CRICOS Provider: 01241GLAW00150Introduction to Business LawWritten and revised by: Warwick FisherReviewed by: Angela JonesStudy GuideFifth editionFifth edition 2013, reformatted version 2015 2015 Southern Cross UniversitySouthern Cross University Military Road East Lismore NSW 2480No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher.Copyright material indicated in this work has been copied under Part VB of the Copyright Act 1968.3ContentsUnit overview...............................................................................................................................................................................7Welcome to Introduction to Business Law ................................................................................................7Using this guide .............................................................................................................................................7About the writer and unit assessor ......................................................................................................................................9About the reviewer ....................................................................................................................................................................9Topic 1 The Australian legal system ...................................................................................................................................11What well do in this topic ........................................................................................................................ 11Law in Australia ......................................................................................................................................... 12Law in commerce ....................................................................................................................................... 13Business, law and ethics ............................................................................................................................ 13Risk management ....................................................................................................................................... 13Summary ..................................................................................................................................................... 14Topic 2 Making the contract Part 1 (ofer and acceptance) ...............................................................................................................................................15What well do in this topic ........................................................................................................................ 15What is a contract? ..................................................................................................................................... 15Contractual remedies ................................................................................................................................ 15Rules regarding an ofer ............................................................................................................................ 16Te fate of the ofer including acceptance .............................................................................................. 16Summary ..................................................................................................................................................... 17Topic 3 Making the contract Part 2 (intention and consideration) ..................................................................................................................................19What well do in this topic ........................................................................................................................ 19Intention involving social agreements .................................................................................................... 19Intention regarding commercial agreements ......................................................................................... 20Letters of comfort, support or intent ....................................................................................................... 20Te nature of consideration ...................................................................................................................... 20Rules regarding consideration .................................................................................................................. 20Promissory estoppel ................................................................................................................................... 22Te law regarding capacity to contract .................................................................................................... 22Summary ..................................................................................................................................................... 23Topic 4 Express terms............................................................................................................................................................. 25What well do in this topic ........................................................................................................................ 25Establishing the express terms of the contract written terms ........................................................... 25Establishing the express terms of the contract oral statements and other representations .......... 26Exemption clauses ...................................................................................................................................... 27Unenforceable or invalid contracts (or terms within contracts) ......................................................... 27LAW00150Introduction to Business Law 4Te importance of a term .......................................................................................................................... 28Summary ..................................................................................................................................................... 28Topic 5 Implied terms ............................................................................................................................................................ 29What well do in this topic ........................................................................................................................ 29Special terms implied by courts ............................................................................................................... 29Terms implied by courts based on the facts............................................................................................ 29Terms implied by sale of goods legislation ............................................................................................. 30Summary ..................................................................................................................................................... 31Topic 6 Remedies in contract law .......................................................................................................................................33What well do in this topic ........................................................................................................................ 33Terminating the contract .......................................................................................................................... 33Recovery of the contract price .................................................................................................................. 34Damages ...................................................................................................................................................... 34Equitable remedies ..................................................................................................................................... 34Rescission .................................................................................................................................................... 35Summary ..................................................................................................................................................... 36Topic 7 Liability for defective products ............................................................................................................................37What well do in this topic ........................................................................................................................ 37Liability for negligence (common law) ................................................................................................... 37Liability under Australian Consumer Law (ACL) ................................................................................. 39Summary ..................................................................................................................................................... 40Topic 8 Misrepresentation and unfair commercial conduct .....................................................................................41What well do in this topic ........................................................................................................................ 41Common law misrepresentation .............................................................................................................. 41Misleading and deceptive conduct under the Australian Consumer Law (ACL) ............................. 43Unconscionable conduct ........................................................................................................................... 44Summary ..................................................................................................................................................... 45Topic 9 Consumers rights and the supply of goods and services ..........................................................................47What well do in this topic ........................................................................................................................ 47Consumers rights against the supplier of goods ................................................................................... 47Consumers rights against the manufacturer of goods.......................................................................... 48Consumers rights against the suppliers of services .............................................................................. 49Summary ..................................................................................................................................................... 49Topic 10 Agency ........................................................................................................................................................................51What well do in this topic ........................................................................................................................ 51What is an agent? ....................................................................................................................................... 51How is an agency created? ........................................................................................................................ 52Te agents authority and duties ............................................................................................................... 52Who can sue whom? .................................................................................................................................. 53Summary ..................................................................................................................................................... 545Unit overviewWelcome to Introduction to Business LawUndertaking this unit will be a very diferent experience for most of you.Legal studies require a diferent approach to that of the other units you have studied so far. Te language in your textbook will be diferent to that in other books, and legal rules and principles may at frst daze and confuse. But fear not. Te textbook I have chosen for this unit, from a vast array, makes the areas of law covered in this unit most accessible.One of the greatest challenges facing both you as a student and we as teachers is how to cope with the huge breadth of content required in this unit. Because this is the only law unit most of you will study in your degree,weaimtointroduceyoutoalargenumberofimportantandsometimesdisparatelegaltopics starting with an introduction to Australias legal system and concluding with agency law. Many of these topics, in a normal law degree, would warrant a full sessions study yet, here, we cover these various topics in just a few weeks.Because of this, you will not be expected to understand the unit content to the same extent as a student undertaking a degree in law or legal studies. Te units assessment requirements refect the major aim of the unit to introduce you to the important basic legal principles that govern Australian commerce and business. Having been unit assessor for this unit for ten years I am satisfed that students who pass this unit are aware of a number of important legal issues and are better equipped for their careers as a result.Another challenge will be learning how to answer legal problem questions. Te examination will feature some legal problems that, at frst glance, seem very confusing but if you apply the approach I will teach you later in the session, you will quickly learn the skill of answering legal problem questions.Using this guideBefore we examine the frst topic in this unit I would like to explain how to use this Study Guide to ensure you get the most from your studies.Tis Study Guide is designed, as the name suggests, to guide you through the subject matter of the unit in a systematic and structured way, using features such as hierarchical headings, margin notes and bold font to highlight key concepts and terms. Please note that I am not duplicating the textbook, rather, highlighting the important things on which you need to focus. Te Study Guide, in other words, is a companion and guide to the textbook.Tis study guide, unlike those in many other units, will not contain any activities and feedback because there are excellent questions at the end of each textbook chapter to engage your interest. For each topic you will be invited to discuss some of these questions in MySCU where your online tutor (me or one of our excellent team) will give you feedback.Terefore, the only thing you are required to do as you proceed through the Study Guide is to read the required parts of the textbook when you are advised to do so. You will see the following symbol followed by page numbers:LAW00150Introduction to Business Law 6rTextbookWhen you see this instruction, read the material mentioned. Textbook refers to the prescribed textbook: Sweeney, B, OReilly, J and Coleman, A, Law in Commerce (LexisNexis Butterworths, 5th ed, 2013).Troughout the Study Guide you will fnd reference to cases, always in italics. It is important to read the small commentary in the textbook on any case mentioned in the Study Guide. I am confdent that you will fnd that they make study much more interesting.tSummarySummary of important points/ideas/thoughts usually appears at the end of a topic.Dont be overwhelmed by all the cases and legislation discussed in the Study Guide and textbookAs lawyers, it is important that we draw your attention to all the relevant law. As teachers, however, we understand that you are not preparing for a law career but, instead, are Business students simply needing a broad overview of the law as it relates to your discipline. Terefore you can rest assured that all assessment tasks will be set with that in mind. Most important, the exam will only require you to understand the most important features of the various topics and not the minute details. And remember, you have an Open Book exam so you are allowed to take in your Study Guide and textbook as well as other notes and documents. So relax reeelax. A little bit, at least.One important fnal word about this unitTerearealargenumberoftopicstostudyinthisunit.ItisvitalthatyoufollowtheSuggestedStudy Timetable in the Unit Information Guide to ensure that you dont run out of time before you complete all the required topics.And one more thing; You will note that the Study Guide ofen only mentions certain cases from the textbook while apparently ignoring others. Tis does not mean that you should ignore those other cases. All I am attempting in the Study Guide is to present to you a broad picture of each topic. It is the textbook where you need turn for all the detail.Good luck everyone,Warwick7About the writer and unit assessorWarwick Fisher has been a lecturer in Southern Cross Universitys School of Law and Justice since 2001 and holds a Bachelor of Education (major in Economics) from James Cook University and a Bachelor of LegalStudiesfromMacquarieUniversity.Heiscurrentlyundertakingresearchonrurallandsharing communities.Warwick also teaches Contract Law and Land Law. Prior to his move to the School of Law and Justice, he had lectured in the College of Indigenous Australian Peoples for nine years where he taught Community Administration and Human Rights.Warwicks main non-academic interests include tennis, croquet, cycling, swimming, listening to classical music,reading,watchingmoviesandplayingwithhisgranddaughter.HelivesonasortofBuddhist community near Lismore. He came 21,320th in the 2004 City to Surf which is very impressive. No, really.About the reviewerAngelaJoneshasaBA(Hon)fromMaquarieUniversity,aLLB(Hon)fromtheAustralianNational University and a Master of Adult Education from University of Technology, Sydney.Angela lef the big city and work in community legal centres for a life in northern NSW. She has worked with the School of Law and Justice since 2004. In her spare time, she keeps out of mischief by reading philosophy and neuroscience.LAW00150Introduction to Business Law 89Topic 1The Australian legal systemWhat well do in this topicTis topic will provide a useful and important examination of the Australian legal system. You are part of this system, one predominantly infuenced by Australias English heritage. Tis topic broadly aims to show you how our system of government works. Apart from its signifcance as part of your study in this unit, everyone who lives in Australia would beneft greatly from understanding our legal system. Lamentably, civics education is largely ignored in our secondary curriculum, which is why this topic takes on greater signifcance for you.WhenweusethetermgovernmentinrelationtoAustralia,mostpeoplewillthinkoftheAustralian GovernmentledbyJuliaGillardortheNSWGovernmentofBarryOFarrell(atthetimeofwriting) forexample.Whenusedthisway,wemeanthattheGovernmentisthepoliticalparty(orparties)that commands a majority in the Lower House of the Parliament while the Opposition tries to gain a majority in the next election so that it can become the Government.Government, however, has a broader meaning. It refers to the way in which our nation is governed overall. It embraces the three arms of government parliament, executive and judiciary. Among other things, this topic explains how these three arms of government operate.In this topic you will also learn about the meaning of law, the development of our legal system (from its English origins), the diferent types of law, the Constitution and the court system. Tats quite a lot of territory to cover in one topic but rest assured that our objective is simply for you to gain a broad understanding of the legal system.Having introduced you to the Australian legal system we then consider the various institutions within that system. Te Commonwealth, the various states and territories each have what is referred to as jurisdiction (power) in particular matters. A person charged with ofences under the Corporations Act 2002 (Cth) will come under Commonwealth (or federal) jurisdiction while a person charged with assault in NSW comes under that states jurisdiction.Each jurisdiction has its own court structure and hierarchy, and decisions of a lower court may, in certain situations, be appealed all the way to the High Court. You can see how the Victorian court hierarchy works in the diagram on p14 of your textbook. All states have very similar names for the various courts. In NSW, for example, the Magistrates Court is called the Local Court and the Victorian County Court is the same as the NSW District Court.You will note that I have slightly changed the order of headings from the textbook to assist your understanding of the main points.LAW00150Introduction to Business Law 10Law in AustraliarTextbook1.31.24BackgroundTe English claimed sovereignty over New South Wales (hence, Australia) in 1788. Because the English falsely claimed the land on the basis of terra nullius (land belonging to no-one) they applied the doctrine of reception whereby the laws of England became the laws of New South Wales.As a result, we inherited the English common law, equity law and statute law. Gradually, throughout the nineteenth century, the English Parliament enacted laws that gave the fedgling colonies greater autonomy.The ConstitutionIn 1900, the United Kingdom Parliament passed the Commonwealth of Australia Constitution Act 1900 (UK)creatingaFederalCommonwealth,asystemofgovernmentwherepowerissharedbetweenthe Commonwealth and the states. It came into efect on 1 January 1901.TeConstitutionisafar-reachingcharter(statement)ofprinciples(rules)explaininghowthevarious institutionsofgovernmentwillwork.Apartfromthedivisionofpowers(referredtoasFederalism) betweentheCommonwealthandthestates,theotherimportantprinciplesrelatetotheseparationof powers between the parliament, the executive and the judiciary.TeprimaryreasonthatAustraliahashadsuchastablehistorysinceFederationisthestrengthand robustness of the Constitution. It is clear in its central meaning and is difcult, though not impossible, to alter. Tere have been various occasions when one institution has overstepped its constitutional powers only to be foiled by the application of the Constitution.You will observe that the Commonwealth and the states have been able to work efectively from time to time, for example, with the development of both the Corporations Act 2001 (Cth) and the Trade Practices Act 1974 (Cth) renamed the Competition and Consumer Act 2010 (Cth).Parliamentary law v judge-made lawTereare,broadlyspeaking,twosourcesofdomestic(Australian)law.First,thereisParliamentwhere statutes (Acts of Parliament) are created. Te second source of law is the law made by judges your textbook describes the way judges make law applying the rules of precedent in both common law cases and in equity. As your textbook points out, statute law will override judge-made law wherever there is a confict due to the constitutional principle known as the sovereignty of parliament.Because it is up to the judiciary to decide legal issues brought before it, the courts rely on precedent for judge-made law. But, how do they interpret statute laws, given that these laws were created in a diferent institution? Your textbook describes the various approaches taken by the courts over the years the literal rule, the golden rule and the purpose approach.Topic 1The Australian legal system 11Law in commercerTextbook1.251.28Contracts, torts and statutory obligationsTelawofcontractsaimstohelpbringcertaintyandconfdencetocommercialagreements.Imaginea commerce system unsupported by contract law where people could go back on their word any time they liked? Te law of contracts is there to enforce contracts or to provide a remedy when a party breaches the contract by not fulflling their side of the bargain.Apart from contract law our commercial world is also subject to tort law. Tis is the area of law concerned with people who sufer hurt arising from anothers failure to apply minimum standards of behaviour. Te law of torts may provide assistance to someone who has sufered loss as a result, for example, of anothers negligence or dishonesty.Ofgreatsignifcanceforbothcommercegenerallyandthisunitinparticulararethemanystatutory obligations arising from numerous parliamentary laws (state and Commonwealth) which greatly add to or modify the common law of contracts and torts.And, while we will limit ourselves to the area of Agency (in our fnal topic) you need to be aware of the many types of business relationships and organisations that exist within the Australian commercial framework.Business, law and ethicsrTextbook1.291.39Ethical behaviour, or the lack of it, has been a signifcant feature of commerce and business over the past threedecades.Terecentglobalfnancialcrisishasbeenthemostrecentmanifestationofunethical behaviour but look back at past problems both outside and within Australia and you will quickly learn just how damaging to the individual, the economy and society can be the belief that greed is good or my needs at any cost.So, an understanding of both the importance of ethics and its role in business is a key part of this unit. You will be assessed on ethics in your frst assignment but I want you to keep thinking about its signifcance right through to the completion of the unit.Acting ethically, however, is not always easy as you will learn when you read the textbook.Risk managementrTextbook1.401.43Risk management is a term that has gained widespread currency in commerce. Tis is where organisations seek to direct and control their activities in a way most likely to protect them against potentially costly LAW00150Introduction to Business Law 12litigation (legal action) in the future. Given the human and fnancial costs involved where attention has not been paid to risk management, it now informs most corporate decisions.SummaryYou will be pleased to know that most of the remaining topics dont have the same breadth as Topic 1. Yet Im sure you found learning in some detail about the numerous areas of our legal system both rewarding and useful. Many of you will be vaguely familiar with some of the terms and institutions we have discussed because they are frequently referred to in the media, including TV crime shows. Now I expect youll become a leading authority on all these areas among family and friends.13Topic 2Making the contract Part 1 (ofer and acceptance)What well do in this topicWe are now going to examine the frst step towards the creation of a contract. A contract implies a meeting of the minds between the parties and comprises ofer and acceptance. If the oferor (the person making theofer)hasmadeaclearoferthathasbeenacceptedbythe oferee(thepersontowhomtheoferis made), then we say that there has been genuine agreement. It sounds straightforward enough, but there are numerous issues that need to be considered before you can recognise a true meeting of the minds.What is a contract?rTextbook4.24.6A contract is a legally binding agreement that will be enforced by the courts. We ofen enter agreements but not all are legally binding. Tere are four elements that have to be present in the agreement before it will be legally binding, or, in other words, a contract. Tese essential elements are shown in Figure 4.2 and the frst two, ofer and acceptance are examined in this topic.When a contract is in dispute before the courts it is ofen difcult to ascertain the parties intention. Make sure you understand the diference between a subjective test and an objective (reasonable person) test discussed on p150 of your textbook. If you understand the reasonable person test it will make everything that follows regarding contract law that much easier.Contractual remediesrTextbook4.74.13Well be taking a much closer look at remedies in Topic 6. A remedy is the thing that solves a legal problem in much the same way that aspirin is a remedy for a headache. At this point in your studies just think about some of the key types of remedy available to the innocent party. If the breach has been serious, the innocent partycanchoosetoterminatethecontract.Wherethebreachinvolveseverydaygoodsthecourtswill normally award damages, a money amount which intends to place the innocent party in the same position LAW00150Introduction to Business Law 14they would have been in had the contract been properly performed. If, on the other hand the subject of the contract happened to be something extremely rare or unique, the courts may award specifc performance and the breaching party is required to perform their obligations by selling the good or item to the other party as promised. Finally, for your beneft as you delve into contract law, the textbook explains the remedy known as injunction, a court order requiring a person to stop doing something.Rules regarding an oferrTextbook4.144.23Tis is, I think, most straightforward and requires little more than common sense. Start by making sure you understand who is the oferor and who is the oferee; thats important.An ofer may be described as the indication by one person to another of his/her willingness to enter into a contract with the other on certain terms. Read Harvey v Facey [1893] AC 552 and if you think about it, Facey (the defendant) had not made an ofer to Harvey (the plaintif) but had simply supplied him with information. As I said earlier, common sense.So, make sure you can distinguish between an ofer and the:supply of information (Harvey v Facey); and anadvertisement (Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256) it can be an ofer; or aninvitation to treat (Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1 QB 401).Also be clear about who is making the ofer in an:auction of goods (Harris v Nickerson (1873) LR 8 QB 286); orinternet transaction.The fate of the ofer including acceptancerTextbook4.244.56Look closely at Figure 4.4; it says it all. Once the ofer has been made it can meet any one of several fates only one of which, agreement, means that we can tick the frst two essential elements.Withdrawingtheoferistherightoftheoferorprovideditmeetscertainrequirements.Itcannotbe withdrawn, for example, once the oferee has communicated acceptance. Whilst you should read all the cases to understand the rules regarding withdrawal and acceptance of ofers, I would strongly encourage you to pay particular attention to Byrne v Van Tienhoven & Co (1880) LR 5 CPD 342.If the oferee accepts the ofer we say that there is genuine agreement but, again, the oferee must comply with a number of rules to ensure the acceptance is efective. Students sometimes get slightly confused about the postal rule and the rules regarding acceptance via the internet. Make sure you understand these as well as the other rules regarding acceptance.Rejectionoftheofersimplyinvolvestheofereesaying,nothanksorsomethingsimilar;hopefully something polite. A counter-ofer also means rejection of the original ofer (Hyde v Wrench (1840) 3 Beav 334; 49 ER 132). Asking for clarifcation is not a counter-ofer. (Stevenson Jacques v McLean (1880) 5 QBD 346)Topic 2Making the contractPart 1 (oer and acceptance)15Anofercanlapseforanumberofreasons.Tepassageofareasonabletimewillseetheoferlapse;it doesnt last forever. Death can be fatal, but not in all circumstances. (Fong v Cilli (1968) 11 FLR 495. Again, its common sense.SummaryTere cannot be a valid contract unless there is clear agreement as to the terms by both the oferor and the oferee. Te courts settle disputes concerning agreement by applying rules relating to ofer and acceptance. Provided there has been a true meeting of minds (and the other essential elements are present) there may be a contract.LAW00150Introduction to Business Law 1617Topic 3Making the contract Part 2 (intention and consideration)What well do in this topicTis topic considers the third and fourth essential elements for the creation of a contract. Tese are intention to contract (intention to enter into legal relations) and consideration.Generally, in the case of business or commerce agreements, it makes sense that the parties intend to create legal relations. It would be a sick economy indeed where people could place orders worth millions of dollars and have goods sent to them, only to then say that they werent serious and didnt really want to purchase them.Where it gets a tad messy is where friends and family make agreements. If we reapply the example in the aboveparagraphtosocial,domesticorvoluntaryagreements,itwouldbeasadsocietywhereparents, children or friends ended up in court because they failed to deliver on their promises. What if, for example, your daughter assured you that if you purchased a CD she simply had to have, she would tidy her room that same night? Should you sue her because she went to the movies with a friend instead of tidying her room?Tenwewillexaminethefourthessentialelementofacontract.Withoutbothpartiesproviding consideration (with a few exceptions explained below), a contract is unenforceable. We will consider the nature of consideration, and the rules relating to it, and briefy examine the doctrine of promissory estoppel.Finally we will ponder the question of capacity; who has the legal right to create contractual relations? Can someone under the age of 18, for instance, be bound by a contract? Or, what if they were mentally disabled or drunk at the time?Tere is plenty of information to cover here so, lets get started.Intention involving social agreementsrTextbook5.3Te courts will presume that parties to social or domestic agreements do not intend to be legally bound as Mrs. Balfour found out to her great cost in Balfour v Balfour [1919] 2 KB 571. Te courts will, however, see things diferently if there is clear evidence of intention as was the case in Todd v Nicol [1957] SASR 72. Where the court considered factors such as the cost to the Todds and the lack of provision for a return trip.LAW00150Introduction to Business Law 18Intention regarding commercial agreementsrTextbook5.45.5Here the courts take the opposite view to that discussed above, presuming that the parties do intend their agreements to be legally binding (Carbolic Smoke Ball Co [1893] 1 QB 256) and that clear words are needed if one party wishes to rebut that presumption. In Rose and Frank v Crompton & Bros [1923] 2 KB 261 words to that efect were found in, what is sometimes referred to as, an honour clause.Letters of comfort, support or intentrTextbook5.65.9Tese are interesting (okay, maybe to a lawyer) because they dont seem on the surface, to be one thing or another.Teyarenormallywrittenbysomeonewhodoesntwishtogiveaformalguaranteewhilethe recipient wants it to be binding. Kleinwort Benson v Malaysia Mining Corporation Bhd [1988] 1 WLR 799 is a good example and demonstrates the view taken by the courts.The nature of considerationrTextbook5.105.14Considerationisdefnedgenerallyastheprice,detrimentorforbearanceforwhichthepromiseofthe otherpartyisbought.Heresasimpleexample.IfyouandIagreethatIwillsellyoumycarfor$5000, my consideration is the car and yours is $5000. It is important that you get the terminology right; in this example I am the promisor and you are the promisee. Tus, you, the promisee has to provide consideration in exchange for my promise.Unfortunately it can get more complicated as will be explained shortly. Broadly speaking, consideration can be an amount of money, an act, a promise to do something or a promise not to do something. To be enforced, an agreement must be supported by consideration by both parties except in the case of a formal contract (a deed) or where the equitable doctrine of promissory estoppel applies. We will look at promissory estoppel later; its terrifc fun trust me, Im a lawyer.Rules regarding considerationrTextbook5.155.33Topic 3Making the contractPart 2 (intention and consideration)19Tere are a number of rules developed over many centuries that you need to understand when looking at the question of consideration. Tese rules are:Onlypartiestothecontractcansueforabreach.Apartyseekingtoenforceacontractmustbeable to show that they furnished consideration. In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, the plaintif failed to provide consideration; hence there was no contract with the defendant. In Coulls v Bagots Executor & Trustee (1967) 119 CLR 460 the court held that only one party needs to provide consideration where there are two or more promises. Trident General Insurance v McNiece Bros (1988) 165 CLR 107 indicates that there may be some exceptions to this rule.Considerationcanbepresentorfuture,butnotpast.InRoscorlavTomas(1973)47ALJR586the defendants promise that the horse was sound was made afer the purchase and so the buyer didnt buy the horse relying on that promise but on past consideration. Te courts have, however, developed an exception to this rule. Te decision in Re: Caseys Patents: Stewart v Casey [1892] 1 Ch 104 recognises that there can be an implied understanding that someone will be paid for their work.Consideration may be of nominal value. Courts dont generally concern themselves with the fairness of consideration. Tey do, however, insist on seeing something ofered as consideration that is of some legal value. In our example above, if instead of agreeing to exchange my car for $5,000 I had agreed to exchange it for a biro pen, the court would accept that there had been consideration of some legal value. (Tomas v Tomas (1842) 2 QB 85)Consideration must be sufcient. Tis follows on (logically, in my view) from the previous rule. While it need not be adequate, it must be sufcient and you need to look at the following situations and hopefully understand where the consideration is sufcient or otherwise.Illusory promises are not consideration. In White v Bluett (1853) 23 LJ Ex 36 the court held that a sons promise not to bore his father was illusory yet in Dunton v Dunton (1892) 18 VLR 114 the court found that by keeping her promise to act in a sober manner, the wife had provided consideration. Go fgure.Giving up a legal claim. Sometimes called a forbearance to sue, the courts recognise it as consideration. Read both the textbooks example and Wigan v Edwards (1973) 47 ALJR 586.Renegotiating contracts. A renegotiated contract will only be binding where something new has been provided by the oferee. (Mitchell v Pacifc Dawn [2003] QSC 86) But what happens where one party simply promises to perform an existing contract? Tis will not be sufcient as the plaintif found out in Stilk v Myrick (1809) 170 ER 1168. Compare this case with Hartley v Ponsonby (1857) 119 ER 1471 can you see why the courts came to a diferent conclusion?Te rule in Stilk v Myrick seems harsh, to say the least. Over the last hundred years the courts have shown an inclination to sofen their position and now look for other types of consideration where the promise is simply to perform an existing contract. In Williams v Rofey Bros & Nicholls [1991] 1 QB 1 it was held that a practical beneft to the promissor was sufcient consideration.Renegotiating a debt. If you want to understand just how slow can be the evolution of the common law look no further than this situation where the recognised legal principle dates back to Pinnels case (1602) 77 ER 237. Tis rule still applies as you will see in Foakes v Beer [18815] All ER Rep 106. Make sure you understand both this rule and its exceptions.Performing a public duty. Do you have to pay a policeman to get his assistance when you are being robbed? Or an ambulance ofcer if you lie battered and bruised afer a car accident? Te answer is no; if a policeman or any public ofcial is merely doing their duty, they cannot use that as consideration.LAW00150Introduction to Business Law 20Promissory estoppelrTextbook5.345.43Wed probably all agree that the rule in Foakes v Beer is harsh and that Mrs Beer was very mean to do that to Dr Foakes. But the common law was very clear consideration must be provided by anyone seeking to enforce an agreement. To stop people making promises and then changing their minds (blowing hot and cold), the courts will, in situations where it would be unjust (inequitable/unconscionable) for the person who made a promise not to be held to it, apply promissory estoppel.At this point you should read Central London Property Trust v High Trees House [1947] KB 130 and Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 to understand how the doctrine has developed and now been accepted as law in Australia.Promissoryestoppel,therefore,operatestoenforcecertainpromisesthatarenotsupportedbyany consideration. Te following features all need to be present for promissory estoppel to operate:Te promise or representation created an assumption in the mind of the promisee.Te promisor must be responsible for the assumption, which must be clear and unambiguous.Te promisee relied on the promise by undertaking an act or acts or refraining from undertaking an act or acts.Te promisor knew or intended the promisee to rely on the promise.Te promisee sufered a material detriment on the basis of the promise.And, most important,Te promissor acted unconscionably.Issues that you need to consider as you study promissory estoppel include:What is necessary to create the assumption? andWhat is meant by detriment?Warning: afer learning about promissory estoppel many students start seeing it everywhere. It is, in fact, rare for all the features found in Waltons v Maher to be present. Treat promissory estoppel with caution.The law regarding capacity to contractrTextbook5.445.50Tis topic (and Chapter 5) concludes with a very brief look at the parties to a contract from the viewpoint of their capacity. We know only a party to a contract can sue or be sued but what other limits are imposed by law?Minors (anyone under the age of 18 in Australia) have limited capacity irrespective of the jurisdiction; NSW is under statute law while the other states either operate under common law or a mix of common and statute law. Other limitations on capacity to contract involve those with mental disabilities (or intoxicated persons), agents, partnerships and corporations.Topic 3Making the contractPart 2 (intention and consideration)21SummaryAgreements, as such, do not create contracts. To be contractual, the parties must intend to be legally bound. Intention is the third essential element (afer ofer and acceptance). To assist in resolving disputes where the intention of the parties is unclear, the courts presume that parties do not intend to be bound in social ordomesticagreements,butpresumethatpartiesdointendtoenteralegalrelationshipincommercial agreements. Tese presumptions merely serve as a starting point and the courts will allow a party to rebut the presumption by producing evidence of an intention to the contrary.Consideration, the price for which the promise of the other party is bought, is the fourth elements of an enforceable contract and subject to strict rules. Unlike the other elements, however, consideration is not necessary in all cases. Some agreements will be enforced because of their form (a deed) whereas in other situations it would be unconscionable to allow a party to go back on their agreement.LAW00150Introduction to Business Law 2223Topic 4Express termsWhat well do in this topicLeading up to the formation of a contract the parties will make numerous statements not all of which are intended to be part of the contract. In this topic we will look at these statements and representations.Tetermsofacontactwillultimatelydetermineitsvalidityandtherightsandliabilitiescreated.Some of these terms will be expressed while some will be implied. Tey are equally important. In this topic we consider express terms. Express terms might be terms to which both parties expressly agree or they might be terms specifcally designed by one party to restrict its liability. We ofen refer to these latter terms as exemption or exclusion clauses.Before anything else, closely examine the diagram at 6.1 as it will help you see where we will now be heading. Note that the arrow on the top right should extend down to the words exemption clauses a rare error in this textbook.Establishing the express terms of the contract written termsrTextbook6.26.19How courts approach diferent types of evidenceGenerallyspeakingthecourtsfavourcontractswhereallthetermsareclearlylaidoutinwriting. Unfortunatelycommerce,andlifegenerally,israrelythisclear-cutasthehighnumberofcontractual disputes demonstrates. Lets now consider the numerous pitfalls along the contractual path.Terms cannot be introduced after contract formationSometimes a party attempts to introduce a term afer the formation of the contract, for instance, where itiscontainedinsidethepackaging(andcanonlybereadbypurchasingthenopening).(Hardchrome Engineering v Kambrook [2000] VSC 359), also Tornton v Shoe Lane Parking [1971] 1 All ER 686 and Olley v Marlborough Court [1949] 1 All ER 127.LAW00150Introduction to Business Law 24As a rule you sign it, youre stuck with itKeep in mind the general rule that a person will normally be bound by the contracts terms if they sign it, as the unfortunate Mrs LEstrange found to her great cost in LEstrange v Graucob [1934] 2 KB 394. Tere are a number of exceptions to the general rule (what a surprise). Tese involve:where the document doesnt appear to be a contract. (DJ Hill v Walter H Wright [1971] VR 749);an oral promise to the contrary leading to estoppel. (State Rail Authority v Heath Outdoor (1986) 7 NSWLR 170);misrepresentation of the document. (Curtis v Chemical Cleaning and Dyeing [1951] 1 KB 805); andconditions precedent.Unsigned documentsWhatabouttermsincontractswherethereisnorequirementtosignadocument?Teseareextremely common as you will realise when you read the textbook example on pages 234 and 235. Whether or not those terms will be contractual normally depends on reasonable notice. If the other party is given reasonable notice of the term, it will most probably apply. (Parker v South Eastern Railway Co 2 CPD 416) Reasonable notice depends upon facts such as:whether the document appears contractual. (Oceanic Sun Line v Fay (1988) 165 CLR 197);whether it contains unusual terms. (Interfoto Picture Library v Stiletto Visual Programmes ([1988] 1 All ER 348); andwhether there are any conficting statements or promises. (Couchman v Hill [1947] 1 KB 554).Incorporating terms by noticeYou fnd these situations everywhere. On your railway or plane ticket and when you purchase things on the Internet. Even though you may not read the terms and conditions, generally, you are bound by them.Establishing the express terms of the contract oral statements and other representationsrTextbook6.206.31I hope that by now you have accepted the idea that a contract doesnt have to be in writing. It is ofen an oral (spoken) contract and sometimes it is part oral and part written.Statements must be promissorySometimes many things are said in the lead-up to the contract. Are they all contractual? Probably not, as you will see when you look at the example and associated diagram on p239.The reasonable bystander testOnce called the reasonable man test, until feminists pointed out that there is no such creature (ouch), it is applied by the courts when determining the nature of the statements made during negotiations. Read Lord Dennings excellent explanation in Oscar Chess v Williams [1957] 1 All ER 325 on page 240 to fully understand the way the test is applied. A promissory statement doesnt require the words I promise. It simply requires the person making the statement to have promised it was true (Hospital Products v USSC Topic 4Express terms 25(1984) 156 CLR 41). In applying the test the courts consider a number of questions, none of which are taken in isolation. Tese are:Was the representation included in a written document? (Van Den Esschert v Chappell [1960] WAR 114)How much time lapsed between the statement and the contract?How important was the statement to the deal as a whole?What words were used?Did either party have special knowledge? (Oscar Chess v Williams and Ross v Allis-Chalmers Australia (1980) 55 ALJR 8)Collateral warranties (collateral contracts) and the parol evidence ruleA collateral contract sits side by side with the main contract, the consideration for which is entering into the main contract. Make sure you understand the list of requirements. (JJ Savage & Sons v Blakney (1970) 119 CLR 435) Te parole evidence rule attempts to assist courts in dealing with extrinsic oral statements where the contract appears to be wholly in writing. (Hope v RCA Photophone of Australia (1937) 59 CLR 348 and Bacchus Marsh Concentrated Milk v Joseph Nathan & Co (1919) 26 CLR 410)Exemption clausesrTextbook6.326.38With a few notable exceptions (eg consumer contracts) the parties are free to assume whatever obligations they decide. Remember, contracts, in their purest form, are the purest expression of laissez faire economics. Exemption clauses, as unpalatable as we may view them, are ofen included in contracts by a party seeking to limit their liability. Check out the examples of exemption clauses on p249.As you will note, the courts dont like them anymore than we punters and have developed a number of rules they apply in determining the clauses validity or otherwise. Tese are:Te general rule.Te ambiguity rule. (Photo Production v Securicor Transport [1980] 1 All ER 556)Te negligence rule. (White v John Warwick & Co [1953] 2 All ER 1021)Presumption against fundamental breach. (Photo Production v Securicor)Te four corners rule. (Sydney Corporation v West (1965) 114 CLR 481)Te deviation rule. (Tomas National Transport (Melbourne) v May & Baker (1966) 115 CLR353)Unenforceable or invalid contracts (or terms within contracts)rTextbook6.396.41Contracts (or some terms within) can be unenforceable because they are illegal. Tey may be illegal due to a particular statute or at common law. Most recently, the Australian Consumer Law has made unfair terms void.LAW00150Introduction to Business Law 26Terms in restraint of trade are also void unless the courts consider the term to be reasonable (Peters (WA) v Petersville [2001] HCA 45).The importance of a termrTextbook6.42Not all terms are of equal importance. A breach of a term will have diferent consequences and remedies depending on its importance. Make sure you understand diagram 6.7.SummaryIn this topic we have been examining the express terms of the contract. Tese terms can be written or spoken although the courts place greater importance on written terms in their decisions in many situations. Tose pesky exemption clauses are a particular type of express term to which the courts apply a number of rules in determining their validity or otherwise. Te validity of a contract may also be afected if it is illegal, unfair or in restraint of trade. Te remedy for a breach of a term will depend on the importance of the term to the contract.27Topic 5Implied termsWhat well do in this topicIn Topic 4 we examined the express terms of the contract; written or oral terms that the parties have agreed upon. In addition to express terms a contract may contain terms that the courts will read into it, that is to say, imply into the contract. Tere may also be terms implied by legislation. In Topic 5 we will examine these implied terms, those that have not been agreed to but are equally signifcant when relevant.A good starting point is the diagram Figure 7.1 as it shows the three categories of implied terms: those special terms implied by the courts, those implied based on the facts of the case and those implied by statute law.Special terms implied by courtsrTextbook7.27.9Tese are:Implied term of cooperation.Implied term of good faith. (Burger King Corp v Hungry Jacks [2001] NSWCA187)Terms implied into specifc types of contracts. Included in this category are those involving:Professional persons and their clients.Work and materials. (Reg Glass v Rivers Locking Systems (1968) 120 CLR 516 and Helicopter Sales (Aust) v Rotor-Work (1974) 132 CLR 1)Other service contracts. (Costa Vraca v Berrigan Weed & Pest Control [1998] FCA 693)Hire contracts. (White v John Warwick (Topic 4)Employment contracts.Landlord and tenant contracts.Terms implied by courts based on the factsrTextbook7.107.13Sometimes the parties neglect to insert a term either because it was so obvious they overlooked it or each party assumed that it applied. In these cases the courts will imply the term provided it refects the true LAW00150Introduction to Business Law 28intention of the parties. Tis will, obviously, mean that the implied term cannot confict with the express terms.Tese could include:Terms implied on the basis of a course of past dealings. (Henry Kendall & Sons v William Lillico & Sons [1968] 2 All ER 444)Terms implied as a result of custom or trade. (British Crane Hire v Ipswich Plant Hire [1974] 2 WLR 856)Terms implied in order to make the contract efective. (Te Moorcock (1889) 14 PD 64 and Codelfa Construction v State Rail Authority of New South Wales (1982) 149 CLR 337)Terms implied by sale of goods legislationrTextbook7.147.39Given the importance of trade to our economic system it is not surprising to learn that courts and, more recently,parliamentshavetriedtodevelopmercantilelawthatbothsupportstradeandsimultaneously protects consumers from shonky dealers. Read the about the history of mercantile law on pages 278279 before proceeding with this sub-topic.An exploration of relevant Australian legislation will be confned to the Australian Consumer Law (in Topic 9) and the Goods Act 1958 (Vic) (VGA) in this topic. Note that all states have similar provisions and you will fnd them referred to in the Appendix to Chapter 7 on page 297. I need to point out that this section (the VGA) is merely meant to introduce you to statutory implied terms. Of much greater signifcance are the terms implied into consumer contracts for goods and services (referred to as guarantees) under the ACL. We will dedicate Topic 9 to this.A list of the implied terms under the VGA can be found at 7.16; we will consider the more signifcant of these. Note that these terms can be excluded by the use of an appropriately worded exemption clause. Focus on the implied terms relating to the following:Correspondence with description. As well as paragraph 7.17 you need to read paragraphs 7.307.33 (Varley v Whipp [1900] 1 QB 513, Beale v Taylor [1967] 1 WLR 1193, Re Moore and Landauer [1921] 2KB 519, Harlingdon & Leinster Enterprises v Christopher Hull Fine Art [1990] 1 All ER 737 and Ashington Piggeries v Christopher Hill [1971] 1 All ER 847)Fitness for purpose. As well as paragraph 7.18 you need to read paragraphs 7.267.29 (David Jones v Willis (1934) 52 CLR 110, Atkinson v Hastings Deering (Qld) (1985) ATPR 40625, Grifths v Peter Conway [1939] 1 All ER 685, Godley v Perry [1960] 1 All ER 36 and Teheran-Europe v ST Belton (Tractors) [1968] 2 All ER 886)Merchantable quality. As well as paragraph 7.19 you need to read paragraphs 7.237.25 (Frank v Grosvenor Motor Auctions [1960] VR 607, BS Brown & Sons v Craiks [1970] 1 WLR 752, H Beecham & Co v Francis Howard & Co [1921] VLR 428, Bartlett v Sidney Marcus [1965] 2 All ER 753 and Grant v Australian Knitting Mills [1935] AC 85)Correspondence with samples. Read paragraphs 7.20 and 7.33.Excluding or limiting liabilityNote that the seller does have the right to exclude liability for a breach of the implied terms provided they meet all the requirements examined in the previous topic (Topic 4) regarding exemption clauses.Topic 5Implied terms 29Remedies for a breach of an implied termNote, also, that the main remedies for a breach of an implied term are damages (money) and termination of the contract though the latter is limited to goods prior to acceptance. Once the goods have been accepted the buyer will normally be limited to damages.Other matters to considerParties are lef to decide the terms of their contracts themselves, including the price, method of delivery and payment. Te sale of goods legislation only kicks in where the contract is silent as to any of the necessary terms. Make sure you understand the legislative intent relating to price (ANZ Banking Group v Frost [1989] VR 695), delivery and payment, acceptance, passing of property and passing of risk.SummaryImpliedtermsarethosethathavenotbeenexpressed(inwritingorspoken)butwillberead-intothe contract in one of three ways. Tey may be implied by the courts in a general sense (for all contracts) or they may be implied by the courts based on the particular facts of the case before them. Finally, they may be implied by legislation. In this topic we have looked at sale of goods legislation (applied in all states). Tis was just by way of introduction. Later on, in Topic 9, we will examine the extremely powerful and far-reaching Commonwealth legislation in the form of the Australian Consumer Law which contains many implied terms in the form of guarantees.LAW00150Introduction to Business Law 3031Topic 6Remedies in contract lawWhat well do in this topicAremedyisthethingthatsolvesalegalprobleminmuchthesamewaythataspirinisaremedyfora headache (but not a hangover, or so I am told). In this topic we will explore the various remedies available to the innocent party when a contract has been breached.Te innocent party may have the opportunity to get out of the contract subject to certain requirements by terminating the contract or rescission. You will learn that the main common law remedy is damages whereas equity does not award damages but ofers numerous alternative forms of relief when common law remedies are insufcient. We now discuss these remedies in more detail.Terminating the contractrTextbook8.28.22Tere are numerous ways in which the contract can be terminated and the parties discharged from future obligations. Tese are:Termination by performance. Obviously, if both parties perform their obligations the contract is terminated. Part performance will not allow discharge but substantial performance will normally sufce (Hoenig v Isaacs [1952] 2 All ER 176 to be discussed shortly) subject to damages for any shortcomings in performance.Termination by agreement.Termination by a term of the contract. Tis usually involves a condition precedent or a condition subsequent. A common example of the former is a contract to purchase a house subject to bank fnance if the fnance doesnt eventuate the parties agree to terminate.Termination by frustration. Make sure you understand the situations in which an intervening event, not contemplated, nor the fault of either party makes performance of the original contract impossible. (Taylor v Caldwell (1863) 3 B & S 826, Codelfa Constructions (back in Topic 7) and Davis Contractors v Fareham Urban District Council [1956] AC 696)Termination for breach of a condition. As we discussed earlier in Topic 4, terms can be classifed as conditions, intermediate or warranties. Only a breach of a condition or a serious intermediate term allows the innocent party to terminate the contract. (Associated Newspapers v Bancks (1951) 83 CLR 322, L Schuler AG v Wickman Machine Tool Sales [1974] AC 235, Bunge Corporation New York v Tradax Exports SA Panama [1981] 1 WLR 711, Bettini v Gye [1874] All ER Rep 242 and Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha [1962] 2 QB 26)Termination for an anticipatory breach. Tis can be a common occurrence in commerce and business. (National Engineering v Chilco Enterprises [2001] NSWCA 291) Paragraphs 8.208.22 will help you understand the processes and consequences of termination. (Foran v Wright (1989) 168 CLR 385)LAW00150Introduction to Business Law 32Recovery of the contract pricerTextbook8.238.24Suing for the contract price at common law can be advantageous. (Hoenig v Isaacs) Sale of good legislation also enables the seller to sue for the contract price where goods have passed from the seller to the buyer.DamagesrTextbook8.258.37Before digging deeply into this area, note that the aim of damages (a common law remedy) is to compensate the innocent party and not to punish the defaulting party. (Addis v Gramophone Co [1909] AC 488) In determining damages the courts consider the following:Damages will only be awarded for losses caused by the breach. (Reg Glass v Rivers Locking Systems (1968) 120 CLR 516)Te plaintif must mitigate their losses.Damages must not be too remote. Read the authors textbook example and also Kofos v C Czarnikow [1969] 1 AC 350, Hadley v Baxendale (1854) 9 Exch 341 and Victoria Laundry v Newman Industries [1949] 1 All ER 997. Make sure you understand the rule in Hadley v Baxendale which contains the two limbs. Once you understand these, you understand remoteness.Te amount of damages may include the following losses:Expectation losses including reliance losses. (Commonwealth v Amann Aviation (1991) 174 CLR 64)Personal injuries provided they were caused by the breach and were not too remote.Disappointment, distress and discomfort. Tese have limited application but, where appropriate, they will be awarded. (Jarvis v Swans Tours [1973] 1 QB 233 and Baltic Shipping v Dillon (1993) 111 ALR 289).Equitable remediesrTextbook8.388.42Sometimesdamageswillnotproduceafairresultfortheinnocentparty.Equityhasdevelopedseveral remedies that take into account the uniqueness of the particular situation.Specifcperformance,anordercompellingsomeonetocarryouttheircontractualobligations,willbe awarded where the subject matter is rare or unique. (Dougan v Ley (1946) 71 CLR 142) But it will not be ordered to enforce a contract for personal services. (Lumley v Wagner [184360] All ER Rep 368)Injunction, another discretionary remedy, is an order restraining a person from doing something. In the above case Wagner was stopped from performing at Gyes theatre.Topic 6Remedies in contract law 33Restitutionwillbeorderedwherethedefendanthasgainedabeneftattheexpenseoftheplaintifin circumstances where it would be unjust for them to be enriched as a result. (Pavey & Mathews v Paul (1987) 162 CLR 221)Quantum meruit may be awarded in partially performed contracts where the contract was terminated by the defendant but not where it was terminated by the plaintif. (Sumpter v Hedges [1898] 1 QB 673)RescissionrTextbook8.438.62Rescission is signifcantly diferent to termination even though both are options available to the innocent party, in certain circumstances, where a breach has occurred. Whereas termination discharges the parties from future obligations, rescission results in the contract being declared void ab initio (from the beginning) and the parties are returned to the position they would have been in had there never been a contract, where possible.Rescission in equityEquity will allow rescission in the following situations:Misrepresentation irrespective of whether it was fraudulent, negligent or innocent. It is important to note that a misrepresentation initially makes the contract voidable (capable of being rescinded).Unconscionable conduct. Tis occurs where one party takes advantage of the others vulnerability. You should now turn to page132 of the textbook and read Commercial Bank of Australia v Amadio (1956) 99 CLR 362 a classic case of unconscionable conduct as was Blomley v Ryan (1956) 99 CLR 362. Arent there some lovely people out there?Duress. Tis occurs where the contract is entered into because of some coercion or threat of force either to a person or their goods or their economic wellbeing. (North Ocean Shipping Co v Hyundai Construction Co [1979] QB 705)Undue infuence. Involving the unfair use of their dominant relationship with a weaker party to infuence the making of a contract, it can fall into one of two categories:Presumption of undue infuence in special relationships. Te courts presume that undue infuence applies in a range of special relations such as doctor-patient, solicitor-client and religious leader-disciple (OSullivan v Management Agency & Music [1984] 3 WLR 448). UI may also be presumed in fduciary (confdential) relationships. (Lloyds Bank v Bundy [1974] 3 WLR 501)Actual undue infuence. Unlike presumed undue infuence involving special relationships, the person wishing to rescind the contract has to establish that it had occurred.Mistake. In certain circumstances a contract can be set aside where there has been a mistake of fact. Tere are several categories of mistake:Common. Where both parties make the same mistake.Unilateral. Where one party is mistaken and the other party is aware of the mistake. Tis ofen involves fraud or some other equally dishonest behaviour. (Taylor v Johnson (1983) 151 CLR 422 and Cundy v Lindsay (1878) 3 App Cas 459)Non est factum (it is not my deed). Tis will only happen in rare cases. (Petelin v Cullen (1975) 132 CLR 352)It is important for you to understand the general rules of rescission found at paragraphs 8.558.60. (Academy of Health & Fitness v Power [1973] VR 254 and Car & Universal Finance Co v Caldwell [1965] 1 QB 525)LAW00150Introduction to Business Law 34Statutory rescissionWhile the textbook, and this Study Guide, dedicate very little space to this sub-topic it is quite signifcant as a remedy for a breach of contract or where conduct has been contrary to the requirements of the Australian Consumer Law or a number of state laws such as the Contracts Review Act 1980 (NSW). (Perpetual Trustee Co v Khoshaba [2006] NSWCA 41)SummaryTe underlying rationale in contract law is that people should be lef to form whatever contracts they desire. Te courts are there to settle disputes and where a breach has occurred, provide a remedy for the innocent party. We have studied all the remedies available in both common law and equity. We have also looked briefy at the remedies available under statute law but will consider them in much greater detail later in the unit.35Topic 7Liability for defective productsWhat well do in this topicWe have spent several weeks examining the law of contracts. Now we are going to look at another really interesting area of the law, negligence. You hear the term ofen and have heard countless stories of people winning huge payments for injuries they have received as a result of anothers negligence. Its not only a huge area of the law, generally, but something everyone contemplating a career in commerce or business needs to understand.In this topic you will learn about the law in relation to defective products. Tis will include an examination of the obligations owed to manufacturers and importers of goods under both common law and statute.Liability for negligence (common law)rTextbook2.12.39Negligence is a tort, the area of law involved with civil wrongs. Te history of negligence is fascinating. Read the early pages in this section and you will discover how a bit of dead snail in a bottle (Donoghue v Stevenson [1932] AC 562) would, 70 years later, form the precedent for a successful action against McDonalds for burns arising from a spilt cup of cofee. In the late 20th century compensation awards in negligence cases had spiralled so out of control that most states legislated severe restrictions on the amounts awarded by the courts. In this section we will examine common law negligence, which still has great relevance to commerce and business.Tere are three steps in determining whether or not a cause of action (law suit) will succeed in the courts.Duty of care (the frst step)What do you think is meant by duty of care? If you think about it as you read the textbook, youll quickly get it. Make sure you understand the following:Te duty of care owed by manufacturers to consumers. (Donoghue v Stevenson and Grant v Australian Knitting Mills (1933) 50 CLR 387; [1936] AC 85)Duty of care owed by manufacturers to innocent bystanders.Duty of care owed by distributors of products. (McPhersons v Eaton) [2005] NSWCA 435)Duty of care owed by service providers.Duty of care owed by property owners. (Australian Safeway Stores v Zaluzna (1987) 162 CLR 479)Duty of care owed by road users.LAW00150Introduction to Business Law 36Duty of care failing to act. (Modbury Triangle Shopping Centre v Anzil ([2000] HCA 61 and Club Italia (Geelong) Inc v Ritchie [2001] 3 VR 447)Duty of care mental harm. (Jaensch v Cofey (1984) 1 55 CLR 549, Tame v New South Wales [2002] HCA 35 and Annetts v Australian Stations [2002] HCA 35)Duty of care does it apply to pure economic loss? For many years the courts would not award damages for pure economic loss. In recent times this has changed (Caltex Oil (Australia) v Te Dredge Willemstad (1976) 136 CLR 529 and Hill v Van Erp (1997) 188 CLR 159) and now pure economic loss will be compensated subject to the salient features test arising from Perre v Apand (1999) 198 CLR 180.What standard of care is owed? (the second step)Even if a duty of care is owed it doesnt end the matter. We next need to know whether or not the defendant has provided an appropriate standard of care. Te courts apply the reasonable person test remember the objective test? A good starting point is to think about the competing risks, the consequences and the costs what will be reasonable under the circumstances of the case?Make sure you read and understand the general principles outlined on pages 61 and 62. Not that it is easy to balance everything as you will observe in Romeo v Conservation Commission of the Northern Territory (1998) 192 CLR 431.Other things to understand when considering the standard of care include:Standard of care and the design of goods. (ODwyer v Leo Buring [1966] WAR 67 and Raspora v JCL Marine [1977] 1 Lloyds Rep 645)Standard of care and the production of goods. (Grant v Australian Knitting Mills [1935] AC 85 and Adelaide Chemical & Fertilizer Co v Carlyle (1940) 64 CLR 514)Standard of care and the proper labelling of products.Standard of care and the distributor/retailer.Standard of care and the delivery of professional services.Standard of care and the delivery of recreational and other services. (Woods v Multi-Sport Holdings (2002) 76 ALJR 483) and (Harris v Bulldogs Rugby League Club [2006] NSWCA 53 (New South Wales Court of Appeal)) Eels for me.Note that there are special rules relating to dangerous recreational activities where a signifcant risk of physical harm is involved.Inherent risks.Unexplained accidents. Te doctrine of res ipsa loquitur means that even where there is no evidence establishing the cause of the accident, liability may still fall to the party responsible for providing proper care.Causation, remoteness and amount of damages (the third step)CausationFinally, to obtain damages, the plaintif must establish that the negligence (established in the frst two steps) caused the damage. Tis centres on the but for test ie; but for the defendants negligence the plaintif would not have sufered loss. Courts also need to determine the scope of liability and, if the but for requirement isnt met, are there exceptional circumstances that might result in the defendant still being liable? (Adeels Palace v Moubarak; Adeels Palace v Bou Najem [2009] HCA 48, Strong v Woolworths Ltd [2012] HCA 5 (High Court) March v Stramare (1991) 171 CLR 506 and Chapel v Hart (1998) 72 ALJR 1344)RemotenessTe loss must not be too remote even where caused by the defendant. (Overseas Tankship (UK) v Te Miller Steamship Co (Te Wagon Mound (No 2) [1966] 2 All ER 709)Topic 7Liability for defective products 37Assessing damagesTe courts try to estimate the amount of compensation necessary to put the injured party in as close as possible a position as to that where there had been no negligent act. Tis could include:Medical and hospital expenses;Loss of earnings (real and potential);Loss of enjoyment of life; andPain and sufering.Te courts may award punitive damages in certain cases where the defendant has acted in such a manner that they are to be punished and/or as a warning to others engaged in the same business.DefencesDefences open to the defendant arise where there has been contributory negligence or where the plaintif assumed the risk. (Moore v Woodforth [2003] NSWCA 9)Liability for another persons actsTis can occur where an employee (for example) is found to be negligent. Sometimes the employer may also be vicariously liable. (Hollis v Vabou [2001] HCA 44) In some circumstances they will also be liable for the negligent acts of subcontractors. (Burnie Port Authority v General Jones (1994) 179 CLR 520)Liability under Australian Consumer Law (ACL)rTextbook2.402.51As well as remedies available in the common law tort of negligence, the Australian Consumer Law (ACL) also imposes liability on manufacturers for the safety of their products. Te ACL covers a large range of consumer related areas, many beyond the scope of this unit. In this topic we are focusing on Parts 35 of the ACL, those parts that provide compensation for persons injured by unsafe goods.Heres the big diference between the tort of negligence and the ACL. With the former, the behaviour of the producer is central to the case whereas, under the ACL, the focus is on the objective nature of the product. If you think about it for a few moments, you may realise that it is going to be a lot easier to prove that a product is defective rather than proving that the behaviour of the producer was negligent. If you buy a bed and it collapses as soon as you lie on it, wouldnt you prefer to seek damages under the ACL rather than proving negligence under the common law?Make sure you understand the various elements of a breach, found at paragraph 2.41 of the textbook. Statute law is not as interesting as, say, common law contracts because, under statute law, it really just boils down to defnitions. Hence, you need to know:What is a manufacturer (s7)?What are goods and supply?What is a safety defect in relation to goods (s9)?What types of loss are covered (s141)? (Tomas v Southcorp Australia [2004] VSC 34)Other factors to consider include:Damage must be caused by the defect.Tere are a number of defences (s142). (Graham Barclay Oysters v Ryan [2000] FCA 1099)A manufacturer cannot exclude liability irrespective of what they might claim on the label or in advertising (s150).LAW00150Introduction to Business Law 38Tere are numerous other relevant matters to note (paragraph 2.49) including the time limit for commencing an action.Now, before you put a tick in the Topic 7 box and slap yourself on the back, make sure you have a good look at Figures 2.2 and 2.3 at the very end of the chapter. Figure 2.2 neatly lays out everything you need to understand regarding the ACL Parts 35. Figure 2.3 provides you with a neat comparison of the key elements in both common law negligence and the ACL.SummaryIn this topic you have learned about the law regarding defective products. Tis law comes from two sources, common law (the tort of negligence) and statute law, particularly the ACL. While both are available for a consumer of goods who sufers damage, it would seem that it is much easier to prove and cheaper to take action under the ACL.39Topic 8Misrepresentation and unfair commercial conductWhat well do in this topicTrough studying Topics 18 you have not only learned about the two sources of Australian law (statute and common law) but you have also seen how relevant they both are in the areas of contracts and defective products. In this topic we will look at another area of law afected by both statute and common law, that of misrepresentation and commercial misconduct.First we shall examine the laws governing misrepresentation, looking closely at the liability imposed for fraud, negligence and misleading and deceptive conduct.Finally we will look at the law governing unconscionable or unfair business conduct. By the time you reach the end of this topic you will not only understand the law but you will know a lot about the rotten behaviour of some people in commerce.Common law misrepresentationrTextbook3.13.20Fraudulent misrepresentationLets start with fraudulent misrepresentation, another tort (civil wrong) which is sometimes called deceit. You can see all the crucial steps in the diagram on page 97. Make sure you understand the numerous points related to each step.Step 1 was the representation a false statement of fact?Amisrepresentationwill,moreofenthannot,beanexpressstatementbutnotethatitcanalsobeby conduct. Questions needing consideration are:Was it a statement of fact or opinion? (Smith v Land & House Property Corporation (1884) 28 Ch D 7)Was it a fact or a mere puf?Does silence count? Under common law, silence is normally okay (one of the areas addressed under the ACL) (Lockhart v Osman [1981] VR 57)Was the representation false? (Krakowski v Eurolynx Properties (1995) 183 CLR 563)LAW00150Introduction to Business Law 40Step 2 Did the representation induce the plaintif to act in some way?It will not be a misrepresentation unless it induces the other party to act in a certain way (usually by entering a contract). (Holmes v Jones (1907) 4 CLR 1692, Redgrave v Hurd (1881) 20 Ch D 1 and Peek v Gurney (1873) LR 6 HL 377)Step 3 did the representor (the defendant) know the misrepresentation was false?Tis addresses the question of fraud. Tere has to be more than a negligent or innocent misrepresentation; the representor must have either known it was false or was reckless as to its truth.Step 4 did the misrepresentation cause the plaintif to sufer a loss?Tere must be a causal connection between the fraud and the loss.Negligent misrepresentationOkay, so fraud is deceitful behaviour. What is involved in a negligent misrepresentation? You will already have a good idea because you have just examined negligence in the previous topic and those same three amigos are involved: duty of care, standard of care and remoteness (and causation, so, four amigos). Lets look at these more closely.Step 1 when is a duty of care owed?Teideathatadutyofcarewasowedformererepresentationsisrelativelymodern.Todayitisawell-established cause of action. Points to keep in mind are:A duty of care can be owed when giving advice or supplying information. (L Shaddock & Associates v Parramatta City Council (1981) 55 ALJR 713 and the comments by Mason J in Mutual Life & Citizens Assurance v Evatt (1968) 122 CLR 556)But the representee must reasonably rely on the advice or information. (Tepko v Water Board (2001) 206 CLR 1 and Esso Petroleum v Mardon [1976] 2 WLR 583)Auditors are a special case they will owe a duty of care to the company that employs them to undertake the audit but it is much more difcult to extend that duty to shareholders, investors and lenders. (Esanda Finance Corporation v Peat Marwick Hungerfords (1997) 71 ALJR 448 and R Lowe Lippman Figdor & Franck v AGC (Advances) (1992) 2 VR 671)Disclaimers may work provided they are appropriately worded. (Hedley Byrne & Co v Heller & Partners [1964] AC 465)Generally speaking a duty of care will be contingent on a number of factors which are listed on page 112.Step 2 what standard of care is owed?A reasonable standard of care in Australia will generally be measured against the industrys professional opinion.Step 3 remoteness of damageIf the duty of care has been established and the necessary standard of care has been breached the injured party may succeed provided the damage is not too remote. Damage is too remote if the defendant could not reasonably foresee the loss. (Kenny & Good v MGICA (1999) 73 ALJR 901)Topic 8Misrepresentation and unfair commercial conduct 41Misleading and deceptive conduct under the Australian Consumer Law (ACL)rTextbook3.213.42As you know, the ACL was introduced in 2010 and aims to strengthen consumers rights in a number of areas. We have already examined the parts relating to defective products in the previous topic. Another key provision relates to misleading or deceptive conduct. (Common law, think, misrepresentation whereas ACL, think, misleading and deceptive conduct).Section 18 is the crucial part and it is very broad in scope. Start with the diagram on page 115 and then you can build from there as you consider the following points:Conduct of directors, employees and agentsA frm (or corporation) is responsible for the conduct of its directors, employees and agents (provided the agent has authority well look at that in Topic 10).Conduct must be in trade or commerceMake sure you understand whats covered and whats not. Unfortunately, politicians can say what they like in their speeches and get away with it.When is conduct misleading or deceptiveSome conduct not covered in common law misrepresentation is now covered under the ACL. Lets start by noting that the conduct can either mislead or deceive or is likely to mislead or deceive. In other words, it goes much further than the misrepresentation requirement that the other party must be induced into the contract. Equally signifcant is the fact that the misrepresentation is not restricted to express words or conduct. Under s18 the representation may be:A half-truth. (Collins Marrickville v Henjo Investments (1987) ATPR 40782) and Yorke v Ross Lucas (1983) ATPR 40401)Silence. (Demagogue v Ramensky (1992) 110 ALR 608, Forwood Products v Gibbett [2002] FCA 298) and Metalcorp Recyclers v Metal Manufacturers [2003] NSWCA 213)Opinions in certain circumstances. (RAIA Insurance Brokers v FAI General Insurance (1993) ATPR 41225)Promises or predictions in certain circumstances. (Wheeler Grace & Pierucci v Wright (1989) ATPR 40940 and Futuretronics International v Gadzhis (1990) ATPR 41049)Exclusion clauses and disclaimersWe have already noted in Topics 4 and 7 that the common law allows the use of disclaimers and exclusion clauses. Section 18, however, makes it a lot tougher for those seeking to rely on them. (Bateman v Slatyer (1987) ATPR 40762)Remedies for breach of s18Damages are only awarded where the misrepresentation caused the loss. Te onus is on the injured party to prove the link. Note that the misleading and deceptive conduct doesnt have to be the only cause of the loss.LAW00150Introduction to Business Law 42Notealsothatrelianceonthemisleadingordeceptivestatementbyanotherpartymayormaynotbe necessary.Tere are a number of remedies available to the injured party these are much more extensive than those ofered in the common law areas of contract and tort. Tese are:Damages. As with common law actions, an injured party can be awarded compensation to place them in the same position as they would have been had there not been a breach of s18. Tere are caps (limits) placed on certain professionals. Damages can be apportioned, as with common law, where there has been contributory negligence. Te ACL allows damages to be awarded against the individual director, employee or agent for their misleading or deceptive conduct. (Sweetman v Bradfeld Management Services (1994) ATPR 41290 and Dalton v Lawson Hill Estate [2005] FCAFC 169)Declaration that the contract is void. Under s243 the court may set aside the whole or part of the contract. (Accounting Systems 2000 (Developments) v CCH Australia (1993) ATPR 41269)Te court may also vary the terms of the contract under s243. (Mr. Figgins v Centrepoint Freeholds (1981) 36 ALR 23)Te court may grant an injunction (ss232234).Criminal penalties. Tese will be imposed for certain misrepresentations under s18.Two other pieces of legislation are exceedingly important for corporations; the Australian Securities and InvestmentsCommissionAct2001(Cth)andtheCorporationsAct2001(Cth).Teformer,inparticular, covers much the same area as s18 of the ACL but we have focused on the ACL because it covers all other entities as well as corporations.Unconscionable conductrTextbook3.433.50Tere are times when there may be no misrepresentation but someone has acted very badly. Very badly indeed. Unconscionable means unfair, unscrupulous or unjust and it doesnt sound nice. To get a quick understanding of the common law response to unconscionable conduct, read Commercial Bank of Australia v Amadio (1983) 57 ALJR 358 on page 132. Te crucial requirement is that the dominant party took advantage of the vulnerability or special disadvantage of the weaker party. (Astvilla v Director of Consumer Afairs Victoria [2006] VSC 289)Unconscionable business-to-consumer transactionsUnders 21oftheACLconsumersarefurtherprotectedfromunconscionableconduct.Makesureyou understandthefactorsthats 21(2)setsouttoassistindeterminingwhetherornotthetransactionis unconscionable. As with the common law, it is necessary to prove that the defendant took advantage of the plaintifs special disadvantage. (ACCC v Radio Rentals [2005] FCA 1133)Unconscionable business-to-business transactionsUnders 22oftheACLsmallbusinessesareprotectedfromunfairandunreasonableconductbylarger businesses. Make sure you understand the factors that s22 sets out on pages 136 & 137 as indicators of unconscionable conduct. (Coggin v Telstar Finance Company (Q) [2006] FCA 191)Topic 8Misrepresentation and unfair commercial conduct 43Remedies and sanctions under the ACLAswithcommonlawmisrepresentation,theACLprovidesfargreaterremediesforunconscionable behaviour than the common law where the remedies are restricted to damages and/or rescission. Under the ACL remedies include:damages;injunctions;set aside or declare contracts void;mandatory education programs;adverse publicity;disqualifcation from managing; andcriminal penalties.Other unfair conductTe ACL also prohibits a number of specifc activities such as:Bait advertising advertising a product at a special price, only to tell customers that they have all been sold.Harassment continual product pushing in the face of the customers refusal to purchase.Referral selling where the purchaser of a product collects a commission when they introduce new purchasers to the seller.Pyramid selling multi-level schemes where participants receive benefts by recruiting other participants (read, suckers).Tough I want you to be aware of these provisions, you are not expected to study them.SummaryWell, wasnt that a lot of information to absorb? Please keep in mind that you will not be assessed on all the minute detail discussed above, but I do want you to understand the broad principles and all the larger steps/factors/elements of the common law and ACL regarding misrepresentations and commercial misconduct. And I dont wish to hear about any of you acting unconscionably.LAW00150Introduction to Business Law 4445Topic 9Consumers rights and the supply of goods and servicesWhat well do in this topicIn this topic we focus on the legislation that protects consumers when they purchase goods and services. Again, we will concentrate on the ACL.We will examine the provisions that require sellers to provide certain guarantees plus those that require manufacturers to provide certain guarantees. None of these guarantees can be excluded or limited.If you read the introduction to Chapter 9 you will note that whilst, in the past, consumers needed to sue in contract law, nowadays the most likely action is for breach of a statutory guarantee.Consumers rights against the supplier of goodsrTextbook9.29.21Te buyer needs to be a consumer as defned by the ACL to receive the statutory guarantees. Make sure you understand the defnition of a consumer at paragraph 9.3 as this is very important. (Crago v Multiquip (1998) ATPR 41620 and Atkinson v Hastings Deering (Qld) (1985) ATPR 40625)Statutory guarantees relating to supply of goodsAt paragraph 9.4 you will fnd a list of the guarantees relating to the supply of goods found in ss5459.Guarantee of acceptable quality (s54). (Grant v Australian Knitting Mills [1935] AC 85)Guarantee of ftness for any disclosed purpose (s55). Carpet Call v Chan (1987) ATPR 46025)Guarantee that goods correspond with description (s56). (Beale v Taylor [1967] WLR 1193)Guarantee that goods correspond with sample (s57).With few exceptions provided by s64A these guarantees cannot be excluded, restricted or modifed. Liability may be limited where the goods are not normally bought for personal use. To gain an understanding of the operation of s64 read the textbook examples at the top of page 360. Note also that the limitation, if allowed under the ACL, must be fair and reasonable.LAW00150Introduction to Business Law 46RemediesYou will fnd an explanation of the remedies for breaches of the statutory guarantees at the top of page 362. Tese fall into two categories: major failures (s260) and not a major failure. Ensure you understand what is meant under the ACL by major failure.One of the main remedies available to the consumer is to reject the goods (s262(2)). Tis is an important consumer right but you need to understand its limitations and the provisions regarding rejection. With minor breaches the supplier has the option of remedying the failure by replacing the good or providing a refund. Goods received as a gif have the same rights.Retailers right of indemnity against the manufacturerWhere a supplier (a shop, for example) incurs damages/costs as a result of a failure to comply with the above statutory guarantees and that failure is due to the manufacturer, the supplier is entitled to be indemnifed for those damages/costs (s274).Consumers rights against the manufacturer of goodsrTextbook9.229.24Teobligationsonmanufacturersaremuchthesameasthoseuponsuppliersofgoods.Makesureyou understandthedefnitionofamanufacturer(s 7)onpage364.Note,also,thecircumstanceswhena consumer can sue the manufacturer. Tis occurs when:Te goods are not of acceptable quali