Contract Law

TOPIC 1

INTRODUCTION TO THE LAW

Topic 1 Introduction to the Law

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TOPIC OUTCOMES At the end of this topic you will be able to: • explain the nature of law and its role in society;

• contrast law and ethics;

• classify law into criminal and civil and discuss characteristics of each;

• discuss the application of law to the field of engineering.


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1. INTRODUCTION Think about the range of activities you do each day and each week. Think about your studies and the kind of work that you will be engaged in. How many of these activities are influenced either directly or indirectly by the law?

When you stop to think about it you might be surprised to find that the law and the legal system influences most of our activities. Although we are not necessarily conscious of the law and how it operates, its presence and influence are certainly evident in the society in which we live. The law comprises a vast body of legal rules and principles that have developed over time, and which are constantly evolving in order to guide and regulate human behaviour, activities and interaction.

The law also governs and controls activities in the workplace. Therefore it is necessary for students of engineering to have a basic understanding of and appreciation for the legal system, how the law operates and the extent to which the law impacts on and influences our activities. In this unit you will learn about the legal system and some of the basic areas of law such as contract law, tort (negligence) law and intellectual property law, which are directly relevant to the engineering context. We begin the unit with an introduction to the nature, definition and classification of law.

2. NATURE OF LAW

2.1 What is law? Any study of law should include, at least, a brief understanding of the nature of law and its role in society. There are many opinions on what law is, and on how law, ethics and morality interact.

Law represents different things to different people. Politicians may see law as an expression of government policy. For example, the Government's decision to provide unemployment benefits to assist unemployed persons is reflected in laws allowing for the payment of such benefits. Lawyers, on the other hand, may see it as a means to earn a livelihood. Police officers may see it as a source of power and as a set of rules that regulate social behaviour. The citizen may see it simply as something that is at times a hindrance and at other times a help.

The following are some of the definitions of law that have been proposed from time to time over thousands of years.

• Law is the will and command of a supreme bring revealed to humanity through such instruments as the Bible, the Koran and other religious texts.

• Law is the command or will of the sovereign, the sovereign being a person or group of persons whom all other persons in that society obey.

• Law is an instrument of social engineering.


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• Law is an expression of the community’s guidelines for acceptable behaviour.

• Law is a means of ordering society and resolving disputes.

• Law is what the courts declare to be the law.

Although there is no single correct definition, it does however seem that the various definitions share the following characteristics:

• Law consists of a body of rules for regulating human interaction.

• Law orders society.

• The rules are interpreted, applied and enforced by institutions of state.

For our purposes law can be defined as:

Those rules established by parliaments and courts which will be recognised and enforced by the courts.

2.2 Law, Morality and Justice What are the differences between law, morality and justice? Are there any differences between them? Should laws conform to minimum standards of fairness?

There is an assumption that law gives effect to the moral values of society and that law is based on considerations of justice. It is true that the areas covered by law and morals are sometimes the same and that law and justice sometimes coincide. For example, there is a law that prohibits stealing, and it would seem that most people hold the view that stealing is immoral and that a law prohibiting stealing is a just law. In other areas, however, law does not necessarily reflect morality but simply regulates behaviour for the orderly management of society. It is illegal to park the wrong way in a one-way street but such a law has no obvious moral content. Nor does it necessarily concern justice.

There are many differences between law and morality. Some are:

• law deals with external behaviour while morality concentrates on the internal processes of intention, motive, and conscience;

• a violation of the law is met by enforcement of the law by mechanisms of the State (such as courts), while a breach of morality may be met by social condemnation and religious censure; and

• the legal verdict in a given situation tends to be in terms of black or white: judgment will go to either the plaintiff or defendant or the accused will be found innocent or guilty. Morality is not black or white: one person's morality is not necessarily another’s morality.


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The ambiguous relationship between law, morality and justice raises a number of interesting questions:

• Can there be a law that is immoral?

• Is there a duty to obey an immoral or unjust law?

• Is an unjust law still a law?

• Should the law be used to enforce morality by punishing acts because they are considered immoral?

2.3 Law and ethics The term “ethics” is difficult to define. The Macquarie Encyclopaedic Dictionary defines ethics as 'a system of moral principles by which human actions and proposals may be judged good or bad, or right or wrong'.

In one sense, ethics can be seen as an agreed standard of morality. Many professions, such as the accounting profession and legal profession, adopt ethical codes which set out for members of the profession standards of conduct expected of members. Breach of these ethical standards may attract a punishment imposed by the professional body itself. Many businesses, on the other hand, may adopt codes of practice in an attempt to self-regulate their industry, and it is simply left to consumers to judge the behaviour of a business in the light of a declared code of practice.

2.4 Engineering code of ethics Engineers work within a legal context. They are governed by the general law of the land which includes statutory law and common law. However, engineers, who are members of an engineering profession, are generally also subject to a code of ethics that comprises a basic set of principles that establishes a standard according to which engineers work. For example, the Institution of Engineers, Australia has a Code of Ethics for its members. Members are required to abide by the Code as part of their commitment to the Institution and profession, and as part of their responsibility to the community whom they serve. A breach of the Code is regarded as unethical conduct. A breach may attract the following sanctions: a reprimand, a fine, suspension or expulsion from membership and withdrawal of certification on relevant national registers.

3. LEGAL SYSTEMS A legal system may be defined as a framework of institutions and rules within a community that regulates the community and governs relations between people and the state.

Legal systems can generally be classified as either Civil Law systems or Common Law systems.

Civil Law systems have their origins in ancient Rome. These systems use “Codes” of law which are much like sets of rules that have been developed from general


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principles of law. The court’s role in these systems is to apply the relevant “code” or set of rules to a situation to try and solve the problem. We call this an “inquisitorial” system. Countries in continental Europe and its former colonies are Civil Law system countries as is much of Asia and South America.

The Common Law legal system originated in England following the Norman conquest of 1066. It was based on customs or traditions at the time and has developed “incrementally”, i.e. one case at a time. The court’s role in these systems is to resolve disputes by applying decisions made in previous similar cases as well as principles of law. Countries such as England and its former colonies are Common Law countries. The United States, Australia, New Zealand, South Africa, parts of Asia and many other generally English-speaking countries are referred to as Common Law coutries.

What is the difference?

The main difference is that the Common Law system is law based on customs beginning before there were any written laws and continuing to be applied by courts after there were written laws. The Civil Law system developed from broad legal principles and is law based on legal writings and principles.

The Australian legal system is based upon the Common Law system. From 1788 – 1992 Australia was regarded as a “settled” colony of England and so the laws of England were “brought” to Australia. The early colonies did not recognize the rights of indigenous peoples in Australia and regarded Australia as Terra Nullius which basically means “land owned by no one”. Of course, this was not true and in 1992 in the Mabo Case, (Mabo v State of Queensland (1992) 175 CLR 1), the High Court of Australia rejected the view that Australia was Terra Nullius and agreed to recognise indigenous rights, especially claims to land.

4. THE MEANING OF COMMON LAW The term common law has a number of different meanings, depending on the context in which it is used:

Law which is based on the English system rather than the European (or civil law) system

As we have seen above, common law refers to a legal system. The legal systems in the USA and Commonwealth countries such as Australia, Singapore and Malaysia were inherited from England. Whilst the details may be different, the basic principles, procedures and methodology are essentially the same. They are called common law countries.

Continental Europe and countries influenced by Europe, such as Indonesia, Japan and the majority of African and South American countries have adopted a different system and are called civil law countries. These countries put more emphasis on codes and general legal principles and less emphasis on the decisions of judges. A different approach is taken in trials in common law and civil law countries.


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Law which was common to the whole country

Before Henry II, England did not have a single national system of law. Each local court could make its own rules. Henry II replaced the local courts with his own judges who applied the same laws throughout the country. This is the original meaning of common law.

Law which was made by judges

As indicated above, the original meaning of common law was law made by the King’s judges. Consequently “common law” came to mean law which is made by judges (rather than law which made by Parliament). This is now the most frequently used meaning of the term “common law”. In this sense common law (which is made by judges) is usually contrasted with legislation or statute law (which is made by Parliament).

Law which was developed by the common law courts rather than equity courts

The original common law courts only offered a limited range of remedies and soon became somewhat rigid and inflexible.

Since the King was regarded as the ultimate source of justice, people who were unable to obtain a satisfactory remedy from his courts began to appeal directly to him for justice or equity. This became more than the King could handle so he passed these cases on to his Lord Chancellor. The volume of cases then grew too much for the Lord Chancellor who had to appoint his own special court, the Court of Chancery to deal with them.

In time the Court of Chancery developed its own system of rules and procedures, called equity. Important examples would be the development of the law of trusts, and the development of equitable remedies such as specific performance and injunctions.

Consequently, from the middle ages to the end of the 19th Century, England had in effect two complementary systems of law, “common law” dispensed by the Court of King’s Bench and “equity” dispensed by the Court of Chancery.

This meant, for example, that if you were suing someone for breach of contract, and wanted to claim damages from them you would have to go to the King’s Bench as damages was a common law remedy. If you wanted specific performance, i.e. an order to the other party to carry out the contract, you would have to go to the Court of Chancery. In 1878 Parliament decided to combine the two systems, so that they can both now dispense the rules of common law and equity.


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5. CLASSIFYING LAW There are various ways of classifying law. The most common classification is criminal law and civil law.

L A W

C R I M IN A L L A WC I V IL L A W

Criminal law is concerned with the suppression by the State of anti-social behaviour. The main purposes of criminal law are to punish the wrong-doer and, hopefully, to deter others from crime. A breach of the criminal law attracts a punishment, usually in the form of a fine or imprisonment.

Civil law is law concerned with disputes between individuals. It is intended to provide a remedy for the individual who takes a matter to court when a wrong has been done to him or her by another person. A typical remedy in a civil law matter is the payment of monetary compensation.

Law is also classified as substantive and procedural law.

Substantive law is concerned with the rules that make up the particular branch of law, such as employment law and contract law. It is the law that determines the content and meaning of the different rules and legal principles.

Procedural law is concerned with how a legal dispute is settled. It deals with the procedures that must be followed in legal proceedings. For example, there are different procedures for criminal and civil law cases. Criminal procedure prescribes how people who have allegedly committed a criminal offence should be prosecuted, and civil procedure lays down the procedure that must be followed when an individual wishes to enforce his or her rights against another person.

6. HOW TO STUDY LAW During the course of this unit you will have to answer tutorial questions (which appear at the end of each topic in this book), as well as having to answer examination questions.

Tutorial and examination questions in law can be of two types:

• Essay questions; and • Problem (hypothetical fact situation) questions.


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Essay Questions

An essay question is one that requires the student to write an essay examining or explaining or discussing a particular topic or principle of law. Words such as "explain", "comment on", "discuss", "write notes on", and "compare and contrast" are indicative of essay questions.

You should ensure that your essay contains an introduction, the body of the discussion and a conclusion.

In answering essay questions, the student should:

• give as much relevant detail as possible; and • ensure that what is written is relevant to the question that is asked. Legal Problem Questions

Answering legal problem questions is a key skill in legal studies.

A problem question is slightly different from an essay question, because it presents you with a hypothetical fact situation that raises questions about someone's legal liability.

In answering a problem question, you should remember that the question is designed for two main purposes:

• To allow you to show your knowledge of particular areas or principles of law; and

• To allow you to demonstrate your ability to apply the law to a given set of facts in order to conclude whether or not someone could be legally liable.

In showing your knowledge of a particular area or principle of law, you should be as detailed and as relevant as possible since the examiner will assume that what you have written is all that you know about that area or principle of law.

Some tutorial questions and examination questions are based upon the “four-step” approach or process to problem questions which is discussed below. You will be asked repeatedly during semester to use this technique. Be aware that whilst this is the preferred method for answering legal problems, the technique has application in other disciplines.


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Step 1 - Introduction

Identify the area or areas of law which needs to be explained in order to answer the question. Usually this is easily worked out from the question itself. The area of law will always be a topic that has been discussed in the unit.

Step 2 – Explain the relevant law

Explain principles of law relevant to the area of law. This is your best opportunity to obtain marks by showing that you know the legal principles applicable to that area of law. (The extent to which you will be required to provide detail in an examination, will of course depend upon the marks allocated to that problem and the time you have available). Important cases should be identified and a brief summary of the facts, the decision of the court, and a statement of the important principle of law that the case makes clear should be provided.

In step two you should explain the principles of law as if to someone who knows nothing about the unit. In that way you will make sure that you explain at the level that is required.

Step 3 – Apply the law to the problem

Apply the law to the facts of the question in a reasonable and logical manner. Consider each aspect or element of legal criteria discussed in Step 2 and decide whether it is satisfied in the scenario that you are considering. For example, you would say something like “Fred owes Mary a duty of care because…” It is always necessary to explain which of the facts of the question indicate that the element of the action has been satisfied.

Step 4 – Conclusion

Draw possible conclusions. Please note that many problems do not have a definitive “yes” or “no” answer until the matter has been decided by a court of law. It is best to state your conclusions in language that reflects this reality. Use statements like “it is likely…” or “it would appear that”. You only need to write two or three sentences for the conclusion.

6.1 Example of the four step process The question:

Anne has recently started a new job at a marketing agency. She needs new clothes to keep up the image required.

Last week Anne saw a “City Street” suit in a suburban branch of Nyer Pty Ltd, a large department store. She tried it on and liked it, but decided not to buy it because it was beyond her price range.


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On Saturday morning, Anne is thrilled to see that Nyer Pty Ltd is advertising "City Street" suits for half price. She rushes in to the city store and finds the suit that she had previously tried on hanging on a rack with a sign saying “50% OFF” above it.

Anne knows that the suit fits her well, so she takes it to the counter and tells the salesperson that she will take it. The salesperson tells Anne that the suit was on the wrong rack, and it is actually not reduced in price at all.

Anne is very annoyed. She is convinced that there is a contractual agreement binding Nyer Pty Ltd to sell her the suit at the reduced price.

Explain how the law of contract applies to this situation.

A possible response

The area of law relevant to this question is whether the requirements for a valid contract to exist have been satisfied.

The Area of Law

A contract may be defined as an agreement between two or more parties, which creates rights and obligations that are enforceable at law.

Principles of Law

For a valid contract to be formed, three essential elements need to be present. Firstly, the parties must intend to create legal relations; secondly, it is necessary for the parties to reach agreement; and lastly, their promises must be supported by consideration (Squelch, Bowyer & Monterosso, 2009:39). The element which is most relevant to the question asked is agreement.

There are several presumptions which are applied by courts in deciding whether the parties to an agreement intend that agreement to be legally binding. In commercial or business circumstances, it is presumed that the parties did intend to create legal relations. In domestic or social situations it is presumed that the parties did not intend the agreement to be binding in law. These presumptions may be rebutted by evidence to the contrary (Gibson & Fraser, 2007:12-13).

An agreement requires that there be a ‘meeting of the minds’. This occurs when an offer made by one party (the offeror) is accepted by the other party (the offeree) (Khoury & Yamouni, 2003:21). However, not all communications passing between parties amount to offer and acceptance at law, and the principles discussed below assist in determining whether or not a valid agreement has been reached.

An offer is a firm indication of the terms upon which a party is prepared to be bound. The offer must be communicated to the person or persons for whom it is intended (Khoury & Yamouni, 2003:21).

Invitations to treat must be distinguished from offers. Invitations to treat are less than offers; they are generally intended to induce others to make offers. Instances


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of invitations to treat include advertisements, price lists, and displays of goods in shop windows. For example in Partridge v Crittenden [1968] 2 All Er 421 (in Bowyer & Squelch, 2007:47), Partridge was charged with ‘offering’ protected birds for sale, after placing an advertisement in a periodical reading “Bramblefinch cocks / hens, 25s each”. The court held that the advertisement was not an offer for sale, but merely an invitation to treat. Similarly in Fisher v Bell [1961] 1 QB 394 a display of a flick-knife in the window of a store with a price tag was not considered to be an offer to sell only an invitation.

The issue of precisely when and how agreements are made in self-service stores was determined in Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1QB 401 (in Squelch & Bowyer, 2007:47). Boots Chemists, who opened a self-service store, were charged with facilitating the sale of ‘prescribed’ drugs, without the required supervision by a registered pharmacist. The drugs were located on the shelves throughout the store and the pharmacist was positioned at the check-out. Boots argued that placing their merchandise on shelves was merely an invitation to treat, and that it was in fact their customers who made the offers by presenting selected goods at the check-out. Acceptance in turn was made, or rejected, by the attendant pharmacist, and that a qualified staff member had therefore supervised each sale. The court agreed with this.

Before an agreement will arise, the offeror’s offer needs to be accepted. Acceptance may be defined as final and unqualified assent to the terms of the offer, without additions, deletions, or variations. This presupposes that only those to whom an offer is directed may in turn accept. Furthermore, that the offer must be present in the mind of the offeree at the time acceptance is made (Khoury & Yamouni, 2003:33).

Consideration is the “price” that one party pays for the promise(s) of the other party. Consideration may be in the form of a money price, a service rendered etc. Consideration may be executed (provided at the time that the contract was made) or executory (provided at some time after the contract is made). Consideration cannot be past (Khoury & Yamouni, 2003:66).

To determine whether Nyer Pty Ltd (Nyer) is contractually bound it is first necessary to examine whether the elements of a binding contract are present.

Apply the Law to the Facts

The interaction between Nyer and Anne occurs in a business context and thus it would be presumed that an intention to create legal relations exists.

Clearly the display of the suit with a price indicated is an invitation to treat. This analysis follows the decision in the Boots Cash Chemist case. Anne makes an offer when she takes the suit to the counter and indicates that she wishes to buy the suit. Her offer is not accepted, thus no agreement has been reached.

It appears that no contract exists between Nyer and Anne.

Conclusion


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7. FINDING INFORMATION ON LAW This section deals with how to find information on law in libraries including the Curtin library. The legal collections in the Robertson Library can be located on Level 3 and Level 4. Level 3 contains legal reference material, while on Level 4 at Dewey number 346 you will find texts that are available for general borrowing.

General Legal Research is made much easier thanks to many web sites. The most useful general website is: http://www.austlii.edu.au/ .

7.1 Finding law relating to engineering You may find the following sources of law useful:

Building and Construction Law Journal (BCL)

Local Government and Environmental Reports of Australia (LGRA)

8. SUMMARY The law impacts upon all careers and all aspects of life. From an engineering point of view the law is an integral part of many of the major functions of your job. Areas such as tendering and quoting, entering into contracts, designing and planning, protecting your ideas or inventions, environmental considerations, hiring employees and obtaining insurance such as professional indemnity, public liability and workers compensation are all part of your working experience as an engineer.

It may be that much of the above is delegated to management roles, sub-contractors or specialists but in many cases you may have responsibility in these areas. Regardless, you should at least have a basic understanding of these areas of law as they are vital to your work. Too often professionals ignore the basics of law and are only really concerned when a problem arises. Often these problems could have been avoided with just a rudimentary knowledge of the law or where to find further information beforehand. This course aims to give you this basic introduction to the areas of law that we think are important to engineers.

http://www.austlii.edu.au/�


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TUTORIAL QUESTIONS 1. Distinguish between civil law and common law legal systems.

2. Explain the different ways in which common law is defined.

3. Give an example of an action that may give rise to both civil and criminal proceedings. What is the distinction between the two?

4. Give an example of conduct that may be viewed as morally wrong but is not illegal.

5. Shane, a young engineer, has just completed his engineering degree at Curtin University. He has done exceptionally well in his degree. He applies to the Institution of Engineers, Australia for membership. On his application he is asked: Have you been convicted of a crime? Shane answers NO. It later transpires that Shane has two convictions for drink-driving and one for minor assault at a football match. His membership is cancelled and he is prohibited from becoming a member for three years. Should Shane’s membership have been cancelled? What would you do?

6. Discuss how law relates to the field of engineering. Why is it important for engineers to know about the law?


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TOPIC 2

THE AUSTRALIAN LEGAL SYSTEM

Topic 2 The Australian Legal System

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TOPIC OUTCOMES At the end of this topic you will be able to: • identify two major sources of law in Australia;

• explain the division of legislative power between the Commonwealth and the States;

• explain how conflict between Commonwealth and State laws is resolved;

• describe the doctrine of precedent;

• describe the court hierarchy in Western Australia; and

• explain the concept of jurisdiction.


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1. INTRODUCTION You have just completed your engineering degree and have started working for a company. You are handed a contract to sign. Do you understand the contents of the contract? You are engaged in creating a new product and you want to find out something about the law that will protect this product. Where do you look? You are working on a construction project that is subject to development and environmental laws. Where do you find the legal information to help you understand and answer questions on these various legal issues?

Knowing where the law comes from, where to find it and how it is interpreted in courts is perhaps more the realm of the specialist such as the lawyer. However engineers should at least understand that there are many sources of law, (all of which have to be complied with of course). You need to know which laws will take priority if there are differing laws on the same subject and how to read or understand the laws or citations you may see if you are researching a particular area of law. It is also good for engineers to understand that the courts interpret the law in their decisions and so current decisions reported in the news, for example, may well affect how the law applies to you. Professionals such as doctors, engineers, accountants and lawyers are often affected by recent decisions in areas such as negligence, insurance and employment and so an understanding of how the sources of law interact is beneficial.

2. SOURCES OF LAW There are two major sources of law. The first of these is law made by Parliaments, also known as statute law or legislation. This is the main source today although historically this was not the case when most law was made by judges in court settings.

Parliaments make ‘legislation’ or ‘statute law’ at both Federal and State levels and some legislation called delegated legislation may be made by local government such as Shires or Town Councils. These are called By-laws or Regulations. Legislation is generally quite easily available and you can find most Commonwealth and State legislation, regulations and even some court reports on websites such as www.austlii.edu.au.

The second source of law is law made by judges, that is, case law. This is the most used meaning of the term ‘Common Law’ i.e. judge-made-law. This type of law is sometimes referred to as “law of the courts” as well.

When court cases are heard, judges base their decisions on previous cases - precedents, (see later). They also base their decisions on the facts of each case and, most importantly, on their interpretation of the meaning of the law provided in legislation. Thus judges are able to ‘make’ law by their decisions and interpretations of existing legislation and, especially where there is no specific legislation on the subject, by reference to previous cases and legal principles developed and passed on by judges in the past. We will first discuss legislation and the law-making role of parliaments, and then we will discuss the court system and case law.

http://www.austlii.edu.au/�


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3. PARLIAMENT AND THE DIVISION OF LAW-MAKING POWERS

3.1 The system of government On 1 January 1901 the Commonwealth of Australia Constitution Act 1900 established a federation with a central government known as the Commonwealth government and six State governments. Within each State there is another level of government known as local government.

A federation may divide legislative powers between the Federal and State Governments in a number of ways. In Canada, specific powers are conferred on the provinces while the Federal Government exercises the residual powers. The United States model, which was followed in this regard by Australia, confers specific powers on the Federal Government and the States exercise the residual powers.

The Australian Constitution is an important legal and political document. It is the Constitution that tells us what powers are given to the Commonwealth and States. It tells us what the Commonwealth and States can do and not do! The Constituton divides up the subject-matters about which laws can be made in the following manner:

(a) It specifies those matters over which only the Commonwealth Parliament can legislate. These are called exclusive powers. Section 52 and section 90 of the Constitution are examples of matters about which only the Commonwealth Parliament can make laws. Section 52 gives the Commonwealth Parliament the exclusive power to pass laws with respect to, for example, ‘all places acquired by the Commonwealth for public purposes’. Such a place would include defence bases. Thus, a State law applying to a Commonwealth place such as Pearce Air Force Base would be invalid as the base is a Commonwealth place. Section 90 of the Constitution gives the Commonwealth Parliament exclusive power to make laws concerning customs, excise and bounties.

(b) It specifically lists those matters over which both the Commonwealth and State parliaments can legislate. Such matters are commonly called concurrent powers and are listed in s 51 of the Constitution. Section 51 comprises 40 paragraphs covering a wide range of subject-matters. Included in s 51 are such matters as:

• trade and commerce

• currency, coinage and legal tender

• postal, telegraphic, telephonic and other like services

• immigration and emigration

• taxation

• external affairs

• quarantine


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(c) Any subject-matter that is not an exclusive or concurrent power is, by a

process of elimination, a subject-matter over which only a State parliament can legislate and is called a residual power. Residual matters cover a vast array of subject-matters, including education, the environment, local government, and traffic. A Commonwealth law dealing with a residual subject-matter is unconstitutional and invalid.

3.2 Section 109 of the Australian Constitution Because the powers mentioned in s 51 of the Constitution are concurrent, it is possible for the Commonwealth Parliament and a State parliament to pass a law dealing with the same subject-matter. Section 109 of the Constitution provides:

“When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid.”

The courts apply various tests to determine whether or not there is inconsistency between a Commonwealth law and a State law under s 109, for example, if a Commonwealth statute grants certain rights and a State law prohibits certain rights. If there is an inconsistency, the State law becomes inoperative. This does not mean that the State law is unconstitutional; it simply means that the State law will lie dormant and will not operate as long as the Commonwealth law exists. If the Commonwealth law is repealed or is found to be unconstitutional, the State law becomes operative again.

3.3 Parliament Most parliaments in Australia consist of two Houses of Parliament, the upper house and the lower house. This is a bicameral system. Only Queensland has a unicameral system. The upper house is called the Legislative Council and the lower house is the Legislative Assembly. The lower house is elected by popular vote while the upper house may be elected by popular vote or chosen in another way. Parliament is made up of government Ministers.

The Commonwealth Parliament is made up of:

• The House of Representatives: the lower house which is made up of representatives from all the States, in proportion to the population of that Sate. The role of the House of Representatives is to provide the government of the day. Legislation normally originates in this house.

• The Senate: the upper house to which equal numbers of representatives are elected from each state. The Senate was designed to protect the interest of the less populous states by acting as a house of review. It reviews legislation originating in the lower house.

• The Governor-General: the monarch’s representative who provides the royal approval for legislation passed by the Commonwealth Parliament.


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3.4 The legislative process The primary function of parliament is to make law. How does parliament make law? Basically, the government introduces a proposed law into a House of Parliament, usually the Lower House. The proposed law is known as a Bill, which is a draft Act. The person who introduces the law is usually the Minister whose department will be responsible for administering the law. When the Bill is introduced it is read the ‘first time’; that is, the Clerk reads the title of the Bill. The next step usually begins immediately with the Minister moving that the Bill ‘be now read a second time’. The Minister (or member) starts the second reading debate with a speech that explains the intended effect, purpose and principles of the proposed legislation. At the end of the second reading the Minister presents an explanatory memorandum, a document which explains the reasons for the Bill and outlines its provisions. The second reading is the most important stage through which a Bill passes because the whole policy of the Bill is considered. When a Bill has passed the second reading the House forms itself into a ‘Committee’ and the Bill is dealt with clause by clause. Once the house agrees to the second reading the Bill is then read a ‘third time’. This stage is mainly a formal procedure; however, the Bill is occasionally debated again when the subject matter is controversial. If the house agrees with the Bill at this stage, the Bill is passed by that house. The Bill then sent to the other house which follows the same process. If both houses approve the Bill, it is sent to the Governor-General or the Governor for signing. The Bill then comes into operation and is known as an Act of Parliament or Statute.

An example of a Statute is the Trade Practices Act 1974 (Cth).

A statute is made up of the following parts:

• The number of the Act • The long title – which general states the propose of the Act • Date assented to – when royal assent was given • Short title – the name by which the Act is known • Sections of the Act – the body or content of the Act

4. DELEGATED LEGISLATION Delegated legislation is a secondary form of statute law. It consists of laws not made by Parliament but by persons or bodies authorised by Parliament to make laws. In many circumstances, the Parliament will delegate the power to make laws to members of the Executive, such as the Governor-General, Governor, Minister in charge of public service departments or public servants.

When parliament makes a law which authorises another body to make delegated legislation, that law is called an “enabling Act”. The body which has been delegated authority by this process must act strictly within the limitations set by the enabling act.

Parliament delegates the power to make law to different bodies, and usually the name by which the delegated legislation they create is known will also differ. For example:


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(a) the Governor-General or the Governor makes orders-in-council

(b) Ministers of the Crown or public servants make regulations

(c) local government councils make local-laws (formerly known as by-laws)

(d) statutory authorities make rules

This is illustrated in the following diagram.

Reasons why Parliament delegates its law making power include:

• It is impossible for Parliament to find the time to cope with the additional workload if parliament itself was required to deal with every kind of legislative material and regulation, because there is a vast amount of such detailed legislation made each year.

• It is convenient to allow administrative bodies and government departments to regulate their own affairs.

• Technical matters may need expertise that is not possessed by Parliament.

It is sometimes argued, however, that the power to make legislation should not be delegated to others because:

• Parliament surrenders its legislative powers to persons who are not accountable to the electorate.

• Once made, delegated legislation can be very difficult to locate. Regulations, for example, are often held within a government department and are not widely circulated.


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Each year it is estimated that 20,000 pages of delegated legislation are created.

5. COURTS, CASE LAW AND THE DOCTRINE OF PRECEDENT Unenacted law is law handed down by the courts and is one of the two main sources of law in our common law system. The other main source of law is statute law or enacted law i.e. law made by parliament in the form of Acts or statutes, and laws made by other bodies in the form of delegated legislation, (see above).

Unenacted law is made up of the principles of law which are set down by judges in court decisions. It is also known as common law or judge-made law or case-law. In order to understand its nature, it is necessary to understand how this significant source of law arose.

At the time of the Norman Conquest in 1066, no single legal system existed in Anglo Saxon England. Civil disputes were settled according to the particular customary law of each region in tribunals known as moots. The moots were constituted by freemen of the locality, not by judicial officers. In criminal matters questions of guilt or innocence of accused persons were sometimes settled by ordeal e.g. ordeal by fire or by water.

William the Conqueror set about unifying the country under the feudal system, a social system of rights and duties based upon land-holding and personal relationships. However, he permitted local manorial courts to administer customary law as before.

In the following century King Henry II introduced circuit courts. Judges travelled the country, convening courts at different centres. The judges resolved disputes according to agreed principles, rather than local custom: the law was that which the judges "declared" or stated it to be. Criminal matters were settled by twelve "lawful" men acting as a jury, assisted by the judge.

The judges kept written records of the facts of the cases and the legal principles which they had applied in reaching their decisions. They began to apply that same reasoning when deciding later cases which involved similar facts across the country. This practice was the origin of the doctrine of precedent. The use of precedents meant that, gradually, the same principles of law were applied in courts throughout the country - these principles formed the “common law”. In the thirteenth century the justice system became quite centralised, and in the fourteenth century a system of court-reporting developed. Judgments were recorded and published by barristers and other authorised reporters and the reports became the authoritative source of precedents.

During the succeeding centuries the common law developed and expanded. This occurred when courts gave wide application to a precedent from one case to another, thereby increasing the scope and operation of that precedent.


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5.1 The hierarchy of courts While Parliament makes law, the courts perform the important task of interpreting and applying the law. As with the structure of Parliament, the Commonwealth and each State has its own court system. The courts are arranged in a hierarchy according to functions and status. There are basically three levels or tiers of courts - the lower (inferior), intermediate (district) and superior courts. The hierarchical arrangement allows for a system of appeals from the lower courts to the higher courts. This is crucial to the operation of the doctrine of precedent (which is discussed below).

5.2 The hierarchy of courts in Western Australia The diagram below illustrates the hierarchy of courts in Western Australia. Other states and countries they have their own hierarchy of courts. All Australian states have the High Court at the top of their hierarchy. The High Court and Supreme Court are known as superior courts; the District Court is an intermediate court; and the Magistrates Court is an inferior

Since 1986, with the passing of the Australia Acts, the High Court has been the final court of appeal in Australia. Prior to that time, a litigant who was disappointed by a decision of a state Supreme Court could choose to appeal either to the Privy Council in London or the High Court of Australia. The Commonwealth abolished the right of appeal from the High Court to the Privy Council in 1975.

court.

The Federal Court was created in 1976 to deal with Commonwealth laws relating to, for example, bankruptcy, industrial relations and trade practices law.

Other courts and tribunals of specialist jurisdiction exist outside the main hierarchy. These include the Family Court of Western Australia, the Children's Court of Western Australia, the Coroner's Court, Wardens' Courts, the Administrative Appeals Tribunal and the Western Australian and Commonwealth Industrial Relations Commissions.

5.3 Jurisdiction The word jurisdiction has several distinct meanings:

The subject matter of the cases which may be brought before the court

Courts have jurisdiction in clearly defined areas, for example, the Magistrates Court has jurisdiction to hear criminal and civil matters, the Family Court has jurisdiction to hear family law matters.

The power of a court to hear and determine the case

In civil cases, this relates to the size of a claim which can be brought before a court e.g. the Magistrates Court deals with civil matters involving claims up to $50,000. For minor cases, the jurisdictional limit is $7,500. The Magistrates Court also deals with consumer/trade claims of $50,000 or less. The District Court can


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hear claims up to $250,000. The District Court has exclusive jurisdiction to hear claims concerning death or personal injury arising out of the use of a motor vehicle, and in such cases the amount of damages can be unlimited; the Supreme Court can hear claims for amounts greater than $250,000.

In criminal cases, this relates to the seriousness of offences and the penalties applicable; the Magistrates Court tries the least serious offences (i.e. simple offences) and indictable offences which may be tried summarily. The District Court tries indictable offences for which the maximum penalty is less than imprisonment for life and the Supreme Court tries indictable offences for which the maximum penalty is imprisonment for life or strict security life imprisonment.

The geographical area in which the court operates

For example, the Supreme Court has jurisdiction over the whole of Western Australia, but no jurisdiction in other States.

Original or appellate jurisdiction

Original jurisdiction means the power to hear cases at first instance. Usually one judge hears (presides over) a case at first instance; however, in cases involving the interpretation of the Australian Constitution, all 7 High Court judges will hear the case. Appellate jurisdiction means the power to hear cases on appeal from lower courts. Usually more than one judge, and usually an odd number of judges (3 or 5) hear appeal cases.

6. CASE LAW Case law, or judge-made law, is an important source of law. As mentioned above, the role of the court is to interpret and apply the law.

6.1 The parties Civil cases: In a case being heard at first instance, i.e. for the first time, the name of the plaintiff (the person bringing the action) is stated first, followed by a “v”, and then the name of the defendant (the person against whom the claim is being made.) The “v”, although an abbreviation of "versus", is read as "and". Thus, in a case Green v Blue, Green is the plaintiff and Blue is the defendant.

In appeal cases, the name of the appellant (the person bringing the appeal) is stated first, followed by the “v” and then the name of the respondent. Usually, the person who has been unsuccessful at first instance is the appellant in a case. Thus, using the example above, if Green was unsuccessful in his claim, and decided to appeal, the order of the names would again be Green v Blue. However, if Green had succeeded at first instance and Blue decided to appeal, the citation would be Blue v Green. The words “The Queen” in the citation of a civil case usually indicate that the Crown (the government) is a party to the action.

Criminal: In the intermediate and superior courts, the Crown is the prosecutor and the person against whom charges are brought is the accused. In a case where


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Brown is prosecuted, the names of the parties appear as R. v Brown. “R” stands for “Rex” or “Regina” (i.e. the King or Queen) but is said as “The Crown”. In criminal cases the “v” is read as "against". In the Court of Petty Sessions, the name of a police officer who prosecutes the case is given instead of “R”.

6.2 The doctrine of precedent A court is bound (obliged) to follow a decision of a court higher in the same hierarchy when the material facts are the same or similar in both cases. This is known as the doctrine of precedent.

A precedent is the decision of a court that is used as an authority for reaching the same decision in a later case.

The doctrine of precedent is a set of principles governing the way in which courts must deal with cases they are deciding. The doctrine is also known as the doctrine of stare decisis, which means “let the decision stand”.

There are a number of important concepts and principles relating to the doctrine of precedent.

The following are the main principles of the doctrine of precedent:

• Courts exist in a hierarchy (hierarchy is discussed in the following pages) and are presided over by judges and magistrates (and sometimes by justices of the peace). A lower court must follow the decision of a superior court in the same judicial hierarchy in cases involving similar facts. In the same jurisdiction such a decision constitutes binding precedent. If the judge in a lower court fails to apply a binding precedent, that failure will provide the ground for an appeal to the higher court.

• A court is not bound to follow its own previous decisions. But in practice, a court will only depart from its previous decisions in exceptional cases.

• The decision of an inferior court in the same judicial hierarchy, or of any court in a different hierarchy, may constitute persuasive authority. In such a case, a superior court may be persuaded by the decision but is not bound to follow it. (Note

• Only the ratio decidendi of a case is binding.

that decisions of the House of Lords, although not binding in Australia, are often given great weight in Australian courts.)

• Obiter dicta are never binding.

• Precedents are not invalidated merely by the passage of time.

Ratio Decidendi

The ratio decidendi (“the reason for deciding”) is the ground or grounds upon which a case was decided. The ratio is a proposition of law that may make a particular case a precedent for the future. The ratio of a case is deduced from an


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analysis of the facts of the case and the written judgments of the judges. A later court will apply the ratio (rule) when they use the earlier case as a precedent.

It is sometimes quite difficult to work out what the ratio is of a case. Where a number of judges have heard a case, they might have reached the same conclusion but for very different reasons, or it might be difficult to work out what facts each of the judges saw as important to his or her decision.

Case Study: The Ratio

Donoghue v Stevenson [1932] AC 562

A lady became ill when she drank a bottle of ginger beer containing a dead and rotting snail. She sued the manufacturers for negligence. The judges of the House of Lords were not unanimous as to the issue of whether a manufacturer would be responsible for the damage caused to a consumer through the careless production of a product (in this a case a bottle of ginger beer). The majority of their Lordships held that the manufacturer was liable for negligent/careless production that caused damage to a consumer (she became ill) where the consumer used the product in the manner intended by the manufacturer (she drank it). This responsibility or duty of care

The ratio of this case has been taken from the majority view. Even though the case dealt specifically with the production and consumption of a bottle of ginger beer, the ratio or principle of the case that emerges from the decision has a broader significance. The ratio of the case could be stated as follows: a manufacturer has a duty of care to ensure that what is produced will be safe to consume or use.

existed even though the consumer had not directly purchased the product from the producer. Other (minority) members of the House of Lords required there to be a contractual relationship before the manufacturer was liable.

Therefore, the ratio is the main legal point that has been decided.

Obiter Dictum

Obiter dictum (“a thing said by the way” or “a remark in passing”) is a statement made by a judge of principles of law which relate to hypothetical

An example of the difference between ratio and obiter is seen in the following case.

facts, rather than to the particular facts of the case being determined. Often, a judge raises comparisons or examples in obiter remarks.

Case Study: Difference between Ratio and Obiter

Cohen v Sellar [1926] 1 KB 536

In that case, the plaintiff and defendant were engaged to be married but the engagement had come to an end. Both parties claimed to be entitled to the


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diamond engagement ring given by the defendant, Mr. Sellar, to the plaintiff, Miss Cohen.

The judge held that the plaintiff (Miss Cohen) was entitled to keep the ring, because the defendant (Mr Sellar) had breached his promise to marry her. This was the ratio of the case.

The judge remarked that in cases where the woman has refused to carry out her promise to marry, or an engagement is broken off by mutual consent, the woman is bound to return the engagement ring to the man. These statements by the judge were obiter because they relates to hypothetical facts, rather than the facts in issue.

Distinguishing

"Distinguishing" occurs when the court holds that the material (essential) facts in another case are sufficiently different from those of the present case to justify a different conclusion of law. In other words, although a case may be similar to a previous case, it is put to the court that there is enough difference between the two that the ratio of the previous case should NOT be applied.

Strictly speaking, unless a precedent case can be distinguished from the case before the lower court on the basis of dissimilar facts

6.3 Law reports

, a lower court is bound to follow the precedent.

Only a small number of important decisions of superior courts are reported in the law reports. When reports are published on an annual basis, the year appears in square brackets in the citation and is an essential part of the reference. When reports are published according to a volume number, the year appears in round brackets and is not an essential part of the reference: it is included as an aid to locating the report in the library. The abbreviations of the particular law report appear after the year, followed by a number, which indicates the page of the report at which the particular case report begins.

For example: Donoghue v Stevenson [1932] AC 562. This case is reported in the 1932 volume of the Appeal Cases beginning at page 562. If the words "at 570" also appear i.e. Donoghue v Stevenson [1932] AC 562 at 570, particular attention is being drawn to a passage in the judgment at page 570. If the words “at…” are followed by “per Smith J…” etc, this means that the comment referred to in the citation was made by Justice Smith.

The case Pigram v Attorney General for NSW (1975) 132 CLR 216 can be found in volume number 132 of the Commonwealth Law Reports at page 216. An alternative reference may also be given e.g. Pigram v Attorney General for NSW (1975) 49 ALJR 147. Therefore, this case can also be found in volume number 49 of the Australian Law Journal Reports at page 147.

The decisions of the Western Australian Supreme Court were contained in the Western Australian Law Reports (WALR) until 1959. After then, the reports were


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called the Western Australian Reports (WAR). From 1960 until 1990, the Western Australian Reports were published on an annual basis, and cases were cited according to the year of the decision e.g. Higgon v O'Dea [1962] WAR 140. Since 1990 the reports have been published according to volume number, e.g. Medina v The Queen (1990) 3 WAR 21.

6.4 Finding a case

Names of parties to the case

Crowe Graham

Year of decision

(1968)

Volume

41

ALJR 402

Title Page

Mackinlay v Wiley [1971] WAR 1

To locate Mackinley v Wiley [1971] WAR 1:

(i) Look up the abbreviated title of the law reports in the list of abbreviations of law reports, which is shelved with the law reports. This list of abbreviations is entitled Standard Abbreviations for Law Reports and Journals held in the Curtin University Library

WALR Western Australian Law Reports 1899-

. The list of abbreviations also indicates the location number of the law reports. For example:

1959 [3G] P348.7941 94695

WAR Western Australian Reports 1960-

[3G] P348.7941 94810

(ii) The law reports can be located on the Library shelves by looking them up on the CLUE computer terminals in the Library, or via the Library web site at:

(iii) As the date is in square brackets the year “1971” should be sought chronologically. (If you were looking for Crowe v Graham, which is in the Australian Law Journal Reports, the volume number rather than the date would be the information you need to identify the correct volume.)

http://lisweb.curtin.edu.au


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7. SUMMARY In this topic we discussed and explained legislation and case law as two primary sources of law. Both the Commonwealth and State Parliaments make law. You need to be able to distinguish between exclusive, concurrent and residual powers of the Parliaments, and explain how a law comes into existence. Case law is judge-made law. You should be able to locate case law, identify the basic parts of a court report and summarise decisions.


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TUTORIAL QUESTIONS 1. Distinguish between original and delegated legislation.

2. Is it possible for the Commonwealth Parliament and the State Parliaments to make law on the same matter? Explain.

3. Explain the process by which legislation is passed by the parliament of Western Australia.

4. Explain the concepts ratio decidendi and obiter dicta.

5. This exercise requires you to use a law website to locate a case and identify relevant parts of the case.

• Go to the AustLII (Australasian Legal Information Institute) database www.Austlii.edu.au.

• Under Case and Legislation click on Commonwealth to find High Court decisions.

• Click on High Court of Australia Decisions 1903 -.

• Find the case Woolcock Street Investments Pty [2004].

• Click on the case and complete the exercise.

(a) Give the full citation of the case. (b) Who are the appellant and respondent in the case? (c) From which court is the appeal? (d) Write a brief paragraph (100 words) on the facts of the case. (e) What legal question did the High Court have to answer in this case? (f) The High Court discussed the case of Bryan v Maloney. What was the ratio

decidendi of the Bryan case? Did the High Court in the current case (i.e. Woolcock) follow that decision? On what basis was the Bryan case distinguished from Woolcock? [See in particular the judgment of McHugh paragraphs 57-71].

(g) What was the majority decision of the High Court?


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TOPIC 3

INTRODUCTION TO CONTRACT LAW

Topic 3 Introduction to Contract Law

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TOPIC OUTCOMES At the end of this topic you will be able to: • define a contract;

• explain the prerequisites for a contract to exist;

• distinguish between formal and simple contacts;

• distinguish between ‘void’ and ‘voidable’ contracts;

• explain each element of a simple contract; and

• apply the elements to a problem.


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1. INTRODUCTION The law of contract is an essential part of the legal management of transactions and obligations in our economic system (Monahan, 2001). Contracts are a fundamental part of people’s daily lives. They are constantly being entered into by individuals, groups and businesses. The purchase of goods is based on sales contracts, the employment of people is based on employment contracts and the lease of a house is based on rental contracts, to name but a few types of contracts (Gibson & Fraser, 2005:187). Contract law is also a crucial aspect of law for engineers. Contract law affects you as an engineer probably more than any other area of law in this course. Every job you do for a client or customer is a contract and most disputes you may have with customers, employees or employers will invariable be a contractual dispute.

2. WHAT IS A CONTRACT? The essence of consumerism is the concept of buying and selling. Central to the relationship of buyer and seller is the Law of Contract. Whether a person is buying a loaf of bread, a car, a house, or any other item, the legal relationship evolving from that transaction, and thus the law governing that relationship, is that of contract law. Australian contract law is derived from two main sources, namely, common law and legislation. Much of contract law derives from common law principles developed in the English common law courts, that is, case decisions.

A contract may be defined as an agreement between two or more persons which is legally enforceable by one party against the other. Note the difference between unilateral (one-sided) and bilateral (two-party) contracts, (see below). We can also say that a good definition is that:

A contract is a legally binding agreement i.e. an agreement enforceable at law.

To be a contract (that is, an agreement enforceable at law), the following prerequisites must be met:

1. The parties must have reached agreement. Agreement consists of an "offer" made by one party which is "accepted" by the other.

2. The agreement must be supported by consideration (not required for contracts under seal - infra). Consideration is what is being paid or done or given in return for the other party paying, doing or giving what was agreed.

3. There must be an intention to create legal relations. In other words, the parties must be serious about their agreement and intend to keep promises they make.


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4. The parties must agree to the same thing (that is, their agreement must be mutual). There must be no doubt in either party’s mind on what they are agreeing to and what their obligations are.

5. The parties must have had the requisite legal capacity. This means that they must be adults of sound mind.

6. The contract must be legal and possible. You cannot expect a court to enforce an agreement that is either illegal itself or concerns something illegal. For example an “agreement” to steal something is not enforceable by the courts!

Some would add a further prerequisite:

7. The agreement must be in the required form where necessary. Sometimes certain contracts have to be done in a certain way. For example, they may need to be evidenced in writing and signed.

3. KEY CONCEPTS It is a common fallacy that writing is essential for a valid contract to exist. Many of our everyday transactions, such as buying groceries, are done verbally or even purely by conduct and there is no need to make out a written contract. Imagine having to make out a written contract every time you bought something at the shops!

Although, generally, the law does not require writing or any other formality to make a contract, there are times when a written contract will be required or where it will be commonly used.

3.1 Contracts can be formal or simple Contracts can be classified as either formal or simple. A formal contract is one that is written, signed by the parties and also signed by a witness. This is a more “serious” form of a contract and is used either where the law requires it or where the parties would like a record of what they have agreed to (or both). A simple contract is more common. They do not have to be in writing but can still be written, oral, implied by conduct or a combination of these.

3.2 ‘In writing’ and ‘evidenced in writing’ Contracts can be classified as those that must be in writing (e.g. the transfer of shares), those that must be evidence in writing (e.g. contracts of guarantee) and contracts that do not need to be in writing (oral or ‘parole’ contracts).

To be ‘in writing’ means that the contract must be made in writing (i.e. be reduced to writing at the time that agreement is made). This means that there must be a written, usually signed, document at the time of making the agreement that sets out the agreement.


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This category of contract is regulated entirely by statute. In other words these are contracts required by legislation to be in writing. There are numerous examples such as credit contracts regulated by the Consumer Credit Code (Uniform Credit Code, s 12(1)), bills of exchange and promissory notes (Bills of Exchange Act 1909 (Cth), s 8(1)) including many of the most common commercial transactions such as cheques, share transfers and the like.

‘Evidenced in writing’ means that there need only be some written evidence of the contract, which can be made either at time of (or after)

Certain other simple contracts are not enforceable unless there is written evidence of their terms. The historical requirement for this was section 4 of the Statute of Frauds 1677 (U.K.), which was received into Western Australia in 1829 as inherited law.

the making of the actual agreement. It can consist of more than one document – a series of letters or a tax invoice and receipt for example. The absence of writing does not make the contract invalid, but it cannot be enforced by law.

The requirements of s 4 of the Statute of Frauds 1677 (U.K.) and s 4 of the Sale of Goods Act 1895 (WA) are similar in that they both require that the agreement being sued on or ‘some memorandum or note thereof, shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.’

In other words, contracts which must comply with the Statute of Frauds, eg sale of a house, must be in writing (‘memorandum’ or ‘note’), and must be signed. Non-compliance with writing requirements for example the Statute of Frauds 1677 (Eng) does not make the contract void but it is unenforceable.

3.3 The rule of signature Where a contract is at least partially in writing it is important to note the legal effect of signing a document. When a person signs a document, the court will normally hold the view that the person has:

• read the document; • understood the contents of the document and how the document affects them;

and • agreed to all the terms in the document The above is held regardless of whether or not this is in fact the case.

Case Study: The rule of signature

L’Estrange v Graucob [1934] 2 KB 394

L purchased a vending machine and signed but did not read the contract. The machine was defective but the contract basically said that the sellers were, “not responsible for defects”.

The issue was whether or not L was able to bring an action for breach of contract.


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The court held that he was not since the rule of signature states that if you sign something, then you have read, understood and agreed to it. There was no fraud or misrepresentation and so L could not bring an action for breach of contract.

3.4 Void, voidable and unenforceable contracts A valid contract is one which the law will enforce. It creates legal rights and obligations. Where contracts must, by law, meet certain requirements, there are two consequences that could flow from not meeting these requirements.

The contract may be void in which case it has no legal effect and cannot create or confer any legal rights. A void contract lacks legal validity and does not create legal rights and obligations. A void contract is totally ineffective and neither party can enforce it, even if one party has performed their side of the agreement – usually because some element is missing. A void contract is treated by the courts as if it had never existed. We call this void ab initio which means void ‘from the beginning’ in other words, there are no legal rights and obligations from the beginning.

A voidable contract is a valid contract that contains some defect in substance or the way it has been formed. A voidable contract remains valid and can create legal rights and obligations until it is rescinded. The party with the right to rescind may lose the right by positive conduct, or undue delay, or where the rights of an innocent third party may be harmed.

An unenforceable contract is one which the court will recognise and it will have legal effect, but if there are any problems with the contract, the court will not enforce it. If a contract is unenforceable, title can still pass to third parties, so in our above example, if it is an unenforceable contract, person C will now be owner of the goods.

4. ELEMENTS OF A CONTRACT As seen above, there are six requirements for a simple contract, each of which must be satisfied in order for the contract to be valid and legally-enforceable.

The six requirements are:

• intention to create legal relations • agreement • consideration • legal capacity • genuine consent • legality of objects Note that in this unit we will consider only the first three of these requirements for a simple contract.


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An examination of legal capacity, genuine consent and legality of objects is beyond the scope of this unit. For our purposes, therefore, a simple contract consists of:

Intention to create legal

relations

Agreement

Consideration

plus

plus

Offer

Acceptance

plus

4.1 Intention to create legal relations The first element that must be established for a valid contract is the intention to create legal relations. Even when an apparently valid offer has been accepted and the other prerequisites are present, there may be no contract in law. The element of ‘legal obligation’ is required and legal obligation will only be present if the parties intended their agreement to be legally significant. A contract does not come into existence unless the parties intended to enter into a legal relationship and be legally bound by the contract. Intention may be expressed by the parties or implied by their conduct.

In relation to implied intention, the courts have developed two rebuttable presumptions to determine whether or not the parties intended to create a legally binding contract:

• parties to contracts involving domestic and social matters do not intend to be legally bound;

• parties to contracts involving commercial and business matters do intend to be legally bound.

(i) Social and Domestic Agreements It is presumed that parties to domestic (amongst family) or social (amongst friends) agreements do not intend to be legally bound (Khoury & Yamouni, 2003).

Case Study: Domestic Agreements

Balfour v Balfour [1919] 2 KB 571

Mr and Mrs Balfour lived and worked in Sri Lanka for 15 years. They went back to England for a holiday where Mrs Balfour fell ill. Mr Balfour returned to Sri Lanka while Mrs Balfour remained in England. He agreed to pay his wife £30 per


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month until she was well enough to return to Sri Lanka, but she never went back to Sri Lanka. Mr Balfour ceased payment and so Mrs Balfour sued for breach of promise.

The court ruled that this was a purely domestic agreement and was not intended to be legally binding. Therefore Mrs Balfour could not sue for breach of promise.

These presumptions can be overturned by the parties giving evidence that their intention was different to that presumed by the court. (We call this ‘rebutting the presumption’). Hence some social agreements may be binding, (have promissory intent), if the parties can show an indication that the presumption against having this element present was apparent.

The presumption may be rebutted by evidence of the real intention of the parties. The following factors are relevant:

• what the parties said to each other; • the conduct of the parties; and • the context in which the statements were made. Case Study: Rebutting the presumption

Wakeling v Ripley (1951) 51 SR (NSW) 183

Mr Ripley lived alone in Australia, while his sister and her husband (Mr and Mrs Wakeling) lived in England. Mr Wakeling gave up his job as a university lecturer and moved to Australia with his wife to live with Mrs Wakeling’s brother, at Mr Ripley’s request. Mr Ripley promised to leave them his property when he died and would provide accommodation there until such time. One year later the parties quarrelled, Mr Ripley sold his house and changed his will. Mr and Mrs Wakeling sued for breach of contract.

The court ruled that in the circumstances in this case clearly showed that the parties were serious about their agreement and that they intended it to be legally binding. Mr. Ripley was therefore bound by his agreement.

(ii) Business or Commercial Agreements Business or commercial agreements are presumed to be legally binding (Khoury & Yamouni, 2003).

A problem area is that of advertisements. The extravagant language that is often used tends to discourage the notion that they are intended to found legal obligations.

Case Study: Commercial agreements

Carlill v Carbolic Smoke Ball Co [1893] QB 256

The company argued that an advertisement offering a reward of £1000 to anyone who used their influenza medication and still became ill with influenza was a "mere puff", however, they failed. The court held that the offer appeared serious


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and it was of a type that might be expected in a commercial context. This was enhanced by the statement in the advertisement that £1000 had been deposited with the company's bankers, thus showing their sincerity in the matter.

Nowadays, this is of less significance since the worst advertisements are likely to fall foul of section 52 of the Trade Practices Act 1974 (Cth) which prohibits misleading and deceptive conduct.

Like social arrangements, the presumption relating to business agreements can be rebutted. This is usually very difficult though as courts generally feel that commercial type circumstances create binding agreements as this is the basis of all business.

4.2 Agreement A second essential requirement for a simple contract is that there must be agreement between the parties. This means that there must be a ‘meeting of the minds’ of the contracting parties. A ‘meeting of the minds’ is where both parties are agreeing to the same thing and each of them know exactly what they are agreeing to (Khoury & Yamouni, 2003). As you can imagine, there may be situations where it is difficult to know exactly what you are agreeing to or whether the other party is even agreeing at all. For example I may say that I am interested in selling my book; this looks like I am offering to sell it. You may think it is an offer and want to accept, but in fact it is not an offer. I am only expressing an interest in selling. There is no exact meeting of the minds!

Given the difficulty in determining a ‘meeting of the minds’, the courts rely on the concept of offer and acceptance for assistance, the view being that binding agreement, (or contract), arises when an offer made by one party is validly accepted by the other.

If one of the parties disputes the existence of an agreement the court will determine whether, on the facts, an agreement exists. The court will examine whether one party (the offeror) made a clear and definite undertaking - or offer - to the other party (the offeree), which was accepted by the offeree. For an agreement to be legally enforceable, certain rules relating to the making of the offer and its acceptance must be complied with.

Example number 1:

A: “I would like to buy your book for $10.”

B: “That sounds good, here’s the book.”

A: “Thank you, here’s your money.”

In this example there is an offer, (“I would like to buy your book.”), and an acceptance, (“That sounds good, here’s the book.”). Thus there is agreement.

There is consideration, (the book and the money), and intention is shown in that the parties were serious and did in fact complete the transaction. It is clear to both


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parties that the book and the money are what are being dealt with and we can assume that both parties are of legal capacity. Of course, we assume that this is a legal transaction.

(i) Offers An offer may be described as a proposal the acceptance of which establishes the existence of an agreement. To put it more simply, an offer is a promise to do, or not to do, something in return for a promise by the other person to do, or not to do, something else. An offer is usually made on certain terms and often follows a process of negotiation.

An important characteristic of an offer is that it is promissory in nature. This means that the person making the offer is serious about the offer and intends to carry out their part of the bargain if the offer is accepted. Just calling something an ‘offer’ does not make it an offer. To be an offer, it must have promissory intent, i.e. it must be clear that the person making the statement is serious and intends to be bound by what they say. This is a matter of interpretation of what is said as well as any other evidence that the person is serious. The offeror is the person who makes the offer. The offeree is the person to whom the offer is made.

When we use words like ‘offer’ and ‘offeree’ it is important to note that when negotiating and making offers to each other, you may be the offeror or the offeree depending on the circumstances. For example, Alex owns a car. If he offers to sell the car to Wendy for $2,000, then Alex is the offeror and Wendy is the offeree. If however Wendy offers to buy Alex's car for $2,000, then Wendy is the offeror and Alex is the offeree.

The following general rules apply to the making of an offer (Gibson & Fraser, 2005):

• There must be an intention to be bound. • It must be a firm promise. • It must be communicated to the offeree. • It must be clear and unequivocal. • It may be made to one person, a group or the world at large. • All the terms must be brought to the notice of the offeree. • It may be revoked anytime before acceptance. Offers can be terminated in the following ways (Gibson & Fraser, 2005):

• withdrawal of the offer (revocation); • rejection of the offer or a counter-offer; and • lapse of time.

Offers or an invitation to treat?

Offers need to be distinguished from invitations to treat. Invitations to treat are situations or acts interpreted by the courts as being (a) less than offers, or as being (b) preliminary to offers, or (c) inducements to another to make an offer.


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An invitation to treat is where a party indicates that they are interested in coming to an agreement or that they are inviting others to make offers to them. It is simply an invitation by one party to commence negotiations which may or may not lead to an offer. For example displaying goods at a market stall indicates that you are willing to sell the goods or, in our earlier example, I may say, ‘It is possible that I would sell my bike for $20.’ This can be seen as an invitation to treat i.e. indicating to others that if they offered me $20 for my bike, that I may accept. There is no definite promise made by me so we can say that invitations to treat do not have promissory intent.

Common instances of invitations to treat are:

Advertisements

Most advertisements, whether in a catalogue, circular, newspaper or periodical, are treated as invitations to treat. However, this does not mean that all advertisements are invitations to treat. It is possible to make an offer in an advertisement by using words such as ‘offer open while stocks last’ or ‘offer available to first 10 callers’.

Case Study: Advertisements

Partridge v Crittenden [1968] 2 All ER 421

An advertisement in a magazine read: "Bramblefinch cocks, hens - 25s each".

A buyer sent 25s and got a hen. The seller was charged under the Protection of Birds Act which prohibited ‘offering birds for sale’. The issue was whether or not the advertisement was an offer?

It was held that a ‘For Sale’ advertisement is not an offer. It invites others to make an offer. Technically then, the seller was not in breach (since the law did not prohibit selling the birds, just offering them for sale!)

The law was subsequently changed.

Goods in a supermarket, goods on display and price tags

The courts have held that a display of goods on a supermarket shelf is not an offer. The offer takes place when the customer brings the goods to the cash desk. The acceptance takes place (and a contract therefore made) when the cashier rings them up on the till. Displays of items in shop windows and price tags are treated similarly. In Fisher v Bell [1961] 1 QB 394 a flick-knife on display in a shop window with a price tag attached was considered to be an invitation to treat not an offer.

Case Study: Goods in a shop

Pharmaceutical Society of Great Britain v. Boots Cash Chemists [1953] 1QB 401

Legislation required the sale of pharmaceutical items to be supervised by a qualified chemist (i.e. at the point of sale). The issue was where is the point of


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sale? Where is the agreement to buy and sell actually made? Specifically, in a self-service supermarket, where is the offer and acceptance?

It was held that it is the customer who offers to buy at the checkout. Thus, musings at the shelf do not convey “meeting of the minds”. Therefore, having a Chemist supervising sales at the checkout satisfies the poison’s legislation.

Tip: Don’t consume produce before presenting it at the checkout!

Auctions

A promise to hold an auction is regarded as an invitation only, a mere declaration of intention. The auction itself consists of bidders making offers and not the auctioneer making offers. When the auctioneer ‘offers’ something for bidding they are generally making an invitation to treat. The bids are the offers and, of course, usually the highest bid is accepted. When the auctioneer bangs down their hammer, the highest bid (offer) is accepted.

Tenders

A tender is an invitation for interested persons to send in offers. For example, where a party advertises and seeks offers for a job that needs doing or a product to sell or a service that they require. This is known as ‘calling for tenders’ and is an invitation to treat. Other parties then provide quotes (‘tenders’) to do this and the person who called for the tenders will accept one (or none) of the tenders – either the cheapest or the best quality etc.

We will discuss tenders in Topic 5.

(ii) Acceptance An acceptance of an offer converts the promise of the offeror into an agreement. Acceptance may be made in writing, orally or both, or by conduct. The basic elements of an acceptance are a willingness to take exactly what is offered and to pay the price required.

Acceptance is the absolute and unqualified assent to the terms of the offer, made in the manner specified or indicated by the offeror. In other words, it is an exact agreement to what was offered without making any material changes. To be effective, acceptance must be made in some positive form, for example words or conduct, referring unequivocally to the offer made.

An ‘acceptance’ made with conditions attached may not be an acceptance at all. If the condition is something that materially changes the offer, then it will not be an acceptance, but will actually be a counter offer or even an agreement to agree some time in the future.

If the offer is rejected, there is no agreement and hence no contract. Once an offer is rejected, it ceases to exist and if the offeree changes their mind and then wishes to accept the offer, the offeror is entitled to say that the offer had been rejected and is no longer existing and so there is no agreement (of course he can agree if he wants to – he will simply be accepting an offer from the other party).


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If, when an offer is put forward and the offeree, though interested in it, chooses to vary some of its features, he has not accepted the offer; rather he has rejected the offer and made a counter-offer of his own. The making of a counter-offer amounts to a rejection of the original offer and brings it to an end. Further, the original offer does not revive if the counter-offer is in turn also rejected. The offeree can only accept the former offer if the offeror agrees to renew it; and this he may be unwilling to do because of changed circumstances.

The general rules relating to acceptance can be summarised as follows (Gibson & Fraser, 2005). Acceptance:

• must be made in reliance of the offer; • must be in accordance with the terms of the offer; • must be communicated to the offeror (silence does not constitute acceptance); • cannot constitute a counter-offer; • can only be accepted by the party to whom the offer was made; • must be absolute and unqualified; and • cannot be revoked without the assent of the offeror. Case Study: Silence is not acceptance

Felthouse v Bindley (1862) 11 CB(NS) 869

F offered to buy a horse for £30/15/- from his nephew. He said to his nephew that, “If I hear no more – I’ll consider the horse mine”. The nephew did not want to sell and refused to sell when the uncle returned some time later to collect the horse.

The issue was whether or not acceptance could be inferred from silence?

The court held that it could not and an offer cannot stipulate silence as a manner of acceptance. Instead an acceptance requires positive mental assent. Thus there was no agreement to sell the horse.

Postal acceptance rule The postal acceptance rule is an exception to the principle that the offeree must communicate acceptance to the offerer. Acceptance takes place when the letter of acceptance is posted, not when it is received. In Adams v Lindsell (1818) (KB) the defendant (L) wrote to the plaintiff (A) offering to sell him a quantity of wool and requiring acceptance by post, which the plaintiff provided. A problem arose because the defendant’s original letter to the plaintiff arrived late because it had been incorrectly addressed. The defendant thought his offer had been rejected by the plaintiff and so he sold the wool to another buyer. This took place after the plaintiff’s acceptance had been posted but before receipt by the defendant. The court held that the acceptance by the plaintiff was effective on the date of posting and therefore a binding contract existed between the parties.

The rule does not apply to means of instantaneous communication such as telex, telephone, facsimiles or electronic mail.


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4.3 Consideration Before the development of money, the majority of commerce in common law England was carried out by barter trading. At the heart of the barter system is the principle of “something for something”. It is a poor arrangement where a person obtains “something for nothing”. The law of contract requires that a price be paid for a promise before the promise will be legally enforceable (Khoury & Yamouni, 2003).

This principle is known as the doctrine of consideration. The doctrine requires that a party to a simple contract must prove that they provided consideration before he can seek to enforce that contract. In other words, the courts will not help a person get “something for nothing”.

In Currie v. Misa (1875) LR 10 Exch 153, Lush J stated that: ‘A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.’ As such, their consideration may be a benefit to the promisor or a detriment to the promisee.

Consideration is simply something for value and may take the form of:

• An act for a promise; • A promise for an act; • A promise for a promise; and • A promise to forebear ( that is, not to do something). The doctrine of consideration is governed by a number of rules, including the following (Gibson & Fraser, 2005):

Consideration must be something of value

The general rule is that consideration needs to be sufficient but it need not be adequate to the promise. So long as consideration exists, the Court is not concerned as to its adequacy. The Courts will thus not seek to measure the value of the promise and compare it with the promise given in exchange for it. To put it another way, what each party brings to the deal need not match in value, but each must bring something that is of some value no matter how small. For example, I could buy a house for $10 if this is what we agreed on. It does not matter that the house and the $10 are not equal in value, as long as each has some value.

While consideration need not be adequate to the promise, it must be sufficient. This means it must have some value in the eyes of the law. The concept of "value in the eyes of the law" is not limited merely to intrinsic value. In other words, something may have no monetary value in itself but may have sentimental value or represent something of value.

Consideration must move from the promisee

The promisor is the person undertaking the promise and the promisee is the person who is receiving or the recipient of the promise. Only the promisee can enforce the promise. The general rule is that consideration must be shown to have


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been provided by the person seeking to enforce or sue on an agreement. Apart from the promisor, the only other party who can enforce the contract is the other party who has provided the consideration for the promise, i.e. the promisee. In other words, if you want to enforce a contract, you must first do your part (or begin your part of the contract). So to enforce the other party’s promise, for which you are the promisee, you must do your bit first i.e. it must move from the promisee (you). The person who wants to enforce the promise must pay for the promise they receive.

In Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd (1915) (HL), the plaintiff (Dunlop) entered into a contract to sell tyres to a dealer. The contract provided that the dealer would not sell tyres below the plaintiff’s list price and would obtain a similar undertaking from any retailer they onsold to. The dealer subsequently sold tyres to the defendant (Selfridge) who gave the required undertaking. The defendant later sold tyres to a customer below the plaintiff’s list price and the plaintiff sued for breach of the undertaking. The court found for the defendant because the plaintiff had not provided any consideration for the defendant’s promise to the dealer. Moreover, the plaintiff was not even a party to that subsequent contract.

Note: Do you think such an arrangement to sell at the listed price would be valid today? Consider the effect of the Trade Practices Act 1974 (Cth).

Consideration need not flow to the promisor

While consideration must flow from the promisee, it need not flow to the promisor; it may, for example be directed to some third party. In simpler terms, while it is necessary to do your part of the agreement before you can enforce the other party’s promise, it does not matter if the thing that you have promised to do benefits a third party, as long as that is what you have agreed to.

For example:

If person A promises to cut person B’s grass if person B pays person C $10 then the agreement is still between A and B, person C is simply a third party who benefits, (‘beneficiary’), they are not part of the agreement. So if B wants to enforce A’s promise to cut the grass, he must first pay the $10 to C. It does not matter that B’s consideration goes to C and not A because that is what was agreed. Thus consideration must move from the promisee (B), but need not flow to the promisor (A), instead it ‘flows’ to C.

Consideration may be executed, executory, but not past

Consideration may be future (executory), that is, a promise to do or give something in the future or present (executed), that is, actually doing or giving something. However, with few exceptions, consideration must not be past.

Past consideration means consideration which does not form part of the bargain element but which is performed independently of (usually prior to) the contract. In other words, something already completed in the past cannot form the promise of a contract in the present or in the future because it is already done! For example,


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John washes Sue's car. Sue subsequently promises to pay John $7 for washing the car. John cannot legally force Sue to pay him the $7 since the car washing was not done in reliance on the promise to pay $7 but was done independently of (and prior to) that promise.

Case Study: Consideration cannot be past

Roscorla v Thomas (1842) 3 QB 234; 114 ER 496

The plaintiff bought a horse from the defendant. After the transaction and as he led the horse away, he asked if the horse was sound and free of vice. He was told that it was but he subsequently discovered that the horse was extremely vicious. He demanded his money back.

The court held that the promise that the horse was sound was given after the contract was made and therefore did not form part of the contract. For this promise to be binding it would have to have been given during the contract. Therefore, the buyer could not return the horse based on the sellers promise.

Forbearance as consideration

Consideration need not necessarily be doing something like selling goods, paying money or providing a service; it can also be a promise NOT to sell goods, pay money, provide a service or a promise to forgo some benefit you were otherwise entitled to. A good example is ‘forbearance to sue’. This may occur where you have a right to sue someone but you forgo this right in return for something else.

Performance of an existing duty

Consideration must be something that the other party is not already entitled to. For example, if you owe me $10 already and you make another promise to pay the $10, this is not consideration because you already owe me the money. This idea can also be rephrased thus; it is not consideration if you are already obliged to do the thing you promise. For example, if you already are obliged to pay rent each week, it is not consideration if you make a separate deal with the landlord where

5. SUMMARY In this topic we have introduced some basic concepts and principles relating to contract law. Having studied this topic you should be able to define a contract and explain the legal requirements for a simple, valid contract. For a simple contract to be valid there must be an intention to create legal relations, acceptance and consideration. If one of these elements is absent, there is no contract.


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TUTORIAL QUESTIONS 1. Define a contract.

2. What are the sources of contract law?

3. Distinguish between a ‘void’ and ‘voidable’ contract. Give an example of each.

4. Why is it necessary for some contracts to be wholly in writing and some to be evidenced in writing?

5. List the elements needed for a simple contract to be valid.

6. The law presumes that in a social arrangement the parties do not intend to create legal relations. Why is this so? Think of an example where this presumption may be rebutted.

7. A business agreement was drawn up and signed by two parties. The agreement stated the following:

“This agreement is not entered into, nor is this memorandum written, as a formal or legal agreement and shall not be subject to the legal jurisdiction in the law courts…but it is only a definite expression and record of the purpose and intention of the parties concerned to which they each honourably pledge themselves…”

The one part ended its relations.

Did the parties have a binding agreement? Discuss.

8. Yvette is furious with her husband. She decides to get back at him and auctions his precious Harley Davidson motorcycle on EBay for $50. Did this constitute a valid contract? Was consideration given? {Assume the motorcycle is in Yvette’s name.]

9. Kerryn wants to buy a new Apple iPhone. She sees an advertisement in the Saturday newspaper for iPhone’s that are on special at Phoneworld. They are advertising the latest model for $699. On that same Saturday Avril visits Phoneworld’s city branch. She tells Robert, the salesperson, that she wants to buy the iPhone that was advertised in the newspaper.

Robert explains to Kerryn that there was an error in the paper and the price is actually $899. Kerryn is furious and insists that Phoneworld is obliged to sell her the iPhone for the offered price of $699 that she has accepted.


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Discuss whether a valid contract has been formed between Kerryn and Phoneworld.

TOPIC 4

CONTRACT LAW

CONTENTS OF A CONTRACT

Topic 4 Contract Law: Contents of a Contract

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TOPIC OUTCOMES At the end of this topic you will be able to: • explain the different terms of a contract;

• classify statements into either representations or terms;

• distinguish between conditions and warranties;

• explain the effects of a breach of a term of the contract;

• explain the rule of signature and its implications;

• explain the use of exclusion clauses;

• discuss the various ways that a contract can come to an end;

• explain the elements of damage; and

• apply legal principles to a problem-type question.


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1. INTRODUCTION In Topic 3 we discussed what a contract is and the requirements for a simple, valid contract. In this topic we will look at the contents and construction of a contract. Assuming that a valid contract has been entered into between two parties and there are no factors to affect its validity, it may still be necessary to consider what the parties have actually agreed to – what they have actually included in the contract. We have mentioned that a valid and binding contract creates legal rights and obligations. So, what are the rights and obligations that the parties have?

Not everything that is said during negotiations will find its way into the contract. Salesmen often exaggerate when describing goods or their effect. We may often ask many questions about a product or service, but not all of these things are taken seriously or will be considered part of the actual contract. Engineers may discuss costs, quality, compliance and estimated length of time to do a job. Much of this is merely sales talk, or enquiries, that may help us to reach a decision about whether we enter a contract or not. However, sometimes, what we consider serious and essential to the contract may not be considered so by the other party.

As engineers, negotiations and discussions about a specific job for a client may be quite lengthy and complex. How do you know which of these discussions are going to form the basis of your contract? In many cases this may be clear, or a written document may make the issue much simpler, but remember that most contractual disputes arise because the parties disagree on what was really agreed to.

So we need to learn some rules that will help us to determine not only whether something discussed is actually part of the contract, but also how important it is within the contract itself. Therefore, in this topic we will identify and explain the types of terms found in a contract and distinguish between conditions and warranties.

2. TERMS, CONDITIONS AND WARRANTIES Pre-contractual statements can be mere puffs, representations or contractual terms. Representations are statements of fact which induce an offeree to enter into the contract but are not part of the contract and therefore are not enforceable under the contract. Of course, false and misleading statements can challenged under the Trade Practices Act 1974 (Cth). A term, on the other hand, forms part of the contract and is legally binding.

2.1 Terms Terms are part of the contract and are binding on the parties. A breach of a term will allow the party not in breach – known as the ‘innocent party’ or the ‘injured party’ – to claim damages or end the contract depending on how serious the breach is. Once it has been decided that a statement is a term and part of the contract it is necessary to determine what sort of term it is and how important the term is because this will determine the remedy that is available to an injured party.


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The two major types of terms in a contract are express terms and implied terms, which are further characterised as conditions, warranties or innominate terms Khoury & Yamouni, 2003).

Implied terms are terms that are not stated and can be implied into a contract by means of common law, custom or statute. The courts will imply terms into a contract to give business efficacy to the contract. In other words, in order for the contract to operate effectively the court will imply terms so as to achieve the presumed intention of the parties. However, for a term to be implied into a contract the implied term must be reasonable, necessary to give effect to the contract, capable of clear expression and it must not contradict any express term of the contract.

Express terms are those terms that are clearly stated either orally or in writing. With oral contracts the terms will be determined by the words actually used by the parties when the contract was made. In written contracts it is generally taken that the document itself contains all the terms of the contract. This is referred to as the Parol Evidence Rule. The reason for this is that usually, if the parties have gone to the effort of putting an agreement in writing, they will have made sure that everything that was important was written down. Therefore, as a general rule the law does not allow any extrinsic evidence to add to or vary a written contract. In other words, the courts will generally not allow evidence outside the contract e.g. verbal statements, to change the written contract.

Case Study: The parol evidence rule

Henderson v Arthur [1907] KB 10

A written lease of a theatre said that the rent of £2,500 pa was to be paid “CASH”.

The tenant paid by cheque because the landlord had verbally stated “Don’t worry, a cheque is okay”. The landlord subsequently refused to bank the cheque and sued for late rent payment.

The issue was whether or not the landlord’s statement about the cheque was part of the contract. The court held that since the lease was written, no extrinsic evidence could add to or vary the written contract. Furthermore, the statement contradicted the express term of the written contract, and therefore was not taken into account and the tenant was in breach of the lease!

You can see how this can sometimes lead to difficult or potentially harsh situations, especially when you consider that it is not always practical to write absolutely everything down in an agreement and that sometimes things discussed but not written are also to be taken seriously.

Thus there are some exceptions to this rule as follows:

Partly written, partly oral contracts

Where a contract has been written down, there may be times where some verbal statements are made that are clearly intended to be taken seriously by the parties


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and to be part of the agreement. These may be situations where something was stressed by one of the parties as being very important and, when receiving an assurance from the other party; they have proceeded to draw up a contract that does not contain the verbal statements because the parties considered this to already have been agreed upon. It must be proven that the verbal or other outside evidence was clearly meant to be a part of the contract. The verbal or other outside evidence does NOT contradict or change anything in the written contract.

Case Study: Partly written, partly oral contracts

Van den Esschert . Chappell [1960] WAR 114

Before signing a contract to purchase a house C asked, “Is the house free of white ants (termites)?” Vde replied, “Yes of course. If there had been any I would have taken steps to eradicate them.” The written contract made no mention of “white ants”.

The house did in fact have termites and when C sued for breach of contract Vde tried to rely on the parol evidence rule.

The court held that there was a breach of contract and that the parol evidence rule expresses A “Judicial Attitude” not Black Letter law. Therefore it was considered that the contract in this case was partly written and partly oral as it was clear that C would not have purchased the house without assurance that there were no white ants.

Trade usage or Custom

In business there are often regular implied terms. It is not necessary to include every conceivable term of a contract if there are regular ways of doing business and some terms may ‘go without saying’. Examples of these are quality of goods, reasonable time for delivery, payment terms etc.

Agreement to suspend operation of contract

Parties may verbally agree to put their contract ‘on hold’ for a while or until some event occurs. As long as they can prove that they have agreed to do this, the agreement to suspend the operation of the verbal contract is effective.

Rectification

The typical situation here is where there has been some clerical error in writing up the contract. If the parties can clearly show that they agreed to something different and wish to alter the contract, they may do so.

2.2 Conditions These are essential terms of a contract. A breach of a condition makes the entire contract either impossible or renders it totally different to what the parties agreed. A breach of a condition entitles the innocent party to sue for damages and entitles them to discharge (end) the contract if they wish to. A condition precedent is a


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term that must be satisfied before a contract can come into existence and a condition subsequent is a term in a contract that provides that the contract will come to an end when a particular event occurs.

Case Study: Condition

Pousard v Spiers and Pond (1876) 1 QBD 410

P, an opera singer was engaged to perform from 28th Nov. However, P falls ill and cannot attend until 4th Dec. The opening night is on the 28th

The court held appearing on opening night was vital to the contract and as such where a breach goes to the root of the matter, there is a breach of condition. Therefore S & P were entitled to terminate the singer’s contract and entitled to damages.

and on the 25th S&P hire another singer. The issue was whether or not this was a breach of a condition, i.e. was attendance on opening night at the root of the matter?

2.3 Warranties These are important but non-essential terms of a contract. A breach of a warranty does affect the contract but does not render it impossible or totally different to what the parties agreed. A breach of warranty entitles the innocent party to sue for damages but does not entitle them to discharge (end) the contract.

Case Study: Warranty

Bettini v Gye (1876) 1 QBD 183

B, an opera singer contracted for a three-month season and also to arrive for rehearsals 6 days before opening night. Due to illness B showed up only two days before opening night. G terminated the singer’s contract and sued for damages.

The issue was whether or not B’s breach “went to the root” of the contract?

The court held that it did not. Since B was available for all performances and had only missed some rehearsal time, the clause was not vital to the completion of the agreement and was thus a warranty. Therefore the contract could still be enforced by the singer and although G was entitled to damages for missed rehearsals, he was not entitled to cancel the contract.

NOTE: If B had missed all rehearsals it would probably have been a breach of condition.

2.4 Intermediate or innominate terms Lately the courts have come to recognise an intermediate or innominate category which may be classified as a condition or warranty after the event, when it is clear how serious the consequences were. This means that sometimes there are terms of a contract that are difficult to classify as either conditions or warranties and we will only be able to do so once the term has been breached. A common example is


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a delay in time, where something delivered a day late may be a breach of a warranty, but if it is a week late, this is more serious, and may be a breach of a condition. Thus, we can only really classify it once it has been breached and the classification will depend on the seriousness of the breach and the circumstances of the contract.

2.5 Terms or representations? Statements made by the parties during contractual negotiations may be either a statement which does not form part of the contract or a statement which forms part of contract.

Representations are statements that are not meant to be part of the contract. Sometimes they are just exaggerations or sales talk, and sometimes they are perhaps more serious or are important during negotiations but are not meant to be part of the contract. We may ask many questions when shopping for new clothes, for example, ‘Where does this material come from?’ or we may be told, ‘This is a tough material’ but these may not be important when it comes to actually buying the clothes. Things like the price or the size will be more important and will form part of the contract.

Sometimes, though, it may be difficult to see whether or not something said is part of the contract. Perhaps one party thinks that the statement is part of the contract, but the other party thinks it is not. If there is a problem the parties may argue over what exactly was in the contract, (‘terms’), and which things were not (‘representations’).

To help us decide whether something said is indeed part of the contract, we can ask the general question of whether the parties were serious about the statement and we can see from the situation that they meant the statement to be part of the contract (the basic test of contractual intention). However, this may still not be helpful and so we can look at four "sub-rules" for determining whether a statement is a term or a representation:

Time

The closer in time a statement is made to the actual formation of the contract, the more likely it is to be part of the contract. For example, asking about something just before buying it may indicate that this was more important than if you had asked about something a week earlier and you do not mention it at the time of buying a week later.

Writing

If the parties include a statement in the written contract, then it is likely to be part of the contract and outside evidence will not be allowed to alter the written contract, (see Parole Evidence Rule above).


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Skill

If one of the parties has special skill or knowledge and makes a statement using that skill or knowledge that the other party relies on, then it is more likely that the statement is part of the contract. For example, a mechanic’s statements, to a person who knows nothing about cars, about the state of a car are more likely to be terms than representations. Sometimes, if the parties both have equal skill or knowledge or the person relying on the statement has more knowledge, the courts may find it more likely that statements are just representations.

Importance - perhaps the basic test

If one of the parties stressed that something is important or the statement in dispute is obviously important to a reasonable person, (such as the mileage of a car), then it is more likely that the statement is a term of the contract and not a representation. See Van den Esschert v Chappell (above).

The fact that a representation is not part of the contract does not mean that it is of no effect. The consequences of a false representation are dealt with in various other ways.

3. RULE OF SIGNATURE As we saw earlier, the rule of signature is that if you sign something the court will deem that you have read it, understood it and agreed to it. This is regardless of whether or not you have actually read the document. It is also why you should always take care to read anything before you sign it. (See L’Estrange v Graucob in Topic 3)

There are some exceptions to the Rule of Signature, as follows:

Where the document does not appear to be a contract

Signing an autograph, for example, is not a contractual action.

Misrepresentation

Where someone has misled or deceived you into entering a contract and so any signature accompanying such a contract would not be binding.

Non Est Factum

Basically this means ‘not my deed’ and is an exception in circumstances where someone has taken advantage of you and tricked you into signing something totally different to what you were signing. This requires proof that:

There was some disability in the signer which made it difficult for them to read or understand the document;

• The document was radically different from what the signer thought; and • The signer was not negligent or careless


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Case Study: Non Est Factum

Petelin v Cullen (1975) 132 CLR 355

P could not read or write English, but agreed to give C an OPTION for 6 months, the consideration for this was $50. After 6 months, C returned with $50 and asked P to sign a “receipt” but it was instead an ‘OPTION EXTENSION’. P duly signed and the issue was whether or not he would be bound by his signature.

The court held that he was not since the requirements for non est factum were met in that he could not read English, the document was not what he was told it was and he had not been careless as there was no-one else around at the time to verify the nature of the document and he had not acted unreasonably in trusting C. Therefore the contract was not enforced.

4. EXCLUSION CLAUSES These terms are used when a party wants to either limit the rights of another party, or exclude themselves from liability should a breach or other event occur. You may see signs that say, ‘Park at own risk’ or, ‘Management not responsible for loss or damage’ etc. The important feature of exclusion clauses is that they operate for the benefit of one party only.

As an engineer you may have clauses in your contract which state that you are not liable for certain things such as delays in performance, defects in your work after a certain date, increases in quoted prices and so on. It is important to know when these will be effective and what you have to do to make them effective, such as bringing the other party’s attention to them.

When these exclusion clauses are used, we need to know whether or not they actually form part of the contract.

The clause will have become a term of the contract if the defendant has signed a document which incorporates it, or has had actual or constructive notice of it. In other words, if a document is contractual in nature, or would reasonably be, then the exclusion clause is valid whether or not the other party is aware of it. This is especially true if the document is signed.

Is it a term?

• Where the contract is signed, you are bound by it, whether you have read it or not. See L’Estrange v Graucob in Topic 3.

• Where the contract is not signed, there must be actual or constructive notice. In other words, the person relying on the exclusion clause must make the other party clearly aware of the existence and effect of the clause. This may be by expressly drawing their attention to it, (‘actual’ notice), or by doing things such as using signs to draw their attention to it, (‘constructive’ notice).


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Was notice given in time?

The notice must be given before the contract is entered into. If it is given after, it may not be effective, (unless the other party knew about it from previous experience).

Case Study: Exclusion Clauses and Notice

Causer v Browne [1952] VLR 1

C handed in a frock for dry cleaning. On the ticket he was given was printed:

“NO RESPONSIBILITY FOR DAMAGE TO ARTICLES”.

When C picked up the frock, it was damaged and C sued for the damage. The dry cleaners sought to rely on the exclusion clause.

The court held that the do document was non-contractual in nature. A reasonable person would not expect to find contractual terms on it. Since the dry cleaners had done nothing to specifically draw C’s attention to this clause at the time of contracting (i.e. when handing in the frock), the exclusion clause was ineffective and the dry cleaners were responsible for the damage.

5. TERMINATION The contract may come to an end (terminate, discharge) through various ways such as by doing what was agreed, agreeing simply to end the contract or through breach. We will examine some of these concepts and look at the remedies and damages available to parties where a contract has been breached (cf Gibson & Fraser, 2005).

5.1 Discharge by performance The parties to a contract must fulfil their obligations under the contract, and, as a general rule, the performance of these obligations must be exact i.e. the obligations must be carried out in the way the contract requires. Originally, this rule was very strict and if the performance did not exactly match what was agreed, the contract could be set aside by the other party.

Case Study: Performance must be exact

Cutter v Powell (1795) 6 TR 320; 101 ER 573

A sailor signed a contract of employment to sail from London to Jamaica and back, “.. to the port of Liverpool..” He died about 3/4 of the way back from Jamaica. When his widow claimed ¾ of his pay, the court held that since his performance was not exact, i.e. he did not complete the journey back ‘to Liverpool’, the wife was entitled to nothing!


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As you can see from the above case, this may give rise to an unfair result, especially where performance was negligibly close to being exact or was at least substantially performed. Situations like these revealed a need for there to be some exceptions to the rule that performance must be exact.

Exceptions to the rule:

Severable contracts

This is where the performance is divisible into stages or instalments. For example, a contract to build a house may be broken into stages such as foundation, walls, roofing, etc and the contract can provide for payments to be made at the completion of each stage of the contract. If the contract does not specifically break performance into stages, the courts may still determine that it can be broken up and will do so and award pro rata payments for the stages or instalments completed.

The de minimis rule

The idea behind this rule is that whilst performance may not be exact, it is so close to being exact that the difference is negligible and the strict rule should not be applied. For example, if I ordered 60kg of stock and received 59.99kg, strictly speaking I could refuse to continue the contract since performance must be exact. This would obviously be too trivial and the court would determine that performance is close enough to be considered exact. This rule prevents unscrupulous people from avoiding contracts for trivial reasons. Remember that what counts as ‘close enough’ will vary according to the nature of the contract and the court will decide this on the merits of each individual case.

Substantial performance

This exception means that whilst performance is not exact, sufficient performance has occurred for some payment, (but not all) to be made. For example, this may be payment of the agreed sum less the cost of completing the contract by another party.

Note that, as above, decisions on what is ‘substantial’ will vary according to the nature of the contract and the court will decide this on the merits of each case.

Case Study: Substantial performance

Hoenig v Isaacs [1952] 2 All ER 176

There was a contract for redecoration of flat for £750. The work was not done satisfactorily and cost £55 to repair. The issue was that if the work is completed but is partially defective is the contract performed?

The court held that where a substantial, (this varies depending on the facts of each case), part of the work is done then we say that the contract is substantially performed and then subtract the cost of fixing / remedying it. Thus the party who substantially completed the job is entitled to full payment LESS the cost of remedying his incomplete work. (£750 - £55 in this case).


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Obstruction of performance

Where one party obstructs performance, the other may regard the contract as at an end, will be released from further obligations and may sue for damages or on a quantum meruit. For example, person A has to deliver goods to person B by a certain time or else person B would not accept the goods. If B does something which prevents A from delivering the goods on time, A may say that B is obstructing A’s performance. B would not be able to refuse the goods on the basis that they were not delivered in time, since it was B’s fault that this occurred.

Acceptance of partial performance

This occurs where one party is not able to perform their obligations exactly but the other party is aware of this and has agreed to accept the ‘lesser’ performance as if it were exact. It is important that this must be willingly agreed to and is usually in return for a reduction in payment.

5.2 Discharge by agreement One of the ideas of contract law is that people can generally agree to whatever they like. It stands to reason then that if parties agree with each other that they will no longer be bound by a previous contract, or that they are varying (changing) some of the terms in that contract, then this will be acceptable.

Thus, contracts can be discharged or varied by agreement between the parties. The parties may also agree that the contract will not be binding unless a specific event occurs. Thus we can say that if parties wish to, they may negotiate such an agreement into the terms of the original contract (discharge by prior agreement) or later on when the contract is already under way (discharge by subsequent agreement).

5.3 Discharge by operation of law Sometimes the law may require that a contract be altered or cease to exist. This is often where an event has occurred or there has been a change in circumstances that have legal ramifications which affect contracts. Common examples are merger or bankruptcy.

5.4 Discharge through frustration Sometimes events occur that are beyond the control of the parties and are not provided for in the contract. Where these events make the contract impossible to perform, we say that the contract has been frustrated. Frustration can be defined as an intervening, dramatic situation rendering performance impossible or radically different from what the parties had in mind.

Examples of the circumstances in which frustration may occur may be where the subject matter is destroyed e.g. a house burning down, where performance becomes impossible e.g. through operation of law or some unforeseen circumstance, or where one of the parties dies.


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Case Study: Frustration

Taylor v Caldwell (1863) 122 ER 309

Fire burnt down a concert hall. The issue was whether or not promoter had to continue to pay rent.

The court held that since this had occurred without fault of any party and that the subject matter of the contract had ceased to exist, that the contract was discharged by ‘frustration’ and thus no more rent had to be paid.

Non-frustrating events

Note that frustration only occurs where performance becomes impossible without default of either party. A plea of frustration will not succeed in the following circumstances:

(a) Where performance does not become impossible

(b) Where specific provision has been made for the event.

In other words, if an event is provided for in the contract, no matter how unlikely, the occurrence of that event will NOT be frustration.

(c) Where the frustrating event should have been foreseen.

An event that is reasonably foreseeable and should have been anticipated will not be frustration.

(d) Where the frustrating event is self-induced

Frustration must be through no fault of either party. Therefore, if one party causes an event that prevents the performance of the contract, this will not be frustration.

The effect of frustration

The occurrence of the frustrating event automatically discharges the contract as to the future. The parties have no option in this. However, the contract only terminates from the point of frustration - rights, duties and liabilities which have accrued prior to that point remain outstanding.

5.5 Discharge through breach Breach occurs whenever one party fails to perform the obligations imposed by the contract or intimates that those obligations will not be performed. This can be express or implied by the conduct of the party. There are two distinct categories of breach:

(a) Actual breach - an actual failure to perform, in whole or in part, when performance becomes due.

(b) Anticipatory breach - a clear statement or intimation that a party will not do whatever is required when it should be done.


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Any breach of contract, whether actual or anticipatory, entitles the innocent party to sue for damages.

A breach of a warranty will only entitle the injured party to sue for damages, they will not be entitled to terminate (discharge) the contract.

A breach of a condition will entitle the injured party to sue for damages and also terminate (discharge) the contract. Discharge means that the contract is terminated, i.e. no longer binding, obligations under the contract cease, and the innocent party may also sue for damages. Discharge is not automatic; the injured party is generally given a choice - accept the breach and bring the contract to an end or reject it and keep the contract on foot.

Caution should be exercised when treating a contract as discharged since the injured party may think that a condition has been breached, but the breach may only be of a warranty. In this situation the injured party will now be in breach of the contract.

6. REMEDIES FOR BREACH OF CONTRACT An injured party may enforce a right or correct a loss by means of a remedy. Both common law and equitable remedies are available. The remedies that are available to the injured party will depend on the nature of the breach. The usual remedy for a breach of contract is an award of damages, which is a common law remedy. However, the court may order other remedies such as an injunction or specific performance. We will consider a few of these remedies briefly and then discuss damages in more detail (cf Gibson & Fraser, 2005).

6.1 Rescission Rescission is an equitable remedy that entitles the injured party to set the contract aside and restore the parties to their pre-contractual positions. Rescission does not require the intervention of the court. Recession may be granted because of a mistake, misrepresentation or undue influence.

6.2 Injunction This is an equitable remedy granted by the court restraining a party from breaking the contract or from continuing with a wrongful act. An injunction is a discretionary court order. An injunction may be a prohibitory injunction preventing the breach of a contract or a mandatory injunction requiring a person to perform some contractual obligation.

6.3 Specific performance This is a discretionary order by the court directing a person to carry out their obligations under the contract. This remedy is generally only used where damages are inadequate.


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6.4 Damages Damages are a common law remedy. The purpose of damages is for the injured party to receive monetary compensation for their loss. Damages are the usual remedy for breach of contract, and the object is to compensate the innocent party for actual loss and not to punish the defaulting party. In other words, the money must purely compensate the innocent party without unduly penalising the offending party.

The following five factors are generally considered when determining whether an injured party will recover damages (Gibson & Fraser, 2005:350-353):

• Breach: The injured party must show that the contract has been breached.

• Causation: The injured party must show that the loss or damage they have suffered is a consequence of the other party’s breach.

• Remoteness of damage: The party in breach should only pay for losses that have occurred as a result of their breach. The court is only interested in losses reasonably related to the contract. Losses that are too far removed from the wrongful conduct are regarded as too remote from the breach and are therefore not recoverable.

• Amount of damages: The general principle is that an injured party should be put in a position they would have been in had the breach never occurred.

• Mitigation of damage: The injured party is required to take steps to minimise the loss, failing which, the court can reduce the amount of damages that can be recovered.

Case Study: Hadley v Baxendale

Hadley v Baxendale (1854) 156 ER 145

A mill contracted for their crankshaft to be repaired and delivered back to them. The contract for the transportation of a crankshaft was breached by a delay in delivery and the Mill shut down for longer than expected resulting in lost production. The issue was whether or not the mill could sue for profit on the lost production.

The court held that, “Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either:

arising naturally

or

, that is, according to the usual course of things, from such breach of contract itself,


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such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result

They thus formulated the rule of remoteness. For damages to be recoverable the loss must:

of the breach of it.”

(a) arise naturally from the breach

{be reasonably foreseeable}

or

(b) have been contemplated as a probable result of the breach

{as foreseen by these parties}

Because the carrier did not know the machine was a vital part of the mill, he did not see it as probable that the mill would close down and therefore he was not liable.

7. Construction Contracts Act 2004 (WA) The Construction Contracts Act 2004 (WA) came into operation on 1 January 2005. The Act provides for security of payment in the construction industry and the speedy settlement of disputes over payment for work done or materials supplied. Prior to the Act, when there was a dispute over payment, the person who had done the work or provided the materials was at a distinct disadvantage in terms of trying to get their money. The Act applies to all contracts for construction work undertaken in Western Australia. The Act gives a very broad definition of ‘construction’; it includes all of the activities associated with civil works.

You may wish to read the following article regarding this issue.

Evans, JE. 2005. The Construction Contracts Act 2004 (WA): What Engineers Need to Know, Legal Issues in Business 7:11-22.

The Article can be located on the CBS website at:

http://www.cbs.curtin.edu.au/business/research/journals

Click on Legal Issues in Business

Click on Table of Contents

Click on Volume 7, 2005

http://www.cbs.curtin.edu.au/business/research/journals�


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8. SUMMARY This topic dealt with the contents of a contract, how a contract may be terminated and the consequences for breaching a contract. When entering into a contract it is of vital importance to be very clear about the terms of the contract and nature of those terms, whether they are essential terms or merely important. Having concluded a contract, a contract may be terminated or discharged in a number of ways. Generally a contract comes to an end when all the obligations under the contract have been performed. However, other situations may arise when it is necessary or desirable for a party to discharge their obligations. It is not uncommon in the business world for people to fail to comply with the terms of a contract are therefore be in breach of the contract. This may have very serious financial consequences and cause a great deal of inconvenience to the innocent party. If a party is in breach of a contract, the innocent party can seek various remedies to fix the problem.


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TUTORIAL QUESTIONS 1. Explain the meaning of the following terms as they are used in contract law.

(a) condition (b) parole evidence rule (c) damages

2. Discuss whether the following statements are true or false.

(a) Breach of warranty allows the injured party to rescind the contract. (b) A term which provides that on the occurrence of an event the contract will

terminate is known as a condition subsequent. (c) Specific performance is an equitable remedy that is granted by the court in

preference to damages.

3. Bancks, the creator of a cartoon character ‘Ginger Meggs’ contracted with a newspaper company to provide them with a full page of his comic each Sunday which was to be published on the front page of the Sunday comic section. On three consecutive Sundays the cartoon appeared on page three of the comic section instead of page one. Bancks claimed that this was a breach of contract.

Was the action by the newspaper a breach of a condition or a breach of a warranty of Bancks’ contract? These events took place in Associated Newspapers v Bancks (1951) 83 CLR 322.

4. Newman Industries was contracted by a laundry company to deliver a boiler. They knew the company needed the boiler urgently. The company had secured a very lucrative dyeing contract with the government. The boiler was damaged in the course of delivery by Newman and was eventually installed five months late. The plaintiff laundry company sued and claimed damages for loss of the profit that the laundry would have made had the boiler been delivered on time AND for the loss of profits from the dyeing contracts.

Was the laundry entitled to damages? Is the loss of laundry profits and dyeing contract profits recoverable by the plaintiff? These events took place in the Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528.

5. Vince is keen on 4-wheel driving and driving in remote areas. He wants to buy a new four-wheel drive vehicle. He visits Four Wheels Pty Ltd, a dealer that specialises in four-wheel drive vehicles.

Vince tells Michael, the salesperson, that he is looking for a vehicle with sufficient torque to traverse steep inclines and negotiate rough terrain. He wants the vehicle fitted with a GPS system and a satellite phone. He also wants the


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colour of the vehicle to be black with 20inch wheels. Michael recommends the new model “Desert Storm” with a supercharged V8 engine that would meet all Vince’s requirements. Michael tells Vince that it has so much torque it could make a mountain feel like a “bump in the road”.

When the vehicle is delivered to Vince, he is disappointed to find it is beige coloured with a hands-free mobile phone and no GPS system. It is also a six cylinder with 16inch wheels.

Discuss the validity of the contract and the remedies that might be available to Vince.

6. Daniel is contracted to erect wire fencing around the perimeter of Ben’s twenty hectare country property and to put a gate at the entrance. After he finishes the fencing, but before he installs the gate, he is injured. Daniel writes to Ben telling him that he is unable to install the gate. He encloses an account for the agreed price, less what he would have charged for the installation of the gates alone.

With reference to terms of the contract, breach and remedies, discuss whether Ben must pay Daniel’s account.

TOPIC 5

CONTRACTS AND TENDERS

Topic 5 Contracts and Tenders

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TOPIC OUTCOMES At the end of this topic you will be able to: • explain what a tender is and its importance to the engineer;

• discuss the tendering process;

• explain that tenders are invitations to treat;

• identify situations where tenders will be considered offers and not invitations to treat;

• explain when a contract may be varied by the parties; and

• briefly discuss the importance of ‘time’ in engineering contracts.


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1. INTRODUCTION In Topics 3 and 4 we discussed the basic principles of contract law. Apart from general principles, there are some specific areas of contract law which may be most beneficial to engineers and thus warrant further discussion in this course. We discuss some contract situations that engineers would experience as understanding of these areas will help you to avoid many of the common problems involved in contractual disputes in the engineering industry. In this topic we will focus on role and legal status of tenders. The tendering process and the effect on the contract itself are regulated by contract law, some legislation (e.g. Trade Practices Act 1974) and commercial conventions.

2. TENDERING Most engineering or construction contracts are concluded after a tender process.

The process of tendering is often complex, costly and is an aspect of an engineer’s profession that cannot easily be escaped. The process is complicated because the requirements for submitting a tender can be technically complex, not to mention the legalities involved. Having to meet technical requirements often means that the engineer must spend money on research, costing analysis, ensuring that legal requirements will be met and more. On top of all of this, there is, of course, the chance that the tender will not be accepted. This means that although engineers may delegate the process of tendering, a basic understanding of the law involved will be useful.

Note that some industries and government bodies publish tendering codes, (such as the Code of Tendering AS 4120-1994 for the construction industry). These codes cover common practices, requirements and sets out ethical standards and obligations that should be observed in the tendering process. The tendering process would also fall under the scope of the Trade Practices Act 1974 (Cth) which deals with all manner of company conduct such as collusion, price fixing and misleading or deceptive conduct.

Suffice it to say that this area of law is potentially enormous and is an interesting subject and certainly valuable knowledge to the engineer, but all that is required for this course is a basic understanding of tenders.

2.1 Tenders Tenders are where a party advertises that they have a job that needs doing or a product to sell or a service that they require. This is known as ‘calling for tenders’. Other parties then provide quotes (‘tenders’) to do this and the person who called for the tenders will accept one (or none) of the tenders – either the cheapest or the best quality etc.

There are two classes of tender:

(a) A firm may advertise for the supply of a specified amount of goods or for certain services to be supplied. In this class the trader who submits a tender


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offers to supply the goods or services for a certain sum of money. This tender is an offer and, if the firm accepts it, a binding contract comes into operation. If the trader fails to supply the goods or services he is in breach of contract. If the firm fails to accept or pay for the goods, it is in breach.

(b) A firm may advertise for supplies for a certain period not exceeding a certain amount to be delivered as and when required. A trader who submits a successful tender has made a standing offer which is different from the offer in the first class of tender illustrated above.

The acceptance of a standing offer does not convert the offer into a binding contract because the firm has not agreed to accept the maximum quantity of goods. The legal effect of a standing offer is that it is accepted whenever a specified amount of goods are ordered.

Once an order is placed the standing offer is accepted for that particular order and a binding contract exists for that particular quantity of goods. Between specific orders the standing offer may be revoked at any time.

2.2 Tenders and invitations to treat Calling for tenders is considered to be an invitation to treat and not an offer (see Topic 4). This means that a call for tenders is merely an invitation to others to submit tenders (offers), and then the recipient of the tenders will usually accept one of the tenders (Bailey, 1998).

The caller for tenders is generally not obliged to accept any tender unless under certain circumstances which we will examine later.

Case Study: Tenders and invitations to treat

Spencer v Harding (1870) LR 5 CP 561.

The defendants placed an advertisement which stated: “We are instructed to offer for sale by tender the stock in trade of ...” The plaintiff submitted the highest tender and when he was not awarded the tender he sued for breach of contract. The issue was whether or not the call for tenders was an offer and thus the highest tender the acceptance.

The court held that the call for tenders was an invitation to treat even though it used the word ‘offer’. Furthermore, the advertisement had not stated that the highest tender would be accepted. Therefore there was only an offer from the plaintiff which had been rejected.

2.3 Tenders and offers There may be occasions where the wording of the tender is more specific or promissory which may make the call for tenders an offer rather than an invitation to treat. For example, calling for a tender where it is stated that the caller, ‘will accept the lowest bid’ or ‘the best price’, may create an offer. This means that whoever submits the lowest bid or best price has accepted the offer and a binding


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contract has been made. From an engineering point of view you may need to tender but you may also call for tenders from subcontractors and so you can appreciate that the wording of a call for tenders is very important especially if you do not want to create binding obligations on yourself unintentionally.

Case Study: Tenders and offers

Harvela Investments Ltd v Royal Trust Co of Canada Ltd [1986]

RT telexed HI inviting them to submit a tender to buy some shares. They stated:

“We confirm that if any offer made by you is the highest offer received by us we bind ourselves to such offer…” H submitted the higher tender but was refused. The issue was whether or not such a call for tenders was an invitation to treat or an offer.

The court held that it was a firm offer capable of immediate acceptance by one (i.e. the highest) bidder and therefore RT had to accept H’s tender.

2.4 Tender documents The documents that are usually issued for calling tenders consist of: Notices to Tenderers; Conditions of Tendering; the Tender Forms and Schedules, the applicable General Conditions of Contract, Drawings, specifications and additional information (Bailey, 1998).

Tenders that are submitted should comply strictly with the form and detail requirements of the conditions of tendering. A minor failure to comply with strict requirements can lead to an exclusion of a tender. In Smith & Wilson v British Columbia Hydro Authority (1997) a tender that was submitted one minute late was found to be unacceptable because, to consider the late tend would have been a breach of the “bid contract” (Bailey, 1998:103).

2.5 Withdrawal of a tender A tenderer can withdraw or revoke a tender at any time prior to acceptance, provided consideration has not been given to maintain the offer. The withdrawal is only effective when it has been communicated to the proprietor. Various restrictions can be placed on the tenderer’s capacity to withdraw. The conditions of tendering may require a security deposit to be submitted with a tender, which may be forfeited if the tender is withdrawn within a specified period (Bailey, 1998:103).

2.6 Acceptance of a tender An acceptance of a tender must be unqualified. Any conditions that the proprietor seeks to impose may cause the acceptance to be considered as a counter-offer (see Topic 4). Acceptance that is made “subject to contract” is not binding where the parties have not reached agreement on essential terms. Where mail is used, the


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general rule is that the acceptance is effective from when posted, that is, when it is out of the hands of the proprietor.

2.7 Pre-contractual processes Sometimes a call for tenders can require that tenders be submitted in a certain way or format. These pre-contractual processes may also involve significant cost to the tenderer such as drawing up plans, costing, getting advice etc. If a firm calls for such tenders and also says that it will judge the tenders according to set requirements then this sets up a pre-contractual process known as a separate or ‘collateral’ contract.

In other words, apart from the call for tenders, there is a promise that if tenders are submitted in a specific or required way, in return it is promised that the tenders will then be judged according to set or agreed criteria. We can view this as a separate, albeit implied, agreement. The firm does not have to accept the tender itself, but it must judge them as they agreed. If it does not judge the tenders according to those requirements – after the tenderers have gone to considerable expense – then the firm will be in breach of this ‘collateral’ contract and the tenderer may be reimbursed for the expense of preparing the tenders. Note that the tenderers cannot force the firm to accept the tender as the tender is only an invitation to treat and not an offer.

Case Study: Pre-contractual processes

Blackpool and Flyde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195

Potential tenders were called for by Blackpool BC requiring a set format and stating the process by which they would judge the tenders. BF Aero Club tendered according to requirements but their tender was not considered thru oversight on the part of Blackpool BC. Another firm, X’s, tender was accepted instead.

Blackpool BC then declared their intention of repeating the tendering process. However, X sued to enforce their contract and BF Aero Club sued for not being considered.

The court held that if a call for tenders contains stipulations about processes to be followed – the process stipulations are an offer concerning the process, (not the outcome). As long as the correct process was followed, Blackpool BC could accept any tender (offer) it wished. As a result, X was entitled to enforcement of their contract with Blackpool BC, but the correct process was not followed and BF Aero Club was entitled to damages for breach of contract – not entitled to have the contract awarded.

Similarly, in Hughes Aircraft Systems v Airservices Australia (1997) 146 ALR 1 AA’s call for tender outlined contractual processes that would be carried out. These processes were not followed by AA and Hughes (an unsuccessful tenderer) successfully sued for breach of preliminary contract as the court considered that Hughes along with other tenderers were induced into participate in the tender


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process and were reassured of the integrity of the process. The undertakings by AA were contractually binding and Hughes was entitled to judgement.

3. CONTRACT VARIATIONS Many engineering projects will invariably require additional work to be done or changes to be made. It may be that the parties will need to change the contract, the costs or even the amount or quality of work.

Variations will usually be of two types:

• additions or omissions to work or the quality thereof; and • deficiencies in the work or incompletion of the work. These changes can either be accommodated for in the original contract, for example by having clauses in the contract that allow for variations in the most common or likely areas of the project. For unforeseen events, changes may have to be negotiated on an ad hoc basis and will involve renegotiating the contract.

Because variations are likely in most projects, most standard engineering contracts provide for situations where the client can order variations as well as the basis for valuing such variations. Where the contract does not provide for this then there is no obligation on the engineer to vary the terms of the contract or the amount or quality of work unless they agree.

3.1 Power to order variations Some standard variation clauses may be very broad for example allowing variations which are ‘within the general scope of the contract’. Often these are accompanied by a monetary limit though to restrict major variations but which thus allows minor variations to take place without costly and time-wasting negotiations. With such clauses, it must still be shown that the variations ‘within the general scope’ are reasonable otherwise they may not be allowed.

Case Study: Unreasonable variations

Wegan Constructions Pty Ltd v Wodonga Sewage Authority [1978] VR 67

The contract allowed for variations ‘within the general scope of the contract’. Additional works were ordered that increased the overall extent of the work by 40%. It was held that this was unreasonable and would thus not constitute a variation under the contract.

3.2 Recovery without written orders Where variations of any type are made, it is common (unless already provided for in the contract) to record the variation in writing, (‘written order’) showing that the parties have agreed to this and authorising the variation. Where the engineer makes variations such as the amount work, for example, and does not obtain a


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written order, he is generally not entitled to payment of this additional work unless he can do one of the following:

• Prove that other written documents together constitute a written authority.

• Prove that there was an implied authority or promise to pay for said variations.

• Show that the client had waived the requirement for a written order - ‘waiver and estoppel’.

• Make a claim in equity that it would be unfair to allow the client to benefit unjustly from having extra work done and not pay for it – ‘unjust enrichment’.

4. TIME AND PERFORMANCE In most contracts, time - e.g. time for completion or delivery, is considered to be a warranty. In other words, while it is considered to be part of the contract, a delay in time is considered serious enough to warrant damages being paid (warranty), but not serious enough (condition), to allow the contract to be terminated (See Topic 4 breach of condition and breach of warranty).

Sometimes though, time can be a condition if it is vital to the contract. In engineering projects time would usually be considered ‘of the essence’ especially in areas such as software engineering (meeting global launch dates, for example).

It is not surprising then that time is often a major part of the engineering contract. This includes provisions in the contract that:

• the project will be completed by a certain date; • phases of the project must be completed at a certain date or in specific order; • the pace of work is to be of a ‘regular and diligent’ manner; • there be a pre-agreed and adhered to schedule or timetable of work; • delays will necessitate variations to be made; • delays will allow for pre-agreed damages to be paid for example a reduction

in the contract cost or a pre agreed amount per day, week, month etc; • under certain conditions extensions of time will be granted; and • there are guidelines as to what constitutes completion or at lease ‘substantial

completion’. Clauses in contracts addressing issues as seen above may still not make time a condition. They may merely be to assist in these problematic areas. However in circumstances where time is considered to be absolutely of the essence, it may be treated as a condition allowing the contract to be terminated and damages sought. The engineer should be careful when entering contracts such as these since unforeseen or unavoidable delays even though not your fault may terminate the project leaving you out of pocket.


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4.1 Time as an innominate term It is common (and often more sensible) to treat time as an innominate term of the contract. This means that we do not classify it as a condition or warranty. Rather, we wait until a breach occurs and then classify it. For example a delay of a day or a week may be seen as a warranty but a delay of a month is more serious and can then be classed as a condition. Naturally this classification will depend on the circumstances of the individual contract.

5. SUMMARY Contracts form a vital part of business and part of the pre-contractual stage is the tendering process. In this topic we briefly discussed the nature of tenders and the tendering process. This is a critical stage in the contract process as it forms the basis of negotiation and the contract.


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TUTORIAL QUESTIONS 1. What is the purpose of a tender?

2. Discuss the legal status of a tender.

3. Read the memorandum below and prepare the notes as per the instruction.

INTERNAL MEMO

TO: Engineering Student

FROM: Jenny Carmichael

Protect Manager

DATE: XX 2009

MATTER: TENDER GUIDELINES

As you are aware the company is expanding its operations and is planning to tender for engineering and construction projects throughout Australia and possibly even Asia. Although the company has tendered for a few minor projects in the past, the company does not have any policy or guidelines on tendering. I am in the process of compiling a document on tender guidelines for our company and require you to assist with this task.

I understand that the Australian Constructors Association (http://www.constructors.com.au/) has a set of guidelines for tendering. Please locate this document and, using any other sources, prepare notes on the following aspects for inclusion in the tender guidelines document.

• Purpose of tenders • Ethical principles • Tender process (include a diagram) • Checklist for tender documents • Criteria for tender selection

We will meet next week to discuss what you have prepared.

4. Terry sent out a circular to all his clients that read: ‘We are instructed to offer for sale by tender the stock in trade of Griffith Imports. The stock will be sold at a discount in one lot. The tenders will be received and opened at our offices.’ Bob faxes though his tender that happens to be the highest tender but Terry refuses to sell the goods to Bob. Does Bob have any grounds to challenge the decision?


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5. The new nightclub complex in Griffith NSW is to include a top-class late night bar and dancing facilities. The developers, Trimbole Property Developers Pty Ltd, placed an advertisement in both local and national newspapers calling for prospective contractors to build the complex. Tenders were due to be submitted before the close of business on the 1 February 2009. Tenders could be submitted by hand or post.

The following tenders were submitted:

Mackay Builders Pty Ltd posted its tender on 20 January. The tender was received by Trimbole Property Developers on 23 January. The tender was received early and because the developers did not have a procedure in place for receiving the tenders, the secretary placed the tender in a tray pending her opening a file for all tenders.

Clark Solutions Pty Ltd submitted its tender by hand early on 1 February and it was the lowest offer.

Kane Bros Construction Ltd posted its tender on 27 January and it arrived on 1 February at 2pm. The tender was the highest bid.

Freeman Builders posted his tender on 1 February and it arrived on 3 February.

The tender of Mackay Builders was placed in a tray under a pile of papers; it did not surface again until a week after the decision was made. The panel only gave passing attention to Clarke Solution’s tender, which was the lowest bid, because it had heard negative reports about the company and the owner, Terry. Freeman’s tender was not considered as it arrived late. Trimbole Property Developers accepted Kane Bros offer by post on 15 February. However, Kane Bros changed their mind about the project and sent a letter withdrawing its tender. The letter reached Trimbole Property Developers after 15 February. Rejection letters were posted to Clark Solutions and Freeman Builders.

Mackay Builders heard about the outcome and threatened to sue the developers. Freeman Builders were convinced their tender should have been considered because it was sent on 1st

February and Clark Solutions claimed it had the lowest tender.

Trimbole Property Developers want to select Kane Bros’s tender. Advise them on the contractual status of each tender.

TOPIC 6

INTRODUCTION TO NEGLIGENCE

Topic 6 Introduction to Negligence

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TOPIC OUTCOMES At the end of this topic you will be able to: • explain the meaning of ‘tort’;

• explain the elements of negligence;

• apply the elements of negligence to a practical problem;

• explain the meaning of causation;

• discuss possible defences to negligence;

• explain vicarious liability;

• explain the purpose of the Civil Liability Act 2002 (WA);

• locate legal material; and

• analyse and interpret legal information.


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1. INTRODUCTION Consider the following cases:

One day a factory was flooded after a heavy thunderstorm. Oil, which normally ran in covered channels in the floor of the building, flowed over the floor because of the storm. The day and afternoon shift workers spread 20 tons of sawdust over the floor to clean away the oil. One worker, who came on duty with the nightshift, was unaware of the conditions and, while moving a heavy barrel he slipped and crushed his ankle. Was the employer liable for the employee’s injury? Had the employer done all that was reasonable to prevent an accident? What could the employer have done? Was the employer negligent?

Contractors working on a building site blocked the usual approach to the building on which they were working. People were advised to enter the building through the adjoining property. One person fell through a hole on the adjoining property while using the right of way at night. Was the contractor liable for the person’s injury? Who should be liable? What would you have done if you were the contractor?

The world in which we live and work is full of hazards and unexpected and potential dangers. Workplaces of all kinds and descriptions are also potentially hazardous places, and the possibility of accidents and injuries occurring are not unexpected. However, if a person is injured or causes an injury or some harm to another person, it does not mean to say that the person causing the injury or harm should be held legally responsible for the harm caused, or that the injured person will always succeeded in a claim.

In this topic we will consider the meaning and scope of the tort of negligence. We will discuss the elements of negligence and possible defences. In the next topic we will examine particular areas of duty, in particular professional negligence and economic loss, in more detail.

2. TORT LAW The word "tort" means "wrong". The word comes into English from the ancient French word “tortus” which means “twisted, crooked or damaged”. A tort is a wrongful act or omission which gives rise to a civil action against the wrongdoer or tortfeasor. Excluded from this definition is any action for a breach of contract. A tort exists to protect rights (Davies & Malkin, 2003). The law of tort comprises many different torts which protect a variety of interests. These interests include a person's:

(a) body ( the torts of negligence, assault and battery);

(b) reputation (the tort of defamation);

(c) freedom (the tort of false imprisonment);

(d) title to property ( the torts of trespass to land and conversion);

(e) enjoyment of property (the tort of nuisance); and


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(f) commercial interests (the torts of negligent misstatement and passing off).

Despite their very different nature, most torts share common features, such as:

• Usually an element of fault is required, i.e. proof that the defendant acted intentionally or negligently. (Exceptions are certain torts of strict liability where a defendant is liable regardless of any personal fault.)

• Most torts require that actual damage or injury be suffered by the plaintiff. Exceptions to this are the torts of defamation (libel), trespass to land and nuisance.

• In most actions in tort, the remedy sought is damages i.e. monetary compensation. Since the law of torts is concerned with compensating the victim rather than with punishing the wrongdoer, the general rule is that the plaintiff should be put in the position which he enjoyed before the commission of the tort. Other remedies available for some specific torts are injunction, abatement (or self-help), and restitution of property.

• The defendant may raise specific defences in tortious actions. For example, in negligence actions the recognized defences are contributory negligence and voluntary assumption of risk.

• A person may be held liable for the tort of another in certain circumstances. This is known as vicarious (or indirect) liability.

Today, insurance spreads the burden of tortious liability. For example, there is an insurance component in motor vehicle registration fees. Consequently it is an insurance company, rather than a defendant driver, which will pay damages to a plaintiff injured in a motor vehicle accident.

There is significant inter-relationship between tort and contract, and tort and criminal law. All are distinct areas of the law, however on occasion a plaintiff can pursue more than one form of action.

3. THE TORT OF NEGLIGENCE Negligence is a tort that determines legal liability for careless actions or inactions which cause injury or damage. Negligence may be defined as the failure to do something that a reasonable person would do, or doing something that a reasonable person would not do, as a result of which another person suffers damage. The damage may be personal injury (for example, a broken leg) or damage to property (for example, a damaged car) or monetary loss (for example, the plaintiff has lost money which was invested).

In order to establish the liability of the defendant in negligence, the plaintiff must prove each of the following (Gibson & Fraser, 2005):

• that a duty of care was owed by the defendant to the plaintiff;

• that the defendant breached the duty of care by failing to conform to the required standard of care; and


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• that there has been damage to the plaintiff caused

3.1 Duty of care

by the defendant which was a reasonably foreseeable consequence of the defendant's conduct.

The plaintiff must prove the existence of circumstances which establish a duty of care (a duty to be careful) (Gibson & Fraser, 2005). This is a question of law and must be determined by a judge.

Historically a duty of care would arise only in certain limited categories of recognised relationships, such as common innkeepers, common carriers, blacksmiths, and surgeons. In other words a surgeon (the defendant) would owe a duty of care to the patient (the plaintiff). Later, during the eighteenth and nineteenth centuries, there was recognition by the courts that a duty of care could also arise in situations where there was no pre-existing relationship between the parties. These new situations included collision cases (where a road user was injured by the negligence of another road user).

Even so, until the case of Donoghue v Stevenson [1932] AC 562 those duty of care situations remained limited to specific circumstances. In that case the House of Lords formulated the duty of care in terms of a general principle, rather than the restrictive “categories” approach that had previously existed. In Donoghue v Stevenson Lord Atkin spoke of the duty of care being owed to one’s “neighbour”.

Two elements are contained in Lord Atkin's formulation of when a duty of care is owed:

(a) the duty is owed to a person who is likely to be “closely and directly affected” by one's actions: this is the concept of “proximity”; and

(b) the nature of the duty is to avoid acts or omissions which one can “reasonably foresee” are likely to cause injury to another: this is known as the “reasonable foreseeability of injury” test.

The decision in Donoghue v Stevenson, and in particular the judgment of Lord Atkin, is perhaps the single most important decision in the history of the modern tort of negligence. It has been widely accepted and applied in every common law country, including in Australian courts all the way up to and including the High Court.

To summarise

1. the plaintiff and defendant belong to one of the recognised categories of relationship; or,

: in order to establish the existence of a duty of care, the plaintiff must establish either that:

2. injury to the plaintiff was a “reasonably foreseeable” consequence of the defendant's conduct;

3. there was a sufficient relationship of “proximity”, or closeness, between the plaintiff and the defendant.

and


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Note: For public policy reasons, the court may find that no duty of care exists in a particular case even when both the “reasonable foreseeability of injury” and “proximity” tests have been satisfied.

3.2 Breach of duty of care Once the existence of a duty of care is established, the court will ascertain whether the defendant breached that duty by falling below the required standard of care (Gibson & Fraser, 2005). This necessitates an examination of the defendant's conduct and a finding of whether or not they observed an appropriate standard of care in the circumstances. In other words, was the defendant careful enough? The standard of care is objective and the standard required is that of the “reasonable person”. The reasonable person is someone of normal intelligence. In determining whether a person breached the standard of care, the court considers whether the risk or injury to the plaintiff was reasonably foreseeable, and the reasonableness of the defendant’s response to the risk.

The amount and kind of care required varies from case to case. All the facts that would influence the conduct of a “reasonable person” in those particular circumstances will be taken into account. One of the issues that a reasonable person would take into account is the seriousness of the consequences should any of the risks inherent in the conduct eventuate. In Paris v Stepney Borough Council [1951] AC 367 the plaintiff, Paris, had only one eye. The defendant Council employed him as a motor mechanic. The Council was aware of his disability but did not provide protective goggles when the plaintiff was using a steel hammer to loosen a rusty bolt. A metal chip flew into his good eye resulting in him becoming blind. The court held that the Council was negligent in not providing goggles and, in doing so, said that although the risk of injury to Paris was no greater than to any other person employed as a mechanic, the seriousness of the consequences of that injury to Paris was much greater than to a person who had sight in both eyes, therefore the standard of care owed to Paris was greater.

Another issue to consider is the degree of risk. In Bolton v Stone [1951] AC 850 a woman was hit by a cricket ball as she stood in front of her house. The ball came from a cricket ground across the road which was surrounded by a 17foot high fence. Evidence described how it would take an exceptional hit to clear the perimeter fence and that over the past 30 years very few balls had ever been hit that far. The court held that the risk was so small that a reasonable person would not think of taking any further precautions than building a high fence.

Note that there is now legislation in most states and territories relating to how the courts must assess standard of care. In Western Australia, for example, in the Civil Liability Act 2002 (WA) the provision talks of a risk that is “not insignificant” (see below).

3.3 Damage The plaintiff must prove that he has suffered actual damage due to the defendant's conduct (Gibson & Fraser, 2005). This may be in the form of personal injury, injury to property or monetary loss. There are two aspects to the concept of


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damage: causation of the injury; and a plaintiff may only recover for damage of a reasonably foreseeable kind

Causation

.

There must be a direct connection (or “causal nexus”) between the defendant's conduct and the damage suffered. In other words, the defendant's conduct must have caused

To assist in determining the cause of the injury the “but for” test may be used. This test was discussed in Cork v Kirby MacLean Ltd [1952] 2 All ER 402 where the court said that the causal link was established if it was possible to say “but for” the breach of duty of the defendant, the plaintiff would not have suffered the injury.

the damage. Causation is a difficult issue, as damage may be caused by a number of factors.

Increasingly, the High Court has expressed the view that the “but for” test must be applied and interpreted along with “common sense.” This view was expressed in March v E & MH Stramare Pty Ltd (1990) 171 CLR 506.

Only reasonably foreseeable damage is recoverable

The defendant will not be liable for all the damage caused by their breach of duty. The Privy Council established in Wagon Mound (No.1) [1961] AC 388 that a defendant will be liable only for that damage which is reasonably foreseeable

In the Wagon Mound (No.2) [1967] AC 617 the Privy Council again examined the concept of "reasonably foreseeable damage", and held that a particular type of damage will be reasonably foreseeable if the risk of it is "real", and not "far-fetched".

as a result of the defendant's conduct.


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reasonable foreseeability of injury (risk)

Duty of Care

proximity between plaintiff and defendant

Failure to observe an appropriate standard of care

Damage

caused by the defendant's actions

(“but for” + “common sense”)

of a type which was reasonably foreseeable

(“not far-fetched or fanciful”)

plus

plus

plus

plus

Elements of an action in negligence

Note: each element is a device to limit the liability of the defendant.

4. DEFENCES There are two defences which a defendant may raise against a claim in negligence (Gibson & Fraser, 2005):

(a) Voluntary assumption of risk, and

(b) Contributory negligence.

4.1 Voluntary assumption of risk (consent) This defence is VERY rarely successful. There have been no more than a handful of cases where the defence was raised successfully in the past 15 years in Australia.

Where a plaintiff has fully and freely consented to the risk of harm caused by the defendant's conduct, the defendant may be relieved of legal liability for that conduct. Such consent on the part of the plaintiff is termed voluntary assumption of risk.


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Thus, for example, a person who plays a contact sport, such as Australian Rules football or rugby, may

Case Study: Voluntary assumption of risk

be held to have voluntarily assumed the risk of accidental physical injury which they sustain in the ordinary course of the game. (Note that the risks consented to are only those inherent in the game: the participant does not consent to other negligent conduct on the part of the other players.)

Morris v Murray [1990] 3 All ER 801

The plaintiff had been out on a “pub-crawl”. At his second pub, the plaintiff joined the defendant, who was the owner of a light aircraft, and others and continued drinking. The plaintiff took the defendant and another person to the aerodrome in his car, and all three boarded the aircraft for a “joyride”. Flying had been suspended due to bad weather, and the defendant pilot, who had consumed 17 whiskeys, attempted a particularly difficult take-off. Shortly after take-off the aircraft crashed, killing the defendant pilot.

The court held that the plaintiff, although drunk himself, was aware of the intoxication of the pilot and understood the risk he was taking in flying with the deceased in poor weather. As such, the plaintiff was not entitled to any compensation for his injuries.

Voluntary assumption of risk is a complete defence to an action in negligence. Accordingly, the courts have tended to prefer the defence of contributory negligence, on the grounds that an apportionment of liability between defendant and plaintiff is very often the most equitable solution.

4.2 Contributory negligence At common law an injured person could not recover against another in negligence when his injuries had been partially caused through his own

However, the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA) now provides for apportionment of liability between the defendant and the plaintiff in such cases. In effect, the court will reduce the award of damages made against the defendant by the amount which it finds the plaintiff contributed to their own injuries. In other words contributory negligence now constitutes a partial defence to a claim in negligence

negligence. In other words, if the plaintiff’s failure to take reasonable care for their own safety (or the plaintiff's breach of a duty owed to the defendant) contributed to the plaintiff's injuries, they could not recover damages against the defendant.

Case Study: Contributory negligence

Connors v The WAGR Commission (1992) Aust Torts Reports 81-187

A young boy was playing on railway tracks. He was injured by a train and it was held that the train driver was negligent in failing to see the boy and stop in time.


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It was held that both parties had been careless and the defendant was found 80% responsible and the plaintiff 20% responsible for the injuries sustained by the plaintiff

Note that the apportionment will depend upon the circumstances in each case and will take into account such things as the potential for injury / vulnerability of the parties. In the case above, it can be seen that a train is not likely to be damaged in a collision with a boy and so the responsibility apportioned was greater i.e. 80%

A frequently noted form of contributory negligence is the failure of a driver or passenger of a motor vehicle to wear a seat belt. In the event of injury, the courts have consistently held that the failure to wear seat belts has aggravated the injuries sustained. Often the reduction of damages is between 15%-25%.

5. VICARIOUS LIABILITY Liability in tort may be direct or vicarious (indirect).

Direct liability arises through the breach of one's own duty - through personal fault or blameworthiness.

Vicarious liability is liability imposed on one person for the acts or omissions of another (usually an employee but sometimes an agent). The person made vicariously liable is not personally at fault at all.

In the employment context the principle of vicarious liability has its basis in a combination of policy considerations including:

• the belief that an employer should pay the costs of damage caused by their business operations;

• the fact that the employer is more likely to be able to afford to pay damages; and

• the fact that the employer has avenues for passing on tort losses through liability insurance and higher prices.

For example, an employer may be vicariously liable for the negligent driving of a person employed as a driver (the driver will also remain personally liable for negligent driving). However, if the driver were to assault a pedestrian for reasons of their own, the assault is not connected with the employment and the employer would not be liable in tort for that assault.

In order for an employer to be vicariously liable for the acts of an employee the plaintiff must establish:

• that a tort was committed: most commonly, the tort is negligence but may also include other torts.

• that the tort was committed by an employee of the employer. An employer

will not be vicariously liable for the torts of an independent contractor. To distinguish between an “employee” and an “independent contractor” a court


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will not necessarily be bound by the description used by the parties, but will apply its own tests. Tests used to distinguish an independent contractor from an employee are the control test and organisation test. Where the employer has a right to direct not only what the person may do but also how he shall do it, that person is an employee. This is referred to as the control test.Where the person is an integral part of the employer's organisation (eg a doctor in a hospital) that person is an employee. This is referred to as the organisation test. In Henson v Perth Hospital Board of Management (1938) 4 WALR 15 the plaintiff, an outpatient at a hospital, had been given ear drops by two nurses. Doctors at the hospital had in fact prescribed different ear drops but the nurses had mistakenly ordered the wrong ones. As a result of administering the incorrect medication, the plaintiff suffered ear damage. The court found the doctors and nurses to be employees of the defendant, and held that their conduct had been negligent. Accordingly, the defendant hospital was held vicariously liable in negligence.

• that the tort was committed by the employee within the scope of

employment.

Negligent actions by an employee “at work” will be the responsibility of the employer if that action was “within the scope of employment”. “Within the scope of employment” includes actually doing the job that the person is employed to do and doing things that are incidental to that job. For example, it could be that a person attending a staff Christmas party would be seen as acting within the scope of his/her employment, because attendance at the staff party is incidental to the employment.

If the action was wholly outside the scope of employment - i.e. the employee was on “a frolic of their own” - then the employer will be not held vicariously liable for the employee's tort. In Twine v Bean's Express Ltd [1946] 1 All ER 202, an employee gave a lift to a hitchhiker in his employer's van, even though this had been expressly forbidden by the employer. Due to the employee's negligent driving, the hitchhiker was killed. The court held that the employee had been acting outside the scope of his employment and the employer was not vicariously liable for the hitchhiker's death.

6. CIVIL TRIAL PROCEEDINGS Where a person has suffered damage or injury as the result of the commission of a tort by another, they may sue the tortfeasor (wrongdoer), usually for damages. The party seeking damages (the plaintiff) must sue the tortfeasor (the defendant) in the appropriate civil court. The judge or magistrate must apply the appropriate rules of evidence during the trial.

In a civil trial, the plaintiff has the onus of proof - the burden of proving the defendant's legal liability. The plaintiff must produce evidence as to the facts - i.e. what actually occurred. The court will then decide which legal principles apply to those facts. The standard of proof (i.e. degree of proof required) is “on the balance of probabilities”. In effect, this means that a court must be at least 51% convinced by the plaintiff's evidence before it will find the defendant liable.


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7. THE CIVIL LIABILITY ACT 2002 (WA) Recent trends in negligence have seen the impact of liability on professions such as the medical profession and insurance premiums throughout have increased phenomenally, to the point were many professionals simply cannot afford to continue operating because it is no longer economically viable to do so.

This has also impacted heavily on recreational activities and sports where small clubs and organisations simply cannot afford the insurance.

To address this and other problems such as the increasingly larger amounts of damages being awarded, the Civil Liability Act 2002 (WA) was passed. Before this, there was no specific legislation dealing with negligence. The laws of negligence were largely case based (common law made by judges).

Apart from putting in legislative form the basic principles of standard of care, causation and remoteness, the important contributions it makes are:

• Section 5B: changes the definition of foreseeability from being ‘not far-fetched’ to ‘not insignificant’. This means that we have a duty of care to protect against risks which are significant rather than risks which are not far-fetched. This has the effect of making it more difficult to show that a duty was owed and breached.

• Section 5H: states that there is no liability for harm from obvious risks of dangerous recreational activities

• Section 5I: states that there is no liability for recreational activities where there is a risk warning

From an engineering point of view, the importance is mainly the ‘raising of the bar’ for liability from being responsible for risks that are ‘not far-fetched’ to risks that are ‘significant’.

8. SUMMARY In this topic we discussed the meaning of negligence. You will realise that to succeed in a claim against another party for negligence a number of elements must be present. Not every type of careless behaviour will constitute a legal action for negligence. To prove an action for negligence the plaintiff (the injured party) must prove that the defendant owed them a duty of care, that the defendant breached that duty of care and that the plaintiff suffered actual damage that is not too remote from the defendant’s conduct.


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TUTORIAL QUESTIONS 1. Define negligence.

2. When does a duty of care arise?

3. If you were injured, would you bring an action against the person who injured you in tort law or criminal law? Explain why.

4. Ray and his friends the Kane Bros were visiting the Geelong Ranges National Park, which was managed by the Victorian Department of Conservation and Land Management. They were having a party in the picnic area. After having quite a few drinks, Ray and the Kane Bros decided to go for an evening stroll and watch the sun go down. They climbed over a low fence that had been erected to stop people from going too near the edge of the cliff. They walked through some vegetation and Ray Ken fell over the edge. He sustained severe injuries and was paralysed. Ray sued the conservation authority for failing to warn against the danger of walking near the cliff edge.

Using the four step process, discuss the liability of the conservation authority for Ray’s injury.

5. Brian Kane operates a small engineering business in Fitzroy, Melbourne. He uses a robotic arm to move stock around and to lift items on to shelves. One day the robotic arm develops a fault and can no longer be used. Brian arranges to have the fault repaired by Trimbole Engineering. Shortly after the robotic arm was repaired it failed again and causes some of Brian’s stock to fall from shelves and also causes a major fire. The total value of damage was $500,000. Moreover, Brian has facial lacerations and a broken collar bone.

Using the four step process, explain the liability of Trimbole Engineering has to Brian in the tort of negligence.

6. This exercise requires you to locate and discuss a case.

• Go to the AustLII (Australasian Legal Information Institute) database www.Austlii.edu.au.

• Under Case and Legislation click on Commonwealth to find High Court decisions.

• Click on High Court of Australia Decisions 1903 -.

• Find the case Vairy V Wyong Shire Council [2005].

• Read and compare the judgments of McHugh J and Hayne J. Which of the judgments do you agree with?

TOPIC 7

CATEGORIES OF NEGLIGENCE

Topic 7 Categories of Negligence

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TOPIC OUTCOMES At the end of this topic you will be able to: • appreciate the impact of the law of negligence in your profession;

• appreciate that other areas of law such as contract or trade practices will also impact on this area;

• explain the element of duty of care for professional negligence;

• discuss the meaning of negligent misstatements;

• discuss the elements for proving negligence based on misstatements;

• discuss liability for defective structures and designs; and

• apply legal principles to a practical problem.


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1. INTRODUCTION In Topic 6 we discussed the tort of negligence and the requirements for negligent conduct. In terms of negligence and the duty and standard of care applied it can be said that in professions where intellectual skill and special qualifications are required to be able to perform work or give advice, it is necessary that those qualified people be judged according to a higher standard than that which applies to ordinary people.

This standard is often based on what a reasonable group of peers would conform to in similar situations. It may also take into account codes of conduct or ethics and common practices and standards.

The Institution of Engineers, Australia

This is the qualifying body for professional engineers. It has around 80,000 members. It sets standards both for education and training as well as codes of ethics and codes of professional conduct.

The website can be found at: http://www.ieaust.org.au and offers coverage of media releases, legal developments, career prospects, educational / training events and more.

Other organisations:

Association of Professional Engineers – represents employee engineers

Association of Consulting Engineers – represents engineers in private practice

In professional negligence situations, there may be liability both in contract and tort. The underlying policy of contract law is the enforcement of promises, while the underlying policy of torts is compensation for damages. This is a concurrent approach, in other words, both avenues may be pursued at the same time. Historically courts have been reluctant to recognise concurrent duties. Furthermore, their reluctance to recognise that duty in tort may be owed to third parties to professional relationships also makes this area a difficult one. There may also be actions under legislation such as the Trade Practices Act 1974 (Cth) for misleading conduct or false representations to name but a few. However, the scope of this course will only cover the issue of negligence.

2. CATEGORIES OF NEGLIGENCE Professional negligence examines situations where people, who are suitably qualified to do a job or provide advice, do so negligently, (and so ordinary negligence principles still apply), and this causes damage to others. This damage could be injury or loss from defective work, or economic loss to people reasonably relying on your skill or advice. We will briefly consider the liability for negligent misstatements and negligence of defective products. The elements for negligence discussed in Topic 6 apply to these particular areas of duty.

http://www.ieaust.org.au/�


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2.1 Negligent misstatements Apart from negligent acts and omissions, common law also imposes liability for economic loss flowing from a negligent misstatement. A negligent misstatement is an inaccurate or misleading statement which arises from carelessness or lack of care in ensuring the information is accurate. Negligent misstatement often results in economic loss that is unconnected to injury to a person or damage to property. Therefore a defendant’s liability may extend to statements of fact, advice or opinion which a defendant makes. For example, in Pratt v Hill (1987) 38 BLR 25 the architect had advised the client that the builder was “very reliable” when in fact he was not. The builder failed to complete the work and the client was able to recover from the architect the financial losses incurred as a result of relying on his misrepresentation about the reliability of the builder.

Historically, a duty of care was not held to be owed, especially in terms of giving advice. Until 1963 there was essentially no liability for negligent advice or a negligent opinion unless there was a contract, fraud or breach of a fiduciary duty. In as USA case Ultramares Corp v Touche (1931), Cardozo CJ said that to recognise a duty would be to impose: “A liability in an indeterminate amount for an indeterminate time to an indeterminate class.” For example, should an accountant preparing a prospectus be liable to any prospective investor for any amount they invest over a long period of time e.g. a year?

However, this view was rejected in the case of Hedley Byrne v Heller & Partners Ltd [1964] AC 465. In this case the plaintiffs were advertising agents who placed some orders for advertising space on behalf of a customer, Easipower Ltd. On receiving a favorable report from the customer’s bank on the financial status of the customer, the plaintiff placed substantial orders for advertising space on a credit basis. Easipower went into liquidation and was unable to pay their account. The plaintiff suffered an economic loss which they sought to recover from the defendant; the customer’s bank. They sued for a breach of duty of care in negligence for careless misrepresentations.

In this case it was said that although:

“Words are more volatile than deeds. They travel fast and far afield. They are used without being expended…yet they are dangerous and can cause financial damage…if the mere hearing or reading of words were held to create proximity, there might be no limit to the persons to whom the speaker or writer could be liable.”

The court held that:

“It should now be regarded that if someone possessed of a special skill undertakes, quite irrespective of a contract, to apply that skill for the assistance of another person who relies on such skill, a duty of care will arise.”

The Hedley Byrne case established that a duty of care arose when the defendant was in a special relationship with the plaintiff. This is established through a relationship of proximity between the parties.


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In summary, for a plaintiff to recover damages for a negligent misstatement, the plaintiff must establish a duty of care, a breach of duty and damage.

A duty of care is established through a relationship of proximity between the parties, for example, a professional relationship.

For a breach of duty to arise the plaintiff must establish that:

• the defendant made the representation; • the defendant knew or ought to have known that the information requested

was for a serious purpose; • that the representation would be acted upon; and • if the statement was inaccurate they would suffer loss.

The plaintiff must establish that there is a connection between the defendant’s actions and the damage suffered by the plaintiff. The plaintiff must show that they relied on the information or advice to their detriment.

Limitation or exclusion clauses

Many professionals, (in fact most), use some form of exclusion clause to restrict or limit liability in the event of a breach of contract or negligence. The usual rules of notice and effectiveness of exclusion clauses applies, (see Topic 4), but note that these provisions may be enforceable against the client if they are fair and deal with limiting amounts or duration of liability (due to the contractual nature of these clauses). However, they will NOT be effective against third parties (i.e. people not party to the contract e.g. the public). They will also not be effective against any claims under the Trade Practices Act or Fair Trading Act.

Case study: L. Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 225

The defendant (Parramatta) received an enquiry from the solicitors for the plaintiff developers as to whether land that the plaintiff proposed to buy was affected by any council road widening proposals. The council was under no legal obligation to answer such questions but it generally did. The council failed to disclose that there was a road widening proposal. Relying on the council’s answer, the developers purchased the property, only to discover the proposal would lower the value of the property. The issue was whether the council owed a duty of care in giving the information, or did it only apply to giving advice. The court held that the council did owe the plaintiff a duty of care to ensure that it supplied the correct information. Liability for giving of information was not limited to commercial business activities.

Note: Apart from recovering damages in the tort of negligence, negligent misstatements may also amount to false and misleading conduct in breach of section 52 of the Trade Practices Act 1974 (Cth). Nowadays it is more likely for a case to be brought under the TPA than common law.


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2.2 Defective designs and structures Where a builder, architect or engineer knows, is careless or not skilled in the design or contraction of a structure so that the structure itself is defective, they may be liable if the plaintiff suffers as a result of the defect.

It is important to note also that the liability for negligence can also extend to a series of plaintiffs over a period of time. For example the liability of an engineer, builder or architect may extend to future subsequent owners of the building over long periods of time. Importantly this includes liability for pure economic loss (i.e. loss not necessarily associated with physical damage such as drop in value or loss of profits).

Case Studies: defective designs and structures

Bryan v Maloney (1995) 128 ALR 163; 69 ALJR 375

A builder built a house which was sold to various subsequent owners and eventually to the plaintiff. The footings of the house were inadequate to withstand the seasonal changes in the soil and this caused damage (cracks) to the house which the plaintiff had to have repaired. The plaintiff sued the builder for the damage and reduction in value of the property.

The court held that the defendant did owe a duty of care to all subsequent purchasers of the house because the damage was a foreseeable consequence of his negligent work. This duty extended not only to the loss caused by repairing the physical damage, but also to the economic loss i.e. the drop in the value of the house when the inadequacy of the footings became apparent.

Voli v Inglewood Shire Council (1963) 110 CLR 74

The plaintiff attended a meeting in the town hall. While on stage, it collapsed injuring the plaintiff. The plaintiff sued the council, the builder and the architect. The plans provided for insufficient supports and since council had approved them, the architect and the council were jointly liable.

Florida Hotels v Mayor (1965) 113 CLR 588

The plaintiff hired the defendant, an architect, to inspect and supervise a hotel extension. This was not done properly and the court held that the architect was liable because professional negligence can extend not just to plans but also to incidental tasks like inspections.

In Bevan Investments v Blackhall & Struthers (No 2) [1973] 2 NZLR 45

An architect employed a structural engineer to draw up some plans. The plaintiff relied on these plans to enter a building contract. The design was defective and the engineer was held liable in negligence.


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Recent Case

The decision of the High Court in Woolcock St Investments is likely to be the most important decision since Bryan v Maloney. It has a profound effect on professional negligence cases against builders, architects, engineers, supervisors and other building professionals.

Case Study: Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16

In 1987, the first respondent, a company carrying on the business of consulting engineers, designed foundations for a warehouse and offices in Townsville. The land on which this building was to be built was owned by the trustee of a property trust. Some years after the building was finished it was sold by the then trustee of the property trust to the appellant.

The contract for the sale of the land did not include any warranty that the building was free from defect and there was no assignment by the vendor of any rights that the vendor may have had against others in respect of any such defects

More than a year after the appellant bought the land it became apparent that the building was suffering substantial structural distress. It was agreed that the distress was due to the settlement of the foundations of the building, or the material below the foundations, or both. The appellant alleged that the first respondent and its employee, the second respondent, each owed it a duty to take reasonable care in designing the foundations for the building.

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The respondents denied that they owed the appellant any duty of care; they denied that they acted in breach of any such duty; they said that despite advising the then owner of the land to allow them to obtain soil tests, the then owner instructed them to proceed without soil tests and to use structural footing sizes provided by the builder.

The issue was whether or not the respondents owed the appellant a duty of care?

The Court of Appeal of the Supreme Court of Queensland held that no duty of care was owed, an appeal to the High Court was allowed.

The High Court upheld the Supreme Court’s decision and said that no duty of care was owed. The reasons were as follows:

• This case was different to Bryan v Maloney in that it involved commercial premises whereas the former involved a private, residential building.

• There was no contractual relationship between the appellant and the respondents

• The appellant could have protected themselves against economic loss (eg insurance)

• The defects could have been discovered by the appellant on reasonable inspection of the property


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• The appellants received a certificate from the local council saying, not that the building was sound, but that the building was not unfit for use or occupation i.e. the council had said it was ok for use

• The original owner had refused tests to be done and this was not then the responsibility of the respondents

Importantly, their honours said:

“But the most powerful reason for rejecting the proposed duty is that the first owners and purchasers of commercial buildings are ordinarily in a position to protect themselves from most losses that are likely to occur from defects in the construction of such buildings. Occasionally, a commercial building may be built or bought for an emotional rather than an economic reason. But in the overwhelming number of cases, commercial buildings are constructed or bought to make money. A commercial building is constructed or bought because it is perceived to be a suitable vehicle for investment. The prudent first owner or purchaser of such a building will compare the likely return on the capital investment with the potential risks including falls in the value of the building that may result from various factors, economic, social and physical. And no prudent purchaser would contemplate buying a building without determining whether it has existing or potential construction defects. Knowledge of its defects, actual or potential, is central to any evaluation of its worth as an investment. In so far as risks are uncertain or unknown, the prudent purchaser will factor the risk into the price or obtain contractual protections or, if necessary, walk away from the negotiations.”

3. SUMMARY In this topic we focused on a particular area of negligence, namely negligent misstatements that may give rise to economic loss. Professionals, who hold themselves out as having particular knowledge and skills, need to take great care when giving information and advice. The law now imposes liability for negligent misstatements. Professionals may also be held liable for defective structures.


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TUTORIAL QUESTIONS 1. When could a person be held liable for giving advice?

2. What constitutes a “special relationship” in the context of a tort for negligent misstatements?

3. Explain which of the following situations may give rise to a claim for economic loss based on negligent misstatements and who is liable?

(a) Alexander Investments advised a client that Griffith Pty Ltd was a solid and sound company to invest in. Three months later the company went into liquidation and the client lost a substantial amount of money.

(b) Carlton Shire Council advised Blues Property Settlements that the property to be purchased by one of its client’s in Lygon St would not be affected by any road widening. The client purchased the property. The council did have a plan to widen the road and the value of the client’s property was significantly lowered when Lygon St was widened.

(c) Richmond Finance Corporation lent money to a company relying on accounts prepared by a reputable and discreet auditing partnership, Eagles Confidentials. The accounts overstated the company’s loans and the company defaulted on the loan.

4. St Kilda Construction is contracted with VicRoads to build a new freeway from

Melbourne to the Yarra Valley. St Kilda Construction obtained engineering specifications for a traffic control system for the freeway from McGuires Pty Ltd. Following installation, it became evident that the specifications given were wrong and as a result St Kilda incurred substantial financial loss when they installed the incorrect traffic control system.

Using the four step process, discuss the liability of McGuires Pty Ltd for negligent misstatement. (Note: there is no defect in the design.]

5. Flannery Construction Pty Ltd was contracted to build a twin office tower

complex spanning city road. Part of the construction work involved building a sky-walkway between the two buildings over the road to allow easy access between the two buildings. Flannery contracted with Skyway Pty Ltd, a consulting structural engineering firm, to design the walkway. Skyway supplied the design of the walkway and advised on the materials to be used. Eighteen months after the construction was completed the walkway collapsed. After a thorough investigation it was found that the design was flawed and the materials that were used were substandard given the nature and purpose of the design. There was no fault with the construction techniques.


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Who’s to blame? Using the four-step process discuss the liability of Flannery Construction Pty Ltd and Skyway Pty Ltd.

TOPIC 8

INTELLECTUAL PROPERTY

COPYRIGHT

Topic 8 Intellectual Property: Copyright

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TOPIC OUTCOMES At the end of this topic you will be able to: • explain the reasons for protecting intellectual property;

• identify forms of intellectual property;

• explain the concept of copyright;

• outline the kinds of works protected by copyright;

• explain who owns copyright;

• discuss when copyright is infringed; and

• identify exceptions to copyright infringement.


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1. INTRODUCTION What if you invented a new product or designed a new motor car or developed a new computer software programme? What is the value of these products to you? Engineering students may be involved in various projects that give rise to new and exciting products and inventions. Who owns the rights to this property? When you start working you might also work on a diverse range of jobs that will require creating and designing things. Who will own those creations? Is it necessary to protect one’s creations? The answers to such questions will be found in the area of Intellectual Property Law.

If only…?

In 1972, Frank Bannigan, the Managing Director of Kambrook, developed the electrical power-board. The product was hugely successful and was the basis for Kambrook's growth to become a major producer of electrical appliances. However, the power-board was not patented and Kambrook ended up sharing the market with many other manufacturers instead of enjoying a 20 year monopoly. According to Mr Bannigan, “I've probably lost millions of dollars in royalties alone. Whenever I go into a department store and see the wide range of power-boards on offer, it always comes back to haunt me” (www.ipaustralia.gov.au)

2. WHAT IS INTELLECTUAL PROPERTY? Intellectual property (IP) is the result of ones intellectual efforts. It represents the property of your mind! Intellectual property law is the area of law that deals with the legal protection of intellectual property.

The most common forms of intellectual property are copyright, patents, designs and trade marks. In this topic and the next, we will consider the law relating to copyright (Topic 8) and patents and designs (Topic 9). Along the way we will consider a number of practical situations and look at some interesting examples from case law.

3. WHAT IS COPYRIGHT? Copyright is a form of protection provided to authors of original works of authorship. Copyright protects original works from unauthorised copying and gives the author exclusive rights to licence and produce the work.

Copyright protection is provided under the Copyright Act 1968 (Cth). There are two basic categories of subject matter that are protected:

(a) Artistic, literary, musical and dramatic works; and

(b) Broadcasts, films and sound recordings.

A literary work is not confined to works of literature such as a novel or play. It includes compilations of work, tables, figures, symbols, and computer


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programmes. This would include engineering drawings, reports, tenders, software programmes, manuals and videos.

Artistic works include paintings, sculptors, drawings, photographs and models of buildings.

In order for a work to be protected it must be original and in some material form. It cannot simply be an idea floating around in your head. Copyright does not protect ideas but rather the expressions of ideas.

Copyright exists in original works. Original means that the work comes from the author’s own efforts and is not merely copied from someone else. Original does not mean it has to be unique or a completely new invention or creation.

The Copyright Act 1968 does not require copyright to be registered. Once a work is published it automatically acquires copyright protection; there is no need for a copyright notice or registration.

4. WHO IS THE OWNER OF COPYRIGHT? Copyright belongs to the person who creates the finished work. The author of a literary, dramatic, musical or artistic work is the owner of any copyright in the material (Copyright Act, s 35).

Where a work is made by an employee as part of the person’s job the employer usually owns the copyright. If the work is made in the course of the author’s employment by a newspaper, magazine or similar publication, the owner of the publication owns the copyright in respect of the publication or the work in any newspaper or magazine, and the employee will own the copyright for some purposes.

Where a person is commissioned and paid to do a painting or take a photograph for another person, the person for whom the work was done is the owner of the work. If the work was made for a specific purpose, the person for whom the work was made is the owner of the copyright for that specific purpose. The person who made the work will own the copyright for all other purposes.

5. WHAT RIGHTS DO OWNERS HAVE? The owner of copyright material has the exclusive right to:

• reproduce the work (e.g. make photocopies); • publish the work; • communicate the work to the public; and • make an adaptation of the work (Copyright Act, s 31).

6. HOW LONG DOES COPYRIGHT PROTECTION LAST? The length of copyright protection varies according to the nature of the work and whether or not it has been published. Depending on the material, copyright for


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literary, dramatic, musical and artistic works generally lasts 70 years from the year of the author's death, or where duration depends the year of publication copyright extends to 70 years from the first publication. Copyright for films and sound recordings lasts 70 years from their publication and for broadcasts, 50 years from the year in which they were made.

7. COPYRIGHT INFRINGEMENT Copyright gives the owner of the copyright the exclusive right to copy. An infringement of copyright occurs when a person reproduces in a material form the whole or part of a work that is subject to copyright, without the consent of the owner (Copyright Act, s 36(1)).

Where music is performed without permission on a public sound system, such as music playing in a shopping centre, the occupier of the premises may be liable for an infringement.

7.1 Reproduction that may not constitute an infringement An unauthorised reproduction of a work that might ordinarily be an infringement may not be an infringement if it involves:

• fair dealing for private research and study;

• a small part of the copyright work;

• public readings of a published literary or dramatic work where the copyright is acknowledged; or

• copying of literary or dramatic works by educational institutions if the copy is made on the premises for use by students or staff for the purposes of a course conducted by the institution (Copyright Act, Part III) .

7.2 Remedies for copyright infringement The following civil remedies are available for a breach of copyright:

• Damages: this consists of an amount of money to compensate the author for any loss suffered as a result of the infringement.

• Injunction: an order to stop or prevent a person from making reproductions.

8. APPLICATION AND CASE STUDIES In this section we will discuss the protection of copyright in relation to computer software and web pages. As engineers you will no doubt make extensive use of the Internet and may possibly be involved in the design and creation of computer software and web pages, especially if you are studying software engineering. The topic is dealt with very briefly here, so it is really very important for you to be aware of the law in this area and to find out more information when you are working.


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8.1 Computer software and copyright Copyright protects computer programmes as ‘literary works’. Copyright prevents someone else from copying the expression of the set of instructions that constitute the programme; it does not protect the function of a computer programme. Therefore, the fact that two computer programmes may perform the same function does not mean that the two sets of instructions are the same or similar.

The author and owner of the copyright is the person who created the software and not the company which publishes it. If a person is commissioned to write a computer programme it is important to have the agreement in writing and to state clearly who the owner of the copyright will be. The duration of copyright protection is the life of the author plus 70 years.

Copyright is infringed if a person deals with the protected material without obtaining permission from the copyright owner, for example making unauthorised copies or selling pirate copies. For computer programmes, permission is required for making a reproduction or adaptation of the programme. If a computer programme is made available commercially, the licence agreement may give the copyright owner’s permission for how the programme may be used.

The purchaser and owner of a computer programme may make a backup copy of the programme for security reasons, for example in case the original is lost or destroyed. However, copies may not be made from an infringed copy of a computer programme.

Case study: Autodesk Inc v Dyason (1992) 173 CLR

The first appellant, Autodesk Inc is a Californian company which owns the copyright in a computer program known as "AutoCAD". The AutoCAD program enables a user to produce drawings which assist in the drafting of architectural and engineering plans and designs. The letters "CAD" in AutoCAD stand for "computer assisted drafting". The second appellant, Autodesk Australia Pty. Ltd., is a Victorian company which is a wholly-owned subsidiary of the first appellant. Autodesk Australia Pty. Ltd. is the exclusive licensee of Autodesk Inc. throughout Australia with respect to its copyright in AutoCAD. AutoCAD is sold by dealers. The purchasers receive a package including a number of disks which contain software in the form of the drafting program. It is easy to make copies of these disks and it would appear that many users do so, if only for replacement purposes should the original disks be damaged. Copying for that purpose is permitted under s 43A of the Copyright Act 1968 (Cth).

Because the disks are easily copied, there is a danger that persons who have not purchased the disks from an AutoCAD dealer may pirate them by making unauthorized copies. To avoid piracy of this kind, the appellants developed a hardware device, called an "AutoCAD lock", without which the AutoCAD program cannot be run. The lock is plugged into the computer, and peripheral devices, such as printers or monitors, are in turn plugged into the lock. Without the lock in place the computer will not run the AutoCAD program, although other programs may be run with the lock in place. A single lock is supplied with each purchase of the AutoCAD package and cannot be purchased separately. The cost


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of an AutoCAD package is approximately $5,200 which includes the price of the AutoCAD lock. Thus, even though a purchaser of AutoCAD might make copies of the disks containing the program, with only one lock he can run only one set of disks at a time. That is the purpose of the AutoCAD lock: to ensure that the purchase of a single AutoCAD package does not result in multiple use of the program.

The third respondent, with the aid of the first and second respondents, after making a close examination of the operation of the AutoCAD lock, designed an alternative device, called an Auto Key lock, which performs the same function as the AutoCAD lock. The Auto Key lock was placed upon the market at a price of about $500.

The High Court allowed the appeal finding that the Auto Key lock infringed the appellants' copyright in the computer program.

Case Study: Microsoft Corporation and Others v Ezy Loans Pty Ltd [2004]

Ezy loans sold and rented second hand computers. They copied Microsoft software onto the computers without obtaining a license from Microsoft. Microsoft subsequently took legal action for the copyright infringement.

The court held that Microsoft’s copyright had been infringed by Ezy loan’s and its directors. An injunction was ordered and damages of more than $500 000 allowed.


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In recent times hacking, decoding, file sharing and mod chipping have all become prominent issues in the area of copyright infringement. The following two cases illustrate some of these issues:

Universal Music Australia v Sharman License Holding Pty Ltd [2005] FCA 1242

In this case the court held that Sharman had authorised copyright infringement by users of its file-sharing software. The court found that Sharman’s warnings to users were ineffective, that they could have adopted technical measures to prevent copyright infringement and had in fact encouraged the practice of file sharing.

Universal Music Australia Pty Ltd v Miyamoto [2004] FCA 982

Similarly, in this case the court ordered a number of disc jockeys, a record company and its director to pay damages to several major record companies for copyright infringement in the preparation/distribution of unauthorised CD’s. The DJ’s had created various recordings of their work which were given away or sold.

8.2 Protecting websites Nowadays websites are used extensively for publishing material, which raises issues of copyright. In general, whole websites are not protected by copyright. However, parts of a website may be protected, such as text, artwork, music, logos and computer software.

If a person is commissioned to design a website, it is wise to have a written agreement about who owns the copyright. Different parts of the website may have a different copyright owner. For example A might be the copyright owner of the artwork and B the copyright owner of the computer software. If there is no written agreement, then the author of the copyright material owns the material and the person who paid for the website to be designed, has the right to use the material. It is also a good idea to make it clear in the agreement who should be able to make changes on the website.

It is an infringement of copyright to use protected copyright material with out the permission of the copyright owner. For example, therefore, if a person intends to use music on the website, copyright permission must be obtained from the copyright owner. This may require obtaining permission from the copyright owner of the lyrics (literary work), the music and the sound recording.

One aspect which needs careful attention is the use of “framing”. This means creating a link to another website in such a way that it is not obvious that the person accessing the page is aware that the page is being viewed from another website. This may not necessarily result in a copyright infringement, but it could lead to a breach of Trade Practice Law for misleading and deceptive conduct.


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9. SUMMARY In this topic we discussed the scope and meaning of copyright. Having studied this topic you should be able to explain what copyright is and how copyright is created. Copyright protects works that originate from the expressive efforts of a writer, composer, artist or other creative person. Copyright gives the exclusive right to copy a particular form of expression such as a book, letter, photograph or drawing. Copyright exists in original works, which means that the work is not simply copied from someone else but is the result of the person’s own efforts. Thus the work does not have to be unique. Copyright comes into existence when the work is published so it does not have to be registered. Copyright can exist in unpublished works if the author was a ‘qualified’ person at the time. A qualified person is one who is an Australian citizen or resident at the time the work was made. You should be aware of what constitutes an infringement of copyright work and what the remedies are for enforcing legal rights.


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TUTORIAL QUESTIONS 1. Define copyright.

2. What are the requirements for copyright protection?

3. What is the significance of ‘originality’ in the context of copyright?

4. When is a work ‘made’?

5. What happens if a company that developed software ceases to exit? Does the software become part of the public domain?

6. Chris develops an enhanced version of an existing computer programme. Does he own the copyright to this programme?

7. Yvette is employed by Kings Digital Pty Ltd. Yvette has developed a comprehensive database of digital photographs of Perth and surrounding areas from which customers can select to design there own calendars, photo galleries, brochures or for other photographic needs. Yvette resigns from the company with the intention of setting up her own business. When she leaves the company she takes a copy of the database with her as she believes that she is the author of the database. Kings Digital insists that Yvette return the copy of the database. She refuses to do this and in order to promote her new business she uploads some of the photographs onto her website in addition to much advertising of her new business “Around Town with Yvette”. What action can Kings Digital take?

8. Chris worked for Fezzari a company that designed, constructed and raced racing cars. Fezzari have built an iconic reputation since 1947 as the most successful and famous racing car company in the world. Chris left to work for another racing car company McClucken. He took with him a copy of a plan for a new racing car that Fezzari was busy designing. He used the plans at the new company to design and manufacture a car before Fezzari could manufacture its car and test it.

(a) Has Chris breached copyright? Discuss. (b) Can copying part of a copyrighted work breach copyright? (c) What remedies are available to Fezzari, if there is a breach of copyright?

TOPIC 9

INTELLECTUAL PROPERTY

PATENTS AND DESIGNS

Topic 9 Intellectual Property: Patents and Designs

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TOPIC OUTCOMES At the end of this topic you will be able to: • Distinguish between designs and patents;

• define a patent;

• outline the requirements for registering a patent;

• explain the meaning of design under the Designs Act;

• explain the requirements for registering a design;

• distinguish between patents and designs;

• discuss infringement and remedies;

• apply the law to a practical problem.


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1. INTRODUCTION And now for the next exciting episode in Intellectual Property law! Did you know that the famous ‘black box’ flight recorder was invented in Australia in 1958 and that the flexible ‘bag in the box’ wine cask was also an Australian invention? In Topic 8 we dealt briefly with the nature of Intellectual Property law and in particular we discussed the intrigues of copyright law. In this topic we will examine the legal protection of patents and designs. Engineers are widely involved in the development and creation of innovative products and processes, which may be protected by the law. Therefore, it is appropriate that you have a basic understanding of what constitutes a patent and a design for the purpose of legal protection, and how the law protects new inventions and designs. We will begin with a discussion on patents and then consider the law relating to designs.

2. PROTECTING PATENTS

Do you recognise any of these?

Lance Hill Australian Patent 215772 lodged 22 March 1956

Source: www.ipaustralia.com.au

Norman Jennings Australian Patent Application 593391 Filed 3 October 1986

Source: www.ipaustralia.com


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The law recognises and protects inventive achievements! Inventions can be protected under the Patents Act 1990 (Cth). So, what is a patent? A patent is an intellectual property right granted for something new that has been invented. A patent can simply be defined as “a grant of monopoly power by the state to an inventor who is given the exclusive right to commercially exploit her or his invention for a limited period of time” (Loughlan, 1998:93). The fact that patents can be granted is an incentive for people to invent things and to invest in research and development which leads to invention and innovation.

3. REQUIREMENTS FOR PROTECTION In order to qualify for protection, a patent must be a “patentable invention”. What you may well ask is this! Section 18 of the Patents Act says that “a patentable invention is an invention that is a manner of manufacture within the meaning of s 6 of the Statute of Monopolies” (a statute enacted in England in 1623!) So much for plain language legislation! Well to keep it simple the following requirements are necessary for protecting an invention. To be a patentable invention it must:

• be a manner of manufacture; • be novel and involve an inventive step; • be useful; and • not have been used secretly in Australia before the priority date. What is meant by ‘manner of manufacture’, ‘novelty’, ‘inventive step’, ‘useful’ and ‘not secretly used’? A brief explanation is all you need for the purpose of this topic.

Manner of manufacture: This covers a new product or substance, or a machine process that can be used for making something. It must be capable of being used in commerce or trade. This implies that not every invention will be a patentable invention. (Gibson & Fraser, 2005:688). It refers to the fact that the object is something capable of being patented. For example, you cannot patent artistic creations, ideas or theories.

Novelty (new): This means that the invention must be something that has not been used previously or known publicly (Patents Act, s 7). To determine if the invention is new it is compared with the “prior art base” – existing knowledge and material. The invention must not have been disclosed to the public in any form, anywhere in the world. For example, if a new invention is published in a scientific journal before registration, it is not new and, therefore, cannot be patented. However, there are some expectations to this requirement. For example, if a new invention is presented to a small group of people (e.g. business group) on a confidential basis. The Act also now allows for a grace period. The grace period provides that inventors can still patent their invention even if it has been disclosed to the public provided they do so within 12 months of the invention being disclosed to the public (http://www.ipaustralia.gov.au/patents).

Inventive step: This requires that the invention must be something new but need not be totally new. Therefore, it is possible to adapt an existing invention to create something new. To be inventive, the invention must not be obvious to someone


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with knowledge and experience in the technical field of the invention (Patents Act, s 7). A recent example of a claim citing a lack of inventive step in patent law occurred in Lockwood Security Products Pty Ltd v Doric Products Pty Ltd [No 2] [2007] HCA 21 where Doric challenged the validity of Lockwood’s patent on a door lock claiming a lack of inventive step.

Usefulness (or utility): The invention must be capable of being used and marketed in trade or commerce. Essentially, to meet this requirement, the invention must do what it says it can do! It must have a functional use.

Not secretly used: If an inventor makes the invention available to the public before applying for a patent, then the invention will be part of the “prior art base” and will not be patentable. For example, in Innovative Agricultural Products Pty Ltd v Cranshaw (1996) 35 IPR 643 the court held that an invention of a new kind of animal feeder had been demonstrated and explained at a farming field day and therefore disclosure about the product was made. The applicant claimed the respondent had infringed a patent of an animal feed dispensing machine. The respondents made a cross-claim that the patent should be revoked because the product was not a “patentable invention”. The application for infringement was dismissed and the patent was revoked.

3.1 Innovation patents The Patents Act has been amended to create a new patent right called the ‘innovation patent’. The aim of the innovation patent is to provide a quick and relatively inexpensive means to protect lower level inventions. To be eligible for protection as an innovation patent, the innovation must be new, that is not disclosed to the public before, it must involve an innovative step, that is involve new knowledge and represent a substantial contribution to the working of the invention. An innovation patent lasts 8 years compared with 20 year for a standard patent.

4. INFRINGEMENT A patent is infringed by any person who exercises any of the patentee’s rights within Australia, without the patentee’s consent. In terms of section 13 of the Patents Act 1990, the patentee has an exclusive right during the term of the patent to exploit the patent (e.g. use it for commercial gains) and to authorise others to use it. The term ‘exploit’ means to use, hire, sell, to dispose of and import the patent.

5. PROTECTING DESIGNS What do these have in common?


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Source: www.ipaustralia.gov.au

A design can be a very valuable commercial asset that is worthy of protection. The Designs Act 2003 (Cth) provides protection for designs. Protecting a design is about protecting the visual appearance of manufactured products. It is about the look of a thing. The law of designs is not concerned about what the product does (how it functions) but about what the product looks like; its visual features. So the car you design might not rate highly on how it drives but it might look sleek and stylish! Numerous designs get registered every year for a wide variety of products from the design of complex gadgets to bed linen and swimsuits.

6. WHAT IS A DESIGN? Unlike a patent, design protection is concerned with appearance. Therefore, a design is the overall appearance of a product. The visual features that form the design include the shape, patterns, configuration and ornamentation that give a product its unique appearance (Designs Act, s 7).

To be registrable a design must be new and distinctive, when it is compared with the “prior art base” of the design. The prior arts base refers to designs that already exit and have been published before the filing date of the application for registration.

What does new mean?

New means that the design has not been published or publicly used in Australia, and it has not been published outside of Australia. For example, a design that is posted on the Internet before registration has been applied for would not be new.

What does distinctive mean?

A design is distinctive if it is substantially different in its overall appearance to other designs already in the public domain. In Ullrich Aluminium Pty Ltd v Dias Aluminium Products Pty Ltd [2006] FCAFC 119 the Court dismissed an appeal that a design was not novel as it was sufficiently different from the “prior art base”.


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Is a chair a chair?

Consider the design of a chair. It is possible to register the design of a chair but it could be quite difficult to come up with something new and distinctive? It was held in D Sebel & Co Ltd v National Art Metal Co Pty Ltd (1966) 10 FLR 24, that when it comes to a chair, with an extensive prior art base, courts cannot expect to find much novelty and originality. However, small difference can be sufficient. In Safe Sport Australia Pty Ltd v Puma Australia Ltd (1985) 5 IPR 120, a case dealing with the design of sporting helmets, it was held that “a small difference in appearance from the prior art base is enough to give novelty” (par 125). Note also Wilson v Hollywood Toys (Australia) Pty Ltd (1996) 34 IPR 293 where the court had to consider whether a toy was an imitation of an existing toy design.

7. WHO IS THE OWNER OF A DESIGN? Section 13 of the Designs Act says that the following persons may be registered as the owner of a design that has not been registered before:

(a) the person who created the design (the designer);

(b) if the designer created the design in the course of employment, or under a contract, with another person—the other person, unless the designer and the other person have agreed to the contrary;

(c) a person who derives title to the design from a person mentioned in paragraph (a) or (b), or by devolution by will or by operation of law;

(d) a person who would, on registration of the design, be entitled to have the exclusive rights in the design assigned to the person;

(e) the legal personal representative of a deceased person mentioned in paragraph (a), (b), (c) or (d).

8. WHAT RIGHTS DOES THE OWNER OF A REGISTERED DESIGN HAVE? If a design is registered it creates certain rights that the designer can enforce by law. The owner has the exclusive right to use the design and authorise others to use it. A registered design is property that can increase in value and be sold.


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Section 10 of the Designs Act provides that the registered owner of a registered design has the exclusive right, during the term of registration:

(a) to make or offer to make a product, in relation to which the design is registered, which embodies the design;

(b) to import such a product into Australia for sale, or for use for the purposes of any trade or business;

(c) to sell, hire or otherwise dispose of, or offer to sell, hire or otherwise dispose of, such a product;

(d) to use such a product in any way for the purposes of any trade or business; and

(e) to keep such a product for the purpose of doing any of the things mentioned in paragraph (c) or (d); and

(f) to authorise another person to do any of the things mentioned in paragraph (a), (b), (c), (d) or (e).

The Designs Act gives the owner of a registered design protection for period of five years from the date the application was filed. The design can be renewed for a further five years. If the design is not renewed the registration ceases and so do the protection and the exclusive use of the design.

9. INFRINGEMENT A registered design is infringed if the infringing design is substantially similar in overall impression to the registered design. Section 71 of the Designs Act states that:

A person infringes a registered design if, during the term of registration of the design, and without the licence or authority of the registered owner of the design, the person:

(a) makes or offers to make a product, in relation to which the design is registered, which embodies a design that is identical to, or substantially similar in overall impression to, the registered design; or

(b) imports such a product into Australia for sale, or for use for the purposes of any trade or business; or

(c) sells, hires or otherwise disposes of, or offers to sell, hire or otherwise dispose of, such a product; or

(d) uses such a product in any way for the purposes of any trade or business; or

(e) keeps such a product for the purpose of doing any of the things mentioned in paragraph (c) or (d).

10. REMEDIES By registering a patent or design certain rights are created which are enforceable by the law. If someone infringes a patent or design, there are various remedies


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available to the owner of the patent or design. The owner can apply to the court for an injunction to stop the infringing conduct and he or she can also apply for damages or an account of profits.

11. SUMMARY In this topic we have focused on the law relating to patents and designs. In studying this unit you should be able to distinguish between a patent and a design, discuss the requirements for registering a patent and design, and know what constitutes an infringement. We have not dealt with the process of registering patents and designs. Registering a patent or a design can be complicated and in the event of you being in a position to apply for registration, you need to see a lawyer who specialises in this area of law. It is not unsurprising that Intellectual property lawyers are amongst the most highly paid of all!


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TUTORIAL QUESTIONS 1. Distinguish between copyright, patents and designs.

2. Explain the significance of novelty and originality for designs.

3. What constitutes an ‘invention’ for the purpose of registering a patent?

4. Jane has obtained a patent for a chemical composition which the specification claims is an effective in the treatment of psoriasis. The composition is a formulation of a number of ingredients which had been known to science for many years prior to Jane’s lodgement of the patent specification. However, the ingredients have never been used before. Jane brings an action against Rob alleging that Rob has infringed his patent. Rob however argues that the patent is invalid, and raises the following arguments:

(a) The patent lacks novelty because of publication. (b) The patent did not include an invention within the meaning of the legislation (c) The invention as claimed in the Patent Specification is not useful. Discuss each of Rob’s arguments.

5. Linda is a graduate student in the Department of Engineering at Curtin University. She has developed a novel technique which has great potential utility in the field of underground mining. Professor Sumner-Dillar, her lecturer, is very impressed with Linda’s work. He suggests to her that she considers doing one or more of the following:

(a) Write up the technique in a paper for publication in a scientific journal. (b) Presents the paper at a seminar to which selected distinguished academics

from other universities will be invited. (c) Presenting a brief talk on the technique to a small group of people from some

of the mining companies. (d) Appear on the “The Biggest Inventor” television program. Assuming that Linda intended to apply for a patent for the technique, which, if any, of the proposals would result in invalidity of the patent?

6. Chris and Gwyneth are graduate students in the Faculty of Science and Engineering at Curtin University. They have been working on an exciting engineering project. They have developed a novel technique to detect gas in underground mines. They have built a prototype of their electronic gas detector.

Discuss how Chris and Gwyneth can protect their intellectual property.

TOPIC 10

EMPLOYMENT LAW

Topic 10 Employment Law

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TOPIC OUTCOMES At the end of this topic you will be able to: • understand the regulatory framework for industrial relations in Australia;

• discuss the rights and duties of employers and employees;

• distinguish between an employee and independent contractor;

• recognise the role of anti-discrimination legislation in the workplace;

• appreciate the role of occupational health and safety legislation in the workplace; and

• understand the scope and role of workers’ compensation.


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1. INTRODUCTION On completing university qualifications students will be entering a very diverse workplace. As with all areas of society, the workplace is regulated by law and workplace relations is governed by a wide range of statutes and agreements. Australia in particular has a long history in enacting ever more complex employment laws with an unusual mix of Commonwealth and state laws! Covering the full breadth of employment law is far beyond the scope of this unit. Therefore, in this topic we will provide a very broad overview of some aspects of employment law. The aspects we will focus on are the system of industrial awards and agreements, the employment relationship, equal opportunity in employment, the importance of occupational health and safety, and workers’ compensation.

2. EMPLOYMENT LAW Employment law is generally concerned with individuals. It is the law pertaining to the relationship between employer and employee at the individual level. The common law of contract is the primary source of law.

Industrial relations law, on the other hand, deals with collective relationships. It regulates the relationship between employers and industrial organisations. Important sources of law include statutory law and industrial awards and agreements.

There are a vast number of Commonwealth (Federal) and State statutes that govern various aspects and areas of employment and the workplace.

Commonwealth

The powers of the Commonwealth to make law are set out in the Constitution Act, in particular section 51. The Commonwealth has used a number of heads of power under section 51 to make law relating to employment and industrial relations. In particular, the corporations power (s 51(20)); external affairs (s 51(29)) and the conciliation and arbitration power (s 51(35)), have been used.

A primary piece of Commonwealth employment legislation is the Workplace Relations Act 1996 (Cth). This is a very comprehensive statute that provides a framework for cooperative workplace relations.

Section 3 of the Act states that the purpose of the Act is to:

• encouraging the pursuit of high employment, improved living standards, low inflation and international competitiveness through higher productivity and a flexible and fair labour market; and

• establishing and maintaining a simplified national system of workplace relations; and

• providing an economically sustainable safety net of minimum wages and conditions for those whose employment is regulated by this Act; and


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• ensuring that, as far as possible, the primary responsibility for determining matters affecting the employment relationship rests with the employer and employees at the workplace or enterprise level; and

• enabling employers and employees to choose the most appropriate form of agreement for their particular circumstances; and

ensuring compliance with minimum standards, industrial instruments and bargaining processes by providing effective means for the investigation and enforcement of:

(i) employee entitlements; and (ii) the rights and obligations of employers and employees, and their

organisations; and • ensuring that awards provide minimum safety net entitlements for

award-reliant employees which are consistent with Australian Fair Pay Commission decisions and which avoid creating disincentives to bargain at the workplace level; and

• establishing a process for making modern awards; and

• supporting harmonious and productive workplace relations by providing flexible mechanisms for the voluntary settlement of disputes; and

• balancing the right to take industrial action for the purposes of collective bargaining at the workplace level with the need to protect the public interest and appropriately deal with illegitimate and unprotected industrial action; and

• ensuring freedom of association, including the rights of employees and employers to join an organisation or association of their choice, or not to join an organisation or association; and

• protecting the competitive position of young people in the labour market, promoting youth employment, youth skills and community standards and assisting in reducing youth unemployment; and

• assisting employees to balance their work and family responsibilities effectively through the development of mutually beneficial work practices with employers; and

• respecting and valuing the diversity of the work force by helping to prevent and eliminate discrimination on the basis of race, colour, sex, sexual preference, age, physical or mental disability, marital status, family responsibilities, pregnancy, religion, political opinion, national extraction or social origin; and

• assisting in giving effect to Australia’s international obligations in relation to labour standards.

Western Australia

In Western Australia industrial relations is largely governed by the Industrial Relations Act 1979. The industrial relations system in Western Australia has been subject to a number of major reforms over the years.


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3. AUSTRALIAN WORKPLACE RELATIONS SYSTEM Australian workplace relations system is a highly regulated system of industrial awards and agreements (Gibson & Fraser, 2005:731), at the Federal and State level.

An award (Federal or State) is a legally binding order made by an industrial tribunal, for the purpose of settling an industrial dispute. An award sets out the rights and obligations of employers and employees, and the minium conditions of employment for employees covered by that award. Matters that can be covered by an award include wages and salaries, hours of work, overtime rates, leave entitlements, superannuation, jury service and dispute resolution procedures. The question of who is bound by an award depends on whether it is a Federal or State award. A Federal award is only binding on those parties who are named in the award or persons who are members of the parties named in the award. State awards generally apply to all the employers and employees engaged in the industries or occupations to which the award relates.

Enterprise, certified or workplace agreements are generic terms for agreements between a particular employer and employees regarding pay and conditions of service that apply to those employees.

3.1 Recent workplace reforms In May 2005 the Howard Government announced a package of new reforms to the workplace relations system known as “Workchoices”. The reforms signal a clear shift away from a decentralised system of workplace relations to a centralised, national system of workplace relations, with the emphasis on individual workplace agreements and a reduction in collective bargaining. Some of the reforms include:

• Establishing the Australian Fair Pay commission to protect the minimum and award classification wages;

• Simplifying the agreement making process;

• Introducing a new national system of workplace relations;

• Exempting business from unfair dismissal law where they have up to 100 employees; and

• Changing the role (Eg. reducing) that of the Australian Industrial Relations Commission (AIRC).

In late 2007 however the Howard Government was defeated in the federal election largely as a result of the unpopularity of the Workchoices legislation. The incoming Rudd Government set about “rolling back” the Workchoices laws although they appeared generally supportive of a wide reaching federal system of workplace laws. The (Australian Workplace Agreement) AWA that was instituted under the Howard Government was banned (although existing AWA’s can continue in some circumstances) and replaced with Interim Temporary Employee Agreements (ITEA’s). In addition, the previous “fairness test” was replaced with the “no disadvantage test” for assessing workplace agreements.


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4. THE EMPLOYMENT CONTRACT The employment relationship is a contractual relationship between the employer and employee. Therefore, the common law and statutory principles governing contract law will also apply to the employment contract. The elements that are necessary to establish a valid contract in the context of employment are (Gibson & Fraser, 2005:735-6):

• The intention to create legal relations • Agreement • Consideration • Capacity • Consent; and • Legality. Refer back to the topic on contract law to revise these elements.

4.1 Employee or independent contractor? When dealing with the employment relationship it is necessary to distinguish between an employee and an independent contractor because of the different legal consequences that flow from each kind of relationship. For example:

• In the case of negligent acts by an employee in the workplace, an employer may be held vicariously liable for the conduct of the employee; while employers are not liable for the negligent acts of independent contractors (see Topic 6).

• Employers are liable for payroll tax and superannuation contributions of employees; while independent contactors are responsible for paying their own tax.

In very general terms an employee works under a contract of service whereas an impendent contractor works under a contract for service. An employee performs the tasks allocated to them by the employer and is subject to the control and direction of the employer. An independent contractor, on the other hand, performs an agreed task for an agreed price. The task must meet the requirements of the employer but the contractor has control over how the task is done and the methods and materials used.

Sometimes it is not easy to determine whether a person is an employee or independent contractor. The courts have developed various tests to help determine the employment relationship. Two main tests used by the courts are the control test and the organisation test. Where the employer has a right to direct what the person does and how the person shall do a task, that person is generally an employee. This is referred to as the control test. Where the person is an integral part of the employer’s organisation that person is an employee. This is referred to as the organisation test. Factors that the court will take into account when applying the tests include the nature of the work, conditions of employment, leave arrangements and office arrangements.


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Case study: Stevens v Brodribb Sawmilling Co. Pty Ltd (1986) 160 CLR 16

A truck driver who carried logs from a forest to a sawmill was injured due to negligence by the person loading the logs onto the truck. The truck driver claimed compensation for his injuries from the sawmill operator for whom the work was being carried out. The sawmill operator claimed that the truck driver and the person loading the logs were independent contractors and not employees.

The Court agreed with this and held that both parties were independent contractors. Although the control test was relevant the court considered the case in its totality and examined a number of factors including the nature and degree of control, who provided the equipment, the hours of work, provision of holidays and sick leave and the method of termination of employment.

4.2 Implied duties in a contract of employment The contract of employment sets out the terms of the employment agreement. There are also implied terms of a contract.

Duties of the employer

• The duty to pay the agreed remuneration. • A duty to provide work. • A duty to take reasonable care to ensure the safety of employees. Duties of an employee

• A duty to obey the employer’s lawful and reasonable instructions. • A duty to work in a skilful and competent manner. • A duty to hand over inventions made during the course of employment. • A duty to disclose information that is relevant to the employer. • A duty to maintain confidentiality.

4.3 Termination The employment relationship is contractual and therefore it can be terminated in the same way as a normal contract. Ways in which an employment contract can be terminated include:

• Termination by notice: the employee must terminate the contract according to the terms of the contract. If the contract is for an indefinite period and no time is stated, the employee must give reasonable notice.

• Termination without notice: if an employer terminates without notice this amounts to ‘summary dismissal’, which may be a breach of the contract. Summary dismissal is serious and the employer must be able to show that the conduct of the employee was of such a nature that summary dismissal was necessary.


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• Redundancy: termination on the basis of redundancy generally occurs as a result of economic factors. The employer must give proper notice in accordance with the contract. The employee is also generally entitled to a severance payment.

• Dismissal: an employee may be dismissed for a breach of contract. The employer is required to follow proper procedures when dismissing an employee. The reasons for dismissing an employee must be lawful and the manner in which the employee is dismissed must be done according to proper procedures. The Workplace Relations Act list a number of reasons for terminating employment that are unlawful that include: temporary absence from work due to illness; acting as an employee’s representative and membership or non-membership of a union.

• Sale of a business: the purchaser of the business will not necessarily retain exiting staff and contracts between the seller (previous owner) and employees may be terminated.

5. EQUAL OPPORTUNITY LEGISLATION The workplace environment is also governed by a range of legislation that is aimed at ensuring equal opportunity and eliminating discrimination in the workplace. There is both Federal and State anti-discriminatory legislation.

Key anti-discriminatory legislation

Human Rights and Equal Opportunity Act 1986 (Cth)

This Act sets out the grounds on which complainants of discrimination in employment can be made to the Human Rights and Equal Opportunity Commission.

Racial Discrimination Act 1975 (Cth)

This Act generally makes it unlawful to discriminate against a person on the grounds of race, colour, descent, national or ethnic origin. Racial harassment is also unlawful.

Sex discrimination Act 1984 (Cth)

It is unlawful to discriminate against a person on the grounds of sex, marital status, pregnancy or family responsibility. Sexual harassment is also unlawful.

Disability Discrimination Act 1992 (Cth)

The Act makes it generally unlawful to discriminate against a person on the grounds of disability.

Age Discrimination Act 2004 (Cth)

The Act makes it generally unlawful to discriminate against a person on the grounds of age.

Equal Opportunity Act 1984 (WA)

This Act is state anti-discrimination legislation that applies in Western Australia. It makes is unlawful to discriminate on several grounds including race, sex, religious and political conviction and sexual orientation.

5.1 What is discrimination? There are two broad categories of discrimination, direct discrimination and indirect discrimination.


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Direct discrimination is treatment that is clearly unfair. This occurs when a person is treated less favourably than another person clearly on the grounds that a person belongs to a particular category. For example, if an employer refuses to employ a person because of the person’s age, sexual orientation or ethnic background.

Indirect discrimination is less obvious and occurs when a requirement is applied to all groups but has an unequal or disproportionate impact on a particular group. For example, if an employment policy imposes a height requirement for job applicants, that may indirectly discriminate against women. For example, in a case in the United States, an American court held that Ms Rawlinson had been unfairly discriminated against on the grounds that the Alabama Board of Corrections (the employer) required that all applicants for the position of a prison guard be at least 5 feet 2 inches tall and 120 pounds in weight. Ms Rawlinson who had studied correctional psychology did not meet the requirements. Evidence indicated that a combination of the height and weight requirements excluded 41.13% of the female population but only 1% of the male population (Dothard v Rawlinson 433 US 321 (1977)).

5.2 Grounds for discrimination Anti-discriminatory legislation provides a range of grounds that constitute discrimination. These include:

• Sexual discrimination; • Marital status; • Race; • Gender; • Sexual orientation; • Disability; • Age; and • Ethnic origin. Sexual harassment

Under anti-discriminatory legislation harassment may be described as unwelcome and unsolicited behaviour that would offend or humiliate a person on one of the grounds of discrimination.

Sexual harassment may be described as an unwelcome sexual advance, or an unwelcome request for sexual favours, or unwelcome conduct of a sexual nature, where in the circumstances, a reasonable person would have anticipated that the other person would be offended, humiliated or intimidated (s 28A Sex Discrimination Act 1984 (Cth)). Conduct of a sexual nature includes making a statement of a sexual nature to a person, or in the presence of a person, whether the statement is made orally or in writing.

Types of behaviour that can amount to sexual harassment include:

• offensive comments; • unwelcome physical contact;


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• sexual jokes and offensive posters’ • offensive gestures; and • sexual propositions or persistent requests for dates.

5.3 Discrimination in employment Discrimination in employment against any of the targeted groups is unlawful. In the employment context, it is generally unlawful to discriminate against a person when deciding, for example, who should be offered employment, the terms of employment offered and access to benefits such as training and promotion.

There are some exceptions to discrimination. Discrimination would not be unlawful in certain circumstances because of certain exceptions and exemptions that are provided for in the legislation. For example, where there is a genuine occupational qualification requirement. Generally it is not unlawful to discriminate against a person on the ground of a disability or impairment if the person is unable to carry out the inherent requirements of their job.

Case study: C & Ors v Australian Telecommunications Corporation (1992) EOC 92-437

Telecom was found to have discriminated against three female applicants for engineering cadetships in the manner in which their selection interviews were conducted. The Human Rights Equal Opportunity Commission found that the women were asked intimidating questions. One of the questions asked of the female applicants was how they felt about working in a male dominated area. It was also found that two senior male engineers who conducted the interviews failed to implement Telecom’s guidelines for interviews involving female applicants. The women were awarded a total of $13,000.

Case study: Just in case you have a baby!

In Wardley v Ansett Transport Industries (Operations) 1984 EOC 92-002, a prospective employer refused to offer a woman employment as a trainee pilot because of the possibility of absences due to pregnancy or childbirth. It was held to be discrimination on the grounds of sex.

6. OCCUPATIONAL, HEALTH AND SAFEY Occupational healthy and safety is a vital aspect of the workplace. Employers and employees have rights and responsibilities in ensuring that the workplace is a safe and healthy working environment.

In Western Australia, the Occupational Safety and Health Act (1984) (OSHA) provides the legislative framework for providing and maintaining a safe and healthy working environment. The OSHA describes the duties, functions and responsibilities of all the people involved in safety and health in the workplace.

The objects of the OSHA include to:


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• promote and secure the safety and health of person at work;

• protect persons at work against hazards;

• assist in securing safe and hygienic work environments;

• reduce, eliminate and control hazards to which person are exposed at work;

• foster co-operation and consultation between employers and employees;

• provide for the formulation of occupational health and safety policies; and

• promote education and community awareness on matters relating to occupational health and safety.

6.1 Duties of employers In addition to the general duty to provide and maintain a safe work environment, employers have a number of specific obligations under the OSHA (s 19 and s 23). These are to:

• provide and maintain workplace plants and systems of work so that employees are not exposed to hazards;

• provide such necessary information, instruction and training to and supervision of employees so that employees can perform their work in a manner that they are not exposed to hazards;

• provide employees with adequate personal protective clothing and safety equipment;

• make arrangements to ensure the use, cleaning, maintenance, transportation and disposal of plant substances in the workplace is carried out in a manner that employees are not exposed to hazards;

• ensure the handling, process, storage, transportation and disposal of substances in the workplace is carried out in a manner that employees are not exposed to hazards; and

• immediately notify the Commissioner of Worksafe Western Australia if an employee at a workplace suffers an injury that results in death or an injury of a kind that is prescribed in the Regulations, such as a skull fracture or broken bones.

An employer who fails to comply with the obligations commits an offence and is liable to a fine of $500,000 and if it is a subsequent breach up to $625,000.

Case study: Dallas v P & M Denton Building Constructions Pty Ltd [2003] NSWSC 8333

A 22-year old carpenter was part of a team of construction workers erecting the roof of a residential home. While he was putting a roof truss in place, the truss he was sitting on fell over. He rolled backwards and fell 4.3m to the concrete floor below. He suffered a spinal injury that made him a paraplegic. The carpenter sued his employer in negligence. The employer admitted liability. The company was fined $26,000 for failing to provide fall protection. On the negligence claim, the court assessed the damages at $2,666,000 and after deducting the workers’


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compensation payments that had already been paid out, he was awarded $2,423,000.

Case study: Record fine

Goldfields Contractors WA Pty Ltd was convicted and fined $150,000 for breaching the Occupational Saftey and Health Act 1984 (WA) that resulted in the death of one electrical worker and the serious injury of another. The workers were employed by Hermans and Rossi Electrical Contractors Pty Ltd that had been installing street lights. Goldfields was the main contractor and in control of the site. The fatality occurred when a 12.5 m steel pole was raised by a crane and made contact with overhead powerlines. Goldfields had a safety manual that included safe work procedures for work near overhead powerlines. However, the policy and procedures had not been given to Hermans and Rossi, or its employees. Goldfields had not taken any steps to ensure procedures were followed and had also failed to advise Western Power of the work (OHS Alert, 18 February 2005 Issue 1).

6.2 Rights and duties of employees An employee also has a responsibility to take reasonable care of their own safety and to avoid adversely affecting the health and safety of others in the workplace.

Employees have obligations to (s 20):

• cooperate with the employer to ensure that the workplace is safe;

• comply with instructions given by the employer;

• use personal protective clothing and equipment that is provided by the employer; and

• report potential hazards, accidents and critical incidents to the employer. An employee who does not comply with the obligations commits an offence and is liable to a fine of $10,000. Moreover, if an employee fails to comply with the duties prescribed and as a result of the contravention causes the death of, or serious harm to, any person commits an offence and is liable to a fine of $20,000.

Employees have rights under the OSHA which include to:

• be represented by a safety and health committee;

• request the establishment of a health and safety committee;

• be informed on matters of health and safety;

• participate in setting up safe standards and practices in the workplace; and


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• refuse to undertake work if they have reasonable grounds to believe that to work would expose them or others to a risk of imminent danger and serious injury or harm to health.

Case study: Putting the brakes on employers

A mechanic told a truck driver working on a casual basis for Boylan Distribution Services Pty Ltd (Vic) that his truck’s brakes needed fixing, so the driver went home believing the truck was unsafe to drive. When the truck driver returned the next day, he was told he was not needed because he refused to drive for safety reasons. The employer was prosecuted. The Court held that employees should be able to raise safety issues and not be abused for doing to. The offence was held to be serious and the employer was fined $30,000 (OHS Alert 13 October 2003 Issue 9 page 11).

7. WORKERS’ COMPENSATION Workers’ compensation is a form of insurance that covers workers in the workplace, which is intended to compensate employees for injuries (including illness) sustained at work. The definition of “worker” in the Workers Compensation and Rehabilitation Act 1981 (WA) is very broad and incudes full-time, part-time, sessional and casual workers.

Workers’ compensation schemes are no-fault schemes of liability. This means that an injured worker will invariable be compensated for a work-related injury irrespective of whose fault it is (Gibson & Fraser, 2005).

Gibson and Fraser (2005:747) note the following matters that are important in determining if an injury is covered by the workers’ compensation legislation:

• In the course of employment. The employee must be able to show a connection between the employment and the injury.

• Acts outside the course of employment. Employees who are injured during activities outside the scope of their employment contract are generally unable to recover workers’ compensation.

• Injury at the place of employment. Place of employment is defined broadly and includes workplace premises, works, plant or place that is occupied or under the control of the employer.

• Injuries during lunch or other recess. If an employee is injured during a lunch break or other recess period, the employee will be covered by compensation if the lunch or recess is taken within the guidelines set down by the employer. However, if the employee is injured during lunch or a recess while doing something unconnected to their employment, the employee may not be covered by workers’ compensation.

• Protected journeys. Employees are covered by workers compensation when undertaking certain journeys that are connect to their employment. For


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example, driving to and from work and journeys to and from work related activities such as meetings and training.

8. SUMMARY In this topic we have touched on a few very important legal issues relating to the area of employment. One of the most important contracts that you will enter into is an employment contract! It is important for you to know and understand your rights and responsibilities under an employment contract and to be familiar with any industrial awards or agreements that may apply to the industry in which you work. Moreover, whether you are an employee or become the employer you need to know what your rights and responsibilities are in terms of working in a safe environment. From some of the case studies you will realise that the consequences of failing to comply with safety requirements may be very severe.


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TUTORIAL QUESTIONS 1. What is the legal basis of the employee-employer relationship?

2. A delivery driver who transported chocolates from a factory to a shopping centre was injured due to the negligence of the person loading the chocolate onto the van. The delivery driver claimed compensation for his injuries from the shopping centre owners for whom the work was being done. The shopping centre owners argued that the delivery driver was an independent contractor and not an employee.

(a) What is the difference between an employee and independent contractor? (b) Do you think the delivery driver is an employee or independent contractor?

What factors would the court take into account?

3. An employee has a duty to work in a competent manner. What is meant by the phrase ‘work in a competent manner’? Give examples of an employee who may not

4. What are the common law duties of an employer?

be working in a competent manner.

5. You are working as an engineer for a large industrial corporation. You work as part of the design team who has designed and invented a new conveyor belt system for use in the mining sector. What are the rights and duties of the employee engineer in terms of this design and invention?

6. Ms Diva works for Naval Criminal Investigations as a special agent. Several male co-workers made sexist remarks, displayed material of a sexually offensive nature in her work area and refused to recognise her technical expertise. She also received offensive emails from one of her male colleagues Mr Di Spoza. Ms Diva reported this conduct to her manager, Agent Dibbs who failed to take any action.

(a) Do you think Ms Diva has been discriminated against? Discuss. (b) Is an employer liable for failing to take steps to prevent discriminatory

conduct?

7. At the premises of a manufacture of aluminium racing car chassis, a welder was assisting a painter employed by a contractor to prepare an aluminium chassis for painting. The welder, while holding a lit cigarette, went to fetch a drill from another room. The welder threw the cigarette on the floor and stamped it. Because of spillage of paint thinner on the floor, the cigarette flamed up and kept reigniting. When the welder tried to remove his burning boot an explosion occurred and the fire engulfed him. The welder was seriously burned, the factory was extensively damaged and the painter was exposed to serious risk of injury.

(a) Who is liable for the injury and damage caused?


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(b) On what grounds could the boat manufacturer be liable?

Contract Law

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