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