Reading Guide
Law in Commerce
Second Edition
by
Brendan Sweeney and Jennifer O’Reilly
1 The Australian Legal System 1
What is law? 1
Sources of law 2
Parliamentary law 2
A very short history of modern Australia 2
Federalism 3
Jurisdictional difficulties 4
Finding and referring to an Act of Parliament 5
The doctrine of the separation of powers 5
Interpreting a statute 7
Judge-made law 8
Stare decisis 8
Finding case law 9
Law reporting and the Internet 10
Common law and equity 10
Interpreting the law from a case 11
Types of law 12
The judiciary, the courts and the parties 12
A hypothetical dispute 13
Law in commerce 16
Contracts 16
Torts and similar statutory obligations 16
Agency, partnerships, companies and trusts 17
Why study the law? 17
Questions 18
2 Making the Law — Liability for Defective Products 20
Liability for negligence 21
Donoghue v Stevenson [1932] 21
Step 1 — When is a duty of care owed? 22
Duty of care and liability for products — do manufacturers owe a duty to
consumers? 23
Levi v Colgate-Palmolive Pty Ltd (1941) 23
Duty of care — do manufacturers owe a duty of care to third parties? 23
Duty of care — do distributors owe a duty of care? 24
Duty of care and liability for services 24
Duty of care and the obligations of property owners 24
Australian Safeway Stores Pty Ltd v Zaluzna (1987) 25
Duty of care and failing to act 25
Modbury Triangle Shopping Centre Pty Ltd v Anzil [2000] 25
Club Italia (Geelong) Inc v Ritchie (2001) 26
Duty of care and the obligations of road users 26
Duty of care and liability for psychological injury (mental harm) 27
Jaensch v Coffey (1985) 27
Tame v New South Wales; Annetts v Australian Stations Pty Ltd (2002) 27
Annets v Australian Stations Pty Ltd (2002) 28
Duty of care and no physical damage — can a duty be owed for purely
economic loss? 28
Hill (t/a R F Hill & Associates) v Van Erp (1997) 30
Perre v Apand Pty Ltd (1999) 30
Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] 32
Step 2 — What standard of care is owed? 33
Balancing risks, consequences and costs 33
Romeo v Conservation Commission of the Northern Territory (1998) 34
Standard of care and the design of goods 35
O’Dwyer v Leo Buring Pty Ltd [1996] 35
Rasbora Ltd v J C L Marine Ltd (1977) 35
Standard of care and the production of goods 36
Grant v Australian Knitting Mills [1935] 36
Standard of care and the packaging of products 37
Adelaide Chemical & Fertiliser Co v Carlyle (1940) 37
Standard of care and the proper labelling of products 37
Standard of care and the distributor/retailer 38
Standard of care and the delivery of services 38
Woods v Multi-Sport Holdings Pty Ltd (2002) 38
Unexplained accidents — the doctrine of res ipsa loquitur 39
Step 3 — Causation, remoteness of damage, amount of damages 39
Causation 39
March v Stramare Pty Ltd (1991) 40
Chapel v Hart (1998) 40
Remoteness 41
Overseas Tankship (UK) Ltd v The Miller Steamship Co Pty Ltd
(The Wagon Mound No2) [1966 41
Assessing damages 41
Defences 42
Contributory negligence 42
The plaintiff assumed the risk 42
Moore v Woodforth [2003] 43
Statutory amendments 43
Liability for another person’s acts 44
Vicarious liability 44
Hollis v Vabu Pty Ltd [2001] 44
Non-delegable duties 45
Burnie Port Authority v General Jones Pty Ltd (1994) 45
Class actions 45
The Trade Practices Act — damages for defective goods 46
What is the purpose of Part VA? 46
What are the elements of a breach of Part VA? 47
Why does the defendant have to be a ‘corporation’? 47
What is a ‘manufacturer’? 48
What is meant by the expressions ‘goods’ and ‘supply’? 48
What is the meaning of ‘defective goods’? 48
Does Pt VA compensate for all types of losses caused by a
defective good? 49
Damage must be caused by the defective good 49
What are the defences under Pt VA? 50
Graham Barclay Oysters Pty Ltd v Ryan [2000] 50
Can a manufacturer exclude liability for defective goods by putting
a notice to that effect on the label? 51
Contributory acts or omissions 52
Other matters 52
Glendale Chemical Products Pty Ltd v ACCC (1999) 52
Questions 54
3 Liability for Defective Advice and Information 56
The problem stated 56
Traditional actions for misrepresentation 56
Modern developments in the law of misrepresentation 57
Note on terminology 57
Summary of choices available to a representee 57
Remedies for misrepresentation 58
Common law remedies 58
Statutory remedies 58
Damages for fraud 58
Elements of fraud 58
Step 1: Was the representation a false statement of fact? 59
Smith v Land and House Property Corp (1884) 59
Lockhart v Osman [1981] 60
Step 2: Did the representation induce the contract? 60
Holmes v Jones (1907) 60
Redgrave v Hurd (1881) 61
Peek v Gurney [1873] 61
Step 3: Was the misrepresentation fraudulent? 62
Derry v Peek (1889) 62
Negligent misrepresentation 63
Step 1 — When is a duty of care owed for negligent advice? 63
A duty of care can be owed when giving advice or supplying information 63
L Shaddock and Associates Pty Ltd v Paramatta City Council (1981) 64
The critical importance of reliance 64
Tepko Pty Ltd v Water Board (2001) 64
Esso Petroleum Co Ltd v Mardon [1976] 65
To whom is the duty of care owed? – The spectre of indeterminacy 66
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 67
Lowe Lippman Figdor & Franck v AGC (Advances) Ltd [1992] 68
How do disclaimers affect the duty of care? 68
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] 69
Summing up the duty of care 69
Step 2 — What standard of care is owed? 70
Step 3 — Remoteness of damage 70
Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 71
Misleading and Deceptive Conduct 71
The Trade Practices Act section 52 71
Financial services 72
The Fair Trading Acts 72
Firms are liable for conduct of directors, employees and agents 73
Conduct must be ‘in trade or commerce’ 73
Does section 52 require proof of fraud or negligence? 73
Yorke v Ross Lucas Pty Ltd (1983) 74
What kinds of conduct can be misleading or deceptive? 74
Collins Marrickville Pty Ltd v Henjo Investments (1987) 74
Silence as misleading conduct 75
Demagogue Pty Ltd v Ramensky (1992) 75
Forwood Products Pty Ltd v Gibbett [2002] 76
Metacorp Recyclers Pty Ltd v Metal Manufacturers Pty Ltd [2003] 76
General Newspapers Pty Ltd v Telstra Corporation (1993) 77
Opinions and section 52 77
RAIA Insurance Brokers Limited v FAI General Insurance Co Limited (1993) 78
Promises, predictions and section 52 78
Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 78
Futuretronics International Pty Ltd v Gadzhis (1990) 79
Mere puffs 80
Exclusion clauses and disclaimers 80
Bateman v Slatyer (1987) 80
Remedies for breach of section 52 81
Damages are only awarded if the misrepresentation caused the loss 81
Sweetman v Bradfield Management Services Pty Ltd (1994) 81
Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd 82
The role of reliance in obtaining damages for deceptive conduct 82
Calculation of damages 83
Damages may be awarded against company’s employees or agents 83
Declaration that the contract is void 83
Accounting Systems 2000 (Developments) Pty Ltd v CCH Ltd (1993) 84
Varying the terms of the contract 84
Mr Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 84
Injunctions 84
Criminal misrepresentations 84
The Australian Securities and Investments Commission Act 85
Corporations Act 86
Unconscionable transactions in equity 86
The scope of the rule 86
Commercial Bank of Australia v Amadio (1983) 86
Remedies for unconscionable conduct in equity 87
ACCC v CG Berbatis Holdings Pty Ltd [2003] 87
Unconscionable transactions and the Trade Practices Act 88
Pressure to strengthen unconscionable conduct provisions 88
Unconscionable conduct — consumer contracts 88
Unconscionable conduct — small business transactions 89
When is a transaction unconscionable? 89
Appendix 91
Questions 91
4 Making the Contract: Offer and Acceptance 93
The importance of contracts to business 93
What is a contract? 94
Does a contract have to be in writing? 94
Intention 95
Remedies 95
Termination of the contract 95
Damages 95
Specific performance 96
Injunction 96
Recovery of the contract price 96
Agreed damages clauses 96
Offer 97
Meaning of ‘offer’ 97
Harvey v Facey [1893] 97
An offer, or merely an indication of a present intention? 98
Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 98
Harris v Nickerson (1873) 98
Kelly v Caledonian Coal Co (1898) 98
An offer or an invitation to treat? 99
Partridge v Crittenden [1968] 99
Retail displays 99
Fisher v Bell [1960] 100
Pharmaceutical Society of Grest Britiain v Boots Cash Chemists [1953] 100
Catalogues 100
Grainger & Sons v Gough [1896] 101
Advertisements 101
Carlill v Carbolic Smoke Ball Co (1893) 102
Auctions — who makes the offer? 102
Tenders — who makes the offer? 103
Hughes Aircraft Systems International v Airservices Australia (1997) 103
Harvela Investments Ltd v Royal Trust Co of Canada Ltd [1985] 104
Standing offers 104
Colonial Ammunition Co v Reid (1900) 104
An offer or merely part of the negotiations? 105
The fate of the offer 105
Withdrawing the offer 105
Can an offer be revoked after acceptance? 105
Can an offer be revoked before acceptance? 106
Routledge v Grant (1828) 106
Is it necessary to tell the offeree about the revocation? 106
Byrne & Co v Van Tienhoven & Co (1880) 106
Who must tell the offeree that the offer has been revoked? 107
Is it possible to revoke a unilateral offer? 107
Is it possible to have an offer that cannot be revoked? 107
Goldsborough Mort & Co Ltd v Quinn (1910) 108
Rejecting an offer 108
What is the effect of rejecting an offer? 108
Offeree’s conduct may indicate rejection 108
Counter offer amounts to a rejection 108
Hyde v Wrench (1840) 109
Turner Kempson & Co Pty Ltd v Camm [1922] 109
Asking for clarification of the terms of the offer is not a counter offer 110
Acceptance of the offer 110
Only the offeree may accept 110
Acceptance must be final and unqualified 110
Masters v Cameron (1954) 111
Plastyne Products Pty Ltd v Gall Engineering Co Pty Ltd (1988) 111
The problem of the battle of the forms 112
Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 112
Reese Bros Plastics Ltd v Hamon-Sobelco (Australia) Pty Ltd (1988) 113
Acceptance must be communicated to the offeror 113
Communicating acceptance to a large company 113
Communicating acceptance over the internet 114
When is express communication of acceptance not necessary? 114
Acceptance and the postal rule 115
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 115
What evidence is required for the postal rule to operate? 115
The method and timing of the acceptance 116
Can acceptance be communicated by someone other than the offeree? 116
Powell v Lee (1908) 116
Lapse of offer 117
Lapse of an offer due to the death of offeror or offeree 117
Lapse of an offer due to time 117
Lapse of an offer due to the failure of a condition precedent 117
The agreement must be ‘certain’ 117
Whitlock v Brew (1968) 118
Is an ‘agreement to agree’ binding? 118
Is an agreement to negotiate binding? 119
Is an agreement made ‘subject to contract’ binding? 119
Other conditional agreements 119
Questions 120
5 Making the Contract — Intention and Consideration 122
Intention to contract 122
Domestic agreements 123
Todd v Nicol [1957] 123
Roufos v Brewster (1971) 123
Commercial agreements 124
Rose and Frank Co v J R Crompton & Bros Ltd [1923] 124
Edwards v Skyways Ltd [1964] 125
Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 125
Are letters of comfort binding? 126
Kleinwort Benson v Malaysia Mining Corp. Berhard [1988] 126
Banque Brussels Lambert SA v Australian National Industries (1989) 127
Are ‘Heads of Agreement’ and ‘Letters of Intent’ binding? 127
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd [1985] 127
Coal Cliff Collieries v Sijehama Pty Ltd (1991) 128
Agreements ‘subject to contract’ 128
Plastyne Products Pty Ltd v Gall Engineering Co Pty Ltd (1988) 128
‘Without prejudice’ agreements 129
Consideration 129
What is a deed? 129
Consideration 129
What is consideration? 130
Examples of consideration 130
Consideration must move from the promisee 131
Dunlop Pneumatic Tyre Co Ltd v Selfridge Co Ltd [1914] 131
The joint promisee rule 132
Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 132
Privity of contract 132
Exceptions to the privity of contract rule 133
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 133
Consideration may not be past 133
Roscorla v Thomas [1842] 134
An exception to Roscorla v Thomas 134
Casey’s Patents: Stewart v Casey, Re [1892] 134
Consideration doesn’t have to be adequate 135
Consideration must be sufficient 135
Illusory promises are not consideration 136
Dunton v Dunton (1892) 136
Settling disputes — giving up a legal claim may be consideration 136
Wigan v Edwards (1973) 137
Renegotiating contracts — promising to perform an existing contract
is not good consideration 137
The traditional rule 137
Stilk v Myrick (1809) 138
A modern development? 138
Williams v Roffey Bros and Nicholls (Contractors) Ltd [1991] 139
Terminating a contract by agreement 139
Renegotiating a debt 139
Pinnel’s case (1602) 140
Exceptions to Foakes v Beer — compositions with creditors 140
Exceptions to Foakes v Beer — part payment by a third party 141
Is promising to perform a contractual duty owing to a third party
good consideration? 141
Is performing a public duty good consideration? 141
Collins v Godefroy 141
Promissory estoppel 142
The common law can lead to unfair results 142
How did promissory estoppel develop? 142
Central London Property Trust Ltd v High Trees House Ltd [1947] 142
Promissory estoppel and contract law 143
Promissory estoppel is important where no contract exists 143
What are the elements of promissory estoppel? 143
The promisor’s responsibility for the promisee’s assumption 144
Legione v Hateley (1983) 144
Why is detrimental reliance important? 145
Je Maintiendrai Pty Ltd v Quaglia (1980) 145
The leading case — Waltons Stores (Interstate) Ltd v Maher 146
What lessons should we learn from Waltons Stores (Interstate) Ltd v Maher? 147
Waltons Stores (Interstate) Ltd v Maher (1988) 146
The remedy in cases of estoppel 147
Parties to the contract 147
Minors 147
Nash v Inman [1908] 148
Persons with mental disabilities; intoxicated persons 148
Agents 148
Partnerships 148
Corporations 149
Assignment of contractual rights 149
Questions 149
6 Express Terms of the Contract 151
The problem stated 151
Ascertaining the relevant evidence 152
The parol evidence presumption 152
Statements made after contract is complete are not terms 153
Olley v Marlborough Court Ltd [1949 153
Past dealings may be important in determining the terms 154
The importance of a signature 154
L’Estrange v F Graucob Ltd [1934] 154
When is a person not bound by his or her signature? 155
The document didn’t appear to be contractual 155
D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] 155
Estoppel 155
Oral agreement to the contrary 156
J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 156
Misrepresentation 156
Condition precedent 156
The document does not accurately record the agreement 156
Equitable doctrines 156
Incorporating terms into the contract by notice 157
The reasonable notice test 157
Parker v South Eastern Railway Co (1877) 157
Is the document contractual in nature? 158
Oceanic Sun Line Special Shipping Company v Fay (1988) 158
Is the term unusual? 159
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 159
Were there any conflicting statements or promises? 159
Couchman v Hill [1947] 159
Ticket cases 160
When are oral representations binding? 161
Which statements are promissory? — The reasonable bystander test 161
Guidelines for applying the reasonable bystander test 162
State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986) 162
Was there a written document? 162
Van Den Esschert v Chappell [1960] 163
How much time lapsed between statement and contract? 163
How important was the statement to the deal as a whole? 164
What words were used? 164
Did either party have special knowledge? 164
Some examples of the reasonable bystander test 164
Oscar Chess Ltd v Williams [1957 164
Ross v Allis-Chalmers Australia Pty Ltd (1980) 165
Esso Petroleum Co Ltd v Mardon [1976] 165
Hospital Products Ltd v United States Surgical Corp (1984) 166
Collateral warranties 166
De Lasalle v Guildford [1901] 167
L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A’asia) Ltd (1955) 167
When does a collateral contract apply? 168
A collateral warranty must be promissory 168
J J Savage & Sons Pty Ltd v Blakney (1970) 168
A collateral warranty must not be inconsistent with the main contract 169
Gates v City Mutual Life Assurance Society Ltd (1986) 169
Maybury v Atlantic Union Oil Co (1953) 170
The meaning of a term 170
The reasonable person test 170
The parol evidence rule 170
Hope v RCA Photophone of Australia Pty Ltd (1937) 171
Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd (1919) 171
The importance of a term 172
Unenforceable terms 172
Terms in restraint of trade 172
ICT Pty Ltd v Sea Containers Ltd (1995) 173
Peters (WA) Ltd v Petersville Ltd (1999) 173
Exemption clauses 173
How do the courts approach exemption clauses? 174
Step 1 — Is the exemption clause a term of the contract? 174
Post-contractual 174
A course of past dealings between the parties 175
An exemption clause contained in a signed document will often be binding 175
Curtis v Chemical Cleaning & Dyeing Co [1951] 175
An unsigned exemption clause will be binding if ‘reasonable notice’
has been given 176
Thornton v Shoe Lane Parking Ltd [1971] 177
Step 2 — Does the exemption clause cover the breach? 177
The ambiguity rule 177
Andrews Bros Ltd v Singer Car Co Ltd [1933] 178
Alex Kay Pty Ltd v General Motors Acceptance Corp Co. [1963] 178
The negligence rule 178
White v John Warwick & Co Ltd [1953] 179
Exemption clauses are to be understood according to their natural and
ordinary meaning 180
Fundamental breach presumption 180
Photo Production Ltd v Securicor Transport Ltd [1980] 181
The four corners presumption 181
Sydney Corporation v West (1965) 182
Thomas National Transport (Melbourne) Pty Ltd v May & Baker
(Australia) (1966) 183
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 183
Appendix — a sample of a written contract 185
Questions 186
7 Implied Terms 188
Terms implied by the courts as a matter of law 189
Terms implied into all contracts — co-operation and good faith 189
Burger King Corp v Hungry Jack’s Pty Ltd [2001] 190
Contracts between professional persons and their clients 190
Contracts for work and materials 191
Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 191
Helicopter Sales Pty Ltd v Rotor Works Pty Ltd (1974) 191
Other service contracts 192
Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd (1998) 192
Hire contracts 193
Employment contracts 193
Landlord/tenant 193
Terms implied by the courts as a matter of fact 193
Terms implied on the basis of a course of past dealings 194
Henry Kendall & Sons v William Lillico & Sons Ltd [1968] 194
Terms implied as a result of custom or trade usage 194
British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd [1975] 195
Terms implied in order to make the contract effective 196
Moorcock, The, Re (1889) 196
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 196
BP Refinery (Wetsernport) Pty Ltd v President, Councillors
and Ratepayers of Shire of Hastings (1977) 197
Services — implied terms under the Trade Practices Act 198
Implied terms at common law 198
When does the Trade Practices Act apply? 199
Step 1 — Is the service provider subject to the Trade Practices Act? 199
Step 2 — Who is a consumer under the Trade Practices Act? 200
Step 3 — Were the services supplied in the course of business? 200
What is the meaning of services? 201
Is the contract one for the supply of services or goods? 201
‘E’ v Australian Red Cross Society (1992) 201
What are the implied warranties under the Trade Practices Act? 202
Read v Nerey Nominees Pty Ltd [1979] 230
Can the implied terms be excluded? 204
Can the service provider limit liability? 204
Special rule for recreational services 205
Remedies 205
The Australian Securities and Investments Commission Act
2001 (Cth) 206
What is a financial service? 206
Is the financial service provider subject to the ASIC Act? 206
Is the financial service acquirer a consumer? 207
Were the financial services supplied in the course of a business? 207
What terms are implied? 207
Can the terms be excluded, or liability limited? 208
Remedies 208
Appendix 209
Questions 209
8 Contracts for Sales of Goods 211
Introduction 211
Development of legislation designed to protect consumers 211
The Trade Practices Act 1974 (Cth) 212
When does the Trade Practices Act apply? 212
Step 1 — Is the seller subject to the Trade Practices Act? 212
Step 2 — What is a consumer contract under the Trade Practices Act? 212
Atkinson v Hastings Deering (Qld) Pty Ltd (1985) 213
Step 3 — Was the sale in the course of business? 214
Step 4 — Was the sale at auction? 215
What terms are implied by the Trade Practices Act? 215
Correspondence with description 215
Merchantable quality 216
Fitness for a particular purpose 216
Carpet Call Pty Ltd v Chan (1987) 217
Correspondence with sample 218
Remedies for breach of implied terms 218
Damages 218
Can the buyer return the goods? 218
Terms implied by the Trade Practices Act cannot be excluded 219
Can liability for breach of the implied terms be limited? 219
The seller cannot rely on a limitation clause if it would not be fair and
reasonable to do so 220
Non-consumer contracts 221
What is a non-consumer contract within the meaning of the Sale of
Goods Legislation? 221
What terms are implied by the Sale of Goods Legislation? 222
Correspondence with description 223
Fitness for purpose 223
Merchantable quality 224
Frank v Grosvenor Motor Auctions Pty Ltd [1960] 224
Correspondence with sample 225
Can the seller exclude or limit liability for breach of the implied terms? 226
What are the remedies? 226
Merchantable Quality 227
The tests for merchantable quality 227
B S Brown & Son Ltd v Craiks Ltd [1970] 227
The indicators of merchantable quality 228
H Beecham & Co Pty Ltd v Francis Howard & Co Pty Ltd [1921] 228
Bartlett v Sidney Marcus Ltd [1965] 229
Grant v Australian Knitting Mills [1935 229
How is merchantable quality affected by the buyer’s inspection of
the goods? 230
Fitness for a particular purpose 230
David Jones v Willis (1934) 230
The buyer must rely on the seller’s skill and judgment 230
Griffiths v Peter Conway Ltd [1939] 231
Buyer’s purpose may be a matter of inference 231
Godley v Perry [1960] 231
The buyer’s reliance must be reasonable 232
Teheran-Europe Co Pty Ltd v S T Belton (Tractors) Ltd [1968] 232
Correspondence with description 232
Description is not a reference to product quality 232
When are goods sold by description? 232
Varley v Whipp [1900] 233
Beale v Taylor [1967] 233
Moore & Co Ltd and Landauer & Co, Re 233
The buyer must rely on the description 234
Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1990 234
Correspondence with the sample 235
Other matters affecting sales of goods 235
Ascertaining the contract price for the goods 235
ANZ Banking Group v Frost Holdings [1989] 236
Delivery and payment 236
Acceptance 236
Passing of property in the goods 237
Passing of risk in the goods 237
Appendix 1 — Summary of the Acts 238
Appendix 2 239
Appendix 3 — Comparative Table 241
Questions 243
9 Remedies in Contract Cases 245
In what ways may a contract be brought to an end? 245
Termination 246
Termination by performance 246
Termination by agreement 246
Termination by a term of the contract 246
Termination by frustration 246
Taylor v Caldwell (1863) 247
Davis Contractors Ltd v Fareham Urban District Council [1956] 247
Termination for breach of contract 248
When is a term a condition? 248
Associated Newspapers v Bancks (1951) 249
A term may be made a condition by the words used 249
Wickman Machine Tool Sales Ltd v L Schuler AG [1974] 250
Statutory implied conditions 250
Time clauses in mercantile contracts 250
Bunge Corp of New York v Tradax Export SA Panama [1981] 250
Time clauses in other contracts 251
Bettini v Gye [1874] 251
Time can be made a condition by serving a notice 251
Terms referring to quality are normally warranties 251
Where damages are an adequate remedy, the term is often a warranty 252
Termination for serious breach of an intermediate term 252
When is a breach of an intermediate term a serious breach? 252
Hong Kong Fir Shipping Ltd v Kawasaki Kisen Kaisha Ltd [1962] 252
Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] 253
Termination for repudiation 253
What is meant by a ‘substantial repudiation’? 254
Termination for anticipatory breach 254
National Engineering Pty Ltd v Chilco Enterprises Pty Ltd [2001] 255
Anticipatory breach — no termination 255
The procedure for termination 255
Foran v Wight (1989) 256
The effect of an election to terminate 256
The effect of an election to affirm the contract 257
Rescission 257
Rescission for misrepresentation 257
What is the effect of rescission on the contract? 258
What is the difference between rescission of the contract and
termination of the contract? 258
How is a contract rescinded? 258
Rescission is not permitted if the contract has been affirmed 258
Rescission is not permitted if substantial restitution is not possible 259
Academy of Health & Fitness Pty Ltd v Power [1973] 260
Rescission is not permitted if the legal rights of an innocent third party
will be adversely affected 260
Car & Universal Finance Co Ltd v Caldwell [1965] 260
The rule in Seddon’s case 261
Rescission for unconscionable conduct 261
Blomley v Ryan (1956) . 261
Rescission for duress 262
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] 262
Cockerill & Ors v Westpac Banking Corporation (1996) 263
Mitchell v Pacific Dawn Pty Ltd [2003] 263
Rescission for undue influence 264
Presumption of undue influence in special relationships 264
O’Sullivan v Management Agency & Music Ltd [1984] 264
Presumed undue influence in confidential relationships 264
Lloyd’s Bank Ltd v Bundy [1974] 265
Actual undue influence 265
Rescission for mistake 265
Rescission for common mistake 266
Rescission for unilateral mistake 266
Taylor v Johnson (1983) 266
Contracts can be void for unilateral mistake 266
Cundy v Lindsay (1878) 267
Non est factum 267
Petelin v Cullen (1975) 267
Contracts Review Act 1980 (NSW) 268
West v AGC (Advances) Ltd (1986) 268
Unfair terms in consumer contracts — Victoria 268
Recovery of the contract price 269
Hoenig v Isaacs [1952] 269
Sale of goods 270
Damages 270
What is the purpose of damages? 270
Losses must be caused by a breach of the contract 271
Agreed damages 271
Plaintiff has a duty to mitigate losses 272
Damages must not be too remote — the rule in Hadley v Baxendale 272
The first limb of the rule in Hadley v Baxendale 272
Koufos v C Czarnikow Ltd [1969] 273
Hadley v Baxendale [1854] 273
The second limb of the rule in Hadley v Baxendale 273
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 274
Calculating the amount of damages 274
Damages for expectation losses 274
McRae v Commonwealth Disposals Commission (1951) 275
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 276
Damages for personal injuries 276
Damages for disappointment, distress, discomfort etc 276
Jarvis v Swans Tours Ltd [1973] 277
Baltic Shipping Company (The Mikhail Lermontov) v Dillon (1993) 277
Specific performance 278
Dougan v Ley (1946) 278
Lumley v Wagner (1852) 278
Injunction 279
Rectification of the contract 279
Restitution 279
Pavey & Mathews Pty Ltd v Paul (1987) 280
Quantum meruit and partially performed contracts 280
Sumpter v Hedges [1898] 281
Questions 281
10 Agency 284
What is an agent? 284
Agent or independent dealer? 285
International Harvester Co of Australia Pty Ltd v Carrigan’s
Hazeldine Pastoral Co (1958) 285
What are the indicators of an agency relationship? 286
Potter v Customs & Excise Commissioners [1985] 286
The functions of an agent 287
An agent may make contracts on behalf of the principal 287
An agent may receive moneys on behalf of the principal 287
Petersen v Moloney (1951) 288
An agent may pay moneys on behalf of the principal 288
An agent may make representations on behalf of the principal 288
An agent may receive representations on behalf of the principal 289
Some common commercial relationships and agency 289
Employer/employee 289
Independent contractor 289
Bailor/bailee 289
Partnership 289
Supplier/buyer 290
Franchisor/franchisee 290
How is an agency created? 290
Agency may be created by express agreement 290
Agency may be created by implied agreement 291
Norwich Fire Insurance Society Ltd v Brennans (Horsham) Pty Ltd [1981] 291
Agency may be created by estoppel 291
Pole v Leask [1861] 292
Agency may be created in cases of necessity 292
Sachs v Micklos [1948] 293
Agency may be created by cohabitation 293
The agent’s authority 293
The agent’s actual authority 294
The agent’s express actual authority 294
The agent’s implied actual authority 294
Hely Hutchinson v Brayhead Ltd [1967] 295
ANZ Bank Ltd v Ateliers de Constructions Electriques de Charleroi (1966) 295
The agent’s ostensible authority 296
Ostensible authority depends on the principal’s holding out 297
Freeman & Lockyer v Buckhurst Park Properties Ltd [1964] 296
Cases on ostensible authority 298
Director of Posts and Telegraphs v Abbott (1974) 298
First Energy (UK) Ltd v Hungarian International Bank Ltd (1993) 298
A person with ostensible authority cannot create ostensible authority in
another person 299
Was the third party aware of the agent’s actual authority? 299
Ratification 299
The rules applying to ratification 300
Keighley, Maxted & Co v Durant [1900] 300
Who can sue whom? 301
Third party suing the principal 301
Principal suing the third party 302
Third party suing the agent 302
Liability of an agent known to be an agent 302
Liability of agent where the principal is undisclosed 303
The agent acted without authority 303
Breach of warranty of authority 303
Collen v Wright [1843] 303
The undisclosed principal rule 304
Said v Butt [1920] 305
Duties of an agent 305
Fiduciary duties 305
Fiduciary duty to account honestly 305
Fiduciary duty to avoid a conflict of duty and interest (rule against
self dealing) 306
Fiduciary duty not to make secret profits, accept secret commissions or
take bribes 306
Fiduciary duty not to use principal’s property or information for self gain 306
A principal’s duties to an agent 306
Termination of agency 307
Questions 307
11 Partnerships 309
Choosing the appropriate business structure 309
Types of business organisations 309
Advantages and disadvantages of various business organisations 310
Naming the business 311
Creation of a partnership 311
Are any formalities required to create a partnership? 311
Definition of a partnership 312
Carrying on business 312
A business or a hobby? 312
Ferguson v Federal Commissioner of Taxation (1979) 312
Federal Commissioner of Taxation v Walker (1985) 313
Carrying on business or a single venture 313
Canny Gabriel Castle Jackson Advertising v Volume
Sales (Finance) Pty Ltd (1974) 313
Carrying on a business in common 314
The problem stated 314
Mutuality of rights and obligations 315
Re Ruddock (1879) 315
Checker Taxicab Ltd v Stone [1930] 316
The Partnership Act 1958 (Vic) s 6 — the statutory rules 316
Cox v Hickman (1860) 317
Plummer v Thomas [2002] 318
Megevand: Ex parte Delhasse, Re 319
Carrying on business in common with a view of profit 319
Partnerships are contractual relationships 319
Steckel v Ellice [1973] 320
Rules governing partners’ relationship with each other 320
The contract between the partners 320
The Partnership Act 321
Partners’ duties of good faith 322
Kak Loui Chan v John Zacharia (1984) 322
United Dominions Corp Ltd v Brian Pty Ltd (1985) 322
Duty to make disclosure 323
Duty to account for benefits derived from dealings with partnership 323
Duty to account for use of partnership assets 323
Duty not to compete with partnership 324
Partnership property 324
What is partnership property? 324
Harvey v Harvey (1970) 325
What right does each partner have to the partnership property? 326
Liability of partners to third parties 326
Limited partnerships 326
Joint liability for a firm’s debts and obligations 327
What does joint liability mean? 327
What are the firm’s debts and obligations? 328
Commercial partner’s normal authority 328
Young v Lamb & Ors [2001] 329
Goldberg v Jenkins (1889) 330
Ratification 330
Oppenheimer, Re (1872) 330
The proviso to section 9 330
Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 331
Mercantile Credits Co Ltd v Garrod [1962] 331
Joint and several liability for wrongful acts 333
What are wrongful acts or omissions? 333
When are acts in the ordinary course of the business of a partnership? 334
Polkinghorne v Holland & Whittington (1934) 334
Walker v European Electronics Pty Ltd (1990) 334
Liability is joint and several 335
Joint and several liability for misapplication of money or property 335
Liability by holding out (estoppel) 336
D & H Bunny Pty Ltd v Atkins and Naughton [1961] 336
Leaving the partnership 337
Tower Cabinet Co Ltd v Ingram [1949] 337
Elders Pastoral Ltd v Rutherfurd (1990) 338
Debts incurred after death or bankruptcy of partner 338
Debts incurred before resignation or admission of a new partner 338
Assignment of a partnership interest 339
Termination of a partnership 339
Termination by the partners 339
Termination by operation of law 339
Termination by supervening illegality 339
Termination by the courts 339
Partners remain jointly liable for debts even after dissolution of
a partnership 340
Distribution of assets on dissolution 340
Appendix — Comparative Table 341
Questions 345
12 Introduction to Company Law 347
Sources of companies 348
The nature of a company 349
The powers of a company 349
Section 124(1) powers 349
Types of companies — general classification 350
Proprietary company 350
Public company 350
Types of companies which may be registered 351
Companies limited by shares 351
Companies limited by guarantee 351
Unlimited companies 351
No liability companies 352
Consequences of the principle of separate identity 352
The rule in Salomon’s Case 352
Salomon v A Salomon & Co Ltd [1897] 352
Lee v Lee’s Air Farming Ltd [1961] 353
Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1987) 353
Registering a company 354
Steps for registration of a company 354
The company’s constitution and rules 354
Implications of the certificate of registration 355
Managing a company 355
Comparison of companies and partnerships 355
How does a company create contracts? 356
How does a company sign a contract? 357
When is a company bound by the actions of its agents? 357
People having dealings with a company may make certain assumptions 358
Compliance with the constitution and replaceable rules 359
Reliance may be placed on ASIC records 360
Holding out 360
Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1992) 360
Customary powers 361
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 361
When do the assumptions not apply? 362
Bank of New Zealand v Fiberi Pty Ltd (1994) 362
Questions 362
13 Duties of Company Directors and Other Officers 364
What are the functions of a director? 364
The source of directors’ duties 365
Reasonable care and diligence 366
State of South Australia v Clark (1996) 366
Circle Petroleum (Qld) Pty Ltd v Greenslade (1998) 366
The business judgment rule 367
Is any particular level of skill required of a director? 367
The level of attendance required 368
The importance of being informed 368
The role of reliance 368
The duty to act in good faith and for a proper purpose 369
The duty to act in good faith 369
Walker v Wimbourne (1976) 369
Directors’ duty to exercise power for proper purposes 370
The duty not to use inside information improperly 370
What kind of information must not be used? 370
Cranleigh Precision Engineering Ltd v Bryant [1965] 371
Green & Clara Pty Ltd v Bestobell Industries (1982) 371
The duty not to mis-use the position 372
Cummings v Claremont Petroleum N L (1993) 372
Contracts with the company 373
The duty imposed on directors to disclose certain interests 373
The consequences of a breach of statutory duty 373
Civil consequences 374
Criminal consequences: s 184 374
Directors’ duties at common law 374
Kinsela v Russell Kinsela Pty Ltd (in liq.) (1986) 375
The insolvent trading rule 375
When is a company insolvent? 376
What remedies or sanctions may apply? 376
Defences to section 588G 376
Defence under section 588H(2) 377
Defence under section 588H(3) 377
Defence under section 588H(4) 378
Defence under section 588H(5) 378
Sections 588G and 588H in action 378
Metropolitan Fire Systems Pty Ltd v Miller and Others (1997) 379
ASIC v Plymin, Elliott & Harrison [2003] 379
Tourprint International Pty Ltd (in liq) v Bott (1999) 380
Complying with the rules of the company 382
Further statutory obligations 382
Who will sue the directors for a breach of duty? 382
Exceptions to the rule in Foss v Harbottle 382
A shareholder’s right to take personal action 383
Questions 383
14 Introduction to Trusts 385
What is a trust? 386
Definition 386
The essential elements of a trust 386
Parties to the creation of an express trust 386
Trustee 387
Trust property 387
Beneficiary 387
Duration of a trust 388
Trusts compared with other entities 388
Types of trusts 388
Discretionary trusts 389
Fixed trusts 390
Unit trusts 390
Operation of a trading trust 391
Trustees’ powers 391
Express powers 392
Implied powers 392
Statutory powers 392
Trustees’ duties, rights and liabilities 392
Duty of prudence, diligence and honesty 392
Bartlett v Barclay’s Bank Trust Co Ltd [1980] 393
Personal liability for debts 394
The right of indemnity 394
Fitzwood Pty Ltd v Unique Goal Pty Ltd (in Liq) [2002] 395
Insolvent trading by corporate trustee — directors’ liability 395
Beneficiaries’ rights and liabilities 396
Personal right of action against the trustee (‘right in personam’) 396
Proprietary right of action in respect of the trust property (‘right in rem’) 396
Foskett v McKeown and Ors [2000] 397
Beneficiaries’ liability to creditors 398
Hardoon v Belilios [1901] 398
Landsales Ltd v B Pty Ltd 399
The position of creditors in regard to a trading trust 399
Termination of a trust 399
Questions 400
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