LEGT1710 Business

and the Law

Semester 1 2011 Version 1.0.2 17th June 2011

Contents
Page 3 Copyright Ka Hei Yeh 2011 First Edition Published May 2011
Revised June 2011. First Draft Published March 2011.

Introduction to Business Law Legal Reasoning and Statute Interpretation Introduction to Contract Law Terms and Vitiating Elements Termination of Contract and Damages Introduction to Tort Law Professional Negligence Property Law Consumer Law Competition Law Crime in the Business World Risk Management

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This work is licensed under the Creative Commons Attribution-Non-Commercial- No Derivative Works 2.5 Australia Licence. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-nd/2.5/au/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. Disclaimer: The author does not guarantee the accuracy of the notes available and will not be held liable for any damages (including lost marks etc.) as a result of the use of these notes. Use at your own discretion with caution. Do not rely on them; these notes are not intended to serve as a replacement for your own.

Business and the Law Semester 1 2011

Introduction to Business Law

Introduction to Business Law

Background Most of us know law as a set of rules that are used to control how society behaves. Authorities such as courts enforce laws. The Common Law Legal System Since Australia was a former colony of England, it adopted the English common law system. The three laws in this system are: Statute Law Laws made in parliament (federal or state). It can be changed by parliament. They are also known as legislation, Acts of Parliament or enacted law. Common Law Laws that are made in courts by judges. These can be changed by parliament or future court cases. It is also known as case law, precedent or unenacted law. Equity These are the legal rules and principles developed by the Courts of Equity in England. Equity only applies to civil law and it provides for remedies that go beyond just damages. These are split into injunctions, an order to stop a certain activity, and specific performances; an order by the court for the person to do a specific thing. If there is a clash between statute and common law, statute law always prevails. Classification of Laws There are many different types of laws in Australia and these are separated into different classifications: International Law and Domestic Law International law applies to any situation where there is an international element involved. Treaties and conventions between (agreements) between countries can become domestic law when they gain legislative approval and are approved by the government. Cases that do not have an international element are where domestic laws apply. These are Statute or Common laws as mentioned previously. Public Law and Private Law Public laws are those that deal with the government and its relationship with the people. These include criminal, taxation, industrial and constitutional laws. Private laws are those between the individuals and entities such as contracts, torts and property. Substantial Law and Procedural Law Substantial laws are the rights and duties of individuals and organization under the law. Procedural law is how a hearing should proceed, such as evidence rules and the code of conduct of proceedings. Civil Law and Criminal Law Civil laws are those brought against another and focus on remedial action. In a civil case, the case is won based on the basis of probabilities. Criminal laws are those where one is accused and the emphasis is on punishment. In a criminal case, the prosecution must prove beyond reasonable doubt that the accused is a criminal.
Business and the Law Semester 1 2011

 History of the Australian Legal System

Introduction to Business Law

A brief history is listed here. Note, Australia was called New South Wales until federation (1901), after which it became a state. 1788 English system inherited 1823 Court system and legislative council established 1853 Development of NSW parliament since establishment 1855 NSW Constitution established 1865 Colonial Laws Validity Act established: English laws override Australian laws if they contradict or overlap. 1901 Federation: Federal and state governments established. 1931 Statute of Westminster: Australian system made independent from England. Only the Queen remains as a ceremonial role as head of state. However, she only acts on what the Australian government directs her to. 1986 Australia Act: Australian legal system completely severed from England. Commonwealth (Federal) and State Powers The Commonwealth government has the ability to exercise exclusive powers and concurrent powers. Exclusive powers are those that affect the entire country such as defence, foreign affairs and immigration. Concurrent powers are those that affect a certain state such as education, tax and health. State governments also have concurrent powers but do not have exclusive powers. Most concurrent powers are shared between commonwealth and state governments in Australia. Residual powers are powers that do not fit under exclusive or concurrent powers; local councils handle these. If there is any conflict between commonwealth and state laws, commonwealth law prevails.

The Westminster System The Westminster system is the system Australia current operates under as defined in the Statute of Westminster. It means the queen is only a figurehead as the role of state, and the governor-general is the representative of the queen in Australia. There is to be a responsible government that responds to the needs of the people and a separation of power between: The Parliament: Makes the laws. This is separated into the House of Representatives and the Senate. Legislation must pass through three separate readings in both houses before it can become law. The Executive: This consists of three entities: the governor-general, the prime minister and cabinet, and the government departments. The executive can pass through delegated legislation without having to pass through parliament. These are made by the governor-general on the advice of the The Judiciary: Interprets the law and enforces it such as the courts. They should be kept separate, but many note that they are all linked and are, in fact, not separate.
Business and the Law Semester 1 2011

 Challenging the Government

Introduction to Business Law

If an entity does not like the result of a decision that a public service has decided on, such as those from the ATO, ASIC, APRA and ACCC, then they may ask for a review. They may ask for a judicial review or an administrative review. This is where decisions are reviewed again under different people to arrive at another conclusion, which may or may not be the same as the original. An entity may also access information from the government and semi-government organisations through the Freedom of Information (FOI) Act.

Business and the Law Semester 1 2011

Legal Reasoning and Statutory Negotiation

Legal Reasoning and Statutory Interpretation

Background Now that we have a basic understanding of how laws work, it is time to understand how the law is used. The Police and the Courts The rule of law is to balance freedom with legislative power in a modern democracy.

The Police are simply there to enforce laws, which are created. The courts also are there to enforce the law, but they may also resolve disputes. Different types of courts have different types of jurisdictions as will be discuss in the next section. The Australian Court System The court system in Australia is a series of courts with different jurisdictions from lower to higher courts. State courts and Federal courts are used independently from each other until a hearing is to be heard at the High Court, which is the highest level of court in Australia. The hierarchical court system is significant and beneficial in that is allows for a system of appeals in that entities may appeal decisions in lower courts. It also allows different people to hear the same case and also builds up precedent (explained later). In regards to jurisdiction, courts have original jurisdiction (the authority to hear a case when it is first brought to a court) and appellate jurisdiction (the authority to hear appeals from lower courts). The court order from lowest to highest in each hierarchy (state/territory) is: Magistrates or Local Courts These are inferior courts, which are designed to handle minor disputes quickly and cheaply, such as parking fine disputes. County or District Courts These are intermediate courts that deal with middle level disputes and have original jurisdiction for civil cases. They have original jurisdiction for criminal cases but more serious cases are settled in higher courts. They can also hear limited cases of appeal from inferior courts. Supreme Courts These are the highest courts in a state or territory and are presided over by a judge. They have unlimited original jurisdiction but will usually only handle the largest of cases. There are also other specialist courts that deal with specific cases such as: Family Courts Drug Courts Compensation and Work Health Courts Land and Environment Courts

Business and the Law Semester 1 2011

 Precedent

Legal Reasoning and Statutory Negotiation

One main reason of the court system is that lower courts must follow the previous decisions of courts higher than them in the same hierarchy in what is known as precedent. Another term for a precedent is stare decisis. The only exception is if the ruling is inconsistent or is wrong in terms of law. They are split into two types: Binding Precedent If the facts of the case are same or similar, a District Court has a binding precedent to pass the same decision as a Supreme Court or the High Court. It does not follow any decisions made in a lower court (i.e. A Local Court). Persuasive Precedent These precedents are seriously considered, but do not have to be followed. They are decided by a court, which is on the same level but on a different hierarchy. (i.e. The Supreme Court of NSW will seriously consider, but may not follow a similar cases decision in the Supreme Court of Queensland)

The Federal Court Hierarchy At the lowest end of the Federal Court hierarchy are the Federal Tribunals. The Federal Magistrates Court then follows these. This was only established very recently in 2000 to deal with the amount of cases going to other Federal Courts. As the name implies, they are presided over by magistrate and deal with minor federal matters of family law, bankruptcy and trade practices breaches. High-level courts include the Family Court and the Federal Court of Australia. The Family Court deals especially with cases that deal with family laws. The High Court of Australia The High Court of Australia is the final court of appeal for cases heard in Australia. As such, hearings are not automatically accepted at the High Court. Instead, cases must be submitted to the High Court and the court will decide whether the case will be heard or not in the High Court. The High Court does have original jurisdiction although this is usually only reserved for very high profile cases. The Parties in a Court Case In civil cases, a dispute goes to court when a plaintiff (the one bringing up the case), sends a letter of demand to the defendant (the one who is being accused). The defendant responds to the plaintiff and the matter is then brought to the courts. When a person appeals a decision, they then become the appellant and the opposite party becomes the respondent. Note that either the plaintiff or the defendant can become either party. In criminal cases the Crown, the state, and is known as Rex or Regina in law, which is abbreviated to R (i.e. R v Smith), is usually the one bringing the charges against the accused in criminal cases. The crown must prove the case beyond reasonable doubt to the court.

Business and the Law Semester 1 2011

Legal Reasoning and Statutory Negotiation Helping these parties are solicitors and barristers. Solicitors usually do not handle litigations and only advise and prepare on things such as family law, preparation of wills and court documents. Barristers prepare legal opinions and appear in court on behalf of clients.

The Judiciary The judiciary involves various types of people who uphold the law in courts and also outside of them. They include: Justices of the Peace These are honorary positions and they spend most of their time serving as legal witnesses to documents. They can be found outside of courts. Magistrates These are selected from clerks and they preside over lower courts. They determine the fact and law in these courts. Judges These are appointed to courts where magistrates do not serve. They do everything a magistrate does and also hear appeals, pass sentences and determine compensation. The Jury 12 randomly selected citizens that determine questions of fact in criminal trials that are in intermediate or higher courts.

Some Terminology Some terminology that we should be familiar with are: Res Judicata This is a decision or decisions that have come out of a court dealing and must be upheld. Ratio Decidendi This is the decision of the court on a case. Ratio Decidendi from higher courts are binding on lower courts (precedent). Obiter Dictum These are the remarks or comments that the judge makes during the case. They are persuasive, but not binding on other courts. Affirm/Approve Uphold a judgment. Reserve/Overrule To set aside a judgment. Applied To use relevant case laws decide on a case. Followed To apply laws from previous cases without changing it. Not Followed The reverse of followed. Distinguished Stating out the differences between a precedent and the current case.

Business and the Law Semester 1 2011

 Interpreting Statutory Law

Legal Reasoning and Statutory Negotiation

Most legal battles are fought over the interpretation of words, sometimes even a single word. As such, Courts are to interpret unclear legislation with the following rules: Use legislation instead of case law if there is inconsistency. Literal Rule: Take the literal meaning of the words. Golden Rule: Take the literal rule, unless it results in an absurdity. Mischief Rule: Find out what problem was the legislation trying to fix, and apply. Purposive Approach: Investigate what the law was made to do through extrinsic material.

The Acts Interpretation Act 1901 (Cth) provides definitions to most common words used in laws. For example: Ejusdem Generis This literally means, of the same kind. It is used in situations where ambiguity exists but the general meaning can be inferred from words or phrases used before or after it. (i.e. An act bans the consumption of beer, wine, spirits and other drinks. In this situation, other drinks can literally mean anything like water and juices, but applying Ejusdem Generis, we can deduce that it means other alcoholic drinks.) Noscitur a sociis Similar to Ejusdem Generis, the meaning of unclear words can be understood from other words around them. (i.e. An act prohibits the consumption of alcohol in streets, public passages and other places. In this case, other places would be inferred to mean other public places.)

Statutory Offences It should be noted that not all offences require an intention to commit that offence. These are called strict liability offences and the most commonly known one is speeding. You do not need to intend the speed, as long as you are above the speed limit, you can be fined. Unlawful business activities are also attracting criminal penalties now with directors facing heavy fines and even jail. Offences can also be solved outside of the court system with tribunals, the relevant ombudsmen and out of court settlements. This is known as alternative dispute resolution (ADR) and is frequently used because of the time and cost of going through court.

Business and the Law Semester 1 2011

Introduction to Contract Law

Introduction to Contract Law

Background Contracts form the bulk of our dealings. We make contracts everyday, even if we dont specifically sign a piece of paper. When you buy a ticket for a train, there is a contract for the company to provide you a train service to your destination. When you enter a car park, there is a contract to leave your car there and also to pay the car park provider for how long you parked there for. Sources and Types of Contracts Contract Laws, like all other laws, are made either through legislation or judges in courts. Contracts can be either formal or simple contracts. Formal contracts are in the form of deeds, seals or wills and are elaborate. Formal contracts are normally used in situations where there is no consideration, and thus, would have no incentive to follow the contract. Simple contracts make up the majority of contracts and can either be oral or written and can be unilateral (i.e. only one party has any obligation) or bilateral. Essential Elements of a Contract Contracts only become legally enforceable when there is: An Intention An Agreement (that is, offer and acceptance) Consideration

An agreement on its own is not necessarily a contract. Only when it becomes legally enforceable, does it become a contract. For a contract to be valid, it must: Offers The beginnings of a contract arise from an offer. An offer can be directed to anyone and any amount of people. As seen in the Carlill v Carbolic Smoke Ball Co case, anyone who fit the condition of the advertisement could enter the contract. For there to be an offer, there must be: Parties that think the same way and are willing to be bound by a contract. A promise. Communication of the offer (this does not need to just be orally or in writing. It can be communicated through conduct as well). Be made by parties who have legal capacity (i.e. Over 18 years old, not mentally unsound etc.) Be made with genuine consent (that they really want to enter the contract) Be legal Satisfy all formal/procedural requirements.

If the responding party(ies) sends a counter-offer or rejects the offer, the original offer is no longer valid and the counter-offer becomes the new offer. This is seen in Hyde v Wrench.
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Introduction to Contract Law

Do note that a tender is not an offer unless the tender states exact needs such as numbers and figures. Requests for information are also not offers. If someone is selling a car and someone calls to ask how long the registration has left on it, this is just a request for more information and they are not offering to purchase the car. Invitation to Treat It must be noted that an offer needs to be distinguished from an invitation to treat. An invitation to treat is an offer to consider an offer. For example, by placing products on a shelf in a store, the storeowner is providing shoppers an invitation to treat. The Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd case proved that in such situations, an invitation to treat is when a customer selects goods from the shelf. The offer is made at the counter when paying, and acceptance is gained when the cashier accepts payment for the goods. Acceptance of an Offer When accepting an offer, the entity accepting must communicate to the entity that offered it that it is accepting in either oral or written form and to that exact offer. For example, if there is a reward for information leading to an arrest, but you did not know such an offer existed until after you gave the information, you are not eligible for that reward since you did not respond to that offer, but rather something else. Even if the entity does not communicate in oral or written form, acceptance may be communicated in conduct. If an entity starts changing procedures to go in line with the contract, or acts accordingly with the contract, the contract is considered to be accepted, even if nothing is said or written. The Postal Rule When using the post, there are strict rules as to when an offer and acceptance is effective. An offer is only effective when the opposite party receives it. An acceptance is, however, effective the moment it is posted. If the offering party wishes to cancel the offer, they must notify the other party before they send their acceptance. However, in modern days where most communications are done electronically, agreements and offers are effective the moment they are heard by the opposite party. Consideration Consideration is what is given in exchange for an action or promise in the contract. Consideration is what turns an agreement into a contract. If there is no consideration, there is no contract. Note that consideration does not have to just be money, someone can paint your house and you can agree to give him or her your television in return. Rules for Consideration Consideration must follow some rules: 1) There must be consideration in a contract
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Introduction to Contract Law

2) The consideration must not have already been given. (i.e. you cannot say, I fixed your plumbing for you 3 years ago, so you can fix my garden in return tomorrow. This is not sufficient consideration since the fixing occurred before the contract.) 3) Consideration must have some value, but it does not need to be adequate. As long as both parties are happy with the consideration, third-parties cannot complain, even if they think it is inadequate. 4) Consideration must be sufficient (have some legal value). 5) Consideration must be possible of performance. 6) Consideration must be definite. 7) Consideration must be legal. 8) Consideration must be referable to the other partys promise. 9) Practical benefit can be good consideration. Intangible benefits gained as a result of a contract can be considered good consideration. See case: Musumeci v Winadell Pty Ltd. Insufficient Consideration The following cases are not considered good consideration: 1) Moral obligations (such as love and affection) 2) Part payment (unless creditor agrees) Promissory Estoppel Promissory estoppel allows a promise to be enforced by law, even though the person promising it has not provided good consideration. It is used when it would be detrimental or inequitable for the promisor to go back on their word. Key cases demonstrating promissory estoppel are: Central London Property Trust Ltd v High Trees House Ltd During World War II, rent is lowered as a result of the war, but they turn back and ask for full rent for the period during the war. Promissory estoppel stopped this from happening. Waltons Stores (Interstate) Ltd v Maher Maher built a custom building for Waltons but Waltons did not inform Maher of any possibility of dropping from the contract. Maher only found out Waltons did not want the building when it was almost complete. Promissory estoppel enforced the contract so Waltons had to pay, even if it did not want it.

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Terms and Vitiating Elements

Terms and Vitiating Elements

Background Not all contracts must be upheld to the very end. There may be vitiating elements that allow one or both sides of the party to exit a contract with no loss, but this only occurs in extreme situations. Intention For a contract to be legally binding, there must be evidence that the parties involved intended to enter into a legally enforceable contract. Documents that have subject to contract clauses are not contracts and thus, there is no intention to enter a contract yet. Implied Intention Traditionally, courts assume that agreements that are social in nature, such as between family, domestic agreements and voluntary agreements are ones where there is it is presumed there is no intention to enter into a legal contract. However, commercial or business agreements are presumed to have an intention to be bound. Courts follow this traditional rule unless it is rebutted by evidence. In the Merritt v Merritt case a written document was signed between both parties, even though they used to be husband and wife. There would have been a presumption that there was no intention if there had been no signed document. In other cases such as Wakeling v Ripley, courts may look at other evidence. In this case, Wakeling resigned from his job as a professor at a university in England and moved to Australia with his wife to live with Ripley, who had offered to leave his entire wealth to them if they did after he died. It was assumed that there was legal intention to enter a contract since Wakeling had to sacrifice a lot to come to Australia. In this case, we can determine that intention can also be expressed through actions. Terms of the Contract The contents of a contract are split into two parts: a representation and a term. A representation is made before the contract during negotiation and is not intended to be legally binding. However, a term is a contractual statement and is intended to be legally binding. A representation must be true, and there is reliance placed on the representation by the innocent party. A misrepresentation can sometimes be accidental and the law makes room for this. In the Bentley v Harold Smith case, the car sold to the consumer was said by the dealership to have only gone for 20,000 miles. The car was bought on this knowledge, but then it was found to have actually done 100,000 miles. This was fraudulent misrepresentation on behalf of the car dealership since they had the expertise to know this information. The court will also presume that if a contract is written and appears to contain the entire contract, that all terms are included in the contract. Courts are reluctant to admit to other information that was presented before the contract if it varies the written contract.
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 Terms of a Contract The terms of a contract can either be:

Terms and Vitiating Elements

Express These are terms that are oral and/or written. Implied These are terms that fill in the gaps of the contract. They can come from things such as established customs, past dealings, statute laws and courts. For example, consumers have the right to refunds even if it is not an express term as this is implied in statute laws.

A condition on a contract is an essential part that forms the root of the contract. The injured party has the option to end the contract or sue for damages if this condition is breached. A warranty is a non-essential term and is of lesser importance than a condition. It allows the injured party to recover damages, but does not allow the contract to be terminated. Collateral Contracts Conditions and warranties can bring rise to collateral contracts. Collateral contracts are contracts, which result from a promise in another contract (the main contract). Note that collateral contracts are completely separate from the main contract, but they exist side-by-side with each other. For example, when you buy a laptop at a store, you enter into the main agreement with the retailer that the product will work as intended for a year. A collateral contract is entered between the manufacturer of that laptop and the retailer the moment you buy that laptop which allows the retailer to claim in the event the laptop does stop working in that year and the customer brings it back in. Other Terms Uncertain terms are those that are unclear, and there may be no contract between the parties. However, if there have been past dealings, the court may imply appropriate terms and there may be a contract between the parties. Meaningless terms are those that have no meaning. The court will remove these terms to the extent that is it possible without harming the root of the contract. If not, the courts may void the contract. Ambiguous terms are those where a term can have more than one meaning. The contract will not be voided as long as the term can be given an appropriate meaning. Exclusion Clauses Exclusion clauses (also known as exemption, exception or no liability clauses), are clauses designed to limit the liability that the person inserting them into the contract. Exclusion clauses must be shown to all parties before a contract is made. Any exclusion clauses that are shown after the contract is made are invalid. In the Olley v Marlborough Court Ltd case, the hotel did not tell the people before booking about an exclusion clause that they would not be responsible for the safety of articles in the room. This exclusion clause was written on the door inside the room and not anywhere else and thus, could not be seen by guests until they have already entered the contract to stay at the hotel. Thus, it is invalid.
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 Interpreting Exclusion Clauses There are four rules in interpreting exclusion clauses.

Terms and Vitiating Elements

Exclusion clauses are not valid unless they are properly incorporated into the contract.

Since these are usually presented as take it or leave it to the person being offered, the courts usually interpret against the interests of the person that drafted the contract (contra proferentem). This is known as the ambiguity rule. An exclusion clause is allowed to exclude the liability for negligence if it is clearly stated, unless it would be misleading or deceptive to do so. This is known as the negligence rule. Exclusion clauses shall only cover losses, which occur when a party is performing the contract in question. This is known as the four corners rule. In the Sydney City Council v West case, the car park let out a car without proper ID from the driver, who was not the actual owner of the car. Sydney City Council had an exclusion clause for loss or theft but the council was operating outside of the contract when it did not check the car driver for proper ID, hence that clause was invalid and West won damages. An exclusion clause must be interpreted according to the express terms in the main contract. If a buyer signed a contract for a new car with an exclusion saying that the buyer must take whatever car is given to them, the exclusion clause will not be valid the buyer is given a car totally different to that stated in the contract. It may be allowed only, and only if, the exclusion clause is clearly and unambiguously expressed to do so. Statute Law and Exclusion Clauses Exclusion clauses do not override statute law. Thus, if a statute law exists that provides for a certain event, an exclusion clause cannot be provided for the same event. Even if the exclusion clause for that even is written on the contract, it is overridden. Enforceability of Contracts 1) 2) 3) 4) 5) Contracts can be classified into five types of enforceability: Valid: A contract, which is enforceable by law. Voidable: A contract, which can be voided by the party that has been injured. Void: A contract with no legal rights or obligations. (Void since beginning: void ab initio) Unenforceable: Valid on face, but no legal action can be brought against it. Illegal: A contract, which contravenes statute or common law. Also considered void.

Performance of Contracts Contracts can be classified into two types of performance: 1) Executed: Contracts where all parties have already completed their obligations before the contract was made. 2) Executory: A contract where one or more parties in the contract promises to do, or not do something in the future.
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 The Statute of Limitations

Terms and Vitiating Elements

The Statute of Limitations is a statute, which defines how long after a contract has ended, that legal action in regards to that contract can be brought to court. This varies between states but for most Australian states, is 12 years. This becomes 6 years for a simple contract. This limitation is provided so that the court system is not overwhelmed by needless cases from many years ago that have been left dormant. Vitiating Elements A vitiating element is something, which is: A mistake A misrepresentation An illegality An inequality

If a vitiating element is found, a contract can become voidable or void. If voided, the parties will continue as if the contract never existed. Mistakes If a mistake occurs, the contract becomes void. A mistake can be: Common: Both parties made the same mistake. Mutual: Both parties make a mistake, but the mistakes are different. Unilateral: Only one party has made a mistake.

Representation A representation is something that is said before the contact and induces a contract between the parties involved. Misrepresentation, when a representation is wrongly stated, allows for the injured party to void the contract. That is, the contract becomes voidable. A misrepresentation can be: Fraudulent There was intention to induce someone to enter a contract fraudulently. Contract becomes voidable. Innocent Misstatement of material fact that was not done intentionally/or was unknown to an unskilled party. The injured has the right to recover damages. Negligent A misstatement that is made innocently but carelessly. Injured party has right to damages.

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 Illegal Contracts Contracts are illegal if they: Involve illegal conduct (such as killing someone or stealing) Are contradicted by statute or common laws.

Terms and Vitiating Elements

Inequality between Parties One party in the contract usually has the upper hand in terms of knowledge or other terms. In this sense, the higher party should not play around with the lesser party. Such inequality includes: Duress Using threats or violence to force another party into a contract, such as threatening family, threatening to damage goods/property or undue economic pressures beyond normal commercial practice. Undue Influence Using a position of power or influence to induce the other to enter the contract. In this case, consent is not genuine. Unconscionable Conduct When a party abuses their superior bargaining power. The injured must be in a position of special disadvantage that affected their ability to protect themselves. The superior party must also have known, or ought to have known, about this. See Commercial Bank of Australia v Amadio case.

Restraint of Trade Restraint of trade clauses are usually found in contracts for employment, sale of business and between manufacturers and traders. They are generally considered void unless they are reasonable. Reasonable is determined through: geographic location, time period, nature of the business, activity being restrained and whether it is in the interests of both parties and the public.

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Termination of Contract and Damages

Termination of Contract and Damages

Background Most contracts terminate without much fanfare after the promise(s) has been completed and/or a set timeframe as elapsed. However there are, of course, cases where a contract is terminated for other reasons and damages are usually claimed from such terminations. Capacity For a contract to be valid, both parties must have the legal capacity to enter the contract. It is presumed that everyone has the capacity to enter into a contract unless it is proved otherwise. Entities seen as incapable of entering contract are: Minors (although they can enter necessary contracts and employment as long as it is not oppressive and is for the minors benefit) Mentally Ill Intoxicated Corporations (a person representing the corporation enters the contract instead)

Privity of Contract Privity of contract is where only parties to the contract can have rights or liabilities under that contract. If two parties negotiate an agreement that benefits a third party that is not included in the contract, while that third party does gain a benefit, it has no rights to that benefit if it stops at a later date. Likewise, the two parties in the contract have no liability to pay the third party that benefit. A key case demonstrating privity of contract is Beswick v Beswick. Agency An exception to privity of contract is an agent. This is where a principal grants authority to an agent to negotiate, enter and maintain a contract with a third party. The actual contract is between the principal and the third party and not the agent. The agent is generally not liable for anything in the contract in most cases. While agents are created by agreement, or by operation of law, agents can also act without prior grant of authority from the principal if the situation is serious enough. The principal may then grant permission retrospectively. For example, Common agents include real estate agents and share brokers. Breach of Contract Breaches of contract can be solved at two different levels, these being at common law and at equity. Those at common law deal with damages while equitable remedies are used where the awarding of damages is not an adequate remedy. Both aim to put the plaintiff and defendant back to the position they were in before the contract in question was made.
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 Termination at Common Law

Termination of Contract and Damages

A breach of contract can result in a termination of contract. This is when one party fails to perform their obligation (actual breach) or shows intention that they will not perform their obligation (anticipatory breach). A contract can be terminated by: Performance The contract ends when both parties have performed their contractual obligations. Agreement Both parties agree to terminate the contract. Operation of Law Such as bankruptcy, death etc. Lapse of Time If the contract stipulates a period of time after which the contract will expire. Frustration If, after the contract is made, something arises that makes performance impossible. Key Case: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales.

As mentioned previously, a contract can also be terminated by the statute of limitations if it has not already been terminated. Damages at Common Law Any breach in contract allows the injured party the right to claim damages. Damages are calculated based on what would have resulted if the contract had been performed. Common law also looks at: Remoteness Compensation is not awarded for damages that are too remote. Cause and effect cannot be casually linked over too many steps. (i.e. The train was late, which made you miss your connecting bus, which made you arrive at an examination late. You cannot blame the train operator here since it is too remote.) Causation Was there a connection between the breach of contract and the loss?

The amount of damages awarded is not just based on the financial loss, which would have occurred. They also include, if proven: Distress and disappointment Upset/anxiety Discomfort Mental Illness

The innocent party also has the duty to take reasonable steps to minimize or mitigate losses as a result of the breach of contract. If not, they may suffer a reduction in damages if the defendant can show that the innocent party did nothing to mitigate that loss.
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 Types of Damages There are a variety of types of damages such as:

Termination of Contract and Damages

General Normal compensation for damages resulting from the breach. Nominal Contract breached, but there are no losses. Damages still awarded to teach a lesson / prove a point. Expectation Damages paid to protect loss of profit and loss of commercial opportunities. Reliance Expenses incurred as a result of relying on the promises made by the defendant. Exemplary Punitive and are designed to punish deliberate bad conduct and to deter the wrongdoer. Liquidated Awarded where the plaintiff sues for a specific sum (which must be genuine). Unliquidated Awarded where the plaintiff sues for no fixed sum. The court decides the sum to be awarded.

An entity may also include penalty clauses in their contracts to allow the one or both parties to be entitled to a genuine pre-estimate of possible losses as a result of breaching the contract. The amount must not be extravagant or unconscionable and must not be designed to intimidate the other party. If so, they are not enforceable in court. Equitable Remedies Equitable remedies are used when damages are not an adequate remedy. These include: Restitution Court ordered return of property/money etc. back to its original owner. Can be used where there has been a mistake or duress. The plaintiff must prove that the defendant must have obtained a benefit, at the plaintiffs expense, and it would be unjust for the defendant to keep that benefit. Rescission The contract is set aside and both parties are restored back to their pre-contractual positions. Rectification The court corrects a written document. (e.g. A birth certificate must be corrected by a court) Specific Performance Court order for a party to perform their contractual obligation(s). Injunctions An order to stop doing something.

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Introduction to Tort Law

Introduction to Tort Law

Background Tort means wrong in French, but in legal terms, it means a civil wrong. This section deals with tort law including duty of care, and defences to tort. Tort Law in General Tort law is used to enforce the duty of care between people. Thus, it has a slight overlap with criminal law except that a citizen, and not the government as in criminal law, brings the case to court. Negligence We deal mainly with the tort of negligence here and negligence has been defined in the Civil Liability Act as the failure to exercise reasonable care and skill. However, this negligence only applies if a duty of care was owed to the plaintiff. Duty of Care Duty of Care is most famously known in the Donoghue v Stevenson case. The test for duty of care is found in that case. It should be noted that there is no duty of care owed if the defendant did not create that risk. Testing for if a duty of care existed can include the following: Proximity test Neighbour test Foreseeability Reliance Knowledge of Risk Vulnerability of Plaintiff Compassion

However, there are established categories in the Civil Liability Act 2002 (NSW) where a duty of care always exists. This list is long, but the major ones are: Authorities and the public Drivers and passengers (road users) Manufacturers and consumers Professional advisers Occupier and visitor/tenant/trespasser A non-delegable duty of care also exists between: Employer and employee Hospital and patient School authorities and students Common walls Dangerous substances

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 Standard of Care

Introduction to Tort Law

The standard of care that is expected is one, which a reasonable person would have done, in the same circumstances. The definition of a reasonable person is the matter that courts argue over most. It must be noted that even if harm exists, if the chance of harm occurring is too remote, or the cost of removing that harm is too high to justify it, a duty of care is not owed. This is reflected in Section 5B(2) of the Civil Liability Act 2002 (NSW). These are: Probability of harm occurring if care is not taken. Seriousness of the harm. Burden required to avoid the risk of harm. Social utility of the activity that creates the harm.

Paris v Stepney Borough Council is a case where the standard of care was breached. The employer should have provided goggles and insist that they be worn, but did not. Breach of Duty of Care A breach of duty of care is when the standard of care is not given to an individual. The Civil Liability Act 2002 (NSW) Section 5B(1) provides a test for negligence: Was the risk foreseeable? Only foreseeable damages are recoverable. The test for remoteness (known as the scope of liability in legislation) is applied here. Significant cases include The Wagon Mound cases. Was the risk significant? Would a reasonable person in the same circumstances have taken the same precautions?

To be able to recover damages, it must also be proven that the breach of duty of care caused damages in what is known as causation. The but for test is usually used here where, but for someones actions, damage was suffered. Cork v Kirby MacLean Ltd is a key case in causation. Defences for Negligence There are a few defences that can be used against negligence claims including: Contributory Negligence If the plaintiff contributed to the negligence, liability can be reduced by up to 100% (meaning all damages). In Liftronic Pty Ltd v Unver, damages were reduced by 60% because the employee did not follow rules the employer had set for lifting. Voluntary Assumption of Risk If the plaintiff knows of the risk, and accepts that risk, duty of care no longer exists. Vicarious Liability of Employer A person may be responsible for negligence, even though they did not cause it, because of legal relationships. For example, the negligence of an employee may be the responsibility of the employer. Good Samaritans and Volunteers As long as they act in good faith, good Samaritans and volunteers are exempt from being sued by the Civil Liability Act.

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Remedies and Professional Negligence

Remedies and Professional Negligence

Now we look at how we should remedy damages caused by a breach of duty of care.

Background

Damages Damages should be rewarded such that it returns the plaintiff back to the position they were in prior to the breach, as much as possible. It must be noted that the plaintiff has the duty to mitigate their losses. For example, if the plaintiffs property is suffering water damage due to a broken pipe, the plaintiff has the duty to immediately try and take remedial action and not leave the pipe broken and unfixed, possibly resulting in even more damage than would have occurred if remedied earlier. The purpose of damages for property is compensation. Damages to persons involve compensation for monetary (loss of income, medical expenses etc.) or non-monetary losses (loss of ability to function normally etc.). Negligent Misstatement A duty of care exists when there is reliance on the other party of information or advice that is given, especially when the party giving that information has special skill or is in a position of advantage. A key case in negligent misstatement is Hedley Byrne & Co Ltd v Heller and Partners Ltd, where Hedley lost a lot of money in contracts it had made with a client and it had relied on Hellers advise and information that the client was of good financial standing. It must be noted that while Hedley lost the case, it was because an exclusion clause specifically excluded liability for negligence. Remember that exclusion clauses can exclude negligence so long as they specifically state it. Test for Negligent Misstatement The Barwick test has four steps to determine if there is a special relationship that could lead to negligence misstatement: 1) The speaker must assume responsibility and realise that they are being trusted. 2) The subject matter is of a serious or business nature. 3) The speaker must be aware, or the circumstances show they should be aware, that the listener will act on information the speaker provides. 4) It must be reasonable to assume that the recipient will ask for and rely on information provided. Accounting and Negligent Misstatement The most famous case related to accounting is Esanda Finance Corporation Limited v Peat Marwick Hungerfords (henceforth Esanda). This case created a precedent where auditors were not liable for any statements that are transmitted through another entity. In this case, it meant that the auditors only were liable to the company, not the users of those statements outside of the company such as shareholders. However, this was overturned by statute law through the Corporations Act 2001, which states that auditors do owe a duty of care to the public. As such, the Esanda case no longer holds precedent.
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 Professional Negligence

Remedies and Professional Negligence

As stated, professionals owe a duty of care where there is a special skill and there is reliance on that information given, by the weaker party. Professionals do not have a liability if peer professional opinion agrees that what occurred was widely accepted competent professional practice. Peer professional opinion does not have to be universally accepted, to be widely accepted. However, the court has the final say and if it considers it irrational, can override peer professional opinion. To avoid professional negligence, professional should always express doubts on opinion, disclaim liability if necessary and make clear if the advice should not be taken without other professional/legal advice.

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Remedies and Professional Negligence

Property Law

Background A study of property law is essential to any business. Businesses own property and they need to understand the rights they have with those assets. Real Property Real property is defined as land, and any fixtures attached to that land such as a house. Owning an area of land also gives the owner the right to space above and below that land, but only to an extent where it is necessary for ordinary use and enjoyment of the land and structures on it, as decided in Bernstein v Skyviews & General Ltd. For example, an aircraft flying 35,000 feet above someones house will not diminish use of the land, and, as such, is of no issue. However, a tree overhanging from a property next door may impede on enjoyment of the property. Ownership Systems Australia has two ownership systems, these being the Torrens Title and the Old System Title. Native title has also been used since it was created after Mabo v Queensland. Torrens Title The Torrens Title is the main system of land ownership where ownership of land is changed by registering changes at the Land Titles Office. This title shows all current legal interests on the land and sets up a priority system. This system is considered indefeasible in normal dealings. Exceptions to indefeasibility include: Fraud If a title was obtained fraudulently, then the title is considered defeasible. Personal Equity Claim Unconscionable conduct can lead to a claim of title. Constructive Trust For example: if a property is purchased jointly and only one pays the entire amount, this is regarded to be held in trust.

Under the Torrens Title, a person who has acquired an interest on the title does so free of unregistered interests. That is, it acquires the title without any other party holding material interest in the title. If two unregistered interests exist, the earlier gains priority, even if the later has notice of interest and the earlier does not. If the later party acquired interest for compensation, the earlier interest needs to be considered to see if they hold any interest. Old System Title Under the Old System Title, tracing ownership back to an undefeatable beginning proves ownership of land, which is usually when the government granted the land to an owner. Nowadays, 30 years is considered enough and a document from at least 30 years earlier is required to prove this in what

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Remedies and Professional Negligence is known as a good root of title. This is usually a very time consuming and complex task and so, is only used on very few pieces of land, mostly in rural Australia that have still not converted to the Torrens Title.

Native Title Native title was recognised through the case Mabo v Queensland and it recognised that ownership of land was initially by indigenous Australians. Native title is used in areas where indigenous populations still follow their traditional laws and customs. Types of Land Ownership People who own a piece of land have unlimited and exclusive use of that land (Known as estate in fee simple). However, this can be subject to government powers such as planning laws. Life estates are properties given to another holder for their entire life. That property cannot be transferred to another owner until that person dies. Future interests indicate that someone has a right to the land at some point in the future. There are other types of ownership such as joint tenants, tenants in common and multi-ownership. Joint tenants have interests over the entire land at the same time and are like a single owner of the entire land. If one party dies, the other party automatically has all the deceased partys interests. The two parties have: Unity of interest The interests of both parties are identical in all forms. Unity of possession Each tenant is entitled to full use of the land and cannot exclude the other. Unity of time The interests must come into effect at the same time. Unity of title The joint tenancy must be created through the same legal document.

Tenants in common are similar to a joint tenancy except that each owner only owns a share of the land, instead of the entire land. Each party does not have rights over the whole land and their shares do not necessarily have to be equal. If one party dies, the title is passed over to a legal representative and not the other tenants. These tenants only have unity of interest. Multi-ownership includes the following: Retirement villages Mining/petroleum leases Company share ownership Time share Strata title Community title

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 Equitable and Legal Interests

Remedies and Professional Negligence

If there exists more than one legal and/or equitable interest in a property, it is solved according to three principles: Leases Leases are split into residential or commerce leases. Accounting treatment differs for each. Leases can be: Fixed term: They start and end at a set date. Tenancies at will: They start at a set date but continue indefinitely until terminated at notice. One cannot give what one does not have. The person who is first in time has a stronger legal claim. Where the equities are equal, the law prevails.

Acquiring Property Ownership of property can be transferred by agreement (sale, gift, assignment by deed, declaration of trust or under a will), or without an agreement (administration, compulsory acquisition, court order or enforcement of an order). A property is conveyed to another owner through a process dealt with by solicitors or conveyancers. The process is: preparing the contract, exchanging and signing the contracts, searches and inquiries, arranging finances and then settlement. Caveats are written warnings made on the register to stop the owner from selling the property to someone else. It can be lodged by anyone with a legal or equitable interest in the land, such as a creditor. Choses A chose is a property right. It can be divided into: Chose in possession This is where there is a physical, tangible object, which is owned by someone. Being in actual possession of the physical item enforces this. Chose in action This is where there is an intangible item. It is enforced through the courts. For example, the right to sue someone is a chose in action. Chose in action is further divided into legal or equitable choses in action. Legal choses in action include: contracts, patents, copyrights etc.

Ownership and Possession It must be noted that there is a difference between ownership and possession. You can be the owner of something but not be in possession of it and vice-versa. A landlord can own a property but may have lent it out to someone else who has possession of the property. The owner has complete legal rights over the property. The person possessing the item has almost absolute right, not legal right, over the property, except against the legal owner. In Waverley Borough Council v Fletcher, the council owned an item found on its land by someone else. In Armory v Delamirie,
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Remedies and Professional Negligence the goldsmith could not refuse to return the jewel to the person who handed it in because he had no reason to believe that he was not the legal owner.

Property as Security Property may be used as security by lenders. This allows the lender to take control of the property and sell it off to recover debt if the borrower does not and cannot repay the debt. The most prominent example is a mortgage, which is a security over real property. The real property is taken into possession by the lender if the borrower can no longer finance the debt. Intellectual Property The other half to property law is personal property. Intellectual property laws protect creative and intellectual works. These include: Copyright Covered in the Copyright Act 1968 (Cth), and does not allow original work to be reproduced without permission of the author. The work must be in a material form, be made and/or published in Australia. Most importantly, the work must be original. All published works are automatically copyrighted; there is no need to apply etc. Copyright is valid for 70 years after the last authors death. If it is an unpublished work, it is valid for 70 years after the date of first publication. Remedies: Injunctions, Damages, Lost Profits, Criminal Proceedings. Designs Covered by the Designs Act 2003 (Cth), and protects a new, distinctive and unique design. It allows entities to exploit their designs for a 10-year period by giving it exclusivity to its design. One must apply to IP Australia to gain protection. Remedies: Injunctions, Damages, Account of Profits. Patents Covered by the Patents Act 1990 (Cth), and gives the inventor a monopoly over a new innovation. A patent is given for 20 years (up to 25 in pharmaceutical patents), but patents judged to not be sufficiently inventive (innovation patents) are only patented for 8 years. Patents must be something that can be manufactured, must be new, involves something innovative and is useful. The public, prior to application, must also have not known about the patent in any shape or form. Remedies: Injunctions, Damages, Account of Profits, Inspection Orders. Trademarks Covered by the Trade Marks Act 1995 (Cth), and allows a sign or badge to be used to identify certain goods and services. Initial registration is for 10 years but can be extended in definitely. Trade marks can be given on a variety of things including colours, scents, shapes and sounds although they must be unique and clearly identifiable with the brand. Remedies: Injunctions, Damages, Account of Profits. Confidential Information This can be protected through the use of contracts and/or by equitable actions. To prove that there was a breach of confidentiality, it must be proven that the information was known to be a secret on both sides, and that unauthorised used brought detriment to the one who told the secret. Remedies: Injunctions, Account of Profits, Destruction, Seizing Evidence.

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Consumer Law

Consumer Law

Background This section looks at how laws protect consumers from conduct by manufacturers and retailers. It also looks at the defences and remedies should any issues arise. Australian Consumer Law The Australian Consumer Law (ACL) is contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth). The CCA is a new piece of legislation that came into effect on 1 January 2011 and was previously known as the Trade Practices Act 1974 (Cth). The Australian Competition and Consumer Commission (ACCC) is responsible for administering the CCA. The ACCC has great power under Section 155, which allows it to search and seize evidence under a reason to believe requirement. The CCA is used to protect consumers in trade or commerce. A consumer is defined by the ACL in Section 3 as a person who acquires goods or services of a kind ordinarily acquired for personal, domestic or household use. For goods, they must be used as an end product and not further resold or transformed for trade. The CCA also only applies to situations that have a trade or commercial element in it. A private sale does not constitute a trade and is thus, not covered by the CCA. Unconscionable Conduct Sections 20 and 21 of the ACL provides consumers and small businesses, protection from unconscionable conduct if they are in a special disadvantage such as of age, sickness, illiteracy, poverty and language. A key case is Commercial Bank of Australia v Amadio where the Amadios did not speak or read English well and were exploited by the bank into entering a contract which was different to what they thought it was. The defendants knew about this and thus, their actions were unconscionable. Section 22 of the ACL provides a checklist for unconscionable action. This is: The relative bargaining power of each side Did the consumer have to comply with conditions that were deemed not reasonably necessary? Did the consumer understand the documentation? Was there any undue pressure, influence or unfair tactics? Could the consumer have obtained the good or service from another provider?

Misleading or Deceptive Conduct Section 18 of the ACL states that no one shall engage in trade or commerce that is misleading, deceptive or will likely mislead or deceive. This section is not restricted to just consumers and can be used between commercial entities. The courts have decided that something, which would lead an ordinary member of the public, who reads the statement (such as a promise or prediction etc.) or is influenced by it, into error, is misleading or deceptive. Leading someone to make an error is counted as being misleading. Leading someone to believe
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Consumer Law something that is false is deceptive. Mere confusion and/or uncertainty do not constitute misleading or deceptive conduct as seen in McWilliams Wines Pty Ltd v McDonalds System of Australia Pty Ltd.

Note that, no one has to be misled or deceived for successful action to be taken. There just needs to be the real possibility that someone could be misled or deceived. Since this action takes into account the public, we need to identify the class of persons who will most likely be affected by the conduct. Once this group is defined, all that needs to be proved is that just one person in that group will be likely misled or deceived for the case to be successful. It should be noted that conduct which is puffery (self-evident exaggeration) that are used as promotional statements in advertising are not taken literally and do not constitute misleading or deceptive conduct. Silence can also be considered misleading or deceptive conduct. If you know that by not telling someone a fact, that they will make the wrong decision, this can amount to misleading or deceptive conduct. Remedies for breaches of Section 18 of the ACL are normally injunctions. Damages are only awarded if the conduct has actually caused loss or damage. False Representations Section 29 of the ACL states that businesses must not make false or misleading representations about goods or services they provide. This is regarded as a criminal offence and the ACCC may undertake criminal proceedings. Damages may also be provided for the injured party. Section 29 has 14 subsections, which list what a business cannot falsely represent. Other Unfair Practices Other unfair practices include: Bait Advertising Section 35 A special price cannot be offered if it is not intended that these goods or services be offered for a reasonable period and in a reasonable amount. No Wrongly Accepting Payment Section 36 Payment cannot be accepted if you know you cannot supply the promised good or service. No Misleading Representations about Certain Business Activities Section 37 No misleading or false representations about business opportunities. Referral Selling Section 49 A person shall not induce a consumer to acquire goods and services by providing them with a list of other customers who they can sell the goods and services to. No Harassment and Coercion Section 50 Pressure, physical force, undue harassment or coercion cannot be used. Pyramid Selling Sections 44 to 46 A structure where a promoter sells participant a good, the right to sell that good and to introduce others to the scheme. Both promoter and seller are liable when caught. Unsolicited Credit Cards Section 39 Credit cards and debit cards cannot be sold unless directly requested by the consumer.

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 Unsolicited Goods or Services Section 43 Goods and services that are not requested do not have to be paid for by a consumer.

Consumer Law

Defences Defences used for a breach of the ACL include: That is was due to a reasonable mistake. That is was on reliance on information provided by someone else. That it was caused by another persons fault. That it was due to accident and/or beyond the defendants control.

Remedies Enforcement and remedies differ depending on the breach. Unconscionable Conduct $1.1m per offence for a corporation and $220,000 per offence for a person. Injunctions may apply, as well as possibility of cancelled/voided contracts and others. Misleading or Deceptive Conduct No fines but there may be injunctions and damages awarded. May also be told to run corrective advertising, refund, compensate or provide community service. False Representation $1.1m per offence for a corporation and $220,000 per offence for a person.

Implied Conditions Consumers are afforded a variety of non-excludable conditions and warranties under the CCA and businesses cannot exclude these. These are found in Sections 51 to 58 of the ACL. As a direct consequence, no refund signs found in stores may be misleading in that they mislead consumers as to their actual legal rights afforded under the CCA. Stores should be very careful when placing no refund signs.

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Competition Law

Competition Law

Background Other than protecting consumers, the other aim of the Competition and Consumer Act 2010 (Cth), is to promote competition and fair-trading amongst businesses. The Two Tests Competition law is largely based around two tests, these being the Competition Test and the Per Se test. The competition test questions if the activity in question will substantially lessen competition. If it does not, it fails this test and is not in breach of law. The Per Se test does not ask this question. Simply breaking the rule will be a breach of the law. In determining these two tests, it is crucial to define the market by asking, Who is the competition? We need to look at the product, geographic location and the time period of that market. Anti-Competitive Agreements Section 45 of the CCA prohibits any contracts, arrangements or understanding that breaches the competition test or contains an exclusionary provision aimed at getting rid of competitors. There needs to be: A contract, arrangement or understanding A purpose An effect or likely effect A substantial lessening of competition

A key case for anti-competitive agreements is ACCC v Visy Industries Holdings Pty Ltd. Visy and Amcor held 90% of the market in total and agreed to an elaborate scheme including price fixing (discussed later). This of course, substantially lessened competition in the market, given the market share between them. Exclusionary provisions are designed with the purpose of limiting, restricting or preventing an entity from doing something, similar to a boycott. In News Ltd v South Sydney District Rugby League Football Club Ltd, South Sydney was not included in the 14 team NRL and appealed, however, it was determined that the prevention was not something which was agreed to. Rather, it was just an unintended effect and as such, was not illegal. There must be an intention to do such, before it is illegal. Exclusive Dealings Section 47 of the CCA deals with exclusive dealings, which are exclusivity arrangements imposed by either supply or buyer such as: Product Exclusivity Forced to buy or supply a specific amount of a product. Customer Exclusivity Forced to only deal with one (or a select number of) supplier or buyer. Territorial Exclusivity Supplier or buyer only deals with one area exclusively. An exclusive dealing is only a breach if it breaches the competition test.
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Competition Law

A case of customer exclusivity is found in Universal Music Australia v ACCC. It was found that Universal threatened to stop supplying CDs if retailers were found to be dealing with other resellers of Universals music. This was aimed at wiping out competition from importers. Mergers Section 50 of the CCA prohibits mergers from going ahead if they breach the competition test. Breaches in section 50 usually never occur after a merger because a merger is always reported to the ACCC, who will state if they will allow or not allow the merger. In periods of economic decline, mergers that would normally not be allowed may be allowed in the general interests of the economy as a whole. It is better for companies to merge together and stay afloat than to have them collapse and further destroy the economy. Cartel Conduct Section 44ZZRA to 44ZZRV of the CCA prohibits cartel conduct such as price-fixing, restriction of outputs/production, allocation of customers, suppliers or territory and rigging. Cartel conduct is a per se breach meaning that it is a breach, no matter the impact on competition. It is also the only conduct under the CCA, which is a criminal offence. ACCC v Visy Industries Holdings Pty Ltd was a key case in making cartel conduct a criminal offence. Breaches of the CCA include up to 10 years jail and fines of up to $220,000 for an individual. This is $10 million, or 3 times the benefit of the cartel, or 10% of annual turnover if value cannot be determined. Third Line Forcing Sections 47(6) and 47(7) of the CCA deals with third line forcing which is where a party forces another party to deal with a third party (i.e. A forces B to deal with C). For example, when buying a car from a dealer, the dealer cannot force the buyer of the car to have to choose a certain insurance company as this will amount to third line forcing. The car dealer can have a preferred insurance company but it must allow the customer to have a choice. Third Line Forcing is a per se breach meaning it is always illegal. A key case is Castlemaine Tooheys Ltd v Hodgson Transport Pty Ltd. Tooheys supplied beer to northern Queensland and had a preferred carrier, which most customers chose to use. Hodgson believed it was third line forcing because everyone was using the preferred carrier. It was noted that customers had a choice in carrier, but most ended up choosing the preferred carrier. As such, this was not third line forcing. It would have been third line forcing is Tooheys forced customers to use their carrier. Resale Price Maintenance Section 48 of the CCA prohibits resale price maintenance. This is where a supplier dictates the lowest price at which a supplied product or service may be resold for. Dictating a maximum selling price is not prohibited. This is a per se breach. The supplier does not have to explicitly state that it cannot be sold at a certain price. Actions can also count as conduct. If a supplier stops supplying because the retailer is selling too low, this is also considered resale price maintenance, even though it is not explicitly stated. In ACCC v Jurlique International Pty Ltd, Jurlique only supplied products under the condition that resellers did not sell for lower than agreed specific prices. ACCC fined Jurlique $3.2m for this breach.
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 Misuse of Market Power

Competition Law

Section 46 of the CCA states that if a corporation has a substantial amount of market power, it must not take advantage of that to either eliminate competitors, prevent entry of new competitors or deter competition. In Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Co Ltd, Broken Hill supplied the majority of Y-bar wire fencing in rural Australia. Queensland Wire asked Broken Hill to supply the Y-bar component so that it could also compete and supply Y-bar wire fencing. However, Broken Hill, wanting to keep its market share, offered to sell the Y-bar component at such a high price to Queensland Wire that it was not affordable and competitive. Broken Hill was thus, found to be misusing its market power. Melway Publishing Pty Ltd v Robert Hicks Pty Ltd shows that even though someone has market power, as long as they are not misusing it, they are not doing breaching any laws. ACCC Overruling The ACCC can overrule over the CCA for a variety of reasons. It does this mainly in two ways: Authorisation The ACCC can authorise behaviours listed above so long as the benefit outweighs the anticompetitive detriment. Does the conduct bring higher efficiency? Promote growth in the industry? Boost the economy? Provide lots of local jobs? Authorisations can be given to exclusionary provisions, anti-competitive agreements, exclusive dealings, resale price maintenance and mergers. Notification Businesses can lodge notification with the ACCC that they are going to breach the exclusive dealing and third line forcing provisions of the CCA. The ACCC then has two weeks to turn around and ask the business to stop the dealing.

Penalties The ACCC for a breach of competition law by a corporation is the higher of: $10 million Three times the value of the illegal benefit 10% of annual turnover

Individuals will also face a penalty of up to $500,000 per offence. As noted, those undertaking cartel conduct can also be jailed by up to 10 years per offence. The court determines how severe the penalties are based on a variety of factors such as: Degree of power Time Deliberateness Involvement of senior management Corporate culture Disposition to operate Similar conduct in the past 34

Business and the Law Semester 1 2011

Competition Law

The ACCC may negotiate an agreed statement of facts and agree to a penalty before being placed into court. The ACCC may allow discounts on penalties for cooperation by the defendants as seen with Cabcharge. Other than damages, courts can also order injunctions, divestiture, punitive orders, and non- punitive orders. Defences Sometimes, if conduct is purely accidental, and the person acted honestly and reasonably, the ACCC may fairly excuse the conduct. Mitigating factors may also be present and the penalties may be waived or reduced. Joint ventures need to establish that the conduct was for the sole purpose of the joint venture, and that it did not substantially lessen competition in the relevant market.

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Crime in the Business World

Crime in the Business World

Background White-collar crime is prevalent in the modern world, and it is shaping up to be just as serious as other offenses such as murder and manslaughter. Crime is a public implication where victims exist. The State or Crown usually intervenes and brings a criminal case to court, instead of a private entity, to protect the integrity of the state and society. Criminal Law Criminal law in Australia is guided by the Criminal Code Act 1995 (Cth) and the Crimes Act 1900 (NSW). The aim of criminal law is to punish those that commit crime. It also serves to deter and discourage people from committing crime through fear of punishment. It also serves to incapacitate by putting those who commit crimes, out of society (ie. Jail). It also provides for rehabilitation of criminals. Classification of Crime Crimes are broadly classified into two categories: Summary Offences (Misdemeanour) These are small and less serious offences such as driving offences and vandalism. They are dealt with very briefly and do not involve a jury. Indictable Offences (Felony) These are much serious offences such as murder and assault. These are tried with a jury and/or judge present.

The Adversarial System Australia uses the adversarial system, which is adopted, by countries with a common law system. This means the two parties argue against one another and a judge and jury preside over those dealings, ultimately making a judgement based on facts presented. Countries with a civil law system use the inquisitorial system where a judge investigates the case by talking to both parties. Judges and Juries In criminal cases, juries are the ones that make a decision based on the facts and evidence presented to them by both parties. The judge is there to help guide the jury by explaining and applying the law. As such, it can be said that a judge questions the law while a jury questions fact. Juries are advantageous in that: They allow the community to have a say in the legal process. They safeguard against abuse of judicial power. They make sure the system does not become to legalistic.

However, juries are quite expensive. They also may not represent the entire community as many skip or avoid jury duty, because there are many allowable exceptions (ie. Lawyers cannot be jury members.
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Crime in the Business World People who know the parties involved are not allowed etc.). The public may also not understand how the law works. Most importantly, they may be influences by their own personal or public opinion.

In criminal cases, it must be proven that there was a mens rea (intention to commit crime) and an actus reus (actual crime committed). Who can be prosecuted? Children under the ages of 10 are considered to be unable to commit and crime. Children between the ages of 10 and 14 can be convicted if it can be proven that they knew that they were committing a crime. For corporations, criminal charges are normally laid on those who are the directing minds of the corporation. That is, those that formulated the criminal offence, usually being senior management. A lowly employee will not be charged unless it is proven that they contributed significantly to the crime. White Collar Crime White-collar crime is crime committed in the business world such as fraud. The law criminalises such activities. They are much more difficult to detect and prosecute than normal crimes due to their very complex nature. Computers are increasingly being the tool and also the target of criminal activity such as hacking, falsification of documents and fraud. Examples of some offences are: Deception resulting in personal gain. Embezzlement Fraud False Accounting

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Risk Management

Risk Management

Background Corporate collapses as a result of white collar crime is increasing, meaning that risk management is more important than ever, including compliance and due diligence. Note that there is no one risk management policy that will work perfectly for all businesses. Different businesses will have different types of risk and as such, require different policies. Risk Management Risk management involves identification, assessment, management and communication of risks. There are a variety of risks including: Market Risk Credit Risk Reputational Risk Legal Risk

It should be noted that risk management also deals with issues that are non-mandatory. A corporation does not have to manage certain types of risk, but they may elect to do so. Ultimate responsibility for risk management is placed on senior management such as the Board of Directors. Compliance Compliance is all about meeting particular obligations that are mandatory. Risk management involves ensuring that compliance is completed through responses such as: Training of staff Implementing control procedures Monitoring Resource allocation

It must be noted that compliance is only beneficial to stop breaches and not to manage breaches that have occurred. Due Diligence Statute law is lenient with businesses that have undertaken all that they reasonably can to prevent a breach, but still end up breaching. The ACCC has a leniency policy that either reduces the fine, or waives the fine, provided that the business: Implements policies and controls to ensure that the breach will never occur again. Make risk management modifications to prevent further violations. Cooperates with the ACCC.

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