semester notes btf1010

8/9/2019 Semester Notes BTF1010

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01/02/2015

Chapter 1: The Australian Legal System Business Law

The study of business involves learning about how to deal with the risk and

uncertainty. Competitive risk is basically the risk taken on by a business when they produce a

product as their product could become inferior or obsolete if a better product is produced by

another business. This is the risk that lies at the heart of the market and cannot be removed

without changing the system.

Economics has shown that encouraging competitive risk is a way to improve

economic wellbeing of people. It encourages producers to constantly improve products,

prices and services.

The role of law is to ensure that the risks taken on by a business are competitive risks

not systematic risks that are capable of threatening the entire business industry. The law

provides a systematic framework within which the competitive risk is played out.

Two fundamental examples of systemic risk are business producing products that

cause harm, and businesses failing to honour their promises. Product liability laws (which

deal with harmful people) and contract laws (which deals with promises).

Rule of Law

The rule of law means the opposite of the arbitrary government. The law applies to

everyone, equally and it is predictable. The law should not discriminate in favour of one

group of citizens. The law ensures a system of stable rules which enables businesses to plan

for the future.

Law

Law is any rule that a court of law will enforce. The courts apply or reject a suggested

law on the basis of its source. There are two sources which are capable of providing legally

enforceable rules: parliament (statue law) and the courts (judge-made law).

Federalism

In Australia, power of making binding laws is divided between the Commonwealth

Parliament and the various state parliaments. The relationships between the Commonwealth

and the various states of Australia is governed by the provisions of the Constitution Act. This relationship is called federalism, meaning that the states retain all those powers

that have not been specifically handed over to the Commonwealth Parliament. The

Commonwealth Parliament may only make laws regarding the follows:

1. Those matters set out in the Constitution, primarily s 51; or

2. Matters which are necessarily incidental to the matters set out in the Constitution Act; or

3. Those matters which have been referred to the Commonwealth by the states.

If the Commonwealth Parliament attempts to pass a law that is beyond its power, such

a law is unconstitutional and of no effect.


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There are certain areas where the Commonwealth and state parliament have

concurrent powers. Each make laws with respect to matters covered by these concurrent

powers. However, if there is a conflict between the federal law and state law, the federal law

shall prevail: Commonwealth Constitution s 109.

A law passed by the parliament whether state or federal is called the Act of

Parliament. Acts are also called statues and the body of law that comes from parliament is

called statutory law or legislation.

Jurisdictional Difficulties Under Federalism

An example of legislative complications that can arise out of federal systems is company law.

Enhancement of the Commonwealth’s powers can only take place through a referendum but

referendum’s are usually costly and unlikely to be successful.

The Competition and Consumer Act

Commonwealth Parliament passed the Trade Practices Act 1974 (now called the Competition

and Consumer Act). It affected the following areas:

1. Advertising and promotional activities

2. Sale of goods to consumers

3. Providing services to consumers

4. Liability for defective products

5. Price fixing and other anti-competitive agreements between competitors; and

6. Distribution of goods

However, the Commonwealth does not have the power to respect all advertising etc. so there

had to be broad laws made that needed to be covered by the State Parliaments to make sure

the Sole Traders were covered.

Business Name Registration

Commonwealth Parliament now maintains an all Australia business name register where the

business owners register their business and their names. This power was designated to the

Commonwealth Parliament by the State Parliaments to make the task easier and less tedious.

Chapter 2: Liability for Defective ProductsLiability for Negligence

Negligence is a tort – a civil wrong recognised by courts which entitles the injured person to

compensation (called damages) – further examples include, trespass, assault, defamation and

nuisance. In the early days, any damage suffered by the consumer or buyer of a product could

only be taken up to the seller. If the seller wasn’t the manufacturer then the manufacturer

could not be sold. The only exception to this was if the manufacturer was dangerous and the

manufacturer was aware of this fact. In this case, the manufacturer was regarded as being

fraudulent. Gradually, more and more products being produced were pre-packaged and hence

left little or no room for the retailer to intervene and then arose the needs to perhaps apply

liability to the manufacturer for his negligence. The law needed to be fair and not too severe

to drive off manufacturers from producing goods.

• Donoghue v Stevenson


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Facts: Stevenson manufactured soft drinks which were sold in dark opaque

bottles. Donoghue’s friend bought her a bottle of Stevenson’s soft drink from a

retailer. Donoghue drank some and found remains of decomposing snail. She

suffered shock and gastroenteritis. As she didn’t buy the drink her self, she could

not sue the retailer for breach of contract. She sued Stevenson for the tort of

negligence. Stevenson argued that there was no duty of care owed by him to Donoghue as there was no contract between them.

Issue: Does a manufacturer like Stevenson owe a duty of care under the law to

those injured by his products and under which circumstance?

Decision: House of Lords – liability for negligence did not depend on a contract.

A manufacturer who sold a product such as a sealed bottle of soft drink in which

there was no need for intermediate examination owed a duty of care to its

consumers to take reasonable care in its production because it was reasonably

foreseeable that if such care was not taken, the consumer could be injured.

The application of liability is not only limited to manufacturers but also other

professions.

Insurance Industry Reforms

Insurance companies argued that the law had become over protective and that the

rates of insurance payouts were rising alarmingly. The Australian states and territories

enacted legislation that allowed the restriction of the amount of damaged by imposing caps

for an example.

Elements of a Negligence Action

There are three separate elements that must be proved in a negligence claim. Although

the elements are separate for the purpose of the claim, they are all conceptually related. There

are also a number of defences that can be argued by a defendant.

(1) The Duty: Did the defendant owe the plaintiff a duty to take reasonable care and

avoid the injury that occurred.

The house of lords made it very clear that no matter how negligent the person is

(manufacturer or otherwise) they do not owe a duty of care to everyone.

Reasonable care must be taken to ensure that acts or omissions which are

reasonably foreseeably likely to injure your neighbour are avoided. The neighbour

is then someone who is so closely and directly affected but when the manufacturer

or otherwise was thinking of taking action they could have seen them getting

damaged. The test for duty of care is not just of reasonable foreseeability but alsoof the plaintiff’s ability to exercise personal responsibility. The question whether a

duty of care exists is a decision of law and hence decided by the judge not the

jury.

• Grant v Australian Knitting Mills Ltd

Facts: Dr. Grant suffers severe dermatitis after wearing some underwear

manufacturer by AKM. This was caused because of the presence of excess

sulphites which are harmful to the skin. They were supposed to be washed out

before that process was completed. Dr. Grant did not wash the underwear and

sued AKM for negligence. He also sued the retailer for breach of contract. Issue: Does AKM owe a duty of care to Dr. Grant?


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Decision: There was a duty of care that was owed by AKM because they had not

taken the reasonable care in avoiding the sulphites.

(2) The Breach: Did the defendant fail to exercise the required standard of care?

(3) The Damage: Were the plaintiff’s losses caused by the defendant’s negligence and

were the losses reasonably foreseeable?

Manufacturers also owe a duty in appropriate circumstances to the innocent

bystanders. It is not important that the precise injury be reasonably foreseeable but just the

fact that injury (or event) was foreseeable is enough. The injury or event must be fanciful or

far fetched.

There is a duty of care owed by the distributors of the products to customers, end

users and bystanders who are injured by the products they sell:

•

McPhersons Ltd v Eaton McPhersons was a large hardware retail outlet which sold millboards containing

asbestos. McPhersons purchased the millboards from manufacturers. Mr Eaton

was employed by the company that used these millboards in the construction of

heater boxes used in air conditioning. Mr Eaton’s job required him to cut the

millboard and work with the pieces. He died as a result of exposure to asbestos.

His widow sued McPhersons as they were liable for the damages suffered by Mr

Eaton on the basis that a vendor of retail goods owed a general duty of care to

the public. According to the tribunal McPhersons ought to have known of the

danger of asbestos and failed to warn its customers.

Issue: Does a retailer owe duty of care for the products it sells and under what

circumstance?

Decision: NWS Court of Appeal held that a vendor does not automatically owe a

duty of care to purchasers and end users. The circumstance on which the

establishment of duty is based on the nature of the good and the level of risk. In

this case, the issue was if the vendor knew of the dangers of asbestos inhalation

and that the cutting of millboards might release fatal quantities of asbestos.

Duty of care owed by service providers such as repairers and installers is treated in

the same way as manufacturers. In Stennett v Hancock and Peters, a repairer was liable to a

pedestrian who was injured when a wheel came off a vehicle repaired by the defendant.

Duty of care owed by property owners:

• Australian Safeway Stores Pty Ltd v Zalzuna

Facts: Zalzuna owed a supermarket owned by Safeway. The day was rainy and

the supermarket was covered with vinyl tiles. Owing to the number of customers

that had entered the premises, the floor was wet and slippery. Zalzuna slipped

and was severely injured. She sued Safeway but Safeway argued that no duty of

care was owed in the circumstance.

Issue: Does a retailer owe a duty to its customers to take reasonable care to not

injure them when on the retailer’s premise?


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Decision: The normal rules of negligence applied to the case of property owners

and the persons injured on the property. Safeway was operating a store. Zalzuna

was a customer. The relationship between Safeway and Zalzuna satisfied the

neighbour test for duty set out in D v S. Therefore, Safeway owed a duty to

Zalzuna to take reasonable care to avoid foreseeable risk of injury to Zalzuna.

Where the harm is caused by a failure to control the actions of third parties, it will be

difficult to establish a duty of care.

Duty of care owed by road users is the most common use of tort of negligence. All

road users have a duty of care to take reasonable care not to cause foreseeable injury.

Duty of care – Failing to Act – In general there is no duty of care to protect another

human being from harm. A duty may arise when there is a special relationship between the

plaintiff and the defendant. The doctor of a patient who has HIV is under the duty to inform

the patient’s partner of their condition despite the fact that the partner is not a patient of the

doctors. Also, generally there is no duty to control a person from inflicting harm upon

another person, unless the defendant is in control of the perpetrator such as parents.

• Modbury Triangle Shopping Centre Pty Ltd v Anzil

Facts: Modbury owned a shopping centre called ‘The Centre’ in Adelaide. Anzil

was employed as a manager by Focus Video which leased premises in The

Centre. The Centre has a large outdoor area for car parking. The video shop

faced the car park. Nearby there were all-hours automatic teller machines. The

lights went out at 10 pm and Anzil closed the store and walked to his car at about

10.30 pm where he was attacked by three unknown men and suffered serious

injuries. Anzil sued Modbury for damages Issue: Does a property owner owe a duty of care to those injured on its property

by the deliberate acts of third person?

Decision: In general, there is no duty to control persons from inflicting harm

upon others. This general rule maybe displaced where there is a high degree of

certainty that harm will follow from a lack of action. In this case, however, there

was no such degree of certainty. Therefore, Modbury was not liable.

• Club Italia (Geelong) Inc v Ritchie

Facts: Club Italia was conducting a debutante ball. Some of the patrons were

drinking heavily and looking for trouble. A man called Holton and his groupseemed to be the source of most problems. The club called the police and two

officers walked in. As the night progressed Holton became more and more

aggressive and consumed more alcohol. There was a huge brawl and the police

were called in. One of the police officers was Ritchie, the plaintiff. The police

were not told that the situation deteriorated into a brawl. When they arrived they

were attacked and Ritchie was seriously injured. More police arrived and four

officers were taken to the hospital. Ritchie sued the club for negligence.

Issue: Should a duty of care be applied to Club Italia?


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Decision: Holton was under the control of the Club to some degree. He was

allowed to misbehave, out of control, when he should have been kept under

control by the Club who has invited him there for the purpose of the business. It

also continued to sell liquor to the patrons.

• Jaensch v Coffey

Facts: Mr Coffey was seriously injured in a road accident caused by Jaensch. He

was taken to the hospital, Mrs Coffey did not witness the accident but she suffered

psychiatric trauma (anxiety and depression) as a result in part from seeing her

husband in the hospital and in part because of what she was told about the

injuries and prognosis. She sued Jaensch for negligence.

Issue: Did Jaensch owe a duty of care to Mrs Coffey to avoid causing

psychological harm?

Decision: The court decided in favour of Mrs Coffey.

• Tame v New South WalesFacts: After a car accident for which she was not to be blamed Mrs Tame was

required to take a blood alcohol test. She had no alcohol in her system but the

police officer by mistake made a note that her reading was 0.14. This is a very

high alcohol reading and was corrected a month later. But during that time Mrs

Tame developed a psychotic depressive state. She sued the police officer and the

state of NSW.

Issue: Did the police officer owe a duty of care?

Decision: They did not owe a duty of care because firstly, a duty to protect from

emotional disturbance and possible psychiatric illness was incompatible with a

police officer’s duty to make a report of incidents and investigations. Further itwas not reasonably foreseeable that a person in the position of Mrs Tame would

sustain a recognisable psychiatric illness from a clerical error that had been

identified quickly.

• Annett V Australian Stations Pty Limited

Facts: James Annett was 16 when he started working as a jackaroo on the

defendant’s cattle farm. James mother was told by the defendant that he would be

under constant supervision. However, seven weeks after arriving at the

defendant’s property, James was sent to work alone at a remote property. Some

time later, the Annett’s were informed that James had disappeared. Five monthslater they were informed that a body had been found in the desert. James had died

from dehydration, exhaustion and hypothermia when his car got bogged down.

Both the parents suffered from psychiatric injury. They claimed damages against

the defendant.

Issue: Did the Australian Stations owe a duty of care to not cause mental pain

and injury?

Decision: The court held that the defendant owed a duty of care to the parents. In

deciding that the defendant owed a duty of care to the Annett to avoid inflicting

mental injury the court rejected the notions that the shock had to be sudden or

that there had to be a close physical connection between the incident giving rise

to the psychiatric injury and the suffering of the injury.


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Duty of Care – The difficult issue of pure economic loss

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