Essential Australian Management Law (Australian Essentials Series)

ESSENTIALMANAGEMENT LAW

Second Edition

CPCavendishPublishing(Australia)

Pty Limited

Sydney • London

Titles in the series:

Essential Administrative LawEssential Australian LawEssential Company Law

Essential Constitutional lawEssential Contract LawEssential Criminal Law

Essential Equity and TrustsEssential Evidence

Essential Family LawEssential International Trade Law

Essential Management LawEssential Professional Conduct: Legal Accounting

Essential Professional Conduct: Legal EthicsEssential Tort Law

ESSENTIALMANAGEMENT LAW

Second Edition

Michael A Adams, BA (Hons), LLM, FCIS, MACE,

Professor, Faculty of Law, University of Technology, Sydney

General EditorProfessor David Barker

Dean of the Faculty of Law,University of Technology, Sydney

CPCavendishPublishing(Australia)

Pty Limited

Sydney • London

Second edition first published 2001 by Cavendish Publishing(Australia) Pty Limited, 3/303 Barrenjoey Road, Newport, New SouthWales 2106Telephone: (02) 9999 2777 Facsimile: (02) 9999 3688Email: [email protected]

Cavendish Publishing Limited, The Glass House, Wharton Street,London WC1X 9PX, United KingdomTelephone: +44 (0)20 7278 8000 Facsimile: +44 (0)20 7278 8080Email: [email protected]: www.cavendishpublishing.com

© Adams, MA 2001First edition 1997Second edition 2001

All rights reserved. Except as permitted under the Copyright Act 1968(Cth), no part of this publication may be reproduced or transmitted inany form or by any means, electronic or mechanical, photocopying,recording or otherwise, without the prior permission of the publisherand copyright owner.

Any person who infringes the above in relation to this publicationmay be liable to criminal prosecution and civil claims for damages.

National Library of Australia Cataloguing in Publication Data

Adams, MichaelEssential management law – 2nd edIncludes index1 Commercial law – Australia 2 Corporation law – AustraliaI Title II Title: Management law (Series: Essential series)346.9407

ISBN 1 876213 16 7Printed and bound in Great Britain

Foreword

This book is part of the Cavendish Essential Series. The books in theseries constitute a unique publishing venture for Australia in that theyare intended as a helpful revision aid for the hard-pressed student.They are not intended to be a substitute for the more detailedtextbooks which are already listed in the current Cavendish catalogue.

Each book follows a prescribed format consisting of a checklistcovering each of the areas in the chapter, and an expanded treatmentof ‘Essential’ issues looking at examination topics in depth.

The authors are all Australian law academics who bring to theirsubjects a wealth of experience in academic and legal practice.

Professor David BarkerGeneral Editor

Dean of the Faculty of Law, University of Technology, Sydney

v

Preface

Before one can start studying management law, there are somefundamental questions that have to be asked, such as: ‘Why domanagers need to study law?’

There is no simple answer, but it is true that law is the basis of oursociety. All business managers have legal responsibilities andobligations. The failure to comply with these laws may result in a civilliability or a criminal prosecution, or perhaps even both! Awareness ofthe potential risks and pitfalls is essential to all business managers. Infact, a good knowledge of the law can enable a manager to act in a pre-emptive or proactive way and thus give an efficient response tocommon problems.

No one expects business managers to attempt to become lawyers,but there is a clear need to be able to communicate effectively with thelegal profession. A fundamental grounding in management law willbring to a manager’s attention the most common legal issues and howthey may be resolved. To gain a real insight into how to use the law, itis paramount to understand the framework of Australian law and themany sources of law which directly affect managers’ decisions.Throughout this book, both cases and legislation support all principlesof law. It is worth noting that these are only examples and the law is adynamic subject which regularly changes. The cases or statutes canbecome quickly out of date or surpassed by new cases or amendmentsto legislation (just look at the amount of tax law that exists inAustralia!).

However, the main principles tend to be consistent and the courtsmerely refine the principles to changing circumstances. Keeping up todate with the changes is a great problem for everyone, and access to areporting service such as Butterworths Current Law Reporter andLegislation is very useful and can save the day. Many specialist areasof law have their own looseleaf services. These services involve thesubscriber being sent updated pages every few weeks by the lawpublishers, such as Butterworths, CCH Australia, Time Base and LBCInformation Services. Many of the law publishers produce CD-ROMsand also update their legal materials on the internet.

Once it has been agreed that managers should learn about the law,the next question must be: ‘What laws need to be studied?’

vii

This will be a subjective question, but, from my experiences ofteaching and practising management law, there are some commontopics which managers regularly come into contact with during theirbusiness lives. One key area that is not covered by this book istaxation. The role of personal tax and corporate tax may always affectthe outcome of any decision and careful professional advice should besought first.

The main topics included in this book are:

• Australian legal systemcovering the framework of Australian law the classification of lawsand the court system.

• Alternative business structures covering all types of businesses from sole traders to companies;focusing on the basic principles of corporations law.

• Contract law covers the main elements that are common to all businesses before,during and after a contract is made.

• Consumer protection covers a number of laws including the tort of negligence and theTrade Practices Act.

• Employment law is a wide topic which every manager must have a basic grasp of, toinclude the contract of employment from before an interview untilretirement.

• Intellectual property covers the legal protection of business ideas by copyright,trademarks and other available legal devices.

Within a short book it is not possible to cover all the topics in anydepth, but it is possible to essentially pick over the bones of the mostrelevant areas of law and agree on achievable aims. These can besummarised as:

• to understand the fundamental legal responsibilities imposed uponall business managers;

• to develop an ability to effectively communicate with lawyers byunderstanding the technical jargon; and

viii

ESSENTIAL MANAGEMENT LAW

• to obtain an awareness of the current legal issues and potential legalrisks faced by business managers.

For a more detailed analysis of these areas, I would recommendreviewing any one of the following textbooks:

Latimer, P, Australian Business Law, 20th edn, 2001, Sydney: CCHAustralia.

Turner, C, Australian Commercial Law, 23rd edn, 2001, Sydney: LBCInformation Services.

Vermeesch, R and Lindgren, K, Business Law of Australia, 10th edn,2001, Sydney: Butterworths.

At the end of each chapter, there is a further reading section, whichincludes references to these leading textbooks and other useful specialist books, articles and internet sites.

Michael A AdamsFebruary 2001

ix

PREFACE

Acknowledgments

Essential Management Law is derived from a variety of sources andinspirations since 1989. The materials were first developed for aKuring-gai College of Advanced Education (Sydney, Australia)undergraduate subject entitled ‘Law and the Manager ’. In 1990,Kuring-gai College became a campus of the University of Technology,Sydney and the subject was continued by the Faculty of Law. At thesame time, the Australian Institute of Management and the Centre forManagement Studies (now called the Executive Development Unit) atUTS commissioned a three day course in management law.

The original materials of this book have been exposed toundergraduate business students, postgraduate law students andmanagers studying professional management. Thus, these materialshave been evolving over the last 10 years and have been aided by theinput of other staff, such as Dr David Meltz (UTS) and Michael Flynn(ANU), as well as the many students who added so much value to mylearning. I would like to extend a particular thank you for the researchassistance by Jeremy Green at UTS.

However, the biggest inspiration for the book and my life is mywonderful wife, Melissa, and my delightful daughters, Lucy andJessica. This book is finally dedicated to my mother in England, Jean,and my late father, John.

xi

Contents

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vPreface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viiAcknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiTable of Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv

1 Australian Legal System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

2 Alternative Business Structures . . . . . . . . . . . . . . . . . . . . . . . . . .21

3 Contract Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

4 Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51

5 Employment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63

6 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

xiii

Table of Cases

AMP v Chaplin (1978) 52 ALJR 407; (1978) 27 LJMC 207 65, 66

ANZ Bank case, See R v Portus—AWA Ltd v Deloitte, Haskins and Sells

(1992) 7 ACLR 759; (1992) 10 ACLC 933 15, 33Adami v Maison de Luxe Ltd (1924) 35 CLR 143 72, 75Agriculturist Insurance Co, Re

(1870) LR 5 Ch App 725 (Baird’s case) 23Airfix Footwear Ltd v Cope (1978) IRC 1210 66Ankar Pty Ltd v Natwest Finance (Australia) Ltd

(1987) 61 ALJR 245 43 , 44Ansell Rubber Pty Ltd v Allied Rubber

Industries Ltd [1967] VR 37 73, 76, 93Ansett v Wardley (1980) 28 ALR 449;

(1980) 142 CLR 237 81Apple Computer Inc v Computer Edge Pty Ltd

(Wombat Case) (1986) 60 AILR 313 89Argyll v Argyll [1965] 1 All ER 611 93Associated Newspapers

v Bancks (1951) 83 CLR 322 43Australian Iron & Steel Pty Ltd

v Najdovska (1988) 12 NSWLR 587 81Australian National Airlines

v Robinson [1977] VR 87 77Australian Telecommunications

v Hart (1982) 43 ALR 165 75Autodesk v Dyason (1992) 2 AIPC 90-855 89

Bali Brassiere Co Inc’s Trade Mark, Re; Berli Ltd’s Application, Re (1968) 42 ALJR 310 (Bali Bra case) 95

Balmain New Ferry v Robertson (1906) 4 CLR 322 46

xv

BHP v Federation of Iron Workers Association (1976) AILR 255 75

Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 72Bollinger v Costa Brava Wines [1961] 1 WLR 277 92British Broadcasting Corporation

v Ioannou [1975] 1 QB 781 68Buckley v Tutty (1971) 125 CLR 3533 77Burnie Port Authority v General Jones Ltd

(1994) 179 CLR 520 56

Cadbury-Schweppes v Pub Squash (1981) 32 ALR 387 92

Central London Property Trust v High Trees Ltd [1947] KB 130 41

Chan v Zacharia (1984) 154 CLR 178 24Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd

(1991) 24 NSWLR 1 42Coco v Clark Ltd (1969) RPC 41 902Codelfa Construction Pty Ltd v State Rail

Authority NSW (1982) 41 ALR 367 44Colgate Palmolive Pty Ltd v Rexona Pty Ltd

(1981) 58 FLR 391 57Collier v Sunday Referee Publishing

[1940] 2 KB 647 77Commonwealth of Australia v John Fairfax

(1980) 147 CLR 39 89, 93Corporations Act (NSW v Commonwealth), Re

(1990) 169 CLR 482; 90 ALR 355 2, 27Csomore v Public Service Board of New South

Wales (1986) 10 NSWLR 587 77

Dao v Australian Postal Commission (1987) 162 CLR 317 79

Darlington Futures v Delco Australia Pty Ltd (1986) 68 ALR 385 46

Department of Health (Vic) v Arumugam [1988] VR 319 81

xvi


Dietrich v Dare (1980) 30 ALR 407; 54 ALJR 388 67Donoghue v Stevenson [1932] AC 562 9, 55Drake Personnel v Beddison [1979] VR 13 74

E v Australian Red Cross Society (1991) 105 ALR 53; (1991) 27 FCR 310; (1992) ATPR 41-085 57

Eastman Photographic v Kodak Cycle Co (1998) 15 RPC 105 96

ESSO Petroleum Co Ltd v Mardon [1976] 2 WLR 583 41

Faccenda Chicken v Fowler [1986] 1 All ER 617 76Fletcher Challenge Ltd v Fletcher Challenge

Pty Ltd [1981] 1 NSWLR 196 92Forrest v John Mills Pty Ltd (1970) 121 CLR 149 79Fraser v NRMA Holdings Ltd (1995) 15 ACSR 590;

(1995) 127 ALR 543 15, 36, 57Fraser v Thames Television [1983] 2 WLR 913 93

Gambotto v WPC Ltd (1995) 16 ACSR 1; (1995) 182 CLR 432; (1995) 127 ALR 417; (1995) 13 ACLC 342 34

Gapes v Commercial Bank (1980) 37 ALR 20 77Given v CV Holland (Holdings) Pty Ltd (1977) 29 FLR 212 58Green v Bestobell (Industries) Ltd [1982] WAR 1;

(1981) 1 ACLC 1 34, 35, 75, 76

Hadley v Baxendale (1854) 9 Exch 341 48Hartnell v Sharp Corporation of Australia Pty Ltd

(1975) 5 ALR 493; [1975] 1 ATPR 40-003 58Hawkins v Clayton [1988] 62 ALJR 240;

(1988) 164 CLR 539 25Hedley Byrne & Co Ltd v Heller & Partners Ltd

[1964] AC 465 56Hill v Water Resources Commission (1985) 14 IR 158 81

xvii

TABLE OF CASES

Hivac Ltd v Park Royal Scientific Instruments [1946] Ch 169 76

Hochster v De La Tour (1853) 2 E & B 678 45Holly Hobbie Trade Mark, Re

[1984] 1 All ER 426; [1984] 1 WLR 189 96Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen

Kaisha Ltd [1962] 2 QB 26; 1 All ER 474 44Hospital Products v United States Surgical

Corporation (1984) 58 ALJR 587; (1984) 156 CLR 41 25, 34

Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 41

Impact Datascape Pty Ltd v MacIntosh (1991) 3 ACLR 49 40

Initial Services v Putterill [1967] 3 All ER 145 76Interstate Parcel Pty Ltd (Angus & Robertson

Books) v Time-Life (1977) 15 ALR 353 90

Jarvis v Swan Tours [1973] 3 WLR 954 48

Keech v Sandford (1726) 25 ER 223 34King Features Syndicate v Kleeman

[1941] AC 416 (Popeye case) 91Kinsela v Caldwell (1975) 132 CLR 458 24

L’Estrange v Graucob [1934] 2 KB 394 46Lavers v Foothills Water Co (1881) 28 SASR 584 44Laws v London Chronicle Ltd [1959] 2 All ER 285;

[1959] 1 WLR 514 73, 75Leaf v International Galleries Ltd [1950] 2 KB 86 41Liebeck v McDonalds Corporation (1994) 10Lister v Romford Ice & Cold Storage Ltd

[1975] AC 555 64, 73, 75

xviii


McDonalds v McWilliams (1980) 49 FLR 455; (1980) 28 ALR 236 (Big Mac case) 57

McLean v Tedman (1984) 155 CLR 306 79Mabo v Queensland (No 2) (1992) 175 CLR 482 2Macrea Knitting Mills v Lowes (1936) 55 CLR 725 97Mallard v Bunge Pty Ltd (1981) 23 AILR 10 68Mallinson v Scottish Australian Investment Co Ltd

(1920) 28 CLR 66 75, 77Mersey Docks and Harbour Board v Coggins and

Griffiths Ltd [1947] AC 1 66Miller v Fiona’s Clothes Horse of Centrepoint

Pty Ltd (1989) ATPR 40-973 47, 58Mirror Newspapers v Queensland Newspapers

[1982] Qld R 305 89Moorcock, The (1889) 14 PD 64 44Moorgate Tobacco v Philip Morris

(1984) 56 ALR 193 (Golden Lights case) 87, 92–94

NRMA v Parker (1986) ACLC 609; (1993) 11 ACSR 370 30

National Safety Council, Re (1991) 33New South Wales v Commonwealth of Australia

(1990) 169 CLR 482; 90 ALR 355 2, 27Nordenfelt v Maxim-Nordenfelt Gun Co

[1894] AC 535 74

O’Callaghan v Commissioner of Main Roads [1983] 3 NSWLR 89 81

Orr v University of Tasmania [1956] Tas SR 155 73Ottoman Bank v Chakarian [1930] AC 277 78

Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 3 All ER 16; [1971] 2 QB 711 31

Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd (1993) 44 FCR 485 52

xix

TABLE OF CASES

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 56

Passive Smoking Case, Re (1991) 15Percival v Wright [1902] 2 Ch 421 32Polkinghorne v Holland & Whitington

(1934) 51 CLR 143; (1934) 40 ALR 353 23Pupazzoni v Fremantle Fishermen’s Co-operative

(1981) AILR 168 78

R v Byrnes; R v Hopwood (1995) 17 ACSR 551; (1995) 130 ALR 529 35

R v Portus ex p ANZ Banking Group Ltd (1972) 127 CLR 353 67

R v Walker (1858) 6 WR 505 65Ready Mix Concrete (South East) Ltd v Minister

for Pensions and National Insurance [1968] 2 QB 497 66

Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 34Robb v Green [1895] 2 QB 315 75Rylands v Fletcher (1868) LR 3 HL 330 56, 61

Salomon v Salomon & Co Ltd [1897] AC 22 26Samuel Taylor Pty Ltd v Registrar of Trade Marks

(1959) 102 CLR 650 95Schular (L) AG v Wickman Machine

Tools Sales Ltd [1973] 2 WLR 683 43Sellars & Poseidon Ltd

v Adelaide Petroleum NL (1994) 60Shaddock & Associates Pty Ltd v Parramatta

City Council (1981) 150 CLR 225 56Sharah v Healey [1982] 2 NSWLR 233 74Sheiban v Hall (1989) (unreported) 82Smith & Fawcett Ltd, Re

[1942] Ch 304; 1 All ER 542 33, 34State Bank of South Australia

v Marcus Clark (1996) 19 ACSR 606 33–35

xx


Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405 36

Stoneman v Lyons (1975) 133 CLR 550 64Sydney City Council v West (1965) 114 CLR 481 46

Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 57

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 46Thorpe v South Australia Football League

(1974) 10 SASR 17 71Timber Engineering v Anderson

[1980] 2 NSWLR 488 31, 73, 75, 76

United Dominion Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 23, 25

University of NSW v Angus & Robertson (1975) 6 ALR 193 91

Vabu Pty Ltd v Federal Commissioner of Taxation (1996) 96 ATC 4898; (1996) 33 ATR 537 64

Watkin, Re (1999) 163 ALR 270; [1999] HCA 27 14, 27Walford v Miles [1992] 2 WLR 174 42Walton Stores Ltd v Maher (1988) 76 ALR 513;

(1988) 164 CLR 387 41, 42Warnink v Townsend [1979] AC 731 (Advocaat case) 87, 92White & Carter (Councils) Ltd

v McGregor [1962] AC 413 45Whitehouse v Carlton Hotel Pty Ltd

(1987) 162 CLR 285; (1987) 70 ALR 251; 11 ACLR 715; 5 ACLC 421 34

Wik Peoples v Queensland (1996) 187 CLR 1 2Williams v Printers Trade Services

(1984) 26 AILR 10-170; (1984) 7 IR 82 73Wilson & Clyde Coal Co Ltd v English [1938] AC 57 79

xxi

TABLE OF CASES

Zaravinos v Dairy Farmers Co-op Ltd (1985) 7 FCR 195 55

Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561 66

xxii


1 Australian Legal System

Introduction

It is absolutely essential that the above areas be understood beforecommencing on any substantive topics of law, such as contract or tradepractices.

Framework of Australian law

Australian law, historically, has been based upon the adoption of theEnglish statutory and common law. However, since 1901, thefederation of the Commonwealth of Australia has resulted in thedevelopment of a separate body of law being formed. The legal systemof Australia is still based upon a common law system, with its rootsderived from the English system of the rule of law. That is, laws mustconform to a minimum standard of fairness in content and procedure.Professor Dicey, during the 19th century, formulated that the law hasabsolute supremacy over governments. Official actions must be donein accordance with the law and no person can be punished unlessthere is a breach of the law. For this to work the laws must bepublished, public and available. Naturally, all people are to be equalbefore the law and the rights of citizens must be enforceable through

1

You should be familiar with the following areas:

• The framework of Australian law• The classifications of business laws• The classification of legal actions and processes• The choice of remedies and sanctions• The court system• The dispute resolution system

the courts. The rule of law is also connected to the concept of theseparation of powers within the constitution. The legislature, theexecutive and the judiciary should be kept apart to enable the rule oflaw to operate effectively.

New laws should only be introduced after a full examination of theproblems that have arisen. Only then should either the State/Territoryor federal parliaments make laws in accordance with the AustralianConstitution. The Constitution, at present, is in fact contained withinone section (s 9) of an English Act of Parliament entitled theCommonwealth of Australia Act 1900. However, for practical andlogistical reasons, the judiciary today develop many of the laws. Thedoctrine of precedent requires that the superior courts bind the lowercourts. Thus, a case on specific points of law and facts may beappealed through many courts. The final decision is not only bindingon the parties involved but also on others in a similar position.

A large number of Australian cases contain questions relating tothe State/Territory or federal jurisdiction. This was clearly illustratedin the case of Re Corporations Act (NSW v Commonwealth) (1990), wherethe purported Commonwealth company laws were challenged in theHigh Court of Australia. The High Court held (by six justices agreeingand one dissenting) that the Commonwealth did not have the powerto incorporate companies under the Constitution. This virtually hadthe affect of invalidating the legislation and resulted in many peculiaramendments becoming necessary. It is essential that managers areaware of the various jurisdictional problems that can arise and theproblems that can arise if the wrong laws are applied. The High Courtcases of Mabo v Queensland (1992) and the Wik People v Queensland(1996) illustrates how judges can actually make the law rather than justinterpret it. Politicians have tried passing legislation like the NativeTitles Act 1993 (Cth) to solve some of these judicial developments.These decisions are still causing a great deal of debate within the widercommunity, as well as in the business community.

Classification of business laws and processes

There are a variety of ways to classify business law; all have theirmerits and the terminology employed by the classification is of greatlegal importance. Many managers can be confused by the peculiarlanguage used by lawyers or can allow their own backgroundknowledge to mislead them.

2


The major classifications include:

• sources of law;• legal subjects;• civil and criminal classifications.

Sources of law classification

The first classification relates to the various sources of law. Thisexplains where the rules and regulations are derived from and oftenhave more than one definition to each term.

• Common lawThis has two distinct meanings. Common law usually means thesame as case law, that is laws developed by judges over time andis referring to a system of law. However, common law can alsohave a technical meaning, in that it is a specific type of lawdeveloped from the UK in 1066. Common law subjects includecontract and the law of tort and common law remedies includedamages.

• EquityIn its simplest form, equity means fairness and justice and relatesto a system of law that was developed to redress the problems ofthe common law in the UK in the 14th century. It was a distinct areaof law, with different courts and different remedies, but in the last100 years has been amalgamated with the common law. Equity isbased on a series of principles known as ‘maxims’. Equitablesubjects include trust law and fiduciaries and equitable remediesinclude injunctions and account of profits.

• LegislationThis has a wide definition to cover Acts of parliament, which arealso called statutes. It is worth remembering that Australia has sixStates, two Territories and the Commonwealth and all these, haveparliaments that can pass legislation. The Australian Constitutiongenerally dictates which parliament can pass which type of lawsand in recent times the powers of the Commonwealth Parliamenthave grown at the expense of State/Territory rights to make laws.This is particularly evident in the area of industrial relations andemployment law.

3

AUSTRALIAN LEGAL SYSTEM

• Delegated legislationEach parliament in Australia does not have the time or thetechnical expertise to debate all points in respect of any newlegislation. Thus, it has become essential that each parliamentpasses an ‘enabling act’ which authorises other bodies to makedelegated laws. Examples include local authorities passing localby-laws or statutory authorities like the Australian Securities andInvestments Commission passing corporate regulations. Theseregulations and by-laws are now generally required to have a‘sunset clause’ inserted requiring them to be reviewed every fewyears for their value and validity. It is sometimes very hard formanagers (and even lawyers) to keep up with all the newregulations being produced by government departments andauthorities!

• International treatiesAustralia is a signatory to a number of international treaties thatrequire Australia to amend its legislation to come inline with theinternational guidelines. International treaties do not have a directlegal impact on Australia, but the governments are under anobligation to comply with all treaties, even if it overridesindividual State rights. Examples include treaties that covercopyright, shipping, human rights and the environment.

Legal subjects classification

This is not an exhaustive list of legal subjects, but it does represent themost frequently used subject headings that managers are likely tocome in contact with:

• TortFormally defined as ‘a civil wrong with the common law remedyof unliquidated damages’. It is a general heading for a number ofcivil (rather than criminal) legal actions, that include negligence,deceit (fraud), defamation (libel and slander) and trespass (personand property). A breach of a tort can give rise to damages that areset by the court and could be $1 nominal damages or multimillionsof dollars, depending upon the damage caused or suffered. Thetort of negligence is now the biggest type of civil action inAustralia.

4


• ContractIn its simplest form it is a legally binding agreement between twoparties. Contracts define the legal relationship between two partiesand usually require one party to perform a service or produce anddeliver a product in exchange for consideration (value, such ascash). However, contracts may be very simple (oral statements) orrequire hundreds of pages of carefully drafted terms andconditions. It is essential that all managers have a fundamentalunderstanding of the law of contract.

• CrimeMost criminal offences are laid out in the Commonwealth CrimesAct 1914 (and there are State/Territory equivalents) and theCriminal Code Act 1995 (Cth). They range from serious crimes,such as murder, to minor offences, such as parking tickets. White-collar crime (fraud and crime within the workplace) has become amultimillion dollar problem. Managers should be aware of whocan investigate (who has jurisdiction in your office, such as thefederal police, the State police, the Australian Securities andInvestments Commission or the Australian Taxation Office) andwho may prosecute a particular criminal offence.

• Trade practicesThis is probably the most important area of commercial law inAustralia and involves the Trade Practices Act 1974 (Cth) and itsState equivalents for how businesses may operate. In particular itregulates consumer contracts, advertising and competition laws. Aserious breach can result in a multimillion dollar fine for acompany and personal liability for its officers, as well as civilactions for compensation. The Australian Competition andConsumer Commission has been extremely vigilant to enforcetrade practices issues relating to the new Goods and Services Tax(GST).

• AgencyThe relationship between a principal and agent is important inbusiness and in law. The agent is acting on behalf of the principalto arrange a contract with a third party and the agents have anumber of powers and rights to make this occur. The agent mayalso be an employee acting on the instructions of a company that isthe principal. When dealing with agents, the third party shouldalways know what authority the agent has to be able to bind theprincipal.

5


• EnvironmentalIn the last ten years there has been a major growth inenvironmental laws that cover a number of areas, such as buildingsrequirements, air pollution, green-house effect and hazardouswaste.

• Intellectual propertyThe goodwill of a business is often linked to its intangible assets,such as branding, copyright, patents, trademarks and common lawconfidentiality. Intellectual property covers all the areas thatprotect business ideas, whether they need to be registered or not.

• EmploymentAll managers will have to employ employees and contractors atsome point and the law covers common law contract principles, tounion awards and statutory minimum terms in industriallegislation, such as the Workplace Relations Act 1996 (Cth) and itsState equivalents. Within the area of employment law, there are anumber of specialist areas that have grown in their own right, suchas discrimination law and occupational safety.

• Corporate lawThis involves the rules and regulation that control how companiesare legally able to operate and in particular the duties andresponsibilities of company officers, such as directors, executivesand the company secretary for both public and proprietarycompanies.

There are other law subjects, but they tend to be very specialist andonly relate to a particular industry, such as health law or maritime law.For a general overview of any law topic, the starting place should beHalsbury’s Laws of Australia, published by Butterworths, which is thelegal encyclopedia. Alternatively, Laws of Australia, published by LBC,is also a valuable legal encyclopedia.

Civil and criminal classification

Most of the legal subjects classified above can also be classified intocivil or criminal law. The consequences of a subject being defined ascivil or criminal have an impact on who can bring the legal action(plaintiff or prosecutor) and what remedies or sanctions may besought.

6


The following table helps to distinguish between the two types:

Some subjects are purely civil and some are purely criminal, but mosthave both civil and criminal elements. Contract and tort are primarilycivil subjects and crimes are obviously criminal. However, within atopic like employment law, the actual contract is civil, but an accidentat work may result in a criminal prosecution for occupational healthand safety, and a civil claim for workers’ compensation. The defendantmay dispute all legal actions and there are various defencesestablished by the law. The easiest way to defend an action is to showthat the prosecution (in a criminal case) or the plaintiff (in a civil case)has not proved all the elements of the action. The proof required in acivil case is based upon the concept of proving the law on the balanceof probabilities. Whereas, in a criminal case the prosecution must be ableto prove the law beyond reasonable doubt and often to a judge and juryrather than just a judge.

A further point worth noting is that civil actions must becommenced within a specified time. In contract, actions must bebrought within six years of the breach (by virtue of the Limitation Act1969 (NSW or State equivalent)) or 12 years if it is under a deed. Equitydoes not impose a fixed time limit on commencing actions, but adoctrine of laches (based on the equitable maxim that ‘delay defeatsequity’) has developed. Thus, if an equitable action is not broughtwithin a reasonable time, an equitable remedy may be denied. Theactual method of classification is not actually that important, but it isessential to be aware of the differences because it may directly affectthe type of actions and remedies that can be followed by a manager.

7


Civil law subjects Civil and criminal Criminal

Contract Trade practices Crimes

Tort Environmental Occupational

Employment Corporate law health and

Agency Intellectual property safety

Workers’ Discrimination

compensation

Legal actions and processes

The majority of business legal actions can be illustrated as follows:

• prosecutions;• suing for a breach of contract;• suing for a breach of tortious duty;• suing for a breach of statutory duty.

Prosecutions

Prosecutions are the name of the legal actions used to enforce acriminal offence. The police prosecutor, the Director of PublicProsecutions or a government agency or regulator (such as theAustralian Competition and Consumer Commission), usually bringsthem to court. Prosecutions can either be brought under the commonlaw or by a general criminal statute or a specific statute.

• Examples of general criminal statutes include: Crimes Act 1914(Cth), Crimes Act 1900 (NSW or other State/Territory), CriminalCode Act 1995 (which is bringing all the States in line).

• Specific statute: for example, a false representations as to goodsand services under s 53 of the Trade Practices Act 1974 (Cth) or theoffence of insider trading under s 1002G of the Corporations Law.

White-collar crime is a growing concern and the prosecutingauthorities, such as the Director of Public Prosecutions, the AustralianCompetition and Consumer Commission and the Australian Securitiesand Investments Commission, are all taking a hard line. In 1994 threefederal public servants were jailed for up to four years (with a non-parole period of 18 months) for defrauding the Commonwealth of$1.67 million. In 1995 it was stated that crimes against businesses werebelieved to be costing $7 billion a year by the Australian Institute ofCriminology. A further KPMG survey in 1999 claimed that fraudsagainst companies were accounting for up to $21 billion a year.

Plaintiff sues for a breach of contract

If a term in a contract (see Chapter 3) is broken and the innocent partywishes to enforce the contract, the plaintiff may sue for breach ofcontract. Depending upon how serious the breach is or what type ofterm has been broken, the plaintiff may claim damages or refuse tocomplete the contractual obligations (discharge of the contract). Thedamages are calculated on the actual losses incurred or the amount of

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damages it takes to place the innocent party in the position as if thecontract had been completed.

Plaintiff sues under a specific tort

The most common example of a tort being enforced is a plaintiff suingfor the tort of negligence. The plaintiff must prove a number ofelements to the action and these include that a duty of care was owedto you, that there has been a breach of that duty, there is an actionableloss that was foreseeable and that it was proximate. These principleswere originally established in House of Lords case of Donoghue vStevenson (1932) and have been applied many times since by theAustralian courts.

Plaintiff claims a breach of statutory duty

An Act of Parliament may impose a statutory duty on a person,business or government department and if the duty is not followed alegal action may be pursued. An example is where a plaintiffcommences an action for misleading or deceptive conduct under s 52of the Trade Practices Act 1974 (Cth). The court may award damages,injunctions or any other remedies that are specified under the statute.

Remedies

As well as being familiar with the different types of actions that can bebrought by a business manager, it is also logical to know the choice ofremedies that are available. The plaintiff is normally required tospecify the type of remedy that is required if the litigation is successful.The court normally retains the discretion to award an appropriateremedy.

Damages

There are various types of damages that a court can award:

• LiquidatedThe amount of damages to be awarded in the event of a contractualbreach is agreed upon in advance by the parties involved. Theagreed liquidated sum has to be a genuine calculation,representative of the expected loss and not a penalty clause (whichmay result in one of the parties not being able to breach thecontract).

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• UnliquidatedThe court sets the damages on the evidence provided as to actualloss or under the contractual or tortious principles developed bythe courts over time. Some unliquidated damages are determinedby statute indicating the level of damages, for example, in workers’compensation claims.

• NominalThe court awards a small amount of damages ($1) to represent thatthere has been a breach of the law, but does not try to compensatethe party for any real losses.

• CompensatoryThe court awards damages to put the plaintiff in the position as ifthe tort had not occurred or as if the contract had not beenbreached.

• PunitiveThe court may decide to award an additional amount of damagesto punish the defendant on the facts of the case.

In recent times, the amount of damages being ordered by the courtshas seemed to be amazing. For example, the spilt cup of McDonalds’hot coffee in the US in 1994 resulted in the plaintiff being awarded $3.6million. On appeal, the damages were reduced to $480,000: Liebeck vMcDonalds Corporation (1994). Even more alarming was the ExxonValdez oil spill in March 1989 which resulted in US $387 million indamages plus US $9 billion in punitive damages, on top of the US $2billion to clean up the spill, awarded in 1994.

Injunctions

These are discretionary court orders to prevent a party fromcontinuing with a particular activity. They may be awardedinterlocutory, until the time of a full trial or be issued as finalinjunctions until the court order is completed. It is contempt of courtnot to comply with an injunction and could result in a manager beingimprisoned.

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Specific performance

This is a discretionary court order to require a person to comply withan existing legal obligation. The court will not order specificperformance if the plaintiff could easily be compensated withmonetary damages or if it is impossible to enforce. Thus, an employeewould not be ordered back to work, as it would be impossible for thecourt to actually enforce such an order.

Account of profits

If a director, company officer or agent makes a financial profit out oftheir position (a breach of fiduciary duty), the court may order thatthose profits have to be transferred to the legal owner, such as thecompany or principal.

Constructive trust

The court may impose a trust on a party so that they hold property(money, goods, etc) on behalf of the real owner. Thus, if a bank holdscompany money but in the personal name of a director of thatcompany, the court could order the bank to hold the funds as aconstructive trustee and transfer the money to the company’s bankaccount.

Declarations

A court may be asked to interpret a contract or a statutory right of theparties and this declaration helps the parties determine questions oflaw. The parties can then resolve the factual issue outside the court,while having certainty on the legal issues provided in the declaration.

Rescission

This is an equitable remedy, which is used to return property to oneparty, so as to place the parties in the position as if there had neverbeen a transaction.

The court system and dispute resolution

All managers have to have a solid understanding of the Australiancourt system, the involvement of lawyers and what are the available

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alternatives. This next section briefly outlines the main issues thatmanagers in all States should be aware of. Please note that some of thenames are different in each State and this is purely a matter of history.

The court system

Lawyers

The word ‘lawyer’ has become a generic term for members of the legalprofession, including solicitors, barristers, patent attorneys,academics, in-house corporate, regulators and government/publicservant lawyers. The broad distinction is drawn between solicitors andbarristers in many States, but others have amalgamated the title. Inreality there is always likely to be a split profession by way offunctions carried out by lawyers.

• SolicitorsSolicitors must have a law degree (LLB) or satisfy the LegalPractitioners Admission Board Examinations. This is followed by avocational training course (which in NSW incorporates a formalpractical legal training program) at a College of Law or adesignated university (such as ANU, Newcastle, and UTS). Onceadmitted to a State/Territory Supreme Court and the Law Society,a solicitor is allowed to have a limited practising certificate. Thishas recently be changed for NSW by the Legal Professions Act 1993(NSW) which came into operation on 1 July 1994. Solicitors maypractice alone or in partnerships, usually called ‘firms’. They dealdirectly with the public and act as an agent for barristers. Althoughthey have rights of audience in all courts, it is normal that they onlyappear in the ‘inferior courts’ rather than the superior courts.Solicitors vary from general practitioners in country or suburbanpractices to the very specialist solicitors in the large city basednational firms.

• BarristersBarristers also have a law degree or have satisfied the LegalPractitioners Admission Board Examinations and then complete areadership course. The Bar Council and the Supreme Court foreach State/Territory then admit barristers to practice alone. Seniorbarristers earn the title ‘Queen’s Counsel’ in some states, but inNew South Wales (NSW) this title has been replaced with the‘Senior Counsel’. Barristers have rights of audience in all courts

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and mostly act as advocates. They also specialise in a particularlegal area and write opinions of various legal developments. At themoment, only solicitors (rather than the client who actually paysthe bill) can instruct barristers. An exception can arise when acorporation or another professional, for example, an accountant isthe client and instructs the barrister. There have been a number ofproposals to rationalise the admittance of lawyers into allStates/Territories and to combine the educational component forsolicitors and barristers.

The State courts

Where a civil or criminal action is brought will depend upon theappropriate jurisdiction of the court or tribunal. There are three levelswithin the court system, depending upon the amount of moneyinvolved or the seriousness of the offence.

• Summary courtsIn the Australian Capital Territory (ACT), Victoria, Queensland(Qld) and South Australia (SA), these courts are called themagistrates’ court, whereas in New South Wales they are the localcourts. They handle a mixture of civil and criminal matters. Thecivil jurisdiction is usually determined by a monetary limit, whichvaries from the ACT court of up to $50,000 and in NSW up to$40,000 maximum. Criminal matters are dealt with in two ways.First, as a preliminary hearing called committal proceedings forserious cases to determine if there is a case to answer for thedefendant. Alternatively, magistrates, who may impose fines orlimited imprisonment, try summary offences.

• Intermediate courtsIn NSW, Qld, SA and Western Australia (WA), these are calleddistrict courts and county courts in Victoria. They have a civilfinancial jurisdiction of up to $750,000 and a criminal jurisdictionfor cases that are heard in front of a judge and jury. The criminalcases are on indictable offences, such as theft. Not all States andTerritories have this level of court, such as the ACT, Tasmania orthe Northern Territory.

• Superior courtsThe Supreme Courts have unlimited jurisdiction in civil andcriminal matters. The courts have a split function, as both a court

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of first instance (original jurisdiction) and as an appellate court(hearing appeals from magistrates’ court/local court/districtcourt). In NSW, Qld and Victoria, points of law have a furtherappeal process to a separate Court of Appeal (as happens in theUnited Kingdom and Canada). Some points of law that are deemedto be of public importance can then be appealed to the High Courtof Australia, but special leave (permission) must be granted first.The special courts created by the Commonwealth under theConstitution then make the court system even more confusing.These courts are called the Federal Courts of Australia.

The Federal courts

The Federal Court of Australia was only created in 1976 by virtue ofthe Federal Court of Australia Act 1976 (Cth). It did contain two parts,called the General and Industrial Divisions. However, from 30 March1994, a separate Industrial Relations Court of Australia wasestablished with its own judges and thus there is only one part to theFederal Court. The general division includes areas such as bankruptcyand review of federal administrative decisions. A single Federal Courtjudge may hear a case with original jurisdiction. Three judgesconstitute a full court and can carry out all appellate work of theFederal Court. Appeals may come from the Federal Court, SupremeCourt of the ACT or the State Supreme Courts on matters ofbankruptcy, patents, trademarks and taxation. Cross-vestinglegislation has enabled many cases to be heard in the State/TerritorySupreme Courts, on behalf of the federal civil jurisdiction. This onlycame into place in 1988 after the Jurisdiction of Courts (Cross-vesting)Act 1987 (Cth) and equivalent State/Territory Acts. The High Courthas questioned the constitutional validity of the cross-vestinglegislation in Re Watkin (1999). In 2000, a federal magistrates’ court wasestablished to help resolve many of the family law issues withoutrecourse to the Federal Court.

High Court of Australia

Seven justices sit as the final court in Australia, the High Court ofAustralia. This was created by s 71 of the Australian Constitution. Thecourt has an original jurisdiction for offences against theCommonwealth or where the States/Territory or Commonwealth is aparty to the action. The majority of the High Court’s work is as the

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final court of appeal from the States/Territory Supreme Courts or thefull court of the Federal Court. Special leave must be granted forappeals and this requires the points of law to be of public importance.The High Court is the guardian and the interpreter of the Constitution.Appeals originally went from the High Court of Australia to theJudicial Committee of the Privy Council in London. This avenue wasfinally removed by s 11 of the Australia Act 1986 (Cth). In reality, thenumber of appeals to the Privy Council had dropped since 1968 whenthey were removed from the federal jurisdiction and from the HighCourt of Australia in 1975.

Dispute resolution

The cost of litigation has become so high that businesses are activelylooking for alternatives to litigation. The Re Passive Smoking Case (1991)was quoted as costing the parties $6.7 million for an action under s 52of the Trade Practices Act 1974 (Cth) for injunctive relief against amisleading advertisement. Another example involved the NRMAissuing a prospectus and the Federal Court found that it breached thelaw after spending $13 million in Fraser v NRMA (1995). A furtherillustration has to be the long-running negligence claim in the Re AWAcase (1995) between its directors and auditors for $50 million. The casehas involved 13 Queen’s Counsel and barristers, 78 sitting days, sixparties to the action, four judgments and $30 million in legal costs.These sort of actions would obviously be out of the reach of mostindividuals and how many businesses would wish to spend even$100,000 on a case they might lose?

Alternative methods have existed for a long time, but are nowbeginning to gain in popularity with businesses and individuals.

• ArbitrationThe most common alternative is formal commercial arbitration.This method can result in an arbitrator making a final decision thatis binding on the parties. Arbitration can be used to resolve aproblem a lot quicker, cheaper and with relative privacy whencompared to a traditional court action. However, arbitration hasoften become bogged down in legal detail and is now subject tostatutory intervention in the Commercial Arbitration Acts. Therehas been a growth of alternative (or sometimes called ‘additional’)dispute resolution (ADR) techniques, other than arbitration, toattempt to solve the many different types of business problems,without reference to a court or formal arbitration. In the United

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States, these techniques have grown and are now simply calleddispute resolution. Organisations have been established throughout Australia todevelop and maximise on the use of ADR. The AustralianCommercial Dispute Centre, with its head office in Sydney hasoperated since 1986 to provide both the facilities and expertise toprovide ADR for Australian businesses. The central concept ofADR is a willingness to negotiate, to compromise and to reallywant to settle the dispute. A saying by the former US President, JFKennedy is:

... let us never negotiate out of fear, but let us never fear tonegotiate.

This is especially important if an on-going business relationship isgoing to exist after the dispute is settled (particularly common withindustrial relations or supply contracts). It becomes paramount todevelop a win-win situation, rather than the traditional win-losesituation that litigation normally results in. Business managers thatare involved with ADR must fully appreciate and know both theirown legal rights and the other party’s, just in case the process doesbreak down and litigation becomes the only course of actionavailable. One is also in a stronger bargaining position if the legalfall back position is clear in one’s own mind.The variety of ADR techniques should be voluntarily agreed tobetween the parties before entering an agreement or at the outsetof a dispute. It is possible to make use of the techniques binding ina contract, but the courts will not allow their jurisdiction to beundermined. The judicial approach has been to encourage ADRand only if it does not settle the dispute, should the court becomeinvolved.

• NegotiationThis is a very informal technique between the parties and willwork if the parties really want to settle the dispute. No one can beforced to negotiate and often the parties are not on an equal footingto negotiate.

• FacilitationA dispute resolution organisation may provide the independentfacilities to help the parties negotiate on a more equal basis. Thefacilitator will have a low key role and just try and help the partiesnegotiate their own agreement.

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• MediationThis involves a mediator taking a more active role in thenegotiations and possibly setting some basic principles for theparties to follow. The mediator does not control the outcome, butcan actively encourage a settlement. An example of the mediator’srole can be summed up in four stages:(1) Ground rules:

The mediator can set the basic ground rules, such as the ‘threeCs’, that is, that the mediation will have co-operation,confidentiality and courtesy, at all times.

(2) Defining the problem:The mediator should be able to determine what are the actuallegal and factual problems that need settlement and whatcommon ground exists between the parties. One technique togain this position is known as ‘shuttle diplomacy’ and involvestalking to both parties independently.

(3) Seeking solutions:This can involve the mediator putting forward ideas or havinga more general option generating, brainstorming session withall the parties being involved.

(4) Implementation and review:Once a settlement has been reached, it is important to laydown future dispute resolution mechanisms to avoid theconflict in the future and review the implementation of anyfinal decisions.

• Independent expert appraisalThe parties may jointly appoint a ‘fact-finder’ to assess thetechnical issues (especially common in the construction andengineering industry) and submit a report for both parties tocommence negotiations or mediation on.

• Case presentationThis is sometimes called ‘mini-trial’, as it requires both parties topresent a case in front of senior executives from both parties, whoact as judges. Once the presentation is made, the senior executivejudges normally negotiate an appropriate settlement. This has beenpopular with very large American organisations.

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• ConciliationIn Europe, the term conciliator is akin to the Australian mediator,but domestically a conciliator can be granted more powers to forcea settlement on the parties during the mediation process. The labeldoes not matter, but the powers and rights granted by the partiesto the conciliator at the beginning of the process can make thedifference.

• Rent-a-judgeA number of very high profile judges have retired from the benchand have become freelance judges for commercial settlements. Thebenefit of a retired judge is that they have expert knowledge of therelevant law and a capacity to absorb a lot of technical detail. Themajor benefits are the quicker access to a rent-a-judge and theconfidentiality of not being recorded in the law reports.

Conclusion and references

There are a number of fundamental points that all managers should beaware of in respect of their legal knowledge. These can be summarisedas:

• What laws directly impact on managers?• How are the different laws applied?• What are the key civil and criminal laws?• What are the key cases and legislation that impact upon managers?• What are the different types of lawyers?• How are the State and federal courts classified?• What alternatives are available for resolving commercial disputes?

Textbook references

Latimer, P, Australian Business Law, 20th edn, 2001, Sydney: CCHAustralia, pp 1–112

Turner, C, Australian Commercial Law, 23rd edn, 2001, Sydney: LBCInformation Services, pp 3– 51

Vermeesch, R and Lindgren, K, Business Law of Australia, 10th edn,2001, Sydney: Butterworths, pp 55–96

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Selected further readings

Adams, M, ‘Australian alternative dispute resolution – an overview’(1993) 22 April, unpublished paper presented at the College of Law,Ohio State University, US

Buckley, R, ‘Dispute resolution initiatives in financial services in theUS: lessons for Australia’ (1994) 68 ALJ 304

Butterworths, Concise Legal and Business Dictionary, 1997, Sydney:Butterworths

Byrt, W, Business and Government in Australia, 1990, Sydney: MacMillan

CCH, CCH Macquarie Dictionary of Law, 1996, Sydney: CCH Australia

Coady, C and Sampford, C, Business Ethics and the Law, 1993,Federation

Fisse, B, Howard’s Criminal Law, 1990, Sydney: LBC

Gillies, P, Business Law, 2nd edn, 2000, Sydney: Federation

Lane, P, A Manual of Australian Constitutional Law, 1995, Sydney: LBC

Merrills, J, International Dispute Settlement, 1991, Sydney: Grotius

Turner, P, ‘Litigation Madness’ (1994) 46 J Corporate Management 444

Stickels, G, ‘Settling disputes cheaper and faster’ (1995) BusinessReview Weekly, 6 February, 42

Zines, L, The High Court and the Constitution, 1997, Sydney:Butterworths

Useful internet site

Australasian Legal Information Institute www.austlii.edu.au

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2 Alternative BusinessStructures

Introduction

Business managers should be fully aware of the choices available forbusiness structures and especially how the Corporations Law isoperating. All managers operate within a business organisationalstructure. These range from the sole trader with a few employees tothe multinational corporations. Managers need to be aware of theirown organisational structure, especially when dealing with otherbusinesses.

Overview of alternative business structures

The main organisational structures for businesses are sole traders,partnerships, trusts, joint ventures and companies. Generally, thesestructures are mutually exclusive, but often one business may evolvethrough a variety of different structures as the business grows. All ofthe structures have advantages and drawbacks. Thus, before entering

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• Overview of alternative business structures• Sole traders• Partnerships• Trusts• Joint ventures• Companies (corporations)• Review of the corporations law• Brief history of Australian corporate law• Corporate officers

into a new business structure, one should consider a number ofcommon factors. These might include:

• ease and expense of setting up;• stability and permanency;• ownership of assets;• legal actions;• transferability of the business;• limitation of liability (security);• ability to raise funds;• management and control;• taxation;• freedom from external regulations.

Any one of these factors may be the major reason why a particularbusiness has adopted a specific business structure. Each structure hasadvantages and disadvantages and these may change over time,depending upon the growth in the business.

Sole traders

This is a one person business, where the person is willing to take allthe risks, but in return reaps all the profits (and is also fully liable forall the debts incurred). The main advantages relate to freedom;flexibility; ease and low costs of setting up; there is also a great amountof control that is retained by the proprietor of the business.Unfortunately, there are many drawbacks, which include unlimitedliability (business debts are mixed with personal assets); lack ofresources (finances and skills); and normally limited growth. Soletraders are governed by the ordinary laws of Australia and are nottreated in a special way because they are in business.

Partnerships

Partnerships are very common and are usually referred to as ‘firms’.Partnerships are a formally recognised legal relationship and aregoverned by legislation, based upon the English codifying statute thePartnership Act 1890 (UK). Partnerships must fall within the statutorydefinition as per s 1 of the Partnership Act 1892 (NSW or Stateequivalent): the relationship which exists between persons carrying ona business in common with a view to a profit.

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The law relating to partnerships is a rather unusual mixture of trustlaw, agency law and contract law. The partnership legislationexpressly states that the common law and equitable principles shouldco-exist with the legislation. This form of business structure is veryeasy and cheap to establish and can be created by either a formalagreement (partnership deed/agreement) or even by the parties’conduct. Partnerships have a great deal of flexibility and secrecy, asthey are not required to make public disclosures.

However, partnerships have many drawbacks relating to liability.The partners are all joint and severally liable for the debts of the firmand have unlimited liability. It is quite difficult to transfer a partner’spersonal share of a partnership. All partners are deemed to be agentsof the firm and of the partners, in a business context. Finally, there islimited growth as the maximum number of partners is fixed at 20(unless it is a professional partnership, such as solicitors oraccountants).

In the High Court decision of Re UDC (1985), the court examinedthe concept of joint ventures and the liabilities imposed upon deemedpartners/joint venturers. An agreement existed between UDC, B andSPL to develop some land and to share the profits. UDC provided thefinance and SPL owned the land. A substantial profit was made and Bdid not receive any of it because a further loan had been taken out onthe land by UDC and SPL. The High Court held that the three wereacting as partners and thus there had been a breach of the fiduciaryduties and B was entitled to some of the profits. Although there aredifferent types of partners, general/active partners andsleeping/silent partners, at common law they are all agents of the firmand may be involved in its management. This principle was laid downin the case of Re Baird’s (1870) and is now enshrined in the PartnershipAct 1892. This means that every partner is an agent of the firm and theother partners, provided that the transaction is in the usual course ofbusiness, are liable for the actions of each individual partner. There isa further requirement that the third party is unaware of the lack ofauthority or that the person is not in fact a partner of the firm.

Liability can be imposed by either contract or tort on all of thepartners by virtue of ss 9–10 of the Partnership Act 1892 (NSW or Stateequivalent). This was clearly illustrated in the case of Polkinghorne vHolland & Whitington (1934) where P was a client of the solicitors H &W. H senior normally dealt with P, but on occasions H junior gave heradvice on investments. P was advised on some questionabletransactions and lost a considerable amount of money and H junior

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ALTERNATIVE BUSINESS STRUCTURES

disappeared. The firm of solicitors were sued for the losses and thecourt held that the advice was in the usual course of H & W’s businessas solicitors and the partners were liable for H junior’s fraud. Allpartners owe fiduciary duties, that is, they are not to make secretprofits or allow conflicts of interests to arise between their personalaffairs and the partnership. These are now re-enforced by statute.

The common law rules of fiduciaries are also applied. The HighCourt had to consider the duties of a two doctor partnership in Chan vZacharia (1984). The doctors were dissolving their practice and C tookthe lease of the premises. The court held that the opportunity of therenewal of the lease belonged to the partnership and as such C couldonly hold it on a constructive trust for both of them, as beneficiaries.

Trusts

Trusts are an equitable relationship, where a person has the legal titleof property vested in them on behalf of another person (the equitableowner or beneficiary). Professor Underhill defined trusts as:

A legally enforceable equitable obligation binding a person(trustee) to deal with specific property (trust property) for thebenefit of persons (beneficiaries) or for the advancement of certainpurposes (charities).

There are many different types of trusts, including fixed trusts,discretionary trusts, unit trusts and constructive trusts. Expresslycreating a trust simply requires the ‘three certainties’:

• intention to create – clear words;• specifically defined property;• identifiable beneficiaries.

This last certainty was questioned in Kinsela v Caldwell (1975) where allthe beneficiaries at the time the trust became operative had died. TheHigh Court held that as the trust referred to the next-of-kin of thebeneficiaries there was clearly an ascertainable class of beneficiaries.

Trustees are bound by the trust deed or will that created the trust.Also legislation, the Trustee Act 1925 (NSW or State equivalent), hasbeen passed to define duties and powers of trustees where they are notcovered in the instrument that created the trust. Trustees are alsofiduciaries and as such are bound by the normal common law dutiesnot to make a secret profit or allow a conflict of interests. Trustees maybe sued for negligence if they do not carry out their function to the

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appropriate level. In Hawkins v Clayton (1988), the High Court heldthat the solicitors, as trustees, were negligent for waiting six years totell the beneficiaries about the property left to them. Many of the taxadvantages that trading trusts used to obtain have been removed bythe legislature.

Joint ventures

Joint ventures are sometimes called syndicates or consortiums and areterms employed for avoiding the legal relationship of a partnership.They are agreements by contract to engage in an ad hoc profit projectby combining resources, but without binding the other venturers.Examples include the exploration of minerals and the exploitation ofnew technology. A close relationship may develop and the jointventurers may still be deemed to be partners as in the Re UDC case(1985) and thus are fiduciaries.

However, if the joint venture is purely a commercial transactionand dealt with at arm’s length, no presumption of partnership orfiduciaries will be applied. This was held by the High Court in ReHospital Products (1984). HP was the distributor of USA made surgicalappliances for Australia during 1978–79. HP stopped its distributionand copied the products, selling them in Australia as their own. TheAmerican designers gained an injunction in 1980 to stop HP andclaimed an account of profits for the period. The court held that therewas no fiduciary relationship and only damages for breach of contractwere appropriate.

Companies (corporations)

Businesses for a variety of reasons will incorporate into a separatelegal entity called a company. Companies have been in existence sincethe 14th century as either chartered or statutory companies. The mostcommon type (99% of all companies) are registered companies, firstcreated under the Joint Stock Companies Act 1844 (UK). Modern dayAustralian companies are now registered with the AustralianSecurities and Investments Commission, are given an AustralianCompany Number and are governed by the Corporations Law. Therewere over 1.2 million registered companies in Australia in 2000, butonly 8,000 were public and as few as 1,300 listed on the AustralianStock Exchange.

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The major advantages of incorporation are limited liability of itsshareholders; the ability to raise capital; ease of transfer of ownership;and stability. However, there are drawbacks with the formality ofincorporation; the loss of control between management andshareholders; loss of privacy; and the strict requirements of theCorporations Law. One of the main reasons for creating a company hasbeen the legal principle of separate legal entity. This was laid down inSalomon v Salomon & Co Ltd (1897) where S, a secured creditor (whoowned 20,001 of the 20,007 shares in the company) sued his owncompany for a debt over all the other unsecured creditors. The Houseof Lords held that the company was a separate legal person from S andhe was entitled to sue it. This fundamental principle is now containedin s 124 of the Corporations Law. This means that a company can:

• sue and be sued in its own name; • own property in its own name; • have perpetual succession; and • may have company’s own signature (corporate name and ACN on

a common seal).

The main types of companies are the public company and theproprietary company. Both types of company can be limited by shares,but only the public company can raise capital from the public. Theminimum number of members for a limited (usually abbreviated as‘Ltd’) company is one. After 9 December 1995, the First Corporate LawSimplification Act 1995 came into operation and for proprietarycompanies (usually abbreviated as ‘Pty Ltd’), only one shareholderand director is required. However, many of the fundamentalprinciples of company law are likely to change as a result of theCorporations Law Simplification Task Force. This task force wasestablished in October 1993 by the Federal Attorney General: it is nowcontrolled by the Federal Treasurer and is called the Corporate LawEconomic Reform Program (CLERP).

Review of corporations law

Company law has been in a state of flux for the last few years. Finally,the dawn of a new era has begun. Keeping abreast of the changes insubstantive law and administrative practicalities has become adifficult task for lawyers, accountants and in fact the whole business

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community. This section of Chapter 2 will attempt to give an outline ofthe major changes in company law or, as it should now be correctlycalled, corporations law. Many of the basic principles of corporate lawhave been maintained. However, the administration of Australiancorporate law will never be the same!

From 1 January 1991, the co-operative scheme between all Statesand Territories was replaced by an unusual system of Commonwealthand State application laws. Technically, from a legal point of viewthese are State laws, but they are treated for all practical purposes as afederal law. This was clearly the intention of the CommonwealthAttorney General when he said during the second reading of the Billin 1990:

… for the first time in the nation’s history a single and trulynational regulatory regime that can guarantee a sound and wellregulated environment for corporate activity.

Brief history

The ‘federalising’ of Australian corporate law has not been an easytask. The many shortcomings of the previous co-operative schemewere highlighted and resulted in the Commonwealth Parliamentpassing the Corporations Act 1989 (Cth). It was clearly believed thatthe Commonwealth had the constitutional power to do this by virtueof s 51(xx) of the Commonwealth of Australia Constitution Act 1900(UK). On 8 February 1990, the High Court of Australia in New SouthWales v Commonwealth of Australia (1990) held that the legislation wasbasically unconstitutional in a six to one judgment. TheCommonwealth arranged a meeting of Attorneys General from allStates and Territories in Alice Springs. In June 1990, the States allagreed to a document called the ‘Future Corporate Regulation inAustralia’. The new Corporations Law, as it was to be known,amalgamated the previous:

• Companies Code;• Companies (Acquisition of Shares) Code;• Securities Industry Code;• Futures Industry Code.

There have already been 23 separate amending Acts since the originallaw was passed and there are many more proposals for change in thenext few years. The uncertain constitutional basis after Re Watkin

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(1999) in the High Court has led to a possible referral of powers fromthe states to the Commonwealth under s 51(xxxvii) of the AustralianConstitution. It is hoped that the new basis of the Corporations Lawcould commence in 2001 with a five year sunset clause for review.

Corporations law

At first glance, it may sound like the new Corporations Law is verysimilar to the old co-operative scheme in structure. However, there aresome very distinguishing features:

• characteristics of Commonwealth law;• ASIC sole administrating authority;• ASIC accountable to the Commonwealth only;• Ministerial Council reconstituted with the Federal Attorney

General as chair plus four votes. All the other States and Territorieshave only one vote each.

A major function of the covering provisions is to convert thelegislation into the law for the ACT. It also deals with points ofinterpretation, the applied laws, legislation’s administration, fees andtaxes and questions of jurisdiction. This means that all the substantialprovisions of company law are in fact really contained in just s 82 ofthe Corporations Act 1989 (Cth). This states:

The Corporations Law is as follows:

Chapter 1 Introductory

Section 1 This Law may be referred to as theCorporations Law

Section 2 The Australian Securities Commission hasgeneral administration of the CorporationsLaw.

Then follow 1,493 sections on corporate law. Many of the sections havebeen re-written in ‘plain English’, others changed substantially andother sections have been kept intact. The Corporate Law EconomicReform Program is trying to re-write the law in a clearer way. The buy-back provisions alone have been reduced from 15,000 words to only2,000 words (which represents an 85% reduction).

One major benefit of the new legislation arose from thegovernment’s wish to help small business. In Part 1.5 of the

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Corporations Law, a ‘Small Business Guide’ was drafted whichoutlines the main duties and responsibilities for small proprietarycompanies. The definition of small business in s 45A is a company thathas a turnover less than $10 million, assets less than $5 million orfewer than 50 full-time employees. This covers approximately 750,000Australian companies. The Small Business Guide has cross-referencesto the main sections of the Corporations Law and to the relevantAustralian Securities and Investments Commission forms andregulations.

Australian Securities and Investments Commission

The Australian Securities and Investments Commission (‘ASIC’ as it isusually called) has replaced the National Companies & SecuritiesCommission and all the State based Corporate Affairs Commissions.The ASIC is a national body with a head office in both Sydney andMelbourne, plus regional offices in every capital city and otherbusiness centres. Finally, the key to a national system was theintroduction of the National Corporate Database, located at Morwell,Victoria and known as Hartnell House, after the first chairman of theASIC. Regional offices are responsible for the administration andenforcement of the Corporations Law. Business centres are to be usedfor registrations, lodgements of documents, incorporation and on-linesearches of company extracts. All fees are to be made payable to theCommonwealth and then re-distributed to the States and Territorieslater.

All existing companies have been allocated an AustralianCompany Number (usually called an ‘ACN’) that has nine digits. Itwas a legal requirement for all companies from 1 January 1991 to usetheir ACN on the company’s common seal and all public documents.The ASIC has the sole responsibility for the investigation, informationgathering and enforcement of the Corporations Law. Theorganisation’s budget is approximately $130 million and its decisionsare subject to Commonwealth administrative law. A key role of theASIC relates to enforcement and this can be a mixture of civil, criminaland civil penalty provisions. The ASIC traditionally was accountableto the Federal Attorney General, but after the Federal election inMarch 1996, the new Government transferred the responsibility to theCommonwealth Treasury Department. Both the ASIC and theTreasury Department have very useful internet sites, which arereferenced at the end of this chapter. The ASIC also provides an

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information telephone service for the price of a local telephone call on1300-300-630 and most forms are available from their website:www.ASIC.gov.au.

Corporate officers

Corporations cannot make decisions without the support of humans.Thus, the level of decision making will depend upon the CorporationsLaw, the company’s constitution (traditionally called thememorandum and articles of association) and any delegated powersfrom the board or shareholders. This is sometimes known as the ‘organtheory’, as each decision making unit of a company is akin to aseparate organ and can be compared with the separation of powers inparliament. The members/shareholders are not meant to interferewith management or the board of directors of a company. Thisprinciple was established in NRMA v Parker (1986). If the members aredissatisfied with the directors they can either sell their shares orremove the directors at the company’s next annual general meeting.Unfortunately, since December 1995, proprietary companies (whichmake up 98% of all companies) are not required to have an annualgeneral meeting. Company officers have been reviewed many timesby the courts and the legislature. In times of economic difficulty and alarge number of insolvencies, creditors have been looking to thedirectors and other professional advisers for financial security. This isknown as the ‘deep-pocket syndrome’ because of the insurance coverthey maintain.

Definitional issues

Corporate officers are defined in s 9 of the Corporations Law as:

• a director;• a secretary; • a person who makes decisions that affect the whole business

(executives) in accordance with whose instructions or wishes thedirectors are accustomed to act (‘shadow’ officers);

• external administrators such as receivers, administrators andliquidators.

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Section 9 is called the ‘Dictionary’ and defines all key words usedthroughout the Corporations Law.

Employees

The meaning of employee in corporate law is not well defined. Itnormally relates only to managers under a contract of employmentand they are subject to a common law duty of fidelity. This wasillustrated in the case of Timber Engineering v Anderson (1980), where anemployee set up a business in direct competition with his employer. Awas required to account for profits that his business made at theexpense of his employer’s business. Employees are not specificallyincluded in the s 9 definition of an officer, but can be those who makesignificant decisions (executives) or those who are included in some ofthe specific officer’s duties under the Corporations Law. For example,both officers and employees have a statutory duty to not misuse theirposition (s 182) or misuse information (s 183).

Executive officers

Executives are the most senior employees of the company and arenormally the managing director or chief executive officer (CEO). Theyare bound by a number of legal duties because of their position.Executives are in fact a mixture of employee, director and agent of thecompany. The s 9 definition looks at their function and impact ratherthan their title.

Company secretaries

Company secretaries are a legal requirement for every public companyby virtue of s 204A of the Corporations Law. The secretary is known asthe chief administrative position of the company since the case of RePanorama Developments (1971). The company secretary has the impliedauthority to enter into all administrative contracts rather thanmanagerial or commercial contracts. Generally, secretaries are boundby the same statutory duties as directors. They can be held personallyliable for failing to lodge the company’s annual returns (by s 188) andover 25,000 annually are served with penalty notices and 3,000 receivea criminal conviction.

Directors

Of all the different types of corporate officers, it is directors that havereceived the most attention by the media, the public and the ASIC.Directors are specifically defined in s 9 as:

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... a person appointed to the position of director ...

Every company in Australia must appoint a director by s 201A of theCorporations Law. If the company is registered as public, whether it islisted on the Australian Stock Exchange (ASX) or not, it must have atleast three directors and one shareholder/member. However, aproprietary company only needs to have one director and oneshareholder (who may be the same person).

Fundamental duties

The officers’ duties (which are most commonly called the ‘directors’duties’) have to be fully understood by all managers because of thepotential civil and criminal liabilities that can arise. The dutiesdiscussed below are owed to the company rather than to theindividual shareholders. This principle was established in the UK caseof Percival v Wright (1902) and generally there are few exceptions. If thecompany enters into financial difficulties, the law would expect theofficers also to owe a duty to creditors. Also, if the company is a verysmall family business, akin to a partnership, the directors should fullydisclose information to all shareholders and directors. The three mainduties are:

• common law duty;• equitable fiduciary duty;• statutory duty.

These duties co-exist and need to be defined, as well as asking thequestion:

Why is there so much overlap between the duties?

The answer is in the fact that different people will enforce differentduties, for different reasons and will expect different outcomes.

Who can enforce the officers’ duties?

• The company itself;• the Australian Securities and Investments Commission;• the shareholders;• the creditors.

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What outcomes would they expect?The ASIC would be interested in protecting the public by enforcing thecriminal and civil penalty provisions of the Corporations Law. TheASIC may also be able to assist shareholders in recovering damagesfrom officers to compensate them for their financial losses. Whereasthe shareholders or the company may wish to obtain an injunction toprevent a director from breaching their duties or may wish to claimdamages for their negligence.

In the State Bank of South Australia v Marcus Clark (1996), the courtheld liable MC, as the former managing director of the bank, for $81million in damages. MC was held liable for a breach of his statutoryduty, a breach of common law duty of negligence and for a breach ofhis equitable fiduciary duty for allowing a conflict of interest to arise.Each of the duties needs to be explained separately.

Common law duties

This duty has been traditionally very low, when compared to otherprofessional groups (such as lawyers, accountants and doctors) andwas laid down in Re Smith & Fawcett Ltd (1942) by Lord Greene MR as:

To act bona fide for the benefit of the company as a whole and notfor any collateral purpose.

This was further developed in a number of UK cases, where the standard of care was stated to be purely subjective. This meant thatofficers simply said they were acting honestly and did not know orunderstand their role. However, some recent cases have challengedthis concept. In Re National Safety Council (1991), the chairperson of theVictorian National Safety Council was held to be liable for the debts ofthe company ($97 million) and a higher standard of care wereimposed. This case was then followed by Re AWA (1992), where thejudge held executive directors owe a higher duty than non-executivedirectors. However, the NSW Court of Appeal in its 1995 decision onthe same case amended this decision with a judgment that was 250pages long! The courts certainly now require a higher standard of carethan previously for all company officers.

Officers can be sued for the tort of negligence, the tort of deceit (ifthere is a fraud involved) and for breach of contract for not actinghonestly or with care. In the State Bank of South Australia v Marcus Clark(1996) case, the managing director failed to obtain an independentvaluation for a major asset the bank was about to purchase. The courtheld that a reasonable executive would have obtained a valuationbefore purchasing such an asset.

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Equitable fiduciary duty

Fiduciary duties are hard to define, but there has been some guidancefrom the High Court in Re Hospital Products (1984). The followingduties occur because company officers are deemed to be fiduciariesand thus able to take an unfair advantage of their position to thedetriment of the company. The duties can be summarised as:

• Act honestlyOfficers are expected to act honestly in all their dealings with andon behalf of the company. This was established in Re Smith &Fawcett Ltd (1942).

• ConfidentialityOfficers of a company are expected to keep all companyinformation confidential. This was fully explained in State Bank ofSouth Australia v Marcus Clark (1996) where the managing directordisclosed details of a large transaction to a family member prior toit being public knowledge.

• Conflicts of interestIt is essential that officers do not allow their personal interests tooverride the company’s best interests. This was originallyestablished in the UK case of Keech v Sandford (1726) and has been followed in many UK officers’ cases such as Regal (Hastings) Ltd vGulliver (1942). In Australia, the principle was applied in Green vBestobell (Industries) Ltd (1982) where G (as a manager of Bestobell)made a tender bid for the company and for his own personalbusiness interests. The principle was also applied in the State Bankof South Australia v Marcus Clark (1996) case when MC did notdisclose that his wife had a financial interest in the asset beingpurchased by the bank.

• Proper purpose ruleThis is a general test which can be used to determine whether therehas been a breach of this duty and was established by the HighCourt in Whitehouse v Carlton Hotel (1982). This same test wasapproved in 1995 by the High Court in Gambotto v WCP Ltd (1995).The court prevented 99.7% of the company from altering its articlesof association because it affected the rights of a minorityshareholder. The alteration was held not to be for a properpurpose, even though the company would have been in a bettercommercial position.

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Statutory duties

The statutory duties have developed from the common law and equityprinciples. The statutory duties were intended to give certainty to thelaw and also to impose a standard of criminality onto companyofficers. The key provisions are ss 180–85 of the Corporations Law,which are entitled ‘Duties of Officer of Corporation’. These sections contain their own definition of an officer that does not include anemployee.

Overview of the Corporations Law:

• Section 180 officers required to exercise reasonable care anddiligence

• Section 181 officers required to act honestly

• Section 182 officers must not make improper use of theircompany position

• Section 183 officers must not make improper use ofcompany information

This section was previously known as s 232 and was amended in 1992to decriminalise its consequences and to make the standard of careobjective for the courts and the regulators to enforce. All events after 1February 1993 are deemed to be civil penalty provisions. The statutoryprovisions in ss 180–84 are additional to the existing common law andequitable duties by s 185 of the Corporations Law. It is also worthnoting that the provision in s 183 is much wider than that of the insidertrading section in s 1002G of the Corporations Law. Section 183 isapplied to all companies and covers both officers and all employees.This provision was used to hold a manager liable for passinginformation in respect of a company tender in the case of Green vBestobell (Industries) Ltd (1982). Officers have also been held liable forimproper use of their position even though they believed that it was inthe company’s best interests. For examples of this principle see theHigh Court case of R v Byrnes (1994) and the State Bank of SouthAustralia v Marcus Clark (1996) case.

Another major change occurred with the decriminalising of thestatutory duties of company officers (as outlined by ss 180–83), whichreplaced criminal sanctions with a civil penalty provision. Civilpenalty provisions are found in Part 9.4B of the Corporations Law andare applied instead of the normal criminal provisions in s 1311 andSched 3 of the Corporations Law. The ASIC can apply to the court if

35


they believe that a contravention should lead to a civil penalty order.The court then applies the civil standard of proof and can impose acourt declaration, a punitive damages award to the Commonwealth(up to $200,000) and order compensation to be paid to the company.Additionally, by s 1317EA, a civil penalty order can be issued whichprohibits an officer for five years from taking part in management ofcompany.

After 13 March 2000, officers have a statutory defence to actionsrelating to negligence or s 180 (reasonable care and diligence) calledthe business judgment rule in s 180(2) of the Corporations Law. Thisdefence requires the officer to show that they made the decision ingood faith for a proper purpose, they do not have a material personalinterest in the subject matter and reasonably informed themselves tomake a rational decision.

If there are any contraventions of s 184 which involved dishonestyor the intent to defraud members or creditors, the Director of PublicProsecutions can bring criminal proceedings against the officer. Themaximum penalty for this offence is up to five years’ imprisonmentand/or a fine of $200,000. There are many other duties imposed upondirectors under the Corporations Law which involve areas such asloans to directors, disclosures in contracts, and various registers ofholdings. The use of the misleading conduct provisions in s 995 of theCorporations Law (which is very similar in its wording to s 52 of theTrade Practices Act 1974 (Cth)) have also received a lot of publicitythrough the aborted attempt to float the NRMA for $2 billion in Fraserv NRMA (1995).

Finally, one of the most important areas of corporate law has beenthe concept of insolvent trading. Originally, all officers could be heldpersonally liable for company debts if the company continued to tradewhile it was unable to pay its debts. This was contained in the old s 592and illustrated by cases such as Statewide Tobacco Services Ltd v Morley(1990). This case involved a non-executive director, who was thewidow of the company’s founder. Her son ran up large company debtsand was then personally declared bankrupt. Mrs Morley was held tohave delegated her responsibilities to her son director and was thusliable for the debts. This particular insolvent trading section has sincebeen repealed and replaced by a positive duty on directors not to tradeinsolvently by virtue of s 588G of the Corporations Law. The sectiondoes not cover all officers now, but focuses just on directors. This isprobably one of the most important provisions any director should bemade aware of at the time of their appointment. There are some

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defences to trading while insolvently and these are contained in s588H. One of the additional points of the new insolvent trading rulesis that holding companies can even be held liable for the actions oftheir subsidiaries by s 588V of the Corporations Law.


There are a number of key points that all managers should be aware ofin respect of their own business structure and of dealing with otherbusinesses. These can be summarised as:

• What are the key elements in determining a particular type ofbusiness structure?

• What are the advantages and disadvantages of the commonbusiness structures?

• What types of laws and regulations govern most businesses?• How does the Corporations Law operate?• How are officers defined?• What duties are imposed upon company officers?• What legal actions can be brought against corporate officers?

Textbook references


Turner, C, Australian Commercial Law, 23rd edn, 2001, Sydney: LBCInformation Services, pp 681–795


Selected references and further readings

Baxt, R, Fletcher, K and Fridman, S, Afterman and Baxt’s Cases andMaterials on Corporations and Associations, 8th edn, 1999, Sydney:Butterworths

Burnett, B, Australian Corporations Law Guide, 2001, Sydney: CCHAustralia

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Butterworths, Australian Corporations Legislation, 2001

Fletcher, K, The Law of Partnership in Australia and NZ, 1996, Sydney:LBC

Ford, H, Austin, R and Ramsay, I, Principles of Corporations Law, 2001,Sydney: Butterworths

Gooley, J, Corporations and Associations Law, 1999, Sydney:Butterworths

Graw, S, An Outline of the Law of Partnership, 1994, Sydney: LBC

Hanrahan, P, Ramsay, I and Stapledon, G, Commercial Applications ofCompany Law, 2nd edn, 2001, Sydney: CCH Australia

Lipton, P and Herzberg, A, Understanding Company Law, 2000, Sydney:LBC

Redmond, P, Companies and Securities Law: Commentary and Materials,3rd edn, 2000, Sydney: LBC

Renton, N, Guide for Voluntary Associations, 1994, Sydney: LBC

Tomasic, R and Bottomley, S, Corporations Law in Australia, 1995,Sydney: Federation

Useful internet sites

Australian Securities and Investment Commission www.asic.gov.au

Australian Stock Exchange www.asx.com.au


Centre for Corporate and Securities Research cclsr.unimelb.edu.au

Chartered Secretaries Australia www.CSAust.com

Corporate Governance www.wp.com/CORPGOV/

Federal Treasury Department www.treasury.gov.au

Institute of Chartered Accountants www.icaa.org.au

Non-Profit Corporations and Associations www.qut.edu.au/bus/ponc/ponc.html

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3 Contract Law

Introduction

Contract law has to be the backbone of all businesses. It is the legalrelationship that enables business to function. In the majority of cases,contracts are made without the parties ever having any problems.However, as soon as something goes wrong with the agreement, forexample, goods are not delivered on time or the services provided arenot up to standard, it is the law of contract which holds the key. It isnecessary to quickly review the basic elements and current legalpitfalls of contract issues. Specifically, this chapter focuses on theconsequences of a breach of contract and the choice of remedies thatare available to settle the dispute.

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• The key contractual issues• Overview• Negotiations• Terms• Consequences of breaching contracts• Breach of contract• Exclusion clauses• Remedies in contract law• Common law remedies• Equitable remedies• Statutory remedies

The key contractual issues

Overview

Contract was simply defined by Sir Fred Pollock as:

A promise or agreement which the law will enforce.

Contract has always been based upon two simple concepts of bargainand consent. With the benefit of time and judges/parliamentinterfering, these principles have been developed to represent six basicelements, which are found in every contract:

• agreement (offer/acceptance);• consideration (value);• intention to bind;• capacity;• format;• legality.

If one of the elements is not found, then the courts are unwilling toenforce the contract and it is deemed to be an agreement. Many of thecommon law principles of contract still exist, but statutoryintervention has grown rapidly with the Trade Practices Act 1974(Cth), Sale of Goods Acts (each State/Territory has its own) and inNSW the Contract Review Act 1980 (NSW).

Negotiations

One of the many problem areas of contract law has related to whathappens in the period leading up to the actual contract coming intoexistence. It has long been established that a contract comes into forceat the time of unconditional acceptance, as long as the other elementshave been met. However, many promises made during the time of thenegotiations may not form part of the contract. This in turn means theyare generally not legally enforceable.

Contract law has tried to resolve this problem in a variety of ways.The case of Impact Datascape Pty Ltd v MacIntosh (1991) illustrates thecourt’s approach by not worrying about the normal offer/acceptanceroutine, but concentrating on the reality of the situation. On the factsthere was clearly a contract by conduct, even though it lacked the formality. The parties’ actions went far beyond mere intentions to

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contract. The court held even if a contract had not been formed, theplaintiff could have succeeded on the growing ground of estoppel.Traditionally, all the statements made by the parties prior to a contracthave been mere non-contractual representations. These cannot beenforced under contract law because they occurred before the contractwas made. Another way of looking at it is that the statements are notterms in the contract and you can only sue on the basis of the terms.

The action for a false representation is called a misrepresentation,which has always been difficult to succeed in and the main remedy ofrescission is easily lost. A famous example is the painting by Constablesold as an original and five years later discovered to be a fraud. Thecourt held that a misrepresentation had occurred but the delaydefeated the remedy of rescission, as laid out in Leaf v InternationalGalleries Ltd (1950). However, some legal actions for misrepresentationhave been successful, such as in ESSO v Mardon (1976). In this case, apetrol service station owner was misled as to the amount of petrolrequired for a three year lease for the petroleum company.

The main elements that have to be proved are:

• actual statement of fact;• statement made before contract finalised;• statement was an inducing factor;• statement addressed to the person entering the contract.

The ACT and SA have both attempted to correct the common lawposition by the Misrepresentation Acts 1977 (ACT), 1972 (SA). Also,the courts are allowing joint actions for fraudulent misrepresentationand actions under the misleading or deceptive conduct provisions of s52 of the Trade Practices Act 1974 (Cth).

Alternatively, the courts have been developing an old doctrine ofestoppel. This had first been used in a case in 1877, Hughes vMetropolitan Railway Co (1877), but was formally developed in CentralLondon Property Trust v High Trees Ltd (1947) that parties in acontractual relationship could not go back on their word if asubsequent promise had been made. However, the doctrine ofestoppel was applied after a contract was made and not duringnegotiations until the High Court of Australia decision of Walton StoresLtd v Maher (1988). The Walton Stores case developed the principle ofestoppel far beyond its original application in the High Trees case. Thecase involved the negotiation of a lease for a shop in a new shoppingcentre. Special alterations had to be made before the site was suitable

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and the costs borne by the lessor. The potential lessee did notcommunicate that they had decided not to lease the space and knewthat the lessors were continuing work in preparation of the lease for W.There was no pre-existing legal relationship and the court still heldthat W was estopped from denying the promises that had been made.Damages were awarded to the lessors because of the detriment causedby the failure to inform M that they were pulling out of the unsignedlease.

This case has changed the whole complexion of pre-contractualnegotiations and promises that are made at such meetings. There havebeen cases since Walton which continue to define the exact position.There is still a difference between estoppel by convention once in acontract and estoppel by conduct during pre-contractual negotiations.A valid contract can be made at the time of an unconditionalacceptance and this would normally include an oral or faxedcommunication. The contract will be formed at the time and place ofthe receipt of the acceptance.

‘Heads of agreement’ or contracts to contract can be a legalminefield. Generally, they are not legally enforceable unless there is aduty to negotiate in good faith or a fiduciary duty. The NSW Court ofAppeal upheld the principle of a contract to contract in Coal CliffCollieries Pty Ltd v Sijehama Pty Ltd (1991), but on the facts rejected thecontract. The UK House of Lords in Walford v Miles (1992) held thatthere is no such thing as a contract to contract.

Terms

Linked into the question of representations and terms is the ability todistinguish between the two. If determined as a term, then ask thequestion: What type is it?

The tests for distinguishing terms from representations are asfollows:

• time that statement is made;• intention of the parties’ minds;• later written documents;• relative knowledge of the parties;• degree of precision of the statement.

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Why is it so important to tell the difference? The reason is that, as discussed above, the action for terms is breach ofcontract, whereas for false representations the action is thecomplicated one of misrepresentation. Assuming the statements madeby the parties are deemed to be terms, they have to be furtherclassified as either conditions or warranties. The breach of one of theterms has a dramatic effect on the contract and if the party gets itwrong dire consequences can follow.

Conditions

These are the major terms of a contract that define the parties’ rights,liabilities and obligations. If these are broken the contract can berepudiated and damages can be claimed. This was illustrated inAssociated Newspapers v Bancks (1951) where the ‘Ginger Meggs’character was guaranteed to be on the front page of a comic for 10years. Due to a re-organisation, the cartoon was shown on page threefor three weeks. The court held that this was a breach of condition andthe whole contract could be discharged. Alternatively, the innocentparty may elect to just take damages.

Warranties

These are all the other terms and if they are broken only damages canbe claimed and not the repudiation of the whole contract. The HighCourt has indicated that it prefers to treat terms as warranties ratherthan conditions if it can, so as to encourage performance rather thanthe avoidance of contractual obligations. This principle was explainedin the High Court case of Ankar Pty Ltd v Natwest Finance (Australia) Ltd(1987). The courts have developed a series of tests to help determinewhether a term is a condition or a warranty. They include:

• Contractual provision consequenceDoes the breach under the wording of the contract automaticallyterminate the contract?

• Term indicator or labelContracts describe their terms as conditions or warranties, but thisis only an indication. The courts may ignore the labels as in Schularv Wickman Machine Tools Ltd (1973) where a German manufacturerwith an UK agent had a 20 term contract, requiring as a conditionthat the agent must visit the six largest customers at least once a

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week. The court held that, even though called a condition, in fact itwas only a warranty.

• Statutory or custom rulesGoods that are sold have implied conditions relating to theirdescription, merchantable quality and fitness for the purpose byvirtue of the Sale of Goods legislation. Also, it is the custom thattime is of the essence in commercial contracts.

• Judicial test (sometimes called ‘innominate’ or ‘intermediate’terms)The Re Hong Kong Fir Shipping case (1962) stated that, if the othertests could not determine the type of term, the court simply asks,‘does the breach deprive the innocent party of a substantial benefitunder the contract?’ This has been indirectly applied in Australiavia the Re Ankar case (1987).

These different tests can be used to determine whether a term is acondition or a warranty. Remember the consequences for a breach ofthe different terms is very important.

Implied terms

Terms in a contract are normally expressed and ideally put intowriting. However, the courts are sometimes requested to imply a terminto a contract. The court will only do this on a completely objectivebasis and if essential to give business efficacy to the contract. This wasstated in Lavers v Foothills Water Co (1981) where there was no expressterm to terminate a contract of employment and the court implied thatreasonable notice to terminate could be implied. There are manysources from which terms can be implied, such as custom, tradepractices, statute, parties’ previous conduct and on the court’s owndirection. The courts have not always been willing to interfere with acontract, but sometimes it is essential to give it business common sense(such as the business efficacy test from the Re Moorcock case (1889)).

The High Court examined the implying of terms in CodelfaConstruction Pty Ltd v State Rail Authority NSW (1982). In this case, theeastern suburbs railway in Sydney was being constructed and the contractor had an injunction imposed upon it for nuisance by workinga three shift, six days a week basis of construction. The SRA hadimmunity from such actions and the contractors claimed a similarterm should be implied into the contract. An arbitrator, the SupremeCourt of NSW and the NSW Court of Appeal all agreed. But the High

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Court held that there was no implied term as it was not an obviousprovision and had been overlooked by the parties. Courts should onlyimply terms if it is necessary to make the contract operate; it isreasonable and equitable; it is obvious; capable of clear expression;and is not contradicted by an express term.

These are just some of the major issues that are still developing incontract law. Many of the problems are now connected to the greateruse of multiple actions, such as using a breach of action, with anegligence claim and a s 52 Trade Practices Act action. These arediscussed in more detail in Chapter 4 under Consumer Protection.Once the terms have been established and a breach occurs, then it isparamount to know the consequences.

Consequences of breaching contracts

Breach of contract

If a term in a contract is broken, the consequences for both parties canbe dramatic. Where the term is a condition, the innocent party mayelect to terminate the contract. This is called a repudiatory breach.Repudiation can be explicit by immediately informing the other partythat you are terminating the contract. Sometimes, the repudiation maybe implicit, by the conduct of a party being inconsistent with the termsof the contract, for example, selling goods on to a third party. Bothactions cause an actual breach of contract. It is possible to anticipate abreach of contract and not wait until the actual breach occurs. Thisoccurred in the old case of Hochster v De La Tour (1853) where H wasappointed as a courier on 11 May to commence on 1 June. Theemployer changed its mind and refused the appointment. The courtheld that H could sue immediately and not wait until the breachactually occurred on 1 June.

Where a condition is broken, the innocent party may decide not totreat the contract as discharged but that only a warranty has beenbroken. This has the consequence that the contract is still performed,with damages being awarded for the breach of contract. In some cases,the innocent party has decided to ignore the breach and continue withthe contract anyway and claim damages at the end of the performanceof the contract. This happened in White & Carter Ltd v McGregor (1961)where M signed a three year advertising contract. On the same day, hechanged his mind and tried to pull out of the contract. The advertiserscompletely fulfilled their part of the bargain for three years without

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payment and then sued for full damages. The House of Lords held(three judges, with two judges dissenting) that W and C were entitledto ignore the breach and should succeed in the claim of damages. Thecourt did comment that it would be better to have damagesimmediately than to complete performance over this length of time.This would be especially true under the present economic conditionswith so many insolvencies.

Exclusion clauses

Many contracting parties insert a term into the contract that attemptsto either exclude or at least limit the potential liability of the party.These are commonly called exclusion clauses, disclaimers, exemptionclauses or limitation clauses. The courts have generally tried toconstrue such terms against the party relying upon it (this is known asthe contra proferentem rule) but they are lawful. Both the common lawand statute have had a lot to say about exclusion clauses. The termmust be incorporated into the contract. This is easy if the contract issigned because it is binding even if unread. See the case of L’Estrangev Graucob (1934) where a sales agreement on a vending machine had avalid exclusion clause, even though unread by the store owner.

Often, clauses are incorporated by a clear notice, such as in carparks. These have to be clearly seen before entering the contract, as inThornton v Shoe Lane Parking Ltd (1971) where the sign was inside anautomatic car-park and thus too late. However, where there areregular previous dealings, a notice may still be incorporated into thecontract, if there is actual knowledge and some form of consent, as inBalmain New Ferry v Robertson (1906). Most exclusion clauses are amatter of construction, for example: Do they cover the actual breachthat occurred? Were they reasonable and sufficient? The High Courtexamined this in Sydney City Council v West (1965) where a car wasparked in the ‘Domain’ parking station and a ticket was given to W. Wplaced the ticket in his pocket without reading it and later returned tothe car park to discover the car was missing. The exclusion clause onthe ticket referred to be held not to cover the situation. In fact, itexpressly required the Council to deliver the vehicle, which did notoccur.

Another example occurred in Darlington Futures v Delco AustraliaPty Ltd (1986) where the court held that the construction of a clauseshould be paramount and there is little difference between a totalexclusion clause and a limitation clause of say $100, as is common.

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Statutory intervention is slowly occurring in this area of contract law.In respect of the implied terms from the sale of goods law under theTrade Practices Act 1974 and the Sale of Goods Acts, both cannot beexcluded if one party is a defined consumer. Also, in NSW, s 7 of theContracts Review Act 1980 (NSW) gives the court the discretion tostrike down an exclusion clause if it is considered to be harsh or unjust.If a retailer attempts to give a representation that the conditions of saleof goods are excluded, criminal liability could be imposed by virtue ofs 53(g) of the Trade Practices Act 1974 (Cth). An example may be aretailer trying to use a ‘No Refund’ sign. Such a disclaimer or sign mayalso be declared misleading or deceptive under s 52 of the TradePractices Act 1974 and the retailer may be held criminally liable unders 53(g), as in Miller v Fiona’s Clothes Horse (1991).

Remedies in contract law

Where a contract has been broken, the innocent party has a choice ofremedies that may be claimed. These can be divided into three basicgroups:

• common law;• equitable;• statutory.

Common law remedies

The most important common law remedy is damages and it isawarded most frequently for breaches of contract. Damages may begranted for a breach of a condition or a warranty. The two major typesof damages are liquidated and unliquidated.

Liquidated

The contract specifies a fixed sum to be paid if the contract is broken.This is calculated in advance based upon a bona fide assessment ofpotential loss, rather than actual loss. If the amount is extravagant, thecourt may hold it to be a ‘penalty clause’. This becomes unenforceableand the court will grant its own amount.

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CONTRACT LAW

Unliquidated

Calculated by the court on set principles to enable the innocent party,as far as is possible, to be returned to the position as if the contract hadbeen performed. The court assesses both the consequences of thebreach and how the damages should be quantified. The major legalprinciple to be applied is called remoteness of damage. This wasestablished in Hadley v Baxendale (1854) which states damages shouldbe those that naturally flow from the breach in the normal course ofevents and those that are in the reasonable contemplation of theparties at the time of the contract. For the actual quantum of damages,it is not intended to enrich, but to compensate the innocent party.Normally general damages are awarded. If there has been no actualloss, the court may grant nominal damages and in specialcircumstances may award exemplary damages. Inconvenience anddiscomfort have been included in calculating damages, such as a terrible skiing holiday in Jarvis v Swan Tours (1973).Difficulty in actually calculating damages is no defence.

Equitable remedies

Equitable remedies are a lot more flexible than common law damages.However, they are not available as of a right, they are discretionary tothe court. If damages is the better remedy, they should be awarded.Also, ‘delay defeats equity’, so time may be an important factor.

Specific performance

This is an order (called a decree) to a party to fulfil their obligationunder the contract.

Injunctions

An order to restrain a party from breaching a contractual term. Oftenused to enforce a negative pledge in a contract, such as a promise notto work for a competitor.

Rescission

An action to restore the parties to their pre-contractual positions, justas if the contract had never occurred.

Quantum meruit damages

Damages awarded for the work that has been done when a contracthas not been fully completed. It simply means ‘as much as isdeserved’.

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Mareva injunctions

Orders to prevent the removal of assets out of the court’s jurisdiction.

Anton Piller orders

A special ex parte (only the applicant appears) hearing for the court toorder that evidence to a case should be protected because it is likely tobe destroyed and damages would not remedy the situation. If granted,it authorises lawyers to enter premises, inspect and remove documentsand records.

Statutory remedies

Many statutes now expressly state the remedies that can be granted bythe court for breach of that statute. The Trade Practices Act 1974 (Cth)states that injunctions, damages, corrective advertising and manyother remedies are available, including re-writing the contract ifnecessary. Similarly, the Contract Review Act 1980 (NSW) enables acontract declared to be unjust, unfair or unconscionable to re-examineby the court. Limitations on actions in contract exist, in that they mustbe brought within a fixed period of time, which is normally six yearsfrom the breach of contract.


Managers should be particularly concerned with contractual mattersfrom the time of commencing negotiations to the final performance ofa contract by payment or delivery. Some major issues to consider are:

• Has a formal contract been established?• What are the terms and conditions of the contract?• Are there any legal actions that can arise prior to the contract

commencing?• If there is a breach of contract, what rights do I have?• What are the available remedies for a breach of contract?

Textbook references


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CONTRACT LAW



Selected references and further reading

Allan, D and Hiscock, M, Law of Contract in Australia, 1992, Sydney:CCH

Caffrey, B, Guidebook to Contract Law in Australia, 1991, Sydney: CCH

Carter, J, Outline of Contract Law in Australia, 1994, Sydney:Butterworths

Graw, S, An Introduction to the Law of Contract, 1998, Sydney: LBC

Hocker, P, Dufty, A and Heffey, P, Contract, 1998, Sydney: LBC

Starke, J, Seddon, N and Ellinghaus, M, Law of Contract, 1992, Sydney:Butterworths

Swanton, J, ‘Contract law – agreements to “negotiate”’ (1992) 66 ALJ744

Useful internet site


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4 Consumer Protection

Introduction

Since the late 1960s and early 1970s, there has been a clear growth inconsumer protection. This is going to continue to grow with thesuggested introduction of true product liability laws. That is, if aconsumer product injures a consumer the manufacturer willautomatically be liable (in law, called strict liability). In fact, the majorchange in consumer protection has been the introduction of the TradePractices Act 1974 (TPA) (Cth). This single statute has had a dramaticaffect upon the business environment and also binds theCommonwealth. It is interesting to note that many of the provisionsintroduced to aid consumers have become used by businesses to gaincompetitive advantage over other competitors.

Overview of consumer protection laws

Before one can understand how the TPA 1974 (Cth) operates, it isimportant to understand that there are a variety of consumer

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• Overview of the consumer protection laws• Impact of the Trade Practices Act 1974• Contracts for the supply of goods• Contracts for the supply of services• Manufacturers’ liability• Tort of negligence• Unfair practices• Sanctions, remedies and compliance

protection laws. A manager must be aware of the types of laws andtheir associated risks, as well as the jurisdictional questions that oftenarise in this area. Consumer protection provisions are a mixture of thefollowing laws:

• contract;• sale of goods law, under the Sale of Goods Acts (State laws);• trade practices, under TPA 1974 (Federal laws);• specific consumer legislation, such as: Dangerous Goods Acts,

Weight and Measures Acts;• tort of negligence actions.

The laws have grown out of the relative inequality of bargainingpositions between the consumer and the seller-manufacturer-distributor-importer. The other major reason for the need for theselaws to be developed is that they originally only covered goods.Services are now included in many of the new consumer laws. TheTPA 1974 was introduced by the Commonwealth to deal with manyissues. Part V of the Act is headed ‘Consumer Protection’ and is thearea this session will concentrate on. One important note is that theTPA 1974 has constitutional restraints and this is only being correctedby State/Territory Fair Trading Acts.

Section 51(xx) of the Constitution gives federal authority in respectof foreign, trading or financial corporations. Thus, the TPA 1974 has abasic requirement that it involves a corporation with overseas orinterstate trade. A non-corporate body or one that is purely intrastateis also excluded from the Act. There are some special exceptionsrelating to individuals using the postal or telecommunicationsfacilities (as these are controlled by the Commonwealth). Aninteresting case, Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd(1993), occurred where an UK company faxed and telephoned anAustralian company from the UK, with potentially misleadinginformation. The Federal Court held that the misleading conduct hadoccurred at the time and place of the receiver (that is, Australia).

Many of the provisions relating to consumers require a person tobe a ‘consumer’. This is defined in s 4B for both goods and services, asa person acquiring goods-services under $40,000 or of the kindordinarily used for personal, domestic or household consumption. Aperson can be disqualified as a consumer if the person holds out thatthey are in business to resupply or transform them in the course ofbusiness. The key provisions can be summarised as follows:

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• Part IVA of the TPA 1974 is headed ‘Unconscionable Conduct’;• Part V of the TPA 1974 is divided into four divisions:

❍ Division 1 – ‘Unfair Practices’❍ Division 1A – ‘Product Safety’;❍ Division 2 – ‘Consumer Transactions’❍ Division 2A – ‘Manufacturers’ and Importers’ Liability’;

• Part VA – ‘Liability of Manufacturers for Defective Goods’.

The contract between a corporation and a consumer is subject to thesupply of product information and minimum standards of productsafety. There are procedures for testing products, the making ofcomplaints and even if necessary the recall of products all under Div1A of the TPA 1974. Most contracts for the supply of goods and/orservices have a number of minimum terms implied into them. Theseterms are fundamental to the whole contract and retailers cannotexclude them from the consumers. Divisions 2 and 2A deal with theimplying of certain terms, which are very similar to the terms used inthe Sale of Goods Act.

The new product liability laws (defective products) are based on aEuropean Union Directive, which imposes strict liability onmanufacturers if goods are defective and cause injury. The key liabilityprovision is s 75AD of the TPA 1974. It is hard to calculate the cost orthe effectiveness of these new product liability provisions, butinsurance premiums have gone up!

Impact of the Trade Practices Act 1974

The TPA 1974 impacts on the business environment in a number of different ways. The following are some of the common examples.

Contracts for the supply of goods

Contracts for the supply of goods have the following terms impliedinto them by the TPA 1974. These can be summarised as follows:

Title (s 69)

The seller of the goods must have the legal title or authority to sell thegoods.

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Description (s 70)

The goods must comply with the contractual description of the goods.

Fitness for purpose (s 71)

If the goods are sold in the course of business and the buyer reliesupon the skill of the seller, the goods must be suitable for theirspecified purpose.

Merchantable quality (ss 66 and 71)

Goods sold in the course of business must be of a minimum standard,in respect of the goods’ price, description and other factors.

Sample (s 72)

Relates to goods sold by sample. When the bulk is delivered, it mustcorrespond with the quality of the sample and there must be time toexamine the goods and reject them if necessary.

These implied terms are non-excludable for consumers by s 68. Ifthey are broken, the remedy is not under the TPA 1974, but as for anormal breach of contract. Business to business contracts may have alimited exclusion clause by s 68A. This allows the liability to be limitedto the replacement or repair of goods and subject to an overriding testof fairness.

Contracts for the supply of services

Contracts for the supply of services, irrespective of whether they aresupplied with or without goods, also have a number of implied termsby the TPA 1974. These can be summarised as:

Warranty of due care and skill (s 74)

A person providing the service must exercise due care and skill.

Warranty of goods with services (s 74)

The goods supplied with the service will be fit for that specificpurpose.

Manufacturers’ liability

There are many occasions where the consumer may wish to bring anaction against the manufacturer or the importer of the goods. This isnow possible by an amendment to the TPA 1974, entitled ‘Division 2AActions against Manufacturers and Importers of Goods’. This division

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enables the consumer, where there is an interposing party, to hold themanufacturer liable directly. The actual terms implied onmanufacturers are very similar to those in Div 2:

• description (s 74C); • merchantable quality (s 74D); • unsuitable purpose (s 74B); • sample (s 74E).

In Zaravinos v Dairy Farmers Co-op Ltd (1985), the judge held that thisdivision must relate to consumer goods only. An action for a breach ofthe conditions must be commenced within three years. Section 74Kstates any attempt to avoid these provisions are void. If they are notconsumer goods, the limitation on liability is the cost of repairing orreplacing the goods. Where the manufacturer is overseas, the TPA 1974deems the importer to be the manufacturer by virtue of s 74A(4). Thisis just for the purposes of Div 2A. If there is a contract between theconsumer and the retailer, then Div 2 will be applied. If the real faultof the goods relates to the manufacturer or importer, the seller mayclaim an indemnity by s 74H.

Tort of negligence actions

These provisions of the TPA 1974 and the State Sale of Goods Actswere introduced to try and provide a code on product liability. Thealternative action has always been the common law tort of negligence.The basic elements of the tort were laid down in the famous UK caseof Donoghue v Stevenson (1932) involving the snail in the bottle ofginger beer. The House of Lords required that the following elementshad to be proved:

• duty of care – this is sometimes called the ‘neighbour test’ after theLaw Lord, Lord Atkins;

• breach of that duty; and • actionable loss.

As the tort of negligence developed, two further elements are takeninto account by the courts and they are:

• foreseeability of harm;• public policy.

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Some of the principles of negligence were aided by the rule in Rylandsv Fletcher (1868), that related to bringing unnatural things on to land,which was a form of strict liability. However, in a 1994 High Courtdecision, Burnie Port Authority v General Jones Ltd (1994), this concepthas been challenged. Originally, negligent misstatements (professionalnegligence) were not recognised as causes for actions. However, in theleading case of Hedley Byrne Ltd v Heller & Partners Ltd (1964), a bankfailure to give an accurate credit reference resulting in loss, gave rise toan action in negligence. In Australia, the leading High Court case isShaddock & Associates Pty Ltd v Parramatta City Council (1981).

Unfair practices

The other major area consumers and businesses become involved inthe TPA 1974 is for malpractices. This area is controlled under Part V,Div 1 and is entitled ‘Unfair Practices’. The division is split into somegeneral provisions and some very specific malpractices. This divisionis aimed at stopping corporations from misleading consumers. Bothcivil and criminal remedies are provided under the statute. Section 52is the most litigated section in the act and it is very general, thus onlya civil provision. Section 53 deals with false representations and is a lotmore specific for both goods and services. These sections havecriminal penalties. Other sections have been introduced to stoppractices such as bait advertising (s 66) and false jobs offered byemployment agencies (s 53B). The court also has the statutory powerin ss 51AA and 51AB of the TPA 1974 to declare that a contract isunconscionable and award an appropriate remedy.

It is necessary to look at just two of the sections in more detail, asthey can be used both for and against businesses. The maincommercial sections are ss 52 and 53 of the TPA 1974.

Section 52 of the TPA 1974

A corporation shall not, in trade or commerce, engage in conductthat is misleading or deceptive or is likely to mislead or deceive.

Section 52 is a ‘catch all’ provision and has been extended to coverfuture events (that is, predictions) by s 51A. The conduct must becapable of being misleading rather than actually misleading. This wasillustrated in Parkdale Custom Furniture Pty Ltd v Puxu Pty Ltd (1982)where the High Court discussed the operation of s 52. The factsinvolved a lounge suite, designed by Puxu, and called the ‘Contour’range. The defendants copied the basic design and called it ‘Rawhide’

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and included a one and a half inch label on the lounge. Puxu claimedan injunction and damages for a breach of s 52. The court held (3:1)that there had not been a breach. The conduct as a whole was notmisleading, as a person who took reasonable care to check would havefound the label. Also, the court felt that the designers should haveregistered it under the Designs Act 1906 (Cth).

Another example is the Re Taco Bell case (1982) where a Mexicanfood restaurant situated in Bondi since 1976 was able to stop the USfranchise chain of the same name opening up in 1981. There was likelyto be confusion between the two restaurants. A key recent example ofthis section relates to the misleading advertisements of the NRMA inrespect of their 1995 proposed float and prospectus. The case is Fraserv NRMA (1995) and involved nearly $2 billion. The NRMA laterfloated the insurance business in 2000 after complying with all therelevant laws.

Unsubstantiated advertising claims have been subject to many s 52actions. There is a fine line between mere exaggeration and misleadingconduct. A toothpaste manufacturer stopped a competitor stating thatit prevented tooth decay as it had not been proved in Colgate PalmolivePty Ltd v Rexona Pty Ltd (1981). The courts have not been willing toallow s 52 to be used to protect general business ideas. A remedy willbe refused unless there has been or is likely to be public confusion. Inthe Re Big Mac case (1980), a two litre cask of wine advertised as a ‘bigmac’ would not cause confusion with a hamburger. Whereas theAustralian Society of Accountants were able to stop anotheraccounting body from using ‘CPA’ in the case Re CPA (1987).

A further example of the use of this section occurred in E vAustralian Red Cross Society (1991) where a claim for breach of s 52related to blood given in 1984 that contained HIV. E now sufferedAIDS and claimed a breach of the TPA 1974. The court held that theRed Cross was generally not a trading corporation, but the activities ofthe NSW division made it one for the Act. But there were neitherrepresentation ever made nor was the Red Cross involved in trade orcommerce. Finally, the claim was held to be outside the time period ofthe statute (for Div 1, TPA 1974 it is six years).

In the telecommunications war between Telstra and Optus (Cable& Wireless), the parties constantly used s 52 to support their claimsand counter-claims. The most recent example has been the use of‘freestyle’ advertisements by Optus, showing ‘free’ weekend calls. TheAustralian Competition and Consumer Commission brought an actionto stop the misleading advertising.

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CONSUMER PROTECTION

Section 53

This section has many parts to it and thus it is only possible to examinesome common examples. A false representation that is in breach of s 53is a criminal offence and damages or an injunction can be awarded bythe court.

Section 53(a)False representations as to standards, such as those relating to quality,grade, composition, style or history. In the Re Sharp case (1975), amicrowave was advertised as complying with the StandardsAssociation of Australia, but it had not been tested. The court imposeda $100,000 fine ($10k x 10 charges).

Section 53(aa)False representations as to services.

Section 53(e)False representations as to the price of goods.

Section 53(eb)False representations of the origins of goods.

Section 53(g)False or misleading representations concerning the existence,exclusion or effect of any condition, warranty, guarantee, right orremedy. In Miller v Fiona’s Clothes Horse (1989), a ‘No Refund’ signresulted in a fine of $15,000 for the retailer.

These sections were designed by the legislature to protect consumers.It is interesting to note that many of the civil actions are made bycompeting companies rather than by true consumers. Trade practiceslaws are being used in conjunction with other actions, such as breachof contract, misrepresentations and torts of negligence. The word‘false’ is used throughout s 53. It is taken to mean ‘contrary to fact’ anddoes not require the person making the statement to know that it isfalse. In Given v CV Holland (Holdings) Pty Ltd (1977), a motor vehiclewas displayed with an odometer wound back from 69,012 miles to23,700 miles. The dealer was still held liable under s 53(a).

Sanctions, remedies and compliance

The previous Trade Practices Commission (TPC) receivedapproximately 52,000 complaints a year and normally can resolveapproximately 49,000. The remainder are formally investigated and

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can result in 20 serious prosecutions. The TPA 1974 has a range ofsanctions that can be used to enforce the law. From November 1995,the TPC and the Prices Surveillance Authority merged to form a newFederal regulatory agency, called the Australian Competition andConsumer Commission (usually known by its initials ‘ACCC’ andpronounced the ‘A, triple C’).

It is interesting to note that the TPA 1974 is an unusual piece oflegislation, which is bound in a constitutional struggle. TheCommonwealth is limited in its powers to regulate business. Thus, theTPA 1974 relies upon the Commonwealth’s constitutional power tolegislate on foreign companies, trading and financial companiesformed within the Commonwealth and various communicationpowers. Thus, if the party involved in unfair practices is not acompany and is not involved in interstate or overseas business, theCommonwealth has to rely upon the State/Territory Fair Trading Acts.

The Commission is chaired by Professor Allan Fels and is a highprofile federal agency, which enforces the TPA 1974. The ACCC isinvolved with giving advice, monitoring the operation of the Act,recommending reforms and also becomes directly involved in theprosecution of companies in breach of the TPA 1974. Thecontravention of Part V of the TPA 1974 (which covers many keysections except s 52) commits an offence under s 79(1)(f) with anindividual fine of $40,000. A corporation can be held liable unders 79(1)(g) to a fine of up to $200,000. Legal actions must be broughtwithin a three year time period. Penalties for breaches of Part IV of theTPA 1974 (which involve anti-competitive behaviour) have beenincreased to $10 m for a corporation and $500,000 for an individual.

These new powers came to light very recently when the air freightindustry was found to be in breach of the TPA 1974 price fixing lawsand a fine of $6.5 m was imposed by the court in 1994. TNT was fined$4 m and eight senior executives of the companies received total finesof $425,000. The former general manager of TNT, Mr Brown, receiveda personal fine of $75,000. Another example was the AMP Society thatwas made to pay up to $50 m for their selling of an 80:20 stableinsurance policy, which was far riskier than investors were madeaware of at the time of sale. This was an out of court settlement, whichthe ACCC likes to organise beyond the courts.

The civil remedies include:

• damages (s 82); • injunctions (s 80);

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• disclosure order (s 80A); and • remedial order (s 87).

In a leading High Court decision, a contravention of s 52 of the TPA1974 led the court to award damages for the loss of an opportunity toobtain a commercial advantage based on that statement. The case,Sellars & Poseidon Ltd v Adelaide Petroleum NL (1994), related to twoparallel negotiations for a contract with two companies. The court heldthat damages could be awarded for the loss of a commercialopportunity under contract, tort or a contravention of s 52, if provedon a balance of probabilities standard.


Managers are required to comply with a range of commercial laws andthere are both personal and corporate consequences for breachingthese laws. Some of the key questions are:

• What is the range of laws that protects consumers?• How do the State Sale of Goods Acts and Fair Trading Acts relate

to the federal Trade Practices Act?• How is the TPA 1974 organised and who can enforce these laws?• What is the impact of the unfair trading practices and implied

terms?• What are the consequences for breaching the TPA 1974?

Textbook references



Vermeesch, R and Lindgren, K, Business Law of Australia, 10th edn,2001, Sydney: Butterworths, pp 690–757, 849–94

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Beerworth, E, Product Liability, 1989, Sydney: Federation

Clark, E and Livermore, J, Australian Marketing Law, 1994, Sydney: LBC

Duns, J & Davison, M, Trade Practices & Consumer Protection, 1997,Sydney: Butterworths

Fisher, L, ‘The demise of the rule in Rylands v Fletcher’ (1994) 68 ALJ 463

Goldring, J, Maher, L and McKeough, J, Consumer Protection Law, 1993,Sydney: Federation

Hurley, A and Wiffen, G; Outline of Trade Practices Law, 1999, Sydney:Butterworths

Kellam, J, A Practical Guide to Australian Product Liability, 1992, Sydney:CCH

Layton, L and Steinwall, R, Trade Practices Act 1974, 2001, Sydney:Butterworths

Miller, R, Annotated Trade Practices Act, 2001, Sydney: LBC



Australian Competition and Consumer Commission www. accc.gov.au

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5 Employment Law

Introduction

Employment law is a huge area of law that is so important tounderstand for all business managers. All managers are expected tocontrol a number of employees. The laws relating to employment areexceptionally complex because they are derived from so many sourcesand are likely to change at any time. This is especially true with theimplementation of the federal Workplace Relations Act 1996 (Cth),which replaces the former Industrial Relations Act 1988 (Cth).Traditional common law, ordinary contract law, specific legislationand the union binding agreements, called awards and enterpriseagreements govern the area of employment law. There are manyindividual areas within employment law that could be studied, but itis only realistic to examine the role of the employer/employee, the

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• The employer/employee relationship• Rationale• Distinguishing tests• The contract of employment• Duration• Termination• Post-employment restrictions• Responsibilities of employers and employees• Employees’ responsibilities• Employers’ responsibilities and obligations• Health and safety laws• Discrimination laws

responsibilities of the parties under the contract of employment andfinally the broad anti-discrimination laws.

The employer/employee relationship

Many of the laws are laid down in the common law and under theWorkplace Relations Act 1996 (Cth), which replaced the IndustrialRelations Act 1988 (Cth) and the other specific statutes, such as thePublic Service Act 1922 (Cth) and Public Service Reform Act 1984(Cth).

Rationale

It thus becomes of paramount importance to distinguish betweenthose working under a contract of employment (that is, employees)and independent contractors hired by a contract for services (that is,contractors). The main reasons for distinguishing the two are:

Liability

Employers are vicariously liable for the actions and torts committed bytheir employees. In Lister v Romford Ice & Cold Storage Ltd (1975), anemployee, L junior, while driving a truck ran over his father, L senior,who was also an employee of R Ltd. The father sued the employer forvicarious liability and succeeded. Unusually, the employer’s insurancecompany then sued the employee, L junior, for indemnification oflosses caused by his negligence. Actions are now limited in NSW bythe Employees Liability Act 1991 (NSW). The employer is generallynot liable for independent contractors, as in Stoneman v Lyons (1975),where a wall that was built by a contractor fell down.

Taxation

Employees are required to have their remuneration deducted at source(that is, the PAYE system), whereas contractors are paid gross. It isoften the Australian Taxation Office that brings cases of individualswrongly being classified as employees or contractors. The High Courtin 1997 refused to hear an appeal relating to a courier business in theRe Vabu case (1997) which maintained the tests for distinguishingcontractors from employees.

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Statutory rights

Statutory rights exist under the awards created by the unions and areenforceable by virtue of the previous Industrial Relations Act 1988(Cth), Workplace Relations Act 1996 (Cth) or the equivalentState/Territory legislation.

Common law duties

Standards and duties of care are usually higher to employees thanindependent contractors, both at common law and by statutes, such asthe old Factories Act 1962 (NSW or State equivalent) and theOccupational Health and Safety Act 1983/2000 (NSW or Stateequivalent).

Distinguishing tests

The courts have developed a whole series of tests for determiningwhether an individual is an employee or a contractor. For the vastmajority of cases, this is not an issue, but there have been cases whenthis is fundamental to the action. The three main judicial tests are thecontrol test, the organisation/integration test and the multiple test. Allhave merit and a specific function.

Control test

This was developed and expressed originally by Baron Bramwell inthe case of R v Walker (1858) in 1858 as:

… it seems to me that the difference between the relations ofmaster and servant and of principal and agent is this: A principalhas the right to direct what the agent is to do, but a master has notonly that right, but also the right to say how it is to be done.

The control test can be simply stated as: Does the employer exercisecontrol over how, when and where the work is to be carried out? In theHigh Court’s leading decision, AMP v Chaplin (1978), it was stated tobe the first test to be applied in every case. A problem with this test isthat it only covers manual and semi-skilled workers, because after thatpoint the employer cannot tell the employee how to carry out thespecified duties.

Organisation/integration test

This is a practical test which looks at the question of whether theperson is part and parcel of the business or merely an accessory to it.Another way of viewing the test is to ask whether the person is in

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business on their own account. This was discussed and developed inthe case of Airfix Footwear Ltd v Cope (1978).

Multiple test

The High Court has accepted that there is really no one single factorthat determines the employment status of a person. It is necessary toweigh up a series of factors. This was discussed in Zuijs v Wirth BrosPty Ltd (1955) where a trapeze artist was held to be an employee of thecircus, even though the control test could not be applied.

In the UK, this test was fully developed in the Re Ready MixedConcrete case (1968). This case involved a cement truck driver whobought the cement mixer from the company and wore a uniform andcolours of the company, but was responsible for his own insurancesand had the power to delegate the driving. The court said there was noone decisive factor and the following should be taken into account:

• nature of the task and skill required;• freedom of actions;• who gives the orders?;• power to hire and fire;• who can delegate function?;• amount and manner of payment;• who pays for health/injury premiums?;• mode of taxation;• provision of tools;• whether hours are defined;• expressed intention of the parties;• who has overall right of control?;• degree of financial risk;• inconsistency with employment relationship.

The court held that the person was an independent contractor and wasresponsible for paying his own taxation and National Insurance(medicare levy). In Australia, AMP v Chaplin (1978) followed a verysimilar line, balancing up the variety of factors. It was held that a salesagent was not entitled to long service leave. Some unusual situationsarise where an employer loans an employee to another person, withspecial equipment. This occurred in Mersey Docks and Harbour Board vCoggins and Griffiths Ltd (1947) where an employee of the harbour

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authority was ‘lent’, along with a crane, to a firm of stevedores (that is,wharf loaders involved in the loading and unloading of cargo vessels).The crane driver caused an accident and it was a question of who wasvicariously liable, the normal employer or the firm hiring theequipment. The court held prima facie it is the general employer thatretains the ultimate control, but this could be rebutted in exceptionalcircumstances.

The contract of employment

The rules that relate to contract are just the same in employment. Theadvertisement is the invitation to treat; at the interview an offer ismade and then the prospective employee may accept, creating abinding contract. Acceptance of the offer is deemed to be the timewhen the contract becomes enforceable. This was illustrated in Dietrichv Dare (1980) where a disabled person applied for a job as a housepainter. The potential employer required his own house painted as atest of his ability. The applicant fell off the ladder causing a back injurywhich resulted in his not being able to work. If D is deemed anemployee, he would be entitled to worker’s compensation. The HighCourt held that he was not an employee as the contract of employmenthad not been reached. The potential employer had made the offerconditional on the test, which had not been satisfied.

The other elements of a contract are also present includingintention to contract, capacity and consideration in the form ofremuneration. The terms of the contract ideally should be expressed ina written contract. Many other terms may be derived from awards,customs, trade practices and legislation. The previous IndustrialRelations Act 1988 (Cth) and now the Workplace Relations Act 1996(Cth) specifically state that ‘industrial matters’ shall include anycustom or usage of an industry whether general or in a particularlocality. It is interesting to note that in Re ANZ Bank case (1972), thepractice of bank check-off for union subscriptions was not a termbetween the employer and the employee. The bank’s role was that ofa normal creditor-debtor and remained outside the legislation. Wherethe terms are written the court may interpret the terms and give themsubstance. If the terms are only oral or implied, the court mustconsider all the evidence to determine what would be included in awritten contract if there had been one. There is no legal requirement to

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have a written contract and many employers only give letters ofengagement, with a commencement date and basic remuneration.

Duration

Contracts of employment run for either a fixed period or for anindefinite time. It is essential to separate the two types of employmentcontract because of the ability to terminate the contract.

Fixed period

The contract should be completed as specified and should not beterminated at an earlier stage. This was illustrated in Mallard v BungePty Ltd (1981) where M was employed as a construction engineer forthe period of a particular project. M was dismissed at an earlier stagebased on an implied term relating to early termination forincompetence. The court held that this was wrongful dismissal and Mcould not be terminated until the end of the project. He was entitled tobe paid to the end of the fixed term.

Indefinite period

If a contract contains a term that enables the employment contract tobe terminated by notice, it will be deemed to be a contract of anindefinite period. Thus, in Re British Broadcasting Corporation (1975), aperson, X, was employed by the BBC as a short-term employee. X wasgiven three months’ notice of termination of the job and the court heldthat X was, in fact, on an indefinite period contract and not a fixedterm, as argued.

Termination

Employment contracts are like all contracts in that they can bedischarged in a variety of ways. These include actual performance (asin a fixed term contract), agreement between the parties (givingnotice), a term in the contract (summary dismissal for misconduct) orby the operation of law, such as frustration (imprisonment ofemployee). However, it is important to note that the rules of contractand the realities of industrial practices are very different. Additionally,awards or legislation may include terms containing procedures fortermination. The previous Industrial Relations Act 1988 (Cth) and nowthe Workplace Relations Act 1996 (Cth) contain specific provisions thatdeal with the termination of all employees. The purpose of the

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provisions is to give effect to the 1982 International LabourOrganisation Termination of Employment Convention, whichAustralia signed.

The unfair dismissal law applies to any employee whoseemployment has been terminated by an employer. Various regulationshave been passed to exclude casual employees, probationaryemployees and people employed on fixed term contracts. If anemployee resigns, then the legislation cannot be applied. However,where an employer forces an employee to resign by putting unduepressure on them, it may be deemed a ‘constructive dismissal’. Thismeans that the court may treat the termination like a dismissal ratherthan a resignation. Where an employee has an adequate alternativeremedy, such as seeking redress under a State’s unfair dismissal laws,then the federal provisions should not be applied. These unfairdismissals laws are constantly under review due to the demand forcourt time and the need of business to be able to dismiss employees.

Unfair dismissal

The law of unfair dismissal is constantly being developed by thecourts and by amendments to the federal and State legislation. This isa general guide to the important issues, but all managers should takespecial care and obtain legal advice prior to dismissals. Termination isnow only lawful if a number of steps are taken. The basic stepsrequired are:

Step 1: Prescribed period of notice given;Step 2: Valid reason for termination provided;Step 3: The employee was given an opportunity to defend any

allegations;Step 4: Show that the termination was not ‘harsh, unjust or

unreasonable’;Step 5: The termination was not automatically unfair;Step 6: An order for reinstatement/compensation or validation of

the dismissal.

Each of these steps must be explained in more detail to fully appreciatewhat is expected of employers to terminate employees. It should benoted that ‘good’ employers have had such systems in place for sometime and many other countries have required employers to followsimilar procedures to dismiss employees. There is evidence thatAustralian employers have been below the world standard for dealingwith the termination of employees, especially for incompetence.

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• Notice period For the termination of an employee this is now prescribed by thelegislation and must be given or the employer agrees to make apayment in lieu of the notice period. The exception is where theemployee has committed a ‘serious misconduct’ which entitles theemployer to summarily dismiss the employee without notice. Aserious dismissal is one in which it is unreasonable for an employerto continue to employ a person during the notice period.

• Valid reasons Valid reasons must exist for the dismissal of the employee and theymust relate to one of three grounds:(1) employee’s conduct;(2) employee’s performance;(3) operational requirement (restructuring of the employer or

technology).The employer must be able to provide the Industrial RelationsCommission (previously there was an Industrial Relations Court,but this has been transferred to the Federal Court) with writtenreasons as to why the employee was dismissed and that allprocedures were followed. For example, if there has been somemisconduct (petty theft), that the employee was properly warnedand informed of the consequences.

• Natural justiceThis is a concept where a person has the right to be heard and theright to have a decision made free from bias. The new unfairdismissal laws now require an employee to be given anopportunity to defend any allegations (or reasons) made by theemployer regarding the grounds for dismissal. If more than 15employees are to be terminated because of economic ortechnological changes, the law requires that the CommonwealthEmployment Service (or equivalent) is notified of the changes andthat the union should be consulted.

• Unfair dismissalsThese relate to the fact that the legislation states that thetermination is not valid if, taking into account all thecircumstances, it is ‘harsh, unjust or unreasonable’. The employermay provide a reason, but the court may determine the proper

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procedures were not followed which would make the terminationunfair. One such reason could be not allowing the employees todefend themselves. The court is likely to take a liberal view offairness because of the inequality of bargaining positions betweenthe employer and an individual employee.

• Automatically unfair Automatically unfair dismissal arises by way of the operation ofthe legislation, which states that certain grounds are always unfair.These reasons include: (1) temporary absence from work due to an illness or injury; (2) union membership or the participation in union activities; (3) discrimination by race, colour, sex, sexual preference, age,

physical or mental disability, marital status, and pregnancy.

The ex-employee or union can make application for unfair dismissal tothe Industrial Relations Commission within 14 days of the employeereceiving written notice of the termination. The court, beforeconsidering the case on its merits, must refer the matter to the court forconciliation. If there is no conciliation, the court will make adetermination and may make any order it thinks fit. This wouldnormally be to declare that the termination is valid, or ordercompensation or reinstatement for contravention of the legislation.

It is interesting to note that if the court hears the case, the onus ison the employer to demonstrate that the termination was lawful andthat it was for a valid reason and not harsh, unjust or unreasonable.This area of law is going to be filled with case law and many exampleswill come to light. At least 1,000 claims were lodged in the first threemonths of the legislation being passed. There has been a constantbacklog of claims in this area.

Notice

The most common form of termination is where either party givesnotice, as per the terms in the contract or award or statute. Employeesmay resign by giving notice. A rule of thumb is that a period equal tothe payment period is sufficient notice (where there is no expressprovision). Also, unless an award so states, there is no right to areference. However, for the employer giving notice to the employee, itis not as easy. There should ideally be an express term, but if not theemployer must give ‘reasonable time’. Justice Jacobs discussed this insome detail in Thorpe v South Australia Football League (1974), where he

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said, ‘it depends upon the circumstances of each particular case andthere is no rule of thumb’. On the individual facts, T had been giventhree months’ notice to terminate an indefinite contract as the generalmanager of the SA football league after seven years’ service. The courtheld that this constituted wrongful dismissal (breach of employmentcontract) and six months would have been more reasonable. Indetermining reasonable time, the following non-exhaustive list offactors should be considered:

• job status; • qualifications; • length of service; • future prospects; • age; • degree of job mobility; and • industry practices.

Summary dismissal

Summary dismissal occurs when the employee breaks the contract (acondition) which entitles the employer to instantly terminate thecontract. The employer must be certain that the employee has brokenthe contract. If not, the employee will be entitled to sue for wrongfuldismissal and will normally be entitled to damages for loss ofremuneration. If it is also a breach of an award or legislation, it is calledan unfair dismissal.

The High Court accepted this basic principle in Blyth Chemicals Ltdv Bushnell (1933) where B, the manager of a chemical sprays plant, setup his own business in chemicals. There was no direct competitionand the enterprise was fully disclosed. BC summarily dismissed B forthe implied term of fidelity and to avoid conflicts of interest. The courtheld that although this is a good ground to dismiss, B had not actuallycompeted and a mere uneasiness as to future conduct was insufficientgrounds to dismiss and damages were awarded. Reasons for summarydismissal include:

• Refusal to obey reasonable and lawful instructionsThis was held in Adami v Maison de Luxe Ltd (1924) where anemployee manager refused to work on Saturdays, as instructed.Willful disobedience was held to be a valid ground for summarydismissal.

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However, if the employer’s instructions are unlawful orunreasonable, they can be refused, as in Laws v London Chronicle Ltd(1959). Here, a managing director ordered a personal assistant to adirector to stay in the boardroom rather than follow the directorout of the room during an argument. The UK Court of Appeal heldthis to be an unreasonable order in the heat of the moment andespecially then to dismiss the personal assistant.

• MisconductThis covers many possible grounds, such as theft (both chattels andinformation) or receiving secret commissions. In Ansell Rubber PtyLtd v Allied Rubber Industries Ltd (1967), two employees of Ansell, Gand A, were employed to design a glove-making machine. They setup a company in direct competition and G remained with Ansell,supplying their new company with all the information. Aninjunction was taken out against the competitor and G wassummarily dismissed. A similar result occurred in TimberEngineering Ltd v Anderson (1980) where a manager set up abusiness in direct competition with the employer. The courtawarded the remedy of an account of profits against the employee.Immorality has been a ground of misconduct, in Orr v University ofTasmania (1956), where a professor seduced a number of studentsin respect of their grades.

• IncompetenceOne of the hardest grounds to summarily dismiss is incompetence.It has been successful on occasions such as the truck driver runningover his father in Lister v Romford Ice & Cold Storage Ltd (1957).Often, the courts have in fact blamed the employer for failing toprovide adequate supervision, as in Williams v Printers TradeServices (1984) where a printer made costly mistakes and was fired.The Federal Court held that proper notice should have been given(one week under the award) and there had been inadequatesupervision of the employee.

Post-employment restrictions

Contracts of employment may contain terms, which are called post-employment restrictions or restraint of trade clauses or restrictivecovenants. Prima facie such terms are void at common law becausethey are prohibiting competition. However, under special

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circumstances, the courts have been willing to uphold them. Theoriginal tests were laid down in a case called Nordenfelt v Maxim-Nordenfelt Gun Co (1894). This test requires the party enforcing therestriction to show that it:

• is reasonable in the public’s interest; and• is reasonable between the parties, taking into account:

(1) the duration; (2) the geographic area;(3) how restrictive the terms are (what is actually covered by the

restriction).

The courts have been only willing to stop employees from working forcompetitors if trade secrets or goodwill are being unfairly used. InDrake Personnel v Beddison (1979), the court held that B could not bestopped from setting up a recruitment agency one month later and justone mile away from the previous employer. B had signed anagreement that he would not engage in similar business for 12 monthswithin a 25 mile radius of DP which was held to be too restrictive.Also, the customer list that B took from DP was predominantly publicinformation and only 30% of it related to DP clients. The post-employment restrictive clauses have been most successful if tradesecrets are taken or with professional practices based on goodwill,such as a solicitor in Sharah v Healey (1982).

Responsibilities of employers and employees

Both the employer and employee owe certain responsibilities andobligations to each other. They may be express terms in the contract,stated in an award or under statute, but most often are just impliedinto the contract. Many of the following responsibilities have beendeveloped by the common law and are thus subject to the interventionof statutes and awards.

Employees’ responsibilities

Lawful and reasonable instructions

The employer may give instructions to the employee and they shouldbe complied with if they are both lawful and reasonable. Failure tocomply is a breach of contract and the employer in certain

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circumstances may summarily dismiss the employee. In Adami vMaison de Luxe Ltd (1924), a music hall manager was asked to workSaturdays and he refused, believing it to be outside his contract andthat the employer knew he worked as a bookie. The court held theinstructions to be reasonable and the employee had breached thecontract for wilful disobedience.

However, if the employer asks an employee to carry out an illegalfunction, the employee may refuse, as in an unsafe work practice inBHP v Federation of Ironworkers Association (1976). Also, a similar resultoccurred where unreasonable orders were given to a personal assistantto a director by the managing director in Laws v London Chronicle Ltd(1959). This principle has also been taken as part of the maxim ‘nowork as directed, no pay’, which was derived from Mallinson’s case(1920) in the High Court. Although challenged in a banking case overpay deductions during a work to rule (refusing to clear cheques), aunique award entitled the employees to be paid even if the work wasnot done. These types of award clauses have now been changed.Obedience has even been applied to what are suitable clothes to beworn at work. In Australian Telecommunications v Hart (1982), it washeld to be unreasonable to wear a caftan and thongs to work.

Fidelity

A basic concept of good faith reflects the special nature of therelationship. Although this is derived from the concepts of master andservant, it is still applied today in many ways. The most obviousexamples of this principle include an employee setting up a businessin direct competition to the employer, as in Timber Engineering vAnderson (1980). Other examples include a manager removing a clientlist on termination of employment, as in Robb v Green (1895). Therehave been cases of an executive director (employee) tendering for acontract against the employer in Green v Bestobell Industries (1982).

Competence

The employee is expected to exercise reasonable skill and care inrespect to the function the person is employed to execute. A failure toexercise such care occurred with the truck driver who ran over hisfather in the court yard of their employer’s premises, as in Lister’s case(1957). It is not common for employers to sue their employees underthe tort of negligence. The courts would also take into account whetherthe employer has provided sufficient training and supervision to carryout the required function to the appropriate standard. A failure of

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ability may result in either a summary dismissal or more realisticallythe employee being given notice.

Personal service

The idea of personal service is very similar to the duty of fidelity andis derived from the master-servant relationship. Employees, withoutthe employer’s consent, cannot delegate their function and must notwilfully obstruct the employer’s business. A ‘work to rule’ ban(removal of all goodwill) can in fact be deemed a breach of the contractof employment. One particular problem occurs with what is called the‘double master dilemma’; that is, where a union and an employer giveconflicting instructions. The courts have nearly always supported theemployer, but do require the employer to be reasonable, especially inheated circumstances. The employer may even be able to restrain anemployee from carrying out a second job, if consent of the mainemployer is not granted. This was established in Hivac Ltd v Park RoyalScientific Instruments (1946) and followed in the Timber Engineering vAnderson (1980) case.

Confidentiality

Employees gain access to a wide variety of confidential information.All information that an employee receives may be divided into eithergeneral business information or confidential to the employerinformation. The employer may insert into the contract of employmentan express term relating to confidentiality during the course ofemployment and even post employment. However, the courts havebeen willing to imply a term relating to confidentiality. In Ansell Rubberv Allied Rubber (1967), it was expressed as, the employee must not useany information to the detriment of the employer. A breach ofconfidentiality especially occurs where there is a conflict of interests,as in competing tenders in Green v Bestobell Industries (1982).

A possible exception would be the disclosure of information to anauthority relating to a crime, a fraud or a breach of the trade practiceprovisions, as in Initial Services v Putterill (1967). Here, the employeerevealed the existence of an illegal price maintenance system for theindustrial laundry business. Where the information is not secretive,the court will not interfere and will certainly refuse an injunction, as inFaccenda Chicken v Fowler (1986). Here, the manager designed routesfor the delivery of frozen chickens. He then set up a business, afterleaving the employment, delivering chickens on the same route (halfan hour earlier than the employer!). The court held this not to be

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confidential information. NSW public servants now have a limitedright to whistleblow under the Protected Disclosures Act 1995 (NSW).

Employers’ responsibilities and obligations

The employer is also under a variety of responsibilities and obligationsto its employees. These include the following:

Provide work

At common law, it is not generally recognised that an employer has toprovide work. Justice Asquith in Collier v Sunday Referee Publishing(1940) summed up the position as, ‘I may pay my cook regularly, butchoose to eat out, she cannot complain’. This principle has beenfollowed in Australian National Airlines v Robinson (1977). There aresome important exceptions where the employer is obliged to providesome work. Examples include piece-workers and skilled professionalswho require publicity and exposure, for example, rugby leagueplayers in Buckley v Tutty (1971).

Pay wages

Remuneration is the consideration that supports the contract. Ifconsideration is not paid the employer has broken the contract and theemployee may treat the obligations as discharged and sue for theoutstanding wages. The basic principle that the employer will pay forthe work that has been done as instructed was established by the HighCourt in Mallinson v Scottish Australian Investment Co Ltd (1920). Thecourt stated:

... that an employer does not have to pay, if an employee does notfollow lawful and reasonable instructions of the employer.

The maxim, ‘no work as directed, no pay’ was firmly established. Ithas been attacked and undermined by various cases and awards, buthas been followed in most cases, such as Csomore v Public Service Board(1986) where the employer instructed cheques to be cleared, theemployee refused and part of his wages were withheld. The court heldthis to be correct, unless the right is waived or there is an expressprovision in an award (as in Gapes v Commercial Bank (1979)). TheAustralian Bank Employees’ award is now altered to reflect this legalposition.

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Indemnification

If an employee incurs an expense in the course of employment, thereis normally an implied term that the employer will indemnify theemployee. This is a derivative term of the concept of expense accounts.The courts have stated that the reimbursement of all reasonableexpenses can be expected. In Pupazzoni v Fremantle Fishermen’s Co-operative (1981), a general manager entertained clients and submittedclaims to the board. The contract of employment stated that theemployer may approve the expenses or not, and they had decided torefuse. The court would only imply the term if the contract had beensilent on this point.

Managerial duties

This is a wide heading to cover a series of inter-related duties imposedupon all employers. Many of the common law provisions are nowenshrined into legislation, such as the Occupational Health and SafetyActs, workers’ compensation legislation and other specific legislation,and the anti-discrimination legislation.

Other managerial duties include:

• supply of reasonably competent staff;• provision of safe plant and equipment;• adequate supervision and training; and• to know and apply the discrimination laws.

Health and safety laws

The basic duty at common law is that the employer should eliminateall unreasonable hazards from the employee, as in Ottoman Bank vChakarian (1930) which involved an Armenian working in a Turkishbank at the outbreak of war. It is a question of fact and based upon thereasonable employer assessing the degree of risk involved. InAustralia (in 1989/90) approximately 500 people died of work-relatedaccidents and 600,000 suffered injuries which required more than fivedays off work. In dollar terms this amounts to at least $9.7 billion, ofwhich $4.8 billion is direct workers’ compensation. The FederalWorksafe Australia and the State equivalents (such as NSWWorkCover Authority) are extremely concerned about the growth inaccidents and related costs.

The two sides to health and safety laws are prevention (by way ofthe criminal occupational safety legislation) and compensation (by way

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of the workers compensation legislation). Every case that goes to theNSW Compensation Court has an average legal cost of $12,000. Theaverage penalty for a breach of the laws is only $2,683. The maximumfine for a breach of OHS in some States is only $50,000 and even inNSW can it reach $250,000. The various governments are looking at a1995 report by the Industry Commission entitled ‘Work, Health andSafety’. Premiums are sure to rise and it is predicted that the standardcover for workers, compensation will be 2.5% of the wages bill (that is,40% increase on previous years).

One of the most important principles is that there should be a safesystem of work. This was stated in Wilson & Clyde Coal v English (1938)where a coal miner was crushed to death because the employer hadnot placed sufficient props in the mine. This principle has even beenapplied to the collecting of garbage down both sides of a street, inMcLean v Tedman (1984). The duties are a continuous obligation and, ifbreached may result in a breach of contract or the tort of negligence ora breach of statute. In Forrest v John Mills Pty Ltd (1970), the courtexamined both a common law action and a breach of statute. F was themanager of a printing company, and dropped a spanner in a machine.F tried to squeeze his arm through while the machine was stilloperating, causing a serious injury. A claim was made for a statutorybreach of the Factories Act 1962 (NSW) and for common law damages.The court held that there was an absolute duty under the act to fencethe machine and this had not happened, thus the employer wasresponsible. However, the common law damages were reduced by60% because of F’s contributory negligence.

Discrimination laws

Since 1977, both Commonwealth and State/Territory Parliaments havebeen developing anti-discrimination laws. The aim of such legislationis to bring an end to intolerance, prejudice and discrimination in ourcommunity. This is a tall order and over a decade later the laws are stillbeing passed and the discrimination seems to continue. The laws thatrelate to discrimination and equal opportunity apply to many areassuch as accommodation, provision of goods, services, membership ofunions, registered clubs and most aspects of employment.

One major problem that has existed has been a jurisdictionalconflict between the State legislation and the federal laws. This washighlighted in the High Court decision of Dao v Australian PostalCommission (1987) where two Vietnamese women were employed on a

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temporary basis with Australia Post. They were denied a permanentjob because they were under the minimum weight and heightstandards. They claimed both race and sex discrimination under theNSW Anti-Discrimination Act 1977 and the Equal OpportunityTribunal claimed jurisdiction. However, the High Court determinedthat Australia Post is a Commonwealth instrumentality and as suchgoverned by federal legislation. In 1984 the NSW Anti-DiscriminationBoard became an agent for the federal Human Rights and EqualOpportunity Commission, to prevent mix ups in jurisdictions fromoccurring. The Human Rights Commission also has responsibilitiesunder the International Treaties and acts as a guardian of all humanrights issues. The International Labour Organisation Convention No111 ‘Discrimination (Employment and Occupation)’ definesdiscrimination as:

… including any distinction, exclusion or preference made on thebasis of race, colour, sex, political opinion, national extraction orsocial origin.

Not all these grounds are as yet recognised by Australian anti-discrimination laws, but recent amendments now cover moregrounds, such as age discrimination. The major legislation in this areais:

Federal

• Racial Discrimination Act 1975 (Cth);• Sex Discrimination Act 1984 (Cth);• Human Rights and Equal Opportunity Commission Act 1986

(Cth);• Affirmative Action (Equal Employment Opportunity for Women)

Act 1986 (Cth);• Disability Discrimination Act 1992 (Cth).

State/Territory:

• Anti-Discrimination Act 1977 (NSW);• Equal Opportunity Act 1984 (Vic);• Discrimination Act 1991 (ACT);

The major grounds for discrimination relating to employment are asfollows:

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• race, colour, national or ethnic origin or that of a relative orassociate;

• sex, marital status, pregnancy, sexual harassment (mostcomplaints);

• impairments, physical or mental;• religious beliefs;• political beliefs;• sexual preference;• criminal record.

Within employment, these grounds relate to recruitment,advertisements, conditions, promotion, training and termination. Theparties are referred to as the ‘discriminator’ and the ‘aggrieved party’.Some specific examples include s 14(1) of the Sex Discrimination Act1976, which makes it unlawful for an employer to discriminate indetermining who should be offered employment. This principle isextended by s 14(2) to cover the terms of employment, opportunitiesand dismissal. The courts have interpreted this to mean that theemployer has a responsibility to have an environment free of sexualharassment in the case of Hill v Water Resources Commission (1985).

Sexual harassment is treated as a separate action under s 28 of theSex Discrimination Act 1976. It is interesting to note that under theNSW Anti-Discrimination Act there is no separate provision for sexualharassment and it required a judge to extend the principle of sexdiscrimination to cover harassment. This was laid down in O’Callaghanv Commissioner of Main Roads (1984). Some cases have had a dramaticeffect upon employment processes. In Ansett v Wardley (1980), Wapplied to be a trainee pilot and was not selected because she wantedchildren. The court held that W had been discriminated against andwas entitled to be re-employed as a trainee pilot and received damagesfor the loss of income as a pilot.

Not all cases have been successful and proof is important. InDepartment of Health (Vic) v Arumugam (1987), two doctors went for ajob as a hospital superintendent. Dr D, from Ireland, gained the jobover Dr A, from India. A claim of racial discrimination was made andthe hospital could show that objective criteria were used. One of themost important cases relating to the hiring and retrenchment policiesof a very large employer is Australian Iron & Steel v Najdovska (1988). Inthis case, N and 33 other women claimed sex discrimination on beinghired last after men and being the first to be retrenched. The court held

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that the hiring practices were discriminatory, but the retrenchmentwas based on LIFO (‘last-in-first-out’) principles and this was valid. Alarge damages settlement was paid by AIS.

Advertisements that appear to be discriminatory are in breach ofthe legislation. Section 86 of the Sex Discrimination Act 1976 states thata person shall not publish or display an advertisement that indicatesor could be reasonably understood as indicating an intention to do anact which is unlawful by reason of s 14 (sex discrimination). Theemployer does not have to be actually discriminating, it is sufficient toappear to have the intention. In Sheiban v Hall (1989), Dr S interviewedthree receptionists over several years and asked very personalquestions. At first, the court said that there could not be sexualharassment or discrimination because they were all appointed. But onappeal, the court said that both actual harassment had taken place andthat the applicants felt that they were reasonably sufferingdiscrimination.

There is also a general community confusion over the affirmativeaction and equal opportunity legislation in Australia. At the moment,the Affirmative Action Agency requires all employers with more than100 employees to file an annual report with it. There are approximately3,000 companies that have to comply and all this information isavailable on CD-ROM. Unfortunately the Agency does not have anysanctions against companies except that they are named in the FederalParliament. The EEO legislation has resulted in compensation of up to$40,000.


Managers have always been expected to know the legal requirementsof employment law irrespective of whether the employer has a humanresources department or not. The key questions are as follows:

• Can you distinguish between an employee and a contractor?• Why is it important to know the difference between contractors

and employees?• What are the basic terms of a contract of employment?• What common law duties are owed by the employee and the

employer?• What are the managerial duties?

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• How do health and safety laws and discrimination laws impact ona manager?

Textbook references

Latimer, P, Australian Business Law, 20th edn, 2001, Sydney: CCH, p 545


Vermeesch, R and Lindgren, K, Business Law of Australia, 10th edn,2001, Sydney: Butterworths


Brooks, A, Occupational Health and Safety in Australia, 1993, Sydney:CCH

CCH editors, Termination of Employment: The New Federal Law, 1994,Sydney: CCH.

Creighton, B and Stewart, A, Labour Law: An Introduction, 2nd edn,2000, Sydney: Federation

Macken, J, McCarry, G and Sappideen, C, The Law of Employment, 1997,Sydney: LBC

McCallum, R and Pittard, M, Australian Labour Law, 1995, Sydney:Butterworths

McCarry, G, Aspects of Public Sector Employment Law, 1988, Sydney:LBC

Moorhouse, P and Punch, P, Termination of Employment, 1994, Sydney:CCH

Punch, P, Australian Industrial Law, 1997, Sydney: CCH

Rozen, P, Industrial Law, 1998, Sydney: Butterworths

Wallace-Bruce, N, Outline of Employment Law, 1999, Sydney:Butterworths

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Australasian Legal Information Institute www.austlii.edu.auNational Employment Lawyers Association www.nela.orgNational Occupational Health and

Safety Commission www.nohsc.gov.au

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6 Intellectual Property

Introduction

Intellectual property, as an area of law, has existed for many centuries.However, it is only in relatively modern times that its importance hasbecome apparent to business managers and has become studied indepth. It tends to be a little difficult because it deals with intangibles.The topic is also referred to as ‘industrial property’, which reflects itsbackground with the industrial revolution.

Within the constraints of a single chapter, it is not possible to lookat all the provisions of intellectual property. What is realistic is to gainan appreciation of the choice of methods to protect ideas for the benefitof the employer, inventor, author or designer. There is an excellentinternet site that is maintained by the Australian Industrial PropertyOrganisation (IP Australia), which contains all the latest informationon intellectual property.

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• Overview of protecting ideas• Non-registrable intellectual property• Copyright• Common law protection• Registrable intellectual property• Trade and service marks• Industrial design• Patents

Overview of protecting ideas

First, it is essential to gain an overview of how to protect ideas andwhat can actually be legally protected. This can be followed by a briefexamination of copyright and trade marks. It is also worth noting theoperation of industrial designs and patents. Statutes govern all ofthese intellectual property rights, but there are also some limitedcommon law rights (called the torts of passing off and confidentiality).Australia, in respect of intellectual property, does not have laws inisolation from the rest of the world. Many ideas need protectinginternationally and thus Australia is a member of the WorldIntellectual Property Organisation, which has developed varioustreaties to protect industrial ideas. The 1994 General Agreement onTariffs and Trade (GATT) resulted in Australia signing the TradeRelated aspects of Intellectual Property rights (known as ‘TRIPS’) inUruguay. This has changed a number of Australian intellectualproperty rights relating to copyright, trade marks, industrial designand patents.

To protect ideas one must not think along a single basic type ofprotection. Intellectual property concerns a bundle of rights. Forconvenience, they may be grouped into copyright, designs, patents,trade marks and common law torts of passing off and confidentiality.The law confers a monopolistic right on the inventor or creator for alimited period, so as to compensate for the cost of creativity anddevelopment. This has been refined since 1883, when the firstinternational treaty (Berne Convention 1883) was signed to giveprotection worldwide by reciprocal rights. The main internationalcopyright treaty is now the Universal Copyright Convention 1952.More recently the GATT/TRIPS agreement in 1994 has changed theworld’s view on intellectual property rights. International pressure inrespect of intellectual property rights has caused China to introducelaws that could result in executions for piracy. The Business SoftwareAlliance has stated that 90% of the software being used in China isillegal. Compact disc and software piracy in China alone was costingUS companies an estimated $1.13 billion in 1994.

The legal rights under intellectual property have tended to begoverned by Commonwealth legislation. Many of the original statuteswere imported from the UK and are inherently complex. There havebeen many proposals to re-write these laws, but for the momentParliament seems to merely amend them (which makes them evenmore complicated). The exceptions to this are the Patents Act 1990

86


(Cth) and the Trade Marks Act 1995 (Cth). There have been a numberof proposals to try and make the laws ‘technologically neutral’ ratherthan just amending them as advancements in technology occur.However, Australia has to keep its laws in line with our major tradingpartners. Concerns over the intellectual property use of the OlympicGames 2000 occurred in recent years. In 1995 a pub called the ‘OlympicHotel’ in Sydney was challenged and was required to change its name.The major protection provisions are:

• copyright under the Copyright Act 1968 (Cth) as amended;• common law protection including:

❍ tort of passing-off as established in the Re Advocaat case(Warnink v Townsend) (1979);

❍ breach of confidentiality as in the Re Golden Lights case(Moorgate Tobacco v Philip Morris) (1984);

• designs under the Designs Act 1906 (Cth);• patents under the Patents Act 1990 (Cth);• trade marks under the Trade Marks Act 1995 (Cth).

The actual choice of rights will depend upon many factors. Copyrightand the common law both have the benefit that they do not have to beregistered, whereas all the other rights do have to be registered to gainprotection. Patents may only be granted in a limited context, but theygive a great deal of protection while the patent is enforceable.

It is not unusual for a company to try to protect its ideas using avariety of different intellectual property rights. One area where this isbecoming increasingly valuable is character merchandising, such aswith Batman, Jurassic Park and the Flintstones. A 1995 survey bychartered accountants firm Ernst & Young has discovered that 44% ofthe top 100 Australian listed companies have identifiable intangibleassets on their financial statements. This is to be compared by a similarsurvey in 1989 where only 20% of the top 150 companies hadintangible assets on their books. This shows a significant growth in therecognition of brand names, trade marks, patents and licences.

Non-registrable intellectual property

There are a few ways in which a business can protect its ideas withouthaving to formally register them or pay a fee for the legal privilege.The two main ways are the use of copyright or a reliance on the

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INTELLECTUAL PROPERTY

common law concepts of ‘passing-off’ or ‘the obligation ofconfidentiality’.

Copyright

This is a very important topic that few managers seem to reallyunderstand. It can be an easy and cheap method to control theintellectual property of a business and protect valuable ideas.

Overview of copyright

Copyright and trade marks are probably the most frequently usedmethod managers use to protect ideas. The Copyright Act 1968 (Cth),as amended, basically covers all literary, dramatic, musical and artisticworks. It also covers films, radio, television, and published editionsand, since 1984, computer programs. Where the idea is used toproduce goods, such as wallpaper or material, the design would beregistered under the Designs Act 1906 (Cth).

The basic requirements for copyright recognition are:

• copyright symbol © on published work;• date of first publication;• name of copyright owner.

Legal rights

Copyright, in s 31 of the Copyright Act 1968, gives an exclusive rightover literary, dramatic or musical works to do the following:

• reproduce the work;• publish;• perform;• broadcast;• transmit to cable;• make adaptations.

Further, there is copyright in artistic works to reproduce in a materialform, publish or broadcast. Copyright subsists in ‘unpublishedoriginal works’, if the person is a qualified person (meaning anAustralian citizen or resident). If the work is to be published, it shouldbe first published in Australia.

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Originality is obviously a key concept for the enforceability ofcopyright infringements. It is not the actual idea, but the materialexpression of the idea. This was discussed in John Fairfax Ltd vAustralian Consolidated Press Ltd (1960) where the Daily Telegraph (DT)was stopped from copying the births and deaths notices from theSydney Morning Herald. But the DT then used the same source, alteredthe entry of dates, abbreviations and adjectives used. The court heldthis not to be a breach of copyright. Copy is taken to be literal, that isa precise transcription of the work. Originality has a surprisingly lowstandard. One does not have to be Shakespeare to have copyright, infact these words are covered by copyright and even the layout offootball pools are covered.

Copyright works

Literary works are widely defined in the Act to include tables andcompilations. Examinations and catalogues have been held to containcopyright. In Mirror Newspapers v Queensland Newspapers (1982), the listof ‘bingo’ numbers in the paper were held to be literary works forcopyright purposes. The most basic test to determine originality andthe literary quality of a work is to ask the question: ‘What is worthcopying is prima facie worth protecting.’ The court did not accept,however, that a literary work could exist in just one word, such asExxon.

Computer programs have caused many problems in respect ofcopyright. The leading decision, Apple Computer Inc v Computer EdgePty Ltd (1986) (this case is often known as the Wombat case), resulted inthe Commonwealth Parliament amending the legislation before theHigh Court gave its judgment. The court actually held that there wascopyright in the source code, but not in the object code. The reason forthis was that the electrical impulses in the chips were not in a materialform that can be perceived by the human senses. This is a basicrequirement of copyright.

Parliament introduced the Copyright Amendment Act 1984 (Cth)and redefined literary work to include computer programs, in alllanguages, codes and notations of set instructions. A further Act calledthe Circuits Layout Act 1988 (Cth) was passed to solve other problemsthat had arisen. This has now been further developed by the HighCourt in the case of Autodesk v Dyason (1992). This case gives a broadinterpretation to the meaning of the words ‘computer program’, asused in the Copyright Act 1968. The case involved the mimicking of an

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anti-pirating device for a CAD/CAM program. Although there was noactual copying it was tantamount to ‘reverse engineering’.

Duration of copyright

Section 33 of the Copyright Act 1968 deals with the length of timecopyright affords protection. The basic rule for unpublished works isthe life of the author plus 50 years. If the work is published, broadcast,performed in public or records offered for sale, it is 50 years from thatevent. Photographs, sound recordings and films are 50 years after firstpublication or indefinite if unpublished. Publication requires thesupply of sufficient quantities to satisfy public demand for the work.It is a question of fact for the court to decide in the circumstances.

Copyright ownership

Generally, the author is the owner of the copyright, by virtue of s 35(2)of the Copyright Act 1968 (Cth). There are some important exceptionsto this rule, which managers should be aware of, in respect ofownership by an employer. Where the work is created in the course ofemployment, it will be deemed to belong to the employer (by s 35(6)).The owner can make an express agreement, which assigns theownership of the copyright to a particular person. There is also a rulefor newspaper proprietors and journalists. If a person iscommissioned, for consideration, to photograph, draw or paint aportrait or engraving, the commissioner is the copyright owner.

Infringement

Infringement of copyright is governed by s 36 and occurs if a person,other than the owner, without a licence or consent of the owner, doesany act comprised within the copyright or authorises someone else todo the act. This includes the importation for sale, hire, exhibition ordistribution of the work without consent. This obviously covers theduplication of articles, books, records and films. One major problemarea has been parallel importation and the courts have not beenwilling to imply a licence for this situation. In Interstate Parcel Pty Ltd(Angus & Robertson Books) v Time-Life (1977), cookbooks were legallybought in the USA, where Time Inc owned the copyright. The bookswere imported to Australia, where Time-Life, the Australian exclusivelicensee, tried to stop the infringement. The court granted aninjunction to stop the sale and future importation of the books.

Another problem has been ‘reverse engineering’ or the threedimensional reproduction of the copyright in drawings etc. This has

90


been held to be an infringement in the Re Popeye case (1941) wherecopies of Popeye dolls were being made and sold based upondrawings covered by copyright. The reproductions must be so closethat it is obvious to a reasonably intelligent person that they are froma particular source. Photocopying has caused particular problems, asit is an easy way to breach copyright. The real problem is theauthorisation of infringement, for example, the provider of aphotocopy machine in a library, as in University of NSW v Angus &Robertson (1975) being held liable for breaches of copyright. Specialamendments have been made to the legislation in respect ofeducational institutions. Records must be kept and compensation ispaid to the copyright owner through the Copyright Agency Limited(which is known as CAL).

Defences

Fair dealing is one of the main defences in ss 40–42 of the CopyrightAct 1968. An article from a periodical or a reasonable proportion of awork or adaptation is allowed to be copied for the purpose of researchand study for fair dealing. This would not count as an infringement.Other defences are for the purposes of criticism and review, as long asthere is sufficient acknowledgment. Further copyrights are included insound recordings (s 85), films (s 86), television and sound broadcasts(s 87) and published editions (s 88). These are additional to the otherrights already referred to above.

Remedies for infringement

There are wide ranges of remedies that can be granted by the courtagainst a person infringing copyright. These include:

• injunctions;• awards of damages/account of profits;• delivery of offending material to owner;• prevent importation of material;• punitive damages for deliberate infringing;• criminal consequences for knowingly copying works for sale, hire,

exhibition, importation or prejudicially affecting the copyrightowner’s rights. Fine: after first conviction, up to six months,imprisonment. The making or possessing of plates for copyingresults in a fine of $150 per article or in the case of a film $1,500 perfilm, for the first offence. The performance of a literary, dramatic ormusical work in public results in a fine.

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Common law protection

Where there is not sufficient evidence for a breach of copyright, suchas the idea is not in a material form, the common law may be able togive an alternative protection. The main actions are either the tort ofpassing-off or a breach of confidentiality.

Tort of passing-off

This was developed to prevent people from producing goods thatwere deceptively similar or tried to a show a connection to anestablished supplier. The classic case of Bollinger v Costa Brava Wines(1961) illustrates the point. Spanish champagne was imported into theUK and the French champagne producers brought an action to stopthis wine being called champagne. In Fletcher Challenge Ltd v FletcherChallenge Pty Ltd (1981), the famous New Zealand company was ableto stop a company using its name as FC had a well known reputationin Australia, even though it had not as yet been in commercial trading.The main elements of the tort are from the Advocaat case (1979) and canbe summarised as:

• plaintiff reputation;• defendant’s representations;• likelihood of damage.

It has been argued that even if there is no passing-off, there should bean action of unfair competition. This was rejected by the House ofLords sitting as the Privy Council in Cadbury-Schweppes v Pub Squash(1981) and more recently by the High Court in the Re Golden Lights case(1984). Companies now also have the benefit of statutory actionsassociated with s 52 of the Trade Practices Act 1974 (Cth).

Obligation of confidentiality

A special obligation may be imposed upon individuals, so as to stop abreach of confidence. This action has its roots in the case of Coco v ClarkLtd (1969). The court stated that there are three requirements:

• the information must be inherently confidential per se;• it is imparted in circumstances that give rise to an obligation of

confidence;• unauthorised use of information must cause a detriment to the

party.

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The basic principles were fully adopted by the High Court in the ReGolden Lights case (1984). It was suggested that the principles gobeyond confidence and may include an obligation of conscience!Confidential information normally means:

• trade secrets, as in Ansell Rubber v Allied Rubber (1967);• some personal secrets, as in Argyll v Argyll (1965); and • government secrets.

This is much wider than copyright, as it can cover ideas that are not inthe public domain or in a material form. The law of confidentiality inFraser v Thames Television (1983) for the television show called ‘RockFollies’ covered the idea. The circumstances that impose an obligationmay also occur from:

• other statutes (such as s 232 of the Corporations Law);• by contract;• by being a fiduciary; or • by other circumstances of the donor expressly prohibiting such

actions.

Detrimental affect of the unauthorised use of confidential informationis usually obvious.

The major defence against an action for an injunction or damagesis that the information is in the public domain or it is in the publicinterest. Disclosure of personal secrets may be allowed for thecountry’s security or to stop a breach of the law. Government secretsmust be shown to be not disclosed as to protect the public interest. Thisprinciple was upheld in the case of Commonwealth of Australia v JohnFairfax (1980).

Registrable intellectual property

There are a number of intellectual property rights that can only beobtained if the owners have registered them with the relevantgovernment department. Although this can be an expensive process,the benefits relate to an increase in the rights that are awarded andbetter remedies of enforcement. The Australian Industrial PropertyOrganisation (AIPO) incorporates the Patents, Trade Marks andDesigns Offices on behalf of the Commonwealth. The AIPO

93


administers the legislation, maintains the registers and theexamination processes.

Trade and service marks

A manufacturer, distributor or supplier of goods or services maydevise a mark to connect the goods/services with a person. It ispossible to register a trade mark under the Trade Marks Act 1995 (Cth),which repealed the Trade Marks Act 1955 (Cth). The Trade MarksOffice commenced in July 1906 and is thus over 90 years old. Out ofthe original 750 marks registered on the first day of business, 64 arestill registered. Examples of original trade marks include Bovril,Cascade, Schweppes Ginger Ale, Keen’s curry powder and Arnott’sSao biscuits.

Definitions are very important and many trade marks exist whichare not formally registered and could be protected under the tort ofpassing-off. Section 17 of the Trade Marks Act 1955 defines a trademark as:

... a sign used, or intended to be used, to distinguish goods orservices dealt with or provided in the course of trade by a personfrom goods or services so dealt with or provided by any otherperson.

A sign is defined in s 6 as:

... including any combination of any letter, word, name, signature,numeral, device, brand, heading, label, ticket, aspect of packaging,shape, colour, sound or scent.

Registered trade marks are territorial in respect of a category of goodsand services. The Registrar of Trade Marks at the AIPO maintains theRegister of Trade Marks. Each mark must be registered in respect of aparticular class of goods or services. The Registrar of Trade Marks mayimpose limitations upon the use of certain marks. Specific words areregulated, such as patent, royal, universities and no mark should bescandalous, contrary to the law or cause deception or confusion. Anapplication to register a trade mark is made to the Registrar, by theproprietor of the mark. It is necessary to prove exclusive use of themark by either prior use or authorship of the mark and there must bethe intention to use it on goods or services. In the Re Golden Lights case(1984) the High Court examined the use of a mark that was knownoverseas, but had little reputation in Australia. The court held that on

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the facts there had only been preliminary negotiations about if themark was to be used and thus it should be refused from the Register.Previously there were four separate registers (known as Parts A, B, Cand D), but after 1 January 1996 a single register was established.

• Part 7 – Registration of trade marksThe trade mark must be capable of distinguishing the applicant’sgoods or services to be registered by s 41 of the Trade Marks Act1955. In the Re Bali Bra case (1968), the court did not disqualify thename ‘Bali’; even though it is an island name, no one would thinkthat is where they are manufactured. This covers a wide range ofdistinctive marks, includes the shape of bottles and the halfcoloured half transparent capsules for medicines. An interestingcase example of a mark occurred in Samuel Taylor Pty Ltd v Registrarof Trade Marks (1959) where the registered trade mark ‘mortein’ wasto be linked with ‘pressure pak’ for an insecticide. The Registrarrefused it unless a disclaimer was lodged so that the words‘pressure pak’ were not exclusive. ST refused and the High Courtheld that there was no registration as the words merely describedthe goods.

• Part 15 – Collective trade marksThis enables unincorporated associations to register the name ofthe association.

• Part 16 – Certification trade marksThe registration of those marks that are associated with features orcharacteristics of the goods/services. Association qualitystandards, such as ‘SAA – Standards Association of Australia’ orthe ‘wool mark’ are examples of this type of mark. It still has to bedistinctive like the Part 17 trade mark, but owned by an associationwhich licences its members to use it. If the mark is infringed, thecorrect remedy is an injunction, not the normal damages.

• Part 17 – Defensive trade marksWhere a trade mark has already been registered for somecategories of goods and services, the owner may wish to preventthe trade mark being registered for other categories. This Part 17registration prevents the mark from being used in respect of othercategories of goods or services. Owners can object to a similar markbeing used for other goods and services not actually specified, if itis likely that it will deceive or cause public confusion. Part ‘D’

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registers the mark for other categories that may have the markapplied to them at a later stage. In Eastman Photographic v KodakCycle Co (1898), Kodak was a registered trade mark for cameras,including a bicycle camera. Eastman could stop ‘kodak bicycles’being produced.

Once on the Register of Trade Marks, the owner is given a certificate.This lasts for 10 years, with the right to renew indefinitely insuccessive 10 year periods. While on the registers, the owners have theexclusive right to use the marks; a statutory monopoly is created,which prohibits the use of marks substantially the same. If a person’sintention is to deliberately defraud a mark or to forge a registeredtrade mark, a criminal offence is committed under Part 12 of the TradeMarks Act 1955. The owner of the mark may gain an injunction and anaccount of profits and/or damages for any losses by someonemisusing the mark. However, the proprietor may license others to usethe mark (registered users) but the owner is not meant to traffic in themark. This was illustrated in the Re Holly Hobbie case (1984). Thisneeds to be compared with the concept of character merchandising.

Industrial design

The law recognises the commercial value of mass produced goods andhas developed statutory rules to cover two situations or intellectuallevels. The lower level relates to a form of copyright that is applied tomass produced goods and was called ‘industrial design’. The mostsophisticated level of rights are patents, which require a new mannerof manufacture. Industrial designs have changed their name todesigns and are governed by the Designs Act 1906 (Cth) as amended.

Designs are defined in s 4 as:

… features of shape, configuration, pattern or ornamentationapplicable to an article, being features that, in the finished article,can be judged by the eye, but does not include a method or principle of construction.

Such designs are given protection under the Designs Act 1906 if theyare registered on the Register of Designs, administered by the AIPO.The owner of the design may apply for registration. The author isnormally the owner, unless it is in the course of employment or anagreement is made on the payment of consideration.

Applications for registration must be accompanied by‘representations’ of the articles, which includes statements as to any

96


parts that have a ‘monopoly’ feature about them. Also, a statement ofnovelty is required. A separate application is made for each article.The Registrar has discretion to register the design if it is thought to benew or original. A ‘priority date’ is given at the time of lodging theapplication and a certificate is issued later. The public can challengethe originality of the design within the first 11 months of registrationat the Designs Office. This usually relates to the fact that the designwas already published in Australia before the priority date or it is notnew or original.

A court can also determine the originality of the design, where theregistrar refuses to grant an application. In Macrae Knitting Mills vLowes (1936), a swimming costume had unusual straps, but theRegistrar refused to register it as a design. The High Court held thatthe design was neither new nor original and the Registrar was correctto refuse to accept it. Normally, at least 50 units of the article will beproduced for it to be registered as a design. There is an overlap withcopyright. Copyright will give protection, but if the artistic work hasbeen used in commercial dealings for articles it should be registered.An example would be a painting that is turned into a wallpaperdesign. The effect of the registration is to grant a monopoly over thedesign for up to 16 years.

Section 30 deals with the infringement of designs. Any person,without the consent of the owner, who:

• applies design or imitation to specified articles;• deals commercially in such articles; or• imports into Australia infringing designs for commercial purposes,

is liable under the Designs Act 1906. The remedies for the owner of thedesign are normally an injunction, damages or account of profits.

Patents

Where a person invents something new, which is to be of utility to thecommunity, the person will be granted a ‘letters patent’ for a specifiedperiod. This law is based on the Statute of Monopolies 1623 (UK) andwas one of the few exceptions to a monopoly being allowed. ThePatents Act 1990 (Cth) and the Patents Office, administered by theAIPO, regulate patents in Australia. The invention must relate in someway to a manner of new manufacture. The invention has to be novel,that is, not previously known or used publicly. It also must havepractical utility, that is, it must be useful for its own sake. Generally,

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improvements to existing technology are not patentable, but there areexceptions. Patents will not be granted for mere ideas.

There are two types of patent that can be applied for by anapplicant. Petty patent lasts for one year and a further extension of sixyears may be granted. The standard patent used to last for only 16years, but one could apply to the court for an extension, if it has notbeen fully exploited. Patents of additions are sometimes granted forimprovements that an inventor has developed on to the originalpatent. Under the TRIPS agreement, from 1 January 1996, all patentswill last for 20 years. The Industry Commission has predicted that thiswill cost Australia approximately $3.8 billion over the next 30 years. Aspecial type of lawyer handles both the applications for patents andany legal actions that arise from patents. These lawyers are known as‘patent attorneys’. Approximately 36,000 applications are made eachyear to the Commissioner of Patents. About 7,500 of the applicationsare only provisional registrations and approximately 16,000 proceed toa grant of a patent. The fee for a standard patent is just over $1,000 andball park legal costs are $8,000.


Intellectual property is important to managers and their businesses.The goodwill and intangible parts of a business can be extremelyvaluable and need to be protected. Ideas need to be legally protectedfrom the very beginning. Managers should ask the followingquestions:

• What is the bundle of legal rights that make up intellectualproperty?

• What are the non-registrable rights?• How can copyright be applied to protect ideas?• When should the common law be used to protect ideas?• What are the registrable rights and when should they be used?• When would you apply for a trade mark, a design or a patent?

Textbook references

Latimer, P, Australian Business Law, 20th edn, 2001, Sydney: CCH,pp 152–82

98





Betts, I, ‘A note on the new Trade Marks Act’ (1996) 48 AustralianCompany Secretary 277

Blakeney, M and McKeough, J, Intellectual Property, 1987, Sydney: LBC

Editors, ‘What’s in a name and what’s a logo worth?’ (1995) 19 May,Sydney Morning Herald 38

Field, N, ‘Patent changes could cost $3.8bn in 30 years’ (1996) 3 June,Australian Financial Review 5

Gaze, B, Copyright Protection of Computer Programs, 1989, Sydney:Federation

Harvey, C, ‘1906s mark of quality today’s sign of shame’ (1996) 29/30June, Weekend Australian 3

McKeough, J and Stewart, A, Intellectual Property in Australia, 1991,Sydney: Butterworths

Ricketson, S, Intellectual Property: Cases, Materials & Commentary, 1994,Sydney: Sydney: Butterworths

Sharpe, D (ed), Protecting Intellectual Property in Asia-Pacific, 1989,Sydney: Longman Professional

Simpson, S, The Visual Artist and the Law, 1989, Sydney: LBC


Australasian Legal Information Institute www.austlii.edu.auAustralian Industrial Property Organisation

www.ipaustralia.gov.auCopyright Agency Limited www.cal.com.auWorld Intellectual Property Organisation www.wipo.org

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Index

101

Account of profits 11Actions, legal 8–9

breach of contract 8–9breach of

statutory duty 9plaintiff, actions by

contract 8–9tort 9

prosecutions 8statutory, breach of 9tort 9

Agency 5Alternative

dispute resolution 15–18arbitration 15–16case presentation 17conciliation 18facilitation 16–17generally 15independent

expert appraisal 17litigation costs 15mediation 17mini-trial 17negotiation 16rent-a-judge 18techniques 16

Anton Piller orders 49Arbitration 15–16

Barristers 12–13Breach of contract 8–9, 45–46Breach of

statutory duty 9Business laws,

classification 2–3Business structures 21–38

companies 25–26corporations 25–26

exclusivity 21firms 22–24generally 21incorporation 25–26joint ventures 25overview 21–22sole traders 22trusts 24–25

Case presentation 17Civil law 6–7Common law 3Companies 25–26Company secretaries,

corporate officers 31Conciliation 18Conditions 43Confidentiality 34

copyright 92–93employment law 76–77

Constitution 2Constructive trust 11Consumer protection 51–61compliance 58–60

contracts for supply of goods 53–54

description of goods 54fitness for purpose 54generally 51goods, supply of 53–54manufacturers’

liability 54–55merchantable

quality 54negligence

actions 55–56overview of law 51–53remedies 58–60sample, sale by 54

102


unliquidated damages 47–48

rescission 48specific performance 48summary 49terms 42–43warranties 43–44

Control test 65Copyright,

See, also, Intellectual property lawcommon law

protection 92–93confidentiality 92–93passing-off 92

computer programs 89confidentiality 92–93defences 91duration 90fair dealing 91importance 88infringement 90–91legal rights 88literary works 89originality 89overview 88ownership 90passing-off 92reverse engineering 90–91works 89–90

Corporate law 6Corporate officers 30–37

company secretaries 31confidentiality 34conflicts of interest 34definitional issues 30–31directors 31–32duties 32–37

common law 33confidentiality 34conflicts of interest 34directors duties 32equitable 34generally 32–33honestly, acting 34proper purpose rule 34statutory 35–37

sanctions 58–60services, supply of 54–55title to goods 54Trade Practices

Act 1974 53–58goods, supply of 53–54manufacturers’

liability 54–55negligence actions 55–56services,

supply of 54–55unfair practices 56–58

unfair practices 56–58Contract law 5, 39–50

conditions 43definition 40equitable remedies 48–49estoppel 41–42exclusion clauses 46–47generally 39Heads of agreement 42implied terms 44–45injunctions 48innominate terms 44intermediate terms 44liquidated damages 47misrepresentation 41negotiations 40–41overview 40quantum meruit

damages 48remedies 47–49

Anton Piller orders 49common law 47–48equitable 48–49injunctions 48liquidated

damages 47Mareva

injunctions 48quantum meruit

damages 48rescission 48specific

performance 48statutory 49

103

INDEX

Declarations 11Delegated legislation 4Design rights 96–97Directors 31–32Discrimination 79–82Dismissal,

notice, on 71–72summary 72–73unfair 69–71

Dispute resolution 15–18See, also, Alternativedispute resolution

Employees,corporate officers 31executive officers 31

Employment law 6, 63–84common law duties

of employer 65competence 75–76confidentiality 76–77contract of

employment 67–73duration 68elements 67notice of

termination 71–72post-employment

restrictions 73–74summary dismissal 72–73termination 68–74unfair dismissal 69–71

control test 65discrimination 79–82employees’

responsibilities 74–76competence 75–76confidentiality 76–77fidelity 75lawful and reasonable

instructions 74–75personal service 76

employer/employee relationship 64–67indemnification 78managerial duties 78

employees 31honestly, acting 34need for 30proper purpose rule 34statutory duties 35–37summary 37

Corporation law 26–37Australian Securities

and Investments Commission 29–30

corporate officers 30–37See, also, Corporate officers

Corporations Law 28–29generally 26–27history 27–28

Court system,barristers 12–13dispute resolution 15–18

See, also, Alternative dispute resolution

Federal courts 14generally 11–12High Court

of Australia 14–15intermediate courts 13lawyers 12–13solicitors 12State courts 13–14

intermediate courts 13summary courts 13superior courts 13–14

summary courts 13superior courts 13–14

Crime 5

Damages,amount 10assessment 10compensatory 10liquidated 9, 47nominal 10punitive 10quantum meruit 48types 9–10unliquidated 10, 47–48

104


agency 5alternative dispute

resolution, SeeAlternative dispute resolution

breach of contract 8–9breach of statutory duty 9civil law 6–7common law basis 1Constitution 2contract 5corporate law 6courts,

See Court systemcrime 5criminal law 6–7dispute resolution 15–18

See, also, Alternative dispute resolution

employment law 6environmental law 6Federal jurisdiction 2historical development 1introduction of

new laws 2legal subjects

classification 4–5partnerships 22–24prosecutions 8remedies 9

See, also, Damages; Remedies

rule of law 1–2sources of law,

See Sources of lawState/Territory

jurisdiction 2summary 18tort 4trade practices 5

Health and safety 78–79High Court of Australia 14–15

Implied terms 44–45breach of contract 45–46

provision of work by 77

responsibilities 77–79wages, payment of 77

fidelity 75generally 63–64health and safety 78–79indemnification 78integration test 65–66lawful and reasonable

instructions 74–75liability 64managerial duties 78multiple test 66–67notice of termination 71–72organisation test 65–66personal service 76post-employment

restrictions 73–74provision of work

by employer 77statutory rights 65summary dismissal 72–73taxation 64tests for employment,

control test 65integration test 65–66multiple test 66–67organisation test 65–66

unfair dismissal 69–71wages, payment of 77

Environmental law 6Equity 3

intellectual property law 6

Estoppel 41–42Exclusion clauses 46–47Executive officers,

employees 31

Facilitation 16–17Federal courts 14Fitness for purpose 54Framework of

Australian law 1–2actions, legal 8–9

105

INDEX

Partnerships 22–24Passing-off 92Patents 97–98Proper purpose rule 34Prosecutions 8Punitive damages 10

Quantum meruit damages 48

Remedies 9–11account of profits 11Anton Piller orders 49constructive trust 11consumer protection 58–60contract law 47–49

Anton Piller orders 49

common law 47–48equitable 48–49injunctions 48liquidated

damages 47Mareva injunctions 48quantum meruit

damages 48rescission 48specific

performance 48statutory 49unliquidated

damages 47–48damages,

See Damagesdeclarations 11injunctions 10, 48Mareva injunctions 48quantum meruit

damages 48rescission 11, 48specific performance 11, 48statutory 49

Rent-a-judge 18Rescission 11, 48Rule of law 1–2

Incorporation 25–26Independent

expert appraisal 17Industrial design 96–97Infringement,

copyright 90–91Injunctions 10, 48

Mareva 48Innominate terms 44Integration test 65–66Intellectual property 6, 85–98

copyright,See Copyright

design rights 96–97generally 85industrial design 96–97non-registrable 87–88overview 86–87patents 97–98registrable 93–98summary 98trade and

service marks 94–95Intermediate courts 13Intermediate terms 44

Joint ventures 25

Lawyers 12–13barristers 12–13generally 12solicitors 12

Legislation 3delegated 4

Liquidated damages 9, 47

Mareva injunctions 48Mediation 17Merchantable quality 54Mini-trial 17Misrepresentation 41Multiple test 66–67

Negligence actions,consumer protection 55–56

Negotiation 16

Sample, sale by 54Sole traders 22Solicitors 12Sources of law,

common law 3delegated legislation 4equity 3international treaties 4legislation 3

Specific performance 11, 48State courts 13–14

intermediate courts 13summary courts 13superior courts 13–14

Statutory, breach of 9Structures, business,

See Business structures

106


Summary courts 13Summary dismissal 72–73Superior courts 13–14

Tort 4plaintiff suing

under specific 9Trade practices 5Trade and service marks 94–95Trusts 24–25

Unfair dismissal 69–71Unfair practices 56–58Unliquidated damages 10, 47–48

Wages, payment of 77

Documents

Essential Australian Management Law (Australian Essentials Series)