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LAWS13015 PRINCIPLES OF COMMERCIAL LAW

Study Guide Week 1

Version 2.02 - 2016

From the Course Coordinator

Welcome to LAWS13015 Principles of Commercial Law. The course does not attempt to cover every aspect of Commercial Law and nor is it cluttered with detailed rules. Instead the approach is a principled one designed to give you an understanding of the basic features of each of the chosen Topics.

A good understanding of the basic features will enable you to identify solutions to problems you are likely to face in practice. In a sense you are being trained to be expert in diagnostics; to be able to accurately identify the problem and the remedy.

As you will see, from this perspective Bailment is a good place to begin.

The Study Guides for each week include lecture Notes for each Topic and I generally refer to these documents as the Notes. These are a best starting point, before then extending your reading.

The Study Guide for this week contains a lot of vital information about the course, which is not repeated in subsequent Notes. The information under the heading Syllabus is essential reading.

Dr Christopher Walshaw

I welcome your feedback and suggestions for future content. You can email me at [email protected] Walshaw, Course coordinator, Principles of Commercial Law

Discipline of Law School of Business and LawCQUniversity AustraliaBruce Highway, Rockhampton, QLD 4701

Telephone: +61 07 49 23 2741Facebook: https://www. facebook .com/ CQU-Law - 192901937531609/iTunesU: Colleges and Universities> CQUniversityWebsite: http://www.cqu.edu.au/law

LAWS 13015 Principles of Commercial Law: Study Guide Week 1 2016

http://www.cqu.edu.au/law

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CONTENTS SYLLABUS 1

Introduction 1

Course Learning Outcomes 1

Prescribed Textbook 1

Reference Reading 1

Assessment Tasks 1

Scheme of Work 3

Tutorials 4

BAILMENTS 5

1 PREVIEW 5

1.1 Objectives 5

1.2 Prescribed Reading 6

1.3 Reference Reading 6

1.4 Key Terms 6

2 CHARACTERISTICS AND CREATION OF A BAILMENT 6

2.1 Bailment or license 7

2.2 Bailment or sale and trust 9

2.3 Bailment or Employment Contract or Independent Contractor 10

2.4 Effect of the Personal Property Securities Act 2009 (Cth) 10

2.5 Return of the goods 10

2.6 Classification 11

2.7 Activity 1 11

3 DUTIES OF A BAILEE 11

3.1 Activity 2 13

4 LIABILITY OF BAILEE FOR EMPLOYEES AND AGENTS 13

5 EXCLUSION OF LIABILITY AND STATUTORY RESPONSES 13

6 DUTIES OF A BAILOR 15

7 HIRE OF GOODS 16

8 TERMINATION OF BAILMENTS 17

9 RIGHTS AGAINST THIRD PARTIES 17

10 SPECIAL TYPES OF BAILEE 17

10.1 Common carriers 17

10.2 Private carriers 19

10.3 Innkeepers 19

LAWS 13015 Principles of Commercial Law: Study Guide Week 1 2016 i

10.4 Activity 3 20

11 REVIEW 22

11.1 Tutorial problems 22

11.2 Debrief 22

LAWS 13015 Principles of Commercial Law: Study Guide Week 1 2016 ii

SYLLABUS

Introduction

This optional course builds upon knowledge acquired in Contracts A and Contracts B and applies the statutory framework applicable to commercial and consumer contracts particularly the Sale of Goods Acts of the Australian States and Territories and relevant provisions of the Australian Consumer Law. Commercial law is essentially concerned with personal property and therefore may also include an examination of agency, intellectual property, bailment, consumer credit, and insurance.

Course Learning Outcomes

On successful completion of this course, you will be able to:

1. Comprehend and apply the fundamental concepts of domestic and international commercial law.

2. Demonstrate proficient legal research skills to accurately identify issues and compose solutions in respect of commercial law problems.

3. Critically evaluate case law and legislation in constructing coherent, logical and creative answers to commercial law problems, including identifying obligations, rights and remedies.

Prescribed Textbook

Clive Turner and John Trone, Australian Commercial Law (30th ed, 2015). This large book is essential and is regulary refrenced in these Notes as Turner. It is a Queensland book but the authors have been careful to reference Commonwealth law and the laws of other States and Territories. This edition is essential and was used last year so there may be second hand copies available.

Websites that appear throughout the Notes.

Reference Reading

Shane Davenport and David Parker, Business and Law in Australia (1st ed, 2012).

Dilan Thampapillai and others, Australian Commercial Law (1st ed, 2015).

Assessment Tasks

Assessment OneAssessment One is designed to test your understanding of commercial law concepts relevant to Weeks 1 to 5 (inclusive). Immediately following Week 5 a topic for an essay will be posted, due at the end of Week 6. The maximum word count is 2,000 words, excluding references. You submit one document in PDF format to Moodle. Assessment criteria and marking rubric appear below.

Posted 11 April 2016 at 11.00 (AEST).

Due date 22 April 2016 at 20.00 (AEST).

Return date 6 May 2016.

Weighting of 40% for the course.

LAWS 13015 Principles of Commercial Law: Study Guide Week 1 2016 3

Assessment Criteria

1. Demonstrate a sound understanding of commercial law concepts relevant to Weeks 1 to 5 (inclusive).

2. Demonstrate an ability to identify and address the particular matters raised in the set Topic.

3. Apply appropriate and professional written language skills.

4. Demonstrate analytical, problem solving and critical thinking skills.

Rubric for marking

The benchmark for each criterion includes each of the benchmark levels before it, for example to achieve a distinction you also need to meet the criteria for a credit and pass.

Students must achieve ALL the minimum benchmark criteria at a particular grade level to be awarded an overall final grade at that level. Marks are not divided among each individual criterion, but are benchmarked to minimum standards.

Pass 20 - 25

Identified a theme relevant to the essay topic and addressed that theme with reference to at least one of the commercial law concepts. Basic understanding and confidence. Limited written language skills. Limited research.

Credit 26 - 29

Good presentation and moderate written language skills. Moderate research. Moderate development of the theme indicated by the essay Topic. Demonstrates some understanding of, and confidence with, the commercial law materials.

Distinction 30-33

Superior presentation and written language skills. Good and interesting development of a theme relevant to the essay topic. Demonstrates good understanding of, and confidence with, the commercial law materials. Demonstrates analytical skills and critical thinking. Demonstrates a willingness and ability to form and express an independent point of view, supported by relevant materials and research.

High Distinction 34 -40

Exemplary standard of presentation and written language skills comparable to publishable articles and judgments referred to in the course. Superior understanding, confidence, analytical skills and critical thinking. Demonstrates clearly an ability to think independently. Superior research, supported by relevant materials.

Assessment TwoAssessment Two is designed to test your understanding of commercial law concepts and your ability to solve commercial law problems relevant to Weeks 6 to 11 (inclusive). Immediately following Week 11 a document will be posted, containing three compulsory problem questions.

Each of the three questions has a weighting of 20%, hence 60% total for the course. The maximum word count for each answer is 1,000 words, excluding references. You submit one document in PDF format to Moodle by due date. Assessment criteria and marking rubric appear below.

Posted 30 May 2016 at 11.00 (AEST).

Due date 3 June 2016 at 20.00 (AEST).

Return date 17 June 2016.


Assessment Criteria

1. Demonstrate an ability to identify commercial law issues.

2. Demonstrate analytical, problem solving and critical thinking skills.

3. Demonstrate an ability to engage in relevant research.

4. Apply appropriate and professional written language skills.

Rubric for marking

The rubrics apply to each one of the three questions, independently of the other three. Hence out of 20.

The benchmark for each criterion includes each of the benchmark levels before it, for example to achieve a distinction you also need to meet the criteria for a credit and pass.

Students must achieve ALL the minimum benchmark criteria at a particular grade level to be awarded an overall final grade at that level. Marks are not divided among each individual criterion, but are benchmarked to minimum standards.

Pass 10 - 12

Identified at least one of the relevant issues and addressed that issue with reference to relevant commercial law. Basic understanding. Limited written language skills. Limited research.

Credit 13 - 14

Identified most of the relevant issues and addressed those issues with reference to relevant commercial law. Good presentation and moderate written language skills. Moderate research. Demonstrates some understanding of and confidence with the commercial law materials.

Distinction 15 - 16

Identified all of the relevant issues and addressed those issues with reference to relevant commercial law. Superior presentation and written language skills. Good, interesting and relevant research. Demonstrates good understanding of and confidence with the commercial law materials. Demonstrates analytical skills and critical thinking. Demonstrates an ability to form and express a sound legal opinion, supported by relevant materials.

High Distinction 17 - 20

Very high standard of presentation and written language skills comparable to publishable articles and judgments referred to in the course. Superior understanding, confidence, analytical skills and critical thinking. Demonstrates clearly an ability to think independently. Superior research, supported by relevant materials.

Scheme of Work

Table 1

Week Topic

1 Bailment Turner Ch 21

2 Sale of Goods and International Sales Contracts Turner Chs 14 and 15

3 Consumer Protection Turner Ch 17

4 Restrictive Trade Practices Turner Ch 18

5 Electronic Commerce and Negotiable Instruments Turner Chs 16, 23 and 24.


6 Agency Turner Ch 13

7 Credit Law Turner Ch 19

8 Specific Protections Turner Chs 19 (part), 20 and 31.

9 Insurance Turner Ch 25

10 Intellectual Property Turner Ch 30.

11 Business Organisations Turner Ch 26

12 Superannuation Websites as appear in Notes.

Tutorials

There is no requirement of Class Participation. Assessments have been reduced to the two Assessments discussed above. However there will be an open tutorial each week, probably 6-7 pm (AEST) on Wednesdays via Zoom.

In each week there are one or more tutorial problems, set out in the Notes for each Week towards the end. It is good learning practice to post a concise answer on the Assessment Forum, found on Moodle. The problems are then discussed on Zoom.

The Zoom tutorials are also an opportunity to discuss any matter relating to the relevant week and the course generally.


BAILMENTS

1 PREVIEWA bailment arises when one person is in temporary possession of property that belongs to another person. Bailments are very common and include renting a DVD from a video shop, leaving clothes with a dry cleaner, leaving a car at a garage for repairs, borrowing a neighbour’s lawnmower and finding lost property. These circumstances and many other similar examples create bailments and give rise to the legal relationship of bailor and bailee.

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It is important to know the characteristics of a bailment, to be able to distinguish between bailments and other types of legal relationships such as a sale, trust, license or lien. The intersection of bailment and personal property securities is a new development.

Also it is important to understand the obligations of a bailor and a bailee, to know how a bailment may be terminated and about the rules relating to two special types of bailee, the carrier and the innkeeper.

1.1 Objectives

After studying Topic 1 you should be able to:

Outline the characteristics of a bailment;

Identify those characteristics and explain the difference between bailment, sale and license;

Explain the relationship between bailment, contract and tort;

Discuss the duties of a bailor and a bailee;


Explain how a bailment may be terminated; and

Explain the characteristics of special types of bailment, in particular in respect of common carriers and innkeepers.

1.2 Prescribed Reading

Clive Turner and John Trone, Australian Commercial Law (30th ed, 2015) Ch 21 (Turner).

1.3 Reference Reading

Davenport and Parker, Business and Law in Australia (2012) Ch 21.

Dilan Thampapillai and others, Australian Commercial Law (2015) Ch 6.

1.4 Key Terms

The following are key terms used within the text or required reading for Topic 1.

Bailee – a person to whom the possession of goods is transferred under a bailment, and who has temporary control of the goods.

Bailor – owner, i.e. the person who delivers possession of goods to another person upon an express or implied promise that the goods will be returned to the bailor.

Bailment – a temporary transfer of possession of goods to another person.

Common carrier of goods – a person whose business it is, and who holds oneself out as willing, to carry goods from place to place for anyone.

Innkeeper – a person who holds oneself out as providing accommodation for travellers in the course of their journeys. In modern terminology this is the hotel-keeper.

License – a permission to do something, but in the context of bailment does not involve a transfer of possession.

Lien – the handing over of possession of goods by the owner as security for a debt or other obligation.

Strict liability – an obligation to make good any loss or damage in respect of goods irrespective of the loss or damage occurred.

Sub-bailment – a transfer of possession of the goods by the bailee to a third party, who then becomes a sub-bailee.

2 CHARACTERISTICS AND CREATION OF A BAILMENTThere must be a transfer of possession of goods from one person to another person without any intention to transfer ownership of the goods. The goods are received by the bailee for the purpose of fulfilling the instructions of the bailor such as to keep them in safe custody, or to carry the goods, or to do something to the goods and then return them.

A bailment is created when three conditions are satisfied.


A bailment may be created and regulated by a contract between the bailor and bailee, in which case the contractual terms will govern the rights and obligatons of the parties. The terms may include an exclusion clause or a clause limiting the amount of any liability.

A contract supported by consideration is not required: what is important is the passing of possession. Examples of a bailment arising in the absence of a contract are when goods are borrowed or goods are found. The taking of possession does not require the bailor’s consent.

The same applies when there is a sub-bailment (there is no contract between a bailor and a sub-bailee).

The latter circumstance is neatly illustrated by Morris v C W Martin & Sons Ltd (1966) 1 QB 716. In this case, the plaintiff sent her mink stole to a furrier for cleaning who, with the permission of the plaintiff, forwarded the fur to the defendants, who were expert fur cleaners. An employee of the defendant stole the fur. The Court of Appeal held that the defendant, as sub-bailee, was liable to the bailor for the theft of the fur, notwithstanding the absence of a contractual relationship between the original bailor and sub-bailee. The sub-bailee may be able to rely on the contractual terms between the bailee and the sub-bailee as against the owner if the owner has expressly/impliedly agreed to the bailee making a sub-bailment. See the further discussion in Turner at [21.180]-[21.200].

A bailment may give rise to a duty of care in tort to take reasonable care of the goods. There is more about the duty of care when considering the duties of a bailee, below.

It is a question of fact, not always easily resolved, as to whether or not in the particular circumstances a bailment has been created. The circumstances may include an objective assessment of the intention of the parties. A comparison between a bailment and other types of legal relations also is instructive.

2.1 Bailment or license

Compare the decision in Greenwood v Council of the Municipality of Waverley (1928) 28 SR (NSW) 219 that leaving clothes in a hired locker provided by the council at Bondi Beach did not create a bailment as possession of the goods had not passed to the council (there was a mere license to leave the clothes in the locker provided) with Ultzen v Nicols [1894] 1 QB 92 in which the court held that a bailment was created when a customer handed his coat to a waiter who hung it immediately behind him as there was an intention by the waiter to take charge of the coat. In both cases the goods went missing.


The owner as bailor retains the right of ownership. Possession only is transferred to the bailee.

The bailee must return the goods, orDeliver them as directed by the bailor to a third party;

The exact same goods (apart from any alterations that the owner may have requested) must be returned. If an equivalent quantity of similar goods is to be returned then it is not a bailment.

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Cases concerning the parking of a car in an attended parking building have produced different results. Is possession of the car transferred or is there a mere license to use the parking building? The answer may depend on the degree of control over the goods (the car) assumed by the parking operator. See Turner at [21.40]. Of course a prudent parking operator will provide exclusions and limitations by prominent notices and on the relevant card or ticket. Council of the City of Sydney v West (1965) 114 CLR 481 is a leading case. The plaintiff drove his car into the domain parking station and was handed a ticket which he did not have time to read. This contained an exclusion clause in respect of loss or damage to the vehicle. The vehicle was stolen. It was held that there was a bailment in that possession was given until the ticket was handed over, there was an unauthorized delivery of possession not covered by the exclusion clause and doubt as to due notice of the exclusion.


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2.2 Bailment or sale and trust

If ownership or title to the goods is transferred, with or without a transfer of possession, there will be a sale or conferment of a trust (by gift or otherwise). There will not be a bailment even if there is an intention that the goods be returned.

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The importance of the distinction is illustrated in Olma v Amendola [2004] SASC 274 which concerned the delivery of a cheque for $75,000 for investment and repayment 10 years later. The court was unable to find any agreement about interest. If there was a bailment no interest would be required from the bailee. The court found that there was not a bailment but an intention that legal title pass by way of a trust and accordingly an obligation in equity to account for interest earned on the money.

2.3 Bailment or Employment Contract or Independent Contractor

The distinction between a bailment and a contract of employment and the important consequences relevant to that distinction is neatly illustrated by the legal relationship between taxi owners and taxi drivers. The traditional view that this relationship constitutes a bailment has been challenged by the Federal Commissioner of Taxation.

The analysis found in FCT v Deluxe Red and Yellow Cabs Co-operative Trading Society Ltd 98 ATC 4466; (1998) 82 FCR 507 is instructive and a nice description of that analysis can be found at http://pigott.com.au/publications/taxis-protecting-the-bailment-arrangement/ .

2.4 Effect of the Personal Property Securities Act 2009 (Cth)

A contest between the owner of goods subject to a bailment and a creditor claiming a security interest has generally been resolved in favour of the owner. It may be prudent that a bailor ensures that the goods are not and will not be subject to the PPSA regime. See http://www.mcw.com.au/page/Publications/Professionals/personal-property-securities-risks-for-bailments-and-consignments/

http://www.austlii.edu.au/au/cases/wa/WASC/2014/310.html

2.5 Return of the goods

Recall the third condition of a bailment that the parties intend that the same goods be returned. The integrity of the goods is therefore a guide to a court when deciding whether or not a bailment had been created.

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This is illustrated by Bazley v Wesley Monash IVF Pty Ltd [2010] QSC 118 in which straws of semen deposited by the deceased husband with the defendant were property subject to a bailment and were returnable to his personal representative on his death; compare Chapman Bros v Verco Bros & Co Ltd (1933) 49 CLR 306 in which the storage of wheat under an option for purchase was held not to be a bailment because it was impossible to identify which bags of wheat belonged to the plaintiff and which belonged to other farmers.


http://www.mcw.com.au/page/Publications/Professionals/personal-property-securities-risks-for-bailments-and-consignments/

http://www.mcw.com.au/page/Publications/Professionals/personal-property-securities-risks-for-bailments-and-consignments/

http://pigott.com.au/publications/taxis-protecting-the-bailment-arrangement/

2.6 Classification

A court may be assisted by a consideration of whether or not the facts come within the traditional classification of bailments. It is necessary to understand that the classification is not exhaustive or conclusive. The traditional classification of bailments is based, with certain modifications, on the judgment of Lord Holt in Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107, namely:

1. The deposit of goods for gratuitous safekeeping by the bailee; for example the handing over of jewelry to a bank for safe custody where no charge is made for the service.

2. The delivery of goods to a bailee for work to be done on the goods for the benefit of the bailor without reward; for example where A leaves his watch with B for repair without a charge being made for the repair.

3. The delivery of goods by way of gratuitous loan for use by the bailee; for example where A lends his car to his friend B without charge.

4. The deposit of goods for safekeeping for reward; for example where jewelry is handed over to a bank for safe custody and a fee is charged for the service.

5. The delivery of goods to have something done to them for reward; for example where a car is left at a garage for repair.

6. The delivery of goods for use by the bailee for reward; that is, the hiring of goods.

7. The delivery of chattels to be held as security for a loan, that is, a pledge or a pawn.

The first three types of bailment are gratuitous, whereas the following three are bailments for reward. The distinction may be relevant when considering the duties owed by a bailee, the subject of the next section.

2.7 Activity 1

A puts his suit in for dry cleaning and accidentally leaves an envelope containing cash in a jacket pocket. When he returns home with the suit he realizes the cash is missing and also finds that the zip of the trousers no longer works. What is the legal relationship between A and the dry cleaner?

Answer: this needs to be considered in respect of each of the two items of goods, the suit and the money. In respect of the suit there is a bailment for reward. It will be arguable whether or not the dry cleaner was responsible for the defect in the zip. As for the cash there is a bailment by finding. Possession of the envelope was given to the dry cleaner and though not for a particular purpose if it is proved on the balance of probabilities that the dry cleaner found the envelope then it was under an obligation to take reasonable care of it.

3 DUTIES OF A BAILEE The bailee owes the bailor four basic duties:

Duty to take such care of the goods as is reasonable in the circumstances;

To retain possession or deliver as the bailor directs;

Not to use or misuse the goods;

To re-deliver the goods as the bailor directs.


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The onus of proof is on the bailor to show the relationship of bailment and that the goods were damaged or lost in the bailee’s possession. Thereafter the onus of proof is on the bailee to show that any loss or damage to the goods was not caused by their fault. The bailee must prove either:

They took appropriate care of the goods, or Their failure to do so did not contribute to the loss.

A higher standard of care will apply if the goods are of a special value and the bailee is aware of this. The same may apply in respect of perishable goods.

These rules apply to both bailments for reward and gratuitous bailments but in the assessment of reasonable care all the circumstances including the nature of the bailment will be taken into account.

A bailee is not an insurer of the goods – that is, the bailee is not obliged to take every conceivable or possible precaution to prevent the loss of goods. When goods are lost or damaged, the bailee may discharge the onus of proving that such loss or damage was not the result of their failure to take reasonable care.

The standard of care is that of a careful and vigilant person acting in respect of their own property.

In the case of the delivery of a chattel for work to be done upon it for reward, if the work is of the type which the bailee holds herself or himself out as skilled to do, the bailee warrants that he or she possesses the technical skill and ability to do the work and delegation is only possible with the consent of the bailor.

A bailee for reward also must redeliver the goods as the bailor directs. If the bailee delivers the goods other than according to the bailor’s express authority (even if not negligently), the bailee will be liable for their loss or damage (see Jackson v Cochrane [1989] 2 Qd R 23 noted in Turner at [21.100]).

It may be that a bailee has done work on the goods and has not been paid. At common law the bailee is entitled to a lien over those goods. This means they can retain possession until paid. There is no right to sell the goods. In some Australian States the common law right to a lien has been extended to permit sale.

See other cases referred to in Turner at [21.60]-[21.160]. See also Fertinova Aust Pty Ltd & Anor v Samardzija & Ors [1994] QSC 151 where there was a breach of the duty to retain possession of the goods.


Cambridge v Anasatasopoulos [2012] NSWCA 405 is an interesting recent case noted at http://www.cch.com.au/au/News/ShowNews.aspx?PageTitle=Bailment-and-the-proportionate-liability-regime-%C3%A2-rough-waters--by-Andrew-Toogood,-Partner,-Moray---Agnew-Lawyers&ID=39452&Type=S&TopicIDNews=8&CategoryIDNews=42.

This link should lead you the CCH link, which contains the article.

The owner and bailor entrusted his motorboat expressly and impliedly to three parties, the original bailee and others who became involved in the storage and subsequent transport of the motorboat. All were found liable for breach of duties as bailee, although it is likely that Hodge, who assisted with transport only, did not imagine that he was a bailee who owed such duties. It became necessary to apportion responsibility amongst the defendants. It was held that the proportionate liability regime under s 34 Civil Liability Act 2002 (NSW) applied. You will recall the Civil Liability Act 2003 (Qld) from your study of torts.

3.1 Activity 2

P delivers his yacht to D for repair and it is placed on shore on a cradle. D advises P that he is not equipped to carry out the necessary work. Before the yacht is sent to another repairer it is blown off its cradle in a big storm and damaged. What are the legal issues?

Answer: Was there a bailment? Yes, but it was a gratuitous bailment. Was D liable? Yes the same standard of care applies in respect of an experienced boat repairer. In this case there was a storm warning and D failed to prove that all reasonable precautions were taken.

See McComb v Martin Box Marine Holdings Pty Ltd (1992) 8 SR (WA) 193.

P insisted D take a ring home to show his wife. D put the ring in his pocket from where it was stolen when he stopped at a hotel. What are the legal issues?

Answer: There was a bailment (gratuitous). In all the circumstances D discharged the onus of showing he had taken reasonable care. Imagine the balancing exercise required to be undertaken by the court.

See WGH Nominees Pty Ltd v Tomblin (1985) 39 SASR 117.

4 LIABILITY OF BAILEE FOR EMPLOYEES AND AGENTSA bailee for reward is liable for their own negligence and vicariously liable for the negligence of their employees: Makower, McBeath & Co Pty Ltd v Dalgety & Co Ltd [1921] VLR 365; Morris v CW Martin & Sons Ltd [1966] 1 QB 716.

Similarly, a bailee whose employee or agent sells the goods entrusted to the bailee is liable in damages to the owner of goods, unless an exemption clause in the contract of bailment precludes liability: Rick Cobby Haulage Pty Ltd v Simsmetal Pty Ltd (1986) 43 SASR 533.

If the bailment is gratuitous, the bailee is liable for their own negligence but not for that of their employees unless an ordinary reasonable person would not, in similar circumstances, have handed the goods to the employee.

See Turner at [21.170]

5 EXCLUSION OF LIABILITY AND STATUTORY RESPONSES

A bailee may seek to limit or exempt liability for negligence through the use of an exemption clause in a contract of bailment and therefore only applies when the bailment is created by contract. Like any contract, in order for an exclusion clause to be effective it must be shown that:


http://www.cch.com.au/au/News/ShowNews.aspx?PageTitle=Bailment-and-the-proportionate-liability-regime-%C3%A2-rough-waters--by-Andrew-Toogood,-Partner,-Moray---Agnew-Lawyers&ID=39452&Type=S&TopicIDNews=8&CategoryIDNews=42



The clause has become part of the contract;

It has not been misrepresented;

There is no ambiguity – the exemption clause will be construed against the party relying on it;

There are clear words excluding or limiting the bailee from liability for negligence; and

The acts causing the injury were not done outside the terms or scope of the contract.

Reference has already been made to Council of the City of Sydney v West (1965) 114 CLR 481.

In Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Aust) Pty Ltd (1966) 115 CLR 353 the High Court held that the actions of a subcontractor, in taking goods home to store in his garage overnight because the appellant’s depot had shut, constituted such a departure from the terms of the contract between the owner of the goods and the appellant, that the appellant could not rely on an exemption clause to exempt it from liability when the goods were damaged by fire at the subcontractor’s garage. Although the sub-contractor may have been impliedly permitted to take the goods to his own garage that did not exonerate the employer from liability to the owner of the goods. The case is discussed in Turner at [21.120].

It should be noted now that the Australian Consumer Law (the subject of Topic 3) provides for statutory obligations. The widespread use of exemption clauses designed to limit or exclude the common law obligations of, for example a bailee for the work performed on chattels delivered for repair, has resulted in statutory provisions to protect “consumers” in respect of the quality of the work or services so provided. Sections 60 and 61 of the Australian Consumer Law [The Australian Consumer Law is Schedule 2 to the Competition and Consumer Act 2010 (Cth).] provide:

60. If a person supplies, in trade or commerce, services to a consumer, there is a guarantee that the services will be rendered with due care and skill.

61. (1) If:

(a) a person (the supplier ) supplies, in trade or commerce, services to a consumer; and

(b) the consumer, expressly or by implication, makes known to the supplier any particular purpose for which the services are being acquired by the consumer;

there is a guarantee that the services, and any product resulting from the services, will be reasonably fit for that purpose.

(2) If:

(a) a person (the supplier ) supplies, in trade or commerce, services to a consumer; and

(b) the consumer makes known, expressly or by implication, to:

(i) the supplier; or

(ii) a person by whom any prior negotiations or arrangements in relation to the acquisition of the services were conducted or made;

the result that the consumer wishes the services to achieve;

there is a guarantee that the services, and any product resulting from the services, will be of such a nature, and quality, state or condition, that they might reasonably be expected to achieve that result.

The obligations imposed by these provisions cannot be excluded (s 64(1)), at least where the services are of a kind ordinarily acquired for personal, domestic or household use or consumption.

If the services are not of that kind liability may be limited: see s 64A(2) and s 64A(3). And note the broad definition of “services”. Turner at [21.230].

However it should be noted that pursuant to s 63 the statutory warranties do not apply to “a contract for or in relation to the transportation or storage of goods for the purposes of a business, trade, profession or occupation carried on or engaged in by the person for whom the goods are transported or stored.”


Not mentioned in Turner is the Disposal of Uncollected Goods Act 1967 (Qld) which provides procedures and protections to bailees when goods are uncollected.

6 DUTIES OF A BAILORAt common law a bailor’s duties (independent of any contract) are:

Not to interfere with the bailee’s possession. Where a bailment for reward is for a fixed term, the bailor is under a duty not to interfere with the bailee’s possession of the goods until the expiry of the period of the bailment.

To inform the bailee of any dangers associated with the goods of which the bailor is aware (gratuitous bailment or bailment for reward).

Where the bailee accepts possession of the goods after being sufficiently warned of their dangerous qualities, the bailor will not be liable for subsequent loss or damage suffered by the bailee: Pivovaroff v Chernabaeff (1978) 21 SASR 1.

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In Pivovaroff v Chernabaeff (1978) 21 SASR 1, a market gardener gratuitously lent an onion sorting machine to another market gardener. The bailor gave directions to the bailee on how to use the machine and also warned the bailee not to allow children near it. The bailee used the machine with the help of a 13 year old boy whose hand became caught in the machine and was mutilated. It was held that the bailor was not liable since he had sufficiently discharged his duty to warn of dangers that might arise from the operation of the machine by the directions he had given to the bailee. The bailee was held to be liable in negligence for the injuries suffered by the boy.


7 HIRE OF GOODSAt common law where goods are hired for use by the hirer, the common law implies in the contract of hire a condition that the goods are reasonably fit for the particular purpose made known to the bailor/lessor for which they are being hired.

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In Cottee v Franklins Self-Serve Pty Ltd [1997] Qd R 469 the plaintiff was pushing a trolley full of groceries when as a result of a defective wheel the trolley collapsed injuring the plaintiff. It was held that there was contract for hire for reward in the nature of a bailment and the Defendant as bailor was liable to compensate the plaintiff. The consideration was payment for the groceries.

Since the condition of fitness for purpose is a term implied at common law it can be excluded by an appropriately drafted exclusion clause.

Further protection is afforded by the Australian Consumer Law, where this law applies. Guarantees apply to contracts for the “supply” of goods, which is defined as including the hiring or leasing of goods to a consumer: s 2(1).

The guarantees are of undisturbed possession and the conditions of correspondence with description, acceptable quality and fitness for purpose: ss 52, 54-56.

Section 3(1) determines when a person is taken to have acquired particular goods as a consumer.


Provided that the person did not acquire the goods for the purpose of re-supply; or for the purpose of using them up or transforming them, in trade or commerce, in the course of a process of production or manufacture; or in the course of repairing or treating other goods or fixtures on land (s 3(2)).

These guarantees cannot be excluded (s 64(1), at least where the goods are of a kind ordinarily acquired for personal, domestic or household use. If the goods are not of that kind, see s64A(1), (3).

See Turner at [21.300].

8 TERMINATION OF BAILMENTSThe most common ways in which a bailment may be terminated are:

by expiry of the term of bailment;

passage of a reasonable time;

by the demand of a gratuitous bailor;

by the wrongful act of the bailee;

by the destruction of the goods.

See Turner at [21.310]-[21.360].

9 RIGHTS AGAINST THIRD PARTIESWho has rights to sue a third party who has taken or damaged the goods? The answer depends on the character of the bailment.

The bailor has the right to sue if the bailment is a bailment at will that is, the bailor is entitled to immediate possession on demand. The bailee may also sue.

Where the bailment is for reward the bailor’s right to possession of the goods is suspended; only the bailee can sue the third party for the wrongful interference with the goods. There is an exception if the goods are destroyed or permanently damaged.

Where the bailee wrongfully disposes of the chattel, the bailor may terminate the bailment and receive an immediate right to possession of the goods enabling the bailor to sue not only the bailee but also the third party in an action for conversion.

See Turner at [21.380].

10 SPECIAL TYPES OF BAILEEIn two types of case:

common carriers of goods; and

innkeepers,

the common law imposes a duty of strict liability to make good any damage to, or loss of, the goods of the bailor. The effect is to make bailees of these types insurers of the goods in their possession. There are statutory modifications.

10.1 Common carriers

A common carrier of goods is one whose business it is, and who holds oneself out as willing, to carry goods from place to place for anyone. The underlying requirements are:

The person must carry on business as a carrier and must not simply be a casual carrier.


If the carrier reserves the right to accept or reject the transport of goods irrespective of whether their vehicles are full or not, they are not a common carrier.

It is always a question of fact whether a person is or is not a common carrier. The holding out of being a common carrier may be express or implied by a course of business or other conduct.

Otherwise the carrier is a private carrier.

The duties of a common carrier are:

To carry the class of goods they profess to handle for anyone who is prepared to pay the usual charge.

To carry the goods by the usual route and not to deviate unnecessarily;

To deliver the goods without reasonable delay. The carrier is excused from any loss resulting through a delay in delivery caused by the consignee.

To carry out the consignor’s instructions for delivery to the consignee.

If the goods are dangerous, the consignor must take reasonable precautions in packaging and give reasonable notice of their dangerous nature to the consignor.

Common carriers are insurers for the safe carriage of goods, beginning from the moment they accept the goods. Exceptions include: “acts of god”, faulty or defective packaging and inherent fault or deterioration of the goods.

There also are statutory limitations on liability found in State legislation. The position in Queensland is anomalous, as explained in Turner at [21.470]. In Queensland it appears that neither the common law principles apply, nor are there statutory limitations on liability. Accordingly if ss 60 and 61 Australian Consumer Law do not apply, then the liability of common carriers will be determined by the general principles of bailment, tort and contract.

Where the common carrier is carrying goods for a “consumer” the guarantees applying to contracts for the provision of services by the Australian Consumer Law pursuant to s 60 may apply. As mentioned already s 60 provides that there is a guarantee that the services “will be rendered with due care and skill”.

This obligation cannot be excluded where the services are of a kind ordinarily acquired for personal, domestic or household use. Where s 60 applies, it is not affected by the limitations on the liability of a common carrier contained in, for example, the State Carriers Acts. Otherwise s 63 limits the effect of s 60 as explained above. See Turner at [21.480]

The rights of common carriers are:

To be paid their charges in advance before they carry the goods.

To claim a lien on the goods until their charges are paid.

To refuse to carry goods in certain cases, namely, where:

o the goods are not of a class the carrier professes to carry;

o the goods are improperly or insufficiently packed;

o the carrier’s vehicles have no available space;

o the destination is not within the carrier’s usual route or radius.

You should be aware that there are particular rules relating to carriage by rail, air or sea. See Turner at [21.500]-[21.540].

10.2 Private carriers

Private carriers do not hold themselves out as willing to convey the goods of any person who chooses to employ them and usually they consider the terms and nature of every offer before acceptance.


Private carriers are not necessarily liable if goods are lost or damaged as they are not insurers of the goods. However the onus is on them to prove that the damage was not caused through their neglect, the usual rule in respect of bailments.

The carrier of a valuable mare which was not a common carrier of horses failed to discharge this onus when the mare was found on arrival to be seriously ill from travel sickness and died soon after in Cowper v J G Goldner Pty Ltd (1986) 40 SASR 457.

10.3 Innkeepers

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A further type of special bailment is that of an innkeeper in respect of the goods of a guest. An innkeeper is essentially a person who holds oneself out as providing accommodation for travellers in the course of their journeys. In modern terminology this is the hotel-keeper.

The premises operated by an innkeeper are called a “common inn” (this includes most licensed hotels and motels). A private or residential hotel is not generally an inn.

A person who wishes to stay at an inn or hotel is classified as either:

a “guest” – someone who has not made prior arrangements for their stay and is in the course of their journey; or

a “lodger” or “boarder” – someone who has made prior arrangements for their stay for a definite time at an agreed rate.


A guest has the character of a traveller. The distinction is important because at common law innkeepers are strictly liable for the loss of the goods of a guest and are insurers of the goods of their guests if they are lost. If the goods of a guest are damaged the innkeeper is only liable if the damage was caused by the negligence of the innkeeper or the innkeeper’s employees.

The Australian case Daniel v Hotel Pacific Pty Ltd [1953] VLR 447 provides an illustration. The plaintiff had booked in advance and upon arrival left his money in the hotel safe. It was stolen and he claimed that he was a guest, there was loss and the Defendant was strictly liable. Certainly there was a loss but the court held that he was a lodger and therefore the ordinary rules of bailment applied. The court went on to find that on the facts the hotel had discharged the burden of showing that it had taken all reasonable care and the claim failed. An appeal was dismissed. However the strong dissent of Scholl J has since been approved by the NSW Court of Appeal in Theeman v Forte Properties Pty Ltd [1973] 1 NSWLR 418 at 429. Turner at [21.560] and [21.570]

10.4 Activity 3

Read Theeman v Forte Properties Pty Ltd in particular pages 429-430, which appear below and consider in what circumstances a person staying in a hotel is a lodger rather than a guest.

“… sense and the courtesy to send a prior communication; or to impose towards a person who refuses to state the duration of his stay a greater duty than towards one who is prepared to book for a definite time … Take the case put in argument of a Judge on circuit, for whom it is the practice to reserve hotel accommodation in advance. He usually stays at least one night, and sometimes much longer. He, too, is, in my opinion, a traveller and a guest. Then there is the case of the lawyer, the doctor, the man of commerce, or the man in public life, who intends attending a convention or conference in another city. In his case it is usually essential to book hotel accommodation in advance and for a stated minimum time. In my opinion, he is nevertheless a transient, a traveller and a guest, according both to current social ideas and customs and to the ordinary use of language.” In my opinion the decisions cited by Sholl J.[[1953] VLR 447, at p 458, et seq] support his view that neither the prior booking of accommodation nor the booking of accommodation for a specified period preclude a person from being regarded as a guest of an innkeeper rather than a lodger. In Daniel v Hotel Pacific Pty Ltd [[1953] VLR 447, at pp 452, 456] both Herring CJ and Lowe J expressed the view that it was a question of fact in each case whether there was a special contract of such a character that a person coming to an inn is received by the innkeeper as a lodger and not as a guest. I agree with this view, but would respectfully disagree with the views expressed by Herring CJ and Lowe J that a person who arrives at an inn and takes the accommodation which he has previously booked, whether for a definite or an indefinite period, is on that account alone to be regarded as a lodger and not as a guest. It is clear that a person who is stopping at an inn may, because of a special contract made between him and the innkeeper, be a lodger and not a guest; and that, even though he entered the inn as a guest, he may, after a period of time, become a lodger. As it seems to me, the matter depends upon the express and implied terms of the contract, and that for this purpose a prior booking of accommodation and the booking of accommodation for a specified period, although relevant matters to consider, do not conclude the question whether a person occupying accommodation at an inn is a guest or a lodger. I would respectfully adopt the view expressed by Hart J, with whom Hanger J agreed, in Turner v Queensland Motels Pty Ltd [1968] Qd R 189, at p 200] that what, in the relevant sense, was “meant by special contract was, at the very least, some contract whereby a person is received on terms other than those on which the owner of an inn holds out that he will receive all travellers, who are willing to pay a price adequate to the sort of accommodation provided, and who come in a situation in which they are fit to be received”. An example of such a special contract is to be found in Alldis v Huxley [(1891) 12 LR (NSW) 158]. In that case a horse trainer made an arrangement with the defendant, who was an hotel-keeper, by which the latter provided board and lodging for the horse trainer and his stable boys, and stabling for his horses, at a lump sum of so much per week. Shortly afterwards the horse trainer arrived at the hotel where he stopped for some months. It was held that the special contract made between the horse trainer and the hotel-keeper was one which created the relationship of landlord and


lodger and not that of innkeeper and guest and that, consequently, the hotel keeper did not have the lien which an innkeeper has over his guests’ goods.

In the present case there was ample evidence upon which the jury could come to the conclusion that the appellant was a guest at Parklands. It is true that the appellant’s husband booked accommodation in advance for a specified period, paid a deposit, and asked that he and the appellant have, if possible, the same accommodation that they had occupied in previous years. It is apparent, however, that they were charged on a daily basis for the period during which they in fact stayed at Parklands, which was shorter than the period for which they had booked. It does not appear that they were given the accommodation which they had previously occupied, but, in my opinion, it would not matter if they had. Regular travellers commonly wish to occupy the same room, and this circumstance, although relevant, does not preclude the traveller from being regarded as a guest rather than a lodger. I would add that in coming to this conclusion I have not found it necessary to consider whether, for relevant purposes, the provisions of s 4 of the Innkeepers Act, have the effect of enlarging the liability of an innkeeper so as to extend the liability to persons who at common law would not be regarded as guests; the section may have this effect, but it is not necessary to resolve this question in the present case. Accordingly in my opinion the respondent’s cross-appeal fails.

The appellant submits that the evidence in relation to the deposit of the jewelery was such that a verdict should be entered for the appellant in the amount of the value of the jewelery as found by the jury. In the alternative, it is submitted that there should be a new trial limited only to the issue raised by the fourth question left by the learned trial judge to the jury. The respondent submits that there should be a new trial on all issues. In my opinion this court should not enter a verdict for the appellant. The appellant’s evidence as to what she said to Miss Ezzy was challenged in cross-examination and it was open to a jury to reject her evidence. Section 7 of the Supreme Court Procedure Act, 1900, provides, inter alia, that if the court in banco is of opinion that, upon the evidence, the plaintiff or defendant is, as a matter of law, entitled to a verdict in the action or upon any issue therein, the court may order such verdict to be entered. In my opinion the appellant is not entitled as a matter of law to a verdict, and consequently a new trial must be ordered. However I think that that new trial should be limited to the issue raised by the fourth question. Section 160 (b) of the Common Law Procedure Act, 1899 provides that, in any action in which a new trial is granted, the court may grant the new trial either generally or on some particular point or points only as the court thinks fit. Rule 10 (3) of the Court of Appeal Rules, which apply to the present appeal, provides, inter alia, that a new trial may be ordered on any question; (cf. Pt 51, r 16 (2) and (3) of the Supreme Court rules, 1970). The question whether a new trial should be on all issues or on some particular issue or issues has mainly been considered in relation to cases where a jury’s verdict has been challenged because of the amount of damages which it has awarded to the plaintiff. In some cases, such as actions for defamation, the question of the quantum of damages is so connected with questions of liability that a new trial could not, with justice, be limited to the question of damages only. On the other hand, in negligence actions, a new …

As can be expected legislation in most States limits the common law liability of innkeepers. The legislation differs in each State. The Traveller Accommodation Providers (Liability) Act 2001 (Qld) is an example. Liability is limited to $250 per room in respect of loss in that room and $50,000 in respect of property accepted for deposit in safe custody.

At common law an innkeeper has a lien on the goods of a traveller or guest upon a debt for accommodation or services being incurred by the guest. The lien attaches to the goods of a traveller or guest, which are situated in the inn and gives the innkeeper the right to take the goods peaceably into their possession and retain them until the debt is paid.

In NSW and Victoria an innkeeper has no right of lien over a guest’s vehicle; in the NT a hotel-keeper has no right of lien over a vehicle or property left in or used in connection with the vehicle.


11 REVIEW

11.1 Tutorial problems

Problem 1

Leeanne lent her neighbour Sue her lawn-mower. The mower did not have a guard on it and she told Sue that when mowing the lawn she must wear safety glasses to protect her eyes from stones being thrown out by the blades. Sue forgot about Leeanne's warning and during the course of mowing her lawn was struck in the eye by a stone. She has been told that the eye cannot be saved.

Advise Sue.

Problem 2

While on, a shopping trip, Peta tried on a dress at Fashion Wise. She pinned her diamond brooch on the dress to see whether it "went" with the dress and then forgot to take it off when she changed back into her own clothes. The brooch was found by a shop assistant when she was putting the dress back on the rack in the shop and she handed it to the manager who, in breach of shop rules, put it in the desk. When Peta realized what she had done she returned to the shop to collect her brooch, but it could not be found.

Advise Peta.

11.2 Debrief

In Topic 1 you have learned:

The characteristics of a bailment and why it is important to identify those characteristics and be able to distinguish between bailment, sale and license;

The common law rules relating to the legal relationship of bailment and the aspects of those rules that have been amended by legislation;

The often difficult issues of application of those rules to particular fact situations;

The way in which liability may be determined by the characteristics of bailment because in particular cases rules adjust the burden of proof and sometimes impose strict liability.


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