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Business
Lawandy GiBson
10th edition
Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018
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National Library of AustraliaCataloguing-in-Publication Data
Creator: Gibson, Andy, author.Title: Business law / Andy Gibson.Edition: 10th edition.ISBN: 9781488611803 (paperback)Notes: Includes index.Subjects: Commercial law—Australia. Commercial law—Australia—Textbooks.
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vii
detailed ContentsHow to use this book xiEducator resources xvMyLab Business Law xviPreface xviiiAbout the author xxiiKey to case report abbreviations xxiiiTable of cases xxivTable of statutes xxix
Part 1THE LEGAL FRAMEWORK 1
ChaPter 1Legal Foundations 2Introduction 3What is law? 3Are rules always law? 3Sources of law 4Characteristics of a legal system 5Classification of laws 7Major and minor types of laws in the
Australian legal system 13Commonwealth and state powers 15Separation of powers 25
ChaPter 2Legal Systems 31What are the roles of the police and the courts? 32Hierarchy of the courts 34Original and appellate jurisdiction 35The state and territory court hierarchies 35Criminal jurisdiction of the inferior courts 36Federal courts 40Abolition of appeals to the Privy Council 43Features of a court hierarchy 44Alternative methods to courts 44Judicial and quasi-judicial tribunals 48The ombudsman 55The adversary system 57The parties 58The legal profession 60The judiciary 61The jury 62Representative or class actions 62
ChaPter 3How Law is Made: Precedent/Statute Law 69Sources of law 70Finding cases 71
Case law (precedent) 73Legal cases as precedent 76Statute law 79Methods of statutory interpretation 85
Part 2CiviL LiAbiLiTy 99
ChaPter 4Civil Liability: The Law of Torts and Negligence 100Why is an understanding of the law of
torts important to business? 101Some general principles of tortious liability 102Time periods for tort actions 104Negligence 106Elements of negligence and the roles of the
plaintiff and the defendant 107
ChaPter 5Applications of Negligence to Business 142Product liability (defective products): What
is the legal position of manufacturers? 143Occupier’s liability 158Criminal negligence 167
Part 3LAW OF COnTRACTs 173
ChaPter 6 Introduction to Contracts 174Contracts: The basis of commercial law 175Sources of contract law 175Contract and agreement distinguished 175The law of contracts 176Creation of an apparent simple contract 176Classification of contracts 178Classification according to formal or simple
contracts and its importance to business 181Contracts and e-commerce 185
ChaPter 7Agreement Between the Parties 189What constitutes a contractual agreement? 190Step 1: Is there agreement between the parties? 191The conventional approach: rules relating to offer 195Termination of offer 207Rules relating to acceptance 211Rules as to contracts by post 216Electronic offer and acceptance 218
viii
ChaPter 8Intention to Create Legal Relations 223What is intention? 224Step 2: Is there intention to contract? 225The statutory position 232Non-commercial agreements—agreements
lacking serious intention 232
ChaPter 9Consideration 239Step 3: Is consideration present? 240Consideration defined 240Essential rules for consideration 241Promissory estoppel 252
ChaPter 10Capacity of the Parties 259Step 4: Determining validity: Do the parties
to the contract have full contractual capacity? 260Infants (or minors) 260Corporations 269Bankrupts 269Mentally unsound and intoxicated persons 270Married women 271
ChaPter 11Genuine Consent 274Step 5: Is there genuine consent? 275Misrepresentation 287Duress and undue influence 294Unconscionable (unfair) contracts 299
ChaPter 12Is the Contract Legal? 307Step 6: Is the contract legal? 308Contracts illegal by statute 308The common law position 311
ChaPter 13Terms of the Contract 326Express terms 327Collateral contracts 332How important is the term? 334Implied terms 341Meaningless terms 344Exception, exemption or exclusion clauses
or terms 345
ChaPter 14Rights and Liabilities of the Parties, Discharge and Remedies 362Privity of contract 363Assignment 365Ending the contract 367
ChaPter 15Remedies in Contract 386Remedies at common law 387Equitable remedies 402Loss of right to sue 407
Part 4COnsuMER LAW 411
ChaPter 16 Statutory Consumer Guarantees and the Australian Consumer Law 412An introduction to consumer guarantees 414Consumer guarantees applying to goods 417Consumer guarantees relating to the
acceptability of goods 419Where there is no overlap with the Sale
of Goods Acts 428Consumer guarantees relating to the supply
of services 428Consumers’ rights concerning guarantees
for the supply of goods and services 429Non-exclusion of implied consumer guarantee 432
ChaPter 17General and Specific Consumer Protections under the ACL 436Scope of the Australian Consumer Law 437Chapter 2: General protections 440Chapter 2, Part 2-1: Misleading or deceptive
conduct (ss 18–19) 441Chapter 2, Part 2-2: Prohibition of unconscionable
conduct (ss 20–22) 448Chapter 3: Specific false representations
(ss 29–31, 37) 453Prohibition of other ‘unfair practices’ 458Chapter 3, Part 3-3: Safety of consumer goods
and product-related services 462Manufacturer’s liability 463Chapter 3, Part 3-5: Product liability under the
Australian Consumer Law 466Consumer transactions 470Chapter 5: Enforcement and remedies 471State consumer protection bodies 475Regulation of the financial services industry 476
Part 5businEss ORGAnisATiOns And THE LAW 481
ChaPter 18Agency 482Introduction to agency 483Distinguished from other relationships 484Classification of agents 485Appointment of agents 486Authority of the agent 489Duties of agent to principal 492Rights of agent against principal 497Liability of agents and principals to third parties 498Liability of principal and agent in tort 501Termination of agency 501Remedies of a principal 503Some specific types of agency 503
BuSINESS LAW
ix
ChaPter 19Introduction to Companies and Incorporated Associations 511Administration of company law 512Companies 513Lifting the veil of incorporation 514Nature of companies 516Corporate insolvency 534Associations 535
ChaPter 20Partnerships 541Essential elements of a partnership 542When does a partnership exist? 545Relationships that can look like partnerships 545Creation 550Relationship to outsiders 552Liability of partners 553Being an apparent partner or ‘holding out’ 555Liability on change of partners 556Relationship between partners 557What are the rights of each partner? 557What are the duties of each partner? 559What happens to partnership property? 560Dissolution 561Limited partnerships 563
ChaPter 21Choosing a Business Entity 570Factors to consider in choosing a business entity 571Sole traders 572Partnerships 573Companies 573Trusts and trustees 574Franchises 579Business names 582
onLine ChaPtersChaPter 22Other Business-Related Torts 587Other business liabilities in tort law 588Intentional torts—trespass 588Defamation 599Economic torts: In what business situations
might a plaintiff rely on an economic tort? 608Nuisance 614Statutory torts—breach of statutory duty
and statutory nuisance 618New torts 619
ChaPter 23Insurance 622Risk 624What is an insurance contract? 624Parties to an insurance contract 625Sources of insurance law 625General Insurance Code of Practice 626Administration 626
Industry complaints resolution 626Concepts underlying insurance law 627Making the contract of insurance 638Construction of the insurance policy 644Agents and brokers 648Fire insurance 649Other kinds of general (indemnity) insurance 650
ChaPter 24Sale of Goods—Business to Business 657Sale of goods 658Sale of Goods Act or ACL? 659Formation of the contract 659Why is the distinction between property
and possession important in business? 664Classification of goods 665Passing of risk 672Transfer of title by non-owner 672Performance of the contract 674Remedies of the parties for breach of contract 677The Vienna Sales Convention 680
ChaPter 25Property and Mortgages 685The distinction between ownership
and possession 686Land 686Goods 687Distinguish between real and personal property 688What is the extent of land? 693Interests in land 693Methods by which land ownership is established 696What is a mortgage? 707Mortgagor’s right to deal with the property 709Remedies of the mortgagee 709Licence and lease distinguished 711Classification according to duration 712Terms of agreement for lease 713Terms of a leasing contract 713Termination of leases and tenancies 713Can the landlord recover possession
of the premises? 714Residential tenancies legislation 714Retail tenancies legislation 717
ChaPter 26Intellectual Property 723The concept of intellectual property 724Copyright 724Designs 736Patents 739Trade marks 742What is passing off? 746Australian Consumer Law—unfair practices 747Confidential information 747
ChaPter 27Ethics and Business Practice 753The law and morality 754Morals and ethics 756
DETAILED CONTENTS
x
Theories of ethics 756Corporations and ethics 762Ethical investing 763Ethical professional advice 764
ChaPter 28Criminal Law in a Business Context 772Sources of the criminal law 773Differences between criminal law and civil law 773Classification of offences 774Criminal procedure 775Elements 776Standard of proof 776White-collar crime 777Statutory criminal liability in business situations 780Criminal liability involving companies 782Cybercrime 784Civil penalty 784
ChaPter 29Competition Law 789Operation of the Act 790Administration of the Act 790The concepts of ‘market’ and ‘competition’
in business 792Restrictive trade practices 794Authorisations and notifications (s 88) 807Enforcement procedures and remedies 807Industry codes of conduct 808
ChaPter 30Insolvency and Debt Recovery 813Should legal proceedings be commenced? 814The debt recovery process 814Overview of bankruptcy proceedings 816Other effects of bankruptcy 818Key aspects of bankruptcy 819Effect of a sequestration order 824Alternatives to bankruptcy 824Property available for payment of debts 827What power does a trustee have to avoid
antecedent transactions? 831Collection of money or property
from third parties 832What is the order of payment of debts? 833Discharge and annulment of bankruptcy 834Corporate insolvency 836
ChaPter 31The Work Environment and the Employment Relationship 843Introduction to employment law 844Implied duties in the contract
of employment 850Termination 854The Importance of the Commonwealth
Constitution Act 1900 (Imp) 856
The national workplace relations system 857Human rights-based work regulations 860Work health and safety and workers’
compensation 865
on deMand ChaPters ChaPter 32Electronic Commerce 876Electronic transactions legislation—making
contracts electronically 877Legal aspects of maintaining a business website 883Electronic commerce consumer protection 886Jurisdiction problems 888Privacy 888Cybercrime and business 890Electronic banking 892
ChaPter 33Negotiable Instruments 897Negotiability as an exception to the nemo
dat rule 898Bills of exchange 899Cheques 902Bank cheques 919Other methods of money transfer 919The Code of Banking Practice 921The banking industry ombudsman 921Financial Transaction Reports Act 1988 (Cth) 921
ChaPter 34Consumer Credit and Privacy 928Operational areas of the National
Credit Code 929Types of credit arrangements and parties 930Formalities 932Security for the credit—mortgages
and guarantees 934Hardship and unjust transactions 935Privacy Act 1988 (Cth) 938The Privacy Act 1988 (Cth), as amended
by the Privacy Amendment (Enhancing Privacy Protection) Act 2012 941
Hire-purchase 944
ChaPter 35Ethics and Regulations in Marketing and Advertising 950Ignorance of the law is no excuse! 951The law and ethics 951Ethics in a business context 954Marketing law 954Advertising law 966
Glossary of legal terms G-1
Index I-1
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xi
LEARNING OBJECTIVES
On completion of this chapter, you should be able to:
Explain the function of police in enforcing the law and the role of courts in administering law and resolving disputes
Identify the state and territory court hierarchies in the Australian legal system
Describe the objectives, hierarchy and jurisdiction of the courts in the federal court system
Identify the adversary system, and describe alternative methods of dispute resolution
Discuss the function of different state and federal tribunals
Explain the role and purpose of the ombudsman
Discuss the roles of the legal profession, judiciary, juries and parties in criminal and civil trials.
LO
1
LO
2LO
3LO
4LO
5LO
6LO
7
Legal Systems
ChApTER 2
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how to use this BooK
32 Part 1 tHE LEGaL FraMEWOrK
Australia has two main court systems, organised in terms of jurisdiction (i.e. the types of cases or matters that each court can hear):
■■ the federal court system; and
■■ the court system of each of the states and territories.
Each of these systems has jurisdiction to hear different types of cases, as do the courts within each system. (The jurisdiction of each court—i.e. which matters it can hear—is established by the Act that created it, known as an ‘enabling’ Act.) Because of the importance of the legal framework to the business environment, it is necessary to understand how each system operates in the event that a dispute leads to litigation.
Unlike the federal court system, the jurisdiction of each state and territory stops at the border. This means, for example, that New South Wales law doesn’t apply outside the borders of New South Wales, and Queensland law doesn’t extend beyond the borders of Queensland, and that the same is generally true in all Australian state and territory jurisdictions. However, there is an exception, and that can be found in an initiative between Western Australia (Cross-Border Justice Act 2008), South Australia (Cross-Border Justice Act 2009) and the Northern Territory (Cross-Border Justice Act 2009) called the ‘Cross-Border Justice Scheme’. In this scheme there are effectively no legal state or territory borders in the outback region where they meet. The Cross-Border Justice Scheme enables police, magistrates, fines-enforcement agencies, community corrections officers and prisons of one jurisdiction to deal with offences that may have occurred in another participating jurisdiction.
The process of bringing and maintaining, or defending, a legal action (called litigation) is both time-consuming and costly owing to the complex procedural rules (or rules of evidence) employed within our court systems. (This partly explains why there has been a shift in recent times towards alternative methods of dispute resolution such as tribunals, mediation, arbitration and neighbourhood dispute centres.) As a rule of thumb, the higher the court in a court hierarchy, the greater will be the legal costs.
The legal system in Australia is adversarial in nature (compared with civil law systems such as those found in Europe, which are inquisitorial) and, while using a solicitor or barrister is not compulsory, most parties will inevitably use them when they are involved in litigation. The solicitor will be used in pre-trial matters, while the barrister will represent the party in court.
WhAT ARE ThE ROLES Of ThE pOLICE ANd ThE COuRTS?
The role of the policeIn theory, everybody in the community is responsible for apprehending law-breakers. However, in practice this is a function that is usually better left to the police force. The police force plays no direct role (although it certainly plays an indirect role) in the creation of new laws. Nor is it concerned with the punishment of wrongdoers.
Explain the function of police in enforcing the law and the role of courts in administering law and resolving disputes
LO
1
In BrIEf
The role of the policeThe main function of the police is to enforce the laws created by other authorities. They serve the law itself, and are independent of the government.
This chapter discusses the various court systems, the jurisdiction of the courts to hear cases, alternative methods to the courts to resolve disputes, the functions of some of the
judicial and quasi-judicial tribunals and the ombudsman, the role of court personnel, and the litigation process.
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■■ Learning objectives are stated at the beginning of the chapter, and are signposted in the margin where they are covered in the chapter. They provide an excellent framework and revision tool.
xii BuSINESS LAW
206 PART 3 lAW Of CONTRACTS
Where there is an option in an agreement, if the parties have made no provision as to the time during which the option must be exercised, the implication is that the option will be executed in reasonable time—a question of fact depending on the circumstances in each case. For example, in Ballas v Theophilos (No 2) [1957] HCA 90, the High Court found that 16 months to exercise a clause in a partnership agreement to acquire the share of a deceased partner wasn’t reasonable even though the agreement did
not specify a time limit to exercise the share option.
BuSINeSS tIPOptions and return of the considerationThe use of an option supported by consideration by an o� eree can prevent the o� eror from revoking their o� er for a specifi ed period. The o� eror has also agreed not to sell the item to anyone other than the o� eree within that period. However, the o� eror should specify in the option contract whether the o� eree will recover the deposit money they may have given the seller (o� eror) if the option is not exercised.
BuSINeSS rISK mANAGemeNt ALertNotice of termsWhere an off er contains terms, all the terms and conditions should be brought to the notice of the off eree as it sets out the parameters on which the off eror is prepared to be bound. If they are not, a dispute may arise as to whether the parties have, in fact, ever reached an agreement. This is always a question of fact to be decided objectively on the basis of whether a reasonable person would have concluded that an off er had been made.
Terms must be followed exactlyAny terms or conditions specified by the offeror must be met by the offeree in accepting the offer, such as ‘reply by email only’. The key word is ‘only’, as it suggests that the offeror has a particular reason in mind for wanting a reply in this fashion. These terms or conditions must be exactly followed if there is to be a valid acceptance.
Impact of statute lawThe Australian Consumer Law or ACL (or its predecessor, the Trade Practices Act 1974 (Cth)) has had a significant impact on the making of offers. For example, ACL s 18 would have caught the activities of the Carbolic Smoke Ball Company in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. The company
!
ISSUE: Could Quinn withdraw his option before the promised time period had elapsed where it was supported by consideration—that is, the fi ve shillings?
DECISION: The option, having been given for value (the payment of fi ve shillings), was enforceable and non-revocable. The company’s acceptance was good and a binding contract was made which was enforced through an order of specifi c performance. (Quinn was directed by the court to honour the option.)
COMMENT: Usually the plaintiff in such cases will seek an equitable remedy in specifi c performance to
force the defendant to carry out their promise, rather than seek common law damages, which may not be as benefi cial.
You will see that the court is not concerned about the amount of the consideration (its adequacy) as long as it exists and has some value. In this case it was fi ve shillings to keep the option open for a week.
CASE REFLECTION: Why should the giving of even nominal consideration be so important in the formation of a contract?
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■■ In brief boxes summarise key points relevant to the particular area of law under discussion.
77 HOW LaW Is MaDE: PrEcEDEnt/statutE LaW cHaPtEr 3
The High Court did what Blackburn J in Milirrpum’s case could not do, and that was to overrule 200 years of common law precedent by rejecting the terra nullius proposition that Australia was unoccupied land, with no local law in existence. In the course of his judgment, Brennan J noted at page 5 (with Mason CJ and McHugh J agreeing) in relation to precedent, that:
If a postulated rule of the common law expressed in earlier cases seriously offends those contemporary values, the question arises whether the rule should be maintained and applied. Whenever such a question arises, it is necessary to assess whether the particular rule is an essential doctrine of our legal system and whether, if the rule were to be overturned, the disturbance to be apprehended would be disproportionate to the benefit f lowing from the overturning.1
In BrIEf
Some advantages and disadvantages of precedent
Advantages Disadvantages
Promotes consistency Precedent may not be relevant to today’s circumstances but has to be followed
Coherence Slow to respond to community changesCertainty May require an Act of Parliament to changeEfficiency Justice—equality and fairness
Factors to consider for precedent to operateIn order for precedent to operate, there has to be in existence a court hierarchy where the lower courts will be bound by the decisions of higher courts in that hierarchy (see Chapter 2). In order to determine the importance of a decision, factors that have to be considered include:
■■ Where does a particular court fit in a hierarchy?
■■ Who was the judge (or judges)?
■■ Even if a decision comes from a higher court in the same hierarchy, it is only the ratio decidendi that can create a binding precedent. Anything else said in a judgment about the law is at best only capable of being of persuasive value.
Rules of precedentCourts of recordOnly the more important courts in a hierarchy (the superior courts, which formally record in writing their court reports) have their decisions followed in later cases by other courts. Known as courts of record, any judgment of any superior court that is accurately reported is entitled to consideration. However, the great majority of recorded cases will not create precedents. They will be decided by the application of existing legal rules.
Binding precedentIn the case of a binding precedent (the ratio decidendi of an earlier case decision), each court is bound by the decisions of courts higher than it in the same hierarchy of courts, whether or not it believes that a decision is correct. Courts at the same level reserve the right to reconsider their own earlier decisions, but it must be established that the earlier decision was manifestly wrong. To determine whether a court is part of the same hierarchy, consider whether it is linked by a right of appeal.
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■■ Business tips and Business risk management alerts identify areas of the law that people in business need to be alert to or aware of.
xiii
■■ Boxed cases that are broken up into a number of parts, to make them as user-friendly as possible, have been integrated into the text. They contain:– the court in which the case was heard (which is
often important for determining the importance of the case for the purposes of precedence);
– an outline of the facts;– the main issue(s);– the decision of the court in which the case was
heard;– a brief commentary providing additional
information about the case; and– a case refl ection question to encourage
students to refl ect on the case, the decision of the court and its application to business.
442 Part 4 ConSUmEr Law
The meaning of ‘conduct’‘Conduct’ means doing, or refusing to do, any act, and has been given a wide meaning under the ACL. It not only catches positive statements by sellers of goods or services, but it can also catch:
■■ statements of opinion that imply false representations of fact or are not reasonably held;
■■ puffs—for example, exaggerated advertisements such as ‘we sell the best ice cream in the world’—if they are likely to mislead or deceive;
■■ broken promises and false predictions;
■■ statements that are literally true but that create a false impression;
■■ precontractual statements leading up to the entering into a contract that were false—for example, in Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367, both the oral representations and statements in a brochure by the appellants about the capabilities of a tree-cutting machine induced the respondents to purchase it; however, the machine fell far short of expectations and the court found the representations and statements to amount to misleading or deceptive conduct; and
■■ silence, if it is likely to mislead or deceive (as was the case in Henjo Investments Pty Ltd & Ors v Collins Marrickville Pty Ltd (1988) 79 ALR 83, below), or, when asked about why the business is for sale, failing to mention to the buyer that a similar business is opening nearby.
By giving a warranty that is false, as Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 (below) illustrates, a person may engage in misleading or deceptive conduct even if they didn’t intend to mislead or deceive, and even if they haven’t engaged in any other false representations.
Henjo Investments Pty Ltd & Ors v Collins Marrickville Pty Ltd (1988) 79 ALR 83
tHe court: Full Court of the Federal Court of Australia
factS: Henjo owned a restaurant business. The local council had granted approval for the seating of 84 people. The liquor licensing authority prohibited seating or service in the bar area. After opening the restaurant, the seating was increased significantly and the bar area was used as a service area, all without approval. Collins entered into negotiations to purchase the business, and was told of the number of seats being used and shown the seating arrangements. Collins didn’t become aware of the lack of approval for the seating arrangements until after completion of the purchase. Collins brought proceedings claiming misleading or deceptive conduct.
iSSue: Should the officially approved seating arrangements have been made known when disclosing the actual seating arrangements?
DeciSion: Silence can constitute misleading or deceptive conduct when the circumstances give rise to a duty to disclose relevant facts. This duty to disclose is not negated merely because inquiries that would have disclosed the true position could have been made.
comment: By declaring how many seats were being used and demonstrating the seating arrangement, the vendor was disclosing only part of the factual situation. Remaining silent about the officially approved number of seats created an incorrect impression in the mind of the buyer about potential seating capacity and therefore, of course, what the potential profit could be from those extra patrons.
caSe reflection: When supplying informa-tion to a customer, should a business consider not only the accuracy of the information, but also how it might be interpreted?
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380 PART 3 LAW of CoNTRACTS
The position where there has been a part failure of consideration, rather than a total failure, has been remedied, at least in Victoria (Part 3.2 of the Australian Consumer Law and Fair Trading Act 2012) and in New South Wales (1978) and South Australia (1988) by the Frustrated Contracts Acts.
Application of Part 3.2 of the Australian Consumer Law and Fair Trading Act 2012 (Vic)Money paid under a contract that is subsequently frustrated is recoverable, but if the payee has incurred some expense in carrying out their obligations under the contract they are entitled to recover expenses for the work performed before the occurrence of the frustrating event. This adopts the effects of Fibrosa, and includes situations in which there has not been a complete failure of consideration.
For example, if A agrees to erect a factory for B for $100 000 payable on the date of completion, and just before completion the factory is completely destroyed by fire, under the old common law rules A would not recover anything because the obligation to pay fell due after the frustrating event. However, in Victoria, A would receive some satisfaction under the Australian Consumer Law and Fair Trading Act 2012, because the court must treat that part of the contract that is not frustrated as a separate contract (s 42) and calculate expenses for work performed (s 39) and an amount for benefits obtained by the parties (s 38). The court also has the power to allow amounts paid or payable to be recovered or paid where it considers it just to do so in all the circumstances (s 37).
Part 3.2 has no application if the parties have anticipated a frustrating event and introduced a term into their contract as to what will happen if such an event does occur, as in the common law position (s 41). The Act applies only where the parties don’t allow for the occurrence of a frustrating event in their contracts.
Application of the Frustrated Contracts Act 1978 (NSW)The New South Wales Act also adjusts the rights of the parties where a contract has been frustrated to ensure that any loss arising by frustration is shared equally between them (Pt 3). Any moneys paid before frustration must be repaid (s 12), as must any benefits a party receives from the actions of another party under the contract. Promises due but not performed because of the frustrating event are discharged (except where necessary to support a damages claim: s 7).
Application of the Frustrated Contracts Act 1988 (SA)The South Australian Act attempts to ensure that no party is unfairly advantaged or disadvantaged as the result of a frustrating event (s 7(1)), and to this end the court has been given wide powers to assure an equitable adjustment is achieved between the parties (s 7(2)). It combines the value of contractual benefits received and the value of contractual performance up to the date of frustration, subtracting the latter from the former and then notionally dividing the remainder between the parties equally. However, the Act is subject to any provision in the contract itself as to the consequences of frustration.
REvIEw QUESTIONS
14.3 A fishing company owned four trawlers of a type useful only if fitted with an otter trawl. The company then chartered a similar trawler, which increased the fleet size to five. To fit this type of trawl required the permission of the Minister of Fisheries. The company applied for five licences, but was granted only four. The company fitted the four trawls to four of the boats it owned, and then claimed that the charter of the fifth boat was now impossible and that the contract was at an end. Is the fishing company correct in its belief?
14.4 A ship was chartered to proceed ‘with all convenient speed’ from Liverpool. One of the terms of the agreement read: ‘ . . . all and every danger and accident of the seas excepted’. The ship left Liverpool but ran onto rocks the following day, and it was over three months before it could be towed off. After this was done, it was found that months of work would be needed before the ship would be seaworthy again. Was the contract frustrated despite the term in the contract regarding accidents at sea?
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■■ In-chapter Review questions provide an opportunity for students to test their understanding of key concepts and issues as they arise in a chapter, and also serve as a quick revision.
HOW TO uSE THIS BOOK
xiv
■■ At the end of every chapter there is material to engage, challenge and test students’ understanding of the area covered in the chapter. This includes:– Key terms with defi nitions to assist students’
understanding of the material—go to the glossary for a full listing of all key terms;
– Key points, which provide a summary of points and a good foundation for students to build their notes from; and
– Tutorial questions to encourage discussion and debate among students.
188 pART 3 lAw of ConTRACTs
KEY TERMSAn understanding of the following term will help you to better understand the material in this chapter.
Contract: an agreement containing promises made between two or more parties, with the intention of creating certain rights and obligations, which is enforceable in a court of law.
E-commerce: commerce by means of computer, the Internet and other telecommunication links such as electronic data exchange (EDI).
E-contract: a contract that is completed electronically, generally by email or sMs.
Electronic Transactions Acts: the Commonwealth and each state and territory have similar legislation which sets out rules to ensure that a transaction will not be invalid simply because it was conducted through electronic communication.
Rescission: an equitable, discretionary remedy that, if granted by the court to an innocent party, sets aside the contract and treats it as though it never existed.
Termination: where the innocent party brings the contract to an end and is discharged from any future obligations; this does not affect any obligations still outstanding at the date of termination.
KEY POINTSAn understanding of the following points will help you to better revise material in this chapter.1. What is the difference between a contract and an agreement? A contract is an agreement
containing promises made between two or more parties that create rights and obligations enforceable in a court of law. An agreement, on the other hand, is not legally binding because it lacks one or more of the six essential prerequisites that must be present for a legally enforceable contract.
2. What is the definition of a contract? A contract is an agreement containing promises made between two or more parties that create rights and obligations enforceable in a court of law.
3. What are the elements of a simple contract? Intention to create legal relations, agreement and consideration must be present for a simple contract to come into existence. note that there is no question of validity or otherwise at this point.
4. What is contractual validity? legal capacity, genuine consent and legality of objects will determine whether the simple contract is valid or not.
5. What is the difference between formal vs simple contracts? A formal contract is signed, sealed and delivered, and derives its validity from its form alone (it doesn’t need consideration). A simple contract requires no special formalities but does require the presence of all six elements (including consideration) and may be oral or written.
TUTORIAL QUESTIONS1. Why is it necessary today for some contracts to be wholly in writing and some contracts to be
evidenced in writing? Discuss.
2. What sort of problems may arise in contract law for users of e-commerce? Discuss.
3. In the purchase of a car, or for that matter anything of value, why is it important to check that the seller has a valid title in the goods? Discuss.
4. List three elements that are necessary for the creation of a valid simple contract.
5. Explain the difference between a formal and a simple contract.
6. Is an unaddressed proposal in an electronic communication to create a contract an invitation for others to make offers, or is it an offer which others can accept? Discuss.
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eduCator resourCes
A suite of resources provided to assist with delivery of the text, as well as to support teaching and learning.
Solutions ManualThe Solutions Manual provides educators with detailed, accuracy-verified solutions to the in-chapter and end-of-chapter questions in the book.
Test BankThe Test Bank provides a wealth of accuracy-verified testing material. Updated for the new edition, each chapter offers a wide variety of true/false, short-answer and multiple-choice questions, arranged by learning objective and tagged by AACSB standards.
Questions can be integrated into Blackboard or Moodle.
PowerPoint lecture slidesA comprehensive set of PowerPoint slides can be used by educators for class presentations or by students for lecture preview or review. They include key figures and tables, as well as a summary of key concepts and examples from the text.
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MyLab Business LawA GUIDED TOUR FOR STUDENTS AND EDUCATORS
Assignable contentEducators can select content from the Study Plan, Multimedia and/or Test Bank and assign to students as homework or quizzes.
Auto-generated Test and AssignmentsEach MyLabTM comes with preloaded assignments, all of which are automatically graded.
xviiMyLab Business Law
Study PlanA Study Plan is generated from each student’s results on quizzes and tests. Students can clearly see which topics they have mastered and, more importantly, which they need to work on.
Learning ResourcesTo further reinforce understanding, Study Plan and Homework problems link to the eText and additional learning resources.
MyLab Business Law www.pearsonmylabandmastering.com
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The tenth edition of Business Law continues to provide stu-dents of commercial or business law with an accessible and student-friendly but authoritative and comprehensive text-book. It provides extensive coverage of business law topics and considers the legal environment in which businesses must operate. Care has been taken to ensure that the text represents current law in all states and territories. Business Law will satisfy the requirements of most business or com-mercial law subjects throughout Australia.
This edition has retained the distinctive layout of the pre-vious nine editions. The learning aids, such as In brief, Business tips and Business risk management alerts, and the boxed cases and flowcharts continue to feature strongly throughout the text. More features of the text are as follows.
■■ The citation for Australian cases, where possible, is now in what is referred to as report-neutral form. The refer-ence to where the case may be found is not cited to a law report but rather to where it can be accessed online. Stu-dents often cannot access a law library or understand how to find a law report or statute easily. However, today they are so computer literate that it is easier for them to look up what they can online.
■■ Topic coverage has been increased in a number of areas to reflect changing needs in student understanding of how the law interfaces and interacts with business. For example, topic coverage has been increased and fine-tuned throughout the text.
■■ All cases now contain a Comments section after the decision, setting out points to note about the case and putting it into a context that will help to give business students a better understanding of where a legal princi-ple might perhaps have emanated from or how it applies to a particular fact situation.
■■ All cases also contain a Reflection question at the end of each case, asking students to think about the case and the decision, and to reflect on its importance and appli-cation to business.
The legal environment of businessBusiness Law presents topics that are traditionally part of business law courses.
Part 1—Legal Framework contains three chapters that introduce the student to the legal framework of business.
■■ Chapter 1 discusses what law is; the interface between business and law; its major characteristics; the major
sources and classifications of law; the origins of major sources of English law; the interface between Common-wealth and state powers and the role of the Australian Constitution; the division of powers under the Constitu-tion; the difficulty of changing the Constitution; the role of the High Court in federal expansion; and, finally, what the separation of powers is.
■■ Chapter 2 considers the role of the police and the courts within the Australian legal system; examines the court system within which the legal system operates at state and federal (including the features that make up a court hierarchy); the growth of e-technology in the courts; and the growth in alternatives to the courts, including alternative forms of dispute resolution, quasi-judicial tribunals and ombudsmen. The chapter con-cludes by providing an overview of the adversary system, the role of the various parties in it, and the role and growth of class actions.
■■ Chapter 3 begins by looking at where law comes from and how it can be found, as well how to correctly cite cases and statutes for essays or answers to problem questions. It then goes on to explain the importance of case law (the ratio decidendi and obiter dicta) and legal cases as precedent as sources of law within the Australian legal system. The final part of the chapter is devoted to statute law, its creation by parliaments, the rules of interpretation applied by the courts when doubts arise about the meaning of words or phrases applied to particular facts, and the intersection between international treaties and domestic law; and concludes with a brief overview of the growing impor-tance of delegated or subordinate legislation as a regu-latory tool by all levels of government on the community.
Part 2—Civil Liability To assist students’ understanding of tort law, and negligence in particular (as this is probably the most important area for business, although not the only tort relevant to business), the tort of negligence is consid-ered in the following two chapters. Chapter 22, an online chapter, contains further commentary on other areas of tort law that is of relevance to business.
■■ Chapter 4 begins by considering why an understanding of the law of torts is so important to business; the differ-ent types of tort actions; some of the general principles of tort law; the range of remedies available; the compen-sation available outside tort law; the importance of time
PreFaCe
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in terms of commencing an action; and the distinction between tort and criminal law, and tort and contract law. The chapter then moves on to examine the tort of negli-gence, and what an injured party or plaintiff needs to establish in order to have a cause of action in negligence—for the plaintiff, the elements of duty, breach and damage, and for the defendant, the issue of defences. The chapter concludes with a brief overview of what a successful plaintiff will recover if they win their case. It should be noted that the duty question aside, which is still based on the common law, the remaining elements of breach, damage, defences and remedies are all now based on the civil liability legislation (the Wrongs Act 1958 in Victoria).
■■ Chapter 5 then explores some of the areas of tort absorbed by negligence, including occupier’s liability, product liability, non-delegable duties and strict liability, product liability, defective structures, negligent misstate-ments, the liability of professionals, vicarious liability, non-delegable duties and strict liability, breach of statu-tory duty, and finally criminal negligence.
Part 3—Law of Contracts contains 10 chapters that cover the basics of the common law of contracts, although you will notice throughout this section numerous refer-ences to statutory intervention, principally in the form of the Australian Consumer Law (ACL). Without contracts, business and the community as we know them today would not exist.
Chapter 6 is an introductory chapter to contract law; Chapters 7 to 9 look at the elements that must be present for the creation of a simple contract; and Chapters 10 to 12 look at the elements that have to be satisfied for the simple contract that has been created to be valid. The approach that has been used is to divide up the creation of a valid simple contract into ‘steps’ to make it easier for the student to understand the basic principles involved in the formation of a contract, although in reality the courts very rarely openly use such an approach.
■■ Chapter 6 considers the sources of contract law, what elements need to be considered in the creation of a sim-ple valid contract, and the various ways in which a con-tract may be classified.
■■ Chapter 7 (agreement) considers whether there has been agreement between the parties to create a contract—has there been an offer and is there an acceptance?
■■ Chapter 8 (intention of the parties to create legal rela-tions) considers the element of ‘intention’—that is, do the parties intend to create a contract that is legally enforceable in a court of law?
■■ Chapter 9 (consideration) is the final step in the first part of the process in determining whether a contract exists, as it looks at the element of ‘consideration’—that is, what is the price paid to buy the other person’s promise? If agreement, intention and consideration are present and identifiable, a simple contract is said to exist.
Once a simple contract has been created, it is then nec-essary to see whether that simple contract is valid and enforceable. There is no particular order of importance in the following chapters, but they raise issues that need to be considered for the purposes of determining the ‘validity’ of the simple contract that has been created.
■■ Chapter 10 (capacity) considers the ability of the par-ties (including infants, corporations, bankrupts, the men-tally unsound and intoxicated persons, and married women) to fully understand what they have entered into (which may be termed their ‘capacity’ to understand what they are entering into).
■■ Chapter 11 (consent) considers what the consequences are if one or both of the parties say they have misunder-stood the situation (e.g. because of mistake, misrepresen-tation, duress, undue influence or unconscionability). Has an agreement been reached?
■■ Chapter 12 (legality) considers whether the purpose of the contract is legal. Is the contract illegal or void at stat-ute or common law?
Once it has been established that a contract exists:
■■ Chapter 13 (terms) considers what it is that the parties have agreed to (the ‘terms’ of the contract), and includes commentary on the impact of the ACL on the terms of a consumer contract. Strange as it may seem, it sometimes happens that what the parties think they have agreed to is not the same, and a dispute eventuates.
■■ Chapter 14 (rights and liabilities) considers the rights of the parties and also who is a party to the contract (an issue of privity), as well as whether the contract has been discharged by performance, agreement, frustration, operation of law or lapse of time or dissolved or breached by virtue of a term (depending on whether it is a con-sumer contract or not) such as a condition, warranty or consumer guarantee.
■■ Chapter 15 (remedies) considers the remedies that are available to the innocent party (i.e. the party not in breach) at common law (generally damages) and in equity (generally either specific performance to make a person carry out their contractual obligations or an injunction to restrain a party from breaking their con-tract) if the contract has been breached.
Part 4—Consumer Law contains two chapters. The pri-mary focus of this section is on consumer rights and protec-tion, the changes that have occurred as a result of the ACL and the referral by the states and territories of their con-sumer protection powers to the Commonwealth.
■■ Chapter 16 examines the interpretation of the implied statutory consumer guarantees and their application to contracts involving consumers. The position of non-consumers (i.e. businesses) is examined in Chapter 24. The ACL replaced the implied terms of condition and warranty found in the old state and territory [Sale of ]
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Goods Acts with non-excludable statutory guarantees, and extended the meaning of ‘sale’ by using the term ‘acquire’ instead. These terms were implied by the ACL into every contract for the sale of goods and services, and have expanded a consumer’s rights in the event of a supplier or manufacturer failing to comply with a con-sumer guarantee.
■■ Chapter 17 discusses the consumer protection provi-sions contained in the ACL in regard to prohibited unconscionable conduct, misleading and deceptive con-duct, and unfair trading practices. It also examines the new national regulation of consumer transactions, in particular unfair contract terms, unsolicited consumer agreements and lay-by agreements. The chapter exam-ines the national scheme for product safety, product information and product liability created by the ACL, and then outlines the new system for enforcement and rem-edies. The chapter concludes by providing a brief over-view of the role of the states and territories in the protection of consumers.
Part 5—Business Organisations and the Law contains four chapters covering the law of agency, companies, part-nerships and choosing a business entity.
■■ Chapter 18 examines the law of agency, the purpose of an agency and how it is created, the authority of the agent, the rights and duties of the agent and principal to each other, their liability to third parties, and how the agreement can be terminated.
■■ Chapter 19 examines one of the three most important forms of business ownership that exists in Australia today: the company. This chapter considers the essential characteristics of a company, the different types of com-pany to choose from for business purposes, and the legal requirements related to the management and winding-up of the company. The chapter concludes by looking at one other form of incorporated body, the statutory asso-ciation, which is widely used by clubs and associations that want the protection offered by incorporation but are not trading bodies.
■■ Chapter 20 examines the second most important form of business ownership in Australia: the partnership. This chapter considers the essential characteristics of a partnership, how it is created, how it is distinguished from another similar entity (the joint venture), what the rights and liabilities of the partners are, as well as their duties and how a partnership may be dissolved and its assets distributed, and finally looks at what a limited liability partnership is.
■■ Chapter 21 examines which business entity is most suited to a particular business—that is, sole trader, part-nership, company, trust or franchise (including a com-mentary on the new Franchising Code of Conduct, which became effective from 1 January 2015). The chapter also includes a commentary on the National Register of Busi-ness Names.
There are also a number of online chapters that are available in an electronic format via MyLab Business Law.
■■ Chapter 22 examines some other business-related torts that are of growing importance to business. First are the intentional torts, including trespass, defamation and the economic or business torts (which protect business interests and include intimidation, interference with contractual relations, conspiracy, passing off, injurious falsehood, deceit and misrepresentation). The second group is probably a misnomer because it consists of only one tort: nuisance. It is concerned with indirect harm involving the use and enjoyment of land and takes three forms: public nuisance, private nuisance and statutory nuisance. Finally, there is a brief overview of what are known as the statutory torts and the new tort of invasion of privacy.
■■ Chapter 23 is concerned with insurance, a very impor-tant topic for businesses because they cannot operate without incurring some risk and sometimes subsequent loss. Insurance is a means for business to protect its assets against the risk of loss and obtain compensation where loss occurs. This chapter examines the concepts underlying insurance, the making and construction of the insurance contract, the law regarding agents and brokers, and some common forms of business insurance.
■■ Chapter 24 examines the statutory rules that business has to operate under involving the sale of goods. The two earlier chapters on consumer protection (Chapters 16 and 17) largely focused on the rights of the consumer. This chapter considers how the contract is formed, the importance of the distinction between property (or own-ership) and possession, the different classifications of goods, the transfer of title, how the contract may be per-formed, and the remedies for breach by either party. The chapter concludes by briefly examining what the legal position of the parties is when they are in different coun-tries (the Vienna Sales Convention).
■■ Chapter 25 begins by looking at the distinction between real property (or realty) and personal property. It includes a reference to the very important Personal Property Secu-rity Act 2009 (Cth). It also considers interests in land and how ownership and possession may be obtained, the mortgaging and leasing of land, and the rights and duties of residential and commercial landlords and tenants.
■■ Chapter 26 looks at a completely different kind of ‘property’ right called intellectual property, such as pat-ents, designs, copyrights and trade marks. As you will see when you read this chapter, it is a particularly important area for business because the failure to protect and manage its intellectual property can mean the difference between success and failure.
■■ Chapter 27 briefly discusses business ethics and morals, and emphasises the idea that ‘just because it is legal, that does not make it right’. The concepts of ethics and mor-als are considered in the context of the law, with refer-ence to several ethical theories.
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■■ Chapter 28 discusses the criminal law aspects of business relationships. It considers white-collar crime as well as examples of criminal offences created by the various stat-utes referred to in the book. ‘Chain of responsibility’ legisla-tion and its impact on management are also considered.
■■ Chapter 29 examines the operation and administration of the restrictive trade practices provisions contained in Part IV and VII of the Competition and Consumer Act 2010 (Cth) on businesses. The aim of these parts of the Act are to strengthen competitiveness of private enterprise at the various levels of production and distribution of indus-trial and consumer goods and services for the benefit of consumers and business in general. As a result of these aims, the Act has enormous importance for business.
■■ Chapter 30 looks briefly at the process of debt recovery in the lower courts before examining personal bank-ruptcy in detail, and the liquidation, administration and receivership of companies. It includes a reference to the Personal Property Security Act 2009 (Cth).
■■ Chapter 31 begins by considering whether a person is an employee or an independent contractor, and why the distinction is important, before explaining how a con-tract of employment is formed, and what are the rights and duties of the employer and the employee. The chapter then considers aspects of the work environ-ment, including the Fair Work Australia Act 2009 (Cth), the issue of discriminatory behaviour in the workplace and the new national work health and safety regimen.
The following chapters are available on demand:
■■ Chapter 32 looks at an area that is becoming very important for business. This is the area of electronic commerce, and this chapter examines some of the issues confronting business, including the electronic transac-tions legislation and electronic contracts, the legal aspects of maintaining a business website (and the juris-dictional problems that raises), and the issues of privacy, cybercrime and electronic banking.
■■ Chapter 33 looks at the different methods that are used to pay for goods or services (i.e. bills of exchange, cheques and credit/debit cards). The purpose and operation of the Financial Transaction Reports Act 1988 (Cth) is also examined.
■■ Chapter 34 examines consumer credit under the new National Credit Code and privacy. It includes a reference to the Privacy Amendment (Enhancing Privacy Protection) Act 2012 (Cth).
■■ Chapter 35 begins by examining the connection between business and ethics before looking at aspects of marketing law, including the marketing mix and the legal factors impacting on marketing, and concludes by looking a the ethical and legal requirements for advertising in Australia.
Business applicationMany business law textbooks take a legalistic approach to presenting legal topics to business students. A common comment from students in business courses is: ‘Why are we studying law? We aren’t going to be lawyers. If we need legal help or advice, we will go and see a lawyer.’ While this statement is partly true, the reality is that an awareness of one’s legal rights and a general knowledge of the law are important in business today. Regulators who make and enforce the law, such as the ACCC, assume that both indi-viduals and companies have an understanding of the legal processes that impact on their business. This book recog-nises that what is important to students studying commer-cial or business law is the application of court decisions, statutes and government regulation to both business and their daily lives.
There are a number of features that have been incorpo-rated into Business Law that will demonstrate the applica-tion of law and government regulation to the business environment.
There are many features in the book that are designed for your benefit. These features are tools to help make your learning more effective and to help you to see the relevance of the book’s content to your life and work. I strongly suggest you spend some time reading ‘How to use this book’, on pp. xi–xiv, to get the most out of your text and MyLab Business Law.
AcknowledgmentsPearson Australia and I are indebted to the many known, and anonymous, academics who were surveyed or inter-viewed, and provided feedback in the planning, develop-ment and production stages of this new edition. Your input has ensured that this edition retains all the hallmarks of earlier editions, but is now a true collaborative effort ensuring we put the business law student, and the busi-ness perspective, at the centre of this new re-launched edition.
I would be grateful for any further comments or sugges-tions from teachers or students concerning Business Law. Your feedback will improve future editions.
You can contact me at the email address below (and, yes, you will get a reply as I do appreciate the input).
Andy Gibson [email protected] 2017
PREFACE
