Commerical

Commercial Revision

These revision notes are not intended to be a complete account of the course content. For more detailed information, please refer to the course texts, lectures and tutorials and other law resources.

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What is law?
Generally:
Legislation from Parliament
From bodies to whom the power has been delegated
Decisions from senior courts
The “law” can be classified in many different ways:
Common law and statutory law
Examine what specific areas law covers
Historical division of law into principles of common law and equity
Geographical limits: Common law system vs civil law system

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Government has 3 distinct areas of power:
Separation of powers doctrine: A concept inherited from England

Based on the idea that Government is divided into 3 separate and theoretically independent organs:
The legislature (Parliament), which makes the laws;
The executive (The Crown, the Ministry & the public service), which administers the laws; and
The judicature (The judges and the courts), which interprets, applies and enforces the laws

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Legislation

Australian States have their own Constitutions and generally the States are authorised to make laws “for the peace, order and good government” of the State

However these wide legislative powers must be understood in the light of the Commonwealth Constitution
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Australia’s Commonwealth Constitution
Gives the Commonwealth government both concurrent and exclusive legislative powers-
Concurrent: Those legislative powers shared with the states
Exclusive: Legislative powers that are only to be utilised by the Commonwealth Parliament

If there are powers not listed in the Commonwealth Constitution these may be regarded as residual and are therefore the domain of the State legislatures
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Sources of – Common
made by judges in adjudicating disputes is often referred to as Case or Common and it includes:
Decisions made by judges where no legislation applies; and
Judges interpretations of particular statutes and regulations
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Causing Harm:
Torts and Negligence

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of Tort

A tort is a civil wrong. It provides a mechanism whereby an individual can protect their personal and property rights.
If these rights are infringed, the victim may seek compensation from the wrongdoer.

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of Tort

There is some overlap between tort law and criminal law: a person’s act may involve both a crime and a tort,
eg assault, battery, theft/conversion.
However, criminal proceedings are taken in the name of the state, while proceedings in tort are taken by the injured person as private citizen.
The standards of proof differ:
in criminal action, it is “beyond reasonable doubt”
in civil action, it is “on the balance of probabilities”

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Tort versus Crime

Tort Crime

Aims to compensate Aims to punish

Initiated by individuals Initiated by state

Outcome is remedy for plaintiff Outcome is conviction or release of wrongdoer

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Types of Tort
There are a variety of torts, including negligence, trespass, battery, nuisance, defamation. They protect different rights:
right to physical integrity
right to protection of one’s reputation
right to peaceful enjoyment of one’s property

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Trespass
Forms of trespass:
to land (interference with plaintiff’s land without plaintiff’s consent)
to goods (interference with goods in possession of plaintiff without plaintiff’s consent)
to person:
battery: direct contract with plaintiff’s body without plaintiff’s consent (Rixon v Star City)
assault: threat causing plaintiff to anticipate contact with their person
false imprisonment
Defences

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Nuisance
Involves act that indirectly interferes with plaintiff’s use and enjoyment of private or public land
Two forms of nuisance:
private nuisance: interferences with use/enjoyment of private land
public nuisance: interference with use/enjoyment of public land
Remedies: damages and/or injunction
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Defamation
Publication of statement about plaintiff by defendant to a third party that would damage plaintiff’s reputation
Three elements:
statement was defamatory
statement identified the plaintiff
statement was published to a third party
Defences:
– Justification, absolute privilege, honest opinion

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Negligence
Negligence is a particular type of tort.
The law of negligence imposes a duty on a person to act with care towards others.
If this duty exists and there is a failure to act carefully and another suffers a loss, the tort of negligence has been committed.
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Negligence
To prove negligence, three steps must be fulfilled:

There is a duty of care owed by one party to the other
There must be a breach of that duty of care
The breach of the duty of care causes harm or damage.

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1. Duty of Care
Donoghue v Stevenson established the ‘neighbour principle’ which indicates to whom the duty of care is owed.
It is owed to anyone that you can reasonably foresee is likely to be harmed by your action or failure to act.
It is an objective test: would a reasonable person foresee that damage may result from the defendant’s action or failure to act.
The features of the case must indicate a duty of care.

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Situations where a duty of care arises:
Car drivers owe duty of care to other road user
Occupiers of premises owe duty of care to entrants
Suppliers of goods owe a duty of care to recipients
Solicitors owe a duty of care to their clients
Doctors owe a duty of care to their patients
manufacturers owe a duty of care to people who use their products
employers owe a duty of care to their employees

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2. Breach of Duty of Care
On establishing a duty of care, it is next necessary to show the defendant has in fact been careless: have they breached the standard of care?
Use the reasonable person test: how would he/she act in the shoes of the defendant?
If the defendant’s conduct falls below the standard of the reasonable person they have breached their duty of care.
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Breach of Duty of Care: Factors to consider
The probability that the harm would occur if care was not taken (Romeo v Conservation Comm’n of NorthernTerritory; Bolton v Stone)
The likely seriousness of the harm (Paris v Stepney Borough Council)
The burden of taking precautions to avoid the risk of harm (Latimer v AEC Ltd)
The social utility of the activity that creates the risk of harm (Watt v Hertfordshire County Council)
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3. Damage caused by Breach of Duty of Care
Two aspects to damage:
1. The damage suffered by plaintiff must be caused by the defendant.
Use the ‘but for’ test : Yates v Jones
2. The damage must not be too remote. Hence, only damage that is reasonably foreseeable is recoverable: the Wagon Mound case

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Defences to Negligence Action:
Contributory negligence:
– Court reduces damages to the extent plaintiff contributed to their own injury: Ingram v Britten and s 26 of the Wrongs Act 1958 (Vic)
Voluntary assumption of risk:
– a total defence
– plaintiff knows of and willingly accepts the risk of injury: Agar v Hyde

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Contract

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Introduction
A contract is a legally enforceable agreement

The law of contract encompasses many areas of commercial law, eg agency, partnership, banking

The law of contract is traditionally based on common law and precedent, however legislation has had a significant impact, eg Australian Consumer

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Elements of a contract
Three elements to form a contract:
Agreement (offer and acceptance), and
Intention to create a legal relationship, and
Consideration

Four elements to undo a contract:
Lack of consent, or
Lack of capacity, or
Lack of legality, or
Lack of formality
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Agreement
Before agreement there may be negotiations
Agreement is when there is a “meeting of the minds”
Agreement is determined objectively
Agreement consists of a clear offer and an unconditional acceptance of the terms of the offer
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Offer
Offers are a promise to be bound providing the terms of the offer are met
The “offeror” is the person making the offer, the “offeree” is the person to whom the offer is made
Offers can be:
– verbal
– in writing
– by conduct
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Offers must be distinguished from an invitation to treat

Advertisements are usually regarded as invitations to treat: Partridge v Crittenden

A mere display of goods for sale at marked prices is generally regarded as an invitation to treat: Pharmaceutical Society v Boots Cash Chemists

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An offeree can respond to an offer in 1 of 5 ways.

Offeree can:
Accept the offer in its full terms;
Reject it;
Make a counter-offer;
Ask for further information or clarification before making a final decision; or
Do nothing at all
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Termination of offers
Offers can be rejected by the offeree outright or in the form of a counter offer, but inquiries from the offeree to clarify the offer are not rejection: Stevenson, Jacques & Co. v McLean
Offers can be revoked or withdrawn by the offerror prior to acceptance
However the revocation must be communicated to the offeree before acceptance: Byrne v van Tienhoven
If the offeror uses the post to revoke the offer it is not effective until it is received by the offeree
Offers can lapse: Ramsgate Victoria Hotel v Montefiore
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Acceptance
Is the unconditional positive response to the offer
Must be in reliance on the offer
Must be unconditional and clear
Can be express or implied. Sometimes the conduct of the parties will lead to the implication that an agreement exists: Carlill v Carbolic Smoke Ball
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Intention to create legal relationship
If the agreement is of a social or domestic nature, the presumption is that there is no intention that the parties intended to be legally bound:
Balfour v Balfour
Serious economic consequences and evidence of writing can rebut the presumption:
Wakeling v Ripley
If the agreement is made in a commercial context, the court will presume an intention to be legally bound. But, this presumption may be rebutted:
Rose and Frank Co. v Crompton & Bros Ltd
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Consideration
Consideration is the value given by the offeree (promisee) for the offer/promise received from the offeror (promisor)
Defined in Curie v Misa
some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other
Consideration may be money but can be a promise to act, or do something or to refrain from certain actions
It can be a benefit flowing to the promisor, or to a third person at the promisor’s direction, or a detriment to the promisee

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Consideration continued
If consideration is the price paid for the promisor’s promise, then it must occur in response to the promise
It can’t be past consideration:

Roscorla v Thomas
Anderson v Glass

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Consideration need not be “adequate” but should be “sufficient”

The statement that consideration need not be adequate refers to the relative value of the promise and the consideration, ie if goods are sold well below their value it is irrelevant for the purposes of consideration:
Thomas v Thomas

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The statement that consideration should be sufficient refers to the actual existence of consideration
Consideration will not be sufficient if the consideration is:
a public or legal duty:
Glasbrook Bros v Glamorgan County Council
an existing contractual duty that has to be performed by one of the parties to the contract:
Stilk v Myrick
Hartley v Ponsonby
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Consideration
Payment of a sum lesser than agreed is not sufficient consideration (Foakes v Beer):
If the creditor accepts the lesser sum of money in full repayment of a greater amount, there isn’t any “new” consideration for the new agreement. The repayment is only a part of the original debt.
Exceptions:
Where debtor pays a smaller amount and adds something of value or pays the debt earlier than the due date
If a third party has entered into an agreement to pay a lesser amount in full settlement of the debt: Hirachand Punamchand v Temple
If the ‘practical benefits test’ is fulfilled: Musumeci v Winadell

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Promissory estoppel
This rule was traditionally used as a defence to prevent someone going back on their promise after the other party has acted in reliance on that promise and suffered detriment: Central London Property Trust Ltd v High Trees House Ltd

In Australia promissory estoppel can also be used as a cause of an action (a sword), not merely as a defence- Waltons Stores v Maher
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Elements of promissory estoppel
A pre-existing legal relationship between the parties under which rights either existed or were expected to be created;
A promise by one party that he or she will not insist on his or her strict legal rights
The promise gives rise to an expectation in the promisee that the promise will be honoured, even though it is not supported by consideration
Actual reliance by the promisee on the promise
An element of detriment in that the promisee is placed in a worse position when the promise turns out to be false
An element of unconscionability
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Consent
Contracts which are affected by the lack of real or genuine consent may be rendered void or voidable
Categories:
– mistake
– misrepresentation
– unconscionable conduct
– undue influence
– duress
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Mistake
Mistake may be about the existence of the subject matter, its qualities, the terms of contract, the identity of the other party
Under common law, mistake renders the contract void ab initio, hence its application is very limited
Equity allows for broader remedies:
– rescission
– rectification
– refusal of specific performance

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Mistake
Types of mistake: common, mutual, unilateral
Common: both parties make the same mistake. Renders contract void ab initio. But, must be fundamental matter.
McRae v Cth Disposals Commission: tanker never existed, so contract not void for common mistake
Leaf v International Galleries: mistake about quality not fundamental
Mutual: parties at cross purposes.
Raffles v Wichelhaus: contract void because no common agreement.

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Mistake
Unilateral: occurs when one party makes a fundamental mistake when entering the contract and the other is award of the mistake. Renders contract void or voidable.
Mistake as to terms of contract:
Smith v Hughes – seller knew buyer under mistake as to the age of the oats, but said nothing. Not void, unless seller promised that oats were old. Caveat emptor applies.
Taylor v Johnson – negotiations based on option to buy 10 acres at $15,000 per acre, but contract for total price of $15,000. Held: voidable because buyer acted unconscientiously, deliberately setting out to prevent seller becoming aware of the mistake
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Misrepresentation
This is where a person entered into a contract based on some existing fact or past event that is not true
Edgington v Fitzmaurice: to establish an action in misrepresentation, a party must prove that the representation:
is one of past or existing fact/s
is false
was addressed to the party misled before or when the contract was made
was intended to induce and in fact induced the other party into the contract
In sum, the party misled must have relied on the misrepresentation
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Misrepresentation
The misrepresentation is one of past or existing fact
– therefore it cannot be a statement of opinion. However, there are exceptions, eg if the representor never held that opinion or lied about it
The representation must be untrue
Silence alone is not a misrepresentation at common law. No duty to disclose material facts (caveat emptor applies)
However, there are some exceptions requiring disclosure:
When a ‘half-truth’ is made, ie when the representor has failed to make full disclosure
Subsequent discovery the statement is false
The statement was true when made but becomes untrue later: With v O’Flanagan

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Misrepresentation
The misrepresentation was addressed to the party misled before or when the contract was made
– Plaintiff must show they were the intended recipient of the false statement. Only those who directly or indirectly act on the false statement can obtain a remedy for the misrepresentation
The representation was intended to induce and had in fact induced the other party into the contract
Plaintiff must show the misrepresentation both intended to induce and was successful in inducing the contract
Has the innocent party suffered any loss?
If there is no damage suffered from the misrepresentation, there is no action

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Misrepresentation
Remedies:
Misrepresentation may make a contract voidable. This may give rise to the equitable remedy of rescission (or cancellation of the contract). The innocent party may also possibly claim damages. The types of remedies available depend on whether the misrepresentation was:
Fraudulent: rescission and/or damages for deceit are available (see Derry v Peek for the criteria for fraudulent misrepresentation)
Negligent: rescission and/or damages for negligence are available (see Shaddock v Parramatta City Council for the criteria to establish a duty of care in negligent misrep’n)
Innocent: rescission only: Whittington v Seale-Hayne
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Breach of s 18 of the Australian Consumer (misleading or deceptive conduct):
Use this as an additional or alternative action to misrepresentation
Apart from the common law action of misrepresentation, the plaintiff may also claim breach of s18 of the Australian Consumer (‘ACL’) (prohibiting misleading and deceptive conduct).
Remedies for breach of ACL s 18 include damages (s 236) and court orders to vary contract, to refund money or to return goods (s 237)

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Unconscionable Conduct
Where stronger party takes unconscionable advantage over weaker party’s special disability
Action in equity
Special disability defined as on which “seriously affects ability of innocent party to make judgment in own interests (Amadio’s case)
ACL s 20 prohibits person from engaging in conduct which is unconscionable within meaning of common law
ACL s 21 prohibits unconscionable conduct with supply or acquisition of goods or services
ACL s 22 lists specified matters court takes into account deciding whether there has been breach of s 21

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Undue Influence
Where ascendant party takes improper advantage of position of dominance over the dependent party
Certain classes of relationship give rise to presumption of undue influence: parent and child, solicitor and client, doctor and patient (Allcard v Skinner). May be rebutted.
If no particular relationship, dependent party must prove undue influence (Johnson v Buttress)

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Duress
Involves illegitimate pressure by stronger party on weaker party so as to procure a contract
Distinguish it from hard bargaining
May be actual or threatened violence (Barton v Armstrong)
May be economic duress: threats to a party’s economic interests, eg North Ocean Shipping v Hyundai Construction where defendant refused to continue with construction of ship unless received 10% more. Held: illegitimate pressure and plaintiff had no choice because had chartered ship to 3rd party.
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Capacity
Parties to the agreement must have the capacity to contract
The concept of capacity refers to the contracting parties being able to form an intention to be bound by the agreement
A party to an agreement who is under 18 years of age or who is mentally ill or under the influence of drugs/alcohol may not have the capacity to contract

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Minors contracts
Refer to contracts entered into with people under 18 years
General rule: Contracts can be entered into by minors
However. while such contracts are enforceable by the minor, they are not enforceable AGAINST the minor
Contracts for NECESSARIES such as clothing and shelter are valid and enforceable against the minor
The courts take into account the minors needs and standard of living in determining what is necessary
Contracts for employment, education and training are also valid and enforceable against the minor if it is for the minor’s benefit (Hamilton v Lethbridge)
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Legality
Contracts illegal under statute:
Need to look at wording of statute:
may only penalise the conduct, but not invalidate contract
may invalidate contract, but not penalise parties
may do both
Contracts illegal under common law:
– contracts to commit a crime or tort are void
– contracts in restraint of trade: use Nordenfelt test: a restraint of trade is prima facie illegal and void unless it is in the parties’ and the public’s interests. The restraint of trade must also be reasonable in time and space
– in employment contracts, restraint on confidential info may be valid (Forster v Suggett), but won’t extend to ordinary info and skills

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Contents of a Contract
The study of the contents of a contract concerns:

– identifying what are the terms of the contract

– interpreting their meaning

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Terms versus Representations
Why distinguish between contractual terms and representations?
How to distinguish them?
– fundamentally, terms are statements for which a party assumes contractual liability (unlike representations)
– use the Oscar Chess v Williams criteria:
How important was the truth of the statement?
How much time elapsed between the making of the statement and the final agreement?
Was there reliance on skills/knowledge of other party?
Was statement put in writing?
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Written Contracts
Parol Evidence Rule:
– if agreement in writing, presumed that writing contains all the terms. Any oral statements will not be admitted as contractual: Mercantile Bank of Sydney v Taylor
– but partly written, partly oral contracts are an exception: Vann Den Esschert v Chappell
If contract signed:
– parties bound even if did not read the document: L’Estrange v Graucob
– unless the signed contract was misrepresented: Curtis v Chemical Cleaning & Dye Co

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Collateral Contracts
They avoid harsh consequences of parol evidence rule
De Lassalle v Guildford:
– lessee would not give signed copy of lease unless lessor assured him the drains of property were in order. Later, discovered they weren’t. Held: could not sue for breach of the lease contract as the promise about drains wasn’t contained in that document, but could sue on a “collateral contract”
– collateral contracts require:
– promise
– which doesn’t contradict main contract
– consideration for collateral promise (normally, entry into main contract)
Also, consider the very powerful s 18 of the Australian Consumer (misleading and deceptive conduct)
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Conditions and Warranties
Terms may be conditions or warranties
Condition: vital to contract, so important that its non-performance is considered a substantial failure to honour contract. Remedies = rescission and damages
Warranty: not of central importance. If breached, injured party must still perform contract, but may sue for damages, not rescission.
How to distinguish between them? Use “root of the contract” test – is the term essential to the contract? ie would the party not have entered into contract but for strict performance of the promise:
– Bettini v Gye: breach of warranty, hence only damages
– Associated Newspapers v Bancks: breach of condition, hence both rescission and damages available
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Disclaimers or Exclusions Clauses
Two issues as to a disclaimer:
(a) incorporation – is it incorporated into the contract? Yes, if:
It is included in a signed written contract: L’Estrange v Graucob
It was brought to the other party’s attention by reasonable notice before the contract was formed: Thornton v Shoe Lane Parking; Causer v Browne
It is implied into the contract from prior dealings: Balmain New Ferry v Robertson
Interpretation – does it cover what it claims to cover?
Contra proferentem rule interprets disclaimer narrowly: White v John Warwick
Disclaimer does not cover conduct not falling within the ‘four corners’ of contract: Sydney City Council v West

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Remedies
(1) Rescission: termination of contract for breach of:
a condition:
– Associated Newspapers v Bancks
an intermediate term, breach of which has serious consequences:
– Cehave v Bremer
(2) Damages: available for breach of condition or warranty or for fraudulent or negligent misrepresentation
(3) Injunction: a court order restraining a party from doing an act
(4) Specific performance: a court order directing the breaching party to perform their contractual obligations
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Damages
Damages: compensate plaintiff for losses flowing from the breach.

Losses that can be recovered:
Use the rule in Hadley v Baxendale:
(a) damages are recoverable for direct losses, ie for losses that flow naturally from the breach
(b) damages are only recoverable for indirect losses (ie for losses that don’t ordinarily result from the breach), if the defendant was made aware of them before the contract
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Quantum of Damages

General damages compensate plaintiff for actual financial losses
Nominal damages may be awarded for the breach where there is no actual loss arising from the breach.
Damages may also compensate for loss of expected profits from the contract and cost of expenditure (McRae v Cth Disposals Commission)
Damages for distress and disappointment are not usually awarded in breaches of contract. However, if purpose of contract was to provide plaintiff with enjoyment (eg holiday travel), damages for distress and disappointment may be awarded: Baltic Shipping “The Mikhail Lermontov” v Dillon.
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End of Contract (or Discharge of Contract)
A contract can be discharged:
by performance of the contract
by agreement
by breach of the contract
by lapse of time
by law
by the doctrine of frustration
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Discharge by Performance
Contract discharged where both parties fulfil precisely their contractual obligations
Three exceptions:
1 if the contract is divisible
2 where partial performance is accepted: party who partially performed the contract may ask for a ‘quantum meruit’: Steele v Tardiani
3 if party has substantially performed their obligations, right to quantum meruit: Hoenig v Isaacs
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Discharge by Agreement
A contract can be terminated by another agreement
If one of the parties has completed their part of the contractual obligations then ‘accord and satisfaction’ will be required before the other party is released from their contractual obligations.
A contract may contain a term that allows one of the parties to terminate the contract.
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Discharge by Breach

If one of the parties to the contract commits an actual breach of a condition of the contract then the other party has the option to terminate the contract and claim damages for losses incurred as a result of the breach.

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Discharge by Frustration
Where an event occurs making completion of the contract impossible.
The event must:
Radically alter the contractual position of at least one party
Was not within the parties’ contemplation at the time of the contract
Was not caused by either party
It would be unjust to hold a party to the original contract
see Taylor v Caldwell; Krell v Henry.

Where a contract is frustrated all amounts paid are recoverable and all amounts payable cease to be payable: Australian Consumer and Fair Trading Act 2012 (Vic) s 36

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Consumer Protection:
Australian Consumer

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Australian Consumer (ACL)
In force since 1 January 2011
regulates misleading and deceptive conduct (s 18) and unconscionable conduct (ss 20-22)
provides guarantees:
– to “consumers” (defined in s 3)
– against suppliers (ss 51-57 re goods, ss 60-62 re services) that are non-excludable: s 64
– against manufacturers (ss 271-273 re goods)
that are non-excludable: s 276.
provides remedies to persons against manufacturers for
loss, damage, injury arising from goods with safety defects: ss 138-141
any exclusion of liability is …