Reading Guide Law in Commerce Second Edition by Brendan Sweeney and Jennifer O’Reilly



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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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