Enterprise Law Full Note

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Enterprise Law - Full Note
Enterprise Law (Western Sydney University)
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Module 4, 5, 6 (contract law)
Week 4
Contract law 1
 A party: business or individual that enters into a transaction

- every transition involves two or more parties
 Contracts are a legally enforceable way that businesspeople can
be sure that transactions with another party will do what the other
party promises
 The law developed to provide the confidence that businesses need
to enter into transaction. If a transition is in a contract form, they
can be enforced by the courts. This means that if a party fails to
deliver on a promise, the innocent party may go to court to seek
remedy (such as an order from the court requiring the other party
to do what they had originally promised
 ‘Spiritual and secular’ confirms that when determining the question
of intention the courts look to the actions and conduct of the
parties and not to any presumption as to what is usual.
What is a contract
A contract is a legally enforceable agreements between two or more
parties
 A transition will not be a contract unless it demonstrates each of

the elements of a contract, (offer, acceptance, intention and
consideration)
 It is important to note that a contract does not need to be written
down in order to be enforceable.
- eg. purchase of a cup of coffee. Quite often, no documents are
produced during this transaction. Nevertheless, a legally
enforceable contract has been created. Even if you are given a
receipt when you purchase your coffee, the receipt is unlikely to
specify all matters of relevance to the parties. For example, the
receipt is unlikely to specify ‘hot coffee, properly made and served
in a clean container,’ even though you could expect all of these
things. Consequently, if your coffee is served stone cold, you could
demand a fresh cup or alternatively, a refund.
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Bilateral contract
- Known as a promise of a promise
- Most commonly encountered form of contract  deals with buying
goods and services
- Both parties have obligations buyer to pay for the goods, and
seller has the obligation to provide the goods
Unilateral contract
- Only if one party assumes an obligation
- There is no contract until the offeree performs the requested act,
as they have the option of choosing whether or not to perform 
“Promise for an act”
- An example of unilateral contract is a lost and found poster with a
reward… there is no obligation for anyone to go look for the item,
but if the item is returned, it is the obligation of the offeror to
provide the reward, when the person is aware of the award
Executed contracts
- The object of the contract is performed and completed at the time
of making the contract  eg. Car wash for $10
Executory contracts
- When one of the parties promises to do or refrain from doing
something in the future
Formal contracts/ deeds

- A contract written in a special way and as a result no need
consideration; validity from form alone
1. Contracts of record; which can arise against the wish of one of
the parties so that they are independent of agreement
2. Contracts under seal (or by deed); a promise in writing, signed

by the parties to the contract, witnessed by at least one witness
which is not the parties of the contract, and has to be sealed
Simple contracts
- In writing, as evidenced
- Valuable consideration must be present for it to be valid, but not
under seal or contract of record
- Subject to statutory requirements, simple contracts can be created
expressly, implied by quasi contracts
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Types of contracts
Form of contract definition Example
Verbal contract The contract is Agreeing to help a
formed verbally friend move in
(spoken by words exchange for food or
alone) money
Contract by conduct The contract is Taking a can of baked
formed from the beans to the
actions of the parties supermarket cashier,
and receiving
ownership of the
beans in exchange of
money; no words
spoken
Written contract Expressed in a written Joint venture
document agreement between
two construction
companies to build a
road tunnel
Mixed contract A contract formed Going to the train
from a combination of station and asking for
two or all of the above a ticket (verbal),
paying the fare, and
receiving the ticket
(conduct) and the
ticket itself (written)
Elements of a contract:
In order for a transaction to be recognised as a contract the transaction
must demonstrate the necessary elements.
1. Offer: a promise by one party to provide something or to do
something in exchange for something of value from the other party
2. Acceptance: agreement to the offer
3. Intention: each party understood that an enforceable legal agreement
was being created and intended to create an enforceable agreement
4. Consideration: each party provided, or agreed to provide, something
of legally recognisable value to the other.
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Offer
- An offer is a clear and definite promise
- An invitation to enter into a contractual arrangement
- Person making the offer is called the offeror, the person to whom
the offer is made is called the offeree
- The offer has to be made then accepted, before an agreement can
be formed
- When a person makes an offer, they make a promise to do
something in exchange for something in return from the other
person.
- An offer can be made to any of the following classes of offerees.
• A single party, either a person or a business.
• A distinct group of parties, either persons or businesses.
• An indistinct group of parties, either persons or businesses,
including the ‘world at large’.
- To have an offer communicated properly, it must be clear that the

offeror is prepared to enter into a binding agreement
- The offer must also be unconditional, that is to say, not dependant
on any other event occurring
- Note: not all communications which appear to be offers are
actual offers, three main examples include:
 Negotiations: communications between parties that are
conducted before the agreement is made. The purpose of
negotiations is to try and find out what each party wants and is
prepared to promise
 A request for information: An enquiry made to help a person
decide whether or not to enter into an agreement. A request for
information is not an offer. This means that if the seller responds to
your questions, they are not compelled to sell the item to you
 Advertisements: The courts do not consider advertisements to be
offers, an advertisement is normally regarded as an invitation to
another person to make an offer (an ‘invitation to treat’)
- (The courts make an exception where the advertiser states that it
has limited stock or availability and will sell at the discount until it
exhausts its supply of goods or services. In such circumstances
the courts will find that the advertisement does constitute an offer.)
When do offers end?

An offer may end or ‘terminate’ in the following circumstances;
 Rejection: the offeree refuses the offer, when someone clearly
states they are not interested
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 Lapse: the offer lapses or expires, as it has not been accepted

within a reasonable period, or within a specific period, or within a
specific period set by the offeror
 Revocation: the offeror changes their mind and cancels the offer
before it has been accepted. Therefore, the offeror must make it
clear to the offeree that the offer is revoked
- this cannot be done if the offeree has already accepted the offer
Counter offers
- When the offeree responds by saying that they would like to accept
the offer on some alternative condition, such as paying a lower
price. Therefore, rather than rejecting the offer outright, the offeree
states they will enter into a negotiation stage where they will reach
the endpoint that has a ‘condition of agreement’ altered to
compromise both parties.
- It might be thought that such a statement amounted to a
conditional acceptance but legally, this is not the case. In such
circumstances the offeree is taken to have rejected the offer and to
have made a fresh offer of their own. We call the fresh offer a
counteroffer because it is made in response to the earlier offer.
The offeree now becomes the offeror and the other party (now the
offeree) may choose to accept or reject the counteroffer.
- A counteroffer is treated as a new offer, it is not a variation of the
original offer. The original offer becomes void as it is rejected, one
important note is that the original offer can no longer be then
accepted.
- When a person receives a formal contractual offer, but responds
with a counteroffer, or continue to change the terms and
conditions, the other party needs to be aware that this constitutes
as a counteroffer. People need to be known to the new changes
An example of this
Court case: Counteroffer

The Farm
The following scenario is taken from a case that was decided by the
courts in 1840. Although the case was decided such a long time ago, the
legal principles that it presents remain valid today.
Facts
Mr Wrench offered to sell his farm to Mr Hyde for £1000. Mr Hyde
responded by offering to buy the farm for £950, which Mr Wrench
refused. Mr Hyde then indicated that he was prepared to pay the original
amount of £1000. Mr Wrench did not reply. However, at no time did Mr
Wrench formally withdraw his offer to sell the farm for £1000. When Mr
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Hyde tried to insist on proceeding with the sale, Mr Wrench refused to

proceed. Mr Hyde sued him. Legal issue
The issue that the court had to decide was this: was Mr Wrench obliged
to sell his farm to Mr Hyde? In other words, had a contract for sale of the
farm come into existence? In particular, was Mr Hyde’s indication that he
was prepared to pay £1000 an acceptance of Mr Wrench’s original offer
to sell for that amount (in which case there would be an agreement), or
was it a separate, new offer to purchase the farm for that amount, which
Mr Wrench could accept or reject as he chose?
Decision of the court
The court decided that by making a counter‐offer, Mr Hyde had rejected
Mr Wrench’s original offer and he could not revive this offer by trying to
accept it later on, after he had made the counter‐offer. That is to say, Mr
Hyde could not accept an offer that he had already rejected by making
the counter‐offer. The counter‐offer operated as a rejection and put an
end to Mr Wrench’s original offer, meaning it could no longer be
accepted. When Mr Hyde later indicated he was prepared to buy the
farm for the original £1000 price offered by Mr Wrench, Mr Hyde was in
fact making a new offer to buy the farm at that price: a fresh agreement
was being proposed. At this time, Mr Hyde was the offeror and Mr
Wrench was the offeree in relation to that new offer. As offeree, Mr
Wrench was not obliged to accept this £1000 offer, even though it was
for the same amount as he, Mr Wrench had originally offered to sell the
farm, because Mr Wrench’s original offer was no longer available. It was
for Mr Wrench to decide whether to accept or reject Mr Hyde’s later offer.
Mr Wrench did not accept it, and his silence could not be taken as
acceptance. Therefore, no agreement had been reached, and no
contract was formed at any stage of this exchange between Mr Wrench
and Mr Hyde. The court therefore dismissed Mr Hyde's lawsuit. As there
was no agreement in existence there could be no contract, and Mr
Wrench was entitled to keep his farm or sell it to someone else.
Business focus: contractual negotiations

- When each offer is capable of acceptance and if an offer is
accepted, an agreement comes into existence. Once an
agreement has been reached it is too late to vary the agreement if
one of the parties changes its mind. Therefore, most businesses
arrive at agreements after negotiations
- Negotiations are communications made between the parties prior
to entering into an agreement. Such communications (often
referred to as ‘bargaining’ or ‘haggling’) are not legally binding on
either party since the intent is not to conclude an agreement but
rather, to discover what the other party is prepared to promise.
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- it is normal that one party to suggest a promise and the other

responding with a different suggestion, and so forth till a
consensus is reached
- There is a difference between ‘negotiations’ and ‘exchange of
offers’
- In forming agreements, businesses should therefore make a
clear distinction between pre-contractual negotiations and the
terms of the contract itself. This will avoid doubts as to what (if
anything) was agreed between the parties and will also avoid what
lawyers sometimes refer to as a ‘battle of the forms’ (where
numerous written offers and counter-offers are made and, as a
result, the parties are in dispute about what the final agreement
actually was).
To make it clear between negotiations and offers, business negotiating

agreements should take the following steps
• Require that all contracts be:
- in writing,
- signed by the other party
• Declare (and ideally, also have acknowledged in writing) at the start of

negotiations that the only promises binding upon the parties will be those
contained in the final written agreement
• Mark any document not intended to be the final contract with the words
‘Precontractual document’ or ‘Negotiations: subject to contract’ or some
similar expression that confirms the document is not intended to be a
contract or any part of a contract
• (If consensus is reached) include, in the written agreement, a term that

the written agreement constitutes the entirety of the agreement (this
helps to prevent arguments that a term was verbally agreed to but
inadvertently omitted from the written agreement).
Agreement/ acceptance
Acceptance: when the party who received the offer (the offeree) agrees
to the offer and communicates their agreement to the party who made
the offer (the offeror). When an offer is accepted an agreement is
formed.
Acceptance may be communicated
- Verbally
- In writing
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- Through conduct
Note it is at the offeror liberty to decide how acceptance is
communicated
Express acceptance
- Can occur when the offeree communicates his or her acceptance
by some direct means of communication; written or verbal
- The moment at which agreement is formed is the moment at which
express acceptance takes effect, though there are 3 main
possibilities
1. If acceptance is communicated in person or by telephone,
acceptance takes place immediately
2. If acceptance is communicated by letter in ordinary mail,
acceptance takes place when the letter is posted, NOT when the
letter is received by the offeror – this is known as the “Postal
Acceptance Rule’
3. if acceptance is communicated electronically, there are 2
possibilities
A) If the party making the offer has given particular directions as to
where the acceptance should be sent (such as to a particular
email address) then acceptance takes place when the offeror
receives the message in their information system, regardless of
whether he or she reads it right away.
B) If no specific directions are given as to where the acceptance
should be sent, the communication is taken to have been
received when it comes to the attention of the offeror. This
requires only that the receiver has been made aware of the
communication, not that they actually read it
Implied acceptance
- Occurs when the offeree’s conduct or actions convey acceptance.
- A common example; being stores – a customer takes items to the
checkout and the checkout operator takes the money, processes
the transaction and hands you the item. This acceptance is
through conduct
- Unilateral contract; is a contract in which the offeree accepts the
offer at the same time as the task/ promise is done – promise
constitutes acceptance
Responses that are not acceptances

- Is an offer is not accepted, there can be no agreement and
therefore no contract
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- If an offeree wishes to accept the offer, then it is their responsibility

to communicate that to the offeror
- If the offer is rejected, the offeree can choose to do nothing
- Silence or inaction, by the offeree, cannot be taken as acceptance
of the offer. This is a protection of unsolicited (unrequested) offers
of goods and services
- The acceptance will not be effective if the offeree has not agreed
to all of the terms proposed in the offer. Effectively meaning that
the offer must be accepted ‘as is’, without alteration
Express contracts:
- Contracts that may be either wholly in writing/ evidenced in writing/
oral/ partially written and partially oral  all terms are agreed upon
by parties
Implied contracts:
- The contract is implied form the circumstances surrounding the
acts or conduct of the parties  implied that you pay for a service
or goods in normal circumstances and locations such as
supermarkets or taxis
Quasi contracts:
- The contract is the result of an agreement imposed by law  such
as car insurance, a third party car insurance is acceptable-
irrespective of whether there is agreement between parties
Business focus: written agreements and acceptance by conduct

Many business contracts take the form of a written agreement signed by
both parties. A written agreement is advisable for complex transactions
involving many promises or obligations since the parties will have a
record of what was agreed. Moreover, in the event of a dispute, the court
may examine the document. Businesses usually negotiate agreements
on the understanding that the parties will only be bound by a written form
of agreement signed by both parties (as previously stated, this is the
recommended approach in most cases as it allows negotiations to
proceed without the prospect of being legally bound by something that
might be said). If consensus is reached, a written agreement is drawn up
(usually by the parties’ solicitors) and acceptance of the agreement is
effected by each party signing the agreement. If one party refuses to
sign the written agreement there can usually be no binding agreement.
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Nevertheless, there have been cases where one or both of the parties
have commenced performance of their obligations under the agreement
before finalisation of the written document. In these circumstances, is
there a legally enforceable agreement? The following case raised this
question.
‘Does Not Sign Contracts’
Empirnall, a property developer, hired Machon Paull, a firm of architects,
to draw up plans and act as project managers for a property
redevelopment. Machon commenced work and requested Empirnall to
make a progress payment and sign a contract to formalise the
agreement. Empirnall told Machon they would make progress payments
but that they would not return a signed contract, telling Machon that the
director of Empirnall ‘does not sign contracts’. Empirnall made a
progress payment to Machon but at no stage provided a signed copy of
the contract. Machon continued work and wrote to Empirnall stating that
they were ‘proceeding on the understanding that the conditions of the
contract are accepted by you and works are being conducted in
accordance with those terms and conditions’. Empirnall later refused to
proceed with the agreement and denied that a binding agreement had
come into force. Machon sued for damages.
Legal issue
The issue that the court had to decide was this: did Empirnall’s refusal
to sign the written agreement mean that there was no contract between
the parties?
Decision of the court
Although Empirnall had not signed the contract as requested, it had
taken the benefit of the services provided by Machon. Empirnall was
provided with a reasonable opportunity to reject Machon's offer of
services but did not do so. The court concluded that, in these
circumstances, Empirnall’s conduct amounted to acceptance of
Machon’s offer. It followed that, because there was a contract between
the parties, Empirnall had breached its obligations under that contract.
The court ordered Empirnall to pay damages to Machon.
Importance to businesses
The relevance of this case to businesses is that a party to an agreement
cannot accept the benefit of services under that agreement and then
claim that that there was no binding agreement because the party’s
acceptance was defective in some way. The court was prepared to find
that Empirnall’s conduct amounted to acceptance even though it had
refused to complete the formalities of acceptance. Although inaction will
not normally be regarded as acceptance, inaction will not operate to
invalidate an agreement that the offeree has drawn a substantial benefit
from. ‘Does Not Sign Contracts’ indicates the willingness of the courts to
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look beyond a technical defect in a contract to achieve a fair result

between the parties. In this case, the court applied the ‘reasonable
bystander’ test of acceptance: would an independent person, viewing
the transaction objectively, consider that an offer had been accepted?
The court concluded that a reasonable bystander would consider that
Machon’s offer had been accepted and therefore, Empirnall was legally
bound to complete the contract. Empirnall made the mistake of believing
that it could hide behind its own refusal to sign a written agreement with
Machon. The case shows that if a commercial contract is disputed in
court, the conduct of the parties and considerations of overall fairness
will often outweigh technical legal deficiencies in the agreement. Good
faith and fair dealing are always respected by the courts; attempts at
‘legal trickery’ will not usually succeed.
Case reference; Empirnall Holdings Pty Ltd v Machon Paull Partners

Pty Ltd (1988) 14 NSWLR 523.
Intention
- An agreement comes into existence when an offer is accepted by
the offeree. However, not all agreements are contracts. This is
important since only a contract may be enforced by the courts.
- willingness of all parties to an agreement to be legally bound
by that agreement. The required intention is the intention to
create legal relations. In order for the element of intention to be
satisfied, each party must understand and accept that s/he is
entering into an agreement that may be enforced by the courts
expressly stated intention

- the parties to an agreement make it clear that they intend the
agreement to be legally enforceable. For example, a written
agreement might include a clause specifically stating that the
parties intend for the agreement to be legally enforceable. A written
agreement might also specify which court (for example, the
Supreme Court of New South Wales)
- n may also be declared verbally although this will be more difficult
to prove in court, especially if there are no witnesses to the
statement. Wherever possible, businesspeople should rely on
written documents to evidence agreements.
Implied intention
- Even if the parties’ intention is not clearly stated, the courts may
nevertheless find that the agreement should be recognised by the
law. In such cases the courts imply an intention to create legal
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relations. – meaning that although intention was not specifically

stated, a contract still exists
- To determine intention, the court looks at the conduct of the parties
as an objective observer. If it appears to the court that the parties
acted in a manner consistent with an intention to be legally bound
then the court will find that the requirement of intention is satisfied.
How the courts determine intention

The courts take into consideration factors such as
- relationships of the parties
- The nature of the agreement under dispute
- History of dealings between parties
- Whether either party has gained a benefit under the agreement
It is important to note, however, that there is no presumption of intention

(or lack of intention). This means that the courts will not imply intention if
the conduct of the parties clearly indicates that they did not wish to
become legally bound.
On the other hand, if the parties’ conduct clearly indicates an
intention to become legally bound then the courts will give effect to
this intention even if the parties to the agreement are friends or
family members.
- For example: suppose a son asks his father for money to repay a
gambling debt. The father, tired of his son’s reckless behaviour,
agrees to the loan on the condition that it be paid back in
fortnightly instalments over two years. The father also makes his
son sign a written agreement which confirms the arrangement and
declares that legal action may be taken in the event of default. If
the son failed to pay back the loan the father would be able to
enforce the agreement through the courts
Consideration
Consideration: What each party provides, or promises to provide, to the
other party
- Consideration may be anything of legally recognisable (capable of
being given a monetary value; money, goods, services, promise to
perform/ not to perform a specific action
- Some examples of things that are not valid consideration include
promises or statements of a personal nature, for example, a
promise to be a better son or daughter; a declaration of love or an
expression of friendship. Such vague statements are not valid
consideration since they are not of legally recognisable value. For
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example, suppose that a son promises to respect his parents in

exchange for the right to farm on their land. The courts would not
recognise this agreement as a contract since the son’s promise is
not of legally recognisable value.
- It is very important to recognise that each party must provide
consideration. If either of the parties fails to provide consideration,
there can be no contract
Value of consideration
- Although consideration is required to create a legally enforceable
contract, the value of the consideration does not need to be large,
or even fair. The courts make a distinction between consideration
that is sufficient (of legally recognisable value) and consideration
that is adequate (fair or reasonable). Consideration need only be
sufficient to be legally valid
- The courts make some exceptions, however, in cases where one
party has exercised an unfair advantage over the other, or has
engaged in some dishonest conduct, in order to strike the bargain.
In such cases the courts may refuse to recognise a contract
- A further restriction on consideration is that it must be something
that is provided or promised prior to finalisation of the agreement.
A promise or action provided after the agreement has been
concluded is known as past consideration and is not valid
consideration
Commercial or business transactions in the case of commercial

transactions, the courts will try to ensure that the expressed
arrangements and expectations of the parties are carried out where they
are satisfied that the parties have reached agreement. This is judged by
objective standards, notwithstanding that the parties’ communications
might have been uncertain and particular terms had still to be worked
out. But in the great majority of cases the traditional approach of offer
and acceptance will still suffice. As far as agreement is concerned, note
the following:
1. Agreement is the result of negotiations by two or more persons of
the substance of a contract. It may not necessarily be the contract.
2. It is unusual for the parties to have discussed and agreed to every
term of the agreement. In some cases, if the negotiations have
been going on for some time, this may be true. However, in many
commercial transactions there will only be broad agreement on the
substance of the contract, with the details to be worked out later. It
is the act of assent which gives rise to the agreement.
3. In business today, many agreements are entered into on the basis
of standard-form documentation. This consists of a set of standard
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non-negotiable provisions in the agreement between the parties,

which is drawn up in advance by the person putting it forward,
usually in their favour, with the other party offered the terms on a
‘take it or leave it’ basis; for example, consumer credit and
insurance contracts. There is a problem not only with ascertaining
whether ‘agreement’ has been reached but, in some business
transactions, whose terms will prevail.
4. The term ‘agreement’ presupposes that the parties are in an equal
bargaining position. However, the reality is that in many consumer
and commercial transactions, the inequality of bargaining power
means that many contracts are not arrived at by ‘real’ agreement.
The weaker party either accepts the terms or goes without. It is
only then where the pressure used by the stronger party is
unconscionable that the courts may be prepared to set aside the
contract (see Chapter 5).
5. Even if the agreement is considered to be non-contractual, it may
still result in a breach of the ACL; for example, as misleading or
deceptive conduct and a breach of s 18 , or as involving a false
representation and a breach of s 29 of the ACL (see Chapter 13).
❱❱ ❱❱ ❱❱
Gibson, Andy. Commercial & Enterprise Law CB, P.Ed Custom
Books, 2020. ProQuest Ebook Central,
http://ebookcentral.proquest.com/lib/wsudt/detail.action?
docID=6110308.
Created from wsudt on 2020-04-07 10:10:03.
Tutorial 4
Boots cash chemist v pharmaceutical society
1.
“Invitation” to treat leads to a “wiliness to trade” thus to an offer (needs to
have more meaning, specifics)
 Offer: A clear and definite promise or proposal, capable of being
accepted
 Counteroffer, a rejection of the original offer
 “Acceptance” (agreement between two parties)
Wait- in stores isn’t its stock price? So, if there is no price tag, it cannot
be negotiated, therefore it was not an invitation, and no wiliness to trade
Electronics transition act 2000 (NSW)  designated email address
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 Intention – use the legal systems to enforce their rights, when this
offer was serious, whether the parties has the relevant
seriousness, as they are not related, it is a business relationship
 Honour clause (parties say they are bound by honour) – not legally
bound
 Consideration- something of value in exchange for a promise
 Executory
 If there is no chance to sue, it has no serious intention
Brian does have a binding contract with Julie, as of Wednesday morning
2. A
Counteroffer= terms and conditions (practically don’t promise anything),
statement does not equal promise
Agreement on their terms when you accept the terms and conditions
b.
past consideration
Roscoria v Thomas (consideration)
3.
Is there a valid contract should always be the first question
Harvey v Facey
Week 5
Contract law 2
- Even if an agreement meets each of the 4 elements of a contract,
the courts may still refuse to enforce it, if it would be unfair/ unjust
to either one of the parties.
- a contract that a court has refused to enforce for one of these
reasons is referred to as an invalid contract
- An example of an invalid contract is an illegal contract
- Any contract of supply made for the stolen goods would be
invalid as the supplier did not have legal title over the goods in the
first place. This means that the business could not take a civil
action in the courts to enforce the contract against the supplier.
- While an entire contract may be declared invalid, it is also possible
for particular terms of a contract to be declared invalid. In such
cases, the court will ‘sever’ the invalid term from the rest of the
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contract, allowing the remainder of the contract to operate if this is

possible.
The main topics of invalidity

- Incapacity
- Mistake
- Duress
- Undue influence
- Unconscionability
- Misrepresentation
- Non est factum
Incapacity
- Each party to a contract must be capable of understanding the
nature of the agreement they have entered into
- Referred to as the capacity of the party to enter into contractual
relations
- If a court is satisfied that a party lacked capacity to enter into a
contract that a party lacked capacity to enter into a contract, it may
be declared void, and make an order for restitution (recovery of
any money paid by the incapable party)
- Main categories include; mentally incapacitated persons or
children
Mentally incapacitated
- If one suffers mental illness, intellectual impairment or brain injury
- The courts will not enforce contracts against such parties if it is
clear that the party was incapable of understanding the nature of
their obligations under the contract at the time that they entered
into it
- Without this protection some businesses would take advantage of
mentally incapacitated persons. If a business has genuine cause
to enter into a contract with a mentally incapacitated party (for
example, for the purpose of providing personal care services), it
should ensure that the party is represented by a lawyer or some
other independent person capable of advising the party of their
legal obligations.
Children
- Under 18 years of age, also referred to as minors, are technically
capable of entering into the contracts and may enforce a contract
against the other party is necessary.
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- However, it may be difficult for the other party to enforce the

contract against the child, unless the contract constitutes is what is
referred to as a ‘beneficial contract’ (NSW) or a ‘contract for
necessaries’ (in other states or territories)
- In New South Wales, minors may be bound by any contracts they
enter into that they are capable of understanding and which are of
benefit to them (for example, a contract of apprenticeship)
- Elsewhere in Australia, a contract may be enforced against a
minor where it is for goods or services that are necessary to the
minor (such as food, clothing, medical services, education and
transport)
- contracts which contain terms that are unfair to a child or which
take advantage of his or her inexperience are unlikely to be
enforced by the courts. Whether the contract with the child is for
beneficial or necessary services or something less important,
businesses are strongly advised to ensure that a parent or
guardian of the child approves any contract. For written contracts
this may be achieved by having the parent or guardian countersign
the document.
Mistakes:
If one or both of the parties was in error about some fundamental aspect
of the contract, the court may set aside the contract for mistake, this
includes;
-unilateral mistake
- common mistake
- mutual mistake
If a court is satisfied that a contract has been affected by mistake it will
normally declare the contract void and may also make an order for
restitution if a party has paid money
Unilateral mistake
- occurs when one of the parties is mistaken about some detail of
the contract
- not usually a ground for setting aside a contract, as the courts
expect the parties to take care when entering into agreements.
However, if the other party knows about the mistake and takes
unfair advantage of it, the equity courts may provide relief
- For example, suppose that a landowner makes a written offer to
sell ten acres of land for $15,000. In fact, the landowner meant to
write ‘$15,000 per acre’ which is much closer to the market value
of the land. The purchaser realises the mistake and immediately
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accepts the offer. In these circumstances the court may declare the
contract void in which case there would be no sale.
- Alternatively, the court may allow the contract to remain in force
but make an order for rectification (correction of the contractual
document) so that the sale is made on the terms intended by the
landowner.
Common mistake
- Occurs when both parties are mistaken about the details of the
contract
- An example would occur if a retailer and wholesaler formed a
contract of supply for goods that are no longer manufactured. As
each party was mistaken in its belief that the goods could still be
supplied the court would be likely to declare the contract void.
Mutual mistake
- Occurs when both parties are mistaken, but about different things
- For example, a construction company hires ‘concreters’ from a
labour hire company to work on one of its construction sites. The
construction company needs slab pourers, but the labour hire
company supplies concrete renderers. Each party was mistaken
about the type of labour that it was contracting for. As there was no
‘meeting of the minds’ the court would probably declare the
contract void.
Duress
- If a party has been forced or threatened to enter a contract against
their will the party is said to have acted under duress. The threat
may be a threat against:
• the party
• some other person (such as a family member of the party)
• goods, land or business assets in which the party has an interest.
For example, a man purchases shares from another party because the
other party has threatened to kill him and his family if he fails to make
the purchase. An equity court would declare the sale to be voidable and
order restitution.
Undue influence
- When the parties to a contract will have some pre-existing
relationships, such as two family members
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- Where the parties are of equal bargaining power this need not be a
problem. However, unfair results can arise if one of the parties has
a degree of power or influence over the other and exploits this to
take unfair advantage of the weaker party. In such circumstances
the stronger party is said to have exercised undue influence over
the weaker party
- If the weaker party can demonstrate that the contract favours the
stronger party (or some other person close to that party) then the
court will usually declare the contract voidable and order restitution
in favour of the weaker party.
Unconscionability
- Unconscionability; when a party to a contract suffers some
particular disadvantage (such as illness, ignorance of their rights,
financial need or old age) and the other party exploits this
disadvantage to favour their own position, the courts may set aside
the contract on the ground of unconscionable conduct
- a dishonest or immoral conduct which favours the wrongdoer at
the expense of the disadvantaged party
misrepresentation
- is an incorrect statement of fact. There are 3 different types of
misrepresentation:
 fraudulent misrepresentation
 negligent misrepresentation
 innocent misrepresentation
fraudulent misrepresentation
- a deliberately false statement of face by one party to trick the other
party to enter into a contract
negligent misrepresentation
- occurs in situations in which the party making the statement owes
a ‘duty of care’ to the other party
- The party owing the duty makes a statement to the other party that
is negligent and consequently, the other party suffers damage
- The party can then seek damages (monetary compensation)
innocent misrepresentation
- When one party makes a statement which they believe to be
genuinely true, but is incorrect
- The person who agreed to the contract would then be entitled to
have the contract declared voidable in such circumstance
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Non est factum

- The limited circumstances in which the courts will refuse to enforce
a contract on the basis that one of the parties signed the document
under a mistaken belief as to its effect. This is the situation known
as ‘non est factum’, which is a Latin term meaning ‘not my
document’.
- . It should be emphasised that situations of non est factum are
unusual and the doctrine does not provide a party having ordinary
powers of sight and language with an excuse for not reading a
written contract fully and carefully.
Promissory estoppel
- As we have seen, promises made before the creation of a contract
(for example, during negotiations) are not normally enforceable in
the courts. However, it is possible to imagine situations in which
this would lead to an unfair result, for example, where a person
relies on the promise and incurs substantial costs as a result. The
courts provide a remedy called promissory estoppel
Example being; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR
387
Legal business Advice

If a delay in finalising an agreement cannot be prevented, the business
should avoid making representations that imply an agreement between
the parties. Certainly, any evidence that the other party has acted in
anticipation of a concluded agreement should be acted on immediately.
Once again, it is advisable to conduct all negotiations on the basis that
the only terms binding upon the parties will be those contained in the
written agreement. The business could go further by having the other
party agree not to place any reliance upon any representation made by
the business prior to the signing of the written agreement.
Tutorial 5
Defects
Lacking genuine consent
1. Common law grounds

Felthouse v Bindley
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Under duress?
Illegitimate pressure: going what’s beyond acceptable
Unconscionable conduct- equity law
No contract so gets her mirror back- she never agreed
2. Lack of capacity under intoxication

3. Operative mistake: Common mistake, mutual mistake and
unilateral mistake
- section 18/ section 29
Contracts Review Act 1980 (NSW)
Week 6
Contract law 3
Terms
A promise, right or obligation under a contract
an example if a term is ‘payment term’ in a contract of supply.
- If a company orders goods on the basis that it will pay for the
goods after they are received, it is normally a term of the contract
that payment be made to the supplier within a certain period. Such
terms are listed in an invoice ((a document listing the goods
delivered, amount owing and terms of sale) which is attached to
the consignment. Such terms are legally enforceable under the
contract of sale
- Consequently, if the company fails to pay for the goods within the
period specified it will be in breach of its obligations and the
supplier will be able to take action to enforce the contract. Without
the payment term, the company would still obliged to pay for the
goods but the period allowed for payment would be less clear.
- The terms of a contract may be written (stated in writing), verbal

(stated orally) or some combination of the two (stated partly in
writing and partly by verbal means).
- Terms may also be classified as express terms or implied terms,
and may be further classified as either conditions or warranties
according to their importance to the transaction
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Express terms
- A contractual term may be classified as either an express term or
an implied term
- Express term: one specifically agreed to by the parties to the
contract. This allows the parties a greater certainty over the terms
of the contract since a written document can be produced as
evidence in court should the need to enforce the contract arise
- it is common for businesses to employ standard form contracts
which are pre-prepared written contracts that do not vary from
transaction to transaction. These are especially useful for
businesses that sell large numbers of goods or services to the
public.
- An unwritten term may also be classified as an express term if
both parties were aware of the term prior to entering into the
contract and clearly agreed to it.
- Usually, the term relates to the cost of the goods or services and
the customer’s payment obligations. If the customer agrees to the
sale, the term becomes binding.
Implied terms
- Term recognised as being enforceable even through the parties
have not specifically agreed to it
- Express terms undoubtedly produce the clearest contracts, though
it may not always be practical for the parties to specify terms
expressly
- eg. a busy supermarket, which would enter hundreds of contracts
with customers every day. It would be very impractical to insist that
every customer specifically agreed to the supermarket’s terms of
sale. Nevertheless, it is also clear that terms do exist. For
example, no customer can expect to walk out of the supermarket
without paying for the groceries they have selected. In such
circumstances, the courts recognise implied terms.
- In other circumstances the courts may be reluctant to find an
implied term in a contract since the parties are usually able to
specify their arrangements through express terms.
- However, there are situations in which the courts will find implied
terms in business contracts, especially where this is necessary to
give effect to the actual intention of the parties
- There may be a number of reasons why an express term was not
incorporated. For example, the parties might have overlooked the
need for the term;
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1. the term might have been so obvious to both parties that they
felt no need to specify it expressly (for example, if there was a
long-established practice in the parties’ industry of conducting
transactions in a particular way)
2. the parties may have made similar agreements in the past.
- If it appears to the court that a term would have been included had
the parties thought about it, or the contract does not work properly
without that term, the courts may imply the term, provided that:
1. it is fair and reasonable to imply the term
2. the term can be expressed clearly
3. the term does not contradict any express term.
Conditions and warranties
- Terms vary in their importance to the parties. Some terms are so
important that breach of them would render the contract useless to
the other party. Other terms may be of less importance, such that
breach would provide the innocent party with some remedy (such
as compensation) but would not invalidate the entire agreement
- Condition: A term that is so important to a contract that the failure
of one party to comply with it would render the contract useless to
the other party
- Warranties: terms with less importance to a contract  although
warranty is less important than a condition, a breach of a warranty
is still serious enough that the innocent party may seek the
assistance of the courts
- an example of this is a payment term, if the goods are delivered
late, the purchaser will still receive the foods but as well be entitled
to receive assistance from the courts, for such things as
compensation for loss of business
- Sometimes the parties are themselves entitled to specify a term as
a condition. This means that a term which might otherwise be
classified as a warranty must be categorised as a condition. For
example, if delivery of goods on time were so important to a
business that late delivery would be useless, the business may
specify the delivery term as a condition. This would make sense,
for example, to a catering business that needed to order
perishable foods to serve at a wedding.
Interpretations of terms
- not all terms are clearly expressed, and, in such cases, the
meaning of the term may be ambiguous (open to differing
interpretations)
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- If a term is ambiguous the parties may get into a dispute as to the

proper meaning of the term and consequently, their obligations
under it.
- Interpretation/ construction of the term: If the meaning of a
term is ambiguous and the parties cannot agree on the meaning, it
will be necessary for the courts to decide what the term means.
The process is called interpretation/ construction of the term
- When interpreting a term, the court considers not only the term
itself but also, how it relates to the rest of the contract as quite
often, the meaning of a term can be clarified by referring to other
terms.
- As a general proposition, when interpreting contractual terms (or
indeed, the entire contract), the courts try to establish a
‘commercially sensible’
- commercially sensible: taking the whole contract into account
and adopting a ‘commonsense’ approach that aims (as far as
possible) to make the agreement work in the way that the parties
intended
- The courts do not necessarily apply a strict or literal meaning to
the words of a contract, particularly if such an approach would
destroy the bargain which the parties intended to make or would
otherwise produce unreasonable results.
Parol Evidence Rule

- Non-written contracts have the advantage of convenience which is
why most day-to-day contracts (such as buying groceries at a
supermarket) are in this form. Written contracts have the
advantage of certainty, since there is a record of what was agreed
between the parties. Mixed contracts (part written and part non-
written) suit situations where neither a verbal nor a written contract
would be enough on its own (for example, receiving a ticket when
entering a car park).
- Business people should, however, be aware of one legal

consequence of expressing a contract in written form: if the
contract appears to represent the complete agreement between
the parties then the courts will not consider evidence of alterations
or additions to the contract, such as verbal promises made before
the written agreement was signed
- Parol Evidence Rule: the written document is presumed to be the
complete agreement between the parties
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- When negotiating a contract, a party will often make promises or

assertions which do not find expression in the written agreement.
Such representations are known as pre-contractual
representations and are not normally considered to be terms of
the contract due to the operation of the parole evidence rule.
Consequently, precontractual representations cannot usually be
enforced.
Exclusion clauses (exemption clauses/ disclaimers)

- a contract will include a term stating that if things go wrong, one of
the parties will not be legally responsible for any loss suffered by
the other party
- exclude one of the parties from legal liability to the other party.
- An exclusion clause that is displayed by means of a sign will
become a term of the contract between the parties as long as the
sign is:
1. clearly displayed in a prominent position (for example, next to a
cash register or at the entrance to the place of business)
2. clearly worded to identify the loss or losses for which liability is

being excluded (for example, any damage to, or theft of, a vehicle).
- the business must also ensure that the other party (usually, a
customer) is able to make themselves aware of what the clause
says before entering into the agreement. In many cases, this
requirement can be met by displaying a sign at the point of sale.
Restraint of trade: an agreement in which a party agrees to restrict or

restrain their activities in the future to carry on their trade, profession or
business with other persons who are not a party to the contract
Ending the contract
- lawyers refer to the ending of a contract as termination of the
contract
- it may occur for different reasons, such as
• completion
• agreement
• operation of legislation
• operation of the contract
• rescission
• termination upon breach
• termination upon repudiation
• frustration.
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Completion
- the ‘normal’ outcome of a contract: both parties have no further
obligations, so the contract ends
- everything goes according to plan, and no issues have happened
that leaves everyone happy per the original agreement
- as the parties have no further obligations, they will have been
discharged under the contract
Agreement
- When a party acts on one of its obligations under a contract we
say that the party has performed the obligation
- Partial performance: Performance is not the same as
completion, since an obligation can be performed incompletely
- eg. Contract provides for the construction of a house and
windows and doors have not yet been fitted, the builder’s
performance of the contract is partial only
- Termination by agreement: The parties may agree to end the
contract even if at least one of them has failed to perform all of its
obligations.
- If a contract is terminated by agreement the parties are discharged
of all remaining obligations under the contract and no further
performance takes place
- An agreement to terminate is binding and no remedies will be
available to either party since the contract has been ended by
mutual consent.
To return the example above of the incomplete house, suppose that the
reason for the builder’s partial performance is that the owners have run
out of money and cannot afford to make further payments to the builder
to complete the house. In these circumstances it is possible for the
parties to end the contract by agreement. If the parties do end the
agreement in this way the builder will be under no further obligation to
the owners and it will be the owners’ responsibility to make separate
arrangements for the completion of the house. As the agreement to end
the contract is binding the owners cannot later change their mind and
sue the builder for noncompletion of the contract.
Operation of legislation
- Legislation may provide a party with the right to terminate a
contract, even if the contract is valid
- One such right is that provided by the Australian Consumer Law in
relation to what are known as unsolicited consumer agreements
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- unsolicited consumer agreements: a contract made between a

business and a consumer (usually, an individual) which the
consumer has not requested or arranged for in advance.
- ‘telesales’ or ‘door-to-door sales’ where a representative of the
business either telephones the consumer or visits the consumer at
their home to transact the agreement
- Under the Australian Consumer Law, a consumer who enters into
an unsolicited consumer agreement may terminate the contract by
notice to the business within ten days of the making of the
agreement (provided that the value of the goods is over $100 or
cannot be ascertained at the time that the agreement is made:
Australian Consumer Law ss 82, 83).
 This effectively provides the consumer with a ‘cooling off period’
during which they may cancel the agreement if they change their
mind about it.
Operation of the contract

- A term within the contract itself may make provision for ending the
contracts, if so, the requirements of the term must be met before a
party may end the contract in reliance on the term
- A common requirement is an obligation upon the party wishing to
terminate the contract to notify the other party that the contract is
at an end.
For example, it is a term of most contracts for the sale of land in New
South Wales that if the purchaser fails to comply with the contract in an
essential respect, the vendor may terminate the contract on the condition
that it serve a notice of termination upon the purchaser. If the vendor
complies with this requirement, the contract will end and the vendor will
normally be entitled to keep the purchaser’s deposit (usually 10% of the
sale price). If the vendor does not comply with the notification
requirement the courts may conclude that the contract remains in
existence and if so, the vendor will be required to complete the sale.
Rescission
- The effect of rescission (the process of rescinding a contract) is not
to end the contract, but rather render the contract nullity  the
court declares that the was no contract to begin with, and to be
treated as if it never existed  consequently all parties are
discharged from any obligation under the contract
- If the court finds a contract to be invalid, it will declare the contract
to be voidable, and is said to rescind the contract
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Termination upon breach of contract

- If a party fails to perform one of its contractual obligations it is said
to have breached that obligation. The obligations of the parties are
specified in the terms of the contract.
- Breach of a warranty (a less important term) does not entitle the
innocent party to end the contract although that party will probably
be entitled to a remedy
- Breach of a condition, however, is a more serious matter which will
entitle the innocent party to terminate the contract. If a contract is
ended in this manner, we say that it has been terminated upon
breach of a condition.
Termination upon repudiation of a condition

- If a party makes it clear that it is unwilling or unable to perform a
condition of the contract it is said to have repudiated the contract
- Repudiation provides the innocent party with the right to end the
contract immediately rather than wait for the threatened non-
performance to eventuate
- Note that repudiation of a warranty will not afford the innocent
party with the right to terminate
Frustration
- occurs when some unforeseen event beyond the control of the
parties makes completion of the contract impossible or
unreasonable. If a court declares that a contract has been
frustrated, the contract ends, and the parties are discharged from
any remaining obligations under it.
- What about continuation after the event is resolved?
Breach and good faith

If a party breaches its contractual obligations only because it has been
harshly treated by the other party, should the party in breach be
penalised? This issue arose for determination in the following court case.
‘Burgers’ established that a party may not take advantage of the terms of
a contract in order to terminate the contract unfairly. The courts are
prepared to look behind the technical operation of the contract to assess
the motivations of the terminating party. If the terminating party’s actions
have not been taken in good faith it will not be entitled to remedies and
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may, as in ‘Burgers’, be ordered to remedy any harm its actions have

caused to the other party. If a business finds that a contract is no
longer in its best interests it has the option of negotiating termination by
agreement with the other party. Had Burger King done so it may have
saved itself considerable expense and delay and perhaps, may also
have got what it wanted. (As a result of the court case, Burger King gave
up on its plans to enter the Australian market and Hungry Jack’s
continues to operate its franchise in Australia.)
Case reference
Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558.
Interpretation and enforcement of contracts; types of remedies

If a party breaches its obligations/warranties under a contract, the
innocent party may seek one or more. The main remedies available
under the law of contract are:
• specific performance
• injunction
• restitution
• damages
Specific performance
- If a party has breached any of its obligations under a contract, the
innocent party may seek an order from the court requiring the party
in breach to fulfil its obligations.
- the court orders the party in breach to do what it has promised to
do. If the party in breach fails to perform its obligations it will be in
contempt of the court and may be punished.
- Specific performance is a good remedy where it is in the best
interests of the innocent party to keep the contract in force.
Injunction
- court order that requires a person to take some action or to avoid
taking some action. In contract law, an injunction can be taken out
against another party to prevent that party from breaching its
obligations.
- An injunction is similar to specific performance with the difference
that the injunction does not need to specify any action under the
contract.
- Strictly speaking, an injunction is not so much a remedy as a
means of preventing the other party from taking some action that
would be inconsistent with their obligations under the contract.
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For example, suppose that two construction businesses form a joint

venture for the purpose of securing a large government building project.
A contract between the businesses is signed. Later, one of the
businesses decides that a joint venture with a rival company would be
more likely to win the tender for the project so it takes steps to form an
agreement with the rival. In these circumstances the innocent party
could apply for an injunction against its partner to prevent it from
entering into an agreement with the rival.
Restitution
- If a party has breached a condition of the contract or has
threatened to breach a condition, the innocent party may prefer to
terminate the contract. The innocent party may then seek the
remedies of restitution for damages.
- an order to restore the injured party, as closely as possible, to the
state that he or she was in prior to entering into the contract.
Damages
- if the innocent party has suffered harm arising from the breach of
contract (such as financial loss), the court may award damages in
that party’s favour
- Damages is monetary compensation for harm caused by the
wrongful actions of the party in breach. The court calculates the
value of the harm caused by the breach and orders the party in
breach to pay a sum of money to the innocent party
- It should be noted that the purpose of damages is to compensate
the innocent party, not to punish the party in breach. Consequently,
in order to receive damages, the innocent party must prove that it
has suffered compensable harm.
In awarding damages, the courts make a distinction between direct
losses and consequential losses.
- Direct losses: losses caused directly by the breach of contract.
- For example, if an accounting firm negligently advises a business
to invest in a scheme that goes bankrupt, the business’s financial
loss is directly attributable to the firm’s negligent misrepresentation
- Consequential losses: losses that do not directly arise from the

breach but are nevertheless a consequence of the breach
- to recover damages, the injured party must prove to the court that
the party in breach should have known (or actually did know) that
the kind of harm caused by the breach was a possibility
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- For example, suppose that a restaurant orders new tables and

chairs. The supplier agrees to take away the old furniture and
replace it with the new furniture. The old furniture is taken away
and disposed of, however, the supplier, who has made an
inventory error, is unable to supply the new furniture for three
weeks. The restaurant makes arrangements for some temporary
furniture to be installed but there is a delay and the restaurant is
required to close for three days. In these circumstances the
restaurant could sue the supplier to recover damages for loss of
income during the period of closure and also, for the cost of hiring
the temporary furniture. It was clearly foreseeable to the supplier
that its failure to supply the new furniture immediately after
removing the old would cause financial harm to the restaurant.
Compensation for distress

- Breach of contract can cause a great deal of emotional distress to
the innocent party.
- As a general rule, damages are not available for mental anguish.
However, the courts have made exceptions in cases where the
main purpose of entering into the contract is to obtain rest,
relaxation, enjoyment or pleasure.
- Case reference Baltic Shipping Company v Dillon (1993) 176
CLR 344.
contra proferentem rule: a legal doctrine in contract law which states

that any clause considered to be ambiguous should be interpreted
against the interests of the party that created, introduced, or requested
that a clause be included.
Week 7
Workers
- A person who works for the business indefinitely for set wages
while a contractor is a worker hired from time to time to perform
specific tasks and is paid accordingly
- Can be categorised as either employees or contractors
Employee or contractor
- Taxation, legal liability, insurance obligations and intellectual
property rights will vary depending on the classification of workers
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- ‘control test’ is a commonly applied by the courts in determining

whether a worker is an employee or a contractor. Under the control
test, if the business is paying for the services has the right to tell
the worker not only what to do but how to do it, the worker is an
employee. To put this another way, if the business may dictate all
aspects of the work then the worker is most likely to be an
employee
- other factors need to be considered before a conclusion can be
drawn as to a worker’s status. These additional factors are
summarised in the table below. If a court needs to determine
whether a worker is an employee or a contractor, it will examine
the entire relationship between the employer and the worker using
the matters listed below as a guide. The question is rarely, if ever,
decided on the basis of one factor alone.
This is necessary because of an example such as this

Consider the example of a computer programmer. Because of the
technical and specialised nature of computer programming work, the
business receiving the services of the programmer may not be able to
instruct the programmer precisely how to go about his or her work. If
the control test were the only consideration test, then such a worker
might well be categorised as a contractor
Factors in considering whether a worker is an employee or a
contractor
employees Contractors
Nature of tasks Perform a continuing Performa specific
series of tasks under tasks using their own
the direction and the discretion regarding
control of their how to complete a
employer task
Payments Paid a consistent Paid a fixed amount
amount at regular that may vary
intervals according to the work
done
Hours of work Work standard or set Determine their own
hours working hours
Provision of Primarily use Provide and maintain
equipment employers’ tools and their own equipment
equipment or work from their own
base
tax Have income tax Manage and pay tax
deducted by their themselves
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employer
Delegation of tasks Is not authorised to Can subcontract or
delegate tasks to delegate their work to
others others
entitlements Entitled to Not entitled to paid
superannuation, leave, must acquire
contributions, annual their own insurance
and sick leave, and pay their own
workers superannuation
compensation, etc contributions
risks Bears no financial or Bears the full financial
commercial risk and is and commercial risk of
not liable to remedy their work and can be
defective work held liable for
(employer holds defective work
vicarious liability)
Vicarious liability for conduct of employees

- employer is legally responsible for the conduct of their employees
in the course of employment – but not for contractors, unless the
employer has specifically instructed the contractor to do the act in
question
- If an employee commits a crime, or negligently injures someone
else or damages property in the course of doing their job, then
liability falls on the employer, not (usually) the employee
- This legal responsibility for the actions of employees is called
vicarious liability. There are two key aspects to this concept
- there is a question about what is and is not ‘within the course of
employment’. This raises questions about whether the employee’s
conduct was an unauthorised, but foreseeable, way of doing the
employee’s work. (eg. Lighting a cigarette while delivering petrol
and starting a fire) The employer would be liable when the
employee does what the employer has authorised him or her to do,
but has just done it in an unauthorised way - this is still considered
to be within the course of employment.
- Another way to determine this question is to ask whether the
employee was doing something related to his or her normal work –
or was it unrelated? If the act that caused the injury or other
damage is so closely related to the employee’s normal work that it
could be considered to be a mode, or way, of doing that work
- then that will be within the course of employment and the
employer will be responsible for it
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- There is also a presumption that if a vehicle belonging to the

employer is involved (being driven by the employee usually) that
whatever has happened is within the employee’s scope of
employment. The presumption may be rebutted – or disproved –
but it increases the burden on the employer to prove the vehicle
was not being used in the course of employment
- If the employee was doing something quite unrelated to work when
the incident happened – if the employee had gone off on ‘a frolic of
their own’ as some of the cases rather quaintly put it – then the
employer will not be liable for the employee’s conduct
Employers can minimise vicarious liability by:

• ensuring that employees are properly trained in their work and have
access to
the resources they need to perform their tasks properly
• training employees to take care in performing tasks which may lead

to harm to
a member of the public or their property
• providing written policies, procedures and job descriptions to all

employees
• establishing an internal complaints and dispute resolution process
• ensuring that appropriate action is taken to address workplace

issues
effectively.
Ownership of intellectual property

- your employer will own the rights to any intellectual property that
you create within the scope of your employment.
- ‘scope of employment’ issue is decided along quite similar lines to
the same concept in the context of vicarious liability
For intellectual property (copyright, patents,etc) factors in deciding

whether work was done within the scope of employment or not
include:
• Whether the work was done within business or work hours (which is
increasingly difficult to measure as 9 - 5 jobs are becoming less
common)
• Whether the employer’s equipment or premises were used to do the
work
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• The relationship of the intellectual property to the usual work of the

employee and what s/he was hired to do.
Note: As an employer you need to make sure that if you have hired any
contractors to do anything like writing or creating content or computer
programs, inventing things or perhaps taking photographs, etc, then the
contractor will own the copyright or patent / design, etc rights unless
there is an assignment of intellectual property back to the employer in
their contract for services
Employee entitlements
the scope of employee entitlements and work conditions may be

constrained by legislative standards, awards or agreements. Of
relevance in this regard are the National Employment Standards,
modern awards and enterprise agreements
National Employment Standards

On 1 January 2010, the National Employment Standards (NES) came
into effect.
The Standards set out ten minimum workplace standards which apply to
all employers
and employees covered by the national system. These standards relate
to:
• maximum weekly hours of work

• requests for flexible working arrangements
• parental leave and related entitlements
• annual leave (for employees other than casuals)
• personal / carer’s leave and compassionate leave
• community service leave
• long service leave
• public holidays
• notice of termination and redundancy pay
• provision of a Fair Work Information Statement.
Modern Awards
From 1 January 2010, various federal and State-based awards were
also replaced by a new, simplified system of awards called modern
awards. These are industry- or occupation-based minimum employment
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standards which apply in addition to the NES and cover issues relating
to:
• minimum wages
• types of employment
• overtime and penalty rates
• annualised wage or salary arrangements
• allowances
• leave related matters
• superannuation
• representation and dispute settlement.
Enterprise Agreements
Enterprise agreements set out conditions of employment for a group of
employees
at one or more workplaces. From 1 January 2010, an enterprise
agreement can only
be made between employees and employers provided that it:
• satisfies the ‘better off overall’ test when compared with the relevant
modern
award
• has an expiry date of four years or less
• is genuinely agreed to by the employees covered by it
• does not contain any unlawful content
• includes a dispute settlement procedure
• contains a flexibility term so the employee and the employer can agree
to vary
the agreement to meet their mutual needs if required
• has a consultation term which requires the employer to consult with
employees
about major workforce changes.
Recruitments and dismissal

- Recruitments is the process of hiring employees for the business
- Employers need to develop a clear definition of the type of position
they are seeking to fill and list all responsibilities that are
applicable to the role of the business
- When advertising positions and conducting interviews with
candidates, employers are prohibited under law from using any
discriminatory language. Employers are also prohibited from
asking questions that may exclude potential employees on the
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basis of such matters as:

• race or cultural background
• age
• gender
• marital status
• family status or responsibility
• pregnancy
• religious and political beliefs
• disability or special needs
• sexual orientation.
- Employers that discriminate against a candidate during the
recruitment process can be prosecuted under federal or State
legislation.
Dismissal
- An employer cannot terminate a person’s employment without a
valid reason. Penalties may be imposed upon employers for unfair
or unlawful dismissal
- An employer may be entitled to dismiss an employee due to:
• redundancy or business restructuring
• poor employee performance
• refusal to follow instructions or correct mistakes
• misconduct in the workplace.
- In most cases, if an employer needs to dismiss an employee, a
notice of termination must be provided outlining why the dismissal
is taking place.
- under limited circumstances an employer is entitled to dismiss an
employee instantly, in particular when there is serious misconduct
such as
• theft
•fraud
• assault
• intoxication.
- The employee must always be given a fair opportunity to enquire
about the reason why he or she has been dismissed.
Unlawful dismissal
- when the termination of an employee’s employment is harsh,
unjust or unreasonable and it is not a result of genuine
redundancy.
- A number of factors are considered when determining a case of
unfair dismissal including:
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• Is there a valid reason for the dismissal associated with the

employee’s conduct or capacity?
• Has the employee been notified of the reason and given an
opportunity to respond?
• Does the dismissal relate to unsatisfactory performance of the
employee, and if so, has the employee been warned about this
unsatisfactory performance prior to the dismissal?
• Any other factor considered relevant to the individual case.
Employees are entitled to apply for remedies, including reinstatement,

following unfair dismissal provided they have worked in the business for
a minimum qualifying period (usually 6 months).
Casual employees can also make unfair dismissal claims if they have
been engaged on a regular and systematic basis and had a reasonable
expectation that their employment would continue.
Unlawful dismissal
- when an employer terminates an employee's employment for a
discriminatory reason or some other reason contrary to law
- According to the Commonwealth Fair Work Act 2009, termination
of employment will be unlawful if it is a result of:
• the employee's race, colour, sex, sexual preference, age,
physical or mental disability, marital status, family or carer's
responsibilities, pregnancy, religion, political opinion, nationality, or
social background
• temporary absence from work due to illness or injury
• being absent from work during maternity leave, other parental
leave or to engage in a voluntary emergency services activities
• membership or Non-membership of a trade union
• acting as a representative of employees
• filing a complaint, or participating in proceedings against an
employer.
Fair Work Australia (FWA) provides a service that employees and

employers may access for assistance in dealing with unlawful
dismissal disputes. If the dispute is unable to be resolved, the matter
will be passed to the Federal Court. Court remedies available for
unfair dismissal claims include reinstatement and damages
Can a resignation given in the heat of the moment be accepted or can it

be later retracted by the employee?
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The law allows you to retract the resignation, but it has to do fairly
quickly
Work health and safety

A new scheme of work health and safety legislation (known as the
‘Model Work Health and Safety Legislation’) commenced on 1 January
2012 in the Commonwealth, New South Wales, Queensland, the
Australian Capital Territory and the Northern Territory. Consequently,
businesses operating in these places are subject to the same work
health and safety laws
- In addition to OHS obligations, employers owe a duty of care to
employees under the common law.
- A breach of this duty may expose an employer to action in
negligence. Injured workers may also recover compensation
through workers’ compensation schemes which operate in each
State and territory.
- Employers are legally obligated to take all reasonable steps to
protect the health and safety of their employees and other persons
in the workplace. An employer must be proactive in ensuring that:
• a safe working environment is provided
• workplaces do not pose risks to health
• safe systems and procedures are in place
• adequate facilities are made available
• employees and other persons are provided with the information,
training and assistance they need to perform their duties safely
• workplace conditions are monitored and changes are made
where necessary to improve health and safety
• records relating to individual employee health and safety are
maintained.
- Employers who fail in their obligations face large fines. Individual

offenders may also face terms of imprisonment.
Maintaining a safe workplace

There are a number of steps that employers can take to increase or
maintain a high
standard of health and safety in their workplace. Some of the key
guidelines (set out
by WorkCover NSW) are outlined below.
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• Understand your obligations: employers are expected to have a

thorough
understanding of their obligations and responsibilities under the
Occupational
Health and Safety legislation (including regulations). Industry specific
codes of
practice can be obtained from WorkCover NSW.
• Identify hazards and risks: employers should conduct regular audits

of the
workplace and consult with employees to identify potential hazards that
increase the potential for accidents or pose a risk to employee health.
• Take action to eliminate or control risks: employers must implement

measures to reduce the potential for accidents or injuries to occur. This
is an
ongoing process that must be managed on a day-today basis as
situations
emerge. Measures that eliminate or control risks to health and safety
should
also be reviewed from time-to-time to keep up with changes in the
workplace.
• Ensure that there is a proper flow of safety information: employers

should
ensure that information regarding safety is readily available to
employees and
other workers. In addition to this, executive members of employer-
companies
should also be regularly informed of safety information including new
hazards,
control measures and injuries that take place. Employers should also
regularly
consult employees as to health and safety issues.
• Training and supervision: employers must ensure that all employees

are
properly trained and are adequately supervised.
• Maintain an adequate level of insurance protection: in the event of

an
accident, injury or death, it is crucial that compensation is available to
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employees. It is a legal requirement for all employers to maintain

WorkCover
insurance. Note that insurance does not cover fines and penalties
imposed
under Occupational Health and Safety legislation. Instead it provides a
level of
cover to employers who may face compensation claims by injured
workers.
Although the work health and safety obligations upon employers are very
high, the law
does not expect employers to provide a workplace that is absolutely risk
free.
Discrimination:
Treating employees (and potential employees) equally)

- Employers are legally obliged to refrain from behaving in a
discriminatory or harassing manner towards their employees and
are also responsible for ensuring that persons within the workplace
(such as other employees) do not engage in such conduct.
- It is the obligation of all employers to provide fair and equal
opportunities to all employees and potential employees
- Discrimination occurs where a person (or group of persons) is
treated differently to another person (or group of persons) on the
basis of:
• race, nationality or ethnic origin
• sex, pregnancy or marital status
• age
• disability
• religion
• sexual preference
• trade union membership
• other characteristics specified under anti-discrimination or human
rights legislation.
Direct discrimination
- occurs where an action which affects a person is clearly made on a
discriminatory basis.
- For example, direct discrimination would occur in the workplace if
a female employee, despite being the best qualified, was refused
promotion because she is a woman.
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Indirect discrimination
- occurs where an action is not expressly discriminatory but
nevertheless has the effect of discriminating between persons
- For example, a job advertisement would be indirectly
discriminatory if it required all applicants to be able to write perfect
English and writing was not a necessary duty of the position. The
advertisement would unfairly exclude persons from non-English
speaking backgrounds, such as recent immigrants.
- An employer is of course at liberty to call for candidates with
specific skills or qualifications if such skills or qualifications are
relevant to the position being offered.
- It is important for employers to understand that unlawful
discrimination applies to a range of workplace situations, including:
• the recruitment of employees

• employee contracts and workplace conditions
• ongoing employee management issues, including training,
promotions and dismissal.
Employers should also be aware that they can be held liable for
discriminatory conduct by their employees within the workplace if the
matter of discrimination is something that could have been prevented
The courts expect employers not only to have antidiscrimination policies
in place but also to actively protect all employees from illegal
discrimination
- Most employers should have training programs in place to ensure
that all mangers understand the consequence and how to behave
Advice to business: This case highlights the importance of dealing with
employee complaints in an appropriate, timely and fair manner, even
when the employee in question is the Chief Executive. Failure to
investigate and take action where necessary can have significant
consequences, both in financial terms and also in terms of the public
relations consequences.
Week 8
TORT
- French word meaning ‘wrong’
- Tort: A wrong which causes harm to a person of a type that may be
remedied
- The law of tort enables the harmed person to sue the wrongdoer
and receive assistance from the courts. If a court is satisfied that a
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tort has been committed it will require the wrongdoer to take some
action to remedy the harm. The most common remedy in tort law is
damages (monetary compensation).
- If the tort is ongoing or is likely to be repeated, the court may also
order the wrongdoer to minimise or prevent any further harmful
conduct.
- Torts differ from crimes in that law enforcement authorities (such

as the police) are not usually involved. Tort law falls under the
category of civil law (the area of Australian law other than criminal
law).
- This means that if an injured person wishes to seek a remedy
under tort law, they must commence proceedings in court
themselves. For this reason, torts are often referred to as ‘civil
wrongs’ because they are resolved outside the criminal justice
system.
- The aim of tort law is not to punish the wrongdoer but rather, to
restore the harmed person (as best as possible) to their previous
position
- This is the principle of compensation and it is normally achieved by
requiring the wrongdoer to pay damages to the harmed person. If
a court orders a wrongdoer to provide a remedy to the harmed
person, we say that the wrongdoer has liability for the harm.
Types of tort
There are a number of different types of tort. These include:
 Assault: a direct threat made to another person which creates

a reasonable fear that the person (or another person under their
care or control) will suffer some type of harmful or offensive
physical contact. Assault may also constitute a criminal offence
if the threat is one of physical violence.
 Battery: making significant physical contact with the body of
another person without that person’s consent or other
justification. If the contact is violent the battery may also
constitute the criminal offence of assault.
 False imprisonment: physically restraining a person against
their will and without justification. Proof of the tort requires that
there was total restraint of the person.
 Trespass: unlawfully entering onto the land of another person
(trespass to land) or wrongfully interfering with a person’s
possession of goods (trespass to goods; note that the scope of
trespass to goods overlaps substantially with that of
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conversion). Trespass in either sense may also constitute a

criminal offence.
 Conversion: dealing with goods belonging to another person in
contravention of that person’s rights of ownership (also known
as trover).
- Example: selling another person’s valuables without their
permission.
 Detinue: wrongfully retaining goods after the owner has
requested their return.
- For example, refusing to return a car to its owner unless the owner
pays $500 (and there is no justification for the demand).
 Defamation: communicating or publishing material that causes
unjustified damage to the reputation of a person
- Example: publishing an article falsely stating that another person is
a child molester. Importantly, corporations cannot sue in
defamation any more in Australia (the law changed in 2005/6), but
there is a related action called ‘injurious falsehood’ that can be
used in many situations involving damage to a corporate
reputation (provided it involves falsity of course). Individuals
working for corporations may still sue in defamation if they are
personally identified by the defamatory publication in some way,
rather than it just referring to the corporation (eg, could refer to a
particular manager, etc).
 Nuisance: unlawfully interfering with a right of a landholder
(such as the right to use or enjoy the land).
- For example, allowing water to flood and overflow into a
neighbouring property.
 Negligence: failure to exercise reasonable care and skill. This
is the most common tort and will be the focus of the remainder
of this module (and the following module). Negligence is
arguably the most significant tort for businesspeople.
- A common example of negligence in business is the failure of a
store operator (known as the occupier of the store) to keep the
floor of their premises clean and free from slippery substances
which may cause a shopper coming into the store (known as an
invitee to the store) to fall and injure themselves. It should be
noted that some actions may give rise to liability under more than
one tort. For example, the unlawful restraint of a person may
constitute battery as well as false imprisonment. Additionally, the
remedy (or remedies) available to the harmed person may vary
from tort to tort.
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What is negligence
Negligence: failure to exercise reasonable care and skill. Negligence
results in harm to another person which could have been avoided by
taking precautions
- Negligence is determined before the courts. The harmed person
brings the proceedings and is referred to as the plaintiff.
- The person accused of causing the harm is referred to in court as
the defendant. The plaintiff bears the burden of proving that
negligence occurred.
• ‘Harm’ is not limited to physical harm (personal injuries) but extends to

damage to property (both land and goods) and financial harm
(sometimes called economic loss).
• ‘Precautions’ does not refer to any particular type of action. The law
Recognises that the actions required to prevent harm will vary from case
to case. In considering the adequacy of any precautions, the court
considers the circumstances of the harm from the point of view of the
defendant at the time that the harm took place (in other words,
negligence is determined prospectively, not retrospectively).
• Both real persons and ‘artificial’ persons (companies) can sue, or be

sued, under the law of negligence. Governments (at all levels) may also
sue or be sued in negligence.
Negligence may arise from either an act (such as careless driving) or

from an omission (a failure to act, for example, when a doctor fails to
warn a patient about the risks of a medical procedure). Negligence can
also arise from multiple acts or omissions.
Elements of negligence
Negligence means failure to exercise reasonable care and skill.
However, this definition is clearly not sufficient to determine negligence
in every case. To demonstrate, reconsider the Slippery Floor scenario,
but with the following alterations:
• The plaintiff had been banned from the supermarket for some reason
(for example, for failure to open her bag for inspection during a previous
visit). As a trespasser in law, could she still sue the supermarket?
• The supermarket staff cleaned up the spillage carefully but the plaintiff
nevertheless, slipped in the area of the spillage. Could the plaintiff still
establish liability?
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• Imagine that the plaintiff had fallen by tripping over her own feet prior to
reaching the aisle with the spillage. Could she still sue the supermarket
for its failure to clean up the oil?
In order to be able to answer questions like these, the courts have
developed a number of tests for liability in negligence. In particular, the
courts require the plaintiff to prove certain matters before they will make
a finding of negligence. These matters are referred to as the elements
of negligence. They are:
• duty of care,
• breach of duty, and
• damage.
These three elements are related and often overlap. However, each of
them needs to be established before a finding of negligence can made.
We will discuss each element in turn.
Duty of care:
- Is the duty of a person to take reasonable care to avoid causing
harm to another person
- In order to establish duty of care the court must be satisfied that at
the time the plaintiff’s harm took place, it would have been
reasonably foreseeable that the defendant’s conduct would
cause relevant harm to the plaintiff.
- In other words, a reasonable person in the position of the
defendant would have foreseen the type of harm that actually
occurred. The harm may be foreseeable even though it is unlikely,
although far-fetched or fanciful risks will fail the foreseeability
requirement.
- Duties of care are not owed in the abstract; in order for negligence
to be established, a plaintiff must establish that the defendant was
under a duty of care which extended to that plaintiff personally.
To whom is the duty of care owed? The most famous answer is that of
the famous English judge Lord Atkin who, in deciding the first negligence
case (in 1932), described
“…persons who are so closely and directly affected by my act that I
ought reasonably to have them in contemplation as being so
affected when I am directing my mind to the acts or omissions…”
Donoghue v Stevenson [1932] AC
562 at 580
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The duty of care is, in consequence, a legal obligation to take care for
the benefit of others. Nevertheless, as Lord Atkin indicated, the duty is
not owed to the world at large. Rather, the duty is owed to identifiable
individuals, either:
- specific persons (for example, a person whom you have invited to
your home
- a class of persons (for example, the guests of a motel, any of
whom could sue the motel if they were injured due to the motel’s
negligence).
- Neighbour test (from Donoghue v Stevenson): You must take

reasonable care to avoid acts or omissions which you can
reasonably foresee would be likely to injure your neighbour.
- Name tests: the plaintiff needs to be within the group that got
harmed due to the lack of duty of care from the defendant
- Duty of care for car, is that the person driving the car owes a duty
of care for everyone in the car or in person
steps to minimise or avoid liability

- Take reasonable precautions
- Learn from mistakes
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- Offer apologies
- Obtain legal advice
- Obtain insurance
Breach of duty
- Duty of care is the first requirement of a finding of negligence, but
is not sufficient in itself to establish liability on the part of the
defendant
- The law accepts that some accidents cannot be avoided, such as
accidently injuring yourself on a desk in a office
- most States have a ‘no fault’ workers’ compensation scheme to
compensate injured workers. There is no way to entirely eliminate
a risk of harm. The fact that an act which causes harm could have
been performed differently does not of itself establish negligence
- the law will require a reasonable conduct, in order to establish
negligence, a plaintiff must establish that the defendant acted
unreasonably.
- Unreasonable conduct of this kind is called breach of duty since
the defendant has failed to discharge their duty of care to the
plaintiff.
To establish duty of care the plaintiff must prove 3 separate

matters:
- The risk of harm is foreseeable
- The risk of harm was not insignificant
- In the circumstances, a reasonable person in the person’s position
would have taken precautions against the risk of harm (these
elements are set out in s5B civil liability act 2002 (NSW)
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Risk was foreseeable

- A foreseeable risk of harm is a risk of which the defendant knew or
ought to have known about it
Risk was not insignificant

- A risk of harm will ‘not be significant’, if the risk is an appreciable
one with a real chance of occurring
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- The risk may not be likely (even unlikely), but a far-fetched or

fanciful risk will not suffice
- The risk needs to be assessed prospectively (from the POV of the
defendant just before the harm occurred, and not retrospectively
Precautions
The court must be satisfied that, in the circumstances, a reasonable
person in the defendant’s position would have taken precautions against
the risk of harm.
- In determining whether a reasonable person would have taken
precautions, the court is to consider the following:
1. the probability that the harm would occur if care were not taken,
2. the likely seriousness of the harm,
3. the burden of taking precautions to avoid the risk of harm, and
4. he social utility of the activity that creates the risk of harm
damage
The final element of negligence requires the plaintiff to prove that the
harm they have suffered was caused by the defendant’s breach of duty.
Harm, particularly if it is permanent, is often referred to as damage.
Determination of the issue of damage requires the court to consider two

matters. The court must be satisfied as to both:
1. factual causation (that the negligence was a necessary condition of
the occurrence of the harm); and
2. scope of liability (that it is appropriate for the scope of the negligent

person’s liability to extend to the harm caused)
Factual causation:
- requires that the negligence of the defendant was a necessary
condition of the occurrence of the harm that the plaintiff suffers
- In other words, the requirement is for a direct causal relationship
between the breach of duty and the damage.
- This requirement will only be satisfied if it satisfies what is known
as the ‘but for’ test: but for the defendant’s breach of duty, would
the plaintiff have sustained the damage? If the answer is yes, the
court moves on to the scope of liability question
Scope of liability:
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- If the courts are satisfied with factual causation it must then

consider whether it is appropriate for the scope of the negligent
person’s liability to extend to the harm caused.
- For the purpose of determining the scope of liability, the court is to
consider (amongst other relevant things) whether or not, and why,
responsibility for the harm should be imposed on the defendant.
- It is something which involves subjective consideration: even
though the defendant is technically liable, should they be liable to
the plaintiff
- It is possible to imagine situations in which liability might be
declined by the court despite the other requirements of negligence
being satisfied—for example, if the plaintiff was committing a crime
at the time that the harm occurred. Such cases are unusual,
however, and in most cases the courts will conclude that if the
technical requirements of negligence are met, the scope of liability
question should be answered in favour of the plaintiff.
Exceptional cases
- There are some cases in which the defendant’s breach of duty
cannot be established as a necessary condition of the occurrence
of the harm and yet, justice seems to demand that the plaintiff be
able to establish negligence. In such cases, the court may find that
factual causation has been made out despite the casual defect
The courts can only make such findings:

1. in accordance with established principles
2. after considering (amongst other relevant things) whether or not, and
why, responsibility for the harm should be imposed on the negligent
party.
The facts of one case recently before the courts will illustrate why the
exceptional cases power is necessary. A group of workers sued their
employer for a lung disease caused by inhaling asbestos dust during the
course of their employment. The workers faced the difficulty that they
had worked for different employers through the years, each of which had
exposed them to asbestos dust. There was no doubt as to the link
between asbestos dust and lung diseases, but medical science had not
progressed far enough for doctors to be able to state definitively that
either, or both, periods of employment had caused the disease.
Consequently, the workers faced difficulty satisfying the ‘but for’ test of
causation: but for one period of employment (or both periods of
employment), would the disease have developed? This was impossible
to prove. The court decided that to insist on the application of the ‘but
for’ rule would produce unfair results and that, in the special
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circumstances of the case, principle and authority justified a modified

approach to proof of causation. That modified approach consisted of
affirming that each employer had made a ‘material contribution’ to the
onset of the disease. Consequently, the workers succeeded in
establishing negligence on the part of their employers. (See Fairchild v
Glenhaven Funeral Services Ltd [2003] 1 AC 32.)
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What is the neighbour test (donohugh v stevenson)

What is the other types of tests; extra tests…, ‘but for’ test
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Omission
vicarious liability
Introvigne
Types of losses
Scope of liability
Mental harm liability

plaintiff witness
SRA v Wicks
The scene of incidents only stops after all people are out of peril
Types of duty of cares
Aust Safeway Stores v Zaluzna
Eggshell skull theory: take the victim as you find them
Factual causation
Intervening event
Week 9 (Negligence 2)
Defences against the elements of negligence

In most cases of negligence that come before the courts the defendant
will present some explanation as to why the plaintiff’s claim should fail.
Any argument presented by the defendant that the plaintiff’s case should
fail is known as a defence
At this stage it should be noted that even if a plaintiff can establish all of
the elements of negligence their claim may still fail. Such cases can be
thought of as situations in which the technical elements of negligence
have been made out but there is some over-riding consideration that
convinces the court not to impose liability upon the defendant. Such
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cases involve what are known as defences against negligence generally.

These defences will be considered separately.
Defences against duty of care

- If the courts find that the harm suffered by the plaintiff was not
reasonably foreseeable, it will refuse the claim
However, in 2 situations the courts will find that the defendant will not
owe the plaintiff a duty of care even though harm to the plaintiff was
foreseeable.
1. A situation involving a lawyer doing court work for a client.
 a lawyer is protected from liability to their client in negligence. This is
referred to as Advocate immunity (an advocate being a lawyer who
represents a client in court)
 in Australia, advocate immunity has long existed for barristers
appearing in court on behalf of clients. The courts have confirmed that
the immunity also extends to solicitors who appear in court.
 Until recently, the immunity only protected lawyers from liability for
work actually done inside the courtroom. However, the courts have
extended the immunity to lawyers who do work in preparation for court
proceedings.
 This means that work done outside the courtroom, but which leads to
a decision affecting the conduct of the case in court, is covered by the
immunity (see D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1).
 In respect to such work the lawyer has a complete defence to a claim
of negligence. For other work (such as conveyancing, business advising,
trusts, wills and probate, etc.) the regular law applies so a lawyer may be
liable to their client if they fail to exercise reasonable care and skill.
2. Situations that involves a defendant who is under a pre-existing

legal duty that would conflict with the existence of a duty of care
 this situation commonly involves (but not limited to) persons
employed by a public authority. Meaning that if they perform their
ordinary duties of their employment, they are completely defended from
negligence claim
 an example being Sullivan v Moody (2001) 207 CLR 562
Defences against breach of duty

In determining whether a reasonable person would have taken
precautions against a risk of harm, the courts are required to consider
specific matters in addition to other relevant things
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- One common issue that arises in the courts relates to the liability
of professional care (doctors, dentist, accountants, pharmacists,
nurses, optometrists, engineers, architects etc. )
- The law expects that such persons, when acting in their
professional capacity, will perform tasks to a higher standard than
the ordinary (unskilled) person.
- The ‘reasonable care and skill’ that the law expects from these
persons is the care and skill of a reasonable professional person,
not an unskilled person. In other words, professionals are
subjected to a higher standard of care than the ordinary population
- Professionals are required to act in a manner that is widely
accepted in Australia by peer professional opinion as competent
professional practice. This means that professionals are judged by
the standards of other persons in their profession, not by some
theoretical standard.
- A professional can only be found to have breached their duty of
care if they fall below this standard. If they can establish that their
actions met the standard, they have a defence. This is set out in
the Civil Liability Act 2002 (NSW)
- There is one aspect of professional practice that is not judged by
the standards of the profession: the duty to warn. Liability arising
from the giving of, or failure to give, a warning, advice or other
information relating to a risk of death or personal injury is
determined by tests that have been developed by the courts.
- This means that if the standards of a profession are not to warn
about a risk, the court may nevertheless determine that the failure
to warn constitutes negligence. The following case provides an
example.
‘Blinded’ is of great relevance to businesses that consist of professionals

whose failure to give advice may lead to personal injury (for example,
medical practices, dental practices, etc.). The decision would also be of
relevance to persons in the business professions (such as accountancy)
whose failure to give advice may lead to damage to property. As to
advice, or a failure to advise, that leads to financial harm only see
‘Business focus: Negligent misstatement’. Rogers v Whitaker (1992) 175
CLR 479 and now see s 5P Civil Liability Act 2002 (NSW) where this
principle is preserved. However note s 5O (the letter not the number).
Defences against negligence generally
Limitation period
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- A person who wishes to sue for personal injury or death, there is a

limited period of time to do so.
- In NSW:
• three years from the date on which the cause of action (right to
sue) is discoverable by the person
• twelve years from the time of the act or omission alleged to have
resulted in the injury or death.
- In most cases, the cause of action will be discoverable at (or
shortly after) the time at which the harm is sustained. This means
that, in most cases, proceedings for negligence will be barred if
they are not commenced within three years of the date of the
harm. A defendant will have a good defence to any claim filed
outside the limitations period.
Assumption of risk
The law recognises that some people are willing to take risks and
accepts that, in some such cases, defendants should not be liable to
such persons if things go wrong. A plaintiff who knows about a risk but
nevertheless decides to take that risk is said to have assumed risk.
Under NSW legislation, there are two types of risk:
Obvious risk
- Is a risk that, in that circumstance, would have been obvious to a
reasonable person in the position of the person
- This includes risks such as patent or matter of common knowledge
- A risk may be obvious even though it has a low probability of
occurring, or is not prominent, conspicuous or physically
observable
- Obvious risks have the significance to the determination of liability
if:
 a plaintiff who suffers harm is presumed to have been aware of
the risk of the harm if it was an obvious risk (unless they can prove
otherwise)
 the defendant is not obliged to warn the plaintiff of an obvious
risk (unless the plaintiff has requested information about the risk,
then the defendant is obliged by law to warn the risk)
Inherent risk
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- Is a risk of something occurring that cannot be avoided by the

exercise of reasonable care or skill.
- The defendant is not liable for harm suffered as a result of the
materialisation of an inherent risk, therefore if the defendant can
prove a risk is inherent, there is complete defence
Recreational activities
As for assumed risks, responsibility is imposed upon those who choose
to partake in recreational activities. In New South Wales, a recreational
activity is distinct from a dangerous recreational activity.
- It is defined as any sport, any pursuit or activity engaged in for
enjoyment, relaxation or leisure, and any pursuit or activity
engaged in at a place (such as a beach, park or other public open
space) where people ordinarily engage in such activities
- the defendant does not owe the plaintiff a duty of care for that risk
if the plaintiff chooses to participate in the activity. Consequently, if
the plaintiff is harmed by a materialisation of the risk, the defendant
has a complete defence (some exceptions are made in the case of
persons incapable of understanding the warning, such as
children).
- Significantly, either a written warning or a verbal warning may be
sufficient to satisfy the warning requirement. Moreover, the warning
may be effective even if it is expressed in general terms. If the
recreation service is the subject of a contract, then a waiver
(disclaimer of liability) may be included in the contract to exclude
or restrict the liability of the defendant.
Dangerous recreational activity

- is a recreational activity that involves a significant risk of physical
harm
- A defendant is not liable in negligence for harm suffered by the
plaintiff as a result of the materialisation of an obvious risk of a
dangerous recreational activity. Consequently, if the defendant can
establish that the recreational activity was a dangerous one and
that the harm arose from an obvious risk, they will have a complete
defence to the plaintiff’s claim.
- It is not always clear, however, whether a recreational activity can
be regarded as carrying a ‘significant risk of physical harm’; it
appears that much depends upon the way in which the activity is
carried out. Kangaroo shooting at night using spotlights has been
classified as a ‘dangerous recreational activity’ (see Fallas v
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Mourlas [2006] NSWCA 32); classification of other recreational

activities as dangerous or otherwise will have to await decisions
from the courts
Intoxication
A person who is intoxicated (under the influence of alcohol or a drug,
whether or not taken for a medicinal purpose and whether or not lawfully
taken) cannot establish liability in negligence if, at the time they suffered
harm, their capacity to exercise reasonable care and skill was impaired
Two exceptions to this rule:

1. It does not apply if the courts are satisfied that the harm is likely to
have occurred even if the person was not intoxicated
2. It does not apply if the intoxication was involuntary (the person is
not responsible for their own intoxication)
Intoxication defence: plaintiff needs to be intoxicated
There have been many cases of drunk persons suing the hotel that served them drinks because
they were injured whilst returning home. In one case a drinker was run over by a motor
vehicle after departing the club where she had been drinking and sued the club for
negligence. The club had asked her to leave due to her intoxication and inappropriate
behaviour and had offered her a ride home in its courtesy vehicle, which she refused. The
court concluded that even if the club owed the woman a duty of care, that duty had been
discharged by the offer of transport (see Cole v South Tweed Heads Rugby League Football
Club Ltd (2004) 217 CLR 469).
Criminals
A court may not find in favour of the plaintiff if it is satisfied that:
• the plaintiff’s harm occurred at the time of (or following) the commission
of a serious criminal offence (one punishable by imprisonment for 6
months or more)
• the plaintiff’s criminal conduct contributed materially to the harm or to
the risk of harm.
- The court does not need to be satisfied as to proof of the plaintiff’s offence under the
standards of the criminal law. Nor must the plaintiff have been charged with any
offence by the prosecuting authorities.
The defence does not apply if the conduct of the defendant constituted a criminal offence.
This would be the case in a joint criminal enterprise involving two or more offenders. A
common scenario involves young people who steal a car to go ‘joy riding’ and then suffer an
accident. The injured passengers then sue the driver for negligence (see, for example, Gala v
Preston (1991) 172 CLR 243).
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Vicarious liability
- The principle that an employer bears liability for the negligence of
its employees who are sued personally as legislation is in force to
protect employees from liability in negligence (Boss also shares in
part of the employee when it comes to the employee being sued
personally, and therefore has to protect the employee)
- The employer may avail (help) itself of any defences that would
have been available to the employee
Non-delegable duty
- A person (either natural person, authority (governmental or
otherwise), corporation, may not delegate (pass on) to another
person.
For example, if a public authority hires a company to assist it with a task, the authority may
not assume that the company will take over the authority’s duty of care towards its
employees. Consequently, if an employee of the authority is injured due to the negligence of
the company, the authority is liable (see Kondis v State Transport Authority (1984) 154 CLR
672)
Negligence misstatement
If information or advice has been provided negligently, the business
relying on the information or advice may be able to sue for damages.
The branch of the law of negligence that deals with liability for negligent
information or advice is known as negligent misstatement (or
depending on the circumstances, negligent misrepresentation).
Negligent misstatement is regarded as a special instance of the law of

negligence. This is so because negligent misstatements typically
produce only financial harm (rather than personal injury or damage to
property).
Financial harm not associated with personal injury or property damage
is known as pure economic loss. The courts remain very reluctant to
award damages for pure economic loss, particularly when such loss
arises from negligent misstatement.
There are two main reasons for this:
1. it is not the negligent advice or information itself, but rather how
that advice or information is used, that causes the loss. This
presents the danger of indeterminate liability, as one negligent
statement could potentially be acted on by hundreds or even
thousands of persons.
2. the imposition of liability for all negligent misstatements would
place an intolerable burden upon business and commercial activity.
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Today’s business environment relies on the free flow of information

and the ability of disgruntled parties to sue for any misstatement
would greatly inhibit that tendency.
No Duty
The decision in No Duty reveals that the ordinary elements of negligence
are not sufficient to establish liability for negligent misrepresentation:
additional matters must be demonstrated
See: Esanda Finance Corporation Ltd v Peat Marwick Hungerfords
(1997) 188 CLR 241.
Elements of the action

The main problem for the potential plaintiff is establishing a duty of care.
In order to do so, the plaintiff must also proof that
1. the defendant knew that the plaintiff (or a class of determinable
persons of whom the plaintiff was a member) was relying on the
defendant’s advice or information and also knew that the plaintiff
may act in reliance on that information
2. it was reasonable in all the circumstances for the plaintiff to rely on
the information or advice giver by the defendant. As to the second
point, the courts have been inclined to find that the plaintiff’s
reliance was reasonable in circumstances where there was a
sufficiently close relationship between the plaintiff and the
defendant.
It must be emphasised that establishing reasonable foreseeability of the

loss is not sufficient for a plaintiff to establish liability. Neither is proof of
reliance on the defendant’s advice or information sufficient
The matters that the courts have described as relevant to the

determination of:
whether such a relationship exists include:
- whether the defendant assumed responsibility to the defendant
- whether the defendant exercised control over the plaintiff
- whether there is a contract between the parties
- the degree of vulnerability of the plaintiff, in the sense of the
plaintiff’s inability to protect itself from the harmful effects of the
defendant’s statement
- whether there is a professional / client relationship between the
parties
- whether the defendant has a financial interest in the plaintiff’s
reliance on its information or advice
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- whether the plaintiff dealt directly with the defendant or was,

alternatively, a third party to the advice or information.
Business focus: Advice to businesses
A climate of fear?
Many businesses—and business people—worry greatly about the law
of negligence. It seems that the opportunities to be sued are
countless, the consequences serious. It needs to be remembered that
what the law expects is reasonable conduct, not perfection.
Businesses are not obliged to assure safety in all circumstances; they
are obliged to exercise reasonable care and skill. When the legal
requirements are understood, some of the anxiety concerning the law
of negligence falls away.
Parliament to the rescue

Of further comfort are a number of legislative protections for
defendants. The New South Wales Parliament, mindful of the
potential ‘chilling’ effects of the law of negligence upon businesses
and other interests, enacted the Civil Liability Act in 2002. The Civil
Liability Act (hereafter ‘CLA’) made a number of important changes to
the way negligence cases are determined by the courts. Many of
these have been incorporated into the discussion of the last two
modules. It is appropriate, at this late stage, to make specific
reference to the Act to refer to two provisions which should be kept in
mind by business people: sections 5C and 69.
Don’t repeat the mistake

Most businesses will face liability (or potential liability) for negligence
at some stage. This, in itself, is not necessarily something that can be
avoided—as we have seen, even the law accepts that some harm is
unavoidable. However, there is less of an excuse for allowing harm to
be repeated. For example: suppose you run a hotel, and a guest trips
over a loose bit of carpet, injuring herself. She has threatened to sue.
What do you do? One thing you certainly do not do is ignore the
problem, or pretend that it will not happen again. If it happened once,
it may happen again. So: fix the problem; tape down the carpet, fence
it off, or erect a warning sign. And arrange to have the carpet properly
repaired. You might suppose that to take such action would be an
‘admission of liability’ that could be used against your business in
court, but this is not so. Section 5C of the CLA provides:
- In proceedings relating to liability for negligence: … the
subsequent taking of action that would (had the action been taken
earlier) have avoided a risk of harm does not of itself give rise to or
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affect liability in respect of the risk and does not of itself constitute
an admission of liability in connection with the risk.
This means that any action you take to prevent a further risk of harm
cannot be held against you or the business. It is, in effect, a recipe for
the prevention of further harm.
Say sorry
An apology can work wonders. Many lawsuits can be avoided by the
words ‘We’re sorry’. So if your business receives a complaint of harm,
apologise. Once again, such action cannot amount to an admission of
liability. Section 69 of the CLA provides:
1. An apology made by or on behalf of a person in connection with
any matter alleged to have been caused by the person: (a) does
not constitute an express or implied admission of fault or liability by
the person in connection with that matter, and (b) is not relevant to
the determination of fault or liability in connection with that matter.
2. Evidence of an apology made by or on behalf of a person in
connection with any matter alleged to have been caused by the
person is not admissible in any civil proceedings as evidence of
the fault or liability of the person in connection with that matter.
This means that an apology can’t be used against you or your business.
Risk prevention
The soundest means of avoiding liability for negligence is risk
prevention. Most harm can be prevented by simple (and inexpensive)
measures: taping the loose carpet; placing a warning sign to advise of
the slippery floor; etc. Common sense goes a long way. Put yourself in
the shoes of a potential plaintiff: what are the risks? What would be a
reasonable response? Answering questions like this goes a long way
towards avoiding unnecessary negligence actions.
Week 10: Consumer law 1
- The legislation that regulates dealings between businesses and

consumers is the Australian Consumer Law (referred to hereafter
as ‘ACL’). The ACL commenced operation on 1 January 2011 and
replaced a number of Commonwealth, State and Territory
consumer laws.
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The Australian Consumer Law is jointly enforced by a number of different

regulators, such as;
• The Australian Competition and Consumer Commission (ACCC), which
regulates corporations
• State fair trading agencies (such as New South Wales Fair Trading)
which regulate businesses conducted or registered under the laws of the
relevant State
• The Australian Securities and Investments Commission (ASIC), which
regulates the provision of financial goods and services by corporations.
The regulator having primary responsibility for enforcement of the ACL is

the ACCC. The ACCC is a Commonwealth statutory authority which has
power to bring legal proceedings, both civil and criminal, against
businesses or individuals who contravene the provisions of the ACL
Misleading or deceptive conduct

- The Australian Consumer Law (ACL) protects consumers by
prohibiting businesses from engaging in misleading or deceptive
conduct.
- Misleading or deceptive conduct is business activity that misleads
or deceives consumers (or has the tendency to mislead or deceive
consumers) about some matter relating to a good or service
provided by the business.
- A common example of misleading or deceptive conduct is false
advertising: promotion of a product or service in a way that
misrepresents the suitability or other characteristics of the good or
service
- Other business activities that have been wrongfully conducted and
consequently, found to have breached the laws of misleading and
deceptive conduct include:
• providing professional advice
• managing bank accounts and financial services
• labelling food and drink products
• franchising
• selling real estate
• marketing and conducting sports events.
Section 18
- Section 18 of the ACL states
18 Misleading or deceptive conduct (1) A person must not, in
trade or commerce, engage in conduct that is misleading or
deceptive or is likely to mislead or deceive.
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- The main purpose of s 18, (the main purpose of the entire ACL) is
the protection of consumers conduct which affects consumers.
- the section has a broader application. Businesses that have been
affected by misleading or deceptive conduct may also take action
under s 18. The section does not limit its application to consumers.
- In most cases, businesses take action under s 18 to restrain other
businesses from making misleading or deceptive representations
about its products or services, usually in the form of an
advertisement. The basis of such claims is the likelihood that
consumers will be misled or deceived as to the qualities of the
business's products or services
- it is also possible for a business to be directly affected by the
misleading or deceptive conduct and in such situations, the
business may sue under s 18 on the basis that the business itself
(rather than consumers) was misled or deceived. This might be the
case, for example, if the business had been misled by a supplier
as to the capabilities of some machinery that it had ordered.
Deconstruction s18
Persons
- the term “persons”, applies not only to the individual, but as well
includes:
- artificial persons
- corporation (the section applies to all companies)
- sole traders
- partnerships
- companies
- trusts
- This means that in effect, the law of misleading or deceptive
conduct applies to all businesses, whether they are large or small,
incorporated or unincorporated.
Conducts
- The term ‘conduct’ encompasses most of the actions undertaken
by businesses. As previously mentioned, advertising (whether by
print, television, radio or other digital media)
Other behaviour that has been held to be ‘conduct’ for the purposes of
s18 include:
- Making pre-contractual statements. A misleading or deceptive
statement made to induce another party to enter into a contract
may constitute conduct under s 18 (even if the law of contract is
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unable to provide a remedy: see the topic ‘misrepresentation’ in

Module 7)
- Expressing opinions or representations about the future.
Where a business person makes a representation about some
future state or condition knowing that statement to be false or
having no reasonable basis for making the statement, the making
of the statement may constitute conduct under s 18 (this would be
the case, for example, if the seller of a business made
unreasonable assertions as to the future profitability of the
business)
- Staying silent or doing nothing. Silence (or the holding back of
relevant information) will constitute misleading or deceptive
conduct if an ordinary person would reasonably expect to be told
that information due to its relevance or importance to the
transaction being considered. For example, showing a restaurant
to a potential purchaser with seating set up for 128 customers,
when in fact the restaurant was only licensed to seat 84, has been
held to be misleading or deceptive conduct.
- ‘In trade or commerce’ The relevant conduct must occur in trade
or commerce. This requires that the conduct be commercial in
character. ‘Trade’ takes its usual meaning of buying and selling
goods or services; such activities will satisfy the requirements of s
18. It is important to note that the conduct must occur ‘in’ trade and
commerce rather than merely being related to it. Consequently, the
courts have ruled that activities such as education, political
campaigns and actions within the workplace are not subject to s 18
When is conduct ‘misleading or deceptive’?

In most cases, conduct which affects consumers will be misleading or
deceptive if it leads consumers into error or otherwise, causes
consumers to believe something about a good or service that is
inaccurate or false.
- Conduct that merely causes confusion to consumers, leading them
to confusion or ‘wonderment’ but not error, is not misleading or
deceptive for the purposes of s 18.
The following 3 step test, developed by the courts, focuses on the role
of consumers and provides a formula that is useful in determining
whether conduct is likely to be characterised as misleading or deceptive.
1. What is the relevant class of consumers?
- Broadly, the relevant class of consumers are the group of
persons that is likely to be exposed to the conduct in question. To
whom is the conduct directed: a few specific individuals, a
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particular target audience, or the public at large?

- For example, contractual negotiations over the sale of a business
would relate only to the potential purchasers, while a television
advertisement would be relevant to a much larger group (just how
large would depend on whether the advertisement was directed to
the majority of viewers — such as an advertisement for a chain of
family restaurants — or to a ‘target audience’, or subset, of
viewers — such as an advertisement for a luxury car).
2. What meaning would the conduct convey to that class of
consumers?
- It is necessary to consider the conduct from the point of view of
the relevant class: what would an average member of that class
understand the conduct to mean? Where the class is a group of
specific persons, the members of the group can be asked,
however, where the group is indistinct, the court needs to consider
the issue from the point of view of a typical member of the group.
- The meaning of the conduct is the meaning that the typical
member would be most likely to perceive, not the meaning that the
business intended to convey. In some cases, it may be necessary
for the court to identify a hypothetical ‘representative member’ of
the class, and to determine the meaning of the conduct through
the eyes of this person.
- For example, an advertisement aimed at medical professionals
might be misleading or deceptive to a representative member of
this group but not to persons outside this group.
3. Would the conveyed meaning mislead or deceive the relevant
class of consumers? –
- This is an objective, rather than subjective, test: would an
average member of the class be led into error about the product? If
so, then the conduct is misleading or deceptive.
- It is not necessary to prove that an actual consumer was misled
or deceived since s 18 applies not only to conduct that has misled
or deceived but also to conduct which is ‘likely to mislead or
deceive’.
- Nor is there any requirement to demonstrate that the business
intended its conduct to be misleading or deceptive: the court looks
to the effect of the conduct (actual or probable) upon consumers.
Moreover, it is no excuse for the business to say that an
advertisement has accidentally had an unintended meaning or
would be understood by consumers in an unintended way.
Disclaimers
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- if the conduct said to be in breach of s 18 is an advertisement, the

advertisement is judged as a whole. The overall impression gained
from the advertisement may be different from an analysis of its
individual parts. Indeed, a misleading impression created by one
part of an advertisement may be negated by other parts.
- A disclaimer is a statement that seeks to exclude the maker of the
statement from legal liability.
- Disclaimers in the form of exclusion clauses in contracts, which
seek to excuse the business from liability under the ACL, are not
usually upheld by the courts since they contradict the public policy
reason for s 18 (that is, to protect consumers).
- However, a disclaimer may be effective if its effect is to avoid any
suggestion of misleading or deceptive conduct from arising in the
first place. Once again, the entirety of the business’s conduct is
considered so if consumers would still be misled by the business’s
conduct overall, the disclaimer will not be sufficient to protect the
business against liability.
- This might be the case, for example, if a manufacturer of
consumer products was at risk of being accused of misleading or
deceiving consumers by producing a range of products which
resembled a competitor’s. By affixing a label to each product to
assert that the product is the manufacturer’s and not the
competitor’s, the manufacturer may prevent a finding against it
under s 18 (see Parkdale Custom Built Furniture Pty Ltd v Puxu
Pty Ltd (1982) 149 CLR 191)
In order to be effective, a disclaimer must be;
- clearly worded and prominently displayed
- it should not be confined to small print that is hard to read
- be placed in an obscure position or in some location separate from
the product (such as on a website).
- The disclaimer must also be available to the consumer before he
or she decides to buy the product.
Comparative advertising
- comparative advertising; where a business’s product or service is
compared against a competitor
- It is a perfectly acceptable form of advertising. Done well, it can
provide consumers with useful points of comparison between
similar products to help them make informed decisions about what
to buy.
- It is quite common for a business to be sued by a competitor under
s 18 on the basis that the advertisement made misleading or
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deceptive comparisons with the goods or services of the

competitor.
- Although the aim of s 18 is consumer protection it is not just
consumers who may take action under the section but also
regulators and indeed, rival businesses. To this extent, s 18 can be
thought of as partially ‘self-regulating’: as it is in the interests of a
business to protect itself from unfair advertising
- many cases under s 18 are brought by businesses that would
otherwise be the responsibility of a government agency.
Advice to businesses
There are many, many cases of litigation arising out of comparative
advertising, of which the above are only two illustrations.
- Ensuring the accuracy of every message conveyed by your

advertisement to the relevant class of consumers is the core
consideration in avoiding difficulties with s 18 generally, but this is
particularly important where comparative advertising is involved.
- Bear in mind that inaccuracies, half-truths, ambiguities or
omissions have even greater potential to mislead consumers when
they occur in comparative advertisements.
- When comparing products, the safest option is to confine your
comparison to similar or equivalent products. Some
advertisements ‘comparing’ dissimilar products have been found
not to breach s 18, but in these cases the products were clearly
identified, usually by the brand name.
- It is advisable to include an explanation of the differences between
any dissimilar products that are being compared.
- If there are any tests performed as part of the comparison, ensure
that the results are accurately presented. Independent testing
should be conducted to support any claims that one product
outperforms another in some respect.
- Where specific claims are made and there is a likelihood that
external factors may impact on the accuracy of those claims in the
future, this should be explained. For example, these kinds of
explanations are commonly seen in advertisements describing the
types of future returns that might be expected from superannuation
funds or other forms of investments.
- Simply denigrating, or ‘running down’, a competitor’s product is not
misleading or deceptive conduct, provided what is said remains
accurate.
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- Advertising ‘puffery’ does not constitute misleading or deceptive

conduct. Consumers are considered to be aware of trader’s
tendencies to exaggerate the good qualities of their own products,
and to realise that a claim that this is ‘the best coffee in the world’
is not literally true. In the context of comparative advertising,
exaggerations such as these will not be misleading or deceptive if,
considering the advertisement as a whole, it would be clear to
consumers that these claims were merely ‘puffs’ and not serious
claims.
- The advertisement will be considered as a whole — if any aspect
could be misleading or deceptive to your consumers consider how
you might balance that perception or ‘set it straight’ in the rest of
the advertisement. However, small print or obscurely placed
corrections will not usually correct a misleading impression
False or misleading representation (s29)

• s 29(1) A person must not, in trade or commerce, in connection
with the supply or possible supply of goods or services or in
connection with the promotion by any means of the supply or use
of goods or services:
• (a) make a false or misleading representation that goods are of a
particular standard, quality, value, grade, composition, style or
model or have had a particular history or particular previous use;
or…
s18 vs s29
• s 29 applies to representations rather than conduct (s18)
• Both have civil consequences
• s 29 carries criminal consequences of fines. If a company
breaches, then the fine is to be not more than the greater of the
following: (a) $10 million; (b) if the court can determine the value of
the benefit that the company has obtained directly or indirectly
attributable to the commission of the offence then 3 times the value
of the benefit; (c) if the court cannot determine the value of that
benefit, then 10% of the annual turnover of the company during the
12 month period ending at the end of the month in which the
company committed, or began committing, the offence.
• For a breach by a human then the fine shall not exceed $500,000.
Prohibited types of representation

Representations about goods and services
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Representations about goods only
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Representations about the legal rights of the consumer
• Case study: Twentieth Century Fox Film Corporation v The South

Australian Brewing Co Ltd (1996) 66 FCR 451
Unconscionable contracts
• unequal bargaining power,
• whether conditions in the contract were necessary to protect the
legitimate interests of the (larger) business
• whether unfair tactics or pressure were employed
• whether the customer was able understand the documents
• consistency in price, circumstances and conduct between this and
other similar transactions
• compliance with any industry codes
• general good faith and willingness to negotiate.
• Dealt with under Part 2–2 of the ACL, ss 20 - 22.
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Unfair terms regime

• Unfair terms are dealt with by Part 2–3 of the ACL, ss 23 - 28.
• The ACL makes unfair terms in standard form contracts void,
meaning that the business cannot enforce such terms against
consumers or small businesses including;
- Consumer contract
- Small business contract
- Standard form contract
- Consumer standard form?
Meaning of unfair (tests to determine unfair)
Whether the term
(standard contracts are created to assure that it is backed up by law that
the contract is fair)
• would it cause a significant imbalance in the parties’ rights and
obligations under the contract?
• is it reasonably necessary to protect the legitimate interests of the
party who would be advantaged by the term (there is a
presumption against this, so the business would usually have to
prove it is reasonably necessary to protect their interests)?
• would it cause detriment (not just financial) to a party if it were to
be enforced?
If any of these questions are not ticked, it is a fair term.
Consequences
• Criminal – for a breach by a company, then the fine is to be not
more than the greater of the following:
(a) $10 million;
(b) if the court can determine the value of the benefit that the
company has obtained directly or indirectly attributable to the
commission of the offence then 3 times the value of the benefit
(c) if the court cannot determine the value of that benefit, then 10%
of the annual turnover of the company during the 12-month period
ending at the end of the month in which the company committed,
or began committing, the offence.
• For a breach by a human then the fine shall not exceed $500,000.
• Civil; injunctions/ damages/ corrective advertising
Defences
• Reasonable mistake
• Reasonable reliance on information supplied by third parties
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• Accident, omission or some other cause that was outside the

defendant’s control
Bait advertising (s35)

• Advertising bargain goods or services which do not exist, or do not
exist in sufficient quantities to satisfy demand.
• (1) A person must not, in trade or commerce, advertise goods or
services for supply at a specified price
• (a) there are reasonable grounds for not believing that the person
will not be able to offer for supply those goods or services at that
price for a period that is, and in quantities that are, reasonable in
regard to
(i) the nature of the market in which the person carries on business
(ii) the nature of the advertisement

(iii) the person is aware or ought reasonably to be aware of those
grounds
Inertia selling (unsolicited goods and services)

• S40: Sending unsolicited goods, or providing unsolicited services,
to consumers or other businesses, and then asserting a right to
payment
• s43: it is prohibited to claim a right to payment for entries in
directories that a business or individual has not authorised or
requested.
Pyramid schemes (ss44-46)

• Layered marketing schemes where an investor purchases a share
I. n the scheme with the promise that if they are able to attract a
sufficient number of additional investors, they will make money.
• Very little, if any, actual selling of products.
• ACL prohibits participation in a pyramid scheme and inducing
others to participate. Strict liability offence.
• Differentiated from multi-level marketing schemes, which make
money primarily from selling products and from sales
commissions.
Referral selling (s 49)

• Customers are induced to buy a product by the offer of a rebate,
commission or other benefit, payable after the contract is made, if
they introduce the product to another person, but only if the other
person actually buys the product.
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Undue harassment or coercion (s 50) – what are the

consequences?
• High pressure selling tactics
• Threatened or actual force or physical violence
Deceptive pricing practices; single price to be specified (s 48)

• Failure to specify a single all-inclusive price for goods or services
Week 11: CONSUMER 2
- Protecting consumers is one of the roles of the Australian

Competition and Consumer Commission (the ACCC).
- The ACL provides a range of specific consumer guarantees in
relation to products and services. The consumer guarantees
protect consumers against goods or services that are defective in
some way.
- The ACL also establishes a process under which product safety
and information standards may be prescribed for certain types of
products. It is a criminal offence for a business to supply products
that do not comply with these standards.
Consumer guarantees
Consumer guarantees The ACL contains a number of consumer

guarantees which protect consumers against problems with good and
services. These guarantees are binding upon the supplier of the goods
or services. A good or service that does not comply with one or more of
the guarantees provides the consumer with a remedy
Application of the consumer guarantees

Not all goods and services are covered by the consumer guarantees.
Typical of the consumer guarantees relating to goods is s 54 of the ACL
which provides as follows:
54 Guarantee as to acceptable quality
(1) If:
(a) a person supplies, in trade or commerce, goods to a consumer; and
(b) the supply does not occur by way of sale by auction; there is a
guarantee that the goods are of acceptable quality.
Typical of the consumer guarantees relating to services is s 60 of the

ACL which provides as follows:
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60 Guarantee as to due care and skill

If a person supplies, in trade or commerce, services to a consumer,
there is a guarantee that the services will be rendered with due care and
skill.
‘person’, ‘in trade or commerce’
The term ‘person’, and the phrase ‘in trade or commerce’, have the
same meanings in relation to the consumer guarantees as they do for
other provisions of the ACL.
Briefly, ‘person’ effectively means any business structure, while ‘in trade
or commerce’ means conduct of a commercial character (usually, buying
and selling).
‘supplies’
The term ‘supply’ is defined in the ACL to mean:
• in relation to goods—supply (including re-supply) by way of sale,
exchange, lease, hire or hire-purchase
• in relation to services—provide, grant or confer.
This means that ‘supply’ (and the corresponding words ‘supplied’ and
‘supplier’) relates not only to sales but also to other transactions such as
hire agreements. Under the ACL, the supply of gas, electricity or a
telecommunications service is excluded from the operation of the
consumer guarantees. This is provided s 65 of the ACL.
‘goods’
The term ‘goods’ has a broad meaning under the ACL and includes
animals; minerals, trees and crops; gas and electricity; computer
software; second-handgoods and any component part of, or accessory
to, goods. Consequently, a wide range of products may constitute goods
under the consumer guarantees.
‘services’
Under the ACL, ‘services’ is broadly defined and includes contracts for
work, amusement, entertainment, recreation or instruction; contracts of
insurance; contracts between a bank and a customer of the bank and
contracts relating to the lending of money. A service may also relate to
rights over real or personal property. Consequently, a wide range of
services are covered by the consumer guarantees.
Important exceptions are gas, electricity and telecommunications
services, the supply of which is excluded from the operation of the
consumer guarantees as previously mentioned.
‘consumer’
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It is the definition of ‘consumer’ that is critical to the operation of the

consumer guarantees. Although the range of goods and services
covered under the ACL is huge, only a subset of these will be applicable
to the consumer guarantees due to the way in which ‘consumer’ is
defined.
The term ‘consumer’ is defined by s 3 of the ACL as follows:

3 Meaning of consumer
Acquiring goods as a consumer
(1) A person is taken to have acquired particular goods as a consumer if,
and only if:
(a) the amount paid or payable for the goods, as worked out under
subsections (4) to (9), did not exceed:
(i) $40,000
(ii) if a greater amount is prescribed for the purposes of this paragraph—
that greater amount
(b) the goods were of a kind ordinarily acquired for personal,
domestic or household use or consumption; or
(c) the goods consisted of a vehicle or trailer acquired for use
principally in the transport of goods on public roads.
…
Acquiring services as a consumer
(3) A person is taken to have acquired particular services as a consumer
if,
and only if:
(a) the amount paid or payable for the services, as worked out under
subsections (4) to (9), did not exceed:
(i) $40,000; or
(ii) if a greater amount is prescribed for the purposes of
subsection (1)(a)—that greater amount; or
(b) the services were of a kind ordinarily acquired for personal,
domestic or household use or consumption.
This means that, in most cases, a ‘consumer’ will be a person who

acquires goods or services that either:
• cost no more than $40,000 (with the exception of a vehicle or trailer
which is purchased for the purpose of transporting goods); or
• are ‘of a kind ordinarily acquired for personal, domestic or household
use or consumption
- This last expression requires clarification. What are goods, or

services, ‘of a kind ordinarily acquired for personal, domestic or
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household use or consumption’? These are goods or services that

are typically acquired by consumers for use in the consumer’s
private capacity.
- If a good or service is of a type normally purchased by individuals
to fulfil personal, domestic or household needs, then the good or
service is covered by the consumer guarantees. Read the
expression ‘of a kind ordinarily acquired for personal,
domestic or household use or consumption’ again carefully.
- You will notice that the wording does not actually require that the
goods or services be acquired for personal, domestic or household
consumption, only that the goods or services be of a kind ordinarily
acquired for one of these purposes.
-This means that even if the good or service is purchased for a
commercial purpose, it will nevertheless meet the requirements if it
is ‘ordinarily’ a good or service that is purchased for personal,
domestic or household consumption.
For example, a hair dryer is a good normally purchased for personal,
domestic or household use. If a hairdressing business were to
purchase a large number of hairdryers for use in its salon the
hairdryers would be covered by the consumer guarantees relating to
goods. Whether goods or services fall within the category ‘of a kind
ordinarily acquired for personal, domestic or household use or
consumption’ is determined objectively, by reference to the essential
character of the goods or services themselves, regardless of how the
particular goods or services are actually being used.
- If it is possible for goods or services to have domestic as well as
commercial uses then the goods or services will normally be
covered by the consumer guarantees. By contrast, if a good or
service has no personal, domestic or household use it is unlikely to
attract the operation of the consumer guarantees.
- Goods such as large tractors, industrial machinery and very large
capacity photocopiers, or services such as railway construction
and management consultancy, are purely commercial in character
and as such the consumer guarantees have no application to
them.
Display notices
The Commonwealth Minister may require suppliers of goods to display,
at their business premises, notices advising consumers of their rights
under the consumer guarantees. The form, content and placement of
such notices may all be prescribed. At the time of writing no notices have
yet been prescribed, but businesses should be aware of this possibility
as the ACL provides for fines of up to $50,000 for corporations or
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$10,000 for individuals who do not comply with notice requirements.

Display notices are dealt with by s 66 of the AC
The Australian Consumer Law (ACL) contains a number of guarantees in

relation to goods. The specific guarantees relate to:
• title to goods
• undisturbed possession of goods
• that goods are free from undisclosed securities
• acceptable quality, including fitness for usual purposes
• fitness for a specific purpose made known to the supplier
• correspondence with description
• correspondence with any sample or demonstration model
• availability of spare parts and repair facilities
• compliance with any express warranties.
Application
In addition to the restrictions described in the previous topic, application
of the consumer guarantees relating to goods is subject to one further
restriction: the goods must not have been acquired for the purpose of re-
supply or manufacture.
Section 3(2) of the ACL provides as follows:
3 Meaning of consumer
Acquiring goods as a consumer
(2) However, subsection (1) does not apply if the person acquired the
goods, or held himself or herself out as acquiring the goods:
(a) for the purpose of re-supply;
(b) for the purpose of using them up or transforming them, in trade or
commerce:
(i) in the course of a process of production or manufacture
(ii) in the course of repairing or treating other goods or fixtures on land.
This means that the consumer must be the end user of the goods; the
consumer guarantees do not apply to goods acquired for the purpose of
selling them to other persons. For example, goods supplied by a
wholesaler to a retailer, for sale in stores operated by the retailer, would
not be covered by the consumer guarantees since the retailer is not the
end user; the customers of the retailer’s stores are. It is the customers of
the stores, not the retailer, who are protected by the guarantees. Nor do
the guarantees apply to goods acquired for the purpose of using them to
manufacture other goods. For example, chemicals acquired by a
fertilizer manufacturer for the purpose of producing fertilizer would not be
covered by the guarantees.
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Title to goods
- A central proposition of commercial law is that you cannot sell what
you do not own.
- A slightly more legalistic way of saying that is that that you cannot
validly pass title in goods to another person if you do not hold the
title yourself.
- This is known as the nemo dat principle (short for nemo dat quod
non habet, from the Latin meaning ‘no person can give what he or
she does not have’).
- The ACL consumer guarantee as to title reflects this longstanding
common law principle.
- When goods are supplied to a consumer, there is a guarantee that
the supplier has the right to pass the title (or ownership) in those
goods along to the consumer.
- However, there are some exceptions, the main one being for what
is referred to as a limited title.
- The supplier may make the deal on the basis that only the title
which the supplier actually has is being passed on to the
consumer. It must be clear either from the sales contract or from
the circumstances surrounding the contract that only limited title is
being sold. If this is not clear, the guarantee of full title stands.
- The guarantee of title also does not apply to supplies of goods by
way of lease or hire — obviously the purpose of lease or hire
agreements is to supply goods without passing ownership and the
ACL recognises such arrangements. The guarantee as to title is
provided by s 51 of the ACL.
Undisturbed possession of goods

- Sometimes goods are subject to pre-existing claims that a
consumer will not be aware of when purchasing the goods. For
example, the goods may have been used as security for a loan.
- For example, the goods may have been used as security for a
loan. When borrowing money to buy a car, for example, the lender
will usually require a bill of sale over the car itself, meaning that the
lender can take it and sell it if the loan is not repaid.
- Other claims can arise if the goods are part of a deceased estate
and the rights of beneficiaries have not been finally established.
- If there are pre-existing claims on goods that a purchaser does not
know about, there is a risk that the earlier lender, or another
claimant, may assert ownership over the goods, such as by
physically seizing the goods.
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Under the ACL, consumers are protected by two guarantees which

address this issue.
- The first is the guarantee of undisturbed possession of the
goods, which refers to physical possession of the goods free from
interference from others. This guarantee will apply unless the
supplier has advised the consumer in advance of a limitation of
title or some competing interest in the goods (for example,
disputed possession of the goods arising from a dispute under a
will). The result is that neither the supplier of the goods nor any
other person with a claim of possession over them may try to
reclaim the goods.
- The guarantee of undisturbed possession applies to goods
supplied under a hire or lease agreement for the duration of the
agreement but not after the agreement has ended. The guarantee
as to undisturbed possession is provided by s 52 of the ACL.
Undisclosed securities
- The second guarantee to address conflicting ownership claims is
the guarantee that goods are free from any undisclosed
securities which are any ‘securities, charges or encumbrances’
that affect the goods (such as a loan that has been secured
against the goods).
- Unless the consumer has been advised, in writing, of the
existence of any undisclosed securities before supply of the goods,
the guarantee will be effective.
- The result is that neither the supplier of the goods nor any other
person with a claim over them may try to reclaim the goods or
seek payment from the consumer on the basis of the undisclosed
securities.
- The guarantee does not apply if the supply was a supply of limited
title but in these circumstances, the supplier is obliged to advise
the consumer of any securities, charges or encumbrances over the
goods before the consumer agrees to the supply.
- The guarantee does not apply to goods supplied by hire or lease.
The guarantee as to undisclosed securities is provided by s 53 of
the ACL.
Acceptable quality, including fitness for usual purposes

Goods provided to consumers must be of acceptable quality. This means
that the goods must be:
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• fit for all purposes for which goods of the kind are commonly supplied,
• acceptable in appearance and finish,
• free from defects,
• safe
• durable.
Whether or not goods are of acceptable quality, according to this
definition, is to be determined from the point of view of a hypothetical
‘reasonable consumer’ who is fully acquainted with the state and
condition of the particular goods. This ‘reasonable consumer’ is
presumed to take account of the following factors, as relevant, when
determining whether or not goods are of an acceptable quality:
• price,
• statements made about the goods on any packaging or labelling,
• any other representations made about the goods by the manufacturer
or supplier,
• any other relevant circumstances
- The guarantee as to acceptable quality does not apply to goods

sold at auction (whether the auctioneer acts in person or by
electronic means). Businesses should always bring any problems
or deficiencies affecting their goods to the attention of their
customers. This relates to what customers would think is
acceptable quality for goods as the standard of acceptability takes
account of any problems that the customer has been told about.
- The requirement of durability is a flexible concept that varies
according to what goods are normally used for, but it does not
mean that goods are required to be indestructible. Goods do not
fail the durability requirement simply because they can be
damaged by abnormal uses or accidents, such as where a mobile
phone has been put through a washing machine cycle
- If a consumer has examined the goods prior to purchase, he or
she will be taken to have known about any defects that the
examination should have turned up.
- To put it another way, the supplier will not be required to correct
any defects that the examination should reasonably have revealed.
How detailed such an examination should be will vary according to
the type of goods involved
- new goods may require little inspection, whereas it would be
reasonable to expect second-hand goods to be examined much
more closely for defects. The guarantee as to acceptable quality is
provided by s 54 of the ACL.
Fitness for a specific purpose made known to the supplier
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- An additional consumer guarantee exists where a consumer

makes a specific purpose for the goods known to the supplier,
manufacturer or a salesperson.
- If the consumer makes such a purpose known to any of those
persons and the goods are supplied, then the goods must be fit for
that purpose. Furthermore, if a supplier tells the consumer that the
goods will be fit for a particular purpose (whether or not the
consumer has raised the matter) then the goods must be fit for that
purpose.
- Suppliers should therefore be particularly certain of any additional
purposes they suggest for their products, for example, as part of
‘sales talk’.
- The guarantee as to specific purpose does not apply if the
customer did not rely on the skill or judgment of the person to
whom they communicate their purpose. Nor will the guarantee
apply if it would be unreasonable for the consumer to rely on that
person’s skill or judgment.
- For example, it would probably not be reasonable to rely on
advice given by a checkout operator as to whether or not a
complex computer program can perform a particular function as it
is not usually the checkout operator’s job to advise on software.
- The guarantee as to fitness for a disclosed purpose is provided by
s 55 of the ACL.
Correspondence with description

Under the ACL, goods must match any description of the goods provided
by their supplier. The courts have established the following principles in
relation to supplies by description.
• Goods may still correspond with their description even though they are
tainted or otherwise unsaleable, unless they are tainted to the extent that
they are no longer the same item.
For example, a product described as ‘Riverina Citrus Pulp’ will still be
Riverina Citrus Pulp even if it is tainted by a toxic additive, unless the
nature of the pulp has been chemically altered by the toxins to the point
where it could no longer be described as citrus pulp.
• Descriptions may include a requirement as to how goods are to be
packaged. For example, a sale in which the product was described as
240 cans packed in cases of 24, would not satisfy the guarantee if the
240 cans were provided, but packed into cases of 48.
• Descriptions may also consist of a brand name — where one is
specified, goods of that brand must be supplied. The guarantee that
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goods will correspond with their description does not apply to goods sold
at auction.
The guarantee relating to the supply of goods by description is provided
by s 56 of the ACL.
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Correspondence with any sample or demonstration model

- Where goods have been purchased by reference to a sample or
demonstration model, the ACL provides a guarantee that the
goods actually supplied will match that sample or demonstration
model. Common examples of purchases by sample or model
include buying fabric, carpet or tiles by reference to a sample or
swatch, buying a car
- Where samples are involved, the consumer could have difficulty
establishing that goods supplied differ from what he or she was
shown as a sample in some cases, such as where colours differ.
- To remedy this, the ACL requires that consumers must be given a
reasonable opportunity to compare the supplied goods with the
sample. Samples should therefore be kept in case they are
needed later for comparison.
- Importantly though, this requirement does not apply to
demonstration models as it is not considered reasonable to expect
suppliers to keep demonstration models of products like cars, etc.
- Sales by sample or demonstration model also reflect some
requirements of the other consumer guarantees. The goods
actually supplied must not have any defects in them that were not
present in the sample or demonstration model, would not have
been apparent upon reasonable examination, or would otherwise
make the goods of unacceptable quality.
- Furthermore, where the sale is by reference to a description as
well as to a sample or demonstration model, both guarantees will
apply — the goods supplied must correspond to the description as
well as to the sample or model.
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- The guarantee that goods will correspond with samples or

demonstration models does not apply to goods sold at auction.
- The guarantee relating to the supply of goods by sample or
demonstration model is provided by s 57 of the ACL.
Availability of spare parts and repair facilities

- The availability of facilities for repair and of spare parts for goods is
often an important factor in a consumer’s decision to buy one
product instead of another, particularly if it is an expensive item like
a car or a major appliance like a refrigerator or air conditioning
unit.
- The ACL guarantees that the manufacturer of goods will take
‘reasonable action’ to ensure that spare parts and facilities for
repair are ‘reasonably available’ for a ‘reasonable period’ after the
goods are sold.
- There is no specific definition of ‘reasonable’, despite its repeated
use in this guarantee. As is common in law, the concept of
reasonableness here is a flexible one that will vary according to
the particular circumstances and types of products involved.
- There is an exception, however, where the manufacturer took
‘reasonable’ action to ensure that consumers were notified that
spare parts or repair facilities would not be available at all for the
goods, or that they would not be available after a particular time.
- Setting out a time-limit in writing like this is highly advisable as it
makes things much clearer between the supplier and the
consumer and avoids potential arguments about what a
‘reasonable’ period of time means.
- The parts and repairs guarantee does not apply to goods sold at
auction.
- The guarantee as to repairs and spare parts is contained in s 58 of
the ACL.
Compliance with any express warranties.

The final guarantee the ACL provides to consumers in relation to goods
is that suppliers and manufacturers will comply with any express
warranties they provide to consumers in respect of the goods. ‘Express
warranty’ is defined in the ACL as ‘an undertaking, assertion or
representation’ about:
• the quality, state, condition, performance or characteristics of goods
themselves;
• the provision of services that might be required for the goods;
• the supply of parts
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• the future availability of identical goods, or of other goods in a set that

the goods purchased form a part of, that is given in connection with the
supply or promotion (advertising) of the goods, in order to encourage
consumers to buy them.
- Care should therefore be taken about the accuracy of any
statements made to consumers about these types of matters,
whether the statements are verbal or made in writing or some
other permanent form (such as in a television or radio
advertisement).
- Importantly, any express warranties suppliers or manufacturers
may choose to make are in addition to the other guarantees
discussed in this chapter — express warranties may not replace
the other guarantees and cannot limit or exclude their operation.
- The guarantee as to express warranties does not apply to goods
sold at auction.
- The guarantee as to express warranties is provided by s 59 of the
ACL.
Case reference Grant v Australian Knitting Mills Limited (1935) 54 CLR

49.
The case also illustrates some points about when a consumer is relying
on the seller’s or supplier’s skill and judgment, which is now a
consideration in determining whether goods are fit for a particular
purpose (explained above). In this case, and for this sort of purchase, it
was held that Dr Grant was relying on the retailer’s skill and judgment —
he assumed they would have exercised that judgment in purchasing
suitable stock for their store. This reliance does not have to be express
(spoken or written) — Dr Grant did not have to tell them he was relying
on them in this way, which of course he didn’t do when making the
purchase. Reliance can be implied from the circumstances and, in this
case, it came from the fact that he chose to go into their store to make
his purchase, and particularly because the goods are goods that the
store usually sells, and so may be presumed to know about.
It might seem unfair that the retailer was also held liable for something
that had gone wrong in the manufacturer’s processes, but under the
ACL’s consumer guarantee scheme, consumers may also take action
against the retailer and the manufacturer may not be involved. In a
situation like this, where the retailer could not reasonably have
suspected the goods to be defective, it may be possible for the retailer to
recover their losses in a further action against the manufacturer, but
technically they will still be liable to the consumer directly. This is
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because the consumer deals with the retailer most directly, and many of
the remedies available to consumers under the guarantees (such as
returning the goods for a refund) involve the retailer, not the
manufacturer. If you are curious to read the full case, bear in mind that
it’s a very old case. It was decided even earlier than the Trade Practices
Act, under similar Sale of Goods legislation. The points made in this
case still provide really helpful illustrations of the modern guarantees,
many of which still provide consumers with similar protections,
particularly in relation to quality (the old term is ‘merchantable quality’).
Consumers who acquire services from businesses, where those services

are of a personal, domestic or household nature, are protected by three
separate guarantees under the Australian Consumer Law (ACL).
Under these guarantees the services must be:
• performed (‘rendered’) with due care and skill,
• reasonably fit for a purpose, or reasonably expected to achieve a
specific result, that the consumer has made known to the supplier
• supplied within a reasonable time.
Attention should be brought to two types of service to which the service

guarantees do not apply. Both exclusions are provided by s63 of the
ACL.
- First, the service guarantees do not apply to contracts for the
transport or storage of business, trade, professional or other
occupational types of goods. Although transport and storage of
goods is often a domestic type of service (such as when moving
house), the ACL distinguishes between transport and storage
services for domestic goods (which are covered by the
guarantees) and transport and storage services for business or
commercial types of goods (to which the guarantees do not apply).
- Second, the service guarantees do not apply to insurance
contracts.
Due care and skill

- The guarantee that services will be rendered with due care and
skill requires service providers to have an acceptable level of skill
in the relevant area.
- Importantly, the ACL does not specify that all service providers
must have formal qualifications or accreditation, which suggests
that there is some flexibility in the concept.
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- It may be that what constitutes an acceptable level of skill varies

between trades or other service areas, although of course in some
industries other legislation will require formal trade, or other,
qualifications — the ACL does not remove any such requirements.
- Examples of services provided with a lack of due care or skill
would include the installation of a burglar alarm that could easily
be bypassed by burglars, and loss or damage to passengers’
personal luggage by airlines or cruise ship operators. It appears
that the guarantee of due care and skill will also protect consumers
against damage done to property in the course of providing the
services.
- The guarantee as to due care and skill is provided by s 60 of the
ACL.
Purpose or desired results

- The ACL makes a distinction between the purpose of a service and
the result that the consumer wishes to achieve from the service. In
either case, if the consumer has communicated their wishes to the
supplier, the service must comply with the requirements of the
consumer. This is the guarantee as to purpose or desired results.
- To illustrate the difference between purpose and desired result,
consider a contract that a consumer makes with an electrician to
install lighting in an attic. The consumer might tell the electrician
that the lights are needed so the room can be used as a craft room
— this states the purpose for the services. The consumer might,
instead, tell the electrician that the lights need to be bright enough
to allow the consumer to do fine needlework in the room — this
states the result that the consumer desires. The statement of
desired result is the more specific of the two requests and makes
the consumer’s wishes clearer, while the statement of purpose is
open to interpretation by the electrician.
- Where a consumer makes known to the supplier of services any
particular purpose for which the services are being acquired, there
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is a guarantee that the services (and any product resulting from

them) will be reasonably fit for that purpose.
- Where a consumer makes known to the supplier of services the
result that he or she wishes the services to achieve, there is a
guarantee that the services (and any product resulting from them)
will be of such a nature, quality, state or condition that the services
might reasonably be expected to achieve that result.
- The consumer may make the purpose, or the desired result known
to the supplier either expressly or by implication. That is, if it should
have been obvious to the provider of the services what the
purpose or desired result of the services was, the guarantee will
apply even if the consumer has not expressed their wishes in clear
terms.
- The guarantee does not apply where the consumer either did not
rely on the supplier’s skill or judgment or where it was not
reasonable for the consumer to so rely. The professional services
of qualified architects or engineers are also specifically exempted
from this guarantee.
- The guarantee as to fitness for a particular purpose or desired
result is provided by s 61 of the ACL
Reasonable time
- Contracts for services usually specify the time within which the
services are to be provided. If the contract is silent on these
matters (and there is no agreement between the consumer and the
supplier as to determination of the time) the guarantee as to
reasonable time applies: there is a guarantee that the services
will be supplied within a reasonable time.
- What constitutes a ‘reasonable time’ will naturally vary according to
the type of services involved. The safest approach for businesses
is always to specify the timeframe within which services are to be
provided — this helps avoid disputes with customers over what
constitutes a reasonable time, as opinions can definitely vary on
this point!
- The guarantee as to reasonable time for supply is provided by s 62
of the ACL
If a supplier of goods or services fails to comply with one of the

consumer guarantees under the Australian Consumer Law (ACL) then
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the consumer will have a remedy. The possible remedies in relation to

goods are:
• repair of the goods
• replacement of the goods
• payment of the cost of repair or replacement of the goods
• refund of the cost of the goods
• cure of a defect in the title to the goods.
The possible remedies in relation to services are:

• remedial services • supply of the services again
• payment of the cost of having the services supplied again
• refund.
Which of these remedies will be available depends upon the
circumstances of the supply and the seriousness of the supplier’s failure
to comply with the consumer guarantees Specifically, it is necessary to
examine:
1. whether liability was limited by the supplier
2. the seriousness of the failure to comply with the consumer
guarantees.
The right of a supplier to limit their liability in this way is subject to one
important restriction:
the goods or services for which liability is being limited may not be
goods or services ‘of a kind ordinarily acquired for personal, domestic or
household use or consumption’.
- This restriction applies to all goods and services of a kind ordinarily
acquired for personal, domestic or household use or consumption,
whatever their cost. –
- Consequently, the remedies available in respect of such goods and
services are more extensive (these remedies are dealt with in the
next section).
- It should also be noted that a supplier may not limit their liability for
goods which breach the guarantee as to title, the guarantee as to
undisturbed possession or the guarantee as to undisclosed
securities (ss 51–3 of the ACL).
- Limitation of liability for failures to comply with the consumer
guarantees is covered by s 64A of the ACL.
- The ACL implies into any consumer transaction a comprehensive
set of non-excludable rights for the goods and services that a
consumer acquires, and they apply regardless of whether the
supplier or manufacturer is providing a warranty or not (s 64).
Thus, a supplier who tells a consumer that they have to pay for
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any rights that are equivalent to a consumer guarantee is in breach

of the ACL.
Section 64 expressly prevents a consumer agreeing to exclude, restrict or
modify their consumer guarantee rights. If a supplier or manufacturer
attempts to include terms in their contracts to avoid responsibility, any
such terms will be void. However, s 64A permits suppliers to impose
certain limitations on their liability in business to business sales by
providing that the term will not be void merely because it limits the
supplier’s liability to:
 the replacement of the goods or the supply of equivalent goods;

 the repair of the goods;
 the payment of the cost of replacing the goods or of acquiring
equivalent goods; or
 the payment of the cost of having the goods repaired.
- It is possible for a supplier of recreational services to exclude the

consumer guarantee provisions of the ACL and not be caught by s
64. Section 139A of the Competition and Consumer Act 2010 (Cth)
allows providers of recreational services (which are very broadly
defined) to exclude, restrict or modify their liability for the injury or
death of participants (as long as the supplier’s conduct is not
reckless).
Major failures
A supplier’s failure to comply with a consumer guarantee will be a major
failure if the goods or services match any one of the following
descriptions. Either goods or services:
• the goods or services would not have been acquired by a reasonable
consumer had they been aware of the failure
• the goods or services are unfit for a purpose for which such goods or
services are commonly supplied (and the goods or services cannot
easily be remedied to make them fit for such a purpose)
Goods only
• the goods do not match a description or demonstration model
• the goods are unfit for a specific purpose that the consumer made
known to the supplier or some other person in the distribution chain (and
the goods cannot easily be remedied to make them fit for such a
purpose)
• the goods are unsafe
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Services only:
• the services are unfit for a particular purpose which the consumer
made known to the supplier (and the services cannot easily be remedied
to make them fit for such a purpose)
• the services do not achieve a desired result which the consumer made
known to the supplier (and the services cannot easily be remedied to
achieve the result)
• the services have created an unsafe situation.
- Note that major failures only apply to suppliers, not manufacturers.

- Consequently, neither the consumer guarantee as to availability of
spare parts or repairs (s 58 of the ACL) nor the consumer
guarantee as to compliance with express warranties by
manufacturers (s 59(1) of the ACL) may give rise to a major failure
(remedies against manufacturers for failure to comply with these
guarantees is dealt with later in this topic).
- Major failures are defined by ss 260 and 268 of the ACL.
Possible actions for major failures

- If a major failure occurs, then the consumer may choose one of
two different courses of action. (If the failure relates to goods then
the term ‘consumer’ includes any person who received the goods
from the consumer as a gift.)
- The first option open to the consumer is to recover compensation
from the supplier for any reduction in the value of the goods or
services below the price paid for the goods or services. This
remedy is provided by ss 259(3)(b) and 267(3)(b) of the ACL.
Effectively, the consumer decides to keep the goods or services as
supplied and recovers a partial refund representing the difference
between the price they paid for the goods or services and the
current value of the goods and services. This may be a good
option where other remedies would cause inconvenience to the
consumer.
- For example, if a wooden floor has been supplied on the assertion
that it is hard wearing and durable, and the floor turns out to
scratch and mark easily, the consumer may elect to keep the floor
(rather than go to the trouble of having the floor replaced) and
recover the difference in value between the price they paid for the
floor and the actual value of the floor as installed.
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- The second option open to the consumer is to reject the goods or

terminate the contract for the supply of services (whichever is
relevant).
- If the consumer exercises this option they become entitled to the
remedy of a refund (and, if goods have been supplied, the
alternative remedy of replacement of the goods). There are
different provisions relating to goods and services.
Rejection of goods
In the case of goods, the consumer must:
• notify the supplier that the goods have been rejected
• return the goods to the supplier, unless returning the goods would be
unreasonably difficult or expensive (for example, because the goods are
very large or heavy, in which case the supplier is obliged to collect the
goods at the supplier’s expense).
- In many cases, notification and return of the goods will occur at the
same time (for example, when a customer returns a faulty item to a
store for a refund). Once the goods have been returned, the
supplier becomes obliged to either refund the purchase price or to
replace the goods (whichever remedy the consumer chooses).
- The goods do not have to be in their original packaging. If the
consumer chooses a refund, then the supplier may not insist that
the consumer receive credit for the returned goods.
- The supplier must provide a refund of the money that the
consumer paid if this is what the consumer wants. Additionally, if
the goods have been supplied in conjunction with services then the
consumer is also entitled to terminate the contract for services and
recover any money paid for services not consumed (that is to say,
services which had not been provided as at the time of
termination).
- If the consumer chooses a replacement of the goods, then the
consumer guarantees operate in relation to the replacement
goods. This means that the replacement goods must also comply
with the consumer guarantees and if they do not, the consumer will
have a remedy.
- For example, if a home theatre system is defective and the
consumer chooses a replacement, the replacement system must
comply with all of the consumer guarantees. If the replacement
system is also defective, then the consumer will have the full range
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of remedies in relation to the replacement. The consumer’s right to

reject goods is subject to some restrictions.
- If the goods have been lost, destroyed or disposed of by the
consumer, damaged after being delivered to the consumer or
permanently attached to other property then the consumer has no
right to notify the supplier of rejection of the goods.
- Additionally, the right to rejection is lost after the rejection period
for the goods has ended. The rejection period is not a precise
interval but is defined as the period from the time of the supply of
the goods to the consumer ‘within which it would be reasonable to
expect the relevant failure to comply [with the consumer
guarantee] to become apparent’.
- What is a ‘reasonable period’ is to be determined having regard to
each of the following considerations:
• the type of goods
• the use to which a consumer is likely to put them
• the length of time for which it is reasonable for them to be used
• the amount of use to which it is reasonable for them to be put
before such a failure becomes apparent.
- Rejection of goods is dealt with by s 263 of the ACL
Termination of services
- In the case of services, notification of termination of the contract
for services entitles the consumer to recover from the supplier a
refund of any money paid for services not consumed (that is, any
part of the services not provided as at the time of the termination).
- If goods have been supplied in conjunction with the services, then
the consumer is taken to have also rejected the goods and must
return those goods unless the return of the goods would be difficult
or expensive (in which case the supplier must recover the goods at
its own expense).
- The consumer is entitled to a refund for all goods returned.
- Termination of contracts for the supply of services is dealt with by s
269 of the ACL.
Non-major failures that cannot be remedied

If a failure is not major but the supplier cannot ‘remedy’ the failure (by
repairing or replacing goods, by curing a defect in the title to goods, or
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by refunding the cost of goods or services), the consumer is in the same

position as if the failure was major and has the same remedies (recovery
of compensation from the supplier or alternatively, rejection or
termination). Non-major failures that cannot be remedied are dealt with
by ss 259(3) and 267(3) of the ACL
Non-major failures that can be remedied

If the failure can be remedied and is not a major failure (as defined
above), the
consumer has the right to require the supplier to remedy the failure.
However,
this right is not as extensive as the rights provided in respect to major
failures.
Where goods have been supplied that do not comply with the consumer
guarantees,
the supplier may comply with a requirement to remedy the failure by:
• repairing the goods
• replacing the goods with goods of an identical type
• refunding any money paid by the consumer for the goods
• (where the failure relates to title) by curing any defect in title to the
goods.
It is important to note that the supplier may choose which of these

remedies to
provide and is not obliged to provide a remedy of the consumer’s choice.
For
example, if a consumer bought a new toaster which had a loose
browning control
(with the result that the control fell off easily), the supplier could choose
to remedy
the breach of the relevant guarantee (in this case, the guarantee of
acceptable
quality) by repairing the toaster, even though the consumer would have
preferred a
refund. In this case, repair of the toaster would fulfil the supplier’s
requirement to
provide a remedy.
An exception is made where the supplier refuses or fails to comply
with a
requirement to remedy a failure (or fails to comply with a requirement
within a
reasonable time).
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- In such circumstances the consumer may arrange to have the

failure remedied themselves and then recover the reasonable
costs of doing so from the supplier.
- Alternatively, the consumer may notify the supplier that they have
rejected the goods or terminated the contract for the supply of
services.
- In this case the consumer is entitled to the same remedies of
refund or replacement as they would be had the rejection been for
a major failure. A consumer may require the supplier to provide a
remedy regardless of whether the goods are in their original
packaging.
- Where services have been supplied that do not comply with the
consumer guarantees, the law does not specify how the supplier
may comply with a requirement to remedy the failure.
- It would appear that the supplier may be expected to perform
remedial services (further services undertaken to bring the
services up to the required standard of care and skill or to render
the services fit for a purpose or suitable for a result made known
by the consumer).
- Where the supplier of services refuses or fails to comply with the
consumer’s requirement (or fails to comply with the requirement
within a reasonable time) the consumer may arrange to have the
failure remedied themselves and then recover the reasonable
costs of doing so from the supplier.
- Alternatively, the consumer may notify the supplier that they have
terminated the contract for the supply of services. If the consumer
exercises this option they become entitled to recover a refund from
the supplier for any payment made for services not consumed.
- Non-major failures that can be remedied are dealt with by ss
259(2) and 267(2) of the ACL.
Other remedies: damages

- Under the ACL, if it was reasonably foreseeable that the consumer
would suffer loss or damage as a result of the supplier’s failure to
comply with a consumer guarantee then the consumer may take
action against the supplier to recover compensation for the loss or
damage.
For example, if defective plumbing causes water to flood a retail
store, damaging stock and fittings within the store, the store
operator would be entitled to take action against the plumber to
recover the costs of repairing the plumbing and of replacing the
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stock and fittings since each were a clearly foreseeable

consequence of the relevant failure (in this case, the plumber’s
failure to perform the services with due care and skill).
- The right to damages extends not only to direct losses but also to
consequential losses (losses which do not arise directly from a
wrongful action but are nevertheless a foreseeable consequence
of the action).
Returning to the example above, the store operator would also be
able to claim damages for loss of trade (a consequential loss)
since the need to close the store to make repairs and to replace
stock was a foreseeable consequence of the plumber’s failure to
perform the services with due care and skill.
- In relation to consequential losses arising from goods, the supplier
will have a complete defence if they can demonstrate that their
failure to comply with the guarantee occurred only because of a
cause ‘independent of human control’ that occurred after the goods
left the control of the supplier.
- This might be the case, for example, if electronic goods were
damaged by lightening in the course of being delivered to a
consumer. In this case the supplier would not be liable for
consequential losses caused by the damaged goods.
- Damages for a supplier’s failure to comply with the consumer
guarantees are dealt with by ss 259(4)-(5) and 267(4)-(5) of the
ACL.
Remedy against manufacturers

Some of the consumer guarantees which relate to goods impose
responsibilities upon the manufacturer. Consequently, if the
manufacturer fails to comply with one of those guarantees the consumer
will have a remedy against it.
The relevant guarantees are those in relation to:
• acceptable quality (s 54 ACL)
• correspondence with description (s 56 ACL)
• availability of repairs and spare parts (s 58 ACL)
• compliance with an express warranty from the manufacturer (s 59(1) of
the ACL).
The remedy conferred in each instance is the right to recover damages

from the manufacturer. Damages may be recovered for the following
types of harm:
• reduction in the value of the goods resulting from the failure to comply
with the consumer guarantee
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• loss or damage caused by the failure to comply with the consumer

guarantee provided that loss or damage as a result of the failure was
reasonably foreseeable.
It is important to note that both types of damages may be recovered by

the consumer since each deal with a different type of harm. There is no
right to a refund or replacement against the manufacturer
- A consumer has three years in which to make a claim for damages
against the manufacturer.
- Damages need to be proven by the consumer.
- Consequently, an action against the manufacturer can only
succeed if the consumer can prove that they have suffered at least
one of the two types of harm specified above.
- In the case of damages for loss or damage, the consumer must
also demonstrate that the harm was reasonably foreseeable by a
person in the position of the manufacturer
- If the goods have been acquired from the consumer by another
person, then that person also has the right to recover damages
from the manufacturer (as long as the goods have not been
acquired for the purpose of re-supply)
- The manufacturer has a number of specific defences available to
it. For claims arising in relation to the guarantees as to acceptable
quality or correspondence with description, the manufacturer is not
liable to the consumer if the failure to comply with the guarantee
was caused solely by an act or representation made by another
person.
- This means, for example, that if the supplier has incorrectly
described a good, the consumer could not recover damages from
the manufacturer for harm arising from the inaccurate description
(in such circumstances, the consumer must take action against the
supplier).
- Additionally, the manufacturer is not liable to the consumer if the
failure to comply with the guarantee is due to some cause
independent of human control that occurred after the goods left the
control of the manufacturer.
- If damages for failure to comply with the guarantee as to
acceptable quality are awarded against a manufacturer on the
basis that the breach has caused a reduction in the value of the
goods, the damages must be calculated by reference to the
manufacturer’s recommended price for the goods (or the average
retail price of the goods).
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- The remedy against the manufacturer will overlap in some cases

with the consumer’s right to recover damages from the supplier.
- For example, if goods do not match a description provided by a
manufacturer, and the consumer suffers loss or damage as a
result, the consumer may choose to take action against either the
supplier or the manufacturer.
- The consumer may not, however, ‘double dip’ by recovering
damages from both.
- Under the ACL, the supplier has the right of indemnity (protection)
against liabilities that are the responsibility of the manufacturer.
This means that if the supplier is ordered to pay damages it may
recover the cost of the damages from the manufacturer.
- The remedy of damages against manufacturers is dealt with by ss
271–3 of the ACL.
Product safety standards

• The standards set down minimum requirements
• It is an offence to supply (by sale or otherwise) goods which do not
comply
• Fines if a company breaches will be not more than the greater of
the following:
(a) $10 million;
(b) if the court can determine the value of the benefit that the
company has obtained directly or indirectly attributable to the
commission of the offence then 3 times the value of the benefit;
(c) if the court cannot determine the value of that benefit, then 10%
of the annual turnover of the company during the 12 month period
ending at the end of the month in which the company committed,
or began committing, the offence; or if a human breaches then the
fine shall not exceed $500,000.
Mandatory reporting
• Become aware of the death, serious injury or illness of any person
and considers that this was, or may have been, caused by goods
of the kind it supplies, or by a foreseeable misuse of such goods,
supplier is obliged to report o the Minister within 2 days.
• ACCC v Dimmeys Stores Pty Ltd; ACCC v Starite Distributors Pty
Ltd [1999] FCA 1175
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• Dimmeys sold bicycles which did not comply with the safety
standards
Manufacturer
• Grow, extract, produce, process, or assemble goods;
• Hold themselves out, or permit others to hold them out, to the
public as being the manufacturer of goods;
• Apply, or permits other persons to apply, their name or business
name, or their brand or mark, to the goods; or
• Import goods into Australia, where the true manufacturer of goods
(OS) does not have a place of business in Australia.
Manufacturers are liable to compensate any person, regardless of

whether s/he actually purchased the goods, who:
• is personally injured,
• suffers loss as the result of injury to another person,
• suffers loss due to damage to other goods (PDH goods),
• suffers loss due to damage to or destruction of land, fixtures or
buildings (normally acquired for personal use)
where this is caused by a safety defect in goods made by them.
Safety defect
• Goods have a safety defect ‘if their safety is not such as persons
generally are entitled to expect.’
Safety defect defences

• The defect did not exist at the time the manufacturer supplied the
goods;
• The defect only exists due to compliance with a mandatory
standard;
• The defect could not have been discovered when the goods were
supplied due to the state of scientific or technical knowledge
available at that time;
• The goods were made into other goods and the finished product
carries the defect.
Case study
• Glendale Chemical Products Pty Ltd v ACCC (1998) 90 FCR 40
• Glendale Chemical Products purchased caustic soda from another
source, which they then repackaged and sold on to the public
under their own brand name. The box carried a warning that the
product was corrosive, that contact with the skin and eyes should
be avoided, and that safety glasses and rubber gloves should be
used when handling the product.
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Mock exam
Exclusion clause – how to determine relevance to the case

1. contra proferentem rule: white v john warwick and co ltd
2. the four corners rule: Sydney city council v west
States that the exclusion clauses do not apply to actions outside the
contract
3. interpretation according to the express agreement
1. a.
The Australian Competition and Consumer Commission (ACCC) regulates
all corporations. It is the Commonwealth statutory authority which has the
power to bring legal proceedings against businesses who contravene the
provisions of the Australian Consumer Law (ACL). As per Section 18 of the
ACL, it states that "a person (in this place, person refers to corporation; Crafty)
must not, in trade or commerce, engage in conduct that is misleading or
deceptive or is likely to mislead or deceive."
As shown in the scenario, Crafty's advertisements have centred around
explicitly stating that their "Chocoslim" helps lose weight, despite of any
amount of consumption. However, consumers soon discovered the false claims
of this product. It was established that the "satisfied customers" were actors,
photos were doctored, and that people got fatter consuming this product. To
determine if the conduct is misleading or deceptive, the "3 Step Test" is applied,
looking at; the relevant class of consumers, meaning of what the conduct would
convey, and would what was said mislead or deceive the relevant class of
consumers. The relevant class of consumers in this case would be the general
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public at large. This would be because chocolate is a staple and convenient food
item that is bought and advertised to everyone. The advertising campaign was
not targeted towards any specified segment, the print outs, and infomercials as
well are shown to the general public at large. In regards to the meaning of the
conduct conveying, the key slogan of "Chocoslim", was "The more you eat, the
more you lose". This added on to the informercials displayed photos of weight-
loss amongst satisfied customers. The meaning taken by the point of view of the
mass public would be then that "Chocoslim" is a miracle snack that helps
weight loss. This would then lead to the average member of the public at large
to believe its claims, and was led into false beliefs about the product. Therefore
the 3 step test would determine that the conduct of the "Crafty" corporation was
deceptive.
For breaching s18 of the ACL, under the conduct of "Expressing opinions or
representations about the future", Crafty made a representation of their product
knowing that their claims were false, to increase profitability, the ACCC would
successfully sue Crafty for their deceptive conduct; for false representation.
⁃ Could be sued by the ACCC for s18, (no fines, civil remedies)
⁃ Has to be a company, sole trader or partnership to be sued by the ACCC
⁃ Engaging in conduct- made infomercials and printed material
⁃ Misleading and deceptive conduct (look at the 3 step tests) (Mcdonalds v
McWilliams line case)
⁃ Public at large and segmented to lose some weight
⁃ ACCC should be successful to bring a claim to chocoslim
- Breach of s29 1F, photos and testimonials are false… said and shows
false and misleading testimonials… criminal offence (fines up to
$10,000,000 for a company, but the other 2... only up to $500 000)
b.
As stated, the Weight for Me Pty Ltd (WFM), is an online supplier who
distributes various weight loss products, including Chocoslim. However, as
WFM is a retailer that happens to sell the goods by the manufacturer, and as
WFM was not the one who made the false claims, they would not be liable to
provide remedies. As long as consumer guarantee was met, WFM as a supplier
did deliver the product with acceptable quality, and within reasonable time. It is
also noted that the guarantee does not apply where the consumer has to rely on
the suppliers skill or judgement. In this case, it was not the suppliers duty to
know if the product, he did not produce, would work per the manufacturers
claims.
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As the supplier of goods and services did comply with the consumer guarantees
under the ACL, there is no requirement to give a remedy. Therefore, Tom would
not be entitled to a refund by the Weight for Me Pty Ltd.
⁃ Breach of acceptable quality
⁃ Is it a major failure or minor failure- it is a major failure as it explicitly
lies
⁃ Because of s260 - ‘the goods would not have been acquired by a
reasonable consumer had they been fully aware of the extent of the failure”
⁃ S29: falsey represent your rights
⁃ You do not have to bring its original packaging by law - breach of s29
- Yes Tom is entitled to sue or get a refund

- Is tom a consumer? Look at section 3… he is a consumer
- What consumer guarantees are being broken? ( s54 (acceptable quality
and s55 major failure because it doesn’t work … does the product do
what it is made for?, no evidence to say it actually works)
- Any refund must come from the retailer NOT the supplier
- WFM policy for needing the original packaging is illegal and can be
fined up to $10,000,000
- Elements need to be considered
2.
To determine if the claim to negligence is possible, the necessary elements of
negligence, such as duty of care, breach of duty and damage would need be
applicable. This also include to pass certain tests, such as name test, but for test
and whether it is reasonably foreseeable. In this scenario, duty of care would
mean that it is the duty of a person (Wendy; the defendant ) to take reasonable
care to avoid causing harm to another person (Peter; the plaintiff). A relevant
test that would also need to be applied to determine duty of care would be the
name test. The name test would be that the plaintiff, Peter, was within the group
that got harmed, due to the lack of duty of care from the defendant, Wendy.
Therefore, per the name test, Wendy owes the duty of care.
Duty of care is a legal obligation to take care for the benefit of others. In
determining if the conduct is reasonably foreseeable, the situation showed that
within the bend, the truck would have been an obstruction of view of the driver.
Wendy moving at "modest speed" around the bend would have then collided
with Peter, which stepped out in front of the car. It would be decided that the
harm would be reasonably foreseeable by Wendy, that a person, in this case
Peter would cross the road. Therefore the duty of care to whom it is owned by is
Wendy. It would also be determined that the risk was not insignificant, as the
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risk had a real chance of occurring, With Wendy turning on a bend, with a
obstructed view, and not slowing down, and that if precautions were taken,
Wendy slowing down, the probability and seriousness of the harm would have
been significantly decreased. Another test to analyse is the "But for" test. This
would be asking "but for the defendant's breach of duty, would the plaintiff have
sustained the damage? As the answer is yes, it was Wendy's breach of duty to
take reasonable care to not harm Peter.When looking at breach of duty, it is
understood that the Wendy, the defendant, should have taken more precautions
in slowing down, knowing with risk of an obstructed view. Therefore there was
a breach of duty by the defendant. When also looking at factual causation, the
broken leg would not have happened within Peter getting collided with Wendy's
car, and as that was the damage sustained from the accident, it is within the
scope of liability if Wendy was moving at "moderate speeds"
Therefore it is then decided that Peter would then have a possible claim in
negligence against Wendy.
Peter would be able to sue wendy for physical harm, this focuses on negligence
law
Peter needs to discuss the duty of care. This involves Donoghue v Stevenson,
involves reasonably foreseeability (neighbour principle). It is recognised that if
you are a vehicle user, there is a reasonable note that use of the road you will
look at injuring people. Evidence by imbreed v mcneilly.
S5B2. CIVIL LIABILITES ACT… breach of duty (standard of care) needs to
be proven
- S5d of the CLA to look at damages…. Physical harm… broken leg would
fall under 5d… look at factual causation… Wendy’s driving was a
necessary condition… look at the but for test… you can look at oversees
takerships v mort doc engineering
- S5d2… scope of liability… would wendy be completely liable for peter’s
injury… if you drive a car recklessly, you can cause mental, physical and
economic harm
- A reasonable person would take precaution within those circumstances
(nighttime, obstructed view)
Put a brief summary on advising Peter as all the evidence for negligence seems
to be present, he should be successful. However, there are defences to consider
for Wendy.
Wendy has contributory negligence as Peter, should have seen a car coming.
Contributory negligence can be increased to 100%, and the decision has to be
considered and influence by peter’s behaviour.
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- curious... what about Peter... considering he should have taken better care to
cross the street, and not jaywalk, and looked left and right before crossing. He
breached his own duty of care to then get himself injured; CONTRIBUTORY
NEGLIGENCE (DEFENCE): PRINCIPLES OF LAWS AND AUTHORITY
⁃ Imbrue v McNeilly: it is a recognised activity
⁃ What the duty of care is and how it is broken, how does the facts effect
that
⁃ Wagon mound 1 and 2
⁃ Do we need to discuss defences?
⁃ Intext referencing is necessary
⁃ Case or legislation- state the law
Donoghue v Stevenson has been a keystone in negligence law, that looks

through the neighbour test and reasonable foreseeability
s5g… a dangerous risk will have obvious harm… thus a good defence
3.
- Is Lucy a consumer… s3 gives the definition of a consumer and its
element
- Statuary guarantee (s54) … she told the shop what she wanted… the
manufactory said it couldn’t despite the shop saying it can… full
transparency as Lucy stated what she wants
- Acceptable quality… broken item and set on fire
- False representation (s29) on the shops part saying she has to go to the
manufacturer.
- (s55) Major failure as it doesn’t work is faulty, causes injury and harm…
there is a design fault… strict liability… the shop is liabile
- (s18) misleading and deceptive that the printer was fast
- Conditions and warranties that they can remove their warranties and
needs to be a reasonable period of time (is it a false representation?)
- S134?
Negligence law structure

Intro
Duty of care (which ones)
Breach of duty of care
Elements and tests
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Sections to be impacted
Summary
Defences
Last PASS session

- MAKE SURE YOU STATE THE QUESTION THAT
NEEDS TO BE ASKED…
Elements needed to establish negligence

- Duty of care: Neighbour test, ‘Donoghue v Stevenson (1932)
- Reasonably foreseeable
- Breach of duty
- Damages
- Remedies
- Defences; contributory negligence
- Factual causation
- Obvious and inherent risk
- But for test
- Scope of liability
- category
Roads and Traffic Authority of NSW v Dederer [2007] HCA 42 is a case for contributory
negligence
Negligent misstatement?  Reliance test?

s5B?
- If the risk is not foreseeable then there’s no damages,

then there is no negligence
- Occupier’s liability
- Occupier v entrants
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Consumer law
- Section 3 of the ACL
- Business are still consumers under the ACL, even with
purchasing past 40 000; carpet call pty ltd v chan 1987
Consumer; not acquired for resupply or for the purpose of
using them up in trade or commerce
- Section 2 of the ACL… trade or commerce
- Deceptive applies to the relative class of consumer… the
average person of the average audience member
- S29 has criminal consequences/ s18 has civil
consequences
- Prove the breech of the subsections to determine whether
s29 is broken… if s29 is broken, s18 is also broken
- Consumer guarantee: s54 of the ACL: protect
consumers against problem with goods and service,
guarantee that goods are of acceptable quality
- S60 of the ACL guarantee as to acceptable quality
- Parole exclusion rule?? Exclusion clauses??
Contract law
- 2 terms of the contract law: condition and warranty
(pg229-230)
- Implied and express
- warranty lesser importance; objective test for
condition
- condition to warranties: associated newspapers ltd
v bancks
- remedies given by breach of condition: damages,
termination of contract
- damage clause? A penalty out of proportion to the
amount suffered is not enforceable.
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- Exclusion clauses; disclaimers, agreement through

conduct, standard form of contract (case- pg 245)
Four corner rules? The document’s meaning should be
derived from the document itself without reference to
anything outside of the document (extrinsic evidence),
such as the circumstances surrounding its writing or the
history of the party signing it."
-
Does Wei enterprises owe Simon a DOC. According to
Australian Safeway stores PTY LTD vs Zaluzna 1987,
the occupiers of the building owes any patrons of the
building a duty of care. Therefore wei enterprises owes
Simon a DOC. Wei enterprises breached the duty of
care
Watt v Hertfordshire CC. The easier it is to eliminate the

risk, there is an increase expectation to eliminate it.
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Before looking more closely at the application of the nine consumer

guarantees that apply to goods (ss 51–59) and the four that apply to
services (ss 60–63), there are a number of key terms that are found in the
ACL that must be understood in order to determine whether
the consumer guarantees will apply to suppliers or manufacturers of
goods or services acquired by a consumer. These include:
 Who is a ‘consumer’?
 Who is a ‘manufacturer’ or ‘supplier’?
 What ‘goods’ are covered by the consumer guarantees?
 Which ‘services’ are covered?
 What does ‘trade or commerce’ cover?
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Acceptable quality (s54)

David Jones Ltd v Willis [1934] HCA 47
THE COURT: High Court
FACTS: Willis went to the shoe department of David Jones and told the
saleswoman that she wanted a comfortable pair of walking shoes. After
trying on a number of pairs she bought a pair that was recommended by
the saleswoman. The third time she wore the shoes the heel broke off one
of them, causing her to fall and break her leg. The evidence showed that
the shoes were not well made and that the heels had not been properly
attached to the shoes.
ISSUES: Do goods sold by description over the counter have to be of

merchantable quality (guarantee as to acceptable quality)? Should trying
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the shoes on have revealed the defect? Were the shoes fit for their
intended purpose: walking on?
DECISION: As the shoes had been bought by description, there had been
a breach of the implied condition of merchantable quality (guarantee as to
acceptable quality).
COMMENT: If a person, in trade or commerce, supplies goods to a

consumer, there is an implied guarantee that the goods are of acceptable
quality. The supplier is not an insurer of the goods, but the standard is a
high one.
CASE REFLECTION: What could a business do, in regards to staff training

and merchandise purchasing, to avoid problems arising from the implied
guarantees as to quality?
Question one (Business Structure)

Whether partnership is created between the Drasic and Madison?
The Partnership Act 1892 (NSW) S 1 (1) dictates that a partnership is the “relation which exists
s 271(1) of the ACL allows the affected person to recover damages from
the manufacturer.
the supplier is expressly excluded: s 259(1)(b)) will take reasonable action

to ensure that facilities for repairs and the supply of spare parts for the
goods are reasonably available for a reasonable period after the goods are
supplied. What is a reasonable length of time will depend on what the
goods are and, to some extent, the price
It should be noted that as the definition of ‘manufacturer’ includes an

‘importer’, if the foreign manufacturer does not have a place of business
in Australia, the Australian importer will have to take reasonable action to
ensure not only that it has a place for repairs but also that it can stock and
supply spare parts under s 58.
Consumer contracts
 s 18, if the exclusion clause is likely to deceive or mislead the
consumer, or a small business operator;
 Part 2-3, which makes void an unfair term of a consumer contract or
small business contract. Section 23 attempts to redress an inequality
of bargaining power between a consumer and a supplier, as well as
between a supplier and a small business (a small business is a
business that employs fewer than 20 people; for the section to apply,
the upfront price under the contract must not exceed $300 000 or the
contract has to be for more than 12 months and the upfront price
must not exceed $1 000 000);
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 s 29, which prohibits false or misleading representations about

goods or services;
 s 64, which prohibits the exclusion of implied conditions and
warranties in consumer transactions (though note the exception below
involving recreational and sporting suppliers); and
 Part 3-5, which catches manufacturers, as s 150 renders void any
exclusion clause or term that is inconsistent with Part 3-5
(see Chapter 10).
Under s 64 of the ACL, exclusion of the implied conditions that the goods:
 are of acceptable quality;

 are fit for their disclosed purpose; or
 match the description and/or sample

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Enterprise Law - Full Note

Enterprise Law (Western Sydney University)

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Module 4, 5, 6 (contract law)

 A party: business or individual that enters into a transaction

 A transition will not be a contract unless it demonstrates each of

Formal contracts/ deeds

2. Contracts under seal (or by deed); a promise in writing, signed

- To have an offer communicated properly, it must be clear that the

When do offers end?

 Lapse: the offer lapses or expires, as it has not been accepted

Court case: Counteroffer

Hyde tried to insist on proceeding with the sale, Mr Wrench refused to

Business focus: contractual negotiations

- it is normal that one party to suggest a promise and the other

To make it clear between negotiations and offers, business negotiating

• Declare (and ideally, also have acknowledged in writing) at the start of

• (If consensus is reached) include, in the written agreement, a term that

Responses that are not acceptances

- If an offeree wishes to accept the offer, then it is their responsibility

Business focus: written agreements and acceptance by conduct

look beyond a technical defect in a contract to achieve a fair result

Case reference; Empirnall Holdings Pty Ltd v Machon Paull Partners

expressly stated intention

relations. – meaning that although intention was not specifically

How the courts determine intention

It is important to note, however, that there is no presumption of intention

example, suppose that a son promises to respect his parents in

Commercial or business transactions in the case of commercial

non-negotiable provisions in the agreement between the parties,

Electronics transition act 2000 (NSW)  designated email address

 If there is no chance to sue, it has no serious intention

Brian does have a binding contract with Julie, as of Wednesday morning

contract, allowing the remainder of the contract to operate if this is

The main topics of invalidity

- However, it may be difficult for the other party to enforce the

Non est factum

Legal business Advice

1. Common law grounds

Illegitimate pressure: going what’s beyond acceptable

Unconscionable conduct- equity law

No contract so gets her mirror back- she never agreed

2. Lack of capacity under intoxication

Contracts Review Act 1980 (NSW)

- The terms of a contract may be written (stated in writing), verbal

- If a term is ambiguous the parties may get into a dispute as to the

Parol Evidence Rule

- Business people should, however, be aware of one legal

- When negotiating a contract, a party will often make promises or

Exclusion clauses (exemption clauses/ disclaimers)

2. clearly worded to identify the loss or losses for which liability is

Restraint of trade: an agreement in which a party agrees to restrict or

- unsolicited consumer agreements: a contract made between a

Operation of the contract

Termination upon breach of contract

Termination upon repudiation of a condition

Breach and good faith

may, as in ‘Burgers’, be ordered to remedy any harm its actions have

Interpretation and enforcement of contracts; types of remedies

For example, suppose that two construction businesses form a joint

- Consequential losses: losses that do not directly arise from the

- For example, suppose that a restaurant orders new tables and