyviews took an aerial photograph of Bernstein’s house, which they then
offered to sell to him. Bernstein argued that in order to take the photograph
Skyviews must have flown over his land. Because they had done so without his
permission, he argued they had trespassed.
Issue: Did flying over Bernstein’s land constitute trespass?
Decision: Skyviews had not trespassed.
Reason: Bernstein’s ownership of the land extended to the airspace only as far
as necessary for his ordinary use and enjoyment of his land. After analysing the
3 Acts Interpretation Act 1901 (Cth), s 2B; Interpretation Act 1987 (NSW), s 21(1); Acts Interpretation Act 1954 (Qld),
s 36; Real Property Act 1887 (SA), s 3; Acts Interpretation Act 1931 (Tas), s 46; Interpretation of Legislation Act 1984
(Vic), s 38; Interpretation Act 1984 (WA), s 5; Legislation Act 2001 (ACT), s 2; Interpretation Act 1978 (NT), s 17.
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existing law, Griffiths J said (at 484): ‘I can find no support in authority for the view
that a landowner’s rights in the airspace above his property extend to an unlimited
height’. He said further (at 488):
The problem is to balance the rights of an owner to enjoy the use of his land
against the rights of the general public to take advantage of all that science
now offers in the use of airspace. This balance is in my judgment best struck in
our present society by restricting the rights of an owner in the airspace above
his land to such height as is necessary for the ordinary use and enjoyment of
his land and the structures upon it, and declaring that above that height he has
no greater rights in the airspace than any other member of the public.
16.5.1(h) Co-ownership of land

More than one person can be registered as owners of the same land. This is known as co-
ownership. Co-ownership can be either a ‘joint tenancy’ or ‘tenancy in common’.
(i) Joint tenancy exists where two or more persons all gain title under the same
disposition (such as a conveyance) at the same time. In a joint tenancy, all owners hold
16
the same interest and are simultaneously entitled to possession and enjoyment of the
whole property. They do not own any particular share (such as a half or a quarter) of
the land. Married persons often hold land together as joint tenants.
Joint tenants also have a right of ‘survivorship’, which means that when one joint
tenant dies, the other tenant becomes the sole owner.
(ii) Tenancy in common exists when there is separation of ownership, so each tenant
owns a particular share (such as a half or a quarter) of the property. As with joint
tenants, tenants in common are simultaneously entitled to possession and enjoyment
of the property. But they do not gain title under the same disposition, and there is no
right of survivorship.
When an interest in land is granted (by conveyance or gift) to two or more
people, legislation determines whether the co-owners are presumed to be either
joint tenants or tenants in common. Such presumptions will always be subject to the
express language of the grant.
The legislative presumptions mentioned above vary from state to state. See the
table on the next page.

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Table 16.1 Legislative presumptions regarding co-ownership of land
Jurisdiction Legislation Presumption

NSW Conveyancing Act 1919 ss 26, 27 Tenants in common
Real Property Act 1900 s 100 Torrens land: joint tenancy
Qld Property Law Act 1974 ss 35, 36 Tenants in common
SA Real Property Act 1886 s 74 Joint tenancy
Tas Land Titles Act 1980 s 44 Joint tenancy
Vic Transfer of Land Act 1958 s 30(2) Joint tenancy
WA Transfer of Law Act 1893 s 60 Joint tenancy
ACT Civil Law (Property) Act 2006 s 210(3) Tenants in common
NT Law of Property Act 2000 s 35 Tenants in common
16.5.2 Private leases of land

As an alternative to purchasing land, an individual who wants to possess and use land
might lease it from the owner.
16.5.2(a) The nature of a lease of land and buildings
A private lease of land is a contract between the owner of property and another person,
where the owner (the lessor or landlord) agrees to give the other person (the lessee or
tenant) possession and use of the land and/or buildings for an agreed period of time. The
essential characteristic of a lease is that it gives the lessee exclusive possession of the land,
but during the lease the owner retains legal ownership. Usually the lessee pays a sum of
money (the rent) in return for possession and use of the land.
To work out whether an owner of land is selling the land or merely agreeing to a lease,
it is important to consider the language used in the agreement, as this will likely reflect
the parties’ intentions. For instance, a court would consider whether words like ‘lease’ or
‘rent’ were used.
Different kinds of lease are distinguished.
(i) Fixed-term leases. A fixed-term lease is where the parties specify an end date or a
certain duration for the lease, such as two years. This is the most common type of
lease, especially for business purposes.
(ii) Periodic leases. A periodic lease or tenancy continues for specified periods of time,
for instance a month or a week. This kind of lease often exists where a fixed-term lease
proves invalid or has ended but the lessee continues possessing the land.
(iii) Tenancies at will. A tenancy at will is one that can be ended by either party at any
time without giving any prior notice.
(iv) Tenancies at sufferance. A tenancy at sufferance is one that arises by implication of
law rather than by agreement. These are not of great importance in business law.
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16.5.2(b) Sources of the law regulating the lease of land

A lease is a contract, and because of the policy of freedom of contract, a landlord and
tenant can include almost any terms in their lease that they agree to. However, special
legislation also exists to regulate different kinds of lease. For instance, retail shop leases
(for business premises where goods are sold to the public by retail) are governed by the
Acts listed below.4
Leases of premises for manufacturing or warehousing purposes do not fall within
the concept of retail or residential leases and the Acts mentioned above would not apply.
A lease for manufacturing or warehousing purposes would depend on its agreed terms and
the general law.
Residential leases (for purposes of housing) are also regulated by legislation in the
different jurisdictions.
16.5.2(c) The duties of a landlord and tenant
The duties of a landlord and tenant are determined by reference to various sources.
Firstly, some rights and duties arise from the lease agreement itself. For instance, a
lease will typically state the duration of the lease, how much rent a tenant is required to pay,
and how frequently. Secondly, in the case of particular kinds of lease, such as a residential
or retail lease, legislation also provides a number of rights and obligations for lessors and 16
lessees. Thirdly, rights and duties may also be implied into a lease by the common law.
The legislative and common law rules exist to fill any gaps in the agreed terms of
leases, and to establish minimum requirements which parties to a lease cannot contract
out of. If a lessor or lessee fails to fulfil their obligations, this will be actionable as a breach
of contract. It may also lead to a loss of property rights.
Examples of a lessee’s (tenant’s) rights and obligations are:
• The right to quiet enjoyment of the premises
• The obligation not to damage the premises, beyond reasonable ‘wear and tear’
• The obligation to return possession of the premises to the landlord at the end of the
lease.
Examples of a lessor’s (landlord’s) rights and obligations are:
• The right to re-enter the premises if the tenant does not pay the rent
• The obligation to keep the premises in a reasonable condition or state of repair
• The obligation to refrain from doing anything which will interfere with the purposes
for which the property was let.
4 Retail Leases Act 1994 (NSW); Retail Shop Leases Act 1994 (Qld); Retail and Commercial Leases Act 1995 (SA); Fair
Trading (Code of Practice for Retail Tenancies) Regulations 1998 (Tas); Retail Leases Act 2003 (Vic); Commercial
Tenancy (Retail Shops) Agreements Act 1985 (WA); Leases (Commercial and Retail Shops) Act 2001 (ACT); Business
Tenancies (Fair Dealings) Act 2003 (NT).

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Aldin v Latimer, Clark, Muirhead & Co [1892] 2 Ch 437

Property law; lease of land; obligation of landlord not to interfere
Facts: Munro owned some land and buildings where he carried on a timber business.
He leased part of the land and buildings to Aldin, with the express provision that
Aldin would continue running the timber business. With Munro’s permission, Aldin
installed some ventilators in the timber sheds. Some time later, Munro sold the
land to Latimer, Clark, Muirhead & Co, who took over as Aldin’s landlord. This
company then erected some tall buildings on the unleased part of the land. These
buildings interfered with the flow of air to Aldin’s ventilators.
Issue: Was the landlord under an obligation not to interfere with Aldin’s use of the
leased land in carrying on the timber business?
Decision: The property had been leased for the purposes of carrying on a timber
business and the landlord was under an obligation not to do anything that would
interfere with the ordinary carrying on of that business. Aldin was entitled to
compensation for the interference caused by the newly constructed buildings.
Reason: Stirling J said (at 444): ‘[W]‌here a landlord demises part of his property for
carrying on a particular business, he is bound to abstain from doing anything on the
remaining portion which would render the demised premises unfit for carrying on
such business in the way in which it is ordinarily carried on’.
16.5.2(d) Property rights in things brought by a tenant onto leased premises

Generally, anything a tenant brings onto the leased premises remains their own property,
and they have the right to remove those things at the end of the lease. But if the tenant
actually affixes something to the land or buildings that thing can become a ‘fixture’ and
may therefore become part of the land itself.
Whether or not something has become a fixture and part of the land is a question of
fact, depending on all the circumstances of the case. There are two main factors which will
be taken into account.
First, the degree of annexation is considered. If something is attached to the land or
buildings rather than resting by its own weight, then it is assumed to become part of the
premises. Something resting by its own weight, such as a pile of blocks, generally remains
the tenant’s property.
Second, the purpose of annexation (the tenant’s intention) is considered. If the thing
was intended to be attached permanently, as an enhancement to the premises, then it
becomes part of the land. But if it was attached only for a temporary purpose, or so it can
be better used or enjoyed, it is probably not a fixture. For instance, machinery that has
been attached to the floor only to stabilise it would probably remain a chattel rather than
a fixture.
16.5
Property Law415
Attorney-General (Cth) v RT & Co Pty Ltd (No 2) (1957) 97 CLR 146

Property law; lease of land; when things attached to buildings become
fixtures
Facts: In 1949, the Commonwealth government bought the block of land at 300
King Street, Melbourne. There was a three-storey building with a basement on the
land purchased, which buildings had previously been used to print and publish a
newspaper. The government took possession of the ground and upper levels of
the building, but not the basement which had been leased to a tenant. Eventually
when the government wanted to occupy and use the basement, the question arose
of who owned the machinery that had been left there by the tenant. This included
two printing presses which were bolted to the concrete foundation of the building.
Issue: Had the presses become fixtures of the building, and therefore owned by the
government, or were they still chattels and owned by the tenant?
Decision: Despite being bolted to the floor, the presses were not fixtures, but
remained chattels, and were accordingly still owned by the tenant.
Reason: Although the machinery was bolted to the building, the fixing of the
presses by means of nuts and bolts was effected for the purpose of holding them
steady when operating and for the more efficient use of them as presses. They had
not been attached for the purpose of better using the land itself, which would have
16
made them fixtures.
A tenant usually has the right to remove their fixtures at the end of a lease. Exceptions
are when removal would cause substantial damage to the property, or when the lease
indicates that fixtures must not be removed.
16.5.2(e) Ending a lease of land
There are various ways in which a lease can come to an end.
A fixed term lease naturally ends when the agreed term expires. Both parties can also
agree to end the lease before this time if they want, or they can agree to extend the lease.
If the term expires and both parties continue as during the term of the lease, but without
any express agreement to extend the lease, then the situation usually becomes one of a
‘periodic’ lease.
A periodic lease does not have any fixed end date, but can be ended by either party.
A tenancy at will can also be ended by either party, with no need to give prior notice.
16.5.3 Easements
It is possible for one landowner to have property rights over adjacent land belonging
to another person, but without acquiring the general right of possession and use that is
involved in a lease of that other person’s property. Such rights are called ‘easements’.
16.5.3(a) The nature of an easement
An easement is a real (or property) right. Being a real right, an easement is enforceable
against anyone who interferes with it.

416 Property Law
An easement exists in favour of what is called a ‘dominant’ tenement (the land which
is benefited in some way by the easement), over a ‘servient’ tenement (the land which is
burdened by the easement). They are usually neighbouring areas of land owned or occupied
by different people.
A ‘positive’ easement gives the owner of the dominant tenement a right to do some
specified thing. A ‘right of way’, which is a right to go through a specific route on someone
else’s land, is a common form of positive easement.
A ‘negative’ easement restricts what the owner of the servient tenement can do. An
example of a negative easement is a ‘right to light’. Where this exists, the owner of the
servient tenement cannot construct anything that would block the natural light reaching
the dominant tenement.
To be indefeasible, an easement must be registered on the title deeds of the servient
tenement. If it is not registered then a purchaser who becomes the registered owner of the
servient tenement will not be bound by the easement.
16.5.3(b) How easements are acquired
If there is an existing easement benefiting particular land, and if the easement is registered,
then whoever becomes registered as the owner of the land will also acquire the easement.
If there is no existing registered easement benefiting land, a new easement can be
created. There are several ways that this can be done.
• Most commonly, an easement is created by express agreement between the owners
of the dominant and servient tenements. It is then registered on the title of both
tenements.
• An easement can also be created by implication from the circumstances—either from
the conduct indicating the intention of both tenements’ owners, or by necessity.
• In some jurisdictions an easement can also be created by prescription, where the right
has been continuously exercised for a period of 20 years or more.
• Finally, the court also has the power to impose an easement where it is reasonably
necessary for the enjoyment of the relevant land and would not be against the public
interest.
16.5.3(c) How easements are exercised

The user of an easement (the owner of the dominant tenement) only has those rights
which have been expressly given, or which are necessarily implied as given. Generally the
rights will be limited according to what is reasonably necessary for the purpose for which
the easement was created. It follows from this that, although an easement does not allow
the user to exercise their rights in any way they like, it may give them the right to do
something which is disruptive or which would be a nuisance to the owner of the servient
land, such as emitting dust or creating noise.
The wording of an easement will be carefully considered to determine what is allowed.
16.5
Property Law417
Deanshaw v Marshall (1978) 20 SASR 146

Property law; easements; right of way; exercising an easement
Facts: Mr and Ms Deanshaw owned a property (the dominant tenement) on the title
of which was registered a right of way over adjoining land (the servient tenement)
owned by Marshall. Mr and Ms Deanshaw ran a business on their land and their
customers reached their premises by driving and parking their cars on the private
road over Marshall’s land. Marshall sought an injunction to stop this activity.
Marshall also wanted to erect a fence preventing such use of the right of way and
the Deanshaws sought an injunction to stop him doing so.
Issue: Were Mr and Ms Deanshaw entitled to allow customers to use the private
road on Marshall’s land and park their cars along it? Was Marshall entitled to erect
a fence?
Decision: Mr and Ms Deanshaw were entitled to allow their customers to use
the private road and park cars along it. Marshall was not entitled to erect a fence
blocking such access.
Reason: When the right of way was granted, both property owners knew that the
dominant tenement would be used for the purpose of running a business. This
meant that with the right of way was implied a right to use the private road on
Marshall’s land for the purposes of loading and unloading vehicles with goods for
16
the business, and for customers to access the business. The owner of the servient
tenement could not lawfully interfere with or impede such use of the private road.
16.5.3(d) How easements are ended

An easement can be ended (‘extinguished’) through express ‘release’ by the person who
uses it—that is, the owner of the dominant tenement. The easement is then removed from
the register of both properties.
Even without an express release, the person who granted the easement (the owner of
the servient tenement) can ask the court to extinguish the easement where the conduct of
the servient tenement’s owner shows a clear intention to abandon it.
[16.6] Property Rights in Chattels

The previous sections of this chapter explain how property rights can be acquired in
‘immoveable’ property. However, property rights can also be acquired in other things. The
largest category of things other than land is ‘chattels’.
Depending on the nature of the particular chattel in question, and the nature of the
legal right being acquired, there are many different rules that may apply. It is important to
be aware of the factors that determine the application of these special rules.
16.6.1 Defining chattels
A ‘chattel’ can be defined as any thing other than land, buildings or things permanently
attached to land or buildings, that a person might lawfully possess. From this definition,
it is apparent that a chattel is a ‘moveable’ rather than a ‘fixed’ thing. And, because it

418 Property Law
can be possessed, a chattel is, by definition, physical property rather than intangible or
‘incorporeal’ property. Simply put, ‘chattels’ generally refers to the moveable goods that a
person possesses or has the right to possess.
A chattel is sometimes referred to as a ‘chose in possession’. As noted above, the word
‘chose’ is the French word for ‘thing’. ‘Chose in possession’ simply means ‘a thing which a
person has a legal right to possess’.
16.6.2 Derivative acquisition of chattels
The most usual way in which ownership of chattels is acquired is when one person (the
transferor) transfers their rights of ownership to another (the transferee). This is called
‘derivative acquisition’ because the new owner derives their ownership from the previous
owner. For example, when a contract for the sale of goods is made, the seller of the goods
undertakes to transfer what ownership rights they have to the buyer. The seller is the
transferor of those rights, and the buyer, who is acquiring them, is the transferee. Similarly,
in the case of a gift, the donor (the transferor) transfers their right of ownership in the
chattel to the donee (the transferee).
16.6.2(a) The transfer of ownership of chattels that are bought and sold
When goods are bought and sold, ownership passes to the buyer when the parties intend it
to pass. Ownership can therefore pass even if delivery and payment have not yet occurred.
This general rule of property law has been expressly incorporated into the sale of goods
legislation of the states and territories.5
Of course, the duties of delivery and payment must be carried out when due, but
ownership in the goods often passes to the buyer before performance of those duties.
16.6.2(b) Ascertaining the intention to transfer ownership of goods bought and
sold
Intention to transfer ownership of a chattel is determined objectively. The sale of goods
legislation provides a number of rules to determine when ownership is intended to pass,
depending on the circumstances.6
Unless the particular facts of the case allow a court to draw a different inference about
what was intended, there are five general rules set out in the legislation for ascertaining
the intention of the parties regarding the transfer of ownership in goods bought and sold:
Rule 1. Where there is an unconditional contract for the sale of specific goods in a
deliverable state the property [ownership] in the goods passes to the buyer when the
contract is made, and it is immaterial whether the time of payment or the time of
delivery or both be postponed.
5 Sale of Goods Act 1923 (NSW), s 22(1); Sale of Goods Act 1896 (Qld), s 20(1); Sale of Goods Act 1895 (SA), s 17(1);
Sale of Goods Act 1896 (Tas), s 22(1); Goods Act 1958 (Vic), s 22(1); Sale of Goods Act 1895 (WA), s 17(1); Sale of Goods
Act 1954 (ACT), s 22(1); Sale of Goods Act 1972 (NT), s 22(1).
23(3); Sale of Goods Act 1972 (NT), s 23.
16.6
Property Law419
An example would be if a buyer agreed to buy 10 specifically identified items from

a supplier. In these circumstances, ownership of the items would pass to the buyer as
soon as the contract of sale came into existence.
Rule 2. Where there is a contract for the sale of specific goods and the seller is bound to
do something to the goods for the purpose of putting them into a deliverable state the
property [ownership] does not pass until such thing be done and the buyer has notice
thereof.
An example of this situation would be if a buyer agreed to buy 10 specifically
identified items from a supplier, but where the items need to be wrapped in protective
packaging for transportation. In these circumstances, ownership of the items would pass
to the buyer only after they had been properly wrapped by the seller.
Rule 3. Where there is a contract for the sale of specific goods in a deliverable state, but
the seller is bound to weigh, measure, test or do some other act or thing with reference
to the goods for the purpose of ascertaining the price, the property [ownership] does not
pass to the buyer until such act or thing has been done and the buyer has been notified.
An example of this situation would be if the buyer agreed to buy all of the
commensurable goods in a supplier’s warehouse at a price of $2.00 per unit, the quantity
of such goods being unknown at the time of the sale. In these circumstances, ownership
of the goods would pass to the buyer when all the goods in the warehouse had been
measured or counted so that the quantity is known and the price can be calculated. 16
Rule 4. When goods are delivered to the buyer on approval or on ‘sale or return’ or other
similar terms the property [ownership] therein passes to the buyer:
(a) when the buyer signifies their approval or acceptance to the seller or does any
other act adopting the transaction;
(b) if the buyer does not signify their approval or acceptance to the seller, but retains
the goods without giving notice of rejection, then if a time has been fixed for the
return of the goods on the expiration of such time and if no time has been fixed
on the expiration of a reasonable time. What is a reasonable time is a question of
fact.
An example of this situation would be if the buyer agreed to buy 10 items from
an overseas supplier on a ‘sale or return’ basis, so that they can inspect them to decide
if they suit their requirements before being bound by the sale. In these circumstances,
ownership of the items would pass to the buyer only when they signal their acceptance
of them, or fail to reject them within a reasonable time.
Rule 5. (1) Where there is a contract for the sale of unascertained or future goods by
description and goods of that description and in a deliverable state are unconditionally
appropriated to the contract either by the seller with the assent of the buyer or by the
buyer with the assent of the seller, the property [ownership] in the goods thereupon
passes to the buyer. Such assent may be express or implied and may be given either before
or after the appropriation is made.
(2) Where in pursuance of the contract the seller delivers the goods to the buyer
or to a carrier or other bailee (whether named by the buyer or not) for the purpose of
transmission to the buyer and does not reserve the right of disposal he is deemed to have
unconditionally appropriated the goods to the contract.

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An example of this would be if a buyer purchases 10 generic items by description

for $500 each from the seller. The seller says that she has 50 such items in stock, but that
she will set 10 of them aside for the buyer sometime in the following week. In these
circumstances, ownership of the items would pass to the buyer only when the seller
specifies which particular 10 items are those that this buyer has purchased, for example,
by marking them with the buyer’s name.
16.6.2(c) The passing of ownership in the case of goods not yet owned by a seller
The general rule is that a seller cannot make a buyer the owner of something that the seller
does not own. This is represented by the Latin principle nemo dat quod non habet, which
means that you cannot give what you do not have.
Wilson v Lombank Ltd [1963] 1 All ER 740 (at 16.9.1(b) below) is an example of an
attempt to transfer rights which the transferee did not, in law, actually have.
However, the general principle of nemo dat is not commercially convenient. For
example, a retailer may wish to advertise for sale items which they do not hold in stock but
will obtain as required to meet orders placed by customers.
The sale of goods legislation contains rules devised to reconcile these difficulties.
These rules do not require a seller to be the owner of goods they contract to sell unless the
circumstances of the contract show a different intention. However, a seller is bound by an
implied condition that they have or will have a right to sell the goods at the time when
ownership is to pass to the buyer; and an implied warranty that the buyer shall have and
enjoy quiet possession of the goods. In effect, these rules mean that, if a seller fails to make
the buyer the owner of the goods, and protect the buyer’s quiet possession of those goods,
then the seller is liable under the contract.
The legislation also provides an implied warranty that the goods shall be free from
any charge or encumbrance in favour of any third party not declared or known to the buyer
before or at the time when the contract is made.7
16.6.2(d) Reservation of ownership by a seller of goods
Because the transfer of ownership in contracts for sale of goods depends on the parties’
intention, it is possible for the parties to agree that ownership will be reserved to the seller
until the occurrence of some specified event. This includes the making of full payment by
the buyer, even if payment is due after delivery.
This right is enshrined in the Sale of Goods legislation.8
7 Sale of Goods Act 1923 (NSW), s 17; Sale of Goods Act 1896 (Qld), s 15; Sale of Goods Act 1895 (SA), s 12; Goods Act
1958 (Vic), s 17; Sale of Goods Act 1896 (Tas), s 17; Sale of Goods Act 1895 (WA), s 12; Sale of Goods Act 1954 (ACT),
s 17; Sale of Goods Act 1972 (NT), s 17.
8 Sale of Goods Act 1923 (NSW), s 24(1); Sale of Goods Act 1896 (Qld), s 22; Sale of Goods Act 1895 (SA), s 19(1); Sale
of Goods Act 1896 (Tas), s 24(1); Goods Act 1958 (Vic), s 24(1); Sale of Goods Act 1895 (WA), s 19(1); Sale of Goods
Act 1954 (ACT), s 24(2); Sale of Goods Act 1972 (NT), s 24(2).
16.6
Property Law421
McDougall v Aeromarine of Emsworth Ltd [1958] 3 All ER 431

Sale of goods; the right to reject goods; contract specifying time of
transfer of ownership
Facts: Aeromarine of Emsworth entered into a contract to build a yacht for
McDougall, with payment to be made in instalments. Clause 8 of the contract stated
that the yacht, together with all the materials, equipment and machinery purchased
by the builders specifically for the yacht’s construction, would become the absolute
property of the buyer upon payment of the first instalment. The first instalment
was paid on 12 November 1956, before work on the yacht had begun. After this
date, due to various problems with the yacht resulting from poor workmanship and
continuing delays by Aeromarine of Emsworth, McDougall rejected the yacht and
sued for breach of contract.
Issue: Was McDougall entitled to reject the yacht, or had it already become his
property (in which case it was too late to reject it)?
Decision: McDougall was entitled to reject the yacht.
Reason: The court recognised that it is generally possible for parties to specify in
the contract the time at which ownership in the goods will pass to the purchaser.
But when McDougall paid the first instalment work had not yet begun on the
yacht: there was, therefore, no yacht to pass to his ownership. Clause 8 therefore
16
did not preclude McDougall from exercising his right to reject the goods for serious
breach of the contract.
Diplock J said (at 1129–1130):
There is…no evidence that any goods became the property of the plaintiff on
the first instalment being paid, and it does not seem to me that on its true
construction clause 8 provides for the passing to the plaintiff of the property
in the craft, if it came to being after that date, or in any of the equipment,
materials, fittings or machinery purchased by the defendants specifically for
the construction of the craft after that date. The clause, which was no doubt
designed for the protection of the purchaser in the event of the insolvency of
the builders, thus seems to me quite inept for that purpose.
16.6.3 Original acquisition of ownership

In the previous section of this chapter, we considered the transfer of ownership in chattels
from one person to another. Now we turn to the question of how ownership of chattels
might be acquired for the first time, when there is no previous owner from whom to
receive a transfer of title. This is called ‘original acquisition’ because the rights of ownership
are acquired for the first time.
16.6.3(a) Acquiring ownership of existing but unowned things
If a person finds, gathers or catches moveable things which are not already owned or
possessed by another person, with the intention of owning them, then the person taking

422 Property Law
possession becomes the owner. This covers things like wild animals and birds, driftwood,
fish caught in the sea or rivers, etc.
If a person takes possession of a thing that is not already owned or possessed by
another person, but does not intend to own it, then they become the possessor of that
thing, but not the owner.
Whether or not a particular thing is owned or possessed by another is a question of
fact, to be determined in the circumstances of each case.
16.6.3(b) Ownership of newly created things
In general, a person who uses materials of their own to make a different category of thing
becomes the owner of that thing. For example, a carpenter who makes a cupboard by
cutting, shaping and joining pieces of their own wood will own the cupboard.
If somebody else owned the materials used to make the new thing, then questions of
ownership depend on whether the raw materials have lost their identity.
If the raw materials have not lost their identity, and the new thing can be returned
to its former state, then the owner of the raw materials may still own them. For example,
suppose A uses planks of wood belonging to B to make a bookcase, simply by placing
bricks between the planks at each end. Even though they have been made into a bookcase,
B’s planks have not lost their identity and can easily be restored to their former state.
If the raw materials have lost their identity, and the new thing cannot be returned
to its former state, then the maker of the new thing becomes its owner. For example, a
carpenter who makes a cupboard by cutting, shaping and joining pieces of wood belonging
to another person will own the cupboard, provided they did not knowingly use another
another’s materials in bad faith. But the person who owned the raw materials may be
entitled to compensation for conversion.
If the maker of the new thing acted in bad faith, such as a thief of the materials used,
then the owner of the raw materials becomes owner of the new thing, even if the raw
materials have lost their identity.
16.6.3(c) Ownership of mixtures of things
When things belonging to different owners are mixed together, ownership of the mixture
depends on whether the different parts can be identified and separated, and whether the
mixing was done with the consent (express or implied) of the owners of each constituent
part.
If the different parts can be identified and separated, then ownership of the various
parts does not change.
If the different parts can no longer be identified and separated, and provided that
the mixing was done with the consent of the owners, the former owners become co-
owners (owners in common), and their ownership is in proportion to their contribution.
If the mixture was made by one owner without the consent of the other, then the mixture
belongs solely to the other owner.
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Property Law423
16.6.3(d) Ownership of things that are joined together

If one thing is attached to another thing, ownership depends on whether they can
reasonably be separated again. If they can be reasonably separated, then ownership of each
thing is not affected. If they cannot be reasonably separated, then ownership of the smaller
thing passes to the owner of the larger thing to which it was joined.
Removal is reasonably possible where it would not cause damage, even if it would
take some time or effort to achieve.
Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd

[1984] 2 All ER 152
Sale of goods; passing of ownership; retention of ownership clause;
joining chattels to chattels
Facts: Hendy Lennox (Industrial Engines) Ltd (HL) sold diesel engines to Grahame
Puttick Ltd, and included a ‘retention of title’ clause in the contract. The clause
stated that the engines would remain the property of HL until the price was fully
paid. The engines were purchased by Grahame Puttick so that they could be
incorporated into generating sets to be sold to customers. Grahame Puttick took
possession of the diesel engines, and incorporated them into the generating sets.
16
But before they had paid the full price for the engines, the business went into
receivership.
Issue: Were the diesel engines still the property of HL despite being incorporated
into generating sets?
Decision: The diesel engines were still the property of HL and HL was entitled to
retake possession of them.
Reason: It was significant that the process of incorporation did not actually
alter or destroy a diesel engine. It was simply connected, using bolts and other
connections, to items like a generator and a fuel tank. The engine would not be
changed physically by being incorporated into the generating sets; the connections
could be undone and the engine removed within a period of hours. They therefore
continued to exist as engines, albeit connected to other things.
Note: The court observed that HL would not have been entitled to retake
possession of the engines once Grahame Puttick’s customers had purchased and
gained title to them.
16.6.4 Bailment
In this section we consider circumstances in which an owner might temporarily give
someone possession of their chattels, while retaining ownership of them. We can generally
refer to such circumstances as instances of ‘bailment’. The owner of the property is the
bailor and the person who temporarily possesses it is the bailee.
It is important to realise that the exact nature of any particular bailment depends on
the agreed purpose for which possession of the property in question is handed over.

424 Property Law
The different kinds of bailment explained in this section are:

• Bailment for reward
• Bailment for safekeeping
• Bailment for repair
• Gratuitous bailment for use.
16.6.4(a) Bailment for reward: chattel leases

The hire of chattels (bailment of chattels for reward) is restricted to durable goods that can
be returned to their owner at the end of the lease. The concept of ‘durable’ goods does not
mean that they do not suffer from any wear and tear by use, which most things do. Instead,
it means that they should not be goods that are ‘consumable’ in the sense that using them
brings an end to their existence in their original form.
The lessee of chattels has the use and enjoyment of the property for a particular
period of time, in return for payment.
At the end of the bailment, the owner has the right to take back possession of their
property.
See Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 (at 6.4.4 above)
as an example of a chattel lease.
16.6.4(b) Regulation of chattel leases
A lease of chattels is a contract, so it is created in accordance with the general principles of
contract. As soon as the essential elements of the transaction have been agreed, the lease is
effective. Unlike a lease of land, there is no need for any special formalities. In particular, a
lease of chattels does not have to be in writing to be valid.
As a chattel lease is a contract, the parties are free to negotiate their own terms. In
some circumstances, the law fills gaps in the contract if the parties have not included
certain terms. For example, the common law implies into a chattel lease that it is the
lessee’s responsibility to return the property to the lessor.
British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975]
QB 303
Property law; chattels; lease of chattels; implied obligation of hirer to
return property
Facts: Ipswich Plant Hire Ltd (IPH) arranged by telephone to hire a crane from
British Crane Hire Corporation Ltd (BCH). BCH sent a form to IPH, setting out the
conditions of the hire, including a term that said the hirer would be responsible for
recovering the crane from soft ground, and a term that the hirer would indemnify
BCH for expenses associated with use of the crane. IPH never signed or returned
the form. IPH told BCH’s driver which route to take to deliver the crane. Because
the route went over a marsh, IPH warned the driver that he would need to use
‘navimats’ where the ground was soft. The driver, rather than waiting for IPH to
16.6
Property Law425
supply the navimats, drove the crane over the marsh without them and it sank into
the soft ground. IPH recovered the crane. The following day, the driver tried again,
this time using navimats, but the crane again sank into the marsh.
Issue: BCH were responsible for the first sinking of the crane, because it had
resulted from the negligence of their own driver. But who was responsible for the
costs of recovering the crane from the marsh after it had sunk the second time?
Decision: IPH were responsible for the costs of recovering the crane from the
marsh on the second occasion.
Reason: The Court of Appeal held that the written terms in the form, making IPH
responsible for recovering the crane, were effectively incorporated into the contract.
Lord Denning MR also explained that, even without the written terms, there would
have been a term implied into the hire contract. He said (at 312):
A bailee is not liable for loss or damage which he can prove occurred without
any default on his part: but the return of the vehicle is different. It is the duty
of the hirer to return the vehicle at the end of the hiring to the owner, and to
pay the cost of doing so. Although he is not liable for loss or damage occurring
without his fault, nevertheless he is liable to do what is reasonable to restore
the property to the owner.
Because they involve a supply of goods, hire contracts are also regulated by some
16
parts of the Australian Consumer Law. This includes guarantees regarding acceptable
quality (s 54), fitness for purpose (s 55), undisturbed possession (s 52), good title (s 53),
and correspondence with samples (s 57). These implied guarantees cannot be excluded by
agreement. See Chapter 7.
16.6.4(c) Bailment for safekeeping
Even if a bailee is not charging a bailor for the storage of a thing handed over for safekeeping,
a legal relationship of bailor and bailee still arises between them. This is because bailment
for safekeeping does not require payment—it can be gratuitous (although it does not have
to be).
Gratuitous bailment for safekeeping can arise in different circumstances, for instance
using a free coatroom at a restaurant or theatre.
Because a gratuitous bailment benefits only the bailor and not the bailee, the
obligations which arise are minimal. The bailee must take reasonable care of the goods,
and typically the goods must be returned upon the bailor’s demand.
One common situation of bailment for safekeeping is when a seller of goods still
possesses them prior to delivery, although ownership has already passed to the buyer. But
in this situation the seller is treated as a bailee for reward, so they have slightly higher
responsibilities than in a gratuitous bailment.

426 Property Law
Allied Mills Ltd v Gwydir Valley Oilseeds Pty Ltd [1978] 2 NSWLR 26
Property law; bailment; gratuitous bailment; seller of goods as bailee;
duty to take reasonable care
Facts: Allied Mills sold 130 tonnes of linseed meal, which it had in store at its
premises, to Gwydir Valley Oilseeds. As the contract was for the sale of specific
goods in a deliverable state, ownership passed at the time the contract was made,
in February 1975. In breach of the contract, Allied Mills delayed in making delivery
of the meal. In March, while the meal was still in the possession of the seller, there
was a fire at Allied Mills’ shed which destroyed the meal that Gwydir Valley Oilseeds
had purchased.
Issue: Was Allied Mills responsible for the loss of the meal, even though ownership
had passed to the buyer, and even though the fire was not caused by Allied Mills’
carelessness?
Decision: Allied Mills was responsible for the loss of the meal and had to
compensate Gwydir Valley Oilseeds.
Reason: Ownership of the linseed meal passed to the buyer at the time the contract
was made. This would normally mean that the buyer would bear any risk of
accidental loss by fire as long as the seller, in possession as bailee before delivery,
had taken reasonable care of the goods. But Huntley JA said (at 29): ‘…where a
seller who is a bailee … does not deliver the goods in accordance with the contract,
as here, he cannot take advantage of his own wrong and contend that he has a
lower degree of responsibility than he had pursuant to the contract itself’. Because
it was Allied Mills’ fault that the linseed meal had not been delivered on time, they
were responsible for the loss.
Note: If the parties had agreed that the bailee would be paid for keeping the bailor’s
property safe, there would be a higher duty of care on the bailee.
Also see Pitt Son & Badgery Ltd v Proulefco (1984) 153 CLR 644 (at 6.6.3 above).
16.6.4(d) Bailment for repair
In the case of bailment for reward, both the bailor and the bailee benefit from the bailment.
In this situation, various rights and duties arise. As with gratuitous bailment, the primary
responsibility of the bailee is to take reasonable care of the goods. But in addition, the
bailee must account for any profits they make from the bailment, they must return the
goods to be bailor in accordance with any instructions (or on demand), and must return
the goods in the same condition they were received—except for any reasonable wear and
tear.
Taking reasonable care of goods requires that the bailee must keep them in an
appropriate place and protect them against any unexpected dangers. Normally, a bailee
will not be held responsible for any loss or damage to the goods, as long as they have taken
reasonable care and have only used the goods in an authorised way.
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Central Motors (Glasgow) v Cessnock Garage and Motor Co [1925]

S.C. 796
Bailment; duty to take reasonable care; unauthorised use of goods
Facts: Central Motors (Glasgow) entrusted a new ‘Swift’ car to a garage run by
Cessnock Garage and Motor Co, for them to keep it safe overnight. However, the
night watchman, Mr Thomson took the car out of the garage, for his own purposes.
He drove it to a club, became very drunk, and then took some friends for a ride in
the car. He was involved in a collision which caused damage to the car.
Issue: Was Central Motors (Glasgow) responsible for the damage caused to the car
by its employee?
Decision: As bailee, Central Motors (Glasgow) was responsible for the damage.
Reason: Cessnock Garage was held vicariously liable for Thomson’s actions,
despite Thomson acting directly against his employer’s instructions. In considering
whether Cessnock Garage and Motor Co had fulfilled its duty as bailee of the car,
the court focused on what Thompson failed to do, rather than what he did. In
particular, he failed to keep the car safe in the garage, which is what was required
16
of the bailee. Lord Sands said (at 804): ‘The defenders, having undertaken the
safe custody of the car, delegated to Thomas Thomson, their night attendant, the
fulfilment during the night of this contractual obligation, and they are liable for any
failure on his part to fulfil that obligation’.
16.6.4(e) Loan for use without payment

When a loan for use is made without any payment being required in exchange, the
agreement is not a lease, but a gratuitous bailment for use. In such cases, the bailee (the
borrower) is not responsible for any fair wear and tear to the goods. However, they are
under a strict duty to care for the goods and will be liable for any harm caused by even the
slightest negligence.
Coggs v Bernard (1703) 92 ER 107

Bailment; gratuitous bailment; obligations of bailee
Facts: Bernard entrusted several large casks of brandy to Coggs, to deliver to a
cellar. Coggs was not paid for this. Through Coggs’ negligence, one of the casks
was pierced, and many gallons of the brandy were spilled and lost.
Issue: In these circumstances, was Coggs liable to Bernard for the lost brandy?
Decision: The agreement was one of gratuitous bailment and Coggs was liable to
Bernard.
Reason: As a gratuitous bailee, Coggs had legal obligations to Bernard. In particular,
he was responsible to keep the goods that he had received into his possession safe.
Although a gratuitous bailee is not liable for damage that results from something
unavoidable (such as a natural disaster or criminal activity by someone else), the

428 Property Law
bailee will be responsible for damage that results from their own negligence or
wrongdoing. In this case, Coggs’ own carelessness had caused the loss and he was
responsible for it.
The bailee must also only use the chattel in the manner for which it has been given to
them—otherwise they will be liable for any damage that happens to the chattel.
Although the gratuitous bailee is not responsible for fair wear and tear to the goods,
they must cover any maintenance expenses arising out of their use of the chattel.
[16.7] Property Rights in Intangible Things

Until now in this chapter, we have had in mind property that has a physical existence. Such
property is often referred as ‘tangible’ property, from the Latin word ‘tangere’ (to touch),
because it is property that can be physically touched. Tangible property includes both
land and chattels. However there is another category of property to be considered, namely
intangible property. Intangible property is something which has no physical existence,
but over which property rights can be acquired and transferred. An example of intangible
property is intellectual property’—patents, copyright and trade marks.
Tangible property is sometimes referred to as a ‘chose in possession’ whereas intangible
property can be referred to as a ‘chose in action’. This reminds us that tangible property is
enjoyed through the right to possession, whereas intangible property is enjoyed through a
right of legal action in the courts.
In what follows we will consider examples of intangible property to see how they may
be acquired, what the content of such rights is, and how they are protected. The examples
to be explained are: trade marks, copyright, patents and designs.
16.7.1 Trade marks
A trade mark is a ‘sign’ that is used to distinguish particular goods (or services) dealt
with or provided in the course of trade by one person from goods (or services) dealt with
or provided by others. Common examples of well-known trade marks are those used by
motor manufacturers to distinguish their cars from cars made by others.
Trade marks that are established in relation to one kind of goods do not extend to
completely different types of things.
A trade mark may consist of any of the following things, or any combination of them:
• a letter, word, name or signature
• a numeral
• a device, brand or heading
• a label or ticket
• an aspect of packaging
• a shape, colour, sound or scent.
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16.7.1(a) Legal protection of trade marks

Trade marks do not have to be registered to be protected by the law. If a trade mark (such as
a brand name) becomes known as the ‘sign’ by which the particular goods or services of one
person are identified, then any other person who attempts to sell (passes off ) their goods
under that same trade mark may be sued under the general laws of misrepresentation,
including the provisions of the Australian Consumer Law. Notice of an unregistered trade
mark can be given by using the abbreviation TM next to the name, eg: Acme™.
However, much better protection is given if a trade mark is registered in the Register
of Trade Marks. The provisions of the Trade Marks Act 1995 (Cth) give the owner of a
registered trade mark the exclusive rights to use that trade mark in relation to the goods or
services in respect of which the trade mark is registered, as well as the right to obtain relief
under the Act if the trade mark is infringed. Notice of a registered trade mark can be given
by using this abbreviation next to the name, eg: Acme®.
A registered trade mark is personal property which can be sold, licensed or otherwise
used in the same ways as other kinds of personal property.
16.7.1(b) Registering a trade mark
The inventor of a trade mark is the owner of it, and may apply to register it provided they
intend using it in relation to their goods. The inventor does not have to be already using 16
the trade mark to proceed with the registration. The Registrar will register the trade mark
unless there are grounds for rejecting the application, such as the following:
• the proposed trade mark cannot be represented graphically
• the trade mark cannot properly distinguish the applicant's goods or services from the
goods or services of other persons
• the trade mark contains or consists of scandalous matter, or its use would be contrary
to law
• the trade mark, in relation to those goods or services, would be likely to deceive or
cause confusion
• the applicant's trade mark is substantially the same as, or deceptively similar to
another registered trade mark for similar goods or services, or such a trade mark for
which registration is being sought.
A person who opposes the registration of a trade mark can challenge the registration
by submitting a ‘notice of opposition’ setting out the grounds of their objection.
Apple Inc. v Registrar of Trade Marks (2014) 227 FCR 511

Property; intangible property; trade marks; what can be registered
Facts: In 2008 Apple Inc. (Apple) applied to register the words App Store as a trade
mark with respect to particular services. The application was first accepted, but
then revoked by the Registrar because the trade mark did not distinguish Apple’s
goods or services. Under s 41 of the Trade Marks Act 1995 (Cth), the Registrar must

430 Property Law
reject a trade mark application if the mark is not capable of distinguishing the
applicant’s goods or services from others’ goods and services.
Issue: Were the words ‘App Store’ capable of distinguishing Apple’s goods and
services from others’ goods and services in the designated category at the time of
the application for registration?
Decision: The words App Store were not capable of distinguishing Apple’s goods
and services from others’ goods and services at the time of the application.
Reason: After considering a range of expert linguistic evidence, the court found
that the words ‘app’ and ‘store’ were already known and used in the sense that
Apple used them. In particular, the word ‘app’ had a well-established meaning
as a shorthand expression for computer software that is application software (as
opposed to operating software). Likewise, the word ‘store’ had a well-established
meaning among traders and the general public that was not limited to a traditional
physical store, but included online stores for the provision of goods or services.
For instance, in preceding years, Amazon had opened a range of online stores for
e-Books, Software Downloads and e-Documents, and Apple had opened its iTunes
Music Store. Accordingly, at the date the application was made, ‘App Store’ would
have been understood by traders and the general public as simply meaning a store
where apps could be purchased. Although in later years the expression App Store
came to be strongly associated with Apple’s particular service, at the time of the
registration application in 2008, these words carried only their ordinary meaning.
The Registrar had been correct in rejecting the application.
A registered trade mark must be used, failing which it lapses. Registration also expires
after a period of 10 years but can be renewed for further periods of 10 years. This should
be done before the registration expires.
E&J Gallo Winery v Lion Nathan Australia Pty Ltd

(2010) 241 CLR 144
Property law; intangible property; trade marks; use of a trade mark
Facts: E&J Gallo Winery (Gallo) was a US- based company which had gained
ownership of a registered trade mark in Australia. The trade mark was ‘BAREFOOT’
with an accompanying image of a bare foot footprint, and was registered in relation
to wines. In 2001, 60 cases of the BAREFOOT wine bottles were shipped from the
US to Germany. 144 of these bottles were then sold from Germany to an Australian
company. It sold just 41 bottles between 2004 and 2007. In 2008 Gallo brought a
trade mark infringement action against Lion Nathan Australia Pty Ltd (LN), an
Australian company which sold beer under the name BAREFOOT RADLER, with an
image of a bare foot footprint. LN counter-claimed that Gallo’s trade mark should
be de-registered for the reason of non-use between 2004 and 2007.
Issue: Had Gallo’s trade mark been ‘used in good faith in Australia’ during the
period in question?
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Property Law431
Decision: The trade mark had been so used.

Reason: It was irrelevant that the owner of the BAREFOOT trade mark did not
themselves export the product to Australia for sale. It was also irrelevant that they
did not even know that bottles of the wine were being sold in Australia at the time.
A trade mark is a sign used to distinguish the goods of one person from the goods of
others. It is used to indicate a connection in the course of trade between goods and
the person who applies the mark to those goods. Accordingly, it must be used in the
course of trade for the purpose of generating profits and establishing goodwill. As
long as it is used in this way, this is sufficient to constitute ‘use’ of the trade mark
for the purposes of the Trade Marks Act 1955 (Cth), even though the number of sales
may be relatively small.
16.7.1(c) Infringement of a trade mark

Section 129 of the Trade Marks Act 1995 (Cth) says that ‘a person infringes a registered
trade mark if that person uses as a trade mark a sign that is substantially identical with, or
deceptively similar to, the trade mark in relation to goods or services in respect of which
16
the trade mark is registered.’
If an infringement has occurred, a court may grant an injunction, subject to any
condition that the court thinks fit; and, if the plaintiff seeks it, also damages or an account of
profits. In assessing damages, a court may include an additional amount if it is appropriate
to do so. Reasons that this may be appropriate include: the flagrancy of the infringement;
the need to deter similar infringements of registered trade marks; the conduct of the party
that infringed the registered trade mark; any benefit shown to have accrued to that party
because of the infringement; and any other relevant matters.
The Act also establishes certain offences for which penalties can be imposed.
16.7.2 Copyright
Copyright protects the original expression of ideas by giving the creator the exclusive right
to reproduce or copy the material. There are many different ways of expressing an idea,
and copyright is recognised as arising in respect not only of books, but also in relation
to screenplays and films, written and performed music, sound recordings, newspapers,
magazines, artwork, media broadcasts, and computer programs and databases. This list is
not exhaustive.
It is important to distinguish between an idea itself, which is not protected by
copyright, and the expression of an idea in an original way in a work or performance,
which is protected. Thus, the idea of a story involving a princess, a poisoned apple and a
handsome prince cannot be copyrighted, but a book telling such a story in original words,
or a song telling the story, can be copyrighted.

432 Property Law
Telstra Corporation Ltd v Royal & Sun Alliance Insurance Ltd

(2003) 57 IPR 453
Property law; intellectual property; copyright; idea not subject to
copyright
Facts: In the 1990s Telstra Corporation Ltd (Telstra) produced a television
advertisement featuring a character known as Mr Goggomobil, the owner of a rare
kind of car. The advertisement showed Mr Goggomobile using the Yellow Pages
(a Telstra product) to telephone various suppliers in search of parts he needed
to repair his car. In 2002, a car insurer owned by Royal & Sun Alliance Insurance
made a television advertisement featuring Mr Goggomobil—the same character,
played by the same actor. The advertisement showed him using the telephone to
call various insurers, looking for one who will insure his unique car. Telstra sued
Sun Alliance Insurance for copyright infringement.
Issue: Had Sun Alliance Insurance infringed Telstra’s copyright in the original
advertisement by reproducing it in a material form?
Decision: Sun Alliance Insurance had not infringed Telstra’s copyright.
Reason: The advertisements had some common concepts or themes, including the
character Mr Goggomobil, the distinctive Goggomobil car, the use of the telephone,
and the use of humour. However, the scripts for the two advertisements were very
different, as were the films themselves. Merkel J said (at 466–7):
As copyright does not protect ideas or concepts, but only the form in which they
are expressed, it is not sufficient for Telstra to establish that…[Sun Alliance
Insurance] reproduced the ideas, concepts or themes embodied in the first
Goggomobil advertisement… The copying that has occurred relates more
to the concept or theme employed in relation to the Goggomobil than to the
expression of that concept or theme.
As soon as an idea is expressed in a particular form, the creator’s interest is

automatically protected by copyright. There is no official register or application process for
copyright protection to arise.
In Australia, a copyright owner is not required to give notice that the work or
performance is subject to copyright. But this is commonly done as a deterrent to
unauthorised use, and because this may assist in enforcing the copyright internationally
under the terms of certain treaties and conventions. The symbol © is used for this purpose,
normally with the date at which the work was created.
16.7.2(a) Enforcement of copyright
The Copyright Act 1968 (Cth) gives the owner of the copyright the exclusive right to copy
their work, perform it in public, broadcast it, publish it and make an adaptation of it, or to
authorise others to do so. The exact nature and extent of the copyright depends on whether
it relates to a literary work, or an artistic or musical or some other type of work.
Generally, copyright for literary, dramatic, musical and artistic works, as well as
computer programs, lasts for 70 years from the year of the author's death or from the year
16.7
Property Law433
of first publication after the author's death. Copyright for films and sound recordings lasts
70 years from their publication and for broadcasts, 70 years from the year in which they
were made. There are various other rules concerning the duration of copyright that apply
in particular circumstances, reducing the period of protection.
If someone infringes another person’s copyright, for example by making unauthorised
copies, the copyright holder has various remedies under the Act. They can ask for an
injunction to stop the infringement, and can sue for damages (which can include both
compensatory and exemplary damages). To assist in the claim for damages, they can demand
an account of any profits made by the infringing party. They can also take possession of
any unauthorised copies of the work from the infringing party. They are even entitled to
an order authorising them to enter the infringing person’s premises to search for and take
possession of relevant documents and other materials. These are powerful remedies.
Some infringements of copyright are also made offences under the Act, for which
penalties can be imposed.
16.7.3 Patents
The Patents Act 1990 (Cth) enables the inventor of a new device, substance, method or
process to acquire a patent that gives them the exclusive right to commercially exploit that
invention for a period of time. A patent creates personal property rights.
To be patentable, the invention must be a new (novel) way of manufacturing
16
something that involves either an ‘inventive’ or ‘innovative’ step, and which is useful. The
invention must be the ‘practical adaptation’ of a principle or idea. A principle or idea itself
cannot be patented.
D’Arcy v Myriad Genetics Inc [2015] HCA 35

Property law; intellectual property; patents; the concept of ‘manner of
manufacture’.
Facts: Myriad Genetics Inc (Myriad) was granted a patent for an ‘isolated gene
sequence’ that was part of the BRCA1 gene. If a person has specific mutations
or problems with this BRCA1 gene, it is an indication that they are predisposed to
breast cancer and ovarian cancer. By using the information in the ‘isolated gene
sequence’, Myriad was able to test individuals for predisposition to these cancers.
D’Arcy, who had twice survived cancer, challenged Myriad’s patent. She argued that
the ‘isolated gene sequence’ was not an ‘invention’ that could be patented.
Issue: Was the ‘isolated gene sequence’, or the way that it was isolated from a cell,
an invention for the purposes of patent law?
Decision: No, the sequence was information rather than a product. To be
patentable, an invention must involve ‘making’ something through human action.
The information in the ‘isolated gene sequence’ was not ‘made’ by human action,
but was instead discerned.
Reason: The concept of ‘manner of manufacture’ in section 18(1)(a) of the Patents
Act 1990 (Cth) must be interpreted with the purpose of the legislation in mind. If
an invention falls within existing case law regarding the meaning of ‘manner of

434 Property Law
manufacture’, then the inventor only needs to show: 1) that the invention is a product
made, or a process producing an outcome as a result of human action, and 2) that
the invention has economic utility. But where a new kind of patent claim is being
made, then the court must consider other factors connected with the purpose of
the Act. The court held (at [28]) that, in the circumstances of this case, allowing
Myriad to claim a patent over an isolated gene sequence ‘would give rise to a large
new field of monopoly protection with potentially negative effects on innovation’. It
could also ‘have a chilling effect’ on related research activities because the class of
products as defined by the patent was potentially very broad.
A patent will not be granted if the invention is not properly described in the
application; or if it is not new (either because it was disclosed to the public before applying
for a patent, or because it has been published in an earlier patent document).
16.7.3(a) Enforcing patent rights
A patent gives the inventor the exclusive right to commercially exploit their invention
for a period of time. If the new process involves an ‘inventive’ step a standard patent is
obtainable which lasts for 20 years, after which it can be renewed. If the new process
involves an ‘innovative’ step, an innovative patent is obtainable that lasts for eight years
and is renewable.
If a patent is infringed, a court may grant an injunction and, if the plaintiff requests it,
either damages or an account of profits. Additional damages can be imposed on grounds
of the flagrancy of the infringement; the need to deter similar infringements; the conduct
of the party that infringed the patent; and any benefit shown to have accrued to that party
because of the infringement.
16.7.3(b) Property rights in designs
A design is not considered to be the same thing as an invention. The ‘design’ of a product
refers to its overall appearance, including such things as its shape, pattern and ornamentation
which together give it a unique visual look. A design cannot be patented under the Patents
Act 1990 (Cth). But there is legislation called the Designs Act 1906 (Cth) which provides
for the registration of a new and distinctive industrial design that is applicable to the
ornamentation, pattern, shape, or configuration of an article. A registered design gives the
owner the copyright in that design, and they enjoy the exclusive right to apply the design
to the articles in respect of which it is registered.
The registered owner of a copyrighted design can bring an action for an injunction
or damages against any other person who applies the design, or any fraudulent or obvious
imitation of it to any article in respect of which the design is registered.
[16.8] Using Property as a Security

If two persons enter into a contract, and one of them fails to carry out their promises, the
non-defaulting party can bring an action in contract to enforce the legal obligations owed.
For example, if a debtor owes money to a creditor and fails to pay, the creditor can sue the
16.8
Property Law435
debtor for payment or damages. However, bringing a legal action to enforce a contractual
right is a slow, expensive, and sometimes uncertain process. And it may happen that, by
the time a judgment is obtained, the defendant no longer has sufficient assets to pay what
they owe. These are major problems.
One way for a creditor to minimise these difficulties is to obtain property rights in
the debtor’s assets. If the debtor fails to perform their contractual obligations, the creditor
can then rely on the property rights to guarantee what is due. The creditor can enforce
their security right in the debtor’s property rather than having to sue based on the contract.
How this is done depends on what type of property is available to a debtor to use as
security, and what property rights it is agreed that the creditor should have.
16.8.1 Registered mortgages of land
It is possible for a debtor to provide a creditor with property rights in their land as a
security, without losing the right to possess and use the land. An agreement of this kind is
referred to as a ‘mortgage’ of the debtor’s land.
A mortgage of Torrens title land takes the form of a ‘charge’. This means that the
debtor’s land is designated as being subject to the debt, and available to discharge it if
the debtor fails to pay. The debtor does not need to give up possession and use of the
mortgaged land.
A mortgage is created by contract between the mortgagor (the debtor) and mortgagee
16
(the creditor). A mortgage must therefore meet all the requirements of contract formation
to be enforceable. Because it creates an interest in land, a mortgage must also be in writing.9
For Torrens land, registration is also important. Registration of the mortgage creates
a statutory charge over the land, ensuring that the mortgagee gains a legal interest in the
property and thus giving the creditor the best protection. If a mortgage is not registered,
then it is considered to be only an ‘equitable’ mortgage, and enforcement by the creditor is
less certain than in the case of a registered mortgage.
Commercial Bank of Australia v Amadio (1983) 151 CLR 447 (see 10.4.3) provides an
example of a registered mortgage of land given as a security.
16.8.1(a) Enforcing a registered mortgage of land
A mortgagee’s interest in the mortgaged land is a right of foreclosure if the mortgagor
defaults on the loan. This does not mean that the mortgagee automatically takes legal
ownership of the land. Rather, foreclosure refers to a process whereby the mortgagee can
apply to have the land sold and the proceeds of the sale used to repay the debt still owed.
The mortgagor is then entitled to receive any extra money from the sale.
A discharge of the mortgage is also registered, to remove the charge from the title of
the land.
9 Legislation requires that any instrument creating an interest in land must be in writing: Conveyancing Act 1919
(NSW), s 23C; Property Law Act 1974 (Qld), s 11; Law of Property Act 1936 (SA), s 29; Conveyancing and Law
of Property Act 1884 (Tas), s 60; Property Law Act 1958 (Vic), s 53; Property Law Act 1969 (WA), s 34; Civil Law
(Property) Act 2006 (ACT), s 201; Law of Property Act 2000 (NT), s 10.

436 Property Law
There are particular steps that a mortgagee must take when exercising their right of
foreclosure. For instance, legislation sets out the required notice period. A mortgagee must
also exercise reasonable care to obtain the best possible price when the property is sold.
Pendlebury v Colonial Mutual Life Assurance Society Ltd

(1912) 13 CLR 676
Property law; property as a security; mortgages; mortgagee’s right of
foreclosure
Facts: Pendlebury mortgaged his rural property to Colonial Mutual Life Assurance
Society Ltd (CMLA). When he defaulted on the loan repayments, CMLA exercised
its right of foreclosure and sold the property by auction. CMLA only advertised the
land in Melbourne city newspapers, and made no effort to advertise locally. The
advertisement included almost no details about the land. As a result, the land sold
for much less than it was worth and the sale price was sufficient only to cover the
debt to CMLA. Pendlebury sought to recover the difference between the sale price
and the price that could have been received if CMLA had acted with more care.
Issue: Had CMLA acted sufficiently in the interests of the mortgagor Pendlebury
when selling the land?
Decision: CMLA had been reckless and had disregarded Pendlebury’s interest
when selling the land. CMLA was ordered to compensate him for the loss they had
caused.
Reason: When exercising their right of foreclosure, ‘a mortgagee must not
recklessly or wilfully sacrifice the interests of the mortgagor and…if he does he
is to be regarded as not having acted in good faith.’ In this case, CMLA had been
reckless by not advertising the land locally and by not providing information which
would inform and attract potential buyers.
16.8.2 Chattel securities

We now turn to consider how property rights in a debtor’s chattels can be used to guarantee
that a creditor will be paid what is due.
16.8.2(a) Securities involving durable chattels
Durable chattels can be used to provide valid security arrangements in various ways. The
suitability of each alternative will depend on the particular circumstances of each case.
(i) The debtor agrees to sell the chattel to the creditor, but subject to an agreed right to
repurchase it when the debt is repaid. Historically, this type of agreement was known
as a ‘chattel mortgage’.
From the creditor’s point of view, this type of agreement provides good security,
because they acquire full rights of ownership of the property, subject only to the
debtor’s right to repurchase. If the debtor defaults, the creditor, as owner, can sell the
property to recover the debt. Any excess monies received must be paid to the debtor.
16.8
Property Law437
From the debtor’s point of view, the arrangement is less attractive. Having made
the creditor owner of the property, the debtor takes the risk that the creditor will
deal with it improperly. Also, as owner, the creditor has the right to possession of the
property, and if the debtor wants to remain in possession, this will have to be agreed.
Finally, such an arrangement can only be entered into with one creditor, even if the
property is worth much more than the debt owed.
(ii) The debtor remains owner of the chattel, but agrees to hand over possession of it until
the debt is repaid. Historically, this type of agreement was known as a ‘pledge’.
From the creditor’s point of view, this type of agreement provides satisfactory
security because they have physical control of the chattel and, if the debtor defaults,
the creditor may sell it, acting on behalf of the debtor. Proceeds received from the sale
are applied first to discharge the debt, with the rest going to the debtor.
For the debtor the disadvantages of this type of security are, firstly, doing without
the use of whatever chattel is handed over to the creditor; and secondly, that the thing
can only be given to any one creditor at a time, whatever its value.
(iii) The creditor, who is for some valid reason already in possession of property belonging
to the debtor, is entitled to keep possession of that property until the debt owing is
paid. This right, which is historically known as a ‘lien’, often arises by operation of law.
16
Hammerstone Pty Ltd v Lewis [1994] 2 Qd R 267
Property law; property as security; solicitor’s lien
Facts: Lewis acted as solicitor for Hammerstone Pty Ltd. Lewis presented
Hammerstone with a bill for $2700 but Hammerstone refused to pay, saying
the amount was excessive. By law, Hammerstone’s failure to pay gave Lewis a
possessory security (known as a ‘solicitor’s lien’) over Hammerstone’s documents.
This lien entitled Lewis to keep the documents until the debt was paid. Later,
when Hammerstone sued Lewis for negligence, Lewis refused to produce these
documents for Hammerstone to inspect, relying on the lien.
Issue: Did Lewis’ lien over the documents mean that he did not have to allow
Hammerstone to inspect them for the purposes of the negligence dispute?
Decision: Despite the lien, Lewis had to allow Hammerstone to inspect the
documents, provided Hammerstone deposited a sum of money to be held by the
court.
Reason: An unpaid solicitor has a lien over the client’s documents but there are limits
on this lien, depending on the interests of justice in the particular circumstances.
The lien cannot be relied on to frustrate a legal action where the documents
are important evidence, as in the negligence action against Lewis. However,
to order Lewis to produce the documents would be to make the lien worthless.
Shepherdson J decided on a compromise: Rather than order Hammerstone to pay
the full outstanding bill of $2700 (the amount being in dispute), Hammerstone was
required to pay $2000 to the court as security, and in return Lewis was ordered to
allow Hammerstone to inspect the documents.

438 Property Law
(iv) The debtor remains the owner and in possession of the chattel, but agrees with the
creditor that the chattel be designated as ‘charged’ with the debt, and that it will be
made available to secure repayment if the debt becomes overdue. Historically, this
type of agreement was known as a ‘hypothec’ or ‘charge’.
From the creditor’s point of view, this type of agreement provides satisfactory
security because chattels of sufficient value are specifically identified as being available
to be sold should the debt remain unpaid. At the same time, the creditor does not
have to look after the charged things, which remain owned by, and in the possession
of, the debtor. Of course there is a risk that the debtor will deal improperly with the
charged assets.
From the debtor’s point of view, the arrangement is attractive. They remain
owner and possessor of the charged assets, and so can continue to use them. If the
assets are sufficiently valuable, they can also charge them with more than one debt.
16.8.2(b) Securities involving consumable chattels
Consumable chattels can also be effectively used to provide security for the payment of
a debt. In particular, an identified ‘class’ or ‘group’ of consumable chattels can be used as
a security, even though individual items within this class are continuously changing. The
value of the class of assets is the amount of money they are likely to be worth at any given
time, notwithstanding fluctuations.
The appropriate arrangement is that the class of assets is ‘charged’ with the debt. This
leaves the debtor as owner and in possession, free to use and replace the assets. Only when
the debt in question becomes overdue does the charge become ‘perfected’ so that it can be
enforced by selling those assets on behalf of the creditor.
Historically, such agreements were referred to as ‘floating’ charges, because the charge
was thought of as floating above the identified class of assets until, the debt becoming
overdue, the charge became perfected (or ‘crystallised’ or ‘fixed’ in the older terminology).
16.8.2(c) Statutory regulation of chattel securities
In addition to the types of chattel security arrangement already described, there are many
other kinds of agreement involving chattels (and other personal property) that can be
used for the purposes of securing payment of a debt. Historically, chattel securities were
distinguished by name, and each of them was subject to quite complex common law and
statutory rules.
More recently, Commonwealth legislation has simplified the approach to all chattel
securities, with the added advantage that the rules are now uniform throughout Australia.
The relevant Act is the Personal Property Securities Act 2009 (Cth) (PPSA), which
commenced operation on 30 January 2012. Under this Act, a generalised approach is taken
to the regulation of all kinds of chattel security arrangements. For this purpose, a new
terminology has been established.
Grantor. This term is used to describe the person giving the security. Generally, the debtor
will be the grantor of the security.
16.8
Property Law439
Secured Party. This term is used to describe the person who is acquiring the security.
Generally, the creditor will be the secured party.
Collateral. This term is used to describe the property used as the basis of the security
agreement. In our examples thus far, we have had in mind tangible chattels as the collateral,
such as motor vehicles, watercraft, aircraft, crops, livestock and other goods. However
intangible chattels can also be used as collateral and this possibility will be dealt with
below.
Security Interest. This term is used to describe the particular rights that the secured party
acquires in the relevant chattels. The legal nature and extent of the security interest will vary
with the terms of the security agreement. For example, we have seen how, by agreement,
the secured party might become either the owner or the possessor of the collateral, or the
collateral may merely be ‘charged’ in favour of the secured party.
Attachment. This term describes the moment when the collateral becomes subject to the
security interest. For example, attachment will occur when the grantor and the secured
party enter into a written security agreement (if any). But attachment may occur at
different times.
Perfection. This term describes the process by which a security interest becomes enforceable
16
against third parties and the grantor (or the insolvent grantor’s representative). Perfection
can occur in a number of ways. The most important way this happens is by registration
in the Personal Property Securities Register (PPSR). This is a national online register for
the registration of all security interests in personal property which can be searched at any
time. An alternative method of perfection is taking possession or control of the collateral.
16.8.2(d) Enforcement of chattel securities
Chattel securities are enforced under the provisions of the Personal Property Securities
Act 2009 (Cth) (PPSA). The PPSA provides for the enforcement of a chattel security by
empowering the secured party either to retain or to dispose of the collateral. The general
principles of enforcement apply to all kinds of security agreement. The secured party must
give notice, in an approved form, both to the grantor of the security and to any other party
with a prior security interest in the same collateral. This gives them an opportunity to raise
any objections.
The proceeds of any sale are used to pay all secured debts, in the order in which they
have priority. Any residue is returned to the grantor.
In enforcing their rights, the secured party must exercise their rights honestly and in
a commercially reasonable manner.
[16.9] Enforcement of Property Rights

The owner of property rights may enforce them by bringing an action in the courts. An
owner of property is entitled to assert and enforce any of their ownership rights against
any other person who interferes with them, for example by recovering possession of their
property from another person who cannot claim a better right to possession (such as a
lessee). The same rights of enforcement exist for holders of other property rights, not just

440 Property Law
owners. Establishing property rights may also provide a defence to an action brought by
another person.
The first requirement of any such action or defence is to prove the existence of the
property right relied on. This can be done in various ways. In some cases, there will be
documentary evidence of title. In other cases, there will be entries in registers. Actual
possession of property also raises an inference that the possessor is entitled to be in
possession; this can only be disturbed by another person if they are able to establish, in
court, a better right to possession.
A person who is able to establish that they have real rights in property can ask the
courts for different kinds of relief, depending on the circumstances.
Declaration of rights: In the event of a dispute as to the existence of particular property
rights, the parties can ask a court to declare what legal rights they in fact have. This may
be sufficient to resolve the dispute without further legal action. An example would be a
declaration determining who is the owner of particular property.
Action for possession: If a person is entitled to possession of property, and some other
person is depriving them of that possession, they can bring an action in court seeking
an order that the property be restored to them. An example would be an order for the
return of property to its owner at the end of a lease, in the event that the property was not
returned voluntarily.
Right of disposition: The right to dispose of property by selling it and keeping the
proceeds (either in whole or in part) might belong to the owner, or to some other person
to whom that right has been granted by the owner, such as in the case of property given
as security.
Injunctions: A court may issue an order, at the request of a party to a dispute, prohibiting
particular conduct that is, or would be, a breach of the law. An example is an order
prohibiting wrongful interference by one person with another person’s property rights.
16.9.1 Protection of property rights in tort law
As explained in Chapter 12, tort law provides a right of action in various circumstances
where interference by one person with property rights of another is viewed as wrongful
conduct. The specific torts to be considered again here are:
• Trespass to land
• Trespass to chattels
• Conversion
• Detinue
• Nuisance.
16.9.1(a) Trespass to land

The tort of trespass to land protects a person's interests in real property against physical
intrusion. For the purposes of this tort, ‘land’ includes the land itself, structures built on the
land, things attached to the soil, and the airspace (to a reasonable extent) above the land.
An action for trespass to land is available to a person in possession of land, even if they do
not own it. This includes a tenant.
16.9
Property Law441
Newington v Windeyer (1985) 3 NSWLR 555

Tort; trespass to land; rights of possessors
Facts: Windeyer (together with other persons) was the owner and occupier
of properties next to some land called The Grove. The Grove was an asset in a
deceased person's estate. Windeyer had no title to The Grove, but claimed to be
in possession of it. Windeyer had treated this land as his own for nearly 50 years,
pruning trees, employing someone to cut the grass, and paying the rates. Then
Newington, who owned another property adjoining The Grove, rebuilt her fence to
give herself access to The Grove. Windeyer brought an action in trespass against
her.
Issue: Did Windeyer, as possessor rather than owner of The Grove, have the right
to sue in trespass?
Decision: Windeyer was entitled to sue in trespass even though he did not own The
Grove.
Reason: The trial judge found that Windeyer was in legal possession of The Grove,
and was able to sue in trespass on the basis of his possessory title. The Court of
Appeal upheld this finding.
See Bernstein of Leigh v Skyviews & General Ltd [1978] 1 QB 479 (at 16.5.1(g) above)
16
as an example of trespass in relation to airspace.
It may be implied in some circumstances that the possessor of land consents to others
entering onto their land. Such consent would certainly be given by a shop-owner to a
member of the public. But that consent may be withdrawn, by giving appropriate notice
to the individual concerned. If that person does not leave when requested, their continued
presence will constitute trespass.
Plenty v Dillon (1991) 171 CLR 635

Tort; trespass; withdrawal of occupier's consent to entry
Facts: Plenty, the owner and occupier of a small farm, expressly forbade Dillon, a
constable, from entering his land. Dillon wanted to enter the land to serve some
legal documents on Plenty.
Issue: Did Plenty have the right, in these circumstances, to forbid entry onto his
land by Dillon?
Decision: Although there are some exceptions to an owner’s right to withdraw
consent to a policeman entering onto their property, depending on the nature of the
documents being served, in the present case Plenty had the right to forbid entry
onto his land by Dillon.
Reason: Gaudron and McHugh JJ said (at 647):
A person who enters the property of another must justify that entry by showing
that he or she either entered with the consent of the occupier or otherwise
had lawful authority to enter the premises ... In Robson v Hallett [1967] 2 QB

442 Property Law
939 at 951, Lord Parker CJ said: ‘The occupier of any dwelling-house gives
implied licence to any member of the public coming on his lawful business to
come through the gate, up the steps, and knock on the door of the house.’ This
implied licence extends to the driveway of a dwelling house: Halliday [Halliday
v Nevill (1984) 155 CLR 1]. However, the licence may be withdrawn by giving
notice of its withdrawal. A person who enters or remains on property after the
withdrawal of the licence is a trespasser.
The onus rests on the alleged trespasser to prove that they did not voluntarily intrude
onto the possessor's land, either intentionally or negligently. Mistake is not a defence.
The plaintiff does not need to prove any actual harm, damage or loss as a result of
the defendant's intrusion. If damage does result from the trespass, the plaintiff can claim
compensatory damages. Otherwise, an 'injunction' can also be sought to prevent further
intrusions. A declaration of rights may provide sufficient relief. Furthermore, 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.
16.9.1(b) Trespass to chattels
The tort of trespass to chattels protects possession of property rather than ownership.
An action is available to anyone whose actual possession or physical control of goods is
interfered with. The interference must be direct (rather than indirect) and must be either
intentional or negligent.
It is a trespass to chattels even if the goods in question are merely moved, or if the
defendant simply but intentionally comes into contact with them in a way that interferes
with the plaintiff 's possession. It is not necessary that the person entitled to possession is
deprived of possession.
Wilson v Lombank Ltd [1963] 1 All ER 740

Tort; trespass to chattels; wrongful interference with another's right
of possession
Facts: Wilson bought a car from a person who did not own it. The seller was
therefore unable to make Wilson the owner. Wilson took the car to a garage for
repairs. Lombank approached the garage believing the car was his, claimed to be
the lawful owner and took it away. Later, Lombank discovered that another person
was the legal owner. Lombank handed the car to that person. Wilson brought an
action against Lombank for trespass to goods, claiming that although he (Wilson)
was not the owner of the car, he was entitled to possession of the car at the time
that Lombank took it away from the garage. Lombank argued that Wilson was not
in possession of the car.
Issue: Had Lombank wrongfully interfered with Wilson's right of possession?
Decision: There had been a wrongful interference with Wilson's right of possession.
Reason: The court held that, although Wilson had given the car to the garage for
repairs, he had retained the right to immediate possession. Lombank had therefore
16.9
Property Law443
dealt with the car wrongfully and this was a trespass to Wilson's chattel. Wilson
was awarded damages.
If a trespass to chattels is proved, a court would either make a declaration of rights,

or award purely nominal damages. The plaintiff could also seek an injunction to prevent a
recurrence of the trespass. If the property is damaged or destroyed, the plaintiff can claim
damages to compensate for the loss.
16.9.1(c) Conversion
Conversion consists of intentionally exercising control of goods to deny another person's
right of possession. For example, the purchaser of identified goods in a deliverable state
normally becomes the owner of those goods as soon as the terms of the sale are agreed
(see 16.6.2(b) above). If the right to payment has been deferred by agreement until after
delivery, but the seller refuses to deliver the goods without payment, this constitutes a
conversion of the buyer’s goods.
Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204

Tort; conversion; interference with proprietary rights 16
Facts: Penfolds sold its wines in bottles that were permanently embossed with
its name. Purchasers of the wine were supposed to return the empty bottles to
Penfolds, which remained owner of the bottles. Some purchasers of Penfolds wine
kept the bottles and used them to buy wine from Elliott, an hotelier, who would fill
empty bottles brought to him with his own bulk supplies of wine. Penfolds sought
an injunction against Elliott, to stop him doing this. Issue: Did Elliott's conduct
amount to conversion of Penfolds' bottles?
Decision: Elliott's conduct did not amount to conversion.
Reason: Dixon J said at 229, 230:
The essence of conversion is a dealing with a chattel in a manner repugnant
to the immediate right of possession of the person who has the property or
special property in the chattel... [D]‌amage to the chattel is not conversion,
nor is use, nor is a transfer of possession otherwise than for the purpose of
affecting the immediate right to possession, nor is it always conversion to lose
the goods beyond hope of recovery. An intent to do that which would deprive
'the true owner' of his immediate right to possession or impair it may be said
to form the essential ground of the tort. There is nothing in the course followed
by the [defendant] in supplying wine to his customers who brought bottles
to receive it involving any deprival or impairment of property in the bottles,
that is, of the immediate right to possession. The re-delivery of the bottles
to the persons who left them could not amount to a conversion...because...its
purpose was not to confer any right over the property...but merely to return or
restore them to the person who had left them there to be filled...It was not an
act derogating from the proprietary right of the [plaintiff].

444 Property Law
A plaintiff can ask for the full value of the chattel at the date of the conversion and is
also entitled to claim compensation for any further losses that may have resulted from the
conversion (for instance, loss of trade or profits that would have derived from use of the
chattel). And a court may also award punitive damages (damages intended to punish the
defendant) if the conversion is a particularly serious one.
16.9.1(d) Detinue
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. To establish detinue it must be shown that, for whatever reason, the
defendant has unconditionally and unequivocally refused to return the goods as requested.
Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993)

Aust Torts Reports 81–244
Tort; conversion and detinue; refusal to return another's goods
Facts: Fytore leased three packaging machines from Flowfill. Fytore then defaulted
on the lease. This entitled Flowfill to demand the return of the machines within
10 days. After some delay, Flowfill formally terminated the lease and demanded the
return of the machines. Negotiations followed, but did not succeed. The machines
were not returned and Flowfill did not attempt to collect them.
Issue: Was Fytore liable for conversion or detinue of the machines?
Decision: In the circumstances, the failure to return the machines after the formal
termination of the lease constituted a conversion of the machines by Fytore, but
not detinue.
Reason: Detinue requires an unconditional and unambiguous refusal to return the
goods in question. The court held that it was sufficient for the defendant to make
the goods available to the plaintiff by saying where they were and indicating that
repossession would not be obstructed. Flowfill knew where the machines were and
could have collected them without hindrance.
There are various alternative remedies available. 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 losses suffered as a result of the failure to restore the goods when
asked.
Note: There can be an overlap between the torts of conversion and detinue, depending
upon the facts of the case.
16.9.1(e) Nuisance
Private nuisance involves one person interfering with another person's recognised rights in
their property—for example, the use or enjoyment of their land—even if the conduct does
not physically harm the property in question.
16.9
Property Law445
Interference is only actionable as a nuisance if it is unreasonable and substantial—

a greater interference than a plaintiff should reasonably be expected to tolerate in the
circumstances. In deciding this question, a court would 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 noise must be expected in industrial areas, or
during daylight hours when factories normally operate.
The right to an action for nuisance belongs to the person who is in possession of
the property in question. This person can sue for an injunction to stop the nuisance from
continuing, and for damages if they can show that the nuisance has caused them actual
harm.
16.9.2 Criminal offences involving property
Criminal law in Australia is a large and complex area of law, with many differences
between the various Commonwealth and state jurisdictions. For present purposes, it need
only be explained that there are various criminal offences involving property and some of
these have the effect of safeguarding private property rights. The most obvious example is
the crime of theft. While it is in the interest of the community generally to prohibit the
unlawful taking of another’s property, the holder of private property rights also benefits
from this law. If one person believes that another has stolen their property, they can report
the matter to the police for investigation and prosecution and, if it is recovered, they may
16
have the property returned to them.
There are many other specific crimes involving property, too numerous to mention
here. In addition to theft, another example of a property-related offence is recklessly
damaging property belonging to another person. Offences involving damage to property
include arson (damage by fire); defacing property (by marking or writing on the property)
or posting bills (for example, putting up promotional posters); tampering with a motor
vehicle (for example by interfering with a door lock or a car aerial); and making threats to
damage or destroy property.
16.9.3 Regulations affecting the use of property
As explained in 16.5.1(g) above, zoning (an aspect of Administrative law) may regulate
how property can be used. The relevant government authority for a particular area can
restrict the purposes for which land in that area can properly be used. Such zoning
restrictions limit a landowner’s normal right to use their property in any way they wish.
Commonly encountered uses for which land is zoned are: residential purposes;
commercial activities; industrial activities; agriculture; transport; and mixed activities. If
land is zoned for one specific type of use, other activities are not permitted within that
area, at least not without a special permit.
When a breach of regulations occurs, a report can be made to the relevant authority
(such as a local council) which has the responsibility of enforcing their zoning regulations.
[16.10] Checklist: An Approach to Property Law Questions

The rules of property law are complex. The following checklist will help you to approach
property law questions in a methodical and manageable way.

446 Property Law
Step 1
What type (category) of property (thing) is involved?
• Land
• Chattels
• Intangible property
• Money
Step 2
What kind of property right is relied on by the person seeking relief?
• Ownership
• Possession
• An easement
• A security interest
Step 3
Is the acquisition of the property right in question disputed?
• Were all the necessary legal requirements for acquisition of the property
right fulfilled?
• Is there sufficient evidence of the facts on which the acquisition relies?
Step 4
What kind of infringement of the property right is being claimed?
• What is the nature and extent of the infringement?
Step 5
Are the property rights of the person claiming relief limited or regulated
in some way to an extent that affects the right to relief?
• Does the limitation exist by agreement or by law?
Step 6
What relief is sought by the person whose rights have been infringed?
• Is such relief available in the known circumstances, either in property
law, tort law, the criminal law, contract law or legislation?
• What limitations exist on the availability of relief?

After studying this chapter you should be able to answer questions like the following.
1. What is the difference between ‘real’ rights and ‘personal’ rights? How are personal
rights enforced? How are real rights enforced?
2. What is the difference between ownership and possession? What is the normal
relationship between ownership and possession? In what circumstances might rights
of ownership and possession belong to different persons?
16.11
Property Law447
3. What things are regarded in law as immoveable property? What is the ‘Torrens’
system? How is ownership of Torrens land acquired?
4. How is a lease of land created? What rights and duties generally exist between a
landlord and a tenant? How is a lease of land ended?
5. What is meant by the term ‘chattels’? What is the difference between original and
derivative acquisition of chattels? Give examples of both. What rules govern the
original acquisition of chattels?
6. In the case of goods bought and sold, what rules govern the transfer of ownership from
buyer to seller? What factors might delay the passing of ownership in goods bought
and sold? What is the relationship between ownership, possession and delivery of
goods bought and sold?
7. What is ‘bailment’? What different kinds of bailment are recognised in Australian
law? What legal rights and duties does a bailee have?
8. What is a security transaction? In what different ways can land or chattels be used as
security? Is it possible for property to be used as a security without the owner losing
the right of possession and use?
9. What is the difference between tangible and intangible property? What kinds of
intangible property are recognised in Australian Law? 16
10. What is an ‘easement’? Is it correct to say that an easement is a kind of bailment?
How are easements created and ended?
11. In what different ways does tort law assist in the enforcement of property rights?

e modules.

CHAPTER 17
Business Organisations
In this chapter:
• Choosing a business structure
• Business names
• Different ways of organising business operations
– Sole traders
– Trusts
– Partnerships
– Joint ventures
– Private companies
– Public companies.
[17.1] Introduction
17.1.1 What different kinds of business structure are available?
There is more than one kind of business organisation in Australia. No one of these provides
the best solution in all circumstances. The best option for a particular business depends on
the nature and scope of its operations, its financial and organisational needs, and its other
concerns such as tax liability and legal responsibilities.
Each type of business organisation also has limitations, constraints and overheads
that need to be taken into account. The attractive aspects of a particular option may be
offset by other burdensome or limiting factors. The choice of a particular type of business
organisation may therefore be a matter of compromise; taking account of the current state
of the business, and knowing that, as circumstances change, the legal structure of the
business may also need to be changed.
In this chapter, the major differences between sole proprietorships, trusts, partnerships,
joint ventures and companies are outlined and explained. The eStudy module Business
Organisations uses an extended case study to help you understand the significance of
different business models in a practical context.
17.1
450 Business Organisations
17.1.2 What are the sources of the law of business organisations?

The law of business organisations is found both in the common law (case law) and in
legislation. Some of the legislation is detailed and complex, for example, the Corporations
Act 2001 (Cth) which sets out detailed rules governing companies. Also important are
the state and territory Partnership Acts. The details of statutory provisions are beyond the
scope of this chapter, which is intended to be descriptive and comparative, but reference
will be made to some key provisions.
17.1.3 What are business names? How are they regulated?
A business name is the name under which a person conducts a business in Australia. If
a person uses their own name as their business name, they need not register that name.
However, if a business name consists of anything other than the name of the person
or persons conducting the business, then under the provisions of the Business Names
Registration Act 2011 (Cth) the business name must be registered. This requirement
applies to different types of business organisations, such as sole traders, partnerships and
joint ventures. A corporation can register a business name, but a trust cannot (unless it is
also a corporation).
Generally, the person registering a business name may choose what name they wish
to trade under. However, there are certain restrictions. For example, a business name will
not be registered if it might be confused with another similar registered name, if it is the
same as the name of another Australian company or if it is offensive or misleading.
Although persons who conduct a business in their own name are not required to
register that name, they are permitted to do so; and having a registered business name
often makes it easier for that business to secure banking and other services.
In the past, there were separate state and territory registers of business names. Since
28 May 2012, a new national registration service has come into effect, administered by
the Australian Securities and Investments Commission (ASIC). This means that there is
now only one national register of business names in Australia. Business names previously
registered in the separate state and territory registers have been transferred to this new
register.
The new system allows persons conducting a business to connect to the ASIC website
(www.asic.gov.au) to check the availability of the name they want, register, renew or
change their business name, pay the prescribed fee and, in most cases, receive immediate
confirmation of their registration. Once registered, the business name appears on the public
register so people can determine the Australian Business Number (ABN) and the name of
the individual, company, registered body or other organisation behind the business name.
When a business name is registered, the proprietor must:
• display the name of the business in an obvious position outside the registered business
address
• start trading within three months of registering the business name, and
• renew registration of the business name every three years.
17.1
Business Organisations451
[17.2] Sole Traders

17.2.1 Ownership and management
A sole trader is a person who owns and operates a business on their own. A business
operated by a sole trader can be called a ‘sole proprietorship’. A sole trader decides how
to run the business and assumes all of the responsibilities associated with running the
business. By definition, a sole trader cannot share the ownership or liabilities of their
business with another person.
17.2.2 Formalities
As long as the business owner is operating the business in their own name, there are no
formalities prescribed by the law and there is no special legislation that governs this type
of business organisation. However, if a sole trader is not operating the business under their
own name, they must register the business name under which they are trading.
17.2.3 Legal rights and liabilities of a sole trader
Legally, there is no distinction between the person operating as a sole trader and their
business. Accordingly, an owner of a sole proprietorship owns the assets that are used for
the business. All of the legal rights and liabilities acquired in the course of a sole trader’s
business accrue directly to, and are enforceable against, the owner of that business.
17.2.4 Raising capital
A sole trader must finance their business operations, either from their own capital resources
or by raising personal loans. A sole trader does not have access to the wider capital-raising
possibilities that are available to some other types of business organisations. 17
17.2.5 Employees
Sole traders can employ people to work for them or contract with independent contractors
for the supply of services. When dealing with employees, a sole trader is responsible for
making compulsory superannuation contributions, as well as paying payroll taxes and
workers compensation fees.
17.2.6 Entitlement to profits
The profits made by a sole trader in the course of business belong directly to the sole trader.
Such profits are part of the sole trader’s income and must be included on their personal tax
return. Deductions can be made for allowable expenses, after which the profits are taxed at
the sole trader’s personal marginal rates.
A sole trader is not considered to be an employee of their business. Any business
income that a sole trader uses for personal expenses is not tax-deductible as wages.
17.2.7 Use of identifying numbers
A sole trader is entitled to obtain and use various identifying numbers, in particular an
ABN and a Tax File Number (TFN).

17.2.8 Sole traders and GST collection

In Australia, businesses with a turnover of less than $75,000 per annum are not required
to collect goods and services tax (GST), but any business with an annual turnover that
exceeds this amount must register for GST purposes and account for the relevant taxes.
17.2.9 Transforming a business structure
It is often convenient to start a small business as a sole trader because of the relative
simplicity of this structure. If the business outgrows this initial structure, it can be
transformed into a more suitable type of organisation at a later date.
[17.3] Trusts
17.3.1 The concept of a trust
A trust is created when one person, called the ‘settlor’, transfers the legal ownership of
specified assets to another person, called the ‘trustee’, with instructions that the assets are
to be administered for the benefit of persons identified as the ‘beneficiaries’ of the trust.
This can be illustrated in a simple diagram.
Table 17.1 The structure of a trust
Settlor Trustee Beneficiary

The settlor transfers assets to The trustee becomes the legal The beneficiary has the
the trustee. owner of the assets. ‘beneficial’ rights of ownership,
The settlor no longer owns The trustee administers the but not the ‘legal’ ownership, of
those assets. assets for the benefit of the the trust assets. There may be
beneficiary. more than one beneficiary.
Note: The settlor, trustee and beneficiary can all be the same person, provided that there is at least one
other beneficiary.
17.3.2 Using a trust as a business structure

Trusts were not originally developed as business organisations, but they can be used as
such. A person who wants to use a trust as a means of operating a business could, as the
settlor, vest the legal ownership of specified assets in a trust fund and appoint themselves
as the trustee. They could also identify themselves as one of at least two beneficiaries.
To use a trust to run a business, the trustee must be given the authority to use the
trust assets to run a business and then to distribute the profits made in the course of the
business to the beneficiaries.
17.3.3 Creating a trust
A trust can be created without formalities. It can even be created by implication rather
than expressly. However, a trust that is created to run a business would normally be created
expressly and in writing, by means of an ‘instrument’ or ‘deed’ of trust. This document gives
the trustee authority to carry on a business on a continuing basis, allows the trustee to be
paid for the work done in relation to the trust and gives the settlor the right to terminate
the trust.
17.3
17.3.4 Legislation
In addition to the provisions contained in an instrument of trust, trusts are governed by
state and territory legislation.1 The provisions of these statutes are similar, but not identical,
and must be carefully reviewed.
17.3.5 Ownership of trust assets
Although it is common to refer to ‘trust property’, a trust cannot itself own property because
it does not have a separate legal persona with the capacity to own property. Accordingly,
the ownership rights to property vested in a trust are split between the trustee and the
beneficiaries. This means that when a settlor vests specified assets in a trust, the trustee
becomes the legal owner of those assets, with the necessary powers to deal with them as
owner. However, what is called the ‘beneficial ownership’ of the assets (ie the right to the
benefits of owning the assets in question) vests in the beneficiaries of the trust.
17.3.6 Duties of a trustee
A trustee’s duties to the beneficiaries are determined by the provisions of any instrument
of trust, by legislation and by the rules of equity. A trustee must:
• Use the trust assets in accordance with the terms of the instrument of trust and for
the benefit of the beneficiaries.
Youyang Pty Ltd v Minter Ellison Morris Fletcher

(2003) 212 CLR 484
Trusts; duties of trustee; duty to follow instructions; liability of trustee
17
for breach of trust
Facts: Youyang Pty Ltd paid $500,000 to Minter Ellison Morris Fletcher (MEMF), a
firm of solicitors. MEMF received this money as a trustee, with instructions to pay
it as a subscription to an investment company, EC Consolidated Capital Ltd (EC).
MEMF was instructed to obtain a bearer deposit certificate to secure the sum paid
to EC. Instead, MEMF paid the money to EC without obtaining the security. Two and
a half years later, EC went insolvent and Youyang lost the whole sum it had invested.
Youyang sued MEMF to recover its loss on grounds that, as trustee, MEMF had not
carried out the terms of the trust.
Issue: Was MEMF liable to Youyang on the basis of its failure, as trustee, to obtain
a bearer certificate as instructed?
Decision: MEMF had breached the terms of the trust and was liable to Youyang
for the consequential losses, being the total amount of the subscription money
($500,000 plus interest to the date of the court order).
1 Trustee Act 1925 (NSW); Trusts Act 1973 (Qld); Trustee Act 1936 (SA); Trustee Act 1898 (Tas); Trustee Act 1958
(Vic); Trustees Act 1962 (WA); Trustee Act 1925 (ACT); Trustee Act (NT).

Reason: A trustee is obliged to obey the terms of the trust. The duty is not absolute,
but any divergence from instructions is only excused in limited circumstances. The
court said (at [33]):
In Victoria, s 67 of the Trustee Act 1958 (Vic) empowered the Supreme Court
to relieve from personal liability trustees who had acted in breach of trust but
who had done so ‘honestly and reasonably’ and who ‘ought fairly to be excused
for the breach’. [MEMF] did not attempt to place any reliance upon s 67 or
comparable provisions in legislation of any other State. The facts discouraged
any such attempt.
• Generally act in person rather than employing another person to administer the
trust. If a trustee needs assistance to carry out work for which they themselves are
not qualified, they may employ the services of a suitable person, such as a lawyer or
accountant.
• Care for and preserve the trust property. A trustee is required to exercise due care in
carrying out the terms of the trust and should not take unnecessary speculative risks.
• Keep proper accounts of all transactions and make them available to the beneficiaries.
• Not make profits for themselves from the administration of the trust property.
• Act in accordance with good faith and not do anything that conflicts with their duties
as trustee.
• Not claim payment for their work as trustee, unless such payment is authorised by
the terms of the instrument of trust. However, a trustee is entitled to reclaim expenses
properly incurred as trustee and to be indemnified for losses as long as they are not
the result of any breach of duty by the trustee.
17.3.7 Legal liability of a trustee

When acting as a trustee, the trustee becomes personally liable on any transactions entered
into with third parties. This is because, in law, the trust itself has no separate existence and
cannot itself acquire legal rights and duties. When dealing with third parties, a trustee
does not act as an agent or employee, either of the trust or of the beneficiaries, but as a
principal party.
Although debts and other liabilities undertaken by a trustee can be enforced against
the trustee personally, the trustee is entitled to be indemnified from the trust assets for such
expenses and liabilities, as long as they are properly incurred. If these assets are insufficient,
the beneficiaries are individually liable to reimburse the trustee from their own assets.
17.3.8 Distribution of income
Income from a trust can be distributed among the various beneficiaries in a way that
minimises tax liabilities. The terms of the trust can include detailed instructions as to
how the income is to be distributed among the beneficiaries, or the trustee can be given
discretion in this matter.
17.3
17.3.9 A trustee as beneficiary

A trustee can also be named as a beneficiary of the trust. In such cases, the trustee can be
thought of as having two identities with different legal rights and duties: firstly, as trustee,
and secondly, as a beneficiary. However, a trustee cannot be the only beneficiary, because
then the legal and beneficial rights of ownership would no longer belong to different
people.
17.3.10 Taxation requirements
A trust that carries on a business must have its own TFN, and the trustee must submit
an annual tax return showing the income earned by the trust, the deductions made for
expenses and the amount of income distributed to each beneficiary.
If all the net income derived from the trust is distributed to adult resident beneficiaries,
those profits are not taxed in the hands of the trustee and the individual beneficiaries will
be taxed on that income at their marginal rates. If the beneficiaries are non-resident adults
or minors, the trustee pays tax on their behalf, but the beneficiaries are credited with that
payment when they submit their individual tax returns. If the net income of the trust is
accumulated by the trust rather than being distributed, then tax is paid by the trustee at
the highest individual marginal rate of tax.
[17.4] Partnerships
17.4.1 The concept of a partnership
In Australian law, a partnership is defined as a relationship that comes into existence
when two or more persons are carrying on a business together (in common) with a view 17
to making a profit. However, if two or more people join together to operate a business by
means of a company incorporated under the Corporations Act 2001 (Cth), a partnership is
not created.
Some key terms need to be defined.
17.4.1(a) ‘Carrying on a business’
The term ‘carrying on a business’ indicates that the partners have begun a commercial
enterprise of some sort—usually on a continuing basis, but possibly involving a single
transaction.
Khan v Miah [2001] 1 All ER 20

Partnership; creation of partnership; when business operations begin
Facts: Khan, Miah and various other persons agreed to join together to open and
operate a new Indian restaurant to be called ‘The Nawab’. They agreed to share
the profits made. They acquired an unused showroom and employed contractors to
refurbish it as a restaurant. However, before the work was completed and before the
restaurant opened, the parties quarrelled and Khan decided to end his involvement
in the restaurant. Some time later, preparations completed, the restaurant opened
and the business began to operate successfully. Khan sued Miah for an accounting

and payment of what he was owed from his earlier involvement in the venture. His
entitlement depended on whether or not a partnership had been formed before
he terminated his involvement. Miah argued that no partnership had come into
existence before the restaurant opened.
Issue: Had a partnership been created before the restaurant actually opened for
business? If so, Khan was entitled to an accounting and his agreed share of the
partnership assets.
Decision: The partnership had been created as soon as the preparatory work of
finding and refurbishing the premises had begun.
Reason: A partnership is only created when the parties actually begin their
business venture, but this includes preparatory work such as acquiring and fitting
out premises. Lord Millett said (at 2127):
There is no rule of law that the parties to a joint venture do not become partners
until actual trading commences. The rule is that persons who agree to carry on
a business activity as a joint venture do not become partners until they actually
embark on the activity in question … Many businesses require a great deal of
expenditure to be incurred before trading commences … The work of finding,
acquiring and fitting out a shop or restaurant begins long before the premises
are open for business and the first customers walk through the door. Such
work is undertaken with a view of profit, and may be undertaken as well by
partners as by a sole trader.
17.4.1(b) ‘In common’

The term ‘in common’ means that the parties are acting together in the business enterprise,
rather than participating separately as individuals.
17.4.1(c) ‘With a view to profit’
The term ‘with a view to profit’ indicates that partnerships only exist when the objective
of the common enterprise is to generate an excess of income over expenses. Normally, the
partners intend to share the profits made, either equally or in agreed proportions.
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales

(Finance) Pty Ltd (1974) 131 CLR 321
Partnership; creation of partnership; partnership distinguished from
joint venture
Facts: Fourth Media Management Pty Ltd (the promoter) entered into contracts
with singers Elton John and Cilla Black for public performances in Australia.
Volume Sales (Finance) Pty Ltd (VSF) agreed with the promoter that VSF would
make available a sum of money as a loan, sufficient to finance the concerts and, in
return, VSF was to be given a one-half interest in the contracts and to perform the
said contracts as a ‘joint venture’. The agreement provided that, after VSF had been
17.4
repaid the loan and other expenses, any profits made by the concerts were to be
shared equally between the promoter and VSF.
Issue (1): Was the agreement between the promoter and VSF a joint venture or a
partnership?
Decision (1): On the facts, the promoter and VSF had entered into a partnership.
Reason (1): Although the parties had described their agreement as a joint
venture, they had in fact created a partnership because the essential elements of
partnership existed on the facts. In particular, the promoter and VSF had joined
together in carrying out a commercial enterprise with a view to profit. The profits
were to be divided, business policies were to be agreed and the expenses of the
enterprise shared.
Issue (2): What was the legal nature of VSF’s interest in the box office proceeds?
Decision (2): Before the distribution of any profits made by the partnership, VSF
had an equitable interest in any such profits.
Reason (2): As regards the nature of a partner’s interest in partnership property
(including profits made), the court said (at [10]):
The partner’s share in the partnership is not a title to specific property but a
right to his proportion of the surplus after the realization of assets and the
payment of debts and liabilities. However, it has always been accepted that
a partner has an interest in every asset of the partnership and this interest
has been universally described as a ‘beneficial interest’, notwithstanding its
peculiar character. The assets of a partnership, individually and collectively,
are described as partnership property … This description acknowledges that
they belong to the partnership, that is, to the members of the partnership.
17
17.4.2 General and limited partnerships
Australian law distinguishes between ordinary partnerships, which are known as ‘general
partnerships’ and, more recently, special types of partnership called ‘limited partnerships’
and ‘incorporated limited partnerships’. These different kinds of partnership each have
their own important characteristics, so careful attention must be paid to what kind of
partnership is being discussed. In this chapter, general partnerships are explained first,
followed by an explanation of limited partnerships.
17.4.3 Legislation regulating general partnerships
In Australia, the law that regulates general partnerships has been largely codified in state
and territory legislation.2 This legislation is, for all practical purposes, uniform across all
jurisdictions as regards general partnerships.
2 Partnership Act 1892 (NSW); Partnership Act 1891 (Qld); Partnership Act 1891 (SA); Partnership Act 1891 (Tas);
Partnership Act 1958 (Vic); Partnership Act 1895 (WA); Partnership Act 1963 (ACT); Partnership Act 1997 (NT).

17.4.4 Creating a general partnership

Formalities are not required to create a general partnership. However, the persons who
intend to form a partnership often record the agreed terms of their relationship in a
‘partnership agreement’ or ‘deed of partnership’.
A partnership is often referred to as a ‘firm’ and may trade under its own business
name.
17.4.5 Limitation of the size of a general partnership
Although the Partnership Acts do not limit the numbers of partners, s 115 of the
Corporations Act 2001 (Cth) requires that a firm of more than 20 persons must incorporate
their business. However, the relevant minister can consent in specific cases to a larger
number of partners; and certain types of business (such as law and accountancy firms) are
exempt from the rule.
17.4.6 A partnership does not have its own legal identity
Although a partnership is often referred to as a ‘firm’ and may trade under its own business
name, a partnership is not considered to be a separate legal person in its own right. It is the
partners themselves who acquire the relevant legal rights and duties.
17.4.7 Contributions by partners
Persons who join together to form a general partnership usually contribute some of their
own money and equipment to the business. Although it is convenient to refer to this pool
of property as ‘partnership property’, a partnership has no legal existence of its own, so
it cannot own property. It is the partners who jointly own the ‘partnership property’, but
while the partnership continues, the assets are used for the benefit of the firm. The partners
are entitled, when the partnership is ended, to an appropriate share of the assets.
17.4.8 The right of partners to share the assets and profits
Under the provisions of the relevant Partnership Act, all the partners are entitled to share
in the capital assets and profits of the firm, either equally, or in whatever proportions they
have agreed. Normally, the individual share of the capital and profits will be varied by
agreement depending on what each partner has contributed to the capital and the extent
to which particular partners contribute to the running of the business.
Fry v Oddy [1999] 1 VR 557

Partnership; rights of partners; right to share of profits after
dissolution
Facts: Oddy was a partner in a firm of solicitors. He retired from the firm in
September 1994. At this time, it was agreed that Oddy was entitled to be paid one-
ninth of the value of the firm. But in fact no payment was made until May 1996.
Oddy then claimed payment of a further sum, representing the profits made by the
firm during the period between his retirement and the date on which he received
payment of his share of the assets. This claim was based on s 46 of the Partnership
Act 1958 (Vic), which states:
17.4
Where any member of a firm has died or otherwise ceased to be a partner and
the surviving or continuing partners carry on the business of the firm with its
capital or assets without any final settlement of accounts as between the firm
and the outgoing partner or his estate then in the absence of any agreement
to the contrary the outgoing partner or his estate is entitled at the option of
himself or his representatives to such share of the profits made since the
dissolution as the court may find to be attributable to the use of his share of the
partnership assets or to interest at the rate of seven per centum per annum on
the amount of his share of the partnership assets …
Issue: Was Oddy entitled to a share of the partnership profits for the period in
question?
Decision: The profits made by the firm after Oddy’s retirement were partly
attributable to the assets belonging to Oddy that remained in the firm until payment
was made to him in 1996. Oddy was entitled to a share of these profits under the
provisions of s 46 of the Partnership Act 1958.
Reason: The profits made by a partnership are prima facie attributable to the use of
its assets. The extent to which this is true in a particular case is a question of fact.
On assessing the extent to which profits are due to the use of assets, Ormiston J
said (at 578):
It is a question of estimation and in the end the real issue is what amount shall
be attributable to the former partner’s share and what attributable to other
established causes.
17
17.4.9 Taxation requirements
A partnership must have its own TFN and the firm must lodge an annual income tax
return showing its annual income and how that income is to be shared by the partners. The
tax on that income is then paid by each of the individual partners according to their share
of the income and at their individual marginal tax rates.
17.4.10 Legal liability of partners
All the partners in a general partnership are liable for the firm’s debts and other obligations
that are incurred while they are a partner. The liability is described as ‘joint’, meaning that
each partner is liable for an appropriate share of the debt. Partnership debts are normally
paid out of the partnership assets. If these are insufficient, then the individual partners
must contribute further assets of their own towards the payment of these debts. The extent
to which each partner must contribute depends on what they have agreed, failing which,
they must contribute equally.
17.4.11 Participation in management
In general partnerships, every partner is entitled to take part in the management of the
partnership business. The extent to which each partner actually does this may be limited
by agreement.

17.4.12 The agency powers of partners

Partners generally have the authority to act as agents of the firm and to carry out legal
transactions in the course of conducting the firm’s business. The usual authority that partners
have can, of course, be modified by agreement. In such cases, the partner in question might
still have an ostensible authority that will continue to bind the firm, unless and until the
persons they might deal with are notified of the agreed limits on their authority.
17.4.13 Liability in tort and criminal law
Each partner is liable for any loss or harm caused to a third person while any partner is
acting in the ordinary course of the firm’s business. The same applies for any penalties
for criminal wrongs. The liability for tortious and criminal conduct is described as being
‘joint and several’, so it can be enforced against the partners either together or individually.
Where one partner is made to discharge the whole liability on their own, they may recover
a proportional amount from the others.
Lloyd v Grace, Smith & Co [1912] AC 716

Partnership; liability of a partnership for the acts of its agents; liability
for fraudulent acts of an agent
Facts: Lloyd owned two cottages, which produced a rental income. She also received
interest on a sum of money she had loaned out. However, Lloyd was not satisfied
with the income she was getting from these assets. She went to Grace, Smith & Co
(GS), a firm of solicitors, for advice. She was advised by GS’ managing clerk, who
was responsible, without supervision, for the firm’s conveyancing. The clerk advised
Lloyd to sell both of her cottages and call in the loan of her money, so that the funds
could be reinvested. He induced her to sign papers that gave him the power to carry
out these transactions. He then dishonestly disposed of Lloyd’s property for his own
benefit. Lloyd sued GS to recover the value of her assets, basing her claim on the
firm’s liability for the fraudulent acts of its agent. GS denied liability for the acts on
the basis that they had not been carried out for the benefit of the firm.
Issue: Is a partnership liable for acts of its agents that were fraudulent and not
carried out for the benefit of the firm?
Decision: In the circumstances, the managing clerk was clothed with an apparent
authority to represent GS. A partnership is liable, as principal, for the fraud of an
agent acting within the scope of their actual or apparent authority, whether or not
the fraud is committed for the benefit of the partnership.
Reason: Lord MacNaghten said (at 738):
Mr Smith [of GS] carries on business under a style or firm which implies
that unnamed persons are, or may be, included in its members. Sandles [the
managing clerk] speaks and acts as if he were one of the firm … Who is to
suffer for this man’s fraud? The person who relied upon Mr Smith’s accredited
representative, or Mr Smith who put this rogue in his own place and clothed
him with his own authority?
17.4
If Sandles had been a partner in fact, Mr Smith would have been liable for
the fraud of Sandles as his agent. It is a hardship to be liable for the fraud of
your partner. But that is the law under the Partnership Act. It is less a hardship
for a principal to be held liable for the fraud of his agent or confidential servant.
17.4.14 Partners’ duties to each other

Partners owe each other various duties, such as a duty to give full information and accounts
of all matters affecting the partnership. There is a duty to account to the firm for any
benefit received in the course of transacting partnership business or involving use of the
firm’s name, property or business connections. In short, a partner cannot hide profits or
benefit from undisclosed profits.
Because partners are expected to deal with each other in good faith, a partner is not
allowed to compete against the firm, for example, by carrying on a competing business or
entering into competing transactions. If a partner carries on any such business, all profits
made must be paid over to the firm. A partner is not entitled to use the credit of the firm
for their personal purposes; an attempt to do so does not bind the firm, but the individual
partner may be liable.
17.4.15 Employment of workers
Partners can employ servants or independent contractors to work for the firm. Such
servants and contractors are not partners. Partners themselves are not considered to be
17
employees of their firm, and they cannot be paid as such for work done in carrying on the
partnership business. Partners’ compensation for the work they do is in their entitlement
to share in the firm’s profits.
17.4.16 Dissolving a partnership
The following circumstances each have the effect of dissolving (ending) a partnership:
• the expiry of the period for which it was agreed to join in the partnership
• the achievement of the aim for which the partnership was specifically created to
achieve
• any of the partners giving notice of an intention to dissolve it
• the death or bankruptcy of a partner
• the business in which it was engaged becomes unlawful, and
• a court orders the dissolution of a partnership.
A court may order the dissolution of a partnership if, for example, a partner has
been declared to be of unsound mind, becomes incapable of performing their part of the
partnership agreement, persistently breaches the partnership agreement, or when it seems
just and equitable to do so.
When a partnership is dissolved, the partners retain their powers for the purpose of
winding up the partnership affairs. The partnership assets are used to pay the partnership
debts and discharge the liabilities. Any residue is distributed between the partners.

17.4.17 Changing the membership of a partnership

Under the common law, changing the membership of a partnership would cause it to
be dissolved. The legislative provisions in the Partnership Acts now allow changes in the
membership of a partnership with minimal disruption. For example, a partner who leaves
a partnership remains liable for their share of all the debts that were incurred before they
left. A partner who joins an existing firm only becomes liable for debts incurred after they
join. Notice should be given to third persons who deal with a firm after a change in the
partners, otherwise apparent partners may be treated as if they are still members of the
firm.
A firm may continue to carry on business after a partner leaves, and there is no
final settling of accounts with the outgoing partner at the time of their leaving. In such
circumstances, the outgoing partner remains entitled to a share of the ongoing profits to
the extent that a court finds those profits are the proceeds of the use of that partner’s share
of the assets at a rate of 6% per annum.
See Fry v Oddy [1999] 1 VR 557, above at 17.4.8.
17.4.18 Limited partnerships
Each Australian state has legislation making provision for a special type of partnership
called a limited partnership. In a limited partnership, a distinction is drawn between
general partners and limited partners. The general partners (of which there must be at
least one) manage the business and carry an unlimited personal liability for the business
debts, just as in a general partnership. Persons who join the partnership as limited partners
and contribute assets to it are not personally liable for business debts, except to the extent
of the assets they have agreed to contribute.
The Partnership Acts specify that limited partnerships may have no more than 20
general partners, but they can have any number of limited partners. Limited partnerships
are, therefore, a good way of allowing persons to invest in a business without being involved
in its management or having unlimited personal liability. Limited partnerships are taxed
on the same basis as companies.
17.4.19 Registration of limited partnerships
The Partnership Acts require that limited partnerships be registered. An application for
registration is lodged with the registrar, containing the business name of the partnership
and relevant details about all the partners, including whether they are general or limited
partners and what contribution each has agreed to make to the business. The registrar
issues a certificate of registration to the general partners, which certifies the registration of
the partnership and contains the relevant details. The relevant information must be kept
up to date, by notifying the registrar of any changes. In this way, third parties can ascertain
the liabilities of partners with whom they are dealing.
17.4.20 Legal liability of limited partners
The essential requirement for a limited partner’s restricted liability is that they do not take
any part in the management of the firm’s business. If they do, they immediately become
liable as if they were a general partner for any liabilities incurred by the business while
they were taking part in its management. However, there are certain things that a limited
17.4
partner can do that do not count as ‘taking part in the management of the business of the
firm’. These include:
• working for the firm as an employee or as an independent contractor
• enforcing their rights as limited partners in the firm
• participating in general meetings of all the partners
• inspecting the partnership books, and
• examining and advising on the state of the partnership business.
17.4.21 Dissolution of limited partnerships

If a limited partnership is dissolved, for example by agreement or because it is transformed
into a different kind of business organisation, the general partners must notify the registrar
of this fact and the dissolution will be recorded in the register.
[17.5] Joint Ventures

17.5.1 The concept of a joint venture
A joint venture is a contractual agreement whereby two or more persons (or business
entities) enter into an agreement to achieve a specified business opportunity, for example,
to produce a particular thing or to achieve a specified outcome. This business structure
is therefore common in the mining and resources sectors, where a joint venture may be
created for the purpose of a particular project. The persons who engage in a joint venture
normally agree what each will contribute, whether in capital, assets, expertise or work.
They also need to agree on their respective entitlements to what is produced or achieved. 17
See Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR
115 at 8.5.3 above for an example of a joint venture.
The courts have held that the term ‘joint venture’ is not a technical term that always
has a clear legal meaning. Sometimes, because of the underlying facts, the courts have
found that what the parties have called a joint venture is in fact a partnership, a trust,
an agency or a joint ownership. In such cases, the rights and duties of the parties will be
different.
17.5.2 Joint ventures distinguished from partnerships
What distinguishes a partnership from a joint venture is not so much that it involves a
particular undertaking. Rather, in a joint venture, the joint venturers are each involved
separately in the business venture. By contrast, partners combine their assets and skills
together to run a business in common. In a joint venture, each party operates as an
individual, is not an agent of the other joint venturers and bears responsibility on their
own for the individual expenses and losses.
See Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd
(1974) 131 CLR 321 above at 17.4.1(c).
17.5.3 The rights and duties of joint venturers
The legal rights and duties that joint venturers owe to each other depend on what they have
contractually bound themselves to do. For example, in a joint venture between individuals

(or between separate business entities), the joint venturers are not automatically vested
with a power to represent each other as agents and their liability is several, not joint.
[17.6] Companies
17.6.1 Creating a company
In Australia, companies are created by a process called ‘registration’ under the Corporations
Act 2001 (Cth). ASIC maintains a register of all Australian companies. To create a new
company, an application must be made in proper form to ASIC and the required fees paid.
The new company is entered onto the register of companies and an Australian Company
Number (ACN) is issued.
A company created by registration under the Corporations Act 2001 (Cth) is one
example of what is more generally called a ‘corporation’. The word ‘corporation’ may be
used to refer to any entity that is recognised in law as an artificial person. For example,
it is possible to incorporate non-profit organisations, such as sporting associations or
community service organisations under the Associations Incorporation Acts of the states
and territories. However, an association that is formed for trading or business purposes
cannot incorporate under the Associations Incorporation Acts.
17.6.2 The legal identity of a registered company
When a company is created, the law treats the company as if it were a person with its own
legal identity. A company is an ‘artificial’ person, rather than a natural one, but, as a legal
person with its own identity, a company has most of the legal powers and capacities that
a natural person has. It is capable of acquiring legal rights and discharging legal duties
in its own name. This characteristic of a separate legal personality makes a company a
convenient and powerful business organisation.
Lee v Lee’s Air Farming Ltd [1961] AC 12

Company law; separate legal identity of company; single person acting
as director, shareholder and employee of a company
Facts: Lee formed a company (Lee’s Air Farming Ltd) to carry out aerial top-
dressing of crops. He was the controlling shareholder in the company and was
appointed as its managing director. Lee was also employed as the company’s chief
pilot, for which he was paid a salary. The company insured itself against liability to
pay compensation to its workers in the case of injuries. Lee was killed in a crash
while flying for the company. His wife, Catherine, claimed compensation from the
company on the basis that, when he was killed, Lee had been employed by the
company as a ‘worker’ within the meaning of the Workers Compensation Act 1922
(NZ).
Issue: Did the position of Lee as the controlling shareholder and director of the
company preclude him from also being a person who worked under a contract of
service with an employer, within the meaning of the Workers Compensation Act?
17.6
Decision: Lee was employed as a worker within the meaning of the Workers
Compensation Act.
Reason: Lee and the company were separate legal entities and could validly have
more than one kind of legal relationship with each other. Lord Morris of Borth-y-
Gest said (at 30):
The company and the deceased were separate legal entities. The company had
the right to decide what contracts for aerial top-dressing it would enter into.
The deceased was the agent of the company in making the necessary decisions.
Any profits earned would belong to the company and not to the deceased. If the
company entered into a contract with a farmer, then it lay within its right and
power to direct its chief pilot to perform certain operations. The right to control
existed even though it would be for the deceased in his capacity as agent for
the company to decide what orders to give. The right to control existed in the
company, and an application of the principles of Salomon’s case demonstrates
that the company was distinct from the deceased. As pointed out above, there
might have come a time when the deceased would remain bound contractually
to serve the company as chief pilot though he had retired from the office of sole
governing director. Their Lordships consider, therefore, that the deceased was
a worker …
Also see Salomon v A Salomon & Co Ltd [1897] AC 22 below at 17.6.20.
17
17.6.3 Types of company
Companies are distinguished according to the extent to which their members (ie persons
who have been allocated ‘shares’ in the company) are liable for debts incurred by the
company. See 17.6.7 on the members of a company.
• Unlimited companies: In such companies, no limits are placed on the liability of
the members of the company for the company’s debts. If the assets that belong to
the company itself are insufficient to pay the company’s debts, then the members
are liable to make up the shortfall. Unlimited companies are used when the law does
not permit more limited liability, for example, when members of a profession form a
company to run their business.
• No liability companies: Only companies that have the sole purpose of mining can
register as no liability companies. Such companies have no contractual or statutory
right to enforce payment by shareholders of any unpaid portion of the purchase price
of their shares. Effectively, this means that the only monies available to creditors of
the company are the assets actually held by the company.
• Companies limited by guarantee: In such companies, the members promise
(guarantee) that, if the existence of the company is brought to an end, they will
contribute to the assets of the company to the extent needed to pay the debts.
Companies limited by guarantee are often used for non-profit organisations.
• Companies limited by shares: In such companies, the liability of the shareholders
for the debts of the company is limited to the amount they have agreed to pay for

the shares they purchase in the company, but which they have not yet paid. If the
company needs to, it can call on its members to pay some, or all, of the unpaid share
price. Beyond that, however, the members are not required to contribute towards
paying the debts of the company.
17.6.4 Using a company to run a ‘one-person’ business

In Australian law, it is recognised that a company can be used to run a small, one-person
business. This was not always the case. Company law initially developed with larger
enterprises in mind, but in 1897 the courts recognised that the full benefits of a company’s
separate legal existence should be extended to small businesses as well. This view is now
reflected in the relevant legislation.
17.6.5 Proprietary companies and public companies
In current law, a distinction is drawn between ‘proprietary companies’ and ‘public companies’.
A proprietary company is not allowed to have more than 50 ‘members’ (shareholders), not
counting shareholders who are also employees. Furthermore, a proprietary company is not
allowed to raise funds for its business by offering shares to the general public.
17.6.6 The company name
The person who registers a company must give it a name that sufficiently distinguishes it
from other companies. One option is to use the ACN as the company name. Otherwise,
any name can be chosen that is not the same as another company’s name or that is not
already a registered business name. A company name must not be offensive and must not
suggest a non-existent connection with a person or governmental institution.
Proprietary companies must include the abbreviation ‘Pty’ in their name. Companies
with limited liability must include the abbreviation ‘Ltd’. No liability companies must
include the abbreviation ‘NL’.
17.6.7 The members, directors and the secretary of a company
• Members. A proprietary company must have at least one ‘member’. ‘Members’ are
persons who own shares in the company and are also referred to as ‘shareholders’.
Collectively, the shareholders own the company, and they also have the right to
participate in some of the decision making that affects the company. Generally
speaking, the shareholders do not manage the day-to-day business of the company.
Shareholders are primarily investors, who contribute assets to the company to provide
the capital needed to start and run a business. Shareholders expect to receive a share
of the profits made by the company.
• Directors. The day-to-day management of a company is carried out by persons who
are appointed by the members as ‘directors’. Proprietary companies must have at least
one director, while public companies must have at least three. In a small, ‘one-person’
company, the same person will be the sole shareholder and the director. If there is more
than one director, they are referred to collectively as a ‘board of directors’. A board of
directors may manage the company jointly, or they may appoint one director as the
‘managing director’ to run the business and report back to the board.
17.6
• The company secretary. In addition to directors, a public company must have a

secretary who is responsible for keeping the company records, giving notice of
meetings, signing documents, and ensuring compliance with all legal requirements
and regulations. Since 2000, proprietary companies may appoint a secretary but are
not obliged to do so. In a small ‘one-person’ company, the director will carry out the
duties of a company secretary.
17.6.8 Management of a company

It is the directors of a company who have the responsibility of managing the company’s
affairs. The directors of a company can exercise all the powers of the company, except for
any matters that specifically require the authority of the members. Directors can:
• employ people to work for the company
• authorise individuals to represent the company as agents
• borrow money
• enter into contracts (eg for goods or services, leases, etc), and
• enter into agreements to acquire or sell property.
When managing a company, directors must make decisions and act in accordance
with their own best judgment. They are not subject to direction from the members in
relation to day-to-day management decisions. If members do not agree with the directors’
management decisions, they can remove the directors. But otherwise the members cannot
17
generally interfere with the directors’ decision making.
17.6.9 The duties of directors
The common law and the Corporations Act impose duties on directors, which regulate
how directors exercise their powers. In particular, directors are required to always act with
reasonable care and in good faith. What constitutes reasonable care will always depend on
all the circumstances of the particular case. Good faith means that directors must exercise
their management powers with proper discretion, for proper purposes and in the best
interests of the company. They must avoid placing themselves in a situation where their
own personal interests conflict with the interests of the company, because they have a duty
to promote and safeguard the company’s interests. If one or more directors act in breach
of these duties, the other directors may bring an action on behalf of the company, seeking
appropriate relief.
Australian Securities and Investments Commission (ASIC) v Adler

(No 3) (2002) 168 FLR 253
Company law; duties of directors; requirements of Corporations Act s
180–183
Facts: Adler was a director of HIH, an insurance company. Adler was also the
director of various other companies in which he had the controlling interest. One of
these companies (A Co) owned a substantial number of shares in HIH. In April 2000,
the price of HIH shares was threatened by a collapse in the value of technology

shares. Adler was concerned to protect A Co’s investment in HIH shares. Adler used
his position in HIH to arrange payment of $10m from HIH to one of his companies,
in exchange for which HIH received a single share in that company. Adler then used
this money to buy HIH shares in an attempt to prop up the value of these shares on
the market. He also used the money to minimise the losses suffered by his other
companies. In short, Adler used HIH money to protect his own interests, at the
expense of HIH’s interests. ASIC sought a declaration that Adler, as a director of
HIH, was in breach of his duties to HIH.
Issue: In doing these things, had Adler breached his duties as a director of HIH, in
contravention of s 180–183 of the Corporations Act 2001 (Cth)?
Decision: Adler had acted in breach of these sections.
Reason: The court made the following findings:
(1) Adler had not exercised the required degree of care and diligence as a
director of HIH. Also, because Adler had a material personal interest in the
transactions, he could not rely on any defence based on the rule that he was
exercising a proper business judgment when entering into the transaction in
question.
(2) Adler had breached his obligation under s 181 to act in good faith for a proper
purpose.
(3) Adler had breached his obligation under s 182 not to improperly use his
position as a director to gain an advantage for himself or to cause detriment to
HIH.
(4) Adler had breached his obligation under s 183 not to improperly use
information obtained by him as a director (in particular in relation to HIH’s
committee procedures, investment guidelines and its investment portfolio) to
gain an advantage for himself or his companies.
Daniels (formerly practising as Deloitte, Haskins & Sells) v

Anderson ; Hooke v Daniels ; Daniels v AWA Ltd
(1995) 37 NSWLR 438
Company law; duties of directors; common law duties; duty of care
owed to the company by directors; liability of directors in Negligence
Facts: AWA Ltd suffered a $49m loss because of unauthorised foreign exchange
dealings entered into by an employee. The company’s auditor (Deloitte Haskins
& Sells) had failed to notice the foreign exchange dealings and had not reported
them to the board of directors. Nor had the auditor pointed out weaknesses of
the company’s internal controls and records of foreign exchange dealing. The trial
court held both the auditor and the executive directors of AWA Ltd liable for the
losses that were caused by these failures. The case was appealed, the directors
denying that they were in breach of any duty owed to AWA Ltd.
Issue: What duty of care is owed to a company by the directors of that company?
17.6
Decision: In addition to duties imposed on directors by legislation, the directors

of a company owe a common law duty to their company to take reasonable care in
the performance of their duties. A breach of this duty of care renders the executive
directors liable to the company in Negligence.
Reason: In a majority judgment, Clarke JA and Sheller JA said (at 505):
We are of opinion that a director owes to the company a duty to take reasonable
care in the performance of the office. As the law of negligence has developed
no satisfactory policy ground survives for excluding directors from the general
requirement that they exercise reasonable care in the performance of their
office. A director’s fiduciary obligations do not preclude the common law duty
of care. Modern statutory company law points to the existence of the duty. In
some circumstances, the duty will require action. The concept of a sleeping or
passive director has not survived and is inconsistent with the requirements of
current company legislation …
A person who accepts the office of director of a particular company
undertakes the responsibility of ensuring that he or she understands the nature
of the duty a director is called upon to perform. That duty will vary according
to the size and business of the particular company and the experience or skills
that the director held himself or herself out to have in support of appointment
to the office … The duty is a common law duty to take reasonable care owed
severally by persons who are fiduciary agents bound not to exercise the powers
conferred upon them for private purpose or for any purpose foreign to the
power and placed … at the apex of the structure of direction and management.
The duty includes that of acting collectively to manage the company. Breach of 17
duty will found an action for negligence at the suit of the company …
17.6.10 Single director companies

The Corporations Act 2001 (Cth) gives the director of a single director/shareholder company
the right to exercise all of the company’s powers, to manage or direct the management of
the business and to execute negotiable instruments on behalf of the company, for example,
by writing cheques. When, under the Corporations Act, any powers are to be exercised
by the members of a company in a general meeting, the single director/shareholder must
record the decision in writing and sign it in their capacity as a member of the company.
17.6.11 Payment of directors
Under the Corporations Act, a director is entitled to be paid for their services to the
company, to the extent that the company decides by resolution. A director can also claim
reimbursement of properly incurred expenses.
17.6.12 Statutory rules of governance
In the case of multi-director or shareholder companies, the Corporations Act 2001 (Cth)
provides a number of ‘residual’ or ‘replaceable’ rules of internal governance. These rules
govern questions such as how directors are to be appointed or how meetings are to be run.
The rules are called ‘replaceable’ because they can be replaced by different rules that an
individual company might prefer. A company’s preferred rules are set out in a document

called a ‘constitution’. A particular company is free to choose whether, and the extent to
which, it wants to be governed by the replaceable rules or whether it prefers to adopt its
own constitution.
The rules of internal governance have the effect of contractual terms agreed to by
the company and its members, the company and its officers, and between the individual
members of the company. The rules give rise to private rights and duties and are enforceable
on that basis, between particular parties.
Eley v Positive Government Security Life Assurance Co Ltd

(1875) 1 Ex D 20
Company law; internal management of a company; nature of rights
arising under internal management rules
Facts: Baylis wished to form a company but needed to borrow £200 to pay the initial
costs. He borrowed this amount from Eley, a solicitor, on the understanding that, in
consideration of the loan, Eley would be appointed as the permanent solicitor of the
new company. The company was formed and its articles of association contained
a provision that ‘Mr William Eley … shall be the solicitor of the company, and shall
transact all the legal business of the company … and shall not be removed from his
office except for misconduct’. However, after some time, the company ceased to
employ Eley as its solicitor. Eley, relying on the provisions in the company’s articles
of association, sued the company for breach of contract.
Issue: Did the provisions in the company’s articles of association create an
enforceable contract between Eley and the company?
Decision: The provisions of the articles of association were not enforceable as a
contract between Eley and the company.
Reason: Amphlett B said (at 26):
Under these circumstances it could not, in my opinion, be successfully
contended that the 118th clause of the articles of association created any
contract between the plaintiff and the company.
The articles, taken by themselves, are simply a contract between the
shareholders inter se [between themselves] and cannot, in my opinion, give a
right of action to a person like the plaintiff, not a party to the articles, although
named therein.
17.6.13 The legal capacity of a company

A company, acting through its representative organs and agents, has the legal capacity to
enter into almost any transaction that a natural person can enter into. When a director or
other agent of a company enters into a legal transaction, they are acting on behalf of the
company, as its representative. The result is that the legal rights and duties are acquired by
the company, not by the representative. Thus, a contract entered into by a director with
17.6
a third party on behalf of the company creates a contract between the company and the
third party.
17.6.14 Raising capital for a company
A company has various ways of raising capital:
• Share capital: Share capital consists of money or assets contributed to the company
in exchange for shares in the company. The purchase of shares by an investor is not
a loan to the company, because the shareholder does not expect to be repaid this
money while the company continues in existence. The more shares that an individual
purchases, the greater the number of shares in the company they obtain. This entitles
them to a greater share of the expected profits that the company will make. When
the company is eventually wound up, the shareholders will be entitled to repayment
of their original contribution if there are sufficient funds available.
• Debt finance: Debt finance consists of money borrowed, for example, from a bank or
from individuals. The company will have to pay interest on such loans and eventually
repay the debt itself, but in the meantime it can use the money to finance the business.
• Trade finance: Some companies may be able to buy goods and services on credit
terms, that is, with time to use these things before payment is due. This is known as
trade credit and is a form of financing.
• Retained earnings: Once a company starts trading and makes profits, the directors
can choose to retain some or all of these as capital funds, rather than distributing the
profits to shareholders.
17
17.6.15 Taxation of company profits
A company that trades successfully will generate profits. ‘Profit’ means the money that is
left over after all the running expenses of the company have been paid, including payments
to employees, officers and directors. Profits belong to the company, and the company is
liable to pay tax on these profits. The company tax rate is in the process of being lowered,
in stages, from 30% to 25%. In the 2015-16 tax year, companies with an annual turnover
of less than 2 million dollars will pay 28.5% tax on profits, while companies with a greater
turnover will pay 30% tax on profits. The turnover limits will increase each year and finally
disappear, and the tax rate will decrease progressively until, by the 2026-27 tax year, all
companies are paying tax at the rate of 25%.
17.6.16 Distribution of profits
Assuming that the company does not need to accumulate further capital, the profits
are available to be distributed among the shareholders. Payments to shareholders from
company profits are called ‘dividends’. The Corporations Act gives the directors the power
to decide when to pay dividends to shareholders and the extent of the dividend. In making
these decisions, the directors will, of course, be bound by the replaceable rules of internal
governance or by relevant rules in the company’s constitution. In particular, there may
be different classes of shareholders with different rights to share in a dividend. When
dividends are paid to shareholders, they receive a tax credit equal to the amount of tax
already paid by the company.

17.6.17 Liability for a company’s debts

A company is liable to pay its debts from its assets. If the company’s assets are insufficient,
the members’ liability to make up the shortfall depends on whether the company is an
unlimited company, a no liability company, a company limited by guarantee or a company
limited by shares. In a company limited by shares, the shareholders are only held legally
liable for the unpaid debts of the company to the extent that they have agreed to purchase
shares in the company. This limitation on a shareholder’s liability allows the investor to
place finite limits on their risks. It also allows third parties to establish the limits of the
company’s share capital.
It is important for persons who deal with a business to know whether or not its
liability is limited. Accordingly, it is required that a company with limited liability must
include the abbreviation ‘Ltd’ in its name.
Not every company has limited liability. Sometimes companies are created where
the rules of the relevant profession prevent the limitation of the member’s liability. An
example of this is where practising lawyers set up a company for their business.
17.6.18 Insolvency of a company
When a company ceases being able to pay its debts, it is said to be insolvent. When a
company becomes insolvent, there are many rules that apply, some of which determine
the order in which various types of creditor are entitled to be paid from the company’s
remaining assets. These rules give an advantage to certain types of creditor over others.
However, it is possible for individual creditors to avoid the operation of these rules by
arranging that the repayment of their own debt is specially secured. A creditor whose debt
is secured by one or other security is in a better position than they might otherwise be,
because secured creditors are paid before unsecured creditors (even higher ranked ones).
17.6.19 Securing the repayment of company debts
There are different ways of securing the payment of a debt. One is to mortgage specific
property (either fixed property or chattels) in favour of a particular creditor to secure a
particular debt. The legal form of a mortgage varies, depending on the property in question.
Another form of security is to give the creditor a charge over particular property, specifying
that property is available to secure repayment of the debt. A third type of security is a lien,
which involves the creditor having and retaining possession of the debtor’s property.
17.6.20 Floating charges
Company law has developed a type of security that is available only to companies, called a
floating charge. A floating charge does not identify specific property as available to secure
a debt. Rather, it identifies a class of property (eg stocks of raw materials) as charged with
the repayment of the debt. The contents of this class of property remain in the hands of the
debtor company, and can be used, used up and replaced. However, at the time the security
is enforced, the contents of that class of property become fixed and are available to satisfy
payment of the debt. A floating charge is a very flexible arrangement, enabling a company
to deal freely with its assets, but at the same time to use the value of that class of assets as
a security.
17.6
Salomon v A Salomon & Co Ltd [1897] AC 22

Company law; separate legal identity of company; limited liability of
company; validity of security obtained by member of a company over
the company’s assets
Facts: Over a period of 30 years, Aron Salomon established a successful boot and
shoe manufacturing business, operating as a sole trader. Salomon was married,
with five sons and a daughter. Four of his sons were employed in the business.
In 1892, Salomon decided to turn his business into a private company limited
by shares. At the time, the Companies Act required a company to have at least
seven members, each of whom must have at least one share of whatever value. To
comply with these requirements, Salomon, his wife and five of his adult children
became shareholders in the company. The company, on being incorporated,
agreed to pay Mr Salomon £30,000 to take over his business, and in payment of
this amount, gave Mr Salomon 20,000 paid up £1 shares in the new company, plus
10,000 £1 ‘debentures’. (Debentures are a type of security that companies can
issue, giving a creditor a preferential right to be paid from the proceeds of the
company’s assets.) The debentures issued to Salomon guaranteed payment by the
company of the balance of the purchase price for the business. Mrs Salomon and
the five children only took a single £1 share each. Unfortunately, not long after the
company was formed, industry-wide strikes drove the business into insolvency, and
the company was wound up. The company could not pay both the debt secured by
the debentures and the debts owing to other unsecured creditors. The unsecured
creditors questioned whether a company has been validly created and whether the
17
debentures it had issued were valid.
Issue: Had Salomon properly created a company with a separate persona from
himself? Did any such company have limited liability? Was any such company
capable of creating valid securities in favour of Salomon? Who should be paid first?
Decision: The company was validly created in accordance with the requirements
of the then Companies Act; it acquired a legal persona separate from that of its
members, it had the benefit of limited liability and, in the absence of fraud, was able
to issue valid debentures to secure payment of monies owed to Salomon.
Reason: It was argued that it was contrary to the intention of the Companies Act
to allow Salomon to create a company with a separate persona and limited liability
when the company essentially consisted only of the members of his family, with
himself remaining in control of the same business he had been running before. The
appeal court disagreed, holding that the Companies Act laid down certain minimum
requirements for the formation of a company, with which Salomon had complied.
Lord MacNaghten said (at [51], [53]):
The company is at law a different person altogether from the subscribers to the
memorandum; and, though it may be that after incorporation the business is
precisely the same as it was before, and the same persons are managers, and
the same hands receive the profits, the company is not in law the agent of the
subscribers or trustee for them. Nor are the subscribers as members liable, in

any shape or form, except to the extent and in the manner provided by the Act.
That is, I think, the declared intention of the enactment …
A company, too, can raise money on debentures, which an ordinary trader
cannot do. Any member of a company, acting in good faith, is as much entitled
to take and hold the company’s debentures as any outside creditor. Every
creditor is entitled to get and to hold the best security the law allows him to
take.
17.6.21 Supervision of companies

To ensure that companies comply with the requirements of the Corporations Act 2001
(Cth), the Australian Securities and Investments Commission Act 2001 (Cth) gives various
bodies, committees and boards the responsibility for administering the Corporations Act.
These bodies include:
• The Australian Securities and Investments Commission (ASIC)
• the Corporations and Markets Advisory Committee
• the Takeovers Panel, the Companies Auditors and Liquidators Disciplinary Board
• the Financial Reporting Council
• the Australian Accounting Standards Board, and
• the Financial Reporting Panel.
Together, these bodies police and ensure compliance with the relevant law by
companies.
ASIC is the main regulatory body. It maintains the register of Australian companies
and makes relevant information publicly available. It investigates a wide variety of
incidents involving misconduct or breaches of the law and ensures compliance with
reporting requirements. To assist and inform those persons who are involved in the
running of a company, ASIC issues guidelines and policy statements from time to time.
These statements indicate how ASIC will interpret the provisions of the Corporations
Act in particular circumstances or how ASIC will exercise any discretion that it may have.
ASIC also has the power to modify the application of some parts of the Corporations Act
in relation to particular companies or to provide exemptions from statutory requirements
in certain cases.
17.6.22 Winding up a company
• Voluntary winding up. Being an artificial person with no natural lifespan, a company
will continue to exist until it is ‘wound up’. Winding up is described as ‘voluntary’
when, although the company is solvent, the members decide that the company should
be wound up and its assets distributed among them. A voluntary winding up can also
happen when a company is no longer able to pay its debts (ie it is insolvent) and the
members decide that the company should be wound up.
• Compulsory winding up. A ‘compulsory’ winding up of a company may occur if a court
orders that the company be wound up. A court may issue a compulsory winding up
order when a company is insolvent (unable to pay its debts as they fall due), or if
17.6
an application for the winding up is made by an interested person (eg a creditor, a

member or a director of the company) and the court decides that it is appropriate that
the company be wound up.
• Appointment of a liquidator. When a winding up order is issued, in either a voluntary
or compulsory winding up, the court appoints a liquidator who takes over the assets
and control of the company. The liquidator then pays the debts owing to the various
creditors, to the extent that is possible and in accordance with each creditor’s rights.
The liquidator distributes any surplus funds to the members (which is unlikely if the
company is being wound up because it is insolvent, but possible otherwise). Finally,
the liquidator applies to ASIC to deregister the company, thus bringing it to an end.
17.6.23 Public companies

Public companies are subject to greater regulation than proprietary companies because
there is a greater need to protect the interests of the many persons involved. Public
companies are created by registration under the provisions of the Corporations Act. In
fact, under the Corporations Act, a company is automatically a public company if it is not
incorporated as a proprietary company.
17.6.24 The advantages of a public company
The first advantage of public companies over proprietary companies is that public
companies may have more than 50 shareholders (whereas a proprietary company cannot
have more than 50 members). Secondly, a public company is allowed to raise funds by
offering shares to the public or engaging in some other types of public fundraising, which
a proprietary company cannot do.
17
17.6.25 Conversion of a private company to a public company
If a company is originally incorporated as a proprietary company, it can be converted
at any time into a public company. Similarly, a public company can be converted into a
proprietary company.
17.6.26 Special provisions relating to public companies
The Corporations Act 2001 (Cth) contains many provisions that apply specifically to public
companies. The following examples are sufficient to illustrate the point:
• Public companies must have at least three directors; proprietary companies need
have only one. Directors of public companies must disclose their qualifications, their
record of attendance at company meetings, what shares they have in the company and
what contracts they have with the company.
• Public companies must have a secretary.
• Public companies must hold annual general meetings of their members.
• In public companies, resolutions must be passed by a majority at general meetings,
whereas in proprietary companies it is sufficient that all shareholders assent in writing
to the resolution, and no actual meeting needs to be held.
• Public companies must appoint an auditor, and the auditor of a public company may
not resign without the permission of ASIC.

• All public companies must lodge financial reports with ASIC, whereas only large
proprietary companies need do this (ie where the gross operating revenue for the
financial year exceeds $25m, the gross assets of the company at the end of the financial
year exceed $12.5m, or when the number of employees at the end of the financial year
exceeds 50).
17.6.27 Listed companies

Some public companies choose to enter into a contract with the Australian Stock Exchange
(ASX) so that the company’s shares can be listed and publically traded on the stock market
operated by the ASX. Such companies are referred to as ‘listed companies’. Only public
companies can be listed on the ASX, and not all public companies choose to do so.
The ASX provides a highly organised and very liquid (easily tradable) market in
shares, which makes such shares attractive to investors. To be listed, a company must
meet the criteria set down by the ASX. In particular, a company must have a constitution
that accords with the ASX rules, must publish a ‘prospectus’ containing information that
investors would need to know about the company and must prove that the company is
financially viable. Listed companies are subject to special disclosure requirements and
must pay an annual fee to the ASX.
[17.7] Checklist: Choosing a Business Organisation

The following checklist will remind you of the many factors that should be taken into
account when deciding what kind of business organisation is most appropriate for a
particular business venture.
Step 1
The suitability and the relative complexity of the business structure
in question
• How many people are involved in starting up the business?
• Will the ownership of the business belong to one person, or will it be
shared?
• What costs and formalities are involved in setting up a particular business
organisation?
• Who will manage and control the business? What decision- making
processes are suitable and efficient? To what extent will it be useful to
share the responsibilities of running the business?
• To what extent will the chosen business organisation be regulated? What
reporting and disclosure requirements will have to be observed?
• Is the business likely to grow significantly, and outgrow its immediate
requirements? Will it be easy to involve new people in the business as it
grows?
• Will it be easy to sell the business as a going concern? How long is the
business expected to endure? How difficult will it be to wind up the
business?
17.7
Step 2
The need to acquire and raise capital
• Where will the business get the assets and capital it needs? Can a small
number of owners supply these things from their personal savings? Or
is it necessary to involve a greater number of people in the business in
order to get the necessary capital?
• Will the business owners have all the necessary knowledge, experience
and skills to carry on their business?
Step 3
The acquisition of rights and liabilities by those involved in the business
• Who is entitled to profits made by the business? How will the profits be
shared?
• Who will be liable for business debts and other obligations, and to what
extent?
• How will the business profits be taxed? Will they be taxed as part of the
personal income of the owners?
• To what extent is privacy or confidentiality a concern?
• Would it be an advantage for the business to have a legal identity that is
separate from that of its owners? For example, would it be an advantage
for the business itself to be able to acquire and own property or enter
into contracts, rather than the owners doing these things in their person
capacity? 17
The following questions will help you find out whether you can recall and explain the
major concepts outlined in this chapter.
1. Why is it important to distinguish between the different types of business organisations
available in Australia?
2. What factors should be taken into account when deciding what type of organisation
might suit a particular business?
3. What are the defining legal characteristics of each type of business organisation?
4. What rules govern the name under which a business is operated?
5. How is each type of business organisation created and run? Who has the right to
manage each type of business?
6. To what extent is each type of business organisation regulated by law? Is there specific
legislation that applies?

7. What are the legal rights, duties and liabilities of the individual persons who are involved
in a particular business?
8. Who is entitled to the profits made by each type of business organisation? How are
such profits taxed?

e modules.
17.8
CHAPTER 18
Selected Legislative Provisions

In this chapter:
• Selected legislative provisions relating to:
– Australian constitutions
– Communication by email
– Consumer protection
– Equitable rules of contract construction
– Frustrated contracts
– Interpretation of legislation
– Sale of goods
– Third party rights under insurance contracts
– Tort law.
[18.1] Introduction
Legislation is a major source of law and there is a great deal of it that is relevant to business
activity. It is always necessary to check whether legislative provisions have been enacted
that may affect specific legal questions you are considering.
The particular sections of various Acts that are reproduced in this book are only a
small (though important) selection. At an introductory level, a selective approach makes
the quantity of legislation more manageable. This is adequate for initial study purposes,
but isolated sections should not be relied on to make actual decisions. For a more detailed
study of legislation, there are hyperlinks in the eStudy modules that allow you to find the
full text of Acts online. You should also refer to the eStudy module ‘Finding law online’ for
information on how to find legislation in online databases, and the eStudy module ‘Index
of topics, legislation and cases’.
When applying the provisions of legislation to a case, remember to analyse the
contents of that section fully to identify all the factual elements that must exist for the
section to apply. You can then see whether or not the facts of your particular case meet the
necessary requirements.
It is difficult to remember all the details of legislation. However, it is a good idea to
become familiar with the purpose and scope of the major sections, at least to the extent
18.1
480 Selected Legislative Provisions
that you can remember that they exist and the broad circumstances in which they might
apply.
The legislation reproduced in this chapter is consolidated as at 28 August 2016.
[18.2] Australian Constitutions

The following table lists the Australian jurisdictions and the legislation containing their
constitutions. Selected provisions from the Commonwealth and Victorian constitutions
are reproduced as examples.
Table 18.1 Australian Constitutional Legislation
Cth Commonwealth of Australia Constitution Act 1900

NSW Constitution Act 1902
Qld Constitution of Queensland 2001
SA Constitution Act 1934
Tas Constitution Act 1934
Vic Constitution Act 1975
WA Constitution Act 1889
ACT Australian Capital Territory (Self-Government) Act 1988 (Cth)
NT Northern Territory (Self-Government) Act 1978 (Cth)
NI Norfolk Island Act 1979 (Cth)
Commonwealth of Australia Constitution Act 1900

Chapter I —The Parliament
…
Part V —Powers of the Parliament
51 Legislative powers of the Parliament
The Parliament shall, subject to this Constitution, have power to make laws for the
peace, order, and good government of the Commonwealth with respect to:
(i) trade and commerce with other countries, and among the States;
(ii) taxation; but so as not to discriminate between States or parts of States;
(iii) bounties on the production or export of goods, but so that such bounties shall
be uniform throughout the Commonwealth;
(iv) borrowing money on the public credit of the Commonwealth;
(v) postal, telegraphic, telephonic, and other like services;
(vi) the naval and military defence of the Commonwealth and of the several
States, and the control of the forces to execute and maintain the laws of the
Commonwealth;
(vii) lighthouses, lightships, beacons and buoys;
(viii) astronomical and meteorological observations;
(ix) quarantine;
(x) fisheries in Australian waters beyond territorial limits;
18.2
Selected Legislative Provisions481
(xi) census and statistics;

(xii) currency, coinage, and legal tender;
(xiii) banking, other than State banking; also State banking extending beyond the
limits of the State concerned, the incorporation of banks, and the issue of
paper money;
(xiv) insurance, other than State insurance; also State insurance extending beyond
the limits of the State concerned;
(xv) weights and measures;
(xvi) bills of exchange and promissory notes;
(xvii) bankruptcy and insolvency;
(xviii) copyrights, patents of inventions and designs, and trade marks;
(xix) naturalization and aliens;
(xx) foreign corporations, and trading or financial corporations formed within the
limits of the Commonwealth;
(xxi) marriage;
(xxii) divorce and matrimonial causes; and in relation thereto, parental rights, and
the custody and guardianship of infants;
(xxiii) invalid and old-age pensions;
(xxiiiA) the provision of maternity allowances, widows’ pensions, child endowment,
unemployment, pharmaceutical, sickness and hospital benefits, medical and
dental services (but not so as to authorize any form of civil conscription),
benefits to students and family allowances;
(xxiv) the service and execution throughout the Commonwealth of the civil and
criminal process and the judgments of the courts of the States;
(xxv) the recognition throughout the Commonwealth of the laws, the public Acts
18
and records, and the judicial proceedings of the States;
(xxvi) the people of any race for whom it is deemed necessary to make special laws;
(xxvii) immigration and emigration;
(xxviii) the influx of criminals;
(xxix) external affairs;
(xxx) the relations of the Commonwealth with the islands of the Pacific;
(xxxi) the acquisition of property on just terms from any State or person for any
purpose in respect of which the Parliament has power to make laws;
(xxxii) the control of railways with respect to transport for the naval and military
purposes of the Commonwealth;
(xxxiii) the acquisition, with the consent of a State, of any railways of the State on
terms arranged between the Commonwealth and the State;
(xxxiv) railway construction and extension in any State with the consent of that
State;
(xxxv) conciliation and arbitration for the prevention and settlement of industrial
disputes extending beyond the limits of any one State;
(xxxvi) matters in respect of which this Constitution makes provision until the
Parliament otherwise provides;

(xxxvii) matters referred to the Parliament of the Commonwealth by the Parliament

or Parliaments of any State or States, but so that the law shall extend only
to States by whose Parliaments the matter is referred, or which afterwards
adopt the law;
(xxxviii) the exercise within the Commonwealth, at the request or with the
concurrence of the Parliaments of all the States directly concerned, of any
power which can at the establishment of this Constitution be exercised only by
the Parliament of the United Kingdom or by the Federal Council of Australasia;
(xxxix) matters incidental to the execution of any power vested by this Constitution
in the Parliament or in either House thereof, or in the Government of the
Commonwealth, or in the Federal Judicature, or in any department or officer
of the Commonwealth.
52 Exclusive powers of the Parliament
The Parliament shall, subject to this Constitution, have exclusive power to make
laws for the peace, order, and good government of the Commonwealth with respect
to:
(i) the seat of government of the Commonwealth, and all places acquired by the
Commonwealth for public purposes;
(ii) matters relating to any department of the public service the control of
which is by this Constitution transferred to the Executive Government of the
Commonwealth;
(iii) other matters declared by this Constitution to be within the exclusive power of
the Parliament.
…
Chapter III —The Judicature
71 Judicial power and Courts
The judicial power of the Commonwealth shall be vested in a Federal Supreme
Court, to be called the High Court of Australia, and in such other federal courts
as the Parliament creates, and in such other courts as it invests with federal
jurisdiction. The High Court shall consist of a Chief Justice, and so many other
Justices, not less than two, as the Parliament prescribes.
…
73 Appellate jurisdiction of High Court
The High Court shall have jurisdiction, with such exceptions and subject to such
regulations as the Parliament prescribes, to hear and determine appeals from all
judgments, decrees, orders, and sentences:
(i) of any Justice or Justices exercising the original jurisdiction of the High Court;
(ii) of any other federal court, or court exercising federal jurisdiction; or of the
Supreme Court of any State, or of any other court of any State from which
at the establishment of the Commonwealth an appeal lies to the Queen in
Council;
(iii) of the Inter-State Commission, but as to questions of law only;
18.2
and the judgment of the High Court in all such cases shall be final and conclusive.
But no exception or regulation prescribed by the Parliament shall prevent the
High Court from hearing and determining any appeal from the Supreme Court of a
State in any matter in which at the establishment of the Commonwealth an appeal
lies from such Supreme Court to the Queen in Council.
Until the Parliament otherwise provides, the conditions of and restrictions on
appeals to the Queen in Council from the Supreme Courts of the several States
shall be applicable to appeals from them to the High Court.
…
75 Original jurisdiction of High Court
In all matters:
(i) arising under any treaty;
(ii) affecting consuls or other representatives of other countries;
(iii) in which the Commonwealth, or a person suing or being sued on behalf of the
Commonwealth, is a party;
(iv) between States, or between residents of different States, or between a State
and a resident of another State;
(v) in which a writ of Mandamus or prohibition or an injunction is sought against
an officer of the Commonwealth;
the High Court shall have original jurisdiction.
…
Chapter IV —Finance and Trade
90 Exclusive power over customs, excise, and bounties
On the imposition of uniform duties of customs the power of the Parliament to
impose duties of customs and of excise, and to grant bounties on the production or
export of goods, shall become exclusive.
On the imposition of uniform duties of customs all laws of the several States
18
imposing duties of customs or of excise, or offering bounties on the production or
export of goods, shall cease to have effect, but any grant of or agreement for any
such bounty lawfully made by or under the authority of the Government of any State
shall be taken to be good if made before the thirtieth day of June, one thousand
eight hundred and ninety eight, and not otherwise.
…
Chapter V —The States
114 States may not raise forces. Taxation of property of Commonwealth or State
A State shall not, without the consent of the Parliament of the Commonwealth,
raise or maintain any naval or military force, or impose any tax on property of any
kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax
on property of any kind belonging to a State.
115 States not to coin money
A State shall not coin money, nor make anything but gold and silver coin a legal
tender in payment of debts.

…
Chapter VI —New States
121 New States may be admitted or established
The Parliament may admit to the Commonwealth or establish new States, and may
upon such admission or establishment make or impose such terms and conditions,
including the extent of representation in either House of the Parliament, as it thinks
fit.
122 Government of territories
The Parliament may make laws for the government of any territory surrendered by
any State to and accepted by the Commonwealth, or of any territory placed by the
Queen under the authority of and accepted by the Commonwealth, or otherwise
acquired by the Commonwealth, and may allow the representation of such territory
in either House of the Parliament to the extent and on the terms which it thinks fit.
Constitution Act 1975 (Vic)

Part III —The Supreme Court of the State of Victoria
…
85 Powers and jurisdiction of the Court
(1) Subject to this Act the Court shall have jurisdiction in or in relation to Victoria
its dependencies and the areas adjacent thereto in all cases whatsoever and
shall be the superior Court of Victoria with unlimited jurisdiction.
(2) …
(3) The Court has and may exercise such jurisdiction (whether original or
appellate) and such powers and authorities as it had immediately before the
commencement of the Supreme Court Act 1986.
(4) This Act does not limit or affect the power of the Parliament to confer additional
jurisdiction or powers on the Court.
(5) A provision of an Act, other than a provision which directly repeals or directly
amends any part of this section, is not to be taken to repeal, alter or vary this
section unless —
(a) the Act expressly refers to this section in, or in relation to, that provision
and expressly, and not merely by implication, states an intention to repeal,
alter or vary this section; and
(b) the member of the Parliament who introduces the Bill for the Act or, if the
provision is inserted in the Act by another Act, the Bill for that other Act,
or a person acting on his or her behalf, makes a statement to the Council
or the Assembly, as the case requires, of the reasons for repealing,
altering or varying this section; and
(c) the statement is so made —
(i) during the member’s second reading speech; or
18.2
(ii) after not less than 24 hours’ notice is given of the intention to make
the statement but before the third reading of the Bill; or
(iii) with the leave of the Council or the Assembly, as the case requires,
at any time before the third reading of the Bill.
(6) A provision of a Bill which excludes or restricts, or purports to exclude or
restrict, judicial review by the Court of a decision of another court, tribunal,
body or person is to be taken to repeal, alter or vary this section and to be of
no effect unless the requirements of subsection (5) are satisfied.
(7) A provision of an Act which creates, or purports to create, a summary offence
is not to be taken, on that account, to repeal, alter or vary this section.
(8) A provision of an Act that confers jurisdiction on a court, tribunal, body or
person which would otherwise be exercisable by the Supreme Court, or which
augments any such jurisdiction conferred on a court, tribunal, body or person,
does not exclude the jurisdiction of the Supreme Court except as provided in
subsection (5).
(8A) The following sections of this Act alter or vary this section and have effect, for
the purposes of this section, as direct amendments of this section —
(a) sections 73 and 74 as they apply to publication within the meaning of
those sections as amended by section 3 of the Constitution (Amendment)
Act 1997;
(b) section 74AA.
[18.3] Communication by Email

Communication by email is governed by the following legislation. Selected provisions,
reproduced below as an example, are taken from the Victorian Act. 18
Table 18.2 Legislation regulating communication by email
Cth Electronic Transactions Act 1999 Vic Electronic Transactions (Victoria) Act 2000
NSW Electronic Transactions Act 2000 WA Electronic Transactions Act 2011
Qld Electronic Transactions (Queensland) Act ACT Electronic Transactions Act 2001
2001
SA Electronic Transactions Act 2000 NT Electronic Transactions (Northern
Territory) Act 2000
Tas Electronic Transactions Act 2000
Electronic Transactions (Victoria) Act 2000

Part 1 — Preliminary
…
Division 3 —Other provisions relating to laws of this jurisdiction
13 Time of dispatch

the originator and the addressee of an electronic communication, the time of
dispatch of the electronic communication is —
(a) the time when the electronic communication leaves an information
system under the control of the originator or of the party who sent it on
behalf of the originator; or
(b) if the electronic communication has not left an information system under
the control of the originator or of the party who sent it on behalf of the
originator —the time when the electronic communication is received by
the addressee.
Note —Paragraph (b) would apply to a case where the parties exchange
electronic communications through the same information system.
where the electronic communication is taken to have been dispatched under
section 13B.
13A Time of receipt
(a) the time of receipt of the electronic communication is the time when the
electronic communication becomes capable of being retrieved by the
addressee at an electronic address designated by the addressee; or
(b) the time of receipt of the electronic communication at another electronic
address of the addressee is the time when both —
(i) the electronic communication has become capable of being retrieved
by the addressee at that address; and
(ii) the addressee has become aware that the electronic communication
has been sent to that address.
(2) For the purposes of subsection (1), unless otherwise agreed between the
originator and the addressee of the electronic communication, it is to be
assumed that the electronic communication is capable of being retrieved by
the addressee when it reaches the addressee’s electronic address.
where the electronic communication is taken to have been received under
section 13B.
13B Place of dispatch and place of receipt
(a) the electronic communication is taken to have been dispatched at the
place where the originator has its place of business; and
(b) the electronic communication is taken to have been received at the place
where the addressee has its place of business.
18.3
(2) For the purposes of the application of subsection (1) to an electronic

communication —
(a) a party’s place of business is assumed to be the location indicated by
that party, unless another party demonstrates that the party making the
indication does not have a place of business at that location; and
(b) if a party has not indicated a place of business and has only 1 place
of business, it is to be assumed that that place is the party’s place of
business; and
(c) if a party has not indicated a place of business and has more than 1 place of
business, the place of business is that which has the closest relationship
to the underlying transaction, having regard to the circumstances known
to or contemplated by the parties at any time before or at the conclusion
of the transaction; and
(d) if a party has not indicated a place of business and has more than 1
place of business, but paragraph (c) does not apply —it is to be assumed
that the party’s principal place of business is the party’s only place of
business; and
(e) if a party is a natural person and does not have a place of business —it is
to be assumed that the party’s place of business is the place of the party’s
habitual residence.
(3) A location is not a place of business merely because that is —
(a) where equipment and technology supporting an information system used
by a party are located; or
(b) where the information system may be accessed by other parties.
(4) The sole fact that a party makes use of a domain name or electronic mail
18
address connected to a specific country does not create a presumption that its
place of business is located in that country.
[18.4] Consumer Protection

The Australian Consumer Law regulates consumer transactions throughout Australia. The
selected provisions illustrate important aspects of this law.
Competition and Consumer Act 2010 (Cth)

Schedule 2 —The Australian Consumer Law
Chapter 1 — Introduction
…
3 Meaning of consumer
Acquiring goods as a consumer
(1) A person is taken to have acquired particular goods as a consumer if, and only
if:

(a) the amount paid or payable for the goods, as worked out under subsections
(4) to (9), did not exceed:
(i) $40,000; or
(ii) if a greater amount is prescribed for the purposes of this paragraph —
that greater amount; or
(b) the goods were of a kind ordinarily acquired for personal, domestic or
household use or consumption; or
(c) the goods consisted of a vehicle or trailer acquired for use principally in
the transport of goods on public roads.
(2) However, subsection (1) does not apply if the person acquired the goods, or
held himself or herself out as acquiring the goods:
(a) for the purpose of re-supply; or
(b) for the purpose of using them up or transforming them, in trade or
commerce:
(i) in the course of a process of production or manufacture; or
(ii) in the course of repairing or treating other goods or fixtures on land.
Acquiring services as a consumer
(3) A person is taken to have acquired particular services as a consumer if, and
only if:
(a) the amount paid or payable for the services, as worked out under
subsections (4) to (9), did not exceed:
(i) $40,000; or
(ii) if a greater amount is prescribed for the purposes of subsection
(1) (a) —that greater amount; or
(b) the services were of a kind ordinarily acquired for personal, domestic or
household use or consumption.
(4) …
Chapter 2 —General protections
Part 2-1 —Misleading or deceptive conduct
18 Misleading or deceptive conduct
(1) A person must not, in trade or commerce, engage in conduct that is misleading
or deceptive or is likely to mislead or deceive.
(2) Nothing in Part 3-1 (which is about unfair practices) limits by implication
subsection (1).
Note: For rules relating to representations as to the country of origin of goods,
see Part 5-3.
…
Part 2-2 — Unconscionable conduct
20 Unconscionable conduct within the meaning of the unwritten law
(1) A person must not, in trade or commerce, engage in conduct that is
unconscionable, within the meaning of the unwritten law from time to time.
Note: A pecuniary penalty may be imposed for a contravention of this
subsection.
18.4
(2) This section does not apply to conduct that is prohibited by section 21.
21 Unconscionable conduct in connection with goods or services
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than
a listed public company); or
(b) the acquisition or possible acquisition of goods or services from a person
(other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
(2) This section does not apply to conduct that is engaged in only because the
person engaging in the conduct:
(a) institutes legal proceedings in relation to the supply or possible supply, or
in relation to the acquisition or possible acquisition; or
(b) refers to arbitration a dispute or claim in relation to the supply or possible
supply, or in relation to the acquisition or possible acquisition.
(3) For the purpose of determining whether a person has contravened subsection
(1):
(a) the court must not have regard to any circumstances that were not
reasonably foreseeable at the time of the alleged contravention; and
(b) the court may have regard to conduct engaged in, or circumstances
existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a) this section is not limited by the unwritten law relating to unconscionable
conduct; and
(b) this section is capable of applying to a system of conduct or pattern of
behaviour, whether or not a particular individual is identified as having
been disadvantaged by the conduct or behaviour; and
(c) in considering whether conduct to which a contract relates is
18
unconscionable, a court’s consideration of the contract may include
consideration of:
(i) the terms of the contract; and
(ii) the manner in which and the extent to which the contract is carried
out;
and is not limited to consideration of the circumstances relating to formation
of the contract.
22 Matters the court may have regard to for the purposes of section 21
(1) Without limiting the matters to which the court may have regard for the purpose
of determining whether a person (the supplier) has contravened section 21 in
connection with the supply or possible supply of goods or services to a person
(the customer), the court may have regard to:
(a) the relative strengths of the bargaining positions of the supplier and the
customer; and
(b) whether, as a result of conduct engaged in by the supplier, the customer
was required to comply with conditions that were not reasonably

necessary for the protection of the legitimate interests of the supplier;

and
(c) whether the customer was able to understand any documents relating to
the supply or possible supply of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair
tactics were used against, the customer or a person acting on behalf of
the customer by the supplier or a person acting on behalf of the supplier
in relation to the supply or possible supply of the goods or services; and
(e) the amount for which, and the circumstances under which, the customer
could have acquired identical or equivalent goods or services from a
person other than the supplier; and
(f) the extent to which the supplier’s conduct towards the customer was
consistent with the supplier’s conduct in similar transactions between
the supplier and other like customers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the customer acted on the
reasonable belief that the supplier would comply with that code; and
(i) the extent to which the supplier unreasonably failed to disclose to the
customer:
(i) any intended conduct of the supplier that might affect the interests
of the customer; and
(ii) any risks to the customer arising from the supplier’s intended
conduct (being risks that the supplier should have foreseen would
not be apparent to the customer); and
(j) if there is a contract between the supplier and the customer for the
supply of the goods or services:
(i) the extent to which the supplier was willing to negotiate the terms
and conditions of the contract with the customer; and
(ii) the terms and conditions of the contract; and
(iii) the conduct of the supplier and the customer in complying with the
terms and conditions of the contract; and
(iv) any conduct that the supplier or the customer engaged in, in
connection with their commercial relationship, after they entered
into the contract; and
(k) without limiting paragraph (j), whether the supplier has a contractual
right to vary unilaterally a term or condition of a contract between the
supplier and the customer for the supply of the goods or services; and
(l) the extent to which the supplier and the customer acted in good faith.
(2) Without limiting the matters to which the court may have regard for the
purpose of determining whether a person (the acquirer) has contravened
section 21 in connection with the acquisition or possible acquisition of goods
or services from a person (the supplier), the court may have regard to:
(a) the relative strengths of the bargaining positions of the acquirer and the
supplier; and
18.4
(b) whether, as a result of conduct engaged in by the acquirer, the supplier

was required to comply with conditions that were not reasonably
necessary for the protection of the legitimate interests of the acquirer;
and
(c) whether the supplier was able to understand any documents relating to
the acquisition or possible acquisition of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair
tactics were used against, the supplier or a person acting on behalf of the
supplier by the acquirer or a person acting on behalf of the acquirer in
relation to the acquisition or possible acquisition of the goods or services;
and
(e) the amount for which, and the circumstances in which, the supplier could
have supplied identical or equivalent goods or services to a person other
than the acquirer; and
(f) the extent to which the acquirer’s conduct towards the supplier was
consistent with the acquirer’s conduct in similar transactions between
the acquirer and other like suppliers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the supplier acted on the
reasonable belief that the acquirer would comply with that code; and
(i) the extent to which the acquirer unreasonably failed to disclose to the
supplier:
(i) any intended conduct of the acquirer that might affect the interests
of the supplier; and
(ii) any risks to the supplier arising from the acquirer’s intended
18
conduct (being risks that the acquirer should have foreseen would
not be apparent to the supplier); and
(j) if there is a contract between the acquirer and the supplier for the
acquisition of the goods or services:
(i) the extent to which the acquirer was willing to negotiate the terms
and conditions of the contract with the supplier; and
(ii) the terms and conditions of the contract; and
(iii) the conduct of the acquirer and the supplier in complying with the
terms and conditions of the contract; and
(iv) any conduct that the acquirer or the supplier engaged in, in
connection with their commercial relationship, after they entered
into the contract; and
(k) without limiting paragraph (j), whether the acquirer has a contractual
right to vary unilaterally a term or condition of a contract between the
acquirer and the supplier for the acquisition of the goods or services; and
(l) the extent to which the acquirer and the supplier acted in good faith.
22A Presumptions relating to whether representations are misleading

Section 4 applies for the purposes of sections 21 and 22 in the same way as it
applies for the purposes of Division 1 of Part 3-1.
Part 2-3 —Unfair contract terms
23 Unfair terms of consumer contracts and small business contracts
(1) A term of a consumer contract or small business contract is void if:
(a) the term is unfair; and
(b) the contract is a standard form contract.
(2) The contract continues to bind the parties if it is capable of operating without
the unfair term.
(3) A consumer contract is a contract for:
(a) a supply of goods or services; or
(b) a sale or grant of an interest in land;
to an individual whose acquisition of the goods, services or interest is wholly
or predominantly for personal, domestic or household use or consumption.
(4) A contract is a small business contract if:
(a) the contract is for a supply of goods or services, or a sale or grant of an
interest in land; and
(b) at the time the contract is entered into, at least one party to the contract is
a business that employs fewer than 20 persons; and
(c) either of the following applies:
(i) the upfront price payable under the contract does not exceed $300,000;
(ii) the contract has a duration of more than 12 months and the upfront
price payable under the contract does not exceed $1,000,000.
(5) In counting the persons employed by a business for the purposes of
paragraph (4)(b), a casual employee is not to be counted unless he or she
is employed by the business on a regular and systematic basis.
24 Meaning of unfair
(1) A term of a consumer contract or small business contract is unfair if:
(a) it would cause a significant imbalance in the parties’ rights and obligations
arising under the contract; and
(b) it is not reasonably necessary in order to protect the legitimate interests
of the party who would be advantaged by the term; and
(c) it would cause detriment (whether financial or otherwise) to a party if it
were to be applied or relied on.
(2) In determining whether a term of a contract is unfair under subsection (1), a
court may take into account such matters as it thinks relevant, but must take
into account the following:
(a) the extent to which the term is transparent;
(b) the contract as a whole.
(3) A term is transparent if the term is:
(a) expressed in reasonably plain language; and
(b) legible; and
18.4
(c) presented clearly; and

(d) readily available to any party affected by the term.
(4) For the purposes of subsection (1)(b), a term of a contract is presumed not to
be reasonably necessary in order to protect the legitimate interests of the party
who would be advantaged by the term, unless that party proves otherwise.
25 Examples of unfair terms
Without limiting section 24, the following are examples of the kinds of terms of a
consumer contract or small business contract that may be unfair:
(a) a term that permits, or has the effect of permitting, one party (but not
another party) to avoid or limit performance of the contract;
(b) a term that permits, or has the effect of permitting, one party (but not
another party) to terminate the contract;
(c) a term that penalises, or has the effect of penalising, one party (but not
another party) for a breach or termination of the contract;
(d) a term that permits, or has the effect of permitting, one party (but not
another party) to vary the terms of the contract;
(e) a term that permits, or has the effect of permitting, one party (but not
another party) to renew or not renew the contract;
(f) a term that permits, or has the effect of permitting, one party to vary
the upfront price payable under the contract without the right of another
party to terminate the contract;
(g) a term that permits, or has the effect of permitting, one party unilaterally
to vary the characteristics of the goods or services to be supplied, or the
interest in land to be sold or granted, under the contract;
(h) a term that permits, or has the effect of permitting, one party unilaterally
to determine whether the contract has been breached or to interpret its
meaning;
18
(i) a term that limits, or has the effect of limiting, one party’s vicarious
liability for its agents;
(j) a term that permits, or has the effect of permitting, one party to assign
the contract to the detriment of another party without that other party’s
consent;
(k) a term that limits, or has the effect of limiting, one party’s right to sue
another party;
(l) a term that limits, or has the effect of limiting, the evidence one party can
adduce in proceedings relating to the contract;
(m) a term that imposes, or has the effect of imposing, the evidential burden
on one party in proceedings relating to the contract;
(n) a term of a kind, or a term that has an effect of a kind, prescribed by the
regulations.
(2) Before the Governor- General makes a regulation for the purposes of
subsection (1)(n) prescribing a kind of term, or a kind of effect that a term has,
the Minister must take into consideration:

(a) the detriment that a term of that kind would cause to consumers; and
(b) the impact on business generally of prescribing that kind of term or
effect; and
(c) the public interest.
26 Terms that define main subject matter of consumer contracts or small business
contracts etc. are unaffected
(1) Section 23 does not apply to a term of a consumer contract or small business
contract to the extent, but only to the extent, that the term:
(a) defines the main subject matter of the contract; or
(b) sets the upfront price payable under the contract; or
(c) is a term required, or expressly permitted, by a law of the Commonwealth,
a State or a Territory.
(2) The upfront price payable under a contract is the consideration that:
(a) is provided, or is to be provided, for the supply, sale or grant under the
contract; and
(b) is disclosed at or before the time the contract is entered into;
but does not include any other consideration that is contingent on the
occurrence or non-occurrence of a particular event.
27 Standard form contracts
(1) If a party to a proceeding alleges that a contract is a standard form contract,
it is presumed to be a standard form contract unless another party to the
proceeding proves otherwise.
(2) In determining whether a contract is a standard form contract, a court may
take into account such matters as it thinks relevant, but must take into account
the following:
(a) whether one of the parties has all or most of the bargaining power
relating to the transaction;
(b) whether the contract was prepared by one party before any discussion
relating to the transaction occurred between the parties;
(c) whether another party was, in effect, required either to accept or reject
the terms of the contract (other than the terms referred to in section
26(1)) in the form in which they were presented;
(d) whether another party was given an effective opportunity to negotiate the
terms of the contract that were not the terms referred to in section 26(1);
(e) whether the terms of the contract (other than the terms referred to in
section 26(1)) take into account the specific characteristics of another
party or the particular transaction;
(f) any other matter prescribed by the regulations.
…
Chapter 3 —Specific protections
Part 3-1 — Unfair practices
Division 1 —False or misleading representations etc.
18.4
29 False or misleading representations about goods or services

(1) A person must not, in trade or commerce, in connection with the supply or
possible supply of goods or services or in connection with the promotion by
any means of the supply or use of goods or services:
(a) make a false or misleading representation that goods are of a particular
standard, quality, value, grade, composition, style or model or have had a
particular history or particular previous use; or
(b) make a false or misleading representation that services are of a particular
standard, quality, value or grade; or
(c) make a false or misleading representation that goods are new; or
(d) make a false or misleading representation that a particular person has
agreed to acquire goods or services; or
(e) make a false or misleading representation that purports to be a
testimonial by any person relating to goods or services; or
(f) make a false or misleading representation concerning:
(i) a testimonial by any person; or
(ii) a representation that purports to be such a testimonial; relating to
goods or services; or
(g) make a false or misleading representation that goods or services have
sponsorship, approval, performance characteristics, accessories, uses
or benefits; or
(h) make a false or misleading representation that the person making the
representation has a sponsorship, approval or affiliation; or
(i) make a false or misleading representation with respect to the price of
(j) make a false or misleading representation concerning the availability of
facilities for the repair of goods or of spare parts for goods; or 18
(k) make a false or misleading representation concerning the place of origin
of goods; or
(l) make a false or misleading representation concerning the need for any
(m) make a false or misleading representation concerning the existence,
exclusion or effect of any condition, warranty, guarantee, right or remedy
(including a guarantee under Division 1 of Part 3-2); or
(n) make a false or misleading representation concerning a requirement to
pay for a contractual right that:
(i) is wholly or partly equivalent to any condition, warranty, guarantee,
right or remedy (including a guarantee under Division 1 of Part 3-2);
and
(ii) a person has under a law of the Commonwealth, a State or a Territory
(other than an unwritten law).
Note 1: A pecuniary penalty may be imposed for a contravention of this
subsection.

Note 2: For rules relating to representations as to the country of origin of

goods, see Part 5-3.
(2) For the purposes of applying subsection (1) in relation to a proceeding
concerning a representation of a kind referred to in subsection (1)(e) or (f),
the representation is taken to be misleading unless evidence is adduced to the
contrary.
(3) To avoid doubt, subsection (2) does not:
(a) have the effect that, merely because such evidence to the contrary is
adduced, the representation is not misleading; or
(b) have the effect of placing on any person an onus of proving that the
representation is not misleading.
32 Offering rebates, gifts, prizes etc.
(1) A person must not, in trade or commerce, offer any rebate, gift, prize or other
free item with the intention of not providing it, or of not providing it as offered,
in connection with:
(a) the supply or possible supply of goods or services; or
(b) the promotion by any means of the supply or use of goods or services; or
(c) the sale or grant, or the possible sale or grant, of an interest in land; or
(d) the promotion by any means of the sale or grant of an interest in land.
subsection.
(2) If a person offers any rebate, gift, prize or other free item in connection with:
(b) the promotion by any means of the supply or use of goods or services; or
(d) the promotion by any means of the sale or grant of an interest in land;
the person must, within the time specified in the offer or (if no such time
is specified) within a reasonable time after making the offer, provide the
rebate, gift, prize or other free item in accordance with the offer.
subsection.
(3) Subsection (2) does not apply if:
(a) the person’s failure to provide the rebate, gift, prize or other free item
in accordance with the offer was due to the act or omission of another
person, or to some other cause beyond the person’s control; and
(b) the person took reasonable precautions and exercised due diligence to
avoid the failure.
(4) Subsection (2) does not apply to an offer that the person makes to another
person if:
(a) the person offers to the other person a different rebate, gift, prize or
other free item as a replacement; and
(b) the other person agrees to receive the different rebate, gift, prize or other
free item.
18.4
(5) This section does not affect the application of any other provision of Part 2-1
or this Part in relation to the supply or acquisition, or the possible supply or
acquisition, of interests in land.
33 Misleading conduct as to the nature etc. of goods
A person must not, in trade or commerce, engage in conduct that is liable to
mislead the public as to the nature, the manufacturing process, the characteristics,
the suitability for their purpose or the quantity of any goods.
Note: A pecuniary penalty may be imposed for a contravention of this section.
34 Misleading conduct as to the nature etc. of services
A person must not, in trade or commerce, engage in conduct that is liable to mislead
the public as to the nature, the characteristics, the suitability for their purpose or
the quantity of any services.
35 Bait advertising
(1) A person must not, in trade or commerce, advertise goods or services for
supply at a specified price if:
(a) there are reasonable grounds for believing that the person will not be
able to offer for supply those goods or services at that price for a period
that is, and in quantities that are, reasonable, having regard to:
(i) the nature of the market in which the person carries on business;
and
(ii) the nature of the advertisement; and
(b) the person is aware or ought reasonably to be aware of those grounds.
subsection.
(2) A person who, in trade or commerce, advertises goods or services for supply
18
at a specified price must offer such goods or services for supply at that price
for a period that is, and in quantities that are, reasonable having regard to:
(a) the nature of the market in which the person carries on business; and
(b) the nature of the advertisement.
subsection.
36 Wrongly accepting payment
(1) A person must not, in trade or commerce, accept payment or other
consideration for goods or services if, at the time of the acceptance, the person
intends not to supply the goods or services.
subsection.
(2) A person must not, in trade or commerce, accept payment or other consideration
for goods or services if, at the time of the acceptance, the person intends to
supply goods or services materially different from the goods or services in
respect of which the payment or other consideration is accepted.


subsection.
(3) A person must not, in trade or commerce, accept payment or other
consideration for goods or services if, at the time of the acceptance:
(a) there are reasonable grounds for believing that the person will not be
able to supply the goods or services:
(i) within the period specified by or on behalf of the person at or before
the time the payment or other consideration was accepted; or
(ii) if no period is specified at or before that time —within a reasonable
time; and
(b) the person is aware or ought reasonably to be aware of those grounds.
subsection.
(4) A person who, in trade or commerce, accepts payment or other consideration
for goods or services must supply all the goods or services:
(a) within the period specified by or on behalf of the person at or before the
time the payment or other consideration was accepted; or
(b) if no period is specified at or before that time —within a reasonable time.
subsection.
(a) the person’s failure to supply all the goods or services within the period,
or within a reasonable time, was due to the act or omission of another
person, or to some other cause beyond the person’s control; and
(b) the person took reasonable precautions and exercised due diligence to
avoid the failure.
(a) the person offers to supply different goods or services as a replacement
to the person (the customer) to whom the original supply was to be made;
and
(b) the customer agrees to receive the different goods or services.
(7) Subsections (1), (2), (3) and (4) apply whether or not the payment or other
consideration that the person accepted represents the whole or a part of the
payment or other consideration for the supply of the goods or services.
…
Division 2 —Unsolicited supplies
39 Unsolicited cards etc.
(1) A person must not send a credit card or a debit card, or an article that may be
used as a credit card and a debit card, to another person except:
(a) pursuant to a written request by the person who will be under a liability to
the person who issued the card or article in respect of the use of the card
or article; or
(b) in renewal or replacement of, or in substitution for:
18.4
(i) a card or article of the same kind previously sent to the other person
pursuant to a written request by the person who was under a liability,
to the person who issued the card previously so sent, in respect of
the use of that card; or
(ii) a card or article of the same kind previously sent to the other person
and used for a purpose for which it was intended to be used.
subsection.
(2) Subsection (1) does not apply unless the card or article is sent by or on behalf
of the person who issued it.
(3) A person must not take any action that enables another person who has a
credit card to use the card as a debit card, except in accordance with the other
person’s written request.
subsection.
(4) A person must not take any action that enables another person who has a
debit card to use the card as a credit card, except in accordance with the other
person’s written request.
subsection.
(5) A credit card is an article that is one or more of the following:
(a) an article of a kind commonly known as a credit card;
(b) a similar article intended for use in obtaining cash, goods or services on
credit;
(c) an article of a kind that persons carrying on business commonly issue to
18
their customers, or prospective customers, for use in obtaining goods or
services from those persons on credit;
and includes an article that may be used as an article referred to in paragraph
(a), (b) or (c).
(6) A debit card is:
(a) an article intended for use by a person in obtaining access to an account
that is held by the person for the purpose of withdrawing or depositing
cash or obtaining goods or services; or
(b) an article that may be used as an article referred to in paragraph (a).
40 Assertion of right to payment for unsolicited goods or services
(1) A person must not, in trade or commerce, assert a right to payment from
another person for unsolicited goods unless the person has reasonable cause
to believe that there is a right to the payment.
subsection.
(2) A person must not, in trade or commerce, assert a right to payment from
another person for unsolicited services unless the person has reasonable
cause to believe that there is a right to the payment.


subsection.
(3) A person must not, in trade or commerce, send to another person an invoice
or other document that:
(a) states the amount of a payment, or sets out the charge, for supplying
unsolicited goods or unsolicited services; and
(b) does not contain a warning statement that complies with the requirements
set out in the regulations;
unless the person has reasonable cause to believe that there is a right to the
payment or charge.
subsection.
(4) In a proceeding against a person in relation to a contravention of this section,
the person bears the onus of proving that the person had reasonable cause to
believe that there was a right to the payment or charge.
41 Liability etc. of recipient for unsolicited goods
(1) If a person, in trade or commerce, supplies unsolicited goods to another
person, the other person:
(a) is not liable to make any payment for the goods; and
(b) is not liable for loss of or damage to the goods, other than loss or damage
resulting from the other person doing a wilful and unlawful act in relation
to the goods during the recovery period.
(2) If a person sends, in trade or commerce, unsolicited goods to another person:
(a) neither the sender nor any person claiming under the sender is entitled,
after the end of the recovery period, to take action for the recovery of the
goods from the other person; and
(b) at the end of the recovery period, the goods become, by force of this
section, the property of the other person freed and discharged from all
liens and charges of any description.
(3) However, subsection (2) does not apply to or in relation to unsolicited goods
sent to a person if:
(a) the person has, at any time during the recovery period, unreasonably
refused to permit the sender or the owner of the goods to take possession
of the goods; or
(b) the sender or the owner of the goods has within the recovery period taken
possession of the goods; or
(c) the goods were received by the person in circumstances in which the
person knew, or might reasonably be expected to have known, that the
goods were not intended for him or her.
(4) The recovery period is whichever of the following periods ends first:
(a) the period of 3 months starting on the day after the day on which the
person received the goods;
18.4
(b) if the person who receives the unsolicited goods gives notice with respect
to the goods to the supplier or sender in accordance with subsection
(5) —the period of one month starting on the day after the day on which
the notice is given.
(5) A notice under subsection (4)(b):
(a) must be in writing; and
(b) must state the name and address of the person who received the goods;
and
(c) must state the address at which possession may be taken of the goods, if
it is not the address of the person; and
(d) must contain a statement to the effect that the goods are unsolicited
goods.
…
Division 3 —Pyramid schemes
44 Participation in pyramid schemes
(1) A person must not participate in a pyramid scheme.
subsection.
(2) A person must not induce, or attempt to induce, another person to participate
in a pyramid scheme.
subsection.
(3) To participate in a pyramid scheme is:
(a) to establish or promote the scheme (whether alone or together with
another person); or
(b) to take part in the scheme in any capacity (whether or not as an employee
or agent of a person who establishes or promotes the scheme, or who 18
otherwise takes part in the scheme).
45 Meaning of pyramid scheme
(1) A pyramid scheme is a scheme with both of the following characteristics:
(a) to take part in the scheme, some or all new participants must provide, to
another participant or participants in the scheme, either of the following
(a participation payment):
(i) a financial or non-financial benefit to, or for the benefit of, the other
participant or participants;
(ii) a financial or non-financial benefit partly to, or for the benefit of, the
other participant or participants and partly to, or for the benefit of,
other persons;
(b) the participation payments are entirely or substantially induced by the
prospect held out to new participants that they will be entitled, in relation
to the introduction to the scheme of further new participants, to be
provided with either of the following (a recruitment payment):

(i) a financial or non-financial benefit to, or for the benefit of, new
participants;
(ii) a financial or non-financial benefit partly to, or for the benefit of,
new participants and partly to, or for the benefit of, other persons.
(2) A new participant includes a person who has applied, or been invited, to
participate in the scheme.
(3) A scheme may be a pyramid scheme:
(a) no matter who holds out to new participants the prospect of entitlement
to recruitment payments; and
(b) no matter who is to make recruitment payments to new participants; and
(c) no matter who is to make introductions to the scheme of further new
participants.
(4) A scheme may be a pyramid scheme even if it has any or all of the following
characteristics:
(a) the participation payments may (or must) be made after the new
participants begin to take part in the scheme;
(b) making a participation payment is not the only requirement for taking
part in the scheme;
(c) the holding out of the prospect of entitlement to recruitment payments
does not give any new participant a legally enforceable right;
(d) arrangements for the scheme are not recorded in writing (whether
entirely or partly);
(e) the scheme involves the marketing of goods or services (or both).
…
Division 4 —Pricing
47 Multiple pricing
(1) A person must not, in trade or commerce, supply goods if:
(a) the goods have more than one displayed price; and
(b) the supply takes place for a price that is not the lower, or lowest, of the
displayed prices.
subsection.
(2) …
Division 5 —Other unfair practices
49 Referral selling
A person must not, in trade or commerce, induce a consumer to acquire goods
or services by representing that the consumer will, after the contract for the
acquisition of the goods or services is made, receive a rebate, commission or other
benefit in return for:
(a) giving the person the names of prospective customers; or
(b) otherwise assisting the person to supply goods or services to other
consumers;
18.4
if receipt of the rebate, commission or other benefit is contingent on an event

occurring after that contract is made.
50 Harassment and coercion
(1) A person must not use physical force, or undue harassment or coercion, in
connection with:
(b) the payment for goods or services; or
(d) the payment for an interest in land.
subsection.
(2) Subsections (1)(c) and (d) do not affect the application of any other provision
of Part 2-1 or this Part in relation to the supply or acquisition, or the possible
supply or acquisition, of interests in land.
Part 3-2 — Consumer transactions
Division 1 —Consumer guarantees
Subdivision A —Guarantees relating to the supply of goods
51 Guarantee as to title
(1) If a person (the supplier) supplies goods to a consumer, there is a guarantee
that the supplier will have a right to dispose of the property in the goods when
that property is to pass to the consumer.
(2) Subsection (1) does not apply to a supply (a supply of limited title) if an intention
that the supplier of the goods should transfer only such title as the supplier, or
another person, may have:
(a) appears from the contract for the supply; or 18
(b) is to be inferred from the circumstances of that contract.
(3) This section does not apply if the supply is a supply by way of hire or lease.
52 Guarantee as to undisturbed possession
(1) If:
(a) a person (the supplier) supplies goods to a consumer; and
(b) the supply is not a supply of limited title;
there is a guarantee that the consumer has the right to undisturbed possession
of the goods.
(2) Subsection (1) does not apply to the extent that the consumer’s undisturbed
possession of the goods may be lawfully disturbed by a person who is entitled
to the benefit of any security, charge or encumbrance disclosed to the
consumer before the consumer agreed to the supply.
(3) If:
(b) the supply is a supply of limited title;

there is a guarantee that the following persons will not disturb the consumer’s
possession of the goods:
(c) the supplier;
(d) if the parties to the contract for the supply intend that the supplier should
transfer only such title as another person may have —that other person;
(e) anyone claiming through or under the supplier or that other person
(otherwise than under a security, charge or encumbrance disclosed to
the consumer before the consumer agreed to the supply).
(4) This section applies to a supply by way of hire or lease only for the period of the
hire or lease.
53 Guarantee as to undisclosed securities etc.
(1) If:
(b) the supply is not a supply of limited title;
there is a guarantee that:
(c) the goods are free from any security, charge or encumbrance:
(i) that was not disclosed to the consumer, in writing, before the
consumer agreed to the supply; or
(ii) that was not created by or with the express consent of the consumer;
and
(d) the goods will remain free from such a security, charge or encumbrance
until the time when the property in the goods passes to the consumer.
(2) A supplier does not fail to comply with the guarantee only because of the
existence of a floating charge over the supplier’s assets unless and until the
charge becomes fixed and enforceable by the person to whom the charge is
given.
Note: Section 339 of the Personal Property Securities Act 2009 affects the
meaning of the references in this subsection to a floating charge and a fixed charge.
(3) If:
(b) the supply is a supply of limited title;
there is a guarantee that all securities, charges or encumbrances known
to the supplier, and not known to the consumer, were disclosed to the consumer
before the consumer agreed to the supply.
(4) This section does not apply if the supply is a supply by way of hire or lease.
54 Guarantee as to acceptable quality
(1) If:
(a) a person supplies, in trade or commerce, goods to a consumer; and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that the goods are of acceptable quality.
(2) Goods are of acceptable quality if they are as:
(a) fit for all the purposes for which goods of that kind are commonly
supplied; and
18.4
(b) acceptable in appearance and finish; and

(c) free from defects; and
(d) safe; and
(e) durable;
as a reasonable consumer fully acquainted with the state and condition of
the goods (including any hidden defects of the goods), would regard as acceptable
having regard to the matters in subsection (3).
(3) The matters for the purposes of subsection (2) are:
(a) the nature of the goods; and
(b) the price of the goods (if relevant); and
(c) any statements made about the goods on any packaging or label on the
goods; and
(d) any representation made about the goods by the supplier or manufacturer
of the goods; and
(e) any other relevant circumstances relating to the supply of the goods.
(4) If:
(a) goods supplied to a consumer are not of acceptable quality; and
(b) the only reason or reasons why they are not of acceptable quality were
specifically drawn to the consumer’s attention before the consumer
agreed to the supply;
the goods are taken to be of acceptable quality.
(5) If:
(a) goods are displayed for sale or hire; and
(b) the goods would not be of acceptable quality if they were supplied to a
consumer;
18
the reason or reasons why they are not of acceptable quality are taken, for
the purposes of subsection (4), to have been specifically drawn to a consumer’s
attention if those reasons were disclosed on a written notice that was displayed
with the goods and that was transparent.
(6) Goods do not fail to be of acceptable quality if:
(a) the consumer to whom they are supplied causes them to become of
unacceptable quality, or fails to take reasonable steps to prevent them
from becoming of unacceptable quality; and
(b) they are damaged by abnormal use.
(7) Goods do not fail to be of acceptable quality if:
(a) the consumer acquiring the goods examines them before the consumer
agrees to the supply of the goods; and
(b) the examination ought reasonably to have revealed that the goods were
not of acceptable quality.
55 Guarantee as to fitness for any disclosed purpose etc.
(1) If:
(a) a person (the supplier) supplies, in trade or commerce, goods to a
consumer; and


there is a guarantee that the goods are reasonably fit for any disclosed purpose,
and for any purpose for which the supplier represents that they are reasonably fit.
(2) A disclosed purpose is a particular purpose (whether or not that purpose is a
purpose for which the goods are commonly supplied) for which the goods are
being acquired by the consumer and that:
(a) the consumer makes known, expressly or by implication, to:
(i) the supplier; or
(ii) a person by whom any prior negotiations or arrangements in relation
to the acquisition of the goods were conducted or made; or
(b) the consumer makes known to the manufacturer of the goods either
directly or through the supplier or the person referred to in paragraph (a)
(ii).
(3) This section does not apply if the circumstances show that the consumer did
not rely on, or that it was unreasonable for the consumer to rely on, the skill or
judgment of the supplier, the person referred to in subsection (2)(a) (ii) or the
manufacturer, as the case may be.
56 Guarantee relating to the supply of goods by description
(1) If:
(a) a person supplies, in trade or commerce, goods by description to a
consumer; and
there is a guarantee that the goods correspond with the description.
(2) A supply of goods is not prevented from being a supply by description only
because, having been exposed for sale or hire, they are selected by the
consumer.
(3) If goods are supplied by description as well as by reference to a sample or
demonstration model, the guarantees in this section and in section 57 both
apply.
57 Guarantees relating to the supply of goods by sample or demonstration model
(1) If:
(a) a person supplies, in trade or commerce, goods to a consumer by
reference to a sample or demonstration model; and
there is a guarantee that:
(c) the goods correspond with the sample or demonstration model in quality,
state or condition; and
(d) if the goods are supplied by reference to a sample —the consumer will
have a reasonable opportunity to compare the goods with the sample;
and
(e) the goods are free from any defect that:
(i) would not be apparent on reasonable examination of the sample or
demonstration model; and
18.4
(ii) would cause the goods not to be of acceptable quality.

(2) If goods are supplied by reference to a sample or demonstration model as well
as by description, the guarantees in section 56 and in this section both apply.
58 Guarantee as to repairs and spare parts
(1) If:
there is a guarantee that the manufacturer of the goods will take reasonable
action to ensure that facilities for the repair of the goods, and parts for the goods,
are reasonably available for a reasonable period after the goods are supplied.
(2) This section does not apply if the manufacturer took reasonable action to
ensure that the consumer would be given written notice, at or before the time
when the consumer agrees to the supply of the goods, that:
(a) facilities for the repair of the goods would not be available or would not
be available after a specified period; or
(b) parts for the goods would not be available or would not be available after
a specified period.
59 Guarantee as to express warranties
(1) If:
there is a guarantee that the manufacturer of the goods will comply with any
express warranty given or made by the manufacturer in relation to the goods.
(2) If:
18
there is a guarantee that the supplier will comply with any express warranty
given or made by the supplier in relation to the goods.
…
Subdivision C —Guarantees not to be excluded etc. by contract
64 Guarantees not to be excluded etc. by contract
(1) A term of a contract (including a term that is not set out in the contract but
is incorporated in the contract by another term of the contract) is void to the
extent that the term purports to exclude, restrict or modify, or has the effect of
excluding, restricting or modifying:
(a) the application of all or any of the provisions of this Division; or
(b) the exercise of a right conferred by such a provision; or
(c) any liability of a person for a failure to comply with a guarantee that
applies under this Division to a supply of goods or services.
(2) A term of a contract is not taken, for the purposes of this section, to exclude,
restrict or modify the application of a provision of this Division unless the term
does so expressly or is inconsistent with the provision.

64A Limitation of liability for failures to comply with guarantees

(1) A term of a contract for the supply by a person of goods other than goods
of a kind ordinarily acquired for personal, domestic or household use or
consumption is not void under section 64 merely because the term limits the
person’s liability for failure to comply with a guarantee (other than a guarantee
under section 51, 52 or 53) to one or more of the following:
(a) the replacement of the goods or the supply of equivalent goods;
(b) the repair of the goods;
(c) the payment of the cost of replacing the goods or of acquiring equivalent
goods;
(d) the payment of the cost of having the goods repaired.
(2) A term of a contract for the supply by a person of services other than services
of a kind ordinarily acquired for personal, domestic or household use or
consumption is not void under section 64 merely because the term limits the
person’s liability for failure to comply with a guarantee to:
(a) the supplying of the services again; or
(b) the payment of the cost of having the services supplied again.
(3) This section does not apply in relation to a term of a contract if the person to
whom the goods or services were supplied establishes that it is not fair or
reasonable for the person who supplied the goods or services to rely on that
term of the contract.
(4) In determining for the purposes of subsection (3) whether or not reliance on
a term of a contract is fair or reasonable, a court is to have regard to all the
circumstances of the case, and in particular to the following matters:
(a) the strength of the bargaining positions of the person who supplied the
goods or services and the person to whom the goods or services were
supplied (the buyer) relative to each other, taking into account, among
other things, the availability of equivalent goods or services and suitable
alternative sources of supply;
(b) whether the buyer received an inducement to agree to the term or,
in agreeing to the term, had an opportunity of acquiring the goods or
services or equivalent goods or services from any source of supply under
a contract that did not include that term;
(c) whether the buyer knew or ought reasonably to have known of the
existence and extent of the term (having regard, among other things, to
any custom of the trade and any previous course of dealing between the
parties);
(d) in the case of the supply of goods, whether the goods were manufactured,
processed or adapted to the special order of the buyer.
…
Division 2 —Unsolicited consumer agreements
Subdivision A —Introduction
69 Meaning of unsolicited consumer agreement
18.4
(1) An agreement is an unsolicited consumer agreement if:

(a) it is for the supply, in trade or commerce, of goods or services to a
consumer; and
(b) it is made as a result of negotiations between a dealer and the consumer:
(i) in each other’s presence at a place other than the business or trade
premises of the supplier of the goods or services; or
(ii) by telephone;
whether or not they are the only negotiations that precede the making of the
agreement; and
(c) the consumer did not invite the dealer to come to that place, or to make a
telephone call, for the purposes of entering into negotiations relating to
the supply of those goods or services (whether or not the consumer made
such an invitation in relation to a different supply); and
(d) the total price paid or payable by the consumer under the agreement:
(i) is not ascertainable at the time the agreement is made; or
(ii) if it is ascertainable at that time —is more than $100 or such other
amount prescribed by the regulations.
(1A) The consumer is not taken, for the purposes of subsection (1)(c), to have invited
the dealer to come to that place, or to make a telephone call, merely because
the consumer has:
(a) given his or her name or contact details other than for the predominant
purpose of entering into negotiations relating to the supply of the goods
or services referred to in subsection (1)(c); or
(b) contacted the dealer in connection with an unsuccessful attempt by the
dealer to contact the consumer.
18
(2) An invitation merely to quote a price for a supply is not taken, for the purposes
of subsection (1)(c), to be an invitation to enter into negotiations for a supply.
(3) An agreement is also an unsolicited consumer agreement if it is an agreement
of a kind that the regulations provide are unsolicited consumer agreements.
(4) However, despite subsections (1) and (3), an agreement is not an unsolicited
consumer agreement if it is an agreement of a kind that the regulations provide
are not unsolicited consumer agreements.
…
Subdivision B —Negotiating unsolicited consumer agreements
73 Permitted hours for negotiating an unsolicited consumer agreement
(1) A dealer must not call on a person for the purpose of negotiating an unsolicited
consumer agreement, or for an incidental or related purpose:
(a) at any time on a Sunday or a public holiday; or
(b) before 9 am on any other day; or
(c) after 6 pm on any other day (or after 5 pm if the other day is a Saturday).
subsection.

(2) Subsection (1) does not apply if the dealer calls on the person in accordance
with consent that:
(a) was given by the person to the dealer or a person acting on the dealer’s
behalf; and
(b) was not given in the presence of the dealer or a person acting on the
dealer’s behalf.
Note: The Do Not Call Register Act 2006 may apply to a telephone call made
for the purpose of negotiating an unsolicited consumer agreement.
74 Disclosing purpose and identity
A dealer who calls on a person for the purpose of negotiating an unsolicited
consumer agreement, or for an incidental or related purpose, must, as soon as
practicable and in any event before starting to negotiate:
(a) clearly advise the person that the dealer’s purpose is to seek the person’s
agreement to a supply of the goods or services concerned; and
(b) clearly advise the person that the dealer is obliged to leave the premises
immediately on request; and
(c) provide to the person such information relating to the dealer’s identity as is
prescribed by the regulations.
75 Ceasing to negotiate on request
(1) A dealer who calls on a person at any premises for the purpose of negotiating
an unsolicited consumer agreement, or for an incidental or related purpose,
must leave the premises immediately on the request of:
(a) the occupier of the premises, or any person acting with the actual or
apparent authority of the occupier; or
(b) the person (the prospective consumer) with whom the negotiations are
being conducted.
subsection.
(2) If the prospective consumer makes such a request, the dealer must not
contact the prospective consumer for the purpose of negotiating an unsolicited
consumer agreement (or for an incidental or related purpose) for at least
30 days after the prospective consumer makes the request.
subsection.
(3) If the dealer is not, or is not to be, the supplier of the goods or services to
which the negotiations relate:
(a) subsection (2) applies to that supplier, and any person acting on behalf of
that supplier, in the same way that it applies to the dealer; but
(b) subsection (2) does not apply to the dealer contacting the prospective
customer in relation to a supply by another supplier.
76 Informing person of termination period etc.
18.4
A dealer must not make an unsolicited consumer agreement with a person unless:
(a) before the agreement is made, the person is given information as to the
following:
(i) the person’s right to terminate the agreement during the termination
period;
(ii) the way in which the person may exercise that right;
(iii) such other matters as are prescribed by the regulations; and
(b) if the agreement is made in the presence of both the dealer and the
person —the person is given the information in writing; and
(c) if the agreement is made by telephone —the person is given the
information by telephone, and is subsequently given the information in
writing; and
(d) the form in which, and the way in which, the person is given the information
complies with any other requirements prescribed by the regulations.
77 Liability of suppliers for contraventions by dealers
If:
(a) a dealer contravenes a provision of this Subdivision in relation to an
unsolicited consumer agreement; and
(b) the dealer is not, or is not to be, the supplier of the goods or services to
which the agreement relates;
the supplier of the goods or services is also taken to have contravened that provision
in relation to the agreement.
Subdivision C —Requirements for unsolicited consumer agreements etc.
18
78 Requirement to give document to the consumer
(1) If an unsolicited consumer agreement was not negotiated by telephone, the
dealer who negotiated the agreement must give a copy of the agreement to
the consumer under the agreement immediately after the consumer signs the
agreement.
subsection.
(2) If an unsolicited consumer agreement was negotiated by telephone, the
dealer who negotiated the agreement must, within 5 business days after the
agreement was made or such longer period agreed by the parties, give to the
consumer under the agreement:
(a) personally; or
(b) by post; or
(c) with the consumer’s consent —by electronic communication;
a document (the agreement document) evidencing the agreement.
subsection.

(3) An unsolicited consumer agreement was negotiated by telephone if the

negotiations that resulted in the making of the agreement took place by
telephone (whether or not other negotiations preceded the making of the
agreement).
79 Requirements for all unsolicited consumer agreements etc.
The supplier under an unsolicited consumer agreement must ensure that the
agreement, or (if the agreement was negotiated by telephone) the agreement
document, complies with the following requirements:
(a) it must set out in full all the terms of the agreement, including:
(i) the total consideration to be paid or provided by the consumer under
the agreement or, if the total consideration is not ascertainable at the
time the agreement is made, the way in which it is to be calculated;
and
(ii) any postal or delivery charges to be paid by the consumer;
(b) its front page must include a notice that:
(i) conspicuously and prominently informs the consumer of the
consumer’s right to terminate the agreement; and
(ii) conspicuously and prominently sets out any other information
prescribed by the regulations; and
(iii) complies with any other requirements prescribed by the regulations;
(c) it must be accompanied by a notice that:
(i) may be used by the consumer to terminate the agreement; and
(ii) complies with any requirements prescribed by the regulations;
(d) it must conspicuously and prominently set out in full:
(i) the supplier’s name; and
(ii) if the supplier has an ABN —the supplier’s ABN; and
(iii) if the supplier does not have an ABN but has an ACN —the supplier’s
ACN; and
(iv) the supplier’s business address (not being a post box) or, if the
supplier does not have a business address, the supplier’s residential
address; and
(v) if the supplier has an email address —the supplier’s email address;
and
(vi) if the supplier has a fax number —the supplier’s fax number;
(e) it must be printed clearly or typewritten (apart from any amendments to
the printed or typewritten form, which may be handwritten);
(f) it must be transparent.
Subdivision D —Terminating unsolicited consumer agreements
82 Terminating an unsolicited consumer agreement during the termination period
(1) The consumer under an unsolicited consumer agreement may, during the
period provided under subsection (3), terminate the agreement by indicating,
18.4
in an oral or written notice to the supplier under the agreement, an intention

to terminate the agreement.
(2) A right of termination under this section may be exercised:
(a) despite affirmation of the agreement by the consumer; and
(b) even though the agreement has been fully executed.
(3) The period during which the consumer may terminate the agreement is
whichever of the following periods is the longest:
(a) if the agreement was not negotiated by telephone —the period of 10
business days starting at the start of the first business day after the day
on which the agreement was made;
(b) if the agreement was negotiated by telephone —the period of 10
business days starting at the start of the first business day after the day
on which the consumer was given the agreement document relating to
the agreement;
(c) if one or more of the following were contravened in relation to the
agreement:
(i) section 73 (permitted hours for negotiating an unsolicited consumer
agreement);
(ii) section 74 (disclosing purpose and identity);
(iii) section 75 (ceasing to negotiate on request);
the period of 3 months starting at the start of the first day after the day on
which the agreement was made or, if the agreement was negotiated by telephone,
the agreement document was given;
(d) if one or more of the following were contravened in relation to the
agreement:
18
(i) section 76 (informing consumer of termination period);
(ii) a provision of Subdivision C (requirements for unsolicited consumer
agreements);
(iii) section 86 (prohibition on supplies for 10 business days);
the period of 6 months starting at the start of the first day after the day on
which the agreement was made or, if the agreement was negotiated by telephone,
the agreement document was given;
(e) such other period as the agreement provides.
(4) If the notice under subsection (1) is written, it may be given:
(a) by delivering it personally to the supplier; or
(b) by delivering it, or sending it by post, in an envelope addressed to the
supplier, to the supplier’s address referred to in section 79(d)(iv); or
(c) if the supplier has an email address —by sending it to the supplier’s
email address referred to in section 79(d)(v); or
(d) if the supplier has a fax number —by faxing it to the supplier’s fax number
referred to in section 79(d)(vi).
(5) A notice under subsection (1) sent by post to a supplier is taken to have been
given to the supplier at the time of posting.

(6) There are no requirements relating to the form or content of a notice under
subsection (1).
…
Subdivision E —Miscellaneous
90 Waiver of rights
(1) The consumer under an unsolicited consumer agreement is not competent to
waive any right conferred by this Division.
(2) The supplier under the unsolicited consumer agreement must not induce, or
attempt to induce, the consumer to waive any right conferred by this Division.
subsection.
…
Part 3-3 —Safety of consumer goods and product related services
Division 1 —Safety standards
104 Making safety standards for consumer goods and product related services
(1) The Commonwealth Minister may, by written notice published on the internet,
make a safety standard for one or both of the following:
(a) consumer goods of a particular kind;
(b) product related services of a particular kind.
(2) A safety standard for consumer goods of a particular kind may consist of such
requirements about the following matters as are reasonably necessary to
prevent or reduce risk of injury to any person:
(a) the performance, composition, contents, methods of manufacture or
processing, design, construction, finish or packaging of consumer goods
of that kind;
(b) the testing of consumer goods of that kind during, or after the completion
of, manufacture or processing;
(c) the form and content of markings, warnings or instructions to accompany
consumer goods of that kind.
(3) A safety standard for product related services of a particular kind may consist
of such requirements about the following matters as are reasonably necessary
to prevent or reduce risk of injury to any person:
(a) the manner in which services of that kind are supplied (including, but not
limited to, the method of supply);
(b) the skills or qualifications of persons who supply such services;
(c) the materials used in supplying such services;
(d) the testing of such services;
(e) the form and content of warnings, instructions or other information about
such services.
…
Division 2 —Bans on consumer goods and product related services
Subdivision A —Interim bans
18.4
109 Interim bans on consumer goods or product related services that will or may
cause injury to any person etc.
(1) A responsible Minister may, by written notice published on the internet,
impose an interim ban on consumer goods of a particular kind if:
(a) it appears to the responsible Minister that:
(i) consumer goods of that kind will or may cause injury to any person;
or
(ii) a reasonably foreseeable use (including a misuse) of consumer
goods of that kind will or may cause injury to any person; or
(b) another responsible Minister has imposed, under paragraph (a), an
interim ban:
(i) on consumer goods of the same kind; or
(ii) on consumer goods of a kind that includes those goods;
and that ban is still in force.
(2) A responsible Minister may, by written notice published on the internet,
impose an interim ban on product related services of a particular kind if:
(a) it appears to the responsible Minister that:
(i) as a result of services of that kind being supplied, consumer goods
of a particular kind will or may cause injury to any person; or
goods of a particular kind, to which such services relate, will or
may cause injury to any person as a result of such services being
supplied; or
(b) another responsible Minister has imposed, under paragraph (a), an
interim ban:
18
(i) on product related services of the same kind; or
(ii) on product related services that include those services;
and that ban is still in force.
…
Subdivision B —Permanent bans
114 Permanent bans on consumer goods or product related services
impose a permanent ban on consumer goods of a particular kind if:
(a) one or more interim bans on consumer goods of that kind (the banned
goods), or on consumer goods of a kind that include the banned goods,
are in force; or
(b) it appears to the Commonwealth Minister that:
(i) consumer goods of that kind will or may cause injury to any person;
or
goods of that kind will or may cause injury to any person.
impose a permanent ban on product related services of a particular kind if:

(a) one or more interim bans on product related services of that kind (the
banned services), or on product related services of a kind that include the
banned services, are in force; or
(b) it appears to the Commonwealth Minister that:
(i) as a result of services of that kind being supplied, consumer goods
of a particular kind will or may cause injury to any person; or
goods of a particular kind, to which such services relate, will or
may cause injury to any person as a result of such services being
supplied.
…
[18.5] Equitable Rules of Contract Construction

The following Acts contain provisions that give preference to the equitable approach to
construing the relative importance of terms in a contract. The section from the Queensland
Act is reproduced as an example.
Table 18.3 Legislation relating to equitable rules of contract construction
NSW Conveyancing Act 1919 Vic Property Law Act 1958

Qld Property Law Act 1974 WA Property Law Act 1969
SA Law of Property Act 1936 ACT Civil Law (Property) Act 2006
Tas Supreme Court Civil Procedure Act 1932 NT Supreme Court Act 1979
Property Law Act 1974 (Qld)

Part 6 —Deeds, covenants, instruments and contracts
…
62 Stipulations not of the essence of the contract
Stipulations in contracts, as to time or otherwise, which under rules of equity
are not deemed to be or to have become of the essence of the contract, shall be
construed and have effect at law under rules of equity.
…
[18.6] Frustrated Contracts

The following legislation regulates the consequences of frustrated contracts. The selected
part from the Victorian Act is reproduced as an example, but the approach in the various
Acts is not uniform.
18.6
Table 18.4 Legislation regulating consequences of frustrated contracts
NSW Frustrated Contracts Act 1978

SA Frustrated Contracts Act 1988
Vic Australian Consumer Law and Fair Trading Act 2012
Australian Consumer Law and Fair Trading Act 2012 (Vic)

Chapter 3 — Contracts
Part 3.2 —Frustrated contracts
Division 2 —Consequences of frustrated contract
36 Adjustment of amounts paid or payable to parties to discharged contracts
(1) All amounts paid to any party under a discharged contract before the time of
discharge are recoverable.
(2) All amounts payable to any party under a discharged contract before the time
of discharge cease to be payable.
37 Court may allow amounts paid or payable to be recovered or paid
Despite section 36, the court may, if it considers it just to do so having regard to all
the circumstances of the case, allow a party to a discharged contract —
(a) to whom amounts were paid or are payable under that contract before the
time of discharge; and
(b) who has incurred expenses before the time of discharge in or for the purpose
of the performance of that contract —
to retain or recover (as the case may be) the whole or any part of the amounts
paid or payable to that party under the contract in an amount not exceeding the
expenses incurred.
18
38 Parties to pay an amount for valuable benefits obtained
(1) This section applies if a party to a discharged contract obtained a valuable
benefit (other than a payment of money to which section 36 or 37 applies)
before the time of discharge because of anything done by another party in or
for the purpose of the performance of the contract.
(2) Despite section 36, the benefited party is liable to pay to that other party
any amount (not exceeding the value of the benefit obtained) that the court
considers just having regard to all the circumstances of the case.
(3) For the purpose of subsection (2), the court may have regard to —
(a) the amount of any expenses the benefited party incurred before the time
of discharge in or for the purpose of the performance of the contract,
including any amount paid or payable by the benefited party to any other
party under the contract and retained or recoverable by that party under
section 36 or 37; or

(b) the effect, in relation to the benefit obtained, of the circumstances giving
rise to the frustration or avoidance of the contract.
(4) For the purpose of this section, if a party to the contract has assumed
obligations under the contract in consideration of the conferral of a benefit by
another party to the contract on any other person (whether or not that person
is a party to the contract), the court may, if in all the circumstances of the case
it considers it just to do so, treat any benefit conferred on that other person as
a benefit obtained by the party who has assumed those obligations.
39 Calculation of expenses incurred
In estimating, for the purposes of this Division, the amount of any expenses
incurred by any party to a discharged contract, the court may include an amount
that appears reasonable for —
(a) overhead expenses; and
(b) work or services performed personally by the party.
40 Circumstances in which amounts payable under contract of insurance excluded
In considering whether any amount is to be retained or recovered by any party to a
discharged contract, the court must not take into account any amounts payable to a
party under a contract of insurance because of the circumstances giving rise to the
frustration or avoidance of the contract unless an obligation to insure is imposed —
(a) by an express provision in the frustrated or avoided contract; or
(b) by or under any enactment.
Division 3 —General
41 Circumstances in which contract provisions continue to have effect despite
frustration
If any contract to which this Part applies contains a provision that on the true
construction of the contract —
(a) is intended to continue to have effect in circumstances that operate or would,
but for that provision, operate to frustrate or avoid the contract; or
(b) is intended to have effect whether or not circumstances that operate or would,
but for that provision, operate to frustrate or avoid the contract arise —
the court must give effect to that provision and must only give effect to Division 2
to the extent that the court is satisfied that it is consistent with the provision of the
contract.
42 Performed part of contract not frustrated
If it appears to the court that part of a contract to which this Part applies —
(a) is wholly performed before the time of discharge; or
(b) is wholly performed before the time of discharge except for payment in respect
of that part of the contract of amounts that are or can be ascertained under
the contract —
18.6
the court must treat that part of the contract as if it were a separate contract
that had not been frustrated or avoided and Division 2 will only apply to the
remainder of that contract.
43 Nature of action
All actions and proceedings to recover amounts under this Part are taken to be
founded on simple contract.
44 Limitation period
Subject to Part II of the Limitation of Actions Act 1958, a cause of action under this
Part is taken to have first accrued at the time of discharge.
…
[18.7] Interpretation of Legislation

The following legislation regulates the interpretation of legislation. The selected provisions
from the Commonwealth and Victorian Acts are reproduced as examples.
Table 18.5 Acts regulating interpretation of legislation
Cth Acts Interpretation Act 1901 Vic Interpretation of Legislation Act 1984
NSW Interpretation Act 1987 WA Interpretation Act 1984
Qld Acts Interpretation Act 1954 ACT Legislation Act 2001
SA Acts Interpretation Act 1915 NT Interpretation Act 1978
Tas Acts Interpretation Act 1931
Acts Interpretation Act 1901 (Cth)

Part 5 —General interpretation rules
18
…
15AA Interpretation best achieving Act’s purpose or object
In interpreting a provision of an Act, the interpretation that would best achieve the
purpose or object of the Act (whether or not that purpose or object is expressly
stated in the Act) is to be preferred to each other interpretation.
…
Interpretation of Legislation Act 1984 (Vic)

Part IV —Provisions Applicable to Acts and Subordinate Instruments
35 Principles of and aids to interpretation
In the interpretation of a provision of an Act or subordinate instrument —
(a) a construction that would promote the purpose or object underlying the Act
or subordinate instrument (whether or not that purpose or object is expressly

stated in the Act or subordinate instrument) shall be preferred to a construction

that would not promote that purpose or object; and
(b) consideration may be given to any matter or document that is relevant
including but not limited to —
(i) all indications provided by the Act or subordinate instrument as printed
by authority, including punctuation;
(ii) reports of proceedings in any House of the Parliament;
(iii) explanatory memoranda or other documents laid before or otherwise
presented to any House of the Parliament; and
(iv) reports of Royal Commissions, Parliamentary Committees, Law Reform
Commissioners and Commissions, Boards of Inquiry or other similar
bodies.
45 Construction of ‘may’ and ‘shall’
(1) Where in this Act or any Act passed or subordinate instrument made on or
after the commencement of this Act the word ‘may’ is used in conferring a
power, that word shall be construed as meaning that the power so conferred
may be exercised, or not, at discretion.
(2) Where in this Act or any Act passed or subordinate instrument made on or
after the commencement of this Act the word ‘shall’ is used in conferring a
power, that word shall be construed as meaning that the power so conferred
must be exercised.
(3) The provisions of this section shall have effect notwithstanding any rule
of construction to the contrary and any such rule is hereby abrogated with
respect to this Act and any Act passed or subordinate instrument made on or
after the commencement of this Act.
…
[18.8] Sale of Goods

The Australian states and territories each have their own sale of goods legislation, closely
modelled on the original English Sale of Goods Act (1893).
18.8.1 The English Sale of Goods Act
Sir MacKenzie Chalmers drafted the English Sale of Goods Act in 1893. The Act was
intended as a codification of the existing English case law (both common law and equity),
to clearly state the various rules that had been settled and generally accepted over a long
period by the courts. The Sale of Goods Act was described by Chalmers himself as ‘a
compilation in concise language and logical form of those principles of law which have
already stood the test of time. [The Act] … co-ordinates and methodises, but does not
invent principles’. Although praised by later English writers as a masterpiece of legislation,
it appears today as often obscure and somewhat incomplete. In particular, the principles
embodied in the Act reflect a commercial point of view, with no regard for the special
problems of consumers.
18.8
18.8.2 Case law since the enactment of the legislation

It is more than 120 years since the original sale of goods legislation was enacted and since
then many decided cases have amplified, clarified and interpreted the legislation. On some
matters, Australian and English courts have diverged in their approaches.
18.8.3 Further amendments and legislation
In England, the Sale of Goods Act has been amended in various important ways in the
last 35 years.. In Australia, the state and territory sale of goods legislation has been subject
only to minor amendment but it is still the central legislation generally governing the sale
of goods and it is important to know when it applies, what special rules it contains, how
these operate to regulate sales of goods, how these supplement the general rules of contract
law, and why further legislation was needed to regulate consumer transactions in Australia.
Table 18.6 Sale of goods legislation
NSW Sale of Goods Act 1923 Vic Goods Act 1958

Qld Sale of Goods Act 1896 WA Sale of Goods Act 1895
SA Sale of Goods Act 1895 ACT Sale of Goods Act 1954
Tas Sale of Goods Act 1896 NT Sale of Goods Act 1972
Although largely uniform in content, the numbering of particular sections varies in

the different Acts, as shown in the following table. The wording of particular sections may
vary slightly in the various Acts, and care must be taken to compare equivalent sections.
You can find the sections listed below in the eStudy module Index of Topics, Legislation
and Cases. The selected provisions from the Goods Act 1958 (Vic) are given as one example
of the provisions. The full provisions of the state and territory sale of goods legislation can
be found at www.austlii.edu.au.
Table 18.7 Comparative table of selected sections
18
NSW Qld SA WA Tas Vic ACT NT
5 3 A2 60 3 3 2 5
7 5 2 2 7 7 7 7
11 9 6 6 11 11 11 11
12 10 7 7 12 12 12 12
16 14 11 11 16 16 16 16
17 15 12 12 17 17 17 17
18 16 13 13 18 18 18 18
19 17 14 14 19 19 19 19
20 18 15 15 20 20 20 20
31 30 28 28 33 35 32 31
32 31 29 29 34 36 33 32
37 36 34 34 39 41 38 37
38 37 35 35 40 42 39 38
57 56 54 54 59 61 - 57


Part I —Sale of Goods
Division 1 —Preliminary
3 Definitions
(1) In this Part unless inconsistent with the context or subject-matter —
action includes counterclaim and set-off;
buyer means a person who buys or agrees to buy goods;
contract of sale includes an agreement to sell as well as a sale;
delivery means voluntary transfer of possession from one person to another;
document of title has the same meaning as it has in Part II of this Act;
fault means wrongful act or default;
future goods means goods to be manufactured or acquired by the seller after the
making of the contract for sale;
goods includes all chattels personal other than things in action and money. The
term includes emblements and things attached to or forming part of the land which
are agreed to be severed before sale or under the contract of sale;
mercantile agent has the same meaning as it has in Part II of this Act;
plaintiff includes defendant counterclaiming;
property means the general property in goods and not merely a special property;
quality of goods includes their state or condition;
sale includes a bargain and sale as well as a sale and delivery;
seller means a person who sells or agrees to sell goods;
specific goods means goods identified and agreed upon at the time a contract of
sale is made;
warranty means an agreement with reference to goods which are the subject of a
contract of sale but collateral to the main purpose of such contract the breach of
which gives rise to a claim for damages but not to a right to reject the goods and
treat the contract as repudiated.
(2) A thing is deemed to be done in good faith within the meaning of this Part when
it is in fact done honestly whether it be done negligently or not.
(3) A person is deemed to be bankrupt within the meaning of this Part who either
has ceased to pay his debts in the ordinary course of business or cannot pay
his debts as they become due whether he has committed an act of bankruptcy
or not.
(4) Goods are in a deliverable state within the meaning of this Part when they
are in such a state that the buyer would under the contract be bound to take
delivery of them.
…
Division 2 —Formation of the contract
…
7 Capacity to buy and sell
18.8
Capacity to buy and sell is regulated by the general law concerning capacity to
contract and to transfer and acquire property: Provided that where necessaries are
sold and delivered to a minor or to a person who by reason of mental incapacity or
drunkenness is incompetent to contract he must pay a reasonable price therefor.
Necessaries in this section mean goods suitable to the condition in life of such
minor or other person and to his actual requirements at the time of the sale and
delivery.
…
11 Goods perished at time of contract
Where there is a contract for the sale of specific goods, and the goods without the
knowledge of the seller have perished at the time when the contract is made the
contract is void.
12 Goods perished after agreement to sell?
Where there is an agreement to sell specific goods, and subsequently the goods
without any fault on the part of the seller or buyer perish before the risk passes to
the buyer, the agreement is thereby avoided.
…
16 Treatment of condition as warranty
(1) Where a contract of sale is subject to any condition to be fulfilled by the
seller the buyer may waive the condition or may elect to treat the breach of
such conditions as a breach of warranty and not as a ground for treating the
contract as repudiated.
(2) Whether a stipulation in a contract of sale is a condition the breach of which
may give rise to a right to treat the contract as repudiated, or a warranty the
breach of which may give rise to a claim for damages but not to a right to reject
the goods and treat the contract as repudiated, depends in each case on the
construction of the contract. A stipulation may be a condition though called a 18
warranty in the contract.
(3) Where a contract of sale is not severable and the buyer has accepted the
goods or part thereof, or where the contract is for specific goods the property
in which has passed to the buyer, the breach of any condition to be fulfilled by
the seller can only be treated as a breach of warranty and not as a ground for
rejecting the goods and treating the contract as repudiated unless there be a
term of the contract express or implied to that effect.
(4) Nothing in this section shall affect the case of any condition or warranty
fulfilment of which is excused by law by reason of impossibility or otherwise.
17 Implied undertakings
In a contract of sale, unless the circumstances of the contract are such as to show
a different intention, there is —
(a) an implied condition on the part of the seller that in the case of a sale he has a
right to sell the goods and that in the case of an agreement to sell he will have
a right to sell the goods at the time when the property is to pass;

(b) an implied warranty that the buyer shall have and enjoy quiet possession of
the goods;
(c) an implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party not declared or known to the buyer
before or at the time when the contract is made.
18 Sale by description
When there is a contract for the sale of goods by description there is an implied
condition that the goods shall correspond with the description; and if the sale
be by sample as well as by description it is not sufficient that the bulk of the
goods corresponds with the sample if the goods do not also correspond with the
description.
(a) where the buyer expressly or by implication makes known to the seller the
particular purpose for which the goods are required so as to show that the
buyer relies on the seller’s skill or judgment and the goods are of a description
which it is in the course of the seller’s business to supply (whether he be the
manufacturer or not) there is an implied condition that the goods shall be
reasonably fit for such purpose: Provided that in the case of a contract for
the sale of a specified article under its patent or other trade name there is no
implied condition as to its fitness for any particular purpose;
(b) where goods are bought by description from a seller who deals in goods of
that description (whether he be the manufacturer or not) there is an implied
condition that the goods shall be of merchantable quality: Provided that if the
buyer has examined the goods there shall be no implied condition as regards
defects which such examination ought to have revealed;
(c) an implied warranty or condition as to quality or fitness for a particular
purpose may be annexed by the usage of trade;
(d) an express warranty or condition does not negative a warranty or condition
implied by this Part unless inconsistent therewith.
20 Sale by sample
(1) A contract of sale is a contract for sale by sample where there is a term in the
contract express or implied to that effect.
(2) In the case of a contract for sale by sample —
(a) there is an implied condition that the bulk shall correspond with the
sample in quality;
(b) there is an implied condition that the buyer shall have a reasonable
opportunity of comparing the bulk with the sample;
18.8
(c) there is an implied condition that the goods shall be free from any
defect rendering them unmerchantable which would not be apparent on
reasonable examination of the sample.
…
Division 4 —Performance of the contract
…
35 Payment and delivery
Unless otherwise agreed, delivery of the goods and payment of the price are
concurrent conditions (that is to say) the seller must be ready and willing to give
possession of the goods to the buyer in exchange for the price, and the buyer must
be ready and willing to pay the price in exchange for possession of the goods.
36 Rules as to delivery
(1) Whether it is for the buyer to take possession of the goods or for the seller to
send them to the buyer is a question depending in each case on the contract
express or implied between the parties. Apart from any such contract express
or implied the place of delivery is the seller’s place of business if he have one
and if not his residence: Provided that if the contract be for the sale of specific
goods which to the knowledge of the parties when the contract is made are in
some other place then that place is the place of delivery.
(2) Where under the contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send them
within a reasonable time.
(3) Where the goods at the time of sale are in the possession of a third person
there is no delivery by seller to buyer unless and until such third person
acknowledges to the buyer that he holds the goods on his behalf: Provided
that nothing in this section shall affect the operation of the issue or transfer of
any document of title to goods.
18
(4) Demand or tender of delivery may be treated as ineffectual unless made at a
reasonable hour. What is a reasonable hour is a question of fact.
(5) Unless otherwise agreed, the expenses of and incidental to putting the goods
into a deliverable state must be borne by the seller.
…
42 Acceptance

The buyer is deemed to have accepted the goods when he intimates to the seller
that he has accepted them, or, subject to section 41, when the goods have been
delivered to him and he does any act in relation to them which is inconsistent with
the ownership of the seller, or when after the lapse of a reasonable time he retains
the goods without intimating to the seller that he has rejected them.
…
Division 7 —Supplementary
61 Exclusion of implied terms and conditions
Where any right duty or liability would arise under a contract of sale by implication
of law it may be negatived or varied by express agreement or by the course of
dealing between the parties or by usage if the usage be such as to bind both parties
to the contract.
…
[18.9] Third Party Rights under Insurance Contracts
Insurance Contracts Act 1984 (Cth)

Part V —The contract
Division 2 —General provisions relating to insurance contracts
…
48 Contracts of general insurance —entitlements of third party beneficiaries
(1) A third party beneficiary under a contract of general insurance has a right
to recover from the insurer, in accordance with the contract, the amount of
any loss suffered by the third party beneficiary even though the third party
beneficiary is not a party to the contract.
(2) Subject to the contract, the third party beneficiary:
(a) has, in relation to the third party beneficiary’s claim, the same obligations
to the insurer as the third party beneficiary would have if the third party
beneficiary were the insured; and
(b) may discharge the insured’s obligations in relation to the loss.
(3) The insurer has the same defences to an action under this section as the
insurer would have in an action by the insured, including, but not limited to,
defences relating to the conduct of the insured (whether the conduct occurred
before or after the contract was entered into).
[18.10] Tort Law

The states and territories have all enacted legislation to clarify and/or modify various
aspects of liability in tort law. The relevant Acts are listed in the table below. The Acts are
not uniform. The selected provisions from the NSW legislation are provided as examples.
18.10
Table 18.8 Legislation on liability in tort law
NSW Civil Liability Act 2002 Vic Wrongs Act 1958

Qld Civil Liability Act 2003 WA Civil Liability Act 2002
SA Civil Liability Act 1936 ACT Civil Law (Wrongs) Act 2002
Tas Civil Liability Act 2002 NT Personal Injuries (Liabilities and
Damages) Act 2003
Table 18.9 Table of selected equivalent sections
NSW Qld SA Tas Vic WA ACT NT

Standard of care Pt 1A Ch 2 Pt 6 Pt 6 Pt X Pt 1A Pt 4.2 –
Div 2 Pt 1 Div 1 Div 2 Div 2 Div 2
Div 1
Standard of care of Pt 1A Ch 2 Pt 6 Pt 6 Pt X Pt 1A – –
professionals Div 6 Pt 1 Div 4 Div 6 Div 5 Div 7
Div 5
Assumption of obvious risks Pt 1A Ch 2 Pt 6 Pt 6 Pt X Pt 1A – –
Div 3
Assumption of risk in Pt 1A Ch 2 – Pt 6 – Pt 1A – –
recreational activities Div 5 Pt 1 Div 5 Div 4
Div 4
Causation Pt 1A Ch 2 Pt 6 Pt 6 Pt X Pt 1A Pt 4.3 –
Div 2
Contributory negligence Pt 1A Ch 2 Pt 7 Pt 6 Pt X Pt 1A Pt 4.4 Pt 3
Div 8 Pt 1 Div 7 Div 7 Div 5
Div 6
18
Civil Liability Act 2002 (NSW)
Part IA —Negligence
…
Division 2 —Duty of care
5B General principles
(1) 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
(c) in the circumstances, a reasonable person in the person’s position would
have taken those precautions.
(2) In determining whether a reasonable person would have taken precautions
against a risk of harm, the court is to consider the following (amongst other
relevant things):

(a) the probability that the harm would occur if care were not taken,
(b) the likely seriousness of the harm,
(c) the burden of taking precautions to avoid the risk of harm,
(d) the social utility of the activity that creates the risk of harm.
…
Division 3 —Causation
5D General principles
(1) 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).
(2) In determining in an exceptional case, in accordance with established
principles, whether negligence that cannot be established as a necessary
condition of the occurrence of harm should be accepted as establishing factual
causation, the court is to consider (amongst other relevant things) whether or
not and why responsibility for the harm should be imposed on the negligent
party.
(3) If it is relevant to the determination of factual causation to determine what the
person who suffered harm would have done if the negligent person had not
been negligent:
(a) the matter is to be determined subjectively in the light of all relevant
circumstances, subject to paragraph (b), and
(b) any statement made by the person after suffering the harm about what
he or she would have done is inadmissible except to the extent (if any)
that the statement is against his or her interest.
(4) For the purpose of determining the scope of liability, the court is to consider
(amongst other relevant things) whether or not and why responsibility for the
harm should be imposed on the negligent party.
5E Onus of proof
In proceedings relating to liability for negligence, the plaintiff always bears the
onus of proving, on the balance of probabilities, any fact relevant to the issue of
causation.
Division 4 —Assumption of risk
5F Meaning of ‘obvious risk’
(1) For the purposes of this Division, an obvious risk to a person who suffers harm
is a risk that, in the circumstances, would have been obvious to a reasonable
person in the position of that person.
(2) Obvious risks include risks that are patent or a matter of common knowledge.
(3) A risk of something occurring can be an obvious risk even though it has a low
probability of occurring.
18.10
(4) A risk can be an obvious risk even if the risk (or a condition or circumstance that
gives rise to the risk) is not prominent, conspicuous or physically observable.
5G Injured persons presumed to be aware of obvious risks
(1) In proceedings relating to liability for negligence, a person who suffers harm
is presumed to have been aware of the risk of harm if it was an obvious risk,
unless the person proves on the balance of probabilities that he or she was not
aware of the risk.
(2) For the purposes of this section, a person is aware of a risk if the person is
aware of the type or kind of risk, even if the person is not aware of the precise
nature, extent or manner of occurrence of the risk.
5H No proactive duty to warn of obvious risk
(1) A person (the defendant) does not owe a duty of care to another person (the
plaintiff) to warn of an obvious risk to the plaintiff.
(2) This section does not apply if:
(a) the plaintiff has requested advice or information about the risk from the
defendant, or
(b) the defendant is required by a written law to warn the plaintiff of the risk,
or
(c) the defendant is a professional and the risk is a risk of the death of or
personal injury to the plaintiff from the provision of a professional service
by the defendant.
(3) Subsection (2) does not give rise to a presumption of a duty to warn of a risk in
the circumstances referred to in that subsection.
5I No liability for materialisation of inherent risk
(1) A person is not liable in negligence for harm suffered by another person as a
result of the materialisation of an inherent risk.
18
(2) An inherent risk is a risk of something occurring that cannot be avoided by the
exercise of reasonable care and skill.
(3) This section does not operate to exclude liability in connection with a duty to
warn of a risk.
Division 5 —Recreational activities
5J Application of Division
(1) This Division applies only in respect of liability in negligence for harm to a
person (the plaintiff) resulting from a recreational activity engaged in by the
plaintiff.
(2) This Division does not limit the operation of Division 4 in respect of a
recreational activity.
5K Definitions
In this Division:
dangerous recreational activity means a recreational activity that involves a
significant risk of physical harm.

obvious risk has the same meaning as it has in Division 4.

recreational activity includes:
(a) any sport (whether or not the sport is an organised activity), and
(b) any pursuit or activity engaged in for enjoyment, relaxation or leisure, and
(c) any pursuit or activity engaged in at a place (such as a beach, park or other
public open space) where people ordinarily engage in sport or in any pursuit
or activity for enjoyment, relaxation or leisure.
5L No liability for harm suffered from obvious risks of dangerous recreational
activities
(1) A person (the defendant) is not liable in negligence for harm suffered by
another person (the plaintiff) as a result of the materialisation of an obvious
risk of a dangerous recreational activity engaged in by the plaintiff.
(2) This section applies whether or not the plaintiff was aware of the risk.
5M No duty of care for recreational activity where risk warning
(1) A person (the defendant) does not owe a duty of care to another person who
engages in a recreational activity (the plaintiff) to take care in respect of a risk
of the activity if the risk was the subject of a risk warning to the plaintiff.
(2) If the person who suffers harm is an incapable person, the defendant may rely
on a risk warning only if:
(a) the incapable person was under the control of or accompanied by another
person (who is not an incapable person and not the defendant) and the
risk was the subject of a risk warning to that other person, or
(b) the risk was the subject of a risk warning to a parent of the incapable
person (whether or not the incapable person was under the control of or
accompanied by the parent).
(3) For the purposes of subsections (1) and (2), a risk warning to a person in
relation to a recreational activity is a warning that is given in a manner that is
reasonably likely to result in people being warned of the risk before engaging
in the recreational activity. The defendant is not required to establish that the
person received or understood the warning or was capable of receiving or
understanding the warning.
(4) A risk warning can be given orally or in writing (including by means of a sign
or otherwise).
(5) A risk warning need not be specific to the particular risk and can be a general
warning of risks that include the particular risk concerned (so long as the risk
warning warns of the general nature of the particular risk).
(6) A defendant is not entitled to rely on a risk warning unless it is given by or on
behalf of the defendant or by or on behalf of the occupier of the place where
the recreational activity is engaged in.
(7) A defendant is not entitled to rely on a risk warning if it is established (on
the balance of probabilities) that the harm concerned resulted from a
contravention of a provision of a written law of the State or Commonwealth
18.10
that establishes specific practices or procedures for the protection of personal

safety.
(8) A defendant is not entitled to rely on a risk warning to a person to the extent
that the warning was contradicted by any representation as to risk made by or
on behalf of the defendant to the person.
(9) A defendant is not entitled to rely on a risk warning if the plaintiff was required
to engage in the recreational activity by the defendant.
(10) The fact that a risk is the subject of a risk warning does not of itself mean:
(a) that the risk is not an obvious or inherent risk of an activity, or
(b) that a person who gives the risk warning owes a duty of care to a person
who engages in an activity to take precautions to avoid the risk of harm
from the activity.
(11) This section does not limit or otherwise affect the effect of a risk warning in
respect of a risk of an activity that is not a recreational activity.
(12) In this section:
incapable person means a person who, because of the person’s young age or a
physical or mental disability, lacks the capacity to understand the risk warning.
parent of an incapable person means any person (not being an incapable person)
having parental responsibility for the incapable person.
5N Waiver of contractual duty of care for recreational activities
(1) Despite any other written or unwritten law, a term of a contract for the supply
of recreation services may exclude, restrict or modify any liability to which this
Division applies that results from breach of an express or implied warranty
that the services will be rendered with reasonable care and skill.
(2) Nothing in the written law of New South Wales renders such a term of a
contract void or unenforceable or authorises any court to refuse to enforce the
term, to declare the term void or to vary the term.
18
(3) A term of a contract for the supply of recreation services that is to the effect
that a person to whom recreation services are supplied under the contract
engages in any recreational activity concerned at his or her own risk operates
to exclude any liability to which this Division applies that results from breach
of an express or implied warranty that the services will be rendered with
reasonable care and skill.
(4) In this section, recreation services means services supplied to a person for
the purposes of, in connection with or incidental to the pursuit by the person
of any recreational activity.
(5) This section applies in respect of a contract for the supply of services entered
into before or after the commencement of this section but does not apply in
respect of a breach of warranty that occurred before that commencement.
(6) This section does not apply if it is established (on the balance of probabilities)
that the harm concerned resulted from a contravention of a provision of a
written law of the State or Commonwealth that establishes specific practices
or procedures for the protection of personal safety.

Division 6 —Professional negligence

5O Standard of care for professionals
(1) A person practising a profession (a professional) does not incur a liability
in negligence arising from the provision of a professional service if it is
established that the professional acted in a manner that (at the time the
service was provided) was widely accepted in Australia by peer professional
opinion as competent professional practice.
(2) However, peer professional opinion cannot be relied on for the purposes of
this section if the court considers that the opinion is irrational.
(3) The fact that there are differing peer professional opinions widely accepted
in Australia concerning a matter does not prevent any one or more (or all) of
those opinions being relied on for the purposes of this section.
(4) Peer professional opinion does not have to be universally accepted to be
considered widely accepted.
5P Division does not apply to duty to warn of risk
This Division does not apply to liability arising in connection with the giving of (or
the failure to give) a warning, advice or other information in respect of the risk of
death of or injury to a person associated with the provision by a professional of a
professional service.
Division 8 —Contributory negligence
5R Standard of contributory negligence
(1) The principles that are applicable in determining whether a person has been
negligent also apply in determining whether the person who suffered harm
has been contributorily negligent in failing to take precautions against the risk
of that harm.
(2) For that purpose:
(a) the standard of care required of the person who suffered harm is that of
a reasonable person in the position of that person, and
(b) the matter is to be determined on the basis of what that person knew or
ought to have known at the time.
5S Contributory negligence can defeat claim
In determining the extent of a reduction in damages by reason of contributory
negligence, a court may determine a reduction of 100% if the court thinks it just
and equitable to do so, with the result that the claim for damages is defeated.
…
18.10
533
GLOSSARY
This glossary contains some of the terms bankruptcy
and phrases commonly encountered in the (1) The status of a person formally declared unable
to pay their debts in full.
study of business law.
(2) The process by which the property or assets
ab initio of a bankrupt person are distributed among their
(Latin) From the beginning. creditors.
accused Note: The term ‘bankruptcy’ is applied only to
A person charged with a criminal offence. natural persons; a company is said to ‘go into
liquidation’.
acquittal
A finding that an accused is not guilty of an barrister
offence they have been charged with. A legal practitioner whose main function is to
present cases on behalf of clients in law courts and
action tribunals.
A proceeding in a court.
Bill
Act of Parliament A document containing the provisions of proposed
A law made by parliament; a statute. legislation.
adversarial system bill of lading
A legal system in which each party presents and A document issued by a shipping company
argues its case against the opposing party. The recording particulars of a contract for carriage of
judge does not play an active role in conducting goods by sea.
the case.
breach
advocacy The violation of a legal obligation. In contract
The act of presenting arguments before a court on law, a party is in breach of contract if they fail to
behalf of a party involved in litigation. carry out a term of a contract properly. In tort, a
allege party breaches their duty of care by failing to take
To claim or state that something is true when it reasonable care when a duty of care is owed.
has not yet been proven. capacity
analogy The ability to acquire legally binding rights or
A form of reasoning in which a similarity between duties.
two or more events, situations or things becomes case
the basis for inferring other similarities between (1) A civil or criminal proceeding in a court of law.
them.
(2) The arguments made in support of a party’s
appeal claim or defence during legal proceedings.
An application to a higher court to review the
decision of a lower court. case law
Law established by judicial decision making.
appellant
A person who appeals to a higher court against cause of action
the decision of a lower court. (1) The legal basis of a claim, action or case.
(2) The circumstances giving rise to a right to
appellate jurisdiction bring a legal action.
The authority of a court to hear and decide an
appeal case. charge
A formal accusation by the police against a person
authoritative court they suspect has committed a crime.
A higher-ranking court whose previous decisions
are binding on a lower court in the court system. charter
A written instrument issued by a monarch or
government granting rights and privileges to

534 Glossary
a person or other body, such as a university or creditor

corporation. A person to whom money or some other legal
obligation is owed by a debtor.
civil law
(1) Law based on Roman legal principles. crime
(2) Law governing disputes between private Conduct that is prohibited and penalised by the
persons such as in contract or tort, as distinct from state to protect community interests.
criminal law. damages
(3) The laws of a particular nation or state. An amount of money paid because of a breach of
a legal obligation.
CJ
Abbreviation of Chief Justice, used in law reports. debt
Note also: Judge ( J); Judges ( JJ); and Judge of Money or some other legal obligation owed to a
Appeal ( JA). creditor.
committal hearing debtor
A hearing before a magistrate to decide whether A person who owes money or some other legal
there is sufficient evidence for a jury to possibly obligation to a creditor.
convict a person accused of a criminal offence.
deceit
common law (1) A deliberate misrepresentation.
(1) Law derived from custom and judicial (2) The tort of making a false statement.
decisions (as distinct from statutory law).
(2) The law of England (as distinct from Roman deduction
civil law). A process of reaching a conclusion by following
logical steps; in particular, by first stating general
(3) The law developed and applied by the common propositions or rules and then applying these to
law courts in England (as distinct from the law specific facts.
developed by courts of chancery, known as equity).
defendant
company (or corporation) A person against whom a civil case is brought by
A legal entity created by registration under the a plaintiff.
Corporations Law. A company can acquire legal
rights and duties in its own name, separately from delegated legislation
its members. Law made not directly by a parliament but by
some other person or body under the authority of
compensation a statute. Examples are regulations and statutory
A payment of money to compensate for loss or rules made by government ministers.
injury.
discharge
condition (1) To bring an obligation to an end by performing
(1) An important contractual term. the relevant duties.
(2) A specified limitation or restriction. (2) To release a party from an obligation that
constitution would otherwise require performance.
The basic laws according to which a state is disclaimer
organised and governed. A clause limiting or excluding a liability which
contravention might otherwise exist.
A failure to comply with a rule. dissenting judgment(s)
court A judgment in an appeal case in which one or
A forum for deciding disputes according to the more judges disagree with the decision of the
law, presided over by a judge or magistrate. majority.
court order distinguish

A command or direction given by a court or A process or technique used in legal reasoning
tribunal. to avoid following a precedent by pointing out
material differences between the facts of the two
cases.

Glossary535
doctrine fraud
A set of related and consistent rules that give Conduct intended to deceive another person.
effect to a legal principle or policy, for example,
the doctrine of precedent, the doctrine of freedom of contract
unconscionable dealing. The right of contracting parties to enter into
binding agreements on terms negotiated and
document of title agreed between themselves without outside
A document establishing rights of ownership to control.
property, for example, a bill of lading.
frustration
duty of care The effect on a contract when supervening events
A legal obligation to take care in relation to make performance impossible.
another person or their property.
good faith
election Honesty of purpose; openness.
(1) A choice between alternatives, for example,
different legal remedies. government gazette
A publication containing government notices,
(2) Process for choosing members of a government. proclamations, public service appointments, etc.
equity Governor
Rules of law favouring notions of fairness and The Queen’s representative as head of government
justice as developed in the Court of Chancery in of the Australian states.
England.
Governor-General
equitable The Queen’s representative as head of the
In accordance with justice and fairness. government of the Commonwealth of Australia.
estoppel guarantee
The loss of the right to rely on particular facts when A legally binding promise to be liable for a
the person who wishes to do so has previously specified thing.
acted in a way that contradicts those facts.
headnote
ethics A short summary of a case at the beginning of a
A code of conduct, based on notions of moral law report.
correctness, intended to guide the behaviour of
individuals or members of a group. heads of agreement
A document drawn up during contractual
excise negotiations outlining the major points on which
A tax on the production of goods or supply of agreement has so far been reached and the matters
services. on which the parties have agreed to negotiate in
exclusion clause (or exemption clause) the future. Generally, heads of agreement are not
A term in a contract excluding a liability that intended to be contractually binding.
would otherwise exist. indemnity
execute An undertaking by one party to compensate
(1) To carry out; complete; make effective. another party for loss or damage suffered or
expenses incurred with regard to a specific event.
(2) To sign a legal document as a deed under seal.
induction
extinguish A process of reasoning by which a general
To put an end to; discharge; render ineffective. conclusion or principle is drawn from experience
extrinsic evidence or experimental evidence.
Evidence that assists the interpretation of a infringe
document but which comes from a source outside To act contrary to; contravene; violate.
the document itself (compare intrinsic evidence).
injunction
forum An order issued by a court to prevent a likely or
A place in which a dispute, debate or proposal may threatened breach of law.
be heard, for example, a law court.

536 Glossary
inquisitorial system after which the proceeds are distributed among

A legal system in which the judge plays an active the company’s creditors.
role in the investigation and conduct of a case
(compare adversarial system). litigation
The process of taking a dispute to court.
insolvency (bankruptcy)
A company being unable to pay debts as and when loan
they fall due. The giving of a thing or money by a lender to a
borrower for use or consumption by the borrower,
insurance on the condition that the thing or an equivalent
A contract in terms of which the insurer promises thing will be returned to the lender by the
to indemnify the insured person against a specified borrower.
risk of loss or harm.
majority judgment
intrinsic evidence The decision of the greater number of judges
Evidence from within a document that assists deciding an appeal case.
in the interpretation of that document (compare
extrinsic evidence). maxim
A general principle or truth expressed in a brief
J form of words (for example, ‘he who seeks equity
Abbreviation in law reports of Judge or Justice. must do equity’).
Note also: Judges ( JJ); Judge of Appeal ( JA); and
Chief Justice (CJ). misrepresentation
A statement that is untrue.
jurisdiction
The authority of a court to hear certain matters, mistake
make orders or impose penalties. A belief in something that is untrue.
jury mitigation of loss

A body of persons chosen at random from the Steps taken to minimise the extent of damage or
general public to assist in a trial by listening to the loss that would otherwise occur.
evidence presented and deciding questions of fact. mortgage
justice The designation of particular property as security
(1) Title given to a judge of a Supreme Court, the for the repayment of a loan, giving the mortgagee
Federal Court or the High Court of Australia. the eventual right to sell the property to recover
the unpaid debt.
(2) Ensuring that each person receives what they
are properly due under the law. negligence
(1) Carelessness.
laissez-faire
(French) A policy of minimal government (2) Failure to take reasonable care to avoid
regulation. foreseeable harm to somebody to whom a duty of
care is owed.
law report
A published record of a case decided by a court. nuisance
Interference with another person’s enjoyment,
lease comfort or convenience.
A contract in terms of which a lessor grants a
lessee the right to use the lessor’s property for a null
period of time. Of no validity; invalid.
legislation obiter dicta

A law enacted by a legislature. (Latin) Words in a reported judgment which are
not part of the essential judicial decision (compare
limitation clause ratio decidendi).
A clause limiting the extent of a legal liability that
might otherwise exist. objective
Based on externally observable evidence, as
liquidation opposed to internal (subjective) thoughts, beliefs
Process whereby the assets of an insolvent or understandings.
company are sold by a court-appointed liquidator,

Glossary537
obligation proclamation
A duty to give or do something. A notice published in the Government Gazette,
which states the date on which an Act of
offence Parliament will come into operation as law and
Behaviour contrary to the criminal law. which also notes the Governor- General’s or
offeree Governor’s consent to such legislation.
A person to whom an offer to contract is made. promisee
offeror A person to whom a promise is made.
A person who makes an offer to contract. promisor
onus of proof A person who makes a promise.
The burden or responsibility of leading evidence ratio decidendi
to establish particular facts. (Latin) That part of a reported case which is
original jurisdiction essential to the judicial decision reached; the
The authority of a court to hear a case that has not principle applied to decide a case.
previously been heard by any other court. rectification
originating motion The process of correcting a legal document that
A method of commencing legal proceedings. contains an error.
overrule regulation
The process whereby a court with appellate Subsidiary rules made by a person or body under
jurisdiction decides that an earlier decision is an authority given by legislation.
wrong and should not be followed. remedies
parent company The means by which the courts provide relief to a
A company that controls one or more subsidiary plaintiff whose legal rights have been infringed or
companies. are likely to be infringed.
parol evidence rule representation

A rule whereby evidence is not admitted to add A statement of fact that is not intended to be a
to, vary or contradict a written contract that legally binding promise.
appears on its face to be a complete record of the repudiate
agreement. To deny; to disavow; to treat as at an end.
party rescission
A person, group or organisation who takes part in A remedy in terms of which a contract is made
a legal transaction or proceeding. void as from its beginning (ab initio).
per curiam reserve powers
(Latin) By the whole court. The sovereign powers of the head of Australian
plaintiff governments that have not been given over to
The person who brings a civil case against the other organs of government.
defendant. respondent
precedent The person against whom a case is taken on appeal
A previous judicial decision which provides an by an appellant.
authoritative rule to be followed in later similar restitution
cases. The relief granted to a person at whose expense
privity of contract another person has been unjustly enriched.
The doctrine that excludes anyone from acquiring restitutio in integrum
rights or duties under a contract to which they are (Latin) Restoration (putting back to) to a previous
not a party. position.
Privy Council
The highest court in the English court hierarchy.

538 Glossary
rule of law trespass

The principle that no person or body is above the A tort concerning the wrongful interference with
law, in particular, that governments must observe another’s person, goods or land.
the established law of the state.
trial
sanction The initial hearing of a civil or criminal case (as
A penalty or punishment imposed for a breach of distinct from appeal proceedings).
the law.
tribunal
solicitor Generally, a body that decides disputes.
A general legal practitioner.
trust
stare decisis An arrangement whereby one person holds or
(Latin) The decision stands. This is the principle controls property for the benefit of another person.
that underlies the doctrine of precedent.
unconscionable
statute Against the dictates of good conscience; contrary
An enactment of a legislature, also called to what is generally known as right and proper.
legislation.
vis-à-vis
subjective (French) In relation to.
Based on an individual’s internal thoughts, beliefs
or understandings, as opposed to externally void
observable (objective) facts. Without any legal effect; not legally valid or
binding.
subsidiary
A company which is under the control of a parent voidable
company. Initially valid but subject to being made void,
normally by means of an order issued by a court
sue or tribunal.
To bring an action in civil law.
warranty
supervening event In contract law, a contractual term which is not
An event which changes the previously existing of fundamental importance. More generally, a
circumstances. guarantee.
third party without prejudice
A person who is not a party to a legal proceeding A phrase used in the course of negotiating or
or transaction. attempting to negotiate the settlement of a
legal claim. Anything said or done ‘without
title prejudice’ cannot later be used as evidence in legal
A legal right to the ownership of property. proceedings.
tortfeasor wrong
A person who is in breach of tort law. An act in breach of civil or criminal law.

539
TABLE OF CASES
Adamson v Motor Vehicle Insurance Trust (1957) 58 WALR 56 13.3.3
Adeels Palace Pty Ltd v Moubarak; Adeels Palace Pty Ltd v Bou Najem (2009) 239
CLR 420 12.13.3, 13.4.5
Alati v Kruger (1955) 94 CLR 216 10.6.3
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 6.5.3
Aldin v Latimer, Clark, Muirhead & Co [1892] 2 Ch 437 16.5.2
Allcard v Skinner (1887) 36 Ch D 145 10.3.2
Allied Mills Ltd v Gwydir Valley Oilseeds Pty Ltd [1978] 2 NSWLR 26 16.6.4
Apple Inc. v Registrar of Trade Marks (2014) 227 FCR 511 16.7.1
Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 6.2.5, 8.5.2, 9.2.2
Attorney-General (Cth) v RT & Co Pty Ltd (No 2) (1957) 97 CLR 146 16.5.1
Australia & New Zealand Bank Ltd v Ateliers de Constructions Electriques de Charleroi
[1966] 1 NSWR 19 15.3.3, 15.5.8
Australian Broadcasting Commission v Australasian Performing Right Association Ltd
(1973) 129 CLR 99 8.2.3
Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd
(2000) 96 FCR 491 11.3.2
Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty
Limited (2014) 317 ALR 73 11.2.2
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250
CLR 640 11.2.2
Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387 7.7.3
Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479 13.2.12
Australian Securities and Investments Commission (ASIC) v Adler (No 3)
(2002) 168 FLR 253 17.6.9
Baldry v Marshall [1925] 1 KB 260 7.7.4

Balfour v Balfour [1919] 2 KB 571 5.3.1
Ballantyne v Phillott (1961) 105 CLR 379 5.3.2
Baltic Shipping Company v Dillon (The Ship Mikhail Lermontov) (1993) 176 CLR 344 9.2.1
Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 5.2.1
Barton v Armstrong [1973] 2 NSWLR 598 9.2.2
Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012]
FCA 1200 13.2.12
Bell Group NV (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 1.11.5
Behrens v Bertram Mills Circus Ltd [1957] 2 QB 1 12.10.4
Bernstein of Leigh v Skyviews & General Ltd [1978] 1 QB 479 16.5.1, 16.9.1
Bertram, Armstrong & Co v Godfray (1830) 12 ER 364 15.5.1
Bettini v Gye (1876) 1 QBD 183 6.2.5, 8.5.2, 9.2.2
Black v Smallwood (1966) 117 CLR 52 15.7.2
Blackham v Haythorpe (1917) 23 CLR 156 15.5.6
Blyth v Birmingham Waterworks Co (1856) 11 Exch 781 13.3.1
Bolton Partners v Lambert (1889) 41 Ch D 295 15.4.1
Bolton v Stone [1951] UKHL 2; (1951) AC 850 13.2.6
Bourhill v Young (1943) AC 13.2.5
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 6.3.7, 6.3.8
Breen v Williams (1996) 186 CLR 71 6.6.2
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 5.3.3
British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] QB 303 16.6.4
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways
Co of London Ltd [1912] AC 673 9.2.1
Brooke v Bool [1928] 2 KB 578 14.1.6
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 313
ALR 408 12.13.3, 13.2.11
Buckenara v Hawthorn Football Club Ltd [1988] VR 39 9.3.2, 9.3.3

540 Table of cases
Bugge v Brown (1919) 26 CLR 110 15.9.2

Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 6.5.3
Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 9.2.1
Burns, Philp & Co Ltd v Gillespie Brothers Pty Ltd (1947) 74 CLR 148 15.10.1
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 11.2.5

Caledonian Collieries Ltd v Speirs (1957) 97 CLR 202 13.3.7
Campomar Sociedad Ltd v Nike International Ltd (2000) 202 CLR 45 11.2.2
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance)
Pty Ltd (1974) 131 CLR 321 17.4.1, 17.5.2
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 5.3.1, 5.3.3
Cassidy v Daily Mirror Newspapers Ltd [1929] 2 KB 331 12.12.2
Caterson v Commissioner of Railways (1973) 128 CLR 99 13.2.6
Causer v Browne [1952] VLR 1 6.3.5, 16.4.5
Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44 8.5.3, 9.2.2
Central Motors (Glasgow) v Cessnock Garage and Motor Co [1925] S.C. 796 16.6.4
Chapman v Hearse (1961) 106 CLR 112 13.2.3, 13.2.12
Clark v Macourt (2013) 304 ALR 220 9.2.1
Clarkson Booker Ltd v Andjel [1964] 2 QB 775 15.7.3
Cockerill & Ors v Westpac Banking Corporation (1996) 142 ALR 227 9.2.3
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 6.3.8, 6.4.2, 8.7.3
Coggs v Bernard (1703) 92 ER 107 16.6.4
Cohen v Cohen (1929) 42 CLR 91 3.5.1, 5.3.1
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 9.4.3, 16.4.7, 16.8.1
Commercial Banking Company of Sydney Ltd v RH Brown & Co (1972) 126 CLR 337 12.11.2
Commissioner of Railways (WA) v Stewart (1936) 56 CLR 520 13.4.4
Commonwealth Bank of Australia v Barker (2014) 312 ALR 356 6.6.4
Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] VR 510 5.3.1
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 11.2.6
Connor v Stainton (1924) 27 WALR 72 8.4.4
Cook v Cook (1986) 162 CLR 376 12.13.3, 13.3.3
Cooper v Fisken (1912) 18 ALR 155 15.7.1
Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 5.4.2
Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 13.2.12
Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) HCA 26 6.4.6
Currie v Misa (1876) 1 AC 554 5.3.2

Daniels (formerly practising as Deloitte, Haskins & Sells) v Anderson; Hooke v Daniels;
Daniels v AWA Ltd (1995) 37 NSWLR 438 17.6.9
D’Arcy v Myriad Genetics Inc [2015] HCA 35 16.7.3
David Jones Ltd v Willis (1934) 52 CLR 110 7.7.3
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 8.7.5
Deanshaw v Marshall (1978) 20 SASR 146 16.4.6, 16.5.3
Derry v Peek (1889) 14 App Cas 337 10.6.2, 12.11.1
Director of Consumer Affairs Victoria v Alpha Flight Services Pty Ltd [2014] FCA 1434 11.8
Donoghue v Stevenson [1932] AC 562 12.13.3, 13.2.9, 13.2.12
Dougan v Ley (1946) 71 CLR 142 9.3.2
E&J Gallo Winery v Lion Nathan Australia Pty Ltd (2010) 241 CLR 144 16.7.1
Eley v Positive Government Security Life Assurance Co Ltd (1875) 1 Ex D 20 17.6.12
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 5.3.3
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 5.3.1
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) (1997)
188 CLR 241 12.13.3, 13.2.12
Esso Petroleum Co Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117 5.3.1
Evans v Balog [1976] 1 NSWLR 36 14.4.2
Expo Aluminium (NSW) Pty Ltd v WR Pateman Pty Ltd (1990) ASC ¶55-978 7.7.4
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 8.7.6

Table of cases541
Finch Motors Ltd v Quin (No 2) [1980] 2 NZLR 519 8.4.5, 9.2.2
Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 10.7.4, 16.5.1
Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts
Reports ¶81-244 12.5.1, 16.9.1
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 15.3.1, 15.3.5
Froom v Butcher [1976] QB 286 13.5.1
Fry v Oddy [1999] 1 VR 557 17.4.8, 17.4.17
Garcia v National Australia Bank Ltd (1998) 194 CLR 395 9.4.4
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR ¶41-703 10.7.4, 11.3.3
George Wills & Co Ltd v Davids Pty Ltd (1957) 98 CLR 77 7.7.3
Gifford v Strang Patrick Stevedoring Pty Ltd (2003) 214 CLR 269 13.2.8
Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 9.5.2
Government of Newfoundland v The Newfoundland Railway Co (1888) 13 App Cas 199 8.3.4
Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 13.2.10
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679 9.5.3
Griffiths v Kerkemeyer (1977) 139 CLR 161 14.2.10
Hackshaw v Shaw (1984) 155 CLR 614 13.2.12

Hadley v Baxendale (1854) 42 CLR 517 9.2.1
Halliday v Nevill (1984) 155 CLR 1 12.2.3, 16.9.1
Hamilton v Lethbridge (1912) 14 CLR 236 5.3.2
Hamilton v Nuroof (WA) Pty Ltd (1956) 96 CLR 18 13.2.12
Hammerstone Pty Ltd v Lewis [1994] 2 Qd R 267 16.4.7, 16.8.2
Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 9.2.4
Hawkins v Clayton (1988) 164 CLR 539 12.13.3
Haynes v G Harwood & Son [1935] 1 KB 146 13.2.12, 13.5.2
Heaven v Pender (1883) 11 QBD 503 13.2.9
Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 2 All ER 152 16.6.3
Henry v Thompson [1989] 2 Qd R 412 14.5.5
Henthorn v Fraser [1892] 2 Ch 27 5.3.3
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 8.2.1, 8.2.4
Hill v Van Erp (1997) 188 CLR 159 12.13.3
Hochster v De la Tour (1853) 118 ER 922 8.4.7, 9.2.2
Hockey v Fairfax Media Publications Pty Limited [2015] FCA 652 12.12.1
Hoenig v Isaacs [1952] 2 All ER 176 8.4.4, 9.2.2
Hole v Hocking [1962] SASR 128 12.13.3, 12 14 3
Holland v Wiltshire (1954) 90 CLR 409 8.4.6, 9.2.2
Hollis v Vabu Pty Ltd (2001) 207 CLR 21 12.14.3
Holloway v McFeeters (1956) 94 CLR 470 13.3.10
Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 6.4.4
Hunter v Canary Wharf Ltd [1997] AC 655 13.4.3
Imbree v McNeilly; McNeilly v Imbree (2008) 236 CLR 510 12.13.3, 12.13.5, 13.3.3
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 6.3.6
Ipex Software Services Pty Ltd & Ors v Hosking [2000] VSCA 239 5.3.2, 5.3.3
JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282 9.3.2

JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 6.4.6
Jobling v Associated Dairies Ltd [1982] AC 794 13.4.9
Johnson v Buttress (1936) 56 CLR 113 10.3.3, 16.2.2
Jolley v Sutton London Borough Council [2000] 3 All ER 409 13.4.13
Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 11.3.2

Kavanagh v Akhtar (1998) 45 NSWLR 588 13.4.13
Keighley, Maxsted & Co v Durant [1901] AC 240 15.4.2
Khan v Miah [2001] 1 All ER 20 17.4.1
233 CLR 115 8.5.3, 9.2.2, 17.5.1

542 Table of cases
Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350 9.2.1
L’Estrange v F Graucob Ltd [1934] 2 KB 394 6.3.1

Lamb v Cotogno (1987) 164 CLR 1 14.5.4, 14.5.5
Leaf v International Galleries [1950] 2 KB 86 9.5.3
Lee v Lee’s Air Farming Ltd [1961] AC 12 17.6.2
Levi v Colgate-Palmolive Pty Ltd (1941) 41 SR (NSW) 48 13.2.12
LG Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/asia) Ltd (1955) 56 SR (NSW) 81 7.7.5
Liaweena (NSW) Pty Ltd v McWilliams Wines Pty Ltd (1991) ASC ¶56-038 8.3.2
Lindner v Murdock’s Garage (1950) 83 CLR 628 10.7.2
Lintrose Nominees Pty Ltd and Others v King [1995] 1 VR 574 15.5.6
Lloyd v Grace, Smith & Co [1912] AC 716 17.4.13
Lumley v Wagner (1852) 42 ER 687 9.3.3
Lynch v Lynch (1991) 25 NSWLR 411 13.2.12
Mahoney v Lindsay (1980) 33 ALR 601 9.2.2

March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 13.4.7, 13.4.11
Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 8.7.4
Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 10.7.4, 11.3.3
Masters v Cameron (1954) 91 CLR 353 5.3.1, 5.3.3
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 9.2.2
McDougall v Aeromarine of Emsworth Ltd [1958] 3 All ER 431 16.6.2
McFarlane v Hall (1882) 16 SALR 126 8.3.1
McHale v Watson (1966) 115 CLR 199 13.3.3
McNamara v Duncan (1971) 26 ALR 584 12.7.1
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 9.2.1
McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 33 ALR 394 11.2.2
Meehan v Jones (1982) 149 CLR 571 6.5.3
Merritt v Merritt [1970] 2 All ER 760 5.3.1
Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp Ltd
[1984] WAR 365 15.5.5
Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351 15.6.2
Moorhead v Brennan (t/as Primavera Press) (1991) 20 IPR 161 6.3.7
Mount Isa Mines Ltd v Pusey (1970) 125 CLR 383 13.2.5, 13.2.8, 13.4.1, 13.4.13
Murphy v Brown (1985) 1 NSWLR 131 14.4.1
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 5.3.2
Myer Stores Ltd v Soo [1991] 2 VR 597 12.8.1
Newington v Windeyer (1985) 3 NSWLR 555 12.2.1, 16.9.1

Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 10.7.2
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] 1 QB 705 9.2.3
NRM Corporation Pty Ltd v Australian Competition and Consumer Commission
[2016] FCAFC 98 11.4.4
O’Brien & Anor v Smolonogov & Anor [1983] FCA 305 11.2.6
O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 9.5.2
Olley v Marlborough Court Ltd [1949] 1 KB 532 6.3.2
Oscar Chess Ltd v Williams [1957] 1 All ER 325 6.2.4
Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound (No 1))
[1961] AC 388 13.4.12, 13.4.14
Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28 9.5.2
Palsgraf v Long Island Railroad Co 248 NY 339 (1928) 12.13.3, 13.2.7
Pao On v Lau Yiu Long [1980] AC 614 5.3.2, 5.3.3, 9.2.3
Papatonakis v Australian Telecommunications Commission (1985) 156 CLR 7 13.2.4
Paris v Stepney Borough Council [1951] AC 367 13.3.6
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 11.2.3, 15.9.3
Partridge v Crittenden [1968] 2 All ER 421 5.3.3
Pearce v Brooks (1866) LR 1 Exch 213 10.7.3

Table of cases543
Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 16.8.1
Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 12 4.1, 16.9.1
Performance Cars Ltd v Abraham [1962] 1 QB 33 13.4.8
Perre v Apand Pty Ltd (1999) 198 CLR 180 12.13.3, 13.2.11
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 5.3.1, 5.3.3, 6.5.2
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd
[1953] 1 QB 401 5.3.3
Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221 8.3.4
Pitt Son & Badgery Ltd v Proulefco (1984) 153 CLR 644 6.6.3, 16.6.4
Placer Development Ltd v Commonwealth (1969) 121 CLR 353 5.3.3
Plenty v Dillon (1991) 171 CLR 635 12.2.3, 16.9.1
Price v Easton (1833) 110 ER 518 5.4.2
Pukallus v Cameron (1982) 180 CLR 447 6.4.5
R v Clarke (1927) 40 CLR 227 5.3.3

Radford v de Froberville [1978] 1 All ER 33 9.2.1
Raffles v Wichelhaus (1864) 2 H&C 906 9.5.2
Rasmussen & Russo Pty Ltd v Gaviglio [1982] Qd R 571 15.6.2
Re ‘E’ v Australian Red Cross Society; Australian Red Cross Society New South Wales
Division and Central Sydney Area Health Service (1991) 31 FCR 299 13.3.8
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 15.5.6
Robson v Hallett [1967] 2 QB 939 12.2.3, 16.9.1
Rogers v Whitaker (1992) 175 CLR 479 12.13.3, 13.3.2, 13.4.10
Romeo v Conservation Commission of the Northern Territory (1998) 192 CLR 431 13.3.5
Rootes v Shelton (1967) 116 CLR 383 13.5.2
Roscorla v Thomas (1842) 3 QB 234 5.3.2
Rose & Frank Co v J R Crompton & Bros Ltd [1923] 2 KB 261 5.3.1
Salomon v A Salomon & Co Ltd [1897] AC 22 17.6.2, 17.6.20

Sargent v ASL Developments Ltd; Turnbull v ASL Developments Ltd
(1974) 131 CLR 634 9.2.2, 9.3.2, 16.5.1
Scarborough v Sturzaker (1905) 1 Tas LR 117 5.2.2
Schellenberg v Tunnel Holdings (2000) 200 CLR 121 13.3.11
Secured Income Real Estate (Australia) Ltd v St Martins Investments
Pty Ltd (1979) 144 CLR 596 6.5.2
(1981) 150 CLR 225 12.13.3, 13.2.12
Sharman v Evans (1977) 138 CLR 563 14.2.5
Sidhu v Van Dyke (2014) 251 CLR 505 5.5.3
Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322 9.2.1
Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 15.7.4
Skelton v Collins (1966) 115 CLR 94 14.2.12
Solle v Butcher [1950] 1 KB 671 9.5.3
Steele v Tardiani (1946) 72 CLR 386 8.4.3, 9.2.2
Stephenson v Waite Tileman Ltd [1973] 1 NZLR 152 13.4.14
Stilk v Myrick (1809) 170 ER 1168 5.3.2
Sullivan v Moody (2001) 207 CLR 562 13.2.10
Swain v Waverley Municipal Council (2005) 220 CLR 517 13.3.7
Sydney County Council v Dell’Oro (1974) 132 CLR 97 13.2.7
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 9.2.1, 16.4.4
Taylor v Crossman (No 2) (2012) 199 FCR 363 11.2.6
Taylor v Johnson (1983) 151 CLR 422 3.5.1, 3.9.1, 4.4.2, 9.5.4, 16.4.1
Teen Ranch Pty Ltd v Brown (1995) 87 IR 308 5.3.1
Telstra Corporation Ltd v Royal & Sun Alliance Insurance Ltd (2003) 57 IPR 453 16.7.2
Thomas v Thomas (1842) 114 ER 330 5.3.2, 16.4.2, 16.4.4
Todorovic v Waller (1981) 150 CLR 402 14.2.9
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 6.3.1
Tooth v Laws (1888) 9 LR (NSW) 154 15.3.5

544 Table of cases
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) S.R.
(N.S.W.) 632; (1938) 61 CLR 286 6.2.5
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 5.4.3
Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 8.7.5
Twentieth Century Fox Film Corp & Anor v The South Australian Brewing
Co Ltd & Anor (1996) 66 FCR 451 11.2.4
Van den Esschert v Chappell [1960] WAR 114 6.4.3

Van Gervan v Fenton (1992) 175 CLR 327 14.2.10
Varley v Whipp [1900] 1 QB 513 7.2.1, 8.4.2, 9.2.2
Voli v Inglewood Shire Council (1963) 110 CLR 74 13.3.2
Wakeling v Ripley (1951) 51 SR (NSW) 183 5.3.1

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 5.5.3
Warner Bros Pictures Inc v Nelson [1937] 1 KB 209 9.3.3
Watt v Rama [1972] VR 353 3.5.1
Waverley Council v Ferreira (2005) Aust Torts Reports ¶81-818 12.13.3, 13.3.4
Western Districts Developments v Baulkam Hills Shire Council (2008) 160 LGERA 422 13.2.11
Wilson v Lombank Ltd [1963] 1 All ER 740 12.3.1, 16.6.2, 16.9.1
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 12.13.3, 13.2.11
Yorke v Lucas (1985) 158 CLR 661 11.2.3, 15.9.3

Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 16.4.3, 17.3.6
Zanker v Vartzokas (1988) 34 A Crim R 11 12.6.2

545
TABLE OF LEGISLATION
Acts Interpretation Act 1901 (Cth) 2.6.5, 16.5.1, s 59(1) 7.9.12
18.7 ss 60–2 7.9.3,
s 2B 16.5.1 s 69 11.6.2
Acts Interpretation Act 1915 (SA) 2.6.5, 18.7 s 71 11.6.2
Acts Interpretation Act 1931 (Tas) 2.6.5, 16.5.1, s 73 11.6.3
18.7 s 75 11.6.5
s 46 16.5.1 s 78 11.6.6
Acts Interpretation Act 1954 (Qld) 2.6.5, 16.5.1, s 79 11.6.6
18.7 s 82 11.6.7
s 36 16.5.1 s 90 11.6.8
Administration and Probate Act 1935 (Tas) ss 104–5 11.7.2
14.3.3 ss 106–7 11.7.2
s 27 14.3.3 s 109 11.7.3
Administration and Probate Act 1958 (Vic) s 114 11.7.3
14.3.3 s 118 11.1.7, 11.7.3, 11.8.1
s 29(1) 14.3.3 s 119 11.7.3
Australian Capital Territory (Self-Government) s 122 11.7.4
Act 1988 (Cth) 1.9.2, 18.2 s 127 11.7.4
Australian Consumer Law (Sch 2 of s 129 11.7.5
Competition and Consumer Act 2010) 7.9.2, ss 131–2 11.7.6
11.1.3–4, 12.13.3 ss 134–5 11.7.7
s 2(1) 11.2.6 ss 136–7 11.7.7
s 18 11.2.1–4, 11.2.3–4, 11.2.6–8, 11.5.4, ss 138–41 11.7.8
15.9.3, 12.13.3 s 224(3) 11.8.1
s 18(1) 11.2.1, 11.2.2 s 232 11.8.1
ss 20–1 11.3.1, 11.3.4 ss 236–8 11.8.1
s 20(1) 11.3.2 s 243 11.8.1
s 21(1) 11.3.3 s 246 11.8.1
s 22 11.3.3 s 271 7.9.12,
s 23 11.4.2, 11.4.3, 11.4.4 Ch 2 11.3.1, 11.4.1, 11.8.1
s 24 11.4.3 Ch 3 7.9.11, 11.5.1, 11.6.7, 11.7.1 11.7.9,
s 25 11.4.3 11.8.1
s 29 11.5.2, 11.5.4 Pt 3-1 11.5.1
s 29(1) 11.2.2 Pt 3-2, Div 1 11.6.1,
s 32 11.5.3 Pt 3-3 11.7.1
s 33 11.2.2, 11.5.4 Ch 411.8.1Ch 5, Pt 5-2 11.8.1
s 34 11.5.4 Ch 5, Pt 5-4 7.9.11,
s 35 11.5.5 Australian Consumer Law and Fair Trading
ss 36(1)(2)(3)(4) 11.5.6 Act 2012 (Vic) 8.7.7, 18.6
s 39 11.5.7 Australian Securities and Investments
s 40 11.5.8 Commission Act 2001 (Cth) 17.6.21
s 41 11.5.8
ss 44–5 11.5.9 Bell Group Companies (Finalisation of Matters
ss 47–8 11.5.10 and Distribution of Proceeds) Act 2015 (WA)
s 50 11.5.11 1.11.5
s 51 7.9.8, Business Names Registration Act
s 52 7.9.8, 16.6.4 2011 (Cth) 17.1.3
s 53 7.9.8, 16.6.4 Business Tenancies (Fair Dealings) Act
s 54 7.9.5, 7.9.12, 16.6.4 2003 (NT) 16.5.2
s 55 7.9.6, 16.6.4
s 56 7.9.4, 7.9.12, Civil Law (Property) Act 2006 (ACT) 9.2.2,
s 57 7.9.7, 16.6.4 16.5.1, 18.5
s 58 7.9.9, 7.9.12, s 201 (by deed or in writing and signed) 16.5.1,
s 59 7.9.10, 16.8.1

546 Table of legislation
s 210(3) 16.5.1 s 5K 13.5.1

s 501 8.5.2, 9.2.2 ss 9–10 14.2.12
Civil Law (Wrongs) Act 2002 (ACT) 13.2.12, s 11 14.2.3
14.2.12, 18.10 Civil Liability Act 2003 (Qld) 13.3.1, 18.10
s 15 14.3.3 ss 9–10 13.3.1
s 98 14.2.3 s 54 14.2.3
Pt 2.1 13.2.12 s 59 14.2.11
Pt 3.1 14.3.1 s 62 14.2.12
Ch 4, Part 4.2 13.3.1 Ch 2, Pt 1, Div 5 13.3.2
Ch 4, Part 4.4 13.5.1 Ch 2, Pt 1, Div 6 13.5.1
Civil Liability Act 1936 (SA) 13.2.12, 18.10 Civil Proceedings Act 2011 (Qld) 14.2.7
s3 14.2.8 s6 14.2.7
s 32 13.3.1 Pt 10 14.3.1
s 52 14.2.12 Commercial Tenancy (Retail Shops) Agreements
s 54 14.2.3 Act 1985 (WA) 16.5.2
s 55 14.2.7 Commonwealth of Australia Constitution
s 58 14.2.11 Act 1900 1.9.3, 1.9.1, 1.11.4, 2.2.3, 18.2
s 74 13.2.12 ss 51, 52, 90, 114, 115, 121 and 122 2.2.3
Pt 5 14.3.1 Compensation (Fatal Injuries) Act 1974 (NT)
Pt 6, Div 4 13.3.2 14.3.1
Pt 7 13.5.1 Compensation to Relatives Act 1897 (NSW)
Civil Liability Act 2002 (NSW) 12.13.3, 13.1.1, 14.3.1
18.10 Competition and Consumer Act 2010 (Cth)
s 5B 13.3.1, 13.3.4 2.5.1, 10.7.4, 11.7.2, 11.8.2, 18.4
s 5B(1) 12.13.3, 13.3.1, 13.3.4 s 51AD 10.7.4
s 5B(2) 12.13.3 Sch 2 (Australian Consumer Law) 11.1.3
s 5C 13.3.1 Constitution Act 1889 (WA) 1.9.1, 18.2
s 5D(1) 13.4.6 Constitution Act 1902 (NSW) 1.9.1, 18.2
s 5E 13.4.6 Constitution Act 1934 (SA) 1.9.1, 18.2
ss 5F–5I 13.5.3 Constitution Act 1934 (Tas) 1.9.1, 18.2
ss 5K–5N 13.5.4 Constitution Act 1975 (Vic) 1.9.1, 18.2
s 5O 13.3.2 Constitution of Queensland Act 2001 (Qld)
s 5R 13.5.1 1.9.1, 18.2
s 12 14.2.3 Conveyancing Act 1919 (NSW) 9.2.2, 16.5.1,
s 14 14.2.7, 14.2.9 16.8.1, 18.5
s 15 14.2.11 s 13 8.5.2, 9.2.2
s 16 14.2.12 s 23B 16.5.1
s 21 14.1.3, 14.5.6 s 23C 16.8.1
s 30 13.2.8 ss 26–7 16.5.1
Pt 1A, Div 8 13.5.1 Conveyancing and Law of Property Act
Pt 1A, Div 6 13.3.2 1884 (Tas) 16.5.1, 16.8.1
Pt 2–11 14.1.2 s 60 16.5.1, 16.8.1
Pts 2, 3 14.2.3 Copyright Act 1968 (Cth) 16.7.2
Pt 4 14.1.6 Corporations Act 2001 (Cth) 5.3.1,
Pt 5 13.2.12 17.1.2, 17.4.1, 17.6.1, 17.6.9–12, 17.6.16,
Pt 8 13.2.12, 13.2.14 17.6.21, 17.6.23, 17.6.26
Pt 8A 13.2.14 s 115 17.4.5
Pt 9 13.2.14 s 124 5.2.1
Civil Liability Act 2002 (Tas) 13.3.1, 18.10 ss 180–3 17.6.9
s 26 14.2.3 Crown Suits Act [1898 (WA)] 13.4.4
s 27 14.2.12 Damage by Aircraft Act 1999 (Cth) 4.4.1
s 28A 14.2.7 Designs Act 1906 (Cth) 16.7.3
Pt 6, Div 2 13.3.1
Pt 6, Div 6 13.3.2 Electronic Transactions (Northern
Pt 6, Div 7 13.5.1 Territory) Act 2000 (NT) 5.3.3, 18.3
Civil Liability Act 2002 (WA) 13.2.12, 18.10 Electronic Transactions (Queensland)
s 5AD 13.2.12 Act 2001 (Qld) 5.3.3, 18.3
s 5B 13.3.1 Electronic Transactions (Victoria)

Table of legislation547
Act 2000 (Vic) 5.3.3 Interpretation Act 1987 (NSW) 2.6.5, 16.5.1,
s 13-13B 5.3.3 18.7
Electronic Transactions Act 1999 (Cth) 5.3.3, s 21(1) 16.5.1
18.3 Interpretation of Legislation Act 1984
Electronic Transactions Act 2000 (NSW) 5.3.3, (Vic) 2.6.5, 16.5.1, 18.7
18.3 s 38 16.5.1
Electronic Transactions Act 2000 (SA) 5.3.3, 18.3
Electronic Transactions Act 2000 (Tas) 5.3.3, Land Title Act 1994 (Qld) 16.5.1
18.3 Land Title Act 2000 (NT) 16.5.1
Electronic Transactions Act 2000 (Vic) 18.3 Land Titles Act 1925 (ACT) 16.5.1
Electronic Transactions Act 2001 (ACT) 5.3.3, Land Titles Act 1980 (Tas) 16.5.1
18.3 s 44 16.5.1
Electronic Transactions Act 2011 (WA) 5.3.3, Law of Property Act 1936 (SA) 9.2.2, 18.5
18.3 s 16 8.5.2, 9.2.2
Law of Property Act 1936 (SA) 16.5.1, 16.8.1,
Fair Trading (Code of Practice for Retail 18.5
Tenancies) Regulations 1998 (Tas) 16.5.2 s 28 16.5.1
Fair Trading Act 1987 (SA) 11.2.6 s 29 16.8.1
s 56 11.2.6 Law of Property Act 2000 (NT) 16.5.1
Fatal Accidents Act 1934 (Tas) 14.3.1 s 9 (by deed or in writing and signed) 16.5.1
Fatal Accidents Act 1959 (WA) 14.3.1 s 10 16.8.1
Frustrated Contracts Act 1978 (NSW) 8.7.7, s 35 16.5.1
18.6 Law Reform (Miscellaneous Provisions)
Frustrated Contracts Act 1988 (SA) 8.7.7, 18.6 Act 1941 (WA) 14.2.7
s4 14.3.3
Goods Act 1958 (Vic) 2.5.1, 7.1.1, 18.8.3, 18.8.4 s5 14.2.7
s3 7.1.1 Law Reform (Miscellaneous Provisions)
s7 7.1.1 Act 1944 (NSW) 14.3.3
s 11 7.1.1, 8.7.2 Pt 2 14.3.3
s 12 7.1.1, 8.7.2 Law Reform (Miscellaneous Provisions)
s 16 7.1.1, 9.4.1 Act 1956 (NT) 14.3.3
s 17 7.1.1, 7.5.1, 16.6.2 s5 14.3.3
s 18 7.1.1, 7.2.1, 8.3.1 Leases (Commercial and Retail Shops)
s 19 7.1.1, 8.3.2 Act 2001 (ACT) 16.5.2
s 19(a) 7.7.4 Legislation Act 2001 (ACT) 2.6.5, 16.5.1, 18.7
s 19(b) 7.7.2 s2 16.5.1
s 20 7.1.1, 7.7.5
s 22(1) 16.6.2 Motor Accidents Act 1988 (NSW) 14.2.6
s 23 16.6.2 Motor Car Act 1951 (Vic) 13.3.10
s 24(1) 16.6.2 Motor Vehicle (Third Party
s 35 7.1.1, 7.4.1, 8.3.3 Insurance) Act 1943 (WA) 14.2.6
s 36 7.1.1, 7.3.1
s 36(2) 7.3.1 National Disability Insurance
s 41 7.1.1, 7.6.1 Scheme Act 2013 (Cth) 14.1.7
s 42 7.1.1, 7.6.1 Norfolk Island Act 1979 (Cth) 18.2
s 61 7.1.1, 7.8.1 Norfolk Island Legislation
s 67 15.8.3 Amendment Act 2015 (Cth) 1.9.2
Guardianship and Administration Northern Territory (Self-Government)
Act 1990 (WA) 15.3.2 Act 1978 (Cth) 1.9.2, 18.2

Insurance Contracts Act 1984 (Cth) 5.4.3, 18.9 Partnership Act 1891 (Qld) 17.4.3
s 48 5.4.3 Partnership Act 1891 (SA) 17.4.3
Interpretation Act (NT) 2.6.5 Partnership Act 1891 (Tas) 17.4.3
Interpretation Act 1978 (NT) 16.5.1, 18.7 Partnership Act 1892 (NSW) 17.4.3
s 17 16.5.1 Partnership Act 1895 (WA) 17.4.3
Interpretation Act 1984 (WA) 2.6.5, 16.5.1, 18.7 Partnership Act 1958 (Vic) 17.4.3
s5 16.5.1 s 46 17.4.8
Partnership Act 1963 (ACT) 17.4.3

548 Table of legislation
Partnership Act 1997 (NT) 17.4.3 s 14(2) 7.7.3, 7.7.5

Patents Act 1990 (Cth) 16.7.3 s 15 7.1.1, 7.7.5
Personal Injuries (Liabilities and s 17(1) 16.6.2
Damages) Act (NT) 13.2.12, 18.10 s 18 16.6.2
s8 13.2.12 s 19(1) 16.6.2
s 20 14.2.3 s 28 7.1.1, 7.4.1, 8.3.3
Personal Injuries (Liabilities and s 29 7.1.1
Damages) Act 2003 (NT) 14.2.7 s 34 7.1.1, 7.6.1
s 22 14.2.7 s 35 7.1.1
s 27 14.2.12 s 54 7.1.1, 7.8.1
Personal Property Securities Act 2009 Sale of Goods Act 1895 (WA) 7.1.1, 18.8.3,
(Cth) 16.8.2 18.8.4
Powers of Attorney Act 2003 (NSW) 15.3.2 s2 7.1.1
Powers of Attorney Act 1998 (Qld) 15.3.2 s6 7.1.1, 8.7.2
Powers of Attorney Act 2014 (Vic) 15.3.2 s7 7.1.1, 8.7.2
Powers of Attorney and Agency Act 1984 (SA) s 11 7.1.1, 9.4.1
15.3.2 s 12 7.1.1, 7.5.1, 16.6.2
Powers of Attorney Act 2000 (Tas) 15.3.2 s 13 7.1.1, 7.2.1, 8.3.1
Powers of Attorney Act 2006 (ACT) 15.3.2 s 14 7.1.1, 8.3.2
Powers of Attorney Act 1980 (NT) 15.3.2 s 15 7.1.1, 7.7.5
Powers of Attorney Act 2014 (Vic) 15.3.2 s 17(1) 16.6.2
Property Law Act 1958 (Vic) 9.2.2, 16.5.1, s 18 16.6.2
16.8.1, 18.5 s 19(1) 16.6.2
s 41 8.5.2, 9.2.2 s 28 7.1.1, 7.4.1, 8.3.3
s 52 16.5.1 s 29 7.1.1
s 53 16.8.1 s 34 7.1.1, 7.6.1
Property Law Act 1929 (WA) 9.2.2, 16.5.1, s 35 7.1.1
16.8.1, 18.5 s 54 7.1.1, 7.8.1
s 21 8.5.2, 9.2.2 s 60 7.1.1
s 33 16.5.1 Sale of Goods Act 1896 (Qld) 7.1.1, 18.8.3,
s 34 16.8.1 18.8.4
Property Law Act 1974 (Qld) 9.2.2, 16.5.1, 18.5 s3 7.1.1
s 10 (by deed or in writing and signed) 16.5.1 s5 7.1.1
s 11 16.8.1 s9 7.1.1, 8.7.2
ss 35–6 16.5.1 s 10 7.1.1, 8.7.2
s 62 8.5.2, 9.2.2 s 14 7.1.1, 9.4.1
s 15 7.1.1, 7.5.1, 16.6.2
Real Property Act 1886 (SA) 16.5.1 s 16 7.1.1, 7.2.1, 8.3.1
s3 16.5.1 s 17 7.1.1, 8.3.2
s 74 16.5.1 s 18 7.1.1, 7.7.5
Real Property Act 1900 (NSW) 16.5.1 s 20(1) 16.6.2
s 100 16.5.1 s 21 16.6.2
Retail and Commercial Leases Act 1995 (SA) s 22 16.6.2
16.5.2 s 30 7.1.1, 7.4.1, 8.3.3
Retail Leases Act 1994 (NSW) 16.5.2 s 31 7.1.1
Retail Leases Act 2003 (Vic) 16.5.2 s 36 7.1.1, 7.6.1
Retail Shop Leases Act 1994 (Qld) 16.5.2 s 37 7.1.1
s 74 16.5.1 s 56 7.1.1, 7.8.1
Sale of Goods Act 1896 (Tas)7.1.1, 18.8.3, 18.8.4
Sale of Goods Act 1893 (UK)7.1.1, 18.8.1 s3 7.1.1
Sale of Goods Act 1895 (SA) 7.1.1, 18.8.3, 18.8.4 s7 7.1.1
s A2 7.1.1 s 11 7.1.1, 8.7.2
s6 7.1.1, 8.7.2 s 12 7.1.1, 8.7.2
s7 7.1.1, 8.7.2 s 16 7.1.1, 9.4.1
s 11 7.1.1, 9.4.1 s 17 7.1.1, 7.5.1, 16.6.2
s 12 7.1.1, 7.5.1, 16.6.2 s 18 7.1.1, 7.2.1, 8.3.1
s 13 7.1.1, 7.2.1, 8.3.1 s 19 7.1.1, 8.3.2
s 14 7.1.1, 8.3.2 s 20 7.1.1, 7.7.5

Table of legislation549
s 22(1) 16.6.2 s 23 16.6.2

s 23 16.6.2 s 24(2) 16.6.2
s 24(1) 16.6.2 s 31 7.1.1, 7.4.1, 8.3.3
s 33 7.1.1, 7.4.1, 8.3.3 s 32 7.1.1
s 34 7.1.1 s 37 7.1.1, 7.6.1
s 39 7.1.1, 7.6.1 s 38 7.1.1
s 40 7.1.1 s 57 7.1.1, 7.8.1
s 59 7.1.1, 7.8.1 Succession Act 1981 (Qld) 14.3.3
Sale of Goods Act 1923 (NSW) 7.1.1, 2.5.1, s 66 14.3.3
18.8.3, 18.8.4 Supreme Court Act 1935 (SA) 14.2.6
s5 7.1.1 Supreme Court Act 1979 (NT) 9.2.2, 18.5
s7 7.1.1 s 68 8.5.2, 9.2.2
s 11 7.1.1, 8.7.2 Supreme Court Act 1979 (Tas) 18.5
s 12 7.1.1, 8.7.2 Supreme Court Civil Procedure Act 1932 (Tas)
s 16 7.1.1, 9.4.1 9.2.2, 18.5
s 17 7.1.1, 7.5.1, 16.6.2 s 11 9.2.2
s 18 7.1.1, 7.2.1, 8.3.1 s 11(7) 8.5.2
s 19 7.1.1, 8.3.2 Survival of Causes of Action Act 1940 (SA)
s 19(1) 7.7.4 14.3.3
s 20 7.1.1, 7.7.5
s 22(1) 16.6.2 Trade Marks Act 1995 (Cth) 16.7.1
s 23 16.6.2 s 41 16.7.1
s 24(1) 16.6.2 s 129 16.7.1
s 31 7.1.1, 7.4.1, 8.3.3 Trade Practices Act 1974 (Cth) 10.7.4, 11.1.3,
s 32 7.1.1 15.9.3, 12.13.3, 18.8.3
s 37 7.1.1, 7.6.1 s 51AA 11.3.12
s 38 7.1.1 s 51 AB11.3.1s 51AC 11.3.1, 11.3.3
s 57 7.1.1, 7.8.1 s 51AD 10.7.4
Sale of Goods Act 1954 (ACT) 7.1.1, 18.8.3, s 52 11.2.1–6, 11.2.3–6, 15.9.3
18.8.4 s 53A 11.2.6
s2 7.1.1 Transfer of Land Act 1893 (WA) 16.5.1
s7 7.1.1 Transfer of Land Act 1958 (Vic) 16.5.1
s 11 7.1.1, 8.7.2 s 30(2) 16.5.1
s 12 7.1.1, 8.7.2 Transfer of Law Act 1893 16.5.1
s 16 7.1.1, 9.4.1 s 60 16.5.1
s 17 7.1.1, 7.5.1, 16.6.2 Trustee Act (NT) 17.3.4
s 18 7.1.1, 7.2.1, 8.3.1 Trustee Act 1898 (Tas) 17.3.4
s 19 7.1.1, 8.3.2 Trustee Act 1925 (ACT) 17.3.4
s 20 7.1.1, 7.7.5 Trustee Act 1925 (NSW) 17.3.4
s 22(1) 16.6.2 Trustee Act 1936 (SA) 17.3.4
s 23(3) 16.6.2 Trustee Act 1958 (Vic) 17.3.4
s 24(2) 16.6.2 s 67 17.3.6
s 32 7.1.1, 7.4.1, 8.3.3 Trustees Act 1962 (WA) 17.3.4
s 33 7.1.1 Trusts Act 1973 (Qld) 17.3.4
s 38 7.1.1, 7.6.1
s 39 7.1.1 Water Act 1992 (NT) 10.7.4
Sale of Goods Act 1972 (NT) 7.1.1, 18.8.3, Workers Compensation Act 1922 (NZ) 17.6.2
18.8.4 Wrongs Act 1958 (Vic) 13.2.8, 13.2.12, 18.10
s5 7.1.1 s 14B 13.2.12
s7 7.1.1 s 28I 14.2.7
s 11 7.1.1, 8.7.2 s 28IA, B 14.2.11
s 12 7.1.1, 8.7.2 ss 48–9 13.3.1
s 16 7.1.1, 9.4.1 s 59 13.3.2
s 17 7.1.1, 7.5.1, 16.6.2 s 62 13.5.1
s 18 7.1.1, 7.2.1, 8.3.1 Pt 3 14.3.1
s 19 7.1.1, 8.3.2 Pt VIA 13.2.12
s 20 7.1.1, 7.7.5 Pt VIB 14.2.3
s 22(1) 16.6.2 Pt VBA 14.2.12

551
INDEX
Acceptance 5.3.3 remedies 12.6.3
by post, fax or email 5.3.3 AustLII databases 4.3.1, 4.3.2
by conduct 5.3.3
silence or inaction not valid 5.3.3 Australasian Legal Information Institute
(AUSTLII) 3.5.2, 4.2.1, 4.3.1–2, 4.4.2
Acts Interpretation Acts see Table of legislation
Australian Accounting Standards Board 17.6.21
Administrative law 1.7.1
Australian Business Number (ABN) 17.1.3
Advanced searching 4.7–4.7.4
Australian Competition and Consumer
Agency 1.7.1, 5.4.4, 15.1, 15.5 Commission 11.1.4
agency and privity 5.4.4
agency relationships 15.2 Australian Constitution 1.9, 2.2.3
irrevocable agency 15.11.1 Australian constitutions, legislative provisions
legislation regarding agency 15.3.2 1.9.1, 18.2
negligence 15.5.5 Australian Consumer Law 10.8.1, 11.1.3
no ratification if principal is undisclosed15.4.2 administration 11.1.4
no ratification of invalid transactions 15.4.3 application of ACL (checklist) 11.9
principal, definition 15.1.2 enforcement provisions 11.8.1
representation 15.1.2 liability of manufacturers 11.6.10
power of attorney 15.3.2; 15.11 remedies 11.2.8, 11.3.4, 11.4.5, 11.5.12,
principal’s right to ratify 15.4.1 11.6.7, 11.7.9, 11.8.1
undisclosed principal 15.4.2 see also Consumer contracts; Goods and
see also Duties of the agent; Authority to act services contracts
as an agent; Termination of agency
Australian governments, institutions and powers
Agreed remedies for breach of contract 9.1.1, 9.5 1.11
freedom of contract 9.5.1
Australian Securities and Investment
pre-estimate of damages; liquidated damages
Commission (ASIC) 17.1.3, 17.6.21
9.5.2
Australian states and territories, establishment
Agreement, in contracts 5.3
1.9, 1.8.4
agreements between family members 5.3.1
agreements between friends 5.3.1 Authority to act as an agent 15.3
agreements in commercial context 5.3.1 actual authority 15.3.4
agreement to terms, express and implied 6.3 apparent authority; ostensible authority15.3.5,
conditional agreement 5.3.1, 5.3.3 15.3.6
consensus ad idem 5.3.3 circumstances requiring written authority
extent of agreement 5.3.3 15.3.2
illusory promises 5.3.3 express grants of authority 15.3.1
objective agreement 6.3.1 implied authority 15.3.3
proving the existence of agreed terms 6.4 mental incapacity of principal 15.11.1
terms implied ad hoc 6.3.7 power of attorney 15.3.2
see also Contract; Contract formation; Terms ratification of unauthorised acts 15.4
of contracts renunciation, revocation of authority 15.11.1
unauthorised acts by agent 15.4.1
All England Law Reports (All ER) 3.3.2
see also Agency
Alternative dispute resolution 3.10
Avoidance of contracts by minors 5.3.3
Anatomy of law (categories and concepts) 1.7
Avoiding a legal transaction 9.1
Anticipatory breach of contract 8.4.7 delay may mean relief is refused 9.1.4
injunctions 9.3.3 grounds for invalidating a transaction 9.1.1–2
repudiation 8.4.7 use of force, threats, deliberate deceit 9.1.1
Appeal Cases (AC) 3.3.2 vitiating circumstances 9.1.5
Appeals, procedures in court 3.2.3 void and voidable transactions 9.1.2
Assault 12.1.5
definition 12.6.1 Bailment 6.3.5, 6.6.3, 17.6.4
expectation of immediate physical contact for reward, safekeeping, repair 16.6.4
required 12.6.2 generic terms in bailment contracts 6.6.3

552 Index
Bailment (cont) Business organisations 17.1

gratuitous bailment 16.6.4 sources of law 17.1.2
liability of bailee 6.3.5 Business structures 17.1.1
Bait advertising 11.5.5 companies 17.6
Bans, injurious goods 11.7.3 partnerships 17.4
sole traders 17.2
Battery 12.1.5, 12.7 trusts 17.3
definition 12.7.1 joint ventures 17.5
remedies 12.7.2
Buyer beware 7.7.1, 8.3.1(b)
Bilateral and unilateral contracts 5.2.2 see also Sale of goods contracts; Generic terms
Bills 2.3.2
first and second readings 2.3.3
Capacity 5.2
Boolean searching 4.6 bankruptcy 5.2.6
Breach of contract 5.1.6, 8.1, 8.1.2, 8.4 binding contractual agreements 5.1.3, 5.2.1
agreement on remedy 9.1.1, 9.5 mentally disabled persons 5.2.5
anticipatory breach 8.4.7 minors 5.2.2, 5.2.3, 5.2.4
assessing seriousness of breach 8.5 insolvency 5.3.6
Australian Consumer Law 9.8.1 intoxication 5.3.6
common law remedies 9.1.1, 9.2, 9.5 Case law 3.1.3
consequences of breach 8.6 locating 4.4, 4.5
damages 9.2.2
different ways for breach to occur 8.1.4, 8.4.1 Categories of law 1.7.1
enforcement of undischarged obligations 8.6.1 legal authorities 1.7.1
establishing a breach of contract 8.8 legal concepts, meanings, principles, rules1.7.1
fundamental terms (conditions) 8.1.5 Caveat (on land title) 16.5.1
hidden defects 8.4.5 Caveat emptor 7.7.1, 8.3.1(b)
injunction 9.3.3
late performance 8.4.6 Chattel leases 16.6.4
non-performance 8.4.2 Australian Consumer Law 16.6.4
partial performance 8.4.3 bailment for reward 16.6.4
some breaches more serious than others 8.1.5 regulation 16.6.4
specific performance 9.1.2 Chattel securities 16.8.2
substantial performance 8.4.4 consumable chattels, durable chattels 16.8.2
termination of performance 9.2.2 enforcement, statutory regulation 16.8.2
warranties 8.1.5 Chattels 16.4.5, 16.6
Breach of duty of care 13.3 bailment for reward 16.6.4
causal link to harm 13.4.5 ‘chose in possession’ 16.6.1
discharging a duty of care 13.3.1 definition 16.6.1
drawing inferences 13.3.10–11 derivative acquisition of chattels 16.6.2
justifiability and policy considerations 13.3.8 distinguished from fixture 16.5.2
practicality of avoiding harm 13.3.7 legislative provisions 16.6.2
probability of harm 13.3.5 nemo dat quod non habet 16.6.2
proving a breach 13.3.9 original acquisition of ownership 16.6.3
‘reasonable persons’ 13.3.2, 13.3.4 passing of ownership where goods not yet
res ipsa loquitur 13.3.11 owned by seller 16.6.2
seriousness of harm 13.3.4, 13.3.6 property rights in chattels 16.6.1
special expertise, other factors attributed to possession of another’s chattels 16.4.5
reasonable persons 13.3.2–3 transfer of ownership of chattels bought and
state and territory legislation (see also Table of sold 16.6.2
Legislation) 13.3.1 see also Chattel securities
see also Duty of care Choses in action 16.7.1
Breach of statutory guarantees 7.9.11 intangible property 16.7
major failure 7.9.11 Chose in possession defined 16.2.2, 16.6.1, 16.7.1
manufacturer’s liability 7.9.12 tangible property 16.7.1
remediable failure 7.9.11
Citing cases 3.5
Business law, as category 1.6 in law reports; multiple citations 3.5.1
Business names 17.1.3 medium neutral citations 3.5.1

Index553
Citing legislation 2.5.1 damages as a lump sum 14.2.5

Civil cases; their purpose 3.2.2, 3.2.4 distinguished from restitution 14.7.1
exchange of pleadings 3.2.4 general and special damages 14.2.4
proving facts 3.2.4 harm to property 14.4
ascertaining the law 3.2.4 ‘joint tortfeasors’ 14.1.6
deciding the case 3.2.4 legislative provisions 14.2.3, 14.2.6
limits on compensation claimable 14.2.7
Civil law 1.7.1 lost earnings 14.2.9
Civil pecuniary penalties 11.2.8, 11.3.4, 11.4.5, medical and associated costs 14.2.10
11.5.12, 11.6.7, 11.7.9, 11.8.1 mental harm 14.1.2
Classification of law 1.5 non-pecuniary harm 14.2.12
pecuniary harm 14.2.8
Code of Conduct 1.5.4
periodic payments 14.2.6
Collateral contracts (collateral warranties) 6.4.6 personal injury 14.1.2, 14.2, 14.2.1
Common law proportionate liability 14.1.2
application by courts 3.6.1 recovery of damages by criminals 14.1.2
damages 9.2.2 self-defence 14.1.2
equity/common law distinction 3.1.3 wrongful death 14.3
principles in interpretation of Acts 2.6.6 see also Remedies
remedies for breach of contract 9.1.1, 9.2 Conditions and warranties see Goods and services
Commonwealth legislature 1.11.4, 2.1.3 contracts
House of Representatives 1.11.4 Conditions in a contract 6.2.5, 8.1.5, 8.5.2
Senate 1.11.4 see also Fundamental terms; Breach of contract
Communication by email, legislative provisions Consensus ad idem 5.3.3
18.3
Consideration, doctrine of 5.3.2
Capital raising for companies 17.6.14 bilateral and unilateral contracts 5.3.2
Companies 17.6 compromise as consideration 5.3.2
capital raising for companies 17.6.14 executed consideration 5.3.2
company name 17.6.6 insufficiency of consideration 5.3.2
company secretary 17.6.7 of some value 5.3.2
Corporations Act 2001 17.6.1 past consideration 5.3.2
creating a company 17.6.1 performing an act as consideration 5.3.2
distribution of profits 17.6.16 practical benefit or detriment as consideration
insolvency 17.6.18 5.3.2
legal capacity 17.6.13 promise to third party as consideration 5.3.2
legal identity 17.6.2 types of consideration 5.3.2
liability for company’s debts 17.6.17 Constitutional monarchy 1.9.3
limited by guarantee 17.6.3 The Crown 1.11.2, 2.3.4
limited by shares 17.6.3
Consumer contracts 7.9, 11.4
management 17.6.8
acceptable quality 7.9.5
members of a company 17.6.7
breach of guarantees 7.9.11
no liability companies 17.6.3
‘consumer’ defined 7.9.3
one-person business as a company 17.6.4
correspondence with description 7.9.4
proprietary companies 17.6.5
correspondence with sample 7.9.7
public companies 17.6.23
express warranties 7.9.10
statutory rules of governance 17.6.12
guarantees 7.9.4–10
taxation of profits 17.6.15
need for regulation 7.9.1
unlimited companies 17.6.3
ownership (good title) 7.9.8
public companies 17.6.5
quiet possession 7.9.8
Companies Auditors and Liquidators spare parts available 7.9.7
Disciplinary Board, Takeovers Panel 17.6.21 statutory guarantees 7.9.2
Compensation orders, non-punitive 11.8.1 suitability for purpose 7.9.6
see also Australian Consumer Law unfair terms 11.4
Compensation schemes 14.1.7 unfair business practices 11.5
unfair terms in consumer contracts 11.4
Compensatory damages 14.1.1–2, 14.2, 14.3 see also Australian Consumer Law; Consumer
claiming in tort law (checklist) 14.9 protection; Goods and services contracts;
common law principles 14.2.2 Terms of contracts; Unethical conduct

554 Index
Consumer (definition) 7.9.3 exchange of consideration 5.3.2

Consumer protection 1.7.1, 7.9 intention to be legally bound 5.3.1
ACL checklist 11.9 letters of comfort 5.3.1
dangerous products 11.7.1 objective approach to ascertaining facts 5.1.9
enforcement 11.7.9, 11.8 Contract law 1.7.1
historical provisions 11.1.2 Contract life cycle 8.1.1
information standards 11.7.7
penalties 11.8.1 Contractual obligations, performance of 8.1,
private actions 11.8.1 8.1.7, 8.3
product bans 11.7.3 divisible contracts 8.3.4
legislative provisions 18.4 enforcement of undischarged obligations 8.6.1
manufacturer’s liability 7.9.2, 11.7.8 late performance 8.4.6
recall of goods 11.7.4 non-performance 8.4.2
reporting deaths or injuries 11.7.6 partial performance 8.4.3
safety defects 11.7.8 reciprocal duties 8.3.3
safety standards 11.3 substantial performance 8.4.4
‘trade or commerce’ requirement 11.2.6 terms implied by operation of law 8.3.2
warning notices 11.7.5 voluntary performance 8.3.1
see also Australian Consumer Law; Consumer see also Breach of contract
contracts; Goods and services contracts Conversion 12.1.5
Contra proferentem 6.3.10 Cooperation in contracts; duty to cooperate 6.5.2
Contract Copyright 16.7, 16.7.2
agreements, non-contractual 5.1.4 expression of ideas may be copyrighted 16.7.2
ambiguous contracts 6.4.4 enforcement of copyright 16.7.2
breach of contract 5.1.6, 8.1.2 ideas cannot be copyrighted 16.7.2
capacity to contract 5.1.3, 5.2 Corporations and Markets Advisory Committee
collateral contracts 6.4.6 17.6.21
consideration 5.2.2
Corpus Iuris Civilis (Compendium of the Civil
contents of a contract 6.1
Law) 1.8.2
deeds 5.2.2
definition 5.1.1 County Court, Victoria 3.8.2
discharge of obligations 5.1.5, 8.3 County Courts 1.11.6
duty to cooperate 6.5.2 Court of Appeal 3.8.2
enforceability 5.1.2, 5.1.6
establishing existence 5.6 Court of Chancery 3.1.3
execution 5.2.2 Court of Criminal Appeal 3.8.2
family members 5.3.1 Court of Petty Sessions 1.11.6, 3.8.2
formal 5.3.2
freedom of contract 6.1.2 Court procedures 3.2
fundamental terms 6.1.6 adversarial, inquisitorial proceedings 3.2.1
informal 5.3.2 civil cases, criminal cases 3.2.2
interpretation of terms 8.2.1 original hearings 3.2.3
making 5.1 appeals 3.2.3
necessaries 5.3.2 Courts
negotiations not necessarily terms 6.1.4 hierarchy 1.11.6, 3.6.2, 3.6.3, 3.8.2
obligations under contract 5.1.2 High Court of Australia 1.11.6
performance 8.1.1 inferior and superior courts 1.11.6
power to bind oneself 5.1.3, 5.3.1 intermediate courts 1.11.6
statutory inclusions 7.1 see also judges
written and oral contracts 6.4 Criminal cases 3.2.2
see also Agreement in contracts; Agreement
Criminal law 1.7.1
to terms, express and implied; Capacity;
Minors; Terms in contracts Crown, the 1.11.2, 2.3.4
Contract formation 5.1.8, 5.1.9
conditional agreements 5.3.1 Damages, their compensatory nature and purpose
consideration 5.3.2 9.2.1
deeds 5.3.2 avoided where no loss 9.2.1
essential elements 5.1.9, 5.3

Index555
duty to mitigate loss, failure of efforts to economic harm 9.2.3

mitigate 9.2.1 effect of 9.2.2
for consequential loss 9.2.1 harm to property 9.2.4
for distress or disappointment 9.2.1 threats or infliction of physical harm 9.2.1
for immediate (direct) loss 9.2.1 see also Vitiating circumstances
for wasted expenses 9.2.1 Duties of the agent 15.5
non-defaulting party 9.2.1 see also Agency
under Australian Consumer Law
11.2.8, 11.3.4, 11.4.5, 11.5.12, 11.6.7, Duty of care 12.13.1, 13.2.1–2
11.7.9, 11.8.1 establishing a breach of duty of care 12.13.3
see also Compensatory damages establishing causation 12.13.3
immunity from liability 13.2.14
Dangerous goods see Safety standards legislative provisions 12.13.4
Deceit 9.1.5, 12.1.5, 12.11 negligent misstatements causing economic
deliberate fraud 12.11.1 loss 13.2.12
indirect fraudulent representation 12.11.2 proceedings under Australian Consumer Law
misrepresentation 12.11.2 12.13.3
necessity to prove loss 12.11.3 remoteness of harm 12.13.6
see also Vitiating circumstances the ‘but for’ test 12.13.3, 13.4.7
Deeds 5.3.2 where harm is purely economic 13.2.11
see also Consideration see also Duty situations and relationships;
Breach of duty of care; Harm
Defamation 12.1.5, 12.12
protection of reputation 12.12.1 Duty situations and relationships 12.13.3,
legislation based on common law (see also 13.2.9–10, 13.2.10–13
Table of Legislation) 12.12.1 ‘abnormal’ plaintiffs 13.2.12
requirement of publication 12.12.3 employees 13.2.12
defence against defamation 12.12.4 occupiers 13.2.12
privilege 12.12.4 product liability 13.2.12
recognised situations 13.2.10
Defences 13.5 relationships subject to special rules 13.2.12
assumption of risk of harm 13.5.2 rescuers 13.2.12
contributory negligence 13.5.1 statutory authorities 13.2.12
legislative provisions 13.5.3 ‘unborn’ plaintiff 13.2.12
risk of harm in recreational activities 13.5.4
volenti non fit injuria 13.5.2
see also Negligence; Harm Ejusdem generis 2.6.6
Delivery notes as contractual documents 6.3.6 Electronic communication 5.3.3
Delivery of goods sold 7.2.1, 7.3.1 by email 5.3.3
see also Sale of goods contracts; Generic terms Employment contracts, generic terms 6.6.4
Designs see Patents and designs Enforcement of ACL see Australian Consumer
Detinue 12.1.5 Law
and property rights 16.9.1 Enforcement of property rights 16.9
definition 12.5.1 conversion 16.9.1
remedies 12.5.2 criminal offences involving property 16.9.2
Directors; duties of directors 17.6.7, 17.6.9 detinue 16.9.1
payment of directors 17.6.11 nuisance 16.9.1
single director companies 17.6.10 protection of rights in tort law 16.9.1
regulations affecting the use of property 16.9.2
Discharge of contractual duties 5.1.5, 8.3 trespass to chattels 16.9.1
by frustration 8.7.3, 8.7.6 trespass to land 16.9.1
see also Contractual obligations, performance
of Equitable interest 5.4.3
exception to privity 5.4.3
District Court 1.11.6, 3.8.2 insurance contracts 5.4.3
Divisible contracts 8.1.6, 8.3.4 Equitable remedies for breach of contract 9.3
Doctrine of ‘separation of powers’ 1.11.1 general limitations 9.3.1
Doctrine of tenure 16.5.1 injunctions 9.3.3
personal services 9.3.2
Duress 9.1.5, 9.2, 11.5.11
specific performance 9.3.2

556 Index
Equitable rules of contract construction, agreed remedies 9.5.1

legislative provisions 18.5 Frustration of contracts, doctrine of 8.7, 8.7.3,
Equity 3.1.3, 3.6.1 8.7.4, 8.7.5
Essential elements of contract formation 5.2 discharge by frustration 8.7.3, 8.7.6
conditional agreements 5.3.1, 5.3.3 excuses only outstanding obligations 8.7.6
exchange of consideration 5.2.2 frustrating events 8.7.5
intention to be legally bound 5.2.1 legislative provisions 8.7.7, 18.6
letters of comfort 5.3.1 not an excuse if deliberate 8.7.4
objective approach to ascertaining facts 5.1.9 see also Breach of contract
Estoppel, doctrine of 5.5, 5.5.1 Fundamental terms of contract 6.1.6, 8.1.5
authority by estoppel 15.3.5
ordinary estoppel 5.5.3 General partnerships 17.4.2
promissory (equitable) estoppel 5.5.3 agency powers of partners 17.4.12
relief from promissory estoppel 5.5.3 changing the members of a partnership
Ethics 1.5 17.4.17
business settings 1.5.3 contributions by partners 17.4.7
law and ethics 1.5.3 creating a general partnership 17.4.4
nature of 1.5.1 dissolving a partnership 17.4.16
professional settings 1.5.2 duties of partners 17.4.14
statutory protections, see Unethical conduct employment of workers 17.4.15
Ex abundanti cautela 2.6.6 legal liability of partners 17.4.10
limitation on size of general partnerships
Exceptions to privity 5.4.3 17.4.5
insurance 5.4.3 no legal identity 17.4.6
agency 5.4.4 partners’ liability in tort and criminal law
Exchange of pleadings in civil cases 3.2.4 17.4.13
Exclusion clauses 6.3.9 rights of partners to share in profits 17.4.8
taxation requirements 17.4.9
Executive, the 1.11.3
Generalia specialibus non derogant 2.6.6
Expressio unius est exclusio alterius 2.6.6
Generic terms 7.1–7.10
bailment contracts 6.6.3
False imprisonment 12.1.5, 12.8 employment contracts 6.6.4
means of constraint 12.8.2 see also Australian Consumer Law; Consumer
possibility of escape 12.8.3 contracts; Goods and services contracts
trespass to the person 12.8.1
Good faith 6.5.3, 11.3.3, 15.5.6, 15.8.3, 13.2.12,
unlawful deprivation of liberty 12.8.1
17.3.6, 17.4.14, 17.6.9
False or misleading statements 11.5.2
Goods and services contracts 7.1–7.10, 9.4
Family Court 1.11.6 checklist of issues 7.10
Federal Circuit Court 1.11.6, 3.8.2 contracting out of statutory terms 7.8, 8.8.1
Federal Court of Australia 1.11.6, 3.8.2 consumer contracts 7.9
dealers in goods 7.7.1
Federal Magistrates Court 1.11.6 delivery terms 7.2.1, 7.3.1
Federal, state and territory courts 1.11.6 exclusion of terms by agreement 7.8
Fiduciary relationships, examples of 10.3.2 gap-filling 7.1.1
see also Undue influence; Unethical conduct; generic terms 7.1–7.10
Vitiating circumstances goods as identified 7.2.1
guarantee of property rights 7.5.1
Financial Reporting Council 17.6.21 hidden defects 7.7.3, 8.4.5, 9.2.2
Financial Reporting Panel 17.6.21 manufacturer’s liability 7.9.12
Finding legislation 2.5.1 merchantable quality 7.7.2, 7.7.3
need for terms 7.1.1
Foreseeability of harm12.13.3, 13.2.3–4, 13.2.6–7
ownership (right to sell) 7.5.1
psychiatric harm 13.2.8
quality 7.7
purely economic harm 12.13.3, 13.2.2
quiet possession 7.5
‘reasonable person’ concept 13.2.5
remedies, major/non-major failures 7.9.11
Four corners rule 6.3.4, 8.2.7 return to supplier 7.9.11
Freedom of contract, doctrine of 7.8.1, 9.5.1 right to inspect and reject 7.6.1, 7.9.11

Index557
sale by description 7.2 invalidation, checklist 10.9

sale by sample 7.7.5 public policy changes 10.7.3
suitability for purpose 7.7.4 restraint of trade 10.7.2
see also Consumer contracts; Terms of statutory illegality 10.7.4
contracts see also Vitiating circumstance
Goods and Services Tax (GST) 17.2.8 Implied terms 6.5
Government Gazette 2.3.5 ad hoc implication 6.3.7
see also Consumer contracts; Generic terms;
Government in Australia 1.9 Goods and services contracts; Terms of
The Crown 1.11.2 contracts
The Executive 1.11.3
legislatures 1.11.4 Indexes of cases 4.4.2
meaning of ‘government’ 1.10.1 Indexes of legislation 4.4.1
structure of government 1.10 Indigenous custom and law 1.8.4, 1.9.1
Guarantees in consumer transactions see Injunctions 9.3.3, 14.1.1, 14.6
Australian Consumer Law; Generic terms; anticipatory breach 9.3.3
Goods and services contracts and specific performance 9.3.3
definition 14.6.1
Harassment or coercion 11.5.11 limitations 9.3.3
nature of 9.3.3
Harm 13.3.1 remedies for breach 9.3.3
actionable kinds of harm 13.4.1 to enforce ACL, see Australian Consumer
actual harm 13.4.4 Law
assessing full extent 13.4.9 to enforce negative promises 9.3.3
causal link to breach of duty of care 13.4.5 types of 14.6.2
causation of harm 13.4 see also Remedies
‘eggshell skull’ rule 13.4.14
foreseeability of harm 13.3.2–3, 13.4.12–13 Injurious goods see Safety standards
harm through lost opportunity 13.4.2 Innominate terms in a contract 6.2.6, 8.5.3
legislative provisions 13.4.6 termination available for breach 9.2.2
multiple causes of harm 13.4.8 Inspection of goods sold 6.6.10
new intervening causes 13.4.11 see also Sale of goods contracts; Generic terms
no liability where not foreseeable 13.4.13–14
omissions that cause harm 13.4.10 Insurance contracts 5.4.3
reasonable persons, avoidance of harm by third party rights, legislative provisions 18.9
13.3.4 Intangible property, rights in 16.7
remoteness of harm 12.13.6 see also Copyright; Patents and designs; Trade
practicality of avoiding harm 13.3.7 marks; intellectual property
probability of harm 13.3.5 Intention to be legally bound 5.1
seriousness of harm 13.3.4, 13.3.6
Intermediate courts 1.11.6
single and combined causes 13.4.7
the ‘but for’ test 13.4.7 International law 1.7.1
trivial harm 13.3.6, 13.4.3 Interpretation Acts see Table of legislation
where harm is purely economic 13.2.11 Interpreting legislation 2.6
see also Duty of care; Breach of duty of care common law principles 2.6.6
Harm to property 14.4 legislative provisions 18.7
assessing loss 14.4.1 ‘literal’ approach 2.6.2
market value 14.4.1 relevance of legislature’s purpose 2.6.4
repairs and restoration of property 14.4.2 statutory rules 2.6.5, 7.1
consequential losses 14.4.3 specially defined words 2.6.3
see also Compensatory damages see also Presumptions in interpretation of Acts
High Court of Australia 1.11.6, 3.6.3, 3.8.2 Interpreting the terms of a contract 8.2
House of Lords 3.3.2 commercial realism 8.2.3
intention of parties 8.2.2
House of Representatives 1.11.4, 2.1.3
post-contractual behaviour 8.2.4
Invitation to treat 5.3.3
Illegal contracts, transactions 10.7
cannot be enforced 10.7.1
public policy, general notion 10.7.2 Joint ventures 17.5

558 Index
Joint ventures (cont) Legislative powers, exclusive 1.11.5, 2.2.3

concept of a joint venture 17.5.1 Legislative powers, shared 1.11.5, 2.2.3
distinguished from partnerships 17.5.2 conflicts arising from 1.11.5
rights and duties 17.5.3
Legislative process 2.3
Judges 3.1.1 ACT and NT legislation 2.3.4
decision-making process 1.11.7 commencement 2.3.5
power to make law 3.1.1 procedure 2.3.3
opportunity to make law 3.1.2 Royal assent 2.3.4
Jurisdiction 3.1.1 see also Bills
Jurisprudence, as category 1.7 Legislative provisions, selected 18.1
Australian constitutions 18.2
communication by email 18.3
Law consumer protection 18.4
Australian system 1.9, 1.10, 1.11 equitable rules of contract construction 18.5
behaviour regulation 1.3 frustrated contracts 18.6
categories and terminology 1.7 interpretation of legislation 18.7
classification and organisation 1.6, 4.2.1 sale of goods 18.8
concept of law 1.2 third party rights under insurance contracts
institutions and structure 1.10, 1.11 18.9
legal systems 1.8 tort law 18.10
nature and purpose 1.1
relationship with ethics 1.5 Legislatures 1.11.4, 2.1.3
relationship with justice 1.4 bicameral legislature 1.11.4, 2.1.3
sources 4.2 Commonwealth and state legislatures 1.11.4
Law reports, collections 3.3, 3.3.2 Letters of comfort 5.3.1
Commonwealth Law Reports 3.5.1 Liability for animals 12.1.5, 12.10
nominate reports 3.3.2 damage done by cattle 12.10.1
New South Wales Law Reports (NSWLR) damage by other domesticated animals12.10.2
3.3.2 damage by dogs 12.10.3
Queensland Reports (Qd R) 3.3.2 damage by wild animals 12.10.4
Appeal Cases (AC) 3.3.2 Liability of manufacturers 7.9.12
All England Law Reports (All ER) 3.3.2 safety defects 11.7.8
Weekly Law Reports (WLR) 3.3.2
Lien on property 15.6.3, 16.4.7, 16.8.2
Law reports, finding information 3.4, 3.4.1, 3.5.1
Limited partnerships 17.4.18
Law reports, parts of 3.4.2 dissolution of limited partnerships 17.4.21
Legal capacity 5.1.3 general partners and limited partners 17.4.18
Legal databases 4.3, 4.8 legal liability of limited partners 17.4.20
see also Australasian Legal Information registration of limited partnerships 17.4.19
Institute Liquidated damages 9.5.2
Leges posteriores priores contrarias abrogant distinguished from penalty clauses 9.5.3
2.6.6 pre-estimate of damages 9.5.2
Legislation 2.1, 2.5 Local Court 3.8.2
application to cases 2.7 Local Court, state 1.11.6
citing and finding 2.5 Local government 1.10.5, 1.11.5, 1.11.9
conflicting provisions 1.11.5
legislative process 2.3.1 Lower courts 1.11.6
selected examples 18.1 County Courts 1.11.6
structure of an Act 2.4 Court of Petty Sessions 1.11.6
territory laws, Commonwealth overruling District Courts 1.11.6
1.11.5, 2.2.2 Local Court, state 1.11.6
see also interpreting legislation Magistrates Court, state 1.11.6
Legislative Assemblies 1.11.4, 2.1.3 Lower House 1.11.4, 1.11.10, 2.1.3, 2.3.3
Legislative Councils 1.11.4, 2.1.3
Legislative powers 2.2 Magistrates Court 1.11.6, 3.8.2
Commonwealth 2.2.1 Manufacturer’s liability 7.9.12, 11.7.8
states and territories 2.2.1 Merchantable quality 7.2, 7.3

Index559
see also Sale of goods contracts; Generic terms categories of conduct and harm 13.2.2
Minors essential elements 13.1.1
capacity 5.1.3, 5.3.1, 5.3.2, 5.3.4 establishing liability (checklist) 13.6
contracts for necessaries 5.3.2 foreseeability of harm 12.13.3, 13.2.3–4,
contracts may be avoided 5.3.3 13.2.6–7
definition 5.3.2 purely economic harm 12.13.3, 13.2.2, 13.2.11
legislative provisions 5.3.4 ‘reasonable person’ concept 13.2.5
relationships subject to special rules 13.2.12
Misleading conduct 9.1.5, 10.2 sources of law of negligence 13.1.1
applies to natural persons, artificial persons statutory provisions 13.1.1
11.2.7 types of conduct giving rise to harm 12.13.2,
as to the nature of goods or services 11.5.4 13.2.2
concept of misleading conduct 11.2.2 requirements for establishing liability 12.13.3,
definition of 11.2.2 13.2.1
disclaimers 11.2.5 remedies 12.13.7
does not apply to information providers 11.2.7 see also Duty of care; Duty situations and
intention not required 11.2.3 relationships; Harm; Defences; Remedies
intention as evidence 11.2.4
must take place in trade or commerce 11.2.6 Nemo dat quod non habet 16.6.2
protections against misleading conduct in New South Wales Law Reports (NSWLR) 3.3.2
ACL 11.2, 11.1.2 Non-compensatory damages 14.1.1, 14.1.3, 14.5
see also Vitiating circumstances aggravated damages 14.5.5
Misrepresentation; definition of ‘representation’ contemptuous damages 14.5.3
10.6, 10.6.1 exemplary damages 14.5.4
deliberate misrepresentation 10.6.2 legislative provisions 14.5.6
negligent misrepresentation 10.6.3 nominal damages 14.5.2
see also Negligence types of non-compensatory damages 14.1.3
Mistake 9.1.5, 9.5, 9.5.1 see also Remedies
common mistake 9.5.3 Noscitur a sociis 2.6.6
mutual mistake leading to no objective Novus actus interveniens 13.4.3
agreement 9.5.2
objective agreement based on common error
9.5.3 Obiter dicta 3.9.2
objective conditionality 9.5.3 Offer 5.3.3
unilateral mistake 9.5.4 advertisements and displays not generally
see also Vitiating circumstances offers 5.3.3
Mistakes in terms 6.4.5 counter-offer 5.3.3
rectification of error 6.4.5 expiry of offer 5.3.3
Moral and religious laws 1.2 identifying those to whom offer is made 5.3.3
invitation to treat 5.3.3
Mortgages 16.8.1 withdrawal of offer 5.3.3
Torrens land 16.8.1
‘Officious bystander’ test 6.3.7
Multiple citations 3.5.1
Oral contracts 6.4.1
Multiple pricing 11.5.10 see also Written and oral contracts
Ordinary estoppel 5.5.2
National private law 1.7.1 see also Estoppel
agency law 1.7.1 Origins of Australian law 1.8
civil law 1.7.1
contract law 1.7.1 Other remedies in tort 14.1.1, 14.1.7
consumer protection law 1.7.1 declaration of rights 14.8.1
corporations law 1.7.1 return of property 14.8.1
property law 1.7.1 self-help 14.8.1
tort law 1.7.1 special circumstances 14.8.1
National public law 1.7.1 Ownership and quiet possession 6.6.9, 7.5, 11.1.2
administrative law 1.7.1 see also Generic terms; Goods and services
constitutional law 1.7.1 contracts; Australian Consumer Law
criminal law 1.7.1 Ownership and risk 8.7.2
Negligence 12.1.5, 12.13, 13.1

560 Index
Parol evidence rule 6.4.2, 6.4.4–6, 6.7.6 ‘derivative’ acquisition of property 16.2.2
ambiguous contracts 6.4.4 distinguished from ‘personal’ rights 16.2.1
collateral contracts 6.4.6 intangible property 16.3.3, 16.7
mistakes 6.4.5 ‘original’ acquisition of property 16.2.2
rectification of error 6.4.5 tangible property 16.3.4
Partnerships 17.4 Property rights, different kinds 16.4
concept of a partnership 17.4.1 chattel securities 16.8.2
general and limited partnerships 17.4.2 full ownership 16.4.1
Patents and designs 16.7, 16.7.3 restricted ownership 16.4.2
bare ownership 16.4.3
Payment, wrongly accepted 11.5.6 possession with rights of use and enjoyment
Penalties for contravention of ACL see Australian 16.4.4
Consumer Law; Civil pecuniary penalties; Property, different kinds 16.3
Remedies intangible property 16.3.3, 16.7
Political parties 1.11.10 immoveable or fixed property 16.3.1
Power of attorney 15.3.2, 15.11.1 moveable property 16.3.2
money 16.3.4
Precedent, doctrine of 3.1.1, 3.7, 3.7.1
tangible property 16.3.4, 16.7
binding precedents 3.8.1
persuasive precedents 3.8.1 Proximity operators 4.7.3
power of judges to make law 3.1.1–2 Public companies 17.6.23, 17.6.4
seniority of previous court 3.7.1 conversion of a private to a public company
Presumptions in interpretation of Acts 2.6.7 17.6.25
consistency with Constitution 2.6.7 listed companies 17.6.27
does not bind the Crown 2.6.7 special provisions 17.6.26
enforcement of legal rights 2.6.7 Public law, see National public law
laws may interfere with property rights 2.6.7 Public service 1.11.8
natural justice 2.6.7
non-retrospective 2.6.7 Puffery distinguished from terms 6.2.3
penal provisions are construed strictly 2.6.7 Purpose section (of Act) 2.4.1
Private law, see National private law see also Structure of an Act
Private nuisance 12.1.5, 12.9, 12.9.1 Pyramid schemes and referral selling 11.5.9
interference must be unreasonable and
substantial 12.9.2 Quality of goods see Goods and services
peaceful use and enjoyment of property 12.9.1 contracts; Terms of a contract
when giving information and advice 12.13.3
Queensland Reports (Qd R) 3.3.2
Privity of contract, doctrine of 5.4, 5.4.2, 15.7.4
agency 5.4.4
exceptions 5.4.3, 15.7.4 Ratio decidendi of a case 3.9.1
insurance 5.4.3, 15.7.4 Recall of goods 11.7.4
Privy Council 3.3.2 Referral selling 11.5.9
Promise 5.3.3 Relevance of legislature’s purpose to
illusory promises 5.3.3 interpretation of Acts 2.6.4
certainty of promise 5.3.3
Remedies
Promise to third party as consideration 5.2.2 ACL, by private persons 11.8.1
Promissory estoppel 5.5, 5.5.3 ACL non-punitive and penalty orders 11.8.1
Property law 1.7.1, 16.1 agreed, for breach of contract 9.1.1, 9.5
approach to questions (checklist) 16.10 common law 9.1.1, 9.2
different kinds of property 16.3 compensation schemes 14.1.7
different kinds of property rights 16.4 compensatory damages 14.1.1–2
distinguished from ‘personal’ rights 16.2.1 damages 9.2.1
foundational concepts 16.2 equitable 9.3
property rights defined 16.2.1 goods, major/non-major failures 7.9.11
using property as security 16.8 injunctions 9.3.3, 14.1.1
non-compensatory damages 14.1.1
Property rights, definition 16.2.1 specific performance 9.3.2
as security 16.8

Index561
statutory, see Australian Consumer Law; liens 17.6.19

Goods and services contracts mortgage specific property 17.6.19
termination of performance 9.2.2 Senate 1.11.4, 2.1.3
tort 14.1, 14.1.1, 14.1.7
restitution 14.7 Seniority of previous court 3.7.1
Res ipsa loquitur 13.3.11 Similarity of material facts 3.7.1
Rescinding a transaction; rescission 9.1.3 Sole traders 17.2
deliberate misrepresentation 10.6.2 employees 17.2.5
see also Void and voidable transactions entitlement to profits 17.2.6
GST collection 17.2.8
Restitutio in integrum 10.1.3 legal rights and liabilities 17.2.3
Restitution 14.7 raising capital 17.2.4
distinguished from compensation 14.7.1 transforming a business structure 17.2.9
unjust enrichment 14.7.2 use of identifying numbers 17.2.7
see also Remedies in tort Sources of law 2.1, 4.2
Restraint of trade 10.7.2 primary sources; secondary sources 4.2.1
general notion of public policy 10.6.2 see also case law; legislation
Rights 1.3 Specially defined words in interpretation of Acts
see also Rights and duties 1.3 2.6.3
Rights of third parties to contract 5.4.2 Specific performance 9.3.2
equitable interest creates exception to privity and injunctions 9.3.3
5.4.3 causes undue hardship 9.3.2
Risk 8.7, 8.7.2 damages not an adequate remedy 9.3.2
frustrating events 8.7.5 limited availability 9.3.2
ownership and risk 8.7.2 personal services 9.3.2
remedy for breach of contract 8.6.1
Royal assent 1.11.2, 2.3.4, 2.4.1 see also Termination of performance; Breach
see also Structure of an Act of contract
State Courts of Appeal 1.11.6
Safety standards 11.7 State legislatures 1.11.4, 2.1.3
bans on injurious goods 11.7.3 Legislative Council 1.11.4, 2.1.3
enforcement 11.8.9 Legislative Assembly 1.11.4, 2.1.3
information standards 11.7.7
liability of manufacturers for safety defects Statutory bodies 1.11.8
11.7.8 Statutory guarantees in consumer transactions see
notice of death, injury or illness 11.7.6 Australian Consumer Law; Generic terms;
recall of goods 11.7.4 Goods and services contracts
regulation of dangerous products 11.7.1 Statutory illegality 10.7.4
setting safety standards 11.7.2
warning notices 11.7.5 Statutory remedies, breach of contract9.1.1, 9.1.2,
see also Australian Consumer Law 9.4
Sale of goods contracts see Goods and services Structure of an Act 2.4, 2.4.1
contracts Suitability for purpose 6.7.5
Sale of goods, legislative provisions 18.8 see also Sale of goods contracts; Generic terms
English Sales of Goods Act 18.8.1 Supervision of companies 17.6.21
case law since enactment of legislation 18.8.2 Australian Accounting Standards Board
further amendments and legislation 18.8.3 17.6.21
comparative table of selected sections 18.8.4 Australian Securities and Investments
Search techniques, legal sources 4.5 Commission (ASIC) 17.6.21
adjacency 4.5.2 Corporations Act 17.6.21
advanced searching 4.7 Corporations and Markets Advisory
databases 4.3, 4.8 Committee 17.6.21
Boolean searches 4.5.3 Companies Auditors and Liquidators
key words, phrases 4.5.1 Disciplinary Board, Takeovers Panel
17.6.21
Securing repayment of debts 17.6.19 Financial Reporting Council 17.6.21
charges fixed over assets 17.6.19 Financial Reporting Panel 17.6.21
floating charges 17.6.20

562 Index
Supreme Court 3.8.2 conversion 12.1.5, 16.9.1

creation of obligations in tort 12.1.1
deceit 12.1.5
Tangible property 16.7 defamation 12.1.5
‘chose in possession’ 16.7.1 detinue 12.1.5, 16.9.1
includes both land and chattels 16.7 false imprisonment 12.1.5
money can be tangible property 16.3.4 indirect fraudulent representations 12.11.2
Termination of agency 15.11.1 legislative provisions 18.10
see also Agency liability in tort 12.1.5
Termination of performance, nature and nature of obligations in tort 12.1.2
availability 9.2.2 negligence 12.1.5, 13.1–6
for breach of condition 9.2.2 private law 12.1.3
private nuisance 12.1.5, 16.9.1
Terms of contracts 6.1.3, 6.2.1, 6.5–7
property rights, enforcement 16.9
agreed to by reference 6.3.3
trespass to land or chattels 12.1.5, 16.9.1
conditions 6.2.5
sources of tort law 12.1.4
court-imposed 8.1.2
wrongful conduct 12.1.5
delivery notes 6.3.6
see also Remedies
duty to cooperate 6.5.2
exclusion clauses 6.3.4 Tortfeasors: joint, several, concurrent,
exclusion of statutory terms 6.7.7 independent 14.1.6
express and implied terms 6.3, 6.3.1, 6.5.1 Trade marks 16.7.1
final, when contract is created 6.3.1 infringement of trade marks 16.7.1
fundamental terms 6.1.6, 6.2.5 legal protection of trade marks 16.7.1
gap-filling 6.6 registering a trade mark 16.7.1
generic terms 6.6.1 ‘Trade or commerce’ requirement 11.2.6
good faith 6.5.1, 6.5.3
goods and services 7.1–10 Trespass to land or chattels 12.1.5
implied ad hoc 6.3.7 Trespass to the person 12.8.1
implied by law 6.5 Truncation 4.7.1
importance, relative 6.1.6, 6.2.5
innominate terms 6.2.6, 7., 8.5.3 Trusts 17.3
limitations on evidence to prove 6.3.8 concept of a trust 17.3.1
mistakes in terms 6.4.5 creating a trust 17.3.3
notice of terms 6.3.4 beneficiary 17.3.1
objective agreement 6.3.1 business structure 17.3.2
‘officious bystander’ test 6.3.7 deed of trust 17.3.3
opinions 6.2.2 distribution of income 17.3.8
negotiations 6.1.4, 6.2.1 duties of trustee 17.3.6
parol evidence rule 6.4.2, 6.4.4 legislation 17.3.4
proving terms 6.1.5 liability of trustee 17.3.7
puffery 6.2.3 ownership of trust assets 17.3.5
quality of goods 6.7 settlor 17.3.1
regulation of terms 10.4.1 taxation requirements 17.3.10
representations 6.2.4 trustee 17.3.1
unfair terms 10.4 trustee as beneficiary 17.3.9
universal terms 5.3.3, 6.5.1 Types of company 17.6.3
warranties 6.2.5 Types of tort 12.1.5
written documents 6.3.5
see also Generic terms; Conditions;
Warranties; Interpretation Unconscionable conduct 10.1.5, 10.4, 10.4.4, 11.3
concept of ‘good conscience’ 10.4.1
Torrens title 16.5.1, 16.8.1
disadvantage of spouse who guarantees
legislative provisions 16.5.1
partner’s debts 10.4.4
registration of mortgage 16.8.1
protection against unconscionable dealing in
Tort law 1.7.1, 12.1 ACL 11.3.1
animals 12.1.5 scope of unconscionable conduct in ACL
assault 12.1.5 11.3.2
battery 12.1.5 taking advantage 10.4.2–3
broadly defined conduct 12.1.5 unilateral mistake 10.5.4

Index563
see also Vitiating circumstances; Australian regulation of marketing to consumers in their

Consumer Law home 11.6.1
Undue influence 10.1.5, 10.3 restricted times for calls 11.6.3
fiduciary relationships 10.3.2 written copy of agreement to be supplied
presumption of controlling influence 10.3.2 11.7.6
proof of controlling influence 10.3.3 Upper House 2.1.3
relationships that give rise to controlling Using property as a security 16.8
influence 10.3.1 registered mortgages of land 16.8.1
see also Vitiating circumstances see also Chattel securities
Unethical conduct 11.1–9
need for legislation 11.1
see also Australian Consumer law; Consumer Vicarious liability 12.14, 12.14.1
contracts; Goods and services contracts employees and independent contractors
12.14.2–3
Unfair business practices 11.5 establishing liability for negligence 12.15
see also Australian Consumer Law
bait advertising 11.5.5 Vitiating circumstances 10.1.5
civil pecuniary penalties 11.5.12 deceit, duress, illegality 10.1.5
enforcement 11.5.12 misleading conduct 10.1.5, 11.2
false or misleading statements 11.5.2 mistake 10.1.5
harassment or coercion 11.5.11 restraint of trade 10.7.2
misleading conduct as to the nature of goods unconscionable conduct 10.1.5, 11.3
or services 11.5.4 undue influence 10.1.5
multiple pricing 11.5.10 Void and voidable transactions, ab initio 10.1.2–3,
offering gifts and prizes 11.5.3 10.6.2
private remedies 11.5.12 Australian Consumer Law 9.8.1
pyramid schemes and referral selling 11.5.9 restraint of trade 10.7.2
unconscionable conduct 11.3 Volenti non fit injuria 13.5.2
unsolicited agreements 11.6
unsolicited cards 11.5.7
unsolicited goods 11.5.8 Warning notices 11.7.5
wrongly accepting payment 11.5.6 notice of death, injury or illness 11.7.6
liability of manufacturers for safety defects
Unfair terms in consumer contracts 11.4
11.7.8
definition 11.4.4
protection against unfair terms 11.5 Warranties in a contract 6.2.5, 8.1.5, 8.5.2
regulation of terms 11.4.1 Weekly Law Reports (WLR) 3.3.2
see also Australian Consumer Law; Consumer Western European legal systems 1.8
contracts; Goods and services contracts
Winding up a company 17.6.22
Universal terms 5.3.3 appointment of liquidator 17.6.22
Universally implied terms 6.5.1 compulsory 17.6.22
duty to cooperate 6.5.2 voluntary 17.6.22
good faith 6.5.3 Written and oral contracts 6.4
implied by law 6.5.1 parol evidence rule 6.4.2, 6.4.4
see also Consumer contracts; Goods and need not be wholly written 6.4.3
services contracts; Terms of contracts
Wrongful conduct 12.1.5
Unsolicited cards, goods 11.5.7–8 see also Tort law
Unsolicited consumer agreements 11.6 Wrongful death 14.3
compliance with request to leave 11.6.5 legislative provisions 14.3.1
enforcement 11.7.7 loss of financial support 14.3.2
identifying unsolicited consumer statutory rights to compensation 14.3.1
agreements110.7.2 survival of deceased’s claims for injury before
no waiver of rights permitted 11.7.8 death 14.3.3
obligation to provide specified information
11.7.4 Wrongly accepting payment 11.5.6

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FIRST

ABOUT THE AUTHORS

HOW TO USE FIRST PRINCIPLES OF BUSINESS

HOW TO ACCESS THE ESTUDY MODULES

Chapter 1 The Organisation of Law and Government in Australia

Chapter 2 Sources of Law: Legislation

Chapter 3 Sources of Law: Case Law

Law Reports 3.3

Chapter 4 Finding Law Online

Chapter 5 Making a Contract

Chapter 6 The Contents of a Contract

Proving the Existence of Agreed Terms 6.4

Chapter 7 Statutory Provisions Affecting Contracts for Goods and Services

Chapter 8 Performance and Breach of Contract

Chapter 9 Remedies for Breach of Contract

Equitable Remedies 9.3

Chapter 10 Circumstances that May Invalidate a Legal Transaction

Chapter 11 Statutory Protection Against Unethical Conduct

Chapter 12 The Scope of Tort Law

Chapter 13 The Tort of Negligence

Chapter 14 Remedies in Tort

Chapter 15 The Law of Agency

A Principal’s Duties to their Agent 15.6

Chapter 16 Property Law

Chapter 17 Business Organisations

Chapter 18 Selected Legislative Provisions

Interpretation of Legislation 18.7

TABLE OF SELECTED LAW REPORTS SERIES

B&Ad Barnewall and Adolphus’s, KB 1830–​1834

CAR Commonwealth Arbitration Reports

DCR (NSW) District Court Reports (NSW)

E&B Ellis & Blackburn, QB 1852–​1858

F3d Federal Reporter, Third Series

H&C Hurlstone and Coltman’s Exchequer. 1862–​1866

IAS Industrial Arbitration Service

LCC (NSW) Land Appeal Court Cases (NSW)

M&W Meeson and Welsby’s Exchequer. 1836–​1847

NSWLR New South Wales Law Reports. 1825–​1900

NTLR Northern Territory Law Reports. 1992 onwards

P Probate Division. 1891 onwards

QB Queen’s Bench Reports. 1841–​1852

RPC Reports of Patent Cases

SAIR South Australian Industrial Reports

TLR Times Law Reports. 1855–​1952

US United States Reports

VLR Victorian Law Reports. 1875 onwards

W&W Wyatt and Webb’s Victorian Reports. 1861–​1863

TABLE OF AUTHORISED LAW REPORTS

TABLE OF MEDIUM NEUTRAL CITATIONS

The Organisation of Law and Government

[1.2] The Concept of Law

[1.3] Law as a Regulator of Behaviour

[1.4] ‘Law’ and ‘Justice’

First Principles on Business Law 1.4

1.4.1(b) Balancing justice and predictability

[1.5] ‘Law’ and ‘Ethics’

[1.6] The Classification and Organisation of Law

First Principles on Business Law 1.6

[1.7] The Anatomy of Law

Table 1.1 Categories of law

Category of law Description 1

International law Agreements (treaties) between sovereign

National law Law as applied within the borders of a

B&Ad Barnewall and Adolphus’s, KB 1830–1834

E&B Ellis & Blackburn, QB 1852–1858

H&C Hurlstone and Coltman’s Exchequer. 1862–1866

M&W Meeson and Welsby’s Exchequer. 1836–1847

NSWLR New South Wales Law Reports. 1825–1900

QB Queen’s Bench Reports. 1841–1852

TLR Times Law Reports. 1855–1952

W&W Wyatt and Webb’s Victorian Reports. 1861–1863

First Principles on Business Law 1.4

First Principles on Business Law 1.6

First Principles on Business Law 1.7

First Principles on Business Law 1.9

Figure 1.1 Map of the Australian states and self-governing territories

First Principles on Business Law 1.10

First Principles on Business Law 1.11

representative is called a Governor. As the Queen’s representatives, the Governor-General

First Principles on Business Law 1.11

First Principles on Business Law 1.11

First Principles on Business Law 1.11

First Principles on Business Law 1.12

First Principles on Business Law 2.2

First Principles on Business Law 2.3

First Principles on Business Law 2.3

First Principles on Business Law 2.4

First Principles on Business Law 2.4

First Principles on Business Law 2.6

First Principles on Business Law 2.6