Commercial

Law
Fourth edition

Samantha J Traves
LLB (Hons) LLM (QUT)
Solicitor, Queensland
Academic
Member Queensland Law Reform Commission
Member Queensland Civil and Administrative Tribunal

LexisNexis Butterworths
Australia
2016
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National Library of Australia Cataloguing-in-Publication entry

Author: Traves, Samantha J.

Title: Commercial law.
Edition: 4th edition.
ISBN: 9780409343045 (pbk).
ISBN: 9780409343052 (ebk).
Notes: Includes index.
Subjects: Commercial law — Australia.
Dewey Number: 346.9407.

© 2016 Reed International Books Australia Pty Limited trading as

LexisNexis.
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Preface

The practice of commercial law nowadays requires an ever-broadening

appreciation of relevant principles and statutes. In the 19th century,
the area demanded an appreciation of the laws of agency and personal
property and the Sale of Goods Act. In the modern day, it requires also
an appreciation of consumer protection legislation, a statutory scheme
of securities in chattels, insurance contracts law and e-commerce.
The aim of this edition, as it was for the previous ones, is to describe
in a concise and readily understood manner those concepts
fundamental to commercial law, important applications of those
concepts and other discrete areas of law relevant to modern commerce.
This edition contains references to recent case and statute law and,
reflecting further statutory enactments in the area, includes chapters
on the Australian Consumer Law and personal property securities
legislation.
I trust that the book serves as a useful resource for practitioners and
students of the law.
I would like to record my thanks to Ms Anita Galeazzi for her
valuable research assistance and to Ms India Lopez for her professional
editorial assistance.
I dedicate this edition of the book to my late father, Associate
Professor Peter WH Woodruff AM, and to my mother, Maria, whose
selflessness and indomitable spirit continue to be a source of
inspiration to us all.

Samantha Traves
Brisbane
July 2016
 Table of Cases

References are to paragraph numbers

A
A E Goodwin Ltd v A G Healing (1979) 7 ACLR 481 …. 12.37
AAMI v Ellis (1990) 6 ANZ Ins Cas 60–957 …. 11.23
AAPT Ltd v Cable & Wireless Optus Ltd (1999) 32 ACSR 63 …. 5.37
ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65 ….
11.7, 11.35
Acernus Aero Ltd v Vincent Aviation [2013] NZAR 795; [2013] NZHC
595 …. 9.3
ACN 007 838 374 Pty Ltd v Zurich Australia Insurance Ltd (1997) 69
SASR 374 …. 11.23
Actionstrength Ltd v International Glass Engineering IN.GL. EN SpA
[2002] 1 WLR 566 …. 12.10, 12.14, 12.16
— v — [2003] 2 WLR 1060 …. 12.10
Adams v Elphinstone (1993) 2 Tas R (NC) N14 …. 5.34
— v Lindsell (1818) 106 ER 250 …. 13.23
Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166
CLR 606 …. 11.8, 11.17, 11.41
Advent Systems Ltd v Unisys Corp (1991) 925 F 2d 670 …. 6.5
AGC (Advances) Ltd v West (1984) 5 NSWLR 590 …. 12.19
AGL Victoria Pty Ltd v Lockwood (2003) 10 VR 596 …. 6.3
Ainsworth v Creeke (1868) LR 4 CP 476 …. 5.33
Aitkin Transport Pty Ltd v Voysey [1990] 1 Qd R 510 …. 5.34
Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477 …. 1.22, 2.15, 4.2,
6.10
Albazero, The [1977] AC 774 …. 9.34
Albert Building Society v Pratt (1893) 19 VLR 195 …. 12.10
Albion Insurance Co Ltd v GIO (NSW) (1969) 121 CLR 342 …. 11.53,
11.55, 12.38
Aldridge v Johnson (1857) 7 El & Bl 885 …. 6.3, 8.19
Alexander v Vane (1836) 1 M & W 511; 150 ER 537 …. 12.33
Allcard v Skinner (1887) 36 Ch D 145 …. 12.26
Allen v F O’Hearn & Co [1937] AC 213 …. 5.40
Alliance Acceptance Co Ltd v Oakley (1987) 48 SASR 337 …. 5.22
Alliance & Leicester BS v Edgestop Ltd [1993] 1 WLR 1462 …. 5.22
Allianz Australia Insurance Ltd v Douralis [2008] VSCA 72 …. 11.40
— v Inglis [2016] WASCA 25 …. 11.32
— v Vitale [2014] NSWSC 364 …. 11.23
Allied Mills Ltd v Gwydir Valley Oilseeds Pty Ltd [1978] 2 NSWLR 26
…. 8.26
Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd [1976] 1
WLR 676 …. 8.20, 8.21, 8.24, 9.6, 10.9
Amco Enterprises Pty Ltd v Wade [1968] Qd R 445 …. 6.5
American Civil Liberties Union (ACLU) v Reno 929 F Supp 824 (ED Pa
1996) …. 13.2, 13.3, 13.11
American Home Assurance Co v Kirby (2004) 13 ANZ Ins Cas 61–600;
[2003] NSWCA 395 …. 11.36
Amlink Technologies Pty Ltd and Australian Trade Commission, Re
(2005) 86 ALD 370 …. 6.3, 6.5
Amtel Pty Ltd v Ah Chee [2015] WASC 341 …. 12.27
Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 …. 12.7,
12.18
Anderson v Aon Risk Services Australia Ltd [2004] QSC 49 …. 11.17
Anderson Group Pty Ltd v Tynan Motors Pty Ltd (2006) 65 NSWLR
400; [2006] NSWCA 22 …. 2.4, 9.12, 9.31
Andrabell Ltd, Re; Airborne Accessories Ltd v Goodman [1984] 3 All
ER 407 …. 8.21
Anglo Overseas Transport Ltd v Titan Industrial Corp (UK) Ltd [1959]
2 Lloyd’s Rep 152 …. 5.47
Angus v Clifford [1891] 2 Ch 449 …. 11.17
Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance
(Australia) Ltd (1987) 162 CLR 549 …. 12.3, 12.6, 12.8, 12.18,
12.19, 12.23
Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 25
ALR 91 …. 6.27
Anning v Anning (1907) 4 CLR 1049 …. 1.20
Anon (1688) Moore KB 20; 72 ER 411 …. 4.5
Anson v Anson [1953] 1 QB 636 …. 12.33
Antico v CE Heath Casualty & General Insurance Ltd (1996) 38
NSWLR 681 …. 11.14, 11.36
ANZ Banking Group v Londish [2014] NSWSC 202 …. 12.27
ANZ Banking Group Ltd v Alirezai [2004] QCA 6 …. 12.25
Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Aust) Pty Ltd
(No 5) [2012] FCA 908 …. 6.35
Arcabi Pty Ltd (recs & mgrs apptd) (in liq), Re [2014] WASC 310 ….
10.8, 10.10
Aristoc Industries Pty Ltd v RA Wenham (Builders) Pty Ltd [1965]
NSWR 581 …. 6.3
Armagas Ltd v Mundogas SA [1986] 1 AC 717; [1985] 1 Lloyd’s Rep 1
…. 5.20
Armory v Delamirie (1722) 93 ER 664 …. 3.7
Armour v Thyssen Edelstahlwerke AG [1991] 2 AC 339 …. 8.23
Arrow Shipping Co Ltd v Tyne Improvement Commissioners (The
Crystal) [1894] AC 508 …. 2.16, 3.2
Asfar v Blundell [1896] 1 QB 123 …. 8.28
Ashby v Tolhurst [1937] 2 KB 242 …. 9.3
Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 …. 6.25,
6.26, 6.27, 6.28, 6.29, 6.30, 6.32, 6.34, 6.35, 6.36, 6.40, 6.41, 6.43
Askrigg Pty Ltd v Student Guild of the Curtin University of Technology
(1989) 18 NSWLR 738 …. 9.26
Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (formerly
Metropolitan Engineering and Fabrications Pty Ltd) (2000) 171
ALR 568 …. 8.20, 8.21, 8.25
— v Metropolitan Engineering and Fabrication Pty Ltd (1998) 16
ACLC 1633 …. 8.23
— v Metropolitan Engineering and Fabrications Pty Ltd (1996) 20
ACSR 205 …. 9.6
Associated Midland Corp v Sanderson MotorsPty Ltd [1983] 3 NSWLR
395 …. 8.31, 8.36
Astley Industrial Trust Ltd v Miller [1968] 2 All ER 36 …. 8.15, 8.36
Atkinson v Hastings Deering (Qld) Pty Ltd (1985) 6 FCR 331; 71 ALR
93 …. 7.4
Attorney-General v Trustees of the British Museum [1903] 2 Ch 598 ….
3.2, 3.9
Attorney-General (Botswana) v Aussie Diamond Products Pty Ltd (No
3) [2010] WASC 141 …. 6.45
Attorney General for Ceylon v Silva [1953] 1 Lloyd’s Rep 563; [1953]
AC 461 …. 5.20
Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR
557 …. 12.25
— v Wylde (1946) 47 SR (NSW) 99 …. 5.26
Atwood v Ernest (1853) 13 CB 881 …. 9.11
Audrey v Pollard (1597) Poph 108; 79 ER 1216 …. 5.34
Aussie Tax Pty Ltd v Markel Capital Ltd [2008] VSC 592 …. 11.32
Australia & New Zealand Banking Group Ltd v Comer (1993) 5 BPR
 11,748 …. 12.8
— v Fink [2015] NSWSC 506 …. 12.25
— v Heyward (1994) ATPR ¶46–137 …. 12.30
— v Karam (2005) 64 NSWLR 149 …. 12.25
— v Manasseh [2016] WASCA 41 …. 12.23
Australian and Overseas Insurance Co Ltd, Re [1966] 1 NSWR 558 ….
12.21
Australian Associated Motor Insurers Ltd v Ellis (1990) 6 ANZ Ins Cas
60–957 …. 11.23
Australian Blue Metal Ltd v Hughes [1962] NSWR 904 …. 5.29, 5.31
Australian Breeders Co-op Society Ltd v Corporation of the City of
Marion (1992) 76 LGRA 175 …. 9.1
Australian Broadcasting Commission v Australasian Performing Right
Association Ltd (1973) 129 CLR 99 …. 12.18
Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 …. 11.26
Australian Communications and Media Authority v Atkinson [2009]
FCA 1565 …. 13.22
— v Clarityl Pty Ltd (2006) 229 ALR 658 …. 13.22
— v Mobilegate Ltd (2009) 256 ALR 85 …. 13.22
— v Mobilegate Ltd (No 9) [2010] FCA 1383 …. 13.22
Australian Competition and Consumer Commission v ACN 117 372 915
Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Ltd)
[2015] FCA 368 …. 12.25
— v Bunavit Pty Ltd [2016] FCA 6 …. 7.17
— v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 …. 12.25
— v CG Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491 …. 12.25
— v Chen (2003) 201 ALR 40 …. 13.32
— v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 …. 12.25
— v Gordon Superstore Pty Ltd [2014] FCA 452 …. 7.17
— v Jutsen (No 3) (2011) 285 ALR 110 …. 7.2
— v Keshow [2005] FCA 558 …. 12.25
— v Lux Distributors Pty Ltd [2013] FCAFC 90 …. 12.25
— v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 ….
12.25
Australian Eagle Insurance Co Ltd v Mutual Acceptance (Insurance)
Pty Ltd [1983] 3 NSWLR 59 …. 11.53
Australian Guarantee Corp Ltd v Ross [1983] 2 VR 319 …. 9.1
Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387 …. 6.23, 6.35,
6.43, 7.13
Australian Mutual Provident Society v Gregory (1908) 5 CLR 615 ….
1.6
Australian Olympic Committee Inc v The Big Fights Inc [1999] FCA
1042 …. 3.5
Australian Petroleum Supplies Pty Ltd v Giuliano [2001] AATA 1050
…. 2.5
Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW)
700 …. 4.12
Australian Securities and Investments Commission v Fast Access
Finance Pty Ltd [2015] FCA 1055 …. 6.3, 6.11, 8.4
— v National Exchange Pty Ltd (2005) 148 FCR 132 …. 12.25
Ayoub v Lombard Insurance Co (Aust) Pty Ltd (1989) 97 FLR 284 ….
11.9

B
Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2001]
WL 1040274 …. 4.7
Backhouse v Judd [1925] SASR 16 …. 9.1
Badische Anilin und Soda Fabrik v Basle Chemical Works Bindschedler
[1898] AC 200 …. 8.19
— v Hickson [1906] AC 419 …. 8.6
Bain Securities Ltd v Curmi (1990) 1 ACSR 794 …. 5.41
Baldry v Marshall [1925] 1 KB 260 …. 6.37
Balmain New Ferry Co Ltd v Robertson (1906) 4 CLR 379 …. 13.26
Balmoral Supermarket Ltd v Bank of New Zealand Ltd [1974] 2 NZLR
155 …. 9.3
Baltic Shipping v Dillon (1993) 176 CLR 344 …. 12.9, 12.36
Banditt v R (2005) 224 CLR 262; [2005] HCA 80 …. 11.17
Bank of Adelaide v Lorden (1970) 127 CLR 185 …. 12.22
Bank of Australasia v North German Insurance Co (1899) 17 NZLR 387
…. 11.26
Bank of Credit and Commercial International SA v Aboody [1989] 1
QB 923 …. 12.26
Bank of England v Vagliano Bros [1891] AC 107 …. 6.1
Bank of New South Wales v Permanent Trustee Co of NSW Ltd (1943)
68 CLR 1 …. 12.5
Bank of New Zealand v Fiberi Pty Ltd (1992) 8 ACSR 790 …. 5.7
Bank of Nova Scotia v Hellenic Mutual War Risks Association
(Bermuda) Ltd [1998] 1 Lloyd’s Rep 514 …. 11.23
Bank of Victoria v Smith (1894) 20 VLR 450 …. 12.24
Banks v Ferrari [2000] NSWSC 874 …. 3.5
— v NRMA Insurance Ltd (NSWSC, Brownie J, 1 September 1988,
unreported) …. 11.23
Banque Financiere v Westgate Insurance Co Ltd [1989] 2 All ER 952
…. 11.21, 11.23
— v — [1990] 2 All ER 947 …. 11.21, 11.23
Barnett v Network Solutions, Inc 38 SW 3d 200 (Texas Ct App 2001) ….
13.25
Barrell v Trussell (1811) 128 ER 273 …. 12.3
Barrett v Irvine [1907] 3 IR 462 …. 5.29
Barrow v Coles (1811) 3 Camp 92; 170 ER 1316 …. 8.11
Basma v Weekes [1950] AC 441 …. 5.49
Bates v Hewitt (1867) LR 2 QB 595 …. 11.14
Bayley v Fitzmaurice (1856) 6 El & Bl 868 …. 5.32
Bazley v Wesley Monash IVF Pty Ltd [2011] 2 Qd R 207; [2010] QSC
118 …. 1.7
Beach Petroleum v Johnson (1993) 11 ACSR 103 …. 5.37
Beale v Gough (1882) 1 WN (NSW) 110 …. 2.15
— v Taylor [1967] 1 WLR 1192 …. 6.26
Beazley v Seed & Grain Sales Moree Pty Ltd (1988) 4 BPR 9529 …. 5.2
Beckett & Co v Addyman (1882) 9 QBD 783 …. 12.9
Bedford Insurance Co Ltd v Instituto de Resseguros do Brasil [1985]
QB 966 …. 5.26, 5.34
Bell v Clare (1989) 23 FCR 274 …. 1.16
— v Marsh [1903] 1 Ch 528 …. 5.31
Bellgrove v Eldridge (1954) 90 CLR 613 …. 6.47
Bence Graphics International Ltd v Fasson UK Ltd [1997] 1 All ER 979
…. 6.47
Beneficial Finance Corp Ltd v Comer (1991) ASC ¶56–042 …. 12.30
— v National Mutual Royal Bank (VSC, Brooking J, 8 September 1988,
unreported) …. 8.32
Benson-Brown v HIH Casualty & General Insurance [2001] WASC 6 ….
13.23
Bergman v CGU Insurance Ltd [2016] VSC 81 …. 11.12
Bergougnan v British Motors Ltd (1929) 30 SR (NSW) 61 …. 4.2
Bernard Elsey Pty Ltd v FCT (1969) 121 CLR 119 …. 5.37
Berry & Son v Star Brush Co (1915) 31 TLR 603 …. 8.15
Bevan v Webb [1901] 2 Ch 59 …. 5.3
Beverley v Lincoln Gas Light & Coke Co (1837) 6 A & E 829 …. 8.15
Big Top Hereford Pty Ltd v Thomas [2006] NSWSC 1159 …. 4.6, 9.1
Bird v Brown (1850) 4 Exch 786; 154 ER 1433 …. 5.26, 5.34
— v Fort Frances [1949] 2 DLR 791 …. 3.8
Bis Cleanaway t/a Chep v Tatale [2007] NSWSC 378 …. 9.23
Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003] NSWSC 874
…. 12.6, 12.13
Bishopsgate Motor Finance Corp Ltd v Transport Brakes Ltd [1949] 1
KB 332 …. 8.30
Bit Badger Pty Ltd v Cunich (1996) 9 ANZ Ins Cas 61–312 …. 11.46
Blashki v Utara (2003) Aust Contract R ¶90–159 …. 12.2
Bleyer v Google Inc (2014) 88 NSWLR 670; [2014] NSWSC 897 ….
13.28
Blomley v Ryan (1956) 99 CLR 362 …. 12.25
Bodapati v Westpac Banking Corp [2015] QCA 7 …. 12.25
Bofinger v Kingsway Group Ltd (formerly Willis & Bowring Mortgage
Investments Ltd) (2009) 239 CLR 269 …. 12.37
Bolton v Darling Downs Building Society [1935] St R Qd 237 …. 12.13
— v Salmon [1891] 2 Ch 48 …. 12.13, 12.17
Bolton Partners Ltd v Lambert (1889) 41 Ch D 295 …. 5.26, 5.34
Bolwell Fibreglass Pty Ltd v Foley [1984] VR 97 …. 9.34
Boonham v CE Heath Underwriting & Agency Services (1993) 7 ANZ
Ins Cas 61–189 …. 11.34
Booth Steamship Company Ltd v Cargo Fleet Iron Company Ltd
[1916] 2 KB 570 …. 6.57
Boral Resources (Qld) Pty Ltd v Pyke (1989) 93 ALR 89 …. 11.50
Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25; [1979]
3 All ER 961 …. 4.7, 9.6
Borg v Northern Rivers Finance [2004] QSC 29 …. 5.29
Botany Fork & Crane Hire Pty Ltd v New Zealand Insurance Co Ltd
(1993) 44 FCR 27 …. 11.26
Bousquet v Mack Motor Truck Co 168 NE 800 (1929) …. 4.2
Bowden, Re [1936] Ch 71 …. 1.22
Bowden v Lo (1998) NSW ConvR ¶55–868 …. 9.14
Bowman v Bacon (1897) 18 LR (NSW) 12 …. 5.8
Brabant & Co v Thomas Mulhall King [1895] AC 632 …. 9.24
Bradford v Gammon [1925] Ch 132 …. 12.33, 12.35
Bradley and Essex and Suffolk Accident Indemnity Society, Re [1912] 1
KB 415 …. 11.23
Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 …. 6.39
Brambles Holdings Ltd v Carey (1976) 15 SASR 270 …. 5.38
Brambles Security Services Ltd v Bi-Lo Pty Ltd (1992) Aust Torts
Reports ¶81–161 …. 9.1, 9.9, 9.10, 9.15
Brand v Bardon (NSWSC, Handley, Powell and Stein JJA, 18 July 1997,
unreported) …. 6.43
Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 …. 5.5,
5.13, 5.54
Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311
…. 12.3
Bridge Wholesale Acceptance Corp (Australia) Ltd v Hartland & Hyde
Pty Ltd (NSWSC, Giles J, 2 February 1995, unreported) …. 6.18
Bridges v Hawkesworth (1851) 21 LJ QB 75 …. 3.8
Bridgewater v Leahy (1998) 194 CLR 457 …. 12.26
Brien v Dwyer (1978) 141 CLR 378 …. 5.7
Bright v Femcare Ltd (2000) 175 ALR 50; [2000] FCA 742 …. 7.25
Briginshaw v Briginshaw (1938) 60 CLR 336 …. 11.17, 11.38
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH
[1983] 2 AC 34 …. 13.23
Bristol Tramways & Carriage Co Ltd v Fiat Motors Ltd [1910] 2 KB 831
…. 6.43
British Bank of the Middle East v Sun Life Assurance of Canada (UK)
Ltd [1983] 2 Lloyd’s Rep 9 …. 5.15, 5.20
British Equitable Insurance Company v The Great Western Railway
Company (1869) 38 LJ Ch 314 …. 11.11
British Oil & Cake Co Ltd v J Burstall & Co Ltd (1923) 15 Lloyd’s Rep
 46 …. 6.30
British Road Services Ltd v Arthur V Crutchley & Co Ltd (Factory
Guards Ltd, Third Parties) [1968] 1 All ER 811 …. 9.32
British Thomson-Houston Co Ltd v Federated European Bank Ltd
[1932] 2 KB 176 …. 5.20
Brocklesby v Temperance Permanent Building Society [1895] AC 173
…. 5.13
Brogden v Metropolitan Ry Co (1877) 2 App Cas at 692 …. 5.27
Brook v Hook (1871) LR 6 Exch 89 …. 5.27
Brooks Robinson Pty Ltd v Rothfield [1951] VLR 405 …. 6.3
Brook’s Wharf Ltd v Goodman Bros [1937] 1 KB 534 …. 12.35
Brotherton v Aseguradora Colseguros SA (No 2) [2003] EWCA Civ 705;
[2003] Lloyd’s Rep IR 746 …. 11.11
Brower v Gateway 2000 Inc 246 AD 2d 246; 676 NYS 2d 569 (App Div
1998) …. 13.24
Brownett v Newton (1941) 64 CLR 439 …. 5.50
Browning v Provincial Insurance Co of Canada (1873) LR 5 PC 263 ….
5.41, 5.42
Bryant v Wardell (1848) 2 Ex 479; 154 ER 580 …. 9.31
BS Brown & Son Ltd v Craiks [1970] 1 WLR 752 …. 6.43
Buchan & Co Ltd v Hays’ Transport Services [1972] 2 Lloyd’s Rep 535
…. 9.29
Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 …. 12.24
Buckley v Gross (1863) 3 B & S 566 …. 3.8, 4.9
Building and Civil Engineering Holidays Scheme Management Ltd v
Post Office [1966] 1 QB 247 …. 9.33
Bullen v Swan Electric Engraving Co (1906) 22 TLR 275 …. 9.32
— v — (1907) 23 TLR 258 …. 9.32
Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420;
[2011] NSWCA 342 …. 2.15
— v Laminex Group Ltd (2006) 230 ALR 269; [2006] FCA 682 …. 7.4
Bunt v Tilley [2007] 1 WRL 1243 …. 13.28
Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187
…. 11.23
Burgess v Zinc Port Melbourne [2013] VSC 599 …. 6.5
Burnes v Trade Credits Ltd [1981] 1 NSWLR 93 …. 12.23
Burnett v Randwick City Council [2006] NSWCA 196 …. 2.5
Buron v Denman [(1848) 2 Ex 167 …. 5.29
Business & Professional Leasing Pty Ltd v Dannawi; BPL (NSW) Pty Ltd
v Blue Robe Petroleum Pty Ltd; BPL (NSW) Pty Ltd v Macarounas
[2008] NSWSC 902 …. 7.4
Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 ….
9.33
— v JSL Racing Pty Ltd [2014] VSC 509 …. 6.3, 6.10, 6.18
Butterworth v Kingsway Motors [1954] 1 WLR 1286 …. 6.18
Button v Cooper [1947] SASR 286 …. 2.3
Byas v Miller (1897) 3 Com Cas 39 …. 5.27
Byrne v Hoare [1965] Qd R 135 …. 3.8

C
C.A.R.S. Pty Ltd v Brent [2015] TASSC 23 …. 12.24
Cairncross v Lorimer (1860) 3 Macq 827 …. 5.31
Calder v Jones 465 US 783 (1984) …. 13.32
Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (1976) 136
CLR 529 …. 9.6
Camellia Properties v Wesfarmers General Insurance Ltd [2013]
NSWSC 1975 …. 11.23
Cameron v Qantas Airways Ltd (1995) 55 FCR 147 …. 12.25
Cameron & Co v Slutzkin Pty Ltd (1923) 32 CLR 81 …. 6.44
Cammell Laird & Co Ltd v Manganese Bronze & Brass Co Ltd [1934]
 AC 402 …. 6.32, 8.15
Canberra Washed Sand Pty Ltd v Ro-Mix Concrete Pty Ltd (1976) 11
ACTR 1 …. 6.16
Canning v Farquhar (1886) 16 QBD 727 …. 11.11
Canon Australia Pty Ltd v Patton (2007) 244 ALR 759; [2007] NSWCA
246 …. 12.25
Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309 …. 12.20
Capital Finance Australia Ltd v Clough [2015] NSWSC 1327 …. 10.3
Capogreco v Rogerson [2015] NSWSC 1371 …. 8.30
Car & Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 …. 8.35
Carberry v Gardiner (1936) 36 SR (NSW) 559 …. 5.42
Care Builders Pty Ltd, Re (1997) 23 ACSR 754 …. 12.6, 12.23
Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s
Rep 240 …. 6.11, 8.19
Carpet Call Pty Ltd v Chan (1987) ATPR (Digest) 46-025 …. 7.4
Carrafa, Gountzos & Lofthouse (as liq of Relux Commercial Pty Ltd (in
liq)) v Doka Formwork Pty Ltd [2014] VSC 570 …. 10.3, 10.8
Carter v Boehm (1766) 3 Burr 1905 …. 11.21
Case of Leather (1490) YB 5 Hen VII …. 4.5
Caspi v Microsoft 323 NJ Super 118; 732 A 2d 528 (NJ Super Ct App Div
1999) …. 13.25
Castellain v Preston (1883) 11 QBD 380 …. 11.46
Caxton Publishing Co Ltd v Sutherland Publishing Co [1939] AC 178
…. 9.16
CE Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR
25 …. 11.7, 11.17, 11.23
CE Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop
& Co Ltd (1993) 176 CLR 535 …. 11.26
Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44 …. 6.43
Celthene Pty Ltd v WKJ Hauliers Pty Ltd [1981] 1 NSWLR 606 …. 5.29,
 5.34
Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2015] VSCA 92
…. 10.9, 10.16
Central Newbury Car Auctions Ltd v Unity Finance Ltd [1957] 1 QB
371 …. 8.32
CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR
1; [2007] HCA 36 …. 11.21
— v Porthouse (2008) 235 CLR 103; [2008] HCA 30 …. 11.8, 11.12
Chabbra Corp Pty Ltd v Jag Shakti [1986] 1 AC 337 …. 9.34
Chan v Cresdon Pty Ltd (1989) 168 CLR 242 …. 12.3, 12.18
Chandler v Webster [1904] 1 KB 493 …. 8.28
Chao v British Traders and Shippers Ltd [1954] 2 QB 459 …. 6.45,
6.46, 8.35
Chapman v Hearse (1961) 106 CLR 112 …. 11.35
Chapman Bros v Verco Bros & Co Ltd (1933) 49 CLR 306 …. 9.6
Charge Card Services Ltd, Re [1988] 3 All ER 702 …. 8.11
Charter v Sullivan [1957] 2 QB 117 …. 6.49
Charter Reinsurance Co Ltd v Fagan [1997] AC 313 …. 11.26
Chase v Westmore (1816) 5 M & S 180 …. 1.13
Chattis Nominees Pty Ltd v Norman Ross Home Works Pty Ltd (in liq)
(1992) 28 NSWLR 338 …. 8.20, 8.21
CHEP Australia Ltd v Bunnings Group Ltd [2010] NSWSC 301 …. 9.33
Chicago Boot Co Pty Ltd v Davies & McIntosh as Joint & Several
Liquidators of Harris Scarfe Ltd (2011) 282 ALR 378; [2011]
SASCFC 92 …. 8.20
Chidbundid v Minister for Immigration and Citizenship (2012) 259
FLR 1; [2012] FMCA 59 …. 13.19
China Pacific SA v Food Corp of India (The Winson) [1982] AC 939 ….
9.14
Chisum Services Pty Ltd, Re (1982) 7 ACLR 641 …. 5.35, 5.38
Christian Youth Camps Ltd v Cobaw Community Health Services Ltd
[2014] VSCA 75 …. 5.38
Christie v Permewan, Wright & Co Ltd (1904) 1 CLR 693 …. 5.3
CIC Insurance Ltd v Midaz Pty Ltd (1998) 10 ANZ Ins Cas 61–394 ….
11.17
Cinema Center Services v Eastaway Air Conditioning Pty Ltd (1999)
ASAL 55-034 …. 7.4
Citadel Financial Corp Pty Ltd v Elite Highrise Services Pty Ltd (No 3)
[2014] NSWSC 1926 …. 10.13, 10.16
Citibank Savings Ltd v Nicholson (1997) 70 SASR 206 …. 12.30
City Bank of Sydney v McLaughlin (1909) 9 CLR 615 …. 5.30
City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd
(1985) 3 NSW LR 739 …. 11.35
City Motors (1933) Pty Ltd v Southern Aerial Super Service Pty Ltd
(1961) 106 CLR 477 …. 9.34
CKE Engineering Ltd (in admin), Re [2007] BCC 975 …. 4.7, 4.10
Clancy v Prince [2001] NSW ConvR ¶55–981 …. 5.25
Clarke v Lopwell Pty Ltd [2008] NSWSC 615 …. 12.25
Clarkson Booker Ltd v Andjel [1964] 2 QB 775 …. 5.40, 5.41
Claude B Fox Pty Ltd v Rayner [1978] Qd R 250 …. 6.34
Clean Investments Pty Ltd v Commissioner of Taxation (2001) 105 FCR
248 …. 7.4
Clifford v Moore (1890) 11 ALT 146 …. 5.49
Clough Mill Ltd v Martin [1984] 3 All ER 982; [1985] 1 WLR 111 ….
4.7, 8.23, 9.6
Club Hotels Operations Pty Ltd v CHG Australia Pty Ltd [2005] NSWSC
998 …. 12.18
Clune, Re; Ex parte Verge v Isabella Nominees Pty Ltd (in liq) (1988)
14 ACLR 261 …. 5.46
Coates v Lewes (1808) 1 Camp 444 …. 5.41
Cochrane v Moore (1890) 25 QBD 57 …. 1.20, 6.3
Cockburn v GIO Finance Ltd (No 2) (2001) 51 NSWLR 624 …. 12.38
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149
CLR 337 …. 6.27, 6.44, 12.18
Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 …. 9.14, 9.21
Coghlan v S H Lock (Aust) Ltd (1987) 8 NSWLR 88 …. 12.3, 12.18
Cohen v Cohen [2016] NSWSC 336 …. 5.44
Coldman v Hill [1919] 1 KB 443 …. 9.1, 9.24
Cole, Re [1964] Ch 175 …. 1.20
Coleman v Harvey [1989] 1 NZLR 723 …. 4.7
Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107
CLR 279 …. 2.5
Collen v Wright (1857) 8 El & Bl 647; 120 ER 241 …. 5.48, 5.50
Collyear v CGU Insurance Ltd (2008) 15 ANZ Ins Cas 61–760; [2008]
NSWCA 92 …. 11.48, 11.53
Colonial Mutual Life Assurance Society Ltd v Producers and Citizens
Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 ….
5.38
Combulk Pty Ltd v TNT Management Pty Ltd (1993) 41 FCR 59; 113
ALR 214 …. 5.8
Commercial & General Insurance Co Ltd v Government Insurance
Office of New South Wales (1973) 129 CLR 374; 47 ALJR 612b ….
11.48, 11.55
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 ….
12.21, 12.25, 12.26, 12.27, 12.28, 12.30
— v Cavanaugh (1980) 7 NTR 12 …. 12.9
Commercial Bank of Tasmania v Jones [1893] AC 313 …. 12.23
Commercial Banking Co of Sydney Ltd v Gaty [1978] 2 NSWLR 271 ….
12.6, 12.23
— v Mann (1960) 34 ALJR 293 …. 5.33
— v Patrick Intermarine Acceptance Ltd (in liq) (1978) 52 ALJR 404
…. 12.6
Commercial Union Assurance Co Ltd v Hayden [1977] QB 804 ….
11.55
Commercial Union Assurance Co of Australia Ltd v Beard (1999) 47
NSWLR 735; (2000) 11 ANZ Ins Cas 61–458 …. 11.9, 11.14
Commissioner of Internal Revenue v San Carlos Milling Co Ltd (1933)
63 F (2d) 153 …. 9.6
Commonwealth Bank of Australia v Hamilton [2012] NSWSC 242 ….
5.50
Compania Naviera Vascongado v British and Foreign Marine Insurance
Co Ltd (The Gloria) [1936] 54 LIR 35 …. 11.43
Compania Portorafti Commerciale SA v Ultramar Panama Inc [1990] 2
Lloyd’s Rep 395 …. 9.1
Comptroller General of Customs v Woodlands Enterprises Pty Ltd
(1995) 128 FLR 113 …. 9.8
Condogianis v Guardian Assurance Co (1921) 29 CLR 341; [1921]
UKPCHCA 1 …. 11.18, 11.19
Conley, Re; Ex parte Trustee v Barclays Bank Ltd [1938] 2 All ER 127
…. 12.1, 12.2, 12.13, 12.17
Consolidated Co v Curtis & Son [1892] 1 QB 495 …. 2.15
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur
Insurance (Australia) Ltd (1986) 160 CLR 226 …. 5.2, 5.7, 5.54
Cook v Saroukos (1989) 97 FLR 33 …. 3.2, 3.5
Cooper v Fisken (1912) 18 ALR 155 …. 5.49
— v Willomott (1845) 1 CB 672; 135 ER 706 …. 9.31
Co-operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17
WAR 257 …. 11.51
Corporation of London v Appleyard [1963] 1 WLR 982 …. 3.8
Costello v Chief Constable of Derbyshire Constabulary [2001] 3 All ER
150 …. 2.11
Cottee v Franklins Self Service Pty Ltd [1997] 1 Qd R 469 …. 9.17
Cotter v Luckie [1918] NZLR 811 …. 6.26
Coughlin v Gillison [1899] 1 QB 145 …. 9.17
Coulhart v Clementson (1879) 5 QBD 42 …. 12.9
Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 ….
12.38
Country Stores Pty Ltd, Re [1987] 2 Qd R 318 …. 8.21
Courtney v Medtel Pty Ltd [2003] FCA 36 …. 7.8
Cousens v Grayridge [2000] VSCA 96 …. 5.2, 5.7
Cox v Isles, Love & Co [1910] St R Qd 80 …. 5.29
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising &
Addressing Co Pty Ltd (1975) 133 CLR 72 …. 5.7, 5.8, 5.11, 5.20
— v — [1975] VR 607 …. 5.20, 5.29, 5.31
Crago v Multiquip Pty Ltd (1998) ATPR 41-620 …. 7.4
Craythorne v Swinburne (1807) 14 Ves Jun 160; 33 ER 482 …. 12.38
Crouch v Adams [2006] NSWSC 1029 …. 8.19, 8.39
— v Jeeves (1938) Pty Ltd (1946) 46 SR (NSW) 242 …. 9.25, 9.32
Crouch and Lyndon (a firm) v IPG Finance Australia Pty Ltd [2013]
QCA 220 …. 5.8
Crowther v Shannon [1975] 1 WLR 30 …. 6.38
Crump v Equine Nutrition Systems Pty Ltd t/as Horsepower [2006]
NSWSC 512 …. 7.4, 7.25
Cundy v Lindsay (1878) LR 3 App Cas 459 …. 8.34
Curtin v Meadlow Holdings Pty Ltd [2001] QCA 145 …. 2.15
Curtis v Perth and Freemantle Bottle Exchange Co Ltd (1914) 18 CLR
17 …. 5.6
— v Singtel Optus Pty Ltd [2014] FCCA 1286 …. 13.16
Custom Credit Corp Ltd v Lynch [1993] 2 VR 469 …. 5.2, 5.54
Custom Lease Pty Ltd v Simpson (NSWSC, Mofitt P, Samuels and
Priestley JJA, 14 July 1983, unreported) …. 9.32

D
Dalgety & Co Ltd v Australian Mutual Provident Society [1908] VLR
481 …. 11.17
Dane v Mortgage Insurance Corp Ltd [1894] 1 QB 54 …. 12.21
Daniel v Hotel Pacific Pty Ltd [1953] VLR 447 …. 9.19
Daniell v Paradiso (1991) 55 SASR 359 …. 5.13
Danish Mercantile Co Ltd v Beaumont [1951] Ch 680 …. 5.26
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
…. 6.1, 9.35, 11.26
Darvall v North Sydney Brick & Tile Co (1989) 16 NSWLR 260 …. 5.37
Daunt v Daunt [2015] VSCA 58 …. 12.26
Davey v Paine Bros (Motors) Ltd [1954] NZLR 1122 …. 6.12
— v Robinson’s Motors Pty Ltd (1957) 75 WN (NSW) 56 …. 8.11
Davies v Humphreys (1840) 6 M & W 153; 151 ER 361 …. 12.33
Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642 …. 9.24
Davison v Vickery’s Motors Ltd (in liq) (1925) 37 CLR 1 …. 5.26
Dawes Underwriting Australia Pty Ltd v Roth [2009] NSWCA 152 ….
11.8, 11.17
Dawnlite Pty Ltd v Riverwalk Realty Pty Ltd [2013] QSC 243 …. 5.6,
5.27
Dawson v Monarch Insurance Co of New Zealand [1977] 1 NZLR 372
…. 11.40
Dawsons Ltd v Bonnin [1922] 2 AC 413 …. 11.18
Day v Day [2013] EWCA Civ 280; [2014] Ch 114 …. 5.6
De Bussche v Alt (1878) 8 Ch D 286 …. 5.31, 5.51
De Vries v Rapid Metal Developments (Aust) Pty Ltd (2011) 84 ACSR
261; [2011] NSWCA 100 …. 4.6
Deaves v CML Fire and General Insurance Co Ltd (1979) 143 CLR 24;
[1979] HCA 12 …. 11.18, 11.19
Debtor, Re A [1937] Ch 156 …. 12.33
Delhasse, Ex parte 7 Ch D 511 …. 5.54
Dell v Quilty [1924] NZLR 1270 …. 6.26
Demby Hamilton & Co Ltd v Barden [1949] 1 All ER 435 …. 8.26
Dempster v National Companies and Securities Commission (1993) 10
ACSR 297 …. 5.37
Denis Geary Motors v Hunter Street Finance [1979] Qd R 207 …. 6.18
Dependable Motors Pty Ltd v Ashford Shire Council (1959) 101 CLR
265 …. 6.32, 6.34
Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633 …. 9.17,
9.27
Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184 …. 12.38
Derry v Peek (1889) 14 App Cas 337 …. 11.17
Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR
167 …. 6.3
Di Bello v De Costi Seafoods (Holdings) Pty Ltd [2005] NSWCA 267 ….
5.8
Dibbins v Dibbins [1896] 2 Ch 348 …. 5.34
Dickinson v Valpy [(1829) 10 B & C 128 …. 5.21
Dimitrakipoulos v Farm Pride Foods Ltd [2000] QCA 80 …. 12.24
Dimitrovski v Australian Executor Trustees Ltd [2014] NSWCA 68 ….
5.6
Direct Acceptance Finance Ltd v Cumberland Furnishings Pty Ltd
[1965] NSWR 1504 …. 12.6
Director of Consumer Affairs Victoria v The Good Guys Discount
Warehouses (Australia) Pty Ltd [2016] FCA 22 …. 7.17
Director of Public Prosecutions v Brooks [1974] AC 862 …. 2.5
— v Gomez [1993] AC 442 …. 5.37
Distillers Co Biochemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd
(1974) 130 CLR 1 …. 11.21, 11.23
Distillers Co (Biochemicals) Ltd v Thompson [1971] AC 458 …. 13.29
Donald v Suckling (1866) LR 1 QB 585 …. 1.12, 9.26, 9.31
Doodeward v Spence (1908) 6 CLR 406; [1908] HCA 45 …. 1.7
Doubleclick Inc Privacy Litigation, Re 154 F Supp 2d 497 (SDNY 2001)
…. 13.4, 13.5
Dougan v Ley (1946) 71 CLR 142 …. 6.50
Dow Jones & Co Inc v Gutnick (2002) 210 CLR 575 …. 13.3, 13.4,
13.27, 13.28, 13.29, 13.30
Dowdell v Knispel Fruit Juices Pty Ltd [2003] FCA 851 …. 6.34, 6.38,
6.43
Drayton v Martin (1996) 137 ALR 145 …. 11.53, 11.55
Drew v Nunn (1879) 4 QBD 661 …. 5.53
Duffy v Google Inc [2015] SASC 170 …. 13.28
Dumitrov v SC Johnson & Son Superannuation Pty Ltd [2006] NSWSC
1372 …. 11.23
Duncan, Fox & Co v The North and South Wales Bank (1880) 6 App
Cas 1 …. 12.2, 12.4, 12.6, 12.37
Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd
[2014] VSCA 326 …. 10.3, 10.11, 10.12
Durham Brothers v Robertson [1898] 1 QB 765 …. 1.21
Dwyer and Davies v Chicago Boot Co Pty Ltd (2011) 82 ACSR 193;
[2011] SASC 27 …. 8.20
Dyster v Randall & Sons [1926] Ch 932 …. 5.42

E
E & S Ruben Ltd v Faire Bros & Co Ltd [1949] 1 KB 254 …. 6.45, 8.44
E Hardy & Co (London) Ltd v Hillerns and Fowler [1923] 2 KB 490 ….
6.45, 6.46
East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance
Ltd (1992) 25 NSWLR 400 …. 11.32
Eastern Distributors Ltd v Goldring [1957] 2 QB 600 …. 8.31, 8.32
Eastern Suburbs Leagues Club Ltd v Royal & Sun Alliance Insurance
 Australia Ltd (2004) 13 ANZ Ins Cas 61–599; [2003] QSC 413 ….
11.35
Eastwood v Kenyon (1840) 113 ER 382 …. 12.3, 12.10
Edgar v Hector [1912] SC 348 …. 6.26
Edlin v Williams [1998] QCA 439 …. 12.3
Edwards, Re the Estate of [2011] NSWSC 478 …. 1.7
Edwards v Ddin [1976] 1 WLR 942 …. 8.19
— v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61–113
…. 11.23
— v Lennon (1866) 6 SCR (NSW) Eq 18 …. 12.13, 12.17
— v Newland & Co [1950] 2 KB 534 …. 8.27, 9.35
EFM Pty Ltd v New Zealand Steel (Australia) Pty Ltd [1998] VSC 194
…. 5.7
Egan v Ross (1928) 29 SR (NSW) 382 …. 5.13, 5.23
Egekvist Bakeries v Tizel & Blinick [1950] 1 DLR 585 …. 6.18
— v — [1950] 2 DLR 592 …. 6.18
EGIS Consulting Australia Pty Ltd v First Dynasty Mines Ltd [2001]
WASC 22 …. 13.23
Egmont Box Co Ltd v Registrar-General of Lands [1920] NZLR 741 ….
6.5
Egyptian International Foreign Trade Co v Soplex Wholesale Supplies
Ltd (The ‘Raffaella’) [1985] 2 Lloyd’s Rep 36 …. 5.11, 5.15, 5.20
Ehrenfeld v Oriana Nominees Pty Ltd [1999] WASCA 222 …. 12.6,
12.23
Elder v Northcott [1930] 2 Ch 422 …. 12.2
Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631 ….
6.23, 6.26
Elitestone Ltd v Morris [1997] 2 All ER 513; [1997] 1 WLR 687 …. 4.12
Ellerbeck Collieries Ltd v Cornhill Insurance Co Ltd [1932] 1 KB 401
…. 11.46
Ellerman’s Wilson Line Ltd v Webster [1952] 1 Lloyd’s Rep 179 …. 3.2
Ellesmere Brewery Co v Cooper [1896] 1 QB 75 …. 12.38
Ellis, Re (No 2) [2013] WASC 161 …. 13.19
Elms v Ansell Ltd [2007] NSWSC 618 …. 7.25
Elphick v Barnes (1880) 5 CPD 321 …. 8.15
Elwes v Brigg Gas Co (1886) 33 Ch D 562 …. 3.2, 3.8, 4.12
Entores Ltd v Miles Far East Corp [1955] 2 QB 327 …. 13.23
Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 5
ACSR 424; 6 ANZ Ins Cas 61–059 …. 5.37, 11.39, 11.40, 11.42
Eon Metals NL v Cmr of State Taxation (WA) (1991) 91 ATC 4841 ….
4.12
Equity Trustees Executors & Agency Co Ltd v New Zealand Loan &
Mercantile Agency Co Ltd [1940] VLR 201 …. 12.37
Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7 ….
1.21
Errington v Errington and Woods [1952] 1KB 290 …. 2.2
Esanda Finance Corp Ltd v Colonial Mutual General Insurance Co Ltd
(1993) 217 ALR 180 …. 11.53
— v Tong (1997) 41 NSWLR 482 …. 12.30
Essington Investments Pty Ltd v Regency Property Pty Ltd [2004]
NSWCA 375 …. 5.13, 5.20
Esso Bernica, The [1989] AC 643 …. 12.35, 12.36
Estoril Investments Pty Ltd v Westpac Banking Corp (1993) 6 BPR
13,146 …. 12.8
Euphoric Pty Ltd v Ryledar Pty Ltd [2006] NSWSC 2 …. 6.16
Evans, Re [1946] St R Qd 20 …. 1.20
Evans v Sirius Insurance Co Ltd (1986) 4 ANZ Ins Cas 60–755 …. 11.14
Expo Aluminium (NSW) Pty Ltd v WR Pateman Pty Ltd (1990) ASC 55-
978 …. 6.34

F
F Drughorn Ltd v Redriaktiebolaget Trans-Atlantic [1919] AC 203 ….
5.42
FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd
(2001) 204 CLR 641 …. 11.32, 11.37
— v Perry (1993) 30 NSWLR 89 …. 11.32
Fairchild v Glenhaven Funeral Services Ltd [2002] 1 WLR 1052 ….
11.35
Fairmede Pty Ltd v Von Pein [2004] ANZ ConvR 382; [2004] QSC 220
…. 5.7
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 ….
5.35
Farnsworth v FCT (1949) 78 CLR 504 …. 4.9, 9.6
Farquharson Brothers & Co v King & Co [1902] AC 325 …. 5.21
Farrow v Wilson (1860) LR 4 CP 744 …. 5.53
Fearnley v Finlay [2014] 2 Qd R 392; [2014] QCA 155 …. 1.16, 9.1, 10.8
Federal Commissioner of Taxation v Australia and New Zealand
Banking Group Ltd (1979) 143 CLR 499 …. 2.5
— v United Aircraft Corp (1943) 68 CLR 525 …. 9.1
Fenn v Bittleston (1851) 7 Ex 152; 155 ER 895 …. 9.31
Ferraro v DBN Holdings Aust Pty Ltd (t/as Sports Auto Group) [2015]
FCA 1127 …. 7.18
Ferrcom Pty Ltd v Commercial Union Assurance Co (Aust) Ltd (1993)
176 CLR 332; 67 ALJR 264 …. 11.33
Feuer Leather Corp v Frank Johnston & Sons [1981] Com LR 251 ….
8.36
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943]
AC 32 …. 8.28
Fidock v Legal Profession Complaints Committee [2013] WASCA 108
…. 11.17
Filmana Pty Ltd v Tynan [2013] QCA 256 …. 12.2
Finzel, Berry & Co v Eastcheap Dried Fruit Co [1962] 1 QB 370 ….
 5.41, 5.42
First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2
Lloyd’s Rep 194 …. 5.20
First National Bank of SA Ltd v Quality Tyres [1970] (Pty) Ltd (1995)
(3) SA 556 …. 1.18
Firth v Staines [1897] 2 QB 70 …. 5.26
Flack v National Crime Authority (1997) 80 FCR 137 …. 2.11
Flexirent Capital Pty Ltd v EBS Consulting Pty Ltd (2007) 14 ANZ Ins
Cas 61; [2007] VSC 158 …. 5.8, 5.20
Flinn v White [1950] SASR 195 …. 1.20, 2.5
Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts
Reports 81-244 …. 2.15
Foley v Classique Coaches Ltd [1934] 2 KB 1 …. 6.12
Ford Excavations Pty Ltd v Do Carmo [1981] 2 NSWLR 253 …. 5.38
Forge Group Power Pty Ltd (in liq) v General Electric International Inc
[2016] NSWSC 52 …. 10.2, 10.3, 10.8
Forman & Co Pty Ltd v Liddesdale [1900] AC 190 …. 5.29
Forrest v Australian Securities and Investments Commission (2012) 86
ALJR 1183; [2012] HCA 39 …. 11.17
— v Verizon Communications 805 A 2d 1007 (DC App 2002) …. 13.25
Forsythe International (UK) Ltd v Silver Shipping Co Ltd (‘The
Saetta’) [1994] 1 All ER 851 …. 8.42, 8.44
Foskett v McKeown [2001] 1 AC 102 …. 4.6, 4.9
Fouldes v Willoughby (1841) 8 M & W 540 …. 2.15
Four Point Garage Ltd v Carter [1985] 3 All ER 12 …. 8.22, 8.41, 8.42,
8.44
Four Square Stores (Qld) Ltd v ABE Copiers Pty Ltd (1981) ATPR 40-
232 …. 7.4
Frank v Grosvenor Motor Auctions Pty Ltd [1960] VR 607 …. 6.42
Fray v Voules (1859) 1 El & El 839 …. 5.7
Freeman v Rosher (1849) 13 QB 780 …. 5.29
Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd
[1964] 2 QB 480 …. 5.2, 5.8, 5.11, 5.15, 5.17, 5.20, 5.22, 5.36, 5.41
French v French (1841) 2 M & G 644; 133 ER 903 …. 12.3
Fried v National Australia Bank (2001) 111 FCR 322 …. 5.22, 5.32
Frost v Aylesbury Dairy Co Ltd [1905] 1 KB 608 …. 6.32
Fruehauf Finance Corp Pty Ltd v Zurich Australia Insurance Ltd (1990)
20 NSWLR 359 …. 11.18
Fuentes v Montis (1868) LR 3 CP 268 …. 8.30

G
G(A) v G(T) [1970] 2 QB 643 …. 5.3
Gadd v Houghton (1876) 1 Ex D 357 …. 5.49
Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale
Australia Pty Ltd (1987) 163 CLR 236 …. 2.3, 6.1, 8.30, 8.39, 8.44,
8.45
Gamlen Chemical Co (Australasia) Pty Ltd v Shipping Corp of India
Ltd [1978] 2 NSWLR 12 …. 9.32
Gammasonics Institute for Medical Research Pty Ltd v Comrad Medical
Systems Pty Ltd (2010) 77 NSWLR 479; [2010] NSWSC 267 …. 6.5
Gan v Sanders (1994) 15 ACSR 298 …. 12.6, 12.23
Garcia v National Australia Bank Ltd (1998) 194 CLR 395; 155 ALR 614
…. 12.27, 12.30
Garlic v W & H Rycroft Ltd [1982] CAT 277 …. 9.14
Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130
…. 5.54
Garrett and Bodenham, surviving Partners of Phillips v Handley (1825)
4 B & C 664 …. 12.10
Gattellaro v Westpac Banking Corp (2004) 204 ALR 258 …. 12.18,
12.24
Geissler v Accro Motors Pty Ltd (1955) 73 WN (NSW) 31 …. 5.54
Gelpack Enterprises Pty Ltd (in liq), Re [2015] NSWSC 1558 …. 10.9,
10.13, 10.16
Gemmell Power Farming Co Ltd v Nies (1935) 35 SR (NSW) 469 ….
9.17
General Accident Insurance Asia Ltd v Sakr [2001] NSWCA 402 ….
11.15
General and Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963]
1 WLR 644 …. 9.33
General Produce Co v United Bank Ltd [1979] 2 Lloyd’s Rep 255 ….
12.23
Genn v Winkel (1912) 107 LT 434 …. 8.15
Gibbs Holdings Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd
(2001) 11 ANZ Ins Cas 61–484 …. 11.32
Gilchrist Watt & Sanderson Pty Ltd v York Products Pty Ltd [1970] 1
WLR 1262 …. 9.1, 9.10, 9.35
Giles v Carter (1965) 109 SJ 452 …. 9.26
Gill & Duffus SA v Berger & Co Inc (No 2) [1984] AC 382 …. 6.24
Gillie, Re (1996) 70 FCR 254 …. 2.15
Gillogly v Iama Agribusiness Pty Ltd [2002] NSWCA 251 …. 8.16
GIO General Ltd v Wallace (2001) 11 ANZ Ins Cas 61–506; [2001]
NSWCA 299 …. 11.8
GJG Importers Australia Pty Ltd v Bluegame Pty Ltd [2005] QCA 460
…. 9.10
Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd (The
Antwerpen) (1993) 40 NSWLR 206; [1994] 1 Lloyd’s Rep 213 ….
9.32
Glencore v Metro Trading Inc [2001] 1 Lloyd’s Rep 284 …. 4.5, 4.7,
4.9, 4.10
Goben Pty Ltd v CEO of Customs (1997) 149 ALR 102 …. 2.5
Gold Ribbon (Accountants) Pty Ltd v Stoddart [2003] QSC 332 ….
12.22
Goldcorp Exchange Ltd, Re; Kensington v Liggett [1995] 1 AC 74;
[1994] 2 All ER 806 …. 4.7, 6.8, 6.11, 8.16
Goldschmidt v Macdonald (1909) 9 SR (NSW) 693 …. 5.49
Goldsmith v Macquarie Leasing Pty Ltd [2013] VSC 332 …. 12.10
Gollan v Nugent (1988) 166 CLR 18 …. 2.12
Goode v Harrison (1821) 5 B & Ald 147 …. 5.4
Goodwin v Ron Heath Tyre Service (SA) Pty Ltd (1999) 74 SASR 508
…. 9.34
— v State Government Insurance Office (Qld) [1994] 2 Qd R 15 ….
11.7
Google Inc v Australian Competition and Consumer Commission
(2013) 294 ALR 404 …. 13.28
Gosford City Council v GIO General Ltd (2003) 56 NSWLR 542 ….
11.37
Gosper v Sawyer (1985) 160 CLR 548 …. 8.21
Goss v Lord Nugent (1833) 5 B & Ad 58; 110 ER 713 …. 6.44
Government Insurance Office (NSW) v Crowley [1975] 2 NSWLR 78
…. 11.55
— v R J Green & Lloyd Pty Ltd (1966) 114 CLR 437 …. 11.35
GPS Power Pty Ltd v Gardiner Willis & Associates Pty Ltd (2001) 11
ANZ Ins Cas 61–482 …. 11.46, 11.51
Graanhandel T Vink BV v European Grain & Shipping Ltd [1989] 2
Lloyd’s Rep 531 …. 6.45
Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528 …. 10.17
— v Voigt (1989) 89 ACTR 11 …. 9.14, 9.33
Graham Barclay Oysters Pty Ltd v Ryan (2000) 102 FCR 307 …. 7.8,
7.25
Grant v Australian Knitting Mills Ltd [1936] AC 85 …. 6.32, 6.34
— v YYH Holdings Pty Ltd [2012] NSWCA 360 …. 2.14, 4.2
Gray v Official Trustee in Bankruptcy (1991) 29 FCR 166 …. 2.6
GRE Insurance Ltd v Ormsby (1982) 29 SASR 498 …. 11.40, 11.42
— v QBE Insurance Ltd [1985] VR 83 …. 11.53
Green v CGU Insurance Ltd (2008) 67 ACSR 398; [2008] NSWSC 825
…. 11.17
Greenwood v Bennett [1973] QB 195 …. 4.3
— v Martin’s Bank [1932] 1 KB 371 …. 5.27
Greer v Kettle [1938] AC 156 …. 12.24
Griffiths v Peter Conway Ltd [1939] 1 All ER 685 …. 6.33, 6.38
Grimsdale & Sons Ltd v Suffolk Agricultural Poultry Producers
Association [1969] 2 AC 31 …. 6.38
Groundhog Sales & Rentals Pty Ltd v Eastern Pearl Corporation [2012]
FCAFC 113 …. 6.37
Grover & Grover Ltd v Matthews [1910] 2 KB 401 …. 5.34
Groves v Groves [2013] QSC 277 …. 12.27
Guardian Assurance Co Ltd v Condogianis (1919) 26 CLR 231 …. 11.18
Gugliotti v Commercial Union Assurance Co of Australia (1992) 7 ANZ
Ins Cas 61–104 …. 11.22, 11.42
Guild Insurance Ltd v Hepburn [2014] NSWCA 400 …. 11.36
Gunnedah Municipal Council v New Zealand Loan and Mercantile
Agency Co Ltd [1963] NSWR 1229 …. 9.26
Gurtner v Beaton [1993] 2 Lloyd’s Rep 369 …. 5.8
Guthridge v Coco [2002] QSC 392 …. 12.3
Gwinnett v Day [2012] SASC 43 …. 2.15

H
H Beecham & Co Pty Ltd v Francis Howard & Co Pty Ltd [1921] VLR
428 …. 6.35, 6.43
Haddow v The Duke Co (NL) (1892) 18 VLR 155 …. 9.33
Hadley v Baxendale [1843–60] All ER 461; (1854) 9 Exch 341 …. 6.47
Hagedorn v Oliverson (1814) 2 M & S 485 …. 5.26
Haghis Persian Carpet Trading Co v General Accident Insurance Co
NZ Ltd (1990) 6 ANZ Ins Cas 61–003 …. 11.23
Hall v Barclay [1937] 3 All ER 620 …. 2.15
Halvorsen Boats Pty Ltd v Robinson (1993) 31 NSWLR 1 …. 11.35
Hamilton v Watson (1845) 2 Cl & Fin 109 …. 12.28
— v Whitehead (1988) 166 CLR 121 …. 5.37
Hammer & Barrow v Coca-Cola [1962] NZLR 723 …. 6.45
Hammer Waste Pty Ltd v QBE Mercantile Mutual Ltd (2003) 12 ANZ
Ins Cas 61–553; [2002] NSWSC 1006 …. 11.9, 11.23
Hammoud Brothers Pty Ltd v NRMA Insurance Ltd (2005) 13 ANZ Ins
Cas 61–639; [2004] NSWCA 1 …. 11.43
Hams v CGU Insurance Ltd (2002) 12 ANZ Ins Cas 61–542; [2002]
NSWSC 273 …. 11.35
Hancock v Cunnain (1886) 12 VLR 9 …. 9.3
— v Williams (1942) 42 SR (NSW) 252 …. 12.6, 12.19, 12.23
Hannah v Peel [1945] 1 KB 509 …. 3.8
Hannover Life Re of Australasia Ltd v Sayseng (2005) 13 ANZ Ins Cas
90–123; [2005] NSWCA 214 …. 11.23
Hansard v Lethbridge (1892) 8 TLR 346 …. 12.24
Harding v Commissioner of Inland Revenue [1977] 1 NZLR 337 ….
9.11
Hardy Wine Co Ltd v Tasman Liquor Traders Pty Ltd (in liq) [2006]
SASC 168 …. 8.20, 8.21
Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd
[1990] 3 WLR 13 …. 6.24
Harper v Godsell (1870) LR 5 QB 422 …. 9.11
Harrison’s & Crossfield Ltd v London & North-Western Railway Co
[1917] 2 KB 755 …. 5.30
Hartop, Ex parte (1806) 12 Ves Jun 349; 33 ER 132 …. 5.49
Harvey v Edwards, Dunlop & Co Ltd (1927) 39 CLR 302 …. 12.10,
12.14, 12.15, 12.16, 12.17
— v State of New South Wales [2006] NSWSC 1436 …. 5.18
Haskew v Equity Trustees, Executors and Agency Co Ltd (1919) 27 CLR
231 …. 12.26
Haycraft Gold Reduction and Mining Co, Re [1900] 2 Ch 230 …. 5.7
Hayes v Fries (1988) 49 SASR 184 …. 2.3
Hayman & Son v M’Lintock [1907] SC 936 …. 6.11
Haynes’ case (1614) 12 Co Rep 113; 77 ER 1389 …. 3.2
Hays International College Pty Ltd and Joshua Cheng v Quikfund
(Australia) Pty Ltd [2014] NSWSC 869 …. 5.13
Healey v Healey [1915] 1 KB 938 …. 9.34
Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968) 121 CLR 584 ….
6.19
Heap v Motorists’ Advisory Agency Ltd [1923] 1 KB 577 …. 8.36
Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd (1974) 132
CLR 1 …. 6.3
Helou v Mulligan Pty Ltd [2003] NSWCA 92; (2003) 57 NSWLR 74 ….
12.6, 12.23
Helton v Sullivan [1968] Qd R 562 …. 9.1
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 …. 5.2, 5.7, 5.8, 5.20,
5.22
Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984]
1 WLR 485 …. 4.2
Henry Kendall & Sons v William Lillico & Sons Ltd (the Hardwick
Game Farm case) [1969] 2 AC 31 …. 6.32, 6.34, 6.35, 6.43
Henthorn v Fraser [1892] 2 Ch 27 …. 13.23
Hewett v Court (1983) 149 CLR 639 …. 6.57
Heysham Properties Pty Ltd v Action Motor Group Pty Ltd [1997] ANZ
ConvR 440; (1996) 14 BCL 145 …. 12.5
Heytesbury Pty Ltd v Kelly (WASC, Ipp J, 15 April 1997, unreported)
…. 5.44
Hibbert v McKiernan [1948] 2 KB 142 …. 3.8
Highway Foods International Ltd (in administrative receivership), Re
[1995] I BCLC 209 …. 8.22
HIH Casualty & General Insurance Australia Ltd v Dellavedova (1999)
10 ANZ Ins Cas 61–431 …. 11.12
HIH Casualty & General Insurance Ltd v Pluim Constructions Pty Ltd
(2000) 11 ANZ Ins Cas 61–477 …. 11.54
— v Waterwell Shipping Inc (1998) 43 NSWLR 601 …. 11.35
Hill v Anderson Meat Industries Ltd [1971] 1 NSWLR 868; [1972] 2
NSWLR 704 …. 12.6, 12.23
— v Gateway 2000 Inc 105 F 3d 1147 (Seventh Circuit 1997) …. 13.24
— v Reglon Pty Ltd [2007] NSWCA 295 …. 4.6, 9.12, 9.31
Hitchens v Zurich Australia Ltd [2015] NSWSC 825 …. 11.15
HJ Lyons & Sando Ltd v Houlson [1963] SASR 29 …. 5.49
Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220 …. 9.1,
9.10, 9.25, 9.32
Hobson v Gorringe [1897] 1 Ch 182 …. 8.25
Hogan v BPW Transpec Pty Ltd [2013] VSC 249 …. 6.1
Holland v Hodgson (1872) LR7CP 328 …. 4.12
Hollins v Fowler (1875) LR 7 HL 757 …. 2.15, 8.30
Hollis v Vabu Pty Ltd (2001) 207 CLR 21 …. 5.36, 5.38
Holme v Brunskill (1877) 3 QBD 495 …. 12.23
Holroyd v Marshall (1862) 10 HL Cas 191 …. 1.22, 6.11
Horn v Minister of Food [1948] 2 All ER 1036 …. 8.28
Horry v Tate and Lyle Refineries Ltd [1982] 2 Lloyd’s Rep 416 ….
11.23
Horsley v Phillips Fine Art Auctioneers Pty Ltd [1995] NSWSC 78 ….
2.5, 2.6, 2.14
— v — (1996) 7 BPR 14,360 …. 1.20
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
 …. 5.44, 9.6
Hotmail Corp v Van Money Pie Inc 47 USPQ 2d 1020 (ND Cal 1998)
…. 13.25
Houghland v RR Low (Luxury Coaches) Ltd [1962] 1 QB 694 …. 8.15,
8.27, 9.14
Houghton (JC) and Co v Nothard, Lowe and Wills Ltd [1928] AC 1 ….
5.37
Housing Guarantee Fund Ltd v Johnson (1995) V ConvR ¶54–524 ….
12.19
Howard v Harris (1884) 1 Cab & El 253 …. 8.15
Howard E Perry & Co Ltd v British Railways Board [1980] 1 WLR 1375
…. 4.3
Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 …. 5.27, 5.32
Howe v Teefy (1927) 27 SR(NSW) 301 …. 2.11
Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653 …. 5.34
— v Pump House Hotel Co Ltd [1902] 2 KB 190 …. 1.21
— v Rooke [1954] St R Qd 45 …. 9.27
Hughes (t/a Crowded Planet) v Australian Competition and Consumer
Commission [2004] FCAFC 319 …. 8.4
Humble v Hunter (1848) 12 QB 310 …. 5.40, 5.42
Humphrey v Phipps [1974] 1 NZLR 650 …. 9.1
Hunter v Parker (1840) 7 M & W 322 …. 5.29
Hurley v McDonald’s Australia Ltd (2000) ATPR 41–741; [1999] FCA
1728 …. 12.25
Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty
Ltd (2002) 18 BCL 122; [2001] NSWCA 313 …. 6.47

I
Ibrahim v Greater Pacific Life Insurance Co Ltd (1996) 9 ANZ Ins Cas
61–330 …. 11.23
Imaging Applications Pty Ltd v Vero Insurance Ltd [2008] VSC 178 ….
 11.21
Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 …. 12.26
Indian Oil Corp Ltd v Greenstone Shipping SA (Panama) [1987] 3 All
ER 893 …. 4.6, 4.9, 4.10, 6.9
Ingram v Little [1961] 1 QB 31 …. 8.34
Inland Revenue Commissioners v Holder [1931] 2 KB 81 …. 12.2
Insurance Commissioner of Western Australia v Kightly (2005) 225
ALR 380 …. 11.44
Insurance Office of Australia Ltd v T M Burke Pty Ltd (1935) 35 SR
(NSW) 438 …. 12.23
Integrated Asset Management Pty Ltd v Trans Communications Pty Ltd
[2015] NSWSC 984 …. 5.42
International Alpaca Management Pty Ltd v Ensor (1995) 133 ALR 561
…. 8.11
International Banking Corp v Ferguson, Shaw & Sons [1910] SC 182
…. 4.5
International Bottling Co Ltd v Collector of Customs [1995] 2 NZLR
579 …. 9.25
International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene
Pastoral Co (1968) 100 CLR 644 …. 5.1
International Leasing Corp (Vic) v Aiken (1966) 85 WN (Pt 1) (NSW)
766 …. 1.21
International Paper Co v Spicer (1906) 4 CLR 739 …. 5.8, 5.12, 5.21,
5.30
Interstate Parcel Express Co v Time-Life International (1977) 138 CLR
534 …. 6.19
Invercargill Savings Bank v Genge [1929] NZLR 375 …. 12.23
Investec Bank (Aust) Ltd v Colley (2012) 91 ACSR 597; [2012] NSWSC
813 …. 5.2
Investors Compensation Scheme Ltd v West Bromwich Building Society
[1998] 1 BCLC 531; [1998] 1 WLR 896 …. 11.26, 12.3, 12.18
Irvine v Union Bank of Australia (1877) 2 App Cas 366 …. 5.26
Isaack v Clark (1615) 2 Bulst 306 …. 9.19
Israel v Foreshore Properties Pty Ltd (in liq) (1980) 30 ALR 631 ….
12.33, 12.35
Itaoui v Yamaha Motor Finance Australia Pty Ltd [2009] NSWSC 1363
…. 8.36
IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA 205 …. 5.7

J
J & E Hall v Barclay [1937] 3 All ER 620 …. 9.33
Jackson v Cochrane [1989] 2 Qd R 23 …. 9.15, 9.24
Jacobs, Re; Ex parte Jacobs (1875) LR 10 Ch 211 …. 12.6, 12.23
Jacobs v Morris [1902] 1 Ch 816 …. 5.22
JAD International Pty Ltd v International Trucks Australia Ltd (1994)
50 FCR 378 …. 6.45
Jageev Pty Ltd v State Bank of New South Wales (1996) 2 ACCR 396 ….
12.8
James v Commonwealth (1939) 62 CLR 339 …. 8.19, 8.24
James Jones & Sons v Earl of Tankerville [1909] 2 Ch 440 …. 6.11
Jansz v GMB Imports Pty Ltd [1979] VR 581 …. 6.3, 6.11, 8.4
Jarvis v Williams [1955] 1 All ER 108 …. 2.15
Jasmin Solar Pty Ltd v Trina Solar Pty Ltd [2015] FCA 1453 …. 5.40,
5.42
Jefferson Ford Pty Ltd v Ford Motor Co of Australia Ltd (2008) 167
FCR 372 …. 7.4
Jeffries v Great Western Railway Co (1856) 5 El & Bl 802 …. 2.13, 9.19
Jigrose Pty Ltd, Re [1994] 1 Qd R 382 …. 3.2, 3.4, 3.5, 3.6
Jillawarra Grazing Co v John Shearer Ltd (1984) ATPR 40-441 …. 7.4
John F Golding Pty Ltd v Victorian Railway Commissioners (1932) 48
CLR 157 …. 9.15, 9.32
John McGrath Motors (Canberra) Pty Ltd v Applebee [1964] HCA 1;
110 CLR 656 …. 11.17
Johns v Pink [1900] 1 Ch 296 …. 1.6
Johnson v American Home Assurance Co (1998) 192 CLR 266 …. 11.26
— v Buttress (1936) 56 CLR 113 …. 12.26, 12.30
— v Credit Lyonnais Co (1877) 3 CPD 32 …. 5.14
— v Triple C Furniture & Electrical Pty Ltd (2010) 243 FLR 336 ….
11.32
Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd [2003] VSC 291 …. 8.32
Johnston v Nicholls (1845) 1 CB 251; 135 ER 535 …. 12.3
Johnstone and Wilmot Pty Ltd v Kaine (1928) 23 Tas LR 43 …. 3.2
Jones v De Marchant (1916) 28 DLR 561 …. 4.2
— v Dowle (1841) 9 M & W 19; 152 ER 9; 11 LJ Ex 52 …. 9.15
— v Dunkel [1959] HCA 8; (1959) 101 CLR 298 …. 6.39
Joseph Reid Pty Ltd v Schultz (1949) 49 SR (NSW) 231 …. 8.13
Joseph Travers & Sons Ltd v Cooper [1915] 1 KB 73 …. 9.32
— v Longel Ltd (1947) 64 TLR 150 …. 6.23
Jowitt v Callaghan (1938) 38 SR (NSW) 512 …. 12.2, 12.6, 12.13, 12.19,
12.23
JS Robertson (Aust) Pty Ltd v Martin (1956) 94 CLR 30 …. 6.44
Junemill Ltd (in liq) v FAI General Insurance Co Ltd (1996) 9 ANZ Ins
Cas 61–315 …. 11.36
— v — [1999] 2 Qd R 136 …. 11.36

K
Kahler v Midland Bank Ltd [1950] AC 24 …. 2.14
Kakavas v Crown Melbourne Ltd (2013) 298 ALR 35 …. 12.25
Kalabakas v Chubb Insurance Company of Australia Ltd [2015] VSC
705 …. 11.9, 11.17
Kansas Flour Mills Co v Board of Commissioners of Harper County
 (1927) 54 Am LR 1164 …. 9.6
Karflex Ltd v Poole [1933] 2 KB 251 …. 9.7
Karlshamns Oljefabriker v Eastport Navigation Corp (The Elafi) [1982]
1 All ER 208 …. 6.18, 8.16
Kasler and Cohen v Slavouski [1928] 1 KB 78 …. 6.47
Keene v Carter (1994) 12 WAR 20 …. 3.2, 3.5
Keetley v Quinton Pty Ltd (1991) 4 WAR 133 …. 6.19
Kehoe v Williams [2006] NSWSC 326 …. 9.14
Keighley, Maxsted & Co v Durant [1901] AC 240 …. 5.26, 5.27, 5.40,
5.41
Kelner v Baxter (1866) LR 2 CP 174 …. 5.34
Kendall v Hamilton (1879) 4 App Cas 504 …. 5.40, 5.41
Kennedy v Green (1834) 3 My & K 699 …. 5.35
— v Newman [2013] NTSC 38 …. 8.13
Kent v Hogarth [1995] QCA 472 …. 5.7
Kenyon-Brown v Desmond Banks & Co [2000] PNLR 266 …. 12.30
Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622;
[1984] HCA 55 …. 11.11, 11.21
Kilpin v Ratley [1892] 1 QB 582 …. 2.6
King v David Allen & Sons, Billposting Ltd [1916] 2 AC 54 …. 2.2
— v McKean & Park (A Firm) (2002) 12 ANZ Ins Cas 61–534 …. 11.36
Kino v Prestige Philately Pty Ltd [2014] VSC 469 …. 8.32
Kirk v Gregory (1876) 1 Ex D 55 …. 2.13
Kirkham v Attenborough [1897] 1 QB 201 …. 8.15
Kirkpatrick v Gowan (1876) 9 Ir Rep CL 521 …. 6.26
Kit Digital Australia Pty Ltd (in liq), Re [2014] NSWSC 1547 …. 5.1, 5.2
Kitano v Commonwealth (1974) 129 CLR 151 …. 9.11
— v — [1976] AC 99 …. 9.11
Klement v Pencoal Ltd [2000] QCA 152 …. 5.22, 5.24, 5.30, 5.31, 5.52
Klocek v Gateway 2000 Inc 104 F Supp 2d 1332 (D Kan 2000) …. 13.24
Knapp v Knapp [1944] SASR 257 …. 2.16
Knight Frank Australia v Paley Properties Pty Ltd [2014] SASCFC 103
…. 5.50
Koch v America Online, Inc 139 F Supp 2d 690 (D Md 2000) …. 13.25
Koenigsblatt v Sweet [1923] 2 Ch 314 …. 5.26
Kooragang Cement Pty Ltd v Bates (1994) 10 NSWCCR 796 …. 11.35
Koufos v C Czarnikow Ltd (The Heron II) [1967] 3 All ER 686 …. 6.47
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; 130 ALR 1;
[1995] HCA 68 …. 5.38, 11.17
Kuwait Airways Corp v Iraqi Airways Co [2002] 2 AC 883; [2002] 3 All
ER 209 …. 2.15, 9.33

L
La Compania Martiartu v Royal Exchange Assurance [1923] 1 KB 650
…. 11.43
Laing v Keer [1930] NZLR 586 …. 6.35
Lakeman v Mountstephen (1874) LR 7 HL 17 …. 12.10, 12.20
Lambert v Lewis [1981] 1 All ER 1185 …. 6.38
Lambert Leasing Inc v QBE Insurance Ltd [2015] NSWSC 750 …. 11.7
Lamont v Motor Accidents Board [1983] VR 88 …. 11.35
Lamshed v Lamshed (1963) 109 CLR 440 …. 5.29, 5.30
Lancashire Loans Ltd v Black [1931] 1 KB 380 …. 12.26
Lang v Le Boursicot (1993) 5 BPR 11,782 …. 3.2, 3.6
Larson-Juhl Australia LLC v Jaywest International Pty Ltd (2001) 11
ANZ Ins Cas 61–499; [2001] NSWCA 260 …. 11.51
Laws v GWS Machinery Pty Ltd (2007) 209 FLR 53 …. 7.4, 7.25
Le Lievre v Gould [1893] 1 QB 491 …. 11.17
Learn & Play (Rhodes No 1) Pty Ltd (as trustee for Rhodes 1 Childcare
 Centre Unit Trust) v Lombe [2011] NSWSC 1506 …. 5.19, 5.29,
5.32
Leck v Maestaer (1807) 1 Camp 138 …. 9.25
Lederberger and Scheiner v Mediterranean Olives Financial Pty Ltd
[2012] VSCA 262 …. 5.7, 5.8, 5.32
Lee v Griffin (1861) 1 B & S 272 …. 6.3
— v Jones (1864) 17 CB (NS) 482; 144 ER 194 …. 12.28
Leggo v Brown and Dureau Ltd (1923) 32 CLR 95 …. 5.50
Leigh v Taylor [1902] AC 157 …. 4.12
Leigh & Sullivan Ltd v Aliakmon Shipping Co Ltd; The Aliakmon
[1986] 2 All ER 145 …. 6.3, 6.4
Leipner v McLean (1909) 8 CLR 307 …. 5.11
Lenkeit v Ebert [1947] St R Qd 126 …. 9.19
Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705
…. 5.37
Leonard v Ielasi (1987) 46 SASR 495 …. 8.32
Lewis v Andrews and Rowley Pty Ltd (1956) 56 SR (NSW) 439; 73 WN
(NSW) 670 …. 4.2
— v Averay [1971] 3 All ER 907 …. 8.34
— v Nicholson (1852) 18 QB 503 …. 5.50
Ley v Lewis [1952] VR 119 …. 9.33
Leybourne v Permanent Custodians Ltd [2010] NSWCA 78 …. 5.29,
5.32
Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd
[1918] AC 350 …. 11.35
LG Thorne Ltd v Thomas Borthwick & Sons (A’sia) Ltd (1956) 56 SR
(NSW) 81 …. 6.44
Liaweena (NSW) Pty Ltd v McWilliams Wines Pty Ltd (1991) ASC 56-
038 …. 6.32
Life Savers (Australasia) Ltd v Frigmobile Pty Ltd [1983] 1 NSWLR 431
…. 5.34
Lincoln Bank and Trustee Co v Netter 253 SW 2d 260 (1952) …. 4.2
Lindsay v CIC Insurance Ltd (1989) 5 ANZ Ins Cas 60–913 …. 11.9
Linehan v Australian Public Service Association (1983) 67 FLR 412 ….
5.37
Ling v Pan Pac Investment Pty Ltd; Ling v Wu [2015] NSWSC 850 ….
12.25
Lingham Timber Co Ltd, Re (1899) 21 LR (NSW) Eq 52 …. 5.51, 5.54
Lipertis v Australian Casualty Co [1983] 2 VR 280 …. 11.35
Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 …. 11.50
Lloyd v Grace, Smith & Co [1912] AC 716 …. 5.8, 5.25
Lloyd’s v Harper (1880) 16 Ch D 290 …. 12.9
LMCS SA Pty Ltd v Westpac Banking Corp [2015] SASC 147 …. 12.22
Lockett v A & M Charles Ltd [1938] 4 All ER 170 …. 6.3
Lockhart v Osman [1981] VR 57 …. 6.26
Loeschman v Williams (1815) 4 Camp 181; 171 ER 58 …. 8.11
Lomax v Dankel (1981) 29 SASR 68 …. 5.41
Lombard Australia Ltd v NRMA Insurance Ltd (1968) 72 SR (NSW) 45
…. 11.41
Lomsargis v National Mutual Life Association of Australasia Ltd [2005]
QSC 199; [2005] 2 Qd R 295 …. 11.21
London Chartered Bank of Australia, Re [1893] 3 Ch 540 …. 12.6,
12.23
London General Omnibus Co Ltd v Holloway [1912] 2 KB 72 …. 12.28
London Jewellers Ltd v Attenborough [1934] 2 KB 206 …. 8.15
London Joint Stock Bank v Simmons [1892] AC 201 …. 5.16
London Wine Co (Shippers) Ltd, Re [1986] PCC 121 …. 6.9
Lunn v Thornton (1845) 1 CB 379; 135 ER 587 …. 1.20, 1.22
Luxottica Retail Australia Pty Ltd v 136 Queen St Pty Ltd [2011] QSC
162 …. 13.15
Lyell v Kennedy (1889) 14 App Cas 437 …. 5.27
Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421 …. 5.8

M
M A Mortenson Co v Timberline Software Corp 998 P 2d 305 (Wash
2000) …. 13.24
Macaura v Northern Assurance Co Ltd [1925] AC 619 …. 11.7
Mace v Mace [2015] NSWSC 1659 …. 12.26
Macfie v SGIO (Qld) (1985) 3 ANZ Ins Cas 60–606 …. 11.14
Macquarie Bank Ltd v National Mutual Life Association of Australasia
Ltd (1996) 40 NSWLR 543 …. 11.9
— v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 …. 5.38
Macquarie Leasing Pty Ltd v DEQMO Pty Ltd [2014] NSWSC 1466 ….
10.3
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 ….
12.18, 12.25
Magripilis v Baird [1926] St R Qd 89 …. 5.7
Mahinder Singh v Acme Sawmills Ltd (1958) 14 DLR (2d) 361 …. 6.49
Mahoney, Re [2015] VSC 600 …. 12.25, 12.26
Mahoney v McManus (1981) 180 CLR 370 …. 12.38
Maiden Civil (P&E) Pty Ltd, Re; Albarran v Queensland Excavation
Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852 …. 10.8,
10.12, 10.13, 10.28, 10.29
Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd (1973) 129 CLR 48 ….
1.16
Makower, McBeath & Co Pty Ltd v Dalgety & Co Ltd [1921] VLR 365
…. 9.28
Managers of the Metropolitan Asylums Board v Kingham & Sons (1890)
6 TLR 217 …. 5.26, 5.32
Manchester Trust v Furness [1895] 2 QB 539 …. 5.22, 8.36
Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (The ‘Star
Sea’) [2003] 1 AC 469 …. 11.21, 11.42
Manton v Brocklebank [1923] 2 KB 212 …. 2.13
Manzo v 555/225 Pitt Street Pty Ltd (1990) 21 NSWLR 1 …. 12.19
Maple Flock v Universal Furniture Products (Wembley) Ltd [1934] 1
KB 148 …. 6.45, 6.48
Marcq v Christie Manson & Woods Ltd (t/as Christie’s) [2003] 3 All ER
561 …. 2.15
Marguerita Strauss v Ian Bennett [2016] NSWSC 262 …. 5.27
Marimpex Mineralol v Louis Dreyfus et Cie Mineralol [1995] 1 Lloyd’s
Rep 167 …. 6.27
Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211 …. 11.46
Markson v Cutler [2007] NSWSC 1515 …. 5.7
Marnica v Carter [2014] VSC 274 …. 6.34, 6.36
Marriott v General Electric Co Ltd (1935) 53 CLR 409 …. 5.7
Marsh v Joseph [1897] 1 Ch 213 …. 5.32
Marson v Short (1835) 2 Bing NC 118 …. 2.16
Marston v Charles H Griffith & Co Pty Ltd (1982) 3 NSWLR 294 ….
12.24
Martinez v Cooper [(1826) 2 Russ 198; 38 ER 309 …. 5.13
Maskim (NSW) Pty Ltd v Jantune Pty Ltd [2013] NSWSC 1634 …. 6.3
Mason v Pritchard (1810) 2 Camp 436; 170 ER 1210 …. 12.7, 12.18
Matton Developments Pty Ltd v CGU Insurance Ltd (No 2) [2015]
QSC 72 …. 11.21
Maudouit v Ross (1984) 10 VLR (L) 264 …. 5.29
Maxwell v Highway Hauliers Pty Ltd [2013] WASCA 115 …. 11.32
Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14
…. 11.26
Mayne Nickless Ltd v Crawford (1992) 59 SASR 490 …. 6.3
— v Pegler [1974] 1 NSWLR 228 …. 11.8, 11.18
Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 …. 1.12,
5.41, 9.26
McArdle v Vadim Nominees Pty Ltd (1984) 2 SR(WA) 156 …. 9.1
McCann v Switzerland Insurance Australia Ltd (2000) 176 CLR 579;
176 ALR 711 …. 11.26
McColl’s Wholesale Pty Ltd v State Bank of New South Wales [1984] 3
NSWLR 365 …. 12.37
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 …. 12.5, 12.6,
12.19, 12.20
— v Lane (1882) 7 SCR 462 …. 4.6
McDougall v Aeromarine of Emsworth Ltd [1958] 3 All ER 431 …. 8.5
McEntire v Crossley Bros Ltd [1895] AC 457 …. 8.5
McInally Nominees Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002)
188 ALR 439 …. 11.37
McKay v National Australia Bank Ltd [1998] 1 VR 173 …. 12.3
McKeown v Cavalier Yachts Pty Ltd (1988) 13 NSWLR 303 …. 2.14, 4.2,
4.3, 4.4
McLaughlin v City Bank of Sydney (1912) 14 CLR 684 …. 5.29, 5.30
McLennan v Insurance Australia Ltd [2014] NSWCA 300 …. 11.34
McNamara v Commonwealth Trading Bank of Australia (1984) 37
SASR 232 …. 12.30
McPherson, Thom, Kettle & Co v Dench Bros [1921] VLR 437 …. 8.7
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 ….
8.29
McVeigh v National Australia Bank Ltd [2000] ANZ ConvR 50 …. 12.7,
12.8
Medtel Pty Ltd v Courtney (2003) 198 ALR 630 …. 6.43, 7.8
Meggy v Imperial Discount Co (1878) 3 QBD 711 …. 8.32
Meldov Pty Ltd v Bank of Queensland [2015] NSWSC 378 …. 12.8
Mendelson-Zeller Co Inc v T and C Providors Pty Ltd [1981] 1 NSWLR
366 …. 13.23
Mercantile Bank of India Ltd v Central Bank of India Ltd [1938] AC
287 …. 8.32
Mercedes-Benz Financial Services Australia Pty Ltd v State of New South
Wales [2011] NSWSC 1458 …. 8.36
Merck Sharpe & Dohme (Aust) Pty Ltd v Peterson (2011) 284 ALR 1;
[2011] FCAFC 128 …. 7.8
Meridian Global Funds Management Asia Ltd v Securities Commission
[1995] 2 AC 500; (1995) 13 ACLC 3245 …. 5.36, 5.37, 5.38, 11.14
Messagemate Aust Pty Ltd v National Credit Insurance (Brokers) Pty
Ltd (2003) 85 SASR 303 …. 11.26
Metaalhandel JA Magnus BV v Ardfields Transport Ltd and Eastfell Ltd
(T/A Jones Transport) [1988] 1 Lloyd’s R 197 …. 9.35
Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd [1999]
QCA 472 …. 6.27
Metropolitan Fire and Energy Services Board v Yarra City Council
[2015] VSC 773 …. 11.9
Metropolitan International Schools Ltd t/as Skills Train and/or
Train2Game v Designtechnica Corp t/as Digital Trends [2009]
EWHC 1765 (QB) …. 13.28
Metropolitan Water Board v Colley’s Patents Ltd [1911] 2 KB 38 …. 7.4
MGICA Ltd v United City Merchants (Australia) Ltd (1986) 4 ANZ Ins
Cas ¶60–729 …. 11.26
Micarone v Perpetual Trustees (1999) 75 SASR 1 …. 12.19, 12.30
Michael Gerson (Leasing) Ltd v Wilkinson [2001] 1 All ER 148 …. 8.39
Michail v Australian Alliance Insurance Co Ltd [2013] QDC 284 ….
11.16, 11.17
Microbeads A-G v Vinhurst Road Markings Ltd [1975] 1 WLR 218 ….
6.19
Middleton Nominees Pty Ltd v Westpac Banking Corp [2008] FCA 371
…. 12.8
Mills v Stokman (1966) 116 CLR 61 …. 6.5
Minchillo v Ford Motor Company of Australia [1995] 2 VR 594 …. 7.4
Minister for Supply and Development v Serviceman’s Co-op Joinery
 Manufacturing (1951) 82 CLR 621 …. 8.3
Mitchell v Ealing London Borough Council [1979] QB 1 …. 8.15, 9.14,
9.15
MMI General Insurance Ltd v Baktoo (2000) 48 NSWLR 605 …. 11.41
Moffatt v Bateman (1869) LR 3 PC 115 …. 9.18
— v Kazana [1969] 2 QB 152 …. 3.2
Moltoni Corporation Pty Ltd v QBE Insurance Ltd (2001) 205 CLR 149
…. 11.33
Montclare v Metlife Insurance Ltd [2015] VSC 306 …. 11.8
Moore and Landauer, Re [1921] 2 KB 519 …. 6.26
Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 …. 8.32
Moorhouse v Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700
…. 3.2, 3.4, 3.5, 9.30
Moors v Burke (1919) 26 CLR 265 …. 9.1
Morel Bros & Co Ltd v Earl of Westmoreland [1903] 1 KB 64 …. 5.41
Morganite Ceramic Fibres Pty Ltd v Sola Basic Australia Ltd (1988) 5
ANZ Ins Cas 60–883 …. 11.51
Moriarty, Ex parte (1924) 24 SR (NSW) 298 …. 5.34
Morley v Boothby (1825) 3 Bing 107; 130 ER 455 …. 12.3, 12.16
Morris v CW Martin & Sons Ltd [1966] 1 QB 716; [1965] 2 Lloyd’s Rep
63 …. 9.1, 9.16, 9.25, 9.32, 9.35
— v Ford Motor Co [1973] 2 All ER 1084 …. 12.33
Morrison v Coast Finance Ltd (1965) 55 DLR (2d) 710 …. 12.26
Moschi v Lep Air Services Ltd [1973] AC 331 …. 12.1, 12.2, 12.20
Moss v Sun Alliance Aust Ltd (1990) 55 SASR 145 …. 11.23
Motor Credits (Hire Finance) Ltd v Pacific Motor Auctions Pty Ltd
(1963) 109 CLR 87 …. 8.32
Motor Finance and Trading Co Ltd v Brown [1928] SASR 153 …. 5.14
Motor Mart Ltd v Webb [1958] NZLR 773 …. 9.6
Moule v Garrett (1872) LR 7 Ex 101 …. 12.35, 12.36
Mourad v NRMA Insurance Ltd (2003) 12 ANZ Ins Cas ¶61–560 ….
11.38, 11.42
MS Fashions Ltd v Bank of Credit and Commerce International SA (in
liq) (No 2) [1993] Ch 425 …. 12.2
Mullens v Miller (1882) 22 Ch D 194 …. 5.7
Multinational Gas & Petrochemical Co v Multinational Gas &
Petrochemical Services Ltd [1983] 1 Ch 258 …. 5.37
Munday v Australian Capital Territory [1998] ACTSC 62 …. 3.3
Munro v Willmott [1949] 1 KB 295 …. 4.3, 9.33
Munro Brice & Co v War Risks Association Ltd [1918] 2 KB 78 …. 11.34
Murphy v Timms [1987] 2 Qd R 550 …. 12.3
Murphy, Re Bankrupt Estate of; Donnelly v Commonwealth Bank of
Australia Ltd (1996) 140 ALR 46 …. 12.8

N
Nanka-Bruce v Commonwealth Trust Ltd [1926] AC 77 …. 8.14
Naomi Marble & Granite Pty Ltd v FAI General Insurance Co Ltd (No
1) [1999] 1 Qd R 507 …. 11.38, 11.42
National and General Insurance Co Ltd v Chick [1984] 2 NSWLR 86
…. 11.35
National Australia Bank Ltd v Blacker [2000] FCA 1458 …. 4.12
— v Savage [2013] NSWSC 1718 …. 12.27
National Bank of Australasia v Morris [1892] AC 287 …. 5.35
National Bank of New Zealand Ltd v West [1978] 2 NZLR 451 …. 12.8
National Bank of Nigeria Ltd v Awolesi [1964] 1 WLR 1311 …. 12.7
National Bus Co Pty Ltd v FCT (1998) 98 ATC 4170 …. 4.2
National Coal Board v Gamble [1959] 1 QB 11 …. 8.14
— v JE Evans & Co (Cardiff) Ltd and Maberley Parker Ltd [1951] 2 KB
861 …. 2.13
National Dairies WA Ltd v Cmr of State Revenue [2001] WASCA 112
…. 4.12
National Employers’ Mutual General Insurance Association Ltd [1990]
1 AC 24 …. 8.43
National Engineering Pty Ltd v Wellington Orana Foundry Pty Ltd
[2003] NSWSC 21 …. 6.34
National Fire Insurance Co v McLaren (1886) 12 OR 682 …. 11.44
NBN Co Ltd v Pipe Networks Pty Ltd [2015] NSWSC 475 …. 6.3
Nelthorpe v Holgate ((1844) 1 Coll 203 …. 5.42
Neonbrook Pty Ltd v Thusi Pty Ltd [1991] 1 Qd R 429 …. 12.2
New, Prance & Garrard’s Trustee v Hunting [1897] 2 QB 19 …. 1.20
New South Wales v Lepore (2003) 212 CLR 511 …. 5.36
New South Wales Leather Co Pty Ltd v Vanguard Insurance Co Ltd
(1991) 25 NSWLR 699 …. 8.26
New South Wales Medical Defence Union v Transport Industries
Insurance Co (1985) 4 NSWLR 107 …. 11.21, 11.22
New Style Furniture Sales Pty Ltd v DCT (1998) 98 ATC 4831 …. 3.5
New Zealand Insurance Co Ltd v Forbes (1988) 5 ANZ Ins Cas 60–871
…. 11.22
Newnham v Baker [1989] 1 Qd R 393 …. 11.22
Newtons of Wembley Ltd v Williams [1964] 1 WLR 1028 …. 8.43
— v — [1965] 1 QB 560 …. 8.5, 8.45
Nguyen v Taylor (1992) 27 NSWLR 48 …. 5.7
NH Dunn Pty Ltd v LM Ericsson Pty Ltd (1979) 2 BPR 9241 …. 4.12
Nibali v Sweeting & Denney (WA) Pty Ltd (1989) Aust Torts Reports
¶80–258 …. 9.24
Niblett v Confectioners’ Materials Co Ltd [1921] 3 KB 387 …. 6.18,
6.19, 7.6
Nichol v Godts (1854) 10 Ex 190; 156 ER 410 …. 6.27
Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ
Ins Cas 61–235 …. 11.23
Nishina Trading Co Ltd v Chiyoda Fire and Marine Insurance Co Ltd
 [1969] 2 QB 449 …. 9.36
Nissho Iwai Australia Ltd v Malaysian International Shipping Corp Bhd
(1989) 167 CLR 219 …. 9.35
Norman v FCT (1963) 109 CLR 9 …. 1.20, 1.21
North British and Mercantile Insurance Co v Kean (1888) 16 OR 117
…. 12.9
— v London, Liverpool and Globe Insurance Co (1876) 5 Ch D 569 ….
11.53
North East Equity Pty Ltd v Proud Nominees Pty Ltd (No 2) [2008]
FCA 1189 …. 6.3
Northern Assurance Co Ltd v Coal Mines Insurance Pty Ltd [1970] 2
NSWR 223 …. 11.50
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR
146 …. 5.7, 5.11, 5.17, 5.20, 5.22, 5.24
Northwestern Mutual Life Insurance Co v Linard Edinburgh Assurance
Co (The ‘Vainqueur’) [1974] 2 LIR 398 …. 11.43
Nosic v Zurich Australian Life Insurance Ltd [1997] 1 Qd R 67 ….
11.26
Nowrani Pty Ltd v Brown [1989] 2 Qd R 582 …. 5.7, 5.8
Nyberg v Handelaar [1982] 2 QB 202 …. 2.16

O
Oatway, Re [1903] 2 Ch 356 …. 4.10
Ocean Harvester Holdings Pty Ltd v MMI General Insurance Ltd
[2004] QCA 41 …. 11.43
Octapon Pty Ltd v Esanda Finance Corp Ltd (NSWSC, Cole J, 3
February 1989, unreported) …. 5.2
Odessa, The, Woolston, The [1916] 1 AC 145 …. 9.26
O’Farrell v Allianz Australia Insurance Ltd [2015] NSWCA 48 …. 11.8
Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC
53 …. 1.12, 2.9, 9.26
Olma v Amendola (2004) 235 LSJS 258; [2004] SASC 274 …. 9.8
Olsson v Dyson (1969) 120 CLR 365 …. 1.20, 2.3
Omaha Indemnity Co v Craig Norman Carpenter (prov liq appt’d)
(1988) 5 ANZ Ins Cas ¶60–831 …. 5.41
Oppenheimer v Attenborough & Son [1908] 1 KB 221 …. 8.36
Orix Australia Corp Ltd v Peter Donnelly Automotive Pty Ltd [2007]
NSWSC 977 …. 8.11, 8.41
Ornstein v Alexandra Furnishing Co (1895) 12 TLR 128 …. 8.15
Orr v Ford (1989) 167 CLR 316 …. 5.32
Osborne Computer Corp Pty Ltd v Airroad Distribution Pty Ltd (1995)
37 NSWLR 382 …. 1.12, 1.13, 9.26
Oscar Chess Ltd v Williams [1957] 1 All ER 325 …. 6.21, 7.16
Owen v Tate [1976] 1 QB 402 …. 12.35
Owners Strata Plan 56587 v TMG Developments Pty Ltd [2007] NSWSC
1364 …. 11.44, 11.46
Ox Operations Pty Ltd v Land Mark Property Developments (Vic) Pty
Ltd (in liq) [2007] FCA 1221 …. 5.26

P
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 …. 5.8, 5.11,
5.20
Pacific Film Laboratories Pty Ltd v FCT (1970) 121 CLR 154 …. 6.3
Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd
(1965) 112 CLR 192; [1965] AC 867 …. 8.30, 8.38
Paciocco v Australia and New Zealand Banking Group Ltd [2015]
FCAFC 50 …. 12.25
Palgo Holdings Pty Ltd v Gowans (2005) 215 ALR 253 …. 1.12, 1.13
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1
AC 501 …. 11.8
Pangallo Estate Pty Ltd v Killara 10 Pty Ltd [2007] NSWSC 1528 …. 9.5,
9.6
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics
Ltd [1971] 2 QB 426 …. 5.8
Pantaenius Australia Pty Ltd v Watkins Syndicate 0457 at Lloyds [2016]
FCA 1 …. 11.32
Paradise Constructors Pty Ltd v Lofts Quarries Pty Ltd [2003] VSC 370
…. 12.7
Parastatidis v Kotaridis [1978] VR 449 …. 9.12
Parent Trust & Finance Co Ltd, Re [1936] 3 All ER 432 …. 12.24
Pargiter v Alexander [1995] Aust Torts Reports ¶81–349 …. 2.14
Parker v British Airways Board [1982] QB 1004 …. 3.1, 3.6, 3.7, 3.8
Parr’s Banking Co Ltd v Yates [1898] 2 QB 460 …. 12.7
Parsons v Sexton (1847) 4 CB 899 …. 6.26
Paterson v Miller [1923] VLR 36 …. 9.15
Patten v Thomas Motors Pty Ltd (1965) 66 SR (NSW) 459 …. 6.18
Paul’s Retail Pty Ltd v Lonsdale Australia Ltd (2012) 294 ALR 72;
[2012] FCAFC 130 …. 8.19
Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313 …. 5.7
Pavlovich v Superior Court and DVD Copy Control Association Inc 29
Cal 4th 262 (2002) …. 13.32
Peachdart, Re [1984] 1 Ch 131 …. 8.21
Pearson v Goldsbrough Mort & Co [1931] SASR 320 …. 12.18, 12.19
— v Rose & Young Ltd [1951] 1 KB 275 …. 8.32, 8.36, 8.43
Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 …. 2.10, 2.12, 2.13,
2.15, 8.21, 9.31, 9.33, 9.34
Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd
(2004) 12 BPR 22,879 …. 12.18
Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in
liq) (2003) 214 CLR 514 …. 11.9, 11.10
Permanent Trustee Co Ltd v Bernera Holdings Pty Ltd [2004] NSWSC
56 …. 5.32
Permanent Trustee Co of New South Wales Ltd v Hinks (1934) 34 SR
(NSW) 130 …. 12.2, 12.6, 12.19
Perpetual Trustees & National Executors of Tasmania Ltd v Perkins
(1989) Aust Torts Reports ¶80–295 …. 9.15
Perpetual Trustees Australia Ltd v Schmidt [2010] VSC 67 …. 5.20
Perpetual Trustees Victoria Ltd v Xiao [2015] VSC 21 …. 5.29, 5.32
Perry v National Provincial Bank of England [1910] 1 Ch 464 …. 12.6
Peruvian Guano Co Ltd v Dreyfus Brothers & Co [1892] AC 166 …. 4.3,
4.4
Peter v Tuomy (1926) 48 ALT 53; 32 ALR 300 …. 5.45
Petersen v Moloney (1951) 84 CLR 91 …. 5.1, 5.2, 5.7, 5.29
— v Union des Assurances de Paris IARD (1995) 8 ANZ Ins Cas 61–
244); (1997) 9 ANZ Ins Cas 61–366 …. 11.35
Peterson v Merck Sharpe & Dohme (Aust) Pty Ltd (2010) 266 ALR 1
…. 7.8
Petrofina (UK) v Magnaload Ltd [1984] QB 127 …. 11.46, 11.51
Philip Morris (Australia) Pty Ltd v Transport Commission [1975] Tas
SR 128 …. 9.35
Phillips v Brooks Ltd [1919] 2 KB 243 …. 8.34
— v Homfray (1871) LR 6 Ch App 770 …. 5.30
— v ING Life Ltd [2009] FCA 283 …. 11.15
Phoenix Assurance Co Ltd v Wren [1950] SASR 89 …. 12.19
Phosphate of Lime Company v Green (1871) LR 7 CP 43 …. 5.29
Piccolo, Re; McVeigh v National Australia Bank [1999] FCA 386 ….
12.7
Pignataro v Gilroy [1919] 1 KB 459 …. 8.19
Pinnock Brothers v Lewis & Peat Ltd [1923] 1 KB 690 …. 6.29, 6.30
Pioneer Container, The [1994] 2 AC 324 …. 9.1, 9.10, 9.34, 9.35
Pipicella v Stagg (1983) 32 SASR 464 …. 9.1
Pitt Son & Badgery Ltd v Proulefco SA (1984) 153 CLR 644 …. 9.24
Pivovaroff v Chernabaeff (1978) 21 SASR 1 …. 9.17
Plasteel Windows Australia Pty Ltd v CE Heath Underwriting Agencies
Pty Ltd (1990) 19 NSWLR 400 …. 11.19
Plasteel Windows Pty Ltd v CE Heath Underwriting Agencies (1989) 5
ANZ Ins Cas 60–926 …. 11.17
— v — (1990) 19 NSWLR 400 …. 11.19
Pole v Leask (1863) 33 LJ Ch 155 …. 5.54
Pollard v Wilson [2010] NSWCA 68 …. 5.29
Poole v Chubb Insurance Company of Australia Ltd [2014] NSWSC
1832 …. 11.17
— v Smith’s Car Sales (Balham) Ltd [1962] 1 WLR 744 …. 8.15
Port Swettenham Authority v TW Wu & Co (M) Sdn Bhd [1979] AC
580 …. 9.14, 9.32
Porteous v Donnelly [2002] FCA 862 …. 5.32
Portuguese Consolidated Copper Mines Ltd, Re (1890) 45 Ch D 16 ….
5.26, 5.28, 5.34
Poulet Frais Pty Ltd v Silver Fox Co Pty Ltd (as trustee for the Baler
Family Trust) [2005] FCAFC 131 …. 5.6
Powercor Australia Ltd v Pacific Power [1999] VSC 110 …. 5.7
Pozebon (trustee) v Australian Gaming and Entertainment Ltd (in liq)
[2014] FCA 1034 …. 10.17
Precious Metals Australia Ltd v Xstrata (Schweiz) Ag [2005] NSWSC
220 …. 12.2
Premier Group Pty Ltd, The v Followmont Transport Pty Ltd [2000] 2
Qd R 338 …. 9.10, 9.34
Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013]
NSWCA 252 …. 11.11, 11.12, 11.17, 11.19, 11.32
Presentaciones Musicales SA v Secunda [1994] 2 All ER 737 …. 5.26,
5.34
Presidential Security Services of Australia Pty Ltd v Clinton Joseph
Brilley [2008] 73 NSWLR 241 …. 5.37, 5.38
Press v Mathers [1927] VLR 326 …. 5.2
Price v Fraser (1901) 4 GLR 38 …. 8.15
Priest v Last [1903] 2 KB 148 …. 6.32
Priestly v Fernie (1865) 3 H & C 977 …. 5.41
Prime Forme Cutting Pty Ltd v Baltica General Insurance Co Ltd
(1990) 6 ANZ Ins Cas 61–028 …. 11.11
Prince v Clark (1823) 1 B & C 186; 107 ER 70 …. 5.30
Pritchard v DJZ Constructions Pty Ltd (2012) 16 BPR 31,141; [2012]
NSWCA 196 …. 12.23
ProCD Inc v Zeidenberg and Silken Mountain Web Services, Inc 86 F
3d 1447 (Seventh Circuit 1996) …. 13.24
Prospect Industries v Anscor Pty Ltd [2003] QSC 296 …. 5.18
Prudential Insurance Co v Commissioners of Inland Revenue [1904] 2
KB 658 …. 12.21
Puma Australia Pty Ltd v Sportsman’s Australia Ltd (No 2) [1994] 2 Qd
R 159 …. 8.21
Purcell v State Insurance Office (1982) 2 ANZ Ins Cas 60–495 …. 11.42
— v — (1982) 2 ANZ Ins Cas 60–702 …. 11.38

Q
Qantas Airways Ltd v Stephens Travel Service International Pty Ltd
(NSWSC, Clarke J, 4 April 1986, unreported) …. 5.35
QBE Insurance (Australia) Ltd v Lumley General Insurance Ltd (2009)
24 VR 326 …. 11.53
QBE Insurance Ltd v Giampaolo [1993] ACTSC 381 …. 11.15
— v GRE Insurance Ltd (1983) 2 ANZ Ins Cas 60–533 …. 11.55
QBE Mercantile Mutual Ltd v Hammer Waste Pty Ltd [2003] NSWCA
356; (2004) 13 ANZ Ins Cas 61–586 …. 11.9
Quainoo v New Zealand Breweries Ltd [1991] 1 NZLR 161 …. 12.6,
12.23
Quarman v Burnett (1840) 6 M & W 499; 151 ER 509 …. 5.36
Quartel v Parkways Motors Ltd [1970] NZLR 89 …. 9.7
Quikfund (Australia) Pty Ltd v Chatswood Appliance Spare Parts Pty
Ltd [2013] NSWSC 646 …. 5.13
— v Prosperity Group International Pty Ltd (in liq) [2013] FCAFC 5 ….
5.20
Quinby Enterprises Ltd (in liq) v General Accident Fire & Life
Insurance Corp plc [1995] 1 NZLR 736 …. 11.15

R
R v Bentham [2005] UKHL 18; [2005] 1 WLR 1057 …. 1.7
— v Cooke (1871) LR 1 CCR 295 …. 2.7
— v Croft (Inhabitants) (1819) 3 B&Ald 171; 106 ER 625 …. 9.1
— v Edwards (1877) 3 Cox CC 384 …. 3.2
— v Gurofsky (1919) 16 QWN 19 …. 12.2
— v MacDonald [1983] 1 NSWLR 729 …. 3.2, 3.5
— v Thurborn (1849) 1 Den 387 …. 3.2
Rabobank New Zealand Ltd v McAnulty [2011] NZCA 212 …. 10.8
RAF England v Zurich Australian Insurance Ltd (Dist Ct of Adelaide,
Kitchen J, 30 July 1991, unreported) …. 11.23
Raja v Darul-Iman (WA) Inc (No 2) [2011] WASCA 251 …. 5.26
Rama Corp Ltd v Proved Tin & General Investments Ltd [1952] 2 QB
147 …. 5.17, 5.22
Randwick City Council v Burnett [2005] NSWSC 508 …. 2.10
Rann v Hughes (1778) 101 ER 1014 …. 12.3
Rapid Metal Developments (Aust) Pty Ltd v Rildean Pty Ltd [2009]
NSWSC 571 …. 4.6
Rasell v Cavalier Marketing (Australia) Pty Ltd [1991] 2 Qd R 323 ….
7.8, 7.12
Rava v Logan Wines Pty Ltd [2007] NSWCA 62 …. 12.18
Reale Bros Pty Ltd v Reale (2003) 179 FLR 427 …. 12.19
Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 …. 12.18,
12.23
Reece Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 5
BPR 11,106 …. 13.23
Reed Constructions Pty Ltd v Eire Contractors Pty Ltd [2009] NSWSC
678 …. 13.19
Regal Pearl Pty Ltd v Stewart [2002] NSWCA 291 …. 6.32, 7.12
Regina Fur Co Ltd v Bossom [1958] 2 LIR 425 …. 11.43
Rendell v Associated Finance Pty Ltd [1957] VR 604 …. 2.15, 2.16, 4.1,
4.2, 8.49
Renovation Boys Pty Ltd (admins apptd), Re [2014] NSWSC 340 ….
8.19, 10.27
Revell v Lidov 317 F 3d 467 (5th Cir 2002) …. 13.32
Reynolds v Aluma-Lite Products Pty Ltd (No 2) [2010] FCA 914 …. 3.2
— v Ashby [1904] AC 466 …. 2.16
Ricciardi v Suncorp Metway Insurance Ltd (2001) 11 ANZ Ins Cas 61–
493; [2001] QCA 190 …. 11.39, 11.40
Richards v Delbridge (1874) LR 18 Eq 11 …. 1.9
Riley v Melrose Advertisers (1915) 17 WALR 127 …. 12.10
Robert A Munro & Co Ltd v Meyer [1930] 2 KB 312 …. 6.29
Roberts v Goldenburg (1997) NSW ConvR ¶55–809 …. 12.30
Robertson v Healy (1866) 5 SCR (NSW) 290 …. 12.3
Robinson v Graves [1935] 1 KB 579 …. 6.3
— v Tyson (1888) 9 LR (NSW) 297 …. 5.8, 5.15, 5.19, 5.21, 5.54
— v Waters (1920) 22 WALR 66 …. 9.1
Robinson Motors Pty Ltd v Fowler [1982] Qd R 374 …. 8.36
Roblin v Public Trustee (ACT) [2015] ACTSC 100 …. 1.7
Robot Arenas Ltd v Waterfield [2010] EWHC 115 (QB) …. 3.2
Roche v Douglas (2000) 22 WAR 331 …. 1.7
Rogers v ANZ Banking Group Ltd [1985] WAR 304 …. 12.33
Rohde v Thwaites (1827) 6 B & C 388 …. 8.19
Rolfe v Investec Bank (Australia) Ltd [2014] VSCA 38 …. 9.4, 9.32
Rolt v Cozens (1856) 18 CB 673 …. 12.3
Ronan v Australia & New Zealand Banking Group Ltd (2000) 2 VR 531
…. 12.9
Rondo Building Services Pty Ltd v Casaron Pty Ltd [2003] 2 Qd R 558;
[2003] QCA 78 …. 8.25
Roscorla v Thomas (1842) 3 QB 234 …. 12.3
Rose & Burgess & Topex Nominees Pty Ltd v Commissioner of Stamps
(SA) (1979) 22 SASR 84 …. 12.3
Rosecell Pty Ltd v JP Haines Plumbing Pty Ltd [2015] NSWSC 1238 ….
5.8, 8.32
Rosenthal v Alderton & Sons Ltd [1946] 1 KB 374 …. 2.12
Rounce v Woodyard (1846) 8 LTOS 186 …. 12.10
Rowe v B & R Nominees Pty Ltd [1964] VR 477 …. 5.27, 5.30
— v Willcocks [1923] GLR 149 …. 12.33
Rowland v Divall [1923] 2 KB 500; [1923] All ER Rep 270 …. 2.11, 6.18
— v Stevenson [2005] NSWSC 325 …. 1.20
Royal Bank of Scotland v Etridge (No 2) [2001] 3 WLR 1021 …. 12.30
Royal Botanic Gardens and Domain Trust v South Sydney City Council
(2002) 186 ALR 289 …. 12.7, 12.18
Royal British Bank v Turquand (1856) 6 El & Bl 327; 119 ER 886 ….
5.24
Russell v Wilson (1923) 33 CLR 538 …. 2.11, 2.14, 3.8
Russells Solicitors v McCardel [2014] VSC 287 …. 13.15
Russo v Belcar Pty Ltd (2011) 111 SASR 459; [2011] SASCFC 151 ….
6.26, 6.27, 6.39, 6.43, 6.45
RV Ward Ltd v Bignall [1967] 1 QB 534 …. 6.58, 8.11
Ryan v Great Lakes Council [1999] FCA 177 …. 7.25
S
S Davis & Co Ltd, Re [1945] Ch 402 …. 9.5, 9.6
Sabemo Pty Ltd v De Groot (1991) BCL 132 …. 12.22
Sachs v Miklos [1948] 2 KB 23 …. 5.43
Sadcas Pty Ltd v Business and Professional Finance Pty Ltd [2011]
NSWCA 267 …. 9.33
Sainju v Minister for Immigration and Citizenship (2010) 185 FCR 86;
[2010] FCA 461 …. 13.19
Sampson v Gold Star Insurance Co Ltd [1980] 2 NZLR 742 …. 11.42
Sandeman & Sons v Tyzac and Branfoot Steamship Co Ltd [1913] AC
680 …. 4.6, 4.9, 4.10
Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd [2014] VSC 217
…. 10.3
Santos Ltd v American Home Assurance Co (1986) 4 ANZ Ins Cas 60–
795 …. 11.45
Saunders v Pilcher [1949] 2 All ER 1097 …. 6.5
— v Queensland Insurance Co Ltd [1931] HCA 42; 45 CLR 557 ….
11.19
Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd [2003]
QCA 182 …. 11.19
Scots Church Adelaide Inc v Fead [1951] SASR 41 …. 5.30
Scott v Davis (2000) 204 CLR 333 …. 5.36
Scrimshire v Alderton (1743) 2 Stra 1182 …. 5.40
Scully v South [1931] NZLR 1181 …. 6.5
Seaton v Heath [1899] 1 QB 782 …. 12.21
Section 22 of the Human Tissue and Transplant Act 1982 (WA), Re; Ex
parte C [2013] WASC 3 …. 1.7
Secure Funding Pty Ltd v Insurance Australia Ltd [2010] FCA 1094 ….
11.41
Seeley International Pty Ltd v Newtronics Pty Ltd (2002) ASAL 55-075;
[2001] FCA 1862 …. 7.4
Seka Pty Ltd (in provisional liq) v Fabric Dyeworks (Aust) Pty Ltd
(1991) 28 FCR 574 …. 1.13
Sgro v Australian Associated Motor Insurers Ltd [2015] NSWCA 262 ….
11.38, 11.43
Sharp v Batt (1930) 25 Tas LR 33 …. 8.26, 9.19
Shattock v Devlin [1990] 2 NZLR 88 …. 4.12
Shaw v Commissioner of Police of the Metropolis [1987] 3 All ER 405
…. 8.41
Sheldon v Sun Alliance Ltd (1989) 53 SASR 97 …. 11.21
Shelton t/as Rick Shelton Mobile Mechanic v Oaktech Pty Ltd [2011]
NTSC 11 …. 6.1
Shepherd v FCT (1965) 113 CLR 385 …. 1.21
Shiel v Stables [1933] NZLR 45 …. 12.33, 12.35
Shipping Corp of India Ltd v Gamlen Chemical Co (Australasia) Pty
Ltd (1980) 147 CLR 142 …. 9.32
Shorters Parking Station Ltd v Johnson [1963] NZLR 135 …. 9.3
Showtime Touring Group Pty Ltd v Mosely Touring Inc [2010] NSWSC
974 …. 13.23
Silsbury & Calkins v McCoon & Sherman 3 NY 379 (1850) …. 4.2, 4.5
Simmons v Swift (1826) 5 B & C 857 …. 8.6
Simms Jones Ltd v Protochem Trading NZ Ltd [1993] 3 NZLR 369 ….
6.44, 9.12
Simon v NRMA Insurance Ltd [1991] NSWCA 247 …. 11.43
Simpson v Gowers (1981) 121 DLR (3d) 709 …. 3.2
Sims v SPM Business Consultants Pty Ltd (2002) 43 ACSR 633 …. 4.2
Sims & Co v Midland Rly Co [1913] 1 KB 103 …. 5.43
Sinclair v Judge [1930] St R Qd 220 …. 9.1
Singer v Trustee of the Property of Munro [1981] 3 All ER 215 …. 5.7
Singer Co (UK) Ltd v Tees & Hartlepool Port Authority [1988] 2
Lloyd’s Rep 164 …. 9.35
Sirius Shipping Corporation v Ship ‘Sunrise’ [2006] NSWSC 398 ….
6.18
Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 …. 5.41, 5.42
Skandia Insurance Co Ltd v Skoljarev (1979) 142 CLR 375 …. 11.34,
11.43
Skerbic v McCormack [2007] ACTSC 93 …. 7.25
Slater v Finning Ltd [1996] 3 All ER 398 …. 6.33
Small Business Consortium Lloyd’s Consortium No 9056 v Angas
Securities Ltd [2015] NSWSC 1511 …. 11.47
Smally v Smally (1700) 1 Eq Ca Abr 6 …. 5.4
Smart v Westpac Banking Corporation [2011] FCA 829; (2011) 282
ALR 400 …. 11.7, 11.21
Smith v Cook (1875) 1 QBD 79 …. 9.1
— v Peter and Diana Hubbard Pty Ltd [2006] NSWCA 109 …. 5.7, 5.22
— v Stallard and French [1919] WALR 19 …. 5.45
— v Torr (1862) 3 F & F 505 …. 4.6
— v Wood [1929] 1 Ch 14 …. 12.13, 12.17, 12.24
Sogelease Australia Ltd v Boston Australia Ltd (1991) 26 NSWLR 1 ….
8.1
Solloway v McLauchlin [1938] AC 247 …. 9.33
South Australian Insurance Co v Randell (1869) LR 3 PC 101 …. 4.7,
9.6, 9.9
South Staffordshire Water Co v Sharman [1896] 2 QB 44 …. 3.8
South Sydney District Rugby League Football Club Ltd v News Ltd
(2000) 177 ALR 611 …. 5.2
Southbank Traders Pty Ltd v General Motors Acceptance Corp
Australia and Auto Group Ltd [2006] VSCA 102 …. 8.23
Southern Cross Homes (Broken Hill) Inc v Chapman [1999] SASC 491
…. 6.32, 6.35
Sparkes v Marshall (1836) 2 Bing (NC) 761 …. 8.19
Specht v Netscape Communications Corp and AOL 306 F 3d 17 (2d
Circuit 2002) …. 13.26
Speedway Safety Products Pty Ltd v Hazell & Moore Industries Pty Ltd
[1982] 1 NSWLR 255 …. 6.40
Spence v Union Marine Insurance Co Ltd (1868) LR3CP 427 …. 4.9,
6.9, 8.19
Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd
(2001) 11 ANZ Ins Cas 61–485 …. 11.23
— v Metals & Minerals Insurance Pty Ltd (2009) 253 ALR 364; [2009]
WASCA 31 …. 11.54
Spika Trading Pty Ltd v Harrison (1990) 19 NSWLR 211 …. 12.38
Spina v Permanent Custodians Ltd (2008) 13 BPR 25,463; [2008]
NSWSC 561 …. 5.6, 5.34, 5.35, 5.44
Spiro v Lintern [1973] 3 All ER 319 …. 5.31
Spittles v Michael’s Appliance Services Pty Ltd (2008) 71 NSWLR 115;
[2008] NSWCA 76 …. 7.25, 9.25
Spring v Young [1923] SASR 115 …. 9.1
St George Wholesale Finance Pty Ltd v Spalla (2000) 181 ALR 682 ….
12.6
Stadium Finance Co Ltd v Helm (1965) 109 Sol J 471 …. 12.19
Staffs Motor Guarantee Ltd v British Wagon Co Ltd [1934] 2 KB 305
…. 8.36
Stag Line Ltd v Foscolo, Mango and Co Ltd [1932] AC 328 …. 9.32
Standing v Bowring (1885) 31 Ch D 282 …. 1.20
Stapylton Fletcher Ltd (in admin rec), Re [1995] 1 All ER 192 …. 4.7,
6.9, 6.11, 8.16, 8.19
Starkey v Bank of England [1903] AC 114 …. 5.50
State Bank of New South Wales v Sullivan [1999] NSWSC 596 …. 12.30
State Government Insurance Office (Qld) v Brisbane Stevedoring Pty
Ltd (1969) 123 CLR 228 …. 11.44, 11.46, 11.51
State Rail Authority of New South Wales v Heath Outdoor Pty Ltd
 (1986) 7 NSWLR 170 …. 5.2
Stealth Enterprises Pty Ltd t/as The Gentleman’s Club v Calliden
Insurance Ltd [2015] NSWSC 1270 …. 11.12
Stegenga v J Corp Pty Ltd [1999] ATPR 41–695 …. 7.25
Steinke v Edwards (unreported, see (1935) 8 ALJ 368 …. 6.20
Step-Saver Data Systems Inc v Wyse Tech 939 F 2d 91 (3d Cir 1991) ….
13.24
Sterns Ltd v Vickers Ltd [1923] 1 KB 78 …. 8.26
Stevenson v Rogers [1999] 2 WLR 1064 …. 6.36
Stratti v Stratti (2000) 50 NSWLR 324 …. 11.46
Streatfield v Winchcombe Carson Trustee Co (Canberra) Ltd [1981] 1
NSWLR 519 …. 9.1
Strong v Bird (1874) LR18Eq 315 …. 1.20
Stuart v Guardian Royal Exchange Assurance of New Zealand Ltd (No
2) (1988) 5 ANZ Ins Cas 60–844 …. 11.23
Style Finnish (Qld) Pty Ltd v Abloy Security Pty Ltd [1994] 2 Qd R 203
…. 8.3
Summerton v SGIC Life Ltd (1999) 10 ANZ Ins Cas 90-102 …. 11.11
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 …. 12.1, 12.2,
12.4, 12.20, 12.37, 12.38
Suncorp Finance & Insurance Corp v Milano Assicurazioni SpA [1993]
2 Lloyd’s Rep 225 …. 5.29
Suncorp General Insurance Ltd v Cheihk (1999) 10 ANZ Ins Cas 61–
442 …. 11.8
Super Chem Products Ltd v American Life & General Insurance Co Ltd
[2004] 2 All ER 358 …. 11.42
Surf Road Nominees Pty Ltd v James [2004] NSWSC 223 …. 12.24
Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161 …. 5.36
Swick Nominees Pty Ltd v Leroi International Inc [2015] WASCA 35 ….
6.47
Sydney Turf Club v Crowley (1972) 126 CLR 420 …. 11.48
Symes v Laurie [1985] 2 Qd R 549 …. 6.5

T
Tabe v R (2005) 225 CLR 418 …. 2.3
Taheri v Vitek [2014] NSWCA 209 …. 5.6, 5.32, 5.44
Tai Hing Cotton Mill Ltd v Lui Chong Hing Bank [1986] AC 80 ….
9.12
Tailby v Official Receiver (1888) 13 App Cas 523 …. 5.51
Tallangalook Pty Ltd v Duketon Goldfields NL (VICSC, Hansen J, 13
February 1997, unreported) …. 13.23
Tamworth Industries Ltd v Attorney-General [1991] 3 NZLR 616 …. 3.8
Tan v Russell [2016] VSC 93 …. 5.7
Tarling v Baxter (1827) 6 B & C 360 …. 8.6
Tarzia v National Australia Bank Ltd [1996] ANZ ConvR 379 …. 12.30
Tasmanian Producers’ Selling Agency Ltd v Cumming & Co Ltd (1914)
10 Tas LR 25 …. 2.3, 8.19
Taylor, Re; Ex parte Century 21 Real Estate Corp (1995) 130 ALR 723
…. 12.2, 12.5, 12.20
Taylor v Caldwell (1863) 3 B & S 826; All ER Rep 24 …. 8.28
— v Combined Buyers Ltd [1924] NZLR 627 …. 6.25, 6.26, 6.39, 6.40,
6.45, 7.13
— v Gould [2011] QSC 203 …. 5.8, 5.15, 5.18
— v Manchester University [1917] 1 Ch 206 …. 1.20
— v Smith (1926) 38 CLR 48 …. 5.26, 5.32
Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 545
…. 5.40
Tesco Supermarkets Ltd v Nattrass [1972] AC 153 …. 5.37
THC Holding Pty Ltd v CMA Recycling Pty Ltd [2014] NSWSC 1136 ….
4.6, 6.9, 6.11, 8.16
Theo Holdings Pty Ltd v Hockey (2000) 99 FCR 232 …. 6.5
Thew v Clarke & Walker Pty Ltd [1967] 2 NSWR 268 …. 12.3
Thomas v High (1960) SR (NSW) 401 …. 9.15, 9.18
— v Robinson [1977] 1 NZLR 385 …. 4.3, 4.4
Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Aust)
Pty Ltd (1966) 115 CLR 353 …. 9.32, 9.36
Thornett & Fehr v Beers [1919] 1 KB 486 …. 6.42
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 …. 13.26
Tichborne v Pegler, Macdonald & Co [1913] QWN 1 …. 5.50
Tiedemann and Ledermann Freres, Re [1899] 2 QB 66 …. 5.27
Tiep Thi To v Australian Associated Motor Insurers Ltd (2001) 3 VR
279 …. 11.38, 11.40, 11.42
Tinsley v Milligan [1994] 1 AC 340; [1993] 3 All ER 65 …. 2.11
Tobin v Broadbent (1947) 75 CLR 378 …. 5.6, 5.8, 5.16, 5.20
— v Melrose [1951] SASR 139 …. 5.32
Toby Constructions Products Pty Ltd v Computa Bar (Sales) Pty Ltd
[1983] 2 NSWLR 48 …. 6.3, 6.5
Todaro v Farmers & Graziers Co-operative Co Ltd [1982] VR 73 ….
11.26
Toikan International Insurance Broking Pty Ltd v Plasteel Windows
Australia Pty Ltd (1989) 15 NSWLR 641 …. 11.34
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165;
[2004] HCA 52 …. 5.2
Toll Global Forwarding Pty Ltd v Thiess Pty Ltd [2015] WASC 64 ….
12.25
Toll Holdings Ltd v Stewart (in their capacity as joint and several
receiver and manager of Dick Smith Electronics Pty Ltd
(administrators appointed) (recs and mgrs apptd) [2016] FCA 256
…. 6.57
Tomlin v Ford Credit Australia [2005] NSWSC 540 …. 9.12
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 ….
5.2, 12.25
Torkington v Magee [1902] 2 KB 427 …. 1.8, 1.21
Tosich v Tasman Investment Management Ltd (2008) 250 ALR 274;
[2008] FCA 377 …. 11.9
Total Oil Products (Australia) Pty Ltd v Robinson [1970] 1 NSWR 701
…. 12.1, 12.20
Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd (1994)
Aust Torts Reports ¶81–292 …. 9.32
Toveill Pty Ltd v Australian Quality Plus Pty Ltd; Joe’s Citrus Pty Ltd v
Australian Quality Plus Pty Ltd [2010] NSWSC 1003 …. 8.21
Townsend v BBC Hardware Ltd [2003] QCA 572 …. 9.17
Tozer Kemsley & Milbourn (Australasia) Pty Ltd v Collier’s Interstate
Transport Service Pty Ltd (1956) 94 CLR 384 …. 9.32
Tranquility Pools & Spas Pty Ltd v Huntsman Chemical Co Australia Pty
Ltd [2011] NSWSC 75 …. 6.5
Tre Cavalli Pty Ltd v Berry Rural Co Operative Society Ltd [2013]
NSWCA 235 …. 6.30, 6.32, 6.37, 6.39
Triden Properties Ltd v Capita Financial Group Ltd (1995) 12 BCL 402
…. 11.36
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165
CLR 107 …. 5.26, 5.27, 5.34, 5.40, 11.7, 11.23
Trimper v Frahn [1925] SASR 347 …. 5.54
Trkulja v Google (No 5) [2012] VSC 533 …. 13.28
Truck Wreckers (1979) Pty Ltd v Waters (1994) 10 SR (WA) 32 …. 7.11
Truran Earth Movers Pty Ltd v Norwich Union Fire Insurance Society
Ltd (1976) 17 SASR 1 …. 11.7
Turner Manufacturing Co Pty Ltd v Senes [1964] NSWR 692 …. 12.7
Twenty-first Maylux Pty Ltd v Mercantile Mutual Insurance (Aust) Ltd
(1989) 6 ANZ Ins Cas 60–954 …. 11.8, 11.9, 11.12

U
UEB Packaging Ltd v QBE Insurance (International) Ltd [1996] 2
 NZLR 467 …. 11.22
Underwood Ltd v Burgh Castle Brick and Cement Syndicate [1922] 1
KB 343 …. 8.9
Union Bank of Australia Ltd v McClintock [1922] 1 AC 240 …. 5.26
— v Puddy [1949] VLR 242 …. 12.28
— v Rudder (1911) 13 CLR 152 …. 5.34
— v Whitelaw [1906] VLR 711 …. 12.26
— v British Car Auctions Ltd [1978] 2 All ER 385 …. 9.12, 9.31
United City Merchants (Australia) Pty Ltd v MGICA Ltd (1984) 3 ANZ
Ins Cas ¶60–603 …. 11.26
United Kingdom Mutual SS Assurance Association v Nevill (1887) 19
QBD 110 …. 5.42
United States Steel Products Co Ltd v Great Western Railway [1916] 1
AC 189 …. 6.57
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192
CLR 603 …. 11.17
Universal Steam Navigation Co v James McKelvie & Co [1923] AC 493
…. 5.49
Upper Hunter County District Council v Australian Chilling and
Freezing Co Ltd (1968) 118 CLR 429 …. 12.18

V
Varley v Whipp [1900] 1 QB 513 …. 6.24, 6.26
Vaudeville Electric Cinema Ltd v Muriset [1923] 2 Ch 74 …. 4.12
Vermeulen v SIMU Mutual Insurance Association (1987) 4 ANZ Ins Cas
60–812 …. 11.21
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 1 All
ER 997 …. 6.47
Victoria Teachers Credit Union Ltd v KPMG (a firm) [2000] 1 VR 654;
[2000] VSCA 23 …. 5.26
Victorian Alps Wine Co Pty Ltd v All Saints Estate Pty Ltd (2012) 34 VR
 397 …. 6.1
Victorian Professional Group Management Pty Ltd v Proprietors
‘Surfers Aquarius’ Building Units Plan No 3881 [1991] 1 Qd R 487
…. 5.32
Vincent v State Bank of NSW Ltd (NSWSC, Young J, 30 July 1993,
unreported) …. 3.2
Visy Packaging Pty Ltd v Siegwerk Australia Pty Ltd [2013] FCA 231 ….
6.17
Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 ….
12.18
Von Braun v Australian Associated Motor Insurers Ltd (1998) 135
ACTR 1 …. 11.17
Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 …. 13.29

W
W & K Holdings (NSW) Pty Ltd v Mayo [2013] NSWSC 1063 …. 12.25
Wade Sawmill Pty Ltd v Colenden Pty Ltd [2007] QCA 455 …. 1.13
Wait, Re [1927] 1 Ch 606 …. 6.4, 6.9, 6.11
Wait v Baker (1848) 2 Exch 1 …. 8.19
Walker v Sell [2016] FCCA 452 …. 6.23
Wallace v Safeway Caravan Mart Pty Ltd (1975) 3 QL 224 …. 8.13
Waller v New Zealand Bloodstock Ltd [2006] 3 NZLR 629 …. 10.12
Walter v James (1871) Law Rep 6 Ex 124 …. 5.34, 12.36
Walton v Colonial Mutual Life Assurance Society Ltd (2004) 13 ANZ
Ins Cas 61–620; [2004] NSWSC 616 …. 11.38, 11.42
Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG
Electronics Australia Pty Ltd [2014] VSC 644 …. 10.1, 10.9, 10.12,
10.23, 10.26
Warehousing & Forwarding Co of East Africa Ltd v Jafferali & Sons Ltd
[1964] AC 1 …. 5.26
Warmings Used Cars Ltd v Tucker [1956] SASR 249 …. 6.12
Warren v Nut Farms of Australia Pty Ltd [1981] WAR 134 …. 6.5
Waterways Authority of New South Wales v Coal & Allied (Operations)
Pty Ltd [2007] NSWCA 276 …. 9.12
Watkins v Combes (1922) 30 CLR 180 …. 12.26
— v Vince (1818) 2 Stark 368 …. 5.4
Watson v Davies [1931] 1 Ch 455 …. 5.26
Watson v Swann (1862) 11 CB (NS) 756 …. 5.27
Watson Bros v Hornby [1942] 2 All ER 506 …. 6.12
Watteau v Fenwick [1893] 1 QB 346 …. 5.8
Waugh v Harper [1937] St R Qd 327 …. 6.49
Waugh v HB Clifford & Sons Ltd [1982] 1 Ch 374 …. 5.7
Wauthier v Wilson (1912) 28 TLR 239 …. 12.2, 12.19
Waverley Borough Council v Fletcher [1995] QB 334 …. 3.7, 3.8
Wayne Tank and Pump Co Ltd v Employers’ Liability Assurance Corp
Ltd [1974] 1 QB 57 …. 11.35
WD & HO Wills (Aust) v State Rail Authority of New South Wales
(1998) 43 NSWLR 338 …. 9.4, 9.29
Webb v Chief Constable of Merseyside Police [2000] 1 All ER 209 ….
2.11
— v Ireland [1988] IR 353 …. 3.2, 3.9
Weiner v Harris [1910] 1 KB 285 …. 8.15, 8.36
Wenning v Robinson (1964) 64 SR (NSW) 157 …. 6.12
West v AGC (Advances) Ltd (1986) 5 NSWLR 610 …. 12.19
— v Commercial Bank of Australia Ltd (1935) 55 CLR 315 …. 5.31
— v Dillicar [1920] NZLR 139; [1921] NZLR 617 …. 5.31
West (HW) Ltd v McBlain [1950] NI 144 …. 6.18
Westdeutsche Landesbank Girozentrale v Islington London Borough
Council [1996] AC 669 …. 1.9
Western Australia v Watson [1990] WAR 248 …. 5.35
Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533 ….
 11.54
Western Australian Insurance Co Ltd v Dayton (1924) 35 CLR 355 ….
11.18
Westpac Banking Corp v Royal Tongan Airlines (1996) Aust Torts
Reports ¶81–403 …. 9.32, 9.35
WGH Nominees Pty Ltd v Tomblin (1985) Aust Torts Reports ¶80–740
…. 9.14
White v Woodward (1848) 5 CB 810 …. 12.3
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 ….
11.26
Wilkinson v Verity (1871) LR 6 CP 206 …. 9.15
Willey v Synan (1937) 57 CLR 200 …. 3.8
William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454
…. 1.21
Williams v Douglas (1949) 78 CLR 521 …. 2.6
— v Frayne (1937) 58 CLR 710 …. 12.24
— v Williams [1956] NZLR 970 …. 1.20
Williams Bros v Agius Ltd [1914] AC 510 …. 6.49
Wilson v Commissioner of Probate Duties (Vic) (1979) 8 ATR 799 ….
2.2
— v Harvey Trinder (NSW) Pty Ltd [1973] 2 NSWLR 870 …. 11.26
— v Lombank Ltd [1963] 1 WLR 1294 …. 2.13
Winkfield, The [1902] P 42 …. 9.34
Winsor & Associates Ltd v Belgo-Canadian Mfg Co Ltd (1975) 61 DLR
(3d) 352 …. 6.18
— v — (1975) 76 DLR (3d) 685 …. 6.18
Winthrop Investments Pty Ltd v Winns Ltd [1975] 2 NSWLR 666 ….
5.32
WM Johnson Pty Ltd v Maxwelton (Oaklands) Pty Ltd [2000] NSWCA
286 …. 7.8, 7.11
Wombat Nominees Pty Ltd v De Tullio (1990) 98 ALR 307 …. 5.2
Wood v Associated National Insurance Co Ltd [1985] 1 Qd R 297 ….
11.35, 11.49
Woodside Petroleum Development Pty Ltd v H & R—E & W Pty Ltd
(1997) 10 ANZ Ins Cas 61–395 …. 11.44, 11.46, 11.51
Woolmer v Delmer Price Ltd [1955] 1 QB 291 …. 9.32
Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1972] 1
QB 210 …. 8.13, 8.36, 8.37
Wright v Somerton [2004] QSC 231 …. 5.7
Wyllie v National Mutual Life Association of Australasia Ltd (1997) 217
ALR 324 …. 11.23
Wythes v Labouchere (1859) 44 ER 1397 …. 12.28

Y
Yearworth v North Bristol NHS Trust [2010] QB 1 …. 1.7
Yeoman Credit Ltd v Latter [1961] 1 WLR 828 …. 12.1, 12.6, 12.13,
12.19, 12.20, 12.21
Yerkey v Jones (1939) 62 CLR 649 …. 12.21, 12.27, 12.28, 12.30
Yonge v Reynell (1852) 9 Hare 809 …. 12.37
— v Toynbee [1910] 1 KB 215 …. 5.50, 5.53
Young v Hitchens (1844) 6 QB 606; 115 ER 228 …. 9.3
— v New Haven Advocate 315 F 3d 256 (4th Cir 2002) …. 13.32
Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454 …. 6.3

Z
Zhu v Treasurer (NSW) (2004) 218 CLR 530; [2004] HCA 56 …. 1.1,
2.1
Ziogos v FSS Trustee Corporation as Trustee of the First State
Superannuation Scheme [2015] NSWSC 1385 …. 11.23
Zippo Manufacturing Co v Zippo Dot Com, Inc 952 F Supp 1119 (WD
Pa 1997) …. 13.32
Zurich Australian Insurance Ltd, Re (1999) 10 ANZ Ins Cas 61–429 ….
11.23
Zurich Australian Insurance Ltd v Metals and Minerals Insurance Pte
Ltd (2007) 14 ANZ Ins Cas 61–728; [2007] WASC 62 …. 11.44
— v — (2009) 240 CLR 391; [2009] HCA 50 …. 11.7, 11.54
Zurich General Accident and Liability Insurance Co Ltd v Morrison
[1942] 2 KB 53 …. 11.8, 11.17
Zuvela v Geiger [2007] WASCA 138 …. 6.47
 Table of Statutes

References are to paragraph numbers

COMMONWEALTH
Aboriginal and Torres Strait Islander Heritage Protection Act 1984 ….
3.10
s 3 …. 3.10
s 7 …. 3.10
s 12 …. 3.10
Acts Interpretation Act 1901
s 2C …. 7.4
Australian Consumer Law …. 7.1, 7.2, 7.3, 7.6, 7.7, 7.8, 7.10, 7.15, 7.16,
7.17, 9.23, 12.31
Ch 3 Pt 3-2 Div 1 s 54(4) …. 7.8
Ch 3 Pt 3-2 Div 1 s 58 …. 7.15
Pt 2-1 …. 6.1
Pt 2-2 …. 6.1
Pt 2-3 …. 6.1
Pt 3-2 …. 6.1, 7.25
Pt 3-2 Div 1 Subdiv A …. 7.3
Pt 3-3 …. 6.1
Pt 3-5 …. 6.1, 7.25
Pt 3-5 Div 1 …. 7.25
s 2 …. 5.24, 7.5, 7.16, 7.25
s 3 …. 7.4, 7.8
s 3(1)(b) …. 7.4
s 3(2) …. 7.4
s 3(3) …. 9.23
s 3(5) …. 7.4
s 3(10) …. 7.4
s 5(3) …. 5.34
s 7 …. 7.25
s 7(1) …. 7.25
s 9 …. 7.25
s 9(1) …. 7.25
s 9(2) …. 7.25
s 9(3) …. 7.25
s 9(4) …. 7.25
s 18 …. 5.24, 7.17, 12.28
s 20 …. 12.25
s 21 …. 12.25, 12.30
s 22 …. 12.25, 12.30
s 29 …. 7.17
s 29(1)(m) …. 7.17
s 51 …. 7.3, 7.5, 7.6
ss 51–53 …. 6.17
s 51(2) …. 7.5, 7.6
s 51(3) …. 7.5
s 52 …. 7.3, 7.5, 7.6, 9.23
s 52(1) …. 9.23
s 52(1)(b) …. 9.23
s 52(2) …. 7.6
s 52(4) …. 7.6
s 53 …. 7.3, 7.7
s 53(2) …. 7.7
s 54 …. 6.38, 7.3, 7.8
ss 54–56 …. 9.23
s 54(1) …. 9.23
s 54(2) …. 7.14
s 54(3) …. 7.8
s 54(3)(c) …. 7.8
s 54(3)(d) …. 7.8
s 54(3)(e) …. 7.8
s 54(4) …. 7.8, 7.9
s 54(5) …. 7.8
s 54(6) …. 7.9, 7.10
s 54(6)(a) …. 7.10
s 54(7) …. 7.9, 7.11
s 55 …. 6.30, 7.3, 7.8, 7.12
s 55(1) …. 9.23
s 55(2) …. 7.12
s 56 …. 6.20, 7.3, 7.13
s 56(1) …. 9.23
s 56(2) …. 7.13
s 56(3) …. 7.13
s 57 …. 6.43, 7.3, 7.13, 7.14, 9.23
s 57(1)(d) …. 7.14
s 58 …. 7.3, 7.15, 7.18
s 59 …. 7.3, 7.12, 7.16
s 59(1) …. 7.18
s 60 …. 6.3, 9.23, 9.35
s 61(1) …. 9.23
s 61(2) …. 9.23
s 63 …. 9.23, 9.35
s 64 …. 6.1, 7.3, 9.23, 9.35
s 64(1) …. 9.23
s 64A …. 6.1
s 64A(2) …. 9.23
s 64A(3) …. 9.23
s 65 …. 9.23
s 67 …. 6.1
s 137A …. 7.25
s 138 …. 7.25
s 138(1)(a) …. 7.25
s 139 …. 7.25
s 139(1)(a) …. 7.25
s 139B(2) …. 7.17
s 140(1)(a) …. 7.25
s 140(1)(c) …. 7.25
s 141 …. 7.25
s 142 …. 7.25
s 142(1)(c) …. 7.25
s 143(1) …. 7.25
s 143(2) …. 7.25
s 145 …. 7.25
s 146 …. 7.25
s 147 …. 7.25
s 149(1) …. 7.25
s 149(2) …. 7.25
s 150(1) …. 7.25
s 150(2) …. 7.25
s 224(1)(a)(ii) …. 7.17
s 232 …. 7.17
s 246 …. 7.17
s 259(2)(a) …. 7.18
s 259(2)(b) …. 7.18
s 259(3) …. 7.18
s 259(4) …. 7.18, 7.24, 7.25
s 259(6) …. 7.18
s 260 …. 7.18
s 262 …. 7.19
s 262(2) …. 7.19
s 263(2)(b) …. 7.18, 7.19
s 263(3) …. 7.19
s 263(4) …. 7.19
s 264 …. 7.19
s 271 …. 7.24, 7.25
s 271(2) …. 7.21
s 271(3) …. 7.22
s 271(4) …. 7.22
s 271(5) …. 7.23
s 272 …. 7.23
s 274 …. 7.24, 7.25
s 274(2) …. 7.24
s 274(4) …. 7.24
s 276 …. 7.24
s 276A …. 7.24, 7.25
s 276A(1) …. 7.24
 s 276A(2) …. 7.24, 7.25
s 276A(3) …. 7.24
s 276A(4) …. 7.24
Sch 1 item 1 …. 7.8, 7.15
Australian Prudential Regulation Act 1998 …. 11.3
Pt 3 …. 11.3
s 7 …. 11.3
s 8 …. 11.3
s 8(2) …. 11.3
s 10 …. 11.3
Australian Securities and Investments Commission Act 1989 …. 11.8
s 7 …. 11.3
Australian Securities and Investments Commission Act 2001 …. 7.2,
12.31
Pt 2 Div 2 …. 12.31
Pt 3 Divs 1–3 …. 11.3
Pt 3 Div 4 …. 11.3
Pt 12 …. 11.3
s 12BAA …. 11.3
s 12BAB …. 11.3
s 13 …. 11.3
s 32 …. 11.3
s 49 …. 11.3
s 50 …. 11.3
s 261 …. 11.3
Banking Code of Practice 2013 …. 12.31
cl 3.2 …. 12.31
cl 31.4 …. 12.31
cl 31.6 …. 12.31
Bankruptcy Act 1966 …. 5.53
Code of Banking Practice …. 12.28
Competition and Consumer Act 2010 …. 5.35, 7.1, 9.23
Pt XI …. 7.1
Pt XIAA …. 6.1, 7.1
s 6(2D)(a) …. 7.2
s 6(3)(a) …. 7.2
s 84 …. 5.39
s 131 …. 6.1, 7.2
s 131A …. 7.2
s 131C …. 6.1, 7.25
s 131C(1) …. 6.1
s 131C(3) …. 6.1
ss 140–140K …. 7.2
Sch 2 …. 5.24, 6.1, 7.1, 9.23, 12.25
Constitution …. 5.37, 7.1
s 51(i) …. 7.1
s 51(xiv) …. 11.2
s 51(xx) …. 7.1
Consumer Credit Code …. 12.12, 12.19, 12.28
s 5 …. 12.31
s 9 …. 12.31
s 50 …. 12.11, 12.31
s 51 …. 12.31
s 52 …. 12.31
s 55 …. 12.8
s 55(1) …. 12.31
s 56 …. 12.31
s 70 …. 12.31
 Sch 1 …. 12.19
Copyright Act 1968
s 37 …. 6.19
s 38 …. 6.19
Corporations Act 2001 …. 5.53, 11.2, 11.3, 11.5, 11.21, 12.23
Ch 7 …. 5.39
Pts 7.6–7.9 …. 11.2
s 124 …. 5.37
s 124(1) …. 5.3
s 588L …. 10.3
s 769B …. 5.39
Corporations Law …. 8.25
s 262 …. 8.25
s 266 …. 8.25
Criminal Code Act 1995
s 12.2 …. 5.39
s 12.3 …. 5.39
Cybercrime Act 2001 …. 13.22
Electronic Transactions Act 1999 …. 12.12
s 3 …. 13.12
s 8(1) …. 12.12
s 9 …. 13.14
s 10 …. 12.12, 13.15
s 11 …. 13.16
s 11(1)(a)–(e) …. 13.16
s 12 …. 13.18
s 12(1) …. 13.17
s 14 …. 13.19, 13.20
 s 14(3) …. 13.19
s 15 …. 13.21
Excise Act 1901 …. 2.5
Financial Sector (Collection of Data) Act 2001 …. 11.4
Financial Services Reform Act 2001 …. 11.2
General Insurance Reform Act 2001 …. 11.2, 11.4
Historic Shipwrecks Act 1976 …. 3.9
Income Tax Assessment Act 1936
s 264(1) …. 2.5
Intergovernmental Agreement for the Australian Consumer Law …. 6.1
Insurance Act 1973 …. 11.2, 11.3, 11.4
s 2A …. 11.2
s 9 …. 11.2
s 12 …. 11.2
s 17B …. 11.2
ss 24–27 …. 11.2
s 32 …. 11.3
s 35 …. 11.3
s 38 …. 11.3
s 39 …. 11.3
s 40 …. 11.3
s 49 …. 11.3
s 49J …. 11.3
s 49K …. 11.3
s 49L …. 11.3
s 52 …. 11.3
Insurance Contracts Act 1984 …. 11.2, 11.7, 11.8, 11.28, 11.48, 11.49
Pt IV Div 1 …. 11.8
Pt IV Div 2 …. 11.8
Pt IV Div 3 …. 11.8
s 9 …. 11.7
s 11(1) …. 11.7
s 11(6) …. 11.1
s 11(7) …. 11.36
s 11(10) …. 11.8
s 11(10)(b) …. 11.8
s 12 …. 11.21
s 13 …. 11.21, 11.23, 11.40, 11.42
s 13(1) …. 11.21
s 13(2) …. 11.21
s 13(3) …. 11.7, 11.21
s 13(4) …. 11.7, 11.21
s 14 …. 11.23, 11.27
s 14(1) …. 11.23
s 14(2) …. 11.23
s 14(3) …. 11.23
s 21 …. 11.8, 11.9, 11.21
s 21(1)(a) …. 11.8, 11.10, 11.12
s 21(1)(b) …. 11.8, 11.12
s 21A …. 11.8
s 22 …. 11.8
s 22(3) …. 11.8
s 26(2) …. 11.10
s 33 …. 11.8
s 35 …. 11.8, 11.27
s 37 …. 11.27
s 37C …. 11.8, 11.27
s 40(3) …. 11.36, 11.37
s 45 …. 11.53
s 45(1) …. 11.53
s 45(2) …. 11.53
s 48 …. 11.7, 11.23, 11.41
s 48(3) …. 11.7
s 48A …. 11.7
s 54 …. 11.25, 11.28, 11.29, 11.32, 11.33, 11.37, 11.39, 11.42
s 54(1) …. 11.29, 11.32, 11.33, 11.42
s 54(2) …. 11.29, 11.30, 11.31, 11.32
s 54(3) …. 11.32
s 54(4) …. 11.29
s 56 …. 11.38, 11.39, 11.40, 11.41, 11.42
s 56(1) …. 11.39, 11.40, 11.42
s 56(2) …. 11.39, 11.40, 11.42
s 56(3) …. 11.39
s 60 …. 11.39
s 60(1)(e) …. 11.39, 11.42
s 65 …. 11.48
s 65(4) …. 11.48
s 66 …. 11.49
s 66(b) …. 11.49
s 67 …. 11.46
s 67(3) …. 11.46
s 67(4) …. 11.46
s 68 …. 11.46
s 69 …. 11.8
s 76(1) …. 11.52
s 76(2) …. 11.52
Insurance Contracts Act 1998
s 21 …. 11.16
s 21A …. 11.16
s 21A(2) …. 11.16
s 21A(3) …. 11.16
s 21A(4) …. 11.16
s 21A(5) …. 11.16
s 21A(5)(b) …. 11.16
Insurance Contracts Amendment Act 2013 …. 11.7, 11.12, 11.16
s 13 …. 11.7
s 13(3) …. 11.23
s 13(4) …. 11.7, 11.23
s 14A …. 11.21
s 16(1) …. 11.7
s 17 …. 11.7
s 18 …. 11.7
s 21 …. 11.16, 11.17
s 21(1) …. 11.12
s 21(1)(b) …. 11.12
s 21(2)(c) …. 11.14
s 21(2) …. 11.13
s 21(2)(d) …. 11.15
s 21(3) …. 11.15, 11.19
s 21A …. 11.16
s 21B …. 11.16
s 21B(4) …. 11.16
s 21B(5) …. 11.16
s 21B(6) …. 11.16
 s 23 …. 11.18
s 24 …. 11.18
s 25 …. 11.17
s 26 …. 11.19
s 26(1) …. 11.19
s 26(2) …. 11.19
s 27 …. 11.19
s 28 …. 11.17, 11.20
s 28(1) …. 11.17
s 28(2) …. 11.17
s 28(3) …. 11.17
s 29 …. 11.17, 11.20
s 30 …. 11.20
s 29(3) …. 11.17
s 31 …. 11.17
s 33 …. 11.17
s 48 …. 11.17
s 48(1) …. 11.17
s 48(2) …. 11.17
s 48(3) …. 11.17
s 60(1)(b) …. 11.17
s 60(1)(c) …. 11.17
Insurance Contracts Regulations 1985
reg 2B(1) …. 11.16
reg 2B(2) …. 11.16
Insurance Laws Amendment Act 1998 …. 11.16
Life Insurance Act 1995 …. 11.2, 11.8
Pt 3 …. 11.2
Pt 4 …. 11.2
 Pt 7 …. 11.2
Marine Insurance Act 1909
s 10 …. 11.7
National Consumer Credit Protection Act 2009
Sch 1 …. 1.15
Personal Property Securities Act 2009 …. 1.10, 1.15, 2.3, 8.2, 8.20, 8.30,
9.2, 9.6, 9.26, 10.1, 10.2, 10.3, 10.4, 10.8, 10.9, 10.11, 10.12, 10.14,
10.17, 10.22, 10.26, 10.28, 10.29
Ch 4 …. 10.31
Pt 2.4, Div 2 …. 10.21
Pt 2.5 …. 8.2, 10.22
Pt 2.6 …. 10.28
Pt 3.3 …. 4.1
Pt 3.4 …. 4.1
Pt 4 …. 10.4
Pt 5.3 …. 10.18
Pt 7.4 …. 10.22
s 6 …. 10.2
s 8 …. 10.3
s 8(1)(b) …. 6.54, 10.3
s 8(1)(c) …. 10.3
s 8(1)(j) …. 10.3
s 8(1)(ja) …. 10.3
s 8(6) …. 10.3
s 10 …. 4.1, 10.3, 10.4, 10.5, 10.6, 10.7, 10.10, 10.12, 10.14, 10.16,
10.18, 10.24, 10.27
s 12 …. 8.2, 10.3, 10.9
s 12(1) …. 1.10, 10.3, 10.8
s 12(2) …. 10.3
s 12(2)(d) …. 8.20, 10.9
s 12(2)(h) …. 10.10
s 12(3) …. 10.4, 10.12, 10.14
s 12(3)(b) …. 10.10
s 12(3)(c) …. 9.2, 10.8
s 13 …. 10.4, 10.8
s 13(1)(b) …. 10.8
s 13(1)(d) …. 10.8
s 13(1)(e) …. 10.8
s 13(1)(e)(i) …. 10.8
s 13(1)(e)(ii) …. 10.8
s 13(2) …. 10.8
s 13(2)(a) …. 10.8
s 13(2)(b) …. 9.2, 10.8
s 13(3) …. 9.2, 10.8
s 19 …. 10.3, 10.11, 10.12, 10.29
s 19(1) …. 10.12
s 19(2) …. 10.12, 10.17
s 19(2)(a) …. 10.13
s 19(2)(c) …. 10.14
s 19(3) …. 10.12
s 19(4) …. 10.12
s 19(5) …. 10.12, 10.13
s 20 …. 10.3, 10.11, 10.12, 10.16, 10.26, 10.29
s 20(2) …. 10.16
s 21 …. 10.11, 10.15, 10.17, 10.29
s 21(1)(b)(i) …. 10.17
s 21(1)(b)(ii) …. 10.17
s 21(2)(a) …. 10.17
s 24 …. 2.3, 10.19
s 24(1) …. 10.19
s 24(2) …. 10.19
ss 25–29 …. 10.20
s 31 …. 8.2, 10.21
s 31(1)(a) …. 10.21
s 31(2) …. 10.21
s 31(3) …. 10.21
s 32 …. 8.2, 10.21, 10.26
s 32(1) …. 10.9
s 32(1)(a)(i) …. 10.26
s 43 …. 10.9, 10.17
s 43(1) …. 10.23
s 43(2) …. 10.23
s 44 …. 10.24
s 44(1) …. 10.24
s 44(2) …. 10.24
s 45 …. 10.25
s 45(1) …. 10.25
s 45(3) …. 10.25
s 46 …. 10.9, 10.26, 10.27
s 46(1) …. 10.26
s 47 …. 10.27
s 55 …. 10.9, 10.28, 10.29
s 55(2) …. 10.29
s 55(3) …. 10.14, 10.17, 10.29
s 55(4) …. 10.29
s 55(5) …. 10.29
 s 62 …. 10.30
s 73(1) …. 1.16, 10.8
ss 87–97 …. 4.1, 10.30
ss 98–103 …. 4.1, 10.30
s 109 …. 10.4
s 110 …. 10.31
s 115 …. 10.31
s 127 …. 10.31
s 128 …. 10.31
s 134 …. 10.31
s 150(1) …. 10.18
s 153 …. 10.18
s 160 …. 10.18
s 161 …. 10.7
s 254 …. 10.26
s 273 …. 10.9
s 339 …. 7.7
Personal Property Securities Regulations 2010
reg 2.2 …. 10.25
Sch 1 cl 2.2 …. 10.24
Sch 1 cl 2.2(1)(a) …. 10.24
Sch 1 cl 2.2(1)(a)(b) …. 10.24
Sch 1 cl 2.2(1)(a)(i) …. 10.24
Sch 1 cl 2.2(1)(c) …. 10.24
Sch 2 cl 2.2 …. 10.18
Privacy Act 1988 …. 11.6, 13.22
Privacy Amendment (Enhancing Privacy Protection) Act 2012 …. 13.22
Privacy Amendment (Private Sector) Act 2000 …. 13.22
Protection of Movable Cultural Heritage Act 1986 …. 3.9
 s 7 …. 3.9
Spam Act 2003 …. 13.22
s 16 …. 13.22
s 22 …. 13.22
s 24(2) …. 13.22
s 26 …. 13.22
s 32 …. 13.22
s 33 …. 13.22
Trade Practices Act 1974 …. 6.1, 6.3, 7.1, 7.2, 7.4, 7.6, 7.8, 7.12, 7.25
Pt V Div 2 …. 6.1, 7.1
Pt V Div 2A …. 6.1, 7.1, 7.4, 7.12, 7.25
Pt VA …. 7.25
s 4(1) …. 7.25
s 51AB …. 12.25
s 51AC …. 7.4, 12.25
s 52 …. 13.22, 13.28
s 65 …. 8.15
s 66(2) …. 7.8
s 68 …. 7.8
s 69(1) …. 6.17
s 69(1)(b) …. 7.6
s 70 …. 6.20
s 71(1) …. 6.38, 7.8
s 71(1)(a) …. 7.11
s 71(1)(b) …. 7.11
s 71(2) …. 6.30, 7.12
s 72 …. 6.43
s 74 …. 6.3
 s 74(1) …. 9.23
s 74A(2)(a) …. 7.4, 7.25
s 74B …. 7.25
s 74B(1) …. 7.12
s 74B(2)(a) …. 7.12
s 74B(2)(b) …. 7.12
s 74D …. 7.8, 7.12, 7.25
s 74D(3) …. 7.8
s 75A …. 7.12
s 75A(3)(a) …. 7.12
s 75AB …. 7.25
s 75AC …. 7.25
s 75AD …. 7.25
s 75AK(1) …. 7.12
Trade Practices Amendment (Australian Consumer Law) Act (No 2)
2010
Sch 7 item 6 …. 6.1, 7.1

AUSTRALIAN CAPITAL TERRITORY

Consumer Credit Act 1995 …. 12.11
Conveyancing Act 1919
s 54A …. 5.2
Crimes (Sentencing Procedure) Act 1999
s 16 …. 5.37
Electronic Transactions Act 2001 …. 12.12, 13.12
s 7 …. 12.12, 13.13
s 8 …. 13.14
s 9 …. 12.12, 13.15
s 10 …. 13.16
 s 11 …. 13.18
s 11(1) …. 13.17
s 13 …. 13.19, 13.20
s 14 …. 13.21
Fair Trading Act 1992 …. 12.28, 12.30, 12.31
s 9 …. 12.30
s 13 …. 12.25
Fair Trading (Australian Consumer Law) Act 1992 …. 9.23
s 7(1) …. 7.2
Heritage Act 2004 …. 3.10
Instruments Act 1933 …. 1.10
Imperial Acts (Substituted Provisions) Act 1986
s 3(1) …. 12.10, 12.12, 12.14, 12.19
Law of Property (Miscellaneous Provisions) Act 1958
s 3 …. 1.7, 1.21
Mercantile Law Act 1962
s 4 …. 8.32, 8.36
s 6(a) …. 8.45
s 7(c) …. 8.36
Sale of Goods Act 1954 …. 6.1, 6.2, 6.3, 6.8, 6.9, 6.12, 6.17, 6.43, 8.24
s 5 …. 6.3, 6.4, 6.5, 6.7, 6.10, 6.55, 8.26, 8.44
s 5(2)(a) …. 8.36
s 5(2)(d) …. 8.9
s 6 …. 6.3, 6.10, 8.36, 8.41
s 6(5) …. 6.3
s 10 …. 6.3, 6.10
s 11 …. 8.29
s 12 …. 8.28
s 13 …. 6.12
s 16 …. 6.18, 6.20, 6.21, 6.22, 6.24, 6.25, 6.27, 6.45
s 17 …. 6.17
s 18 …. 6.20
s 19 …. 6.30, 6.38
s 20 …. 6.43
s 21 …. 6.11, 8.16
s 22 …. 8.21
s 22(1) …. 8.5, 8.20
s 22(2) …. 8.5
s 23 …. 6.5, 6.6, 6.11, 6.45, 8.5
s 24 …. 6.11
s 24(1) …. 8.24
s 25 …. 6.5, 8.26
s 26(1) …. 8.30
s 26(2) …. 8.36
s 27 …. 8.33
s 28(1) …. 8.47
s 28(2) …. 8.47
s 29 …. 6.13
s 29(1) …. 8.37
s 29(2) …. 8.40
s 30 …. 6.13
s 30(1) …. 8.46
s 31 …. 6.13
s 32 …. 6.13, 6.26
s 33 …. 6.13
s 34 …. 6.13, 6.26
s 35 …. 6.48
 s 36 …. 6.13, 8.26
s 37 …. 8.26
s 38 …. 6.45
s 39 …. 6.13, 6.45
s 40 …. 6.45
s 41 …. 6.13
s 43 …. 6.54, 6.56
s 44 …. 6.55
s 45 …. 6.55
s 46 …. 6.55
s 47 …. 6.57
s 48 …. 6.57
s 49 …. 6.57
s 50 …. 6.57
s 51 …. 6.58
s 52 …. 6.3, 6.52
s 53 …. 6.3, 6.53
s 54 …. 6.49
s 55 …. 6.6, 6.11, 6.50
Sale of Goods Ordinance Act 1975
s 3 …. 6.45
Sale of Goods (Vienna Convention) Act 1987 …. 6.1

NEW SOUTH WALES

Bills of Sale Act 1898 …. 1.10, 1.15
Consumer Credit (New South Wales) Act 1995 …. 12.11
Contracts Review Act 1980 …. 12.31
s 4 …. 12.31
s 5 …. 12.31
 s 7 …. 12.8, 12.25, 12.28
s 9(1) …. 12.31
s 9(2) …. 12.31
s 9(4) …. 12.31
Conveyancing Act 1919
s 12 …. 1.7, 1.21
Electronic Transactions Act 2000 …. 12.12, 13.12
s 7 …. 12.12, 13.13
s 8 …. 13.14
s 9 …. 12.12, 13.15
s 10 …. 13.16
s 11 …. 13.18
s 11(1) …. 13.17
s 13 …. 13.19, 13.20
s 14 …. 13.21
Factors (Mercantile Agents) Act 1923
s 3 …. 8.32, 8.36
s 5(1) …. 8.45
s 6(3) …. 8.36
Fair Trading Act 1987 …. 9.23, 12.28, 12.31
s 28(1) …. 7.2
s 43 …. 12.25
National Parks and Wildlife Act 1974 …. 3.10
Sale of Goods Act 1923 …. 6.1, 6.2, 6.3, 6.8, 6.9, 6.12, 6.17, 6.43, 8.24,
8.30
s 5 …. 6.3, 6.4, 6.5, 6.7, 6.10, 6.55, 8.26, 8.36, 8.44
s 5(2) …. 8.36
s 5(4) …. 8.9
s 6 …. 6.3, 6.10, 8.36, 8.41
s 6(4) …. 6.3
s 10 …. 6.3, 6.10
s 11 …. 8.29
s 12 …. 8.28
s 13 …. 6.12
s 16 …. 6.18, 6.20, 6.21, 6.22, 6.24, 6.25, 6.27, 6.45
s 17 …. 6.17
s 18 …. 6.20
s 19 …. 6.30, 6.38
s 20 …. 6.43
s 21 …. 6.11, 8.16
s 22 …. 8.21
s 22(1) …. 8.5, 8.20
s 22(2) …. 8.5
s 23 …. 6.5, 6.6, 6.11, 6.45, 8.5
s 24 …. 6.11
s 24(1) …. 8.24
s 25 …. 6.5, 8.26
s 25A …. 6.9
s 26(1) …. 8.30
s 26(2) …. 8.36
s 27 …. 8.33
s 28(1) …. 8.30, 8.37
s 28(2) …. 8.30, 8.40
s 29 …. 6.13, 8.46
s 30 …. 6.13
s 31 …. 6.13
s 32 …. 6.13, 6.26
s 33 …. 6.26
 s 33(1) …. 6.16
s 34 …. 6.13, 6.48
s 35 …. 6.13, 8.26
s 36 …. 6.16, 8.26
s 37 …. 6.45
s 38 …. 6.45
s 39 …. 6.45
s 39 …. 6.13
s 40 …. 6.13
s 42 …. 6.54, 6.56
s 43 …. 6.55
s 44 …. 6.55
s 45 …. 6.55
s 46 …. 6.57
s 47 …. 6.57
s 48 …. 6.57
s 49 …. 6.57
s 50 …. 6.58
s 51 …. 6.3, 6.52
s 52 …. 6.3, 6.53
s 53 …. 6.49
s 56 …. 6.6, 6.50
Sale of Goods (Amendment) Act 1988 …. 6.45
Sale of Goods (Vienna Convention) Act 1986 …. 6.1

NORTHERN TERRITORY
Consumer Affairs and Fair Trading Act 1990 …. 9.23, 12.28
s 27(1) …. 7.2
 s 43 …. 12.25
Consumer Credit (Northern Territory) Act 1995 …. 12.11
Electronic Transactions Act 2000 …. 12.12, 13.12
s 7 …. 12.12, 13.13
s 8 …. 13.14
s 9 …. 12.12, 13.15
s 10 …. 13.16
s 11 …. 13.18
s 11(1) …. 13.17
s 13 …. 13.19, 13.20
s 14 …. 13.21
Heritage Act 2011 …. 3.10
Instruments Act 1935 …. 1.10
Law of Property Act 2000
s 58 …. 12.10, 12.12, 12.14, 12.19
Sale of Goods Act 1972 …. 6.1, 6.2, 6.3, 6.8, 6.9, 6.12, 6.17, 6.43
s 5 …. 6.3, 6.4, 6.5, 6.7, 6.10, 6.55, 8.26, 8.44
s 5(2) …. 8.36
s 5(4) …. 8.9
s 6 …. 6.3, 6.10, 8.41
s 6(5) …. 6.3
s 10 …. 6.3, 6.10
s 11 …. 8.29
s 12 …. 8.28
s 13 …. 6.12
s 14(3) …. 6.45
s 16 …. 6.18, 6.20, 6.21, 6.22, 6.24, 6.25, 6.27, 6.45
s 17 …. 6.17
s 18 …. 6.20
s 19 …. 6.30, 6.38
s 20 …. 6.43
s 21 …. 6.11, 8.16
s 22 …. 8.21
s 22(1) …. 8.5, 8.20
s 22(2) …. 8.5
s 23 …. 6.5, 6.6, 6.11, 6.45, 8.5
s 24 …. 6.11
s 24(1) …. 8.24
s 25 …. 6.5, 8.26
s 26(1) …. 8.30
s 27 …. 8.33
s 28(1) …. 8.37
s 28(2) …. 8.40
s 29 …. 6.13
s 29(1) …. 8.46
s 30 …. 6.13
s 31 …. 6.13
s 32 …. 6.13, 6.26
s 33 …. 6.26
s 34 …. 6.13, 6.45, 6.48
s 35 …. 6.13, 8.26
s 36 …. 6.45, 8.26
s 37 …. 6.45
s 38 …. 6.45
s 39 …. 6.13, 6.45
s 40 …. 6.13
s 42 …. 6.54, 6.56
 s 43 …. 6.55
s 44 …. 6.55
s 45 …. 6.55
s 46 …. 6.57
s 47 …. 6.57
s 48 …. 6.57
s 49 …. 6.57
s 50 …. 6.58
s 51 …. 6.3, 6.52
s 52 …. 6.3, 6.53
s 53 …. 6.49
s 56 …. 6.11, 6.50
Sale of Goods (Vienna Convention) Act 1987 …. 6.1
Supreme Court Act 1979
s 70 …. 1.7, 1.21

QUEENSLAND
Aboriginal Cultural Heritage Act 2003 …. 3.10
Bills of Sale and Other Instruments Act 1955 …. 1.10, 1.15
Consumer Credit (Queensland) Act 1994 …. 12.11
Electronic Transactions (Queensland) Act 2001 …. 12.12, 13.12
s 8 …. 12.12, 13.13
s 9 …. 13.14
s 14 …. 12.12, 13.15
s 14(a) …. 13.15
s 14(b) …. 13.15
s 14(c) …. 13.15
s 16 …. 13.16
s 19 …. 13.17
 s 20 …. 13.18
s 21 …. 13.18
s 23 …. 13.20
s 24 …. 13.19
s 25 …. 13.19, 13.20
s 26 …. 13.21
Factors Act 1892
s 2(1) …. 8.32, 8.36
s 3(1) …. 8.45
Fair Trading Act 1989 …. 6.1, 9.23, 12.28, 12.31
s 16(1) …. 7.2
Hire-purchase Act 1959
s 2 …. 9.7
Legal Profession Act 2007 …. 5.4
Powers of Attorney Act 1998 …. 5.53
Property Agents and Motor Dealers Act 2000 …. 5.4
Property Law Act 1974 …. 1.20
s 56 …. 12.10, 12.12, 12.14, 12.19
s 59 …. 13.15
s 199 …. 1.7, 1.21
s 200 …. 1.20
Public Trustee Act 1978
Pt VII s 103(2) …. 3.2
Sale of Goods Act 1896 …. 1.7, 6.1, 6.2, 6.3, 6.8, 6.9, 6.12, 6.17, 6.43,
8.1, 8.3, 8.5, 8.8, 8.13, 8.17, 8.24, 8.36
s 2(1) …. 8.36
s 2(2) …. 8.36
s 3 …. 1.7, 2.3, 6.55, 8.8, 8.17, 8.26, 8.28, 8.32, 8.44
s 3(1) …. 8.36
s 3(2) …. 8.36
s 3(4) …. 8.9, 8.13, 8.18, 8.36
s 4 …. 1.19, 6.3
s 4(3) …. 8.41
s 5(3) …. 6.57
s 9 …. 8.29
s 10 …. 8.28
s 11 …. 6.12
s 11(1) …. 6.12
s 11(2) …. 6.12
s 14(3) …. 6.18, 6.45, 8.10
s 15 …. 6.17
s 15(a) …. 6.18
s 15(b) …. 6.19
s 15(c) …. 6.19
s 16 …. 6.39, 6.40
s 17 …. 6.31
s 17(a) …. 6.30, 6.31, 6.35, 6.39, 6.41
s 17(b) …. 6.30, 6.31, 6.37
s 17(c) …. 6.38, 6.39, 6.40
s 17(d) …. 6.38, 6.39
s 18 …. 6.43, 6.44
s 18(1) …. 6.44
s 19 …. 6.11, 8.4, 8.16
ss 19–23 …. 8.1
s 19(1) …. 6.37
s 20 …. 8.1, 8.21
s 20(1) …. 8.5, 8.20
s 20(2) …. 8.5, 8.20
s 21 …. 6.11, 8.5, 8.14
s 21 r 4(1)(b) …. 8.15
s 21 r 5 …. 8.4
s 21 r 5(1A) …. 8.19
s 22 …. 8.19, 8.20, 8.24
s 23 …. 8.26
s 23(2) …. 8.26
s 23(3) …. 8.27
s 24 …. 8.1
ss 24–28 …. 8.1
s 24(1) …. 8.30, 8.31, 8.32
s 24(2) …. 8.36
s 25 …. 8.33
s 26(1) …. 8.47
s 26(2) …. 8.47
s 27(1) …. 8.37
s 27(2) …. 8.40, 8.45
s 28(1) …. 8.39
s 28(1A) …. 8.46
s 29 …. 6.13
s 30 …. 6.13
s 31 …. 6.13
s 32 …. 6.26
s 32(1) …. 6.16
s 32(2) …. 6.16
s 32(2A) …. 6.16
s 32(4) …. 6.16
s 34 …. 6.13, 8.26
 s 35 …. 8.26
s 36 …. 8.15
s 37 …. 8.15
s 39 …. 6.13
s 41(2) …. 6.56
s 42(1) …. 6.55
s 42(2) …. 6.55
s 43 …. 6.55
s 44(1) …. 6.55
s 45 …. 6.57
s 46 …. 6.57
s 47 …. 6.57
s 48 …. 6.57
s 49 …. 6.57
s 50(1) …. 8.25
Sale of Goods (Vienna Convention) Act 1986 …. 6.1
s 3 …. 6.3, 6.10
s 3(1) …. 6.3, 6.4, 6.5
s 4(3) …. 6.3, 6.10
s 4(4) …. 6.3
s 8 …. 6.3
s 8(3) …. 6.10
s 21 r 1 …. 6.5, 6.6, 6.45
s 23 …. 6.5
s 24 …. 6.11
s 33 …. 6.48
s 33(2) …. 6.48
s 36 …. 6.45
s 36(1) …. 6.45
 s 36(2) …. 6.45
s 37 …. 6.45
s 41 …. 6.54
s 41(2) …. 6.54
s 50(1) …. 6.3, 6.52
s 50(2) …. 6.52
s 51(1) …. 6.3, 6.53
s 51(2) …. 6.53
s 52 …. 6.49
s 52(3) …. 6.49
s 53 …. 6.6, 6.11, 6.12
s 53(1) …. 6.49
s 53(2) …. 6.49
s 54 …. 6.47
s 54(2) …. 6.47
s 54(3) …. 6.47
s 55 …. 6.47
s 51(3) …. 6.53
s 61(2) …. 6.1
Storage Liens Act 1973 …. 1.16, 10.8
s 3 …. 1.16
s 4 …. 1.16
s 4A(1) …. 1.16

SOUTH AUSTRALIA
Aboriginal Heritage Act 1988 …. 3.10
Bills Of Sale Act 1886 …. 1.10, 1.15
Consumer Credit (South Australia) Act 1994 …. 12.11
Electronic Transactions Act 2000 …. 12.12, 13.12
s 7 …. 12.12, 13.13
s 8 …. 13.14
s 9 …. 12.12, 13.15
s 10 …. 13.16
s 11 …. 13.18
s 11(1) …. 13.17
s 13 …. 13.19, 13.20
s 14 …. 13.21
Fair Trading Act 1987 …. 9.23, 12.28, 12.31
s 57 …. 12.25
Law of Property Act 1936
s 15 …. 1.7, 1.21
Mercantile Law Act 1936
s 3(1) …. 8.32, 8.36
s 3(2) …. 8.36
s 4(1) …. 8.45
Misrepresentation Act 1972
s 6 …. 6.45
s 11 …. 6.45
Sale of Goods Act 1895 …. 6.1, 6.2, 6.3, 6.8, 6.9, 6.12, 6.17, 6.46, 8.24
s 1 …. 6.3, 6.10, 8.41
s 1(4) …. 6.3
s 4 …. 8.36
s 5 …. 6.3, 6.10
s 6 …. 8.29
s 7 …. 8.28
s 8 …. 6.12
s 11 …. 6.18, 6.45
s 12 …. 6.17
s 13 …. 6.20
s 14 …. 6.30, 6.34, 6.38
s 15 …. 6.17, 6.43
s 15(a) …. 6.18
s 15(b) …. 6.19
s 16 …. 8.16
s 17 …. 8.21
s 17(1) …. 8.5, 8.20
s 17(2) …. 8.5
s 18 …. 6.5, 6.6, 6.11, 6.45, 8.5
s 19(1) …. 8.24
s 20 …. 6.5, 8.26
s 21 …. 6.11
s 21(1) …. 8.30
s 21(2) …. 8.36
s 22 …. 8.48
s 23 …. 8.33
s 24 …. 6.11, 8.47
s 25(1) …. 8.37
s 25(2) …. 8.40
s 26(1) …. 8.46
s 27 …. 6.13
s 28 …. 6.13
s 29 …. 6.13
s 30 …. 6.13, 6.26
s 31 …. 6.13, 6.48
s 32 …. 6.13, 6.26, 8.26
 s 33 …. 8.26
s 34 …. 6.13, 6.45
s 35 …. 6.45
s 36 …. 6.45
s 37 …. 6.13
s 39 …. 6.13, 6.54
s 39 …. 6.55
s 40 …. 6.55
s 41 …. 6.55
s 42 …. 6.55
s 43 …. 6.57
s 44 …. 6.57
s 45 …. 6.57
s 46 …. 6.57
s 47 …. 6.58
s 48 …. 6.3, 6.52
s 49 …. 6.3, 6.53
s 50 …. 6.49
s 51 …. 6.6, 6.11, 6.50
s 60 …. 6.3, 6.4, 6.5, 6.7, 6.10, 6.55, 8.26, 8.44
s 60(2) …. 8.36
s 60(4) …. 8.9
Sale of Goods (Vienna Convention) Act 1986 …. 6.1

TASMANIA
Aboriginal Relics Act 1975 …. 3.10
Australian Consumer Law (Tasmania) Act 2010
s 6(1) …. 7.2
Bills of Sale Act 1900 …. 1.10, 1.15
Consumer Credit (Tasmania) Act 1996 …. 12.11
Conveyancing and Law of Property Act 1884
s 86 …. 1.7, 1.21
Electronic Transactions Act 2000 …. 12.12, 13.12
s 5 …. 12.12, 13.13
s 6 …. 13.14
s 7 …. 12.12, 13.15
s 8 …. 13.16
s 9 …. 13.18
s 9(1) …. 13.17
s 11 …. 13.19, 13.20
s 12 …. 13.21
Factors Act 1891
s 3(b) …. 8.36
s 3(d) …. 8.32
s 3(e) …. 8.36
s 5(1) …. 8.45
Fair Trading Act 1990 …. 9.23, 12.28, 12.31
s 15 …. 12.25
s 15A …. 12.25
Mercantile Law Act 1935
s 6 …. 12.10, 12.12, 12.14, 12.19
National Parks and Reserves Management Act 2002 …. 3.10
Sale of Goods Act 1896 …. 6.1, 6.2, 6.3, 6.8, 6.9, 6.12, 6.17, 6.46, 8.24
s 3 …. 6.3, 6.4, 6.5, 6.7, 6.10, 6.55, 8.26, 8.44
s 3(2) …. 8.36
s 3(4) …. 8.9
s 6 …. 6.3, 6.10, 8.41
s 6(4) …. 6.3
s 9 …. 6.3
s 10 …. 6.3, 6.10
s 11 …. 8.29
s 12 …. 8.28
s 13 …. 6.12
s 14(3) …. 6.45
s 15 …. 6.17
s 15(a) …. 6.18
s 15(b) …. 6.19
s 16 …. 6.18, 6.20, 6.21, 6.22, 6.24, 6.25, 6.27, 6.45
s 17 …. 6.17
s 18 …. 6.20
s 19 …. 6.30, 6.38
s 20 …. 6.43
s 21 …. 6.11, 8.16
s 22 …. 8.21
s 22(1) …. 8.5, 8.20
s 22(2) …. 8.5
s 23 …. 6.5, 6.6, 6.11, 6.45, 8.5
s 24 …. 6.11
s 24(1) …. 8.24
s 25 …. 6.5, 8.26
s 26(1) …. 8.30
s 26(2) …. 8.36
s 27(1) …. 8.48
s 28 …. 8.33
s 29 …. 6.13, 8.47
s 30 …. 6.13
s 30(1) …. 8.37
s 30(2) …. 8.40
s 31 …. 6.13
s 31(1) …. 8.46
s 32 …. 6.13, 6.26
s 33 …. 6.13
s 34 …. 6.13
s 35 …. 6.26
s 36 …. 6.48
s 37 …. 6.13, 8.26
s 38 …. 8.26
s 39 …. 6.13, 6.45
s 40 …. 6.45
s 41 …. 6.45
s 42 …. 6.13
s 44 …. 6.54, 6.56
s 45 …. 6.55
s 46 …. 6.55
s 47 …. 6.55
s 48 …. 6.57
s 49 …. 6.57
s 50 …. 6.57
s 51 …. 6.57
s 52 …. 6.58
s 53 …. 6.3
s 53 …. 6.52
s 54 …. 6.3, 6.53
s 55 …. 6.49
s 56 …. 6.6, 6.11, 6.50
Sale of Goods (Vienna Convention) Act 1987 …. 6.1

VICTORIA
Aboriginal Heritage Act 2006 …. 3.10
Australian Consumer Law and Fair Trading Act 2012
s 11(1) …. 7.2
Chattel Securities Act 1987 …. 1.10, 10.9
Consumer Credit (Victoria) Act 1995 …. 12.11
Crimes Act 1958 …. 11.40
Electronic Transactions (Victoria) Act 2000 …. 12.12, 13.12
s 7 …. 12.12, 13.13
s 8 …. 13.14
s 9 …. 12.12, 13.15
s 10 …. 13.16
s 11 …. 13.18
s 11(1) …. 13.17
s 13 …. 13.19, 13.20
s 14 …. 13.21
Fair Trading Act 1985 …. 11.8
Fair Trading Act 1999 …. 9.23, 12.28, 12.31
s 7 …. 12.25
s 8 …. 12.25
s 8A …. 12.25
Goods Act 1958 …. 6.1, 6.8, 6.9, 6.12, 6.17, 6.45, 6.46, 8.24
s 3 …. 6.3, 6.4, 6.5, 6.10, 6.55, 8.26, 8.44
s 3(2) …. 8.36
s 3(4) …. 8.9
s 6 …. 6.3, 6.10, 8.41
s 6(4) …. 6.3
s 10 …. 6.3, 6.10
s 11 …. 8.29
s 12 …. 8.16, 8.28
s 13 …. 6.12
s 14(3) …. 6.45
s 15 …. 6.17
s 15(a) …. 6.18
s 15(b) …. 6.19
s 16 …. 6.18, 6.20, 6.21, 6.22, 6.24, 6.25, 6.27, 6.45
s 17 …. 6.17
s 18 …. 6.20
s 19 …. 6.30, 6.38
s 20 …. 6.43
s 22 …. 8.21
s 22(1) …. 8.5, 8.20
s 22(2) …. 8.5
s 23 …. 6.5, 6.6, 6.11, 6.45, 8.5
s 24 …. 6.11
s 24(1) …. 8.24
s 25 …. 6.5, 8.26
s 26 …. 8.36
s 27 …. 8.30, 8.32
s 29 …. 8.33
s 30 …. 6.13, 8.37
s 31 …. 6.13, 8.40
s 34 …. 6.13
s 35 …. 6.13
s 36 …. 6.13
s 37 …. 6.26
s 38 …. 6.48
s 39 …. 6.13, 8.26
s 40 …. 8.26
s 41 …. 6.45
s 42 …. 6.45
s 43 …. 6.45
s 44 …. 6.13
s 46 …. 6.54, 6.56
s 47 …. 6.55
s 48 …. 6.55
s 49 …. 6.55
s 50 …. 6.57
s 51 …. 6.57
s 52 …. 6.57
s 53 …. 6.57
s 54 …. 6.58
s 55 …. 6.3, 6.52
s 56 …. 6.3, 6.53
s 57 …. 6.49
s 58 …. 6.6, 6.11, 6.50
s 65 …. 8.32, 8.36
s 67 …. 8.36
s 67(1) …. 8.45
s 68 …. 8.36
s 68(a) …. 8.36
s 82(1) …. 8.46
s 101(1) …. 6.18
Housing Contracts Guarantee Act 1987 …. 12.19
Pt 2 …. 12.19
Instruments Act 1958
s 126 …. 12.10, 12.12, 12.14, 12.19
Legal Profession Act 2004 …. 13.15
Property Law Act 1958
s 134 …. 1.7, 1.21
Statute of Frauds (Instruments Act) 1915
s 228 …. 12.15
Supreme Court (General Civil Procedure) Rules 2005
r 7.05(2)(b) …. 13.31

WESTERN AUSTRALIA
Aboriginal Heritage Act 1972 …. 3.10
Bills of Sale Act 1899 …. 1.10, 1.15
Consumer Credit (Western Australia) Act 1996 …. 12.11
Electronic Transactions Act 2003 …. 12.12
s 7 …. 12.12
s 9 …. 12.12
Electronic Transactions Act 2011 …. 13.12, 13.19
Pt 2 Div 2 …. 13.13
s 8 …. 13.13
s 8(1) …. 13.13
s 8(2)–(4) …. 13.13
s 9 …. 13.14
s 10 …. 13.15
s 11 …. 13.16
s 12 …. 13.17, 13.18
s 13 …. 13.20
 s 14 …. 13.19
s 15 …. 13.20
s 16 …. 13.21
Fair Trading Act 1987 …. 9.23, 12.28, 12.31
s 11 …. 12.25
Fair Trading Act 2010
s 19(2) …. 7.2
Law Reform (Statute of Frauds) Act 1962
s 2 …. 12.10, 12.12, 12.14, 12.19
Property Law Act 1969
s 20 …. 1.7, 1.21
Sale of Goods Act 1895 …. 6.1, 6.2, 6.3, 6.8, 6.9, 6.12, 6.17, 6.46, 8.24
s 1 …. 6.3, 6.10, 8.41
s 1(4) …. 6.3
s 4 …. 6.3
s 5 …. 6.3, 6.10
s 6 …. 8.29
s 7 …. 8.28
s 8 …. 6.12
s 11 …. 6.18, 6.45
s 12 …. 6.17
s 13 …. 6.20
s 14 …. 6.30, 6.34, 6.38
s 14(3) …. 6.45
s 15 …. 6.17, 6.43
s 15(a) …. 6.18
s 15(b) …. 6.19
s 16 …. 8.16
s 17 …. 8.21
s 17(1) …. 8.5, 8.20
s 17(2) …. 8.5
s 18 …. 6.5, 6.6, 6.11, 6.45, 8.5
s 19(1) …. 8.24
s 20 …. 6.5, 8.26
s 21 …. 6.11
s 21(1) …. 8.30
s 21(2) …. 8.36
s 22 …. 8.48
s 23 …. 8.33
s 24 …. 6.11, 8.47
s 25(1) …. 8.37
s 26(1) …. 8.46
s 27 …. 6.13
s 28 …. 6.13
s 29 …. 6.13
s 30 …. 6.13, 6.26
s 31 …. 6.13, 6.48
s 32 …. 6.13, 6.26, 8.26
s 33 …. 8.26
s 34 …. 6.13, 6.45
s 35 …. 6.45
s 37 …. 6.13
s 36 …. 6.45
s 39 …. 6.13, 6.54, 6.56
s 40 …. 6.55
s 41 …. 6.55
s 42 …. 6.55
 s 43 …. 6.57
s 44 …. 6.57
s 45 …. 6.57
s 46 …. 6.57
s 47 …. 6.58
s 48 …. 6.3, 6.52
s 49 …. 6.3, 6.53
s 50 …. 6.49
s 51 …. 6.6, 6.11, 6.50
s 60 …. 6.3, 6.4, 6.5, 6.7, 6.10, 6.55, 8.26, 8.44
s 60(2) …. 8.36
s 60(4) …. 8.9
Sale of Goods (Vienna Convention) Act 1986 …. 6.1

CANADA
Consumer Protection Act …. 7.3

NEW ZEALAND
Consumer Guarantees Act 1993 …. 7.3

UNITED KINGDOM
Administration of Estates Act 1925 …. 1.4
Bills of Sale Act 1878 …. 1.15
Bills of Sale Act 1882 …. 1.15
Factors Act 1823 …. 8.30
Factors Act 1825 …. 8.30
Factors Act 1842 …. 8.30
Factors Act 1877 …. 8.30
Factors Act 1889 …. 8.30
 s 8 …. 8.30
s 9 …. 8.30
Judicature Act 1873
s 25(6) …. 1.21
Land Transfer Act 1897 …. 1.4
Sale of Goods Act 1979 …. 7.3, 7.12
s 16 …. 7.13
Statute of Frauds 1677
Ch 3 …. 12.10
s 4 …. 12.10
Torts (Interference with Goods) Act 1977 …. 9.15
Treasure Act 1996 …. 3.9
s 1 …. 3.9
s 2 …. 3.9

INTERNATIONAL
UN Convention on the Use of Electronic Communications in
International Contracts …. 13.11
Art 1 …. 13.11
Art 2 …. 13.11
Art 4(b) …. 13.11
Art 4(c) …. 13.11
Art 4(g) …. 13.11
Art 8 …. 13.11
Art 9(2) …. 13.11
Art 9(3) …. 13.11
Art 10 …. 13.11
Art 11 …. 13.11
Art 12 …. 13.11
Art 14 …. 13.11
 Contents

Detailed Table of Contents

Preface
Table of Cases
Table of Statutes

PART I THE FUNDAMENTALS OF PERSONAL PROPERTY

LAW
Chapter 1 THE OBJECTS AND NATURE OF PERSONAL
PROPERTY
Chapter 2 OWNERSHIP AND POSSESSION
Chapter 3 FINDING
Chapter 4 ACCESSION, SPECIFICATION AND
INTERMIXTURE

PART II COMMERCIAL LAW

Chapter 5 AGENCY
Chapter 6 SALE OF GOODS
Chapter 7 CONSUMER TRANSACTIONS
Chapter 8 TRANSFER OF PROPERTY AND TITLE IN
GOODS
Chapter 9 BAILMENT
Chapter 10 PERSONAL PROPERTY SECURITY INTERESTS
Chapter 11 INSURANCE
Chapter 12 GUARANTEES
Chapter 13 E-COMMERCE
Index
Detailed Table of Contents

Contents
Preface
Table of Cases
Table of Statutes

PART I THE FUNDAMENTALS OF PERSONAL PROPERTY

LAW
Chapter 1 THE OBJECTS AND NATURE OF PERSONAL
PROPERTY
PERSONAL PROPERTY
Real property and personal property
Chattels real and chattels personal
Choses in possession
Choses in action

INTERESTS IN PROPERTY
INTERESTS CREATED BY WAY OF SECURITY
Creation of security interests
Common forms of security interest created by agreement
Security interest created by transfer of title: mortgage
Security interest created by possession
Security interest created by operation of law

THE TRANSFER OF PERSONAL PROPERTY

Sale
 Gift
Assignment
Assignment of after-acquired property

Chapter 2 OWNERSHIP AND POSSESSION

WHAT IS A PROPERTY OR PROPRIETARY
RIGHT?
POSSESSION
The nature and relevance of possession

THE SIX FORMS OF POSSESSION

Custody
Actual or de facto possession
Legal possession or possession in law
Lawful possession
Constructive possession
The right to possession

POSSESSORY TITLE
INTERFERENCE WITH POSSESSION
Trespass
Detinue
Conversion

OWNERSHIP
Chapter 3 FINDING
DEFINING A ‘FINDING’ DISPUTE
ABANDONMENT
What is abandonment?
The elements of abandonment
How does the occupier of an abandoned chattel become the owner?

FINDING: ACQUIRING A PRIORITY OF

ENTITLEMENT
 Further consideration of the Parker principles
Treasure trove
Aboriginal objects

Chapter 4 ACCESSION, SPECIFICATION AND

INTERMIXTURE
CHANGING THE NATURE OF A CHATTEL
ACCESSION
The effects of accession
Remedies of the owner of the accessory

SPECIFICATION
INTERMIXTURE
Authorised intermixture
Unauthorised intermixture

ACCESSION, SPECIFICATION AND

INTERMIXTURE COMPARED
FIXTURES

PART II COMMERCIAL LAW

Chapter 5 AGENCY
THE CONCEPT OF AGENCY
PRACTICAL METHODOLOGY
CAPACITY REQUIRED OF PRINCIPAL AND
AGENT
Principal
Agent

THE SOURCES OF AN AGENT’S AUTHORITY

ACTUAL AUTHORITY
Actual express authority
Actual implied authority

OSTENSIBLE AUTHORITY
What is ostensible authority?
The elements of ostensible authority
Ostensible agency and forgery
Consequences of finding of ostensible agency

RATIFICATION
Contract must be expressly entered on behalf of principal
Authority to ratify
The act of ratification
Communication of ratification
Distinguishing ratification by acquiescence and estoppel
Full knowledge of material circumstances by principal
Ratification of the whole
Exceptions to ratification

IMPUTED KNOWLEDGE
CORPORATIONS AND THE DOCTRINE OF
ATTRIBUTION
Primary rules of attribution
General rules of attribution
Special rules of attribution

THE DOCTRINE OF UNDISCLOSED

PRINCIPAL
How the doctrine applies
Limits on the doctrine

AGENCY BY OPERATION OF LAW

DUTIES OF AGENTS
PRINCIPALS’ DUTIES AND AGENTS’ RIGHTS
Remuneration
Lien
Indemnity
 WHERE THERE IS NO AUTHORITY: THE
AGENT’S LIABILITY TO THE THIRD PARTY
When an agent might be personally liable on the contract
Breach of warranty of authority

TERMINATION OF AUTHORITY
TERMINATION BY THE PARTIES
Termination by operation of law

PROVING AGENCY
Chapter 6 SALE OF GOODS
INTRODUCTION TO SALE OF GOODS
TRANSACTIONS
APPLICATION OF STATE AND TERRITORY
SALE OF GOODS LEGISLATION
Sale of Goods Act

PERFORMANCE OF THE CONTRACT

General rules of delivery
Special rules of delivery relating to carriers
Delivery of the wrong quantity

IMPLIED TERMS: SALE OF GOODS ACT

Implied undertaking as to right to sell, quiet possession and freedom
from encumbrance
Correspondence with description
Fitness for purpose
Merchantable quality
Sale by sample

REMEDIES OF THE BUYER

Remedies for breach of a condition implied by the Sale of Goods Act
Acceptance and CIF or FOB contracts
Remedies for breach of a warranty implied by the Sale of Goods Act
Remedy for defective instalment deliveries
 Damages for non-delivery or delayed delivery
Remedy for specific performance

REMEDIES OF THE SELLER

Unpaid seller against the buyer

Chapter 7 CONSUMER TRANSACTIONS

INTRODUCTION TO THE AUSTRALIAN
CONSUMER LAW
APPLICATION OF THE LEGISLATION
CONSUMER GUARANTEES
Consumer
Guarantee as to title: s 51
Guarantee as to undisturbed possession: s 52
Guarantee as to undisclosed securities: s 53
Guarantee as to acceptable quality: s 54
Guarantee as to fitness for purpose: s 55
Guarantee as to correspondence with description: s 56
Guarantees relating to the supply of goods by sample or
demonstration model: s 57
Guarantees as to repairs and spare parts: s 58
Guarantee as to express warranties: s 59

REMEDIES FOR NON-COMPLIANCE WITH

STATUTORY CONSUMER GUARANTEES
Action against suppliers
Rejection of goods
Action against manufacturers

PERSONS INJURED BY UNSAFE GOODS: PT

3-5 OF THE ACL (FORMER PT VA OF THE
TRADE PRACTICES ACT)
Chapter 8 TRANSFER OF PROPERTY AND TITLE IN
GOODS
 DISTINGUISHING ‘PROPERTY’ AND ‘TITLE’
THE EFFECT OF THE PPSA
TRANSFER OF PROPERTY
Unascertained goods: no transfer of property
Goods other than unascertained goods

TRANSFER OF PROPERTY PRESUMPTIONS

WHERE NO CONTRARY INTENTION APPEARS
Specific goods in a deliverable state
Specific goods not in a deliverable state
Specific goods to be weighed, measured or tested to ascertain price
Goods delivered ‘on approval’ or ‘on sale or return’
Unascertained or future goods

RISK
Obligations as bailee
Goods perish after agreement to sell but before sale
Goods have already perished at time of sale

TRANSFER OF TITLE BY A NON-OWNER

The estoppel exception
Sale under a voidable title
Sale by a mercantile agent
Seller in possession: s 27(1)
Buyer in possession: s 27(2)
Miscellaneous exceptions

Chapter 9 BAILMENT
WHAT IS BAILMENT?
BAILMENT AND THE PPSA
BAILMENT AND DELIVERY
BAILMENT REQUIRES KNOWLEDGE AND
CONSENT OF THE BAILEE
 BAILMENT IN THE CONTEXT OF OTHER
RELATIONSHIPS
Sale
Hire purchase
Mutuum
Deposits of money

SUB-BAILMENT
JOINT BAILMENT
BAILMENT AND CONTRACT
CLASSIFICATION OF BAILMENTS
DUTIES COMMON TO ALL BAILMENTS
Duty of care of a bailee
Duty to deliver goods bailed
Duty not to deviate from the terms of the bailment and not to convert
Obligations on bailor in respect of the quality of goods bailed

GRATUITOUS BAILMENT
Deposit
Mandate
Gratuitous loan for use

BAILMENT FOR REWARD

Legislative provisions
Custody for reward (hire of custody)
Hire of work and labour
Pledge
Hire of chattels for reward

LIABILITY FOR ACTS OF EMPLOYEES

BAILMENT AND OCCUPIERS
ABANDONMENT
TERMINATION OF BAILMENT
 ONUS OF PROOF
ENFORCEMENT
ACTIONS DEPEND UPON A SUPERIOR
RIGHT OF POSSESSION
EXEMPTION CLAUSES AND SUB-BAILMENTS
DELEGATION OF PERFORMANCE OF
BAILMENT BY BAILEE
Chapter 10 PERSONAL PROPERTY SECURITY INTERESTS
INTRODUCTION TO THE PERSONAL
PROPERTY SECURITIES ACT
APPLICATION OF THE LEGISLATION
PPSA SECURITY INTERESTS
Deemed security interests
Grantor
Secured party
Collateral
A lease or bailment
Conditional sale agreements (retention of title clauses)
Consignment contracts

THE ELEMENTS OF AN EFFECTIVE PPSA

SECURITY INTEREST
THE CREATION OF A SECURITY INTEREST:
ATTACHMENT
Grantor has rights in the collateral
Value or act by grantor

ENFORCEABILITY AGAINST THIRD PARTIES

AND PRIORITY: ATTACHMENT AND
PERFECTION
 Requirements for enforceability against third parties
The concept of perfection
Perfection by registration
Perfection by possession
Perfection by control
Specific rules that apply to the proceeds from collateral

WHEN A THIRD PARTY CAN TAKE

PERSONAL PROPERTY FREE OF AN
EXISTING SECURITY INTEREST
Unperfected security interest
Where serial number incorrect on PPSR (s 44 of the PPSA)
Taking motor vehicles free of security interest (s 45 of the PPSA)
Collateral sold in the ordinary course of business (s 46 of the PPSA)
Low-value personal, domestic or household property (s 47 of the
PPSA)

DETERMINING PRIORITY WHERE THERE

ARE COMPETING SECURITY INTERESTS
General priority rules
Special priority rules

ENFORCEMENT OF SECURITY INTERESTS

Chapter 11 INSURANCE
REGULATION OF THE INSURANCE
INDUSTRY
Introduction
Overview of regulatory framework
Role of regulatory authorities
The present prudential regulatory framework
General Insurance Code of Practice
National Privacy Principles

FORMATION OF THE CONTRACT OF

INSURANCE
DISCLOSURE
The insured’s duty of disclosure
When is something ‘known’ by the insured?
Matters ‘relevant to the decision of the insurer whether to accept the
risk’
Matter includes an opinion
The reasonable insured
What matters do not need to be disclosed?
Disclosure and ‘eligible contracts’ of insurance
The consequences of non-disclosure

MISREPRESENTATION
When is a statement a misrepresentation?
Excluded misrepresentations
The consequences of misrepresentation

DUTY OF GOOD FAITH

Introduction
The insured and the duty of utmost good faith
The insurer and the duty of utmost good faith

CONSTRUING THE POLICY

Introduction
Structure of the insurance contract
Determining the meaning of the policy: principles of construction
Unusual terms: ss 14 and 37 considered

BREACH BY INSURED OF A TERM IN THE

POLICY
Introduction
The application of s 54
Insurer’s remedy for a breach of condition

MAKING A CLAIM
Loss covered by the policy
Causation
When and whether a ‘claim’ is in fact made against the insurer
Delay in the notification of a claim

FRAUDULENT CLAIMS
 What is a ‘fraudulent claim’?
The effect of a fraudulent claim
What if the value of the claim is exaggerated or an otherwise valid
claim is supported by false evidence?
The fraud of a co-insured and its effect on other insureds and third
parties
The interaction between ss 13, 54 and 56
No fraud, but has the insured proved the loss falls within the policy?

SUBROGATION
What does subrogation mean?
When can the insurer exercise its right of subrogation?
What rights can the insurer receive through subrogation?
What if the insurer recovers more from the third party than the insurer
has paid to the insured?
How is subrogation different from an insurer’s right of contribution?
Subrogation to rights against family
Subrogation to rights against employees
Release and settlement of claims by insured

DOUBLE INSURANCE AND CONTRIBUTION

Introduction
Nature of double insurance and the right of contribution
Obligation of insured to notify of other insurance
Determining the amount of contribution where double insurance
exists

Chapter 12 GUARANTEES
WHAT IS A GUARANTEE?
A definition
The purpose and nature of a guarantee
Consideration

THE PRIMARY OBLIGATION OF THE

PRINCIPAL DEBTOR
THE COLLATERAL OBLIGATION OF THE
GUARANTOR
A secondary obligation
The collateral obligation is co-extensive
Continuing collateral obligations
All moneys clauses
Revocation of the collateral obligation

FORMALITIES
The Statute of Frauds
Consumer Credit Code
Electronic Transactions Act

PERSONAL LIABILITY OF THE GUARANTOR

Personal liability is not necessary element of a guarantee
Personal liability and the Statute of Frauds

THE RULES OF CONSTRUCTION

DISTINGUISHING GUARANTEES FROM
SIMILAR COMMERCIAL TRANSACTIONS
Indemnities
Insurance

DISCHARGING THE LIABILITY OF THE

GUARANTOR
Agreement to the contrary
Grounds for discharge of the liability of the guarantor
The Marston contention

VITIATING FACTORS
Unconscionability
Undue influence
Non-disclosure
Setting aside the guarantee on other grounds
Independent advice

STATUTORY REGULATION OF GUARANTEES

AND THE CREDITOR’S CONDUCT
RIGHTS OF THE GUARANTOR
Indemnity
 Restitution
Subrogation
Contribution

Chapter 13 E-COMMERCE
INTRODUCTION: THE RISE OF E-COMMERCE
THE INTERNET
The origins of the internet
What is the internet?
The internet and the world wide web
Communication on the internet: packet switching
The growth of e-commerce and the information economy
Restraints on the development of e-commerce: access, user
confidence and security
Regulation of the internet and legislative intervention
The Australian approach

ELECTRONIC COMMERCE AND CONTRACT

LAW
Shrinkwrap agreements
Clickwrap agreements
Browsewrap agreements

JURISDICTION
A new law for the internet?
Jurisdiction
Choice of law
Forum non conveniens
Enforcement of foreign judgments, internet publication and
defamation

Index
[page 1]
PART I
The Fundamentals of Personal
Property Law
[page 3]
CHAPTER 1
The objects and nature of personal
property

PERSONAL PROPERTY
Real property and personal property
Chattels real and chattels personal
Choses in possession
Choses in action

INTERESTS IN PROPERTY

INTERESTS CREATED BY WAY OF SECURITY

Creation of security interests
Common forms of security interest created by agreement
Security interest created by transfer of title: mortgage

[page 4]

Security interest created by possession

Security interest created by operation of law

THE TRANSFER OF PERSONAL PROPERTY

Sale
Gift
Assignment
Assignment of after-acquired property
 [page 5]

PERSONAL PROPERTY
1.1 The term ‘property’ is used in two ways. It is used to denote
interests or ‘things’ capable of being owned (for example, my car or my
book is my ‘property’), and to denote ‘ownership’ itself1 (for example,
I have ‘the property in’ that car): Kersley, Goodeve’s Modern Law of
Personal Property, 9th ed, Sweet & Maxwell, London, 1949, p 1. The word
is used most commonly to refer to a thing capable of ownership.
However, in the context of determining whether and to what extent a
person has property rights in respect of a particular thing, the word is
used in a different sense: Zhu v Treasurer (NSW) [2004] HCA 56; (2008)
218 CLR 530 at 577. Different legal systems adopt different approaches
to the classification of property. In most Continental legal systems,
‘property’ is divided according to whether the property is ‘moveable’ or
‘immoveable’. This method of classification comes from Roman law.
‘Immoveables’ comprise land and things attached to the land, whereas
‘moveables’ are all other forms of property. In Commonwealth legal
systems (including Australia), property is divided into real property or
personal property.

Real property and personal property

1.2 The different forms of property can be summarised by way of a
diagram:
 ‘Real property’ means freehold land, while most other forms of
property are personal property. The general rule is that all things
which might otherwise be personal property (for example, a shed or
machinery), if sufficiently attached to the land, are treated as part of
the land, and hence as real property.
The laws governing real property and personal property are very
different. The reason for the distinction is historical. In or about the
11th century in England, land, which was at that time the main source
of public wealth, became subject to the law of feudal tenure. Moveable
things known as ‘chattels’ or ‘goods’ were not covered by this law.

[page 6]

This led to a fundamental distinction between property in land and

property in chattels. The distinction was of real significance, nowhere
more so than in the law relating to succession, which distinguished
between realty and personalty in the rules relating to devolution.
The imposition of the law of feudal tenure over land but not goods
gave rise to the following fundamental differences between the laws
relating to real property and personal property.2

Ability to alienate
1.3 An important principle of the law of feudal tenure was that the
ultimate ownership of all land was with the Crown and no individual
could be the absolute owner of land. An individual, at most, could hold
an hereditary estate (called a ‘fee’) or estates in fee simple. There were
also, at least initially, restrictions on the power of disposal of estates.
Chattels, on the other hand, could be owned absolutely and were not
subject to any restriction on alienation (a right which is incidental to
absolute ownership).

Succession after death

1.4 Another difference lay in the way in which fees or chattels could
be transferred at death. Fee simple estates passed at common law,
pursuant to certain rules, to the heir of the tenant who died possessed
of them. At first the same rule applied to chattels. Subsequently, the law
was changed such that the title of an owner of chattels passed on his
death either to his executors or, if he died intestate, to the
administrator of his estate. By the Land Transfer Act 1897 (UK) the
legislature provided that realty too should vest in executors or
administrators. It was not until the Administration of Estates Act 1925
(UK) that the law relating to beneficial succession was made the same
for both realty and personalty.

Different nature of remedy for the recovery of land and goods

1.5 The law provides different remedies for the recovery of land and
the recovery of goods. The distinction reflects the different nature of
land and goods: land is immoveable and indestructible, while goods are
moveable and perishable. The effect of this is that a landowner can be
given back his or her land by a process of law, whereas this may not be
the case with respect to goods. Goods can, for example, be lost,
destroyed, damaged or removed from the jurisdiction. In such a case
the law can only compensate the owner in monetary terms. Actions
came to be classified as either real or personal according to the remedy
claimed. Real actions were brought to recover land by a process of
execution issued directly against the thing demanded (in rem). Personal
actions were brought to enforce an obligation on someone personally
to compensate the owner for a breach of contract or tort (in personam),
in other words, an action for damages for violation of a right.

[page 7]

The difference in remedies for real property and personal property

led to the terms ‘realty’ and ‘personalty’ being adopted. If something
(land) was recoverable by a real action, it became known as ‘realty’,
whereas something recoverable by a personal action (goods) became
known as ‘personalty’.

Chattels real and chattels personal

1.6 Personalty is further categorised into chattels real and chattels
personal. The term ‘chattels’ is derived from the Latin capitale,
meaning property. When the term ‘chattels personal’ was introduced
into English law, it referred to all property not including realty. At that
time, chattels personal were limited to physical things such as jewellery,
cattle and furniture. The term now includes forms of intangible
personalty including, for example, debts and shares in a corporation.
‘Chattels real’ was used to denote those forms of personalty
associated with realty: Coke, 1 Institutes 118. Nowadays the term
includes only the interest of a leaseholder: AMP Society v Gregory (1908)
5 CLR 615 at 626. It used also to refer to the interest of a judgment
creditor in land belonging to the judgment debtor upon the
enforcement of a writ of elegit (a form of execution now obsolete): Johns
v Pink [1900] 1 Ch 296. Both these forms of interest were described as
follows:
And these are called real chattels, as being interests issuing out of or annexed to real
estates: of which they have one quality, viz immobility, which denominates them real;
but want the other, viz a sufficient, legal indeterminate duration: and this want it is
that constitutes them chattels. The utmost period for which they can last is fixed and
determinate, either for such a space of time certain or till such a particular sum of
 money be raised … : 2 Comm 386 cited in Crossley Vaines on Personal Property, 5th ed,
Butterworths, Sydney, 1973, p 9.

In order to reflect the different categories of personalty

encompassed by the term ‘chattels personal’, a further division was
made into:
choses in possession; and
choses in action.
‘Chose’ means ‘thing’. Choses in possession and choses in action are
fundamentally different. A chose in possession is a thing of which a
person may have not only ownership but also actual physical possession.
A chose in action is every other right in relation to personalty which is
not a chose in possession. A chose in action is, in effect, a right in
personam, that is, a right against a particular individual. Originally, the
term referred to a right to recover a debt or some other thing by action
in a court, but with the development of new forms of property, the
term has been extended to cover a wide range of rights capable of
being reduced to a money value: Goodeve’s Modern Law of Personal
Property, pp 195–6.
A chose in possession is a corporeal thing which has an actual
physical existence. It is tangible and moveable, something you can see
and hold. It is capable of being possessed.

[page 8]

A chose in action is an incorporeal thing. It has a notional existence

which is recognised by law. It cannot be possessed: Goodeve’s Modern Law
of Personal Property, p 7.

Choses in possession
1.7 Choses in possession are corporeal things. They are items of
personalty which are tangible, moveable and capable of being
physically possessed. The term includes, for example, a car, book, ship
or computer disk and, in some circumstances, computer software.3
Interesting issues have arisen with respect to whether parts or
products of a human body should be regarded as ‘personalty’ and
therefore capable of being owned or possessed. The starting point is
the long-standing principle that a living person can be the holder of a
property right but not the object of it: R v Bentham [2005] UKHL 18;
[2005] 1 WLR 1057. The principle that a human body cannot be the
object of a property right has been held not to apply in relation to
tissue or body parts once they have been removed from a human body:
Re Section 22 of the Human Tissue and Transplant Act 1982 (WA); Ex parte C
[2013] WASC 3 at [7].
In Australia, the leading authority is Doodeward v Spence [1908] HCA
45; (1908) 6 CLR 406. In that case, a ‘two-headed baby’ preserved in a
jar was held to be property capable of being the subject of an action in
detinue. The High Court held that, generally, there was no property in
a living human body or a human corpse, but there were instances
where a human body could become the subject of property. Griffith CJ
held that although it was not necessary to outline exhaustively the
circumstances under which such a right may be acquired, he
‘entertained no doubt’ that if a person by work or skill dealt with a
human body or part of a human body in his lawful possession so that it
acquired some attributes which differentiated it from a mere corpse
awaiting burial, then that person acquired a right to retain possession
of it, at least as against any person not entitled to have delivery of it for
the purpose of burial: Doodeward at 413–414.
Since that decision, over 100 years ago, the courts have faced
increasingly complex questions involving the rights to possession of
body parts and tissue, including sperm: Re the estate of the late Mark
Edwards [2011] NSWSC 478 at [1]. These cases usually require
consideration of whether the body part or tissue can properly be
described as ‘property’, or whether and to what extent property rights
in respect of those things should be granted.
In Yearworth v North Bristol NHS Trust [2010] QB 1, the Court of
Appeal in England held that frozen sperm was capable of forming the
subject of a bailment between the wife of the deceased as bailor and the
storage unit as bailee. This case was applied in Bazley v Wesley Monash
IVF Pty Ltd [2011] 2 Qd R 207; [2010] QSC 118, where it was held at
[33] that straws of semen stored at a medical facility were property, the
ownership

[page 9]

of which vested in the deceased while alive and in his personal

representatives after his death. This decision was followed, after an
extensive review of the authorities, by Hulme J in Re Edwards, where it
was held that the wife of a deceased man had a right to possession of
sperm that had been extracted from him after his death. Stored sperm
provided by a man prior to his death has generally been held to
constitute property: Roblin v Public Trustee (ACT) [2015] ACTSC 100.
Similarly, tissue removed and stored from a testator before death was
held to be property for the purpose of making an order for DNA
testing to resolve paternity in Roche v Douglas (2000) 22 WAR 331. In
that case it was observed at [24]: ‘It defies reason to not regard tissue
samples as property. Such samples have a real physical presence. They
exist and will continue to exist until some step is taken.’
The law regulating the use and disposition of choses in possession is
quite different from that relating to choses in action. In particular,
there are different requirements for transfer or assignment as the case
may be. Choses in possession can be transferred by delivery, whereas
choses in action must be assigned. The Sale of Goods Act 1896 (Qld)
regulates transactions involving choses in possession or goods. There,
‘goods’ is defined as ‘all chattels personal other than things in action
and money, and also includes emblements and things attached to or
forming part of the land which are agreed to be severed before sale or
under the contract of sale’: s 3. Different legislation will apply to the
assignment of a chose in action, depending on the nature of the
particular chose in action. For example, a debt may be assigned at law
provided the requirements in s 199 of the Property Law Act 1974
(Qld)4 are satisfied.

Choses in action
1.8 A chose in action is essentially a right enforceable by action.
Having said this, a definition in terms of a right of action seems more
appropriate to some choses in action than others, for example, to debts
rather than shares in a corporation.
‘Chose in action’ has been defined in a wide sense as ‘a known legal
expression used to describe all personal rights of property which can
only be claimed or enforced by action, and not by taking physical
possession’: Torkington v Magee [1902] 2 KB 427 at 430.
The term covers all forms of personal property which are not choses
in possession. It therefore encompasses a broad range of intangible or
incorporeal property. This type of personal property has expanded
considerably in modern times. It includes, for example, debts, goodwill,
the right to recover under an insurance policy, shares in a corporation,
bills of exchange and the myriad of rights attaching to industrial
property (rights in respect of trade marks and patents) and intellectual
property (rights in respect of copyright).

[page 10]

Choses in action are further categorised according to the mode of

procedure necessary for reducing them into possession: Halsbury’s Laws
of England, 4th ed, Butterworths, London, 2003, vol 6, p 5. Thus, there
are legal choses in action and equitable choses in action.
Legal choses in action are those which, traditionally, could be
enforced by action at law, for example, debts, bills of exchange and
claims on insurance contracts. Equitable choses in action are rights
which traditionally, could only be recovered by a suit in equity, that is,
in a court of equity. Examples of equitable choses in action included an
interest in a trust fund, a reversionary interest under a will, or a share in
a partnership. Of course, this division into rights enforceable at law and
those enforceable in a court of equity is no longer applicable, although
the categorisation still remains.

INTERESTS IN PROPERTY
1.9 The common law does not regard the ownership of goods as
capable of being divided into smaller successive interests. Thus, unlike
the law of real property, there is no such thing as a life interest in a
good or, conversely, remainder or reversionary interest in a good.5 This
does not mean that the legal rights which make up ownership, for
example, possession and the right to sell, cannot be divided among
different people. A good example of where this occurs is bailment.
There the bailor has ownership but the bailee has possession.
The reason for the different rules regarding the divisibility of
ownership of land and ownership of goods is explained by Professor
Goode (Goode, Commercial Law, 3rd ed, LexisNexis UK, London, 2004,
pp 29–30):
Save in unusual circumstances, land is immovable and permanent. Its immobility
renders it readily susceptible to restrictions on transfer or use, eg by restrictive
covenants or by planning legislation. Its permanence facilitates the creation of
multiple interests of long duration (long leases, life interests, etc) whereas the
relatively short life of goods militates against division of rights in a chattel. These
factors render the investigation of title to land more prolonged and its transfer more
complex than in the case of goods.

Although the common law only recognised absolute ownership, the

remedy for its infringement was primarily for interference with
possession and was not based on ownership. Consequently, possession
conferred on the possessor certain rights irrespective of whether he or
she also owned the goods (this, of course, did not apply to choses in
action): Goodeve’s Modern Law of Personal Property, p 8.
To summarise, therefore, the interests capable of existing at common
law with respect to goods are:
 ownership; and
possession.6

[page 11]

Limited interests in personalty (that is, equitable interests) can now

exist in equity under a trust and also by way of a gift by will of goods to
persons in succession (executory gifts by will).7 The rules for the
creation of trusts are the same for goods as they are for land: Richards v
Delbridge (1874) LR 18 Eq 11. The interests are also generally of the
same nature: goods delivered to A on trust for B means that A, the
trustee, has the legal ownership, while B, the beneficiary, has the right
in equity to compel the trustee to permit him or her to have the
beneficial enjoyment: Williams on Personal Property, p 27. Equitable rights
in respect of personal property may also be created by an equitable lien
or a proprietary estoppel: Westdeutsche Landesbank Girozentrale v Islington
London Borough Council [1996] AC 669.

INTERESTS CREATED BY WAY OF

SECURITY
Creation of security interests
1.10 A security interest in personal property can arise by reason of
agreement, by reason of a transfer of title (which will usually occur
pursuant to agreement), because the law recognises that possession in
some circumstances will give rise to a security interest or because of the
operation of law independent of possession.
The legislatures had, in the case of both real property and personal
property, legislated in respect of security over land and chattels.8 A
security over personal property, if in writing, would, in the past, have
constituted a bill of sale and been required to be registered under
relevant state or territory chattel securities legislation. The legislation
which operated in each state or territory has now been repealed and
replaced by the Personal Property Securities Act 2009 (Cth) (PPSA),
which applies a uniform, national approach to personal property
securities.9 The PPSA commenced on 30 January 2012 and applies
broadly to all personal property security interest transactions which, in
substance, have the effect of securing payment or performance of an
obligation: s 12(1).

Common forms of security interest created by

agreement
1.11 Common law and equity recognise four forms of consensual
security. They are mortgage, pledge, contractual lien and equitable
charge. Mortgages are dealt with further at 1.15 below.

[page 12]

Pledge
1.12 One very early form of security was the pledge (or pawn), under
which the creditor took possession of the debtor’s asset as security for
an obligation, usually the repayment of a loan. A pledge has been
otherwise described as a bailment of personal property, as security for
some debt or engagement: Palgo Holdings Pty Ltd v Gowans (2005) 215
ALR 253 at [17]. As such, the transaction is distinguished from a
mortgage where ‘the whole legal title passes conditionally to the
mortgagee’: Palgo Holdings at [17].
The two essential elements of a pledge are possession by the creditor
and its right to sell: Osborn Computer Corp Pty Ltd v Airroad Distribution Pty
Ltd (1995) 37 NSWLR 382 at 389. Delivery of possession of the thing
pledged can be achieved in a number of ways: by actual delivery where
the pledgor has the goods in their physical possession; by a symbolic
act, for example, the delivery of a key to the place where the goods are
stored; or, where the goods are held by a third party, by an order to the
third party from the pledgor to hold the goods for the pledgee, the
change being perfected by the third party attorning to the pledgee or
acknowledging that they now hold the goods for the pledgee:
Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 at 145 citing
Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53 at
58–9. In the case of a pledge, the parties agree on the terms upon
which the pledgee is to retain possession of the goods. The pledgee
usually has an express power of sale in the event of default and, absent
an express power of sale, such a power will be inferred: Osborne
Computer.
Upon the sale of the goods, the pledgee of the goods must
appropriate the proceeds to the payment of the pledgor’s debt, and
must account to the pledgor for any surplus.10 A pledge is
distinguishable from a lien, which is limited to a right to retain
possession. The difference was explained by Cockburn CJ in Donald v
Suckling (1866) LR 1 QB 585 at 618–19:
We are not dealing with a case of lien, which is merely the right to retain possession of
the chattel, and which right is immediately lost on the possession being parted with,
unless to a person who may be considered as the agent of the party having the lien for
the purpose of its custody. In the contract of pledge, the pawnor invests the pawnee
with much more than the mere right of possession. He invests him with a right to deal
with the thing pledged as his own, if the debt be not paid and the thing redeemed at
the appointed time. It seems to me that the contract continues in force, and with it
the special property created by it, until the thing pledged is redeemed or sold at the
time specified. The pawnor cannot treat the contract as at an end, until he has done
that which alone enables him to divest the pawnee of the inchoate right of property in
the thing pledged, which the contract has conferred on him.

A pledge is also different from a charge. A charge does not depend

on either delivery of possession or the transfer of ownership but
represents an agreement between creditor and debtor that a particular
asset is appropriated to the satisfaction of the debt so that

[page 13]

the creditor can use the asset to pay the debt, in priority to the claims
of unsecured creditors. The charge is in effect an encumbrance on the
asset, which has been described as ‘a weight hanging on the asset which
travels with it into the hands of third parties other than a bona fide
purchaser of the legal title for value and without notice’: R M Goode,
Legal Problems of Credit and Security, 2nd ed, Sweet & Maxwell, London,
1988, p 14 cited in Osborne Computer at 390. The advantage of a pledge
over a charge is that a pledgee is able to exercise its contractual rights
notwithstanding the appointment of an administrator: Osborne Computer
at 392.

Contractual lien
1.13 A lien exists when a person in possession of goods has a right to
retain possession of them until that person’s pecuniary demands are
met. A lien may exist by reason of the operation of law or by custom
and usage, as discussed below at 1.16. A lien may also be created by way
of agreement. A lien created by contract may extend beyond that which
exists at common law. In Wade Sawmill Pty Ltd v Colenden Pty Ltd [2007]
QCA 455, Keane JA held at [33]:
The terms of a contract may be such as to exclude the existence of a lien under the
general law, but, equally, they may serve to create a right of property or in respect of
property having the same, or even superior, operation in favour of the party on whom
that right is conferred.

A lien created by contract will be governed by the terms of the

contract. An example of a term in a contractual general lien is as
follows:
The company shall have a general lien on the goods and any other goods of the
consignor which are in the possession of the company for all sums payable by the
consignor to the company and for that purpose shall have the right to sell any such
goods by public auction or private treaty and out of monies arising from the sale may
retain the sum so payable and all charges and expenses relating to the detention and
sale.

An example of a contractual term which created a lien in a more

indirect way is as follows:
It is recognised that there was some work to be done on the machine itself prior to
reinstallation at your site. This is to be done at [the defendant’s] expense and
becomes the property of [Karastar] after five years (January 2008).
 This clause was held to apply so that if the relevant hire agreement
was terminated the property which the parties agreed was associated
with the repair of the machine would remain in the defendant. The
defendant was treated as having a proprietary interest associated with
the machine enforceable in equity and ‘at least as significant as that
which is described as a lien under general law’: Wade Sawmill at [33].
The interest was more than a mere contractual right to payment of the
unamortised cost of repairs.
Conversely, if the terms of a contract are inconsistent with the
existence of a lien, no lien can arise at common law: Chase v Westmore
(1816) 5 M & S 180.

[page 14]

A lien is different from a pledge. In Palgo Holdings Pty Ltd v Gowans

(2005) 215 ALR 253 it was held at [18]:
It has also long been recognised that pawn and pledge must also be distinguished
from lien. ‘One who has a lien has only a right of detaining the res until the money
owing is paid: a lien disappears if possession is lost, and there is no right of sale.’ A
lien is merely a personal right and cannot be taken in execution; a pledge creates an
interest in the pledgee that can be seized in execution.

A lien is also different from a charge. Possessory liens are not charges
registrable under corporations legislation because they depend for
their existence on possession, whereas a charge exists regardless of
possession: Osborne Computer Corp Pty Ltd v Airroad Distribution Pty Ltd
(1995) 37 NSWLR 382. If the lienee’s right is essentially a right to
retain possession against the lienor, then it is a lien, not a charge: Seka
Pty Ltd (in provisional liq) v Fabric Dyeworks (Aust) Pty Ltd (1991) 28 FCR
574 at 580.

Equitable charge
1.14 An equitable charge is created by trust or by contract. It entitles
the chargee to have an asset subject to the charge so created
appropriated to the satisfaction of the chargee’s indebtedness. The
charge does not involve the transfer of ownership, nor of possession.
If the charge is created by contract, the contract may provide that the
charge fix to the property of the chargor at the time of the contract. It
may also provide that, in respect of all or some of the assets of the
chargee, it is to ‘float’, to become fixed upon the occurrence of
identified events (for example, the appointment of a receiver, or an act
of insolvency on the part of the chargee). The practical, commercial
advantage of a floating charge is that the chargee is free to carry on its
business and to deal with its assets and the proceeds of any sale of them
without hindrance until such time as an act of default occurs.

Security interest created by transfer of title:

mortgage
1.15 A common law mortgage is a transfer of ownership to the
creditor on condition, express or implied, that the asset shall be
reconveyed to the debtor upon payment of the debt to the creditor.
Further, it would usually be provided that should the mortgagor default
in payment, the mortgagee would be at liberty, if in possession of the
goods, to sell them and, if not in possession, to take possession and
then do so. The ownership in the chattels passed upon execution of the
mortgage to the mortgagee, and the terms upon which the mortgagor
could retain possession were generally defined in the instrument.
Equity granted to the mortgagor a right to redeem the goods even
after the due date for payment had passed, although, if the goods had
already been sold, the mortgagor was entitled only to any surplus from
the proceeds in excess of the debt owed.

[page 15]

Mortgages of chattels were usually made by deed of assignment,

generally called a bill of sale. Plainly enough, the mortgage of a chattel
as security, particularly without possession, inevitably led to disputes
between the ‘secured’ creditor and innocent third parties who had
purchased mortgaged goods from the mortgagee without the
knowledge or consent of the mortgagor. Consequently, the Bills of Sale
Acts 1878 and 1882 were enacted in England. The Bills of Sale
legislation in the Australian states, now repealed, was based upon those
Acts. By that legislation, bills of sale (mortgages) over personal chattels
were made void unless duly made and registered in accordance with
the Acts. However, although the Acts made void informal documents
giving a right to take possession of goods as security for a debt, they did
not apply to documents in respect of transactions in which the
possession of goods was actually transferred as security for a debt (for
example, a pledge). Bills of sale are now regulated by the PPSA. In
relation to mortgages over goods, the provisions of the National Credit
Code are also relevant: the Code is set out in Sch 1 of the National
Consumer Credit Protection Act 2009 (Cth).

Security interest created by possession

1.16 In some circumstances, the law recognises the existence of a
lien, called a possessory lien, arising from the possession of the chattel
by the lien holder. Where the lien arises, the holder of the lien is
entitled to retain possession of the chattel until satisfaction of the
relevant pecuniary demand. One example is the possessory lien which
exists in favour of solicitors on their files while they await payment of
their fees.
A lien at common law can arise only when the lien holder has come
into possession lawfully, in the ordinary course of business and not for a
special purpose inconsistent with the existence of the lien. With few
exceptions, at common law a lien is lost when the lien holder parts with
possession of the property. It is not revived by re-acquiring the
property.
Liens can be particular or general. A particular lien is one which only
enables the possessor to retain the goods until payment of the debt
which relates to them, whereas a general lien permits retention of the
goods until satisfaction of any balance of account due to the possessor
from the owner.
The two general categories of persons entitled to a particular lien at
common law are:
1. those whose quasi-public calling imposes on them a duty to
the public at large, such as innkeepers and carriers, and who
in return are entitled to this special remedy for their charges;
and
2. those who in plying their trade improve the goods of others by
the expenditure on those goods of skill and labour: Majeau
Carrying Co Pty Ltd v Coastal Rutile Ltd (1973) 129 CLR 48 at
[6].
A general lien may exist either as a matter of law or by proof of a
custom or usage. A general lien arises as a matter of law due to a
particular relationship between the parties. Examples include banker
and customer and solicitor and client. In respect of

[page 16]

these relationships, a custom developed recognising the existence of a

general lien. The existence of that lien became part of the law by a
process of judicial notice of that custom. There is no need for evidence
to prove the existence of the lien. It arises as a matter of law if the
relevant relationship exists. A right of general lien is now recognised as
a matter of law in a large number of occupations, for example, a
banker’s general lien over a customer’s securities in its possession. The
right also exists in favour of solicitors, stockbrokers, factors and
insurance brokers. A general lien, however, has been held not to arise
at law without proof of custom in respect of warehouse keepers: Majeau
Carrying Co at [27].
In other cases, general liens may be established on proof of custom
or usage, not as it relates to a whole trade but only in respect of that
trade as engaged in a particular location. It may, however, be difficult
to prove the existence of a general lien by custom. This is because the
general lien, if proved to exist, is prone to operate to the detriment of
other creditors of the lienor, and, for that reason, has always been
regarded by the courts ‘with jealousy’. Second, because it is a particular
custom which is being proved, not only do requirements as to certainty,
lack of ambiguity, reasonableness and long standing have to be satisfied
but the standard of proof is high: Majeau Carrying Co at [27].
A contract of agistment has been held not to give rise to an implied
general or particular lien at common law: Bell v Clare (1989) 23 FCR
274 at 277–80.
A statutory right of lien is conferred by the Storage Liens Act 1973
(Qld) and by comparable legislation in other states and territories.
Under the Queensland Act, every ‘storer’ has a lien on goods deposited
with the storer for storage: s 3. The lien covers storage charges,
preservation charges and other claims for expenses associated with the
goods as set out in s 4. Although ‘goods’ extends to cattle, the Act has
been held not to apply to a contract of agistment that was not confined
to a storage arrangement: Fearnley v Finlay [2014] 2 Qd R 392. Section
4A(1) declares a storer’s lien on goods to be a statutory interest given
priority under s 73(1) of the PPSA.

Security interest created by operation of law

1.17 A security interest may arise by operation of law in the context
of possessory liens and equitable charges, as discussed above. A lien and
an equitable charge may also be created by agreement.

THE TRANSFER OF PERSONAL

PROPERTY
1.18 The two categories of personalty — choses in possession and
choses in action — are transferred in different ways. This reflects the
physical difference between both forms of personalty.
 Choses in possession are commonly transferred by delivery of the
thing itself. The transfer of a chose in possession is generally a
voluntary, consensual dealing, and usually

[page 17]

incorporates the following elements, as explained in First National Bank

of SA Ltd v Quality Tyres [1970] (Pty) Ltd (1995) (3) SA 556 at 568:
intention and consent to transfer; and
transfer of possession of the property from transferor to
transferee.
Such a transfer usually takes place as a consequence of a sale or a
gift.
Choses in action, on the other hand, because of their nature cannot
be transferred by way of delivery. They are assigned.
The requirements of transfer by way of sale, gift and assignment are
considered below.

Sale
1.19 A ‘sale’ in this context means, in simple terms, the exchange of
goods for money, or money’s worth.11 Section 4 of the Sale of Goods
Act 1896 (Qld) defines a ‘contract of sale’ as follows:
(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a money consideration, called the
‘price’.

(1A) There may be a contract of sale between one part owner and another.

Gift
1.20 The owner of goods may also make a gift of them to another. A
gift has been defined as the gratuitous transfer of the ownership of
property from one person (the donor) to another person (the donee):
Blackstone’s Commentaries, Vol 2, p 440. The clear distinction between a
gift and a sale is the absence of consideration in a gift.
A gift can be of real or personal property and can be made by will or
inter vivos.12 It can also be of a chose in possession (Cochrane v Moore
(1890) 25 QBD 57) or of a chose in action (Norman v FCT (1963) 109
CLR 9).
The essential elements of a gift inter vivos are:
1. an intention to gift the immediate ownership of the goods;
2. an act or acts sufficient to give effect to that intention; and
3. acceptance of the gift by the donee.
It is not enough to promise to transfer title to goods to somebody.
There must be an act of immediate disposition: Strong v Bird (1874) LR
18 Eq 315. For similar reasons it is not possible to gift a mere
expectation or property not yet in existence or which does not yet
belong to the donor: Lunn v Thornton (1845) 1 CB 379; 135 ER 587.

[page 18]

A gift will only be enforceable as such if it is complete: Olsson v Dyson

(1969) 120 CLR 365 at 385. There Windeyer J said:
… to make a gift of any thing the intending donor must actually give it to the donee in
a way which the law recognizes. The owner of a thing does not effectively give it away
by simply saying ‘it is yours as a gift’. He must not only say it is a gift, he must give it to
the donee, who must, by words or conduct, accept it. How a thing can be given away
depends on what it is.

There are three ways a gift can be made:

1. It may be made by deed. In such a case, actual delivery of the
goods the subject of the gift is not necessary: Norman.
2. It may also be made by oral or written words of intention to
give the goods, together with delivery of the goods: Williams v
Williams [1956] NZLR 970. A transfer of property by way of
gift is achieved by deed or by delivery accompanied by the
intention to pass ownership: Taylor v Manchester University
 [1917] 1 Ch 206; Re Evans [1946] St R Qd 20. Delivery may be
actual or constructive, for example, by handing over the keys
to a car: Flinn v White [1950] SASR 195.13
Delivery does not need to be simultaneous with the words of
intention to give: Re Cole [1964] Ch 175. Delivery need not be
manual but need merely be such delivery of which the subject
matter of the gift is capable, or such delivery as was reasonably
practicable: Flinn. Constructive delivery is sufficient: Rowland v
Stevenson [2005] NSWSC 325. In Rowland a birthday present
was made of a yacht. It was sufficient to constitute delivery for
the donor to have handed the keys of the yacht to the donee
on the afternoon of his birthday, saying, ‘It’s all yours, son.’
The gift was perfected by the donor’s similar statements that
night at the party. The donee accepted the yacht in his
acceptance speech. In Flinn, however, a gift of a piano failed
for want of delivery. It was not enough for the father, in that
case, to say that his daughter should have the family piano.
3. It may also be made by declaration of trust. In this case the gift
will be of the equitable interest in the goods. The legal
interest will be retained by the trustee, who may or may not be
the donor. The declaration, in order to be effective, does not
need to be communicated to the donee: New, Prance &
Garrard’s Trustee v Hunting [1897] 2 QB 19.
The words of gift need not be contemporaneous with delivery of the
subject matter of the gift: Rowland citing Horsley v Phillips Fine Art
Auctioneers Pty Ltd (1996) 7 BPR 14,360.
It does not matter that the subject matter of the gift was subject to a
charge: Rowland. In Rowland, for example, the donor owed
approximately one-third of the value of the yacht. This liability was also
transferred to the donee.

[page 19]
 Section 200 of the Property Law Act 1974 (Qld) governs voluntary
assignments of property in equity. The section adopts the principles
applied by Griffith CJ in Anning v Anning (1907) 4 CLR 1049.
Section 200 provides:
(1) A voluntary assignment of property shall in equity be effective and complete when,
and as soon as, the assignor has done everything to be done by the assignor that is
necessary in order to transfer the property to the assignee—
(a) notwithstanding that anything remains to be done in order to transfer to the
assignee complete and perfect title to the property; and
(b) provided that anything so remaining to be done is such as may thereafter be
done without intervention of or assistance from the assignor.
(2) This section is without prejudice to any other mode of disposing of property, but
applies subject to the provisions of this and of any other Act.

The section applies to ‘property’ as defined in the Act, and has the
effect of identifying when a gift is complete in equity. Where the gift is
complete in equity, an action may be brought for orders to complete
the legal gift.
A gift once completed cannot be revoked: Standing v Bowring (1885)
31 Ch D 282.

Assignment
1.21 The only way in which a chose in action can be alienated is by
assignment. Once assigned, the assignee obtains the legal right to the
chose in action and all the remedies that the assignor had, including
the power to give a good discharge of the right without the
concurrence of the assignor. The chose in action no longer belongs to
the assignor, and they cannot sue for it: Halsbury’s Laws of England, 4th
ed, vol 6, p 19.
‘Assignment’ has been defined to mean ‘the immediate transfer of
an existing proprietary right, vested or contingent, from the assignor to
the assignee’: Norman v FCT (1963) 109 CLR 9 at 26.
In determining what form the assignment should take, it is necessary
to consider:
(a) whether the property to be assigned is legal or equitable; and
 (b) the nature of the interest assigned, that is, whether the
assignment is absolute or conditional or by way of charge.
Assignments of choses in action were not always possible at common
law. It was not until s 25(6) of the Judicature Act 1873 (UK) was passed
that legal assignments of choses in action were permitted. This section
has since been mirrored in all Australian jurisdictions.
In Queensland, a legal assignment of a chose in action must be in
accordance with s 199 of the Property Law Act 1974.14

[page 20]

Section 199 provides as follows:

(1) Any absolute assignment by writing under the hand of the assignor (not
purporting to be by way of charge only) of any debt or other legal thing in action, of
which express notice in writing has been given to the debtor, trustee or other person
from whom the assignor would have been entitled to claim such debt or thing in
action, is effectual in law (subject to equities having priority over the right of the
assignee) to pass and transfer from the date of such notice:
(a) the legal right to such debt or other thing in action; and
(b) all legal and other remedies for the same; and
(c) the power to give a good discharge for the same without the concurrence of
the assignor.
(2) If the debtor, trustee or other person liable in respect of such debt or thing in
action has notice:
(a) that the assignment is disputed by the assignor or any person claiming under
the assignee; or
(b) of any other opposing or conflicting claims to such debt or thing in action;
(c) the debtor may, if the debtor thinks fit, either call upon the persons making
claim to the debt or other thing in action to interplead concerning the same,
or pay the debt or other thing in action into court under and in conformity
with the provisions of the Acts relating to relief of trustees.

In summary, the important features of a legal assignment are:

1. The assignment must be in writing under the hand of the
assignor.
2. The assignment must be absolute and not purport to be by
way of charge. This means that the assignment must be
 unconditional and must give the assignee the sole right to the
debt as against the debtor. It is not possible to assign part of a
debt under the section: Norman at 29; Durham Brothers v
Robertson [1898] 1 QB 765 at 771 per Chitty LJ; see also Hughes
v Pump House Hotel Co Ltd [1902] 2 KB 190 at 196 per Cozens-
Hardy LJ.
3. Notice in writing of the assignment must be given to the
debtor, trustee or other person from whom the assignor
would have been entitled to claim the debt or thing in action.
The assignment takes effect from the date of receipt of the
notice by the debtor: International Leasing Corp (Vic) v Aiken
(1966) 85 WN (Pt 1) (NSW) 766.
4. Consideration is not necessary.
It has been held that ‘legal thing in action’ in s 199 is not confined to
a legal chose in action strictly so called, but includes also any right
which equity regarded as assignable: Torkington v Magee [1902] 2 KB
427. Choses in action within the ambit of the section include a claim to
compensation for land injuriously affected, and the benefit of a
contract to supply goods: see Halsbury’s Laws of England, 4th ed, vol 6, p
14.
The section did not create new rights, but enabled the legal transfer
to an assignee of all of the rights of the assignor. In particular, the
provision enables the assignee to sue in their name, and avoids the
necessity otherwise of suing in the assignor’s name or,

[page 21]

if the assignor’s consent to sue is not forthcoming, avoids the need to

join the unwilling assignor as a defendant in the action: see generally
Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7.
Choses in action may also be assigned in equity, that is, without
compliance with s 199 of the Act or its equivalent: William Brandt’s Sons
& Co v Dunlop Rubber Co Ltd [1905] AC 454. In order to be effective in
equity, an assignment of a legal interest in personal property must
satisfy the following requirements:
There must be an expression of an intention to assign: Shepherd v
FCT (1965) 113 CLR 385 at 391.
Where there is no consideration, the donor must have done
everything necessary to transfer ownership to the donee: Shepherd
at 391.
If the assignment is of an equitable interest in personal property,
then:
If the interest is a subsisting interest, any ‘disposition’ of it must be
in writing.
There must be a clear expression of an intention to make a
disposition from assignor to assignee: Norman at 30.

Assignment of after-acquired property

1.22 If the personal property to be assigned either is not yet in
existence or does not yet belong to the assignor, it cannot be assigned
at common law, unless the assignor has already a potential property in
it as present owner or possessor of that which is expected to produce it:
Halsbury’s Laws of England, 4th ed, vol 35, p 763. If the assignor, for
example, purports to assign all chattels which are or shall in future be
in the assignor’s house, the assignment will only be effective to pass
property in the house at the time of the assignment: Lunn v Thornton
(1845) 1 CB 379; 135 ER 587, cited in Halsbury’s Laws of England, 4th
ed, vol 35, p 763.
If there has been an assignment of after-acquired property for
valuable consideration, the assignment may, however, be effective in
equity as a contract which is enforceable against the assignor. In such a
case, as soon as the assignor acquires property which can be identified
as that comprised in the assignment, that property is subject to an
equitable charge in favour of the assignee. The assignor, upon
acquiring the relevant property, becomes the holder of the legal
interest, and the assignee becomes the holder of the equitable interest.
This reflects the maxim that equity treats as done that which ought to
be done. The assignor in effect becomes trustee of the chattels for the
assignee: Holroyd v Marshall (1862) 10 HL Cas 191.
If the assignee takes possession of the relevant property when it
comes into existence, then the legal title (including the equitable
interest) will vest in the assignee, and this will be the case whether or
not the assignment was for valuable consideration: Holroyd; Bowden
[1936] Ch 71.
Future property can be the subject of a present assignment in equity
when made as an agreement to assign: Akron Tyre Co Pty Ltd v Kittson
(1951) 82 CLR 477.

_______________
1 A limited or ‘special property’ in goods may also exist, for example, the interest of a bailee
in the bailed goods. Such an interest does not amount to ownership in the goods.
2 Williams on Personal Property, 17th ed, Sweet & Maxwell, London, 1913, pp 2–4.
3 See further in relation to whether computer software can be classified as ‘goods’: Chapter
6 ‘Sale of Goods’ at 6.3.
4 Law of Property (Miscellaneous Provisions) Act 1958 (ACT) s 3; Conveyancing Act 1919
(NSW) s 12; Supreme Court Act 1979 (NT) s 70; Law of Property Act 1936 (SA) s 15;
Conveyancing and Law of Property Act 1884 (Tas) s 86; Property Law Act 1958 (Vic) s 134;
Property Law Act 1969 (WA) s 20.
5 Successive interests can, however, be created in equity by use of the trust.
6 The concepts of ownership and possession in the context of goods are discussed in
Chapter 2.
7 For example, A has the goods for life, followed by B. During A’s lifetime, B has no
ownership but an executory interest.
8 The various Torrens Title Acts include provisions relating to mortgages over land, and the
states had also legislated in respect of securities over chattels: see, for example, the now
repealed Instruments Act 1933 (ACT); Bills of Sale Act 1898 (NSW); Instruments Act 1935
(NT); Bills of Sale and Other Instruments Act 1955 (Qld); Bills Of Sale Act 1886 (SA);
Bills of Sale Act 1900 (Tas); Chattel Securities Act 1987 (Vic); Bills of Sale Act 1899 (WA).
9 The PPSA is considered in Chapter 10 of this text.
10 Refer to Chapter 8 at 8.25.
11 The sale of goods is covered in Chapters 6 and 7.
12 Note the hybrid form of gift, donatio mortis causa, which is a gift made to take effect upon
the death of the donor.
13 See also Barlow, ‘Gift Inter Vivos of a Chose in Possession by Delivery of a Key’ (1956) 19
 MLR 394; Stoljar, ‘The Delivery of Chattels’ (1958) 21 MLR 27.
14 Law of Property (Miscellaneous Provisions) Act 1958 (ACT) s 3; Conveyancing Act 1919
(NSW) s 12; Supreme Court Act 1979 (NT) s 70; Law of Property Act 1936 (SA) s 15;
Conveyancing and Law of Property Act 1884 (Tas) s 86; Property Law Act 1958 (Vic) s 134;
Property Law Act 1969 (WA) s 20.
[page 23]
CHAPTER 2
Ownership and possession1

WHAT IS A PROPERTY OR PROPRIETARY RIGHT?

POSSESSION
The nature and relevance of possession

THE SIX FORMS OF POSSESSION

Custody
Actual or de facto possession
Legal possession or possession in law
Lawful possession
Constructive possession
The right to possession

[page 24]

POSSESSORY TITLE

INTERFERENCE WITH POSSESSION

Trespass
Detinue
Conversion

OWNERSHIP
 [page 25]

WHAT IS A PROPERTY OR PROPRIETARY

RIGHT?
2.1 The terms ‘property right’ and ‘proprietary right’ are
synonymous. The question deals with the relationship between an
individual and a thing and the effect of that relationship on the world
at large. The High Court in Zhu v Treasurer (NSW) [2004] HCA 56;
(2004) 218 CLR 530 at 577 described property rights as follows:
‘Property’ is a comprehensive term which is used in the law to describe many different
kinds of relationship between a person and a subject-matter; the term is employed to
describe a range of legal and equitable estates and interests, corporeal and
incorporeal. Accordingly, to characterise something as a proprietary right (and, a
fortiori, a quasi-proprietary right) is not to say that it has all the indicia of other things
called proprietary rights. Nor is it to say “how far or against what sort of invasions the
[right] shall be protected, because the protection given to property rights varies with
the nature of the right. [Citations omitted.]

2.2 There are many different property or proprietary rights. Rights

of ownership and rights of possession are property rights. A property
right has the following important features:
1. Universality. It can be asserted against the world at large and
not just against a contracting party. For example, if under a
contract of sale a person acquires ownership of goods, that
person’s right to those goods can be asserted against the world
at large, and not just against the seller.2
2. Remedy for infringement. The infringement of a property
right does not necessarily give rise to a proprietary (that is, a
real or in rem) remedy. A dispossessed owner of a chattel may
not be able to recover the item but instead may recover
damages for conversion.
3. Transferability. The rights in respect of goods can be
 transferred to another. Transferability is an indicator of a
proprietary right.
If someone owns a good, they are said to be entitled to enjoy a
‘bundle of rights’ including right to possession, right to use, right to
use up, right to alter, right to hire out, right to grant as security, right
to gift and right to sell.
These rights have been described as the ‘content of ownership’. The
ability to alienate is one right or incident of ownership which is often
regarded as a way of distinguishing proprietary from personal rights.3
There are, however, examples of unassignable proprietary interests:
Errington v Errington and Woods [1952] 1 KB 290.

[page 26]

In respect of some items of personalty, property rights short of rights

of ownership may be found to exist. For example, in relation to the
issue of ownership of human tissue samples, the Australian Law Reform
Commission (DP 66 Protection of Human Genetic Information, discussion
paper, 16 August 2002, Ch 17) has stated:
However, the cases to date have dealt with only very limited fact situations. The courts
have not produced any clear ruling on the particular property rights that may be held
over tissue samples, beyond a right to possess — the violation of which constitutes
theft only in very specific circumstances. It is not clear how far other property rights
could be said to exist in relation to tissue samples …

POSSESSION
The nature and relevance of possession
2.3 Possession is a difficult legal concept.4 The concept becomes less
confusing when it is appreciated that the meaning of the word varies
with the context in which it is being used. It would be wrong to think
that there existed a unitary concept of possession equally applicable to
the law of property, tort and theft.5
Further, it should be noted that the concept of possession for the
purposes of personal property securities law does not equate to the
meaning of possession at common law.6
In Tabe v R (2005) 225 CLR 418 at 423–4, Gleeson CJ said:
Earl Jowitt said, in 1952, that ‘the English law has never worked out a completely
logical and exhaustive definition of “possession”’. Lord Diplock said that in ordinary
usage, ‘one has in one’s possession whatever is, to one’s own knowledge, physically in
one’s custody or under one’s physical control.’ The concept of ‘knowledge’, however,
is imprecise. This, no doubt, is why Aickin J spoke of ‘sufficient knowledge of the
presence of the drug’ in Williams v The Queen. The answer to a question as to what
constitutes ‘sufficient knowledge’ for possession depends upon the purpose for which,
and the context in which, the question is asked. If the context is a dispute as to
whether, for the purposes of the law of larceny, one person was in possession of goods
when another allegedly stole them, or whether a person has possession of valuable
articles buried in or hidden on land owned by that person, the extent of sufficient
knowledge may be different from that necessary to reach a conclusion that a person
has contravened a law making it a criminal offence to possess an article or substance
of a certain kind. [Footnotes omitted.]

[page 27]

Possession in the context of personal property law consists of two

elements:
1. the exercise of factual control over the chattel; and
2. the concomitant intention to exclude others from the exercise
of control: Button v Cooper [1947] SASR 286 at 292.
Possession is an important fundamental concept in personal property
law. It is important for a number of reasons:
1. In the absence of evidence to the contrary, possession is
conclusive evidence of ownership.
2. Possession is central to determining entitlement to lost
property.
3. It is the interference with possession of goods and not
 ownership which gives rise to remedies in detinue, trespass
and conversion.
4. The creation of some security interests in goods (possessory
liens) depends upon possession.7
5. The transfer of ownership in goods can be achieved by
delivery of the goods (gift).
It is understandable that property rights in respect of chattels should
be defined in possessory terms when consideration is given to the
nature of such property: it is moveable, often short-lived and protean.
‘Delivery’ is defined in s 3 of the Sale of Goods Act 1896 (Qld) to
mean ‘the voluntary transfer of possession from one person to
another’, and can be distinguished in that context from the passing of
property in the goods, which can occur either before, after or
simultaneously with delivery. There must be a change of possession in
order for ‘delivery’ to occur. The concept of delivery therefore applies
only to choses in possession.
Generally speaking, delivery may be actual or constructive. ‘Actual’
delivery normally requires the actual handing over of the goods to the
person receiving them: Olsson v Dyson (1969) 120 CLR 365 at 385.
‘Constructive’ delivery occurs where, for example:
there is an alteration in control over goods without any change in
their physical possession, for example, where a dealer
acknowledges that control of goods in his or her possession has
passed from A to B, or where a seller of goods puts it in the
buyer’s power to take away goods by giving him a key to a
warehouse where the goods are stored (Tasmanian Producers’
Selling Agency Ltd v Cumming & Co Ltd (1914) 10 Tas LR 25); or
there is a change in the character of uninterrupted custody, as
where a seller of goods agrees to hold the goods as bailee for the
purchaser: Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest
Wholesale Australia Pty Ltd (1987) 163 CLR 236.

[page 28]
THE SIX FORMS OF POSSESSION
2.4 The classic analysis of the concept of possession is by Pollock and
Wright in Possession in the Common Law, Clarendon Press, Oxford, 1888.
There, a number of different forms of possession are identified:
1. custody;
2. actual or de facto possession;
3. legal possession;
4. lawful possession;
5. constructive possession; and
6. the right to possession.
Pollock and Wright was referred to in Anderson Group Pty Ltd v Tynan
Motors Pty Ltd (2006) 65 NSWLR 400; [2006] NSWCA 22 where Young
CJ in Eq held at [38]:
Pollock and Wright says at 16–17 that possession in law is most easily understood as
associated with possession in fact. The normal situation is that the person who in fact
holds the chattel possesses it. However, there will be cases where a person who does
not actually have possession in fact will be held in law to be entitled to possession. This
is denoted as the right to possess and usually confers the same title to sue as if that
person had actual possession.

The rationale for different forms of possession, in particular for

distinguishing a mere physical holding or custody from a right to
possess, was discussed in Anderson Group at [42] where Young CJ in Eq
cites Holdsworth, A History of English Law, vol 7, 5th ed, Sweet &
Maxwell, London, 1942, p 448:
… Just as in the land law it was necessary to reconcile the rule that two persons cannot
exclusively possess the same thing, with the fact that there might be many different
classes of tenants of the same piece of land; so in the law as to chattels personal, it was
necessary to reconcile the same rule with the fact that such persons as servants or
licensees, who have physical control, have not got possession. To meet this situation
we talk of the custody of the servant and the possession of the master, or of the servant
having actual and the master constructive possession. Similarly, the extension of
remedies like trespass, which primarily belong to the possessor, to the person who has
only a right to possess, leads sometimes to the attribution of possession to both bailor
and bailee. In such cases it is clear that we have no infringement of the principle that
two persons cannot exclusively possess the same thing; but rather a use of the term
possession in the double sense of physical control and a right to possess.
 Examples of where actual possession and a right to possession can
coexist in respect of a particular chattel include bailment and a transfer
subject to a retention of title clause where the purchase price has not
been paid. In both cases the person with actual possession has given
actual possession to someone else but retains a right to possession.
There can therefore be multiple property rights in respect of a
particular

[page 29]

chattel. Contests in respect of such chattels are dealt with as disputes as

to who has the better relative possessory right: see further Tarrant,
‘Thieves as Trustees: In Defence of the Theft Principle’ (2009) 3 Journal
of Equity 170.

Custody
2.5 Custody is the lowest form of holding goods. It exists where there
is a mere physical holding of the goods which does not amount to
possession: Director of Public Prosecutions v Brooks [1974] AC 862; Federal
Commissioner of Taxation v Australia and New Zealand Banking Group Ltd
(1979) 143 CLR 499. For example, an employee has custody of goods
held temporarily on behalf of his or her employer: the employee has
custody of the office desk but the employer has possession of it.
Similarly, a guest who uses goods, for example, a glass, belonging to his
or her host merely has custody of those goods. In Burnett v Randwick
City Council [2006] NSWCA 196, the sole directors and shareholders of
the corporate owners of gymnasium equipment were held to have a
right to the physical custody of the equipment upon eviction from
leased premises, which right was inferior to the legal right of another
actual possessor. Consequently, the directors and shareholders could
not sue the actual possessor in conversion. Indeed, the actual possessor
could only yield its possessory title to the corporate owner of the
equipment who had the right to immediate possession of the
equipment.
The difference between custody and possession was explained by way
of the following example in Pollock and Wright, Possession in the
Common Law, p 26:
A tailor sends to JS’s house a coat which JS had ordered. JS puts on the coat and then
has both physical control and rightful possession in law. JS takes off the coat and gives
it to a servant to take back to the tailor for some alterations. Now the servant has
physical control (in this connexion generally called ‘custody’ by other authorities) and
JS still has the possession in law.

A right to use a piano given to one daughter, revocable at her

father’s will and shared with at least one other daughter, was held not
to amount to custody in Flinn v White [1950] SASR 195. This does not
mean, however, that a licensee can never have the degree of control
required for custody: Horsley v Phillips Fine Art Auctioneers Pty Ltd (1995)
NSWSC 78 at 16.
It is possible for the character of a person’s proprietary right to
change. For example, if an owner expresses words of gift to an
employee in respect of goods already held by the employee, and the
employee expresses words of acceptance, the character of the
employee’s possession will change from custody to possession, and title
will pass: Horsley at 15.
Custody in this sense should not be confused with a contract for
custody for reward, for example, for the storage or warehousing of
goods, which is a bailment under which legal and actual possession
passes to the storer or warehouse keeper. Even in the case of a
gratuitous deposit for safe custody, the ‘depositary’ is a bailee and has
possession: Horsley at 20.

[page 30]

The word ‘custody’ will be interpreted in accordance with the

context in which it is used: FCT v ANZ at 520. There, the Federal
Commissioner of Taxation served notices on the Smorgon family and
the ANZ Bank, requiring the bank to deliver up the contents of a safe
deposit box which the Federal Commissioner of Taxation claimed was
in the ‘custody’ of the bank within s 264(1) of the Income Tax
Assessment Act 1936 (Cth). The relevant safe deposit box required two
keys to open it. One key was held by the bank and the other by the
Smorgon family. The bank also held a copy of the Smorgons’ key in a
sealed packet which it kept in safekeeping and which it had agreed to
use only if the Smorgons’ key was lost. The Smorgons and those
authorised by the Smorgons had ready access to the box during
business hours. The bank refused to deliver up the contents of the safe
deposit box on the basis that it did not have custody of the contents of
the box.
The High Court held that the bank had ‘custody’ or physical control
of the contents of the safe deposit box. The court found that the
contents were in its power in fact; the bank held the keys that enabled it
to open the locker, take out the box and produce the contents — if
necessary, in the box in which they were contained. Any agreement or
arrangement by the bank with the depositor did not affect the question
of whether the bank had the contents in its control and was able to
produce them: at 521.
On the other hand, in Collector of Customs (NSW) v Southern Shipping Co
Ltd (1962) 107 CLR 279, the High Court held that, in the context of
the Excise Act 1901 (Cth), Southern Shipping had not divested itself of
‘possession, custody or control’ of goods when it locked them in a store
and gave a key to Customs. Taylor J held at 294:
… No doubt the delivery of the key of a room or shed may constitute constructive
delivery of the goods which it contains. But such a result depends upon the
accompanying intention of the parties and there is nothing in the admitted facts to
suggest that the key of the ‘dead-house’ was placed in the Customs office with any
such intention. … [T]here is nothing to suggest that the lodging of the key in the
Customs office represented anything more than an additional precaution to ensure
the safe custody of excisable goods whilst in the ship-owner’s possession and during
periods when work was not being carried on and, perhaps, when its staff were absent
from the vicinity of the wharf.

It is possible for one person to have control of goods while another

simultaneously has custody of them: Australian Petroleum Supplies Pty Ltd
v Giuliano [2001] AATA 1050 at [151]; Goben Pty Ltd v CEO of Customs
(1997) 149 ALR 102.

Actual or de facto possession

2.6 The terms ‘actual possession’ and ‘de facto possession’ are used
interchangeably in this context. De facto possession is an effective
physical or manual control or occupation evidenced by some outward
act: Pollock and Wright, Possession in the Common Law, p 12. It is much
more extensive than physical custody. Whether there is de facto
possession is a question of fact.

[page 31]

The term was considered by the High Court in Williams v Douglas

(1949) 78 CLR 521 at 527. There the issue was whether a man was in
possession of gold bars found by police under the bath in his hotel
room. The court held:
[De facto possession] is wide enough to include any case where the person alleged to
be in possession has hidden the thing effectively so that he can take it into his physical
custody when he wishes and where others are unlikely to discover it except by
accident.

The concept of de facto possession is considered in Gray v Official

Trustee in Bankruptcy (1991) 29 FCR 166 at 171. There the court had to
determine whether the father of a person charged with trafficking in
heroin was in possession of money found in the father’s home. The
Federal Court held that the father had both de facto possession and
possession in law of the money:
The money was on a property of which he was the occupier. He knew of its existence.
He was able to deal with it according to its nature and in fact did so by removing it
from his bedroom to the drawers in the back yard.

Sharing premises without restriction with another person may mean

that both people are in ‘de facto possession’ of the personal property in
a house. For example, if a woman has de facto possession of goods, it is
possible that her husband may also have de facto possession of the
goods simply by residing with her: Kilpin v Ratley [1892] 1 QB 582. A
husband and wife who had control of rooms in which relevant furniture
was placed were held to have shared possession of that furniture
notwithstanding that ownership of the house was in the family
company: Horsley v Phillips Fine Art Auctioneers Pty Ltd (1995) NSWSC at
21.

Legal possession or possession in law

2.7 Legal possession is the state of being in possession in the eyes of
the law: Pollock and Wright, Possession in the Common Law, p 26. A
person in actual or de facto possession has legal possession. However,
the law recognises other situations as giving rise to a form of possession.
Thus, a person may have legal possession without physical control or
without lawful origin. For example, an employer has legal possession of
office equipment in the custody of his or her employee. Unless the
employee has been constituted a bailee of the employer’s property, the
employee has not possession but mere physical control, a de facto
possession called ‘custody’: R v Cooke (1871) LR 1 CCR 295. A thief may
also have legal possession (as distinct from lawful possession).

Lawful possession
2.8 Lawful possession exists where the possession is not wrongful.
This distinguishes legal possession from lawful possession. For example,
a thief may be in legal possession but is not in lawful or rightful
possession. The term is used therefore to denote rightful legal
possession.

[page 32]

Constructive possession
2.9 Constructive possession is in effect legal possession without de
facto possession: Pollock and Wright, Possession in the Common Law, p 27.
It exists when someone has given to another a symbol of, or the means
of, control over goods which are stored elsewhere: Official Assignee of
Madras v Mercantile Bank of India Ltd [1935] AC 53 at 58–9. This usually
occurs either by the transfer of the physical means of control, normally
the key to a locked storeroom containing the goods, or by a direction
given to a third party in possession of the goods to hold them for
another. Constructive possession differs from a right to possession in
that, although a person with a right to possession is entitled to sue in
conversion should there be interference with the goods, he or she is
unable to transfer possession of the goods to another, for example, by
way of pledge or bailment.

The right to possession

2.10 A right to possession is a legal right to acquire de facto
possession. For example, in a bailment, a bailor has an immediate right
to possession if the bailee performs any act wholly repugnant to the
holding as bailee: Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at
214. If, on the other hand, the bailment is revocable but has not yet
been revoked, the bailor has neither possession nor a right to
possession: Penfolds Wines at 216; Randwick City Council v Burnett [2005]
NSWSC 508.
The possession of a servant or agent is the possession of the master
or principal who therefore is regarded as having de facto possession
and not only a right to possession: Penfolds Wines at 216.
The above forms of possession are not mutually exclusive and indeed
often coexist. For example, a person who owns and reads a rare book,
besides having the property in the book, has de facto possession, legal
possession, lawful possession and a right to possession. A right to
possession usually comes with ownership. Possession is regarded as the
most important privilege of ownership.
POSSESSORY TITLE
2.11 Possession is not just evidence of ownership. It confers a
‘possessory title’ which is ‘as good as an absolute title of ownership, as
against all the world except the true owner’: Flack v National Crime
Authority (1997) 80 FCR 137 at 141 citing Russell v Wilson (1923) 33 CLR
538. The fact of possession itself gives to the possessor a possessory title
and the possessor is entitled to rely on such title without reference to
the circumstances in which such possession was obtained: Webb v Chief
Constable of Merseyside Police [2000] 1 All ER 209. The fact that
possession was obtained unlawfully (for example, by theft) or under an
illegal transaction (for example, money obtained from drug
trafficking) does not prejudice the rights of a possessor. The only way
in which a claim based on possession

[page 33]

can be defeated is by proof of a superior title: Costello v Chief Constable of

Derbyshire Constabulary [2001] 3 All ER 150 at 157.
Where there are competing claims to ownership of goods, titles are
relative. The claim of each person to the goods will have to be assessed
and the person with the better title (however frail) is entitled to the
goods: Costello. There Lightman J held at 163:
… as a matter of principle and authority possession means the same thing and is
entitled to the same legal protection whether or not it has been obtained unlawfully
or by theft or by other unlawful means. It vests in the possessor a possessory title which
is good against the world save as against anyone setting up or claiming a better title. In
the case of a theft the title is frail, and of likely limited value (see eg Rowland v Divall
[1923] 2 KB 500; [1923] All ER Rep 270), but none the less remains a title to which
the law affords protection.

The frailty of the protection is reflected by the principle that, if the

stolen property in possession of the thief is sold by police and
transferred to someone else pursuant to a statutory authority, the third
party obtains the possessory title in defeasance of that of the thief:
Costello at 164.
 Illegality will prevent someone asserting title to goods only if that
person has to rely on the illegality in order to prove their claim: Tinsley
v Milligan [1994] 1 AC 340; [1993] 3 All ER 65. In Costello, although the
plaintiff had stolen the car, he did not have to rely on this to prove his
claim. His claim rested on his right to possession of the car and it was
irrelevant that illegality surrounding his acquisition of the car was
pleaded in defence or emerged in evidence.
If goods are seized by police pursuant to a statutory power, the
seizure temporarily divests all existing rights to possession over the
period of the detention but does not otherwise give the police any
permanent entitlement to retain the property: Costello at 157.
There have been many theories as to the rationale for why, generally
speaking, possession without ownership confers a possessory title.
Oliver Wendell Holmes stated:
Law, being a practical thing, must found itself on actual forces. It is quite enough,
therefore, for the law, that man, by an instinct which he shares with the domestic dog,
… will not allow himself to be dispossessed, either by force or fraud, of what he holds,
without trying to get it back again … As long as the instinct remains, it will be more
comfortable for the law to satisfy it in an orderly manner, than to leave people to
themselves. If it should do otherwise, it would become a matter for pedagogues,
wholly devoid of reality.8

The emphasis on possession rather than ownership was explained as

follows in Flack at 141:
Professor JG Fleming in The Law of Torts (7th ed, 1987), p 59 instructs us that the
emphasis on possession, rather than ownership, stems from earlier times when wealth

[page 34]

was primarily associated with tangibles. It flows also from the influence of forms of
action on the development of the law. Whatever the origin, the significance of
possession as against ownership is now well established to the extent that an owner
who dispossesses a bailee during the term of a bailment not determinable at will can
be sued in conversion: Howe v Teefy (1927) 27 SR(NSW) 301 …
INTERFERENCE WITH POSSESSION
2.12 There are three distinct methods by which one person may
deprive another of his or her property. These are:
1. by wrongly taking it;
2. by wrongly detaining it; and
3. by wrongly disposing of it.
Corresponding to these three modes of wrongful deprivation, there
were three distinct forms of action provided at law:
1. trespass for wrongful taking;
2. detinue for wrongful detention; and
3. trover for wrongful conversion. Actions in trover are generally
now brought by way of action described as ‘conversion’, which
owes its development to the earlier action of trover.9
The history of the development of these actions was discussed by the
High Court in Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 240–
1:
In Pollock and Maitland’s History of English Law, 2nd ed (1923), vol 2, pp 156 et seq,
there appears a history of the origin and development of the action of trespass. The
writ of trespass became common near the end of Henry III’s reign: ‘It was a flexible
action; the defendant was called upon to say why with force and arms and against the
king’s peace he did some wrongful act. In the course of time the precedents fell into
three great classes; the violence is done to the body, the lands, the goods of the
plaintiff.
The commonest interference with his goods is that of taking and carrying them
away; a well-marked sub-form of trespass is trespass de bonis asportatis … the man whose
goods have been taken away from him can by writ of trespass recover, not his goods,
but a pecuniary equivalent for them’ (Pollock and Maitland, pp 166, 167).
From these pages and from the citations in the Year Books in the articles in the
Harvard Law Review referred to in the footnotes it is apparent that the action of
trespass to goods is a personal action. At first the trespasser by acquiring the
possession also acquired the property in the goods and the dispossessed owner was left
to his personal action for damages. An owner did not acquire a right in rem until the
birth of the action of detinue. ‘The action of detinue was essentially a proprietary
action implying property in the
 [page 35]

plaintiff in the goods claimed … It was, and still is, of the essence of an action of
detinue that the plaintiff maintains and asserts his property in the goods claimed up
to the date of the verdict’: Rosenthal v Alderton & Sons Ltd [1946] 1 KB 374 at 377, 378.
But detinue was an unsatisfactory action because it ‘did not afford a remedy if the
bailee misused the chattels, or if he restored them in a damaged condition, nor could
damages be obtained’ against a third party who had destroyed the goods. It was also
‘an exceedingly unsatisfactory form of action, for the defendant had the right of
defending himself by wager of law, a form of licensed perjury which reduced to
impotence all proceedings in which it was allowable. … Hence the action of trover as a
remedy for conversion. Conversion came to be treated for the first time as an
independent wrong — to be sued for in a special form of trespass on the case’:
Salmond on Torts, 10th ed (1945), p 281.

Essential to each form of action is an interference with the possession

of the claimant. Ownership, without possession, is insufficient to found
a claim for trespass, detinue or conversion: Gollan v Nugent (1988) 166
CLR 18. One set of circumstances may give rise to more than one of
these forms of action.

Trespass
2.13 An action in trespass to goods will lie if, at the time the goods
were taken, they were in the possession of the plaintiff. Trespass to
goods is a wrong to possession: Penfolds Wines Pty Ltd v Elliott (1946) 74
CLR 204. A person is in possession in law if they have actual possession,
constructive possession or an immediate right to possession. A person
who left his car for repairs at a garage but who could demand the
return of his car at any time was held to have never lost his possession,
or at least had a right to immediate possession such that he was entitled
to sue in trespass: Wilson v Lombank Ltd [1963] 1 WLR 1294.
As against a wrongdoer, possession is title and it does not matter if a
third person actually owns the goods: Jeffries v Great Western Railway Co
(1856) 5 El & Bl 802.
Trespass to goods must be the result of a wilful or negligent act:
Manton v Brocklebank [1923] 2 KB 212 at 229. There was no negligence
and therefore no action for trespass where the defendants, in
excavating the land, damaged an underground cable that they did not,
nor could not, know was there: National Coal Board v JE Evans & Co
(Cardiff) Ltd and Maberley Parker Ltd [1951] 2 KB 861.
Damages for trespass are by way of compensation for the injury done
to the chattel by reason of the wilful interference with it, although
nominal damages may be awarded where no actual damage occurs: Kirk
v Gregory (1876) 1 Ex D 55.

Detinue
2.14 An action in detinue lies against a person who has lawfully
come into possession of goods (as by finding them, or having them
delivered to him) for unlawfully detaining

[page 36]

them: Holdsworth, A History of English Law, vol II, p 366, 2 P & M 171
cited in Goodeve’s Modern Law of Personal Property, 9th ed, Sweet &
Maxwell, London, 1949, p 30.
A claimant in detinue must prove that they are entitled to possession
and, further, that the defendant has failed to comply with a request for
delivery: Kahler v Midland Bank Ltd [1950] AC 24. The tort of detinue
therefore requires there to have been a demand made by the plaintiff
(the person entitled to possession of the goods) and a wrongful refusal
to comply with that demand: Pargiter v Alexander [1995] Aust Torts
Reports ¶81–349. Similarly to conversion, the action is founded on the
plaintiff’s right to possession. This right must derive from some
proprietary or possessory interest in the chattel itself: Russell v Wilson
(1923) 33 CLR 538 cited in Horsley v Phillips Fine Art Auctioneers Pty Ltd
(1995) NSWSC.
The cause of action in detinue accrues once a lawful demand for the
return of possession of the chattel is made and the demand is refused:
Grant v YYH Holdings Pty Ltd [2012] NSWCA 360 at [43].
 The remedy in detinue may be the recovery of the goods themselves
and/or damages. There are not many cases dealing with the issue of
when an order for specific restitution should be made in detinue. It has
been said that the principle appears to be ‘that such cases appear at
least to extend to cover the area where in equity orders for specific
restitution would have been made before 1854’: McKeown v Cavalier
Yachts Pty Ltd (1988) 13 NSWLR 303 at 308. Where specific restitution
of the goods is not ordered, the court may award damages in lieu:
McKeown.
If the goods are returned to the plaintiff, the measure of damages
will be damages for the loss suffered by the plaintiff by reason of having
been deprived of the chattel and, where applicable, for any
depreciation in value of the chattel: Pargiter.

Conversion
2.15 The High Court in Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR
204 at 229 outlined the nature of an action in conversion:
The essence of conversion is a dealing with a chattel in a manner repugnant to the
immediate right of possession of the person who has the property or special property
in the chattel. It may take the form of a disposal of the goods by way of sale, or pledge
or other intended transfer of an interest followed by delivery, of the destruction or
change of the nature or character of the thing, as for example, pouring water into
wine or cutting the seals from a deed, or of an appropriation evidenced by refusal to
deliver or other denial of title. But damage to the chattel is not conversion, nor is use,
nor is a transfer of possession otherwise than for the purpose of affecting the
immediate right to possession, nor is it always conversion to lose the goods beyond
hope of recovery. An intent to do that which would deprive ‘the true owner’ of his
immediate right to possession or impair it may be said to form the essential ground of
the tort.

In Kuwait Airways Corp v Iraqi Airways Co [2002] 2 AC 883; [2002] 3

All ER 209 at [39], conversion is defined in terms of three basic
features:

[page 37]
 The defendant’s conduct was inconsistent with the rights of
1.
the owner (or other person entitled to possession).
2. The conduct was deliberate, not accidental.
3. The conduct was so extensive an encroachment on the rights
of the owner as to exclude him from use and possession of the
goods.
The plaintiff must prove a legal right to possession of the goods in
question at the time of the alleged conversion: Beale v Gough (1882) 1
WN (NSW) 110. An equitable right to the enforcement of a trust in
respect of the chattels will not support a claim for conversion: Akron
Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477 at 482; nor will a contractual
right to possession: Jarvis v Williams [1955] 1 All ER 108.
The mere wrongful asportation of a chattel does not amount to
conversion unless the taking or detention of the chattel is with intent to
convert it to the taker’s own use, or that of a third person, or unless the
act done either destroys or alters the quality of the chattel: Fouldes v
Willoughby (1841) 8 M & W 540. In Bunnings Group Ltd v CHEP Australia
Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342, the court held, in
considering the character of the use of the property by the defendant
so as to determine whether there was an intention to exercise
dominion over the property inconsistent with the true owner’s rights:
The mere detention by A of B’s goods will not necessarily amount to conversion, nor
will the mere handling of them. But once the degree of user amounts to employing
the goods as if they were one’s own then a conversion is established [citing Young J in
Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Reports 81-244 at
62,520].

Thus, the removal of cattle by a co-owner without an assertion of a

right to exclusive possession of the cattle taken did not amount to
conversion in Gwinnett v Day [2012] SASC 43; compare Re Gillie (1996)
70 FCR 254.
Possession of goods by an agent on the instructions of their apparent
owner, for the purpose of carrying out what have been described as
‘ministerial acts’ such as storage or carriage, does not amount to
conversion: Hollins v Fowler (1875) LR 7 HL 757 at 766–7. The reason
for this is that the possession does not encroach sufficiently on the
owner’s title to the goods: Marcq v Christie Manson & Woods Ltd (t/as
Christie’s) [2003] 3 All ER 561 at 566. Similarly, a sale by an auctioneer
will not amount to conversion unless there has been delivery following
the sale, as it is the act of delivery which interferes with the title or
ownership of the goods: Consolidated Co v Curtis & Son [1892] 1 QB 495.
There was no conversion when an auctioneer returned a painting,
which had not sold, to the apparent owner, where he acted in good
faith and without knowledge of any adverse claim to the goods: Marcq at
570. In receiving the goods, even with an intention to sell them, and
redelivering them to the apparent owner, the auctioneer had only
acted ministerially: Marcq at 570.
There is no need to show an element of dishonesty in the tortfeasor.
In Rendell v Associated Finance Pty Ltd [1957] VR 604, for example, it was
sufficient to amount to a conversion for

[page 38]

the tortfeasor to have taken possession of the goods and exercised

dominion over them notwithstanding the tortfeasor had a mistaken
belief as to their identity or ownership. In that case, the tortfeasor
intentionally repossessed a truck which, unbeknown to him, contained
an engine belonging to some other person. It was irrelevant that in
doing so he was acting on behalf of another person, in this case, a
finance company: Rendell at 612, approving Hollins.
The normal measure of damages is the value of the goods, which is
usually calculated by reference to their market value: Curtin v Meadlow
Holdings Pty Ltd [2001] QCA 145; Hall v Barclay [1937] 3 All ER 620;
Tettenborn, ‘Damages in Conversion — Exception or Anomaly?’
[1993] 52 Cam LJ 128. Ordinarily, it is the market value of the goods at
the date of the conversion which is the starting point, although, if the
goods have increased in value since then, the plaintiff is entitled to the
difference as special damages.
OWNERSHIP
2.16 ‘Ownership’ may be defined as the greatest bundle of rights
that can exist in relation to property at law. The most important right
of the owner of goods is the right to possession of the goods as against
all others. This right is not lost, although it may be suspended, by a
bailment of the goods.
Mayo J in Knapp v Knapp [1944] SASR 257 at 261 emphasised
possession in defining ‘ownership’ as follows:
The general right of ownership embraces subsidiary rights, such as exclusive
enjoyment, to destroy, to alienate, or to alter, and, of course, the right to maintain,
and to resume and recover possession from other persons.

Ownership and possession will often coincide but may vest in

different persons; for example, A may own a car but give possession of
it to B.
Ownership in goods is not inviolate in the sense that an owner can be
divested of ownership involuntarily, for example, where the owner is
precluded by their conduct from denying the apparent authority of
another to sell on the owner’s behalf, where the goods were sold by a
mercantile agent to an innocent third-party purchaser or where the
goods were bought from a buyer in possession or a seller in possession
by an innocent third-party purchaser.10 An owner may also lose
ownership of goods gone out of his or her possession if their nature has
been changed so that they can no longer be identified. For example, if
a person takes barley belonging to A and makes malt with it, A cannot
take back his barley.11 In such a case, the maker of the malt has
acquired title to the malt per specificationem, by the creation of a new
species of thing over which he exercises

[page 39]

a kind of occupancy, or original taking of possession.12 An owner of an

accessory may lose title to it when it has become affixed to a principal
chattel belonging to another in such a way that it is impracticable to
detach it: Rendell v Associated Finance Pty Ltd [1957] VR 604. An owner
may also lose ownership of goods which have been affixed to the land
of another: Reynolds v Ashby [1904] AC 466 at 475. Finally, an owner
may lose ownership in goods by their abandonment: Arrow Shipping Co v
Tyne Improvement Commissioners [1894] AC 508 at 532.13
Ownership can be acquired in a number of ways. It can take place by
a voluntary transfer, by way of gift, by will, by taking possession of
ownerless things and by the creation of new things. Intellectual
property, works of art and inventions are examples of things which can
be newly created. In addition to this, things can be newly created where
there has been a mixing or affixing of one chattel to another.
A chattel may be owned by more than one person in common, or as
part-owners: Marson v Short (1835) 2 Bing NC 118; Nyberg v Handelaar
[1982] 2 QB 202.

_______________
1 Proprietary interests in chattels are defined in terms of possession and ownership.
Ownership has been described as the best available possessory right.
2 Those rights are not unassailable: for example, the right of an owner may be defeated if
one of the exceptions to the nemo dat rule applies. This is considered in detail in Chapter
8.
3 For example, in Wilson v Commissioner of Probate Duties (Vic) (1979) 8 ATR 799 a company
had issued an option to one of its shareholders to acquire the whole of the unissued
capital of the company, expressed to be personal to the shareholder and exercisable only
during his lifetime. Murphy J held that the option was a purely personal right in the hands
of the option holder which was not transferable either by an inter vivos dealing or by
operation of law on the death of the option holder. It is also distinguishable from personal
obligations; for example, in King v David Allen & Sons, Billposting Ltd [1916] 2 AC 54, King,
as licensor of a picture theatre, agreed with David Allen to allow them to post bills and
posters on the side of the theatre. King then leased the theatre to a company which
refused to honour his undertaking with David Allen. It was held that all David Allen had
was a contract creating a personal obligation on King, no interest in the land itself.
4 Pollock and Wright, Possession in the Common Law, Clarendon Press, Oxford, 1888, p 1; De
Meyrick, ‘The Mental Elements of Possession’ (1984) 58 ALJ 202.
5 Hayes v Fries (1988) 49 SASR 184 at 8 citing Williams and Weinberg, Property Offences, 2nd
ed, Law Book Company, Sydney, 1986, pp 18–19.
6 Explanatory Memorandum, Personal Property Securities Bill 2009 (Cth) at [2.32]; and see
s 24 of the Personal Property Securities Act 2009 (Cth).
7 See Chapter 10 of this text in relation to security interests covered by the Personal
Property Securities Act 2009 (Cth).
8 Holmes, The Common Law, Lecture VI, Little, Brown and Co, Boston, 1881, p 213 cited in
Tooher, ‘Jubilant Jamie and the Elephant Egg: Acquisition of Title by Finding’ (1998) 6
APLJ 117 at 119.
9 Stallybrass, Salmond’s Law of Torts: A Treatise on the English Law of Liability for Civil Injuries,
10th ed, Sweet & Maxwell, London, 1945, pp 279–80, cited in Penfolds Wines Pty Ltd v Elliott
(1946) 74 CLR 204 at 240.
10 These and other exceptions to the nemo dat rule are considered in Chapter 8.
11 YB 5 Hen VII 15, 16, pl 6; Moore 19, 20, pl 67; 2 Black Comm 404, 405 cited in Williams on
Personal Property, 17th ed, Sweet & Maxwell, London, 1913, p 25.
12 Bract Fo 10a cited in Williams on Personal Property, p 25.
13 The topics of fixtures, accession and specification are considered in more detail in
Chapter 4. The topic of abandonment is considered in Chapter 3.
[page 41]
CHAPTER 3
Finding

DEFINING A ‘FINDING’ DISPUTE

ABANDONMENT
What is abandonment?
The elements of abandonment
How does the occupier of an abandoned chattel become the
owner?

FINDING: ACQUIRING A PRIORITY OF ENTITLEMENT

Further consideration of the Parker principles
Treasure trove
Aboriginal objects
 [page 42]

DEFINING A ‘FINDING’ DISPUTE

3.1 This chapter examines fundamental personal property concepts
relevant to choses in possession through the framework of a ‘finding’
dispute.
In essence, a finding dispute arises when a person finds goods which
have been lost or abandoned by their owner. The dispute which arises
is usually between the finder and the person upon whose land the
goods were found. The dispute is resolved by determining who had a
better possessory title — the finder or the occupier. Thus, the context
of a finding dispute is the perfect vehicle for a closer examination of
the concept of possession and its significance in personal property law.
Goods can only be found if they have been either lost or abandoned
by the true owner: Parker v British Airways Board [1982] QB 1004 at
1017. It is instructive, therefore, to consider first the concept of
abandonment.

ABANDONMENT
What is abandonment?
3.2 Abandoning goods is different from losing goods. In the case of
abandonment, the owner no longer intends to possess the goods,
whereas this is not the case, at least initially, when goods are merely
lost: Re Jigrose Pty Ltd [1994] 1 Qd R 382. The distinction may be
important in resolving issues of entitlement to the goods. Blackstone’s
Commentaries on the Laws of England (17th ed, Clarendon Press, Oxford,
1966, vol 1, p 295) asserts that ‘absolutely abandoned’ chattels have
been returned into the common stock and that, since they are in a state
of nature, they will belong to the first occupant or finder. This
distinguishes acquisition of ownership by abandonment and
appropriation of a lost chattel. If abandoned goods are found, the
finder may, upon appropriation, acquire ownership of them. On the
other hand, if a person finds goods that have been lost, the possessory
title acquired by the finder is subject to the rights of the true owner.
It is an unsettled question as to whether ownership can be divested
by abandonment. In Reynolds v Aluma-Lite Products Pty Ltd (No 2) [2010]
FCA 914 at [21] it was observed in considering whether a non-
operating electric motor and gearbox had been abandoned:
For property to be regarded as abandoned by its owner it is necessary not just for the
owner to have parted with physical possession of or control over a chattel but also to
have an intention to abandon that chattel: Moorhouse v Angus and Robertson (No 1) Pty
Ltd [1981] 1 NSWLR 700 at 706E–706F per Samuels JA. Even if such an intention were
present, a question would arise as to whether at common law the person with that
intention and who had manifested it by parting with possession of the chattel
nonetheless remained its owner until another took possession of that chattel. On that
question, differing views have been expressed as to whether, at common law, chattels
must always have an owner.

[page 43]

Similar views were expressed by Young J in Vincent v State Bank of NSW

Ltd (NSWSC, Young J, 30 July 1993, unreported) at 11:
One can read in books of considerable authority that abandonment of property as
such does not exist in England law; see eg Johnstone and Wilmot Pty Ltd v Kaine (1928)
23 Tas LR 43, 58. Thus one cannot cease to be liable for deleterious substances buried
in the earth on the ground that one has renounced one’s property in it. Thus one
could not get rid of a liability for radioactive waste merely by renouncing one’s
property in it. This is shown by the cases such as [Haynes’] case (1614) 77 ER 1389,
where a person was convicted of stealing a shroud around a body buried in the
ground and v Edwards (1877) 3 Cox CC 384, where some employees were found guilty
of stealing the carcasses of three pigs which had been buried by a farmer because they
had been bitten by a mad dog. However the rule as to abandonment is not absolute.
As the headnote in [Haynes’] case says: ‘A man cannot relinquish his property in
goods, unless they be vested in another.’…. In a note, presumably by Pollock in
(1894) 10 LQR 293, in commenting upon Arrow Shipping Co Ltd v Tyne Improvement
Commissioners (The Crystal) [1894] AC 508, it is said: ‘We humbly conceive the true
 doctrine to be that possession of goods is never absolutely vacant in law, and that an
express abandonment is, in point of law, merely a licence to the first man who will
take the goods for his own; which taking will be justified and will finally change the
property if complete before the taker has notice that the licence is revoked.’ The
principle is affirmed in the judgment of Farwell J in Attorney-General v Trustees of British
Museum [1903] 2 Ch 598, 608 to 609. See also Johnstone and Wilmot Pty Ltd v Kaine
supra; Moorhouse v Angus and Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700, 706 and
Cook v Saroukos (1989) 97 FLR 33, 40 to 41.

Although there is support for the view that, at common law,

ownership cannot be lost by abandonment,1 there is also authority for
the proposition that a person can be divested of ownership in a chattel
by abandonment: Re Jigrose; Robot Arenas Ltd v Waterfield [2010] EWHC
115 (QB); Lang v Le Boursicot (1993) 5 BPR 11,782; The Crystal [1894]
AC 508; Elwes v Brigg Gas Co (1886) 33 Ch D 562 at 568–9; Webb v Ireland
[1988] IR 353; Moffatt v Kazana [1969] 2 QB 152 at 156; Bell, ‘Bona
Vacantia’ in Palmer and McKendrick (eds), Interests in Goods, 2nd ed,
LLP, London, 1998, p 207 at 211; Hudson, Burrell, ‘Abandonment,
Copyright and Orphaned Works: What Does it Mean to Take the
Proprietary Nature of Intellectual Property Rights Seriously?’ (2011)
35(3) Melbourne University Law Review 971. In any event, it has long been
settled that abandoned property cannot be stolen: R v MacDonald
[1983] 1 NSWLR 729; Ellerman’s Wilson Line Ltd v Webster [1952] 1
Lloyd’s Rep 179; P v Thurborn (1849) 1 Den 387 cited in Keene v Carter
(1994) 12 WAR 20.

[page 44]

In Re Jigrose, a case which concerned whether bales of hay left on land

following the sale of that land had been abandoned by the vendor,
Kiefel J held at 386:
It seems to me that if I do not wish to retain the possession or property in goods
(perhaps most clearly shown by throwing them away), there is no reason in principle
why the common law would require me to remain owner. The common law is usually
concerned to exclude others from interfering with a person’s interest in property, that
interest in turn being one to exclude others: see Holmes, The Common Law, (1881),
220. If a person no longer holds that interest it is difficult to see what the common
 law’s concern could be. For my part I do not consider that there is a difficulty at law
with the notion of abandonment divesting ownership.

This view is consistent with the Roman law principles governing the
acquisition of ownerless property by ‘occupatio’. Acquisition of
ownership was achieved by taking possession with an intention to
appropriate: Salkowski, Roman Private Law (trans and ed by Whitfield),
Steven & Haynes, London, 1886, p 390, cited in Re Jigrose at 385. The
category of things which could be acquired this way included wild
animals, things which had never been owned, and things ‘the
possession of which the owner has given up, intending to renounce
ownership in them’ (res derelictae): Salkowski, p 393; Buckland, Text
Book of Roman Law from Augustus to Justinian, Cambridge University
Press, Cambridge, 1921 (reprint 1990, Gaunt & Sons Inc, USA), p 208,
cited in Re Jigrose at 385.
Abandonment occurs where there is ‘a giving up, a total desertion,
and absolute relinquishment of private goods by the former owner. It
may arise when the owner, with the specific intent of desertion and
relinquishment, casts away or leaves behind his property’: Simpson v
Gowers (1981) 121 DLR (3d) 709 at 711. It arguably occurs where an
owner initially loses goods — that is, does not abandon them but then
changes his or her mind and forms a specific intent to relinquish
ownership of the chattel which has been lost: Ipp J in Keene. The key to
abandonment is therefore an intention to relinquish ownership.
There is a limited class of things which are capable of acquisition
following abandonment given the rights of landowners concerning
fixtures and the rights of the Crown to bona vacantia. There is also
scope for the public trustee to become the administrator of ‘unclaimed
property’ and to exercise rights over it under the Public Trustee Act
1978 (Qld) Pt VII s 103(2): Re Jigrose at 386.

The elements of abandonment

3.3 Before abandonment can be said to exist there must have been a
physical act of abandonment coupled with an intention on the part of
the owner to relinquish ownership: Munday v Australian Capital Territory
[1998] ACTSC 62. In Munday, materials deposited at a rubbish tip were
prima facie abandoned when deposited at the tip face. However, it was
held that, if the intention to abandon the goods was in fact absent, the
government would not gain good title to the goods deposited as against
the owner.

[page 45]

A physical act of abandonment

3.4 The best evidence of abandonment is for the owner to throw the
goods away: Kiefel J in Re Jigrose Pty Ltd [1994] 1 Qd R 382 at 385.
Beyond that it can be difficult to establish abandonment: Moorhouse v
Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700.

An intention on the part of the owner to abandon the goods

3.5 To establish abandonment, the owner must no longer intend to
retain either possession or property of the goods: Re Jigrose Pty Ltd
[1994] 1 Qd R 382. Abandonment in this sense can be distinguished
from mere ‘loss’, where the owner did not intend to abandon the
goods: Keene v Carter (1994) 12 WAR 20. The party asserting
abandonment has the onus of presenting evidence establishing an
express intention to abandon or from which such intention can be
inferred: Moorhouse v Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR
700 at 706.
Where there are terms of a contract governing the relationship
between the parties which indicate an intention as to whether the
relevant goods are to be acquired by the other party, such terms will be
persuasive: Re Jigrose, where cl 28 of the standard REIQ contract
expressly provided that goods not removed by the vendor were deemed
abandoned; and Moorhouse, where the publishing agreements provided
for the reservation in the author of the chattel rights in the
manuscripts.
 It is unclear whether the existence of an intention to abandon is to
be judged by subjective intention or according to the inferences to be
derived objectively from what the person, claimed to have abandoned
the goods, said or did: Moorhouse at 713; Cook v Saroukos (1989) 97 FLR
33 at 41; Australian Olympic Committee Inc v The Big Fights Inc [1999] FCA
1042. Intention to abandon may be established inferentially: Keene. In
Keene, Ipp J held at 27:
Inferences may be drawn of an intention to abandon from such matters as the value of
the chattel, the circumstances under which and where it was lost, the length of time
for which it has been lost, and the attempts that the owner has made to ascertain its
whereabouts: see P v MacDonald [1983] 1 NSWLR 729 where it was held (at 730) that
inferences as to whether property has been abandoned can be drawn from the nature
and value of the property and the place where it was found. Generally, however, it
would be difficult to establish, inferentially, the abandonment of a lost chattel by the
owner.

Intention to abandon goods may be difficult to establish: New Style

Furniture Sales Pty Ltd v DCT (1998) 98 ATC 4831. In Moorhouse, for
example, the plaintiff, an author, had left a manuscript, The Americans,
Baby, among others, with a publisher for some years before asking for it
to be returned. When it could not be found, the author sued for
damages for detinue. The publishers claimed the author had
abandoned ownership in the manuscript. The New South Wales Court
of Appeal held that, assuming rights in chattels could be lost by
abandonment, there was insufficient evidence of an intention to
abandon the manuscript. Ultimately, the court was able to resolve the
issue by reference

[page 46]

to the publishing contract which provided that the manuscripts

remained the property of the plaintiff. In Banks v Ferrari [2000] NSWSC
874 the court held that property in chattels left at a reception venue in
circumstances where the business had been forced to close did not
mean the plaintiff could be seen to have abandoned her goods,
particularly where the person alleging those goods had been
abandoned was blocking access to them: at [109].
It is not open to any person to abandon title to someone else’s
property: Banks at [109].

How does the occupier of an abandoned chattel

become the owner?
3.6 Title to abandoned goods is not automatically transferred to the
person who finds the goods. The goods must have been appropriated
by the finder. Appropriation in this sense means taking to oneself as
one’s property: Re Jigrose Pty Ltd [1994] 1 Qd R 382 at 387. In this
context that would require a manifest intention to exercise control over
the goods: Parker v British Airways Board [1982] QB 1004. In Re Jigrose
this was established by an intention to exclude others from the land on
which bales of hay were stored. In Lang v Le Boursicot (1993) 5 BPR
11,782, the plaintiff was held to have acquired abandoned items of
equipment and furniture when it took over the lease payments in
respect of those chattels and treated them as assets in their accounts.

FINDING: ACQUIRING A PRIORITY OF

ENTITLEMENT
3.7 The English law of ownership and possession, unlike that of
Roman law,2 is not a system of identifying absolute entitlement but of
priority of entitlement: Waverley Borough Council v Fletcher [1995] QB 334
at 345. In a finding dispute the law will seek to determine who, as
between the finder and the owner or occupier of the land on which the
thing was found, had the relatively better possessory title.
Finding therefore is a source of title to goods, based on possession.
The basic principle of finding is that the finder of goods has the best
title to the goods against all except the true owner. Thus the title of a
finder is not an absolute title. The title obtained, however, is
nonetheless sufficient to give rise to rights to an action in detinue or
conversion against a third party who wrongfully deprives the finder of
the found goods: Armory v Delamirie (1722) 93 ER 664.
In Armory, the plaintiff, a chimney sweep’s boy, found a jewel and
carried it to the shop of the defendant, who was a goldsmith. The boy
delivered it to the goldsmith’s apprentice to find out what it was, and
the apprentice, pretending to weigh it, took out

[page 47]

the stones. The apprentice told the goldsmith and the boy that the
socket was worth threepence which the master then offered the boy.
However, the boy refused to take it and demanded the entire piece of
jewellery be handed back. The apprentice then gave the boy back the
empty socket, and the boy brought an action in conversion against the
master. The Court of King’s Bench held that the finder of a jewel,
though he does not by such finding acquire an absolute property or
ownership, has such property as will enable him to keep it against all
but the rightful owner, and consequently may maintain an action in
conversion (trover). The action lay against the master who was
responsible for the apprentice. It was clear the master had no rights in
respect of the jewellery immediately before the boy found it and that
any rights he might have acquired as a consequence of receiving the
jewellery stemmed from the boy himself. The master could therefore
only have succeeded if the fact of finding and taking control of the
jewellery had conferred no rights upon the boy. As to the value of the
jewel — unless the defendant produced the jewel, the Chief Justice
directed the jury to presume the most expensive jewel which would fit
into the socket.
Usually when an object is found, the true owner cannot be identified.
If the true owner is identified, he or she has an immediate right to
possession which is a better relative possessory title than that of a
finder. The true owner will therefore be entitled to recover his or her
chattel from the finder. The vast majority of finding cases concern
disputes which have arisen between the finder and the occupier of the
land on which the thing was found. The occupier invariably bases his or
her claim to the chattel in dispute on the basis that the occupier was
already in possession of the chattel when it was ‘found’, and that the
occupier’s title is therefore superior.
The main case applied in the resolution of such contests is Parker v
British Airways Board [1982] QB 1004, in which a passenger at Heathrow
Airport, Parker, found a gold bracelet in the British Airways executive
lounge. British Airways Board was the lessee and occupier of the lounge
from the British Airports Authority. Parker handed the bracelet to a
British Airways official and left his contact details so that the bracelet
could be returned to him in the event the owner did not reclaim it. The
bracelet was not claimed but British Airways refused to return it to
Parker. It sold the bracelet for £850 and kept the proceeds. Parker sued
British Airways for the value of the bracelet.
The English Court of Appeal held that Parker, as the finder of the
bracelet, which was found unattached to the land, had a better
possessory title than the occupier at the time of finding.
The right of the occupier to the proceeds of the chattel depended
upon whether it could show it had possession of the chattel
immediately before it was found. In other words, the occupier had to
establish a prior possessory title if it was to defeat the title of the finder.
Whether or not the occupier already had possession at the moment
of finding depended upon whether it had shown a sufficiently strong
intention to control both the premises

[page 48]

on which the bracelet was found and the things which may have been
on or in it. As no such intention was shown, Parker was held entitled to
damages on the basis of his prior and therefore superior possessory
title.
 In view of the fact that the area of law was unsettled and that there
were no previously binding decisions on point, the English Court of
Appeal formulated several principles for application in the resolution
of title disputes between finders and occupiers.
Those principles were stated by Donaldson LJ in Parker at 1017–18 to
be as follows:
Rights and obligations of the finder
1. The finder of a chattel acquires no rights over it unless (a) it has been abandoned
or lost and (b) he takes it into his care and control.
2. The finder of a chattel acquires very limited rights over it if he takes it into his
care and control with dishonest intent or in the course of trespassing.
3. Subject to the foregoing and to point 4 below, a finder of a chattel, whilst not
acquiring any absolute property or ownership in the chattel, acquires a right to
keep it against all but the true owner or those in a position to claim through the
true owner or one who can assert a prior right to keep the chattel which was
subsisting at the time when the finder took the chattel into his care and control.
4. Unless otherwise agreed, any servant or agent who finds a chattel in the course of
his employment or agency and not wholly incidentally or collaterally thereto and
who takes it into his care and control does so on behalf of his employer or
principal who acquires a finder’s rights to the exclusion of those of the actual
finder.
5. A person having a finder’s rights has an obligation to take such measures as in all
the circumstances are reasonable to acquaint the true owner of the finding and
present whereabouts of the chattel and to care for it meanwhile.
Rights and liabilities of an occupier
1. An occupier of land has rights superior to those of a finder over chattels in or
attached to that land and an occupier of a building has similar rights in respect of
chattels attached to that building, whether in either case the occupier is aware of
the presence of the chattel.
2. An occupier of a building has rights superior to those of a finder over chattels
upon or in, but not attached to, that building if, but only if, before the chattel is
found, he has manifested an intention to exercise control over the building and
the things which may be upon it or in it.
3. An occupier who manifests an intention to exercise control over a building and
the things which may be upon or in it so as to acquire rights superior to those of a
finder is under an obligation to take such measures as in all the circumstances are
reasonable to ensure that lost chattels are found and, upon their being found,
whether by him or by a third party, to acquaint the true owner of the finding and
to care for the chattels meanwhile. The manifestation of intention may be express
or implied from the circumstances including, in particular, the circumstance that
 [page 49]

the occupier manifestly accepts or is obliged by law to accept liability for chattels
lost upon his ‘premises’, eg an innkeeper or carrier’s liability.
4. An ‘occupier’ of a chattel, eg a ship, motor car, caravan or aircraft, is to be
treated as if he were the occupier of a building for the purposes of the foregoing
rules.

Further consideration of the Parker principles

3.8 In order for the finder to acquire possessory rights over the
chattel, the owner must no longer have possession and the finder must
acquire possession, by taking the chattel into his or her care or control.
It is not sufficient therefore for a finder, for example, to ‘find’
something merely by becoming aware of its presence or even to pick it
up, only to pass it to another. The finder must have both the physical
control of the item and the intention to control it. An occupier, on the
other hand, may acquire possessory rights over a chattel by having
possession of the house or land in or upon which the chattel was found,
provided the occupier had a manifest intention to exercise control over
the house or land and the things which may be in or upon it: South
Staffordshire Water Co v Sharman [1896] 2 QB 44 at 47; Corporation of
London v Appleyard [1963] 1 WLR 982.
The important distinction made by the Parker v British Airways Board
[1982] QB 1004 principles in determining the better possessory title as
between finder and occupier is whether the chattel is separate from or
attached to either the land or the building upon or in which it was
found. This distinction has been applied subsequently in Waverley
Borough Council v Fletcher [1995] QB 334 and in Tamworth Industries Ltd v
Attorney-General [1991] 3 NZLR 616. If the chattel is found attached, the
occupier will in general obtain a better possessory title. In such a case,
it is held to be presumed that the occupier held a general intention to
control all items attached to his or her land. The presumption applies
irrespective of whether the occupier knew of the existence of the
particular chattel. The principle echoes that applied in South
Staffordshire Water at 47:
Possession of land carries with it in general, by our law, possession of everything which
is attached to or under that land, and in the absence of a better title elsewhere, the
right to possess it also. And it makes no difference that the possessor is not aware of
the thing’s existence. It is free to anyone who requires a specific intention as part of a
de facto possession to treat this as a positive rule of law. But it seems preferable to say
that the legal possession rests on a real de facto possession, constituted by the
occupier’s general power and intent to exclude unauthorised interference.

If, on the other hand, the chattel was found unattached, the occupier
has to show a manifest intention (that is, an obvious or apparent
intention to the finder at the time of finding) to exercise control over
anything lying unattached on the land or in a building. The
circumstances will dictate what was necessary to make the intention
manifest. It is obviously theoretically easier for a finder to establish a
better possessory title than the occupier where the chattel is
unattached.

[page 50]

Whether or not there was a manifest intention to exercise control

over objects found on the land will depend upon the circumstances. It
is largely a question of degree. As Donaldson LJ said in Parker at 1019:
If a bank manager saw fit to show me round a vault containing safe deposits and I
found a gold bracelet on the floor, I should have no doubt that the bank had a better
title than I, and the reason is the manifest intention to exercise a very high degree of
control. At the other extreme is the park to which the public has unrestricted access
during daylight hours. During those hours there is no manifest intention to exercise
any such control. In between these extremes are the forecourts of petrol filling
stations, unfenced front gardens of private houses, the public parts of shops and
supermarkets as part of an almost infinite variety of land, premises and circumstances.

Similarly, in Tamworth Industries at 624 it was held that it was possible

to imagine a ‘spectrum or continuum with, at one end (the top end,
from the occupier’s point of view) the ordinary home, kept locked in
the occupier’s absence, and at the other, the public park’.
Examples of cases where a manifest intention to control was not
shown by the occupier include: Hannah v Peel [1945] 1 KB 509, where a
brooch was found on top of a window frame in a house under
requisition and which had never been occupied; Bridges v Hawkesworth
(1851) 21 LJ QB 75, where money was found on a shop floor; Parker,
above, where a bracelet was found in an airport lounge; and Tamworth
Industries, where drugs and cash were found in a dilapidated, disused
building. In each case, the finder was held to have a better possessory
title than the occupier.
It can be contentious as to whether an object has been found under
or lying on the land. The following are examples of goods held to be
‘in or attached to land’: rings in mud at the bottom of a pool (South
Staffordshire Water); a prehistoric boat six feet below the surface (Elwes v
Brigg Gas Co (1886) 33 Ch D 562); a medieval gold brooch nine inches
below the surface of a public park (Waverley Borough Council); and bank
notes found in an old safe built into the wall of a demolished building
(Corporation of London). In each case the occupier was held to have the
better possessory title.
Where an employee finds goods in the course of his or her
employment, the general principle is that they belong to the employer:
Corporation of London; Willey v Synan (1937) 57 CLR 200. If, however, the
finder was employed at the time but the employment was not the
effective cause of the finding, the goods do not belong to the employer:
Byrne v Hoare [1965] Qd R 135. In Byrne, a policeman working at a
drive-in theatre found a gold ingot near the public exit. The true owner
could not be located. One issue concerned whether the policeman, as
the finder, was entitled to the value of the ingot as against his employer,
the Crown. The court found in favour of the policeman on the basis
that although his employment provided the occasion of the finding, it
was not the effective cause. The policeman had not been conducting a
search when he found the ingot, nor had he been permitted access to a
private place for the purpose of performing his duties, but was instead
walking where any member of the public might have walked. The fact
he was on duty at the time of the finding was therefore merely
coincidental.
 [page 51]

A finder of goods acquires very limited rights over the goods if he or

she forms a dishonest intention of keeping them regardless of ‘the
rights of the true owner or of anyone else’: Parker at 1017–18. The
scarcity of authorities for this qualification to the general rule was
discussed by Donaldson LJ in Parker at 1010:
One might have expected there to be decisions clearly qualifying the general rule
where the circumstances are that someone finds a chattel and thereupon forms the
dishonest intention of keeping it regardless of the rights of the true owner or of
anyone else. But that is not the case. There could be a number of reasons. Dishonest
finders will often be trespassers. They are unlikely to risk invoking the law, particularly
against another subsequent dishonest taker, and a subsequent honest taker is likely to
have a superior title: see, for example, Buckley v Gross (1863) 3 B & S 566. However, he
probably has some title, albeit a frail one because of the need to avoid a free-for-all.
This seems to be the law in Ontario, Canada: Bird v Fort Frances [1949] 2 DLR 791.

A qualification to the general rule also exists in the case of a

trespassing finder. The person against whom he or she has committed
the trespass will have a better title: Parker at 1017–18. The basis of this
rule is public policy: namely that wrongdoers should not benefit from
their wrongdoing. The trespassing finder therefore acquires no rights
in respect of the goods. However, to avoid a free-for-all whereby anyone
could take the found goods from the trespasser, the common law
conferred rights in respect of the goods upon the occupier of the
property on which the finder was trespassing when the goods were
found: Parker at 1017–18 citing Elwes at 568 and Hibbert v McKiernan
[1948] 2 KB 142 at 149.
If the person in possession of goods is a wrongdoer, his or her
possessory title may be defeated by the absolute owner, or by any
person claiming to hold the goods by virtue of the absolute owner’s
authority, for example, the police: Buckley v Gross (1863) 3 B & S 566.
Buckley was distinguished in Russell v Wilson (1923) 33 CLR 538 at 547–
9:
The defendant in Buckley v Gross had a superior title, because, as Blackburn J said
(Crompton J being of the same opinion), the plaintiff’s possession was such that it
became the duty of the constable at common law to deprive him of it permanently
and to hold the property for the true owners, the possession of the police henceforth
 being that of the true owners. The constable’s right and duty being to terminate the
plaintiff’s actual possession finally, when that was done the plaintiff’s possessory title
vanished, and he necessarily failed.
Apply those principles here. What was the superior right of the police? It was
created, and therefore limited, by the statute, and did not, as in Buckley’s case, exist at
common law … There is nothing in the Act which introduces the groundwork of
Buckley v Gross, namely, that it is the duty of the police to deprive the betting-house
keeper permanently of the property, which, unlike the finder in Buckley v Gross, he has
received from, and with the actual knowledge and consent of, the original owners,
and to hold that property henceforth for those owners. Whatever protection the
Legislature has intended for those owners, it has expressed. They may exercise it, or
decline to exercise it. Quilibet potest renunciare juri pro se introducto. But their abstinence
is not equivalent to an authority to the police to set up their absolute rights and hold
on their behalf … The police statutory

[page 52]

right having expired when the demand was made in October, their superior right no
longer existed, and the refusal was that of a person who was depriving the respondent
of the property and having, in Lord Campbell’s words, ‘no title in himself’, that is, a
wrongdoer.

Treasure trove
3.9 If what is found is treasure trove, the prerogative claim of the
Crown will be paramount: Attorney-General v Trustees of the British Museum
[1903] 2 Ch 598. ‘Treasure trove’ is defined in Chitty, Prerogatives of the
Crown, Butterworths, London, 1820, p 152:
Treasure trove, is where any gold or silver in coin, plate or bullion, is found concealed
in a house, or in the earth, or other private place, the owner thereof being unknown,
in which case the treasure belongs to the King or his grantee, having the franchise of
treasure trove; but if he that laid it be known or afterwards discovered, the owner and
not the King is entitled to it; this prerogative right only applying in the absence of an
owner to claim the property. If the owner, instead of hiding the treasure, casually lost
it, or purposely parted with it, in such a manner that it is evident he intended to
abandon the property altogether, and did not purpose to resume it on another
occasion, as if he threw it on the ground, or other public place, or in the sea, the first
finder is entitled to that property, as against every one but the owner, and the King’s
prerogative does not in this respect obtain. So that it is the hiding, and not the
abandonment, of the property that entitles the King to it.

An important issue therefore is whether the goods have been hidden

or abandoned by the owner. Obviously, where an item is discovered, it
is not possible to obtain direct evidence of the intention of the owner
because that person is unknown. The evidence of intention must
therefore be presumed from the relevant surrounding circumstances,
and the motives that usually influence persons in such circumstances,
according to the ordinary dictates of human nature: British Museum at
609, where, in deciding that several articles of Celtic origin were hidden
rather than abandoned, the court relied on the following factors:
The articles were all put close together, the chains being
concealed within a collar in a way which a person who intended to
hide them for safety with a view to returning to reclaim the goods
might do.
The value of the goods rendered it improbable that they would be
abandoned except under stress of imminent danger, and the care
with which the goods were collected together did not suggest
imminent danger as would necessitate abandonment.
The purpose of the law in this area has evolved over time. Initially,
the common law doctrine of treasure trove was said to serve the
purpose of preventing disputes to which title by occupancy could
otherwise have arisen while also being an important source of revenue
for the Royal Mint. The purpose changed by the 19th century to the
retention

[page 53]

by the state of important historic objects of national significance. As

Finlay CJ stated in Webb v Ireland [1988] IR 353 at 381–2:
It would appear obvious that the confining according to the common law of the right
of treasure trove to gold and silver objects or objects substantially made of either or
both of these metals was directly associated with the purpose of enriching the Royal
Mint, and it is stated in most of the textbooks concerning this topic that in the early
days treasure trove when recovered by the Crown was frequently melted down into
coin.
…
By the nineteenth century it is quite clear that the prerogative of treasure trove in
 England and in Ireland continued to be exercised on behalf of the Crown by the
Government of Great Britain and Ireland but for a purpose wholly different from that
which had been its historical origin. Its purpose now clearly was the retention by the
State, for the common good, of antiquarian objects of interest and value, which
formed part of the heritage of the People.

The modern purpose of the common law doctrine of treasure trove

is reflected by various statutes directed to the protection of historical,
archaeological or cultural objects of national significance. In England,
for example, the Treasure Act 1996 (UK) vests any treasure found, no
matter where or in what circumstances it is found, in the Crown subject
to any prior rights and interests. ‘Treasure’ is defined broadly to
include a wide range of objects beyond the common law definition of
‘treasure trove’: Treasure Act s 1. There is also power in the Secretary
of State to expand this definition further: Treasure Act s 2.
In Australia, significant historic shipwrecks and related relics are
protected by the Historic Shipwrecks Act 1976 (Cth).
The Protection of Movable Cultural Heritage Act 1986 (Cth) does
not deal with ownership of found objects of cultural significance but
does impose restrictions on the export of an object that comes within
the categories of objects on the National Cultural Heritage Control
List. These objects constitute the ‘movable cultural heritage of
Australia’, which is a reference to ‘objects that are of importance to
Australia … for ethnological, archaeological, historical, literary, artistic,
scientific or technological reasons …’: s 7.

Aboriginal objects
3.10 In Australia, significant archaeological and Aboriginal relics are
protected by Commonwealth and state or territory legislation. The
Aboriginal and Torres Strait Islander Heritage Protection Act 1984
(Cth) provides the Commonwealth Government with power to protect
areas and objects, including Aboriginal remains, of significance to
Aboriginals which are under threat of injury or desecration and, in the
case of Aboriginal remains, to order the delivery of the remains to the
Minister or to Aboriginals entitled to, and willing to accept, possession,
custody or control of the remains in accordance with Aboriginal
tradition: s 12. A significant Aboriginal object is defined to mean an

[page 54]

object of particular significance to Aboriginals in accordance with

Aboriginal tradition and includes Aboriginal remains: s 3. The Act is
not intended to exclude the application of relevant state and territory
legislation and may be applied concurrently, provided that a person is
not to be punished twice in respect of the same conduct: s 7.
The relevant legislation in each state and territory is not uniform,
although there are similarities in respect of objects and methods of
protection of significant Aboriginal objects or Aboriginal remains.
Relevant state and territory legislation includes:
Heritage Act 2004 (ACT);
National Parks and Wildlife Act 1974 (NSW);
Heritage Act 2011 (NT);
Aboriginal Cultural Heritage Act 2003 (Qld);
Aboriginal Heritage Act 1988 (SA);
Aboriginal Relics Act 1975 (Tas), National Parks and Reserves
Management Act 2002 (Tas);
Aboriginal Heritage Act 2006 (Vic); and
Aboriginal Heritage Act 1972 (WA).

_______________
1 Haynes’ case (1614) 12 Co Rep 113; 77 ER 1389 (‘a man cannot relinquish the property he
hath to his goods unless they be vested in another’); St German, Doctor and Student (eds
Plucknett and Barton), Selden Society, London, 1974, vol 91, p 291; Pollock and Wright,
Possession in the Common Law, Clarendon Press, Oxford, 1888, p 124; Goode, Commercial
Law, 3rd ed, LexisNexis UK, London, 2004 (Professor Goode argues that possession can
be relinquished but not ownership).
2 Under Roman law, the finder and landowner on which the chattel was found were given
equal shares in the chattel: Justinian (based on Hadrian), D49.14.3.10 C.10.15.1. cited in
Tooher, ‘Jubilant Jamie and the Elephant Egg: Acquisition of Title by Finding’ (1998) 6
APLJ 117.
[page 55]
CHAPTER 4
Accession, specification and
intermixture

CHANGING THE NATURE OF A CHATTEL

ACCESSION
The effects of accession
Remedies of the owner of the accessory

SPECIFICATION

INTERMIXTURE
Authorised intermixture
Unauthorised intermixture

[page 56]

ACCESSION, SPECIFICATION AND INTERMIXTURE COMPARED

FIXTURES
 [page 57]

CHANGING THE NATURE OF A CHATTEL

4.1 The common law recognises a number of ways in which the
nature and proprietary interests in a chattel can change: through being
annexed to another chattel (accession), being converted into a new
thing (specification), being inextricably mixed with another’s goods
(intermixture) or being affixed to the land (fixtures).
Generally, as the physical identity of the original chattel is lost or, if
identifiable, it is nonetheless impracticable to return the chattel to its
original form, so too will the proprietary interest of the owner of the
original chattel be lost. In such a case, the owner of the original chattel
will have no rights in respect of the altered goods themselves but will
generally have an action in damages for conversion against the
converter of the original goods.
The four ways in which the nature of a chattel can change so as to
affect the proprietary interest of its owner are:
accession;
specification;
intermixture; and
fixtures.
There are similarities between the above doctrines wherein title to a
chattel can be divested by operation of law. Although the doctrines
originated from Roman law (accessio, specificatio, confusio and commixtio),
the approach to the problems raised by the doctrines in English law is
very different: Holdsworth, A History of English Law, 2nd ed, vol VII,
Methuen, London, 1937, pp 501–3 cited in Rendell v Associated Finance
Pty Ltd [1957] VR 604 at 606.
It is to be noted that issues relating to:
 security interests in goods which have ‘become an accession’1
1. are dealt with in Pt 3.3 ‘Accessions’, comprising ss 87–97 of
the Personal Property Securities Act 2009 (Cth); and
2. security interests in goods that become an unidentifiable part
of a larger product or mass are dealt with in Pt 3.4 ‘Processed
or Commingled Goods’,2 comprising ss 98–103 of the
Personal Property Securities Act 2009 (Cth).

ACCESSION
4.2 The doctrine of ‘accession’ is a source of title to property,
whereby a person loses ownership of a subsidiary chattel by the chattel
having been attached to or incorporated

[page 58]

in a principal chattel which belongs to another person. Prima facie

property in a chattel does not pass merely because it has been annexed
to the chattel of another. There must be an intention on the part of the
owner of the accessory to pass the property to the owner of the
principal chattel. It is for the owner of the principal chattel to show that
the necessity of the case requires the application of principles whereby
property is deemed to pass by operation of law: National Bus Co Pty Ltd v
FCT (1998) 98 ATC 4170.
If the parties have indicated an intention as to whether property in
accessories is to pass, the intention will take precedence. In National
Bus, for example, the lease between the parties provided that ‘PTC
retains full title to the buses’ and that the buses were to be surrendered
to the PTC in good and substantial repair and in proper working order
and condition. This was held to indicate an intention, though implied,
that property in the accessories (batteries, windscreens, distributors,
bearings, clutches and brakes) was to pass to the PTC. A clause in a
contract to which the owner of the accessory is not a party cannot affect
this issue: Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477.
The acquisition of ownership by accession has been said to be
grounded on the right of occupancy and founded on a doctrine of the
Roman law: Holdsworth, A History of English Law, 2nd ed, vol VII, pp
501–3. Having said that, due to the adaptations of the principles that
have occurred in English law, the views of commentators on Roman law
have been said not to provide reliable guidance. In Rendell v Associated
Finance Pty Ltd [1957] VR 604 at 607, the Full Court of the Supreme
Court of Victoria held:
… the approach by English law to these problems is very different from that of the
Roman lawyers. The common law looked at all these questions from the point of view
of the law of tort, whereas the Roman lawyers’ treatment was from the point of view of
the law of property. Roman lawyers were concerned not so much with the remedy
against a wrongdoer who had taken another’s property and added it to or mixed it
with something of his own, as with the question of who was entitled to the product
thus increased in value. ‘Much subtle reasoning, and some over-refined distinctions,
resulted from this manner of looking at the problem. Some of it was, as we have seen,
repeated by Bracton; but, in these cases, as in the various cases of the original
acquisition of ownership and possession, the evolution of English law, under the
pressure of the development and expansion of the forms of action, has worked out its
own solution on native lines. That solution may appear somewhat rough and ready to
the civilian, but in practice it is neither inconvenient nor unjust’ (Holdsworth, ibid, pp
502–3).

If a chattel which has been attached to another chattel can be

detached without damage to either chattel, there is no need to resort to
the doctrine of accession: Rendell at 607. In Sims v SPM Business
Consultants Pty Ltd (2002) 43 ACSR 633, for example, it was held that
the doctrine of accession did not apply to documents later added to
client files because they could be removed from the relevant files
without harm to either the documents or the files. It is only where
severance from a practical point of view is impossible, for example, the
sewing of cotton into a garment or the laying of planks on a ship, that
the doctrine will apply: Rendell at 607. This reflects the fundamental
principle underpinning the transfer of property in goods in English
law: that is, that the transfer of property
 [page 59]

depends upon intention and consent. It is only in circumstances of

necessity when resort will be had to transfer of property by operation of
law: Rendell at 607; National Bus at 4174.
Halsbury’s Laws of England (4th ed, Butterworths, London, 2003, vol
35, p 750) defines accession as including:
… when the goods of one person are affixed to the land or chattel, for example a
ship, of another, they may become part of it and so accrue to the owner of the
principal thing. It also includes accession by natural or artificial means: for example,
the pregnancy of animals or the embroidery of cloth.

It therefore involves a subordinate chattel — that is, the ‘accessory’

— being annexed to a dominant chattel — that is, the ‘principal’. The
application of the doctrine of accession of goods to land is more usually
described as the doctrine of fixtures.3
Although the cases use the terms ‘principal chattel’ and ‘accessory’,
the terms have not been defined. Usually it will be reasonably evident
which chattel is the accessory and which chattel is the principal. For
example, in Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd
[1984] 1 WLR 485 the accessories were diesel engines which had been
incorporated into generator sets, which were the principal chattel. In
some cases the distinction can be made by comparing the respective
values of the things involved: the more valuable item being the
principal and the less valuable item the accessory. However, this will not
always be the case. In McKeown v Cavalier Yachts Pty Ltd (1988) 13
NSWLR 303, for example, the principal chattel was the laminated hull
of a yacht, worth only $1777, whereas the accessories were worth
$24,409. In that case the appropriate way of looking at the issue was
held to be as follows at 311:
Whilst it may be that in some cases one can deal with such a distinction by way of
comparing the respective values of the things involved, in the instant case counsel for
the plaintiff, I believe, put up a complete answer to the proposition. He submitted that
it was quite incorrect to compare the total of the work done to the laminated hull with
the value of the hull. Quite clearly the work was done gradually and the true position
was that some work was done to the laminated hull making it more valuable, at that
stage that work acceded to the laminated hull, and the whole of the product belonged
 to the plaintiff. A little further work was done, and that little further work acceded to
the hull and again the hull became the plaintiff’s property, and this was the result as
each extra bit of work was gradually done to the hull. In my view, that is the correct
way of looking at the case.

One of the earliest applications of the doctrine of accession was in

Jones v De Marchant (1916) 28 DLR 561. There, a husband used 18 of his
wife’s beaver skins, along with four of his own, to make a coat for his
mistress. The court had to determine who owned the coat — the wife
or the mistress? The court applied the doctrine of accession and held
that the wife was entitled to ownership of the coat. The court referred
to the following definitions of ‘accession’:

[page 60]

The right to all which one’s own property produces, whether that property be
movable or immovable, and the right to that which is united to it by accessory, either
naturally or artificially: Bouvier’s Law Dictionary …
Accession is a source of title to property, by virtue of its incorporation with, or
annexation to, that which is already the property of the individual in whom the right
to the acquisition is thus vested: Vol 1 of the A & E Encyc of Law at 247.

The court also referred to s 819 in vol 22 of Halsbury’s Laws of England

(1st ed, Butterworth & Co, London, 1912, p 401), which lists, as an
example of accession, ‘the conversion of wood or metal into vessels or
utensils’: Jones at 563. This example, it is submitted, is better classified
as an example of specification. There is further evidence of confusion
between the doctrines of accession and specification in that the court
refers to a leading case on the doctrine of specification, Silsbury &
Calkins v McCoon & Sherman 3 NY 379 (1850) (where whiskey was
manufactured from corn), as an example of accession.
The coat in Jones was a new product manufactured from skins
belonging to the husband and from skins belonging to the wife and was
not simply the product of intermingling them. The problem could not
be solved by selling the coat in order to reduce the disputed property
to a divisible fund because the realisation of an asset does not affect its
ownership. The women could not be made to share the coat; in other
words, a proportionate sharing was inappropriate. Accordingly, an all-
or-nothing approach was applied and the coat was assigned to the wife.
The principles of accession as applied in Australia are as follows (in
Rendell at 609):
Prima facie, the property in the accessory does not pass to the owner of the
[principal] if the owner of the accessory did not intend it to pass. It is for the
defendant by proper evidence to show that the necessity of the case requires the
application of principles whereby the property is deemed to pass by operation of law.
The accessories continue to belong to their original owner unless it is shown that as a
matter of practicability they cannot be identified, or, if identified, they have been
incorporated to such an extent that they cannot be detached from the vehicle.

In Rendell, Rendell hired a Chevrolet car engine to Pell under a hire–

purchase agreement dated 2 September 1955. In August 1955, Pell
hired a 1942 Chevrolet utility truck from Associated Finance under a
hire–purchase agreement. The Associated Finance agreement
contained a clause providing that ‘any accessories or goods supplied
with or attached to the goods shall become part of the goods’. Pell
removed the old engine from the truck and replaced it with the new
engine hired from Rendell. Pell failed to meet the payments due for
the hire of the truck and Associated Finance repossessed the truck.
Rendell sued Associated Finance for conversion of the engine.
Associated Finance said that they had not converted the engine as, at
the time they took the truck, the engine had become inextricably
linked with the truck and a part of the truck by virtue of the doctrine of
accession.
The Full Court of the Supreme Court of Victoria found in favour of
Rendell. It was clear, the court held, that the plaintiff was the owner of
the engine when it was

[page 61]

annexed to the truck and that he intended to retain property in the

engine until Pell exercised his option to buy it. He was entitled to rely
on the presumption of ownership, so that, in the absence of evidence
to the contrary, the engine continued to belong to him. The
defendants, in order to displace the presumption, would have had to
show that, as a matter of practicability, the engine had been so attached
to the truck that it could not be detached. The court held this not to be
the case. The court took judicial notice of the fact that it was
commonplace to replace motor engines when required and that this
can be done without damage either to the engine or the motor vehicle.
A similar test had been applied by the Full Court of the Supreme
Court of New South Wales in Lewis v Andrews and Rowley Pty Ltd (1956)
56 SR (NSW) 439; 73 WN (NSW) 670.
The fact that the utility of the principal chattel may be destroyed by
the removal of the accessory has been considered relevant in some
courts in the USA: Lincoln Bank and Trustee Co v Netter 253 SW 2d 260
(1952). However, the ‘injurious removal’ test is the test favoured here:
Guest, ‘Accession and Confusion in the Law of Hire–purchase’ (1964)
27 MLR 505 at 507 citing Bousquet v Mack Motor Truck Co 168 NE 800
(1929).
Similar findings have been made in a number of cases where tyres
have been attached to motor vehicles; that is, it has been held that
ownership of the tyres (accessories) remained with the original owner
because tyres could be removed from a motor vehicle: Bergougnan v
British Motors Ltd (1929) 30 SR (NSW) 61. In Bergougnan this was held to
be so even though in that case the tyres could be detached only by
means of special machinery which the owner of the vehicle did not
possess.
In Grant v YYH Holdings Pty Ltd [2012] NSWCA 360 it was argued that
the ‘goods’ were the genetic material which passed from the original
flock of a special breed of sheep to the progeny, leading to the
assertion that ewe and progeny were, in law, one thing. The argument
was said to be based on the law of accession. The court referred to a
leading Canadian text, Ziff, Principles of Property Law (4th ed, Thomson
Carswell, Toronto, 2006), where it was said, under the heading ‘The
transformation of chattel ownership’ at 108:
The doctrine of accession is designed primarily to resolve disputes in which two or
more chattels become attached, such as when A’s paint is applied to B’s car. In
 addition, a natural accession occurs when an animal gives birth to offspring. Here the
general rule is that the owner of the mother acquires title to the progeny.

The court ultimately held that the doctrine did not apply to animals:
at [74], [80].

The effects of accession

4.3 Where the doctrine of accession applies, the accessory becomes
part of the principal, the title of the owner of the accessory is
extinguished and the owner of the principal becomes entitled to the
principal in its improved state.

[page 62]

If the owner of the principal does not have possession of the

improved chattel, he or she may bring an action in detinue or
conversion against the person in possession of the chattel. The court
has a discretion to order specific restitution of chattels in lieu of
damages, but ordinarily the court will not order the return of the
chattel unless the chattel has special value or is unique and damages
would not be full compensation. However, it is unlikely to order
specific restitution where it might be unjust to do so, where to do so
might give to the plaintiff some greater benefit than they were entitled
to or deserved, or where there has been unreasonable delay: Howard E
Perry & Co Ltd v British Railways Board [1980] 1 WLR 1375.
In McKeown v Cavalier Yachts Pty Ltd (1988) 13 NSWLR 303, the
plaintiff sued for the return of a yacht upon which work to the value of
$24,409 had been done by the defendant. The work had been done to
the hull of the yacht, which, before the work, was worth only $1777.
The court, having determined that the plaintiff was entitled to the
yacht, as improved, then went on to consider the appropriate remedy,
in particular, whether an order for specific restitution of the vessel or
an order for damages should be made. The defendant argued that the
court should not order specific restitution even if the plaintiff owned
the whole chattel by virtue of the application of the doctrine of
accession because it would be unfair for the plaintiff to take the value
of the defendant’s work without paying for it.
Young J held that it was appropriate to take into account such
matters of justice when considering whether to make an order in
detinue. In support of this proposition, his Honour referred to:
Greenwood v Bennett [1973] QB 195; Munro v Willmott [1949] 1 KB 295;
Peruvian Guano Co Ltd v Dreyfus Brothers & Co [1892] AC 166 at 176; and
Thomas v Robinson [1977] 1 NZLR 385. Young J referred to the
following passage by Speight J in Thomas at 392:
… An action for recovery of a chattel is a possessory action arising in tort, so that the
court has considerable discretionary powers. Many of the reported cases have been,
like the present one, founded in detinue or conversion and orders for delivery, or for
damages in lieu, may recognise matters such as added value and orders can be made
on terms as to compensation …
In matters such as the present, if the minor chattel can be physically detached, an
order may be made for its return, or refused subject to compensation or damages in
the case of its loss. If it cannot be conveniently detached then compensation may be
imposed as a term of repossession or detention.

The court ordered the return of the goods. One of the factors which
the court took into account was the unique nature of the chattel. Young
J held that a person’s yacht had a ‘sufficient individuality to fall into the
class of a special or unique chattel’: at 312.

Remedies of the owner of the accessory

4.4 Although where accession applies, the owner of the accessory has
no proprietary claim in respect of the improved principal, he or she
may be entitled to compensation

[page 63]

for the improvements: Thomas v Robinson [1977] 1 NZLR 385. There

are few authorities which address the way in which such compensation
is assessed: McKeown v Cavalier Yachts Pty Ltd (1988) 13 NSWLR 303 at
312. The court is required to make a ‘fair and just allowance’: Peruvian
Guano Co Ltd v Dreyfus Brothers & Co [1892] AC 166.
In McKeown, Young J held at 313:
… the test for compensation to be applied in this class of case is whether the work
done conferred on the plaintiff an incontrovertible benefit. If it did, the plaintiff must
pay compensation as a prerequisite to obtaining an order for specific recovery of the
chattel and the measure of that compensation is the amount of incontrovertible
benefit.

Young J suggested that an appropriate amount of compensation was

not the cost price of the work (which included profit margins) but an
amount representing the increased value in the yacht as a result of the
defendant’s work.

SPECIFICATION
4.5 ‘Specification’ is the process where a thing is altered without
authorisation of the original owner of the material by the application of
manual work or some other process to produce a different species of
thing: Blackstone’s Commentaries on the Laws of England, vol 2, 17th ed,
Clarendon Press, Oxford, 1966, p 404. It has otherwise been defined to
mean ‘the manufacture of a new thing (a nova species)’: Birks,
‘Mixtures’, in Palmer and McKendrick (eds), Interests in Goods, 2nd ed,
LLP, London, 1998, p 207 at 228. Examples of specification include
making whiskey from corn (Silsbury & Calkins v McCoon & Sherman 3
NY 379 (1850)), making oil from olives and making a cake from eggs,
flour and butter. Under the doctrine the maker becomes the owner of
the new product. The maker is only liable in damages to the original
owner for the value of the materials converted.
Moore-Bick J in Glencore v Metro Trading Inc [2001] 1 Lloyd’s Rep 284
at 328 suggested that the rule may not be applied with as much ‘rigour’
in English law. The principles would, his Honour suggested, offend
people’s sense of justice were the maker to get the goods
notwithstanding the original materials belonged entirely to somebody
else, even if they were unaware of that fact; even more so, where the
maker knew that they had no right to take them and use them. His
Honour referred to old cases which held that where goods were
wrongfully used, ownership of the new product passed instead to the
owner of the original materials: Case of Leather, YB 5 Hen VII fol 15
(leather into shoes); Anon (1560) Moore KB 19; 72 ER 411 (standing
trees into sawn timber). Having said that, his Honour acknowledged
that there would come a point, as recognised in the cases, when the
original materials could not be sufficiently identified in the new article
to permit recovery by the owner: at 328.
Unlike intermixture, where specification applies, there is an ‘all or
nothing’ approach, in that there is no scope for sharing ownership of
the new product. The maker becomes

[page 64]

the owner of the new product, liable only in damages to the owner of
the original materials used to manufacture the new product.
Specification can be distinguished from accession in that in
specification it is usually impossible to reverse the process because it
has involved a physical or chemical change of the original materials,
whereas in a case where accession applies, the goods, though possibly
identifiable, are not separable.
Specification was applied in the Scottish case of International Banking
Corp v Ferguson, Shaw & Sons [1910] SC 182. In that case, the defendant
bought some oil from a seller who did not have title to the oil and used
it to make lard by blending it with materials of his own. The plaintiffs
brought an action to recover the oil or damages in lieu. Lord Low held:
… the mixer, whether he be one of the proprietors or a third party, must, as the
maker of the new species, become the sole proprietor of the subjects mixed (Erskine,
II.14 p 10 1, 17).

INTERMIXTURE
4.6 ‘Intermixture’ (also referred to as ‘admixture’, ‘intermingling’
or ‘commingling’) is a term used to describe the mixing together of
goods belonging to A with goods belonging to B. Difficulties arise
where it is not practicable to separate the goods. In such a case the
issue arises as to who is entitled to the resultant mixture.
The answer to this issue may depend upon:
(a) whether the mixing was consensual, the result of the wrongful
act of a third party, or the result of the wrongful act of A or B;
(b) whether the substances mixed lost their physical identity in
the process (in particular if there was interpenetration
between the mixed goods);
(c) whether the substances mixed were identical or not; and
(d) the relative quantity and quality of goods contributed by A
and B.
Under Roman law, ‘commixtio’ applied to a mixture of solid things,
and ‘confusio’ applied to a mixture of liquid things (fluids and molten
metals). There were different legal consequences of each. If commixtio
applied, the individual contributions remained physically intact and
there was no reason why the original contributors could not retain their
individual proprietary status. In the case of confusio, on the other hand,
the interpenetration of the liquid contributions meant that the
individual contributions had lost their physical identity, with the
consequence that the contributors became co-owners of the mixture.
The fact that in the case of commixtio the contributions remained
physically intact and were theoretically separable did not mean
necessarily that the contributions could practicably be separated, for
example, a mixture of corn.

[page 65]

In relation to liquid mixtures, the English position is the same as the

Roman law: Indian Oil Corp Ltd v Greenstone Shipping SA (Panama) [1987]
3 All ER 893. However, the position is not as clear where the mixture is
notionally separable.
This area of law is clouded by uncertainty surrounding the respective
parameters of the Roman doctrines. In Foskett v McKeown [2001] 1 AC
102 at 121, Lord Hope of Craighead stated that there was no clear
distinction in the use of the terminology applied to what had become
recognised as the doctrines of confusio and commixtio. This is evidenced
in Smith v Torr (1862) 3 F & F 505 where Bramwell B held that the
doctrine of confusio did not apply to distinct chattels, such as tables and
chairs, but rather was confined to the mixing of substances, such as
corn, wine and oil, and in McDonald v Lane (1882) 7 SCR 462, where
principles of co-ownership of commingled substances were applied to
logs of wood.
More recently, in Hill v Reglon Pty Ltd [2007] NSWCA 295, Beazley JA
at [100] applied a distinction based upon whether the goods were
distinguishable one from the other as opposed to a distinction based
solely upon the nature of the goods in question, that is, whether the
goods were liquid or solid. In that case, which concerned ownership of
identical items of scaffolding, her Honour stated at [100]:
Indeed, it might be said that one of the traditional examples of confusio, namely, the
intermingling of pieces of corn, is no different, except to the extent of the size of the
items, to the intermingling of indistinguishable items of scaffolding.

In Hill, it was held that the scaffolding had been commingled and
that the parties owned the scaffolding in common in the proportions
that each had contributed: at [93]. In reaching this conclusion, the
New South Wales Court of Appeal at [93] applied the principles from
Sandeman & Sons v Tyzac and Branfoot Steamship Co Ltd [1913] AC 680:
In Sandeman, Lord Moulton, at 694–5, referred to the legal consequences that
followed where the goods of one party become ‘indistinguishably and inseparably
mixed’ with the goods of another. Having explained that the consequence of the
goods becoming mixed due to the wrongful act of one of the owners was that the
innocent owner could claim the goods, his Lordship then stated the principle that
Windeyer J applied in this case, namely:
… if the mixing has taken place by accident or other cause, for which neither of the
owners is responsible, a different state of things arises. Neither owner has done anything
to forfeit his right to the possession of his own property, and if neither party is willing
to abandon that right the only equitable solution of the difficulty and the one
 accepted by the law is that [the owners] become owners in common of the mixed
property. [Emphasis added.]
In Rapid Metal Developments (Aust) Pty Ltd v Rildean Pty Ltd [2009]
NSWSC 571, another scaffolding case, Hulme J held that as there had
been unauthorised intermingling of indistinguishable scaffolding, the
plaintiff was entitled to an amount of scaffolding in the possession of
the defendant equivalent to the number and description of items
claimed: at [107].4

[page 66]

The Sandeman principle was also applied in Big Top Hereford Pty Ltd v
Thomas [2006] NSWSC 1159 at [62] to circumstances where cattle had
become mixed in such a way that one group could not be distinguished
from another and in THC Holding v CMA Recyling [2014] NSWSC 1136
at [93] so that owners of commingled scrap metal were each held to
own the scrap in the resultant pile as tenants in common in proportion
to their contributions.
The preferred view in Australia seems to be that mixing does not
cause property to pass unless the parties have agreed otherwise, and,
further, that where the goods mixed are indistinguishable (whatever
the nature of the goods), the contributors to the resulting mixed goods
become tenants in common of the whole, in the proportions which
they have severally contributed to it: Big Top; Hill; THC Holding.

Authorised intermixture
4.7 If intermixture occurs by consent and the quantity contributed
by each person cannot be identified, the contributors have an interest
in common in proportion to their respective shares: Coleman v Harvey
[1989] 1 NZLR 723; Re Goldcorp Exchange Ltd (in rec) [1995] 1 AC 74;
[1994] 2 All ER 806; Re Stapylton Fletcher Ltd (in admin rec) [1995] 1 All
ER 192. This would occur where, for example, farmers A, B and C all
agreed to store wheat in a single silo. The farmers would own the wheat
in common if they had all contributed wheat of equal amounts, in one-
third shares.
If A’s property is used in a manufacturing process by B, for example,
resin used to manufacture chipboard (Borden (UK) Ltd v Scottish Timber
Products Ltd [1981] 1 Ch 25), property in the newly manufactured
product will generally vest in B. This will be the case whether or not B
incorporates other material of its own, at least where the goods are not
reducible to the original materials: Blackstone’s Commentaries on the Laws
of England, pp 404–5, cited in Glencore v Metro Trading Inc [2001] 1
Lloyd’s Rep 284 at 321. In a manufacturing context, the intermixture
will usually be governed by a contract. Where the intermixture occurs
pursuant to a contract, the parties are free to decide when, if at all,
property in the original goods is to pass to the person responsible for
the mixing. This includes the right to decide who owns the resultant
mixture: Clough Mill Ltd v Martin [1984] 3 All ER 982 cited in Glencore at
321. A similar approach in attempting to identify the parties’ intention
was applied in Coleman, where the plaintiff delivered silver coins to the
defendant for refining which were mixed with scrap belonging to the
defendant, and in Re CKE Engineering Ltd (in admin) [2007] BCC 975,
where zinc from multiple sources was mixed and melted for galvanising
finished metal products.
If there is no express agreement but the goods of a supplier are to be
used in the manufacture of a new product, property will usually pass
upon delivery because the supplier intends to give the manufacturer
complete dominion over the goods: South Australian Insurance Co v
Randell (1869) LR 3 PC 101. This was not the case in Bacardi-Martini
Beverages Ltd v Thomas Hardy Packaging Ltd, Messer UK Terra Nitrogen
(UK) Ltd [2001] WL 1040274,

[page 67]

where it was held that although THP was the ‘maker’ of the alcoholic
beverage ‘Breezers’ for Bacardi, property in the final product, which
included alcoholic concentrate supplied by Bacardi and which was
contained in bottles supplied by Bacardi with labels bearing the Bacardi
name, vested in Bacardi. Tomlinson J discussed the issue at [49]:
Can one spell out of retention of title to the ingredients an intention as to joint
ownership of the product? Once the concentrate is used in the manufacturing process
it ceases to exist as a concentrate and accordingly title to it simply disappears — see
Bridge LJ in Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25 at page 35. I
think it more likely that the intention to be attributed to the parties is that, contrary to
the general rule, property in the Breezer, bottled in Bacardi’s bottles and bearing
their name, should vest in Bacardi. Again insolvency provides the acid test. I think it
unlikely that the parties intended that, in the event of insolvency, the receiver of THP
would be at liberty to sell undelivered stocks of the finished product for the benefit of
THP’s creditors, even if the entitlement was joint and thus the benefit limited. If the
entitlement was joint, what was the extent of THP’s interest? Joint ownership is an
unsatisfactory solution in such circumstances and the parties are more likely, in my
judgment, to have intended either that property should vest in THP, in accordance
with the normal rule, or that the normal rule should be displaced, so that property
should vest in Bacardi.

Unauthorised intermixture
4.8 Where goods belonging to A have been wrongfully mixed by B
with goods of its own, the outcome may depend upon the nature of the
goods, in particular, whether the goods are of a similar kind or quality.

Mixing goods of a similar kind or quality

4.9 There is authority that if the mixing was caused through the fault
of one of the owners of the goods mixed, the innocent owner will
become the owner of the resulting mixed goods: Sandeman & Sons v
Tyzac and Branfoot Steamship Co Ltd [1913] AC 680 at 695 (though
reservations were expressed). This position, however, has since been
modified by Indian Oil Corp Ltd v Greenstone Shipping SA (Panama)
[1987] 3 All ER 893.
Indian Oil concerned the unauthorised mixing of quantities of crude
oil on board a vessel. In particular, the owner’s vessel had been
chartered for the carriage of a cargo of 75,000 tons of crude oil from
the Soviet Union to India. At the time the oil had been loaded there
was residue of oil from its previous voyage and the Soviet crude was
inextricably mixed with the residue. After delivery of the 75,000 tons,
9545 barrels of oil remained on board. The consignees claimed that
because the goods had been mixed, and because they were the
innocent party, the property in the whole of the mixed goods should
belong to them. The consignees’ claim to the residue failed. After an
extensive review of the authorities on mixing, Staughton J held:
Seeing that none of the authorities is binding on me, although many are certainly
persuasive, I consider that I am free to apply the rule which justice requires. This is

[page 68]

that, where B wrongfully mixes the goods of A with goods of his own, which are
substantially of the same nature and quality, and they cannot in practice be separated,
the mixture is held in common and A is entitled to receive out of it a quantity equal to
that of his goods which went into the mixture, any doubt as to that quantity being
resolved in favour of A. He is also entitled to claim damages from B in respect of any
loss he may have suffered, in respect of quality or otherwise, by reason of the
admixture.
Whether the same rule would apply when the goods of A and B are not substantially
of the same nature and quality must be left to another case.

With this approach, Staughton J was able to protect the proprietary

interests of the innocent party without overriding the proprietary
interests of the wrongdoer to a greater extent than was necessary: see
comments in Glencore v Metro Trading Inc [2001] 1 Lloyd’s Rep 284 at
330.
In Farnsworth v FCT (1949) 78 CLR 504, growers who had supplied
fruit to a packing company were held, by a majority of 3:2, to have lost
property in the mixed goods (which had changed identity) to the
packing company. The minority held that the growers were owners in
common of the fruit in proportion to their contributions.
If goods belonging to two different people are mixed by a third
person, the two innocent contributors have been held to be entitled to
be treated equally as between each other: Foskett v McKeown [2001] 1
AC 102. This has been said to mean not that the contributors are always
entitled to equal interests in the bulk, but that there should be equality
of treatment: Glencore at 329. This would mean that the court would
take into account the quantity of goods contributed and also their
value.
Such an approach was applied in Spence v Union Marine Insurance Co
(1868) LR 3 CP 427, where part of a cargo of cotton arrived at the
English port of Liverpool after a shipwreck. The individual
consignments of cotton were no longer able to be identified as the
markings on the bales had been obliterated. It was held that the various
consignees were tenants in common of the mixed mass of the cotton in
proportion to their respective interests. The principle underpinning
the approach to mixtures in the possession of third parties was
articulated by Lord Moulton in Sandeman at 695:
But if the mixing has taken place by accident or other cause, for which neither of the
owners is responsible, a different state of things arises. Neither owner has done
anything to forfeit his right to the possession of his own property, and if neither party
is willing to abandon that right the only equitable solution of the difficulty, and the
one accepted by the law, is that ‘A’ and ‘B’ become owners in common of the mixed
property.

In relation to the issue of the relative shares of the owners of the

goods accidentally mixed, Lord Moulton said it was not an area of the
law ‘safe to go’ in view of its unsettled state. For example, in one case,
the parties had been held to be tenants in common in equal shares
(Buckley v Gross (1863) 3 B & S 566 at 575), whereas, in another case,
the parties had been held to possess the mixed mass in proportion to
the probable amounts of their contributions to it (Spence): Sandeman at
695. In summary, Lord Moulton said at 695:

[page 69]

The fact is that the conclusions of the Courts in such cases, though influenced by
certain fundamental principles, have been little more than instances of cutting the
Gordian knot — reasonable adjustments of the rights of parties in cases where
complete justice was impracticable of attainment. I doubt whether even the
fundamental principles enunciated above would be strictly adhered to in extreme
cases where they would lead to substantial injustice.

Mixing goods of a different kind or quality

4.10 The effect on proprietary interests of a wrongful and
irreversible mixing of goods of a different kind is a different issue from
that considered in Indian Oil Corp Ltd v Greenstone Shipping SA (Panama)
[1987] 3 All ER 893. It involves consideration of the rules relating to
mixing as well as the rules relating to the creation of a new commodity.
Generally, where goods of A and goods of B have become
indistinguishably and inseparably mixed, and the mixing was B’s fault,
A can claim the goods: Sandeman & Sons v Tyzac and Branfoot Steamship
Co Ltd [1913] AC 680 at 694. The reason for the rule was said to be to
‘guard against fraud’: Blackstone cited in Indian Oil at 902. A person
could, for example, deliberately mix goods with his or her own to avoid
being able to ascertain the amounts contributed, to conceal an
innocent person’s goods or to benefit from an innocent person’s
better-quality goods. However, this principle ‘gives way’ where the
nature of the goods is such as to permit a fair distribution between the
wrongdoer and the innocent party:
But this rule is carried no further than necessity requires, and is applied only to cases
where the compound is such as to render it impossible to apportion the respective
shares of the parties. Thus, if the quality of the articles that are mixed be uniform, and
the original quantities known, as in the case of so many pounds of trust money mixed
with so many pounds of the trustee’s own money, the person by whose act the
confusion took place is still entitled to claim his proper quantity, but subject to the
quantity of the other proprietor being first made good out of the whole mass: 2
Stephen’s Commentaries (13th ed), p 20: Re Oatway [1903] 2 Ch 356 at 359 cited in
Glencore at 329.

This approach was applied in the context of goods by Moore-Bick J in

Glencore v Metro Trading Inc [2001] 1 Lloyd’s Rep 284 at 330:
… when one person wrongfully blends his own oil with oil of a different grade or
specification belonging to another person with the result that a new product is
produced, that new product is owned by them in common. In my view justice also
requires in a case of this kind that the proportions in which the contributors own the
new blend should reflect both the quantity and the value of the oil which each has
contributed.

A similar approach was applied in Re CKE Engineering Ltd (in admin)

[2007] BCC 975 at 982:
It is an established principle that where the chattels of two persons are intermixed by
agreement so that the several portions can no longer be distinguished, the proprietors
have an interest in common in proportion to their respective shares. If there is
 diversity in quality in the intermixed substances the whole should be divided and the
greater allowance made to the owner whose substance is better or finer than that of
the other.

[page 70]

This less punitive approach seems more appropriate today with the
availability of modern and sophisticated methods of measurement. In
years past, corn and hay were to be found in heaps which could not be
measured accurately, and a rough and ready rule may have been the
best that the law could find: Indian Oil at 907.
It may be that, in an extreme case where amounts of contributions
are in doubt, a party may be treated as having made no contribution at
all: Glencore at 331. In such a case, the innocent party will be entitled to
the whole of the mixture. The wrongdoer may also be liable in damages
for any loss suffered by the innocent party: Indian Oil at 906.

ACCESSION, SPECIFICATION AND

INTERMIXTURE COMPARED
4.11 Specification most closely resembles the doctrine of accession.
However, there are differences between the doctrines. Accession exists
where goods belonging to A have been used to improve an existing
chattel belonging to B. The improved chattel (principal plus accessory)
is still the same species of chattel, albeit altered in some way. Accession
therefore necessarily involves two chattels, the principal and the
accessory. Specification, on the other hand, need only involve goods
belonging to A which, when combined with the physical efforts of B,
produce a new good of a different kind, class or species from the
original goods belonging to A.
Specification differs from intermixture. Unlike intermixture, where
the resultant product is simply the goods of A and B combined, in a
case of specification the outcome is a new product altogether and the
ingredients or constituent elements can no longer be separately
identified.
Accession is similar to intermixture in the sense that it involves the
bringing together of things belonging to different people. The
difference lies in the way in which the things belonging to two different
people are brought together. In a case of accession, although the goods
adhere or are attached to each other, they do not ‘mix’ together.

FIXTURES
4.12 In general, the word ‘fixture’ means anything which has
become so attached to land as to form, in law, part of the land. It is
important to know whether a chattel has become a ‘fixture’ for the
reason that if a chattel becomes affixed to the realty, the ownership
(and possession of it) follows the ownership (and possession) of the
realty: Elwes v Brigg Gas Co (1886) 33 Ch D 562. Elwes concerned an
ancient boat, over 2000 years old, which was buried in clay four to six
feet below the surface of land owned by the plaintiff. The defendant
discovered the boat and claimed to be entitled to it as against the
owners of the land. It was held that not only had the boat become a
fixture, having become embedded in the land due to natural causes,
but the owner of the land had a better right.

[page 71]

The point is that because the boat was regarded as a fixture rather than
a chattel, this followed automatically and did not involve a contest as to
which party had the better possessory title.
It can be difficult to determine whether something attached to the
land is or is not a fixture. The decision depends upon the degree of
and reason for the annexation: National Australia Bank Ltd v Blacker
[2000] FCA 1458 at [10].
The classic test is that of Blackburn J in Holland v Hodgson (1872) LR
7 CP 328 at 335:
Perhaps the true rule is, that articles not otherwise attached to the land than by their
own weight are not to be considered as part of the land, unless the circumstances are
such as to shew that they were intended to be part of the land, the onus of shewing
that they were so intended lying on those who assert that they have ceased to be
chattels, and that, on the contrary, an article which is affixed to the land even slightly
is to be considered as part of the land, unless the circumstances are such as to shew
that it was intended all along to continue a chattel, the onus lying on those who
contend that it is a chattel.

On the basis of this test, a chattel which is not attached to the land
other than by its own weight is not a fixture unless the circumstances
are such as to show that they were intended to form part of the land, in
which case the party asserting that the chattel is a fixture bears the
onus: Holland. If a chattel is attached to the land, however slightly, it is a
fixture unless the circumstances are such as to show that they were
intended all along to remain chattels, in which case the onus rests with
the person asserting they remain chattels: Holland.
In considering whether an object attached to the land is intended to
be part of the land, the purpose for the attachment is relevant. In
Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700
at 712, Jordan CJ said:
The question whether a chattel has become a fixture depends upon whether it has
been fixed to land, and if so for what purpose. If a chattel is actually fixed to land to
any extent, by any means other than its own weight, then prima facie it is a fixture …
The test of whether a chattel which has been to some extent fixed to land is a fixture is
whether it has been fixed with the intention that it shall remain in position
permanently or for an indefinite or substantial period … or whether it has been fixed
with the intent that it shall remain in position only for some temporary purpose … In
the former case, it is a fixture, whether it has been fixed for the better enjoyment of
the land or building, or fixed merely to steady the thing itself, for the better use or
enjoyment of the thing fixed … The intention of the person fixing it must be
gathered from the purpose for which and the time during which use in the fixed
position is contemplated …

It has been held, for example, that valuable tapestries nailed to the
walls of a drawing room for display purposes were not fixtures (Leigh v
Taylor [1902] AC 157) whereas seats secured to the floor of a cinema
were (Vaudeville Electric Cinema Ltd v Muriset [1923] 2 Ch 74).
More recent authorities emphasise the need to have regard to all the
relevant circumstances in determining whether a chattel has become a
fixture: NH Dunn Pty Ltd v LM Ericsson Pty Ltd (1979) 2 BPR 9241 at
9246 and Eon Metals NL v Cmr of State Taxation

[page 72]

(WA) (1991) 91 ATC 4841 at 4845. Those circumstances have been said
to include the nature of the chattel, the period of time for which the
chattel was to be in position, the relation and situation of the party
making the annexation vis-à-vis the owner of the freehold or the person
in possession, the mode of annexation, the degree of annexation, and
the purpose for which the chattel was fixed: Eon Metals at 4845; National
Dairies WA Ltd v Cmr of State Revenue [2001] WASCA 112 at [24].
The better view is that the purpose and intention of the annexation
is to be assessed on an objective basis: Shattock v Devlin [1990] 2 NZLR
88; Eon Metals at 4846. The subjective intention of the parties cannot
affect the question of whether, in law, a chattel has become part of the
freehold: Elitestone Ltd v Morris [1997] 1 WLR 687; [1997] 2 All ER 513
at 519. It may, at most and only if proven, form one piece of
circumstantial evidence relevant to the issue.
Where something is categorised as a ‘tenant’s fixture’5 then, as
between lessor and lessee, despite the fact that under the normal rules
as to fixtures the chattels would be considered fixtures, special rules
may apply which permit the chattel to be removed by the tenant:
Elitestone.

_______________
1 For the purposes of the Personal Property Securities Act 2009 (Cth), s 10 provides:
‘accession to other goods means goods that are installed in, or affixed to, the other goods,
unless both the accession and the other goods are required or permitted by the
 regulations to be described by serial number.’
2 For the purposes of the Personal Property Securities Act 2009 (Cth), s 10 provides a non-
exhaustive definition of ‘commingled’, in particular, that ‘goods that are commingled
include goods that are mixed with goods of the same kind.’
3 This is in contrast to specification, which excludes new things coming into being naturally,
for example, the pregnancy of animals or fruit from fruit trees.
4 This case was reversed but on different grounds in De Vries v Rapid Metal Developments (Aust)
Pty Ltd (2011) 84 ACSR 261; [2011] NSWCA 100.
5 There are three kinds of tenant’s fixtures: trade fixtures, ornamental fixtures and
agricultural fixtures.
[page 73]
PART II
Commercial Law
[page 75]
CHAPTER 5
Agency

THE CONCEPT OF AGENCY

PRACTICAL METHODOLOGY

CAPACITY REQUIRED OF PRINCIPAL AND AGENT

Principal
Agent

THE SOURCES OF AN AGENT’S AUTHORITY

ACTUAL AUTHORITY
Actual express authority
Actual implied authority

OSTENSIBLE AUTHORITY
What is ostensible authority?
The elements of ostensible authority
Ostensible agency and forgery
Consequences of finding of ostensible agency

RATIFICATION
Contract must be expressly entered on behalf of principal
Authority to ratify
The act of ratification
Communication of ratification
 [page 76]

Distinguishing ratification by acquiescence and estoppel

Full knowledge of material circumstances by principal
Ratification of the whole
Exceptions to ratification

IMPUTED KNOWLEDGE

CORPORATIONS AND THE DOCTRINE OF ATTRIBUTION

Primary rules of attribution
General rules of attribution
Special rules of attribution

THE DOCTRINE OF UNDISCLOSED PRINCIPAL

How the doctrine applies
Limits on the doctrine

AGENCY BY OPERATION OF LAW

DUTIES OF AGENTS

PRINCIPALS’ DUTIES AND AGENTS’ RIGHTS

Remuneration
Lien
Indemnity

WHERE THERE IS NO AUTHORITY: THE AGENT’S LIABILITY TO

THE THIRD PARTY
When an agent might be personally liable on the contract
Breach of warranty of authority

TERMINATION OF AUTHORITY
TERMINATION BY THE PARTIES
Termination by operation of law

PROVING AGENCY
 [page 77]

THE CONCEPT OF AGENCY

5.1 The concept of agency can involve a wide range of relationships
between the person granting the authority (the principal) and the
person acting pursuant to it (the agent). At its broadest it is said the
relationship of agency will cover any situation where a person (the
agent) consents to act on behalf of another (the principal) pursuant to
a grant of authority by the principal.1 At its strictest, ‘agency’ is used to
describe those relationships where one person has the authority to
create legal relations between the principal and a third party:
International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene
Pastoral Co (1968) 100 CLR 644 at 652; Re Kit Digital Australia Pty Ltd (in
liq) [2014] NSWSC 1547 at [54].2 A third description, of high authority,
falls somewhere in between:
… an agent is a person who is able, by virtue of authority conferred upon him, to
create or affect legal rights and duties as between another person, who is called his
principal, and third parties: Petersen v Moloney (1951) 84 CLR 91 at 94.

This description is particularly helpful because it introduces a

number of essential concepts: that agency is a relationship between an
agent and a principal, that an agent can affect the rights and duties
between the principal and third parties, and that the ability of the
agent so to do depends upon the authority conferred (or deemed)
upon the agent.
The three descriptions above demonstrate the difficulty courts have
had in defining, precisely, the circumstances which give rise to a
relationship of ‘agency’. But it is unproductive to dwell longer on
definitional issues. Agency is an issue better approached by reference to
specific circumstances: was A the agent of P for the purposes of a
particular, identified act? Notwithstanding difficulties of definition,
there is a coherent and ordered body of principle which will answer the
specific, relevant question.

PRACTICAL METHODOLOGY
5.2 An important point of methodology is this: when assessing
whether A was the agent of P, do not ask ‘Was A the agent of P?’; ask
‘Was A the agent of P for the purpose of the particular, identified act?’.
The critical issue will usually be whether A had P’s authority to do the
act. In each case it will be necessary to isolate the particular act in
question and then to determine whether, in respect of that particular
act, the person concerned was acting as agent. As Young J said in Beazley
v Seed & Grain Sales Moree Pty Ltd (1988) 4 BPR 9529 at 9532:
It is never sufficient to say of a person that he is an agent, one must always ask for what
purpose the person concerned was appointed agent and one must always look to

[page 78]

see whether the particular act was being done by the agent as agent or in some other
capacity.

In Beazley, the issue was whether a contract for the sale of land was
enforceable. The court held that although there was a prima facie or
strongly arguable case that a contract had come into existence, the
contract was oral and would only be enforceable if there was a note or
memorandum in writing signed by one of the registered proprietors.3
In that case the agent had written letters to the vendors and purchasers
setting out the agreed terms. It was argued that these documents
constituted a note or memorandum in writing signed by the agent of
the vendors. This argument was rejected on the following grounds:
First, even though the signatory was an agent, he was not
necessarily the agent of the vendor when he signed the document. In
Beazley, Young J held at 9532:
In my view, when an estate agent sends to his principal a note to affirm an
 intending sale and signs it, he does not sign it in his capacity as agent for the
vendor, but rather he signs it on his own behalf as the other party to the
contract of agency. The document, accordingly, was not generated, in my view,
as agent of the vendor.

Second, the agent did not have authority to send to the vendors a
report that a contract had been concluded. In this respect, Young
J held at 9532:
There is no authorisation by either Mr or Mrs Beazley of such a report being
sent to them. The only way one can explain it is that it is part of the normal
process of estate agents to inform their client and their client’s solicitor that a
deal has been done. However, saying this does not show that there has been
some implied or ostensible authority conferred on the agent, it merely shows,
in my view, that the agent has done something in performance of his contract
of agency.

It is worth noting some further examples. In Re Kit Digital Australia

Pty Ltd (in liq) [2014] NSWSC 1547 an arrangement where a company
did work for Telstra but through a company that was on the Telstra
‘preferred supplier panel’ did not make the preferred supplier an
agent for the subcontractor. The court held the arrangement could
equally be characterised as a contractual or non-contractual
arrangement by which one party performed work in the name of
another. In Custom Credit Corp Ltd v Lynch [1993] 2 VR 469, the ‘agent’
received money for introducing a client to a financier. It was held that
that did not, without more, make him the agent of the financier in
respect of what the financier thereafter concluded by way of contract
with the client (at 486); see also Con-Stan Industries of Australia Pty Ltd v
Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; Octapon
Pty Ltd v Esanda Finance Corp Ltd (NSWSC, Cole J, 3 February 1989,
unreported) at 27–8 and Tonto Home Loans Australia Pty Ltd v Tavares
[2011] NSWCA 389. The commission was merely for directing business
in the way of the lender.

[page 79]

Similarly, instructing a land broker to prepare a memorandum of

mortgage was held insufficient to constitute him the agent of the
lender except for that express exercise: Wombat Nominees Pty Ltd v De
Tullio (1990) 98 ALR 307.
In State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986)
7 NSWLR 170 at 194, McHugh J, in dealing with the issue of the
authority of an employee to make pre-contractual representations,
held:
No incongruity exists between a finding that a person has authority to make the
representations concerning the manner in which a general contractual provision will
be enforced and a finding that he has no authority to make, vary or terminate the
contract. One matter deals with the way rights will or have been enforced; the other
with the creation, variation or extinction of legal rights. Significantly, the defendant
put no submissions to the court or led any evidence at the trial as to any lack of
authority on the part of Mr Giles to make the representations.

In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165;
[2004] HCA 52, the High Court considered whether an ‘agent’ for a
corporation had authority to contract on terms that included an
exclusion of liability of the other contracting party. The contract was a
contract of carriage. The court held that the agent had authority to
contract with the carrier and to agree upon rates of freight, terms of
payment and such other standard terms and conditions as were
required by the carrier. These included an exemption clause.
Influential in the court’s decision were the facts that the principal had
left it to the agent to arrange for delivery and storage of the goods,
agree to the rate of freight and make a contract for the principal upon
some terms and conditions and that there was no suggestion of any
limitation being imposed by the principal as to the terms upon which
the agent might agree. Although the High Court allowed the appeal,
Young CJ in Eq in the intermediate court neatly defined the issue at
[77]:
There is always a danger in merely asking the question, ‘Was X the agent for Y?’ As the
High Court made clear in Petersen v Moloney (1951) 84 CLR 91 at 94, the vital question
is ‘Was X the agent of Y to make the contract?’ or as the case may be. In the present
case there is no doubt that [Richard Thomson] was Alphapharm’s agent for some
purposes. However, in my view, the trial judge was correct in his conclusion that it was
not Alphapharm’s agent to contract.

In finding that the agent held the requisite authority, the court said
at [70]:
 As Dixon AJ said in Press v Mathers [1927] VLR 326 at 332 ‘in any ordinary case the
question whether one person authorized another to do an act or series of acts on his
behalf is best answered by considering for whose benefit or in whose interest it was
intended it should be done’. Such a consideration may not be conclusive, but it is a
useful practical starting point.

In many cases, the existence and extent of an agency will be

expressed in a written or oral form. However, in determining the
existence or extent of an agency the court will have regard to all of the
circumstances, including the commercial context of the relationship:
Investec Bank (Aust) Ltd v Colley (2012) 91 ACSR 597; [2012] NSWSC

[page 80]

813 at [220]. The true extent of the agent’s authority may extend
beyond the express grant, while an agent has such authority as to be
inferred from the conduct of the parties and the circumstances of the
case: Cousens v Grayridge [2000] VSCA 96, citing Freeman & Lockyer (a
firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502–3
and Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 560. A written
agreement will be indicative of the intention of the parties, but it is of
itself not conclusive. The question of the scope of an agent’s authority,
which may be beyond or indeed narrower than the written or oral
authority, will ultimately depend upon all of the surrounding
circumstances, although a provision limiting the scope of an agency
must be given its proper weight: South Sydney District Rugby League
Football Club Ltd v News Ltd (2000) 177 ALR 611 at [134].

CAPACITY REQUIRED OF PRINCIPAL AND

AGENT
Principal
5.3 In a relationship of agency, the party conferring on another the
authority to act on their behalf is called ‘the principal’. The party upon
whom the authority to act is conferred is called ‘the agent’. The
principal must have legal capacity to perform the act which they are
performing through an agent (Christie v Permewan, Wright & Co Ltd
(1904) 1 CLR 693 at 700), and whatever a person has capacity to do
themselves they may do by an agent: Bevan v Webb [1901] 2 Ch 59 at 77.
An infant can appoint an agent to do an act on their behalf which
the infant could lawfully do themselves: G(A) v G(T) [1970] 2 QB 643 at
652.
A corporation has the capacity and powers of an individual.4

Agent
5.4 By contrast, an agent does not need contractual capacity to act as
the agent for another: Watkins v Vince (1818) 2 Stark 368. Thus, an
infant can as agent bind a principal,5 although the infant must have
sufficient capacity to understand the nature of the agency and give its
consent to act.6
There are specific situations where agents are required to have
certain qualifications or licences. An obvious example of this is the
restrictions which apply in acting as a solicitor or a real estate agent. If
this occurs, the conduct will be unlawful and the solicitor/agent may
incur a statutory penalty but the agent’s act will not be invalid: Legal
Profession Act 2007 (Qld); Property Agents and Motor Dealers Act
2000 (Qld).

[page 81]

THE SOURCES OF AN AGENT’S

AUTHORITY
5.5 In the context of creating or affecting legal relations, the
principal will only be bound by acts of the agent which are within the
agent’s authority. There are two exceptions to this: first, where the
principal has held the agent out as having such authority (ostensible
authority), and second, where the principal later ratifies those acts.
Ostensible authority and agency are dealt with below, and can be put
aside for present purposes. If the agent performs an act but lacks
authority to do so, then the agent may be liable to the principal for
breach of duty to the principal and to the third party for breach of
warranty of authority. An action for breach of warranty of authority is
an action which may be brought by a third party against a person who
purports to act as an agent, where that person does not have the
authority which, by their actions, they warrant they possess.
There are a number of ways in which authority may be granted and
an agency created:
1. P may expressly grant to A authority to do a particular act;
2. the relationship between P and A may be such that P impliedly
authorises A to do a particular act: actual authority which is
implied (as distinct from express);
3. by operation of law;
4. by operation of statute; or
5. by ratification.
Agency requires the consent, express or implied, of the principal and
of the agent.7

ACTUAL AUTHORITY
Actual express authority
5.6 Actual authority requires the consent of the principal and the
agent. Consent may be express or implied: Poulet Frais Pty Ltd v Silver
Fox Co Pty Ltd (as trustee for the Baler Family Trust) [2005] FCAFC 131 at
[124]. It will usually be reasonably clear whether an agent had actual
authority to do a particular act. Actual express authority may be
conferred in writing or by words. It may take the form of a written or
oral contract, or, for example, a power of attorney or a scribble on a
piece of paper. A director may be authorised to act in certain matters
on behalf of a company by its articles. Authority may comprise a simple
oral instruction. It cannot be inferred from the mere fact a person is a
director that the director has the actual authority of the company:
Dawnlite Pty Ltd v Riverwalk Realty Pty Ltd [2013] QSC 243 at [50].

[page 82]

If an agency has arisen by way of a contract, then the scope of the

agent’s authority will be determined by construing the terms of the
contract. If the agency is created by a power of attorney, the deed will
be strictly construed: Tobin v Broadbent (1947) 75 CLR 378. It may be
the case that a statutory provision describes the authority which the
power of attorney in a prescribed form confers, in which case the
extent of the authority will depend upon the proper construction of
the statute: Spina v Permanent Custodians Ltd (2008) 13 BPR 25,463;
[2008] NSWSC 561 at [108]; Taheri v Vitek [2014] NSWCA 209. In Spina
the relevant statutory provision was held to vest power in the agent to
do anything which the principal could do, the policy behind the
provision being to avoid argument about, or the necessity for inquiry
into, the agent’s authority: at [167]; see also Taheri at [127].
Actual authority may overlap with ostensible authority in the sense
that a principal may be bound as against a third party by the conduct of
his or her agent within the agent’s ostensible authority, even if it
exceeds the agent’s actual authority: Curtis v Perth and Freemantle Bottle
Exchange Co Ltd (1914) 18 CLR 17 at 28; Day v Day [2013] EWCA Civ
280; [2014] Ch 114 at [26]. The general law principles of ostensible
agency have been held to be preserved by legislation governing powers
of attorney: Dimitrovski v Australian Executor Trustees Ltd [2014] NSWCA
68 at [17].
It is prudent when addressing the issue of authority first to ask
whether there is actual, express authority.

Actual implied authority

5.7 Actual implied authority is also founded in the consent of the
principal to the agent acting for them, and the consent of the agent so
to do, but the consents are inferred from the relationship between, or
conduct of, the parties as opposed to express words.
Actual implied authority may arise in a number of ways:
1. Because the act performed by the agent is necessarily or
normally incidental to the acts expressly authorised. This is
sometimes called ‘incidental authority’, although such
definitions are not universal and slavish adherence to them
can cause confusion. In Mullens v Miller (1882) 22 Ch D 194
Bacon VC observed that where an agent was authorised to
lease a property, there would be implied authority to describe
the property to prospective lessees. This can be contrasted
with Fairmede Pty Ltd v Von Pein [2004] ANZ ConvR 382;
[2004] QSC 220 where it was held that an agent authorised to
sell property did not have implied authority to make
representations as to how vendors would respond to requests
for extensions of time under the contract.
2. Because the act is one which the agent of the type concerned
would usually have authority to do. This is sometimes called
‘usual authority’, although the same observations as above
apply. Thus, if A has been employed as managing director of a
company, then A will have implied authority to do all the
things that someone in that position would usually have
authority to do. In the case of a managing

[page 83]

director, usual authority would include employing others to

provide services to the company, guaranteeing loans made to
the subsidiary of the company and agreeing to indemnify
other guarantors (Hely-Hutchinson v Brayhead Ltd [1968] 1 QB
549), borrowing money and giving security over the
company’s property and authorising agents to enter into
contracts on behalf of the company: Crabtree-Vickers Pty Ltd v
Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975)
133 CLR 72. An ordinary director, on the other hand, does
not have implied authority to bind the company: Northside
Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; Re
Haycraft Gold Reduction and Mining Co [1900] 2 Ch 230. An
individual director may be authorised by the company to carry
out formal functions for the company, such as executing a
document on its behalf, but whether the underlying
transaction binds the company depends on whether the
transaction itself was authorised by some person or persons
with the necessary authority.
A real estate agent has implied authority to find a
purchaser, but not to bind the vendor to terms with the
purchaser: Brien v Dwyer (1978) 141 CLR 378 at 387 per
Barwick CJ, 395 per Gibbs J; Petersen v Moloney (1958) 84 CLR
91 at 94–5; Markson v Cutler [2007] NSWSC 1515. A solicitor
has no implied authority to make a contract on behalf of a
client: Nowrani Pty Ltd v Brown [1989] 2 Qd R 582; IVI Pty Ltd v
Baycrown Pty Ltd [2005] QCA 205; Pavlovic v Universal Music
Australia Pty Ltd [2015] NSWCA 313. Moreover, a solicitor has
no authority (absent an express grant, or a grant through a
course of conduct between the parties) to receive on behalf of
a client a revocation of an offer, and the revocation will be
ineffective if so given: Singer v Trustee of the Property of Munro
[1981] 3 All ER 215 at 218; compare Magripilis v Baird [1926]
St R Qd 89 at 91 and 96; Kent v Hogarth [1995] QCA 472;
Wright v Somerton [2004] QSC 231; Tan v Russell [2016] VSC
93. On the other hand, a solicitor instructed to take ‘whatever
steps were necessary to complete the purchase’ was held to
 have actual implied authority to conclude the contract on
behalf of the client: Nguyen v Taylor (1992) 27 NSWLR 48.
Whether A has ‘usual authority’ will depend upon the
nature of the relationship between P and A. Attention must
first be given to characterising the nature of the relationship.
Whether or not that relationship includes ‘usual authority’
will often depend on case law.
3. Because the act is in accordance with reasonable business
practice applicable to the particular transaction (customary
authority). Thus, an agent has implied authority to act in
accordance with the usages and customs of the particular
market or business in which the agent is employed. Sometimes
the rules of a market, for example, the rules of the stock
exchange, are expressly incorporated into the contract made
by the agent with the third party. Before a trade, custom or
usage may form the basis for the implication of terms into a
contract, it must be shown that the usage or customer is
notorious, certain and reasonable: Con-Stan Industries of
Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd
(1986) 160 CLR 226.

[page 84]

That is, it is necessary to identify evidence of usage within the

particular market or area of business which shows a person
who holds such a position customarily holds such an authority.
4. Because of the conduct of the parties and the circumstances
of the case. This will be of particular importance where the
parties have a history of dealings between them. For example,
if a board of directors of a company allows one of its directors
to enter into contracts of a particular type over a period
without seeking the sanction of the board, that may result in a
finding of actual implied authority to enter into a similar
 contract in the future: Hely-Hutchinson.
In Hely-Hutchinson, the Court of Appeal held that, on the facts, actual
authority was to be implied from the conduct of the parties and the
circumstances of the case. Authority was implied from the
circumstances that the board of directors by its conduct had acquiesced
in Richards (the company’s putative agent) acting as its chief executive
and committing the company to contracts without the necessity of
sanction by the board.
The case was followed in Bank of New Zealand v Fiberi Pty Ltd (1992) 8
ACSR 790 at 809,8 where it was held:
The inference that actual authority has been conferred by the conduct of a board of
directors turns upon what the directors have acquiesced in, what they have been
permitting to happen without demur, what the position is as they have allowed it to
be. The inference cannot be drawn from conduct of which they were wholly unaware
and had no reason to suspect or anticipate.

In view of the fact that implied authority can depend upon the
conduct of the principal in acquiescing to a particular course of
conduct by the agent over some time, evidence of such previous
conduct and/or transactions may be relevant to determining the scope
of the implied authority: Cousens v Grayridge [2000] VSCA 96. In that
case, the Victorian Court of Appeal held that evidence relating to
previous mortgage transactions, in which the fraudulent broker had
been involved on behalf of the principal, was relevant in establishing
that the broker had implied authority from the principal to receive the
net proceeds of the final loan for the purpose of applying them to the
investments agreed upon between the principal and the broker. The
fact that the broker did not in fact use the moneys for that purpose was
irrelevant.
Similarly, in EFM Pty Ltd v New Zealand Steel (Australia) Pty Ltd [1998]
VSC 194, the court took into account previous negotiations and
dealings the third party had had with the agent and held that the agent
had implied authority to enter into the particular supply contract in
question. Although the agent probably took advice from his superior
on aspects of proposed agreements, he generally entered into such
contracts without any approval process being first followed. This was
considered not surprising given the agent’s greater depth of knowledge
and experience in the area.

[page 85]

Any authority implied from an actual authority must not be

inconsistent with the substantial character of the agency, for example,
an implied authority arising from an actual authority to sell must not be
inconsistent with the substance of the transaction that the person
concerned has been engaged to facilitate, negotiate or effect: Marriott v
General Electric Co Ltd (1935) 53 CLR 409; Smith v Peter and Diana
Hubbard Pty Ltd [2006] NSWCA 109 at [71]. In Smith at [71] it was held
that the substantial character of the agency, namely to transact the sale
through a particular entity, was at variance with a direction to make a
payment to an entity the name of which bore no relationship to that of
the vendor or to the nominated entity and who in fact had no such
relationship. In Marriott the agent was held not to have implied
authority to add a term to a contract which gave equal representation
on the board to the contracting parties when the substance of the
agreement was that the principal was to acquire 51% of the issued share
capital of the company. The actual authority had been to ‘sign and
complete’ on the principal’s behalf ‘such documents as may be
necessary to complete’ the agreement. In considering the extent of the
agent’s authority, the court said at 418:
The agency was special and not general. To bind the respondent company the
transaction must fall within the ambit of the authority even though that ambit is
ascertained by reference to the construction placed upon the authority by the
appellant. The authority thus construed might enable the inclusion in the document
of additional terms which extended or amplified the operation of the agreement they
were intended to effectuate; but it could not allow the introduction of provisions at
variance with the substantial character of that agreement.

Actual implied authority in an agent to enter a particular transaction

cannot exist where there are express directions from the principal to
the agent to the contrary: Fray v Voules (1859) 1 El & El 839. However,
this does not preclude implied authority being established due to a
course of dealing where initially the principal expressly forbade the
agent from performing the particular task. If, for example, the
principal in such circumstances nonetheless adopts the transaction and
gives effect to it then, in the absence of contrary evidence, it may be
inferred that the agent was impliedly authorised to perform similar type
tasks in the future: Powercor Australia Ltd v Pacific Power [1999] VSC 110
at [1274]. If the principal has given instructions to the agent which
prevent the implication being made, then the principal will not be
bound by the acts of the agent under this head of authority, although
there may still be a case of ostensible authority: Waugh v HB Clifford &
Sons Ltd [1982] 1 Ch 374. For example, a solicitor or barrister may in a
particular case have ostensible authority vis-à-vis the opposing litigant to
compromise an action where he or she has no implied authority vis à
vis his or her own client: Waugh at 387. The distinction between the two
types of authority needs to be properly understood.

[page 86]

OSTENSIBLE AUTHORITY
What is ostensible authority?
5.8 Ostensible authority is different from actual authority. It does not
result directly from the consent of the principal, express or implied, to
the agent, but from the words or conduct of the principal towards a
third party. It involves the principal intentionally or negligently holding
out (or representing) another to be its agent. The words or conduct of
the principal lead a third party to believe that the ‘agent’ is authorised
when, in reality, the agent has no authority at all or the agent has
exceeded its authority. Where the third party acts to his or her
detriment in reliance upon the holding out, the principal will be
bound notwithstanding the fact that the ‘agent’ had no actual authority
to perform the act.
 Thus, ostensible authority arises where a person represents to a third
party by words or conduct that another is their agent: Freeman & Lockyer
(a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503;
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co
Pty Ltd (1975) 133 CLR 72 at 78; Di Bello v De Costi Seafoods (Holdings) Pty
Ltd [2005] NSWCA 267 at [24]–[25]. The representation may be made
‘by conduct, that is, by permitting the agent to act in some way in the
conduct of the principal’s business with other persons’: Freeman &
Lockyer at 503 per Diplock LJ. The precise scope of the authority
extended to particular categories of agents, for example, directors and
partners, is dealt with in legislation. Usually, the specific legislative
provisions embody the common law concepts. For example, under
partnership legislation, which is relatively uniform in all states and
territories, a partner has ostensible authority to act as agent for the
other partners but only with respect to conducting business of the kind
usually carried on by the partnership: Lederberger and Scheiner v
Mediterranean Olives Financial Pty Ltd [2012] VSCA 262 at [41]; Crouch
and Lyndon (a firm) v IPG Finance Australia Pty Ltd [2013] QCA 220.
The extent of ostensible authority will depend upon the width of the
representation made: for example, holding someone out to be your
solicitor in a particular matter amounts to no more than a
representation that the solicitor has from the client all the authority
that is ordinarily to be implied in favour of a solicitor acting under a
retainer in such a matter: Nowrani Pty Ltd v Brown [1989] 2 Qd R 582.
Similarly, holding out someone as practice manager or mediator does
not carry with it any ostensible authority to give legal advice, undertake
conveyancing matters or establish corporations and trusts: Taylor v
Gould [2011] QSC 203 at [34]. In Rosecell Pty Ltd v JP Haines Plumbing
Pty Ltd [2015] NSWSC 1238 the court held that the alleged
representation, that the principal was an entity jointly owned and
operated by Mr Doughty and Mr Abboud (the alleged agent), went no
further than that Mr Abboud had authority to act in the ordinary
course of the business carried on by him and Mr Doughty. It did not
justify the assumption that Mr Abboud alone had authority to sell: at
[49]. The same applied to representations made by leaving Mr Abboud
in possession of the premises and giving him access to the records of
the principal: at [50].

[page 87]

If the agent knows of an actual limitation of authority in the agent,

there can be no ostensible authority because the third party will not
have relied upon the representation: Hely-Hutchinson v Brayhead Ltd
[1968] 1 QB 549 at 559 and 567–8. It has been held that this principle
may not be strictly applied where, in view of the principal’s conduct as a
whole in the particular circumstances, it would be inequitable to allow a
principal to resile from a holding out: Flexirent Capital Pty Ltd v EBS
Consulting Pty Ltd (2007) 14 ANZ Ins Cas 61-732; [2007] VSC 158 at
[203].
The principle underlying ostensible authority is estoppel: Freeman &
Lockyer at 503; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451.
The purpose of the ostensible agency concept is to remedy the injustice
that would flow if one person who represented another to be his or her
agent were able to resile from that representation: Pacific Carriers at
[39]–[40].9 Another rationale for the concept of ostensible agency is
that contracting parties should be held to the objective appearances of
intention they create: Reynolds, ‘The Ultimate Apparent Authority’
(1994) 110 LQR 21 at 22.
It sometimes occurs that the principal has, with some precision,
defined with the agent the extent of that which the agent has authority
to do. The principal may have gone so far as to prohibit expressly a
particular action by the agent. This will not, however, stand in the way
of ostensible authority. It is not relevant that the extent of the authority
represented to the third party conflicts with an actual limitation of
authority placed upon the agent where the principal knows that the
agent was acting as though their authority was unlimited: International
Paper Co v Spicer (1906) 4 CLR 739 at 750.10 Further, if an agent has
been placed by their principal in a position where their ostensible
authority exceeds their real authority, the principal is not entitled to be
relieved against any contract entered into merely upon the grounds
that they had previously instructed their agent not to enter into a
contract except under certain circumstances, these circumstances not
being known to the other party: Bowman v Bacon (1897) 18 LR (NSW)
12.
If a particular act is within the usual authority of a person occupying
a particular position, then the public is entitled to assume that that
person has authority to do all that is usually authorised,
notwithstanding that it might conflict with private instructions given to
the agent by the principal: Robinson v Tyson (1888) 9 LR (NSW) 297.
If a transaction is within the ostensible authority of the agent then it
is irrelevant that the agent’s purpose was to act for their own benefit
and to defraud the principal, unless the third party had notice: Tobin v
Broadbent (1947) 75 CLR 378 per Dixon J at 401. If the third party can
be taken to be aware that the agent acted for their own benefit, then
the conduct of the agent will not bind the principal: Combulk Pty Ltd v
TNT Management Pty

[page 88]

Ltd (1993) 41 FCR 59; 113 ALR 214; Lysaght Bros & Co Ltd v Falk (1905)
2 CLR 421. On the other hand, an innocent third party may hold an
employer bound by the fraudulent act of a servant or agent, even
though committed solely for the servant’s benefit: Lloyd v Grace, Smith
& Co [1912] AC 716; Kooragang Investment Pty Ltd v Richardson & Wrench
Ltd [1981] 2 NSWLR 1 at 5.
This form of authority can be difficult at times to distinguish from
actual implied authority, particularly where the basis of the
representation alleged is the conduct of the principal in acquiescing to
a particular course of dealing by the ‘agent’: Hely-Hutchinson; Freeman &
Lockyer.

The elements of ostensible authority

5.9 The following are the essential elements of ostensible authority:
1. a representation by the principal to the third party that the
agent has the principal’s authority to do a certain act;
2. reliance upon that representation by the third party; and
3. detriment suffered by the third party as a consequence of such
reliance.

Element one: representation by the principal

5.10 Issues that commonly arise when considering a representation
by the principal to a third party that an agent has the authority of the
principal to do a certain act include:
the manner in which the representation is made;
what conduct can constitute a representation of authority;
who can make the representation; and
to whom the representation must be made.

The manner in which the representation can be made

5.11 The representation can be made by words or conduct. The
question to be addressed is: did the principal represent, one way or
another, to the third party, that the agent had authority to do what they
did? The representation may be made in many different ways: by the
principal appointing the agent to a particular position known to the
third party, or describing the agent in a particular way (for example,
appointing and describing them as ‘chief executive officer’). It may be
made by a course of dealings between a third party and a principal. For
example, a development company over time sells a number of
residential lots to a particular purchaser, each time executing the
contract as vendor by the signature of Mr Smith, a director of the
company. The development company could not, after a number of
contracts, argue the single director had no authority to bind the
company, because by its conduct it has represented that Mr Smith
alone as a director had such authority. The representation may also be
made
 [page 89]

by the principal standing by mute while someone deals with a third

party, apparently on behalf of the principal.
Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd
[1964] 2 QB 480 is a useful example. One of the directors of the
company (Kapoor) had acted as managing director with the knowledge
of the board of directors, despite never having been formally appointed
to the position. Kapoor, as opposed to the board, engaged a firm of
architects to help apply for planning permission to develop an estate
owned by the company and to do other related work. The architects
did the work and then claimed their fees. The company refused to pay,
claiming that the director was not authorised to enter into the
arrangement with the architects.
The case is explained by Mason CJ in Northside Developments Pty Ltd v
Registrar-General (1990) 170 CLR 146 at 159:
The company was a property company and the act of engaging architects fell within
the ordinary scope of the authority of such a managing director so that the plaintiffs
were under no necessity of inquiring whether the person with whom they were dealing
was properly appointed or was authorized to enter into the contract; it was enough
that the directors had allowed him to act as managing director, there being power
under the articles to appoint him to that position and power to delegate to a
managing director all the powers of the board of directors. By permitting Kapoor to
act as the managing director, the board had effectively represented that he had
authority to enter into contracts of a kind which a managing director would in the
normal course be authorized to enter into on behalf of the company. The company
would not have been bound had the contract not been one of that kind. In that event
there would not have been a representation by the company that Kapoor had
authority to enter into the contract.

A representation of ostensible authority will often flow from the

principal equipping an officer with a certain title, status and facilities.
In Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, the charterer
of a ship suffered loss when sued by the financiers of the purchaser of
goods because delivery of the goods had been delayed. The charterer
sought indemnity from the seller of the goods and the seller’s bank,
both of which (the charterer contended) had executed an indemnity in
the charterer’s favour. The seller was undoubtedly liable, but the
banker argued that, upon the proper construction of the document
relied upon, it had not granted an indemnity (merely witnessed the
seller’s signature) and that, in any event, the officer who executed the
document had no authority to bind the bank to an indemnity.
The court held that on the proper construction of the document the
bank had granted an indemnity. The issue then became whether the
officer who had executed the document and affixed the bank’s stamp
had authority to bind the bank to an indemnity. It was not contested
that the officer lacked actual authority, but the charterer argued there
was ostensible authority. The court accepted that contention. The court
regarded as important the fact that the officer had affixed the stamp of
the bank, that she had

[page 90]

signed the document, that the bank permitted the officer to sign and
stamp documents in an unqualified form (that is, not qualifying the
bank’s execution as a verification of the seller’s signature only), and
that there was nothing in the public documents of the bank
inconsistent with the possibility that the officer might have had actual
authority to bind the bank. The court held at [38]:
A kind of representation that often arises in business dealings is one which flows from
equipping an officer of a company with a certain title, status and facilities. In Crabtree-
Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd, for example,
the court spoke of the representation that might flow from supplying a particular
person with ‘a blank order form, thus arming him with a document which, when he
signed it, would bear the hallmark of authenticity’ [(1975) 133 CLR 72 at 80]. The
reference to corporate administrative procedures under which an officer is armed
with a document to which he or she can, by signature, impart an appearance of
authenticity is a reminder of the wider principle of estoppel which may be relevant to
a question of ostensible authority [Northside Developments at 200 per Dawson J, 212 per
Gaudron J]. The holding out might result from permitting a person to act in a certain
manner without taking proper safeguards against misrepresentation.

Further, the court said at [36]:

Where an officer is held out by a company as having authority, and the third party
relies on that apparent authority, and there is nothing in the company’s constitution
to the contrary, the company is bound by its representation of authority. ‘The
 representation, when acted upon by the contractor by entering into a contract with
the agent, operates as an estoppel, preventing the principal from asserting that he is
not bound by the contract’ [Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd
[1964] 2 QB 480 at 503 per Diplock LJ]. It is not enough that the representation
should come from the officer alone. Whether the representation is general, or related
specifically to the particular transaction, it must come from the principal, the
company [Northside Developments at 187 per Brennan J]. That does not mean that the
conduct of the officer is irrelevant to the representation, but the company’s conduct
must be the source of the representation. In many cases the representational conduct
commonly takes the form of the setting up of an organisational structure consistent
with the company’s constitution. That structure presents to outsiders a complex of
appearances as to authority. The assurance with which outsiders deal with a company
is more often than not based, not upon inquiry, or positive statement, but upon an
assumption that company officers have the authority that people in their respective
positions would ordinarily be expected to have. In the ordinary case, however, it is
necessary, in order to decide whether there has been a holding out by a principal, to
consider the principal’s conduct as a whole [Egyptian International Foreign Trade Co v
Soplex Wholesale Supplies Ltd (The ‘Raffaella’) [1985] 2 Lloyd’s Rep 36 at 41 per Browne-
Wilkinson LJ].

The representation itself must be fairly narrowly focused; that is, the
representation must be directed to a particular person or a particular
class of people: Leipner v McLean (1909) 8 CLR 307 at 315.

[page 91]

What conduct can constitute a representation of authority?

5.12 A representation made directly to the third party constitutes
evidence of actual authority: International Paper Co v Spicer (1906) 4 CLR
739 at 747.11 It may also form the basis for a representation as to
ostensible authority. If the communication of authority is not made
directly to the third party, then the issues are whether the principal so
conducted themselves as to enable the ‘agent’ to hold itself out to be
the principal’s agent for the purpose, for example, of entering into a
particular contract and whether the third party, in dealing with the
‘agent’, believed them to be so authorised: International Paper at 747.
In Bowstead and Reynolds on Agency it is stated that:
[T]he representation seems to occur in three main ways. It may be express (whether
orally or in writing); or implied from a course of dealing; or it may be made ‘by
 permitting the agent to act in some way in the conduct of the principal’s business with
other persons’.12

There are many different ways in which it might be argued a

principal has made a representation of authority in respect of another.
Some of the grounds more commonly argued are discussed below.

Entrusting indicia of title to an ‘agent’

5.13 The mere entrusting of indicia of title to land to a person for
safekeeping does not of itself create any ostensible authority to dispose
of or mortgage the land; nor does it prevent the true owner from
denying the supposed agent’s authority to do so: Daniell v Paradiso
(1991) 55 SASR 359 at 363 per King CJ. In that case, King CJ relied on
the principle set out by Lord Herschell LC in Brocklesby v Temperance
Permanent Building Society [1895] AC 173 at 180:
There can be no doubt that the mere possession of deeds of title, although that
possession has been lawfully acquired from the real owner of them, will not of itself
validate a security given by the person to whom the possession of the deeds has been
committed where there was no authority given to him to use the deeds as security.
That is old law, and was distinctly laid down in the case of Martinez v Cooper [(1826) 2
Russ 198; 38 ER 309]. It is only if there has been on the part of the person who trusts
the other with the deeds either fraud, or, as it has been sometimes said, such
negligence as to be evidence of fraud, that the permitted possession of the deeds of
another will validate a security given without the authority of the owner of the deeds.

In Egan v Ross (1928) 29 SR (NSW) 382, it was held that the principal
had been negligent in giving signed memoranda in blank to his agent,
who then completed them by inserting the name of a purchaser to
whom the principal had stated he would not sell. The principal was
held to have clothed the agent with ostensible authority such that the
purchaser was justified in treating the agent as having a general
authority to find a buyer

[page 92]

within the terms of the memorandum and the principal was therefore
estopped from setting up any special instruction given to the agent that
a particular person’s name was not to be inserted as purchaser. This
authority did not, however, extend to receipt of the deposit, which does
not come within the implied authority of an agent, and the purchaser
was therefore bound to pay the full purchase price without deduction
of the deposit.
In Essington Investments Pty Ltd v Regency Property Pty Ltd [2004]
NSWCA 375, a case involving arming the agent not with the indicia of
title but instead with the indicia of contractual intention (a Heads of
Agreement signed by one party but on condition it not be released to
the other side), the court said:
… in my opinion the principle in these cases is that the principal has created a
substantial risk that other persons may be misled if the person entrusted with the
relevant document does something unauthorised with that document. If the principal
has acted unreasonably in creating the risk and/or allowing it to continue, then it may
be found that the principal has ‘permitted’ a representation to be made on the basis
of the document in question: at [46].

In Essington an independent property consultant, Mr Drummond,

took on the role of intermediary between Regency (purchaser) and
Essington (vendor). Mr Drummond took a document that had been
through a number of drafts to Regency and asked them to sign it so as
to demonstrate they were interested in continuing negotiations.
Regency signed it but on the basis it was not to be forwarded to
Essington, only shown to it. Mr Drummond told a director of Essington
that he had the signed document but could not release it. A few days
later he faxed it through to Essington without a covering letter,
whereupon it was signed by the Essington director and returned to Mr
Drummond. Essington maintained that there was a concluded
agreement on the basis that Mr Drummond had actual and ostensible
authority. It failed on both grounds. In relation to ostensible agency,
the court said:
1. Essington knew Mr Drummond had a limitation on his authority (not being able
to release the agreement) and that if, without enquiry, they relied upon him
having authority to do that which they knew he needed authority to do, they did
so at their peril. The subsequent fax of the relevant agreement was a
representation by Mr Drummond, not the principal and could not be relied upon
as a basis for assuming he had been given authority to release it.
2. The principal, Regency, had not made a representation by silence by arming Mr
 Drummond with the document and failing to take steps to prevent him from
using it, in such a way as to amount to a representation that the document could
be released with contractual effect. The fact that the document forwarded to
Essington was a facsimile copy as opposed to the original was a significant factor
as to why the argument failed.
In considering the effect of arming an agent with a copy as opposed
to an original, Hodgson JA said at [53]:
In my opinion, the risk that an original will be misused so as to mislead third parties is
a substantial risk, and is a risk which in many cases would be an unreasonable risk

[page 93]

that could give rise to a finding that this misuse amounted to a representation
permitted by the signer of the document. However, the risk that a copy would be
misused so as to mislead other people is a much lesser risk, because the possession
and use of mere copies does not suggest authority in the same way as does possession
and use of originals, and copies are very readily made, and made available, to various
people, and they are also readily falsified.

In Quikfund (Australia) Pty Ltd v Chatswood Appliance Spare Parts Pty Ltd
[2013] NSWSC 646 the fact that Ms Seifor was given a blank rental
form did not amount to a representation by the principal that she had
authority to make representations on its behalf. As the court said, ‘the
very form of the … rental agreement was that of an offer directed to
[the principal] that it could choose either to accept or reject. It also
expressly contained provisions about ownership of the rented
equipment that contradicted the alleged representation’: at [21].
Similarly, giving a person possession of a finance company’s forms and
the ability to fill in essential figures did not mean that person was an
agent to receive a deposit on behalf of the finance company: Branwhite
v Worcester Works Finance Ltd [1969] 1 AC 552 at 557–78; see also Hays
International College Pty Ltd and Joshua Cheng v Quikfund (Australia) Pty
Ltd [2014] NSWSC 869.

Possession of property for the purposes of sale

5.14 Ostensible authority also arises in the context of determining
whether a third party who purchases goods in good faith from an
‘agent’ should get good title notwithstanding that the ‘agent’ lacked
express authority from the owner to sell the property to the third party.
It is settled that mere possession of the property of another, without
authority to deal with the thing in question otherwise than to keep it in
safe custody, will not, in the event of a sale or pledge to a third party,
divest the owner of his rights as against the third party: Johnson v Credit
Lyonnais Co (1877) 3 CPD 32. It is different, however, if the property is
held for the purposes of sale: Motor Finance and Trading Co Ltd v Brown
[1928] SASR 153. In that case, the owner was precluded from denying
the ‘agent’s’ authority to sell. The ‘agent’ had been permitted to hold
the relevant vehicle, to all outward appearance, as an item of their
stock-in-trade for sale in the normal course of their business. The
‘agent’s’ possession of the car was a representation to any and everyone
entering their showrooms that they had authority to sell it. This
representation was made with the owner’s approval, the third-party
buyer acted upon it and the owner could not be allowed to deny the
‘agent’s’ authority. There are provisions in the Sale of Goods legislation
throughout Australia which provide for exceptions to the nemo dat
principle (see Chapter 8 at 8.22) and which permit a third party in
certain circumstances to obtain good title from a person who was not
authorised to sell. The concepts of ostensible authority and ostensible
ownership form the basis of some of those exceptions.

Occupancy of a particular position

5.15 If a person holds a position which would usually entitle him or
her to do certain acts on behalf of the principal, the third party is
entitled to assume that that person had

[page 94]

that authority: Robinson v Tyson (1888) 9 LR (NSW) 297. In that case, it

was held that the position of station manager did not give authority to
sell cattle. There must be direct evidence that the agent was employed
in a particular position. Indirect evidence in the form of a business card
and letterhead, while capable of giving rise to an inference, may not be
sufficient. Whether those documents amount to a holding out by a
principal that a person has ostensible authority is a different issue:
Taylor v Gould at [18].
The principle upon which this type of ostensible authority rests was
stated by Diplock LJ in Freeman & Lockyer (a firm) v Buckhurst Park
Properties (Mangal) Ltd [1964] 2 QB 480 at 503:
The representation which creates ‘apparent authority’ may take a variety of forms of
which the commonest is representation by conduct, that is, by permitting the agent to
act in some way in the conduct of the principal’s business with other persons. By
doing so the principal represents to anyone who becomes aware that the agent is so
acting that the agent has authority to enter on behalf of the principal into contracts
with other persons of the kind which an agent so acting in the conduct of his
principal’s business has usually ‘actual’ authority to enter into.

If the representation by the principal consists solely of the fact that

the principal has appointed the agent to a particular office (for
example, ‘managing director’ or ‘secretary’) then the only
representation which the third party can reasonably rely upon is the
representation that that person has the powers normally or usually
enjoyed by a managing director or secretary, as the case may be.
Therefore, in such a case, the only relevant inquiry is as to the powers
normally enjoyed by a person occupying that office, in general. In
British Bank of the Middle East v Sun Life Assurance of Canada (UK) Ltd
[1983] 2 Lloyd’s Rep 9, the only representation by the principal was to
invest someone with the title ‘Branch Manager’, which enabled that
person to describe himself as such in correspondence relied upon by
the third party. This, it was held, did not give the branch manager
authority (actual or ostensible) to represent that another, more junior,
employee had authority to make certain undertakings on behalf of
their employer.
If the holding out is alleged to consist of a course of conduct wider
than merely describing the agent as holding a particular office,
although the authority normally found in the holder of such an office is
very material, it must be looked at as part and parcel of the whole
course of the principal’s conduct in order to decide whether the
totality of the principal’s actions constitutes a holding out of the agent
as possessing the necessary authority: Egyptian International Foreign Trade
Co v Soplex Wholesale Supplies Ltd (The ‘Raffaella’) [1985] 2 Lloyd’s Rep 36
at 41 per Browne-Wilkinson LJ. In that case, the documentary credit
manager of a bank signed a letter of guarantee on his own. This was
held to fall within the agent’s ostensible authority. This was so because
of not only the agent’s position (which on its own may not have been
conclusive) but also the facts that the bank undertaking was not
unusual provided the bank had security from its customer, the
undertaking was given at the bank’s premises after discussions spread
over three days, it was signed in the presence of the third party, the
bank’s stamp was affixed and there was no way in which the third party
could know whether the agent was authorised: at 42.

[page 95]

Within the ordinary scope of business or custom of the particular agent

5.16 If it can be shown that it is customary for an agent to do certain
things within the ordinary course of his or her business then this will
provide the foundation for the agent’s ostensible authority. The court
is entitled to take judicial notice of the particular category of agent’s
practice: London Joint Stock Bank v Simmons [1892] AC 201. In Tobin v
Broadbent (1947) 75 CLR 378 at 406–7, Dixon J held:
If it is in the ordinary course of such an agent’s business to sell in his own name goods
entrusted to him by clients, then a sale of the goods in his possession will bind his
principal whether actually authorised or not. But an unauthorised pledge or mortgage
by him will not bind his principal, unless to pledge or mortgage goods of his clients in
his possession is also within the ordinary course of his business.
We have no ground for holding that it is within the recognised scope of a
sharebroker’s business in Australia to raise money in his own name by mortgaging or
pledging his client’s interests in securities in his hands.

Provision in articles authorising delegation of a power to an officer

acting on behalf of the company
5.17 Whether a third person dealing with a company could rely on a
provision in the company’s articles of association which authorised
delegation of a power to the relevant officer acting on behalf of the
company when the third party was unaware of the provision was
historically a matter of controversy: Northside Developments Pty Ltd v
Registrar- General (1990) 170 CLR 146 at 158. Since then, Slade J in
Rama Corp Ltd v Proved Tin & General Investments Ltd [1952] 2 QB 147
held that a person who has no knowledge of the company’s articles
cannot rely on them as conferring ostensible authority on the agent of
the company with whom he dealt. Subsequently, however, in Freeman &
Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
the Court of Appeal qualified this by holding that the proposition only
applies where the contract sought to be enforced is not a contract of a
kind which a person occupying the position which the agent was
permitted to occupy would normally be authorised to enter into on
behalf of the company.
Consequently, it was held in Freeman & Lockyer that a director who
had acted as though he was managing director with the concurrence of
the company, but who had not been officially appointed, was able to
bind the company in a transaction which fell within the ordinary scope
of the authority of such a managing director. Because the contract was
within the scope, there was no need for the third party to have had
knowledge of the particular provision in the articles which permitted
delegation to the managing director.

Permitting business card to be used

5.18 In Prospect Industries v Anscor Pty Ltd [2003] QSC 296, the only
holding out relied upon at trial consisted in the principal’s conduct in
permitting the ‘agent’ to use pre-printed business cards which
identified the ‘agent’ as an authorised representative of the principal. It
was argued that the fact that the principal was described as a

[page 96]

‘financial planner’ meant that this constituted a holding out of the

‘agent’s’ authority to deal with financial planning matters. The card was
held not to constitute a holding out as the third party understood that
the ‘agent’ was not there on behalf of the company named on the card.
The card had been supplied because it contained the agent’s contact
details and the third party had in fact handwritten a different company
name on the card. In Taylor v Gould a business card was stapled to a
folder which contained the relevant signed contract, which, the court
said, indicated the business card was not relied upon before the
contract was signed and was therefore not relevant to the plaintiff’s
holding out case: at [24].
Access to departmental office stationery by an administrative officer
(as opposed to someone, for example, who had been provided access in
addition to a certain title, status and facilities by a commercial
employer) was an insufficient basis for a finding of ostensible authority:
Harvey v State of New South Wales [2006] NSWSC 1436 at [176].

Previous course of dealings

5.19 In order to establish ostensible authority on the strength of the
previous conduct of the agent in matters of the same kind, it must be
shown that what the agent did on previous occasions was done with the
knowledge of the principal: Robinson v Tyson (1888) 9 LR (NSW) 297 at
305. It is also essential for the third party to show when seeking to bind
the principal by these previous actions that they knew that the agent
had been acting in the same way before and entered into the relevant
contract on the strength of that conduct: Robinson at 304–5; Learn &
Play (Rhodes No 1) Pty Ltd (as trustee for Rhodes 1 Childcare Centre Unit
Trust) v Lombe [2011] NSWSC 1506 at [11].

Who can make the representation?

5.20 The representation must be made by the principal or by
someone expressly authorised by the principal: Freeman & Lockyer (a
firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 per
Diplock LJ; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at
[36]; Perpetual Trustees Australia Ltd v Schmidt [2010] VSC 67 at [135]. In
Quikfund (Australia) Pty Ltd v Prosperity Group International Pty Ltd (in liq)
[2013] FCAFC 5 the court said at [79]:
 It is clear … that assertions made by the alleged agent that he or she is acting for the
alleged principal can never by themselves prove the existence of the alleged agency.
More is required. There must be some conduct on the part of the alleged principal
from which the relationship of agency can be inferred and which breathes life into the
assertions of the alleged agent.

It is often said that the relevant representation cannot be made by

the agent, and strictly speaking that is so. But there are some
circumstances where the agent does make a representation to the effect
that they have the necessary authority and the doctrine is held to apply.
Here, the relevant representation is not constituted by the words of the
agent but by the conduct of the principal in putting the agent in a
position from which it can be inferred that the actual representation of
authority in the agent is in fact correct.

[page 97]

This was referred to as ‘assisted representation’ by the High Court in

Tobin v Broadbent (1947) 75 CLR 378 at 387. There it was argued that
the third party assumed the broker was authorised to pledge shares
owned by somebody else. This assumption was induced, it was argued,
by conduct of the owners in allowing the broker to have possession of
the share certificate which in addition bore signed indorsed transfers of
shares in blank. The broker had signed the transfers as attorney for the
owners and the words ‘power of attorney noted’, certified by the
company, had been written on the transfers. The High Court held that
this did not amount to ostensible authority. Persons like the third party
take the risk of the person in possession of personal property having
authority to enter into the dealing.13
As Latham CJ said at 388: ‘A contrary view would place all owners of
personal property at the mercy of their servants or bailees.’ The fact
that the broker had signed the owners’ names by virtue of a power of
attorney showed only that the broker represented himself as having
authority to sign for them. The circumstances were quite consistent
with the shares having been sold to a person or in succession to several
persons who did not choose to become registered as shareholders.
Therefore, it was held, there was no question of ostensible authority.
The claim that the broker had actual authority under the wide wording
of the power of attorney also failed, as did the argument that the
broker in fact had authority bestowed upon him due to a course of
dealing that existed between him and the owners of the shares.
Furthermore, the third party had notice of the actual authority of the
broker by virtue of the power of attorney, which meant that the third
party could not sensibly argue its case on the basis of ostensible
authority: per Starke J at 398.
The principle that as a general rule, agents cannot authorise
themselves by making a representation to the third party that the agent
has the requisite authority is based on the rejection of the idea of the
self-authorising agent: First Energy (UK) Ltd v Hungarian International
Bank Ltd [1993] 2 Lloyd’s Rep 194 at 201. ‘What the agent says may
constitute a warranty of authority, but that avails against the agent
only’: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising &
Addressing Co Pty Ltd [1975] VR 607 at 615. If, however, the managing
director was aware of the agent’s representations, a finding that the
company held the agent out as having authority would be open on the
basis that the managing director had the right to control the making of
such representations by agents of the company: Crabtree-Vickers Pty Ltd v
Australian Direct Mail Advertising & Addressing Co Pty Ltd [1975] VR 607
at 615.
Thus, if the principal has expressly or impliedly authorised the agent
to hold himself or herself out or represent himself or herself as having
authority when in fact there is no authority, then that representation
will be binding on the principal: Armagas Ltd v Mundogas SA [1986] 1
AC 717 at 749; Flexirent Capital Pty Ltd v EBS Consulting Pty Ltd (2007) 14
ANZ Ins Cas 61-732; [2007] VSC 158 at [203]. In such circumstances
the agent has authority

[page 98]

to make representations regarding their authority to enter into a

transaction. This issue was discussed at some length by Browne-
Wilkinson LJ in Egyptian International Foreign Trade Co v Soplex Wholesale
Supplies Ltd (The ‘Raffaella’) [1985] 2 Lloyd’s Rep 36 at 42–3:
Mr Stamler submitted that a principal cannot be held liable as a result of the agent
holding himself out as possessing an authority he does not in fact possess: he relied on
remarks to that effect in the Freeman & Lockyer case at p 505, Attorney General for Ceylon
v Silva [1953] 1 Lloyd’s Rep 563; [1953] AC 461 at pp 571 and 479; The British Bank of
The Middle East case (sup) and Armagas Ltd v Mundogas SA [1985] 1 Lloyd’s Rep 1. As
at present advised, I am not satisfied that the principle to be derived from those cases
is as wide as Mr Stamler suggests: they were all cases or dicta dealing with the position
where the agent had neither authority to enter into the transaction nor authority to
make representations on behalf of the principal. It is obviously correct that an agent
who has no actual or apparent authority either (a) to enter into a transaction or (b) to
make representations as to the transaction cannot hold himself out as having
authority to enter into the transaction so as to effect the principal’s position. But,
suppose a company confers actual or apparent authority on X to make
representations and X erroneously represents to a third party that Y has authority to
enter into a transaction; why should not such a representation be relied upon as part
of the holding out of Y by the company? By parity of reasoning, if a company confers
actual or apparent authority on A to make representations on the company’s behalf
but no actual authority on A to enter into the specific transaction, why should a
representation made by A as to his authority not be capable of being relied on as one
of the acts of holding out? There is substantial authority that it can be: see British
Thomson-Houston Co Ltd v Federated European Bank Ltd [1932] 2 KB 176, especially at p
182 (where the only holding out was an erroneous representation by the agent that he
was managing director); and the Freeman & Lockyer case per Lord Justice Pearson at p
499; Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 per Lord Denning MR at p 593
A–D.

In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising &

Addressing Co Pty Ltd (1975) 133 CLR 72 at 78, the High Court held
that, although in the circumstances the representation or holding out
that the signatory to the relevant contract had actual authority could
not be made merely by that signatory himself, the court accepted that
where the agent has made a representation of authority it may be that
the representation can in effect be treated as a representation by the
principal on the basis that, as a result of the principal’s conduct, the
agent’s representation appears correct. The court held in this respect:
There are circumstances where the actual representation of authority may be made by
the agent but in such cases it will be found that the relevant representation is made by
the principal (or by the person to whom the principal has given actual authority)
either by a previous course of dealing or by putting the agent in a position or by
allowing him to act in a position from which it can be inferred that his actual
 representation of authority in himself is in fact correct. It is therefore always necessary
to look at the conduct of the principal (or the person to whom he has actually
delegated authority).

[page 99]

It is relevant then, in considering ostensible authority, to consider

the conduct, overt or indirect, of the principal or of a person to whom
the principal has actually delegated authority in order to determine
whether the third party is entitled to assume that the agent’s
representation of authority is correct. This conduct may consist of
conduct towards the third party directly, to the world at large, or by the
principal putting the agent in a position from which it can be inferred
that their representation is correct or by a previous course of dealing
whereby the agent was permitted to act as though authorised.
The legal status of representations of authority made by agents was
also discussed in Essington Investments Pty Ltd v Regency Property Pty Ltd
[2004] NSWCA 375 at [44]–[45] where it was said:
It is to be noted that the representation of authority must either be made, or at least
be permitted to be made, by the principal. In the present case, all the relevant
representations were made by the agent, so that the real question is whether they were
themselves authorised by the principal and so made by the principal, or were
relevantly ‘permitted’ to be made by the principal … In my opinion, one circumstance
in which it may be said that representations are permitted to be made is where a
principal knows that an agent engaged on the principal’s behalf is making
representations as to the agent’s authority, is able to prevent such representations
being made or countermand them, but does not do so. There is arguably, in these
circumstances, something like a representation by silence: the circumstances call for
some action by the principal to ensure that persons are not misled by the agent, and
the principal does not take that action.

If the principal is a company then the representation must be made

by some person or persons who has or have actual authority to manage
the business of the company generally, which would include authority
to make the representation: Crabtree-Vickers Pty Ltd v Australian Direct
Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72. In Freeman
& Lockyer at 506 it was held that:
As they [the board of directors] had in each case, by the articles of association of the
 company, full ‘actual’ authority to manage its business, they had ‘actual’ authority to
make representations in connection with the management of its business, including
representations as to who were agents authorised to enter into contracts on the
company’s behalf.

The representor need not be someone who himself had authority to

do the act concerned: Crabtree-Vickers Pty Ltd v Australian Direct Mail
Advertising & Addressing Co Pty Ltd [1975] VR 607 at 614.
Such actual authority may be conferred by the company’s
constitution upon the board of directors or by those who have the
powers of management upon some other person to whom the
constitution permits them to delegate authority to make
representations of this kind: Northside Developments Pty Ltd v Registrar-
General (1990) 170 CLR 146. In Crabtree-

[page 100]

Vickers, for example, the only ‘person’ who could have held out the
signatory as having authority was the three-man management team or
the full board.14
Before a person purporting to act on behalf of another can be
regarded as having held out an ‘agent’ as having authority to do a
particular act, that person must themselves have actual authority to
make that representation or to perform the particular act that he or
she is holding out the other as having authority to do. The principle
has been otherwise expressed: a person with (only) ostensible authority
cannot confer ostensible authority on another. In Crabtree-Vickers Pty Ltd
v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133
CLR 72 at 80 it was held:
… a person with no actual, but only ostensible, authority to do an act or to make a
representation cannot make a representation which may be relied on as giving a
further agent an ostensible authority.

In order for a person to be considered actually authorised on behalf

of the principal to represent another as having authority, that person
must have actual authority themselves to manage the business of the
principal either generally or in respect of the matter to which the
contract relates: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising
& Addressing Co Pty Ltd (1975) 133 CLR 72 at 79. If this were not the
case, there could be a situation where, although a person did not have
authority to make the contract themselves, they nonetheless had
authority to represent another as having authority to make the
contract.

To whom must the representation be made?

5.21 The representation must be made either:
(a) directly to the party who claims they relied on it and acted
accordingly; or
(b) publicly, provided it can be inferred to have reached the third
party: International Paper Co v Spicer (1906) 4 CLR 739 at 746.
Lord Lindley in Farquharson Brothers & Co v King & Co [1902] AC 325
at 341 said:
It was pointed out by Parke J, afterwards Lord Wensleydale, in Dickinson v Valpy
[(1829) 10 B & C 128 at p 140], that ‘holding out to the world’ is a loose expression;
the ‘holding out’ must be to the particular individual who says he relied on it, or
under such circumstances of publicity as to justify the inference that he knew of it and
acted upon it.

In Robinson v Tyson (1888) 9 LR (NSW) 297 at 306 it was held:

Now the question is — What is the meaning of ‘holding out to the world’ or ‘to the
public’ in a case of this kind? It is quite clear that the holding out to the public which
may bind a person means allowing one to act towards others in such a way that those
members of the public who know of such actings may reasonably infer that the person
so acting has authority to act in the same way if they deal with him.

[page 101]

Element two: reliance

5.22 There must be a causal connection between the representation
to the third party and the dealing between the third party and agent.
The third party cannot hold the principal liable where the third party
was not aware of the representation, did not believe it or knew or had
the power to know the truth: Hely-Hutchinson v Brayhead Ltd [1968] 1
QB 549 at 559 and 567–8.
Clearly it is easier to establish no reliance by the third party where
the third party had express notice that the representation of authority
was false. More complicated is the issue of what constitutes notice and
when there is a duty on the third party to inquire. In the context of
commercial transactions, it is often said that constructive notice does
not apply: Manchester Trust v Furness [1895] 2 QB 539. While this, it is
argued, excludes the notion of constructive notice as it applies in
equity, it does not prevent the court from inferring from the
circumstances that the person concerned must have known the
representation was false or at least been suspicious to the extent that
further inquiries would have been appropriate.15 If the third party was
put on inquiry, for example, in the case of an unusual transaction, then
it may be difficult to establish reliance: Rama Corp Ltd v Proved Tin &
General Investments Ltd [1952] 2 QB 147. In Jacobs v Morris [1902] 1 Ch
816 the defendants were taken to have had full notice of the terms of a
power of attorney which they were given but did not read which showed
that the agent did not have authority to borrow money. As Stirling LJ
said at 833: ‘The primary cause of that loss is not anything done or
omitted to be done by the [principal], but the neglect of ordinary
business precautions by the defendants’. Similarly, in Smith v Peter and
Diana Hubbard Pty Ltd [2006] NSWCA 109 the defendants were held to
have had constructive notice of the agent’s lack of authority in that a
simple inquiry or company search would have revealed that the agent
had no authority to direct payment of the purchase price to a third
party which bore no relationship to the vendor. In those circumstances
the issue of authority was resolved in favour of the principal.
The agent need not be, though they generally will be, aware of the
representation: Freeman & Lockyer (a firm) v Buckhurst Park Properties
(Mangal) Ltd [1964] 2 QB 480 at 503 cited by Brennan J in Northside
Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 172.
A failure to produce evidence to show that employees of a bank
permitted a withdrawal by a Mr G because the withdrawal form was
presented in company with documents emanating from a person
actually authorised to make withdrawals on the company’s behalf, and
to authorise others to do so, meant that the bank had failed to make a
case that it relied on any ostensible authority of Mr G in Fried v National
Australia Bank (2001) 111 FCR 322 at 359. It was not able to be assumed
that the bank would not have allowed the withdrawals unless it had
relied on some ostensible authority of Mr G. In

[page 102]

some cases that might be an appropriate inference, but here, where the
equally valid assumption could have been that the bank employee was
prepared to take the risk, it was not: at 359.
It is not relevant that the contracting party, or their legal
representatives, may, had they taken certain steps, have discovered the
lack of authority: this was argued unsuccessfully in Klement v Pencoal Ltd
[2000] QCA 152, where it was held at [30]:
It is not to the point that had Pencoal’s solicitors enquired actively into the validity of
the appellant’s signature they may have discovered it was a forgery. The fact is that the
established ostensible agency of Lindner excused Pencoal’s solicitors from the need to
take those steps (cf Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR
146) … The appellant’s own approach, in short, excused Pencoal from any need for
further enquiry.

If the third party understands that the agent is acting outside the
authority bestowed by their position then they cannot establish
ostensible authority: Alliance Acceptance Co Ltd v Oakley (1987) 48 SASR
337. In that case the respondent signed a mortgage as a ‘front’
borrower to overcome loan ceilings imposed on his relative by the
lender. He was assured by the state manager of the lender that he
would not be held personally liable on the mortgage. When the lender
sought to recover against him under the mortgage, the respondent
claimed the mortgage was a sham having no legal effect. The court
held that an instrument could only be a sham if the parties mutually
intended it to cloak a different transaction. This meant that it was
necessary for the respondent to show that the state manager had actual
or ostensible authority to enter into the sham arrangement. The court
held it plain beyond question that the manager did not have actual
authority to enter into such an arrangement, the very purpose of the
arrangement being to deceive his superiors. Any ostensible authority
the manager possessed derived from his position as state manager of
the lender company. While the court agreed that his ostensible
authority extended to negotiating loans and determining the security
required and probably even included making decisions to depart from
limitations imposed upon him as to the amounts of loans which could
be made to particular customers, it did not extend to entering into an
elaborate device designed to circumvent the lending policy of the
company and which could only have been designed to deceive his
superiors as to the true nature of the transaction. As the court held at
342:
Such conduct cannot possibly … be regarded as within the authority usually
committed to a State Manager of a finance company. It is inconceivable that the
respondent thought otherwise.

The principal company was not estopped by the representation of its

agent for the same reasons, that is, that the agent was not authorised to
make the relevant representation.

Element three: detriment

5.23 It is sufficient to establish this element that the third party has
entered into a contract, for example, or altered their position as a
result of relying on the representation.

[page 103]

If all elements are established the principal will be unable to resile from
the consequences of the agent having authority. In Egan v Ross (1928)
29 SR (NSW) 382 at 386, for example, it was held that the third party
had clearly acted to his detriment ‘by engaging a solicitor and giving
the necessary instructions for completion of the contract’.
Ostensible agency and forgery
5.24 Where an agent has forged a document, the issue has arisen as
to whether the relevant document is a pure nullity or whether the other
contracting party is entitled to rely on ostensible agency. It has been
held that a true forgery, being a counterfeit signature which purports
to be that which it is not, is ‘truly a nullity’ but that a person whose
signature is forged may be estopped from denying its authenticity if he
or she makes a representation that the counterfeit signature is genuine:
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at
199–200.
In Klement v Pencoal Ltd [2000] QCA 152 the agent forged a transfer
document. The principal had intended that the agent conduct all the
necessary dealings with the purchaser, which included production of
relevant documents purported to have been signed by the vendors. The
agent was held to have ostensible authority to represent that the
documents which he presented at the settlement were valid as to their
signature. The contracting party was entitled to rely on that ostensible
authority. It did so by dealing exclusively with the agent, which it would
not have done if notified of the termination of authority. Factors which
when combined were held to clothe the agent with relevant authority
included:
The single address on the lease and option was that of the agent.
When the agent moved, his new address was substituted as the
address for all communications from purchasers to both the
principal and the agent.
The agent’s address was the address in the public register and the
contact address for the relevant departments.
The principal acquiesced in the contracting party using the agent
through whom the principal’s signature of the option (as opposed
to transfer of lease) was procured.
The principal always anticipated that persons dealing with the
partnership in relation to the leases would deal only with the
agent.
 If a company seal has been affixed without the actual or ostensible
authority of the board of directors of the company, the affixation is a
forgery. This precludes the application of the ‘indoor management
rule’,16 or, as it is commonly referred to, the rule in Royal British Bank v
Turquand (1856) 6 El & Bl 327; 119 ER 886: Northside Developments

[page 104]

at 205 per Dawson and Toohey JJ. The indoor management rule has
been described as a ‘concession to the outsider in dealing with a
company’: it does not confer authority on an officer of the company to
enter into a contract where that authority does not otherwise exist.
Authority must actually exist to enter into the transaction in question
or it must be found in principles of ostensible agency.

Consequences of finding of ostensible agency

5.25 If ostensible authority is made out, the principal is bound to the
third party. The principal may be able to recover against the agent for
damages for breach of duty, that is, in particular, for their failure to
follow instructions.
The principal is responsible in an action for damages for the fraud of
his or her agent acting within the scope of the agent’s ostensible
authority. It makes no difference that the agent committed the fraud
for the agent’s own private advantage and not for the benefit of the
principal, so long as the agent was acting within the scope of the
agent’s ostensible authority: Lloyd v Grace, Smith & Co [1912] AC 716 at
725, 731, 733–4 and 736; Clancy v Prince [2001] NSW ConvR ¶55–981.
In circumstances where the principal’s conduct is so closely connected
with that of its agent, it may be liable as an accessory for a
contravention by its corporate agent of s 18 of the Australian Consumer
Law in Sch 2 of the Competition and Consumer Act 2010 (Cth):
definition of ‘involved in the contravention’ in ACL s 2. The principal
must have aided, abetted, counselled or procured the contravention by
its agent and/or been in any way, directly or indirectly, knowingly
concerned in, or party to, that contravention: Clancy at 58,056.

RATIFICATION
5.26 When ratification occurs, an agency relationship or authority is
granted retrospectively (Attorney-General (NSW) v Wylde (1946) 47 SR
(NSW) 99 at 109):
… although it is sometimes said that the act done is ratified: cf Keighley, Maxsted & Co
v Durant [1901] AC 240 at 246; Taylor v Smith (1926) 38 CLR 48 at 54, the true rule
appears to be that the effect is to adopt the relationship of agency assumed by the
professing agent: per Isaacs J, Davison v Vickery’s Motors Ltd (in liq) (1925) 37 CLR 1.

See also Union Bank of Australia Ltd v McClintock [1922] 1 AC 240 at

248.
Any unauthorised act by an agent, whether lawful or unlawful, is
capable of being ratified: Bedford Insurance Co Ltd v Instituto de Resseguros
do Brasil [1985] QB 966 at 985. However, life cannot be given by
ratification to prohibited transactions: Bedford Insurance at 986.
The retrospective aspect of the doctrine is an important feature. If
the relationship of agency is ratified, it follows that the particular act of
the agent originally done without authority becomes valid and effectual
from the time of the agent’s act, and not merely from the date of the
ratification. If legal proceedings are instituted without authority

[page 105]

but subsequently ratified, the ratification dates back to the date of the
institution of the action: Danish Mercantile Co Ltd v Beaumont [1951] Ch
680; Ox Operations Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd
(in liq) [2007] FCA 1221; Victoria Teachers Credit Union Ltd v KPMG (a
firm) [2000] 1 VR 654; [2000] VSCA 23; Raja v Darul-Iman (WA) Inc (No
2) [2011] WASCA 251. The position is the same as if the agent had
been given authority in the inception: Irvine v Union Bank of Australia
(1877) 2 App Cas 366 at 374.
There is, however, a qualification as to the effect of ratification. In
Bird v Brown (1850) 4 Exch 786; 154 ER 1433 at 1439 it was said that the
doctrine of ratification ‘must be taken with the qualification, that the
act of ratification must be taken at a time, and under circumstances,
when the ratifying party might himself have lawfully done the act which
he ratifies’. In Presentaciones Musicales SA v Secunda [1994] 2 All ER 737
this dictum was thought to be too widely stated and the preferred
statement of principle was in the judgment of Cotton LJ in Bolton
Partners Ltd v Lambert (1889) 41 Ch D 295, where Bird v Brown was
treated as an instance of the ‘vested right’ exception to the application
of ratification: Presentaciones Musicales at 750–1.
The doctrine of ratification is favourable to the principal because
until ratification the principal is not bound, and has an option to adopt
or not to adopt what has been done: Hagedorn v Oliverson (1814) 2 M &
S 485, cited in Bolton Partners at 306.
If a contract is made subject to ratification there will be no contract
until ratification is communicated to the third party by the principal:
Watson v Davies [1931] 1 Ch 455. The difference is that the third party
knows of the limitation of the agent’s authority: Warehousing &
Forwarding Co of East Africa Ltd v Jafferali & Sons Ltd [1964] AC 1 at 9
distinguishing Koenigsblatt v Sweet [1923] 2 Ch 314. This was expressed
as an exception to ratification in Managers of the Metropolitan Asylums
Board v Kingham & Sons (1890) 6 TLR 217 at 218:
Supposing a person tendering says, ‘I will not be bound by an acceptance of any
unauthorised person, it must be accepted by the principal’, such condition would be
perfectly valid.
The process of ratification can be described as follows: A person (unauthorised
‘agent’) performs an act, for example, enters into a contract expressly on behalf of
someone else. At the time the person did not have authority to do so. The person on
whose behalf the contract was entered (the alleged ‘principal’) is, however, pleased
with the contract and ratifies. The contract is then regarded as valid and effectual as it
would have been had it been done with prior authority.

Ratification may apply whether it was a situation where the agent

exceeded their authority or where the professing agent had no
authority at all: Firth v Staines [1897] 2 QB 70.
To constitute a valid ratification three conditions must be satisfied:
1. the agent whose act is sought to be ratified must have
purported to act for the principal;

[page 106]

2. at the time the act was done the agent must have had a
competent principal; and
3. at the time of the ratification the principal must be legally
capable of doing the act himself: Firth at 75.
Ratification may also be effected by an agent provided that agent is
authorised to ratify on the principal’s behalf: Re Portuguese Consolidated
Copper Mines Ltd (1890) 45 Ch D 16.

Contract must be expressly entered on behalf of

principal
5.27 ‘A voluntary agent must expressly intend to benefit the person
for whom he acts’: Byas v Miller (1897) 3 Com Cas 39. A contract made
by a person purporting and professing to act on their own behalf alone,
and not with the authority of or on behalf of the principal, but having
an undisclosed intention to give the benefit to a third party, cannot be
ratified or adopted by that third party so as to render him or her able to
sue or be sued on the contract: Keighley, Maxsted & Co v Durant [1901]
AC 240; Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 82;
Marguerita Strauss v Ian Bennett [2016] NSWSC 262 at [113]. As Lord
Macnaghten said in Keighley at 247:
It is, I think, a well-established principle in English law that civil obligations are not to
be created by, or founded upon, undisclosed intentions. That is a very old principle.
Lord Blackburn, enforcing it in the case of Brogden v Metropolitan Ry Co (1877) 2 App
Cas at 692 traces it back to the year-books of Edward IV (17 Edw.4, 2, pl 2) and to a
 quaint judgment of Brian CJ: ‘It is a common learning’, said that Chief Justice, who
was a great authority in those days, ‘that the thought of a man is not triable, for the
Devil has not knowledge of man’s thoughts’.

Lord James of Hereford put it this way at 251:

Doubtless a person can confirm and ratify a contract which was in fact made on his
behalf. But an undisclosed principal must exist at the time of the contract. He cannot be
brought into life as a principal after the contract has been made without any
recognition of his existence.

The reference to ‘undisclosed principal’ likely means that the

existence of the principal is disclosed but not his or her identity. This is
the case as a contract cannot be made by or on behalf of an undisclosed
principal unless at that time the agent had the principal’s authority to
make the contract. Therefore, the doctrine of ratification cannot apply
to the undisclosed principal: Trident General Insurance v McNiece Bros
(1987) 8 NSWLR 270; Dawnlite Pty Ltd v Riverwalk Realty Pty Ltd [2013]
QSC 243 at [89].
If no notification was required of the principal ‘the whole world
could ratify’ (Keighley at 259) and another anomaly (like the
undisclosed principal doctrine) would be created (Keighley at 256):
… the rule which permits an undisclosed principal to sue and be sued on a contract to
which he is a party, though well settled, is itself an anomaly, and to extend it to the
case of a person who accepts the benefit of an undisclosed intention of a party to

[page 107]

the contract would, in my opinion, be adding another anomaly to the law, and not
correcting an anomaly.

It is irrelevant whether the agent in assuming to act for the principal

has a fraudulent intent: Re Tiedemann and Ledermann Freres [1899] 2 QB
66 at 69.
There is an issue as to the extent of knowledge required by the third
party of the identity of the principal. It has been held that in cases of
ratification the principal must be known or ascertainable at the time of
contracting: Lyell v Kennedy (1889) 14 App Cas 437. ‘It is not necessary
that [the principal] be named, but there must be such a description of
him as shall amount to a reasonable designation of the person
intended to be bound by the contract’: Keighley at 255 citing Watson v
Swann (1862) 11 CB (NS) 756. In Watson v Swann a policy of insurance
was effected on goods ‘to be valued and declared as interest might
appear’. No person was pointed out at the time the policy was effected
as the person who was to be the owner of the goods insured. The
person who took out the policy was professing to act for himself at the
time of making the policy. It was held that the stranger could not by
ratification assume the benefit of the contract.
Similarly, it has been held that a potential beneficiary under a policy
of insurance is not an ascertainable principal: Trident General Insurance
at 278.
The issue of whether an act was done on behalf of a principal and
therefore capable of ratification has arisen in the context of forged
documents. The better view is that a forgery is not capable of
ratification on the basis that the forger has not purported to act as
agent but has simply produced the document and pretended that the
signature was that of the principal: Brook v Hook (1871) LR 6 Exch 89;
Rowe v B & R Nominees Pty Ltd [1964] VR 477 at 484. It may be possible
in such a case for a forged instrument to be adopted by the principal:
Greenwood v Martin’s Bank [1932] 1 KB 371. For the adoption to be
effective there must be a new agreement between the adopter and the
contracting party for valuable consideration: Rowe at 485.

Authority to ratify
5.28 Only the principal on whose behalf the act was done may ratify.
The principal may ratify through an agent. In such a case the agent
need only have authority to ratify the relevant act, not authority to have
performed the relevant act itself: Re Portuguese Consolidated Copper Mines
Ltd (1890) 45 Ch D 16 at 26–7. In that case, in considering whether
there had been valid ratification of unauthorised allotments of shares,
it was held:
It is the contract of the company, and I know of no rule at all which can allow us to say
that the confirmation of the contract may not be made by anyone who has authority
 on behalf of the company to confirm that contract. Here the directors have full power
to do everything on behalf of the company, which is not specially reserved to the
company acting in general meeting, and, therefore, in my opinion, it is not necessary
to shew that those who confirmed or adopted this contract were the persons who were
originally nominated as the persons who were to allot the shares.

[page 108]

The act of ratification

5.29 It is essentially a factual question as to whether there has been
ratification of a particular transaction: Borg v Northern Rivers Finance
[2004] QSC 29 at [43]. The authorities emphasise the importance of
considering the whole of the circumstances surrounding the acts said
to constitute ratification: Crabtree-Vickers Pty Ltd v Australian Direct Mail
Advertising & Addressing Co Pty Ltd [1975] VR 607 at 617.
Where the act was trespass (stealing cattle) and the issue was whether
the principal was liable, the court held in Maudouit v Ross (1984) 10
VLR (L) 264 at 266–7 as follows:
Evidence of ratification consists of proof of acts or words showing an election of the
ratifier to adopt as his own the act of another known to him, and done by that other
for his benefit or in his name. Mere knowledge of the act of the agent is not
ratification, (although knowledge is a necessary element of ratification) except where
there is an intention to adopt the act at all events and under whatever circumstances:
Freeman v Rosher [(1849) 13 QB 780]; Phosphate of Lime Company v Green [LR 7 CP 43 at
p 56]; there must be evidence either of participation in the advantage resulting from
the act, as for instance by receiving the proceeds of an irregular sale, as in Hunter v
Parker [7 M & W 322], or of express approbation of the act, as in Buron v Denman
[(1848) 2 Ex 167].

Some cases emphasise the taking of benefit by the person alleged to

have ratified: Australian Blue Metal Ltd v Hughes [1962] NSWR 904 at
925; McLaughlin v City Bank of Sydney (1912) 14 CLR 684; Leybourne v
Permanent Custodians Ltd [2010] NSWCA 78 at [133]; Perpetual Trustees
Victoria Ltd v Xiao [2015] VSC 21.
In some cases, an intention to adopt by the principal is regarded as
important: Griew, Bowstead on Agency, 12th ed, Sweet & Maxwell,
London, 1959, p 42; Barrett v Irvine [1907] 3 IR 462. This requirement
has an objective aspect: Lamshed v Lamshed (1963) 109 CLR 440, where
Kitto J in supporting the finding of ratification by the trial judge said at
448 that ‘he so conducted himself in dealing with the respondents that
any reasonable person in their position would have inferred that he was
accepting the situation that the altered document constituted a
contract binding on him’. Similarly, it was held in Learn & Play (Rhodes
No 1) Pty Ltd (as trustee for Rhodes 1 Childcare Centre Unit Trust) v Lombe
[2011] NSWSC 1506 at [23]–[24]:
It is not open to a principal who, by his conduct, appears to the outside world to have
adopted a transaction, to be able to prove subjectively that he did not intend to
approve it. A principal is not entitled to prove subjectively that he did not intend to
adopt a transaction when he has done an unequivocal act to adopt it with full
knowledge of its terms and features: Suncorp Finance & Insurance Corp v Milano
Assicurazioni SpA [1993] 2 Lloyd’s Rep 225 at 235.
On the other hand, the subjective knowledge and understanding of the principal is
also relevant. It must be shown that the principal was aware of the material terms and
features of the transaction which he is said to have adopted and ratified. Without such
full knowledge, there will not be ratification according to law. I doubt very much
whether a principal, who was aware of the material terms, could successfully contend

[page 109]

that he lacked the relevant knowledge because of his own obtuseness, neglect or
failure for some other reason to appreciate the significance of those terms.17

The act of ratification can be express or implied.

A contract may be ratified by the commencement of an action
against the other party: Celthene Pty Ltd v WKJ Hauliers Pty Ltd [1981] 1
NSWLR 606 at 615.
More often than not, ratification will be implied from words or
conduct. Implied ratification exists where the conduct of the person in
whose name the act was done is such as to show that he or she adopts
or recognises such act, and may be implied from the mere inactivity or
acquiescence of the principal: Cox v Isles, Love & Co [1910] St R Qd 80.
In order for implied ratification to exist, the words or conduct must
be unequivocal: Petersen v Moloney (1958) 84 CLR 91 at 101; Xiao. In
other words, there must be no other explanation for the principal’s act,
for example, that the principal is merely resuming possession of his
own property: Forman & Co Pty Ltd v Liddesdale [1900] AC 190. In
Forman it was held that as a ship owner had no choice but to receive
back his ship on which had been performed unauthorised repairs, the
receipt of the ship did not amount to ratification. Receipt of money
even with knowledge of its source is not conclusive evidence of
ratification: Australian Blue Metal at 925. In some circumstances,
acquiescence by the principal in the implementation of the
unauthorised transaction may amount to unequivocal conduct
adopting the transaction: Xiao; Pollard v Wilson [2010] NSWCA 68. All
surrounding circumstances must be taken into account.
This principle of unequivocal adoption must be viewed against the
backdrop of the principle that a purported principal cannot both
approbate and reprobate the actions of the purported agent.
Therefore, ‘if the principal accepts benefits which flow from the
allegedly unauthorised act of the agent and knows that the benefit so
flows he must, except in very special circumstances, be taken to have
ratified the agent’s act’: Australian Blue Metal at 925.

Communication of ratification
5.30 It is not necessary for the principal to communicate his or her
ratification to the third party: Rowe v B & R Nominees Pty Ltd [1964] VR
477. This is due to the nature of the doctrine, which was explained this
way in Harrison’s & Crossfield Ltd v London & North-Western Railway Co
[1917] 2 KB 755 at 758:
Now ratification does not rest upon estoppel. It need not be communicated to the
party alleging it. Ratification is a unilateral act of the will, namely, the approval after
the event of the assumption of an authority which did not exist at the time. It may be
expressed in words or implied from or involved in acts. It is implied from or involved
in acts when you cannot logically analyse the act without imputing such approval to
the party whether his mind in fact approved or disapproved or wholly disregarded the
question.

[page 110]
 If the principal does not wish to ratify, they should notify their dissent
within a reasonable time: International Paper Co v Spicer (1906) 4 CLR
739; Scots Church Adelaide Inc v Fead [1951] SASR 41 at 52; Lamshed v
Lamshed (1963) 109 CLR 440. In City Bank of Sydney v McLaughlin
(1909) 9 CLR 615 at 625 Griffith CJ and Barton J said:
In general a man is not bound actively to repudiate or disaffirm an act done in his
name but without his authority. But this is not the universal rule. The circumstances
may be such that a man is bound by all rules of honesty not to be quiescent, but
actively to dissent, when he knows that others have for his benefit put themselves in a
position of disadvantage, from which if he speaks or acts at once, they can extricate
themselves, but from which, after a lapse of time, they can no longer escape.

As Bailey J said in Prince v Clark (1823) 1 B & C 186 at 189; 107 ER 70

at 71:
The principal … has no right to pause and to wait the fluctuation of the market, in
order to ascertain whether the purchase is likely to be beneficial or prejudicial; he is
bound, if he dissents, to notify his determination within a reasonable time, provided
he has an opportunity of doing so.

The principal should notify their dissent to the third party: Prince at B
& C 189; ER 71; Phillips v Homfray (1871) LR 6 Ch App 770 at 778; Scots
Church Adelaide at 52. If the principal does not know to whom they
should notify their dissent, it is their duty to make inquiries: Scots
Church Adelaide. Should the principal not communicate their dissent,
they may by their actions be held to have assented. In Scots Church
Adelaide, the principal’s conduct in not communicating her dissent to
the purchaser for over five months was held to amount to acquiescence
in the contract entered into by the agent, and to a ratification of his
action in signing as her agent: at 53. In Prince, it was held that a failure
to make inquiries over a period of little more than two months was
fatal. In Klement v Pencoal Ltd [2000] QCA 152, it was held that in
circumstances where the principal became aware of the agent’s forgery,
and did nothing about it for more than three years, the principal’s
deliberate silence amounted to ratification (compare McLaughlin v City
Bank of Sydney (1912) 14 CLR 684 at 691). Also significantly, it was held,
the principal intended that the transaction stand as fully performed
because the principal hoped to share in its benefit. The principal’s
silence ‘amounted to an “implied communication” to [the other
contracting party] of his acquiescence in the forgery …’: at [40].
Distinguishing ratification by acquiescence and
estoppel
5.31 In the case of ratification by inactivity or acquiescence where it
cannot be shown that the principal had the necessary intention to
ratify, it may be that an estoppel can be raised against the principal in
the alternative: Spiro v Lintern [1973] 3 All ER 319. In that case it was
held at 326:
Where a man is under a duty — that is, a legal duty — to disclose some fact to another
and he does not do so, the other is entitled to assume the non-existence of the fact. In
such circumstances the conduct of the first man amounts to a representation

[page 111]

by conduct to the second that the fact does not exist. In Bell v Marsh [[1903] 1 Ch 528
at 541], Henn Collins MR put the point in this way:

He [the plaintiff] is entitled to say that the representation was made, not
merely by language used, but by conduct, and conduct may include
negligence. A man may act so negligently that he must be deemed to have
made a representation, which in fact he did not make, but because he has
acted negligently he is deemed to have made it.

If A having some right or title adverse to B, sees B in ignorance of that right or title
acting in a manner inconsistent with it, which would be to B’s disadvantage if the right
or title were asserted against him thereafter, A is under a duty to B to disclose the
existence of his right or title. If he stands by and allows B to continue in his course of
action, A will not, if the other conditions of estoppel are satisfied, be allowed to assert
his right or title against B: see Halsbury’s Laws of England [3rd ed, vol 14, pp 638–40,
paras 1178–1180].

Jacobs J in Australian Blue Metal Ltd v Hughes [1962] NSWR 904 held
at 925:
Ratification must be distinguished from estoppel. In the latter case it must be shown
that the other party has acted to his detriment. This is not necessary in the case of
ratification. Although a receipt of money without prejudice may prevent an estoppel,
it does not necessarily prevent a ratification. So also if moneys are received under a
disputed agreement in the course of the dispute concerning the authority of an agent
 to conclude the agreement, there may, in my view, be a ratification, although there
could hardly be an estoppel.

Detriment is an essential part of estoppel; that is, there must be

evidence that the third party took or abstained from taking any action
as a result of the relevant conduct by the principal: Australian Blue Metal
at 925. Detriment is not necessary, but can be relevant in proving
ratification: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising &
Addressing Co Pty Ltd [1975] VR 607 at 617. Although a receipt of money
without prejudice may prevent an estoppel, it does not necessarily
prevent a ratification: Australian Blue Metal at 925.
In Klement v Pencoal Ltd [2000] QCA 152 at [22], the court held that
the principal was obliged to notify another who it knew was proceeding
on the basis that the agent’s authority was intact, at peril of otherwise
being estopped from denying the authority should the other entity act
to its detriment. The court referred to West v Commercial Bank of
Australia Ltd (1935) 55 CLR 315 at 322, where the High Court said:
Departure from an assumption upon which another person has acted to his detriment
is not permitted to a party who, knowing or believing the other labours under a
mistake in adopting it, has refrained from correcting him when it was his duty to do so
… In the present case, the conduct of the appellant goes much further. He stood by
deliberately.

In Klement, the principal stood by deliberately and refrained from

notifying the contracting party of its agent’s forgery because it hoped to
benefit from the transaction. The fact that the principal’s inaction was
deliberate rendered the conduct more significant.

[page 112]

The same fundamental principle has been said to underlie the

concepts of ratification by inaction, acquiescence or estoppel: West v
Dillicar [1920] NZLR 139 at 146 (and on appeal [1921] NZLR 617). In
that case it was held:
Whether the result is stated in the form that the defendant is estopped, or stood by, or
acquiesced, or that he ratified or confirmed the agreement, the fundamental
principle is the same. ‘If a man, either by words or conduct, has intimated that he
 consents to an act which has been done, and that he will offer no opposition to it,
although it could not have been lawfully done without his consent, and he thereby
induces others to do that from which they might otherwise have abstained he cannot
question the legality of the act he had so sanctioned to the prejudice of those who
have so given faith to his words or to the fair inference to be drawn from his conduct’:
Cairncross v Lorimer (1860) 3 Macq 827 at 829. See also De Bussche v Alt (1878) 8 Ch D
286.

Full knowledge of material circumstances by

principal
5.32 A principal can only ratify if he or she is aware of all the
material facts at the time of ratification or displayed an intention to
ratify no matter what the circumstances: Taylor v Smith (1926) 38 CLR
48 at 54–5 per Knox CJ, 59 per Higgins J, 60 per Rich J and 62 per
Starke J; Marsh v Joseph [1897] 1 Ch 213 at 246–7; Victorian Professional
Group Management Pty Ltd v Proprietors ‘Surfers Aquarius’ Building Units
Plan No 3881 [1991] 1 Qd R 487 at 496–7 per Connolly J and 499–500
per Thomas J; Fried v National Australia Bank (2001) 111 FCR 322 at
361; Learn & Play (Rhodes No 1) Pty Ltd (as trustee for Rhodes 1 Childcare
Centre Unit Trust) v Lombe [2011] NSWSC 1506 at [22]. In Lederberger and
Scheiner v Mediterranean Olives Financial Pty Ltd [2012] VSCA 262 the
court said at [74]:
Ratification can be inferred from silence or acquiescence. But for a principal to ratify
the unauthorised transactions of an agent, the evidence must establish that the
principal had full knowledge of all the material circumstances in which the
unauthorised transactions were made and thereby consciously sanctioned the agent’s
unauthorised act. Silence or acquiescence will not constitute ratification absent proof
of a knowing acceptance sufficient to be treated in equity as an assent to what would
otherwise be an infringement of rights (Orr v Ford (1989) 167 CLR 316 at 337). The
evidence must establish knowledge by the principal which enables his or her
subsequent inaction to be seen as an adoptive act (Tobin v Melrose [1951] SASR 139) or
consciously sanctioned (Permanent Trustee Co Ltd v Bernera Holdings Pty Ltd [2004]
NSWSC 56).

The extent of knowledge required will vary depending on the facts;

however, it must be sufficient to decide whether or not to adopt the
unauthorised act: Leybourne v Permanent Custodians Ltd [2010] NSWCA
78 at [134]. Although the principal’s subjective knowledge of the
material facts is relevant, a principal cannot give subjective evidence
that they did not intend to adopt an unauthorised transaction when, by
their conduct, they appear to have adopted it with full knowledge of
the material facts: Perpetual Trustees Victoria Ltd v Xiao [2015] VSC 21 at
[138].
In Taylor v Smith, the principal’s solicitor overpaid an amount by way
of commission to third-party selling agents out of purchase money
belonging to the principal. The

[page 113]

principal did not authorise this and the issue was whether by his silence
he could be said to have ratified the payment. The High Court held he
could not as he did not have full knowledge of all the material
circumstances in which the payment was made. He was entitled to
assume that the solicitor, whose duty it was to protect his interests, had
satisfied himself that the selling agents were legally entitled to the
money. The principal made the payment under a mistake of fact, a
material circumstance which was not shown to have been within the
knowledge of the principal: at 55. An exception to this is where the
principal can be shown to have adopted the agent’s acts whatever they
were: Bayley v Fitzmaurice (1856) 6 El & Bl 868.
In Bayley, the agent entered into an agreement for a lease with a third
party but included some stables in the leased premises without the
principal’s authority. The principal was unaware of this addition, but it
was held that the principal had ratified due to the wording of his letter
to the third party, in which he said: ‘What he has done for me I know
not but I must support him in all he has done for me.’ In Lederberger a
mother (as trustee of her late husband’s estate) and her son were
partners in a camping goods business. The son had, without authority,
entered into a number of primary production tax-avoidance schemes.
The issue was whether his mother’s conduct in signing tax returns and
obtaining the tax deduction benefits flowing from the investments, and
her failure to file amended tax returns if she did in fact object to the
schemes, amounted to ratification. The court found that she had no
knowledge of the schemes when she signed the returns and that when
she did find out about them, she did not believe there was anything she
could do about it. On this basis, the court held that the evidence did
not support an inference of ratification: at [80]–[82].
Absence of knowledge of the agent’s fraudulent intent in making a
withdrawal on behalf of the principal was held to mean that the
principal could not be seen to have ratified: Fried at 361. The court
acknowledged in that case that ‘it is easier to state the principle that full
knowledge is required than to apply it’: at 361. In that case the
principal in one sense approved the transaction (the withdrawal) but
did not obviously approve the later misappropriation. The agent had
the intent at the time of the withdrawal to misappropriate and so the
act was not ratifiable. His fraud was considered to be an inseparable
part of each transaction.
A secret commission on a sale is a material circumstance in the
context of ratification: Howard Smith & Co Ltd v Varawa (1907) 5 CLR
68 at 87. In Porteous v Donnelly [2002] FCA 862, a case which concerned
the estate of the mining magnate Lang Hancock, it was argued that
inclusion of a transaction in the accounts of a company over a period of
years amounted to evidence of ratification of the transaction. The
transaction consisted of the sale by Hancock at a grossly inflated price
of Hancock’s Life Governor’s share in a company to an associated
company of which he was a de facto director. It was held that there was
no evidence that several of the members of the purchasing company
would have consented to the sale, and furthermore that the members
were unaware that

[page 114]

there had been a breach of fiduciary duty and of other consequences

inherent in the transaction:
For the consent of either of those groups to be capable of authorising or ratifying a
transaction in breach of Mr Hancock’s duty it would need to be informed consent. By
this I mean that there must be knowledge that the conduct that is being authorised or
 ratified involves a breach of fiduciary duty: Winthrop Investments Pty Ltd v Winns Ltd
[1975] 2 NSWLR 666 per Samuels JA at 685.

Knowledge of a right to disavow a transaction is not a relevant

material circumstance: Taheri v Vitek [2014] NSWCA 209 at [135]–
[136].

Ratification of the whole

5.33 A principal cannot ratify only the favourable parts of a contract
and disaffirm the rest.18 If it could, this would enable it to effect a
transaction into which the third party did not intend to enter. The
principal is therefore obliged to either adopt or reject the transaction
in total. This is different to the situation where an agent has entered
into several separate transactions. In this case the principal could
choose which contracts to ratify.
In Commercial Banking Co of Sydney Ltd v Mann (1960) 34 ALJR 293 a
partner misappropriated moneys in the trust account by means of
unauthorised cheques, using them to acquire bank cheques from the
ANZ Bank which bound that bank to pay W or bearer out of its own
money the amounts specified in the cheques. The innocent partner
then claimed in conversion against the appellant bank. The respondent
could not show property in the cheques to enable him to sue in
conversion. His partner had authority only to draw the cheques for the
proper purposes of the partnership. The cheques did not become the
property of the innocent partner. The innocent partner argued that he
had obtained such property via ratification. This argument failed, for if
he had ratified at all, he had ratified the dealing by W and the
appellant bank with the cheques (at 295):
… it is impossible for the respondent to pause at any point in this chain of events and
claim to ratify the act of [the fraudulent partner] in obtaining the issue of bank
cheques in favour of ‘H Ward or bearer’ without also ratifying the subsequent dealing
with the cheques by him and the appellant bank.

Exceptions to ratification
5.34 The doctrine of ratification has been criticised due to its lack of
reciprocity. In particular, the party who contracts with the agent is
bound but the principal is not, and indeed may never be, unless the
principal elects to ratify. On the other hand, the doctrine is seen to fill
a practical need by validating certain acts of agents who act outside

[page 115]

their authority in circumstances where it would be to the benefit of the

parties to do so. The doctrine has been said to operate normally to cure
minor defects in an agent’s authority, minimising technical defences
and preventing unnecessary lawsuits.
Due to the retrospective fiction that is ratification, some special rules
have been developed in an attempt to avoid oppressive results:
Presentaciones Musicales SA v Secunda [1994] 2 All ER 737. These have
been described as examples of exceptions to ratification rather than an
exhaustive list of exceptions: Presentaciones Musicales.
Before examining those rules, it is instructive to consider the
following scenario. Do the following circumstances constitute an
effective ratification by the principal?
1. A makes an offer to B, the managing director of a company.
2. There is an unauthorised acceptance by B on behalf of the
company.
3. A withdraws his offer.
4. B’s company then ratifies B’s unauthorised acceptance.
Is there a valid contract or not? If we apply the doctrine of
ratification, there is, because it dates back to the unauthorised
acceptance by B. A’s purported withdrawal therefore comes too late.
These are the facts from Bolton Partners Ltd v Lambert (1889) 41 Ch D
295, where it was held that the ratification was effective,
notwithstanding that the other contracting party had given notice to
the principal of his withdrawal from it. The ratification dated back to
the time of the acceptance, rendering the withdrawal of the offer
inoperative. The other contracting party was ordered to specifically
perform the contract. The court distinguished the situation where
there was an agreement between the assumed agent and the third party
to cancel what had been done before any ratification by the principal:
see Walter v James (1871) Law Rep 6 Ex 124.
The strict, unflinching application of the doctrine of ratification in
Bolton Partners has been widely criticised, primarily on the basis that it
leaves the third party in a difficult position. The principal is not bound
until they ratify, and the third party, while they do not have a binding
contract, is effectively prevented from entering a different contract. It is
perhaps due to the harshness of this outcome that several limits to the
operation of the doctrine have developed.19 These include the
following:
1. Ratification must occur within a reasonable time of the unauthorised
act. It is desirable that ratification occur within a reasonable
time: Managers of the Metropolitan Asylums Board v Kingham &
Sons (1890) 6 TLR 217; Re Portuguese Consolidated Copper Mines
Ltd (1890) 45 Ch D 16. A reasonable time can never extend
after the time at which the contract is to commence: Managers
of the Metropolitan Asylums Board at 218.
A rigid rule as to what is reasonable cannot be laid down:
Life Savers (Australasia) Ltd v Frigmobile Pty Ltd [1983] 1 NSWLR
431 at 438. ‘There is no hard and fast

[page 116]

rule and the measure of reasonableness of time in relation to

ratification depends entirely upon the circumstances of the
case. Mere time is nothing except with reference to the
circumstances’: Celthene Pty Ltd v WKJ Hauliers Pty Ltd [1981] 1
NSWLR 606 at 615 citing Re Portuguese Copper at 35.
A purported ratification of an insurance policy seven years
 later was not ratification within a reasonable period: Trident
General Insurance v McNiece Bros (1987) 8 NSWLR 270 at 282.
Ratification is not too late if it occurs within a reasonable
time of the principal becoming aware of the unauthorised
transaction: Bedford Insurance Co Ltd v Instituto de Resseguros do
Brasil [1985] QB 966 at 987.
2. Ratification must take place at a time, and under circumstances,
when the ratifying party might themselves have lawfully done the act
which they ratified. The leading authority for this principle is
Bird v Brown. A principal cannot ratify an act if, at the time of
ratification, the principal lacks the legal capacity to authorise
the act in question. A principal may also not be entitled to
ratify certain acts that were lawful at the time they were
entered into but were no longer so at the time of ratification.
3. Ratification is not allowed where to permit it would unfairly prejudice
a third party.20 This is a more general and potentially wider
exception to the operation of the doctrine of ratification.
Zeeman J in Adams v Elphinstone (1993) 2 Tas R (NC) N14 at
[26] expresses difficulty with the proposition on the basis that
it introduces concepts of prejudice and unfairness, which give
rise to subjective and quasi-discretionary judgments:
The question of whether or not ratification has occurred is not to be
determined in any such way. Rather than suggesting that unfair prejudice to
a third party is in any way the relevant test, it is perhaps more appropriate to
state the test, or at least one of the tests, in the way which I have formulated
it. It may well be appropriate to describe the relevant tests as falling into an
overall category of unfair prejudice to a third party but only in a descriptive
sense rather than as a test by reference to which the validity of a purported
ratification is to be determined.

Zeeman J’s preferred formulation is that ratification cannot

operate in destruction of rights that have accrued by reason of
the acts sought to be ratified, having been done without
authority and therefore being ineffective and not having been
ratified at any time when the acts could have been done
effectively. Zeeman J distinguishes this from the situation
where ratification merely has an effect or possible effect on
the rights of another party: Adams at [25].
In Adams, solicitors had, without authority, issued
proceedings on behalf of the plaintiff outside the relevant
limitation period. Under legislation, an application for
extension of that period could be made, but the total period
could not extend

[page 117]

beyond six years. The plaintiff purported to ratify the

solicitors’ act of issuing proceedings, but outside six years. The
plaintiff claimed that ratification related authority back to the
time the solicitors issued proceedings. The defendant claimed
that ratification could not take place after the expiration of
the limitation period because that would prejudice the
defendant’s right to raise the defence that the claim was
statute-barred.
Zeeman J (at [24]) doubted that Bolton Partners would now
be regarded as good law. (It has not been overruled and in
fact has been applied many times: Bedford Insurance at 981 and
Presentaciones Musicales.) Zeeman J did not consider this to be a
case where ratification of the issue of the writ would destroy
the defendant’s right to set up a defence based on the
limitation period. As his Honour held at [27]:
No rights which became vested upon the expiration of the period of 6 years
were affected by the plaintiff’s purported ratification of the issue of the writ.
Both before and after the expiration of that period the defendant remained
in the position of being able to plead a limitation defence although its ability
to do so effectively was and is liable to be removed by an order under the Act,
s 5(3).

In Presentaciones Musicales, the English Court of Appeal also

faced the difficult question of a purported ratification outside
the relevant statutory time period. Solicitors acting without
 authority issued a writ on behalf of the plaintiff in April 1988.
The plaintiff purported to ratify in May 1991. Some of the
claims would have been statute-barred unless the ratification
was deemed to operate retrospectively from 1988. Counsel for
the defendants sought to rely on the principle from Bird v
Brown to the effect that it was not possible to ratify an act when
it would not have been lawful for the principal then to do the
act itself. The Court of Appeal confined this principle to its
context; that is, once an estate had been vested, it was too late
to divest the estate by applying the doctrine of ratification.
The Court of Appeal applied the principles of ratification in
Bolton Partners and held that the ratification was binding.
Dillon LJ usefully distinguishes the Bolton Partners scenario
from cases where there has been a time fixed for doing an act
and that time would be extended if ratification were held to
apply: at 745.
4. Ratification cannot occur where the purported exercise of agency
authority has created some duty with which another party must comply
and the time for compliance has expired.21
5. If an express time limit is prescribed for the performance of some act,
whether by statute or by agreement, ratification will not be allowed to
apply if its effect would be to extend that time limit. In Dibbins v
Dibbins [1896] 2 Ch 348 an option to purchase, exercisable
within three months and exercised without authority during
that time, could not be ratified after expiry of the period.22

[page 118]

The principle was also applied in Bird v Brown. There, a

right of stoppage was only exercisable during the continuance
of the transitus, that is, on the facts, until formal demand for
the goods had been made by the assignees of the consignees.
Before such demand, notice of stoppage in transitu had been
given without authority on behalf of the shipper of the goods
 in New York. That was ratified by the shipper, but only after
the transitus had been ended by the formal demand by the
assignees. It was held that the purported ratification was too
late and ineffective.
Bird v Brown has since been reconciled with Bolton Partners
on the basis that in Bolton Partners there was no final date for
acceptance and there was, before the withdrawal of the offer,
an acceptance by the agent which was valid subject to
ratification, and so after the acceptance it was not open to the
defendant to withdraw the offer: Presentaciones Musicales at 745.
6. In some cases it has been held that where there has been a breach or
loss under the contract before ratification, ratification cannot occur.
In Grover & Grover Ltd v Matthews [1910] 2 KB 401, for
example, a principal insured was held unable to ratify an
unauthorised contract of insurance after loss had occurred
under the policy. However, there are authorities to the
contrary: Trident General Insurance at 279–81. In Trident General
Insurance it was held at 280–1:
As this division of opinion shows, the question whether a general policy of
insurance can be ratified after loss is a difficult one. However, I think that it
can. Accordingly, I think that Grover & Grover Ltd v Matthews [[1910] 2 KB
401] and the cases following it were wrongly decided. It is true that a
principal cannot ratify a contract unless he had the capacity to enter into
the contract at the time when it was made: Kelner v Baxter (1866) LR 2 CP
174. It is also true that a person cannot enter into a contract of insurance
when he is aware that the loss has already taken place. But it does not
follow that after loss the principal cannot ratify a policy which was made
before loss. Ratification is equivalent to original authority: Union Bank of
Australia Ltd v Rudder (1911) 13 CLR 152 at 163 per Griffith CJ. The
insurer’s bargain in this class of case is made with an assumed principal. He
acts on the basis that the agent has authority and, if he has not obtained
proof of the agent’s authority, takes the risk that the agent has no authority.
No one doubts that the policy can be ratified before loss. Why should it
make any difference that it is ratified after loss? The insurer’s risk has
remained the same. If the policy is ratified after loss, the insurer is entitled
to his premium. If the policy is not ratified after loss — an unlikely
occurrence — the insurer has no ground for complaint. In any event if the
policy is not ratified, the insurer always has an action for breach of warranty
of authority against the agent. It is true that the principal who ratifies after
loss obtains in one sense a windfall. But the insurer is in no worse position
 than he bargained for. However, the decisive consideration to my mind is
that a ratification after loss rule promotes loss distribution which is the
rationale of insurance and is

[page 119]

the rule which is best calculated to serve the needs of the commercial and
the wider community.

7. Where the giving of a notice within a specified period or before the

occurrence of a particular event has the result of affecting proprietary
interests such as by way of terminating a demise, vesting an interest in
a partnership or resuming possession of goods with the right to retain
them until payment or tender of the price, then an unauthorised
giving of such a notice by a purported agent is incapable of being
ratified at any time after the time for the giving of the notice.23
8. Once an estate has vested it cannot be divested by the application of
the doctrine of ratification.24
9. A contract cannot be ratified after the date fixed for performance of a
contract has passed to the detriment of a party who has not begun to
perform the contract. This was the principle in Managers of the
Metropolitan Asylums Board. There the intended supplier was
sued for breach of contract to supply when the contract was
ratified after supply should have begun. This case was
distinguished in Life Savers, where the contract documents on
their face purported to create immunities for a class of
persons, one of whom had done his part. In those
circumstances there was held to be ‘neither justice nor reason
in denying him capacity to ratify the contract negotiated for
his benefit’: at 438.

IMPUTED KNOWLEDGE
5.35 Imputed knowledge is knowledge that a principal is taken or
deemed to possess because their agent possesses it. Generally speaking,
a principal is taken to know a fact known to their agent which is
material to the agency and which the agent had a duty to communicate
to the principal: Bowstead and Reynolds on Agency, p 442; Halsbury’s Laws
of England, 4th ed reissue, Butterworths, London, 2003, vol 2(1), [164].
Where the agent is authorised to commit the principal to a transaction,
and the agent’s state of mind is relevant to that transaction, the
principal will be bound by the agent’s knowledge: Spina v Permanent
Custodians Ltd (2008) 13 BPR 25,463; [2008] NSWSC 561 at [106].
Where there is more than one agent it is not possible to aggregate the
knowledge of the agents, unless one of them was under a duty to
communicate to the other: Re Chisum Services Pty Ltd (1982) 7 ACLR
641 at 648–50 at 651; National Bank of Australasia v Morris [1892] AC
287 at 290–1 per Lord Hobhouse; Qantas Airways Ltd v Stephens Travel
Service International Pty Ltd (NSWSC, Clarke J, 4 April 1986,
unreported); Western Australia v Watson [1990] WAR 248. There may be
circumstances where information obtained by an agent otherwise than
in their capacity as agent may nevertheless be imputed to the principal.
This may be the case, for example, where the principal had a duty to
make further investigation: Farah Constructions Pty Ltd v Say-Dee Pty Ltd
(2007) 230 CLR 89; Spina at [106].

[page 120]

There is a so-called ‘fraud exception’ to imputation which says that a

principal will not be deemed to have an agent’s knowledge where the
agent is, in his or her part in the transaction, defrauding the principal.
The source of the exception can be traced back to Kennedy v Green
(1834) 3 My & K 699.
There exists support for the view that the fraud exception should be
rejected on the basis it is contrary to principle and is intolerably
inconsistent with the position that would apply to a principal on the
basis of vicarious liability and under the Competition and Consumer
Act 2010 (Cth).25
CORPORATIONS AND THE DOCTRINE OF
ATTRIBUTION
5.36 Particular issues arise in the context of corporations. In order
to determine the knowledge, intention, acts or omissions of an
individual, one needs (subject to considerations of agency) only to look
in one place. But as a corporation must always act through one of its
constituting organs or through agents, the search for knowledge,
intention and responsibility for actions and omissions in respect of
corporations inevitably involves a more complicated inquiry.
A company thinks, forms intentions, makes decisions and acts
through more than one means. It may, for example, act by the board,
by the shareholders in a general meeting or by its agents. Such acts may
be intended to further the interests of the company, may bind the
company in a legal sense and may expose the company to liability.
Resolution of these sometimes complex issues draws upon a number
of juristic threads, some of them not well settled themselves and often
uneasy in their relationship with each other. It might fairly be said that
the law relating to the knowledge, intention, acts and omissions of
companies is disordered.
The law relating to the attribution of liability and knowledge to
companies has been called the ‘rules of attribution’. The term was
coined by the Privy Council in Meridian Global Funds Management Asia
Ltd v Securities Commission [1995] 2 AC 500 as follows:
Any proposition about a company necessarily involves a reference to a set of rules. A
company exists because there is a rule (usually in a statute) which says that a persona
ficta shall be deemed to exist and to have certain of the powers, rights and duties of a
natural person. But there would be little sense in deeming such a persona ficta to exist
unless there were also rules to tell one what acts were to count as acts of the company.
It is therefore a necessary part of corporate personality that there should be rules by
which acts are attributed to the company. These may be called ‘the rules of
attribution’.

[page 121]
 By the rules of attribution, the company can be said to have acted or
to have had an intention: Freeman & Lockyer (a firm) v Buckhurst Park
Properties (Mangal) Ltd [1964] 2 QB 480 at 491, cited in Grantham,
‘Attributing Responsibility to Corporate Entities: A Doctrinal
Approach’ (2001) 19 CSLJ 168 at 169.
It is important to distinguish the rules of attribution from the
concept of vicarious liability. Vicarious liability occurs where one party
is held liable for the acts of another done for the benefit and advantage
of the first party. However, as the High Court said in Sweeney v Boylan
Nominees Pty Ltd (2006) 226 CLR 161, that circumstance alone is not
enough. The court continued at [11]:
Three recent decisions of this Court have examined questions of vicarious liability:
Scott v Davis (2000) 204 CLR 333, Hollis v Vabu Pty Ltd (2001) 207 CLR 21 and New
South Wales v Lepore (2003) 212 CLR 511. It is unnecessary to rehearse all that is
established by those decisions. It is important, however, to begin examination of the
issues in this appeal from a frank recognition of some considerations that are reflected
in those decisions. First, ‘[a] fully satisfactory rationale for the imposition of vicarious
liability in the employment relationship has been slow to appear in the case law’.
Secondly, ‘the modern doctrine respecting the liability of an employer for the torts of
an employee was adopted not by way of an exercise in analytical jurisprudence but as a
matter of policy’. That may suggest that the policy to which effect was given by ‘the
modern doctrine’ is clearly identified, but, as is implicit in the first proposition, the
policy which is said to lie behind the development of the modern doctrine is not and
has not been fully articulated. Thirdly, although important aspects of the law relating
to vicarious liability are often traced to the judgment of Parke B in Quarman v Burnett
(1840) 6 M & W 499; 151 ER 509, neither in that decision, nor in other early decisions
to which the development of the doctrine of vicarious liability may be traced, does
there emerge any clear or stable principle which may be understood as underpinning
the development of this area of the law. Indeed, as is demonstrated in Scott, the
development of the law in this area has not always proceeded on a correct
understanding of the basis of earlier decisions.

Therefore, while vicarious liability concerns the liability of one for

the acts of another, the rules of attribution concern circumstances
where the acts, intention and knowledge of one or more persons
related to the company will be considered the acts, intention and
knowledge of the company itself.
In Meridian Global Funds, the court described ‘primary rules of
attribution’, ‘general rules of attribution’ and ‘specific rules of
attribution’. The primary rules of attribution concerned the
circumstances where the actions of a constituting organ, or a person or
persons of such importance in the company, were deemed actions of
the company not because of the law of agency but because the actions
were the actions of the company itself. General rules of attribution
involved the identification of circumstances where, by the law of
agency, the actions, intention or knowledge of an individual should be
attributed by the law of agency to the company. The specific rules of
attribution concern circumstances where no other rule of attribution
applies, but ‘where it is nevertheless

[page 122]

clear that companies were intended to be subject to the substantive rule

in question’: Grantham, ‘Attributing Responsibility to Corporate
Entities: A Doctrinal Approach’ (2001) 19 CSLJ 168 at 174. This will
ordinarily be a matter of statute.

Primary rules of attribution

5.37 The primary rules of attribution are generally found in the
constituting documents for the company. The articles may say ‘for the
purpose of appointing members of the board, a majority vote of the
shareholders shall be the decision of the company’, or ‘the decisions of
the board in managing the company’s business shall be the decisions of
the company’.
There are also primary rules of attribution, not expressly stated in the
articles but implied by company law. For example: ‘the unanimous
decision of all the shareholders in a solvent company about anything
which the company, under its memorandum of association has power
to do, shall be the decision of the company’: Multinational Gas &
Petrochemical Co v Multinational Gas & Petrochemical Services Ltd [1983] 1
Ch 258.
The primary rules of attribution are not concerned with agency: the
primary rules of attribution involve an inquiry as to whether the
particular acts should be taken to be the actions of the company itself.
In Meridian Global Funds Management Asia Ltd v Securities Commission
[1995] 2 AC 500, Lord Hoffman defined the general rules of
attribution by reference to the principles of agency, not the primary
rules, which were actions of the company itself.
It was this aspect of the conduct of a company to which Lord Reid
referred in Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 170:
A living person has a mind which can have knowledge or intention or be negligent
and he has hands to carry out his intentions. A corporation has none of these: it must
act through living persons, though not always one or the same person. Then the
person who acts is not speaking or acting for the company. He is acting as the
company and his mind which directs his act is the mind of the company. There is no
question of the company being vicariously liable. He is not acting as a servant,
representative, agent or delegate. He is an embodiment of the company or, one would
say, he hears and speaks through the persona of the company, within his appropriate
sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt
is the guilt of the company. It must be a question of law whether, once the facts have
been ascertained, a person in doing particular things is to be regarded as the company
or merely as the company’s servant or agent. In that case any liability of the company
can only be a statutory or vicarious liability.

Thus, the conduct and knowledge of the board of directors, acting

collectively, will be automatically imputed to the company: Houghton
(JC) and Co v Nothard, Lowe and Wills Ltd [1928] AC 1 at 18–19.
Other than the board acting as a whole, the persons who will be
treated in law as being the company are those natural persons who —
by the memorandum and articles

[page 123]

of association, or as a result of action taken by the directors, or by the

company in general meeting pursuant to the articles — are entrusted
with the exercise of the powers of the company: Houghton at 19–20. The
search for those who constitute the company has been expressed
alternatively to be a quest to find the person or persons who are in
actual control of the operations of the company, which may vary from
company to company depending on its organisation: Houghton at 18.
Again, in Tesco at 187 Viscount Dilhorne said:
In my view, a person who is in actual control of the operations of the company or of
part of them and who is not responsible to another person in the company for the
manner in which he discharges his duties in the sense of being under his orders,
cannot be regarded as ‘another person’ …

By ‘another person’ Viscount Dilhorne meant someone other than

the company. The Tesco principle has been approved by the High Court
in Hamilton v Whitehead (1988) 166 CLR 121.
The clearest case is that of a private company where a majority
shareholder is also a director and that person treats the company as his
own: Bernard Elsey Pty Ltd v FCT (1969) 121 CLR 119. In such a case the
state of mind of that individual will be treated as that of the company.
In a traditional type of small family company, there may have been no
formal appointment of managing director, but a director will assume
responsibility for carrying out the functions of managing director.
These functions include dealing with everyday matters and supervision
of the daily running of the company. If a person or persons assume
these powers with the approval of the company, they will be seen to be
the active mind and will of the company: Entwells v National and General
Insurance Co Ltd (1991) 5 ACSR 424.
The Tesco principles, which require identification of those who are
the company in that they constitute its ‘directing mind and will’, are
the principles applied in determining whether a company is criminally
liable: Presidential Security Services of Australia Pty Ltd v Clinton Joseph
Brilley [2008] 73 NSWLR 241; Beach Petroleum v Johnson (1993) 11 ACSR
103 at 114; Darvall v North Sydney Brick & Tile Co (1989) 16 NSWLR 260
at 293 cited in Dempster v National Companies and Securities Commission
(1993) 10 ACSR 297 at 343.
If the issue is whether the company is responsible for a civil wrong,
then the wider principles of attribution are applied. These principles
derive from the law of agency. In some cases the legislature will provide
its own requirements in this respect. This will involve interpreting the
particular statutory provision to determine whose act or knowledge was
to be regarded as the act or knowledge of the company, for the
purpose of that particular statute. This category of attribution has been
termed the ‘special rules of attribution’: Meridian Global Funds; AAPT
Ltd v Cable & Wireless Optus Ltd (1999) 32 ACSR 63.
In Presidential Security Services of Australia, the New South Wales Court
of Appeal considered whether a company could be criminally
responsible for the conduct of its managing director and sole
employee. The case proceeded erroneously at first instance

[page 124]

on the basis of vicarious liability, with no regard for the issue of

attribution: at [2]. On appeal, it was held at [3]:
It may be that, for identified purposes, Mr Bingle can be identified as the ‘directing
mind and will’ of the defendant: see Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd
[1915] AC 705 at 713 and Tesco Supermarkets Ltd v Nattrass [1972] AC 153; but that
proposition may require the purposes of the defendant to be identified.

A company has the powers of an individual pursuant to s 124 of the

Corporations Act 2001 (Cth) subject to any restrictions in its
Constitution. If, although unlawful, the acts committed were done in
furtherance of the company’s responsibilities then there may be no
difficulty in attributing those acts and accompanying mental state to the
company, despite the conduct being unlawful: Presidential Security
Services of Australia at [5] citing Meridian Global Funds and DPP v Gomez
[1993] AC 442. The courts have not accepted the proposition that a
corporation cannot be criminally liable because criminal acts
necessarily go outside their objects, which are presumed to be lawful:
Presidential Security Services of Australia citing Linehan v Australian Public
Service Association (1983) 67 FLR 412 at 435–6.
However, there may be limits to attributed responsibility, particularly
in relation to offences involving intentional acts of violence or
deliberate injury: Presidential Security Services of Australia at [6]. In this
case Allsop P held that the act of intentional violence, as well as the
state of mind of the employee, could be attributed to the defendant
company. In arriving at this conclusion his Honour referred to s 16 of
the Crimes (Sentencing Procedure) Act 1999 (NSW), which permits
monetary punishment for offences otherwise punishable by
imprisonment in certain circumstances; the development generally of
the law on the availability of attribution of specific mental states and of
acts to the company; and the recognition that companies can be
responsible for at least some crimes involving violence (such as
manslaughter).
Whether a company is liable for a criminal breach committed by its
agent largely depends upon the nature, elements and terms of the
offence. As Allsop P held at [4]:
To the extent that the offence is created by statute, the process of ‘attribution’ of
criminal responsibility will principally be, or be at least based on, statutory
interpretation of the provision creating the offence: Meridian Global Funds Management
Asia Ltd v Securities Commission [1995] 2 AC 500. In such cases, questions such as the
need for a guilty mind or mens rea, the nature of that mental state and the person,
agent or organ of the company who must have such state of mind will turn on
understanding the words of the statutory provision and the will of Parliament.

General rules of attribution

5.38 Of course, not all decisions can be made by the shareholders
voting as a whole, or by decisions of the board. The company may, by
the law of agency, appoint persons to act on its behalf who are not the
shareholders acting as a whole, or the board.

[page 125]

At this point, the matter becomes, in a juristic sense, a little

disordered. The company may be liable for the actions of its agents,
absent the principle of vicarious liability, and solely on the basis of the
agency, where the agent is acting for the specific purpose for which
they have been appointed: Colonial Mutual Life Assurance Society Ltd v
Producers and Citizens Co-operative Assurance Co of Australia Ltd (1931) 46
CLR 41. However, in Hollis v Vabu Pty Ltd (2001) 207 CLR 21, only
McHugh J utilised the law of agency to justify the liability of the
principal. Vicarious liability, as discussed there, depends not upon the
law of agency but upon the imposition of liability by policy, and the
considerations referred to above.
Whether the law of attribution concerns circumstances of vicarious
liability is a matter of terminology: it is not ‘liability’ that is being
considered but instead circumstances where the acts, knowledge and
intention of persons acting on the company’s behalf will be attributed
to the company itself.
When a person is not the directing mind and will of the company,
there is still scope for attributing their knowledge and conduct to the
company if the general principles of attribution are met: Christian Youth
Camps Ltd v Cobaw Community Health Services Ltd [2014] VSCA 75 at
[115].
These principles are agency principles. Under the law of principal
and agent, a company will be attributed with the knowledge of
individual directors, employees and other agents who have authority to
receive and communicate relevant information to the company. There
is an exception, in some cases, where the knowledge would disclose a
fraud committed by the person of which the company is the victim. In
such a case the knowledge will not be imputed, unless relevant
legislation, on its proper construction, shows an intention that a
fraudulent agent’s knowledge should be attributed: Meridian Global
Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500.
Bowstead on Agency (14th ed, Sweet & Maxwell, London, 1976)
expresses the relevant principles as follows:
When any act or circumstance, material to any transaction, business or matter in
respect of which an agent is employed, comes to his knowledge in the course of such
employment, and is of such a nature that it is his duty to communicate it to his
principal, the principal is deemed to have notice thereof as from the time when he
would have received such notice if the agent had performed his duty, and taken such
steps to communicate the fact or circumstance as he ought reasonably to have taken:
at 334 cited in Ford Excavations Pty Ltd v Do Carmo [1981] 2 NSWLR 253 at 266–7 …

The rule is stated by Bowstead to be subject to two exceptions:

1. Where an agent is privy to the commission of a fraud upon or
 misfeasance against its principal, its knowledge of such fraud
or misfeasance is not to be imputed to the principal; and
2. Where the person seeking to charge the principal with notice
is aware that that the agent intended to conceal their
knowledge from the principal, such knowledge is not to be
imputed to the principal.

[page 126]

If a number of different people within a corporation each know

something different which, if their knowledge were to be combined,
would constitute a material matter, then the issue arises as to whether
their combined knowledge will be attributed to the company. Again, if
the relevant people are part of the company’s ‘directing mind and will’
then their combined knowledge will be attributed to the company:
Krakowski v Eurolynx Properties Ltd (1995) 130 ALR 1 at 16. If the people
are not part of the ‘directing mind and will’ then the imputation of
their combined knowledge will not necessarily occur: Re Chisum Services
Pty Ltd (1982) 7 ACLR 641 at 650. Situations might include where one
agent, with part of the knowledge, had a duty to the company to make
inquiries which would have revealed the rest of the knowledge
(Brambles Holdings Ltd v Carey (1976) 15 SASR 270) or where the agent
with part of the knowledge had a duty and opportunity to communicate
to the other agent who had the rest of the knowledge (Re Chisum
Services at 650).
If the relevant combined knowledge is knowledge of fraud but each
agent individually was unaware of the fraud or of the facts which ought
to have disclosed the fraud, it will not be possible to argue that the
independent and different knowledge of several agents within the
corporation should be combined to impose knowledge of a dishonest
intent on the part of the company: Macquarie Bank Ltd v Sixty-Fourth
Throne Pty Ltd [1998] 3 VR 133 at 144.
In determining whether attribution of conduct, as opposed to
knowledge, to a corporation should occur, it will be necessary to
consider the nature of the relevant conduct, the purposes of the
company and, where the conduct constitutes an offence, the statutory
interpretation of the provision creating the offence: Presidential Security
Services of Australia Pty Ltd v Clinton Joseph Brilley [2008] 73 NSWLR 241
at [3] and [4].

Special rules of attribution

5.39 A company’s primary rules of attribution, and the general rules
of attribution, will normally be sufficient to determine the relationship
between the knowledge, intention and actions of the organ or
individual and the company. However, that will not always be so. In
some circumstances, most often found in the context of criminal or
quasi-criminal conduct, statutes impose liability on companies and it is
necessary to determine whether, in that statutory context, the acts
complained of are attributable to the company or remote from it.
There are also examples in statutory civil liability provisions. The
circumstances in which the company bears responsibility in these
circumstances are termed the ‘special rules of attribution’, and their
content will depend upon the terms of the statute.
The category of attribution known as the ‘special rules of attribution’
applies when legislation has imposed its own test for determining when
a corporation will be found liable for the conduct and/or knowledge of
its agents. The legislation will make the

[page 127]

corporation primarily liable if its attribution requirements are met. The

following are important legislative examples of attribution principles:
1. s 84 of the Competition and Consumer Act 2010 (Cth);
2. s 769B of the Corporations Act 2001 (Cth) in respect of
offences under Ch 7, which relates to the provision of
 financial services and products; and
3. s 12.2 of the Criminal Code Act 1995 (Cth), which applies to
attribute responsibility to a corporation for any offence
created by Commonwealth laws, except those under Ch 7 of
the Corporations Act, which imposes its own regime.
An offence will usually comprise a physical element and/or a fault
element, which can be any of intention, knowledge, recklessness or
negligence.
Section 12.2 of the Criminal Code Act attributes a physical element
to a company if the act is committed by an employee, agent or officer
acting within that agent’s actual or apparent authority.
Section 12.3 deals with the attribution of fault to a corporation where
that is an element of an offence.
Interestingly, this provision extends the principles of attribution
beyond those applied at common law to deeming a corporation to have
committed an offence where there is proof that a corporate culture
existed within the body corporate that ‘directed, encouraged, tolerated
or led to non-compliance with the relevant provision’.

THE DOCTRINE OF UNDISCLOSED

PRINCIPAL
5.40 A person must make a contract for themselves or for an
identifiable principal or with the authority of and as agent for an
undisclosed principal: Trident General Insurance v McNiece Bros (1987) 8
NSWLR 270 at 276.
The doctrine of undisclosed principal applies to the situation where
an agent enters into a contract intending to do so on behalf of a
particular principal but the principal’s existence (and not merely their
identity) is not known to the third party. In such a case the principal is
liable under the contract and can enforce the contract made on their
behalf by the agent, provided the agent acted within its actual
authority: Keighley, Maxsted & Co v Durant [1901] AC 240.
The position of the agent is different from that which applies in a
disclosed agency. Unlike disclosed agency, where the agent generally
drops out of the picture once the contract has been entered, the agent
of an undisclosed principal may also sue and be sued on the contract.
This has been referred to as ‘controversial’: Jasmin Solar Pty Ltd v Trina
Solar Pty Ltd [2015] FCA 1453 at [121]. If the agent does sue on the
contract, any damages recovered will be held for the principal as the
agent is in a fiduciary relationship with the principal: Allen v F O’Hearn
& Co [1937] AC 213. The agent’s right to sue will

[page 128]

generally be subsumed by the principal’s right, should the principal

choose to intervene on the contract and bring an action in the
principal’s own name.
In relation to the third party, once they become aware of the
existence and identity of the principal, they may elect to sue the
undisclosed principal instead of the agent: Kendall v Hamilton (1879) 4
App Cas 504.
The undisclosed principal doctrine is widely regarded as anomalous:
Keighley at 261.26 This is mainly due to the fact that the doctrine seems
to contradict traditional notions of how contracts are formed and who
is subject to them. Despite the fact that the third party does not know of
the existence of the principal, the undisclosed principal is permitted to
intervene on their agent’s contract. This has the effect that the
principal acquires rights and liabilities under a contract to which they
on the face of it were not a party. Many attempts have been made to
reconcile the undisclosed principal doctrine with the doctrine of
privity.27 Theories include equating the identity of the agent with the
undisclosed principal28 and reliance on implied contract reasoning,
that is, that ordinarily the third party in a commercial contract is willing
to treat as a party to the contract anyone on whose behalf the agent
may have been authorised to contract.29
The doctrine dates back to at least the 18th century30 and has been
said to appear to represent in the last resort a policy decision that the
undisclosed principal may intervene in the bankruptcy of their agent,
and likewise be held personally liable in such a situation: Goodhart and
Hamson, ‘Undisclosed Principals in Contract’ (1931) 4 CLJ 320;
Reynolds, ‘Agency: Theory and Practice’ (1978) 94 LQR 224.
The undisclosed principal doctrine serves useful commercial and
economic purposes, principally in promoting efficient channels of
distribution of goods. Cheng-Han in ‘Undisclosed Principals and
Contract’ (2004) 120 LQR 480 at 482 describes the process as follows:
In a modern economy, specialist middlemen play an important role in ensuring that
producers of goods have access to markets by providing efficient outlets for their
goods. Some producers, particularly large manufacturing concerns, may prefer to
access the markets themselves but many others will prefer not to do so where the
perceived cost to them of direct marketing is greater than what will be incurred when
using a middleman. Specialist middlemen obviate the need for such producers to
divert resources to distribution activities and allow them to concentrate solely on
production. The undisclosed principal doctrine allows producers of goods who use
such middlemen as agents (as opposed to selling the goods outright to such persons)
and who wish to remain undisclosed for

[page 129]

whatever reason the comfort of knowing that their goods or the proceeds of sale from
such goods do not form part of the middleman’s estate. This facilitates the use of such
middlemen which in turn facilitates the ease and growth of trade.

The middleman, as agent, owes fiduciary duties to the principal,

which is an added bonus for the principal in structuring their business
arrangements this way. The doctrine has also been said to avoid circuity
of action.31
The doctrine has certain limits, including, for example, barring the
third party from proceeding against the agent or principal, as the case
may be, if the third party has already obtained judgment against one of
them: Kendall. This may also apply where the third party has made an
irrevocable election to look to one and not the other: Clarkson Booker
Ltd v Andjel [1964] 2 QB 775. Another limit stems from the Humble v
Hunter (1848) 12 QB 310 line of cases, which prevent the intervention
of the undisclosed principal where they are excluded by the express or
implied terms of the contract.32 The limits to the doctrine are explored
in more detail below.

How the doctrine applies

5.41 The main aspects of the doctrine were summarised by Lord
Lloyd in Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 at 207:
(1) An undisclosed principal may sue and be sued on a contract made by an agent on
his behalf, acting within the scope of his actual authority. (2) In entering into the
contract, the agent must intend to act on the principal’s behalf. (3) The agent of an
undisclosed principal may also sue and be sued on the contract. (4) Any defence
which the third party may have against the agent is available against his principal. (5)
The terms of the contract may, expressly or by implication, exclude the principal’s
right to sue, and his liability to be sued.

Obviously the principal must first be disclosed before they can sue or
be sued on the contract concluded by their agent. Whether the
principal will be permitted by parol evidence to prove that they are in
fact the true principal is an issue of construction of the contract. If the
agent has contracted in such terms so as to indicate that they were the
real and only principal then parol evidence may not be admissible:
Finzel, Berry & Co v Eastcheap Dried Fruit Co [1962] 1 QB 370 at 375. As
the agent contracts in his or her own name, until the principal is
disclosed and intervenes, the agent may sue and be sued on the
contract. The rights and obligations of the agent and principal are
therefore not joint but, subject to the superior right of the principal,
alternative: Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141
at 150.
The third party, on learning of the existence of the principal, has a
right to elect as to whom to hold liable under the contract — the agent
or the principal: Kendall v Hamilton (1879) 4 App Cas 504 at 514–15.
Once the third party has made an election, they are
 [page 130]

not permitted to change their mind and pursue the other party. This
reflects the notion that there is one obligation but alternative liability.
The commencement of an action against one of two persons
alternatively does not constitute an election. The entry of judgment
against one of either the principal or the agent extinguishes the
obligation, constituting a final and irrevocable election: Priestly v Fernie
(1865) 3 H & C 977. If entry of judgment is made subject to appeal
then this is not the case. The plaintiff is not precluded from
maintaining on appeal that the judgment against the defendant should
be discharged and that judgments should go against the other
defendant: Bain Securities Ltd v Curmi (1990) 1 ACSR 794 at 803. This is
in contrast to the position where a plaintiff obtains judgment against
one defendant and then, without setting aside that judgment or
seeking to set aside that judgment, seeks judgment against the other:
Morel Bros & Co Ltd v Earl of Westmoreland [1903] 1 KB 64.
In order to have made a binding election, it is necessary that the
third party had full knowledge of the facts, including the existence and
identity of the principal, and also that the agent has performed an
unequivocal act indicating an intention to pursue one party rather than
the other: Clarkson Booker Ltd v Andjel [1964] 2 QB 775.
If the principal does intervene, the third party retains any rights it
had against the agent by way of set-off against the principal: Browning v
Provincial Insurance Co of Canada (1873) LR 5 PC 263 at 272. If the third
party has paid the agent prior to learning of the undisclosed principal,
this will discharge the liability of the third party to the principal: Coates
v Lewes (1808) 1 Camp 444. It has been suggested that these rights of
the third party depend upon whether the principal’s conduct has led
the third party to believe that the agent is contracting as principal. This
view is not universally held: Reynolds, ‘Practical problems of the
undisclosed principal doctrine’ (1983) 36 CLP 119 at 124–5.
For a person to make a binding contract on behalf of an undisclosed
principal, an appropriate authority from the principal to the agent
must exist at the time the contract is made: Keighley, Maxsted & Co v
Durant [1901] AC 240 at 261–3; Omaha Indemnity Co v Craig Norman
Carpenter (prov liq appt’d) (1988) 5 ANZ Ins Cas ¶60–831. This is the case
despite the fact that the existence of the authority was not disclosed by
the contract and may have been unknown to the other party. The agent
must also have intended at the time of contracting to bind that
particular principal: Omaha at 75,177. If the principal turns out to be
non-existent and the parties executing the agreement never intended
the agent to be bound by the agreement, the agent will not be
personally bound: Lomax v Dankel (1981) 29 SASR 68. The agent may,
however, be liable for breach of warranty of authority: Lomax at 77. In
such an action it does not matter that the claim is based upon a want of
adequate instructions from the principal or upon the more radical
footing of the principal’s non-existence: Lomax at 77.

[page 131]

Limits on the doctrine

5.42 There are limits to the application of the doctrine. They
include:
The terms of the contract should not be such as to state or imply
that the parties to it were not only the principals but the real and
only principals. The terms of the contract entered into on behalf
of the undisclosed principal may expressly or impliedly prevent
the intervention of the principal, for example, where the contract
on its face shows the agent to be the ‘real and only principal’:
Finzel, Berry & Co v Eastcheap Dried Fruit Co [1962] 1 QB 370 at 375.
In some cases the contract may explicitly state that only particular
people, for example, ‘members’, are liable under the contract. In
such a case it was held that undisclosed members could not exist:
United Kingdom Mutual SS Assurance Association v Nevill (1887) 19
QBD 110. Cases where an undisclosed principal is excluded by
implication are more difficult. The case often cited by way of
example is Humble v Hunter (1848) 12 QB 310 at 352. There, the
agent entered into a charter party but signed the contract ‘CJ
Humble, Esq, owner of the good ship or vessel called the Ann’.
The principal sought to sue on the contract. It was held, however,
that as the agent had described himself as the owner of the ship,
he had contracted as principal and parol evidence was not
admissible to prove that in reality he had contracted as agent. The
agent, in other words, had definitely contracted upon the
representation that he was really the principal in describing
himself as ‘owner’. If, on the other hand, the agent had
contracted as ‘the contracting party’ then, as one judge noted, the
description would have been sufficiently ambiguous to permit the
introduction of evidence to explain the capacity in which he had
in fact contracted: at 352.
An example of where the description applied by the agent was
not inconsistent with the intervention of an undisclosed principal
occurred in F Drughorn Ltd v Redriaktiebolaget Trans-Atlantic [1919]
AC 203, where the agent used the term ‘charterer’. This term was
held to be very different from ‘owner’ or ‘proprietor’, which were
both terms which asserted title to the subject matter of the
contract. A charterer, for example, merely hires the vessel.
Although rights of ownership or rights akin to ownership may be
given under it, prima facie, it is a contract for hiring or use of a
vessel: at 207. As the nature of such an interest was not
inconsistent with a higher or superior interest, the principal was
not prevented from intervening. The issue of whether a written
agreement contradicts the alleged terms of an agency has been
held to require a very close examination of the written terms of
the contract as well as the terms of the agency. Context is also very
important: Jasmin Solar Pty Ltd v Trina Solar Pty Ltd [2015] FCA
1453 at [133].
The identity of the parties is material to the third party. An
undisclosed principal may not be able to intervene where the
personality of the principal or agent was particularly relevant to
 the third party. If, for example, the third party intended to
contract with the agent and with no one else, then the principal

[page 132]

cannot later intervene. There may be cases where the agent would
not have entered into the contract at all had they known the true
identity of the principal: Dyster v Randall & Sons [1926] Ch 932.
In Carberry v Gardiner (1936) 36 SR (NSW) 559 at 575 the court
doubted as to how far, in the case of an agreement for a lease, the
principle of substitution could be applied so as to enable the
substitution of an undisclosed principal for the person who is
contracting as lessee:
A lease involves continuing obligations, and ordinarily the personality of the
lessee is regarded as of considerable importance. This is evident where, as here,
there is a clause prohibiting assignment or sub-letting … The principle is one
which finds its chief illustrations in mercantile contracts: Browning v Provincial
Insurance Co of Canada (LR 5 PC 263 at 272–3); though it is not restricted to
these: Nelthorpe v Holgate ((1844) 1 Coll 203 at 220). Each case, as it arises in
practice, must we think, be determined on its particular facts.

By way of contrast, in Siu Yin Kwan v Eastern Insurance Co Ltd

[1994] 2 AC 199 the key point was that the actual identity of the
employer was not important to the other contracting party. After
applying F Drughorn it was said that ‘if the courts are too ready to
intervene, it would go far to destroy the beneficial assumption in
commercial cases’: at 208–9; see also Integrated Asset Management
Pty Ltd v Trans Communications Pty Ltd [2015] NSWSC 984.

AGENCY BY OPERATION OF LAW

5.43 The law imposes an agency irrespective of the intentions of the
parties in the following situations:
1. in an emergency to enable the preservation of the principal’s
 property or interests; and
2. in situations arising from cohabitation for the purpose of
ensuring the female partner can purchase ‘necessaries’.
An agency of necessity arises where:
1. there is a necessity to incur expenditure to preserve the
principal’s property and safeguard the principal’s interests;
2. there exists a commercial impossibility or extreme difficulty of
communicating with the principal; and
3. the ‘agent’ acted bona fide in the interests of the principal.
The most common situation falling within this category concerns
shipmasters. If the cargo is in danger of perishing or the ship needs
repairs, the shipmaster may sell or otherwise deal with the cargo or the
ship itself: Sims & Co v Midland Rly Co [1913] 1 KB 103. The
shipmaster’s agency of necessity has been extended by analogy to other
persons having

[page 133]

control of goods, such as carriers and bailees in general. The agency

only arises if the matter is urgent and necessary. For example, if a
bailee of non-perishable goods no longer wishes to store them but
cannot contact their owner, the bailee will not be regarded as an agent
of necessity for the purpose of their disposal: Halsbury’s Laws of England,
4th ed, [724] citing Sachs v Miklos [1948] 2 KB 23.33
In relation to the second category based on cohabitation, the
exception bestows authority on a married woman to pledge her
husband’s credit for ‘necessaries’ suitable to the style in which they live.
‘Necessaries’ covers ‘the reasonable supply of goods and services for the
use of the husband, his wife, children and household’.34 The presumed
agency is one based on fact and can be rebutted by evidence proving
that the wife in fact had no authority, for example, because the
husband had forbidden her to pledge his credit or because it can be
shown that the wife was already adequately provided with necessaries or
with sufficient funds to purchase same.35 In some states this agency of
necessity has been abolished by legislation. Indeed, the exception today
is of limited relevance.

DUTIES OF AGENTS
5.44 An agent is in a fiduciary relationship with their principal and
as such is under the obligations assumed by all fiduciaries: Hospital
Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 96–7.
Thus, an agent is under a duty to act bona fide in the interests of the
principal and to avoid conflict between his or her interests and the
interests of the third party, without full disclosure to his or her
principal: Heytesbury Pty Ltd v Kelly (WASC, Ipp J, 15 April 1997,
unreported); Spina v Permanent Custodians Ltd (2008) 13 BPR 25,463;
[2008] NSWSC 561 at [115]; Taheri v Vitek [2014] NSWCA 209 at [115];
Cohen v Cohen [2016] NSWSC 336 at [64]–[65].
An agent is under a duty to act in accordance with their
appointment. If appointed by a contract, they are obliged to act in
accordance with the terms of that contract and will breach the contract
if they exceed that authority. An agent is bound to perform lawful
instructions of the principal, providing they are reasonable, in respect
of the performance of their duties.
An agent is under an obligation to perform their agency with due
care and skill, such obligation being founded in tort in respect of a
gratuitous agent and in tort and in contract in respect of an agent
appointed by contract.

[page 134]

PRINCIPALS’ DUTIES AND AGENTS’

RIGHTS
Remuneration
5.45 An agent has no right to receive remuneration other than from
their principal, unless there is a contract expressed or implied to that
effect: Smith v Stallard and French [1919] WALR 19 at 20.
Where the agent is pursuing a claim for remuneration, he or she has
the onus of establishing that the agent had the requisite authority. If
the principal asserts that the authority was varied or revoked, then the
onus of proof rests with the principal: Peter v Tuomy (1926) 48 ALT 53;
32 ALR 300.

Lien
5.46 Agents are entitled to be indemnified in respect of losses,
liabilities and expenses incurred in the performance of the functions as
agent: Re Clune; Ex parte Verge v Isabella Nominees Pty Ltd (in liq) (1988) 14
ACLR 261. In that case French J said at 266:
In a contractual agency … the right to indemnity derives from a term of the contract
that will be implied if not clearly excluded; see Bowstead on Agency (15th ed), article 64.
If the relationship is in quasi-contract, then the right of the agent, it would seem, is
not to an indemnity but to reimbursement to the extent that his payment has
conferred a benefit on the principal; see Goff and Jones, The Law of Restitution (2nd
ed), p 258.

If an agent is not indemnified, what is their remedy?

It is well settled that an agent is entitled to exercise a particular lien
over the principal’s property in respect of obligations incurred in
connection with that property: Re Clune at 267. The agent’s lien is a
particular lien unless there is an agreement, express or implied, giving
rise to a general lien. Such an agreement can be implied, for example,
from trade or other custom or usage: Re Clune at 267.
It is questionable whether a lien can ever be exercised over money.
French J in Re Clune (at 267) quoted Bowstead on Agency, 15th ed, Sweet
& Maxwell, London, 1985, p 258, where it is said:
 It is however difficult to see how a lien can be exercised over money, which will
normally be the actual property of the holder subject to a legal or equitable obligation
to account for it. It seems that reference to a lien over money should in many cases be
explained as references to the agent’s right to set off and counterclaim when sued by
the principal for the money.

Indemnity
5.47 An agent has the right to be reimbursed for all expenses and
indemnified against all losses and liabilities incurred by them while
acting within the scope of their authority. This extends to implied
authority: Anglo Overseas Transport Ltd v Titan Industrial Corp (UK)

[page 135]

Ltd [1959] 2 Lloyd’s Rep 152. The right to indemnity will usually exist
as an express or implied term in the agency contract.

WHERE THERE IS NO AUTHORITY: THE

AGENT’S LIABILITY TO THE THIRD PARTY
5.48 Historically, it was difficult for the courts to know what to do if
the agent turned out to be unauthorised. There was initially a tendency
for the courts to hold that in such a case, the agent must have
contracted personally. This was unsustainable except where the agent
really was contracting personally. An agent who fraudulently claimed to
be authorised was always liable in deceit, but the basis for an innocent
or negligent agent’s liability to a third party was not settled until Collen
v Wright (1857) 8 El & Bl 647; 120 ER 241, when it was held that the
agent was liable on a separate, implied warranty of authority.36

When an agent might be personally liable on the

contract
5.49 A basic rule of law is that where parties have entered into a
contract in writing, evidence is not admissible in an action to enforce a
right or obligation arising under the contract, to show that the right or
obligation was other than as expressed in the document. A particular
application of the rule is that an agent who contracts in writing in their
own name is not exonerated from personal liability merely because the
other contracting party was aware that they were acting in their capacity
as agent: Basma v Weekes [1950] AC 441.
‘The appending of the word “agent” to the signature is a conclusive
assertion of agency and a conclusive rejection of the responsibility of a
principal’: Universal Steam Navigation Co v James McKelvie & Co [1923]
AC 493 at 499.
If an agent does contract personally though on behalf of his or her
principal, the agent is personally liable, and may be sued in their own
name on the contract, whether or not the principal is named in the
contract or is known to the other contracting party: Bowstead and
Reynolds on Agency, 17th ed, p 483; Cooper v Fisken (1912) 18 ALR 155. In
Cooper the third party knew that a principal had authorised the
defendant to get the work done on his driveway and that the money
paid for it would ultimately come out of the principal’s pocket, but, as
the court held, it did not follow from this that the third party would not
be entitled to regard the defendant as personally liable to him under
the contract for the work. Whether the agent was liable depended upon
whether the agent had contracted personally and whether the agent
had done so is a question of intention on the facts — where there is
nothing in the language employed in making the contract which
expressly declares the

[page 136]

intention: at 157. The law as to what should be the deciding test or

indications of intention was held to be ‘far from clear, perhaps
necessarily so’: at 157. In that case the question of intention was
decided in favour of the third-party tradesman.
In HJ Lyons & Sando Ltd v Houlson [1963] SASR 29 the managing
director of a limited liability company delivered a car owned by the
company to a garage for repair work to be performed. He handed over
the company’s card at the time but nothing with respect to payment or
ownership of the car was mentioned, as the director expected his
insurer would pay. When the insurer declined payment, the repairer
requested payment from the company but was told the company was in
financial difficulty. It was then that he sought payment from the
director personally. In that case, the court accepted the principle that,
as a general rule, where a person in making a contract discloses both
the existence and the name of a principal on whose behalf he purports
to make it, he is not generally liable on the contract to the other
contracting party. However, the court emphasised that ‘what must be
borne in mind is that in order to escape personal liability the agent
must do more than disclose the identity of the principal, he must make
it clear that he is contracting on the principal’s behalf and not on his
own’: HJ Lyons at 31. ‘No rule of law is better ascertained, or stands
upon a stronger foundation than this, that, where an agent names his
principal, the principal is responsible; not the agent; but for the
application of that rule, the agent must name his principal as the person
to be responsible’: per Erskine LC in Ex parte Hartop (1806) 12 Ves Jun 349
at 352; 33 ER 132 at 133. ‘The prima facie position is that when a man
orders work to be done he impliedly undertakes to pay for it, and if he
desires to avoid the liability so undertaken by setting up that he was
acting purely as agent for another person, he must have made that
position clear to the other contracting party’: HJ Lyons at 31. It did not
matter that the third party attempted first to get the money from the
company. He was still able to revert to his rights against the director.
Where the defence to a contract is that the defendant acted as agent
only, the defence should show not only that the plaintiff knew that the
defendant was acting merely as agent but also that the plaintiff never
intended to contract with the defendant as principal: Clifford v Moore
(1890) 11 ALT 146.
 Issues of intention can be difficult to resolve. In Goldschmidt v
Macdonald (1909) 9 SR (NSW) 693 at 696 it was held:
Generally speaking it may be laid down that where a party uses what are called mere
words of description such as ‘agent’, ‘broker’, ‘solicitor’, etc he is only describing his
vocation in life, and is, therefore, a contracting party and personally bound and e
converse entitled to sue. His principal — if he has one — is equally bound and entitled.
But where in the contract itself he describes himself as acting for another person he
cannot be sued nor is he entitled to sue. In such a case the principal is the only person
who can sue or be sued. In Gadd v Houghton ((1876) 1 Ex D 357) Mellish LJ says at
360: ‘The language used must be interpreted according to its plain and natural
meaning.’ In that case it was held that if a contract is signed ‘A as agent for B’ this will
exclude personal liability.

[page 137]

If someone has signed a contract personally then the onus of proof

rests with that party to displace the presumption that they are the
person liable on the contract: Aitkin Transport Pty Ltd v Voysey [1990] 1
Qd R 510.

Breach of warranty of authority

5.50 The liability of a person who professes to act as agent arises:
1. if they have been fraudulent;
2. if they have without fraud untruly represented that they had
authority when they had not; and
3. where they innocently misrepresent that they have authority
where the fact is either (i) that they never had authority or (ii)
that their original authority has ceased by reason of facts of
which they have no knowledge or means of knowledge.
The last category of liability ‘arises from the fact that by professing to
act as agent he impliedly contracts that he has authority, and it is
immaterial whether he knew of the defect of his authority or not’: Yonge
v Toynbee [1910] 1 KB 215 at 227.
The leading case is Collen v Wright (1857) 8 El & Bl 647; 120 ER 241.
There, a land agent, Wright, professing to act as agent for a land owner,
Gardner, agreed with the plaintiff to lease to him a farm belonging to
Gardner. He signed the agreement ‘Robert Wright, agent to William
Dunn Gardner Esquire, lessor’. The agent did not have authority and
Gardner refused to sign the lease. The plaintiff was held to have a good
cause of action against Wright for breach of warranty of authority.
Willes J held:
The fact that the professed agent honestly thinks that he has authority affects the
moral character of his act; but his moral innocence, so far as the person whom he has
induced to contract is concerned, in no way aids such person or alleviates the
inconvenience and damage which he sustains. The obligation arising in such a case is
well expressed by saying that a person, professing to contract as agent for another,
impliedly, if not expressly, undertakes to or promises the person who enters into such
contract, upon the faith of the professed agent being duly authorised, that the
authority which he professes to have does in point of fact exist. The fact of entering
into the transaction with the professed agent, as such, is good consideration for the
promise: El & Bl at 657–8; ER at 245.

The principle in Collen is of very general application and is not

restricted to circumstances where a plaintiff enters into a contract on
the inducement of the warranty: Starkey v Bank of England [1903] AC
114 at 119. In Commonwealth Bank of Australia v Hamilton [2012] NSWSC
242, for example, it was applied in favour of a bank that was induced by
a solicitor’s representation that he was authorised to receive the surplus
funds at settlement. The cause of action was available notwithstanding
that it was not a case where the bank had been induced by the
representation to enter into a contract with the Hamiltons or that the
contract had come into existence before the solicitor’s liability to the
bank had arisen under an implied contract: at [297].

[page 138]

The third party need not establish a positive belief in the professed
agent’s authority. All that is required is an express or implied claim of
authority, an inducement and a consequent transaction: Leggo v Brown
and Dureau Ltd (1923) 32 CLR 95. As Isaacs J in Leggo said at 106:
There is no suggestion that there must be ‘belief’ in the truth of the assertion; there
 must, of course, be reliance on the assertion, for that is connoted by the
‘inducement’. The other party might well say to the professing agent: ‘I have no belief
about it; as to the instructions you have I am ignorant and agnostic, but I am content
to rest upon and trust to your assurance and to base my dealing upon that.’

It is immaterial whether the supposed agent knew of the defect of

their authority or not: Starkey; Tichborne v Pegler, Macdonald & Co [1913]
QWN 1. If the third party thinks that they can prove an intent to
deceive, they may sue in deceit, falling back on an alternative plea of
breach of implied warranty if they fail to establish the additional
element: Lewis v Nicholson (1852) 18 QB 503 at 511–12.
A Collen action is frequently categorised as being based upon an
implied contract between the professed agent and the third party, that
is, a contract collateral to the intended contract between the third party
and the proposed principal: Brownett v Newton (1941) 64 CLR 439; see
also Knight Frank Australia v Paley Properties Pty Ltd [2014] SASCFC 103
at [90]. Being classified as contractual in nature, the damages are those
required to place the third party in the position in which they would
have been had the warranty been true. The measure of damages for
breach of warranty of authority is the loss which the parties should
reasonably have contemplated as flowing from the breach.37

TERMINATION OF AUTHORITY
5.51 An agent can assign its agency with the consent of its principal:
De Bussche v Alt (1878) 8 Ch D 286 at 310 and 311. It amounts to the
creation of a fresh agency, with an assignment of goodwill by the
former agent superadded: Re Lingham Timber Co Ltd (1899) 21 LR
(NSW) Eq 52. Even if an agency is not strictly assignable, the assignee
would get an equity as against the assignor to the profits of the agency:
Tailby v Official Receiver (1888) 13 App Cas 523 at 546.

TERMINATION BY THE PARTIES

5.52 The actual authority of an agent can be terminated in a number
of ways.
Usually an agent is given authority to perform a particular task on
behalf of the principal. In such cases, the agency will end upon
completion of that task or, if the agent was engaged for a particular
length of time, at the expiration of that time.

[page 139]

Where the parties or either the principal or agent unilaterally wish to

terminate the relationship prematurely, both or either will have to
revoke the relationship. This is easily done. Where the termination is
agreed to, the parties need simply agree to the discharge of the agency
relationship.
In the case of a unilateral termination, either party can bring the
relationship to an end simply by giving notice to the other of his or her
intention to withdraw from the agreement.
In the case of a principal revoking an agent’s authority, if the
principal is aware that another is acting on the belief that the authority
is intact, then the principal should notify that other party of the
termination, otherwise the principal is at risk of being estopped from
denying the authority should that other entity act to its detriment:
Klement v Pencoal Ltd [2000] QCA 152 at [22].
Some agency agreements are not revocable at will. These include an
authority coupled with an interest. These exist where the principal and
agent have entered into an agreement with the underlying purpose
being to secure or protect some interest of the agent.

Termination by operation of law

5.53 The actual authority of an agent can be terminated by
operation of law, independently of the will of the principal or agent.
The main ways this can occur are:
Death: The death of either the principal or the agent will
automatically terminate the agency. The agent’s death brings the
relationship to an end because the relationship is a ‘highly
personal one’: Farrow v Wilson (1860) LR 4 CP 744. The death of
the principal leaves the agent with no one for whom to act: Drew v
Nunn (1879) 4 QBD 661.
Insanity: The insanity of the agent means that the agent is no
longer capable of acting as agent. The principal’s insanity
terminates the agency as the principal can no longer act for
themselves and therefore the agent can no longer act for the
principal: Drew at 666. The agency is automatically terminated by
the insanity of the principal whether or not the agent had
knowledge of the insanity: Yonge v Toynbee [1910] 1 KB 215. In this
case, solicitors had continued to act for a principal when,
unknown to them, he became insane. The solicitors were held to
be personally liable to the third parties for damages for breach of
warranty of authority. This area of the law has been affected by the
enactment of the Powers of Attorney Act 1998 (Qld).
Bankruptcy or insolvency: If a principal becomes bankrupt, the
agent’s authority is automatically revoked unless the agent’s
authority is irrevocable due to the fact it is an agency coupled with
an interest: Reynolds, Bowstead & Reynolds on Agency, 17th ed, p
566. Under the Bankruptcy Act 1966 (Cth), once a debtor
becomes

[page 140]

bankrupt, the property of the bankrupt vests in the Official

Trustee, and any purported dispositions by the bankrupt are void,
with some exceptions in the case of bona fide third-party
purchasers. Therefore, an agent of the bankrupt cannot dispose of
the bankrupt’s property, and if they receive property, they receive
it on behalf of the trustee. The same applies to contracts entered
into during bankruptcy. The agent can only enter into contracts
 which the principal themselves can enter into. If the principal is a
corporation, then the rules of the Corporations Act apply.
Generally, insolvency of either a corporate agent or principal will
bring the agency to an end.

PROVING AGENCY
5.54 The burden of proof in making out the agency rests upon the
person who seeks to enforce a contract made on the strength of such
alleged agency: Robinson v Tyson (1888) 9 LR (NSW) 297. The
importance of this was said by Windeyer J in Robinson at 300 to be
evident:
No man’s business concerns would be safe unless it were so. If people in business were
to be bound by contracts merely upon evidence being given that persons had affected
to act by their authority, no man’s commercial standing would be safe for one
moment, and it is of the utmost importance in trying a case of this description that the
cardinal principle in the conduct of such cases — namely, that the onus of proof of
general authority lies upon the plaintiff — should be rigidly observed.

Windeyer J referred to the House of Lords in Pole v Leask (1863) 33

LJ Ch 155, where the rationale for the burden of proof principle was
explained as follows at 301:
Unless this principle is strictly acted on, great injustice may be the consequence; for
anyone dealing with a person assuming to act as agent for another can always save
himself from loss or difficulty by applying to the alleged principal to learn whether the
agency does exist, and to what extent. The alleged principal has no similar mode of
protecting his interest; he may be ignorant of the fact that anyone is assuming to act
for him, or that persons are proposing to deal with another under the notion that the
other is his agent …

Agency depends on the facts of a particular case: Branwhite v Worcester

Works Finance Ltd [1969] 1 AC 552 at 573 and 587; Custom Credit Corp
Ltd v Lynch [1993] 2 VR 469.
In determining whether there was an agency, the Privy Council in
Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130 at
1137 outlined the following principles:
The relationship of principal and agent can only be established by the consent of the
principal and the agent. They will be held to have consented if they have agreed to
 what amounts in law to such a relationship, even if they do not recognise it themselves
and even if they have professed to disclaim it, as in Ex parte Delhasse [7 Ch D 511]. But
the consent must have been given by each of them, either expressly or by implication
from their words and conduct. Primarily one looks to what they said and did at the

[page 141]

time of the alleged creation of the agency. Earlier words and conduct may afford
evidence of a course of dealing in existence at that time and may be taken into
account more generally as historical background. Later words and conduct may have
some bearing, though likely to be less important. As to the content of the relationship,
the question to be asked is: ‘What is it that the supposed agent is alleged to have done
on behalf of the supposed principal?’

If inferring a relationship of agency means that the agent faces a

clear conflict of interest, the courts will not readily infer it: Con-Stan
Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd
(1986) 160 CLR 226 at 234 applied in Custom Credit.
Evidence of conversations said to prove an agency are generally not
admissible: Trimper v Frahn [1925] SASR 347. In Trimper it was held at
355:
Before the statements of an alleged agent, not made on oath, can be admitted as
though the words of the principal, the agency must be proved, and that is not done by
merely shewing that the alleged agent said he was the agent. Though not admissible
on this ground, the conversations were admissible, it seems to me, upon another,
namely, that it was part of the proof of the true relationship of those signing the
instrument (Phipson on Evidence, 6th ed, p 582), and particularly as tending to shew the
intention with which the document was delivered to the appellant prior to his
signature of it.

In Re Lingham Timber Co Ltd (1899) 21 LR (NSW) Eq 52 the parties

sought to support their contention that an agency existed between
them by reference to two letters which referred to the parties setting up
a joint account, and that any profit and loss was to be shared equally.
The court held that the parties in fact were joint adventurers in an
indeterminate series of speculations in timber. They were partners, or
quasi-partners, and were both principals.
Whether a person has ostensible authority to bind a principal in a
particular way is a question of fact in each particular case and the onus
of establishing it is on the person who relies upon it: Geissler v Accro
Motors Pty Ltd (1955) 73 WN (NSW) 31.

_______________
1 See, for example, Halsbury’s Laws of England, 3rd ed, Butterworths, London, 1952, vol 1,
para 350; Reynolds, ‘Agency: Theory and Practice’ (1978) 94 LQR 224: ‘The words “agent”
and “agency” are notoriously slippery to define, but it is probably acceptable to say that in
most contexts an agent is one who acts for another.’
2 See also Halsbury’s Laws of England, 4th ed reissue, LexisNexis UK, London, 2003, vol 2(1),
[1].
3 In compliance with s 54A of the Conveyancing Act 1919 (NSW).
4 Corporations Act 2001 (Cth) s 124(1).
5 Goode v Harrison (1821) 5 B & Ald 147.
6 Smally v Smally (1700) 1 Eq Ca Abr 6.
7 The consent need not necessarily be to the relationship of principal and agent but rather
to a state of fact upon which the law imposes the consequences which result from agency:
Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 at 587.
8 See also Lederberger and Scheiner v Mediterranean Olives Financial Pty Ltd [2012] VSCA 262 at
[67].
9 See also Gurtner v Beaton [1993] 2 Lloyd’s Rep 369 at 379: ‘The development of the
doctrine has been based in part upon the principle that where the court has to decide
which of two innocent parties is to suffer from the wrongdoing of a third party the court
will incline towards placing the burden upon the party who was responsible for putting the
wrongdoer in the position in which he could commit the wrong: see Panorama Developments
(Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 426 at 450.’
10 Note that Watteau v Fenwick [1893] 1 QB 346 was not assented to in International Paper at
763.
11 ‘Where a person tells another that a certain person is his agent, that is sufficient proof of
the agency as to all matters to which the statement relates’: International Paper at 747 per
Griffith CJ.
12 Reynolds, Bowstead and Reynolds on Agency, 17th ed, Sweet & Maxwell, London, 2001, p 309.
13 Subject to exceptions, including under the Factors and Sale of Goods legislation: Tobin at
386.
14 Baxt, ‘Commercial Law Note’ (1976) 50 ALJ 253 at 254.
15 Reynolds, Bowstead and Reynolds on Agency, 17th ed, pp 332–3; Combulk; Alliance & Leicester
BS v Edgestop Ltd [1993] 1 WLR 1462.
16 ‘Persons contracting with a company and dealing in good faith have always been entitled
to assume that acts within its constitution and powers have been properly and duly
performed, and were never bound to inquire whether acts of internal management have
been regular’: Halsbury’s Laws of England, 4th ed, 2004 reissue, LexisNexis UK, London,
2004, vol 7(1), p 285.
17 See further on the issue of the principal’s knowledge at 5.32 below.
18 A party cannot approbate and reprobate. A party approbates and reprobates when it takes
the advantage of the arrangement in question but then, having so approbated the
arrangement, reprobates it by declining to carry out its liabilities or part of its liabilities
pursuant to the arrangement.
19 The exceptions are analysed in depth by Cheng-Han, ‘The Principle in Bird v Brown
Revisited’ (2001) 117 LQR 626.
20 Bowstead on Agency, 15th ed, Sweet & Maxwell, London, 1985, p 73.
21 Ex parte Moriarty (1924) 24 SR (NSW) 298 at 301.
22 See also Ainsworth v Creeke (1868) LR 4 CP 476; Audrey v Pollard (1597) Poph 108; 79 ER
1216; Bird v Brown.
23 Adams.
24 Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653 at 665; Bolton Partners at 307.
25 Watts, ‘Imputed Knowledge in Agency Law: Excising the Fraud Exception’ (2001) 117
LQR 300.
26 See also Reynolds, ‘Agency: Theory and Practice’ (1978) 94 LQR 224 at 225.
27 See Cheng-Han, ‘Undisclosed Principals and Contract’ (2004) 120 LQR 480.
28 Holmes, ‘The history of agency’ in Select Essays in Anglo-American Legal History, Association
of American Law Schools (eds), Little, Brown and Co, Boston, 1909, vol III, p 368.
29 Cheng-Han, ‘Undisclosed Principals and Contract’ (2004) 120 LQR 480 at 486 citing
Diplock LJ in Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 545.
30 Scrimshire v Alderton (1743) 2 Stra 1182.
31 Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503.
32 Reynolds, ‘Agency: Theory and Practice’ (1978) 94 LQR 224 at 225.
33 Most state jurisdictions have statutes which permit bailees to dispose of uncollected goods
provided they comply with certain notice and other requirements.
34 Bowstead on Agency, 15th ed, pp 122–3.
35 Bowstead on Agency, 15th ed, p 121.
36 See, generally, Bowstead and Reynolds on Agency, 17th ed, p 504 (on the measure of damages
for breach of warranty of authority).
37 Bowstead and Reynolds on Agency, 17th ed, p 465.
[page 143]
CHAPTER 6
Sale of goods

INTRODUCTION TO SALE OF GOODS TRANSACTIONS

APPLICATION OF STATE AND TERRITORY SALE OF GOODS

LEGISLATION
Sale of Goods Act

PERFORMANCE OF THE CONTRACT

General rules of delivery
Special rules of delivery relating to carriers
Delivery of the wrong quantity

IMPLIED TERMS: SALE OF GOODS ACT

Implied undertaking as to right to sell, quiet possession and
freedom from encumbrance
Correspondence with description
Fitness for purpose
Merchantable quality
Sale by sample

REMEDIES OF THE BUYER

Remedies for breach of a condition implied by the Sale of Goods
Act
Acceptance and CIF or FOB contracts

[page 144]
 Remedies for breach of a warranty implied by the Sale of Goods
Act
Remedy for defective instalment deliveries
Damages for non-delivery or delayed delivery
Remedy for specific performance

REMEDIES OF THE SELLER

Unpaid seller against the buyer
 [page 145]

INTRODUCTION TO SALE OF GOODS

TRANSACTIONS
6.1 Sale of goods is governed by the Sale of Goods Acts in the various
states and territories1 and, in addition:
1. in relation to the supply of goods by a corporation to a
consumer prior to 1 January 2011, by Part V Divs 2 and 2A of
the former Trade Practices Act 1974 (Cth);2 or
2. in relation to the supply of goods to a consumer after 1
January 2011, by the Australian Consumer Law. The
Australian Consumer Law is discussed in Chapter 7. Whether,
and if so when, property has been transferred is discussed in
Chapter 8. This chapter focuses on the applicability of the
Sale of Goods Acts and on the terms implied in the sale
contract in relation to the identity and condition of those
goods.
The Competition and Consumer Act 2010 (Cth) replaced the Trade
Practices Act 1974 (Cth). Although in the main the Competition and
Consumer Act adopted the provisions of the Trade Practices Act, in
respect of the area of consumer protection there were some important
changes. The defective goods regime adopted by the Trade Practices
Act implied terms into the sale contract (permitting then a cause of
action for breach of contract) (Part V Div 2) and, in respect of the
liability of manufacturers, imposed statutory causes of action (Part V
Div 2A). This approach has been replaced by statutory ‘consumer
guarantees’ which apply to both manufacturers and suppliers, are
imposed by statute and do not depend upon the existence of a
contract. The new regime is contained in Sch 2 (titled ‘The Australian
Consumer Law’) to the Competition and Consumer Act 2010 (Cth).
 The Australian Consumer Law regulates a number of aspects of
conduct associated with the supply of goods and services, including
misleading and deceptive conduct,3 unconscionable conduct4 and
unfair contract terms.5 Importantly for the purposes of the supply of
goods, it also seeks to safeguard the position of the consumer by the
imposition of a series of ‘guarantees’ in Pt 3-2; provisions relating to
safety standards, product bans and product recalls in Pt 3-3; and
provisions which impose liability on manufacturers for goods with
safety defects in Pt 3-5.

[page 146]

The former regime as it existed under the Trade Practices Act

remains relevant in the following respects: first, to transactions and
conduct which occurred prior to 1 January 2011 and second, where
similar terms are used in the Australian Consumer Law, to assist in
interpretation. The Trade Practices Act consumer protection cases will
be referred to on that basis where relevant.
The Sale of Goods Act is for the most part a codification of the
common law then existing and relating to the sale of goods. The fact
that the Act has required so little legislative amendment since its
enactment in the 19th century is testament to the durability and
common sense of and in its contents.
The origin of all state Sale of Goods legislation is the United
Kingdom Sale of Goods Act 1893. It has also formed the basis for the
New Zealand legislation in the area. Decisions of the United Kingdom
and New Zealand are therefore relevant in considering the
interpretation of a particular provision of the legislation, as are
decisions from all states and territories within Australia.
The Sale of Goods Act 1896 (Qld) applies to all domestic (that is,
intra-state) sales of goods, and transactions in respect of which the
Queensland Act is the proper law. International sales are governed by
the Sale of Goods (Vienna Convention) Act 1986 (Qld) (implementing
the Vienna Sales Convention6).7 The Sale of Goods Act applies to all
contracts for the sale of goods: there is no monetary limit on the
application of the Act, as may be found in the Fair Trading Act 1989
(Qld); nor is its application limited to corporations, as was generally
the case with the consumer protection provisions in the Trade Practices
Act.
The Australian Consumer Law is broader in its application. It applies
as a law of the Commonwealth to the conduct of corporations and with
respect to all other persons by virtue of the operation of the ‘applied
ACL’8 as a law of the states and territories: s 131.9 Section 131C of the
Competition and Consumer Act 2010 (Cth) includes a saving provision
in respect of the concurrent operation of other laws and remedies in
states and territories. While the Australian Consumer Law applies as a
law of the Commonwealth, it is not intended to exclude or limit the
concurrent operation of any law of a state or territory: s 131C(1). A
person cannot be convicted under the Commonwealth ACL and under
a law of a state or territory arising from the same conduct: s 131C(3).

[page 147]

The Sale of Goods Act is said to be a codification of the law relating

to sale of goods, that is, a statute which coordinates and systematises the
law but does not invent principles. The Act may not be a ‘perfect code’
for the following reasons:
1. The preamble to the Act provides it is an Act to ‘codify and
amend’ the law relating to the sale of goods. The use of the
word ‘amend’ suggests the Act is not a pure codification.
2. Section 61(2) provides that the rules of the common law apply
to contracts for the sale of goods except where there is an
inconsistency between those rules and the Sale of Goods Act.
The fact that the Act anticipates an inconsistency may suggest
that the Act is not a complete codification.
Notwithstanding the above, the rules of interpretation applied by the
courts are those that apply to the interpretation of a code. Those
principles are summarised in Bank of England v Vagliano Bros [1891] AC
107 at 144:
… the proper course is, in the first instance to examine the language of the statute,
and to ask what is its natural meaning, uninfluenced by any considerations derived
from the previous state of the law, and not to start with inquiring how the previous law
stood, and then, assuming that it was probably intended to leave it unaltered, to see if
the words of the enactment will bear an interpretation in conformity with this view …
I am, of course, far from asserting that recourse may never be had to the previous state
of the law for the purpose of aiding in the construction of the provisions of the code.
If, for example, a provision be of doubtful import, such resort would be perfectly
legitimate … What, however, I am venturing to insist upon is that the first step taken
should be to interpret the language of the statute, and that an appeal to earlier
decisions can only be justified on some special ground.

Further, if the statute is silent as to a particular matter, the common

law will apply. This general approach to the construction of a code was
applied to the construction of the Sale of Goods Act in Gamer’s Motor
Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163
CLR 236 at 243.
The operation of sale of goods legislation may be excluded by
agreement.10 In Victorian Alps Wine Co Pty Ltd v All Saints Estate Pty Ltd
(2012) 34 VR 397, an exclusion clause was held to be effective in
preventing reliance on the Sale of Goods Act implied terms. The clause
provided that liability was excluded ‘[t]o the full extent permitted by
law’ in respect of any conditions or warranties as to suitability or fitness
of the goods supplied and further provided ‘[a]ll statutory and implied
conditions and warranties except as to title are excluded’. The court in
construing the clause applied the approach of the High Court in
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500,
namely, that the clause should be interpreted according to its natural
and ordinary meaning, read in the light of the contract as a whole. A
similar decision was made in Hogan v BPW Transpec Pty Ltd [2013] VSC
249, notwithstanding the clause there did not specifically

[page 148]
refer to the exclusion of terms implied by statute. By way of contrast, a
note at the bottom of a quote which provided: ‘Due to the size of the
doors Eureka Garages and Sheds cannot guarantee the doors
performance in high wind situations’ was held to be ‘so vague’ that it
lacked the necessary quality of putting the appellant on notice that the
doors were subject to a latent defect which meant they were likely to fail
in particular circumstances and therefore did not exclude the implied
terms as to quality or fitness: Shelton t/as Rick Shelton Mobile Mechanic v
Oaktech Pty Ltd [2011] NTSC 11 at [27].
The Australian Consumer Law provides increased protection to
‘consumers’ in respect of contracts to which it applies, and its effect
cannot be excluded, at least where the goods are of a kind ordinarily
acquired for personal, domestic or household use or consumption: s
64. It is also not possible to avoid the application of the ACL consumer
guarantees by specifying in the contract that some other law, such as
the law where the supplier resides, applies to the contract: s 67. If the
goods fall outside this category there is some scope for a person’s
liability to be limited: s 64A.
In any case involving the sale of defective goods the application of
the relevant Sale of Goods Act and the Australian Consumer Law to the
facts should be considered, as should any relevant causes of action at
common law, for example, negligence.11 In view of the similarity
between the content of the statutory implied terms under the Sale of
Goods legislation and the former Trade Practices Act, case law relevant
to the Trade Practices Act is discussed where relevant. The Australian
Consumer Law as it relates to the supply of goods is discussed in
Chapter 7.

APPLICATION OF STATE AND TERRITORY

SALE OF GOODS LEGISLATION
Sale of Goods Act
6.2 In order for the Sale of Goods Act to apply there must be:
a contract of sale;
of goods;
as a result of which property in the goods passes;
for a money consideration.

Contract of sale
6.3 A contract for the sale of goods is defined as a contract whereby
the seller transfers or agrees to transfer the property in goods to the
buyer for a money consideration, called

[page 149]

the price.12 The contract does not need to be in writing,13 and many
contracts for the sale of goods are oral contracts.
‘Contract of sale’ is defined to include an agreement to sell as well as
a sale: s 3(1).14
Whether there is a ‘sale’ or merely an agreement or promise to sell
something at a future time depends upon when property in the goods
is to pass. In a sale, the property in the goods is transferred from the
seller to the buyer at the time of the transaction. In an agreement for
sale, however, the property in the goods is to be transferred in the
future or is conditional: s 4(3). Once the property in the goods is
transferred, the agreement to sell becomes a sale: s 4(4);15 Jansz v GMB
Imports Pty Ltd [1979] VR 581; Australian Securities and Investments
Commission v Fast Access Finance Pty Ltd [2015] FCA 1055 at [237].
Whether a contract is a sale or an agreement to sell affects the
remedies available where a breach of the contract occurs. For example,
where the contract is a contract of sale and property in the goods has
passed to the buyer, if the buyer refuses to pay for them they may be
sued for the price agreed to be paid for the goods: s 50(1).16 If the
contract is an agreement to sell, and the buyer defaults, the seller’s
remedy is damages, the amount of which may or may not be the
contract price: s 51(1).17 Whether a ‘sale’ has occurred can also be
important in determining whether other legislation applies. For
example, in ASIC v Fast Access, transactions purporting to be contracts
for the sale of diamonds were in fact loan contracts, which meant credit
legislation applied. Although the ‘sales agreement’ purported to pass
legal title in the diamonds upon execution of the agreement, no
diamonds had ever been appropriated to the contract. This meant that
property could not pass and there was, accordingly, no ‘sale’.
‘Future goods’ are goods to be manufactured or acquired by the
seller after the making of the contract of sale: s 3.18 A present sale of
future goods constitutes an agreement to sell the goods: s 8.19 In Jansz,
for example, the relevant contract provided that property was to pass
on the signing of the contract. However, because the goods at that time
were future goods which had yet to be ascertained and appropriated to
the contract, the contract was held to be an agreement to sell, and no
sale could take place until the goods were ascertained and
appropriated to the contract. This was despite the fact that the parties
had attempted to transfer property at an earlier time.
In Butler v JSL Racing Pty Ltd [2014] VSC 509, agreements for the sale
of part interests in certain racehorses were held to be agreements to
sell because the transfer of property in the horses was to take place at a
future time or, alternatively, was a present sale of future goods on the
basis the seller had yet to acquire the horses.

[page 150]

A ‘sale’ needs to be distinguished from other transactions which may

not be covered by the Sale of Goods Act. Although property in gifted
goods will pass upon delivery, or otherwise by deed,20 a gift of goods
will not constitute a ‘sale’ because there is no money consideration for
the transfer of property in the goods. Whether a barter or pure
exchange of goods can be considered a sale depends upon whether the
element of a ‘price’ can be made out: did the parties agree on a money
price, value the respective goods and transfer the goods, if necessary
making a cash adjustment one way?: Aldridge v Johnson (1857) 7 El & Bl
885. If so, each trader will be considered a seller of their goods. If the
transactions can be viewed as reciprocal sales, then property and risk in
the goods will pass by virtue of the contract, independently of delivery.
A contract for work and incidental materials is not a contract of sale
of goods. It can be difficult to distinguish between the two transactions:
Lee v Griffin (1861) 1 B & S 272; compare Robinson v Graves [1935] 1 KB
579. Whether or not the Sale of Goods Act applies depends upon the
characterisation of the contract as one of sale of goods.
Some jurisdictions retain a provision that contracts for work above
$2021 are unenforceable unless evidenced by a note or memorandum
in writing — unless the buyer accepts part of the goods sold and
received them, or gives something in earnest to bind the contract or in
part payment.22
Although the characterisation of the transaction will affect the nature
of the legal relationship between the parties and the potential
remedies, it should not affect the outcome where the goods or
materials supplied are defective. The courts, for example, have implied
similar warranties to those that exist under the Sale of Goods legislation
in contracts for work and materials at common law: North East Equity Pty
Ltd v Proud Nominees Pty Ltd (No 2) [2008] FCA 1189; Young & Marten
Ltd v McManus Childs Ltd [1969] 1 AC 454; Maskim (NSW) Pty Ltd v
Jantune Pty Ltd [2013] NSWSC 1634; compare Helicopter Sales (Australia)
Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1. In relation to contracts
for the supply of services by a person to a consumer, s 60 of the
Australian Consumer Law provides there is a ‘guarantee that the
services will be rendered with due care and skill’. Contracts for the
supply of services may include contracts for work and materials. In
Mayne Nickless Ltd v Crawford (1992) 59 SASR 490, for example, a
company was held to be in breach of the equivalent former Trade
Practices Act warranty in s 74 in relation to the supply of a burglar
alarm system which burglars were able to bypass.
In some cases the distinction may be important in determining when
property in the goods passes. In the case of a contract for work done
and materials supplied, the property in the materials will not pass at the
time of contract but only once the work has been done and the
materials supplied or, where relevant, installed: Aristoc Industries Pty Ltd
v RA Wenham (Builders) Pty Ltd [1965] NSWR 581; Brooks Robinson Pty
Ltd v Rothfield [1951] VLR 405.

[page 151]

There is some difference of views as to the tests to be applied in

determining whether the contract is for the sale of goods or for work.
Where it is not clear from the form of the contract, the better view is
that the court should decide the issue by having regard to the
‘substance of the contract’: Robinson. The test requires the court to
assess the relative importance of the work done or the goods supplied.
For example, it has been held that the supply of a meal in a restaurant
is a sale of goods, the element of service being incidental to the supply
of the meal: Lockett v A & M Charles Ltd [1938] 4 All ER 170. Difficulties
arise, however, where all the work goes into producing the goods to be
sold so that the two components, the work done and the goods
supplied, are inseparable: for example, a contract to purchase a tailor-
made suit, or to commission a work of art: Benjamin’s Sale of Goods, 6th
ed, Sweet & Maxwell, London, 2002, pp 32–3.
A different approach had been adopted in Lee. There, the court
effectively held that if the contract results in the sale of a chattel, it
should be construed as a sale of goods. In that case the sale of dentures
by a dentist to his patient was held to be a sale of goods. The test was
criticised in Re Amlink Technologies Pty Ltd and Australian Trade
Commission (2005) 86 ALD 370, where it was held at [30]:
Taken to its extreme, that reasoning would mean a court would identify contracts for
the sale of goods in all manner of situations that were never intended to be treated in
that way: consulting a radiologist for the purpose of obtaining x-rays or retaining a
lawyer to provide written advice, for example. That cannot be right, as the court of
Appeal explained in Robinson v Graves when it doubted the reasoning in Lee v Griffin.
Certainty of application is a desirable trait in a rule like the one under consideration
here, but one must guard against reductionism.
 In Robinson at 587 this test was qualified by reference to the substance
of the contract:
If you find, as they did in Lee v Griffin, that the substance of the contract was the
production of something to be sold by the dentist to the dentist’s customer, then that
is a sale of goods. But if the substance of the contract, on the other hand, is that skill
and labour have to be exercised for the production of the article, and that it is only
ancillary to that that there will pass from the artist to his client or customer some
materials in addition to the skill involved in the production of the portrait, that does
not make any difference to the result, because the substance of the contract is the skill
and experience of the artist in producing the picture.

In Robinson an oral contract for the commissioning of a portrait was

held to be a contract for work and labour, which did not therefore
need to comply with the writing requirements that existed under UK
sale of goods legislation.
The tests in Lee and Robinson can produce different results. The test
in Robinson has been criticised as illogical and unsatisfactory: Deta
Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 185.
It was, however, applied in Toby Constructions Products Pty Ltd v Computa
Bar (Sales) Pty Ltd [1983] 2 NSWLR 48, where the court held that a
mass-produced computer system comprising both hardware and
software was goods within the meaning of both the Sale of Goods Act
and the former Trade

[page 152]

Practices Act. The court left open the issue of whether the sale of
computer software by itself would constitute goods for the purposes of
the legislation. The Robinson ‘substance test’ was also applied in Re
Amlink Technologies, where a computer program was held to constitute
goods. There it was held at [42]–[43]:
It is easy enough to understand how a court might conclude that a contract with an
artist to produce a portrait, or with an author to produce a manuscript, qualifies as the
supply of know-how or intellectual property and not a contract for the supply of goods
— even though the product of the producer’s endeavours might be expressed in a
physical form. That conclusion is consistent with Robinson v Graves and the guidelines.
But once the artist has painted the portrait and it is resold, it is likely to be sold as
goods. Even more clearly, when the publisher reproduces the manuscript of the
 author and prints thousands of copies of a book, the copies are almost certainly sold
as goods. That reasoning applies in a discussion about software. If the program had
been commissioned by the purchaser and written (or even modified) to its
specifications, the contract of supply is likely to be a supply of know-how or
intellectual property rather than goods. The situation is different once the product is
sold as a tangible commodity after being copied or mass-produced. At that point, the
products cease to be know-how and become goods.
While one hesitates to describe this product as being available ‘off the shelf’ given its
high price, the Robinson v Graves analysis suggests the product is properly
characterised as goods. I am satisfied the guidelines are consistent with that approach.
What was once know-how has become a commodity marketed in a tangible form. The
fact the licence agreement places restrictions on the use of the product after sale does
not make it much different to music CDs and DVD movies — products that are clearly
goods. The requirement for an access code is apparently an innovative attempt to
combat piracy which might rob the producers of revenue. It is merely a more
sophisticated protection than the regional coding system used in DVDs. That evidence
does not change my conclusion. The existence of 24 hour service is also not
determinative: help-desks and other forms of the round-the-clock assistance are
available as part of the purchase price of many goods, such as computers and cars.

In AGL Victoria Pty Ltd v Lockwood (2003) 10 VR 596 the court, after
referring to Toby Constructions, held that a contract to supply electricity
was a contract for the sale of goods as opposed to services. Byrne J held
at 615–16:
In the present case, where the performance of metering tasks represents but an
activity ancillary to the principal obligation of selling electricity and one for which a
very small part of the charge is referable, these do not transform the contract for the
sale of electricity to a contract for work. Nor do they transform the consequent debt to
a debt for services rendered. Likewise, where a dealer agrees to sell a thing to a
customer, this contract is not transformed into a contract for work and labour simply
because the only task the dealer performs, apart from the preparation of the necessary
paperwork, is to arrange for a manufacturer to deliver the thing directly to the
customer. In such a case the contract and the consequent debt is one for the sale of
the thing.

[page 153]

AGL Victoria was applied in NBN Co Ltd v Pipe Networks Pty Ltd [2015]
NSWSC 475 at [111].
Other examples include the following:
A contract to supply and install plant and equipment to improve a
 carrot processing plant was held to be a contract for work and
materials: North East Equity.
A contract to build and install a built-in cocktail cabinet has been
held to be a contract for work and materials: Brooks Robinson.
The making of a set of dentures has been held to be a sale of
goods: Lee.
Plainly enough, it is difficult to reconcile all of the cases, and much
depends upon the particular circumstances of the case. In Pacific Film
Laboratories Pty Ltd v FCT (1970) 121 CLR 154 at 160, a case concerning
whether a sale of manufactured goods was a ‘sale’ within the meaning
of sales tax legislation (and hence not directly on the sale of goods
legislation), Barwick CJ, with reference to Lee and Robinson, said:
Whilst one cannot derive any uniformity of application of principle from these and
other like cases, I think one can derive from them the principle that the question
whether or not an agreement is an agreement merely to provide services or an
agreement for the sale of goods depends upon the substance of the arrangements
between the parties and is not to be resolved by any single criterion. However, in this
connection the circumstances that the services are to produce a chattel in which, but
for the agreement and what is done under it, the person to whom it is to be delivered
would have had no property is a most potent circumstance.

Sutton proffers this test:

If the primary purpose of the contract is the transfer of property in something which
was not originally the property of the buyer, the contract is one for the sale of goods;
but if the main object of the parties is the performance of certain work or the
provision of certain services and it is subsidiary to that object that property is to pass
from one party to the other, it is not a contract for the sale of goods. The substance of
the contract in this sense is to be determined from the intention of the parties
objectively ascertained.23

Property
6.4 The law of personal property is a subject dealt with in Chapter 1.
‘Property’ in the Sale of Goods Act is defined to mean the general
property in goods as opposed to some special or limited interest, for
example, the interest of a bailee or a security interest: s 3(1).24
‘Property’ means, in effect, ownership.25 It is not possible to create an
equitable interest in goods under an ordinary contract of sale of goods.
The expression ‘property’, when used in the definition of ‘contract of
sale of goods’ and, later, in the provisions

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relating to the passing of property in goods, appears to have been

framed on the basis that ‘property’ is intended to comprise the whole
of the interest capable of being held in goods, that is, both the legal
and the equitable title. In this context it is worth noting the
observations of Atkin LJ in Re Wait [1927] 1 Ch 606 at 635–6:
It would have been futile in a code intended for commercial men to have created an
elaborate structure of rules dealing with rights at law, if at the same time it was
intended to leave, subsisting with the legal rights, equitable rights inconsistent with,
more extensive, and coming into existence earlier than the rights so carefully set out
in the various sections of the Code.

Although not necessary to determine the case, this view was

‘provisionally’ approved by Lord Brandon in Leigh & Sullivan Ltd v
Aliakmon Shipping Co Ltd; The Aliakmon [1986] 2 All ER 145 at 152.

Goods
6.5 ‘Goods’ is defined to include all chattels personal other than
things in action and money, and also to include ‘emblements’ and
things attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale: s 3(1).26
The term ‘chattels’ originally included such physical objects as cattle,
furniture, jewels and garments: anything that can be moved from place
to place.27 The term now includes not only things capable of physical
possession but also intangible choses such as debts, rights of action,
patents and copyrights.28
The definition in general terms excludes things in action, and thus
goods are in effect chattels capable of physical possession. The
requirement that goods be capable, generally speaking, of physical
possession has caused problems with respect to the classification of
software. In respect of sales of software, the following has been held:
 1. The sale of hardware and software is a sale of goods: Toby
Constructions Products Pty Ltd v Computa Bar (Sales) Pty Ltd
[1983] 2 NSWLR 48; Advent Systems Ltd v Unisys Corp (1991)
925 F 2d 670.
2. The sale of software attached to a physical medium is a sale of
goods: Re Amlink Technologies Pty Ltd and Australian Trade
Commission (2005) 86 ALD 370.
3. The sale of software delivered by online download is not a sale
of goods: Gammasonics Institute for Medical Research Pty Ltd v
Comrad Medical Systems Pty Ltd (2010) 77 NSWLR 479; [2010]
NSWSC 267.
It has been suggested that the sale of software that is only accessible
online but which cannot be downloaded via digital delivery would be a
contract of services and not a sale of goods: Gammasonics Institute at
[38]; and see D Svantesson and L Bygrave, Jurisdictional Issues and
Consumer Protection in Cyberspace: The View from Down Under, paper
presented at the

[page 155]

Cyberspace Regulation: E-commerce and Content Conference, Sydney,

2001, referred to in Gammasonics Institute at [37].
‘Emblements’ are crops of the soil which are annually produced by
agricultural labour. It does not include things growing naturally on the
land.29 This would, for example, cover crops of grain or potatoes. It
does not include fruit growing on trees which, although cultivated,
yield an annual crop which is largely the production of nature as
opposed to the industry of mankind: Sutton, Sales and Consumer Law, p
88 citing Saunders v Pilcher [1949] 2 All ER 1097 and Warren v Nut Farms
of Australia Pty Ltd [1981] WAR 134.
The final part of the definition of ‘goods’ is ‘Things attached to or
forming part of the land which are agreed to be severed’. Under this
part, a contract for the sale of timber growing on land would be a sale
of goods, provided the timber was agreed to be felled under the
contract of sale: Egmont Box Co Ltd v Registrar-General of Lands [1920]
NZLR 741. Similarly, a contract to sever a known and defined mound
of rock, mineral or other material from the seller’s land has been held
to constitute a sale of goods, whereas a contract to locate and extract
sand, gravel or minerals at an agreed price per ton from the soil has
not: Mills v Stokman (1966) 116 CLR 61; Amco Enterprises Pty Ltd v Wade
[1968] Qd R 445.
This part of the definition might extend to things otherwise regarded
as fixtures. In Symes v Laurie [1985] 2 Qd R 549, for example, a contract
for the sale of a house which involved its removal, relocation,
restumping and repair was held to constitute the sale of a ‘good’. This
meant that when the house was damaged while in transit, it was the
property of the buyer: see s 21 r 1,30 which provides that property in a
contract for specific goods passes when the contract is made. It
followed that the risk passed to the buyer on the formation of the
contract: s 23.31
Generally, fixtures are not goods within the meaning of the
definition: Theo Holdings Pty Ltd v Hockey (2000) 99 FCR 232; Burgess v
Zinc Port Melbourne [2013] VSC 599 at [97]. A contract for the supply of
a fibreglass swimming pool which was affixed to land by a third-party
installer was held to be a sale of goods in Tranquility Pools & Spas Pty Ltd
v Huntsman Chemical Co Australia Pty Ltd [2011] NSWSC 75. The court
at [506] referred to Symes, where Kelly J held (at 550): ‘[T]here is no
reason why a sale of goods may not be found within a contract one of
the terms of which involves affixation of goods to land.’

Different categories of goods

6.6 There are a number of different categories of goods. This is
significant because the nature of the goods will (in the absence of
agreement to the contrary) dictate when property in those goods is to
pass and the remedies that are available to the buyer in the event the
goods are not delivered. For example, in the case of specific goods,
unless the parties agree otherwise, property is to pass when the contract
for sale in respect of

[page 156]

those goods is made: s 21 r 1.32 In relation to remedies, under s 53,33

where there has been non-delivery of specific or ascertained goods, the
buyer may obtain an order for specific performance of the contract,
provided damages are an inadequate remedy in the circumstances.
Categories of goods are:
specific;
unascertained;
ascertained; and
future.

Specific goods
6.7 Specific goods are goods identified and agreed upon at the time
a contract of sale is made: s 3.34 It is critical to understand that specific
goods are ones which the parties agree at the time of the contract are
the unique goods the subject of the agreement. Goods appropriated to
the contract after the agreement is entered into do become
‘ascertained’ goods, but they do not become ‘specific goods’ within the
meaning of the definition.
Specific goods may be future goods, or ones which do not presently
exist. They may, for example, include goods which are identified but
not yet owned by the seller, or goods yet to be constructed but
identified, for example, by reference to a plan number.
An example of a contract for the sale of specific goods is a contract
for the sale of a particular motor vehicle.

Unascertained goods
6.8 There is no definition of unascertained goods in the Act.
Unascertained goods are goods which are not specific goods, that is,
goods which are not identified or agreed upon at the time of the
making of the contract.
Certain subcategories of unascertained goods were identified in Re
Goldcorp Exchange Ltd (in rec) [1995] 1 AC 74 at 89; [1994] 2 All ER 806
at 814:
Generic goods. These are sold on terms which preserve the seller’s
freedom to decide how and from what source the seller will obtain
goods answering the contractual description. The seller can, in
other words, source the goods from any stock, as opposed to a
particular stock.
Goods sold ex-bulk. These are goods which are by express
stipulation to be supplied from a fixed and predetermined source,
from within which the seller may

[page 157]

make his or her own choice (unless the contract requires it to be

made in some other way) but outside which the seller may not go.
For example, ‘I sell you 60 of the sheep now on my farm.’
It is impossible to transfer property in unascertained goods.
Common sense dictates that the buyer cannot acquire title until it is
known to what goods the title relates: Re Goldcorp at AC 90; All ER 814.

Ascertained goods
6.9 There is no definition of ascertained goods in the Act. Atkin LJ
in Re Wait [1927] 1 Ch 606 at 630 held that ascertained as contrasted
with specific ‘probably means identified in accordance with the
agreement after the time a contract of sale is made’ (emphasis added).
Ascertained goods are not classifiable as specific goods when the
contract is made but become identified or appropriated to the contract
after the contract of sale is made. For example, a seller agrees to sell
100 tonnes of the 200 tonnes of wheat at the seller’s silo. If the wheat is
loaded onto the buyer’s vehicle after the contract is made, then the
goods have become ascertained after the moment of the formation of
the contract and in the course of its performance, yet they were not
specific at the time of the contract: Re Wait at 630.
In the case of goods forming part of a bulk, ascertainment does not
occur until the goods the subject of the sale are separated from the
bulk, usually immediately prior to delivery. However, if there is to be no
delivery, but merely a segregation in the hands of the seller for
retention by them, the segregation of the stock from the company’s
trading assets (whether done physically or by giving instructions to a
bonded warehouse keeper) causes the goods to be ascertained: Re
Stapylton Fletcher Ltd (in admin rec) [1995] 1 All ER 192. In Re Stapylton
Fletcher, ascertainment was constituted by the sellers of wine separating
wine purchased by customers in a separate part of the warehouse and
the careful maintenance of records within the company. This is in
contrast with Re London Wine Co (Shippers) Ltd [1986] PCC 121 where
there was no appropriation from the bulk of wine to answer particular
contracts, but the customer received a ‘certificate of title’ describing
the wine for which he had paid. Orders could be filled from any source,
not necessarily existing stocks.
Where ascertainment by segregation occurs, the buyer becomes a
tenant in common of the entire stock in the proportion that their
goods bore to the total in store for the time being: Spence v Union
Marine Insurance Co Ltd (1868) LR 3 CP 427; Indian Oil Corp Ltd v
Greenstone Shipping SA (Panama) [1987] 3 All ER 893; Re Stapylton
Fletcher. If goods are segregated and at that moment ‘ascertained’, they
do not become ‘unascertained’ if, after that time, other goods are
mixed with them: THC Holding v CMA Recycling [2014] NSWSC 1136 at
[91].
In New South Wales, a statutory provision dealing with the transfer of
property in unascertained goods which form part of a bulk was
introduced to the Sale of Goods Act

[page 158]
by the Sale of Goods and Warehousemen’s Liens Amendment (Bulk
Goods) Bill 2006. The Bill’s Explanatory Notes stated:
The objects of this Bill are:
(a) to amend the Sale of Goods Act 1923 so as to provide that a purchaser of goods to
be delivered from bulk storage can, by paying for them, obtain a proprietary right
to those goods before they are separated out from the bulk …
…
The effect of the proposed section [25A] is that, as soon as the bulk from which the
goods are purchased is identified and the goods paid for, the purchase becomes an
owner in common of the whole of the bulk with an undivided share equivalent to the
quantity of goods that have been paid for and are due for delivering.

The relevant provision is s 25A of the Sale of Goods Act 1923 (NSW),
which provides, relevantly:
(1) This section applies to a contract of sale for a specified quantity of unascertained
goods of which some or all form part of a single bulk quantity of goods of the same
kind (‘the bulk’) if:
(a) the bulk is identified, either in the contract or by subsequent agreement
between the parties, and
(b) the buyer has paid for some or all of the goods that form part of the bulk.
(2) Unless the parties agree otherwise:
(a) property in an undivided share in the bulk is transferred to the buyer, and
(b) the buyer becomes an owner in common of the bulk.

The section has been held not to apply to a sale of scrap metal which
at the time of contract did not form part of a larger bulk: THC Holding
at [105].

Future goods
6.10 Future goods are goods to be manufactured or acquired by the
seller after the making of the contract of sale: s 3.35 Future goods
include goods not yet in existence, and goods in existence but not yet
acquired by the seller.
Where, by a contract of sale, the seller purports to effect a present
sale of future goods, the contract operates as an agreement to sell the
goods: s 8(3).36 This is because under s 4(3)37 if the seller does not
have property in the goods the seller is unable to pass property to the
buyer and hence conclude a sale. It follows that the sale of future goods
is an agreement to sell the goods because there is nothing in which the
seller has any property that can pass at the time of the contract.
Property is transferred in accordance with the intention of the parties
after the goods have become ascertained: Akron Tyre Co Pty Ltd v Kittson
(1951) 82 CLR 477 at 484–5.

[page 159]

In Butler v JSL Racing Pty Ltd [2014] VSC 509 at [488] a contract for
the sale of an interest in certain racehorses was held to be a present sale
of future goods in circumstances where the relevant agreements were
all subject to the defendants (the sellers) acquiring the horses upon
future payment in full to the auction house. This required the
defendants to either find other syndicate members or pay the amount
itself that was outstanding in respect of the racehorses.

The significance of the proper classification of goods

6.11 The nature of the goods dictates whether property in those
goods can pass. Once the goods have become ascertained, property in
the goods can pass. When property passes is then a matter of the
intention of the parties. The intention of the parties is their objective,
not subjective, intention. The objective intention of the parties is to be
ascertained from the terms of the contract, construed within the
circumstances in which it was reached. It may be that property is to pass
as soon as the goods have become ascertained. In some cases property
passes once there has been a consensual appropriation of particular
goods to the contract: Carlos Federspiel & Co SA v Charles Twigg & Co Ltd
[1957] 1 Lloyd’s Rep 240.
The Sale of Goods Act, by s 21,38 sets out rules as to when property is
to pass, in the absence of any contrary intention of the parties. These
rules are discussed in Chapter 8.
It is important to understand that the principle that property cannot
pass in unascertained goods is not just a technical rule governing the
transfer of property in unascertained goods but a fundamental concept
of personal property law which cannot be overruled by contract. For
example, in THC Holding v CMA Recycling [2014] NSWSC 1136, despite
a title provision to the contrary in a contract for the sale of scrap metal,
no property could pass unless and until the goods were ascertained. As
the Privy Council held in Re Goldcorp Exchange Ltd (in rec) [1995] 1 AC
74 at 90; [1994] 2 All ER 806 at 814: ‘It makes no difference what the
parties intended if what they intend is impossible: as is the case with an
immediate transfer of title to goods whose identity is not yet known.’
The Privy Council cited the following passage by Lord Blackburn from
his Treatise on the Effect of the Contract of Sale, 1st ed, London, 1845, pp
122–3:
The first of [the rules] that the parties must be agreed as to the specific goods on
which the contract is to attach before there can be a bargain and sale, is one that is
founded on the very nature of things. Till the parties are agreed on the specific
individual goods, the contract can be no more than a contract to supply goods
answering a particular description, and since the vendor would fulfil his part of the
contract by furnishing any parcel of goods answering that description, and the
purchaser could not object to them if they did answer the description, it is clear there
can be no intention to transfer the property in any particular lot of goods more than
another, till it is ascertained which are the very goods sold. This rule has existed at all
times; it is to be found in the earliest English law books … It makes no difference,
although the

[page 160]

goods are so far ascertained that the parties have agreed that they shall be taken from
some specified larger stock [goods sold ex-bulk]. In such a case the reason still
applies: the parties did not intend to transfer the property in one portion of the stock
more than in another, and the law which only gives effect to their intention, does not
transfer the property in any individual portion.

This was the case in Australian Securities and Investments Commission v

Fast Access Finance Pty Ltd [2015] FCA 1055, where the ‘diamond
business model’ employed by the respondents purported to pass legal
title to diamonds upon execution of a ‘sales agreement’. The court
held at [237]:
It seems unlikely that any of the rights generally associated with the ownership of
chattels actually passed from the relevant FAF entity to the customer in question, or
 from the customer to DCH, or that there was any intention that such rights pass.
Although the legal title purportedly passed on execution of the Sales Agreement, no
diamonds were ever appropriated to the contract. Section 19 of the Sale of Goods Act
1896 (Qld) (the ‘Sale of Goods Act’) provides that in the case of a contract for the sale
of unascertained goods, property does not pass unless and until the goods are
ascertained. The goods must be ascertained in a way which binds both parties. See
Jansz v G.M.B. Imports Pty Ltd [1979] VR 581 at 586 and 588. The respondents’
submission concerning s 24 of the Sale of Goods Act is misconceived. That section
does not qualify or limit the operation of s 19. As the diamonds were, at no stage,
appropriated to any one contract, title never passed from the FAF entity to the
customer, or from the customer to DCH.

The principle that property cannot pass in unascertained goods is

well illustrated by the following cases: Re Wait [1927] 1 Ch 606; Re
Goldcorp; Re Stapylton Fletcher Ltd (in admin rec) [1995] 1 All ER 192.
In Re Wait the sub-purchaser of a quantity of ‘Western White wheat’
was seeking an order for specific performance of its contract with Wait
& James for the purchase of 500 tonnes of wheat of the 1000 tonnes on
board the vessel Challenger. Wait & James had entered into the contract
of sale with the sub-purchasers prior to the arrival of the 1000 tonnes.
The sub-purchasers had paid for the 500 tonnes of wheat prior to its
delivery. Wait & James became bankrupt prior to the arrival of the
wheat. The main issue was whether the 500 tonnes of wheat, still to be
appropriated, were specific or ascertained goods, and thus could be
made the subject of an order for specific performance under the
equivalent of s 53 of the Act.39 The section can apply whether or not
property has passed to the buyer: James Jones & Sons v Earl of Tankerville
[1909] 2 Ch 440 at 445.
The Court of Appeal held that the goods were neither specific nor
ascertained goods because there had been no ascertainment or
identification of the 500 tonnes out of the cargo in bulk on board the
Challenger.40 Atkin LJ held:
… no 500 tons of wheat have ever been ear-marked, identified or appropriated as the
wheat to be delivered to the claimants under the contract … Nor can 500 tons or any

[page 161]
 less quantity be ascertained by subtracting from the bulk in the trustee’s possession
known quantities the property of the purchasers.41

The majority referred to dictum of Lord Westbury in Holroyd v

Marshall (1862) 10 HL Cas 191 at 209–10 where he gives the following
illustration by way of explanation of the nature of specific goods:
A contract for the sale of goods, as, for example, of 500 chests of tea, is not a contract
which would be specifically performed, because it does not relate to any chests of tea
in particular; but a contract to sell the 500 chests of a particular kind of tea, which ‘are
now in my warehouse in Gloucester’, was a contract relating to specific property, and
which would be specifically performed. These words appear to indicate clearly specific
goods in a specific place, identified and ascertained as the subject-matter of the
contract.42

Similarly, in the case of a sale of flour, as the purchaser’s flour had

not been separated and the bags had not been numbered, marked, put
into receptacles or ascertained in such a way as to distinguish them
from other flour in the warehouse, the trustee in bankruptcy was
entitled to the flour in priority to the buyers: Hayman & Son v M’Lintock
[1907] SC 936.
If the goods are not specific or ascertained, the buyer does not have a
remedy for specific performance but can still pursue a claim for
damages.43 Neither does the buyer in such a case acquire a beneficial
interest in the goods. A buyer and seller in such a case take the risk of
insolvency of their customer.44 Of course, apart from the rights
consequent upon the sale of goods contract, the seller or buyer may
have created other rights. There may, for example, have been an equity
created by way of charge, equitable assignment or any other dealing
with or disposition of the goods the subject of the sale. But the mere
sale or agreement to sell will only produce the legal effects which the
Act states.45

Price
6.12 The goods must be transferred for a money consideration,
called the price. The price can be determined in accordance with the
methods prescribed in s 11.46
Section 11 provides:
 (1) The price in a contract of sale may be fixed by the contract, or may be left to be
fixed in manner thereby agreed, or may be determined by the course of dealing
between the parties.

[page 162]

(2) When the price is not determined in accordance with s 11(1), the buyer must pay
a reasonable price.
(3) What is a reasonable price is a question of fact dependent on the circumstances of
each particular case.

Pursuant to the section, the parties may fix the price under the
contract or agree in the contract to a formula for ascertaining the
price. Alternatively, the price may be determined outside the contract,
by the course of dealing between the parties. If the price cannot be
obtained in either of these ways, the buyer must pay a reasonable price.
In Wenning v Robinson (1964) 64 SR (NSW) 157 a contract for the sale
of the goodwill of a business and of the assets connected with it
included a sale of stock ‘at valuation’. The price was held sufficiently
fixed by the contract so that resort to the equivalent of s 11(2) was not
necessary.
The determination of a reasonable price under s 11(2) is a question
of fact dependent on the circumstances of the case. A reasonable price
is usually ascertained by reference to the current market price of the
goods at the time and place of delivery, even though another amount
based on, for example, the cost of production may also be in a sense
‘reasonable’: compare Watson Bros v Hornby [1942] 2 All ER 506 cited in
Benjamin’s Sale of Goods, 6th ed, p 122.
The application of a reasonable price where the parties have not
otherwise agreed in accordance with s 11(1) is an exception to the
principle which requires there to be certainty of terms as between the
contracting parties: Foley v Classique Coaches Ltd [1934] 2 KB 1.
A contract of sale of goods where the consideration is something
other than money may constitute an exchange or barter and will fall
outside the sale of goods legislation. Where, however, goods are sold
partly for money and partly for some other form of consideration, the
Sale of Goods Act may still apply. This situation is fairly common, for
example, the sale of a car involving the trade-in of the buyer’s old
vehicle, or the sale of a vacuum cleaner on similar terms. In such a case
it may be that the transaction properly construed consists of reciprocal
sales with a set-off of prices: compare Davey v Paine Bros (Motors) Ltd
[1954] NZLR 1122. If so, the Sale of Goods Act will apply to both
transactions. On another view, there is one contract of sale of the
principal goods (the new car) together with a subsidiary agreement
that if the buyer delivers to the seller the vehicle to be traded in, an
adjustment will be made to the price. The Sale of Goods Act does not
apply to the transaction involving the car to be traded in for the reason
that the consideration paid by the seller is not money but the partial
release of a debt: Warmings Used Cars Ltd v Tucker [1956] SASR 249.

[page 163]

PERFORMANCE OF THE CONTRACT

6.13 It is the duty of the seller to deliver the goods and of the buyer
to accept and pay for them in accordance with the terms of the contract
of sale: s 29.47 Unless the parties have agreed otherwise, these
obligations are concurrent in so far as the seller must be ready and
willing to give possession of the goods to the buyer in exchange for the
price and vice versa: s 30.48
The Act sets out a number of general rules as to delivery: ss 31 and
39.49 There are also special rules which apply in relation to delivery to a
carrier: s 34.50

General rules of delivery

6.14 The general rules of delivery are as follows:
Whether it is for the buyer to take possession of the goods or for
 the seller to send them to the buyer is a question depending in
each case on the contract, express or implied, between the parties.
If there is no agreement between the parties, the place of delivery
is the seller’s place of business; if the seller does not have one,
then it is the seller’s residence.
If the contract is for the sale of specific goods which, to the
knowledge of the parties when the contract is made, are in some
other place, then that place is the place of delivery.
When, under the contract, the seller is bound to send the goods to
the buyer but no time for sending them is fixed, the seller is
bound to send them within a reasonable time.
When the goods at the time of sale are in the possession of a third
person, there is no delivery by the seller to the buyer unless and
until such third person acknowledges to the buyer that the third
person holds the goods on the seller’s behalf.
Demand or tender of delivery must be made at a reasonable hour
to be effectual.
Unless otherwise agreed, the expenses associated with putting the
goods into a deliverable state must be borne by the seller.
If the buyer does not take delivery from the seller within a
reasonable time after the seller requests the buyer to take delivery,
the buyer is liable to the seller for any loss occasioned by the
buyer’s neglect or refusal to take delivery and also for a reasonable
charge for the care and custody of the goods. This will not affect
the seller’s rights in the event that the buyer’s refusal amounts to a
repudiation of the contract.

[page 164]

Special rules of delivery relating to carriers

6.15 If a carrier is used, then the following rules apply:
When, in pursuance of a contract of sale, the seller is authorised
 or required to send the goods to the buyer, delivery of the goods
to a carrier, whether named by the buyer or not, for the purpose
of transmission to the buyer is prima facie deemed to be a delivery
of the goods to the buyer.
Unless otherwise authorised by the buyer, the seller must make a
reasonable contract with the carrier on behalf of the buyer having
regard to the nature of the goods and the other circumstances of
the case.
If the seller does not make such a contract and the goods are lost
or damaged in the course of transit, the buyer may decline to treat
the delivery to the carrier as a delivery to himself, or may hold the
seller responsible in damages.
Unless otherwise agreed, where the goods are to go by sea, under
circumstances in which it is usual to insure, the seller must give
such notice to the buyer as may enable the buyer to insure them
during their sea transit, and if the seller fails to do so, the goods
are deemed to be at the seller’s risk during such sea transit.

Delivery of the wrong quantity

6.16 If the incorrect amount of goods is delivered, the following
rules apply, subject to any usage of trade, special agreement or course
of dealing between the parties:
If the seller delivers less than the quantity of goods agreed, the
buyer may reject them or, if the buyer accepts them, then the
buyer must pay for them at the contract rate: s 32(1).
If the seller delivers more than the quantity of goods agreed to,
the buyer may accept the goods included in the contract and
reject the rest, or the buyer may reject all of the goods: s 32(2). If
the buyer accepts all the goods the buyer must pay for them at the
contract rate: s 32(2A).
If the seller delivers goods which have been mixed with goods of a
different description from the goods contracted for, the buyer
 may either accept the goods which are in accordance with the
contract and reject the rest or reject all of the goods: s 32(4).
Issues of incorrect quantity were raised in Euphoric Pty Ltd v Ryledar
Pty Ltd [2006] NSWSC 2 in relation to the supply of petroleum
products. The problem occurred because by their nature petroleum
products expand and contract in volume as the ambient temperature
increases and decreases. The buyer argued that a term should be
implied in the contract of sale to the effect that the price payable for
the petrol should be based on the volume tested at the point of delivery
to the buyer, as opposed to the point of loading, when the
temperature, and therefore volume, of the petrol was likely

[page 165]

to be lower. Rather than imply such a term, Palmer J, at [141]–[147],

looked to ss 33(1) and 36 of the Sale of Goods Act 1923 (NSW):
In my opinion, the answer to the issue of volume contraction is suggested by s 33(1) of
the Sale of Goods Act 1923 (NSW) which provides:

Delivery of wrong quantity or mixed goods

(1) Where the seller delivers to the buyer a quantity of goods less than the
seller contracted to sell, the buyer may reject them, but if the buyer
accepts the goods so delivered the buyer must pay for them at the
contract rate.

Under this section, it was open to Ryledar to measure the volume of petroleum
delivered in each case against the volume ordered. If the measurement showed that
the volume delivered was less than the volume ordered, Ryledar could reject the
delivery. Alternatively, it could accept the volume delivered and pay at the contract
rate but then it would bear the onus of showing that the volume delivered was not the
volume ordered and loaded: see eg Canberra Washed Sand Pty Ltd v Ro-Mix Concrete Pty
Ltd (1976) 11 ACTR 1 at 7–8. Ryledar has uniformly accepted the volumes delivered
by Euphoric but it has not even attempted to discharge the onus of showing that any
one of these volumes was less than the volume ordered and loaded.
Another answer is suggested by s 36 of the Sale of Goods Act which provides:

Risk where goods are delivered at distant place

Where the seller of goods agrees to deliver them at the seller’s own risk at
a place other than that where they are when sold, the buyer must
 nevertheless, unless otherwise agreed, take any risk of deterioration in the
goods necessarily incident to the course of transit.

Prof K Sutton says of this section in The Laws of Australia, Sale of Goods, Ch 4, para 27:

Deterioration which is natural to the class of goods sold, or necessarily

incidental to such storage or transit as the contract contemplates, is
(agreement apart) something which the buyer must accept: while
deterioration attributable to inherent faults or unusual characteristics in
the goods calls primarily for consideration of the question whether the
condition or quality of the goods has been warranted and the period or
point of time to which such warranty relates.

‘To deteriorate’ means ‘to grow worse in character; to become lowered or impaired in
quality or value; to degenerate’: Oxford English Dictionary. I think that, from a
purchaser’s viewpoint, it is legitimate to say that a tanker load of petroleum which it
has purchased has ‘deteriorated’ during transport because it has contracted to a
smaller volume than that paid for and is therefore is of less value to it than when it was
loaded at the refinery.
However, I do not think it essential that this case fit squarely into the words of s 36
Sale of Goods Act. In my opinion, the section states a general proposition of law as to
how risk of deterioration inherent in the nature of the goods or in the nature of their
transportation is to be borne, which may be applied by analogy in the present case.
Here, Euphoric, having sold the petroleum, agreed by cl 5.1 and 5.2 to deliver it to
Ryledar’s sites. By cl 5.4, the delivery was to be at Euphoric’s own risk. However, as
both buyer and seller well knew, there was a risk but not a certainty, inherent in the

[page 166]

very nature of petroleum products, that there would be contraction in the volumes to
be delivered due to variations in temperature necessarily incident to the course of
transit. The Supply Agreement does not expressly or implicitly provide which of the
seller or buyer is to bear that risk. Consistently with the policy evinced in s 36 Sale of
Goods Act, it should be the buyer who bears the risk. Correspondingly, if there was an
expansion in the volume delivered to the buyer between the time of loading and the
time of delivery, then it should be the buyer who gains the benefit.

IMPLIED TERMS: SALE OF GOODS ACT

6.17 The Sale of Goods Act implies terms into a contract of sale of
goods, provided the contract does not show a different intention.
There are a number of pre-conditions or elements which must be
satisfied before such a term is implied. If implied, it will then be
necessary to determine whether the term has been breached, and, if so,
whether the breach caused damage or loss to the buyer. For example,
in Visy Packaging Pty Ltd v Siegwerk Australia Pty Ltd [2013] FCA 231,
although the substitution of one epoxy resin for another was in breach
of an implied condition, it was held there was insufficient evidence to
establish that this caused cans of tuna to corrode.

Implied undertaking as to right to sell, quiet

possession and freedom from encumbrance
Sale of Goods Act s 1551
Australian Consumer Law ss 51–53
(former Trade Practices Act s 69(1))

Sale of Goods Act

Implied condition that seller has the right to sell
6.18 Section 15(a) implies a condition on the part of the seller that
in the case of a sale the seller has a right to sell the goods and that, in
the case of an agreement to sell, they will have a right to sell the goods
at the time when the property is to pass.
The most common illustration of the operation of the section is
where the seller has no title to the goods: see, for example, Rowland v
Divall [1923] 2 KB 500 and Butler v JSL Racing Pty Ltd [2014] VSC 509.
In Butler the sellers of interests in racehorses were found to be in
breach of the implied condition because they did not have the ability to
provide good title to the plaintiffs within a reasonable time after
purchase. The sellers did not have the ability because they had been
unable to find other syndicate members to fully pay for the horses and
had not paid the shortfall themselves. This meant that, under
regulations enforced by the Victorian racing authorities, the horses
could not be
 [page 167]

processed for registration to their new owners and therefore could be

neither trialled nor raced. The court held that, in these circumstances,
there was an implied term that the seller would obtain good title for the
relevant horses within a reasonable time after purchase so as to enable
them to be prepared, trialled and raced. A reasonable time was within
the time for payment required by the relevant auction house from
which the sellers had purchased the subject racehorses, under that
auction house’s usual terms of trade: at [273]–[274].
The term is not limited to the ability of the seller to pass good title.
In Niblett v Confectioners’ Materials Co Ltd [1921] 3 KB 387 the seller had
title to the goods, but was not in a position to sell them. Goods to be
sold by the seller carried the trademark of a third party, and were
seized by the authorities. The plaintiffs secured the release of the goods
by removing and destroying the labels. The seller was held in breach of
the term, and the plaintiff was entitled to damages. In Egekvist Bakeries v
Tizel & Blinick [1950] 1 DLR 585; affirmed [1950] 2 DLR 592, the
contract of sale was for berries, which were impounded at the time of
sale. It was held that, title notwithstanding, there was a breach of the
implied term that the seller had a right to sell.52
The liability imposed by the condition is strict and does not depend
therefore on the knowledge of the seller. Sometimes a person sells
goods that do not belong to them. This is not necessarily a breach of s
15(a). The seller may, for example, have been authorised by the owner
to sell the relevant goods: Bridge Wholesale Acceptance Corp (Australia) Ltd
v Hartland & Hyde Pty Ltd (NSWSC, Giles J, 2 February 1995,
unreported). The implied condition only requires that the seller has
the right to sell, which is a different issue from the seller’s proprietary
rights to the goods. A seller without title to the goods may be able to
create appropriate rights to the goods in the buyer by facilitating the
transfer of property in the goods by a third party/owner to the buyer:
Karlshamns Oljefabriker v Eastport Navigation Corp (The Elafi) [1982] 1 All
ER 208.
 In some cases a seller may sell goods before they have obtained title
to those goods. Once the seller has obtained title they may ‘perfect’
their title and avoid liability to the buyer under this provision, provided
the seller’s title is perfected before the buyer rescinds the contract of
sale: Patten v Thomas Motors Pty Ltd (1965) 66 SR (NSW) 459; Denis Geary
Motors v Hunter Street Finance [1979] Qd R 207 but compare West (HW)
Ltd v McBlain [1950] NI 144. This occurred in Sirius Shipping Corporation
v Ship ‘Sunrise’ [2006] NSWSC 398 where the seller, Evans, entered into
a contract to sell a ship it did not own to Capital Finance. Evans
acquired title to the vessel after the contract of sale to Capital Finance
when he took delivery of the vessel and the sale to him was completed
by the transfer of cash and shares (which later proved to be worthless).
As the purchaser (Capital Finance) had acted without notice of the
defect in title and the seller (Evans) acquired a clear title prior to the
termination by Sirius of the contract between the original seller (Sirius)
and the first buyer (Evans), the seller’s title was fed to Capital Finance:
at [110]–[112].

[page 168]

Another illustration of ‘perfection of title’ is Butterworth v Kingsway

Motors [1954] 1 WLR 1286. There, a hirer under a hire-purchase
agreement sold her car before she had paid all the instalments and
exercised the right to purchase under the agreement. There followed a
string of contracts in relation to the car. Each time the car was sold the
seller was in breach of the implied condition as to title to the
subsequent buyer. Eventually the ultimate buyer, Butterworth, became
aware that the hire-purchase company owned the car. Butterworth
wrote a letter to his immediate seller rescinding the contract of sale. A
week or so later the hirer paid all moneys owing to the hire-purchase
company and exercised her option to purchase. This gave her good
title as between herself and the hire-purchase company. The title she
acquired then went to ‘feed’ the previously defective title of the
subsequent purchasers. Butterworth recovered the purchase price paid
and returned the car to the immediate seller, Kingsway Motors.
Kingsway Motors then sued its immediate seller, H, for breach of the
condition as to title. The damages were calculated as the difference
between the amount Kingsway Motors had been forced to repay to the
ultimate purchaser and the value of the car. The value of the car was
assessed as at the time Kingsway Motors acquired title to the car (which
was when the hirer got good title).
A breach of s 15(a) is a breach of a condition which gives rise to a
right in the buyer to treat the contract as repudiated and to claim
damages for a breach of the condition. If the seller does not have the
right to sell the goods and therefore cannot pass good title to the buyer
the buyer is prima facie entitled to a refund of the whole purchase
price on the basis that there was a total failure of consideration, the
transfer of property in the goods being fundamental to the contract:
Rowland.
It is no bar to rescission of that contract that the goods cannot be
returned to the seller or that the buyer has had a temporary use or
enjoyment of them: Rowland. The implied condition is not, in other
words, converted to a warranty by the buyer’s actions. The buyer retains
the right to recover the purchase price, and is not limited to a claim for
damages. Further, the seller has no right to claim a set-off for
depreciation to take into account, for example, that the buyer has used
the goods: Rowland. The situation is different in relation to ‘consumer
sales’ where, in certain circumstances, the seller is entitled to recover
an amount representing the value to the buyer of their use of the
goods.53 The equivalent of s 14(3),54 which converts a condition into a
warranty where the buyer has accepted the goods, was held to have no
application to a breach of this particular condition: Rowland; Butterworth
at 1294.

Implied warranty that buyer shall have quiet possession

6.19 A contract of sale of goods includes an implied warranty that
the buyer shall have and enjoy quiet possession of the goods: s 15(b).
‘Quiet possession’ includes, but extends beyond, freedom from physical
interference with the goods by the seller. Thus,

[page 169]

it is an infringement of the implied term where: goods sold and

delivered on credit, but still within the credit terms, are seized by the
seller (Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968) 121 CLR
584); the patentee of the patent affecting the goods claims an
infringement by the buyer against the patent (Microbeads A-G v Vinhurst
Road Markings Ltd [1975] 1 WLR 218); and the buyer needs to remove
labels on goods which infringe the copyright of a third party (Niblett v
Confectioners’ Materials Co Ltd [1921] 3 KB 387).
The words ‘have and enjoy’ relate to the period at and after the time
of sale. The term includes the period after possession is passed to the
seller, and before the passing of property: Keetley v Quinton Pty Ltd
(1991) 4 WAR 133. As the cases demonstrate, the seller can be in
breach of the term where a third party, independent of the contract of
sale, exercises lawful rights over and in respect of the goods.
The implied warranty of quiet possession, and the implied condition
that the seller has a right to sell, are often relied upon together by an
aggrieved buyer. The right to sell goes to title, and is also usually
invoked when, at the time for delivery, the seller is prevented from
delivery. The right of quiet possession is more often relied upon where
possession has passed, but is interfered with whether by the seller or a
third party exercising lawful rights. The operation of the two terms is
illustrated by Microbeads. There, the buyer purchased road-marking
machines from Swiss sellers. Neither party was aware that an English
company had applied for a patent in respect of road-marking
equipment. The letters patent were not issued until after the contract
of sale. The English company then sought to exercise its rights against
the buyer, alleging an infringement of its patent. The buyer, in
defending an action brought by the seller for payment, argued that the
seller was in breach of the equivalent of s 15(a) and (b) in selling the
equipment. It was held that there had been no breach of the condition
as to title because the seller did have the right to sell when property was
to pass. There was, however, a breach of s 15(b) because the buyer did
not enjoy quiet possession of the goods. There was no reason, it was
held, to limit the scope of the term to defects which existed at the time
of contracting.
In Interstate Parcel Express Co v Time-Life International (1977) 138 CLR
534 it was argued that the warranty of quiet possession would be broken
if the appellant were prevented, by the owner of copyright, from
importing the books it had purchased into Australia and selling them
there. This argument was rejected by the High Court at 544:
On any view, such a warranty would be irrelevant for the purposes of the provisions of
ss 37 and 38 [of the Copyright Act 1968 (Cth)]. To warrant that the buyer shall have
quiet possession of what he buys is not to warrant that the owner of the copyright
consents to the importation of the purchased books into Australia and their sale there
after importation, or to warrant that the buyer may import the books into Australia
and resell them without the consent which those sections require.

The buyer is not entitled to treat the contract as repudiated where

there is a breach of the warranty, being limited to a claim for damages.

[page 170]

Implied warranty that the goods are free from encumbrance

6.20 Section 15(c) provides that there is an implied warranty that
the goods shall be free from any charge or encumbrance in favour of
any third party not declared or known to the buyer before or at the
time when the contract is made.
It is difficult to envisage a situation where it would be necessary to
rely on this warranty, given the scope of s 15(a) and (b).
It is of note that the subsection directs attention to the time at which
the contract is made, not when property is to pass. In this respect it is
different from the implied condition that the seller has a right to sell,
which must exist at the time the property passes. Thus, if an
encumbrance (for example, a charge) exists at the time of the contract,
the term will have been breached.
Steinke v Edwards (unreported, see (1935) 8 ALJ 368) is one example
of its operation. In that case the plaintiff bought a car from the
defendant and then resold it. A previous owner had failed to pay tax
owing on the car. Under the relevant state legislation the car could be
seized for non-payment of the tax, the car being deemed for this
purpose to be owned by the debtor. When the car was seized the buyer
threatened to sue the plaintiff. The plaintiff paid the tax and sought to
recover the tax from the defendant. The tax was held under the tax
regulations to constitute a charge or encumbrance on the car within
the equivalent of s 15(c). Accordingly the plaintiff was entitled to
recover the amount of tax paid by him as damages for breach of the
implied warranty.
The remedy of the buyer where the warranty implied by s 15(c) is
breached is damages. It has been suggested that the amount of
damages recoverable should be limited to the amount of expenditure
required to discharge the encumbrance or charge, together with
relevant legal costs: Benjamin’s Sale of Goods, 6th ed, pp 148–9.

Correspondence with description

Sale of Goods Act s 1655
Australian Consumer Law s 56
(former Trade Practices Act s 70)

Introduction
6.21 Historically, a sale by description was regarded as different from
a sale of specific goods. The duties upon a seller were less onerous in
respect of specific goods than in respect of those which had been sold
by reference to a description. Where the sale was by way of description,
the Sale of Goods Act by s 16 implies an obligation that the goods
comply with that description in that they are what the parties agreed
they should be. Nowadays, almost all sales are regarded as being sales
by description.

[page 171]

The implied condition as to correspondence with description should

not be applied without first considering whether or not there is an
express term in the contract that the goods conform to a particular
description. Whether or not a descriptive statement made about the
goods prior to the contract forms an express term of the contract, that
is, is promissory in nature, as opposed to a mere representation
depends on the intention of the parties to the contract. This intention
is to be gleaned from the whole of the evidence including the
circumstances of the transaction and the conduct of the parties: Oscar
Chess Ltd v Williams [1957] 1 All ER 325. The test is objective: would an
intelligent bystander reasonably infer that a promise was intended?
Once it is determined that the statement is of contractual effect, it is
necessary to classify the term as either a warranty, a condition or an
innominate term. This classification will determine the remedy
available to the buyer.
If there is no express condition as to correspondence with
description, it is necessary to consider the implied term.

Sale of Goods Act

6.22 Section 16 of the Sale of Goods Act provides:
When there is a contract for the sale of goods by description there is an implied
condition that the goods shall correspond with the description; and if the sale is by
sample, as well as by description, it is not sufficient that the bulk of the goods
corresponds with the sample if the goods do not also correspond with the description.

Section 16 is concerned with whether the goods comply with the

description: are they the goods identified by the description? Other
sections deal with the quality of the goods. The basic premise of the
section is that if a buyer has bought goods by description, then the
buyer should get what was described.
 In order for the section to apply, that is, for the condition to be
implied, there must have been a sale by description. If so, it is then
necessary to determine exactly what words comprise the ‘description’
for the purposes of s 16 and, finally, to determine whether the goods
do in fact correspond with this description. Thus, important issues in
determining whether the condition implied by s 16 has been breached
are as follows:
1. Was there a sale by description?
2. If so, what words comprise the description?
3. Do the goods correspond with the description?

What is a ‘sale by description’?

6.23 Sales by description are analysed as follows in Benjamin’s Sale of
Goods, 6th ed, pp 474–5:
Sales by description may … be divided into sales (1) of unascertained or future goods
as being of a certain kind or class, or to which otherwise a ‘description’ in the contract
is applied; (2) of specific goods, bought by the buyer in reliance, at least in

[page 172]

part, upon the description given, or to be tacitly inferred from the circumstances, and
which identifies the goods.56

The second category is notable for its introduction of the notion of

reliance into s 16, in respect of specific goods. ‘Reliance’ is not a word
which appears in s 16, but it is a necessary consequence of the
requirement that the sale be ‘by description’; that is, if the description
is not relied upon at all, it cannot be a sale by reference to the
description.
Sales of unascertained goods are almost always by description, for
otherwise there would be nothing to determine the subject matter of
the contract or the obligations of the vendor. Sales of future goods will,
in the majority of cases, be by description. However, this may not
necessarily be the case, where, for example, the relevant goods are seen
and requested by the buyer in the hands of a third party and then later
obtained by the seller from the third party for sale to the buyer:
Benjamin’s Sale of Goods, 6th ed, p 475.
The issue of whether there is a sale by description is more difficult in
the context of specific goods. In the case of specific goods, it is possible
to sell them without any description at all. The article sold may be
identified merely by its presence and sold as it is, without any
description of its nature whatsoever, with the buyer taking the risk the
article is what they think it is, or something else. For example, the
buyer may take the risk that the shiny stone is a zircon or a diamond. In
most circumstances, however, the goods one way or another will bear a
description, expressly or impliedly: a stone will be sold as a jewel, not
costume jewellery, and a thoroughbred sold as a thoroughbred, not a
work horse.
In Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387 the buyer
contracted dermatitis from woollen underwear. He sued the
manufacturer in negligence and the retailer on the basis it had
breached the implied conditions as to merchantability (which also
requires a sale by description) and fitness for purpose. In that case the
buyer had self-selected the underwear from the shelf. The court held
that there had nonetheless been a sale by description, at least to the
extent that the words on the box delineated the goods and indicated
the kind of clothing agreed to be bought. In that case Dixon J referred
to the distinction between sales of things sought or chosen by the buyer
because of their description and sales of things of which the physical
identity is all-important. His Honour held at 417:
When the ground upon which the goods are selected or identified is their
correspondence to a description and when, therefore, it may be said that the buyer
primarily relies upon their classification or possession of attributes, then,
notwithstanding that they are bought as specific goods ascertained and identified, the
goods are bought by description.

A sale in a self-service department store will therefore constitute a

sale by description provided the goods are described in some way on
the outside packaging or by sign, notice or label: Benjamin’s Sale of
Goods, 6th ed, p 476. The issue of whether an item
 [page 173]

displayed for sale but not described in any way, other than marked with
a price, could be a sale by description is not as clear.
There can be a sale by description even where goods have been seen
and selected, provided the deviation from the description is not
apparent. For example, in Elder Smith Goldsbrough Mort Ltd v McBride
[1976] 2 NSWLR 631 a bull sold as a ‘breeding bull’ was available for
inspection prior to the sale. The bull was not fertile. The sale of the
bull was held to constitute a sale by description and the relevant
description in the catalogue was ‘breeding bull’. This can be contrasted
with Walker v Sell [2016] FCCA 452 where a purchaser who conducted
his own inspection to determine whether a car was an original 1970
Ford GTHO Falcon Sedan and decided to buy it on the basis of that
inspection was held not to have entered into a sale by description.
What, then, is not a sale by description? In Benjamin, Sale of Personal
Property (Ker and Butterworth eds), Sweet & Maxwell, London, 1906, p
611, it is said:
It follows that the only sales not by description are sales of specific goods as such.
Specific goods may be sold as such when they are sold without any description, express
or implied; or where any statement made about them is not essential to their identity;
or where, though the goods are described, the description is not relied upon, as when
the buyer buys the goods such as they are.

The description needs to influence the sale

6.24 The point was made above that s 16 does not refer, in its terms,
to the reliance of the buyer upon the description. However, because
the sale needs to be one ‘by description’, it is necessary for the
description to influence the sale. It is difficult to imagine the
description influencing the sale unless the buyer, expressly or
impliedly, relies upon the description. Consequently, reliance is
considered the practical feature which distinguishes a sale by
description from a sale of specific goods.
The relevance of the buyer’s reliance on the description was
considered in Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine
Art Ltd [1990] 3 WLR 13. In that case a painting was sold by one art
dealer to another. The main issue was whether the sale of the painting
Dorfstrasse in Oberbayern was a sale by description, the name of the artist,
Gabriele Munter, being part of that description. If it was, the painting
did not correspond with the description; it was a fake. The painting was
described in the invoice and prior to the sale as a work of Gabriele
Munter who was an artist of the German Expressionist school. The
seller made it absolutely clear to the buyer that he was not an expert in
Munter’s paintings. Indeed, the seller to a certain extent made it clear
that he was relying on the buyer’s employee who had come to inspect
the paintings. When the forgery was discovered, the buyer asked the
seller to take back the painting and refund the purchase price of £6000.
In the Court of Appeal the plaintiff buyer argued that the goods did
not correspond with their description, and that the goods were not of
merchantable quality.

[page 174]

In considering the words ‘by description’ Nourse LJ held at 18:

Authority apart, those words would suggest that the description must be influential in
the sale, not necessarily alone, but so as to become an essential term, ie a condition, of
the contract. Without such influence a description cannot be said to be one by which
the contract for the sale of the goods is made.
I think that the authorities to which we were referred are consistent with this view …

Nourse LJ agreed that, theoretically, attributing significance to the

buyer’s reliance on the description is misconceived. However,
practically, it would be very difficult, if not impossible, to envisage a
situation where a description of goods which is not relied on by the
buyer could become an essential term of the contract for their sale. In
his Honour’s view (at 21, emphasis added):
The description must have a sufficient influence in the sale to become an essential
term of the contract and the correlative of influence is reliance. Indeed, reliance by
the buyer is the natural index of a sale by description … For all practical purposes, I
would say that there cannot be a contract for the sale of goods by description where it
is not within the reasonable contemplation of the parties that the buyer is relying on
the description.
 It is necessary to look to the contract as a whole in order to identify
what stated characteristics of the goods are intended to form part of the
description by which they are sold: at 20. The test is an objective one: at
21. Nourse LJ held that, in view of their words and deeds as a whole,
the parties could not reasonably have contemplated that the plaintiffs
were relying on the defendant’s statement that the painting was by
Munter: at 22.
While Slade LJ did not think that a requirement of actual reliance on
the description by the buyer was strictly correct, his Honour held that it
may, nevertheless, be very relevant in so far as it sheds light on the
intentions of the parties at the time of contract. Slade LJ held at 30–1:
If there was no such reliance by the purchaser, this may be powerful evidence that the
parties did not contemplate that the authenticity of the description should constitute
a term of the contract — in other words, that they contemplated that the purchaser
would be buying the goods as they were. If, on the other hand, there was reliance (as in
Varley v Whipp [1900] 1 QB 513, where the purchaser had never seen the goods) this
may be equally powerful evidence that it was contemplated by both parties that the
correctness of the description would be a term of the contract (so as to bring it within
[s 16]).

Slade LJ held that an objective assessment of what the parties said

and did at the time of sale and of all the circumstances of the case led
to the conclusion that the parties did not hold a common intention
that the authenticity of the attribution to Munter should be a term of
the contract of sale: at 31.
Stuart-Smith LJ did not regard the concept of reliance as relevant to
a sale by description: at 25. His Honour concluded, contrary to the
decision of Nourse and Slade LJJ, that the

[page 175]

painting was represented to be by Munter, that this formed part of the

description and that the condition as to correspondence by description
was therefore breached.
Characteristics of goods which would be apparent on reasonable
examination are unlikely to have been intended by the parties to form
part of the description by which the goods were sold, even if those
characteristics are mentioned in references in the contract to the goods
that are its subject matter: Gill & Duffus SA v Berger & Co Inc (No 2)
[1984] AC 382 at 394 per Lord Diplock.

What words constitute the description?

6.25 It has been held that ‘the description’ means a statement of the
kind, class or species to which the article belongs. It must be a
statement as to the essential or specific nature of the thing sold, not
merely a statement as to the quality, the state or another attribute of
the article: Taylor v Combined Buyers Ltd [1924] NZLR 627 at 639–40.
The cases distinguish between statements going to the identification of
the goods and those going to the quality of the goods. Lord Diplock
considered the issue in relation to sales of unascertained goods in
Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 503–4:
The ‘description’ by which unascertained goods are sold is, in my view, confined to
those words in the contract which were intended by the parties to identify the kind of
goods which were to be supplied … Ultimately the test is whether the buyer could
fairly and reasonably refuse to accept the physical goods proffered to him on the
ground that their failure to correspond with that part of what was said about them in
the contract makes them goods of a different kind from those he had agreed to buy.
The key to section [16] is identification.

The distinction has its ultimate source in the principles of that

partially forgotten logic which distinguishes between the essential
qualities of a thing, namely, those which entitle it to be placed in a
particular species of things as possessing the essential qualities of that
species, and those accidental qualities which may or may not be
possessed by the various members of that species. The distinction
between differences of kind or essence and differences of quality or
accident is difficult of application, and is based on considerations of the
customary use of language, rather than on any deeper foundation.
Similarly, words that describe the purpose for which goods are
suitable will usually not form part of the description of the goods for
the purpose of s 16; otherwise, the implied condition as to fitness for
purpose would be otiose: Benjamin’s Sale of Goods, 6th ed, p 480. There
may be exceptions where the general purpose of the goods is an
element of the description of the goods; for example, oysters not fit for
human consumption might not conform with their description as
oysters: ibid.
It is, of course, possible that words concerning the quality of the
goods will constitute misrepresentations if incorrect, and be actionable
at common law and under the fair trading and trade practices
legislation. That, however, is a different topic.

[page 176]

Exploring the difference between matters of identity and quality

6.26 Whether a descriptive statement regarding the goods is a matter
of quality as opposed to identity can be a difficult issue. The following
examples provided in Taylor v Combined Buyers Ltd [1924] NZLR 627 at
642–3 are helpful in illustrating the distinction:
If I contract to buy ‘a cask of port wine’, and I receive beer, I am
entitled to reject the goods because there has been a breach of the
statutory condition of conformity with description. The difference
between port wine and beer is not a difference of quality, degree
or other unessential attribute, but is a difference of kind. If,
however, I contract to buy ‘a cask of port wine in sound condition’
and I receive a cask of port wine which, upon delivery and
examination, is found to be in poor condition, I am not entitled to
reject the goods on the basis that the goods did not conform to
the description under which they were sold. The port wine
conforms to the description, inasmuch as the difference between
good port wine and bad port wine is merely a difference of quality,
state or condition. It may be that the goods are not merchantable.
If I contract to buy specific chairs described as a set of antique
mahogany chairs, and receive modern imitations, the chairs could
be rejected for breach of condition as to conformity with
description, the difference between antiques and modern
imitations being a difference of kind and not of quality: Edgar v
Hector [1912] SC 348.
If I contract to buy a stud bull and the bull I receive cannot
perform the act of copulation this will constitute a breach of the
condition as to conformity with description as it does not possess
the essential nature of a stud bull and therefore differs in kind
and not merely in quality and degree from the contractual
description as a stud bull: Cotter v Luckie [1918] NZLR 811.57 On
the other hand, the sale of a ‘pedigree Jersey bull’ which was in
fact sterile did not constitute a breach of the condition based on
the strict meaning of ‘pedigree’ in Dell v Quilty [1924] NZLR 1270.
If I contract to buy a ‘14-horsepower engine’ and receive an
engine of substantially less than 14 horsepower, this may not
constitute a breach of the condition: Parson v Sexton (1847) 4 CB
899.
If I contract to buy a specific ‘stock of coal of Cumberland and
small Welsh coal mixed’ and the stock I receive contains an
admixture of inferior coal, there may be no breach of the
condition. The difference in the coal may be of quality rather than
kind: Kirkpatrick v Gowan (1876) 9 Ir Rep CL 521.
If I contract to buy a reaping machine used only for one season
and receive a much older machine, this may constitute a breach of
conformity with description: Varley v Whipp [1900] 1 QB 513. This
decision has been criticised on the grounds

[page 177]

that the difference between the machine as described and the

machine received was essentially a matter of quality: Taylor at 643.
However, in Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC
441, the case was accepted as an example of where a qualitative
description of the goods may form part of the description for the
purposes of the section. The description of the reaping machine
as new the previous year and only used for 50 acres was a sale by
 description on the basis that the description would have identified
the goods as a nearly new machine: Ashington Piggeries at 475 per
Lord Guest.
If I contract to buy a new Calthorpe car and receive a second-hand
one, this does amount to a breach of the condition in that, in
respect of a complicated and rapidly depreciating piece of
machinery such as a motor car, the difference between a new car
and a used or second-hand car is not a mere difference of quality,
state or condition but amounts to a difference of kind: see also
Russo v Belcar Pty Ltd (2011) 111 SASR 459; [2011] SASCFC 151.
If I contract to buy a particular model and make of a car and the
car I receive is in fact two halves of two different cars welded
together, then this constitutes a breach of the condition: Beale v
Taylor [1967] 1 WLR 1192.
If I contract to buy tinned fruit ‘30 tins to a case’ and the tins are
packed 24 tins to a case, then, despite the fact that the total
number of tins is the same, the way it is packed may constitute part
of the description for the purposes of the condition: Re Moore and
Landauer [1921] 2 KB 519. It is submitted, however, that the
method of packing is not a matter of identity and should not
properly have formed the basis for rejecting the goods under this
condition.
Other provisions deal specifically with the situation where the wrong
quantity of goods is supplied or where the goods contracted for are
mixed with goods of the wrong description. Under s 32,58 if the seller
delivers a quantity of goods less than the seller contracted to sell, the
buyer may reject the goods. If the buyer decides to accept the goods,
the buyer must pay for them at the contract rate. If the buyer receives
more than they contracted to buy, the buyer is entitled to reject the
whole of the goods, or may accept the contracted amount and reject
the rest. The buyer must pay for the goods in either case at the contract
rate.
Similarly, where goods which the seller contracted to sell are mixed
with goods of a different description not included in the contract, the
buyer may either reject the whole of the goods or accept the contracted
goods and reject the rest.
Section 32 is subject to any usage of trade, special agreement or
course of dealing between the parties. So if, for example, the common
practice between the parties was to deliver and accept an approximate
amount of the relevant goods, then the buyer will not be entitled to rely
on the provision.

[page 178]

What do the words constituting the description mean?

6.27 Words of description in a contract are to be construed by
reference to the usual rules for construing contracts: Ashington Piggeries
Ltd v Christopher Hill Ltd [1972] AC 441 at 502. The meaning must be
construed objectively, in the context in which the contract was entered
into: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149
CLR 337.
On occasion an abbreviation may be used in the market and
therefore in the contract of sale to describe the goods, for example,
‘PVC resin’ or ‘faq’ (fair average quality). In such cases, evidence of
what is commonly meant by that description in the trade is admissible
to show what is meant by those who use it: Metal Roofing and Cladding
Pty Ltd v Amcor Trading Pty Ltd [1999] QCA 472.
In Metal Roofing the relevant goods were described as PVC resin. The
buyers contended that the PVC supplied did not satisfy its description
because the level of contamination was higher than was generally
expected in the market. The majority held that there was no uniform
understanding or expectation of the tolerable level of non-PVC
substances (contaminants) let alone of the level at which resin could no
longer properly be described as PVC. There was therefore no breach of
s 16.
In Nichol v Godts (1854) 10 Ex 190; 156 ER 410 the term ‘foreign
refined rape oil’ was used. Evidence was admitted from both sides as to
what this meant in the market, the seller contending that what had
been delivered satisfied the description despite the fact it contained an
admixture of hemp oil.
In Marimpex Mineralol v Louis Dreyfus et Cie Mineralol [1995] 1 Lloyd’s
Rep 167 evidence was admitted as to what was accepted in the trade as
the limit of bacterial contamination in a substance sold as ‘normal
Russian gas oil’. In that case the goods did not conform to their
description because the level of contamination was higher than that
accepted in the trade as satisfying that description.
In Russo v Belcar Pty Ltd (2011) 111 SASR 459; [2011] SASCFC 151,
the court in considering whether a 360 Modena F1 Ferrari was ‘new’ in
accordance with an essential part of its description referred to Annand
& Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91 at
111 where the Full Federal Court held that ‘new’ had five possible
meanings when used to describe a vehicle:
the vehicle has not been previously sold by retail; that is, it is not a
second-hand vehicle;
the vehicle is a current and not a superseded model;
the vehicle has not suffered significant deterioration or been used
to any significant extent;
the vehicle is of recent origin; and
the vehicle is one which has suffered a measure of damage but this
damage has been quite effectively repaired or any damaged part
replaced and the vehicle is otherwise new in every respect.

[page 179]

In Russo, although there was evidence of repairs having been done to

the car, the court held that the purchaser had not proved the damage
to the car was caused prior to delivery: at [83].

Do the goods correspond with the description?

6.28 Whether the goods correspond with their description is a
question of fact: Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC
441.
In that case, Christopher Hill was the seller of mink food to
Ashington Piggeries, which owned a mink farm. Ashington Piggeries
had asked Christopher Hill to make a compound food in accordance
with a formula supplied by Ashington Piggeries (who knew the
nutritional requirements of mink) called ‘King Size’. Christopher Hill
was to provide the ingredients and mix the compound. Christopher
Hill was in the business of compounding foodstuffs for animals but
knew nothing about mink. Christopher Hill entered into a contract
with Norsildmel for it to supply Norwegian herring meal of ‘fair
average quality of the season’ for the compound. The herring meal
contained dimethylnitrosamine (DMNA), unbeknown to any of the
parties. It had been caused due to a chemical reaction between the
herring and sodium nitrate, a preservative used in the herring meal.
The DMNA was highly toxic to mink and they died. The chemical
reaction which produced the toxic substance in the course of
manufacture was unthought of.
Christopher Hill, the seller, sued Ashington Piggeries for the price of
the goods. Ashington Piggeries counter-claimed for damages for breach
of contract alleging that the ‘King Size’ did not correspond with its
description and was not reasonably fit for the purpose or of
merchantable quality. Christopher Hill in turn sued Norsildmel, the
supplier of the herring meal, for indemnity.

Contract between Christopher Hill and Ashington Piggeries

6.29 There was a sale by description. The description by which the
goods were sold was contained in the formula which set out in detail
the ingredients of the feeding stuff to be compounded. One of the
ingredients was herring meal. It was argued for Ashington Piggeries
that ‘King Size’ made partly of herring meal which contained DMNA
did not correspond with the description ‘King Size’. This can be
reduced to the proposition that the herring meal ingredient did not
correspond with the description because it contained DMNA.
 The DMNA was not added to the herring meal but produced by a
chemical reaction caused by the use of sodium nitrate as a preservative
in the herring meal.
The issue was whether the DMNA merely affected the quality of the
herring meal or made it a difference in kind.
The House of Lords held that there was no breach of the implied
condition as to correspondence with description as between
Christopher Hill and Ashington Piggeries

[page 180]

because the herring meal supplied was herring meal. The fact that it
was contaminated and poisonous to mink was a difference in quality or
condition rather than description.59
It has been held that where there was a substantial addition to the
commodity described then it might be that the goods plus this addition
do not correspond with the description: Pinnock Brothers v Lewis & Peat
Ltd [1923] 1 KB 690; Robert A Munro & Co Ltd v Meyer [1930] 2 KB 312;
Ashington Piggeries at 472. This approach, it is submitted, confuses the
issue: it is not the cause of the failure to comply which matters but
whether the goods comply with the description: Ashington Piggeries at
482 per Viscount Dilhorne.

Contract between Christopher Hill and third-party supplier

6.30 The description of the goods supplied was held to be limited to
‘Norwegian Herring Meal’ and did not include the subsequent phrase
‘fair average quality of the season’. There was held to be no breach of
the section.
It has been suggested that had the foodstuff been poisonous instantly
to all creatures, the result in the case on this issue would have been
otherwise: Benjamin’s Sale of Goods, 6th ed, p 484.
Similar issues arose in Tre Cavalli Pty Ltd v Berry Rural Co Operative
Society Ltd [2013] NSWCA 235, a case involving the sale of cattle vaccine
which the purchaser claimed was contaminated at the time of sale. The
Court of Appeal held, in relation to whether the goods corresponded
with their description, at [71]–[72]:
… The appellant complained that the primary judge ‘limited his consideration to the
description on the vaccine pack and failed to have regard to what was the description
and whether the vaccine corresponded with the description’. Insofar as this complaint
relates to the description of the goods, no error has been shown in the primary judge
only taking into account the description on the pack. The appellant did not suggest
that there was any other relevant description of the goods. Further, no written
submissions were made in support of this ground of appeal and it was not raised by
the appellant during the hearing of the appeal.
In particular, no submissions were made that the description of the vaccine was a
misdescription because it was contaminated by the addition of some substance (and if
so, what substance) which was not an authorised ingredient of the formula so as to
make the goods lose their identity, or whether any defect in the vaccine was a matter
of quality rather than description …

The court went on to refer to Ashington Piggeries Ltd v Christopher Hill

Ltd [1972] AC 441 and to the so-called ‘copra cake’ cases of Pinnock
Brothers v Lewis & Peat Ltd [1923] 1 KB 690 and British Oil & Cake Co Ltd
v J Burstall & Co Ltd (1923) 15 Lloyd’s Rep 46 where the copra cake was
so adulterated with castor seed that it was poisonous to cattle and was
held on that basis to have been not properly described as copra cake at
all: at [72].

[page 181]

Fitness for purpose

Sale of Goods Act s 17(a) and (b)60
Australian Consumer Law s 55
(former Trade Practices Act s 71(2))

Sale of Goods Act

6.31 The introductory words of s 17 provide that except in the
circumstances thereafter defined, there is no implied warranty or
condition as to the quality or fitness for any particular purpose of goods
supplied under a contract of sale. Hence, the prima facie position is
one of caveat emptor. However, in the circumstances described below,
those terms will be implied. It is notable that the section does not apply
to private sales, but only to sales of goods which are sold in the course
of the seller’s business.
Section 17(a) and (b) of the Sale of Goods Act (Qld) provides as
follows:
(a) … when the buyer, expressly or by implication, makes known to the seller the
particular purpose for which the goods are required, so as to show that the buyer
relies on the seller’s skill or judgment, and the goods are of a description which it
is in the course of the seller’s business to supply (whether the seller is the
manufacturer or not), there is an implied condition that the goods shall be
reasonably fit for such purpose;
(b) however, in the case of a contract for the sale of a specified article under its
patent or other trade name, there is no implied condition as to its fitness for any
particular purpose.

In order for the term as to fitness for purpose to be implied the

following elements must exist:
1. The buyer must have made known, expressly or by implication, the particular
purpose for which he or she wanted the goods.
2. The particular purpose must have been disclosed in such a way that it was clear
that the buyer was relying on the seller’s skill and judgment.
3. The seller must have been in the business of supplying goods of that description.
4. The goods, if specific, must not have been bought under their patent or other
trade name.

Did the buyer make known the particular purpose for which
the goods were required?
6.32 The logic behind the requirement is that the seller is entitled to
be informed of the purpose so that he or she may ensure that the
goods are fit for that purpose. The manners in which the purpose may
be made known by the buyer are many, and the courts have
approached the issue broadly. In determining whether the purpose has

[page 182]
been made known, it is appropriate to look at all of the circumstances
preceding the transaction: the purpose may, but will not necessarily,
form part of the contract itself.
Obviously, a buyer may request goods for a specific purpose, for
example, ‘I need a jacket that will keep me warm and dry when I am
skiing.’ But the making known of the purpose may be inferred. Thus, if
a propeller is ordered for a ship under construction, then the purpose
will have been made known: Cammell Laird & Co Ltd v Manganese Bronze
& Brass Co Ltd [1934] AC 402.
Importantly, it has been held:
(a) when goods are by their description suitable for only one
purpose, it will be inferred that the buyer has made known the
purpose for which he or she requires the goods: Priest v Last
[1903] 2 KB 148;
(b) if no specific purpose is made known, it will be inferred that
the buyer has made known that the goods are being bought
for their normal purpose: Priest; and
(c) where goods are capable of being used for more than one
purpose, the buyer must make known the purpose for which
he or she requires them; if so, the suitability must be for that
purpose: Priest.
The purpose must be disclosed before or at the time of contract. The
requirement of disclosure of purpose is closely related to the next
element, that is, the need to show reliance on the seller’s skill and
judgment. The question whether the buyer has stated his purpose and
has relied on the seller’s skill and judgment will be a question of fact to
be answered by examining all of the circumstances leading up to the
selling transaction: Ashington Piggeries Ltd v Christopher Hill Ltd [1972]
AC 441 at 496 per Lord Wilberforce; Dependable Motors Pty Ltd v Ashford
Shire Council (1959) 101 CLR 265 (Dependable Motors) at 277, 283 and
289. In Liaweena (NSW) Pty Ltd v McWilliams Wines Pty Ltd (1991) ASC
56-038 the New South Wales Court of Appeal considered the
background of a history of transactions over many years between the
parties in finding that the buyer had shown its reliance on the seller’s
skill and judgment in delivering corks fit to use for wine bottles.
The ‘particular purpose’ means a given purpose, known or
communicated. ‘Particular’ means little more than stated or defined. It
can be a narrow or a general purpose. Obviously, the broader the
purpose, the broader the range of goods which are reasonably fit for
that purpose. For example, the purpose of a car to be driven on a road
will be satisfied by almost any car so long as it functions reasonably, but
the narrower purpose of a bus suitable for the crowded streets of a city
can only be achieved by a narrower range of vehicles: Henry Kendall &
Sons v William Lillico & Sons Ltd (the Hardwick Game Farm case) [1969] 2
AC 31. The purpose must be made known with sufficient particularity
to enable the seller to identify the characteristics which the goods need
to possess to fit them for that purpose: Hardwick Game Farm per Lord
Reid at 79.
In Regal Pearl Pty Ltd v Stewart [2002] NSWCA 291, for example,
prawns contaminated with hepatitis were held not fit for the purpose of
human consumption, whereas, in the court below, a narrower purpose
of ‘purchasing the prawns for cooking in prawn dishes

[page 183]

for customers to eat’ was held not to have been breached on the basis
that the prawns were only steamed as opposed to cooked. Adequate
cooking would have been sufficient to destroy the relevant pathogens.
If a limited purpose is to be implied then it must be the subject of
evidence: Regal Pearl.
Similarly, in Southern Cross Homes (Broken Hill) Inc v Chapman [1999]
SASC 491 it was argued by the buyer that the required purpose of the
purchase of a commode chair was that it would not permit any leakage
or spillage. The chair in fact permitted leakage into a designated
fibreglass base. In this case it was held that this particular purpose was
not made known to the seller. The only relevant purpose was the sale of
a commode chair which would accept commode pots and bed pans.
The purpose can be disclosed informally, or without any words from
a course of practice or through common knowledge: the purchase of
milk being for the purpose of human consumption or the purchase of
a hot water bottle being for heating. In Frost v Aylesbury Dairy Co Ltd
[1905] 1 KB 608 milk was supplied which was infected with typhoid.
The purchaser’s wife consumed the milk and died. It was argued that
the buyer had not disclosed the purpose for which the milk was
required. It was held, however, that it could be reasonably assumed that
the milk was purchased for human consumption. Similarly it was held
in Tre Cavalli Pty Ltd v Berry Rural Co Operative Society Ltd [2013] NSWCA
235 that the buyer of cattle vaccine had at least made known her
purpose by implication so as to show she was relying on the seller’s skill
and judgment (the seller was a specialist supplier of rural products).
Although the buyer had selected the vaccine from the fridge and knew
what she wanted because she used it all the time, that did not preclude
reliance on the seller. The buyer’s purpose had been made known by
the seller’s invoice, which identified that the goods were acquired for
the vaccination of cattle, and by her purchase of an injection gun to
administer the vaccine at the same time: at [96].
If the goods have only one use then the buyer makes known their
purpose in purchasing the goods. The buyer does not need to make
known expressly what the seller already knows (Priest; Grant v Australian
Knitting Mills Ltd [1936] AC 85 at 99 per Lord Wright) — it is implied.

Buyer suffers an abnormality or idiosyncrasy

6.33 There is no failure of the goods to meet the intended purpose
where the failure arises from an abnormal feature or idiosyncrasy, not
made known to the seller, in the buyer or in the circumstances of the
use of the goods by the buyer, irrespective of whether or not the buyer
was aware of the abnormal feature or idiosyncrasy: Griffiths v Peter
Conway Ltd [1939] 1 All ER 685; Slater v Finning Ltd [1996] 3 All ER 398.
If a person wishes to obtain the protection of the implied condition it
is essential for the seller to know not only the purposes for which the
article is required but also the particular abnormality or idiosyncrasy
from which the buyer suffers. It is only when they have that knowledge
that they are in a position to exercise their skill or judgment,

[page 184]

because how can they decide and exercise skill and judgment in
relation to the suitability of the goods that they are selling for the use of
the particular individual who is buying from them unless they know the
essential characteristics of that individual?: Griffiths at 691. The object
of making the purpose known is, after all, to enable the seller to make
up their mind whether or not they will accept the burden of the
implied condition: Griffiths at 692.

Was the purpose disclosed so as to show reliance by the

buyer on the seller’s skill and judgment?
6.34 This element bears a close relationship to the former element.
The buyer must make known the purpose with sufficient particularity to
enable a seller engaged in the business of supplying goods of the kind
ordered to identify the characteristics which the goods need to possess
to fit them for that purpose.
There must be actual reliance by the buyer on the seller’s skill and
judgment and this must be evident to a reasonable seller at or before
the time the contract is formed. There is no presumption of reliance:
Claude B Fox Pty Ltd v Rayner [1978] Qd R 250. For example, in Marnica
v Carter [2014] VSC 274 the buyer of a trailer and ramps failed to
demonstrate reliance on the seller’s skill and judgment in relation to
the buyer’s proposed use of the goods for transporting a heavy
excavator in circumstances where there was no evidence the purpose
had been disclosed and where the plaintiff had more experience in
working with and the carriage of heavy earthmoving equipment.
There is no requirement that the buyer’s reliance be reasonable:
National Engineering Pty Ltd v Wellington Orana Foundry Pty Ltd [2003]
NSWSC 21 at [39]. Express disclosure of reliance will seldom occur.
Evidence of reliance will usually arise by implication from the
circumstances: Expo Aluminium (NSW) Pty Ltd v WR Pateman Pty Ltd
(1990) ASC 55-978. In the case of a sale between a retailer and a
consumer, reliance will usually be inferred. In Grant v Australian
Knitting Mills Ltd [1936] AC 85 it was held that reliance will, in general,
be inferred from the fact that a buyer goes to the relevant shop with the
confidence that the tradesman has selected his stock with skill and
judgment, that is, that the seller has bought the right goods of a good
make. The better the shop the easier it is to draw this inference. The
same presumption does not apply, however, in a case between two
traders who are equally knowledgeable: Henry Kendall & Sons v William
Lillico & Sons Ltd (the Hardwick Game Farm case) [1969] 2 AC 31 at 84,
106–7 and 124–5.
The relevance of the parties’ circumstances in establishing reliance is
well illustrated by Dowdell v Knispel Fruit Juices Pty Ltd [2003] FCA 851.
In that case the issue of reliance arose in relation to the sale of oranges
to be used in the manufacture of orange juice. The oranges were
supplied by the Constas brothers, who were responsible for picking the
fruit and placing it in bins. The oranges were contaminated with
salmonella and unfit for human consumption. The bins of oranges
were then sold to the Nippy Packing company, who then onsold them
to Nippy’s Fruit Juices for juicing. As to whether the term as to

[page 185]

fitness of purpose could be implied as between Nippy Packing and

Nippy’s Fruit Juices the court held at [138]:
In relation to fitness of purpose it will be recalled that it is necessary that Nippy’s Fruit
Juices show that the buyer relies on the seller’s skill or judgment: see Dependable Motors
Pty Ltd v Ashford Shire Council (1959) 101 CLR 265 at 296. Although there was evidence
that on one occasion Mr Jeff Knispel had complained to the Constas brothers about a
smell from the oranges they had supplied to Packing (although even then it is not
suggested that the oranges were refused or returned), it is obvious that Packing
 exercised little or no skill and judgment in the supply of the oranges. And one effect
of the close relationship between Nippy’s Fruit Juices and Packing is that it is clear
that Nippy’s Fruit Juices were perfectly well aware of how Packing obtained and
supplied fruit: see Helicopter Sales at 11. In this case Nippy’s Fruit Juices knew that
Packing received the bins of oranges from the growers and then delivered those same
bins to Nippy’s Fruit Juices. In these circumstances it is not possible to imply a
warranty of fitness for purpose into the contract between Nippy’s Fruit Juices and
Packing.

Reliance was, however, established in relation to the sale of the

oranges from the Constas brothers to Nippy Packing. In relation to this
contract it was held at [113]:
Pursuant to s 14 of the Goods Act there was an implied condition in each contract that
the oranges would be reasonably fit for the purpose of the manufacture of orange
juice for human consumption. The purpose for which the oranges were to be used
was made known to each of the Constas brothers. They were responsible for picking
the fruit and placing it in bins. There is a necessary inference that Packing was relying
on the skill and judgment of the respective brother in not supplying fruit which was
unsuitable, such as fruit which was mouldy, fruit which had fallen to the ground, etc:
see Grant v Australian Knitting Mills Ltd [1936] AC 85 at 99.

Whether reliance exists is a question of fact to be determined from

the terms of the contract and circumstances of the case. Disclosure of
the purpose for which the goods are required will be good evidence of
reliance, but not necessarily sufficient: Hardwick Game Farm; Ashington
Piggeries Ltd v Christopher Hill Ltd [1972] AC 441; Claude B Fox.
Ultimately, whether an inference of reliance ought to be drawn
depends upon the circumstances of the case.

Partial reliance sufficient

6.35 Reliance must be affirmatively shown but the reliance on the
seller’s skill and judgment need not be total or exclusive: Ashington
Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 423 per Lord Wright.
The reliance must, however, constitute a substantial and effective
inducement which leads the buyer to purchase the article concerned:
Dependable Motors at 277, 283 and 289; Australian Knitting Mills Ltd v
Grant (1933) 50 CLR 387 at 446–7. The buyer may still have relied on
their own experts or their own knowledge or common sense.
In Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Aust) Pty Ltd
(No 5) [2012] FCA 908 a ‘superficial examination’ by the buyer of
prawns, an acknowledged pioneer

[page 186]

of the prawn industry, was held not to have excluded any reliance on
the seller’s skill and judgment in assessing whether the prawns were in
fact fit for the purpose of onsale to Woolworths: at [162]. The court
said the examination was not comparable, for example, with the
thorough testing conducted over several days in respect of the
suitability of timber for piano manufacture in H Beecham & Co Pty Ltd v
Francis Howard & Co Pty Ltd [1921] VLR 428. Further, reliance on the
seller was ‘perfectly reasonable’ and reliance was in fact established in
the circumstances: the seller knew the buyer’s major customer for its
frozen prawns would only accept ‘A’ grade prawns; the buyer had
informed the seller prior to sale of the type of product required for
resale to Woolworths; and, most importantly, from his knowledge of the
prawn industry and from a visit to the seller’s facilities, the buyer knew
that the seller had a sophisticated processing facility with a
professionally established production line, capable of enabling prawns
to be sorted, graded and processed to the relevant standard: at [162].
In Ashington Piggeries the seller, a compounder of foodstuffs, told the
buyer he knew nothing about the nutritional requirements of mink and
merely agreed to comply with the formula as provided by the buyer, a
mink farmer. The seller was held liable under the equivalent of s 17(a),
however, because, although the buyer had relied on his own skill and
judgment as to the suitability of the compound for mink food, he had
still relied on the seller to select and acquire good-quality ingredients
of the kind set out in the formula, and to combine them satisfactorily.
If a buyer makes a selection based entirely on the buyer’s own
assessment of the suitability of the selection for his or her purpose by
examining them, then the buyer does not rely on the seller. In some
cases an inspection by the buyer may indicate that he or she is not
relying on the seller’s skill and judgment: H Beecham & Co at 433; Laing
v Keer [1930] NZLR 586 at 591; Southern Cross Homes (Broken Hill) Inc v
Chapman [1999] SASC 491.
If reliance is established, then the seller’s liability is strict and it does
not matter whether the defect was latent or patent: Henry Kendall &
Sons v William Lillico & Sons Ltd (the Hardwick Game Farm case) [1969] 2
AC 31. In other words, it may be the case that, even had the seller
exercised the utmost skill and judgment, the defect would not have
been discovered.

Were the goods of a description which it is in the course of

the seller’s business to supply?
6.36 The object of the requirement that the goods be of a
description which it is in the course of the seller’s business to supply
was to limit the implied conditions of fitness or quality to persons in the
way of business, as distinct from private persons: Ashington Piggeries Ltd v
Christopher Hill Ltd [1972] AC 441. In Marnica v Carter [2014] VSC 274 a
seller of a home-made trailer which he used for domestic purposes and
eventually sold in a private capacity was held not to have supplied the
goods to the plaintiff in the course of a business.

[page 187]

The section has not been construed so as to require the seller to

supply goods of that particular description in the course of their
business: it is sufficient that the seller supply goods of that kind in the
course of the business: Ashington Piggeries.
It is in the course of a seller’s business to supply goods if he or she
agrees to supply the goods when ordered. This is the case whether or
not the seller has previously accepted orders for goods of that
description: Ashington Piggeries at 474, 485 and 495. It is irrelevant
whether the relevant sale of goods forms an integral part of the
business carried on. Nor is it relevant whether the particular sale of
goods, however peripheral to the business, occurs with any degree of
regularity.
In Stevenson v Rogers [1999] 2 WLR 1064, for example, the seller had
an established business as a fisher. He bought a new vessel, the Jelle, in
1983 and sold it to the buyer in 1988. At first instance it was held that
there was insufficient regularity of dealing to render the sale of the Jelle
‘in the course of a business’ within the equivalent provision in the UK
legislation, and, accordingly, the implied condition of merchantability
in the section did not apply to the sale. The Court of Appeal reversed
that decision and held, having regard to the legislative history of the
provision, the wording in the provision had been deliberately widened
in order to better protect buyers of goods from business sellers.
Consequently the section was to be construed at face value: the wording
of the section did not demand any element of regularity of dealing and
so there was no reason ‘to re-introduce some implied qualification,
difficult to define, in order to narrow what appears to be the wide
scope and apparent purpose of the words’.61

Does the trade name exception apply?

6.37 Section 17(b) of the Sale of Goods Act 1896 (Qld) is in these
terms:
(b) however, in the case of a contract for the sale of a specified article under its
patent or other trade name, there is no implied condition as to its fitness for any
particular purpose.

The logic of the exception lies in the proposition that where a buyer
buys by reference to a trade name, the buyer does not rely upon the
seller, and hence the requirement of fitness for purpose does not apply.
The leading case on the application of the ‘trade name exception’ is
Baldry v Marshall [1925] 1 KB 260. In that case the plaintiff had written
to the defendants asking whether the Bugatti eight-cylinder car was
likely to be on the market this year and, if it was, to send particulars.
The defendants replied stating that they were specialists in the sale of
these cars and that they were in a position to supply all information
necessary, thereby intimating, it was held, that the plaintiff could
regard them as persons upon whose skill and judgment he could safely
rely. The plaintiff then met with the defendants and asked whether the
car was comfortable and suitable for touring. The defendants said that
it was. The car was not suitable for either purpose and the issue was
whether the sale came

[page 188]

within the proviso, as having been bought under a trade name. It was
held that the proviso did not apply. There was a difference between:
a sale where the purchaser specified the article as being the article
he or she wished to buy and it was sold under its trade name, in
which case the condition as to fitness for purpose was excluded,
even though the purchaser made known to the seller the purpose
for which he or she intended to use it; and
a sale where the purchaser bought the article in reliance on the
seller’s assurance that it would answer his or her purpose. In such
a case, the fact that it was described in the contract by its trade
name would not have the effect of excluding the condition.62
The trade name proviso applies only where the buyer orders goods
by use of a trade name in such a way as to show that he or she does not
rely on the seller’s skill or judgment. If the elements of the fitness for
purpose condition are made out, it is irrelevant that the goods supplied
bear a trade name.
The proviso was held to apply to a sale of heavy earth-moving
equipment sold under the trade name ‘Caterpillar’ so that the implied
term as to fitness did not apply: Groundhog Sales & Rentals Pty Ltd v
Eastern Pearl Corporation [2012] FCAFC 113 at [18]. The proviso was also
held to apply in Tre Cavalli Pty Ltd v Berry Rural Co Operative Society Ltd
[2013] NSWCA 235 where vaccine was sold under its trade name,
‘Websters Clepto 7 Clostridial/Lepto HP Vaccine for Cattle’. The court
in considering the issue said at [100]:
The appellant’s submissions did not advance any reason why the proviso to s 19(1)
 would not apply in the present case. This was in circumstances where first, Ms Bowden
selected the pack from the fridge at the respondent’s Berry store and presented it,
together with an injector gun, to the salesperson, Mr Tyrrell, for purchase. Secondly,
there was no evidence of any discussion between Ms Bowden and Mr Tyrrell prior to
purchase which might negate the application of the proviso, such as Ms Bowden
asking whether the vaccine would suit the appellant’s particular purpose. In my view,
the proviso to s 19(1) applied, and no claim was available as to fitness for purpose.

Has the condition been breached?

6.38 Whether the condition has been breached is a question of fact.
The goods must be reasonably fit for their specified purpose. This does
not connote absolute fitness for the purpose. There is no breach, for
example, where a coat, fit for use by a person with normal skin, is not
fit for a person with abnormally sensitive skin: Griffiths v Peter Conway
Ltd [1939] 1 All ER 685.
Whether the goods are reasonably fit for the disclosed purpose is to
be assessed at the time of sale. However, to satisfy the condition the
goods must be reasonably fit for their purpose for a reasonable time
after sale. In Lambert v Lewis [1981] 1 All ER 1185 at 1191, Lord Diplock
said:

[page 189]

The implied warranty of fitness for a particular purpose relates to the goods at the
time of delivery under the contract of sale in the state in which they were delivered. I
do not doubt that it is a continuing warranty that the goods will continue to be fit for
that purpose for a reasonable time after delivery, so long as they remain in the same
apparent state as that in which they were delivered, apart from normal wear and tear.
What is a reasonable time will depend on the nature of the goods …

Thus, where the engine of a car stopped one week after purchase,
this was held to show that the car was not fit for its purpose at the time
of sale: Crowther v Shannon [1975] 1 WLR 30.
The fact that the defect is ‘latent’ does not affect the question
whether there has been a breach of the condition: Dowdell v Knispel
Fruit Juices Pty Ltd [2003] FCA 851 at [115] citing Grimsdale & Sons Ltd v
Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31 at 84.
Merchantable quality
Sale of Goods Act s 17(c) and (d)63
Australian Consumer Law s 54
(former Trade Practices Act s 71(1))

Sale of Goods Act

6.39 Section 17(c) and (d) provides:
(c) when goods are bought by description from a seller who deals in goods of that
description (whether the seller is the manufacturer or not) there is an implied
condition that the goods shall be of merchantable quality;
(d) however, if the buyer has examined the goods, there is no implied condition as
regards defects which such examination ought to have revealed.

In order to imply the condition as to merchantability into the

contract of sale the following elements must exist:
1. The goods were bought by description.
2. The seller deals in goods of that description.
3. The buyer did not examine the goods before or at the time of
sale, or, if they did, the defects were such as would not
reasonably have been discoverable on such examination.
The first two elements appear in ss 16 and 17(a) and (b) respectively
and have been construed to have the same meaning for the purposes of
s 17(c) and (d). The implied conditions as to fitness for purpose and
merchantability can be coincident in their application: Taylor v
Combined Buyers Ltd [1924] NZLR 627 at 645. Indeed, the two

[page 190]

terms are frequently pleaded together, and it is entirely likely that

defects in goods might render them not only unfit for their purposes
but also not of merchantable quality. Once the pre-conditions to the
implication of the term have been satisfied, the buyer bears the onus of
proving that the term has been breached. This can be difficult to do,
particularly where the buyer’s case is based on circumstantial evidence:
see, for example, Russo v Belcar Pty Ltd (2011) 111 SASR 459; [2011]
SASCFC 151 at [83] and [168]. In Tre Cavalli Pty Ltd v Berry Rural Co
Operative Society Ltd [2013] NSWCA 235, for example, the buyer’s claim
that the vaccine was unmerchantable depended upon the buyer being
able to prove that the vaccine had been contaminated at the time of
sale as opposed to after sale. The court observed relevantly at [76]:
The appellant accepted that it must demonstrate that the circumstances appearing in
the evidence give rise to a reasonable and definitive inference in favour of what is
alleged, namely the vaccine was contaminated at the time of sale. That is, the
circumstances must do more than give rise to conflicting inferences of equal degrees
of probability so that the choice between them is a mere matter of conjecture: see
Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5. A court is not authorised to choose
between guesses, where the possibilities are not unlimited, on the ground that one
guess seems more likely than another or the others: see Jones v Dunkel [1959] HCA 8;
(1959) 101 CLR 298 at 304–5 per Dixon CJ.

The goods must be bought by description

6.40 Section 16 implies a condition that the goods corresponded
with the description ‘where there is a contract for the sale of goods by
description’. Section 17(c), which implies the condition of
merchantable quality, applies ‘when goods are bought by description’.
One might reasonably expect uniformity of approach in construction
of the sections so far as they refer to ‘sales’ of goods by description, and
where goods are ‘bought’ by description. This is the view taken by the
House of Lords in Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC
441 and by Salmond J in Taylor v Combined Buyers Ltd [1924] NZLR 627.
It is submitted this is the correct view.64

The seller must deal in goods of that description

6.41 This requirement is in similar, but not identical, words to s
17(a) (fitness for purpose), which requires the goods to be of a
description ‘which it is in the course of the seller’s business to supply’.
Both requirements are primarily aimed at distinguishing between sales
in a private capacity and sales in a business capacity: Ashington Piggeries
Ltd v Christopher Hill Ltd [1972] AC 441 per Lord Guest at 474 and Lord
Wilberforce at 494. As Lord Wilberforce said:

[page 191]

… but, moreover, consideration of the preceding common law shows that what the
Act had in mind was something quite simple and rational to limit the implied
condition of fitness or quality to persons in the way of business, as distinct from private
persons.

As to the difference in wording between the two sections, Lord

Wilberforce was of the view that, as to the fitness for purpose section, it
is in the course of the seller’s business to supply goods if he or she
agrees, either generally or in a particular case, to supply the goods
when ordered, and that, as to the merchantable quality section, a seller
deals in goods of that description if his or her business is such that he
or she is willing to accept orders for them: at 494.
The court rejected the contention that the section did not apply
because the seller was dealing in the particular goods for the first time.
It was sufficient if the seller dealt in the course of his business with
goods of that kind: Ashington Piggeries per Lord Hodson at 469; per
Lord Guest at 474; per Viscount Dilhorne at 485; and per Lord
Wilberforce at 494.

The prior examination proviso

6.42 The condition as to merchantability will not be implied if there
has been an actual examination of the goods by the buyer in respect of
defects which such examination ought to have revealed. Self-evidently,
the examination must have been made before the contract was entered
into.
The words ‘such examination’ refer to the examination carried out
by the buyer. The words ‘ought to have revealed’, therefore, are
referable to the actual examination carried out, and what ought to have
been revealed by it: Frank v Grosvenor Motor Auctions Pty Ltd [1960] VR
607.
 There is authority for a broader approach to the proviso. In Thornett
& Fehr v Beers [1919] 1 KB 486 the buyer, having only viewed the
outside of some barrels of glue, was held to have undertaken an
examination within the meaning of the proviso and consequently there
was no implied condition of merchantability. The section did not
require a full examination. A proper examination would have revealed
the defect, and, as the buyer had been offered a full inspection and
declined the opportunity, the buyer was held to have assumed the risk.
It is submitted that this decision does not make enough of the words
‘such examination’; that is, those words would seem to indicate it is
only those defects which would have been discoverable based on the
actual examination undertaken by the buyer that are excluded from
the merchantability requirement. It may also have been arguable that
in fact the goods (the glue) had not been examined at all, but only the
packaging.
It is clear that the proviso does not apply if the buyer does not
undertake any examination at all, irrespective of whether they have
been offered an opportunity to examine the goods.

[page 192]

Has the condition been breached — are the goods

merchantable?
6.43 There is no definition of ‘merchantable quality’ in the Sale of
Goods Act. There have been a number of different formulations of
what constitutes merchantability at common law. Merchantability is a
composite quality comprising elements of description, purpose,
condition and price: Cehave NV v Bremer Handelsgesellschaft mbH [1976]
QB 44 at 80.
‘Merchantable’ was construed by Lord Reid in Henry Kendall & Sons v
William Lillico & Sons Ltd (the Hardwick Game Farm case) [1969] 2 AC 31
at 75 to mean ‘commercially saleable’. That is a good starting point.
 The phrase ‘bought by description’ has the same meaning as
‘description’ in the fitness for purpose implied condition; it refers to
goods of that kind as opposed to the exact contract description by
which they were sold: Ashington Piggeries Ltd v Christopher Hill Ltd [1972]
AC 441.
The ‘description’ of the goods is influential in determining whether
the goods are merchantable. If the description is wide, then the range
of purposes to which the goods can be applied is correspondingly wide.
The goods, to be merchantable, need only suit one of those purposes.
Conversely, if the description is so narrow that the goods under that
description have only one purpose, the goods will not be merchantable
if they do not meet that purpose. As Lord Reid held in Hardwick Game
Farm at 77:
If the description in the contract was so limited that goods sold under it would
normally be used for only one purpose then the goods would be unmerchantable
under that description if they were no use for that purpose. If, however, the
description was so general that goods sold under it were normally used for several
purposes then goods would be merchantable under that description if they were fit for
any one of those purposes.

Hardwick Game Farm concerned the sale of contaminated Brazilian

groundnut extract to manufacturers of cattle and poultry foods. The
particular sale in question was to a manufacturer of poultry food. The
goods were found to be poisonous for poultry and therefore unsuitable
for the purpose of compounding into poultry food but could still be
compounded into cattle food. A majority of the House of Lords held
that, although the sellers had breached the condition as to fitness for
purpose, the goods were merchantable on the ground that the goods
were saleable under the same description, as groundnut extraction, at a
similar price, though for a different purpose than the buyers had
actually bought it.
The description applied to a cosmetic product was determinative in
Brand v Bardon (NSWSC, Handley, Powell and Stein JJA, 18 July 1997,
unreported). There, a moisturising cream for abnormal to sensitive
skin was held not merchantable when it caused the buyer’s sensitive
skin to blister. If the product had not been labelled and supplied as
suitable for sensitive skin, the outcome would probably have been
different.

[page 193]

Oranges contaminated with salmonella were held to be

unmerchantable in Dowdell v Knispel Fruit Juices Pty Ltd [2003] FCA 851
at [120], notwithstanding that the fruit may have been fit for
pasteurised orange juice. In that case Selway J held, at [118]–[120]:
The question of whether there was a breach of the implied condition is to be
determined by asking whether a purchaser would purchase the oranges for fruit juice
knowing that some of them were affected by salmonella: Hardwick Game Farm at 97, see
also the discussion by Branson J in Medtel Pty Ltd v Courtney (2003) 198 ALR 630 at
[62]–[69]. The Constas brothers argue that the goods were ‘merchantable’ in that a
juice manufacturer who pasteurised the juice would still purchase the oranges. And, as
I have commented above, even if the juice was not pasteurised it would probably not
have caused illness if the juice had not been immediately chilled. And a sanitiser could
have been used together with brushing or some other means to remove the wax layer
to make the oranges safe. However, as Dr Bentham said in his evidence, even a person
who pasteurised the juice would probably not be prepared to take the risk of having
salmonella on his or her equipment. This seems to me to be common sense. Certainly
if affected oranges were purchased for the purpose of juice production it could be
expected that the purchaser, having knowledge that the oranges were affected by
salmonella, would expect a very significant reduction in price: Hardwick Game Farm at
118.
On this point the case is analogous to that in Pearl. In that case prawns had been
sold which were affected with the hepatitis A virus. With prawns, unlike oranges, there
is apparently a well-known risk of infection. For this reason it is expected that the
prawns will be cooked properly before consumption. Apparently they were not
adequately cooked. For this reason the New South Wales Court of Appeal held that
the importer had not been negligent. Nevertheless, the Court of Appeal found that
the sale of the prawns to the restaurant breached the implied terms of fitness for
purpose and merchantability. As Stein JA said at [95]:

I have already found that at the time of supply by the wholesaler to the
appellant, the prawns were contaminated with HAV. In that circumstance
the prawns were plainly not of merchantable quality and not fit for the
purpose for which they were required at the time of supply, that is the
supply by the appellant to patrons of the restaurant to eat. It is plain that
the wholesaler would have been aware of this particular purpose of the
sale. The frozen prawns had no other purpose. The wholesaler must have
 known that the prawns were for human consumption by restaurant
patrons. The implication is obvious.

Consequently, I also find that there was a breach of the implied term of
merchantability in relation to the each of the contracts entered into by each of the
Constas brothers with Packing during the period December 1999 [sic] to March 1999
where any of the oranges the subject of the relevant contract was affected by
salmonella in sufficient quantity so as to constitute a health risk if used in
unpasteurised orange juice.

The element of price is also relevant: the higher the price, the higher
the buyer’s expectations as to quality of the goods supplied. In
Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387 at 418, Dixon J
said:
The condition that goods are of merchantable quality requires that they should be in
such an actual state that a buyer fully acquainted with the facts and, therefore,
knowing

[page 194]

what hidden defects exist and not being limited to their apparent condition would buy
them without abatement of the price obtainable for such goods if in reasonably sound
order and condition and without special terms.

Dixon J’s test was adapted from Farwell LJ in Bristol Tramways &
Carriage Co Ltd v Fiat Motors Ltd [1910] 2 KB 831 at 841. His Honour’s
general approach was later indorsed by a majority of the House of
Lords in Hardwick Game Farm.
Price was a significant factor in H Beecham & Co Pty Ltd v Francis
Howard & Co Pty Ltd [1921] VLR 428, where wood sold for use in
making pianos was found to be affected by dry rot. The wood, though
still suitable for making boxes (one of the purposes for which spruce is
used), was not suitable for making pianos. The wood was nonetheless
held not merchantable as ‘no businessman would think for a moment
of accepting this timber, its condition being known, without a very large
reduction upon current market price’: at 435. In Russo v Belcar Pty Ltd
(2011) 111 SASR 459; [2011] SASCFC 151, the buyer (at [173]) argued
that the price of nearly $400,000 paid for his new Ferrarri had not been
given sufficient weight by the court when it considered whether the
vehicle was merchantable at the time of sale.
An insubstantial reduction in the price may not be sufficient on its
own to render the goods unmerchantable. In BS Brown & Son Ltd v
Craiks [1970] 1 WLR 752, for example, rayon cloth was bought,
unknown to the seller, for the purpose of making dresses. The cloth
was not of sufficient quality for that purpose but could be used as
industrial fabric. Although the price was high for industrial fabric, the
difference was not substantial enough to make the cloth
unmerchantable.

Sale by sample
Sale of Goods Act s 1865
Australian Consumer Law s 57
(former Trade Practices Act s 72)

Sale of Goods Act

6.44 Section 18 provides:
(1) A contract of sale is a contract for sale by sample when there is a term in the
contract, express or implied, to that effect.
(2) In the case of a contract for sale by sample —
(a) there is an implied condition that the bulk shall correspond with the sample
in quality;
(b) there is an implied condition that the buyer shall have a reasonable
opportunity of comparing the bulk with the sample;

[page 195]

(c) there is an implied condition that the goods shall be free from any defect,
rendering them unmerchantable, which would not be apparent on
reasonable examination of the sample.

Section 18(1) provides that a contract is a contract for sale by sample

when there is a term in the contract, express or implied, to that effect.
 A contract may provide expressly that it is by sample (for example, ‘as
per sample’).
Often, however, a written or oral contract is reached in
circumstances where a sample has been displayed, or viewed, or
inspected, prior to the contract, but where the parties have been silent
on their intentions concerning the incorporation of the sample into
the framework of the contract. Whether or not there is a term in the
contract in those circumstances that the sale is a sale by sample will
depend upon the circumstances of each case.
A sale is not a sale by sample merely because a buyer is shown a
sample during the course of negotiations: JS Robertson (Aust) Pty Ltd v
Martin (1956) 94 CLR 30. The seller must expressly or impliedly
promise that the goods being sold will conform to the sample: LG
Thorne Ltd v Thomas Borthwick & Sons (A’sia) Ltd (1956) 56 SR (NSW)
81. This is a question of determining the terms of the contract and its
proper interpretation. This may involve issues as to the admissibility of
parol evidence where a sample is not referred to in the contract but was
relied upon by the buyer: Codelfa Construction Pty Ltd v State Rail
Authority of NSW (1982) 149 CLR 337 at 352 per Mason J on the issue of
parol evidence generally.
In LG Thorne the plaintiff sought to recover damages for a breach of
contract in relation to the sale of certain drums of neatsfoot oil. During
the negotiations preceding the contract, the defendant had provided a
sample of the oil to the plaintiff, which the plaintiff then had analysed.
The plaintiff, being satisfied with the sample, agreed to enter into the
contract of sale. The contract was in writing and there was no reference
to the sample. The oil supplied under the contract differed from the
sample. In particular, it did not have a cloud point of under 30°F. The
main issue in the case was whether there was a term in the contract for
sale which made it a sale by sample, so that the fact that the goods
supplied did not conform to the sample was a breach of contract. The
matter was determined by application of the general rule relating to
parol variations of written contracts, namely, that where a contract is in
writing, verbal evidence is not admissible as to what occurred between
the parties so as to vary the written contract: Goss v Lord Nugent (1833) 5
B & Ad 58 at 64–5; 110 ER 713 at 716. The majority held that the
contract was not a sale by sample. Although the court was confident the
plaintiff was buying as a result of its inspection of the samples and
would not have bought had they not been satisfactory, this was not
sufficient to overcome the general rule with regard to parol variations
of written contracts: at 89.
This is to be contrasted with Cameron & Co v Slutzkin Pty Ltd (1923)
32 CLR 81 where the High Court admitted evidence by way of a sample,
not to vary the written terms

[page 196]

of the contract of sale, but in order to interpret the expression

‘matchless 2475’ voile and thus to determine the nature of the goods
intended to be described by the term. As the goods supplied did not
conform to the sample, the buyer was held to be justified in rejecting
them.
There is nothing to prevent the buyer providing the relevant sample,
though it will usually come from the seller: Simms Jones Ltd v Protochem
Trading NZ Ltd [1993] 3 NZLR 369.

REMEDIES OF THE BUYER

Remedies for breach of a condition implied by the
Sale of Goods Act
Section 14(3),66 s 21 r 1, ss 36 and 37

6.45 A breach of condition, by definition, entitles the innocent party

to rescind the contract. In the context of a contract for the sale of
goods, the right to rescind includes a right to reject the goods. The
right to reject has been described as ‘merely a particular form of the
right to rescind, because it involves the rejection of a tender of goods’:
Chao v British Traders and Shippers Ltd [1954] 2 QB 459.
However, the right to rescind the contract and reject the goods will
not exist in Queensland, Victoria, Tasmania, Western Australia and the
Northern Territory where the buyer has accepted the goods or part
thereof, or when the contract is for specific goods the property in
which has passed to the buyer: s 14(3). In such circumstances, the
breach of condition can be treated by the buyer only as a breach of
warranty and not as a ground for rejecting the goods. Hence, in a
contract in those states and territory for the sale of goods, where there
has been a breach of condition to be fulfilled by the seller, the buyer
may reject the goods unless:
(a) the buyer has accepted the goods, or part thereof; or
(b) in respect of a contract for the sale of specific goods, property
in them has passed to the buyer.
The loss of the right in the case of specific goods where property has
passed has been repealed in New South Wales, South Australia and the
Australian Capital Territory.67 In those jurisdictions the buyer only
loses the right to reject goods where the buyer has accepted them. This
is also the position in Victoria in relation to certain ‘consumer sales’.
The right to reject goods is the equivalent of repudiating or
rescinding the contract. The seller and buyer will be restored to their
original position, that is, prior to the sale. If, however, the buyer has
accepted the goods, or, in some jurisdictions in the case of

[page 197]

specific goods, where the property in the goods has passed to the buyer,
the buyer’s remedy will be limited to claiming damages from the seller
for breach of contract.
Section 14(3) provides that where a contract of sale is not severable
and the buyer has accepted the goods or part thereof, or where the
contract is one for specific goods the property in which has passed to
the buyer, the breach of any condition to be fulfilled by the seller can
only be treated as a breach of warranty and not as a ground for
rejecting the goods and treating the contract as repudiated, unless
there is a term of the contract express or implied to that effect.
Section 14(3) (which is in identical or similar terms to the statutes in
Victoria, Tasmania, Western Australia and the Northern Territory)
distinguishes between specific and unascertained goods. In the case of
unascertained goods, the buyer loses the right to reject the goods once
the buyer has accepted the goods or part of them. In the case of
specific goods, the buyer loses the right to reject the goods once
property in the goods has passed to the buyer.
There has been criticism of the provision as it applies to specific
goods. This is due to the fact that under s 21 r 168 property in specific
goods passes at the time the contract is made. This can be unfair in a
situation where the buyer has not had an opportunity to examine the
goods before the contract was made. Perhaps uneasiness with this
outcome has resulted in the courts seemingly avoiding a strict
application of the provision and determining the issue in relation to
specific goods on the basis of whether the goods have been accepted:
Taylor v Combined Buyers Ltd [1924] NZLR 627 at 650.
Section 3769 sets out three instances in which a buyer will be deemed
to have accepted goods. They are:
1. when the buyer intimates to the seller that the buyer has
accepted them;
2. when the goods have been delivered to the buyer, and the
buyer does any act in relation to them which is inconsistent
with the ownership of the seller; and
3. when after the lapse of a reasonable time, the buyer retains
the goods without intimating to the seller that the buyer has
rejected them.
Section 36(1) provides, however, that ‘when goods are delivered to
the buyer, which the buyer has not previously examined, the buyer is
not deemed to have accepted them unless and until the buyer has had
a reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract’.70
Section 36(2) provides:
Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, the
seller is bound, on request, to afford the buyer a reasonable opportunity of examining
the goods for the purpose of ascertaining whether they are in conformity with the
contract.

[page 198]

The issue arises in some jurisdictions as to whether s 37 is to be read

subject to s 36. In particular, what is the situation where a buyer on-sells
goods without first examining them? Is this an act of acceptance by the
buyer? This is an important issue in view of the common commercial
practice of a seller forwarding goods to a retailer or distributor without
first examining them. The apparent inconsistency between the
provisions has been resolved in some jurisdictions, where it is now clear
that the buyer’s deemed acceptance based on an act inconsistent with
the ownership of the seller is to be read subject to the provision which
allows the buyer a reasonable opportunity of examining the goods
before the goods are deemed to have been accepted.71
In E Hardy & Co (London) Ltd v Hillerns and Fowler [1923] 2 KB 490
the buyer bought wheat to be shipped from South America. Shortly
after delivery and while the time during which the buyers had the right
to examine them was still running, the buyers sold and dispatched part
of the goods to a sub-buyer. The buyer purported to reject the wheat as
soon as it was possible to make an adequate inspection and recalled the
goods in transit to the sub-buyers. The issue was whether the act of on-
sale was an act inconsistent with the ownership of the seller. It was
argued on behalf of the buyers that the machinery in the s 36
equivalent had to be completed before the machinery in the s 37
equivalent came into play. The English Court of Appeal held, however,
that if a buyer chose to commit an act within s 37, such as intimating to
the seller that he or she had accepted the goods, he or she could accept
them notwithstanding that a reasonable time for examining them had
not yet expired. The act by the buyer in on-selling part of the goods
had placed the goods in a position which prevented the seller from
resuming possession of them upon receipt of the notice of rejection by
the buyer. The act therefore constituted acceptance of the goods with
the result that the buyer could not reject the goods.
Acceptance will also be deemed under s 37 ‘when the goods have
been delivered to the buyer and the buyer does any act in relation to
them which is inconsistent with the ownership of the seller’. The cases
emphasise that in order for an act of the buyer to constitute deemed
acceptance under this limb of s 37, there must first have been delivery of
the goods to the buyer. Hence a resale by the buyer after the contract of
sale but prior to delivery of the goods under that contract would not
constitute acceptance, although a subsequent delivery of the goods
from the original buyer to a sub-buyer might. However, in E & S Ruben
Ltd v Faire Bros & Co Ltd [1949] 1 KB 254 the court found that the
buyer took constructive delivery at the seller’s premises when the goods
were appropriated to the contract and held to the order of the buyer.
An act inconsistent with the ownership of the seller has been held to
mean an act inconsistent with the right of the seller, in the event of
rejection, to have the goods returned to him or her at the place of
examination of the goods as contemplated by the contract: Chao;
Hammer & Barrow v Coca-Cola [1962]

[page 199]

NZLR 723. This makes the test of acceptance depend on whether there
has been delivery of the goods to the place where it was contemplated
that inspection should take place.
In Hammer & Barrow the plaintiff in Christchurch agreed to supply
the defendant with 200,000 yoyos for an advertising campaign. A
portion of the yoyos were on-sold by the defendant to sub-buyers before
any deliveries had been made by the plaintiff. A term of the contract
between the plaintiff and defendant required the plaintiff to arrange
the dispatch of the yoyos direct to the sub-buyers’ premises in Auckland
and elsewhere. Under the contract, delivery was to be made at the
plaintiff’s factory door (constructive delivery). Eighty per cent of the
yoyos sent to the first sub-buyer in Auckland were defective and the
defendant purported to rescind the contract in futuro and to reject the
yoyos sent to the sub-buyer. The plaintiff sued for breach of contract.
Richmond J held that the defendant was entitled to rescind the
contract in futuro and therefore refuse further deliveries due to the
defective instalment and in accordance with the test in Maple Flock v
Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148, that is, the
ratio quantitatively which the breach bears to the contract as a whole
and the degree of probability or improbability that such breach will be
repeated. Here the ratio quantitatively which the breach bore to the
contract as a whole was very considerable as it affected some 80% of the
85,000 yoyos delivered to Auckland out of a total contract quantity of
200,000.
In respect of the goods actually delivered to the sub-buyer, the issue
was whether the defendant was entitled to reject those goods. The
plaintiff argued that there had been an acceptance of the goods by the
resale and delivery to the sub-buyer and it was therefore too late to
reject: E & S Ruben. His Honour acknowledged the view in E Hardy &
Co that delivery of the goods took place when the goods arrived at the
place contemplated for examination and that this had been overlooked
in E & S Ruben but went on to hold that delivery was made at
Christchurch when the plaintiff handed over the goods to a forwarding
agent for dispatch. The instalments were received by the forwarding
agent as agent for the buyer. However, his Honour held that the place
for examination of the goods was the sub-buyer’s premises in Auckland.
Once the goods were delivered to the forwarding agent the ownership
of the seller consisted essentially in the right of the plaintiff in the event
of rejection to have the goods returned at the premises of the sub-buyer
in Auckland. The resale had been arranged prior to delivery of the
goods by the plaintiff (which was outside the equivalent of s 37) and
the dispatch of the goods to Auckland was not an act of the buyer
inconsistent with the ownership of the seller. The defendant was
therefore entitled to reject all the yoyos delivered in Auckland except
those which had been sent on to retailers or which had been treated by
the buyer with a view to rectifying defects.
In considering therefore whether the right to reject the goods has
been lost, it is necessary to determine where, under the contract, the
parties contemplated the examination of the goods taking place.

[page 200]

Where both parties know of the on-sale of the goods to a sub-buyer

and the seller is instructed to send the goods directly to the sub-buyer,
the place for examination will be the sub-buyer’s premises. The on-sale
and dispatch in this context will not constitute an act inconsistent with
the ownership of the seller. This is because the seller’s right, in the
event of rejection by the buyer, to have the goods physically returned to
the seller at the place for examination has not been interfered with.
The buyer’s act of rejection must be unequivocal: Russo v Belcar Pty
Ltd (2011) 111 SASR 459; [2011] SASCFC 151 at [101]. If it is not, or
the buyer does not reject the goods, the buyer will be seen to have
affirmed the contract: Graanhandel T Vink BV v European Grain &
Shipping Ltd [1989] 2 Lloyd’s Rep 531. In determining whether a buyer
has affirmed the contract, the courts have taken into account practical
commercial considerations, such as the need for the finality of
transactions. This consideration requires that there be a relatively short
period within which it be determined that goods have been accepted:
Russo at [96]. This was said in Russo to give rise to two interrelated
principles:
1. That a reasonable period may be found to have expired even
though a latent fault is present and could not have been
detected during that period.
2. Subject to the caveat constituted by the first principle above,
what is a reasonable time will very much depend on all the
facts of the particular case: Russo at [97]–[100].
 The issue has arisen as to whether a seller’s representation after a
defect has become known, which has the effect of inducing the buyer
to retain and not reject the goods on the basis that they will be made
satisfactory, should mean that the buyer should be held not to have
accepted them: Attorney-General (Botswana) v Aussie Diamond Products Pty
Ltd (No 3) [2010] WASC 141. This argument was not rejected as a
matter of principle in Russo but it was rejected on the facts of the case
on the basis it was not proven that the buyer had in fact been induced
by the seller’s representations to retain the goods: at [110]. The point
has received statutory attention in South Australia, where s 6 of the
Misrepresentation Act 1972 (SA) provides that where a
misrepresentation has been made by reason of which a party to a
contract would, but for the fact that the contract has been performed,
be entitled to rescind, that party shall have the right to rescind. It was
held in JAD International Pty Ltd v International Trucks Australia Ltd
(1994) 50 FCR 378 that the effect of that provision is to permit a
purchaser in such circumstances to rescind the contract even after the
goods have been ‘accepted’. In that case the buyer of a truck was
entitled to rescind the contract 12 months after the sale upon
discovering the representations as to the condition of its engine were
false.
Unless the parties agree otherwise, the buyer is not bound to return
the rejected goods to the seller. It is sufficient if the buyer intimates to
the seller that the buyer refuses to accept them: s 38.72

[page 201]

Acceptance and CIF or FOB contracts

6.46 Goods carried by sea are usually subject to a ‘FOB’ (free on
board) or ‘CIF’ (cost, insurance, freight) contract.
In an FOB contract the seller is bound to deliver the goods on board
the ship and to pay all associated expenses. The buyer is responsible for
all expenses incurred subsequently, such as freight and insurance.
Property in the goods is transferred to the buyer once the seller has
delivered the goods on board the ship.
In a CIF contract the seller has more obligations. The seller must
make transport arrangements for the goods, ship the goods and pay for
their shipment, insure the goods and pay for the insurance and tender
the shipping documents to the buyer (the bill of lading, policy of
insurance and invoice) within a reasonable time after shipment.
In a CIF contract property in the goods is said to pass conditionally
when the buyer obtains the documents of title to the goods: Chao v
British Traders and Shippers Ltd [1954] 2 QB 459, but compare E Hardy
& Co (London) Ltd v Hillerns and Fowler [1923] 2 KB 490. The buyer
obtains the property in the goods subject to the condition that they re-
vest if on examination he or she finds them not in accordance with the
contract. Such a condition is a condition subsequent. A pledge of goods
or a sale of documents in the case of string contracts in this context will
not constitute acts of acceptance on the basis that neither act interferes
with the seller’s reversionary interest: Chao. The seller’s reversionary
interest consists in their entitlement immediately on the operation of
the condition subsequent, that is, as soon as the opportunity for
examination has been given, to have the goods physically returned to
them in the place where the examination has taken place and without
being dispatched to third parties: Chao.

Remedies for breach of a warranty implied by the

Sale of Goods Act
6.47 If the seller has breached a warranty or has breached a
condition but the buyer has accepted the goods, the buyer is entitled to
damages.
Section 54 provides:
(1) When there is a breach of warranty by the seller, or when the buyer elects, or is
compelled, to treat a breach of a condition on the part of the seller as a breach of
warranty, the buyer is not by reason only of such breach of warranty entitled to reject
the goods; but the buyer may —
(a) set up against the seller the breach of warranty in diminution or extinction
 of the price; or
(b) maintain an action against the seller for damages for the breach of warranty.
(2) The measure of damages for breach of warranty is the estimated loss directly and
naturally resulting, in the ordinary course of events, from the breach of warranty.

[page 202]

(3) In the case of breach of warranty of quality such loss is prima facie the difference
between the value of the goods at the time of delivery to the buyer and the value
which they would have had if they had answered to the warranty.
(4) The fact that the buyer has set up the breach of warranty in diminution or
extinction of the price does not prevent the buyer from maintaining an action for the
same breach of warranty if the buyer has suffered further damage.

Section 55 provides:
This Act does not affect the right of a buyer or a seller to recover interest or special
damages in any case in which by law interest or special damages are recoverable, or to
recover money paid when the consideration for the payment of it has failed.

Subsections (2) and (3) of s 54 deal with different aspects of

damages.
Section 54(2) incorporates the basic principles for remoteness of
damage as enunciated in the leading case of Hadley v Baxendale (1854)
9 Exch 341; [1843–60] All ER 461. There the main proposition was
considered to be (at 354 per Alderson B):
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 as arising naturally, ie,
according to the usual course of things, from such breach of contract itself, or 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 of the breach of it.

These principles have been applied in Victoria Laundry (Windsor) Ltd v

Newman Industries Ltd [1949] 1 All ER 997 and in the House of Lords in
Koufos v C Czarnikow Ltd (The Heron II) [1967] 3 All ER 686. What the
parties reasonably contemplated at the time of contract as to the
damages that would result from a breach of their contract is a question
of fact.
In relation to damages for goods of an inferior quality, the principle
in s 54(3) is regarded as a prima facie rule from which the court may
depart in appropriate circumstances: Zuvela v Geiger [2007] WASCA 138
at [3]. In Zuvela the court said at [39], citing Bellgrove v Eldridge (1954)
90 CLR 613 at 620 and Hyder Consulting (Australia) Pty Ltd v Wilh
Wilhelmsen Agency Pty Ltd (2002) 18 BCL 122; [2001] NSWCA 313:
Damages for necessary rectification work can be recovered, even if the work has not
been performed, let alone paid for, in which case the probable cost of the repairs will
be the measure of damages. This will be so even if the claimant decides not to carry
out the repairs and to use the damages for other purposes.

The burden of proof lies on the person who wishes to adopt another
measure of damages. This may be the buyer or the seller. However, it is
more common for the buyer to seek to displace the presumption in
order that they might recover losses other than the diminution in
value.
Often a commercial buyer will have either on-sold the goods or at
least contemplated on-selling them. If the seller knows that the buyer
intended to resell the goods and ought

[page 203]

reasonably to have contemplated that a breach as to description or

quality would be likely to cause the buyer a loss of profit on the resale
or potential resale, the buyer is entitled to recover damages in respect
of those lost profits: Bence Graphics International Ltd v Fasson UK Ltd
[1997] 1 All ER 979. If a capital loss is claimed as a result of a defective
good, the relevant time to assess damages is the date when the goods
are on-sold, as opposed to when the buyer stops using them. This is
because prior to that date, any capital loss has not crystallised: Swick
Nominees Pty Ltd v Leroi International Inc [2015] WASCA 35.
In a case of a series of ‘string’ contracts the courts will also take into
account the possibility that the ultimate buyer will seek damages from
the immediate seller, who will in turn seek indemnity from their
immediate seller, and so on. In such a situation the damages and costs
paid by the buyer will be included in the calculation of damages for the
seller’s breach of the original contract: Bence Graphics; Kasler and Cohen
v Slavouski [1928] 1 KB 78.

Remedy for defective instalment deliveries

6.48 If the parties have agreed to the supply of the goods by
instalment and one or more of the instalment deliveries are defective,
the issue arises as to whether the buyer is entitled to reject the whole
goods supplied and to be supplied under the contract or whether the
buyer is only entitled to compensation in respect of the defective
instalment/s. The issue is dealt with in s 33,73 which also applies to the
situation where the buyer neglects or refuses to pay for or to take
delivery of one or more instalment.
Section 33(2) provides:
When there is a contract for the sale of goods to be delivered by stated instalments,
which are to be separately paid for, and the seller makes defective deliveries in respect
of 1 or more instalments, or the buyer neglects or refuses to take delivery of or pay for
1 or more instalments, it is a question in each case depending on the terms of the
contract and the circumstances of the case, whether the breach of contract is a
repudiation of the whole contract or whether it is a severable breach giving rise to a
claim for compensation but not to a right to treat the whole contract as repudiated.

If the breach by the seller is minimal in the scheme of the entire

contract and is unlikely to be repeated, then the breach will not
constitute repudiation of the contract. In determining whether the
breach is one serious enough to entitle the buyer to repudiate, it is
necessary to consider ‘first, the ratio quantitatively which the breach
bears to the contract as a whole, and secondly, the degree of probability
or improbability that such breach will be repeated’: Maple Flock v
Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148 at 157.

[page 204]

Damages for non-delivery or delayed delivery

6.49 If the seller has failed to comply with the time for delivery of
the goods stipulated in the contract, the buyer may claim damages for
non-delivery against the seller: s 52.74 The measure of damages is the
same as for a breach of warranty: the estimated loss directly and
naturally resulting in the ordinary course of events from the seller’s
breach of contract. If there is an available market for the goods then
the measure of damages is prima facie to be ascertained by the
difference between the contract price and the market or current price
of the goods at the time they ought to have been delivered, or, if no
time for delivery was fixed, then at the time of the refusal to deliver: s
52(3). For there to be an ‘available market’ for the goods there must be
an immediate buyer for the goods at the time and place of delivery
under the contract: Charter v Sullivan [1957] 2 QB 117; Waugh v Harper
[1937] St R Qd 327. Where there is no ‘available market’ for the goods
the measure of damages is the amount that a reasonable person, acting
sensibly on his behalf and at his own risk, would be willing to pay to get
the goods at the place and time stipulated: Sutton, Sales and Consumer
Law, p 655.
Delayed delivery will constitute a ground for rescinding the contract
if the contract makes time of the essence. If delayed delivery is
accepted, the damages are the difference between the market value of
the goods at the time for delivery and the time they were in fact
delivered.
Loss of profits is not generally available for non-delivery or delayed
delivery: Williams Bros v Agius Ltd [1914] AC 510. However, where there
is no available market for the goods, and the buyer has bought in the
course of trade, loss of profits may be claimed: Mahinder Singh v Acme
Sawmills Ltd (1958) 14 DLR (2d) 361. The rationale for this exception
is that the parties might reasonably have contemplated such a loss
where the buyer bought in trade, and hence the loss of profits is not
too remote.

Remedy for specific performance

6.50 If the seller fails to deliver specific or ascertained goods, the
court may direct that the contract shall be specifically performed: s
53(1).75 The court may in addition impose any terms and conditions as
to damages, payment of the price and otherwise as seems just to the
court: s 53(2).
Generally an award of damages will be a sufficient remedy for an
aggrieved buyer and the court will refrain from ordering specific
performance unless the goods were unique or special: Dougan v Ley
(1946) 71 CLR 142.

[page 205]

REMEDIES OF THE SELLER

6.51 Unlike the buyer, who may have a variety of complaints against
the seller relating to the goods supplied under the contract, the seller
will really only ever be complaining about the fact that they did not get
paid for the goods and/or that the buyer did not accept them. In such
a case the seller has remedies it can pursue against the buyer, for
example, an action for the price, as well as remedies which it might, if
circumstances permit, effect against the goods themselves, for example,
a lien.

Unpaid seller against the buyer

The price
6.52 If the property in the goods has passed to the buyer and the
buyer wrongfully neglects or refuses to pay for the goods, the seller may
sue the buyer for the price of the goods: s 50(1).76 If the price is
payable irrespective of delivery on a certain day and the buyer fails to
pay, the seller may sue for the price even though property in the goods
has not passed to the buyer and the goods have not been appropriated
to the contract: s 50(2).
Damages for non-acceptance
6.53 If the buyer wrongfully neglects or refuses to accept and pay for
the goods, the seller may claim damages against the buyer for non-
acceptance: s 51(1).77 The measure of damages is the estimated loss
directly and naturally resulting, in the ordinary course of events, from
the buyer’s breach of contract: s 51(2). If there is an available market
for the goods in question, the measure of damages is prima facie the
difference between the contract price and the market or current price
at the time when the goods ought to have been accepted or, if no time
was specified, then at the time of the refusal to accept: s 51(3).

Unpaid seller against the goods

6.54 An unpaid seller has a number of remedies it may exercise
against the goods in the event of non-payment by the buyer.78 The
availability of these remedies will depend upon who has possession of
the goods and, in some cases, upon whether property has passed. The
potential remedies are the exercise of a lien against the goods,
stoppage of goods in transit and resale of the goods: s 41.79 If property
has not yet passed to the buyer, the seller may also withhold delivery of
the goods: s 41(2).

[page 206]

Lien or right to retain the goods

6.55 A lien in the context of the sale of goods is a right to retain
possession of goods until they have been paid for. In order therefore
for the seller to be able to exercise this right, the seller must have actual
possession of the goods. It is irrelevant in what capacity the seller is in
possession: the seller can still exercise the right where the seller is in
possession as agent or bailee for the buyer: s 42(2).80
The unpaid seller may exercise this right in the following
circumstances:
 (a) when the goods have been sold without any stipulation as to
credit;
(b) when the goods have been sold on credit, but the term of
credit has expired; or
(c) when the buyer becomes insolvent: s 42(1).
The buyer is deemed to be insolvent when that person either has
either ceased to pay their debts in the ordinary course of business or
cannot pay their debts as they become due, whether having committed
an act of bankruptcy or not: s 3.81
The right to retain the goods is lost in the following circumstances:
(a) when the unpaid seller delivers the goods to a carrier or other
bailee for the purpose of transmission to the buyer without
reserving the right of disposal of the goods;
(b) when the buyer or buyer’s agent lawfully obtains possession of
the goods; or
(c) by waiver thereof: s 44(1).82
If the unpaid seller has made a part delivery of the goods, he or she
may exercise the right of retention on the remainder unless the part
delivery constitutes a waiver of the right to exercise lien: s 43.83

Withholding delivery
6.56 Provided the property in the goods has not passed to the buyer,
the unpaid seller may withhold delivery of the goods. This right is
similar and coextensive with the unpaid seller’s rights of retention and
stoppage in transit when the property has passed to the buyer: s
41(2).84

Stoppage in transitu
6.57 Under s 45, the unpaid seller is entitled to stop the goods in
transit and retain them until payment or tender of the price, where:
the buyer is insolvent;
 [page 207]

the unpaid seller has parted with possession of the goods; and
the goods are in transit.85
Section 46 sets out a number of rules to be applied in determining
whether goods are in transit within the meaning of the Act.86
The unpaid seller exercises the right by taking actual possession of
the goods or by giving notice of their claim to the carrier or other
bailee who has possession of the goods at the relevant time: s 47. When
notice is given to the carrier or bailee, that person must, at the expense
of the seller, redeliver the goods to, or in accordance with the
directions of, the seller: s 47.87
If there has been a sub-sale in good faith and for valuable
consideration accompanied by a document of title to the goods by the
buyer or where the buyer has pledged the goods, then this may affect
the seller’s right of stoppage in transitu: s 48.88
The nature of the remedy was considered in Toll Holdings Ltd v
Stewart (in their capacity as joint and several receiver and manager of Dick
Smith Electronics Pty Ltd (administrators appointed) (recs and mgrs apptd))
[2016] FCA 256 at [69]:
The exercise of the right of stoppage in transitu does not rescind the contract of sale
or restore property in the goods in the seller: Kemp 7 App Cas at 581 per Lord
Blackburn; United States Steel Products Co Ltd v Great Western Railway [1916] 1 AC 189 at
203 per Lord Atkinson; Booth Steamship [1916] 2 KB at 581, 598–600. Indeed s 46 of
the Sale of Goods Act gives the seller the right to retain possession until payment or
tender of the price. The seller, having obtained possession of the goods by stopping
them in transit to the purchaser, is then in the position of being able to exercise an
unpaid vendor’s lien for the unpaid price. The possessory right is a common law
security for the vendor’s entitlement to the price: cf Hewett v Court (1983) 149 CLR
639 at 645–646 per Gibbs CJ, 653 per Wilson and Dawson JJ. While the origin of the
right of stoppage in transit may have been in equity, as Lord Blackburn suggested
(Kemp 7 App Cas at 582), now the right is statutory. It arises on the insolvency of the
purchaser. Insolvency was defined in s 5(3) of the Sale of Goods Act as being when a
person has ceased to pay his or her debts in the ordinary course of business or cannot
pay the person’s debts as and when they become due.

In that case a seller based in China sent an email to the carrier, Toll,
to ‘hold’ delivery of cargoes (TVs) to Dick Smith. A few days later, Toll
sent an email back stating that all TVs on the water and not yet received
by Dick Smith were the property of the seller. Subsequently, however,
Toll issued delivery orders to ACFS, who were the unpacking agents for
Dick Smith, to enable ACFS to pick up the TVs before the 72 hours of
free storage offered by the stevedores who discharged the cargo
expired. It was held that the email to ‘hold’ the goods was sufficient
notice to stop the goods in transit, being a clear

[page 208]

instruction by the vendor to the bailee to hold the goods at the seller’s
direction. It did not matter that the notice did not instruct the bailee to
redeliver the goods to the seller: at [62]. Further, it was held that the
right can be exercised by retaking possession from a carrier but is lost
once the buyer has possession of the goods after a full, effectual and
final delivery of the goods: at [64].

Resale
6.58 The unpaid seller may resell the goods:
where the goods are of a perishable nature; or
when the unpaid seller gives notice to the buyer of the seller’s
intention to resell, and the buyer does not within a reasonable
time pay or tender the price; or
where the seller expressly reserves a right of resale in case of
default by the buyer and the buyer makes default: s 49.89
The effect of the resale in the first two circumstances is to rescind the
original contract between the unpaid seller and buyer, from which time
the seller is entitled to damages for the buyer’s breach of contract: RV
Ward Ltd v Bignall [1967] 1 QB 534.

_______________
1 Sale of Goods Act 1954 (ACT); Sale of Goods Act 1923 (NSW); Sale of Goods Act 1972
 (NT); Sale of Goods Act 1896 (Qld); Sale of Goods Act 1895 (SA); Sale of Goods Act 1896
(Tas); Goods Act 1958 (Vic); Sale of Goods Act 1895 (WA).
2 The Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 Sch 7 item
6 provides:
6 Acts or omissions that occurred before commencement
(1) The Trade Practices Act 1974 as in force immediately before the
commencement of this item continues to apply, after that commencement, in
relation to acts or omissions that occurred before that commencement …
3 Part 2-1 — Misleading or deceptive conduct (ss 18 and 19).
4 Part 2-2 — Unconscionable conduct (ss 20–22A).
5 Part 2-3 — Unfair contract terms (ss 23–28).
6 Convention on Contracts for the International Sale of Goods 1980, Vienna, 11 April 1980,
1489 LINTS 3.
7 See in respect of other states and territories: Sale of Goods (Vienna Convention) Act 1987
(ACT); Sale of Goods (Vienna Convention) Act 1986 (NSW); Sale of Goods (Vienna
Convention) Act 1987 (NT); Sale of Goods (Vienna Convention) Act 1986 (SA); Sale of
Goods (Vienna Convention) Act 1987 (Tas); Goods Act 1958 (Vic); Sale of Goods (Vienna
Convention) Act 1986 (WA).
8 Pursuant to the Intergovernmental Agreement for the Australian Consumer Law (IGA),
each state and territory enacted an applied ACL (Sch 2 and accompanying Regulations to
the Competition and Consumer Act) so that the ACL provisions could be applied to
individuals: see Pt XIAA of the Competition and Consumer Act.
9 See further Chapter 7 at 7.2.
10 See s 131C(1) of the Competition and Consumer Act 2010 (Cth).
11 See s 131C(1) of the Competition and Consumer Act 2010 (Cth).
12 ACT s 6; NSW s 6; NT s 6; Qld s 4; SA s 1; Tas s 6; Vic s 6; WA s 1.
13 This is not the case in Tasmania and Western Australia: Tas s 9; WA s 4.
14 ACT s 5; NSW s 5; NT s 5; SA s 60; Tas s 3; Vic s 3; WA s 60.
15 ACT s 6(5); NSW s 6(4); NT s 6(5); SA s 1(4); Tas s 6(4); Vic s 6(4); WA s 1(4).
16 ACT s 52; NSW s 51; NT s 51; SA s 48; Tas s 53; Vic s 55; WA s 48.
17 ACT s 53; NSW s 52; NT s 52; SA s 49; Tas s 54; Vic s 56; WA s 49.
18 ACT s 5; NSW s 5; NT s 5; SA s 60; Tas s 3; Vic s 3; WA s 60.
19 ACT s 10; NSW s 10; NT s 10; SA s 5; Tas s 10; Vic s 10; WA s 5.
20 Cochrane v Moore (1890) 25 QBD 57.
21 Tasmania; Western Australia.
22 Tas s 9; WA s 4.
23 Sutton, Sales and Consumer Law, 4th ed, LBC Information Services, Sydney, 1995, p 87.
24 ACT s 5; NSW s 5; NT s 5; SA s 60; Tas s 3; Vic s 3; WA s 60.
25 For a more detailed analysis of the difference between the concepts of ‘property’ and
‘ownership’ see Chapter 2.
26 ACT s 5; NSW s 5; NT s 5; SA s 60; Tas s 3; Vic s 3; WA s 60.
27 Kersley, Goodeve on Personal Property, 9th ed, Sweet & Maxwell, London, 1949, p 7.
28 Kersley, Goodeve on Personal Property, p 7.
29 Scully v South [1931] NZLR 1181 at 1189–90.
30 ACT s 23; NSW s 23; NT s 23; SA s 18; Tas s 23; Vic s 23; WA s 18.
31 ACT s 25; NSW s 25; NT s 25; SA s 20; Tas s 25; Vic s 25; WA s 20.
32 ACT s 23; NSW s 23; NT s 23; SA s 18; Tas s 23; Vic s 23; WA s 18.
33 ACT s 55; NT s 56; SA s 51; Tas s 56; Vic s 58; WA s 51 (no equivalent provision in NSW).
34 ACT s 5; NSW s 5; NT s 5; SA s 60; Tas s 3; Vic s 3; WA s 60.
35 Vic s 3; NSW s 5; SA s 60; WA s 60; Tas s 3; ACT s 5; NT s 5.
36 Vic s 10; NSW s 10; SA s 5; WA s 5; Tas s 10; ACT s 10; NT s 10.
37 Vic s 6; NSW s 6; SA s 1; WA s 1; Tas s 6; ACT s 6; NT s 6.
38 ACT s 23; NSW s 23; NT s 23; SA s 18; Tas s 23; Vic s 23; WA s 18.
39 ACT s 55; NT s 56; SA s 51; Tas s 56; Vic s 58; WA s 51 (no equivalent provision in NSW).
40 Re Wait at 617 per Lord Hanworth MR and at 629 per Atkin LJ.
41 Re Wait at 629.
42 Re Wait at 618.
43 Re Wait; contrast the position with specific or ascertained goods, in respect of which the
court may order specific performance: s 53 of the Sale of Goods Act (Qld).
44 Re Wait at 640.
45 Re Wait at 636.
46 ACT s 13; NSW s 13; NT s 13; SA s 8; Tas s 13; Vic s 13; WA s 8.
47 ACT s 31; NSW s 30; NT s 30; SA s 27; Tas s 32; Vic s 34; WA s 27.
48 ACT s 32; NSW s 31; NT s 31; SA s 28; Tas s 33; Vic s 35; WA s 28.
49 ACT ss 33 and 41; NSW ss 32 and 40; NT ss 32 and 40; SA ss 29 and 37; Tas ss 34 and 42;
Vic ss 36 and 44; WA ss 29 and 37.
50 ACT s 36; NSW s 35; NT s 35; SA s 32; Tas s 37; Vic s 39; WA s 32.
51 ACT s 17; NSW s 17; NT s 17; SA s 12; Tas s 17; Vic s 17; WA s 12.
52 See also Winsor & Associates Ltd v Belgo-Canadian Mfg Co Ltd (1975) 61 DLR (3d) 352;
affirmed 76 DLR (3d) 685.
53 Vic s 101(1).
54 Vic s 16; NSW s 16; SA s 11; WA s 11; Tas s 16; ACT s 16; NT s 16.
55 ACT s 18; NSW s 18; NT s 18; SA s 13; Tas s 18; Vic s 18; WA s 13.
56 This passage, originally from Benjamin’s Sale of Personal Property, 7th ed, p 641, was accepted
by Sellers J in Joseph Travers & Sons Ltd v Longel Ltd (1947) 64 TLR 150.
57 See also Elder Smith and Lockhart v Osman [1981] VR 57.
58 ACT s 34; NSW s 33; NT s 33; SA s 30; Tas s 35; Vic s 37; WA s 30.
59 Lord Hodson at 467; Lord Guest at 472; contrast Viscount Dilhorne at 484 who regarded
the toxic herring meal as a difference in kind.
60 ACT s 19; NSW s 19; NT s 19; SA s 14; Tas s 19; Vic s 19; WA s 14.
61 See also Brown, ‘Sales of Goods in the Course of a Business’ (1999) 115 LQR 384 at 386.
62 Baldry at 268 per Atkin LJ.
63 ACT s 19; NSW s 19; NT s 19; SA s 14; Tas s 19; Vic s 19; WA s 14.
64 Sutton in Sales and Consumer Law submits at [10.34] that the correct approach is that
suggested by Reynolds JA in Speedway Safety Products Pty Ltd v Hazell & Moore Industries Pty
Ltd [1982] 1 NSWLR 255 at 261–2, that ‘merchantable quality’ is a relative and not an
absolute term, and relates to the description by which the goods in question are sold.
65 Vic s 20; NSW s 20; SA s 15; WA s 15; Tas s 20; ACT s 20; NT s 20.
66 ACT s 16; NSW s 16; NT s 16; SA s 11; Tas s 16; Vic s 16; WA s 11.
67 Sale of Goods Ordinance Act 1975 (ACT) s 3; Sale of Goods (Amendment) Act 1988
(NSW); Misrepresentation Act 1972 (SA) s 11; Goods Act 1958 (Vic), in relation to those
consumer sale contracts covered by Pt IV.
68 ACT s 23; NSW s 23; NT s 23; SA s 18; Tas s 23; Vic s 23; WA s 18.
69 ACT s 39; NSW s 38; NT s 38; SA s 35; Tas s 40; Vic s 42; WA s 35.
70 ACT s 38; NSW s 37; NT s 37; SA s 34; Tas s 39; Vic s 41; WA s 34.
71 ACT s 39; NSW s 38; SA s 35; Vic s 42.
72 ACT s 40; NSW s 39; NT s 39; SA s 36; Tas s 41; Vic s 43; WA s 36.
73 ACT s 35; NSW s 34; NT s 34; SA s 31; Tas s 36; Vic s 38; WA s 31.
74 ACT s 54; NSW s 53; NT s 53; SA s 50; Tas s 55; Vic s 57; WA s 50.
75 ACT s 55; NSW s 56; NT s 56; SA s 51; Tas s 56; Vic s 58; WA s 51.
76 ACT s 52; NSW s 51; NT s 51; SA s 48; Tas s 53; Vic s 55; WA s 48.
77 ACT s 53; NSW s 52; NT s 52; SA s 49; Tas s 54; Vic s 56; WA s 49.
78 Liens of this nature are exempt from the application of the Personal Property Securities
Act 2009 (Cth): s 8(1)(b) of that Act. See generally Chapter 10 of this text.
79 ACT s 43; NSW s 42; NT s 42; SA s 39; Tas s 44; Vic s 46; WA s 39.
80 ACT s 44; NSW s 43; NT s 43; SA s 40; Tas s 45; Vic s 47; WA s 40.
81 ACT s 5; NSW s 5; NT s 5; SA s 60; Tas s 3; Vic s 3; WA s 60.
82 ACT s 46; NSW s 45; NT s 45; SA s 42; Tas s 47; Vic s 49; WA s 42.
83 ACT s 45; NSW s 44; NT s 44; SA s 41; Tas s 46; Vic s 48; WA s 41.
84 ACT s 43; NSW s 42; NT s 42; SA s 39; Tas s 44; Vic s 46; WA s 39.
85 ACT s 47; NSW s 46; NT s 46; SA s 43; Tas s 48; Vic s 50; WA s 43.
86 ACT s 48; NSW s 47; NT s 47; SA s 44; Tas s 49; Vic s 51; WA s 44.
87 ACT s 49; NSW s 48; NT s 48; SA s 45; Tas s 50; Vic s 52; WA s 45.
88 ACT s 50; NSW s 49; NT s 49; SA s 46; Tas s 51; Vic s 53; WA s 46.
89 ACT s 51; NSW s 50; NT s 50; SA s 47; Tas s 52; Vic s 54; WA s 47.
[page 209]
CHAPTER 7
Consumer Transactions

INTRODUCTION TO THE AUSTRALIAN CONSUMER LAW

APPLICATION OF THE LEGISLATION

CONSUMER GUARANTEES
Consumer
Guarantee as to title: s 51
Guarantee as to undisturbed possession: s 52
Guarantee as to undisclosed securities: s 53
Guarantee as to acceptable quality: s 54
Guarantee as to fitness for purpose: s 55
Guarantee as to correspondence with description: s 56
Guarantees relating to the supply of goods by sample or
demonstration model: s 57
Guarantees as to repairs and spare parts: s 58
Guarantee as to express warranties: s 59

[page 210]

REMEDIES FOR NON-COMPLIANCE WITH STATUTORY

CONSUMER GUARANTEES
Action against suppliers
Rejection of goods
 Action against manufacturers

PERSONS INJURED BY UNSAFE GOODS: PT 3-5 OF THE ACL

(FORMER PT VA OF THE TRADE PRACTICES ACT)
 [page 211]

INTRODUCTION TO THE AUSTRALIAN

CONSUMER LAW
7.1 The Australian Consumer Law (ACL) is contained in Sch 2 to
the Competition and Consumer Act 2010 (Cth) (CCA), which replaced
the Trade Practices Act 1974 (Cth) (TPA). The ACL is extensive
consumer protection legislation which, while re-enacting many of the
TPA consumer protection provisions, also introduces a new way of
dealing with defective goods. The new approach applies statutory
consumer guarantees to contracts for the supply of goods. The new
consumer guarantee provisions replace Pt V Divs 2 and 2A of the TPA
and the consumer protection provisions in state and territory Fair
Trading legislation and other related Acts.
The impetus for a national approach stemmed from the Productivity
Commission’s 2008 Review of Australia’s Consumer Policy Framework1 and
the subsequent review conducted by the Commonwealth Consumer
Affairs Advisory Council (CCAAC).2 The CCAAC reported to the
Australian Government that, relevantly, Australia should adopt a system
of statutory consumer guarantees to replace existing laws that imply
conditions and warranties into consumer contracts. This was agreed to
by the Ministerial Council on Consumer Affairs in late 2009.
The reasoning behind the change was discussed by J M Paterson in a
recent article:
The decision to replace the implied terms regime under the TPA with consumer
guarantees under the [consumer guarantee law] was prompted not by a rejection of
the policy behind the implied terms regime, but by more practical concerns relating
to the ease with which the regime could be understood and applied by consumers and
traders. A number of reports had found that undue complexity and uncertainty in the
law providing mandatory quality standards in the supply of goods and services to
consumers was created by differences between the implied terms regimes
 implemented by Commonwealth, state and territory legislation and by the technical
form and language of the regimes.3

The consumer guarantees are contained within the new ACL, which
was enacted as Sch 2 to the Competition and Consumer Act 2010 (Cth)
(CCA). The CCA applies to all relevant conduct occurring in trade or
commerce on or after 1 January 2011. Conduct occurring prior to 1
January 2011 is subject to the repealed, and saved for those purposes,
provisions in the TPA: Trade Practices Amendment (Australian
Consumer Law) Act (No 2) 2010 (Cth) Sch 7 item 6.

[page 212]

To enable the law to apply nationally and not just to corporations,

each of the states and territories enacted what was called an ‘applied
ACL’. This enabled the ACL to apply both as a law of the
Commonwealth and as a law of each of the states and territories.
The enactment of applied law by each state and territory was
necessary due to the fact that the Commonwealth Parliament does not
have power to legislate generally under the Australian Constitution with
respect to fair trading and consumer protection. Its power, relevantly, is
to legislate in respect of ‘foreign corporations and trading or financial
corporations formed within the limits of the Commonwealth’ pursuant
to s 51(xx) of the Constitution and in respect of ‘trade and commerce
… among the States’ within the meaning of s 51(i) of the Australian
Constitution.
The decision to implement the ACL as an application law, with the
Australian Government as the lead legislator, was made by the Council
of Australian Government (COAG) in October 2008.4 Part XI of the
CCA applies the ACL as a law of the Commonwealth, and Pt XIAA
facilitates the application of the ACL by each of the states and
territories (‘participating jurisdictions’).
APPLICATION OF THE LEGISLATION
7.2 The ACL applies as a law of the Commonwealth to the conduct
of corporations: CCA s 131. It also applies to natural persons engaged
in conduct involving postal, telegraphic or telephonic services: CCA s
6(2D)(a) and (3)(a). This has been held to include the internet:
Australian Competition and Consumer Commission v Jutsen (No 3) (2011)
285 ALR 110 at [100]. The ACL is enforced by the ACCC as a law of the
Commonwealth. As each state and territory has also made the ACL a
law of its jurisdiction, it also applies to the conduct of corporations and
individuals by virtue of the applied ACL.5 The applied ACL is enforced
by the state and territory consumer agencies as state and territory laws.
The ACL applies to all parts of the economy, except for financial
products and services, which are dealt with separately under the
Australian Securities and Investments Commission Act 2001 (Cth):
CCA s 131A. It covers a broad range of conduct in commercial
transactions, including misleading and deceptive conduct,
unconscionable conduct and unfair practices. It also covers the area of
consumer guarantees and manufacturers’ liability for unsafe goods.
These areas are the focus of this chapter. As the ACL only came into
effect on 1 January 2011, case law decided under the corresponding
provisions of the former TPA will also be discussed here.

[page 213]

CONSUMER GUARANTEES
7.3 The ACL applies a national system of statutory consumer
guarantees in relation to the supply of goods or services. The consumer
guarantee provisions are based on the New Zealand Consumer
Guarantees Act 1993, which is based on the Canadian Consumer
Protection Act6 and the English Sale of Goods Act 1979. The
guarantees in respect of goods apply if the goods are supplied in trade
or commerce. With the exception of guarantees relating to title,
undisturbed possession and undisclosed securities, they do not apply to
private sales by individuals to other individuals or businesses. The
guarantees are contained in Pt 3-2 Div 1 Subdiv A of the ACL and
provide consumers with a basis for seeking remedies from suppliers,
manufacturers or importers when:
1. they have not acquired proper title to the goods (s 51);
2. their possession of the goods has been disturbed (s 52);
3. the goods are subject to undisclosed security interests (s 53);
4. the goods are not of acceptable quality (s 54);
5. the goods are not fit for a purpose that the consumer makes
known to the supplier (s 55);
6. the goods do not correspond with the description under
which they were supplied (s 56);
7. the goods do not correspond with a sample or demonstration
model used by the supplier (s 57);
8. repairs and spare parts were not made available for a
reasonable period after the goods were supplied (s 58); or
9. an express warranty has not been complied with (s 59).
The ‘guarantees’ are in the nature of contractual promises. Thus, a
supplier promises under s 51 that the supplier has a right to dispose of
the property. If he does not, an action will lie in damages against him.
Notwithstanding the use of the word ‘guarantees’, the guarantees do
not extinguish the rights of third parties in the goods.
The guarantees do not apply to sales by way of auction where an
auctioneer acts as agent for the seller but do apply to sales made by way
of online ‘auction’ where the website operator is not acting as agent for
the seller.
Unlike the sale of goods legislation of each state and territory, the
guarantees cannot be excluded by contract: ACL s 64. Further, it is not
possible to avoid the guarantees by agreeing that the law of another
country applies to the transaction: ACL s 67.
 [page 214]

Consumer
7.4 The guarantees apply to the supply of goods or services to a
‘consumer’.
Section 3 of the ACL provides:
3 Meaning of consumer
Acquiring goods as a consumer
(1) A person is taken to have acquired particular goods as a consumer if, and only if:
(a) the amount paid or payable for the goods, as worked out under subsections (4)
to (9), did not exceed:
(i) $40,000; or
(ii) if a greater amount is prescribed for the purposes of this paragraph — that
greater amount; or
(b) the goods were of a kind ordinarily acquired for personal, domestic or
household use or consumption; or
(c) the goods consisted of a vehicle or trailer acquired for use principally in the
transport of goods on public roads.
(2) [Not acquiring goods as a consumer] However, subsection (1) does not apply if the
person acquired the goods, or held himself or herself out as acquiring the goods:
(a) for the purpose of re-supply; or
(b) for the purpose of using them up or transforming them, in trade or commerce:
(i) in the course of a process of production or manufacture; or
(ii) in the course of repairing or treating other goods or fixtures on land.

A person can also be a corporation: Acts Interpretation Act 1901

(Cth) s 2C; Seeley International Pty Ltd v Newtronics Pty Ltd (2002) ASAL
55-075; [2001] FCA 1862 in relation to the former TPA definition.
A person is presumed to be a consumer unless the contrary is
established: ACL s 3(10).
When more than one item is purchased at a time, an issue arises as to
whether the amount paid or payable refers to the price of each item of
goods or the aggregate purchase price. The court has shown a
preparedness to examine the whole of the circumstances surrounding
the transaction in order to determine whether aggregation is a true
reflection of the nature and purpose of the relevant transaction:
Business & Professional Leasing Pty Ltd v Dannawi; BPL (NSW) Pty Ltd v
Blue Robe Petroleum Pty Ltd; BPL (NSW) Pty Ltd v Macarounas [2008]
NSWSC 902 and Jefferson Ford Pty Ltd v Ford Motor Co of Australia Ltd
(2008) 167 FCR 372. Commentators have said, in relation to the
equivalent definition in the former TPA, that the structure of the
definition dictates that the court look to see whether there is a
commercial transaction involving one package or separate items:
Donald & Heydon, Trade Practices Law, Vol 2, LBC, Sydney, 1978, p 713.
In Jefferson Ford, in the context of s 51AC of the former TPA, it was held
that the court must take into account all the facts and circumstances
before deciding whether aggregation is justified or not. In the Blue Robe
case, the court looked at the whole of the circumstances, including that
the two ovens in question were being purchased for

[page 215]

different sites and that there was no discount for quantity, and held
that the deal should be considered as two separate transactions. The
court held at [150]:
It really makes nonsense in the present type of case to hold that a company making
two purchases for different businesses loses its protection under a consumer sale
because the paperwork puts the two in the one document.

Calculating the ‘price’ of goods in a ‘mixed supply’ where goods or

services are purchased together with other goods or services is dealt
with in s 3(5) of the ACL.
A buyer may be a consumer even where the goods purchased were
second-hand: Atkinson v Hastings Deering (Qld) Pty Ltd (1985) 6 FCR 331;
71 ALR 93.
In relation to the application of s 3(1)(b) of the ACL, there must be
evidence admissible to prove that a particular kind of goods either is or
is not ordinarily acquired for personal, domestic or household use or
consumption, and, if the matter depends upon onus of proof, the onus
is on the party who claims an entitlement to compensation: Crago v
Multiquip Pty Ltd (1998) ATPR 41-620.
The word ‘ordinarily’ has been held to mean, in this context,
‘commonly’ or ‘regularly’, as opposed to ‘principally’, ‘exclusively’ or
‘predominantly’: Bunnings Group Ltd v Laminex Group Ltd (2006) 230
ALR 269; [2006] FCA 682 at [81]; see also Clean Investments Pty Ltd v
Commissioner of Taxation (2001) 105 FCR 248 at 273.
In the absence of evidence as to actual use, the nature of particular
goods is considered in determining the issue as to whether the goods
are of a kind ordinarily acquired for personal, domestic or household
use: Crago at 40,798. In that case Lehane J held that the relevant goods,
an ostrich egg incubator, could not be regarded as a matter of common
knowledge as ordinarily acquired for personal, household or domestic
use. Since there was no evidence that anyone used an incubator that
way, the plaintiffs could not satisfy the definition of ‘goods’ for the
purposes of Pt V Div 2A of the former TPA. In the course of his
judgment Lehane J listed the following examples of cases where, in the
absence of actual evidence, the nature of the goods meant the goods
did not qualify as ‘ordinarily acquired for personal, domestic or
household use’:
an air seeder: Jillawarra Grazing Co v John Shearer Ltd (1984) ATPR
40-441;
a large tractor: Atkinson;
a reduction photocopier: Four Square Stores (Qld) Ltd v ABE Copiers
Pty Ltd (1981) ATPR 40-232; and
a prime mover: Minchillo v Ford Motor Company of Australia [1995] 2
VR 594.
In some cases, in the absence of evidence, the court can come to the
opposite conclusion. In Carpet Call Pty Ltd v Chan (1987) ATPR (Digest)
46-065, for example, Thomas J held that the goods, in that case carpet
with a commercial rating, were goods ordinarily acquired for domestic
consumption.
In determining the issue it is appropriate to consider the essential
character of the general category or genus of goods rather than a more
restrictive description of the

[page 216]

particular products themselves: Bunnings at [86]. However, the inquiry

is broader. As Young J in Bunnings held at [86]:
… the essential character test is relevant, but the inquiry does not end there. The
statutory question cannot be answered without a broader inquiry into the evidence
concerning the design, marketing, pricing and potential uses of the type of goods in
question.

Goods may be of a kind ordinarily acquired for personal, domestic or

household use or consumption even if goods of that same kind are, in
many or perhaps even the majority of cases, acquired for a business use:
Crago per Lehane J at 40,798. In Bunnings, for example, the laminate
products in question were held to be ‘goods’ within s 74A(2)(a) of the
former TPA even though they had been marketed as ideal for use in
commercial and industrial applications. On the other hand, in Cinema
Center Services v Eastaway Air Conditioning Pty Ltd (1999) ASAL 55-034 the
applicant was held to be a consumer in relation to air conditioning
units it bought for its business because, despite their use in that
instance, they were of a kind ordinarily acquired for personal, domestic
or household use. Similarly, the fact that goods might be everyday or
personal items to the person who acquires them does not necessarily
mean they become ordinarily acquired for personal or domestic use:
Jillawarra Grazing Co. In that case, an agricultural air seeder was held
not to be a consumer good and could not become so simply because
‘everything on the farm is domestic to a farmer’. It was held at
[45,090]:
… the term ‘domestic’ carries its usual significance of pertaining to the home. I refer
to only one dictum, that of Phillimore J in Metropolitan Water Board v Colley’s Patents Ltd
[1911] 2 KB 38 at 40:

… ‘domestic’ does not mean civilised or domesticated or something

appertaining to man, but means something to do with man as occupying a
house or dwelling.
 In no sense is an air seeder within goods of a kind ordinarily acquired for use or
consumption in connection with the home. The fact that a farmer’s residence is
ordinarily on the land where he conducts his business does not mean that the
distinction ceases to exist.

In Minchillo at 617, in relation to the meaning of the words

‘ordinarily acquired for personal use’ in the definition of ‘goods’ in s
74A(2)(a) of the former TPA, it was held that the acquisition of a large
Ford prime mover, even though used by the purchaser personally and
not in his capacity as employee, was held not to be a good ‘ordinarily
acquired for personal … use’. ‘Personal’ was broader than ‘domestic or
household’ but was still intended to contrast such use with commercial
or business use, whatever other personal activities a vehicle may be used
for. Similarly, the acquisition of 40 kg bags of horse feed was held in
Crump v Equine Nutrition Systems Pty Ltd t/as Horsepower [2006] NSWSC
512 at [154] not to come within the definition.
Goods or services that come within the definition will be excluded if
they are acquired 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 production or manufacturing process, or in the

[page 217]

course of repairing or treating other goods or fixtures: ACL s 3(2). This

was considered in Laws v GWS Machinery Pty Ltd (2007) 209 FLR 53
where it was held that a tractor tyre had not been purchased for the
purpose of using it up in trade or commerce in the course of repairing
other goods and that therefore it was a consumer transaction.

Guarantee as to title: s 51
7.5 Section 51 of the ACL provides:
(1) [Supplier’s right to sell goods] If a person (the supplier) supplies goods to a
consumer, there is a guarantee that the supplier will have a right to dispose of the
property in the goods when that property is to pass to the consumer.
(2) [Guarantee does not apply to supply of limited title] Subsection (1) does not apply
 to a supply (a supply of limited title) if an intention that the supplier of the goods
should transfer only such title as the supplier, or another person, may have:
(a) appears from the contract for the supply; or
(b) is to be inferred from the circumstances of that contract.
(3) [Guarantee does not apply to hire or lease of goods] This section does not apply if
the supply is a supply by way of hire or lease.

By this guarantee the supplier of goods promises that he or she has

title to sell them. However, a supplier has the right to supply goods with
a limited title provided that intention is apparent from the contract of
supply or can be inferred from the circumstances of that contract.
In s 2 of the ACL, the phrase ‘supply of limited title’ is defined by
reference to s 51(2). In the Explanatory Memorandum the concept is
explained at [7.19]:
If a supply is of limited title, the guarantee as to title does not apply. A supply of
limited title occurs when a supplier tells prospective purchasers of goods that they do
not know whether there are any claims over particular goods and that, in the event of
a sale, they will be transferring only the title that they have. Supplies of limited title
occur most often in the context of deceased estates. In such cases, other persons
might still seek to repossess goods, for example, if they were owed money by the
deceased and the goods were pledged as security for the amount owing.

If the supply is of limited title, then the consumer will not be able to
invoke the guarantee in s 52 as to undisturbed possession against the
person or persons who have an interest in the goods. The guarantee as
to undisturbed possession will only apply in respect of the supplier or
other person whose limited title the supplier has transferred: see
Explanatory Memorandum at [7.23].
As ‘supply’ is a wide term which includes transactions other than
sales, for example, the hiring of goods, it is necessary to make clear that
the guarantee as to title does not apply to a hire or lease of goods: ACL
s 51(3).
For case law examples of the application of the equivalent implied
term in sale of goods legislation see Chapter 6 at 6.18.

[page 218]
Guarantee as to undisturbed possession: s 52
7.6 Section 52 of the ACL provides:
(1) [Consumer’s right to undisturbed possession of goods] If:
(a) a person (the supplier) supplies goods to a consumer; and
(b) the supply is not a supply of limited title;
there is a guarantee that the consumer has the right to undisturbed possession of the
goods.

The guarantee as to undisturbed possession is in place of the TPA

provision which implied a warranty that a consumer ‘will enjoy quiet
possession of the goods’: TPA s 69(1)(b). The new term is probably
more easily understood by consumers. There is no difference in
substance, it is submitted, between the concepts of ‘undisturbed
possession’ and ‘quiet possession’. ‘Quiet possession’ has been held to
include, but extend beyond, freedom from physical interference with
the goods by the seller: Niblett v Confectioners’ Materials Co Ltd [1921] 3
KB 387. In Niblett the seller was in breach of the warranty as to quiet
possession as the buyer needed to remove labels on the relevant goods
which infringed the copyright of a third party. The Explanatory
Memorandum, however, in its explanation of the application of the
guarantee at [7.21], only refers to a situation where goods are
physically removed from the consumer’s possession:
The ACL provides a consumer with a guarantee of undisturbed possession of goods.
This ensures that consumers who buy goods are not inconvenienced by others seeking
to reclaim the goods, for example, because the goods have been pledged as security
for a loan.

Section 52(2) provides that the guarantee of undisturbed possession

does not apply to the extent that the consumer’s undisturbed
possession may be lawfully disturbed by a person who is entitled to the
benefit of any security, charge or encumbrance that was disclosed to
the consumer before the consumer agreed to the supply. This
complements s 51(2).
Unlike s 51, this guarantee does apply to a supply of goods by way of
hire or lease for the period of the hire or lease: s 52(4).
Guarantee as to undisclosed securities: s 53
7.7 Section 53 of the ACL provides:
(1) [Goods free from security, charge or encumbrance] If:
(a) a person (the supplier) supplies goods to a consumer; and
(b) the supply is not a supply of limited title;
there is a guarantee that:
(c) the goods are free from any security, charge or encumbrance:
(i) that was not disclosed to the consumer, in writing, before the consumer
agreed to the supply; or
(ii) that was not created by or with the express consent of the consumer;
and
(d) the goods will remain free from such a security, charge or encumbrance until
the time when the property in the goods passes to the consumer.

[page 219]

If there is a floating charge over the supplier’s assets, the supplier will
not be in breach of the guarantee unless and until the charge becomes
fixed and enforceable by the person to whom the charge is given: s
53(2).7 This makes sense as unless a borrower defaults on a loan, a
floating charge will not become fixed and enforceable and its mere
existence should not, therefore, adversely affect a buyer.
The purpose of the guarantee as to undisclosed securities was
discussed in the Explanatory Memorandum at [7.24]:
The ACL provides consumers with a guarantee that goods are free from any security,
charge or encumbrance that was not disclosed to the consumer or created with their
consent. This ensures that a consumer is not inconvenienced by other persons, such
as financiers claiming to be owed money secured by the goods, seeking to repossess
the goods or seeking the payment of money in relation to securities over the goods.

Guarantee as to acceptable quality: s 54

7.8 Section 54 of the ACL provides:
(1) [Guarantee that goods are of acceptable quality] If:
(a) a person supplies, in trade or commerce, goods to a consumer; and
 (b) the supply does not occur by way of sale by auction;
there is a guarantee that the goods are of acceptable quality.
(2) [Definition: acceptable quality] Goods are of acceptable quality if they are as:
(a) fit for all the purposes for which goods of that kind are commonly supplied;
and
(b) acceptable in appearance and finish; and
(c) free from defects; and
(d) safe; and
(e) durable;
as a reasonable consumer fully acquainted with the state and condition of the goods
(including any hidden defects of the goods), would regard as acceptable having
regard to the matters in subsection (3).
(3) [Relevant matters] The matters for the purposes of subsection (2) are:
(a) the nature of the goods; and
(b) the price of the goods (if relevant); and
(c) any statements made about the goods on any packaging or label on the goods;
and
(d) any representation made about the goods by the supplier or manufacturer of
the goods; and
(e) any other relevant circumstances relating to the supply of the goods.
(4) [Drawing problems with goods to consumer’s attention] If:
(a) goods supplied to a consumer are not of acceptable quality; and
(b) the only reason or reasons why they are not of acceptable quality were
specifically drawn to the consumer’s attention before the consumer agreed to
the supply;
the goods are taken to be of acceptable quality.

[page 220]

(5) [Displaying notice with goods] If:

(a) goods are displayed for sale or hire; and
(b) the goods would not be of acceptable quality if they were supplied to a
consumer;
the reason or reasons why they are not of acceptable quality are taken, for the
purposes of subsection (4), to have been specifically drawn to a consumer’s attention
if those reasons were disclosed on a written notice that was displayed with the goods
and that was transparent.
(6) [Abnormal consumer use of goods] Goods do not fail to be of acceptable quality if:
(a) the consumer to whom they are supplied causes them to become of
 unacceptable quality, or fails to take reasonable steps to prevent them from
becoming of unacceptable quality; and
(b) they are damaged by abnormal use.
(7) [Examination of goods] Goods do not fail to be of acceptable quality if:
(a) the consumer acquiring the goods examines them before the consumer agrees
to the supply of the goods; and
(b) the examination ought reasonably to have revealed that the goods were not of
acceptable quality.

Section 54 provides a guarantee that goods supplied to a consumer,

other than those supplied by auction, are of acceptable quality. The
section applies only to supplies of goods to consumers, as defined in s
3, and then only if the supply occurs in trade and commerce. Goods
will be of acceptable quality if they are as fit for all the purposes for
which goods of that kind are commonly supplied, acceptable in
appearance and finish, free from defects, safe and durable as a
reasonable consumer fully acquainted with the state and condition of
the goods, including any hidden defects, would regard as acceptable
having regard to the matters in s 54(3). Whether goods are acceptable
is judged on an objective basis from the perspective of a reasonable
consumer taking into account certain subjective circumstances relevant
to the transaction. Those factors are the nature of the goods, price, any
statements made about the goods on packaging or labels, any
representations made about the goods by the supplier or manufacturer,
and any other relevant circumstances relating to the supply of the
goods: ACL s 54(3). The effect of the application of the factors in s
54(3) in determining whether the goods are acceptable was outlined by
way of example in the Explanatory Memorandum at [7.31]:
What a reasonable consumer can expect from goods in terms of acceptable quality
varies based on the factors set out in subsection 54(3).
Example 7.1

The appearance and durability that a reasonable consumer would expect

of a 10 year-old motor vehicle would be of a much lower standard than
would apply to a new vehicle. The age of the goods is relevant under
subsection 54(3) under the heading of ‘the nature of the goods’. On the
other hand, the price and nature of the goods are relevant considerations
under subsection 54(3), as the
 [page 221]

appearance expected of a vintage motor vehicle purchased for a large

sum might be of a relatively high standard, irrespective of its age.

The particular purpose for which the goods were bought is not
relevant to the issue of acceptability. Fitness for a disclosed purpose is
dealt with in s 55. Acceptability requires that the goods be fit for all the
purposes for which goods of that kind are commonly bought within the
bounds of what a reasonable consumer would consider acceptable:
Peterson v Merck Sharpe & Dohme (Aust) Pty Ltd (2010) 266 ALR 1; Merck
Sharpe & Dohme (Aust) Pty Ltd v Peterson [2011] FCAFC 128; (2011) 284
ALR 1.
Although s 54 of the ACL imposes a guarantee of ‘acceptable quality’
in place of the requirement under the former TPA that the goods be of
‘merchantable quality’, the concepts are similar and it is instructive to
consider case law on the meaning of the corresponding TPA provisions.
Section 71(1) of the TPA implied a term that goods had to be of
merchantable quality. This was defined in s 66(2) of the TPA: Rasell v
Cavalier Marketing (Australia) Pty Ltd [1991] 2 Qd R 323. There was also
a statutory cause of action based on merchantability imposed by s 74D
of the TPA against manufacturers. In respect of that cause of action,
merchantable quality was defined in s 74D(3).
The definition of ‘merchantable quality’ in s 66(2) of the TPA
provided:
Goods of any kind are of merchantable quality within the meaning of this Division if
they are as fit for the purpose or purposes for which goods of that kind are commonly
bought as it is reasonable to expect having regard to any description applied to them,
the price (if relevant) and all the other relevant circumstances.

It was said to be ‘unnecessary and undesirable’ to look at the

common law definition for the purposes of construing either of the
statutory definitions in s 66(2) or s 74D(3) of the TPA: Courtney v Medtel
Pty Ltd [2003] FCA 36 at [189]; Rasell at 348.
The merchantable quality standard required under the TPA was
more onerous than the common law definition of merchantability. To
be merchantable under s 66(2), goods had to be fit for all the purposes
for which goods of that kind were commonly bought. The extent of the
requirement was influenced by the description applied to the goods,
the price and ‘all the other relevant circumstances’. These factors
remain relevant to the concept of ‘acceptable quality’ under s 54 of the
ACL. It may be that the supplier has informed the buyer prior to the
sale that the goods are not suitable for a particular purpose which they
would commonly be suited for. It is submitted that this may constitute a
‘relevant circumstance’ for the purposes of s 54(3)(e) of the ACL.
The guarantee as to acceptable goods applies to the supply of
second-hand goods. A sale of goods ‘as is’ was considered in WM
Johnson Pty Ltd v Maxwelton (Oaklands) Pty Ltd [2000] NSWCA 286.
There it was held at [27]:
Sale of a machine ‘as is’ could not of itself exclude the implied condition of
merchantable quality, still less could sale ‘as per inspection’, if for no other reason
because of s 68 of the [TPA].

[page 222]

Whether goods supplied ‘as is’ are of acceptable quality will depend
upon what was represented, either orally or in writing, by the supplier
prior to the supply of the goods. The guarantee of acceptable quality, it
is submitted, could be breached in respect of a supply of used goods in
less than perfect condition. Although such goods may not be in first-
class condition, if they have been sold as useable the goods must be in
useable condition in order to be of acceptable quality: see a similar
argument in relation to merchantability in WM Johnson at [25]. On the
other hand, where goods are merely sold ‘as is’, that may leave scope to
apply s 54(4). Subsection 54(4) deems goods to be of acceptable quality
in a situation where a supplier draws the attention of the consumer to
reasons why the goods are not of acceptable quality before the
consumer agrees to the supply. The supplier will be taken to have
drawn defects to the consumer’s attention for the purposes of s 54(4)
by disclosing those defects on a notice which was displayed with the
goods provided the notice was ‘transparent’: s 54(5). The Explanatory
Memorandum discusses the sale of second-hand goods in this context
at [7.32]:
Some goods may not be of acceptable quality due to problems that are known to the
supplier. In many circumstances it is wasteful to require suppliers to dispose of such
goods when consumers otherwise derive benefits from their use despite these
problems. A common example is white goods with cosmetic defects that are sold as
‘seconds’. These goods should be able to be sold to consumers, usually for lower
prices, as long as the defects are drawn to their attention before the sale.

It continues, at [7.33]:
The ACL deals with the this [sic] issue by providing that goods are of acceptable
quality as long as any reason that would otherwise render them not of acceptable
quality is specifically drawn to the attention of the consumer [Sch 1 item 1: Ch 3 Pt 3-2
Div 1 s 54(4)]. This might be achieved by telling the consumer orally before selling
the goods. It may also be achieved by displaying a notice with the goods [Sch 1 item 1:
Ch 3 Pt 3-2 Div 1 s 54(4)].

Section 54 is framed affirmatively. In line with the observations of

Sackville J in Courtney in relation to the similarly worded definition of
merchantability in s 74D(3) of the TPA, goods which do not fall within
the definition of acceptable quality should be regarded as
unacceptable.
The statutory definition requires a two-step inquiry:
1. What is the purpose or purposes for which goods of that kind
are commonly bought? Are they acceptable in terms of
appearance and finish, free from defects, safe and durable?
2. Were the goods as fit for the purpose or purposes so
identified, and otherwise acceptable as is reasonable to expect
having regard to the criteria in s 54(3)?
The purpose for which goods of that kind are commonly bought or
supplied is not answered by asking what the individual consumer’s
subjective purpose was in acquiring the goods, although that may be
relevant to the broader inquiry: Courtney. The test is objective: Rasell at
348.

[page 223]
 In relation to the second question it has been said that the words ‘as
it is reasonable to expect’ raise a question as to the identity of the
person or persons the reasonableness of whose expectations is in
question: Graham Barclay Oysters Pty Ltd v Ryan (2000) 102 FCR 307 at
445 per Lindgren J. Lindgren J thought it was consistent with both the
objective nature of the statutory standard and the consumer protection
purpose of the provision to hold that the reasonable expectations to
consider were those of a reasonable consumer placed in the position of
the actual consumer.8 In Courtney it was considered relevant, in
considering the expectations of the recipients of pacemakers, to take
into account the specialist medical advice which the
patients/consumers would have received and upon which they would
have been heavily dependent: at [216]. On the other hand, in Graham
Barclay Oysters it was held that it was wrong to measure the expectation
of the consumer of oysters in light of the specialist technical knowledge
of the manufacturer (the growers of the oysters), and that it was
impossible to ensure that the oysters were in fact safe for eating. It is
possible, however, that information or warnings given to consumers can
be capable of displacing what would otherwise be reasonable
expectations of consumers: Courtney at [218].
In order to be ‘merchantable’ under the former TPA the goods had
to be fit for all normal purposes for which such goods were commonly
bought. This may not have been the case if the contract of supply
between the direct supplier and the consumer, including any
description applied to the goods by either the supplier or
manufacturer/importer, or the price, dictated that a particular normal
purpose be excluded: Rasell at 349. Similar arguments could apply
under s 54(3)(c), (d) or (e) of the ACL.
In Rasell the court held that carpet which suffered from ‘shading’ or
‘pile reversal’ was unmerchantable under the TPA. While it was true
that the carpet was fit for use as a floor covering, it was not fit for the
purpose of decoration. The carpet must be fit for its dual purpose. Lack
of consistency in colour and design meant the carpet was
unmerchantable. There was no description placed on the carpet which
limited this purpose and there was nothing to suggest that the price was
so low as to make the expectations of the purchasers as to the use of the
carpet as decoration unreasonable. Similar arguments would succeed
under the ACL.
Whether the goods are of acceptable quality is to be determined by
assessing the goods at the time they were supplied to the consumer:
Medtel Pty Ltd v Courtney (2003) 198 ALR 630; Merck Sharpe & Dohme
(Aust) Pty Ltd v Peterson [2011] FCAFC 128; (2011) 284 ALR 1.

Circumstances where the guarantee will not apply

7.9 The guarantee as to acceptable quality will not apply in the
following circumstances:
1. the consumer was informed as to the reason why the goods
were not of acceptable quality before they acquired them: s
54(4);

[page 224]

2. the consumer caused the goods to become of unacceptable

quality or failed to prevent them becoming so and, in either
case, the goods were damaged by abnormal use after they
were acquired: s 54(6); or
3. the goods were examined by the consumer before agreeing to
the supply of the goods and the examination ought reasonably
to have revealed that the goods were not of acceptable quality:
s 54(7).

Abnormal use of goods

7.10 One aspect of acceptable quality is durability. ‘Durable’,
although not defined in the ACL, has been defined to include ‘capable
of lasting’ or ‘resisting wear’: The Concise Oxford Dictionary. The
exemption from the guarantee in s 54(6) applies when the goods have
been damaged by abnormal use after they were acquired. The damage
does not need to have been caused by the consumer: s 54(6)(a). In
order for the exemption to apply, however, the consumer must have
caused or permitted the goods, whether by an act or omission, to have
become of unacceptable quality: s 54(6)(a).
The Explanatory Memorandum gives the following example of when
the ‘abnormal use’ exemption to the guarantee may apply (at [7.37]):
The exemption from the guarantee of acceptable quality that applies when goods are
damaged by abnormal use is intended to provide suppliers with an excuse for avoiding
their guarantee obligations only in exceptional circumstances.
Example 7.2

Examples to which the exemption applies are where a mobile telephone

is dropped into a bathtub full of water or a television is broken by an
object hitting the screen.

The exemption does not require that the consumer’s conduct in

rendering the goods of unacceptable quality in fact be related to the
damage caused to the goods by abnormal use. Further, the extent of
damage to the goods by abnormal use required by the exemption is not
defined. It may be that the damage is not sufficient in itself to have
caused the goods to have become of unacceptable quality and yet the
exemption will still apply.

Examination of goods
7.11 The guarantee as to acceptable quality is excluded under s
54(7) of the ACL if the consumer examines the goods before the
contract is made and that examination ought reasonably have revealed
that the goods were not of acceptable quality. The words ‘that
examination’ were construed in a similarly worded proviso to the
implied condition as to merchantable quality under the former TPA (s
71(1)(a)) to mean the actual examination undertaken by the consumer
as opposed to the examination a reasonable consumer would have
made: see Truck Wreckers (1979) Pty Ltd v Waters (1994) 10 SR (WA) 32.

[page 225]
In WM Johnson Pty Ltd v Maxwelton (Oaklands) Pty Ltd [2000] NSWCA
286 it was held, in considering the application of the examination
proviso under s 71(1)(b) of the TPA in relation to the sale of a hay
baler with a defective knotting system, at [19]:
Worn or replacement parts in a machine of the nature of a hay baler are not
unexpected, and are not necessarily in themselves defects or indicative of defective
operation of the machine. When the machine could not be operated, it could not be
appreciated that the knotting system did not work properly. There was no evidence
that the inspection conducted by Mr Nixon (see ‘that examination’ in s 71(1)(b))
should have made known that the knotting system was defective, (for example because
the wear in the worn parts was so gross that malfunctioning was inevitable) to a person
experienced with hay balers, let alone to Mr Nixon.

The Explanatory Memorandum discusses the examination

exemption but, it is submitted, ascribes to it a more limited operation
than is open on the wording. It states at [7.38]:
If a consumer is provided with an opportunity to examine goods before purchasing
them and the examination should have revealed the reason that the goods are not of
acceptable quality, the guarantee of acceptable quality does not apply to the extent that
the examination should have revealed the relevant defect or defects. [Italics added.]

Subsection 54(7) says that the goods do not fail to be of acceptable

quality if the goods are examined and the examination ought
reasonably to have revealed that the goods were not of acceptable
quality. There is no qualification to the effect that where goods are
examined and some defects should have been revealed, the guarantee
will still apply with respect to defects not discoverable upon that
examination.

Guarantee as to fitness for purpose: s 55

7.12 Section 55 of the ACL provides:
55 Guarantee as to fitness for any disclosed purpose etc
(1) [Goods reasonably fit for disclosed purpose] If:
(a) a person (the supplier) supplies, in trade or commerce, goods to a consumer;
and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that the goods are reasonably fit for any disclosed purpose, and
for any purpose for which the supplier represents that they are reasonably fit.
 (2) [Definition: disclosed purpose] A disclosed purpose is a particular purpose (whether
or not that purpose is a purpose for which the goods are commonly supplied) for
which the goods are being acquired by the consumer and that:
(a) 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 goods were conducted or made; or
(b) the consumer makes known to the manufacturer of the goods either directly or
through the supplier or the person referred to in paragraph (a)(ii).

[page 226]

(3) [Exception to guarantee of fitness for a disclosed purpose] This section does not
apply if the circumstances show that the consumer did not rely on, or that it was
unreasonable for the consumer to rely on, the skill or judgment of the supplier, the
person referred to in subsection (2)(a)(ii) or the manufacturer, as the case may be.

The guarantee as to fitness for disclosed purpose is an additional

guarantee to that of acceptable quality. The requirement that goods be
of acceptable quality applies generally to goods to ensure that an
acceptable standard of quality is achieved for all goods. This does not
deal, however, with the situation where a consumer may need goods for
a particular purpose and wishes to acquire goods to fulfil that purpose
or where the consumer has relied on representations by the supplier
that the goods were fit for a particular purpose.
If the consumer discloses to the supplier a purpose for which he or
she wants the goods, or to a person by whom any pre-acquisition
negotiations were conducted or to the manufacturer, and the goods are
subsequently sold to the consumer, then there is a guarantee that the
goods will be fit for that purpose. The logic behind the requirement
that the purpose be disclosed is that the supplier or manufacturer is
then given an opportunity to ensure the goods meet that purpose. The
guarantee also imposes an additional requirement, that the goods must
be fit for any purpose for which the supplier represents they are
reasonably fit: s 55(1). This guarantee, that goods must be reasonably
fit for any purpose for which the supplier represents they are fit, is new.
It was not part of the implied condition as to fitness for purpose in the
TPA (see s 71(2) of the TPA). It may be that such a representation
made by a supplier would also amount to an ‘express warranty’ under s
59 of the ACL. The significance of these changes is that previously
statements made by the supplier prior to contract would be treated as
pre-contractual representations and not as terms of the contract. This
affected the remedies that were available.
‘Disclosed purpose’ is defined in s 55(2) to be a particular purpose,
whether or not that purpose is a purpose for which the goods are
commonly supplied, which is made known by the consumer, expressly
or by implication to the supplier or to a person who conducted the pre-
acquisition negotiations. It also includes the situation where the
consumer makes known the purpose to the manufacturer of the goods
either directly or through either the supplier or the person who
conducted the pre-acquisition negotiations. The people to whom the
disclosure can be made known are intended to cover the categories of
people that consumers most often deal with when acquiring goods:
Explanatory Memorandum at [7.41].
In order for the guarantee to apply, the following elements must be
satisfied:
1. The consumer made known, expressly or by implication, the
particular purpose for which the goods were acquired.
2. That purpose was made known to either the supplier, the
person who conducted the pre-acquisition negotiations or the
manufacturer.

[page 227]

3. The goods were supplied in trade or commerce.

4. The consumer relied on the supplier, the person who
conducted the pre-acquisition negotiations or the
manufacturer, and it was not unreasonable in the
circumstances for the consumer to do so.
The cases on disclosure of purpose under the Sale of Goods Act and
former TPA are relevant.
In Rasell v Cavalier Marketing (Australia) Pty Ltd [1991] 2 Qd R 323,
the Rasells bought carpet from an importer, who was deemed to be the
manufacturer under Div 2A. The importer was the appellant. The
appellant supplied the carpet to the first defendant for re-supply to the
Rasells, who were the respondents.
Mrs Rasell had made known her particular purpose for the purchase
of the carpet, being to match colour-wise with the existing décor of her
home. The carpet supplied had ‘pile reversing’ or shading which meant
that the colour of the carpet looked different depending upon which
way you looked at it. The respondents had the onus of establishing the
facts necessary under s 74B(1). It was held that the pile reversal meant
that the carpet was not reasonably fit for the particular purpose made
known to the appellant.
The appellants sought to avoid liability by relying on s 74B(2)(a) and
(b). The subsection where it applies exonerates the corporation from a
liability it would otherwise have had. In order to satisfy s 74B(2)(a) the
appellants had to show the goods were not fit by reason of an act or
default of some other person or a cause independent of human control
which occurred after the goods left the control of the corporation. As
the cause was unknown the appellant was unable to prove what caused
the condition of pile reversal to manifest itself after the carpet was laid.
The appellant also argued that there had been no reliance by the
buyers on the appellants or, alternatively, that if there was reliance, any
reliance was unreasonable: s 74B(2)(b). The basis for this argument
was that the condition of pile reversal was unable to be predicted or
prevented; the cause was unknown, and, due to the quality of the
carpet, some pile reversal could be expected. It was held that reliance
was reasonable, particularly in view of the appellant’s knowledge
regarding the condition of pile reversal which it had not passed on to
the respondents. Cooper J held at Qd R 342:
The respondents were entitled to rely upon the skill and judgment of the appellant
not to recommend carpet of a type that inherently had the risk of proving unfit for
the known particular purpose of the respondents. In my view it would be necessary for
the appellant to have passed on all the relevant information in order that the
 respondents could make a reasoned decision before it could begin to be said that such
reliance as there was, was unreasonable.

The respondents also succeeded in establishing that the carpet was

not of merchantable quality for the purposes of s 74D.
The respondents were entitled to damages for breach of the statute.
The damages were assessed as the purchase price less the value of the
carpet as scrap. Although the

[page 228]

respondents had rescinded their contract with the first defendant

pursuant to s 75A, the carpet, which had re-vested in the first
defendants upon service of notice of rescission (s 75A(3)(a)), had not
been collected and therefore was deemed to have been abandoned.
It is clearly important how the ‘purpose’ is defined, that is, whether
the purpose expressly or impliedly made known to the supplier or
manufacturer is widely or narrowly stated. For example, in Regal Pearl
Pty Ltd v Stewart [2002] NSWCA 291 the New South Wales Court of
Appeal held that the implied purpose for the purchase of prawns by the
owner of a restaurant from a wholesaler was ‘the supply by the
appellant to patrons of the restaurant to eat’. This was in contrast to the
trial judge who had, in the opinion of the appeal court, stated the
purpose too narrowly. The trial judge had stated ‘that the purchase of
the prawns was for cooking in the restaurant for service to patrons’.
The difference was critical. At first instance, it was held that the prawns
were fit for their purpose. The prawns were contaminated with the
hepatitis A virus (HAV), which, if cooked at a particular temperature,
would have been fit for consumption. This was reversed on appeal. The
New South Wales Court of Appeal held that such a limited purpose was
never the subject of evidence by the appellant or the wholesaler. The
evidence of the health authorities of their expectation that imported
prawns would be cooked and served and that such cooking would
destroy the pathogens was not such as would limit the purpose implied
under the fitness for purpose implied condition under the Sale of
Goods Act: Stein JA and Sheller JA at [100]. This argument could
equally apply to the TPA. Hodgson JA added the qualification that the
circumstance of contamination with HAV was not entirely conclusive.
His Honour held at [111]–[112]:
It seems clear that chicken may be sold contaminated with salmonella, but that is not
considered as making it not of merchantable quality or not fit for the purpose for
which it is acquired. This is because the likelihood for contamination with salmonella
is well-known, and there are well-known standards for cooking chicken which need to
be complied with before chicken can safely be eaten, and compliance with which will
destroy the salmonella.
If the respondent had proved that there were well-known standards for cooking
prawns which needed to be complied with before prawns could safely be eaten, and
compliance with which would destroy HAV, then contamination with HAV would not
in my opinion have made them not of merchantable quality or not fit for the purpose
for which they were acquired. In those circumstances, I would have held that the
purpose for which they were acquired did involve the cooking of prawns to that
standard.

The appellant was entitled to a complete indemnity from the

wholesaler on the basis that the prawns were not fit for the purpose or
merchantable under the Sale of Goods Act. The appellant was not
entitled to resurrect a cross-claim which it had earlier abandoned
against the importer under the TPA. The wholesaler had not, for
reasons unknown to the court, cross-claimed against the importer. The
appellant could not have brought a claim against the importer under
the Sale of Goods Act because the importer did not sell

[page 229]

the prawns to the appellant. It is interesting to note that the trial judge
had held that the importer and wholesaler had a defence to the TPA
claims against them by the plaintiffs (patrons of the restaurant) under s
75AK(1) in that the defect could not be discovered having regard to
the state of scientific or technical knowledge at the time of supply.

Guarantee as to correspondence with

description: s 56
7.13 Section 56 of the ACL provides:
56 Guarantee relating to the supply of goods by description
(1) [Goods match their description] If:
(a) a person supplies, in trade or commerce, goods by description to a consumer;
and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that the goods correspond with the description.
(2) [Guarantee applies despite prior inspection of goods] A supply of goods is not
prevented from being a supply by description only because, having being exposed for
sale or hire, they are selected by the consumer.
(3) [Application of ss 56 and 57 guarantees] If goods are supplied by description as
well as by reference to a sample or demonstration model, the guarantees in this
section and in section 57 both apply.

If goods are supplied by description then the goods supplied must

match that description. In order for the guarantee to apply there must
have been a supply of goods by description. If there has been, it will
then be necessary to determine what words comprise the description
for the purposes of s 56 and, finally, to determine whether in fact the
goods do match the description. The important issues in determining
whether the guarantee imposed by s 56 has been breached are as
follows:
1. Was there a supply by description?
2. If so, what words does the description comprise?
3. Do the goods correspond with the description?
These issues have been considered in the context of the application
of the corresponding implied term provision under the Sale of Goods
Act (s 16).9
It was held in Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387
at 417 that a sale by description could exist even where goods had been
self-selected, at least to the extent that the words on the packaging
delineated the goods and indicated the kind of goods to be bought.
This principle is reflected in s 56(2), which provides that goods are not
prevented from being a supply by description just because, having been
exposed for sale or hire, they were selected by the consumer.
Determining what words form part of the description can be a
difficult task. The cases in relation to the corresponding implied term
under the sale of goods legislation

[page 230]

held that the description means a statement of the kind, class or species
to which the article belongs. It had to be a statement as to the essential
or specific nature of the thing sold, not merely a statement as to the
quality, state or other attribute of the article: Taylor v Combined Buyers
Ltd [1924] NZLR 627 at 639–40. The Second Explanatory
Memorandum at [7.44] gives the following example of when the
guarantee might apply:
This guarantee applies if goods supplied are a different colour to their description, a
different size or of a different kind from those the consumer had agreed to buy.

If the consumer acquires goods by description but also by reference

to a sample or demonstration model then the guarantees in both ss 56
and 57 will apply: s 56(3).

Guarantees relating to the supply of goods by

sample or demonstration model: s 57
7.14 Section 57 of the ACL provides:
(1) [Goods match sample or demonstration model] If:
(a) a person supplies, in trade or commerce, goods to a consumer by reference to
a sample or demonstration model; and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that:
(c) the goods correspond with the sample or demonstration model in quality, state
or condition; and
(d) if the goods are supplied by reference to a sample — the consumer will have a
reasonable opportunity to compare the goods with the sample; and
(e) the goods are free from any defect that:
(i) would not be apparent on reasonable examination of the sample or
demonstration model; and
(ii) would cause the goods not to be of acceptable quality.
 (2) [Application of ss 56 and 57 guarantees] If goods are supplied by reference to a
sample or demonstration model as well as by description, the guarantees in section 56
and in this section both apply.

This guarantee applies where goods have been supplied by reference

to a sample or demonstration model. If this is the case then there is a
guarantee that the goods will correspond with the sample or
demonstration model in quality, state or condition and that the goods
will be free from any defect that would not be apparent on reasonable
examination and which would mean that the goods were not of
acceptable quality.
If there has been a supply by sample, there is a guarantee that the
consumer will have a reasonable opportunity to compare the goods
with the sample to see whether the goods do, in fact, correspond with
the sample: s 57(1)(d).
‘Acceptable quality’ is defined in s 54(2) of the ACL.

[page 231]

Guarantees as to repairs and spare parts: s 58

7.15 Section 58 of the ACL provides:
(1) [Spare parts and repair facilities available for reasonable period] If:
(a) a person supplies, in trade or commerce, goods to a consumer; and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that the manufacturer of the goods will take reasonable action to
ensure that facilities for the repair of the goods, and parts for the goods, are
reasonably available for a reasonable period after the goods are supplied.
(2) [Exemption] This section does not apply if the manufacturer took reasonable
action to ensure that the consumer would be given written notice, at or before the
time when the consumer agrees to the supply of the goods, that:
(a) facilities for the repair of the goods would not be available or would not be
available after a specified period; or
(b) parts for the goods would not be available or would not be available after a
specified period.

In relation to the application of the guarantee as to repairs and spare

parts, the Explanatory Memorandum states, at [7.51]–[7.52]:
When consumers buy goods they expect that spare parts and repair facilities will be
available for a reasonable time after they make the purchase. This is particularly the
case for expensive goods, such as cars. The ACL provides consumers with a guarantee
that spare parts and repair facilities will be reasonably available for a reasonable
period [Sch 1 item 1: Ch 3 Pt 3-2 Div 1 s 58].
The tests of reasonability that apply to this guarantee allow for the fact that what is
reasonable will depend on the nature of the goods supplied. For example, it would be
reasonable to expect that tyres for a new car will be available for many years after its
purchase. It may not be reasonable to expect that spare parts for an inexpensive
children’s toy are available at all.

Guarantee as to express warranties: s 59

7.16 Section 59 of the ACL provides:
(1) [Express warranty: manufacturer] If:
(a) a person supplies, in trade or commerce, goods to a consumer; and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that the manufacturer of the goods will comply with any express
warranty given or made by the manufacturer in relation to the goods.
(2) [Express warranty: supplier] If:
(a) a person supplies, in trade or commerce, goods to a consumer; and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that the supplier will comply with any express warranty given or
made by the supplier in relation to the goods.

[page 232]

‘Express warranty’ is defined widely in s 2 to mean, in relation to

goods:
an undertaking, assertion or representation:
(a) that relates to:
(i) the quality, state, condition, performance or characteristics of the goods;
or
(ii) the provision of services that are or may at any time be required for the
goods; or
(iii) the supply of parts that are or may at any time be required for the goods;
or
 (iv) the future availability of identical goods, or of goods constituting or
forming part of a set of which the goods, in relation to which the
undertaking, assertion or representation is given or made, form part; and
(b) that is given or made in connection with the supply of the goods, or in
connection with the promotion by any means of the supply or use of the goods;
and
(c) the natural tendency of which is to induce persons to acquire the goods.

The definition of express warranty is wide enough to include oral

statements made by suppliers or manufacturers in negotiations leading
up to the supply of goods as well as to advertising. The effect of making
representations the subject of a statutory guarantee is that it will be
easier now for consumers to seek redress for having been induced to
enter into a contract due to a false representation made about the
goods. At common law, a pre-contractual representation may form part
of the contract (assuming the parol evidence rules can be overcome) if,
objectively assessed, the parties intended the statement to be a promise
and to form part of the written contract: Oscar Chess Ltd v Williams
[1957] 1 All ER 325 at 328. Under the ACL, pre-contractual statements
can become contractually binding if the representation related to the
condition, quality, use or description of the goods and had a natural
tendency to induce persons to enter into the contract. This is an easier
test to satisfy than the common law test: see generally J M Paterson,
‘The New Consumer Guarantee Law and the Reasons for Replacing the
Regime of Statutory Implied Terms in Consumer Transactions’ at 272.

Misleading and deceptive conduct by supplier relating to the

nature and extent of consumer guarantees
7.17 Section 18 of the ACL relevantly provides:
A person must not, in trade or commerce, engage in conduct that is misleading or
deceptive or is likely to mislead or deceive.

Section 29(1)(m) of the ACL provides:

(1) A person must not, in trade or commerce, in connection with the supply or
possible supply of goods or services or in connection with the promotion by any
means of the supply or use of goods or services:
…
 [page 233]

(m) make a false or misleading representation concerning the existence, exclusion or

effect of any condition, warranty, guarantee, right or remedy (including a guarantee
under Division 1 of Part 3-2);

Section 29 is, in effect, a specific instance of the general rule in s 18.

A breach of s 29 will therefore usually constitute a breach of s 18:
Australian Competition and Consumer Commission v Bunavit Pty Ltd [2016]
FCA 6 at [20] and [37]. A breach of s 29 may attract a civil penalty but a
breach of s 18 does not: at [20].
It is not uncommon for statements to be made outlining a
consumer’s rights in the event goods turn out to be defective in the
context of the negotiation of the sale of that product. Any statements
made by salespersons as employees on behalf of the supplier and within
their apparent authority will be taken to be conduct of the supplier for
the purposes of the ACL: s 139B(2).
In Australian Competition and Consumer Commission v Gordon Superstore
Pty Ltd [2014] FCA 452 a consumer experienced the problem of frost
building up around the seal of the refrigerator door. The consumer
was given a replacement fridge and then a further replacement fridge,
both of which had the same problem. A number of false or misleading
statements were held to have been made in respect of the consumer’s
rights in relation to each of the three fridges, including that:
(a) the supplier did not have an obligation to provide a refund
where there were remedies available under a warranty with
the manufacturer;
(b) the supplier did not have an obligation to provide a refund for
a large appliance; and
(c) the supplier did not have an obligation to provide a refund
where it had not been paid an amount equivalent to the price
of the third fridge by the manufacturer.
The court made orders comprising a declaration, an injunction
under s 232 of the ACL, required the supplier to display an in-store
notice at the point of sale outlining a consumer’s rights under the ACL,
required compliance training be undertaken pursuant to s 246 of the
ACL and imposed a pecuniary penalty of $25,000 under s 224(1)(a)(ii)
of the ACL.
This can be contrasted with Director of Consumer Affairs Victoria v The
Good Guys Discount Warehouses (Australia) Pty Ltd [2016] FCA 22 where a
series of conversations with salespersons were secretly taped by
Consumer Affairs Victoria representatives posing as customers. The
relevant conversations were held not to constitute misleading and
deceptive conduct: at [165]. The court held that it was important to
view the conduct of the defendant as a whole: at [149]. It was also
necessary to take into account the whole of the circumstances, not just
the relevant conversations. Those circumstances included the nature of
the statutory consumer guarantees and remedies, the terms of the
extended warranty and the fact that the extended warranty brochure
which described the consumer guarantees rights and remedies was
made available in the store: at [160].

[page 234]

REMEDIES FOR NON-COMPLIANCE WITH

STATUTORY CONSUMER GUARANTEES
Action against suppliers
7.18 The nature of the remedy available to a consumer in the event
of non-compliance with a consumer guarantee will depend upon how
serious the non-compliance is, in particular whether the failure of the
goods is a ‘major’ failure. Under s 260 of the ACL, a failure to comply
with a guarantee (other than ss 58 and 59(1)) is a ‘major failure’ if
either:
(a) the goods would not have been acquired by a reasonable consumer fully
acquainted with the nature and extent of the failure; or
(b) the goods depart in one or more significant respects:
 (i) if supplied by description, from that description; or
(ii) if supplied by reference to a sample or demonstration model, from that
sample or model; or
(c) the goods are substantially unfit for a purpose for which goods of the same kind
are commonly supplied and cannot, easily and within a reasonable time, be
remedied to make them fit for such a purpose; or
(d) the goods are unfit for a disclosed purpose and cannot, easily and within a
reasonable time, be remedied to make them fit for that purpose; or
(e) the goods are not of acceptable quality because the goods are unsafe.

In other words, there will be a major failure if a reasonable consumer

would not have bought the goods had the consumer known of the
failure, if the goods depart significantly from their description or from
a sample or demonstration model, if the goods are substantially unfit
for a common or disclosed purpose, or if the goods are unsafe.
If the goods suffer from a ‘major failure’ then the consumer can
either reject the goods or recover compensation from the supplier for
any reduction in value of the goods below the price paid or payable by
the consumer for the goods: s 259(3). The consumer also has a right to
recover damages for any loss or damage suffered by the consumer
because of the failure of the goods to comply with the guarantee,
provided the loss or damage was reasonably foreseeable: s 259(4). In
Ferraro v DBN Holdings Aust Pty Ltd (t/as Sports Auto Group) [2015] FCA
1127 the applicant was entitled to reject a vehicle which did not comply
with its description and which the applicant argued no reasonable
person in the sports car market would have purchased if fully informed
of the defects. The applicant was relieved under s 263(2)(b) of
returning the vehicle due to the cost of transporting it and was
permitted to retain possession until refund of the purchase price.
If, on the other hand, the failure of the goods is not ‘major’ and can
be remedied, the consumer can require the supplier to remedy the
failure within a reasonable time: s 259(2)(a). If the supplier does not
do this then the consumer has the option of rejecting

[page 235]
the goods and obtaining a refund of the price paid, or having the
failure remedied and recovering the reasonable costs incurred in doing
that from the supplier: s 259(2)(b). The consumer, as was the case
where the goods suffered from a major failure, is also entitled to
damages for any loss or damage suffered by the failure, provided it was
reasonably foreseeable: s 259(4) and (6).

Rejection of goods
7.19 There are some limits to a consumer’s right to reject goods.
Under s 262, a consumer is not entitled to reject the goods if:
1. the consumer fails to exercise the right within a reasonable
time after the failure became apparent (see s 262(2) and the
definition of ‘rejection period’);
2. the goods have been lost, destroyed or disposed of by the
consumer;
3. the goods were damaged after being delivered to the
consumer for reasons not related to their state or condition at
the time of supply; or
4. the goods have been attached to, or incorporated in, any real
or personal property and they cannot be detached or isolated
without damaging them.
If the consumer chooses to reject the goods then he or she must
return them to the supplier unless there is significant cost associated
with doing so due to either the nature of the failure of the goods or
their size, height or method of attachment: s 263(2)(b). If that is the
case the supplier must collect the goods at its own expense: s 263(3).
The supplier must also either give the consumer a refund or replace
the goods: s 263(4). The consumer guarantees will apply to the
replacement goods: s 264.

Action against manufacturers

7.20 A consumer has a right to recover damages from the
manufacturer in certain circumstances if goods manufactured by it do
not comply with the statutory guarantee as to:
1. acceptable quality;
2. correspondence with description;
3. spare parts and repair facilities; and
4. express warranties.

Acceptable quality
7.21 However, there are some exemptions to the right to recover in
each instance. Recovery against a manufacturer in respect of the
guarantee as to acceptable quality will not be permitted if the
guarantee is not complied with only because of:
1. an act or omission, including a representation made by
anyone other than the manufacturer or its agent;

[page 236]

2. a cause independent of human control that occurred after the

goods left the control of the manufacturer; or
3. the fact that the supplier charged a higher price for the goods
than that recommended by the manufacturer or the average
retail price: s 271(2).

Correspondence with description

7.22 In order for recovery against the manufacturer for non-
compliance with the guarantee as to correspondence with description
to apply, the description must have been applied to the goods by or on
behalf of the manufacturer or with its express or implied consent: s
271(3). Recovery against the manufacturer will not be permitted if the
non-compliance occurred only because of:
1. an act or omission of someone other than the manufacturer
 or its agent; or
2. a cause independent of human control that occurred after the
goods left the control of the manufacturer: s 271(4).

Spare parts and express warranties

7.23 Damages may be recovered against a manufacturer for non-
compliance with the spare parts guarantee or with the guarantee as to
express warranties: s 271(5).
The damages that may be recovered against the manufacturer
include reduction in value from the lower of the price paid and the
average retail price for the goods at the time of supply as well as any
other reasonably foreseeable loss or damage: s 272.

Indemnification of suppliers by the manufacturer

7.24 Section 274 gives a supplier a right to be indemnified by the
manufacturer where the supplier has supplied goods to a consumer
and is liable to pay damages to the consumer under s 259(4) and the
manufacturer is or would be liable under s 271 to pay damages to the
consumer for the same loss or damage. The manufacturer is liable to
indemnify the supplier if the supplier incurs costs because it is liable for
a failure to comply with a guarantee in respect of acceptable quality,
fitness for a disclosed purpose or correspondence with description: s
274(2). The supplier has three years from the earliest of the time the
supplier made a payment with respect to its liability to the consumer
and the time the consumer commenced proceedings against the
supplier: s 274(4).
A manufacturer’s liability can be limited in certain circumstances but
not otherwise excluded, restricted or modified: s 276. Under s 276A, if
the relevant goods are not of a kind ordinarily acquired for personal,
domestic or household use or consumption, the manufacturer’s
liability is limited to the cost of replacing or obtaining equivalent goods
or repairing them, whichever costs less. If the supplier establishes that
this is not fair and reasonable in the circumstances, the limitation will
not apply: s 276A(2). In determining
 [page 237]

whether it is fair and reasonable for the manufacturer’s liability to be

limited, the court is to have regard to all the circumstances of the case,
and in particular to:
1. the availability of suitable alternative sources of supply of the
goods;
2. the availability of equivalent goods; and
3. whether the goods were manufactured, processed or adapted
to the special order of the supplier: s 276A(3).
However, a contract between the supplier and manufacturer which
imposes a greater liability than that in s 276A(1) will take precedence: s
276A(4).

PERSONS INJURED BY UNSAFE GOODS:

PT 3-5 OF THE ACL (FORMER PT VA OF
THE TRADE PRACTICES ACT)
7.25 Part 3-5 is based on Part VA of the TPA, which was introduced
in 1992 to provide remedies against manufacturers and importers of
defective goods. The object of the provisions is to provide
compensation for any consequential damage caused by defective goods,
including for those who die or who suffer injury or damage to
themselves or their property as a result of the defective good. The
person injured does not need to have bought the defective goods.
Section 138 of the ACL provides:
138 Liability for loss or damage suffered by an injured individual
(1) [Manufacturer’s liability for injuring individual] A manufacturer of goods is liable
to compensate an individual if:
(a) the manufacturer supplies the goods in trade or commerce; and
(b) the goods have a safety defect; and
 (c) the individual suffers injuries because of the safety defect.
(2) [Recovery action] The individual may recover, by action against the manufacturer,
the amount of the loss or damage suffered by the individual.
(3) [State/Territory law on liability in respect of death] If the individual dies because
of the injuries, a law of a State or a Territory about liability in respect of the death of
individuals applies as if:
(a) the action were an action under the law of the State or Territory for damages in
respect of the injuries; and
(b) the safety defect were the manufacturer’s wrongful act, neglect or default.

Liability arises, therefore, where a corporation supplies goods

manufactured by it, those goods are defective and, because of the
defect, an individual suffers injury. As Lehane J in Bright v Femcare Ltd
(2000) 175 ALR 50; [2000] FCA 742 held at [92]:
What appears to be necessary is that there be a clear link between particular defective
goods and ‘injury’ (not loss or damage) suffered by an individual (see Stegenga v J Corp
Pty Ltd [1999] ATPR 41–695).

[page 238]

There is no requirement under s 138 that the injury suffered must

have been reasonably foreseeable. As Hoeben J held in Crump v Equine
Nutrition Systems Pty Ltd t/as Horsepower [2006] NSWSC 512 at [264]:
There is no requirement under s 75AD [of the TPA; now s 138 of the ACL] for any
test of reasonable foreseeability to be satisfied. All that has to be proved is a defect in
the goods and personal injury caused by that defect.

If the individual dies because of the injuries, the cause of action

survives for the benefit of that individual’s estate: s 145. If another
person suffers consequential loss due to the injury caused to the
individual by the defective goods, that person can recover their loss
from the manufacturer, provided that their loss does not come about
because of a business or professional relationship between the person
and the injured or deceased individual: s 139. If workers’ compensation
legislation applies to cover the injury or loss caused by the defective
goods then Pt 3-5 will not apply: s 146.
Damage or destruction of other goods caused by the defective goods
is also covered by the compensation regime provided those goods fall
within the more limited definition of goods — that is, they are ‘goods
of a kind ordinarily acquired for personal, domestic or household use’:
s 140(1)(c). So, too, is damage or destruction caused to land, buildings
or fixtures ordinarily acquired for private use and not, for instance,
acquired for a professional, business or commercial purpose: s 141. To
summarise, therefore, an action can be brought against a manufacturer
in respect of unsafe goods where:
loss or damage has been suffered by an individual because of
injuries they sustained from the safety defect;
loss or damage has been suffered by a person as a consequence of
another individual having been injured as a result of the safety
defect;
loss or damage has been suffered because another good has been
destroyed or damaged as a result of the safety defect; or
loss or damage has been suffered because land, buildings or
fixtures have been destroyed or damaged as a result of the safety
defect.
Section 138 does not apply to impose liability on persons who work
on the goods under contract without ever acquiring title to, or
possession of, the goods. Such persons have not supplied goods within
the meaning of the provision: Spittles v Michael’s Appliance Services Pty Ltd
(2008) 71 NSWLR 115; [2008] NSWCA 76 at [20].
The manufacturers’ liability provisions apply generally to ‘goods’ and
are not limited to ‘consumer goods’ only. However, the manufacturer is
only liable if the goods were supplied by the manufacturer in trade or
commerce and not, for instance, in a private or personal capacity: ss
138(1)(a), 139(1)(a) and 140(1)(a). ‘Goods’ are defined in s 2(1) to
include:
(a) ships, aircraft and other vehicles; and
(b) animals, including fish; and
(c) minerals, trees and crops, whether on, under or attached to land or not; and

[page 239]
 (d) gas and electricity; and
(e) computer software; and
(f) second-hand goods; and
(g) any component part of, or accessory to, goods.

‘Manufacturer’ is defined in s 7(1) to include:

(a) a person who grows, extracts, produces, processes or assembles goods;
(b) a person who holds himself or herself out to the public as the manufacturer of
goods;
(c) a person who causes or permits the name of the person, a name by which the
person carries on business or a brand or mark of the person to be applied to
goods supplied by the person;
(d) a person (the first person) who causes or permits another person, in connection
with:
(i) the supply or possible supply of goods by that other person; or
(ii) the promotion by that other person by any means of the supply or use of the
goods;
to hold out the first person to the public as the manufacturer of the goods;
(e) a person who imports goods into Australia if:
(i) the person is not the manufacturer of the goods; and
(ii) at the time of the importation, the manufacturer of the goods does not have
a place of business in Australia.

The definition is wide. For example, oysters were held to be

‘manufactured’ under equivalent provisions of the former TPA: Ryan v
Great Lakes Council [1999] FCA 177.
There are procedures which apply where the manufacturer is not
known: ACL s 147.
Section 9(1) provides that ‘goods have a safety defect if their safety is
not such as persons generally are entitled to expect’. This test is applied
objectively, based on the reasonable expectations of the public as
opposed to the expectations of the particular individual: Bright v
Femcare Ltd (2000) 175 ALR 50; [2000] FCA 742 at [92]. In determining
the safety of the goods, s 9(2) provides regard is to be had to all
relevant circumstances, including:
(a) the manner in which, and the purposes for which, they have been marketed; and
(b) their packaging; and
(c) the use of any mark in relation to them; and
(d) any instructions for, or warnings with respect to, doing, or refraining from doing,
 anything with or in relation to them; and
(e) what might reasonably be expected to be done with or in relation to them; and
(f) the time when they were supplied by their manufacturer.

In Laws v GWS Machinery Pty Ltd (2007) 209 FLR 53, a father and son
were injured when a tractor tyre exploded while the father was inflating
it, shortly after having fitted it. Actions against the supplier, GWS, and
the manufacturer, Motokov Australia

[page 240]

Pty Ltd, based on the implied terms of fitness for purpose and
merchantable quality in ss 74B and 74D respectively of Pt V Div 2A of
the TPA, failed because a tractor tyre acquired for use on a tractor
which, in turn, was used in business was not a good ‘of a kind ordinarily
acquired for personal, domestic or household use or consumption’
within s 74A(2)(a). The plaintiffs, however, were successful under Pt
VA (now Pt 3-5 of the ACL). The tractor tyre satisfied the general
definition of ‘goods’ under s 4(1) (ACL s 2), and the requirements of s
75AD (ACL s 138) were met: Motokov was a corporation, a
manufacturer within s 75AB (ACL s 7) which supplied the tyre it
imported in trade and commerce. As to whether the tyre was defective
within s 75AC (ACL s 9), Rothman J held that it was, as the safety of the
tyre was not such as persons generally were entitled to expect, in that
Motokov sold the goods without any warning as to the fitting process.
This was significant due to the fact that the tyres were sold to
consumers through dealers who were not tyre specialists, the packaging
contained no accompanying or attached warnings and it could
reasonably be expected that a tyre would be fitted to wheel rims: at
[164].
‘Instructions’ in s 9 of the ACL extends to instructions regarding the
installation of the goods, and is not limited to instructions regarding
the use of the goods themselves: Skerbic v McCormack [2007] ACTSC 93
at [41].
If safer goods of the same kind are supplied by the manufacturer
after the subject goods are supplied, it does not to lead to the inference
that the original goods were defective: s 9(3). Neither is such an
inference to be drawn where the goods comply with a relevant
Commonwealth mandatory standard but that standard was not the
safest possible standard at the time of supply: s 9(4). ‘Mandatory
standard’ is defined to mean a standard that has been made under a
Commonwealth, state or territory law which must be complied with at
the time the good is supplied by the manufacturer and where non-
compliance could result in an offence or liability: s 2.
The defences to an action for compensation under s 138 are
contained in s 142:
142 Defences to defective goods actions
In a defective goods action, it is a defence if it is established that:
(a) the safety defect in the goods that is alleged to have caused the loss or damage
did not exist:
(i) in the case of electricity — at the time at which the electricity was
generated, being a time before it was transmitted or distributed; or
(ii) in any other case — at the time when the goods were supplied by their
actual manufacturer; or
(b) the goods had that safety defect only because there was compliance with a
mandatory standard for them; or
(c) the state of scientific or technical knowledge at the time when the goods were
supplied by their manufacturer was not such as to enable that safety defect to
be discovered; or

[page 241]

(d) if the goods that had that safety defect were comprised in other goods — that
safety defect is attributable only to:
(i) the design of the other goods; or
(ii) the markings on or accompanying the other goods; or
(iii) the instructions or warnings given by the manufacturer of the other goods.

The defence in s 142(1)(c), based on the fact of the state of scientific

or technical knowledge at the time the goods were supplied being
inadequate to enable the defect to be discovered, was argued
successfully in Graham Barclay Oysters Pty Ltd v Ryan (2000) 102 FCR 307
at [70], [542], [547] and [614]. There, Barclay Oysters discharged the
onus of establishing that when it supplied the contaminated oysters the
state of scientific or technical knowledge was not such as to enable the
presence of the HAV in them to be discovered.
The amount of loss or damage which the manufacturer is liable for
may also be reduced as a result of contributory actions or omissions on
the part of the plaintiff: s 137A.
A supplier of defective goods is given a right of indemnity against the
manufacturer of those goods for any loss or damage recoverable by a
consumer under s 259(4) as a result of a failure to comply with a
guarantee imposed under Pt 3-2 of the ACL, where the manufacturer
would have been liable for the same loss or damage to the consumer
under s 271: s 274.
However, if the goods in question are not goods ordinarily acquired
for personal, domestic or household use or consumption, the liability
under s 274 of a manufacturer to a seller is limited to the cost of
replacing the goods, the cost of obtaining equivalent goods or the cost
of having the goods repaired — whichever is the lowest amount: s
276A. If the seller establishes this is not fair or reasonable then the
manufacturer’s liability may not be so limited: s 276A(2).
The remedies in Pt 3-5 are in addition to any other remedies that
may apply: CCA s 131C. If alternate remedies are pursued, a plaintiff
must elect which remedy will be taken. This election should occur no
later than at the time of seeking final judgment: Laws at [192] citing
Graham Barclay Oysters at 591; Crump v Equine Nutrition Systems Pty Ltd
t/as Horsepower [2006] NSWSC 512 at [266]–[267]. If a loss can be or
has been recovered under a law which relates to workers’ compensation
or which gives effect to an international agreement, there is no
recovery under Pt 3-5 Div 1: ACL s 146; see also Elms v Ansell Ltd [2007]
NSWSC 618.
The application of the manufacturers’ liability provisions cannot be
excluded, restricted or modified: s 150(1). A contract term does not
exclude, restrict or modify a manufacturers’ liability provision unless it
expressly states so, or the term operates so that it is inconsistent with a
provision: s 150(2). There is a three-year limitation period which runs
from the time the person first became aware or ought reasonably to
have become aware of the loss, the defect and the identity of the
manufacturer: s 143(1). There is an outside time limit of 10 years which
starts from the time when the particular good in

[page 242]

question was supplied by the manufacturer, and not when goods of that
kind were first supplied: s 143(2). It does not matter to whom the
goods were supplied.
A regulator can apply to bring a safety defective goods action (a
representative action) in respect of an allegedly unsafe good against the
manufacturer, on behalf of a person who has suffered loss or damage
in relation to the action: s 149(1). Written consent from the person or
persons on behalf of whom the action is being brought must first be
obtained: s 149(2).

_______________
1 Productivity Commission, Review of Australia’s Consumer Policy Framework, Inquiry Report No
45, 2008, vol 2.
2 Commonwealth Consumer Affairs Advisory Council, Department of Treasury, Consumer
Rights: Reforming Statutory Implied Conditions and Warranties — Final Report, 2009.
3 J M Paterson, ‘The New Consumer Guarantee Law and the Reasons for Replacing the
Regime of Statutory Implied Terms in Consumer Transactions’ (2011) 35 Melbourne
University Law Review 252 at 253–4.
4 See Council of Australian Governments, Intragovernmental Agreement for the Australian
Consumer Law, 2009, cl 3.2, where the states and territories agreed to enact legislation
applying the ACL as laws of their jurisdiction.
5 Competition and Consumer Act 2010 (Cth) ss 140–140K; Fair Trading (Australian
Consumer Law) Act 1992 (ACT) s 7(1); Fair Trading Act 1987 (NSW) s 28(1); Consumer
Affairs and Fair Trading Act 1990 (NT) s 27(1); Fair Trading Act 1989 (Qld) s 16(1);
Australian Consumer Law (Tasmania) Act 2010 (Tas) s 6(1); Australian Consumer Law
and Fair Trading Act 2012 (Vic) s 11(1); Fair Trading Act 2010 (WA) s 19(2).
6 SS 1996, c C-30.1, Pt III.
7 Section 339 of the Personal Property Securities Act 2009 (Cth) affects the meaning of
 ‘floating charge’ and ‘fixed charge’.
8 See also Lee J at FCR 330 and Kiefel J at 462.
9 See Chapter 6 at 6.22.
[page 243]
CHAPTER 8
Transfer of property and title in
goods

DISTINGUISHING ‘PROPERTY’ AND ‘TITLE’

THE EFFECT OF THE PPSA

TRANSFER OF PROPERTY
Unascertained goods: no transfer of property
Goods other than unascertained goods

TRANSFER OF PROPERTY PRESUMPTIONS WHERE NO

CONTRARY INTENTION APPEARS
Specific goods in a deliverable state
Specific goods not in a deliverable state
Specific goods to be weighed, measured or tested to ascertain
price
Goods delivered ‘on approval’ or ‘on sale or return’
Unascertained or future goods

[page 244]

RISK
Obligations as bailee
 Goods perish after agreement to sell but before sale
Goods have already perished at time of sale

TRANSFER OF TITLE BY A NON-OWNER

The estoppel exception
Sale under a voidable title
Sale by a mercantile agent
Seller in possession: s 27(1)
Buyer in possession: s 27(2)
Miscellaneous exceptions
 [page 245]

DISTINGUISHING ‘PROPERTY’ AND

‘TITLE’
8.1 The Sale of Goods Act 1896 (Qld) deals discretely with the
passing of property and the transfer of title: see ss 19–23 (Transfer of
property) and 24–28 (Transfer of title). The purpose of the Act is to
distinguish between sales by the true owner and ‘sales’ by persons who
are not the owner: contrast s 20 (property passes when intended to
pass) with s 24 (sale by person not the owner). It is worth noting that
‘property’ is defined in the Act to mean the general property in goods,
and general property can only be held by the true owner.
The starting proposition is that if a person disposes of a chattel,
whether for valuable consideration or not, they can confer no better
title than they have themselves. Only the true owner can thus transfer
property. However, in some circumstances at common law, and under
statute, a person who is not the owner can transfer a title sufficient to
defeat even that of the true owner.
‘Title’, it is submitted, is a term used to distinguish between true
ownership (property) and entitlement. On many occasions, ‘title’ and
‘property’ are used interchangeably; indeed, the true owner will usually
hold title: Sogelease Australia Ltd v Boston Australia Ltd (1991) 26 NSWLR
1 at 4–5. However, that will not always be so, as discussed below, and
‘title’ in those circumstances refers to the result of the identified special
circumstances which permit a person to assert entitlement without ever
otherwise having received a transfer of property from the true owner.

THE EFFECT OF THE PPSA

8.2 The ordinary rule is that a person may not pass any better title
than he or she possesses. This is known as the nemo dat rule. There are a
number of exceptions to the nemo dat rule. While this chapter focuses
on the nemo dat rule and the statutory exceptions to those principles
under the Sale of Goods legislation, it should be noted that the
Personal Property Securities Act 2009 (Cth) (PPSA) also provides for
situations where a third party may take personal property free of an
existing security interest.1 Where the PPSA applies it will prevail over
the common law. The PPSA also, relevantly, affects common law
principles in relation to contracts for the sale of goods subject to
retention of title clauses.2 The PPSA is dealt with in Chapter 10 of this
text. Any issue involving what may, in substance, be considered a
security interest in respect of personal property3 should now be viewed
in light of the PPSA.

[page 246]

TRANSFER OF PROPERTY
8.3 The issue of when property passes in a sale of goods contract is
important for the following reasons:
1. Risk prima facie passes with property.
2. A buyer may by reason of provisions in the Act lose the right
to reject goods once property has passed.
3. The party with property in the goods can generally sue for
damage caused to the goods.
4. If the buyer has property in the goods they can pass good title
to a third party.
5. Generally, the seller can only sue for the price if property has
passed to the buyer: Style Finnish (Qld) Pty Ltd v Abloy Security
Pty Ltd [1994] 2 Qd R 203. This is significant because an
action for the price is a claim for a liquidated (that is, sum
 certain) amount, whereas the alternative, a claim for damages
for breach of the contractual obligation to pay the price, is a
claim for unliquidated damages. In the case of a claim for
unliquidated damages, the seller is required to prove its
damages:4 this may be difficult if, for example, it is proved that
the goods were readily sold for the same price to another
buyer.

Unascertained goods: no transfer of property

8.4 Regardless of the intention of the parties, when there is a
contract of sale of unascertained goods, no property in the goods is
transferred to the buyer unless and until the goods are ascertained: s
19. That is, property in unascertained goods cannot pass.
This is entirely logical: until the goods have been identified, property
in them cannot pass to the buyer. If, for example, party A contracts to
buy a tonne of grain, unless the grain has been appropriated to the
contract, who is to say which tonne of grain in the silo belongs to A?
The section is in absolute terms and overrides the express intention
of the parties: Jansz v GMB Imports Pty Ltd [1979] VR 581 at 586. Jansz
concerned an allegation of an unlicensed sale of tobacco by a tobacco
wholesaler, GMB Imports (GMB). GMB’s licence expired on 31 May
1976. The licence fee was to increase and so GMB decided it would no
longer sell tobacco. In the few weeks before 31 May, a representative of
GMB ascertained from a client, Permewan Wright Ltd (PW), the
quantity of tobacco it would require in the 12 months from 31 May. PW
said it would require $2 million worth of tobacco and on 31 May a
contract was signed by GMB and PW for the sale by GMB to PW of
tobacco for that value, for delivery during the ensuing 12 months.

[page 247]

The terms included, relevantly, that property in the goods was to pass
upon the signing of the contract. On that day GMB also signed an
agreement to buy $5 million worth of tobacco from a supplier to be
delivered in the ensuing 12 months on three days’ notice. Sometime in
April 1977, PW ordered tobacco from GMB pursuant to their
agreement, and the ordered amount was drawn from the supplier and
delivered to PW.
The issue was when the sale of the tobacco had occurred — in May
1976 or in April the following year when it was obtained from the
supplier and delivered to PW.
The court held that the agreement between the supplier and GMB
was not a sale because the tobacco had not been ascertained and
appropriated to the contract in a manner that bound the parties. Since
there was no sale, it followed that there could not have been a sale
between GMB and PW at that time. Accordingly, the sale took place in
April 1977 when the order was placed and the tobacco was ascertained
and irrevocably appropriated to the contract. The agreement which
purported to pass property at the time of contract could not have an
effect contrary to the equivalent of s 19. As a matter of law there could
be no sale until the goods were ascertained: Jansz at 588; Australian
Securities and Investments Commission v Fast Access Finance Pty Ltd [2015]
FCA 1055 at [237].
In Hughes (t/a Crowded Planet) v Australian Competition and Consumer
Commission [2004] FCAFC 319 an injunction preventing the sale of
contraceptives was held not to have been breached by the placing of an
order over the internet, despite payment having been made. The court
held at [47]:
The order placed … was for a quantity of oral contraceptives under the generic
description Levlen. There is no suggestion that the order related to any particular
batch at the time that Mr Hughes accepted the payment. Nor is there any evidence
that he identified a particular batch for delivery … Consistently with ‘ordinary
principles’ reflected in the Sale of Goods Acts the property in the goods to be
supplied would not have passed before their appropriation for supply. There was no
evidence of any such appropriation and therefore no evidence of a sale within the
meaning of the Acts.

Property in unascertained goods can pass once the goods are

ascertained and then in accordance with the intention of the parties,
or, where the intention of the parties is not clear or the parties have not
turned their mind to the issue, under s 21 r 5, when the goods have
been ‘unconditionally appropriated to the contract’.

Goods other than unascertained goods

8.5 When goods are ascertained, the primary rule is that property in
goods is transferred to the buyer when the parties intend it to be
transferred: s 20(1).5
The Act provides that in ascertaining when the parties intended
property to pass, regard is to be had to the terms of the contract, the
conduct of the parties and the circumstances of the case: s 20(2).6 The
principle that property is to pass when parties

[page 248]

intended it to pass is an important one. It demands that attention first

be paid to the contract itself, and the circumstances in which it was
reached. If the intention of the parties can thereby be determined, it is
unnecessary to look further to the statutory presumptions in the Act.
For example, in McDougall v Aeromarine of Emsworth Ltd [1958] 3 All
ER 431 a contract to build a ship provided that property was to pass on
the first instalment of the price being paid, whereas in Newtons of
Wembley Ltd v Williams [1965] 1 QB 560 the contract provided that
property in a motor vehicle was not to pass until the buyer’s cheque was
honoured. In both examples the agreement of the parties determined
when property was to pass.
It is only if the intention of the parties cannot be ascertained that the
‘rules’ or presumptions of law as to when property is to pass apply. They
are set out in s 21.7 The provision commences: ‘Unless a different
intention appears …’. There are five rules which each apply in different
circumstances. Which rule applies depends principally upon the nature
of the goods being sold. It is important to emphasise that the rules are
only presumptions and can be displaced if the parties evince a contrary
intention: McEntire v Crossley Bros Ltd [1895] AC 457 at 467.

TRANSFER OF PROPERTY
PRESUMPTIONS WHERE NO CONTRARY
INTENTION APPEARS
Specific goods in a deliverable state

Rule 1
When there is an unconditional contract for the sale of specific goods in a deliverable
state, the property in the goods passes to the buyer when the contract is made, and it is
immaterial whether the time of payment or the time of delivery, or both, is or are
postponed.

8.6 This rule reflected the common law when it was enacted:
Simmons v Swift (1826) 5 B & C 857 at 862. At common law, property
could pass in goods irrespective of whether they had been delivered to
the buyer: Badische Anilin und Soda Fabrik v Hickson [1906] AC 419.
Further, property could pass whether or not the buyer had paid for the
goods: Tarling v Baxter (1827) 6 B & C 360.
The preconditions to the application of the rule are:
(a) an unconditional contract;
(b) for the sale of specific goods;
(c) in a deliverable state.

[page 249]

In such circumstances, property passes:

(a) when the contract is made;
 (b) irrespective of the time for payment or delivery.

Unconditional contract
8.7 In this context, ‘unconditional’ has been held to mean that the
sale contract is not subject to any condition ‘suspensive’ of the passing
of property: McPherson, Thom, Kettle & Co v Dench Bros [1921] VLR 437.
If the contract is conditional, property will not pass when the contract is
made but only when the contract is fulfilled.
McPherson concerned the sale of a heifer by auction. The heifer
disappeared before the buyer took delivery. The seller sued for the
price arguing that property in the animal had passed. The conditions
of sale included relevantly the following:
1. ‘All lots shall be at risk of purchaser after the fall of the
hammer, and must be settled for by him and to our
satisfaction immediately after the sale’; and
2. ‘All lots not settled for in accordance with these conditions
shall be resold either by public auction or private contract
whichever we may deem fit, and all deficiency, together with
expenses attending such resale, shall be made good by the
defaulter at this present sale.’
It was argued by the buyer that condition (1) showed an intention
that property was not to pass upon the making of the contract on the
basis that otherwise the condition was superfluous, as risk would
normally pass with property. Similarly, in relation to condition (2) it
was argued by the buyer that the clause permitting a resale by the seller
showed that property was with the seller at the time the contract was
made.
Both arguments were rejected. Condition (1) was held to amount to
an ‘express and emphatic declaration of the intention of the parties’
that property should pass at the time of contract so there could be no
room for doubt. Further, condition (2) was construed not to amount to
a reservation of a right of disposal until certain conditions were fulfilled
(in which case property is not to pass until the conditions are fulfilled)
but as a right of resale in a certain event notwithstanding that the
property has passed. Such a right of resale exists in the sale of goods
legislation and can arise by implication of law upon default in payment,
notwithstanding property has passed.
The buyer also argued that the existence of condition (2) meant the
sale was ‘conditional’, in which case r 1 could not apply. In relation to
this it was held that the power of resale assumed an original sale and
that the sale was no doubt subject to a condition. However, the
condition was not ‘suspensive’ but ‘resolutive’ in the sense that until
default by the buyer, the seller could maintain an action for goods
bargained and sold. It was only after default and resale that this action
was lost.

[page 250]

Specific goods
8.8 ‘Specific goods’ are defined in the Act as ‘goods identified and
agreed upon at the time a contract of sale is made’: s 3. Specific goods
are goods which the parties agree at the time of the contract are the
unique goods the subject of the agreement. Specific goods may be
future goods.8

Deliverable state
8.9 Goods are in a ‘deliverable state’ when they are in such a state
that the buyer would, under the contract, be bound to take delivery of
them: s 3(4).9 For example, if under the contract certain work was to be
done to the goods prior to delivery, then they would not be in a
deliverable state until the work was done: Underwood Ltd v Burgh Castle
Brick and Cement Syndicate [1922] 1 KB 343.

When the contract is made

8.10 Where the rule applies, property in specific goods will pass at
the time the contract is made. This is particularly significant in those
jurisdictions which provide that the buyer loses his or her right to reject
the goods once property in the goods has passed: see, for example, s
14(3) of the Sale of Goods Act 1896 (Qld). When the contract is made
is a matter of determining when agreement was reached. This may be
readily apparent, as in the case of a written agreement, or may, for
example, require a more detailed consideration of a course of
negotiations between the parties.

The expression of a contrary intention

8.11 The rule that property in specific goods passes at the time of
contract is, however, readily and frequently displaced in modern
commercial transactions. It is common for parties to stipulate that
property is to pass on delivery or payment, or for the circumstances of
the sale to indicate that the parties intended such a result: RV Ward Ltd
v Bignall [1967] 1 QB 534 at 545; International Alpaca Management Pty
Ltd v Ensor (1995) 133 ALR 561 at 589. For example, if the parties
specify the sale as a cash sale or a sale COD (cash on delivery), the
intention of the parties is that property will pass only on payment and
that payment is a condition precedent to the passing of property:
Minister for Supply and Development; Orix Australia Corp Ltd v Peter Donnelly
Automotive Pty Ltd [2007] NSWSC 977. In Minister for Supply and
Development, Williams J said at 640:
In my opinion the term ‘net cash before delivery’ imposed a condition that the goods
were to be paid for before the property should pass by delivery. The delivery was to be
a delivery which would pass the property in the goods and such delivery was to be
conditional upon prior payment. Until payment the society was to remain a bailee of
the goods and nothing more and the property in the goods was to remain in the
Commonwealth: Barrow v Coles (1811) 3 Camp 92 [170 ER 1316]; Loeschman v Williams
(1815) 4 Camp 181 [171 ER 58].

[page 251]

If payment is made by cheque, when property passes will depend

upon whether the parties intended the payment by cheque to be
regarded as the equivalent of payment by cash, in which case property
would pass when the cheque was handed over, or whether property was
intended to pass only when the cheque was honoured: Davey v
Robinson’s Motors Pty Ltd (1957) 75 WN (NSW) 56. Payment by credit
card, or ‘plastic money’ as it is sometimes referred to, gives rise to an
inference that property is to pass on tender of the card: Re Charge Card
Services Ltd [1988] 3 All ER 702.

Specific goods not in a deliverable state

Rule 2
When there is a contract for the sale of specific goods and the seller is bound to do
something to the goods for the purpose of putting them into a deliverable state, the
property does not pass until such thing is done and the buyer has notice thereof.

8.12 The prerequisites for the operation of this rule are:

(a) there is a contract for the sale of specific goods. Specific goods
are considered elsewhere;10 and
(b) the seller is bound to do something to the goods for the
purpose of putting them into a deliverable state.
In such circumstances, property does not pass until:
(a) such a thing is done; and
(b) the buyer has notice thereof.

Notification to the buyer

8.13 It may be that the parties intend property to pass without the
necessity for notification to the buyer of the ‘deliverable state’ of the
goods, in which case property will pass once the goods achieve that
condition: Joseph Reid Pty Ltd v Schultz (1949) 49 SR (NSW) 231 at 233.
It has been submitted that the words ‘buyer has notice’ as opposed to
‘seller must give notice’ mean that ‘knowledge’ is required but that
constructive notice is probably insufficient: Guest, Benjamin’s Sale of
Goods, 6th ed, Sweet & Maxwell, London, 2002, p 196; Worcester Works
Finance Ltd v Cooden Engineering Co Ltd [1972] 1 QB 210 at 218.
Otherwise, there is no requirement that the notice take any particular
form, and ‘notice’ probably means ‘knowledge’ howsoever and by
whomsoever conveyed.
The seller is bound to do something to the goods for the purpose of
putting them in a deliverable state. The word ‘bound’ means, it is
submitted, contractually bound.

[page 252]

‘Deliverable state’ is defined in the Act to mean when they (the goods)
are in such a state that the buyer would under the contract be bound to
take delivery of them: s 3(4).
The operation of the rule was demonstrated by Wallace v Safeway
Caravan Mart Pty Ltd (1975) 3 QL 224. There a caravan was purchased
on the condition that the seller install a shower and the caravan be
delivered. The caravan was stolen before the work had been completed.
It was held that, as the caravan was not in a deliverable state at the time
of the theft, neither property nor risk had passed to the buyer and he
was therefore entitled to a refund. Indeed, it was held that the caravan
would not have been in a ‘deliverable state’ until it had been delivered
in accordance with the contract.
More recently, the rule was applied in Kennedy v Newman [2013]
NTSC 38, where the seller entered into a contract to sell an
unregistered pantechnicon van in September 2010. The sale was
conditional on the seller completing certain unfinished work on the
pantechnicon and removing his items from it by early 2011. The court
held the seller was in breach of contract by not completing the work by
that time. However, as the buyer did not repudiate the contract but
instead waived the condition, property in the goods passed and the
seller was not able to demand that the pantechnicon be returned to the
site where it had been located so that he might remove his items from
it.
The rule refers to an act which is required to be done by the seller.
If, therefore, it is the buyer who is required by the contract to do
something to the goods, r 2 will not apply. Instead, the general rule,
that property passes when the parties intend it to pass, will apply.

Specific goods to be weighed, measured or

tested to ascertain price

Rule 3
When there is a contract for the sale of specific goods in a deliverable state, but the seller
is bound to weigh, measure, test, or do some other act or thing with reference to the
goods for the purpose of ascertaining the price, the property does not pass until such act
or thing is done and the buyer has notice thereof.

8.14 The prerequisites for this rule are:

(a) there is a contract for the sale of specific goods. This has been
discussed elsewhere: see 8.8 above;
(b) the contract is for goods in a deliverable state. This too has
been discussed elsewhere: see 8.9 above; and
(c) the seller is bound to weigh, measure, test, or do some other
act or thing with reference to the goods for the purpose of
ascertaining the price.

[page 253]

In these circumstances, property does not pass until:

(a) property does not pass until such act or thing is done; and
(b) the buyer has notice thereof.
Rule 3 has been construed to cover the situation where specific
goods are bought which are unascertained in extent or quality and the
price cannot be determined until the extent or quality of the goods is
ascertained: Benjamin’s Sale of Goods, 6th ed, p 197; National Coal Board v
Gamble [1959] 1 QB 11 at 21.
In order for the rule to apply, it must be the seller, not the buyer or a
third party, who has the obligation to weigh, measure or test the goods
for the purpose of ascertaining the price: Nanka-Bruce v Commonwealth
Trust Ltd [1926] AC 77. The purpose of the weighing, measuring or
testing must be to ascertain the price and not merely for the buyer’s
satisfaction. For example, in Nanka-Bruce it was held that a provision in
the contract which permitted the goods (bags of cocoa) to be weighed
to see whether the weight corresponded with the weight as represented
by the seller, the price having been fixed, did not amount to a
condition precedent to the passing of property within r 3.
The words ‘measure’ and ‘test’ are self-explanatory. ‘Some other act
or thing’ might include, for example, counting. The critical point is
that the weighing, measuring or testing be ‘for the purpose of
ascertaining the price’. Say A bought ‘those cakes on the shelf’, which
were offered at $2 each. Here, the counting would be for the purpose
of ascertaining the price.
The buyer is required under the rule to have notice of the price as
ascertained by the seller having weighed, measured or tested the goods.
This probably requires the buyer to have knowledge of the process
having been completed and the price ascertained, rather than formal
notification.
The rule, like the others in s 21, is subject to the general rule relating
to the intention of the parties.

Goods delivered ‘on approval’ or ‘on sale or

return’

Rule 4
(1) When goods are delivered to the buyer on approval or ‘on sale or return’ or other
similar terms, the property therein passes to the buyer —
(a) when the buyer signifies the buyer’s approval or acceptance to the seller, or does
any other act adopting the transaction;
 (b) if the buyer does not signify the buyer’s approval or acceptance to the seller but
retains the goods without giving notice of rejection, then, if a time has been fixed
for the return of the goods, on the expiration of such time, and, if no time has
been fixed, on the expiration of a reasonable time.
(2) What is a reasonable time is a question of fact.

[page 254]

8.15 For the rule to apply, the goods must have been delivered to
the buyer ‘on approval or on sale or return or other similar terms’. The
common feature of such contracts is that the buyer has a complete
discretion as to whether to accept or reject the goods delivered on such
terms. The buyer is not obliged to show that his or her rejection was
reasonable: Berry & Son v Star Brush Co (1915) 31 TLR 603; Cammell
Laird & Co Ltd v Manganese Bronze & Brass Co Ltd [1934] AC 402.
A sale on approval exists where the parties intend that the goods
delivered to the buyer shall be bought by the buyer if they approve
them, but not if they disapprove: London Jewellers Ltd v Attenborough
[1934] 2 KB 206.
A contract on ‘sale or return’ terms exists where the goods are taken
to be sold at the option of the recipient, if not previously rejected,
unless returned to the seller within the time fixed by the contract or
within a reasonable time: Kirkham v Attenborough [1897] 1 QB 201. It is
irrelevant whether the recipient intends to buy them and keep them or
merely to on-sell to a third party: Poole v Smith’s Car Sales (Balham) Ltd
[1962] 1 WLR 744. It may be necessary to distinguish a situation where
a recipient does not buy the goods but merely acts as agent for the
seller, in which case the rule will not apply: Weiner v Harris [1910] 1 KB
285. The nature of the transaction will be determined by construing the
transaction as a whole: Weiner at 290.
A sale ‘on similar terms’ would include, for example, where goods
are sent on trial: Beverley v Lincoln Gas Light & Coke Co (1837) 6 A & E
829.
 Under the rule, property can pass in three ways:
1. when the buyer indicates their approval or acceptance of the
goods to the seller;
2. when the buyer does any act adopting the transaction; or
3. when the buyer retains the goods, without giving notice of
rejection, beyond the time fixed for the return of the goods
or, if no time has been fixed, beyond the expiration of a
reasonable time.
All three methods focus on the conduct of the buyer. Section 37 of
the Act provides that the buyer is deemed to have accepted the goods
when the buyer intimates to the seller that the buyer has accepted
them, or when the goods have been delivered to the buyer and the
buyer does any act in relation to them which is inconsistent with the
ownership of the seller, or when, after the lapse of a reasonable time,
the buyer retains the goods without intimating to the seller that the
buyer has rejected them.
This definition is not exhaustive, and in fact adds little to the
provision.11
A buyer may indicate their approval or acceptance of the goods to
the seller by writing, words or conduct. It ought not ordinarily be
difficult to ascertain on the facts whether this has occurred.

[page 255]

The words ‘when the buyer … does any act adopting the transaction’
are more problematic. An act by the buyer adopting the transaction has
been described as any act which is consistent only with their being the
purchaser or by which they put it out of their power to return the
goods: Kirkham; Genn v Winkel (1912) 107 LT 434.
In Kirkham, it was held that if the buyer sells or pledges the goods the
buyer will be seen to have adopted the transaction. In that case the
seller, who was a jewellery manufacturer, forwarded a large quantity of
jewellery to the buyer on ‘sale or return’ terms. The buyer then
pledged the goods to a pawnbroker. Lord Esher MR said: ‘There must
be some act which shews that he adopts the transaction; but any act
which is consistent only with his being the purchaser is sufficient’: at
203. The relevant act in this case was that the buyer pawned the goods.
The effect of this was that he could not get the goods back without
repaying the sum of money advanced to him by the pawnbroker and
this situation was held to be inconsistent with his free power to return
them. Accordingly, it was held that the property in the goods had
passed to the buyer by this act, which meant that the pawnbroker got
good title to the goods.
In Astley Industrial Trust Ltd v Miller [1968] 2 All ER 36, it was held
that where a motor vehicle was delivered to a buyer on ‘sale or return’
terms, the receipt of the log book issued by the local authority on his
application was an act adopting the transaction.
If a buyer, having received goods ‘on sale or return’, offers to sell
them to someone else or forwards them to a third party on ‘sale or
return’ terms, unless the third party does an act adopting that
transaction, this will not in itself constitute an act adopting the
transaction by the buyer: Genn. It is respectfully submitted that the logic
of this decision is doubtful. The buyer, by offering the goods for resale,
can only be assuming they have title to sell. Indeed, the buyer so
warrants to the third party. Why should the issue of whether the buyer
has adopted the transaction depend upon the course the third party
takes?
There may be a fixed time under the contract in which the goods are
to be returned. Once this time, or a reasonable time from the delivery
of the goods to the buyer, expires, property in the goods will pass to the
buyer: s 21 r 4(1)(b). What is a reasonable time is a question of fact.
The seller’s conduct may be relevant in determining what, in the
circumstances, is a reasonable time: Poole. If the buyer has notified the
seller of their rejection of the goods then property cannot pass to the
buyer by the expiration of time: s 21 r 4(1)(b). If the recipient has
given notice of rejection within a reasonable time but omits to return
the goods, they are not liable for the price as the contract does not
bind the recipient to return the goods: Price v Fraser (1901) 4 GLR 38.
The parties may, however, make return of the goods necessary for
rejection to occur: Ornstein v Alexandra Furnishing Co (1895) 12 TLR
128. If they do not, and the buyer following rejection omits to return
the goods, the seller may be entitled to sue the buyer for wrongful
interference: Mitchell v Ealing London Borough Council [1979] QB 1.

[page 256]

If the goods are damaged or destroyed without fault of the buyer and
the time fixed for their return, or a reasonable time, has passed, the
buyer will not be liable for the price of the goods or for damages:
Elphick v Barnes (1880) 5 CPD 321. In Elphick a horse, which was
delivered on trial for eight days, died on the third day. The horse was
held to be at the seller’s risk at the time, and the seller could not
maintain an action for the price of the horse. If the buyer is regarded as
a bailee of the goods while they are in his or her possession, the buyer
will have the onus of proving that any damage was not caused through
his or her fault: Houghland v RR Low (Luxury Coaches) Ltd [1962] 1 QB
694. If, on the other hand, the goods were sent to the buyer without his
consent, he or she would only be liable for intentional damage caused
to the goods by the buyer: Howard v Harris (1884) 1 Cab & El 253. In
this context it is relevant to consider the application of s 65 of the
former Trade Practices Act 1974 (Cth). Under s 65, if unsolicited goods
are supplied to a person, that person is not liable to pay for them, nor
are they liable for any loss or damage to the goods if the person gives
notice to the supplier of the place where the goods can be collected
and the supplier does not collect the goods within one month or, if no
notice is given, within three months of the goods being delivered. The
person will be liable for any unlawful or wilful damage to the goods
which occurs before the earliest of either one month from the giving of
the notice to collect or, if no notice is given, three months from when
the goods were delivered to that person.
Again, the rule is subject to the contrary intention of the parties.
However, even if the parties do agree that r 4 is not to pass property in
the goods to the recipient, if the recipient is a mercantile agent, the
recipient may nonetheless be able to pass good title to a third party
under an exception to the nemo dat rule.

Unascertained or future goods

Rule 5
(1) When there is a contract for the sale of unascertained or future goods by description,
and goods of that description and in a deliverable state are unconditionally
appropriated to the contract, either by the seller with the assent of the buyer, or by
the buyer with the assent of the seller, the property in the goods thereupon passes to
the buyer.
(1A) Such assent may be express or implied, and may be given either before or after the
appropriation is made.
(2) When, in pursuance of the contract, the seller delivers the goods to the buyer or to a
carrier or other bailee (whether named by the buyer or not) for the purpose of
transmission to the buyer, and does not reserve the right of disposal, the seller is
deemed to have unconditionally appropriated the goods to the contract.

[page 257]

8.16 The prerequisites for the operation of this section are:

(a) there is a contract for the sale of unascertained or future
goods by description;
(b) goods of that description and in a deliverable state are
unconditionally appropriated to the contract; and
(c) this is done either by the seller with the assent of the buyer or
by the buyer with the assent of the seller.
When these factors are in place, the property in the goods passes to
the buyer.
Property cannot pass, whatever the intention of the parties, before
the time the goods are ascertained: Re Goldcorp Exchange Ltd (in rec)
[1995] 1 AC 74; [1994] 2 All ER 806; Re Stapylton Fletcher Ltd (in admin
rec) [1995] 1 All ER 192. In order for property in unascertained goods
to pass, the goods must become ascertained, that is, identified in
accordance with the agreement, but not necessarily unconditionally
appropriated to the contract: Karlshamns Oljefabriker v Eastport
Navigation Corp (The Elafi) [1982] 1 All ER 208 at 216. In Karlshamns
Mustill J said:
What is needed for ascertainment is that the buyer should be able to say, ‘Those are
my goods.’ This requirement is satisfied if he can say, ‘All those are my goods.’

This requirement was held to be satisfied by the setting aside of a

specific quantity of specific scrap metal to satisfy the seller’s remaining
obligations under a purchase agreement in THC Holding v CMA
Recycling [2014] NSWSC 1136 at [84]–[87]. This was distinguishable
from a situation where grain was placed by a seller in a silo and
intermingled with other grain not necessarily owned by either party. In
that case particular grain would not be ascertained until it was collected
by the purchaser: Gillogly v Iama Agribusiness Pty Ltd [2002] NSWCA 251.
Section 1912 provides that in the case of unascertained goods, no
property in the goods passes to the buyer unless and until the goods are
ascertained. The provision stops short of saying that once the goods
have become ascertained, property in the goods will pass. Once the
goods have become ascertained, property in the goods will pass when
the parties intend it to pass. The parties may, of course, agree that
property is to pass as soon as the goods become ascertained. If there is
no agreement between the parties as to when property is to pass or the
intention of the parties is not clear, then r 5 will apply.

Unascertained or future goods

8.17 The meaning of unascertained and future goods is considered
elsewhere.13
There is no definition of unascertained goods in the Act. They are,
however, goods which are not specific goods. Specific goods are goods
which are identified and agreed upon at the time the contract of sale is
made: s 3.
 [page 258]

The rule therefore covers generic goods, that is, a certain quantity of
goods in general without any specific identification of them (for
example, 50 bushels of tea), future goods (which may or may not be
unascertained) and an unidentified part of a larger bulk of goods (500
tonnes of wheat from the 1000 tonnes on board a named ship). The
common feature of the goods covered is suggested to be that the goods
cannot be presently identified and are only able to be referred to by
description: Benjamin’s Sale of Goods, 6th ed, p 208.

Goods of that description and in a deliverable state

8.18 Compliance with description is an issue dealt with elsewhere.14
‘Deliverable state’ is defined in s 3(4) to mean ‘in such a state that the
buyer would under the contract be bound to take delivery of them’.

Unconditional appropriation
8.19 Unless the parties have otherwise agreed, by r 5 property passes
when there is unconditional appropriation by one party with the assent
of the other party.
‘Appropriation’ has a number of different meanings. In the context
of r 5, appropriation will only be held to have occurred where ‘the
contract has become irrevocably attached to the goods in question’:
Benjamin’s Sale of Goods, 6th ed, p 213. It is the selection of goods by one
party, usually the seller, and the adoption of that act by the other party.
It is to be distinguished from the seller merely setting apart goods
which they expect to use in the contract on the basis that the seller is
not committed to the selection and indeed may change their mind:
Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep
240. An allocation of stock by use of a computer program to customers
who had paid in full was held to be an unconditional appropriation of a
‘group of items to a group of customers’ which gave them at least
property in those items as tenants in common: Re Renovation Boys Pty
Ltd (admins apptd) [2014] NSWSC 340 at [18]. In Renovation Boys the
fact the appropriation made by a computer program was in some
instances later reversed, for example, because a buyer deferred
delivery, did not mean the appropriation should be treated as
conditional or as not having occurred when it was made: at [23]. It was
not, perhaps surprisingly, viewed as a revocable allocation when made
and therefore not capable of constituting an appropriation. The
selection, in order to constitute an appropriation for the purposes of r
5, must have been subsequently approved by the other party so that it is
agreed between seller and buyer that those are the goods to be sold.
The appropriation must be unconditional. This means that the
property in the goods must be intended to pass merely upon
appropriation and not only once some further condition is satisfied, for
example, payment of the purchase price or inspection by the buyer.

[page 259]

The buyer or seller may agree to the appropriation made by the

other party before or after the appropriation takes place. Assent by the
buyer before appropriation was held to have occurred in Aldridge v
Johnson (1857) 7 El & Bl 885 by the buyer inspecting the seller’s barley
and then forwarding bags to be filled. In respect of the bags filled, the
property in the barley was held to have passed to the buyer. In
Renovation Boys at [19], the buyer’s assent to the seller’s appropriation
of items to the buyer’s purchase order in advance was held to be
implied from terms set out in the purchase order and the buyer’s
consent to have the items selected by the seller from goods that were
available in stock at the time of the allocation. Assent can be express or
implied by conduct. An example of an implied assent would be where
the buyer, upon being informed of the appropriation by the seller,
immediately insures the goods: Sparkes v Marshall (1836) 2 Bing (NC)
761. Assent may also be inferred from the silence of the buyer in
retaining possession of the goods for some time without objection:
Pignataro v Gilroy [1919] 1 KB 459. Assent may be given either before or
after the appropriation is made, and may be express or implied: s 21 r
5(1A).
This is of some importance. A buyer may thus impliedly assent to an
appropriation before the appropriation takes place. It might readily be
inferred, for example, that the buyer of a tonne of wheat in a silo
assents in advance to the appropriation by the seller of a tonne of
wheat to the contract by, for example, loading the delivery truck. In
Crouch v Adams [2006] NSWSC 1029, the liquidator sought directions as
to the basis upon which it would be justified in dealing with certain
vending machines in the company’s possession which were the subject
of contracts of sale with investors. In determining whether property had
passed to investors the court said at [38]:
Appropriation requires the assent of the buyer. However, a buyer may assent in
advance by agreeing to the seller’s making a selection of the goods to which the
contract will attach. If the buyer assented to the company’s appropriating some
machine of the kind the buyer purchased, and which then became the subject of a
management agreement, it does not matter that the buyer did not know the details of
the machine so appropriated. It would be sufficient that the buyer assented to the
company making the selection and the company did so (Wait v Baker (1848) 2 Exch 1
at 7; Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 at
255).

It is important to distinguish between a situation where there has

been no appropriation of goods to a contract and where it is impossible
to determine what goods were in fact appropriated to an individual
contract: Crouch at [36]. If there has been appropriation then property
in the subject matter of the contract will pass to the buyer; if not,
property remains with the seller. In Crouch, White J said at [37]:
Where property passed to the buyers, but it is not possible now to identify which
machines belong to which buyer, in my view, the buyers are entitled at law, as tenants
in common, to a proportionate interest in the total number of such machines as can
now be identified as being in the company’s possession, but as having been
appropriated to some buyer (Spence v Union Marine Insurance Co Ltd (1868) LR 3 CP
427 at 438; Re Stapylton Fletcher at 1199–1200).

[page 260]

Crouch was applied in Renovation Boys at [17] to find that goods had
been appropriated to customers by use of a computer program despite
the fact that the particular item was not then or now individually
identifiable, and moreover could be subsequently reallocated to
another customer. There it was held at [18]:
… the position in this case is less clear than that considered in Crouch v Adams … By
contrast, there is no evidence in this case that the Company generally acquired items
from suppliers for delivery to particular customers, and the Company’s practice is
better described as allocating a group of items to a group of customers whose orders
satisfied the criteria noted above. Nonetheless, it seems to me that the result of that
practice was that a particular item (which immediately before had been unallocated)
was then allocated to a customer, albeit that item was not then or now distinguishable
from other identical items that had previously been allocated to other customers.

Whether appropriation has occurred will depend upon the particular

circumstances, although it has been said always to involve an actual or
constructive delivery of the goods: Carlos Federspiel at 255–6. There are
many case examples of appropriation, including: the setting aside of
goods by the seller followed by branding or marking them and advising
the buyer;15 where goods are ordered by post, the posting of the
goods;16 the selection of goods by the seller and notification of this to
the buyer who says they will arrange to collect them;17 and the placing
of petrol in a tank where it is mixed with other fuel.18 Appropriation
can also occur by exhaustion where a buyer purchases an undivided
portion of a specified bulk and the rest of the bulk is then sold and
delivered to other purchasers. The seller is left, in such a case, with only
the buyer’s portion, which has by this process become ascertained.
If the goods are future goods, for example, a ship to be built,
property in the ship will pass to the buyer when the ship is finished and
the ship has been appropriated to the contract by the seller with the
assent of the buyer.
Rule 5(2) is a specific instance of unconditional appropriation: James
v Commonwealth (1939) 62 CLR 339 at 377. In James the issue of whether
property in the goods had passed from the seller arose in the context of
the seller’s right to sue the Commonwealth in conversion in respect of
the seizure by it of several parcels of dried fruit. It was argued on behalf
of the Commonwealth that the property in the goods had passed to the
buyer before seizure, so that the parcels of dried fruit seized and
converted were not the goods of the plaintiff. Each parcel seized was
considered separately. Dixon J at 377–8 applied the following general
principles to each set of circumstances:
… the seller in shipping a definite parcel of goods in performance of a contract for
the sale of unascertained goods by description ascertains the goods, and prima facie
he appropriates them to the contract. The terms of the contract import the prior
consent

[page 261]

of the buyer to his doing so, and accordingly, if the appropriation is unconditional,
the presumption is that the property should pass without more. If he does not reserve
the right of disposal of the goods, as it is called, his delivery of the goods to the
shipowner as a carrier for the purpose of transmission to the buyer is deemed an
unconditional appropriation of the goods to the contract. But he may reserve the
right of disposal until certain conditions are fulfilled, and then, notwithstanding
shipment, the property will not pass to the buyer until fulfilment of the conditions.

The equivalent of s 22, which permits the seller to reserve the right of
disposal, was said to be a description of ‘what is not an unconditional
appropriation to the contract but a conditional appropriation’: at 380.
This principle was applied in Paul’s Retail Pty Ltd v Lonsdale Australia Ltd
(2012) 294 ALR 72; [2012] FCAFC 130 at [40]–[41] where it was held
that title in garments manufactured in China passed on appropriation
of those goods to the contract. A presumption of the reservation of a
right of disposal was said to derive from the retention of documents of
title until payment is made.

Retention of title clauses

8.20 The rules or presumptions of law governing the transfer of
property are subject to the contrary intention of the parties. This is
consistent with the fundamental principle that property passes when
the parties to the contract intend it to pass: s 20(1).19 Subsection (2)
provides that for the purpose of ascertaining that intention, regard is to
be had to ‘the terms of the contract, the conduct of the parties and the
circumstances of the case’.
 Retention of title clauses are colloquially known as ‘Romalpa clauses’.
The term ‘Romalpa’ is from the case Aluminium Industrie Vaasen BV v
Romalpa Aluminium Ltd [1976] 1 WLR 676.
This chapter focuses on the common law and relevant Sale of Goods
provisions in relation to retention of title clauses. The Personal
Property Securities Act 2009 (Cth) (PPSA) makes some important
changes to the law in relation to retention of title arrangements.
‘Security interest’ is defined to include an interest in personal property
provided by a ‘conditional sale agreement (including an agreement to
sell subject to a retention of title)’ if the transaction, in substance,
secures payment or performance of an obligation: s 12(2)(d) of the
PPSA.
This means that any arrangement involving retention of title should
now be viewed in light of the PPSA, including any issues arising from
any proceeds that may have arisen from personal property subject to
the retention of title.
A retention of title clause has as its object the protection of the seller
in circumstances where possession of the goods has been granted to the
buyer, but the buyer has not paid for the goods. In broad terms, the
purpose of such clauses is to protect the seller from the insolvency of
the buyer where the price is unpaid and to defeat the claims of
creditors with registered charges who would otherwise take priority
over the seller: Sutton, Sales and Consumer Law, 4th ed, LBC
Information Services, Sydney, 1995 at [14.47]. Section 22

[page 262]

specifically envisages a seller retaining title to goods until certain

conditions are met: Hardy Wine Co Ltd v Tasman Liquor Traders Pty Ltd
(in liq) [2006] SASC 168 at [19].
In its most basic form, such a clause prohibits the passing of property
in the goods until payment. If property had instead passed, and the
buyer become insolvent, any charge over the property would take effect
so as to grant the chargee the right to the goods or proceeds of sale to
the detriment of the seller still awaiting payment. Such clauses have
over time become more elaborate. Because the buyer may sell the
goods before he has paid for them to a bona fide purchaser for value,
some retention of title clauses seek to lay claim over the proceeds of
sale. They include mechanisms to best enable the seller to trace the
proceeds.
Retention of title clauses thus come in many different forms and the
wording of the particular clause is obviously material to its effect. As the
High Court said of Romalpa clauses in Associated Alloys Pty Ltd v ACN 001
452 106 Pty Ltd (in liq) (formerly Metropolitan Engineering and Fabrications
Pty Ltd) (2000) 171 ALR 568 at 570:
The text and scope of clauses which have come to be so described are not uniform.
Reference to the vague and undifferentiated, such as the categorical phrase ‘Romalpa
clause’, is no substitute for a particularised application of the relevant principles of law
and equity to the construction and operation of the text at hand.

Having said that, in broad terms, such a clause purports to retain

ownership in the seller until payment, sometimes for the particular
goods and other times of the total indebtedness of the recipient of the
goods (called a ‘current account’ or ‘all moneys’ clause). Often such
clauses will purport to give proprietary rights to the seller over assets
into which the goods have been transformed or with which they might
be mixed, or, where the good is the subject of an onward sale by the
buyer, will state that the proceeds of such sale or the debt due to the
buyer by the third party are held by the buyer on behalf of the seller
(called a ‘proceeds’ subclause). Associated clauses usually require the
buyer to keep the goods separate from the buyer’s other goods so that
they are readily identifiable and deposit any proceeds received from the
onward sale of the goods in a separate bank account, again for the
purposes of identification and the application of the tracing remedy:
Chattis Nominees Pty Ltd v Norman Ross Home Works Pty Ltd (Receivers
appointed) (in liq) (1992) 28 NSWLR 338. Whether the buyer is to be
considered the agent of the seller and whether a fiduciary agency exists
depends upon the intention of the parties. The retention of title clause
and the manner in which the parties conducted their business are
relevant to determining whether the intention of the parties was that
property was not to pass until payment: Dwyer and Davies v Chicago Boot
Co Pty Ltd (2011) 82 ACSR 193; [2011] SASC 27 at [115], varied on
appeal but on a different point Chicago Boot Co Pty Ltd v Davies &
McIntosh as Joint & Several Liquidators of Harris Scarfe Ltd (2011) 282 ALR
378; [2011] SASCFC 92. In Dwyer at [117] the court observed:
In considering the intention of the parties, the court is entitled to look to the manner
in which they conducted their business and what steps had been taken by Chicago
Boot to ensure that its goods were identifiable and that the purchaser, Harris Scarfe,

[page 263]

could account for goods on-sold to third parties. In determining the intention of the
parties, the court will look at the transactions as a whole and, if the parties
demonstrate by their conduct that property in the goods has passed, although they
state that that was not their intention, the court will conclude that property has
passed.

In Dwyer the court held at [133] that the trading relationship

between the parties was such that they did not act in accordance with
the retention of title terms and conducted their business on the basis of
a creditor and debtor relationship. On that basis the clause did not
apply to prevent title in the goods passing.

A typical retention of title clause

8.21 In Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq)
(formerly Metropolitan Engineering and Fabrications Pty Ltd) (2000) 171 ALR
568, the following retention of title clause appeared in a contract for
the supply of steel from Associated Alloys (the seller) to Metropolitan
Engineering and Fabrications Pty Ltd (the buyer):
RESERVATION OF TITLE
[1] It is expressly agreed and declared that the title of the subject goods/product shall
not pass to the [buyer] until payment in full of the purchase price. The [buyer] shall
in the meantime take custody of the goods/product and retain them as the fiduciary
agent and bailee of the [seller].
[2] The [buyer] may resell but only as a fiduciary agent of the [seller]. Any right to
bind the [seller] to any liability to any third party by contract or otherwise is, however,
expressly negatived. Any such resale is to be at arms’ length and on market terms and
 pending resale or utilisation in any marketing or construction process, is to be kept
separate from its own, properly stored, protected and insured.
[3] The [buyer] will receive all proceeds whether tangible or intangible, direct or
indirect of any dealing with such goods/product in trust for the [seller] and will keep
such proceeds in a separate account until the liability to the [seller] shall have been
discharged.
[4] The [seller] is to have power to appropriate payments to such goods and accounts
as it thinks fit notwithstanding any appropriation by the [buyer] to the contrary.
[5] In the event that the [buyer] uses the goods/product in some manufacturing or
construction process of its own or some third party, then the [buyer] shall hold such
part of the proceeds of such manufacturing or construction process as relates to the
goods/product in trust for the [seller]. Such part shall be deemed to equal in dollar
terms the amount owing by the [buyer] to the [seller] at the time of the receipt of
such proceeds.

In Associated Alloys, the buyer did not pay for all the steel supplied
before it went into liquidation. The buyer had, however, used the steel
to make a variety of steel products which were to be sold to a third party
in Korea. The buyer came under voluntary administration, a receiver
and manager was appointed by a bank, and then later the buyer went
into liquidation. Associated Alloys commenced proceedings against the
buyer

[page 264]

seeking, inter alia, a declaration that the buyer or the liquidator held
the amount unpaid in trust for the benefit of Associated Alloys.
The clause in Associated Alloys may be examined to identify some key
aspects of such clauses:
By clause 1 the parties agree that the title of the goods shall not
pass to the buyer until payment in full of the purchase price. This
clause (contrast clause 5) operates where the goods remain
ascertainable, although in the hands of the buyer. In such
circumstances an action for detinue or trover continues to lie with
the seller against the buyer and in support of such an action
injunctive relief might be granted: Penfolds Wines Pty Ltd v Elliott
(1946) 74 CLR 204; Puma Australia Pty Ltd v Sportsman’s Australia
Ltd (No 2) [1994] 2 Qd R 159. Section 2020 of the Act provides
that, when there is a contract for the sale of specific or ascertained
goods, the property in them is transferred to the buyer at such
time as the parties to the contract intended it to be transferred.
The terms of the contract here provide for the transfer of property
only upon payment in full of the purchase price. The agreement
of the parties that property shall not pass until payment is the
most fundamental and common feature of retention of title
clauses. If the buyer was to persist in non-payment, the seller could
sue in detinue for the delivery up of the goods.
Clause 1 also constitutes the buyer as the fiduciary agent and
bailee of the seller. The importance of nominating the buyer as
the bailee of the goods is that it imposes upon the buyer the duty,
as bailee, to take reasonable care of the goods. A similar clause was
held not to make the retention of title conditional on an
obligation on the part of the buyer to hold as a bailee, such that if
the relevant goods were sent directly to a sub-purchaser’s
premises, the retention of title was thereby rendered ineffective:
Hardy Wine Co Ltd v Tasman Liquor Traders Pty Ltd (in liq) [2006]
SASC 168 at [52]. Alternatively, it was held in Hardy Wine that the
buyer took constructive possession of the goods when they gave
instructions for the goods to be delivered directly to the sub-
purchasers and that physical possession by the buyer was not
necessary to constitute them bailee: Hardy Wine at [64]. The
purpose of constituting the buyer the fiduciary agent of the seller
is to better enable the seller to trace the proceeds of any sub-sale
by the buyer to a third party. The tracing remedy is available in
different circumstances at common law and in equity. At common
law, if there is a standard retention of title clause and the goods
are still in the buyer’s possession and are readily identifiable, the
seller can rely on their right of ownership under the clause to
‘trace’ or follow the goods. If the goods have been sold and the
proceeds have been kept separate, these proceeds are also
traceable, the clause having effectively created a trust of the
proceeds: Puma Australia at 162. If the proceeds have not been
held in a

[page 265]

separate account and are not identifiable, the equitable doctrine

of tracing may apply, provided the seller and buyer are in a fiduciary
relationship: Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd
[1976] 1 WLR 676; Chattis (where, because the buyer was able to
mix the proceeds with his own money, he was held to be a debtor
rather than a trustee). Such a relationship may exist by virtue of
the seller being a bailor of the goods and the buyer a bailee, or by
the seller being seen as principal and the buyer, for the purpose of
an onward sale of the relevant goods, as the seller’s agent. There is
an implied obligation to account in accordance with such
fiduciary relationships, and, accordingly, a seller will be entitled to
trace the proceeds of on-sales and to recover them: Romalpa. The
nomination of the buyer as the fiduciary agent of the seller is
intended to create a fiduciary relationship, thus permitting tracing
of the proceeds in equity even when they have been mixed with
other funds. It also obliges the buyer to keep the proceeds of sale
of the goods separate from their own money, again facilitating the
tracing remedy.
Clause 2 permits the buyer to resell. While this undoubtedly adds
risk to the position of the seller, the clause reflects the common
commercial reality of transfer of possession before payment for
the purpose of resale. Permission to sell as a ‘fiduciary agent’
better permits the seller to trace the proceeds of sale. The express
prevention of the buyer (sub-seller) from binding the seller is
defensive, and an exception to the rule otherwise that a duly
authorised agent may effect legal relations between a principal
and third party. The requirement that the sale be at arm’s length
and on market terms imposes an obligation upon the buyer (sub-
seller) in the course or process of the sale to ensure proper value
is obtained for the goods.
Clause 3 focuses upon the proceeds of sale. The goods having
been sold by the buyer (the sub-seller), the clause attempts to
promote the seller’s rights over the proceeds. In its terms, the
clause extends beyond monetary consideration. The requirement
that the proceeds be held in trust is designed to ensure the seller
has equitable title to the proceeds. The requirement that the
proceeds be kept separate facilitates tracing. In Associated Alloys, it
was held that a retention of title clause may, apart from reserving
title in goods unpaid for, also permit the on-sale of the relevant
goods by the recipient and provide that the proceeds from those
sales be held in trust for the seller. It is relevant to note that the
creation of a trust by a contract is common: Gosper v Sawyer (1985)
160 CLR 548 at 568–9. A clause without this additional term about
retention of the proceeds of an on-sale on trust for the seller is still
workable, and such a term will not necessarily be implied: Toveill
Pty Ltd v Australian Quality Plus Pty Ltd; Joe’s Citrus Pty Ltd v
Australian Quality Plus Pty Ltd [2010] NSWSC 1003 at [32]. If the
term does not exist, it has been held that the ‘effect of such a
contract is that the seller retains title until payment of the price or
earlier passing of property under the contract between the buyer
and the sub-purchaser, and, upon that earlier passing of property,
the

[page 266]

seller remains entitled to recover the price from the buyer at the
end of the credit period’: Toveill at [32].
If the terms of the bailment do not require the buyer to deliver
up the bailed chattels to the seller in their original or altered state
or to deal with the goods as directed by the seller, the relationship
may not be regarded as a fiduciary relationship: Re Andrabell Ltd
(in liq); Airborne Accessories Ltd v Goodman [1984] 3 All ER 407. The
 terms of the sale contract, including the retention of title clause
and the dealings between the parties, must be consistent with the
principles of bailment: Re Country Stores Pty Ltd [1987] 2 Qd R 318.
Clause 5 deals with a situation where the buyer uses the goods in
some construction or manufacturing process. The clause is
necessary because if goods are used in the manufacture of a new
product, and if they have been consumed so that they no longer
exist, or if they have been so incorporated in the new product so
as to form an integral part thereof even though still identifiable,
the retention of title aspect of the clause cannot be invoked to
recover possession of the goods: Re Peachdart [1984] 1 Ch 131.
That is because once the goods become unascertainable in the
manufactured product, the seller cannot maintain a proprietary
interest in it: Associated Alloys at 573. The clause operates to confer
an interest in equity in the proceeds. ‘Proceeds’ in the context of
the subclause refers to moneys received by the buyer and not
debts which may be set out in the buyer’s books or computer
records from time to time: Associated Alloys at 576–7.

The operation of the exceptions to the nemo dat rule in the

context of retention of title clauses
8.22 Nemo dat quod non habet is a Latin maxim which means ‘no one
can transfer a better title to goods than he himself possesses’. There are
statutory exceptions to the nemo dat rule which, when applied, may
result in title being transferred to an innocent third party irrespective
of the fact that the original seller purported to reserve title in the
goods: Four Point Garage Ltd v Carter [1985] 3 All ER 12. Those
exceptions are dealt with below.
One of the exceptions is the ‘buyer in possession’ exception. A third
party may not be able to invoke the buyer in possession exception to
the nemo dat rule where the on-sale between the buyer/seller and third
party also contains a retention of title clause. This is because the
exception requires a ‘sale’ to the third party, as opposed to an
agreement to sell: Re Highway Foods International Ltd (in administrative
receivership) [1995] 1 BCLC 209 (Ch D). If the third party obtains good
title under an exception to the nemo dat rule, he or she will by that
process also obtain the property in the goods.

[page 267]

An ordinary retention of title does not create a security

interest in the seller
8.23 A ‘security interest’ over goods may take many forms: the term
includes a lien, attaching to possession of the article over which security
is taken, and a bill of sale, where there is a transfer of the chattel
without possession.
The retention of title clause, however, is used as a security device by
the seller of goods. It does not create a security right in favour of the
seller: Armour v Thyssen Edelstahlwerke AG [1991] 2 AC 339; Clough Mill
Ltd v Martin [1984] 3 All ER 982; Associated Alloys Pty Ltd v Metropolitan
Engineering and Fabrication Pty Ltd (1998) 16 ACLC 1633; Southbank
Traders Pty Ltd v General Motors Acceptance Corp Australia and Auto Group
Ltd [2006] VSCA 102 at [41]. In Armour, Lord Jauncey of Tullichettle
said at 354:
It is of the essence of a right in security that a debtor possesses in relation to the
property a right which he can transfer to the creditor, which right must be
retransferred to him upon payment of the debt.

An ordinary retention of title clause does meet the requirements of a

security interest because the buyer does not confer an interest in the
goods to the seller: the seller instead retains ownership. This is the
effect of the clause: the seller has title and so it is not possible for the
buyer to charge property it does not own to the seller.

Right of disposal of the goods

8.24 Section 2221 provides:
(1) When there is a contract for the sale of specific goods or when goods are
subsequently appropriated to the contract, the seller may, by the terms of the contract
 or appropriation, reserve the right of disposal of the goods until certain conditions are
fulfilled.

This section addresses the presumptions in transfer of property rr 1

and 5. By retaining title, a seller obviously retains a right of disposal.
Yet, like so many of the Act’s provisions, the original purpose of the
section can best be understood by reference to its historical genesis. A
good illustration is the seller who ships goods to the purchaser: without
retaining the right to dispose to another unless payment is made by the
buyer, the property would, pursuant to the presumptions, pass as early
as the contract or the placing of the goods on the ship. That is
obviously unsatisfactory to a seller who receives payment only upon
delivery.
The Sale of Goods Act refers to the seller’s right to reserve the ‘right
of disposal of the goods’. To frame a clause in the manner of a
retention of title clause is one relatively modern example of a retention
of a right of disposal. But the Sale of Goods legislation preceded, by
many years, Romalpa clauses, and the reservation of a right of
disposition might historically have taken effect as a right retained by
the seller to sell to someone other than the buyer if, when the goods
arrived after shipment, the buyer did not pay

[page 268]

for them. Perhaps somewhat inaccurately, reservation of a right of

disposal is nowadays regarded as equivalent to a right in the seller to
reserve the property in the goods: James v Commonwealth (1939) 62 CLR
339 at 377.
From the section it is apparent that the right can be reserved in
respect of sales of specific goods and of goods to be subsequently
appropriated to the contract, which would include unascertained goods
and future goods.

The effectiveness of the proceeds clause: has the seller

constituted a trust of the proceeds?
8.25 In Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq)
(formerly Metropolitan Engineering and Fabrications Pty Ltd) (2000) 171 ALR
568, the High Court held that the retention of title clause did not
constitute a charge, but operated as an agreement to create a trust over
the proceeds of sales of goods manufactured by the buyer using steel
supplied by the seller, to the value of amounts owing to the seller at the
time of receipt of proceeds by the buyer. In the end, Associated Alloys
was unsuccessful in claiming the proceeds because it failed to prove
that any relevant proceeds had in fact been received by the buyer (or
liquidator).
The importance of the distinction between the clause constituting a
charge and a trust was that a charge, unless registered under the (then)
Corporations Law, was void against the administrator or liquidator of a
company (ss 262 and 266 of the Corporations Law), thus rendering the
clause ineffective.
One of the preliminary issues involved the meaning of the phrase
‘the proceeds’. The issue was whether the phrase was limited to the
funds received in payment by the buyer from the third party, or
whether it was wider and extended to the obligations in debt owed to
the buyer by the third party, that is, the choses in action or book debts
of the buyer. The phrase ‘the proceeds’ was held to refer to moneys
received by the buyer and not book debts which may be set out in the
buyer’s books or computer records from time to time: at 576–7. In
particular, the court held the seller had failed to show ‘whether any
payments made by the third party to the buyer were related, within the
meaning of the proceeds subclause, to the steel supplied by the seller
under any particular invoice’: at 584. If the buyer had received all
payments from the third party with respect to the steel products, then
the court may have been prepared to draw an inference that the buyer
had received the ‘proceeds’ from the third party, in respect of each of
the invoices: at 585.
The seller was not entitled to an account as a way of identifying
whether any and what ‘proceeds’ had been received by the buyer
because there was no liability to account; the seller had failed to prove
that the buyer was a fiduciary, owing trust obligations to the seller: at
613.

[page 269]

In Rondo Building Services Pty Ltd v Casaron Pty Ltd [2003] 2 Qd R 558;
[2003] QCA 78, the Queensland Court of Appeal distinguished
Associated Alloys in consideration of a similar, but not identical,
proceeds of sale clause. In Rondo the relevant clause provided:
17. The buyer shall be at liberty to agree to sell products (independently or affixed to
the other materials) subject to the condition that until payment of the price, the buyer
shall sell as agents and bailees for Rondo and that the entire proceeds from sale
thereof shall be held in a separate account in trust for Rondo.

The guarantor to the contract of sale argued that there was an

implied term in the contract that, once the trust of proceeds was
constituted, the indebtedness of the buyer arising from the sale was
overtaken and replaced by its obligations as trustee under clause 17.
Once the relationship of debtor and creditor was transformed into one
of trustee and beneficiary, the buyer’s obligation to pay the price was
discharged by performance.
The goods supplied under the contract were incorporated into the
fabric of buildings, and hence property in them passed to the buyer
notwithstanding the retention of title clause: Hobson v Gorringe [1897] 1
Ch 182. The property having passed, the seller became entitled to
maintain an action for the price under s 50(1) of the Act.
The guarantor’s argument was rejected. There remained an
obligation on the buyer to pay the price. Unlike the clause in Associated
Alloys, cl 17 here operated ‘until payment of the price’, which
McPherson JA held at [10] to be ‘an indication, and possibly a decisive
one, that the indebtedness or obligation to pay the price was intended
to persist concurrently with the duty to hold the proceeds in a separate
trust account’. In Associated Alloys, receipt of proceeds by the buyer was
regarded as constituting the trust and discharging the obligation in
debt. However, in Rondo, McPherson JA at [10] held it was, in light of
the wording of the clause:
… difficult to accept that the parties intended that receipt by the buyer of only a small
fraction of the proceeds would have the effect of completely discharging the buyer’s
obligation to pay the price or indebtedness arising under the contract of sale and the
delivery of the goods. Clause 17 in terms literally requires the ‘entire proceeds’ from
sales by the buyer to be held in a separate trust account. Until that is done, the buyer
cannot claim to be discharged by performance in accordance with that clause.

Additionally, the guarantor had the burden of proving the buyer had
discharged its indebtedness by performance: Rondo at [11]. In so doing,
he was bound to prove as an element of the defence that the buyer
complied with the requirements of the relevant clause not only by
receiving proceeds but also, as required by clause 17, by holding them
in a separate account. It was not clear whether all of the steel had been
paid for and, even if it had, it had not been paid into a separate
account but instead paid directly to the seller. In fact, as McPherson JA
held, ‘both parties completely ignored the trust’: Rondo at [13]. In such
circumstances it was impossible to say that a trust was constituted or
operated as a discharge by performance of obligations imposed on the
buyer by the clause.

[page 270]

RISK
8.26 It is not necessary in law for the risk and ownership to be
coincidental: Allied Mills Ltd v Gwydir Valley Oilseeds Pty Ltd [1978] 2
NSWLR 26 at 28.
Whether the seller or buyer has the ‘risk’ in the goods will assume
particular importance where the goods have been damaged or
destroyed or have perished without the fault of either party. The
person who bears the risk in the goods at that time will suffer the loss to
the goods.
In this situation, absent an agreement which makes clear which party
was at risk, it will be necessary to determine:
who bore the risk in the goods at the relevant time; and
whether the event which caused the loss resulted in the contract
being avoided (on the basis of frustration).
If the goods are at the seller’s risk when they are damaged or
destroyed, the seller, being unable to deliver the goods in accordance
with the contract, is liable to the buyer for damages for non-delivery
(provided the doctrine of frustration does not apply), and the buyer
will not be liable for the price. If the buyer has paid any part of the
price in advance, this will have to be refunded to the buyer. If, on the
other hand, the goods are at the buyer’s risk, the buyer is liable to the
seller for the price even if the goods have been damaged or destroyed,
or for damages for non-acceptance.
Under the Sale of Goods legislation, risk passes with the property in
the goods.
Section 2322 provides:
(1) Unless otherwise agreed, the goods remain at the seller’s risk until the property
therein is transferred to the buyer, but when the property therein is transferred to the
buyer, the goods are at the buyer’s risk whether delivery has been made or not.
(2) However, when delivery has been delayed through the fault of either buyer or
seller the goods are at the risk of the party in fault as regards any loss which might not
have occurred but for such fault.
(3) This section does not affect the duties or liabilities of either seller or buyer as a
bailee of the goods of the other party.

The problem with this, for the buyer, is that property can be
transferred even though the goods have not been delivered to the
buyer. It seems an unreasonable burden for the buyer that they should
bear the risk of damage or destruction to goods which may not be
within their control. Professor Goode suggests an alternative approach
to linking risk with property:
A more reasonable rule would have been to link risk with control, for the person in
control of goods (whether by physical possession or by having the right to give
directions

[page 271]
 as to the goods to a third party holding them) is best able to take proper steps for
their protection and to cover loss by insurance.23

The rule in s 23 that risk passes with property is subject to a number

of qualifications:
First, the parties can agree otherwise.24 Where, for example, goods
are sold FOB (free on board) or CIF (cost, insurance, freight), the
parties will usually agree that risk is to pass to the buyer upon
shipment, despite the fact that the property may still remain with
the seller: NSW Leather Co Pty Ltd v Vanguard Insurance Co Ltd
(1991) 25 NSWLR 699. In NSW Leather, where goods the subject of
a FOB contract had been stolen prior to being loaded on board
the ship, the evidence was held to be insufficient to establish a
contractual consensus that the risk was to pass prior to loading the
goods on board the ship. It is often the case that contracts which
contain retention of title clauses provide that risk is to pass to the
buyer, despite the fact that property in the goods is to be retained
by the seller. Further, in respect of sales of goods which form part
of a bulk, it may be that although property in the goods cannot
pass until the goods have been ascertained, the parties will usually
be held to have agreed that the risk lies with the buyer,
particularly where the seller has done everything he or she is
required to do under the contract and the goods are under the
buyer’s control: Sterns Ltd v Vickers Ltd [1923] 1 KB 78.
Second, if delivery is delayed due to the fault of either party, the
goods are at the risk of the party at fault in regards to the loss
which might not have occurred but for that fault.25 The proviso
contemplates a situation where the risk would otherwise lie with
one party, but because of a delay in delivery through the fault of
the other party, the goods are damaged or lost. In that
circumstance, the person who caused the loss through delay is to
bear the risk of that loss. ‘Fault’ is defined to mean ‘wrongful act
or default’: s 3.26 The proviso has been held to apply to a delay in
delivery whether or not property is to pass upon delivery: Sharp v
Batt (1930) 25 Tas LR 33. The equivalent proviso was applied in
Demby Hamilton & Co Ltd v Barden [1949] 1 All ER 435 where the
 buyer failed to take delivery of part of 30 tons of apple juice. Due
to the buyer’s delay the remainder of the juice became putrid and
had to be destroyed. It was held that although property had not
yet passed to the buyer, the buyer bore the risk of deterioration
under the subsection. In applying the subsection, the court had to
be satisfied that the loss could be properly attributable to the
failure of the buyer to take delivery of the goods at the proper
time: at 437.

[page 272]

Third, there are special provisions dealing with risk where the
goods are sent by sea27 or where the seller agrees to deliver them
at the seller’s own risk at a place other than where they were
sold.28 In the latter case, unless otherwise agreed, the buyer must,
notwithstanding the general risk lies with the seller, take any risk
of deterioration in the goods necessarily incident to the course of
transit. The provision is of limited scope. It will not absolve the
seller for any mishap to the goods in the course of transit. It will
only apply where, due to the nature of the goods, the agreed
mode of transport of the goods or other circumstances, there is a
normal risk of deterioration despite the exercise by the seller of all
proper care and conformity with their contractual obligations.
The nature of the goods is clearly important in determining whether
property has passed and therefore whether the seller or buyer bears the
risk in the goods. If the contract is for the sale of unascertained goods,
for example, and the goods are damaged prior to those goods being
appropriated to the contract, the seller will bear the loss (absent an
agreement to the contrary). This is because the seller cannot pass
property in the goods until they have become ascertained.

Obligations as bailee
8.27 Section 23(3) provides that nothing is to affect the ‘duties or
liabilities of either seller or buyer as a bailee of the goods of the other
party’. A bailment may arise where property in the goods has passed to
the buyer but possession is retained by the seller. Under the subsection,
although the general risk in the goods will be with the buyer, the seller
in possession of the goods will still owe duties as a bailee. In particular,
even though the goods are at the buyer’s risk, the seller must take
reasonable care of the goods: Houghland v RR Low (Luxury Coaches) Ltd
[1962] 1 QB 694. In addition, the seller must comply with any express
terms of the bailment. If the seller fails to do so they will be strictly
liable for delivery up of the goods in proper condition and will not be
excused even in respect of accidental loss or damage unless the
seller/bailee can show it would have occurred even without the breach:
Edwards v Newland & Co [1950] 2 KB 534. A buyer may owe obligations
as bailee where property in the goods remains with the seller (for
example, under a retention of title clause) and the goods are at the
seller’s risk but possession is given to the buyer.

Goods perish after agreement to sell but before

sale
8.28 If there is an agreement to sell specific goods and subsequently
the goods perish through no fault of either party before the risk has
passed to the buyer, the agreement is avoided: s 10.29 This provision is
similar to the doctrine of frustration at common law:

[page 273]

see Taylor v Caldwell (1863) 3 B & S 826; [1861–73] All ER Rep 24. The
provision only applies where there is an agreement to sell specific
goods. ‘Specific goods’ are defined as ‘goods identified and agreed
upon at the time a contract of sale is made’: s 3.
The provision only applies where the goods have perished. The word
‘perished’ has been considered in the context of business insurance
contracts. In that context the word ‘perished’ does not require the
goods to have been totally destroyed. It is sufficient if the goods have
been so altered in nature by damage or deterioration that they have
become for business purposes something other than that which is
described in the sale contract: Asfar v Blundell [1896] 1 QB 123, but
contrast Horn v Minister of Food [1948] 2 All ER 1036 (where rotten
potatoes were held not to have ‘perished’).
In order for s 10 to apply, the risk must not have passed to the buyer.
It is also a requirement of the provision that the seller or buyer must
not have been responsible for the goods perishing.
If the provision applies the contract is ‘avoided’. Usually this term
means avoidance ab initio but in s 10 it has been interpreted to mean
terminated, in the sense that when the goods perish the contract comes
to an end, thereby discharging the parties from performance of future
obligations but not affecting accrued liabilities: Benjamin’s Sale of Goods,
6th ed, p 287 citing Chandler v Webster [1904] 1 KB 493. If, however, the
buyer has paid the price of the goods, he or she can recover it from the
seller on the basis of total failure of consideration: Fibrosa Spolka Akcyjna
v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32. There is no scope
under the provision for apportioning the loss.

Goods have already perished at time of sale

8.29 If there is a contract for the sale of specific goods and the goods
without the knowledge of the seller have already perished, the contract
is void: s 9.30 It has been held that the section has no application where
the goods have never existed: McRae v Commonwealth Disposals
Commission (1951) 84 CLR 377. The situation covered by this section
has been said to be more akin to the common law doctrine of mistake:
Sutton, Sales and Consumer Law, p 145.

TRANSFER OF TITLE BY A NON-OWNER

8.30 In most cases involving the sale of goods the issue of who has
title to the goods will not be controversial. This is because the person
who sells the goods owns the goods or is at least authorised by the
owner to sell them. Title becomes an issue when the person selling the
goods is not the owner or the owner’s agent to sell. In such cases
disputes as to title arise between the owner of the goods and the
innocent third-party

[page 274]

buyer who is innocent in the sense that they bought the goods in good
faith from the seller, without notice of that person’s lack of title or
authority to sell.
At the heart of this issue is the general rule that no one can transfer a
better title to goods than he or she possesses: Hollins v Fowler (1875) LR
7 HL 757. A seller who does not have title to the goods can only give
possession of the goods. The rule is often referred to in terms of the
Latin maxim nemo dat quod non habet.
The nemo dat rule is incorporated in the Sale of Goods Act 1896
(Qld) by s 24(1),31 which provides:
(1) Subject to the provisions of this Act, when goods are sold by a person who is not
the owner thereof, and who does not sell them under the authority or with the
consent of the owner, the buyer acquires no better title to the goods than the seller
had, unless the owner of the goods is by the owner’s conduct precluded from denying
the seller’s authority to sell.

The equivalent section in the NSW Act was held to apply to the sale
of a racehorse which was, unknown to all its co-owners, sold to a private
buyer rather than at auction: Capogreco v Rogerson [2015] NSWSC 1371.
The defendant was held not to have authority to sell the plaintiffs’
interests in the horse, and the plaintiffs, therefore, were entitled to
declarations that they continued to hold their respective percentage
interests in the horse and to an order for an account from the new
owner: at [212].
The nemo dat rule is subject to a number of exceptions. The effect of
the Personal Property Securities Act 2009 (Cth) on the exceptions to
the nemo dat rule is dealt with by Denise McGill in her article ‘Transfer
of Title by a Non-owner: The Personal Property Securities Act 2009
(Cth) Exceptions to the Nemo Dat Rule’ (2011) 39 ABLR 209. This
reflects the need to balance two competing principles: the protection
of property (the nemo dat rule) and the protection of commercial
transactions (the person who takes in good faith and for value without
notice should get a good title): Bishopsgate Motor Finance Corp Ltd v
Transport Brakes Ltd [1949] 1 KB 332 at 336–7 per Denning LJ.
Where an exception applies, title in the goods will pass to the third-
party buyer notwithstanding the fact that the seller does not have title
to them.
The exceptions to the nemo dat rule are:
1. estoppel;
2. sale under a voidable title;
3. sale by a mercantile agent;
4. seller in possession;
5. buyer in possession; and
6. miscellaneous exceptions.

[page 275]

An interesting historical analysis of the development of the statutory

exceptions was provided by Toohey J in Gamer’s Motor Centre (Newcastle)
Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 at 267–
8:
With the development of commerce and the provision of credit it became apparent
that some protection was necessary for the innocent purchaser ‘if goods were to move
freely in the stream of trade’ (Goode, p 392). Nevertheless the defences available at
common law to an innocent purchaser against the true owner of goods were very
limited. They were enumerated by Willes J in Fuentes v Montis (1868) LR 3 CP 268 at
276–7.
Statutory inroads into the common law’s insistence that a transferor of goods could
give no better title than he himself possessed came initially through the Factors Acts.
 They had what the Privy Council described in Pacific Motor Auctions Pty Ltd v Motor
Credits (Hire Finance) Ltd (1965) 112 CLR 192 at 199; [1965] AC 867 at 882 as: ‘… the
object of mitigating the asperity of the common law towards an innocent party
purchasing goods from a person who has all the trappings of ownership but in truth
has no proper title to the goods’.
Through the Factors Act (UK) of 1823, 1825, 1842 and 1877 and the consolidation
of 1889, a measure of protection was given, at first to those who dealt with mercantile
agents in possession of goods and later to those who dealt with such agents in
possession of documents of title. Thereafter protection was extended to those who
dealt with a seller who, having sold goods, continued in possession of them or their
documents of title and to those who dealt with a buyer who, having bought or agreed
to buy goods, obtained possession of them or their documents of title. Sections 8 and
9 of the Factors Act 1889 were incorporated in s 28(1) and (2) of the Sale of Goods
Act of New South Wales.

The estoppel exception

8.31 The closing words of s 24(1) ‘unless the owner of the goods is
by the owner’s conduct precluded from denying the seller’s authority
to sell’ have been held to incorporate an exception to the nemo dat rule
based on the common law principles of estoppel: Associated Midland
Corp v Sanderson Motors Pty Ltd [1983] 3 NSWLR 395.
An estoppel, where it arises, disentitles the true owner from denying
the ownership of a third party who buys the goods from the buyer.
Consequently, the third party acquires a good title to the goods by
‘estoppel’. The exception, when it applies, permits the transfer of a real
title to the third party as opposed to a metaphorical title by estoppel:
Benjamin’s Sale of Goods, 6th ed, p 310. This means that the estoppel not
only binds the owner of the goods, preventing them from asserting
their true ownership, but also confers good title against all the world:
Eastern Distributors Ltd v Goldring [1957] 2 QB 600.
The critical issue is the circumstances giving rise to the estoppel.
Essential to the creation of the estoppel is the belief by the third party
that the seller is the owner of the goods, or is authorised to sell them.
This belief may be induced in one of two ways: first, by reason of a
representation by the true owner that the seller is the true owner or has
authority to sell the goods on the owner’s behalf; or second, by
negligence on the part of the true owner, which permits the seller to
create an appearance of ownership.

[page 276]

However, the circumstances in which the latter will create an estoppel

are, for the reasons below, limited.
If a relevant representation is made, but the third party knows the
seller is not the true owner, or does not have authority to sell, then
there is no estoppel, because the third party will not have relied upon
the representation.

Estoppel by representation
8.32 The representation may be by words or conduct. The estoppel
exception has been held to apply to a representation or holding out of
either apparent ownership or apparent authority to sell: Eastern
Distributors Ltd v Goldring [1957] 2 QB 600. Where a representation of
ownership is relied on as founding the estoppel, the third party must
establish that there was a clear and unequivocal representation
inconsistent with the right of the owner to assert ownership in the
goods and that the third party reasonably relied on it to their
detriment: Eastern Distributors.
The representation must have been made by the owner or by
someone authorised by the owner to make the representation: Moorgate
Mercantile Co Ltd v Twitchings [1977] AC 890.
The conduct of the true owner must be examined in each case.
Entrusting possession of goods to another is not a representation to a
third party that the seller owns the goods or has authority to sell them:
Central Newbury Car Auctions Ltd v Unity Finance Ltd [1957] 1 QB 371;
Meggy v Imperial Discount Co (1878) 3 QBD 711 at 717 and 719; Rosecell
Pty Ltd v JP Haines Plumbing Pty Ltd [2015] NSWSC 1238. This accords
with common sense: otherwise every bailment would constitute a
representation of ownership.
 ‘Document of title to goods’ is defined as having ‘the same meaning
as it has in the Factors Act’: Sale of Goods Act 1896 (Qld) s 3. There it
is defined to mean ‘a bill of lading, dock warrant, warehouse keeper’s
certificate, warrant or order for the delivery of goods, and any other
document used in the ordinary course of business as proof of the
possession or control of goods, or authorising or purporting to
authorise, either by endorsement or by delivery, the possessor of the
document to transfer or receive goods thereby represented’: Factors
Act 1892 (Qld) s 2(1).32 A car registration book is not a document of
title: Pearson v Rose & Young Ltd [1951] 1 KB 275.
The mere possession by the buyer of the documents of title to the
goods does not at common law convey a representation that the holder
of the documents is entitled to dispose of the goods. However, the
position may be different where the goods and the documents of title
are given to an agent. In such a case the issue will be whether the
circumstances were such as to lead a third-party buyer to suppose that
the possessor was the owner of the goods: Motor Credits (Hire Finance)
Ltd v Pacific Motor Auctions Pty Ltd (1963) 109 CLR 87. In Eastern
Distributors, for example, the owner of a van was estopped from

[page 277]

denying the authority of a car dealer to sell his van in circumstances

where the owner, wishing to raise money on his van, had armed the
dealer with a signed hire-purchase agreement in blank and a delivery
note in respect of the van.

Estoppel by omission (arises from the owner’s negligence)

8.33 Estoppel by omission occurs when the true owner, by their
negligence in not saying or doing something when there was a legal
duty to do so, permits the seller to create an appearance of ownership.
The nature of this form of estoppel was discussed in Beneficial Finance
Corp Ltd v National Mutual Royal Bank (VSC, Brooking J, 8 September
1988, unreported) at 33:
‘Estoppel by negligence’ does not constitute a separate category, that is to say, it is not
possible for a party to be estopped by his negligence. What estops him is a
representation which has the necessary effect on the other party. The significance of
negligence is that, there being no express or implied representation, the failure to say
or do something, in breach of a legal duty to say or do something, can be regarded by
the law as the making of a representation.

Estoppel based on omission is of limited application. It requires the

buyer to show that the owner owed the buyer a duty of care, that the
owner breached that duty and that this caused the buyer to purchase
the relevant goods from the seller: Johnson Matthey (Aust) Ltd v Dascorp
Pty Ltd [2003] VSC 291. The difficulty is that in most cases an owner will
not owe a third-party buyer a duty of care, and this is an essential
element of the cause of action: Mercantile Bank of India Ltd v Central
Bank of India Ltd [1938] AC 287 at 299. A mere lack of prudence on the
part of the owner — for example, allowing the goods to be stolen or
lost — will be insufficient: Central Newbury Car Auctions Ltd v Unity
Finance Ltd [1957] 1 QB 371 at 381; Leonard v Ielasi (1987) 46 SASR 495.
Conduct which amounts to inaction or silence on the part of the owner
may found an estoppel but only where it acquires a ‘positive content’
such that a buyer is entitled to rely on it. A positive content arises when
there is a duty to act in a particular way, owed to the buyer or to a class
of the public of which the buyer is a member: Moorgate Mercantile Co Ltd
v Twitchings [1977] AC 890. The existence of a duty was held in
Moorgate Mercantile at 903 to depend upon:
… whether, having regard to the situation in which the relevant transaction occurred,
as known to both parties, a reasonable man, in the position of the ‘acquirer’ of the
property, would expect the ‘owner’ acting honestly and responsibly, if he claimed any
title in the property, to take steps to make that claim known to, and discoverable by,
the ‘acquirer’ and whether, in the face of an omission to do so, the ‘acquirer’ could
reasonably assume that no such title was claimed.

A duty to act arises where the owner is aware of their agent’s

misconduct: Johnson Matthey; Kino v Prestige Philately Pty Ltd [2014] VSC
469.
In Moorgate Mercantile, the House of Lords held that a finance
company’s failure to register a hire-purchase agreement where
registration was not compulsory was insufficient to preclude them from
asserting their rights on this basis. In Kino the owner of stamps

[page 278]

bequeathed to her under a will was not estopped from asserting her
title to the stamps which were sold by her brother-in-law using the
services of a stamp dealer. In Kino it was held at [72]–[76]:
The exception provided for in s 27 of the Victorian Act [s 24(1) of the Qld Act] is
broadly expressed and is clearly intended to operate in diverse factual circumstances.
Nevertheless, a construction of a rule of general application which limits the
operation of the nemo dat principle of the common law beyond that which is
expressly provided for in the legislative text is not warranted in my opinion. A true
owner’s title to goods should not be exposed to the prospect of extinguishment unless
clear words in the statute demand such a construction.
To my mind, the proper construction of the section requires an owner to be an
intentional participant, the necessary intent being based upon actual knowledge of
the essential facts which should inform the owner’s conduct before a duty will arise. It
is a duty, which, if breached and is the proximate or real cause of a third party being
induced to purchase the goods, will establish the exception to the nemo dat principle,
with the further consequence that the owner may lose title.
In the circumstances of the present case, it is actual knowledge on the part of the
property owner, Mrs Kino, of the fact that Mr Kino had come into possession of the
stamps and had done so dishonestly which needs to be established before a s 27 duty
will arise to refrain from remaining silent. The duty, if it arose, was to speak out on the
basis of the dishonesty of Mr Kino, the person who came into possession of the stamps
and who may have sought to transact with others in relation to them. If this was
unknown to Mrs Kino, how could she discharge her duty? What was she to say and to
whom? In the absence of some other positive failure on the part of Mrs Kino, in my
opinion, a mere failure to act when she had no knowledge of any relevant
wrongdoing, does not operate to preclude the operation of the nemo dat rule.
Accordingly, in order for Prestige and Sir Ronald to establish the s 27 duty claimed,
they need to establish that the Mrs Kino knew (at or before the time at which the Sir
Ronald ‘bought’ the stamps from Mr Kino) that Mr Kino had stolen the stamps. In the
absence of proof that Mrs Kino was aware of this dishonesty on the part of Mr Kino,
there was no duty to speak out, and no s 27 estoppel arises.
There is no warrant to contend, as Prestige and Sir Ronald submitted, that the duty
will arise if Mrs Kino has knowledge of facts which would lead a reasonable owner to
conclude that a reasonable buyer may be misled if the owner remains silent. This
extends the duty too far. It trespasses on the principle that mere carelessness without
more should not be regarded as a sufficient basis to found a duty by the owner to a
buyer for the purposes of s 27.
 In Rosecell Pty Ltd v JP Haines Plumbing Pty Ltd [2015] NSWSC 1238,
the owners of a haulage business were not estopped from denying their
title to equipment in circumstances where it was not unreasonable or
careless for them not to have notified the police of the actions of the
seller. The court found the owners had no choice but to allow the seller
to take over their companies’ businesses and assets or risk their and
their family’s lives: at [61]. The court acknowledged that the owners
had knowledge of the seller’s dishonesty

[page 279]

in relation to the equipment of which he took possession and had

permitted him to retain possession. However, it was held that even if
that had been sufficient to give rise to a duty of care, the owners had
not negligently misled others into acting to their detriment. As White J
held at [65]: ‘Their omission to act was not due to negligence, but to
duress.’

Sale under a voidable title

8.34 Section 2533 provides:
When the seller of goods has a voidable title thereto, but the seller’s title has not been
avoided at the time of the sale, the buyer acquires a good title to the goods, if the
buyer buys them in good faith and without notice of the seller’s defect of title.

Under this section, therefore, a person who has voidable title to

goods can confer a good title to them on a bona fide purchaser for
value, provided that the seller’s title has not been avoided at the time of
the sale.
Technically, this provision is not an exception to the nemo dat rule
but really a specific application of the general rule of contract law that
the right to rescind a contract is lost when an innocent third party has
acquired an interest in the subject matter of the contract. If the seller’s
title is avoided before the second sale, the owner will not necessarily get
good title. This will depend upon whether the third-party buyer can
rely on one of the other exceptions to the nemo dat rule.
The section envisages two sales:
1. the sale from seller 1 to buyer 1; and
2. the sale from buyer 1 to buyer 2.
Under s 25, buyer 2 will get good title provided that buyer 1’s title
has not been avoided before the sale to buyer 2.
In order then to apply the provision, the following questions need to
be answered:
what is a voidable title; and
when is a voidable title avoided?

What is a voidable title?

8.35 If a contract of sale is vitiated by fraud, misrepresentation or
mistake, the sale is not void but voidable at the option of the innocent
party. If, however, regardless of the existence of fraud, the contract is
made under a mistake which goes to the root of the contract, the
contract is void. If the contract is merely voidable, the contract is
effective to pass property in the goods and there is scope for the
innocent buyer to get good title provided they acquire the property
before the voidable contract is rescinded. If the contract is void, no
property passes and the buyer obtains no title (unless one of the other

[page 280]

exceptions to the nemo dat rule applies): Ingram v Little [1961] 1 QB 31;
Cundy v Lindsay (1878) LR 3 App Cas 459.
It is important therefore to know whether a contract is void or
voidable. If goods are sold under a mistake as to the buyer’s identity,
the better view is that the contract is voidable and not void: Lewis v
Averay [1971] 3 All ER 907; Phillips v Brooks Ltd [1919] 2 KB 243, but
compare Ingram.
 A conditional sale does not give the seller a voidable title.

When is a voidable title avoided?

8.36 Avoidance is a species of election governed by the general
principles of election between rights: Halsbury’s Laws of Australia, vol 23,
Carter, ‘Sale of Goods’, Butterworths, Sydney at [375]–[995]. A person
may elect to avoid or affirm a contract at any time after they know of
the fraud, or other ground of avoidance, and until, either expressly or
by implication, they affirm the contract. This is subject to an
unreasonable lapse of time which may of itself indicate an election to
affirm the contract: Chao v British Traders and Shippers Ltd [1954] 2 QB
459 at 475.
Generally, avoidance by the seller must be communicated to the
original buyer. This is not always practical, particularly if that person is
a fraudster. It was held in Car & Universal Finance Co Ltd v Caldwell
[1965] 1 QB 525 that there will be a sufficient avoidance in the
circumstances so as to prevent title passing under the provision if the
seller takes all reasonable and practical steps to regain the goods, and it
is unnecessary that the intention to rescind the contract be
communicated to the other (fraudulent) party to the contract. There
the contract was avoided upon the owner giving notice of the theft of
the relevant motor vehicle to the police and to his automobile
association. The plaintiff did not obtain good title to the car.

Sale by a mercantile agent

8.37 The common law exception based on estoppel was applied to
sales by mercantile agents to preclude the owner from denying the
authority of the mercantile agent to sell where the agent had been
entrusted by the owner with the goods or documents of title to the
goods. The exception at common law was confined to sales and did not
extend, for example, to unauthorised pledges of the goods. The Factors
Act exception which is preserved by s 24(2)34 has extended the scope of
the exception so that all dispositions by a mercantile agent are covered.
The relevant provision is s 3(1),35 which provides:
(1) When a mercantile agent is, with the consent of the owner, in possession of goods
or of the documents of title to goods, any sale, pledge, or other disposition of the
goods, made by the agent when acting in the ordinary course of business of a
mercantile

[page 281]

agent, shall, subject to the provisions of this Act, be as valid as if the agent were
expressly authorised by the owner of the goods to make the same: Provided that the
person taking under the disposition acts in good faith, and has not at the time of the
disposition notice that the person making the disposition has not authority to make
the same.

The onus is on the third-party buyer to establish the elements of the

exception: Oppenheimer v Attenborough & Son [1908] 1 KB 221; Heap v
Motorists’ Advisory Agency Ltd [1923] 1 KB 577; Mercedes-Benz Financial
Services Australia Pty Ltd v State of New South Wales [2011] NSWSC 1458.
‘Mercantile agent’ is defined as ‘a mercantile agent having in the
customary course of his business as such agent authority either to sell
goods or to consign goods for the purpose of sale, or to buy goods, or
to raise money on the security of goods’.36 The definition of
‘mercantile agent’ has been applied widely so that it may be the only
time the agent has acted in such a capacity: Weiner v Harris [1910] 1 KB
285. The relevant time for determining whether somebody is a
mercantile agent is the time at which they obtain possession of the
goods: Heap.
Although the title of the Act in some states suggests it applies only to
‘factors’, there is no need for the agent to be a factor, that is, someone
with usual authority to buy and sell in their own name.
The mercantile agent must have possession of the goods or the
documents of title. A mercantile agent is deemed to be in possession
where the agent has actual custody or control of the goods or
documents of title: s 2(2).37
For the exception to apply, the third party must show that the goods
were in the possession of the mercantile agent with the consent of the
owner. The consent must be to the possession in the capacity of a
mercantile agent: Astley Industrial Trust Ltd v Miller [1968] 2 All ER 36.
For example, the requirement is satisfied if the owner of a car leaves it
with a dealer for the purposes of sale but not if they leave it with the
dealer in order that it be repaired: Pearson v Rose & Young Ltd [1951] 1
KB 275. Consent will be presumed in the absence of evidence to the
contrary: s 3(4).
The possession by the mercantile agent must continue until the time
of the disposition by the agent: Staffs Motor Guarantee Ltd v British Wagon
Co Ltd [1934] 2 KB 305.
The exception is expressed to cover a ‘sale, pledge or other
disposition’. ‘Pledge’ is defined to mean any contract pledging or
giving a lien or security on goods, whether in consideration of an
original advance or of any further or continuing advance or of any
pecuniary liability: s 2(1).38

[page 282]

The ‘sale, pledge or other disposition’ must have taken place ‘in the
ordinary course of business of a mercantile agent’. This means that the
agent must, in disposing of the goods, have acted in the same manner
as a mercantile agent would have acted had they been authorised. For
example, if the sale has been for substantially less than the value of the
goods, or has occurred outside normal business hours or not from
proper business premises, the requirement may not have been met:
Oppenheimer. In Mercedes-Benz the fact the mercantile agent was prepared
to supply a false invoice indicating luxury tax was included in the
purchase price of a Ferrari motor vehicle when it was not was not the
way a mercantile agent would act in the ordinary course of business.
The court found that the third party had failed to establish, in such
circumstances, that the sale was in the ordinary course of business of a
mercantile agent, at [94]–[95]:
No question arises in this case about trading hours or the place of business of ECS.
 Nonetheless, the question is whether ECS acted ‘[in other respects in the ordinary way
in which a mercantile agent would act, so that there [was] nothing to lead the
[purchaser] to suppose that anything wrong was being done’ (Oppenheimer v
Attenborough & Son per Buckley LJ at 231), and whether ECS acted ‘as a mercantile
agent would act if he were carrying out a transaction which he was authorised by his
master to carry out’ (per Lord Alverstone CJ at 227).
In the present case ECS, at Mr Turner’s request, supplied a false invoice that
purportedly showed that luxury car tax was included in the purchase price of
$600,000. There was no evidence that that is the way a motor car dealer would act if it
were carrying out a transaction it was authorised by its principal to carry out. In other
words, MBFS has not shown that a motor car dealer, if acting in the ordinary course of
business, would falsely state that luxury car tax was included in the purchase price
when it was not. The onus was on MBFS to establish that the sale was made in the
ordinary course of business of a mercantile agent (Associated Midland Corporation v
Sanderson Motors Pty Ltd at 399–400).

The ‘ordinary course of business’ requirement complements the

requirement that the third-party buyer must have acted in good faith
and without notice of the agent’s lack of authority.
A thing is deemed to be done ‘in good faith’ within the meaning of
the Sale of Goods Act when it is in fact done honestly, whether it is
done negligently or not: s 3(2).39 However, honesty alone is not
sufficient: the third party must not have notice of a lack of authority of
the mercantile agent to make the disposition. In Itaoui v Yamaha Motor
Finance Australia Pty Ltd [2009] NSWSC 1363 at [36] it was said that if
the claimed transactions were established, the concept of good faith
had to be approached as it was in Associated Midland Corp v Sanderson
Motors Pty Ltd [1983] 3 NSWLR 395 at 401:
Good faith connotes ‘honesty’ and whilst negligence of itself, would not establish an
absence of good faith, lack of reasonable care may, when coupled with other facts and

[page 283]

circumstances, lead to an inference that the purchaser was suspicious and refrained
from inquiring because of a fear that he would become aware of irregularity.
The concept is, in this sense, and although an element separate from notice, tied in
with it.
This latter element will not be established unless the purchaser satisfies the court
that he did not have actual notice of some want of authority: see Heap v Motorists’
Advisory Agency Ltd (at 590, 591).
 A third party may be deemed to have had notice if a reasonable
person in the circumstances would not have taken the goods without
further inquiry: Robinson Motors Pty Ltd v Fowler [1982] Qd R 374. In
other words, there was something obviously suspicious about the
seller’s title to which the third party deliberately turned a ‘blind eye’:
Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1972] 1 QB 210;
Mercedes Benz at [98]. In general, the equitable principles of
constructive notice do not apply to purely commercial transactions:
Manchester Trust v Furness [1895] 2 QB 539 at 545; Feuer Leather Corp v
Frank Johnston & Sons [1981] Com LR 251. This was said by Lindley LJ
in Manchester Trust to be founded on ‘perfect good sense’:
In dealing with estates in land, title is everything, and it can be leisurely investigated;
in commercial transactions possession is everything, and there is no time to investigate
title; and if we were to extend the doctrine of constructive notice to commercial
transactions we would be doing infinite mischief and paralysing the trade of the
country.

The question of good faith and notice does not arise if the court is
not satisfied to the requisite standard that the transaction between the
person without title and the third party took place: Itaoui at [38].

Seller in possession: s 27(1)

8.38 The ‘seller in possession’ exception is contained in s 27(1),40
which provides:
(1) When a person, having sold goods, continues or is in possession of the goods or
documents of title thereto, the delivery or transfer by that person or by a mercantile
agent acting for that person, of the goods or documents of title under any sale,
pledge, or other disposition thereof to any person receiving the same in good faith
and without notice of the previous sale, has the same effect as if the person making
the delivery or transfer were expressly authorised by the owner of the goods to make
the same.

The ‘seller in possession’ exception applies in the following

circumstances:

Seller (S) first sells to a person who becomes the true owner (O); however, the seller (S)
remains in possession of the goods and wrongfully makes a second sale of the same
goods to a third party (T). If the second buyer (T) buys the goods in good faith and without
notice of the first sale, he or she will get good title to the goods.
 [page 284]

Under the provision, the true owner is penalised for leaving the
goods with the seller, which placed the seller in the position of being
able to sell again as if they were the true owner. A person who buys
from somebody who has possession of the goods but who is not the true
owner is protected provided they acted in good faith and had no notice
of the earlier sale. The extent of the protection is that the sale to the
second buyer is to have the same effect ‘as if the person making the
delivery or transfer were expressly authorised by the owner of the goods
to make the transfer’: Worcester Works Finance Ltd v Cooden Engineering Co
Ltd [1972] 1 QB 210.

Seller to continue in possession of goods

8.39 The seller must have continuous possession of the goods: Pacific
Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd [1965] AC 867.
In Pacific Motor Auctions, the issue was raised as to whether the words
‘continues or is in possession of the goods’ require only continuity of
physical possession by the seller or whether they require that the seller
remain in possession in the capacity of seller of the goods. The Privy
Council held that only continuous physical possession was required. It
is irrelevant whether the capacity in which the seller holds the goods
changes, for example, from seller to bailee, or from seller to trespasser.
This means there is no need for the third party to inquire into the legal
character of the seller’s possession. Construing ‘possession’ this way was
considered by Lord Pearce in Pacific Motor Auctions at 886 to be
consistent with the purpose of the exception:
The object of the section is to protect an innocent purchaser who is deceived by the
vendor’s physical possession of the goods or documents and who is inevitably unaware
of legal rights which fetter the apparent power to dispose. Where a vendor retains
uninterrupted physical possession of the goods why should an unknown arrangement,
which substitutes a bailment for ownership, disentitle the innocent purchaser to
 protection from a danger which is just as great as that from which the section is
admittedly intended to protect him?

Delivery of goods by seller in possession to third-party

purchaser
8.40 Similar to the ‘buyer in possession’ exception, it is sufficient for
the seller in possession to give constructive delivery of the goods to the
third-party purchaser: Michael Gerson (Leasing) Ltd v Wilkinson [2001] 1
All ER 148. For example, in Crouch v Adams [2006] NSWSC 1029 at [27]
it was held:
A subsequent sale of the machine to another investor, accompanied by a new hiring
under the management agreement would, prima facie, be a delivery, or transfer, by
the seller in possession. Such a new buyer, who received the goods in good faith and
without notice of the previous sale, would acquire a good title pursuant to s 28(1).
Although there would be no physical delivery to, or receipt by, the new investor of the
machine, the entry into a new management agreement would, prima facie, amount to
constructive delivery and receipt (Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest
Wholesale Australia Pty Ltd (1987) 163 CLR 236 at 245, 246, 251, 255 and 261).

[page 285]

Buyer in possession: s 27(2)

8.41 The ‘buyer in possession’ exception is contained in s 27(2),41
which provides:
(2) When a person, having bought or agreed to buy goods, obtains with the consent of
the seller, possession of the goods or the documents of title to the goods, the delivery
or transfer by that person, or by a mercantile agent acting for the person, of the goods
or documents of title under any sale, pledge, or other disposition thereof to any
person receiving the same in good faith and without notice of any lien or other right
of the original seller in respect of the goods, has the same effect as if the person
making the delivery or transfer were a mercantile agent in possession of the goods or
documents of title with the consent of the owner.

The ‘buyer in possession’ exception applies in the following

circumstances:

The buyer agrees to buy goods and, although he or she is not yet the true owner, is given
 possession of the goods. The buyer then on-sells the goods to a third party before the
buyer has obtained title to the goods.

Under the exception, the true owner is penalised for having given
possession to the buyer before the buyer obtained good title. The
giving of possession to the buyer enabled them to on-sell the goods to a
third party. The third party is protected if they can show that they
bought the goods from the buyer in good faith and without notice of
any right of the true owner. The extent of the protection is that the
disposition to the third party will have the same effect as if the
‘transferor were a mercantile agent entrusted by the owner with the
goods or documents of title’.

Bought or agreed to buy

8.42 This provision covers a sale as well as an agreement for sale. If,
under the contract of sale, the property in the goods is transferred
from the seller to the buyer, the contract is a ‘sale’, but if the transfer of
property in the goods is to take place at a future time or subject to
some condition to be fulfilled, the contract is called an ‘agreement to
sell’: s 4(3).42 If the contract between the true owner and the seller
contains a retention of title clause, the contract is an agreement for sale
and the ‘buyer in possession’ exception may apply: Four Point Garage Ltd
v Carter [1985] 3 All ER 12; Orix Australia Corp Ltd v Peter Donnelly
Automotive Pty Ltd [2007] NSWSC 977.
A person who is given goods to sell by the owner is not a ‘buyer in
possession’: Shaw v Commissioner of Police of the Metropolis [1987] 3 All ER
405 (it may be that the mercantile agent exception will apply).

[page 286]

Possession by the buyer

8.43 Although the issue has not been determined in Australia, in
England it is sufficient for the buyer to have constructive possession of
the goods: Four Point Garage Ltd v Carter [1985] 3 All ER 12; Forsythe
International (UK) Ltd v Silver Shipping Co Ltd (‘The Saetta’) [1994] 1 All
ER 851. In Four Point Garage the buyer who instructed the seller to
deliver a motor vehicle directly to the third-party purchaser was held to
have constructive possession of the vehicle.

Buyer obtains possession with the consent of the seller

8.44 The exception does not apply where the buyer has not obtained
the goods with the consent of the seller. For example, the exception
does not apply if the goods are stolen by the ‘buyer’ and then on-sold
to an innocent third party: National Employers’ Mutual General Insurance
Association Ltd [1990] 1 AC 24 at 62. The reason for imposing a
requirement of consent on the part of the owner before depriving the
owner of the protection of the nemo dat rule was explained by Denning
LJ in Pearson v Rose & Young Ltd [1951] 1 KB 275 at 286–7 (albeit in the
context of sales by mercantile agents):
The cases show how difficult it is to strike the right balance between the claims of true
owners and the claims of innocent purchasers. The way that Parliament has done it in
the case of mercantile agents is this: Parliament has protected the true owner by
making it clear that he does not lose his right to goods when they are taken from him
without his consent, as for instance when they have been stolen from his house by a
burglar who has handed them over to a mercantile agent. The true owner can in that
case claim them back from any person into whose hands they came, even from an
innocent purchaser who has bought from a mercantile agent. But Parliament has not
protected a true owner, if he has himself consented to a mercantile agent having
possession of them: because, by leaving them in the agent’s possession, he has clothed
the agent with apparent authority to sell them; and he should not therefore be
allowed to claim them back from an innocent purchaser.

However, consent obtained by fraud will nevertheless constitute

consent for the purposes of the provision: National Employers at 33 citing
Newtons of Wembley Ltd v Williams [1964] 1 WLR 1028. The distinction
rests on the fact that, where the goods have been stolen, the string of
transactions begins with a party with no title at all, whereas in the case
of consent by fraud the root title was a good one: National Employers at
32.
It could also be argued in circumstances where the goods are stolen
from the owner that the ‘buyer’ did not buy or agree to buy the goods
within the meaning of the provision: National Employers at 48.

[page 287]

Delivery of the goods by buyer in possession to the third party

8.45 ‘Delivery’ is defined as the ‘voluntary transfer of possession
from one person to another’: s 3.43
It is not necessary in order to satisfy this requirement for the buyer in
possession to have actually delivered the goods to the third party. It is
sufficient if the buyer in possession has instructed the owner to deliver
the goods directly to the sub-purchaser (third party): Four Point Garage
Ltd v Carter [1985] 3 All ER 12. The buyer in possession in such a case
makes constructive delivery of the goods upon making the request of
the owner and the owner is deemed to act as the buyer’s agent when
making delivery to the sub-purchaser: Four Point Garage citing E & S
Ruben Ltd v Faire Bros & Co Ltd [1949] 1 KB 254 (a case where the buyer
was held to have taken constructive delivery of goods at the seller’s
premises and in so doing to have lost the right to reject the goods).
The transfer of possession by ‘delivery’ from the buyer in possession
to the third-party purchaser must be constituted by a voluntary act by
the buyer in possession. A mere change of possession from the buyer in
possession to the third party without any act or acquiescence on the
part of the buyer is insufficient: Forsythe International (UK) Ltd v Silver
Shipping Co Ltd (‘The Saetta’) [1994] 1 All ER 851. In The Saetta, the
buyers in possession were the charterers of a vessel who were in
constructive possession of oil bunkers on board the vessel. The
charterers failed to pay the hire due and so the owners of the vessel
terminated the charter party. This had the effect of giving the owners
sole possession of the vessel and bunkers. The issue was whether the
owners could rely on the buyer in possession exception to gain title to
the bunkers on the basis that the charterers had transferred possession
of the bunkers to them within the meaning of the provision. It was held
that the buyer in possession had done nothing. It was the act of the
owner in terminating the contract that achieved the transfer of
possession. In such circumstances the transfer of possession was
involuntary.
In Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia
Pty Ltd (1987) 163 CLR 236 it was held that the delivery of receipts
signed by the car dealer (buyer in possession) pursuant to the finance
agreement constituted a voluntary transfer of possession to the
financiers.

The effect of a disposition by a buyer in possession

8.46 Section 27(2) provides that the disposition by the buyer in
possession is ‘to have the same effect as if the person making the
delivery or transfer were a mercantile agent entrusted by the owner
with the goods’. The issue has arisen as to whether this implies a
requirement into the provision that the disposition must also satisfy the
requirements for a valid transfer by a mercantile agent, that is, that the
disposition must have occurred in

[page 288]

the ordinary course of business of the mercantile agent: Factors Act

1892 (Qld) s 3(1).44 The High Court held in Gamer’s Motor Centre
(Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR
236 that it did not.45

Miscellaneous exceptions
Writ of execution against goods
8.47 A writ of execution against goods does not prejudice the title to
those goods acquired by any person in good faith and for valuable
consideration, unless that person had, at the time when they acquired
title, notice of the writ by virtue of which the goods of the execution
debtor might be seized or attached had been delivered to and
remained unexecuted in the hands of the sheriff: s 28(1A).46

Stolen goods
8.48 If goods have been stolen and the offender is prosecuted to
conviction, the property in the stolen goods revests in the person who
was the owner of the goods, or the person’s personal representative,
notwithstanding any intermediate dealing with them: s 26(1).47
However, this does not apply where goods have been obtained by fraud
or other wrongful means not amounting to stealing: s 26(2).48

Market overt
8.49 Some jurisdictions provide that where goods are sold in market
overt (the open market) according to the usage of the market, the
buyer will acquire a good title to the goods provided the buyer buys
them in good faith and without notice of any defect or want of title on
the part of the seller.49

Doctrine of accession
8.50 This topic is dealt with in more detail in Chapter 4. In broad
terms, where goods belonging to A have acceded to goods belonging to
B, property in the accessory may pass to B if, as a matter of
practicability, A’s goods cannot be identified, or where they have been
incorporated to such an extent that they cannot be detached from B’s
goods: Rendell v Associated Finance Pty Ltd [1957] VR 604 at 610.

_______________
1 See Pt 2.5 of the PPSA.
2 See ss 31 and 32 of the PPSA.
3 See the broad definition of ‘security interest’ in s 12 of the PPSA.
4 It is possible for the parties to enter a contract which provides that the seller is able to sue
for the price notwithstanding property has not passed to the buyer: Minister for Supply and
Development v Serviceman’s Co-op Joinery Manufacturing (1951) 82 CLR 621 (Minister for Supply
and Development). However, the terms of the contract must permit the seller to recover the
 price by action and not merely specify when the price is payable.
5 ACT s 22(1); NSW s 22(1); NT s 22(1); SA s 17(1); Tas s 22(1); Vic s 22(1); WA s 17(1).
6 ACT s 22(2); NSW s 22(2); NT s 22(2); SA s 17(2); Tas s 22(2); Vic s 22(2); WA s 17(2).
7 ACT s 23; NSW s 23; NT s 23; SA s 18; Tas s 23; Vic s 23; WA s 18.
8 For a further discussion of ‘specific goods’, see Chapter 6 of this book at 6.7.
9 ACT s 5(2)(d); NSW s 5(4); NT s 5(4); SA s 60(4); Tas s 3(4); Vic s 3(4); WA s 60(4).
10 See 8.8 above.
11 It has been suggested in a footnote that the definition in the UK equivalent of ss 36 and 37
of the Sale of Goods Act 1893 (Qld) is ‘not really appropriate to this situation’: Benjamin’s
Sale of Goods, 6th ed, p 202, fn 50.
12 ACT s 21; NSW s 21; NT s 21; SA s 16; Tas s 21; Vic s 12; WA s 16.
13 See Chapter 6 at 6.8 and 6.10.
14 See Chapter 7 at 7.13.
15 Tasmanian Producers’ Selling Agency Ltd v Cumming & Co Ltd (1914) 10 Tas LR 25.
16 Badische Anilin und Soda Fabrik v Basle Chemical Works Bindschedler [1898] AC 200.
17 Rohde v Thwaites (1827) 6 B & C 388.
18 Edwards v Ddin [1976] 1 WLR 942.
19 Vic s 22(1); NSW s 22(1); SA s 17(1); WA s 17(1); Tas s 22(1); ACT s 22(1); NT s 22(1).
20 ACT s 22; NSW s 22; NT s 22; SA s 17; Tas s 22; Vic s 22; WA s 17.
21 ACT s 24(1); NSW s 24(1); NT s 24(1); SA s 19(1); Tas s 24(1); Vic s 24(1); WA s 19(1).
22 ACT s 25; NSW s 25; NT s 25; SA s 20; Tas s 25; Vic s 25; WA s 20.
23 Goode, Commercial Law, 3rd ed, Penguin Books, Sydney, 2004, p 242.
24 ACT s 25; NSW s 25; NT s 25; Qld s 23; SA s 20; Tas s 25; Vic s 25; WA s 20.
25 ACT s 25; NSW s 25; NT s 25; Qld s 23(2); Tas s 25; Vic s 25.
26 ACT s 5; NSW s 5; NT s 5; SA s 60; Tas s 3; Vic s 3; WA s 60.
27 ACT s 36; NSW s 35; NT s 35; Qld s 34; SA s 32; Tas s 37; Vic s 39; WA s 32.
28 ACT s 37; NSW s 36; NT s 36; Qld s 35; SA s 33; Tas s 38; Vic s 40; WA s 33.
29 ACT s 12; NSW s 12; NT s 12; SA s 7; Tas s 12; Vic s 12; WA s 7.
30 ACT s 11; NSW s 11; NT s 11; SA s 6; Tas s 11; Vic s 11; WA s 6.
31 ACT s 26(1); NSW s 26(1); NT s 26(1); SA s 21(1); Tas s 26(1); Vic s 27; WA s 21(1).
32 Mercantile Law Act 1962 (ACT) s 4; Factors (Mercantile Agents) Act 1923 (NSW) s 3;
Mercantile Law Act 1936 (SA) s 3(1); Factors Act 1891 (Tas) s 3(d); Goods Act 1958 (Vic)
s 65.
33 ACT s 27; NSW s 27; NT s 27; SA s 23; Tas s 28; Vic s 29; WA s 23.
34 ACT s 26(2); NSW s 26(2); SA s 21(2); Tas s 26(2); Vic s 26; WA s 21(2); there is no
equivalent factors legislation in the Northern Territory.
35 ACT s 6; NSW ss 5 and 6; SA s 4; Vic ss 67 and 68.
36 Mercantile Law Act 1962 (ACT) s 4; Factors (Mercantile Agents) Act 1923 (NSW) s 3;
Factors Act 1892 (Qld) s 2(1); Mercantile Law Act 1936 (SA) s 3(1); Goods Act 1958 (Vic)
s 65; there is no equivalent provision in Western Australia.
37 Goods Act 1958 (Vic) s 68(a); Factors (Mercantile Agents) Act 1923 (NSW) s 6(3);
Mercantile Law Act 1936 (SA) s 3(2); Factors Act 1891 (Tas) s 3(b); Mercantile Law Act
1962 (ACT) s 7(c).
38 Mercantile Law Act 1962 (ACT) s 4; Factors (Mercantile Agents) Act 1923 (NSW) s 3;
Mercantile Law Act 1936 (SA) s 3(1); Factors Act 1891 (Tas) s 3(e); Goods Act 1958 (Vic)
s 65; there is no equivalent provision in Western Australia.
39 ACT s 5(2)(a); NSW s 5(2); NT s 5(2); SA s 60(2); Tas s 3(2); Vic s 3(2); WA s 60(2).
40 ACT s 29(1); NSW s 28(1); NT s 28(1); SA s 25(1); Tas s 30(1); Vic s 30; WA s 25(1).
41 ACT s 29(2); NSW s 28(2); NT s 28(2); SA s 25(2); Tas s 30(2); Vic s 31.
42 ACT s 6; NSW s 6; NT s 6; SA s 1; Tas s 6; Vic s 6; WA s 1.
43 ACT s 5; NSW s 5; NT s 5; SA s 60; Tas s 3; Vic s 3; WA s 60.
44 Goods Act 1958 (Vic) s 67(1); Factors (Mercantile Agents) Act 1923 (NSW) s 5(1);
Mercantile Law Act 1936 (SA) s 4(1); Factors Act 1891 (Tas) s 5(1); Mercantile Law Act
1962 (ACT) s 6(a).
45 But contrast the position in England: Newtons of Wembley Ltd v Williams [1965] 1 QB 560.
46 ACT s 30(1); NSW s 29; NT s 29(1); SA s 26(1); Tas s 31(1); Vic s 82(1); WA s 26(1).
47 ACT s 28(1); SA s 24; Tas s 29; WA s 24. There is no equivalent provision in Vic, NSW or
NT.
48 ACT s 28(2); SA s 24; Tas s 29; WA s 24. There is no equivalent provision in Vic, NSW or
NT.
49 SA s 22; Tas s 27(1); WA s 22. There is no equivalent provision in Qld, Vic, NSW, ACT or
NT.
[page 289]
CHAPTER 9
Bailment

WHAT IS BAILMENT?

BAILMENT AND THE PPSA

BAILMENT AND DELIVERY

BAILMENT REQUIRES KNOWLEDGE AND CONSENT OF THE

BAILEE

BAILMENT IN THE CONTEXT OF OTHER RELATIONSHIPS

Sale
Hire purchase
Mutuum
Deposits of money

SUB-BAILMENT

JOINT BAILMENT

BAILMENT AND CONTRACT

CLASSIFICATION OF BAILMENTS

DUTIES COMMON TO ALL BAILMENTS

Duty of care of a bailee
Duty to deliver goods bailed
 [page 290]

Duty not to deviate from the terms of the bailment and not to
convert
Obligations on bailor in respect of the quality of goods bailed

GRATUITOUS BAILMENT
Deposit
Mandate
Gratuitous loan for use

BAILMENT FOR REWARD

Legislative provisions
Custody for reward (hire of custody)
Hire of work and labour
Pledge
Hire of chattels for reward

LIABILITY FOR ACTS OF EMPLOYEES

BAILMENT AND OCCUPIERS

ABANDONMENT

TERMINATION OF BAILMENT

ONUS OF PROOF

ENFORCEMENT

ACTIONS DEPEND UPON A SUPERIOR RIGHT OF POSSESSION

EXEMPTION CLAUSES AND SUB-BAILMENTS

DELEGATION OF PERFORMANCE OF BAILMENT BY BAILEE
 [page 291]

WHAT IS BAILMENT?
9.1 The essential feature of a bailment is the taking of possession of a
tangible chattel by a person other than the owner. It is the separation
of ownership and possession which is critical: Australian Guarantee Corp
Ltd v Ross [1983] 2 VR 319 at 329–30.
The creation of a bailment most obviously occurs by the delivery of
physical possession of a chattel by the owner to the intended bailee,
with the knowledge and consent of the bailee. However, it is plain that
delivery may occur otherwise than by an overt physical act, and it is
plain too that a bailment may be created without the knowledge or
consent of the bailor. A bailment by finding is an obvious example.
Recognising that descriptions of the relationship of bailment differ,
and the difficulty in encapsulating broad-ranging concepts into short
compass, it is nonetheless useful to look at some descriptions of the
essentials of bailment.
A bailment is traditionally defined as ‘a delivery of personal chattels
on trust, usually on a contract, express or implied, that the trust shall
be duly executed, and the chattels redelivered in either their original
or an altered form, as soon as the time or use for, or condition on,
which they were bailed shall have elapsed or been performed’:
Halsbury’s Laws of England, 4th ed, Butterworths, London, 1973, vol 2,
[1501].
A more modern definition provides that ‘a bailment arises whenever
one person (the bailee) is voluntarily in possession of goods belonging
to another person (the bailor)’: Halsbury’s Laws of England, 4th ed, 2005
reissue, LexisNexis Butterworths, London, vol 3(1), [1] citing The
Pioneer Container (sub nom KH Enterprise v Pioneer Container) [1994] 2 AC
324.
 ‘A bailment comes into existence upon a delivery of goods of one
person, the bailor, into the possession of another person, the bailee,
upon a promise, express or implied, that they will be redelivered to the
bailor or dealt with in a stipulated way’: Hobbs v Petersham Transport Co
Pty Ltd (1971) 124 CLR 220 at 238 per Menzies J.
Bailment has otherwise been defined as ‘the voluntary taking into
custody of goods which are the property of another’: Morris v CW
Martin & Sons Ltd [1966] 1 QB 716 at 731; [1965] 2 Lloyd’s Rep 63 at
73 per Lord Diplock.
The description by Lord Diplock avoids use of the concept of
‘delivery’ and the notion of promise which appear in observations of
Menzies J in Hobbs. Although most bailments include those elements,
not all do so, and the description of Lord Diplock perhaps best
expresses the relationship.
A person who voluntarily takes the goods of another into their
custody holds them as bailee of that person. This may take place
without the knowledge or consent of the bailor: The Pioneer Container at
342.
There is generally no bailment if a person receives the goods as a
servant: Pollock and Wright, Possession in the Common Law, Clarendon
Press, Oxford, 1888, p 163, quoted with approval in Brambles Security
Services Ltd v Bi-Lo Pty Ltd (1992) Aust Torts Reports ¶81–161 at 61,268;
Moors v Burke (1919) 26 CLR 265.

[page 292]

The bailor is the person who delivers the goods, and the bailee is the
person who takes possession of them. The bailee has been described as
a person who, otherwise than as an employee, either receives possession
of a thing from another or consents to receive or hold possession of a
thing from another, upon an undertaking with the other person either
to keep and then return it or to convey or apply the thing in
accordance with the directions already given or which might
subsequently be given by the other person: see Brambles Security Services
at 61,268.
In many cases, the bailee itself delivers possession of goods to
another.1 In such a case, the bailee may be known as the sub-bailor,
and the receiver of goods known as the sub-bailee.
Although many bailments occur in the context of a contract (of, for
example, custody or carriage), a bailment may occur independently of
a contract: Compania Portorafti Commerciale SA v Ultramar Panama Inc
[1990] 2 Lloyd’s Rep 395 at 405. There is, for example, a bailment
when a person lends their car to another. The common element in all
bailments is the taking of possession in circumstances involving an
assumption of responsibility for the safekeeping of the goods: Gilchrist
Watt & Sanderson Pty Ltd v York Products Pty Ltd [1970] 1 WLR 1262 at
1268.
In Big Top Hereford Pty Ltd v Thomas [2006] NSWSC 1159 the court
had to determine whether the owner of land on which cattle were
agisted was a bailor in respect of the cattle. The court held the
arrangement constituted a licence rather than a bailment, the
landowner lacking the level of control and responsibility for care of the
stock necessary to confer possession of the cattle on the landowner. It
was held at [36]–[37]:
An agreement for the agistment of livestock may take different legal forms. It may
involve a bailment, if the owner of the stock has no right to enter the land on which
the stock will be grazed [R v Croft (Inhabitants) (1819) 3 B&Ald 171; 106 ER 625] and is
not responsible for their care [Australian Breeders Co-op Society Ltd v Corporation of the
City of Marion (1992) 76 LGRA 175]; in that case the owner of the property on which
the stock are agisted is the bailee and has possession of the cattle, and must take
reasonable and proper care of the stock [Smith v Cook (1875) 1 QBD 79; Coldman v Hill
[1919] 1 KB 443; Robinson v Waters (1920) 22 WALR 66; Spring v Young [1923] SASR
115; Backhouse v Judd [1925] SASR 16; Humphrey v Phipps [1974] 1 NZLR 650; Pipicella
v Stagg (1983) 32 SASR 464; McArdle v Vadim Nominees Pty Ltd (1984) 2 SR(WA) 156].
Or it may involve a licence, by which the owner of the cattle has permission to graze
his cattle on the licensor’s land and to enter the land to care for them [Sinclair v Judge
[1930] St R Qd 220; Helton v Sullivan [1968] Qd R 562]. In such a case, the owner of
the stock retains possession of the cattle while they are on the licensor’s land. Or it
may involve a lease, if exclusive possession of the land is granted [Streatfield v
Winchcombe Carson Trustee Co (Canberra) Ltd [1981] 1 NSWLR 519].
An important distinction between bailment and licence is whether the agistor
 (landowner) undertakes responsibility for care of the stock. In the present case, I
favour the view that the agistment was a licence …

[page 293]

See also Fearnley v Finlay [2014] 2 Qd R 392 at [51]–[53].

The circumstances in which a bailment may arise are innumerable. If
A lends its car to B so that B may run an errand for A, A is the bailor of
the car, and B is the bailee. If A contracts with B to shift A’s furniture
from one house to another, A is the bailor of the goods and B is the
bailee.
As one might sensibly expect, the law distinguishes between different
sorts of bailments, and the extent of the obligation upon the bailee to
take care of the bailor’s goods will vary depending upon the
circumstances in which the bailment was created. Hence, in the above
two examples the bailee taking possession of the car to run an errand
for the bailor is subject to a different, and lesser, duty to the bailee who
shifts the bailor’s furniture for reward.
Bailments can only occur in relation to tangible chattels: Federal
Commissioner of Taxation v United Aircraft Corp (1943) 68 CLR 525. A
bailment cannot occur in relation to an intangible chattel, such as a
chose in action, nor may there be a bailment of real property.

BAILMENT AND THE PPSA

9.2 It should be noted that a bailment may be subject to the Personal
Property Securities Act 2009 (Cth). The Act deems a security interest to
include the interest of a lessor or bailor of goods under a PPS lease,
whether or not the transaction, in substance, secures payment or
performance of an obligation: s 12(3)(c) of the Personal Property
Securities Act 2009 (Cth). A ‘PPS lease’ is defined, relevantly, to mean a
lease or bailment of goods for a term of more than one year but
excludes a bailment where the bailor is not regularly engaged in the
business of bailing goods (s 13(2)(b)) or where the bailee has not
provided value for possession of the bailed goods: s 13(3). The Personal
Property Securities Act 2009 (Cth) is dealt with in Chapter 10 of this
text.

BAILMENT AND DELIVERY

9.3 Most bailments involve a delivery of possession, although there
may in some circumstances be a bailment without delivery. A finder, for
example, may be a bailee although delivery has never been made to
them. Nonetheless, the existence of most forms of bailment depends
upon delivery, actual or constructive.
Whether the goods have been delivered — that is, whether the
recipient has taken possession of them — is a question to be
determined on the facts of each case: see, for example, Ashby v Tolhurst
[1937] 2 KB 242. Possession obviously includes physical custody;
however, it extends further to circumstances of control. Circumstances
of possession which arise by means of control, as opposed to physical
custody, are sometimes referred to as constructive possession: see, for
example, Halsbury’s Laws of England, 4th ed, 2005 reissue, vol 3(1), [1].

[page 294]

The existence of physical custody might itself be a matter of debate.

In Young v Hitchens (1844) 6 QB 606; 115 ER 228,2 a fisherman had
drawn his net partially around a school of fish. The defendant, in a
rowing boat, helped himself to some of them. It was held that the
plaintiff could not maintain an action in trespass because the fish were
not in his possession when they were appropriated by the defendant. In
Balmoral Supermarket Ltd v Bank of New Zealand Ltd [1974] 2 NZLR 155,3
a customer emptied her change on the counter at the bank in order to
make a deposit. Robbers took it. The court held that the bank was
never in full legal possession of the money.
Determination of the issue of possession may depend upon whether
the putative bailor has relinquished control of the article, such as when
a passenger in a taxi leaves luggage behind in the back seat: Hancock v
Cunnain (1886) 12 VLR 9, where it was held that there was no bailment.
Delivery and possession depend upon the degree of control granted
and assumed by the putative bailor and bailee. Car park cases are a
good example. In Shorters Parking Station Ltd v Johnson [1963] NZLR
135, the respondent had for some years regularly parked his car at the
appellant’s premises for a fee. In consideration of the fee, the appellant
housed the car in a covered parking building, but not in any fixed
position, the appellant parking the car as it suited inside the building.
For that purpose, the respondent would leave the keys in the ignition.
The vehicle was subsequently stolen from the car park. It was held that
the appellant had possession of the car and was hence a bailee. The
circumstances were distinguished from those in Ashby, where the owner
paid a fee to park his car in the private ground, but locked his car and
took away the keys. The Court of Appeal there held that there was no
evidence of delivery of the motor car to any attendant, and hence no
bailment. Romer LJ said at 255:
It is true that, if the car had been left there for any particular purpose that required
that the defendants should have possession of the car, a delivery would rightfully be
inferred. If, for instance, the car had been left at the car park for the purpose … of
being driven to some other place or indeed for the purpose of safe custody, delivery of
the car, although not actually made, would readily be inferred. But it is perfectly plain
in this case that the car was not delivered to the defendants for safe custody.

In Acernus Aero Ltd v Vincent Aviation [2013] NZAR 795; [2013]

NZHC 595, it was held that an arrangement where an aircraft was
delivered to a hangar to be stored in return for a monthly fee was a
bailment. An arrangement where an aircraft was stored in the facility of
another party, and the other party took responsibility for it and insured
it, was not a licence.
Delivery and possession, then, are questions of fact and degree.
Relevant matters include whether control has been relinquished, to
what extent control has been relinquished, the purpose of the
circumstances, the nature of the article and the degree of physical
control held by the recipient.

[page 295]

BAILMENT REQUIRES KNOWLEDGE AND

CONSENT OF THE BAILEE
9.4 The better view, on the authorities, is that a bailee who receives
possession of goods without the bailee’s knowledge does not thereby
become a bailee of the goods: Palmer on Bailment, p 678, and cases
therein cited. Thus, a person does not become the bailee of an item
concealed in another when the unconcealed item is delivered to them.
It is necessary that there be a handing over of control to the putative
bailee or sub-bailee, and an assumption of such control. There must be
knowledge of the goods and consent to hold them in order for the
bailment to come into being: WD & HO Wills (Aust) v State Rail Authority
of New South Wales (1998) 43 NSWLR 338 at 353–4. Further, there must
be an assumption of responsibility by the bailee: actual knowledge of
the chattel on the putative bailee’s land, for example, will not amount
to a bailment without obligation on the defendant’s part to take care of
the chattel: see Rolfe v Investec Bank (Australia) Ltd [2014] VSCA 38 at
[62]–[63].

BAILMENT IN THE CONTEXT OF OTHER

RELATIONSHIPS
9.5 A bailment contemplates the return of the goods, in their
original or altered form: Re S Davis & Co Ltd [1945] Ch 402 per Cohen
J at 405; Pangallo Estate Pty Ltd v Killara 10 Pty Ltd [2007] NSWSC 1528
at [13]. It is thus immediately distinguishable from many other
relationships, including a sale, which contemplates the transfer of
property in goods for money or other consideration.

Sale
9.6 Whether there is a contract of sale or a bailment will depend
upon the intention of the parties and the legal relationship between
them. It is the intention of the parties which ultimately is
determinative. ‘Whether a farmer loses title to wheat upon a baker
turning it into bread depends, fundamentally, on the legal relationship
between the farmer and the baker, which may be a contract for sale of
goods, or may be a contract for services’: Pangallo Estate Pty Ltd v Killara
10 Pty Ltd [2007] NSWSC 1528 at [12].
In Associated Alloys Pty Ltd v Metropolitan Engineering and Fabrications Pty
Ltd (1996) 20 ACSR 205, Bryson J said at 209:
The question whether goods which have been used in some manufacturing process
still exist in the goods produced by that process, or have gone out of existence on
being incorporated in the derived product is, in my opinion, a question of fact and
degree not susceptible of much exposition. When wheat is ground into flour it is
reasonably open to debate whether the wheat continues to exist; when flour is baked
into bread there could be little doubt that the flour does not. Many examples might
be encountered

[page 296]

or imagined, and each must be addressed separately. Where goods of a homogenous

character are mixed co-ownership might be a correct conclusion; but that is a problem
of a different kind. There is some discussion in the judgment of Bridge LJ in Borden
(UK) Ltd v Scottish Timber Products Ltd [1981] 1 Ch 25 at 41; [1979] 3 All ER 961,
addressing ‘a mixture of heterogeneous goods in a manufacturing process wherein
the original goods lose their character and what emerges is a wholly new product …’.
Goff LJ in Clough Mill Ltd v Martin [1985] 1 WLR 111 at 119; [1984] 3 All ER 982 said:
‘Now it is no doubt true that, where A’s material is lawfully used by B to create new
goods, whether or not B incorporates other material of his own, the property in the
new goods will generally vest in B, at least where the goods are not reducible to the
original materials: see Blackstone’s Commentaries, 17th ed (1830), vol 2, at 404–5.’
 A bailment may, depending upon its terms, involve an obligation to
return the goods in an altered form: Chapman Bros v Verco Bros & Co Ltd
(1933) 49 CLR 306 per Rich J at 314 and Starke J at 316; Re S Davis &
Co Ltd [1945] Ch 402 at 405 per Cohen J.
In Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (1976) 136
CLR 529, Stephen J said at 561:
It was no doubt in the light of these circumstances that counsel for Caltex was able to
announce, in the course of the trial, that the parties agreed that the practice was to
allocate oil at the refinery, the oil in the pipelines at the time of their fracture having
been allocated to Caltex; thus while risk remained with AOR until delivery to the
Caltex terminal ownership was in Caltex. In the course of that announcement
reference was made to property having passed to Caltex; however, from the
agreement, the terms of which will be decisive as to title — Williston on Contracts 3rd
ed, vol 9, par 1030 — it would appear that in fact property never left Caltex; the
transaction was one of bailment, rather than of a sale and a subsequent buying back,
that type of bailment commonly described as the hire of work and labour, locatio operis
faciendi (Halsbury’s Laws of England, 4th ed, vol 2, par 1562).
The situation as to title which the agreement created is different both from that of
the wheat considered in South Australian Insurance Co v Randell (1869) LR 3 PC 101
and in Chapman v Verco and from that of the fruit in Farnsworth v FCT (1949) 78 CLR
504. It approaches most closely to the position referred to in Corpus Juris Secundum vol
8, pp 345–6, where a reading of the cases there cited shows that in the case of fungible
goods their commingling and manufacture into other products which are to be
returned to the original owner may, if the parties so intend, be consistent with a
bailment, property never leaving the bailor — see generally the annotation to Kansas
Flour Mills Co v Board of Commissioners of Harper County (1927) 54 Am LR 1164 and
Commissioner of Internal Revenue v San Carlos Milling Co Ltd (1933) 63 F (2d) 153.

A bailment may, however, occur in the context of a contract for the

sale of goods. Thus, where property in the goods does not pass upon
the transfer of possession, the purchaser will be a bailee of the goods
until it does pass: Motor Mart Ltd v Webb [1958] NZLR 773. A contract of
sale containing a retention of title clause is one example. By a retention
of title clause, the seller retains property in the goods until payment for
them is made. Until it is, and property passes, the buyer holds the
goods as bailee: Hospital

[page 297]
Products Ltd v United States Surgical Corp (1985) 156 CLR 41 at 105 per
Mason J. Of course, a retention of title clause may be rendered otiose
by subsequent events. The goods the subject of the transaction may be
mixed or used with other goods to produce a product which is different
from the original goods. Raw materials will be used in such a manner.
There is no doubt a retention of title clause can retain title in the seller
in unaltered goods: Aluminium Industrie Vaassen BV v Romalpa
Aluminium Ltd [1976] 1 WLR 676; Clough Mill Ltd v Martin [1984] 3 All
ER 982. Where, however, the goods are mixed in a manufacturing
process, the better view is that a simple retention of title clause
reserving title to the seller will not be effective: Borden (UK) Ltd v Scottish
Timber Products Ltd [1981] Ch 25.4
A bailment will not be created in the context of a sale where the
contract contemplates the immediate destruction of the identity of the
goods. In Chapman Bros, a farmer delivered bags of wheat to a wheat
merchant, and the wheat was stored with wheat from other farmers.
The bags were unmarked and there was no way of distinguishing
between the wheat of one farmer and the wheat of another. The
contract provided that the wheat was received for storage, and that the
merchant could at any time purchase and pay for the wheat. Further, it
provided that at the request of the farmer the merchant would return
an equivalent quantity of wheat to the farmer as was requested. The
merchant went into liquidation, and an issue arose over whether
property in the wheat had passed to the merchant, so as to be available
to the creditors, or whether the wheat had only been bailed, in which
case it could be returned to the unpaid farmer. The High Court held
that property in the wheat passed to the merchant on delivery, and that
the wheat was not held by the merchant as bailee for the farmer. The
commodity was one where identity was unimportant; the merchant was
entitled to deal with it regardless of its precise identity; and its identity
was destroyed upon delivery. The court concluded that the
arrangement was inconsistent with the very idea of bailment according
to English law, which involved the redelivery of the goods in their
original or an altered form or delivery to someone else in the manner
provided for in the bailment agreement: see Rich J at 314; Dixon J at
319–20.

Hire purchase
9.7 A bailment may also occur in the context of a hire-purchase
agreement, although a hire-purchase agreement is not an ordinary
contract of bailment and principles of particular application apply to
bailments of that sort: see, for example, Karflex Ltd v Poole [1933] 2 KB
251. A hire-purchase agreement usually takes the form of requiring
payment by instalments, with an option to purchase the goods at the
conclusion of the agreed payments.5 Property does not pass until the
option is exercised and the remaining consideration paid. Until that
occurs, the hirer is the bailee of the goods:

[page 298]

see, for example, Quartel v Parkways Motors Ltd [1970] NZLR 89. The
bailor has no entitlement to possession until the bailment ends.

Mutuum
9.8 A contract of bailment should be distinguished from a contract
of mutuum. Mutuum may be described as a loan of goods for
consumption whereby the borrower incurs an obligation to return not
the goods that they were given but the equivalent in quality and
quantity: Olma v Amendola (2004) 235 LSJS 258; [2004] SASC 274.
Goods the subject of a contract of mutuum are called fungibles, that is,
goods of such a nature that one unit or portion can be replaced by
another: see also Comptroller General of Customs v Woodlands Enterprises Pty
Ltd (1995) 128 FLR 113.

Deposits of money
9.9 Generally speaking, there will not be a bailment of money where
A lends money to B, because the return of the money bailed is
generally not intended. The relationship created is one of debtor and
creditor, because the debtor may discharge its obligation by the tender
of an equivalent sum. A banker and customer relationship is therefore
one of debtor and creditor rather than one of bailee and bailor: South
Australian Insurance Co v Randell (1869) LR 3 PC 101.
However, not all deposits of money create a relationship of debtor
and creditor, and a security company hired to carry large sums of
money will be a bailee of the money: Brambles Security Services Ltd v Bi-Lo
Pty Ltd (1992) Aust Torts Reports ¶81–161.

SUB-BAILMENT
9.10 A sub-bailment occurs where there is a bailment by the owner
of the goods to a bailee, followed by a sub-bailment by the bailee to the
sub-bailee: The Pioneer Container (sub nom KH Enterprise v Pioneer
Container) [1994] 2 AC 324 at 335. A sub-bailment arises when the sub-
bailee receives possession from the head bailee rather than from the
owner: Brambles Security Services Ltd v Bi-Lo Pty Ltd (1992) Aust Torts
Reports ¶81–161 at 61,269.
A bailment is created when a person voluntarily takes into their
custody the goods of another person, and a sub-bailee can only be said
to have voluntarily taken into their custody the goods of another
person if they have sufficient notice that a person other than the bailee
is interested in the goods, so that it can properly be said that, in
addition to their duties to the bailee, they have, by taking the goods
into their custody, assumed also towards the bailor the responsibility for
the goods which is characteristic of a bailee: The Pioneer Container at 342.
However, the sub-bailee may, in an action brought against them by the
bailor, rely on clauses in the sub-bailee’s contract with the bailee which
exempt them from liability for damage to the goods if the bailor has
expressly or impliedly consented to the terms or has ostensibly
authorised them: The Pioneer Container.
 [page 299]

Where a sub-bailment occurs, the sub-bailee assumes an obligation to

the owner to exercise due care for the safety of the goods, although
there is no contractual relationship between them: Gilchrist Watt &
Sanderson Pty Ltd v York Products Pty Ltd [1970] 1 WLR 1262, approved in
The Pioneer Container.
A bailor may bring an action for negligence directly against the sub-
bailee, and is not required to rely on the contract between the bailee
and the sub-bailee: The Pioneer Container. That is so even if he or she had
no right to immediate possession: The Pioneer Container; The Premier
Group Pty Ltd v Followmont Transport Pty Ltd [2000] 2 Qd R 338 at 343.
Despite the existence of a sub-bailment, the bailee remains liable to
the bailor for any default of the sub-bailee: Hobbs v Petersham Transport
Co Pty Ltd (1971) 124 CLR 220; GJG Importers Australia Pty Ltd v Bluegame
Pty Ltd [2005] QCA 460.

JOINT BAILMENT
9.11 A joint bailment occurs when two or more people jointly
interested in a chattel deliver it to a third person: see, for example,
Harding v Commissioner of Inland Revenue [1977] 1 NZLR 337. Where
that occurs, a bailee is not bound to return the goods unless at the
request of all of the interested parties. In Atwood v Ernest (1853) 13 CB
881, Maule J said at 889:
Now, where several joint owners of a chattel deliver it to a third person, he may detain
it until all the joint owners require him to return it. If some of them ask him to return
it, and others desire him to keep it, the bailee is not liable to an action at the suit of
those who ask for a return. If that were not so, each might have an action, and so the
bailee might be harassed with as many actions as there were joint owners.

The principle applies whether the interests are held as joint tenants
or tenants in common: Harper v Godsell (1870) LR 5 QB 422.
If and when joint bailors have made joint demand for the goods,
each may maintain their own action for detinue or conversion against
the bailee: Kitano v Commonwealth (1974) 129 CLR 151, affirmed in
[1976] AC 99 (PC).

BAILMENT AND CONTRACT

9.12 A bailment will frequently arise by means of or in the context of
a contract. While the common law attaches to the parties to a bailment
certain rights and obligations, those rights and obligations are subject
to the expressed intention of the parties. Accordingly, it is necessary
always to consider the relevant terms of any contract between bailor
and bailee, and whether by them the parties intended to exclude or
modify the common law duties and obligations.
In Hill v Reglon Pty Ltd [2007] NSWCA 295, Beazley JA (with whom
the others agreed) said at [46]:

[page 300]

Where the bailment is created by contract, the extent to which the common law
principles continue to apply depends upon a construction of the contract: see The
Anderson Group Pty Ltd v Tynan Motors Pty Ltd per Young CJ in Eq at [60]. Common law
rights are only excluded or overridden by the terms of the contract if the clearest of
terms to that effect are used: see also Waterways Authority of New South Wales v Coal &
Allied (Operations) Pty Ltd [2007] NSWCA 276. A clause that merely gives a right to
terminate by notice for breach of the contract of bailment does not have that effect:
Union Transport Finance Ltd v British Car Auctions Ltd [1978] 2 All ER 385 at 391 per
Bridge LJ; The Anderson Group Pty Ltd v Tynan Motors Pty Ltd per Young CJ in Eq at
[70]. In Union Transport Finance Ltd v British Car Auctions Ltd, Bridge LJ stated the
proposition in these terms:

… it would be perfectly possible to introduce into a contract of bailment a

term expressly limiting the manner in which the bailee’s right to
possession as against the bailor could be terminated … It seems to me
that it would require the clearest express terms to have that effect. A
clause which merely gives a right to terminate by notice for any breach of
the contract of bailment could not possibly, in my judgment, be construed
as having that effect. Its purpose is to enhance the rights of the bailor and
not to curtail them.
 Thus, in Hill, it was held that the bailment had been repudiated
notwithstanding that the contract could not be terminated.
The relevant principle is stated in Simms Jones Ltd v Protochem Trading
NZ Ltd [1993] NZLR 369 at 377 as follows:
Where parties are in a contractual relationship, it will, in the absence of special
circumstances be a normal, natural and reasonable inference that they intend and
expect their relationship to be governed solely by the contract and the law relating to
contractual obligations. If an asserted obligation does not arise under the express
terms or by clear and necessary implication, a party to the contract can reasonably
expect the Court to take the view that there is no such obligation. If the obligation
does arise expressly or by implication there is no need to rely on the suggestion that
some concurrent or co-existent obligation of the same kind also arises in tort.

See also Tai Hing Cotton Mill Ltd v Lui Chong Hing Bank [1986] AC 80
at 107; followed in Tomlin v Ford Credit Australia [2005] NSWSC 540.
In Parastatidis v Kotaridis [1978] VR 449, a different but related
situation arose. The plaintiff made a promise to the defendant that an
amount of money already lent to the defendant could remain
outstanding for a further stipulated period, but sued for it before the
period had expired. The promise was not supported by consideration,
and hence there was no contract. The defendant argued that although
he could not hold the plaintiff to the promise, there was a quasi-
bailment called mutuum, and that the quasi-bailment was binding
without the need for a contract or consideration. The court held that
although there may be a bailment without a contract, if the bailment is
one which arises from agreement, then it is to be dealt with in a way
which is appropriate to the law relating to agreement. The court also
referred to the fact that the bailment

[page 301]

was gratuitous, and that a gratuitous bailee must deliver the goods
bailed on demand. The latter reasoning is perhaps a better basis for the
decision.
CLASSIFICATION OF BAILMENTS
9.13 Traditionally, the duty of care owed by a bailee of goods in
respect of them was defined by reference to the nature of the bailment.
A distinction was made between, for example, a bailment of deposit
and a bailment where for reward the bailee was to look after the goods.
As discussed below, more recent authorities tend away from defining
the extent of the obligation by reference to the category of bailment,
and tend towards a unifying theory that all bailees are under a duty to
take reasonable care of the goods, what is reasonable being dependent
upon all of the circumstances of the case. However, the issue has not
been authoritatively determined in Australia, and the approaches of the
courts are not uniform. Accordingly, the categories of bailment are
detailed below.
In Jones on Bailment,6 the learned author listed five classes of
bailment:7
1. the gratuitous deposit of a chattel with a bailee who is simply
to keep it for the bailor;
2. the delivery of a chattel to the bailee, who is to do something
without reward for the bailee to or with the chattel;
3. the gratuitous loan of a chattel by the bailor to the bailee for
the bailee to use;
4. the pawn or pledge of a chattel by the bailor to the bailee,
who is to hold it as a security for a loan or debt or the
fulfilment of an obligation; and
5. the hire of a chattel or services for reward.
Of the five categories defined in Jones on Bailment, the first three do
not involve any payment or consideration. Those classes are referred to
as gratuitous bailments. Categories four and five are for valuable
consideration, and hence are called ‘bailments for reward’.

DUTIES COMMON TO ALL BAILMENTS

Duty of care of a bailee
9.14 It is important to note that bailments are frequently created by
contracts, or in the context of a contract. The parties may agree to the
terms upon which the bailment occurs. There may, for example, be an
exemption for the bailee from liability for damage to the goods. The
terms of the contract should first be examined when determining the
duties of the parties.

[page 302]

Traditionally, the degree of care and diligence required by a bailee

depended upon the existence and location of any benefit and hence
the characterisation of the bailment. In particular, it depended upon
the benefits derived from the bailment from the bailor and the bailee
respectively. Hence, it was said that a borrower of a chattel was under
an obligation to exercise the utmost diligence, whereas a bailee of a
gratuitous deposit was liable only for gross negligence: Coggs v Bernard
(1703) 2 Ld Raym 909 at 913; 92 ER 107.
Palmer contends that the English courts have now, consistently,
preferred to found a bailee’s liability upon a simple failure to exercise
reasonable care, having regard to all of the circumstances of the case:
Palmer, Palmer on Bailment, 2nd ed, p 529 citing Port Swettenham
Authority v TW Wu & Co (M) Sdn Bhd [1979] AC 580 at 589 (PC) per
Lord Salmon; Mitchell v Ealing London Borough Council [1979] QB 1 at 6
per O’Connor J; Garlic v W & H Rycroft Ltd [1982] CAT 277 (CA);
China Pacific SA v Food Corp of India (The Winson) [1982] AC 939 at 960
(HL) per Lord Diplock. A similar view is expressed in Halsbury’s Laws of
Australia.8
The High Court is yet to consider whether there is one duty of care
upon all categories of bailees, the application of which depends upon
the facts of each case. Many of the earlier decisions, including those of
the High Court, begin by defining the category of the bailment, and
then proceed to analyse the facts against the designated standard of
care. More recent decisions have proceeded on occasions by reference
to an obligation to take reasonable care, and have not dissented from
the view that such an approach is now appropriate to all categories of
bailment. With the exception of Zelling J in WGH Nominees Pty Ltd v
Tomblin (1985) Aust Torts Reports ¶80–740, however, no court has
taken the opportunity expressly to approve that approach. In WGH
Nominees, Zelling J adopted as ‘obviously correct’ the proposition that
‘the universal formula of “such care as is demanded by the
circumstances of the case” can generally be manipulated to produce
the just result’: at 69,339. As to what those circumstances are, Zelling J
continued at 69,339:
… what is reasonable care must materially depend upon the nature, value and quality
of the thing bailed, its liability to loss and injury, the circumstances under which it is
deposited, and sometimes upon the character and confidence and particular dealings
of the parties.

In Bowden v Lo (1998) NSW ConvR ¶55–868, Hodgson CJ observed

that bailees are obliged to exercise reasonable care in relation to bailed
goods, and that appeared true for gratuitous bailees as for bailees for
reward, although the application of the standard of care may vary
according to the circumstances: at 58,810. Similarly, in Graham v Voigt
(1989) 89 ACTR 11, Kelly J following Mitchell held that a gratuitous
bailee was under a duty to take reasonable care of the goods bailed. On
the other hand, in Kehoe v Williams [2006] NSWSC 326 McLellan J said
that under the law of gratuitous bailment the bailee is liable only for
gross negligence: see also Coggs.

[page 303]

Putting aside the unifying approach stated above, it has otherwise

been held that a bailee of goods in a bailment for the benefit of both
parties is liable for ordinary negligence; that a bailee of goods for the
benefit of the bailor alone is liable for gross negligence; and that a
bailee of goods for the benefit of the bailee alone is liable even for
slight negligence: Jones on Bailment, 1st ed, 1781.
 There is a strong argument in favour of judging the reasonable
standard of care as that demanded by the circumstances of each
particular case: Houghland v RR Low (Luxury Coaches) Ltd [1962] 1 QB
694. Relevant matters would include: for whose benefit the bailment is
made; whether it is for reward; the degree of expertise or skill
possessed and claimed by the bailee; and the purpose of the bailment.
Although the High Court is yet to so find, for it to do so would be
consistent with its approach dealing with the different, but not wholly
dissimilar, issue of the duty of care owed by occupiers to various classes
of entrants.
Until that should occur, it remains of relevance to consider the
manner in which the courts have approached the issue of the duty of
care for the various categories of bailees.

Duty to deliver goods bailed

9.15 The duty to deliver the goods bailed in accordance with the
agreement of the parties or as directed by the bailor is common
whatever the bailment. However, the duty, although fundamental, is
not absolute, and is not breached where the bailee has complied with
the obligation of care and diligence upon it: John F Golding Pty Ltd v
Victorian Railway Commissioners (1932) 48 CLR 157 at 166; Brambles
Security Services Ltd v Bi-Lo Pty Ltd (1992) Aust Torts Reports ¶81–161.
Thus, the duty ‘would not be broken if the defendants were disabled
from delivery through destruction or loss of the goods which
reasonable care or skill on their part could not avoid’: John F Golding at
166.
It has been said that ‘the primary legal duty of a bailee is to redeliver
the chattel bailed to the bailor or as the bailor may direct’: Jackson v
Cochrane [1989] 2 Qd R 23 per McPherson J at 23. A bailee is bound to
redeliver the goods unless their inability to do so is due to no want of
reasonable care on their part: Mitchell v Ealing London Borough Council
[1979] QB 1; Paterson v Miller [1923] VLR 36.
A misdelivery of goods to a third party, however, stands on a different
footing to failure to use reasonable care and is actionable
independently of such a failure. Notions of care are irrelevant in cases
of conversion by misdelivery. A bailee is liable for loss or damage
resulting from their dealing with the goods bailed in a manner not
authorised by the bailor: Jackson per McPherson J at 26.
In Jackson, the defendant wrongly delivered to a third party a motor
vehicle held by it on consignment from the plaintiff. The defendant
argued it did so without negligence. The court held there was
negligence in any event but McPherson J, with whom the others
agreed, said at 25:

[page 304]

Misdelivery stands on a different plane from mere failure to take reasonable care in
the custody of the vehicle. Thus, in Jones v Dowle (1841) 9 M & W 19; 152 ER 9; 11 LJ
Ex 52, an auctioneer who delivered the plaintiff’s painting to one whom he believed
had bought it from the plaintiff was held liable in detinue for parting with possession
to a person over whom he had no control. It is, as Willes J said in a passage approved
in John F Golding Pty Ltd v Victorian Railway Commissioners (1932) 48 CLR 157, 167, ‘no
answer for the bailee to say that he has by his own misconduct incapacitated himself
from complying with the lawful demand of the bailor’ (Wilkinson v Verity (1871) LR 6
CP 206, 210).

A gratuitous bailee owes a duty to the bailor to return the goods on

demand. This duty arises not from contract but from the bailee’s
possession, with the consent of the bailor, of the bailee’s goods. An
action against a gratuitous bailee must necessarily be a tort: Thomas v
High (1960) SR (NSW) 401 at 407.
A gratuitous bailment, to retain goods until directed to return them,
does not remove the possessory rights of the bailor. Where a bailor may
at any time demand the return of an object bailed, they still have
possession, and are entitled to bring an action in detinue: Perpetual
Trustees & National Executors of Tasmania Ltd v Perkins (1989) Aust Torts
Reports ¶80–295. In England, the appropriate remedies in the event of
a wrongful interference with goods are as prescribed by the Torts
(Interference with Goods) Act 1977 (UK).
Duty not to deviate from the terms of the
bailment and not to convert
9.16 A bailee is under a duty to the bailor not to convert the bailor’s
goods, that is, not to do intentionally in relation to goods an act
inconsistent with the bailor’s right to property therein: Caxton
Publishing Co Ltd v Sutherland Publishing Co [1939] AC 178 at 202. This
duty is independent of and additional to the other common law duty to
take reasonable care of the goods: Morris v CW Martin & Sons Ltd
[1966] 1 QB 716 at 732 per Lord Diplock.

Obligations on bailor in respect of the quality of

goods bailed
9.17 Where a bailor supplies for value a chattel to another to be used
for an agreed or stated purpose, or for a purpose indicated by the
nature of the chattel, he or she impliedly promises, in the absence of
some provision to the contrary, that it is reasonably fit for such use:
Gemmell Power Farming Co Ltd v Nies (1935) 35 SR (NSW) 469 at 475 per
Jordon CJ; applied in Derbyshire Building Co Pty Ltd v Becker (1962) 107
CLR 633 at 645, 649 and 659; Cottee v Franklins Self Service Pty Ltd [1997]
1 Qd R 469, which concerned the provision of a shopping trolley at the
defendant’s self-service store, at which the plaintiff had bought goods;
Townsend v BBC Hardware Ltd [2003] QCA 572.

[page 305]

A gratuitous bailor is under a duty to warn a gratuitous bailee of

dangers that might arise from the operation of a bailed machine:
Pivovaroff v Chernabaeff (1978) 21 SASR 1. In Coughlin v Gillison [1899] 1
QB 145 it was held that the duty of a gratuitous lender of a chattel for
use by the borrower is to communicate defects in the article lent, with
reference to the use to which it is to be put, of which he is aware, and
that if he should wilfully or by gross negligence fail to discharge that
duty, he is liable for injury which results.

GRATUITOUS BAILMENT
9.18 A gratuitous bailment is one where a bailee undertakes to
perform a gratuitous act from which the bailor alone is to receive
benefit: see, for example, Moffatt v Bateman (1869) LR 3 PC 115.
Gratuitous bailment is not part of the law of contract. A gratuitous
bailment by definition involves no consideration. A gratuitous bailee, if
liable for damage or destruction of an article bailed, is liable in tort:
Thomas v High (1960) SR (NSW) 401.
The sub-categories of gratuitous bailment identified in Jones on
Bailment (see 9.13 above) are:
1. The gratuitous deposit of a chattel with a bailee, who is simply
to keep it for the bailor. This is called ‘deposit’.
2. The delivery of a chattel to the bailee, who is to do something
without reward for the bailee to or with the chattel. This is
called ‘mandate’.
3. The gratuitous loan of a chattel by the bailor to the bailee for
the bailee to use. A ‘gratuitous loan for use’ is distinguishable
from a deposit and a mandate because the benefit of a
gratuitous loan for use is with the bailee, whereas in respect of
the former categories, the beneficiary of the bailment is the
bailor. The bailee takes a loan of the chattel on condition that
he will return the chattel as directed by the bailor, to the
bailor or otherwise.

Deposit
9.19 A deposit is the simplest form of bailment. In plain terms, a
bailment of deposit will occur when the bailor gives to the bailee goods
to be kept in the bailee’s custody until their return is required by the
bailor. In addition to these circumstances, a finder of goods will
constitute themselves a bailee where they take them into their own
custody. In doing so, the finder assumes the obligations of a depository
to the true owner and must return the goods to the true owner upon
demand: Isaack v Clark (1615) 2 Bulst 306 at 312. Subject to the rights
of the true owner, property in something found vests in the finder and
the finder may assert that right against all but the true owner: Jeffries v
Great Western Railway Co (1856) 5 El & Bl 802.

[page 306]

It has been held in Australia that a gratuitous bailee owes to the

bailor a duty of slight diligence only, or, put another way, a gratuitous
bailee is liable only for gross negligence (Lenkeit v Ebert [1947] St R Qd
126), and this appears still to represent the prevailing rule in Australia:
see, in addition, Sharp v Batt (1930) 25 Tas LR 33; Daniel v Hotel Pacific
Pty Ltd [1953] VLR 447. Having said that, and as discussed elsewhere,
there is a sound basis for the view that the duty owed is one to take
reasonable care, that which is reasonable depending on all of the
circumstances of the case, including, no doubt, the nature of the
bailment.

Mandate
9.20 Mandate is a bailment where goods are entrusted to the bailee
for custody in order that it may gratuitously do something to them.
Thus, it may be defined as ‘a bailment of a specific chattel in regard to
which the bailee engages to do some act without reward’: Halsbury’s
Laws of England, 4th ed, 2005 reissue, vol 3(1), [20]. The key difference
between a mandate and a deposit is that the principal purpose of a
mandate is to do something to the goods, the custody being ancillary,
whereas the only purpose of a deposit is the custody.
The bailment of mandate, therefore, has two aspects: the work to be
done, or the task to be carried out on or in respect of the goods (a
gratuitous delivery, or to look after a pet for a friend); and the custody.
It has been said in respect of a mandate that they must act prudently
and honourably and exercise reasonable care and diligence: Halsbury’s
Laws of England, 4th ed, 2005 reissue, vol 3(1), [21]. In so far as the
mandate holds themselves out as possessing special or professional skill
in respect of the task to be performed, they must use that skill:
Halsbury’s Laws of England, 4th ed, 2005 reissue, vol 3(1), [21].

Gratuitous loan for use

9.21 This form of bailment is known as ‘commodatum’. It is different
from deposit and mandate because the bailment is for the benefit of
the bailee, who is entitled to use the goods for their benefit.
Consequently, the traditional approach has been to impose on the
bailee a more onerous obligation, which has been described as an
obligation to use the utmost degree of care, and to impose liability for
even slight negligence: Halsbury’s Laws of England, 4th ed, 2005 reissue,
vol 3(1), [30]. However, the modern approach is to regard the
borrower’s responsibility as ‘one of reasonable care and diligence in all
the circumstances of the case’: Halsbury’s Laws of England, 4th ed, 2005
reissue, vol 3(1), [30]. The duty of care upon the bailee of a gratuitous
loan for use is the converse of the duty on a bailee for a deposit. That
is, the bailee in a gratuitous loan for use is required to show the utmost
diligence in respect of the goods: Coggs v Bernard (1703) 2 Ld Raym
909; 92 ER 107.

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BAILMENT FOR REWARD

9.22 ‘Any benefit or advantage, however prospective or conjectural,
will suffice to make the intended recipient a bailor or bailee for reward,
provided it was with such advantage in mind that he entered into the
bailment, or continued that relationship where it could otherwise have
been determined’: Palmer, Palmer on Bailment, 2nd ed, p 525. Thus,
although the reward will often take the form of a payment or other
consideration in a contractual sense, it is wrong to regard ‘reward’ and
‘consideration’ as synonymous.

Legislative provisions
9.23 The Competition and Consumer Act 2010 (Cth), in particular
Sch 2, titled the Australian Consumer Law (ACL), and the fair trading
legislation9 in some states have the potential to impact upon the duties
of the parties, particularly in bailments for reward. The nature of the
terms implied generally reflect those already implied by the sale of
goods legislation in relation to goods the subject of a contract of sale or
an agreement to sell. The definition of ‘supply’ in the legislation is,
however, broad enough to extend beyond sales to transactions which
include some form of bailment (for example, a contract of hire).
Thus, the ACL s 60 (formerly s 74(1) of the Trade Practices Act 1974
(Cth)) provides a guarantee (subject to the qualifications in ss 63 and
65) in relation to every contract for the supply by a person in the
course of a business of services to a consumer that the services will be
rendered with due care and skill. A car park operator supplying
premises for car parking to customers would fall within this provision.
‘Consumer’ is defined for the purposes of the acquisition of services in
the ACL s 3(3). Section 60 does not apply to services that are supplied
under a contract for or in relation to the transportation or storage of
goods for the purposes of a business, a trade, a profession or an
occupation carried on by the person for whom the goods are
transported or stored: s 63.
Section 61(1) provides that if a consumer makes known, expressly or
by implication, 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. Section 61(2) provides that if the consumer makes known,
expressly or by implication, to the supplier 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. These guarantees cannot be excluded where the
services are of a kind ordinarily acquired for personal, domestic or
household

[page 308]

use or consumption: s 64(1). If they are not of that kind, liability can be
limited to supplying the services again or to payment of the cost of
having the services supplied again: s 64A(2). However, if the consumer
establishes that it is not fair or reasonable for the supplier to rely on
such a term, the supplier will be unable to do so: s 64A(3).
Sections 52 and 54–56 of the ACL are also potentially relevant in the
context of bailed goods. Section 56(1) provides that in a contract for
the supply by a person in the course of a business of goods to a
consumer by description, there is a guarantee that the goods will
correspond with the description.
Section 54(1) provides a guarantee that where a person supplies
goods to a consumer in the course of a business, the goods supplied,
subject to the exceptions identified therein, will be of acceptable
quality. Section 55(1) provides a guarantee that in the circumstances
therein identified, the goods will be reasonably fit for any disclosed
purpose and for any purpose for which the supplier represents that
they are reasonably fit. The word ‘supply’ is defined sufficiently broadly
to include circumstances which would give rise to a bailment (for
example, a hire or hire purchase). Consequently, this section, too, in
some circumstances will affect the obligations of the bailor.
Section 57 provides guarantees in relation to supplies by sample or
by demonstration model. The guarantees are: that the goods will
correspond with the sample or demonstration model; that the
consumer will have a reasonable opportunity to compare the goods
with the sample; and that the goods will be free from any defect
rendering them of unacceptable quality that would not be apparent on
reasonable examination of the sample or demonstration model.
Section 52(1) provides a guarantee in the contracts there referred to
that the consumer will enjoy quiet possession of the goods. This term
would be implied in a contract of hire. If any disturbance of the hirer’s
quiet possession is expressly authorised by the contract of hire, this may
constitute a ‘lawful’ disturbance for the purposes of the ACL s 52(1)(b)
and will not therefore offend s 64: Bis Cleanaway t/a Chep v Tatale
[2007] NSWSC 378 at [64].
There are like provisions in the fair trading legislation in some states.

Custody for reward (hire of custody)

9.24 In order for there to be a transaction of custody for reward, the
subject matter must be a chattel, possession must be transferred from
one party to the other, the custody of the chattel must be the object of
the transfer of possession and such transfer must be temporary and not
permanent: Halsbury’s Laws of England, 4th ed, 2005 reissue, vol 3(1), p
38.
A car park operator, for example, if a bailee, will likely be a bailee in
a hire of custody for reward bailment, and so too the provider of a
storage box, the provider of a warehouse or a railway company or
airline which receives goods to hold for their customers.
A bailee of this nature is under a duty at common law to exercise
reasonable care in and about the custody of the goods placed in their
hands. The owner of a car park,

[page 309]

for example, is under a duty to take reasonable care to safeguard the

property against theft, and if the property is stolen, they are bound as
soon as they become aware of it to notify the bailor or the police, so
that immediate steps may be taken to recover it: Davis v Pearce Parking
Station Pty Ltd (1954) 91 CLR 642 at 648; Coldman v Hill [1919] 1 KB
443. A bailee is not responsible if goods in their custody are stolen
without any default on their part, but a bailee for reward does not
discharge their obligation of care simply by showing they were stolen.
The bailee must show that the theft was not due to any failure on their
part in the exercise of the care and diligence which a careful and
vigilant person would exercise in the custody of their own chattel of a
like character and in like circumstances: Nibali v Sweeting & Denney
(WA) Pty Ltd (1989) Aust Torts Reports ¶80–258 at 68,748 per Malcolm
CJ. There, it was held that it would not be reasonable to expect
automotive repairers to do other than securely lock their premises
when they had custody of a customer’s motor car. It was too much to
require the use of an electronic security system, guard dogs or security
patrols: at 68,750.
A bailee for hire is under a duty to exercise the same degree of care
towards the preservation of the goods entrusted to them from injury
which might reasonably be expected of a skilled bailee of that nature,
acquainted with the risks to be apprehended: Brabant & Co v Thomas
Mulhall King [1895] AC 632. There, the government as bailee stored
the plaintiff’s explosive goods in sheds near the water’s edge. It was
held that the selection of such a site made it incumbent upon them to
place the goods at such a level as would in all probability ensure their
safety from floodwater. It follows that whether the bailee has discharged
the obligation upon them will depend upon the circumstances of the
case. What is reasonable care may vary with, for example, the extent of
the known risk, the value of the goods, the ease with which they might
be removed from their place of custody and the amount the bailor has
paid for their safekeeping.
The onus of proving that reasonable care was taken lies upon the
bailee: Jackson v Cochrane [1989] 2 Qd R 23. Thus, if a car is stolen from,
or damaged or destroyed at, a user-pay car park, the burden lies on the
bailee of proving that the loss, theft, damage or destruction has not
been caused by any failure on their part to exercise reasonable care:
Davis at 648.
 In Pitt Son & Badgery Ltd v Proulefco SA (1984) 153 CLR 644, a wool
broker retained storage in its shed of wool sold to another. The shed
burned down, and the buyer sued for its loss. The fire was lit by a young
man described as a drifter. The broker was found liable because the
fencing was inadequate to keep out intruders.

Hire of work and labour

9.25 The essential feature of this type of bailment is that there is
something to be done to the goods, and for reward of the bailee:
International Bottling Co Ltd v Collector of Customs [1995] 2 NZLR 579 at
586. This category of bailment occurs when, for reward, a chattel is
delivered into the possession of the bailee and the bailee undertakes to
do something

[page 310]

to the chattel, for example, carry it or repair it. There can be no

bailment in such circumstances unless possession of the chattel is given
to the party bound to do the work: Spittles v Michael’s Appliance Services
Pty Ltd (2008) 71 NSWLR 115; [2008] NSWCA 76. Thus, a
subcontractor called in to work on goods in another’s factory may not
be a bailee because the subcontractor does not have possession of
them.
There are many common examples: the delivery of a suit for dry-
cleaning, the delivery of a motor vehicle for service, the delivery of
shoes for mending. Most bailments of this nature are entered into by a
contract, and the terms of the contract will be of critical importance.
It will not necessarily be a term of the bailment that the chattel be
returned to the owner: thus, a contract to do work on a motor vehicle
and then to sell it will nonetheless constitute (while the vehicle remains
in the custody of the bailee) a bailment for hire of work or labour.
Subject to any contractual provision to the contrary, the bailee in a
bailment for hire of work and labour is obliged to do the stipulated
work on the bailed chattels, to do it within a reasonable time, to do it
properly and to take reasonable care of the chattels while in their
custody: Crouch v Jeeves (1938) Pty Ltd (1946) 46 SR (NSW) 242 at 244–5;
Leck v Maestaer (1807) 1 Camp 138; Jones on Bailment, 1st ed, p 91.
It has otherwise been held that such a bailee for reward is under a
duty to take reasonable care to keep the goods bailed safe: Morris v CW
Martin & Sons Ltd [1966] 1 QB 716 at 726, cited with approval by
Menzies J in Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220
at 234.

Pledge10
9.26 A pledge occurs when the bailor delivers possession of personal
property to the bailee, for it to be held as security, usually for a loan
from the bailee to the bailor. The goods are to be kept by the bailee
until satisfaction of the contractual conditions agreed for their return:
see, for example, Askrigg Pty Ltd v Student Guild of the Curtin University of
Technology (1989) 18 NSWLR 738 at 743 per Cohen J.
It is incumbent upon the pledgee to prove the goods were delivered
to them, whether actually or constructively. Delivery of possession may
occur by a physical act, or by some symbolic act, such as handing over
the key of the store in which they were kept. It may also occur by
attornment, that is, where the bailor orders the person who then holds
the goods for the bailor to instead hold them for the pledgee, and the
third party acknowledges to the pledgee that they do indeed hold the
goods on the pledgee’s behalf: Official Assignee of Madras v Mercantile
Bank of India Ltd [1935] AC 53 at 58, followed in Maynegrain Pty Ltd v
Compafina Bank [1982] 2 NSWLR 141 at 145.

[page 311]

The rights of the bailee or pledgee include the right to retain

possession of the goods pledged until satisfaction of the conditions
upon which the loan was made. It also includes, even without
agreement, a right to sell the goods if the due date passes without
payment: Osborne Computer Corp Pty Ltd v Airroad Distribution Pty Ltd
(1995) 37 NSWLR 382. If the time for payment is fixed, then the
pledgee may sell immediately upon default, but if time for payment is
not fixed, the proper course is for the pledgee to make demand for
payment, and in default, the pledgee may sell, providing they give
notice to the pledgor of their intention to do so: Sykes, The Law of
Securities, 4th ed, Law Book Company, Sydney, 1986, p 651, cited with
approval in Osborne Computer at 389. Upon a sale, the pledgee must
appropriate the proceeds of sale to the payment of the pledgor’s debt,
and must account to the pledgor for any surplus. They must take care
that the sale is a provident sale. If the goods are in bulk, they must sell
only that which must be sold to discharge the debt, because the
pledgee only holds possession for the purpose of securing the loan: The
Odessa, The Woolston [1916] AC 145 at 159.
A pledgee is not entitled before the due date for payment to convert
the goods, and is obliged to take reasonable care of the goods while in
their custody: Palmer, Palmer on Bailment, 2nd ed, pp 1405–6.
A pledge is different from a lien. A lien is merely a right to retain
possession of the chattel, and is lost when possession is parted with. A
pledge does more than grant a right of possession; it permits the
pledgee to deal with the thing pledged as their own and, if the debt is
not paid, to redeem the goods at the appointed time: Donald v Suckling
(1866) LR 1 QB 585 at 618–19, followed in Gunnedah Municipal Council
v New Zealand Loan and Mercantile Agency Co Ltd [1963] NSWR 1229 at
1232.
A pledgee is obliged to take reasonable care of the goods: Giles v
Carter (1965) 109 SJ 452.

Hire of chattels for reward

9.27 At common law, the distinguishing features of a contract of hire
were transfer of possession of a chattel, authority in the bailee to use it
for his or her benefit, an advantage or reward accruing to the bailor in
return for his or her permission and a promise by the hirer to return
the goods at an agreed time: Palmer, Palmer on Bailment, 2nd ed, p
1208.
The hirer is entitled to quiet possession of the hired goods: Palmer,
pp 1215–16. It is a breach of this obligation for an owner wrongfully to
retake possession of the goods hired. The owner is under an obligation
to ensure the item hired is reasonably fit for its intended purpose
where the owner acts in the course of their business: Derbyshire Building
Co Pty Ltd v Becker (1962) 107 CLR 633.
Subject as always to the contract of hire, the hirer is under an
obligation to take reasonable care of the hired chattel: Hughes v Rooke
[1954] St R Qd 45.

[page 312]

LIABILITY FOR ACTS OF EMPLOYEES

9.28 A bailee is liable for the acts or omissions of employees to
whom it delegates the obligations of the bailment: Makower, McBeath &
Co Pty Ltd v Dalgety & Co Ltd [1921] VLR 365.

BAILMENT AND OCCUPIERS

9.29 A person who occupies land on which a transfer of goods takes
place does not thereby become a bailee or sub-bailee of those goods
when there is no accompanying handing over of control to or
assumption of control by the person: WD & HO Wills (Aust) v State Rail
Authority of New South Wales (1998) 43 NSWLR 338.
Although it is not a prerequisite of a bailment that the bailor should
have consented to the bailee’s possession of the goods, it does not
follow that a bailment or sub-bailment can come about in the absence
of possession, consent or knowledge as regards the alleged bailee or
sub-bailee. There must exist the necessary handing over of control, or
assumption of control, by the putative bailee: WD & HO Wills; compare
Buchan & Co Ltd v Hays’ Transport Services [1972] 2 Lloyd’s Rep 535 at
542. Thus, when thieves took cigarettes out of a shed and onto the land
of an occupier in the middle of the night, the occupier did not become
the bailee thereof: WD & HO Wills.

ABANDONMENT
9.30 It is possible that the rights of property, or to possession, in a
bailor may be abandoned. In such circumstances, however, it is
necessary for the party contending the goods have been abandoned to
establish facts from which an unequivocal intention to abandon the
right in question can be inferred: Moorhouse v Angus & Robertson (No 1)
Pty Ltd [1981] 1 NSWLR 700. This would obviously be a difficult task.
Even years of inactivity in respect of possession of the goods will not
necessarily amount to evidence from which an unequivocal intention to
abandon title in goods can be inferred: Moorhouse at 713.

TERMINATION OF BAILMENT
9.31 In a simple bailment, the general principle is that repudiation
of the bailment brings the bailment to an end, and the right to
immediate possession reverts to the bailor: Anderson Group Pty Ltd v
Tynan Motors Pty Ltd (2006) 65 NSWLR 400; [2006] NSWCA 22 per
Young CJ in Eq at [63]; Palmer on Bailment, 2nd ed. A repudiation of a
bailment is ‘an act inconsistent with or repugnant to the bailment …’:
Hill v Reglon Pty Ltd [2007] NSWCA 295 at [41].

[page 313]
 In Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 227, Dixon J
quoted from Mr Justice Wright, Pollock and Wright on Possession in the
Common Law:
Any act or disposition which is wholly repugnant to (Donald v Suckling (1866) LR 1 QB
585 at p 615) or as it were an absolute disclaimer of (Fenn v Bittleston (1851) 7 Ex, at
pp 159, 160; [155 ER at p 899] per Parke B. Compare Cooper v Willomott (1845) 1 CB
672 [135 ER 706] and Bryant v Wardell (1848) 2 Ex 479 [154 ER 580]) the holding as
bailee revests the bailor’s right to possession, and therefore also his immediate right to
maintain [conversion] or detinue even where the bailment is for a term or otherwise
not revocable at will, and so a fortiori in a bailment determinable at will.

The act that is necessary to terminate the bailment must be a very

serious act and one which is virtually a disclaimer of the contract of
bailment: Anderson Group at [72] per Young CJ in Eq citing with
approval Fenn v Bittleston (1851) 7 Ex 152 at 159–60; 155 ER 895 at 899.
A contract may limit the means by which a bailment will be regarded
as having been terminated, but to do so would require the clearest
terms: Union Transport Finance Ltd v British Car Auctions Ltd [1978] 2 All
ER 385. The existence of a contractual right to terminate does not oust
the common law right to terminate a bailment unless that is made
clear: Union Transport; Anderson Group.

ONUS OF PROOF
9.32 Unlike the law of tort (under which a plaintiff must prove that a
breach caused the plaintiff loss), the onus of proof in bailment cases is
upon the bailee. It is for the bailee to establish that the loss or damage
occurred without fault on their part: Thomas National Transport
(Melbourne) Pty Ltd v May & Baker (Aust) Pty Ltd (1966) 115 CLR 353 at
366–7; Crouch v Jeeves (1938) Pty Ltd (1946) 46 SR (NSW) 242 at 244–5;
Custom Lease Pty Ltd v Simpson (NSWSC, Mofitt P, Samuels and Priestley
JJA, 14 July 1983, unreported); Glebe Island Terminals Pty Ltd v
Continental Seagram Pty Ltd (The Antwerpen) (1993) 40 NSWLR 206 at
228; [1994] 1 Lloyd’s Rep 213. This unusual reversal of the onus of
proof derives from the essential obligation of the bailee to restore the
property to the bailor and (in the case of a bailment for reward) from
the obligation imposed by the reward which the bailor pays to the
bailee for the work and labour done and the safekeeping of the goods:
per Kirby J in Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd
(1994) Aust Torts Reports ¶81–292 at 61,554, citing British Road Services
Ltd v Arthur V Crutchley & Co Ltd (Factory Guards Ltd, Third Parties)
[1968] 1 All ER 811 at 822 (CA); John F Golding Pty Ltd v Victorian
Railway Commissioners (1932) 48 CLR 157 at 166.
In Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220,
Menzies J, with whom McTiernan J concurred, said at 233–4 (omitting
citations):
To escape liability for non-delivery the onus of proving that the non-delivery, however
caused, was without fault, rested upon it. A modern statement of the position is to be
found in the judgement of Lord Denning MR in Morris v CW Martin & Sons Ltd as
follows:

[page 314]

Once a man has taken charge of goods as a bailee for reward, it is his duty to take
reasonable care to keep them safe: and he cannot escape that duty by delegating it to
the servants. If the goods are lost or damaged, whilst they are in his possession, he is
liable unless he can show — and the burden is on him to show — that the loss or
damage occurred without any neglect or default of … misconduct of himself and of
any of the servants to whom he delegated his duty.

The rule applies whether the bailee is a gratuitous bailee, or a bailee

for reward: Port Swettenham Authority v TW Wu & Co (M) Sdn Bhd [1979]
AC 580 at 589–90; Rolfe v Investec Bank (Australia) Ltd [2014] VSCA 38 at
[71].
Thus, the onus lies upon the bailor first to prove a bailment, and loss
or damage to the goods bailed. Once that is done, it is for the bailee to
disprove the inference of negligence which naturally arises. It is for the
bailee to prove that they took reasonable care of the goods bailed to
them (Joseph Travers & Sons v Cooper [1915] 1 KB 73; Tozer Kemsley &
Milbourn (Australasia) Pty Ltd v Collier’s Interstate Transport Service Pty Ltd
(1956) 94 CLR 384 at 397–8), or that the loss occurred in
circumstances attracting the protection of a contractual exemption:
Woolmer v Delmer Price Ltd [1955] 1 QB 291 at 294–5. The bailor may
then have the onus of proving that the contractual exemption does not
apply because, for example, the bailee actively facilitated an unlawful
taking of the goods: Westpac Banking Corp v Royal Tongan Airlines (1996)
Aust Torts Reports ¶81–403 per Giles CJ in the Commercial Division,
citing Glebe Island Terminals at NSWLR 228.
In Stag Line Ltd v Foscolo, Mango and Co Ltd [1932] AC 328, a
shipowner relied upon an exemption clause of loss by perils at sea, and
the cargo owners relied upon a deviation. Lord Atkin said at 340:
The position in law seems to be that the plaintiffs are prima facie entitled to say that
the goods were not carried safely: the defendants are then prima facie entitled to rely
on the exception of loss by the perils of the sea: and the plaintiffs are prima facie
entitled in reply to rely upon a deviation.

The decision was relevantly followed by Samuels JA in Gamlen

Chemical Co (Australasia) Pty Ltd v Shipping Corp of India Ltd [1978] 2
NSWLR 12 at 24. Mason and Wilson JJ (with whom Gibbs and Aicken JJ
agreed) approved the reasoning of Samuels JA in Shipping Corp of India
Ltd v Gamlen Chemical Co (Australasia) Pty Ltd (1980) 147 CLR 142 at
168.
Having shown that he exercised reasonable care of the goods bailed,
it is not necessary for the bailee to show or prove how in fact the goods
were damaged: Bullen v Swan Electric Engraving Co (1906) 22 TLR 275;
affirmed (1907) 23 TLR 258. In showing that the bailee acted
reasonably, it may be necessary to show what happened to the goods:
Glebe Island Terminals at 228. That is, the issue is a practical one: it is not
the case that in every instance it must be shown what became of the
goods. However, there is an obligation on the bailee to show it acted
reasonably, and this may entail tracing the fate of the goods and
showing the steps taken to protect them at least until, for example,
their disappearance overnight from the warehouse.

[page 315]
ENFORCEMENT
9.33 The correct cause of action for an injured bailor to pursue, and
the remedy or orders which they might seek, will depend upon the
particular circumstances involved.
The possibilities include:
1. an action based upon rights granted by the contract between
bailor and bailee. The contract may give a right to re-delivery
of possession, it may impose a contractual obligation of due
care for the goods or it may expressly provide against the
parting by the bailee with possession of the goods. The orders
sought might include an injunction restraining the bailee
from parting with possession of the goods, a mandatory
injunction for the delivery of the goods or an action for
damages for breach of the obligation to exercise due care for
the goods. Because the courts will pay first regard to the terms
of the contract between the parties, it is to any contract that
attention should first be directed;
2. an action in detinue for delivery up of the goods. This cause
will be engaged where the bailor wishes delivery up of the
particular item. The remedy is of particular utility where the
bailee is insolvent, or there is otherwise doubt as to the
bailee’s ability to pay damages for conversion or breach of
contract. Demand for delivery of the goods must be made
before the cause of action in detinue is complete: General and
Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963] 1 WLR
644. The cause of action for detinue does not commence until
the wrongful refusal to deliver possession of the goods
pursuant to a demand;
3. an action for damages for conversion. The essence of
conversion is dealing with a chattel in a manner repugnant to
the immediate right of possession of the person who has the
property or special property in the chattel. For a person to
maintain an action for conversion, he or she must have either
 possession or an immediate right to possession of the goods at
the time of their conversion: Sadcas Pty Ltd v Business and
Professional Finance Pty Ltd [2011] NSWCA 267. It may take the
form of a disposal of the goods by way of sale, pledge or other
intended transfer of property followed by delivery, or the
destruction or change of the nature of the character of the
thing, as for example pouring water into wine: Penfolds Wines
Pty Ltd v Elliott (1946) 74 CLR 204 at 229 per Dixon J. This
action may be all that is available in such circumstances,
because it may be impossible in a practical or legal sense to
recover the goods themselves;
4. an action for damages for trespass to goods where the bailee
has intentionally or negligently damaged them; and
5. an action for damages for breach of the obligation to take due
care of the goods where the goods are damaged, or where
they are stolen or otherwise lost.
Contractual damages may differ from the damages available for
conversion, trespass or detinue. Where there is a breach of contract,
the proper measure of damages is that

[page 316]

which would be required to put the innocent party in the position it

would have been in had the contract been performed, that is, had the
promisor done that which it promised to do. In tort, generally, a party
is entitled to be put back into the position it would have been had the
wrong not occurred: Butler v Egg and Egg Pulp Marketing Board (1966)
114 CLR 185. Frequently they amount to the same thing, but it is not
invariably the case.
When assessing damages for breach of bailment, the general
principle is restitutio in integrum, that is, that the party indemnified is
entitled to such a sum of money as will put it in as good a position as if
the goods had not been lost or damaged, providing the damage is not
too remote: Building and Civil Engineering Holidays Scheme Management
Ltd v Post Office [1966] 1 QB 247 at 261–2 per Lord Denning MR.
Damages for conversion are normally measured as the value of the
goods at the date of conversion, although ultimately the issue is the
amount which would properly compensate the bailor for their loss:
Butler. If the goods are returned, credit must be given for their value; in
effect, where goods are returned, damages are the diminution in the
value of the goods between the date of their conversion and the date of
their return: Solloway v McLauchlin [1938] AC 247, cited with approval
in Sadcas.
Where the goods are profit-earning, damages may be assessed as the
loss to the plaintiff from being deprived of them (Sadcas), and where
the defendant wrongly uses the goods as profit-earning goods, the
damages may be calculated as the reasonable hire value to the
defendant: CHEP Australia Ltd v Bunnings Group Ltd [2010] NSWSC
301.
Where the goods appreciate in value after the date of conversion, the
claimant’s damage will be limited to the original value of the goods if
the increase in value is due to the act of the defendant. Where the
subsequent increase in value is not due to the act of the defendant, but
would have occurred in any case even had no conversion been
committed, the plaintiff is entitled to recover it as special damage as a
result of the conversion, in addition to the original value of the
property converted: Munro v Willmott [1949] 1 KB 295 at 298–9,
followed in Graham v Voigt (1989) 89 ACTR 11 at 19–20; see also Ley v
Lewis [1952] VR 119 at 121–2; Haddow v The Duke Co (NL) (1892) 18
VLR 155. In Graham, the value of a stamp collection increased after the
date of the conversion for reasons unrelated to anything done by the
defendant, and hence the plaintiff was entitled to recover the increase
as special damages resulting from the conversion, in addition to the
original value of the property, providing the plaintiff did not delay in
seeking to recover his property.
Conversion damages may have to be calculated when there is no
market value. In such circumstances, the measure of damages will be
the cost of replacement of the goods: J & E Hall v Barclay [1937] 3 All
ER 620; Kuwait Airways Corp v Iraqi Airways Co [2002] 2 AC 883; [2002]
3 All ER 209. In J & E Hall, Scott LJ described market value as a
convenient means of valuation where there is a current market value
for the article in question, and continued at 627:

[page 317]

… but, where there is no market, in my view it would be doing injustice to the owner
of the article converted if a hard-and-fast rule were applied that, unless he could prove
a market selling price, he could get nothing.

In detinue, an action may result in a judgment in three different

forms: (1) for the value of the chattel as assessed and for damages for
its detention; (2) for return of the chattel or recovery of its value as
assessed and damages for its retention; or (3) for return of the chattel
and damages for its retention: General and Finance Facilities. Thus, the
normal measure of damages included the value at the time the bailee
refused to deliver them together with any increase which followed
during the period they were retained.

ACTIONS DEPEND UPON A SUPERIOR

RIGHT OF POSSESSION
9.34 Actions for conversion and detinue will lie for a bailor even if
he or she is not the true owner, or for a bailee or sub-bailee against a
bailee further down the chain or another wrongdoer. That is so
because each of the actions is founded not upon ownership but upon
the right to immediate possession. In neither conversion nor detinue is
it necessary for the plaintiff to show that they are the owner of the
goods which they claim the defendant has retained or converted:
Bolwell Fibreglass Pty Ltd v Foley [1984] VR 97 at 99–100.
A right to possession is relative and not absolute. The right to
possession depends upon a superior right: The Premier Group Pty Ltd v
Followmont Transport Pty Ltd [2000] 2 Qd R 338 at 345. As against a
wrongdoer, possession is regarded by the law as title. The chattel that
has been converted or damaged is deemed to be the chattel of the
possessor and of no other, and therefore its loss or deterioration is
regarded as their loss. As between bailee and stranger, possession gives
title, and the bailee is entitled to be compensated as if he or she were
the owner. Then, as between bailor and bailee, the real interests are to
be inquired into and the bailee must account to the bailor to the extent
which is appropriate. As against the bailor, once the wrongdoer has
accounted to the bailee the wrongdoer has a complete defence: The
Winkfield [1902] P 42 at 60 per Collins MR; The Albazero [1977] AC 774;
Chabbra Corp Pty Ltd v Jag Shakti [1986] 1 AC 337; Goodwin v Ron Heath
Tyre Service (SA) Pty Ltd (1999) 74 SASR 508.
The right to sue in detinue does not depend upon ownership of the
goods but upon a higher possessory right to them than the defendant:
Healey v Healey [1915] 1 KB 938 at 940; Penfolds Wines Pty Ltd v Elliott
(1946) 74 CLR 204 at 221 and 226–7; The Premier Group. A right to
immediate possession is sufficient to justify proceedings in detinue:
Healey at 940; Penfolds at 226–7 and 221. Indeed, a bailee with an
immediate right to possession may maintain an action against the
bailor if the bailor is entitled only in reversion: City Motors (1933) Pty Ltd
v Southern Aerial Super Service Pty Ltd (1961) 106 CLR

[page 318]

477 at 484 per Dixon J. This might occur, for example, where a finance
company wrongfully repossessed a motor vehicle on lease to the bailee.
It is sometimes the case that there is a chain of bailments. Where that
is so, any bailee with a superior right to possession to the defendant
sub-bailee may maintain an action in detinue, and such a right is not
limited to the head bailor, nor to the bailee immediately above the
defendant sub-bailee: The Premier Group at 345; The Pioneer Container (sub
nom KH Enterprise v Pioneer Container) [1994] 2 AC 324.
EXEMPTION CLAUSES AND SUB-
BAILMENTS
9.35 Ordinarily, a bailee will be liable for the negligence of a sub-
bailee: Metaalhandel JA Magnus BV v Ardfields Transport Ltd and Eastfell
Ltd (T/A Jones Transport) [1988] 1 Lloyd’s R 197. This extends to a
situation of quasi-bailment where the intermediate party is not a bailee
because it never takes possession: Edwards v Newland & Co [1950] 2 KB
534. A sub-bailee for reward owes to the bailor the same duties as a
bailee: Morris v CW Martin & Sons Ltd [1966] 1 QB 716; Gilchrist Watt &
Sanderson Pty Ltd v York Products Pty Ltd [1970] 1 WLR 1262. However,
there will generally be no contract of bailment between the bailor and
the sub-bailee. Where a bailor bails its goods to a bailee, knowing or
expecting they might be bailed by the bailee to a sub-bailee, the
question arises as to whether the terms of the sub-bailment are binding
on the bailor. On ordinary principles of contract law, the doctrine of
privity would suggest not. However, it is now well accepted that a bailor
is bound by the conditions if he has expressly or impliedly consented to
the bailee making a sub-bailment containing those conditions, but not
otherwise: Morris; Singer Co (UK) Ltd v Tees & Hartlepool Port Authority
[1988] 2 Lloyd’s Rep 164; The Pioneer Container (sub nom KH Enterprise v
Pioneer Container) [1994] 2 AC 324; Westpac Banking Corp v Royal Tongan
Airlines (1996) Aust Torts Reports ¶81–403; compare Philip Morris
(Australia) Pty Ltd v Transport Commission [1975] Tas SR 128.
The issue most commonly arises in the context of exemption clauses.
An exemption clause must be given its natural construction and its
language ought not be strained in order to restrict its operation:
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500;
Nissho Iwai Australia Ltd v Malaysian International Shipping Corp Bhd
(1989) 167 CLR 219.
The question in the context of exemption clauses is whether the
bailor is bound by an exemption clause in the contract between the
bailee and sub-bailee. Where the bailor has expressly or impliedly
consented to the bailee making a sub-bailment containing the
exemption clause, the bailee is entitled to rely upon it. That is, where
the principle is satisfied, a sub-bailee is entitled to rely upon an
exemption clause in a contract with the bailee to escape liability not
only to the bailee but also to the bailor.

[page 319]

The theoretical basis for the principle is found in the law of bailment
rather than the law of contract, and does not depend for its efficacy
either on the doctrine of privity of contract or on the doctrine of
consideration: The Pioneer Container.
In Westpac Banking, Giles CJ in the Commercial Division suggested
the following framework for inquiry. First, what was the bailor’s
awareness or expectation in relation to sub-bailment on terms? Second,
were the terms the normal and expected terms? Third, how did the
terms of the head bailment compare with the terms of the sub-
bailment? His Honour made clear these were not the only
considerations bearing upon the implied consent and its extent.
Thus, if there was no expectation of a sub-bailment, it will be difficult
to imply consent. If the exemption is an unusually wide one, it will be
more difficult to imply consent. On the other hand, if the exemption
clause is standard in the circumstances in which the bailment takes
place, and is substantially the same as the exemption clause in the
contract between the bailor and bailee, the sub-bailee’s position will be
stronger.
An exemption clause may be void if it excludes, restricts or modifies
a warranty implied by the ACL s 64. Potentially relevant, for example,
in the context of bailment is s 60, which provides:
60 Guarantee as to due care and skill

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.

This is qualified by s 63, which provides:

63 Services to which this Subdivision does not apply
 This Subdivision does not apply to services that are, or are to be, supplied under:

(a) 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 …

DELEGATION OF PERFORMANCE OF
BAILMENT BY BAILEE
9.36 It is not unusual for a bailee to wish to delegate performance of
the bailment to a third party, a subordinate, while wishing to remain in
a contractual relationship with the bailor. This may itself constitute a
breach of the bailment. Further, issues may arise in respect of the
liability of the bailee, and the subordinate, for damage to the goods.
A bailee is not usually liable for damage to goods where it has
exercised reasonable care in respect of the goods. Where, however, a
bailee parts with possession of the goods without the authority of the
bailor, they are deprived of the benefit of that principle, and will in
effect be strictly liable for any damage or injury to the goods: Thomas
National Transport (Melbourne) Pty Ltd v May & Baker (Aust) Pty Ltd
(1966) 115 CLR 353. It has been

[page 320]

held in such circumstances that the bailee is the bailee no longer:

Nishina Trading Co Ltd v Chiyoda Fire and Marine Insurance Co Ltd [1969]
2 QB 449.
If that be so, it has the potential to affect adversely any right of action
by the bailee against the subordinate for recovery of possession or for
damages for a want of care, although Palmer (Palmer on Bailment, 2nd
ed) expresses the opinion that such considerations should not affect
the primary bailee’s right of action against the subordinate bailee,
because the primary bailee has rights of action which depend not on
the right to possession but, for example, on an implied promise to
compensate the primary bailee for losses suffered by the primary bailee
by reason of the breach of bailment by the subordinate bailee: Palmer,
‘Quasi-bailment and Possessory Title’ (1995) TLR 190. In any event, an
action in bailment may still exist because the primary bailee retains a
superior right to possession to the subordinate.
Where the sub-bailment is authorised, and the delegation of the
bailee’s task is with the express or implied authority of the bailor, the
bailee will be liable for any want of care or acts of conversion on the
part of the sub-bailee: Palmer, Palmer on Bailment, 2nd ed, p 221. The
primary bailee would ordinarily have rights of recovery against the
subordinate bailee, usually pursuant to contract.

_______________
1 For example, an owner of goods may deliver the goods to a carrier which contracts with
another carrier to carry the goods.
2 Referred to in Palmer, Palmer on Bailment, 2nd ed, Law Book Co, Sydney, 1991, p 103.
3 Referred to in Palmer, Palmer on Bailment, 2nd ed, p 104.
4 The law relating to title in the context of retention of title clauses has been amended by
the Personal Property Securities Act 2009 (Cth).
5 See, for example, the definition of a hire-purchase agreement in the Hire-purchase Act
1959 (Qld) s 2 (repealed).
6 Jones on Bailment, 1st ed, 1781, pp 35 and 36.
7 He did so, rearranging the six classes identified by Holt CJ in Coggs; and see Halsbury’s
Laws of England, 4th ed, 2005 reissue, vol 3(1), [2].
8 Halsbury’s Laws of Australia, vol 2, Grant Holley, ‘Bailment’, Butterworths, Sydney, [40–20].
9 Fair Trading Act 1992 (ACT); Fair Trading Act 1987 (NSW); Consumer Affairs and Fair
Trading Act 1990 (NT); Fair Trading Act 1989 (Qld); Fair Trading Act 1987 (SA); Fair
Trading Act 1990 (Tas); Fair Trading Act 1999 (Vic); Fair Trading Act 1987 (WA).
10 A pledge at common law is in the nature of a security interest in personal property. The
law in relation to security interests in personal property is now subject to the Personal
Property Securities Act 2009 (Cth), which is dealt with in Chapter 10 of this text.
[page 321]
CHAPTER 10
Personal property security
interests

INTRODUCTION TO THE PERSONAL PROPERTY SECURITIES

ACT

APPLICATION OF THE LEGISLATION

PPSA SECURITY INTERESTS

Deemed security interests
Grantor
Secured party
Collateral
A lease or bailment
Conditional sale agreements (retention of title clauses)
Consignment contracts

[page 322]

THE ELEMENTS OF AN EFFECTIVE PPSA SECURITY INTEREST

THE CREATION OF A SECURITY INTEREST: ATTACHMENT

Grantor has rights in the collateral
Value or act by grantor
ENFORCEABILITY AGAINST THIRD PARTIES AND PRIORITY:
ATTACHMENT AND PERFECTION
Requirements for enforceability against third parties
The concept of perfection
Perfection by registration
Perfection by possession
Perfection by control
Specific rules that apply to the proceeds from collateral

WHEN A THIRD PARTY CAN TAKE PERSONAL PROPERTY FREE

OF AN EXISTING SECURITY INTEREST
Unperfected security interest
Where serial number incorrect on PPSR (s 44 of the PPSA)
Taking motor vehicles free of security interest (s 45 of the PPSA)
Collateral sold in the ordinary course of business (s 46 of the
PPSA)
Low-value personal, domestic or household property (s 47 of the
PPSA)

DETERMINING PRIORITY WHERE THERE ARE COMPETING

SECURITY INTERESTS
General priority rules
Special priority rules

ENFORCEMENT OF SECURITY INTERESTS

 [page 323]

INTRODUCTION TO THE PERSONAL

PROPERTY SECURITIES ACT
10.1 The nature and effect of security interests at common law is
discussed in Chapter 1 of this text. This chapter focuses on the statutory
concept of ‘security interest’ under the Personal Property Securities Act
2009 (Cth) (PPSA) and the regulation of security interests under that
Act. In particular, it concerns the enforceability of security interests
against the grantor of the interest and against other secured parties or
buyers of the secured property, circumstances when a party may take
free of a security interest and determining priorities between
competing security interests.
The PPSA makes some important changes to the common law. The
Act introduces a definition of security interest which focuses on the
substance of a transaction and whether it secures performance of a
debt or obligation, rather than on the form of the transaction. The
definition does not depend upon issues of title; in fact, a person may
create a security interest in personal property he or she does not own.
Thus, in Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG
Electronics Australia Pty Ltd [2014] VSC 644 at [37], it was held, ‘The
PPSA provides for a priority regime, not a title regime.’
The Act makes significant changes to the principles which apply at
common law in relation to modern methods of financing with respect
to goods, namely consignment sales, contracts for the sale of goods on
approval and conditional sales subject to retention of title provisions.
These types of transactions protected the seller/financier of goods by
retaining ownership of the goods in the seller/financier until payment.
These were ordinarily sufficient to defeat any claims in respect of the
goods by the buyer or hird parties (subject to relevant exceptions to the
nemo dat rule under the sale of goods legislation). This position may no
longer apply under the PPSA. Now, the interest of the seller is likely to
be regarded as a security interest under the PPSA and would need to be
registered to ensure priority is maximised in any disputes with
competing security holders.

APPLICATION OF THE LEGISLATION

10.2 The PPSA commenced on 30 January 2012. The transitional
provisions applied until the end of January 2014. The PPSA introduced
a new national system for the creation and enforcement of security
interests in personal property. It also, importantly, established rules for
determining issues of priority between competing security interests.
The Act replaced more than 70 pieces of legislation at the
Commonwealth and state level which dealt with the registration of
different types of securities and established various security registers.
The PPSA also established a central national register, the Personal
Property Securities Register (PPSR), which applies to all personal
property security interests covered by the Act. The single PPSR replaces
multiple security-related registers, including, for

[page 324]

example, for company charges, bills of sale, crop liens, motor vehicle
securities and stock mortgages.1 The general operation of the PPSA is
not confined to goods or property in Australia. By s 6, it applies to a
security interest in goods or financial property (even where they are
outside Australia) provided the grantor is an Australian entity: Forge
Group Power Pty Ltd (in liq) v General Electric International Inc [2016]
NSWSC 52 at [32].
PPSA SECURITY INTERESTS
10.3 The PPSA applies to security interests, as defined in s 12, in
personal property. Personal property is defined to mean all forms of
property other than real estate: s 10. The PPSA is generally concerned
with forms of consensual security interests, and one of its main
objectives is to regulate transactions in which a third party might
potentially be misled in its dealings with the grantor of a security
interest. It achieves this by setting up a system of priorities of interests
based upon whether the security interest has been ‘perfected’, for
example, registered. If a person has a security interest and does not
perfect it, that person may lose priority to another creditor who,
although later in time, has perfected its interest. The PPSA also, with s
588L of the Corporations Act, promotes the registration of interests as
soon as possible. For example, if security interests are not registered on
the PPSR within a certain time, those interests vest in the company that
is being wound up or in administration. This has the effect of
extinguishing the secured party’s interest in the property.
In Carrafa, Gountzos & Lofthouse (as liq of Relux Commercial Pty Ltd (in
liq)) v Doka Formwork Pty Ltd [2014] VSC 570, in the context of a failure
by the lessor to register its security interests in leased equipment worth
over a million dollars, this was said to lead to ‘seemingly draconian
outcomes’. However, it was noted (at [60]):
Despite these consequences, as noted in the Explanatory Memorandum, these
provisions are needed ‘to prevent security interests being granted fraudulently with
knowledge of an imminent administration liquidation or deed of company
arrangement.’ Moreover, in order to avoid these consequences, security interest
holders can simply ensure they register their interests as soon as possible after they are
granted.

Section 8 sets out the interests to which the Act does not apply and
includes, for example, alien, charge or other interest that is created,
arises or is provided for by operation of law2 or by statute in some
cases,3 an interest in a fixture4 or a security

[page 325]
interest in personal property taken by a licensed pawnbroker.5
‘Fixtures’ is defined to mean goods that are affixed to land: s 10. The
definition was held to mean affixed according to common law and not
to apply to turbines that had been installed as part of a temporary
power station south of Port Hedland in Western Australia in Forge Group
Power Pty Ltd (in liq) v General Electric International Inc [2016] NSWSC 52.
The definition of ‘security interest’ is pivotal to the application of the
Act. Security interest is defined broadly to bring within the ambit of the
Act any transaction which, in substance, creates an interest in personal
property which secures payment of a debt or the performance of an
obligation. The form of the transaction is irrelevant: s 12(1).
Section 12 provides:
12 Meaning of security interest
(1) A security interest means an interest in personal property provided for by a
transaction that, in substance, secures payment or performance of an obligation
(without regard to the form of the transaction or the identity of the person who has
title to the property).

The Explanatory Memorandum to the Personal Property Securities

Bill 2009 provides:
A security interest in personal property arises from a transaction that in substance
secures the payment or performance of an obligation. The interest in the personal
property, taken as security for a loan or other obligation, is a security interest. The Bill
would apply to transactions which have the effect of securing a payment or other
obligation, regardless of the form of the transaction, the nature of the debtor or the
jurisdiction in which the personal property or parties are located (subject to specified
exceptions). This is known as a functional approach.6

The PPSA, by its broad definition, has moved away from an approach
to securities law based on the form of the specific security device
employed by the parties.
By way of a guide, a PPSA security interest must:
be consensual;
relate to personal property;
create some form of proprietary right in the secured party; and
secure the payment of a debt or the performance of an
obligation.7
 The debtor must therefore have agreed to provide a security interest
in favour of the secured party under an enforceable security
agreement. This agreement will usually be in writing and, indeed, in
most cases, must be in writing for the security interest to be enforceable
against third parties: s 20. The person giving the interest (the grantor)
must have a proprietary interest in the personal property in respect of
which the interest is to be created. The grantor may satisfy this
requirement by being the owner or simply

[page 326]

by being in possession of the relevant property. This means, in the case

of possession, that a grantor may create security interests in personal
property owned by someone else. A person or company cannot give a
claimed interest to itself: Macquarie Leasing Pty Ltd v DEQMO Pty Ltd
[2014] NSWSC 1466. In such a circumstance, the person claiming the
interest may be ordered to amend the register and refrain from seeking
to register any further claim in the register: Sandhurst Golf Estates Pty Ltd
v Coppersmith Pty Ltd [2014] VSC 217.
The security interest must arise out of a transaction: s 12(1).
‘Transaction’ is not defined but has been held to mean a consensual
transaction between the grantor and secured party: Dura (Australia)
Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2014] VSCA 326 at
[126]. The exclusion by s 8 of personal property interests created by
operation of law, notwithstanding they may arise from transactions, was
said to ‘strongly’ suggest the transaction had to be consensual and that
s 12 was not engaged if the security interest arose by operation of law:
Dura at [115].
Examples of transactions that would be regarded as creating a
security interest for the purposes of the Act, provided they secured
payment or performance of an obligation, are set out in s 12(2). They
include:
(a) a fixed charge;
(b) a floating charge;
 (c) a chattel mortgage;
(d) a conditional sale agreement (including an agreement to sell subject to retention
of title);8
(e) a hire purchase agreement;
(f) a pledge;
(g) a trust receipt;
(h) a consignment (whether or not a commercial consignment);9
(i) a lease of goods (whether or not a PPS lease);
(j) an assignment;
(k) a transfer of title; and
(l) a flawed asset arrangement.

An interest in money paid into a joint account pursuant to a court

order was held not to be a ‘security interest’ within the meaning of s 12
in Dura. The court held that s 12 had to be read with s 8, which sets out
what does not constitute a security interest, and with s 19, which deals
with the concept of attachment. Pursuant to s 19, a security interest
must ‘attach’ to personal property before it is enforceable against a
grantor. In Dura, the interest that Hue acquired over the moneys paid
into the joint account was held to naturally come within s 8(1)(c),
namely, of ‘a lien, charge or any other interest

[page 327]

in personal property, that is created, arises or is provided for by

operation of law’, and was therefore not covered by the PPSA.
Moreover, it did not arise out of a consensual transaction: at [126].
A purchaser who pays money for goods but does not receive them
does not, without more, have a security interest. A purchaser in such a
case has a right to delivery which is akin to a purchaser’s lien. Liens, by
virtue of s 8, do not give rise to a registrable interest: Capital Finance
Australia Ltd v Clough [2015] NSWSC 1327 at [10]. Furthermore, where
the person claiming the interest does not possess or control the
collateral, the absence of an instrument in writing precludes any
registrable interest arising: at [11].
Deemed security interests
10.4 The ‘security interest’ definition also deems some interests to be
security interests whether or not the relevant transaction, in fact,
secures payment or performance of an obligation: s 12(3). Deemed
security interests include:
the interest of a transferee of accounts or chattel paper;10
the interest of a consignor under a commercial consignment;11
and
the interest of a lessor or bailor of goods under a PPS lease.12
The inclusion of such interests reflects a policy of the Act to protect
third parties where there is a risk that possession by the grantor, in this
case a hirer, consignee or bailee of goods, may mislead a third party
into thinking that that person owns the goods. By including such
interests, the secured party will need to register their interest in order
to achieve the maximum protection afforded to it under the PPSA.
However, the enforcement provisions in Pt 4 of the PPSA do not apply
to deemed security interests unless they do secure the payment or
performance of an obligation: s 109.

Grantor
10.5 The person who gives the security interest is called the
grantor13 (that is, the borrower, mortgagor or charger of personal
property). The grantor will either own or have an interest in the
personal property to which the security interest has attached.

Secured party
10.6 The person to whom the security interest is given is called the
secured party14 (that is, a financier, mortgagee, charge, lender,
supplier under a retention of title arrangement or lessor).

[page 328]
Collateral
10.7 The personal property in respect of which the security interest
is given is called the collateral. The term collateral also extends, in the
case of registration of a security interest, to include personal property
described by the registration, whether or not a security interest has
attached: s 10. The extended definition of collateral takes account of s
161, which permits the registration of a financing statement that
describes personal property before or after a security agreement is
made or a security interest has attached to the property.

A lease or bailment
10.8 The purpose of the PPSA provisions which govern leases and
bailments is to ensure that agreements which are, in effect, financing or
security arrangements are covered by the priority rules of the PPSA.
These sorts of arrangements would ordinarily involve the transfer of
title once the lease or bailment comes to an end and in this sense
operate much like a mortgage of goods. It is this type of lease or
bailment that the PPSA is intended to cover.
There are two ways a lease or bailment can be categorised as a
security interest under the PPSA; first, because it satisfies the ‘in
substance’ test of being a security interest under s 12(1) and secures
payment or performance of an obligation; and second, because it is a
PPS lease within the meaning of s 13 and so is a deemed security
interest, whether or not it secures the payment or performance of an
obligation: s 12(3)(c).
A PPS lease is defined in s 13 to mean:
a lease or bailment of goods for more than one year: s 13(1)(a);
a lease or bailment for an indefinite term: s 13(1)(b);
a lease or bailment where a combination of all options to renew
(automatic or at the request of either party), if any, would extend
the aggregate term of possession beyond one year: s 13(1)(c);
a lease or bailment where the lessee or bailee enjoys
 uninterrupted or substantially uninterrupted possession of the
property for one year or more — but the subsection only applies
where the lessee or bailee has had possession for at least one year:
s 13(1)(d); or
where the goods may or must be described by serial number:
– a lease or bailment for a term of 90 days or more;
– a lease or bailment where a combination of all options to
renew (automatic or at the request of either party), if any,
would extend the aggregate term of possession beyond 90
days; or
– a lease or bailment where the lessee or bailee enjoys
uninterrupted or substantially uninterrupted possession of
the property for 90 days or more: s 13(1)(e).

[page 329]

Exclusions from the PPS lease definition are set out in s 13(2) and
include a lease by a lessor who is not regularly engaged in the business
of leasing goods (s 13(2)(a)) and a bailment where the bailor is not
regularly engaged in the business of bailing goods (s 13(2)(b)). Section
13(3) also excludes, by inference, a gratuitous bailment.
A lease for an indefinite period was held to be a PPS lease in Carrafa,
Gountzos & Lofthouse (as liq of Relux Commercial Pty Ltd (in liq)) v Doka
Formwork Pty Ltd [2014] VSC 570. The hire of a Caterpillar for a
continuous period where the lessee was given uninterrupted possession
was held to be a PPS lease on the basis of s 13(1)(b) and/or (d) in Re
Maiden Civil (P & E) Pty Ltd [2013] NSWSC 852 at [24]. The court also
held that, being goods which may or must be described by serial
numbers which were in the lessee’s possession for more than 90 days, s
13(1)(e)(i) or (ii) was also satisfied.
The issue of whether an arrangement whereby goods were stored for
paying customers was subject to the PPSA was considered in Re Arcabi
Pty Ltd (receivers and managers apptd) (in liq) [2014] WASC 310. There the
court referred to factors accepted overseas as indicia of when a
bailment arrangement will be seen to secure payment or performance
of an obligation. They include (at [20]):
(a) the bailment provides that the ownership of the goods will vest in the bailee on
expiry of the bailment agreement;
(b) the bailee has an obligation to purchase the goods or an option to purchase the
goods or extend the term of the arrangement at a ‘bargain’ price such that it
would be reasonable to expect the bailee to exercise the option;
(c) the term of the arrangement is for a major part of the economic life of the goods;
and
(d) the minimum payments under the bailment amount to substantially all the capital
cost of the goods.

In Re Arcabi there was no suggestion the goods would vest in the

bailee on the expiry of the bailment, nor was there an obligation on the
bailee to purchase the goods; the term of the arrangement was not
likely to be for the major part of the economic life of the goods given
the goods had an indefinite life if stored appropriately; and the
nominal payment for the bailment did not equate to the capital cost of
the goods. The bailment was not, therefore, in substance, a security
interest. The bailment was also held not to be a PPS lease on the basis
the bailors were not regularly engaged in the business of bailing goods.
In considering the meaning of ‘regularly engaged in the business of
bailing goods’, the court referred to Rabobank New Zealand Ltd v
McAnulty [2011] NZCA 212:
The facts in that case were as follows. A syndicate put a race horse out to stud and
entered into a standing arrangement with a stud farm. The farm agreed to manage
and stable the horse. A bank had loaned money to the farm and had a perfected
secured interest in all the farms present and after acquired personal property. The
bank claimed the horse as part of its collateral. The Court of Appeal said:

In our view, the words ‘in the business of leasing goods’ should be read as
importing a requirement that the owner actually be intending to profit
from the

[page 330]

bailment or lease. This would exclude gratuitous bailments where the

bailor was not receiving any payment for the use of the goods and
 bailments where the bailee is in the business of bailments, not the bailor.
We see this as best reflecting the Parliamentary intention of treating some
lease and bailment transactions as security interests, and requiring the
bailor to perfect its interest in order to ensure its interest defeats that of
any secured creditors of the bailee. The reason for the deeming provision
is to ensure that lease/bailment transactions that are not easily
distinguishable from finance leases are treated as if they are finance
leases. Bailment transactions that could not possibly be confused for
finance leases do not need to be drawn into that net, and there is nothing
to indicate that Parliament intended that they should be [40].

The Court of Appeal found that the syndicate was not in the business of bailing goods
but was instead in the business of maintaining and profiting from the horse. The cost
of bailment of the horse was an incidental expense to the business, not the business
itself. Accordingly, the bailment of the horse was not ‘a lease of a term for more than
one year’ as would have been required for the PPSA to deny the syndicate its priority.
The Court of Appeal also found this interpretation had the practical effect of
excluding bailments in respect of which the bailor did not receive consideration with
a view to profit. The court noted that the Australian PPSA ‘has express statutory
language that yields that outcome’. That was a reference to s 13(3) of the Australian
PPSA.

The phrase was considered in the context of a lease of four mobile

gas turbine generator sets in Forge Group Power Pty Ltd (in liq) v General
Electric International Inc [2016] NSWSC 52. The court, in considering
whether the exclusion applied, held that regard could be had to activity
wherever it occurs, whether within or outside Australia: Forge Group at
[29]. The exclusion was held to be directed to ‘the point in time at
which the interest of the lessor under the instrument arises, namely,
the time at which mutual rights and obligations of the parties under it
are brought into existence’: at [40]. In Forge Group this was held to be
when the lease was entered into. The court considered at length the
meaning of ‘regularly engaged in business’ and, after referring to
overseas authorities on a similarly worded exclusion, held that the
question was whether or not, at the material time, leasing goods was a
proper component of the lessor’s business: Forge Group at [46].
Frequency or repetitiveness of transactions, while a factor to be taken
into account in considering whether the leasing business being
engaged in is regular, is not the only requirement: Forge Group at [52].
For example, a person who sets up the necessary infrastructure for a
leasing business and then advertises the business would be in the
business of leasing, and may be doing so regularly, before any
particular transaction is concluded and even if none ever is: Forge Group
at [51].
A storer’s lien on goods has been declared by the Storage Liens Act
1973 (Qld) to be a statutory interest given priority under s 73(1) of the
PPSA. The provisions of the PPSA in this respect were considered in
the context of an agistment of cattle where it was observed that the
provisions were ‘intended to permit creation of a priority interest for a
security interest where the priority interest is granted to enable the
livestock to be

[page 331]

fed or developed, which would include an agreement to grant a charge

over cattle on agistment’: Fearnley v Finlay [2014] QCA 155 at [66].

Conditional sale agreements (retention of title

clauses)
10.9 Significantly, a contract for the sale of goods subject to a
retention of title clause15 in favour of the seller will now be regarded as
a security interest under the PPSA.16 Section 12(2)(d) provides that a
security interest includes an interest in personal property provided by,
inter alia, a conditional sale agreement, including an agreement to sell
subject to retention of title. A retention of title clause is a clause which
delays transfer of title in goods from the seller to the buyer until certain
conditions are satisfied, which typically include, at least, payment of the
price for the goods. However, the buyer will usually be given possession
of the goods in the meantime. Retention of title clauses are commonly
used in manufacturing and supply contracts and in contracts between
financiers and customers to facilitate the provision of inventory
finance.17 One of the main benefits of such a clause was that it enabled
the seller to recover the goods if the buyer became insolvent or
bankrupt. Now, however, as a retention of title clause is a security
interest within the meaning of s 12, the seller will need to comply with
the provisions of the Act in order to maximise protection of its interest.
The seller will no longer simply be able to rely upon the fact it retained
title in the goods.18
The seller now will be seeking to establish that it has a valid and
perfected security interest over the goods it supplied to the buyer: Re
Gelpack Enterprises Pty Ltd (in liq) [2015] NSWSC 1558 (Gelpack). The
impact of the PPSA on retention of title arrangements, and in
particular the consequence of not ‘perfecting’ such an interest, was
discussed in Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG
Electronics Australia Pty Ltd [2014] VSC 644 at [37]–[40]:
The PPSA provides for a priority regime, not a title regime. Under s 273 of the PPSA
ownership or title to personal property is not determinative and as a consequence a
retention of title (‘ROT’) financier’s ownership interest is replaced by a simple
security interest. A ROT supplier must protect that ‘security interest’ by taking
possession of the personal property (e.g. a pledge under pre-PPSA law) or by
obtaining a signed security agreement that covers (describes the collateral) and
perfecting that security interest by registration of a financing statement on the PPSR.
The consequences of non-perfection are that the security interest is ineffective against
third parties, and on insolvency a security interest (title) vests in an administrator or
liquidator. In other words, it is ineffective in the event of insolvency.
Because the ownership or title interest is merely a security interest, non-perfection
also results in loss of priority because of PPSA s 55. A further consequence is that a
transferee

[page 332]

or buyer can take free of the security interest such as under s 43 because of non-
registration and, also, under s 46 which provides that a buyer (transferee) takes free of
a security interest given by the seller who sells personal property (mainly inventory) in
the ordinary course of business of selling personal property of that kind. This is
similar to but not the same as the idea of extinguishment under the old Chattel
Securities Act 1987 (Vic).
A buyer can also take free of a security interest given by a seller in circumstances
where the ROT supplier’s security agreement (supply agreement) authorises the sale
of inventory in the ordinary course of the buyer’s business: s 32(1) PPSA. This
authorisation is equivalent to the concept of the floating charge whereby the chargor
could, until crystallization, sell inventory in the ordinary course of business free of the
charge.
 Under the old law, inventory and book debts from the sale of personal property
owned by the chargor were floating charge assets (circulating assets) and were thus
available on insolvency to pay priority creditors. Retention of title assets were not
available to a liquidator as they were not assets of the insolvent entity.

In Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2015] VSCA 92 a

credit application in relation to the sale and supply of cleaning
equipment was held to incorporate a retention of title clause by its
terms. In the absence of any other communication of acceptance, the
terms in the application became binding once the seller supplied the
equipment and extended the 30-day credit which the buyer had
requested. The agreement was expressed to cover all future supplies of
equipment. On this view, a ‘security agreement’ was held to come into
force at the time of the first supply of equipment which did ‘provide for
the grant of’ a security interest in relation to all future supplies of
equipment. This was important because it meant the agreement was a
‘transitional security agreement’ and one which therefore could be
enforced despite not being registered.

Consignment contracts
10.10 Under a consignment contract the seller (consignor) provides
goods to another person (consignee) for sale to a buyer. The goods
remain the property of the seller/consignor and the consignee sells the
goods as agent for the consignor in accordance with the consignor’s
instructions. Title remains with the consignor until the goods are sold
to a third-party buyer. Consignment contracts are often used in
situations where goods are sold through a shop, for example, where an
artist sells art through a gallery.19
A security interest includes ‘a consignment (whether or not a
commercial consignment) if the transaction, in substance, secures
payment or performance of an obligation’: s 12(2)(h). The interest of a
consignor who delivers goods to a consignee under a commercial
consignment is a security interest whether or not it in substance secures
payment or performance of an obligation: s 12(3)(b). The PPSA in s 10
provides:
 [page 333]

‘commercial consignment’ means a consignment if:

(a) the consignor retains an interest in goods that the consignor delivers to the
consignee; and
(b) the consignor delivers the goods to the consignee for the purpose of sale, lease or
other disposal; and
(c) the consignor and the consignee both deal in goods of that kind in the ordinary
course of business; but does not include an agreement under which goods are
delivered to:
(d) an auctioneer for the purpose of sale; or
(e) a consignee for sale, lease or other disposal if the consignee is generally known to
the creditors of the consignee to be selling or leasing goods of others.

In Re Arcabi Pty Ltd (receivers and managers apptd) (in liq) [2014] WASC
310 goods held on consignment were held not to be for the purpose of
securing a debt because the consignee did not have to pay for the
goods unless it sold the goods. Moreover, there was no ‘commercial
consignment’ because the consignor and consignee did not both deal
in goods of that kind in the ordinary course of business.

THE ELEMENTS OF AN EFFECTIVE PPSA

SECURITY INTEREST
10.11 To be an effective security interest under the PPSA a security
interest will, in general terms, need to satisfy the following
requirements:
1. it must be enforceable against the grantor (attachment: s 19);
2. it must be enforceable against third parties (secured party
must have possession or control of the collateral or a written
agreement exists creating the security interest in the collateral
which is signed or otherwise adopted by the grantor: s 20);
and
3. it must be perfected (s 21).
 It is important to recognise the difference between the steps of
attachment and perfection. ‘Attachment’ refers to the creation of the
security interest as between the debtor and creditor. Once attachment
occurs, the security interest fixes on the asset so as to give the creditor
rights in rem against the debtor, though not necessarily against third
parties. However, before a security interest can be enforced against a
third party, a further step, to perfect the interest, will need to be taken.
This will usually involve something which is seen to be giving notice of
the security to third parties, for example, possession, registration or
notice: Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd
[2014] VSCA 326.

[page 334]

THE CREATION OF A SECURITY

INTEREST: ATTACHMENT
10.12 Attachment is an important concept under the Act. If there is
no attachment of a security interest to particular collateral, the security
interest is unenforceable and the PPSA is mostly irrelevant. This is clear
from s 19(1), which provides that once attachment of a security interest
to personal property occurs:
1. the grantor’s rights in the collateral are limited by the rights
of the secured party; and
2. the security interest can be enforced by the secured party
against the collateral.20
The Explanatory Memorandum defines attachment21 as follows:
Attachment
The creation of a security interest in personal property which could be enforced
against that property.

This means that the grantor and secured party have entered into a
legally binding agreement under which the security interest in
particular personal property is created.
Attachment does not depend upon the grantor being the owner of
the collateral. The grantor merely has to have ‘rights in the collateral’,
which can include possessory rights or the ‘power to transfer rights in
the collateral’: s 19(2). This is consistent with a policy of the Act that a
security interest can attach to personal property whether or not the
grantor is the owner of that property. This is particularly significant for
holders of security interests under s 12(3), such as PPS lessors and
commercial consignors as well as suppliers of goods subject to retention
of title clauses, who must now register their security interest in order to
ensure maximum protection under the PPSA, as opposed to relying on
the fact they retain ownership of the goods.22
Attachment is not defined as such in the Act. Section 10 defines
‘attaches’ to have ‘the meaning given by section 19’ and the
‘attachment rule’ is set out in s 19(2):
(2) A security interest attaches to collateral when:
(a) the grantor has rights in the collateral, or the power to transfer rights in
the collateral to the secured party; and
(b) either:
(i) value is given for the security interest; or
(ii) the grantor does an act by which the security interest arises.

[page 335]

The parties to the security agreement may contract out of s 19(1) by

specifying in their agreement that the security interest attaches at a
later time, in which case attachment occurs at the time agreed by the
parties: s 19(3). To avoid doubt, it is provided that an agreement for
the purposes of s 19(3) is not constituted by the parties agreeing to a
floating charge: s 19(4). Under s 19(5) a grantor has rights in goods
that are leased under a PPS lease when the grantor obtains possession
of the goods. The second part of the definition of attachment requires
that there be ‘value’ given by the secured party for the security interest
or an act performed by the grantor by which the security interest arises.
‘Value’ is defined as consideration sufficient to support a contract: s 10.
To understand the concept of attachment, consider the example of a
PPS lease of equipment under which the leased equipment has been
given to the lessee. Has the security interest attached to the collateral?
1. Does the grantor have rights in the collateral? Yes, under s
19(5) a grantor (here the lessee) has rights in goods that are
leased under a PPS lease when the grantor obtains possession
of them.
2. Did the secured party (here the lessor) give value for the
security interest or has there been an act performed by the
grantor by which the security interest arises? Yes, value was
provided by the lessor giving the leased equipment to the
lessee. Moreover, by accepting and retaining possession of the
equipment, the lessee did an act giving rise to the lease.
In this example, as the lessor did not possess or control the
equipment, a security agreement within the meaning of s 20 would
need to exist in order for the lease to be enforceable against third
parties: s 20. That agreement would then need to be registered in order
that the security interest be perfected.

Grantor has rights in the collateral

10.13 A pre-condition to attachment is that the grantor has rights or
the power to transfer rights in the collateral to the secured party: s
19(2)(a). If the grantor is the owner of the collateral, then the
requirement is satisfied. In the case of goods leased, bailed, consigned
(that is, a sale on approval) or sold under a conditional sale agreement
(which includes an agreement to sell subject to retention of title), a
grantor will be deemed to have rights in the collateral for the purposes
of attachment when the grantor obtains possession of the goods: s
19(5).
A grantor will have rights in the collateral when, for example, the
relevant goods have been delivered to the grantor, giving the grantor
from that time possessory and proprietary rights in respect of those
goods: Re Maiden Civil (P & E) Pty Ltd [2013] NSWSC 852 at [73];
Citadel Financial Corp Pty Ltd v Elite Highrise Services Pty Ltd (No 3) [2014]
NSWSC 1926 at [10].

[page 336]

In the context of a supply contract containing a retention of title

clause, the grantor, being the buyer under each contract, has rights in
the collateral. It is not necessary that those rights be of absolute
ownership, although more than mere possession may be required:
Gelpack at [30]. In Gelpack the buyer, under the contract, was the
purchaser and equitable owner, subject only to the retention of title
clause. It plainly had rights in the collateral. Value was given for the
security interest by the supplier, in that the creation of the security
interest formed part of the consideration for the supply of the goods: at
[30].

Value or act by grantor

10.14 Section 19(2)(c) recognises that security interests are not only
created to enforce payment of an obligation but also to enforce
performance of other obligations. ‘Value’ is defined to mean
‘consideration that is sufficient to support a contract’ and includes ‘an
antecedent debt or liability’: s 10.
If more than one security interest has been attached to the collateral,
then it will become a contest as to which interest takes priority: see
below at 10.28. The PPSA introduces new rules for determining
priorities as between competing security interests. The rules apply to
deemed security interests, which include, for example, the interest of a
lessor who grants a long-term lease: s 12(3). Because it is a deemed
security interest, in order to protect their position under the priority
rules, the lessor must ‘perfect’ their interest rather than merely rely on
their title to defeat a subsequent perfected security interest: s 55(3).
ENFORCEABILITY AGAINST THIRD
PARTIES AND PRIORITY: ATTACHMENT
AND PERFECTION
10.15 In order for the security interest to be enforceable against
third parties as opposed to just those who are party to the security
arrangement, and to ensure that it prevails against other security
interests in the same property, the security interest must be attached to
the collateral and perfected. Perfection, in essence, requires that the
secured party has given public notice of its security interest. Perfection
is critical in establishing the priority of the security interest. In the vast
majority of cases, this will be achieved by registration of a financing
statement which describes the security interest. However, perfection
may also be achieved by the secured party being in possession or
control of the collateral: s 21.
In order for perfection to occur, the security interest must first have
attached to the collateral and be enforceable against third parties.

Requirements for enforceability against third

parties
10.16 Attachment alone is insufficient for the security interest to be
enforceable against third parties. The secured party must also have
either:

[page 337]

1. possession or control of the collateral; or

2. a written security agreement signed or accepted by the
grantor.
Section 20 provides:
 20 Enforceability of security interests against third parties
General rule
(1) A security interest is enforceable against a third party in respect of particular
collateral only if:
(a) the security interest is attached to the collateral; and
(b) one of the following applies:
(i) the secured party possesses the collateral;
(ii) the secured party has perfected the security interest by control;
(iii) a security agreement that provides for the security interest covers the
collateral in accordance with subsection (2).
…
Written security agreements
(2) A security agreement covers collateral in accordance with this subsection if:
(a) the security agreement is evidenced by writing that is:
(i) signed by the grantor (see subsection (3)); or
(ii) adopted or accepted by the grantor by an act, or omission, that reasonably
appears to be done with the intention of adopting or accepting the writing
and
(b) the writing evidencing the agreement contains:
(i) a description of the particular collateral, subject to subsections (4) and
(5); or
(ii) a statement that a security interest is taken in all of the grantor’s present
and after-acquired property; or
(iii) a statement that a security interest is taken in all of the grantor’s present
and after-acquired property except specified items or classes of personal
property.

If the secured person does not, for example, want to retake

possession of the collateral and no longer has control of the collateral,
a security agreement which covers the collateral will be necessary in
order for the security interest to be enforceable against a third party.
A ‘security agreement’ is defined to mean:
(a) an agreement or act by which a security interest is created,
arises or is provided for; or
(b) writing evidencing such an agreement or act: s 10.
The meaning of the term was considered in Central Cleaning Supplies
(Aust) Pty Ltd v Elkerton [2015] VSCA 92 in determining whether a
credit application which incorporated standard terms and conditions,
including a retention of title clause, was a ‘security

[page 338]

agreement’. There, because the agreement was to apply to all future

supplies of goods, it was held to be an agreement which ‘provided for’ a
security interest (at [17]–[19]):
Although ‘security interest’ is defined by reference to transactions, ‘security
agreement’ is not. Instead, the latter definition speaks of ‘an agreement’ or ‘an act’ by
which a security interest ‘is created, arises or is provided for’. On ordinary principles
of interpretation, the legislature must have intended that each of these alternatives —
‘is created’, ‘arises’ and ‘is provided for’ — has its own work to do.
The legislature has thus specified three types of relationships between the
‘agreement or act’, on the one hand, and the security interest, on the other. The
existence of any one of those relationships will qualify the agreement or act as a
‘security agreement’. The three alternatives would seem to connote differing degrees
of directness of that relationship. To take the two extremes (and converting the
passive voice of the statutory language into the active voice), there is an obvious
difference between an agreement or act ‘which creates’ a security interest and an
agreement or act ‘which provides for’ a security interest.
In the first of these, the genesis of the security interest is to be found in the
agreement or act itself. The entering of the agreement, or the doing of the act,
‘creates’ the security interest. An example of this would be a contract for the sale of
the goods which itself includes a retention of title clause. That is an agreement which
creates the security interest in the vendor of the goods. By contrast, an agreement or
act will ‘provide for’ a security interest if it makes provision for the creation of a
security interest in the future and/or by some other agreement or act.

The grantor is required, in the absence of a signature, to have

adopted or accepted ‘the writing’, which does not mean merely that the
grantor has adopted or accepted the security agreement: Citadel
Financial Corp Pty Ltd v Elite Highrise Services Pty Ltd (No 3) [2014]
NSWSC 1926. In Citadel, an invoice which contained a retention of title
clause but which was delivered months after the scaffolding, the subject
of the invoice, was held not to amount to the grantor ‘adopting’ the
writing. While it was acknowledged that maintaining possession of the
goods after the invoice (or writing) had been delivered could constitute
‘accepting or adopting the writing’, it did not in circumstances where
the invoice was created months after the sale and delivery of the subject
matter: at [16].
This can be contrasted with Gelpack, where a security agreement
constituted by terms and conditions of sale was delivered to a buyer
along with a letter that provided that the new terms would apply to
orders after the date of receipt of the terms. There, the buyer’s conduct
in continuing to place orders after receipt of the terms was held to be
conduct that, in light of the terms of the letter, ‘reasonably appears to
have been done with the intention of adopting or accepting the
writing’: at [32]. Accordingly, the requirements of s 20(2) were held to
have been satisfied.

[page 339]

The concept of perfection

10.17 If the security interest has attached to the collateral and the
relevant security agreement is set out in writing and otherwise satisfies
the requirements in s 19(2), the secured party should protect that
interest by registration. Registration is one way to ‘perfect’ a security
interest: s 21(2)(a). Perfection of a security interest means that the
security interest may from that time benefit from the relevant
protection afforded by the priority rules under the PPSA: Graham v
Portacom New Zealand Ltd [2004] 2 NZLR 528 at [12]. The step of
‘perfection’ must occur after the requirements of s 21(1)(b)(i)
(attachment) and (ii) (it is enforceable against a third party) have been
satisfied: Pozebon (trustee) v Australian Gaming and Entertainment Ltd (in
liq) [2014] FCA 1034 at [38].
The main rule for perfection is contained in s 21. Under s 21, a
security interest in collateral is perfected if the security interest is
temporarily perfected, or otherwise perfected by force of the Act (that
is, by a provision elsewhere in the PPSA), or where the security interest:
1. is attached to the collateral;
 2. is enforceable against a third party; and
3. has been registered or, if not, the secured party has possession
or, in the case of certain types of collateral, control of it.
Each of these methods of perfection is designed to ensure that a
third party has notice of the existence of the secured interest. The
rationale behind the perfection rule appears to be that if the third
party is aware of the security interest, they should take the collateral
subject to that interest.
The significance of perfection is that it will affect issues of
enforceability against third parties and priority between competing
security interests. For example, a subsequent purchaser or lessee of
collateral may take free of an unperfected security interest (s 43), and a
perfected security interest may take priority over an earlier but
unperfected security interest (s 55(3)).

Perfection by registration
10.18 Perfection by registration applies to all forms of collateral.
Specific requirements relating to registration are dealt with in Pt 5.3 of
the Act. The document which must be registered is a ‘financing
statement’ as opposed to the security agreement itself. This is defined
in s 10 to mean ‘data registered (or that is to be registered) pursuant to
an application for registration under subsection 150(1)’. The financing
statement is the required form that, once registered on the PPSR, gives
notice of the security interest in the collateral. The content of the
financing statement includes a description of the collateral subject to
the security interest, details of the secured party and, if the collateral is
consumer property and not required to be described by serial number,
details also of the grantor. If the collateral is consumer property but
not required to be described by serial number, no details of the grantor
are required: s 153. Schedule 2 cl 2.2 of

[page 340]
the Personal Property Securities Regulations 2010 (Cth) (PPS
Regulations) prescribes the types of collateral which may or must be
described by serial number.
Registration begins at the moment when the description becomes
available for search in the register in relation to that secured party: s
160.

Perfection by possession
10.19 A secured party may perfect his or her interest by possession
of the collateral.
Possession is defined in s 24. Section 24 provides:
24 Possession
Possession by one party exclusive of possession by others
(1) A secured party cannot have possession of personal property if the property is in
the actual or apparent possession of the grantor or debtor, or another person on
behalf of the grantor or debtor.
(2) A grantor or debtor cannot have possession of personal property if the property is
in the actual or apparent possession of the secured party, or another person on behalf
of the secured party.
Timing rule for possession of goods transported by common carrier
(3) A grantor or debtor to whom goods are transported by a common carrier acquires
possession of the goods only when the earlier of the following occurs:
(a) the grantor or debtor, or another person at the request of the grantor or
debtor, actually acquires possession of the goods;
(b) the grantor or debtor, or another person at the request of the grantor or
debtor, acquires possession of a document of title to the goods.
Possession of certain negotiable instruments
(4) A person (the first person) has possession of a negotiable instrument that is not
evidenced by an electronic record if, and only if, the first person, or another person
on behalf of the first person, takes physical possession of the instrument.
Note: For possession of investment instruments, see subsection 24(6).
Possession of chattel paper that is evidenced electronically
(5) A secured party has possession of chattel paper that is evidenced by an electronic
record if, and only if:
(a) a single authoritative copy of the record exists which is unique, identifiable and
unalterable (except as set out below); and
(b) the authoritative copy identifies the secured party as the transferee of the
 record; and
(c) the authoritative copy is communicated to, and maintained by, the secured
party or the secured party’s agent; and
(d) copies or revisions of the record that change the transferee of the authoritative
copy can be made only with the participation of the secured party; and
(e) each copy of the authoritative copy (or any copy of such a copy) is readily
identifiable as a copy that is not the authoritative copy; and

[page 341]

(f) any revision of the authoritative copy is readily identifiable as an authorised

or unauthorised copy.
Possession of investment instruments
(6) Despite subsections (1) and (2), a person (the possessor) has possession of an
investment instrument that is evidenced by a certificate if, and only if:
(a) the certificate specifies the person who is entitled to the investment instrument;
and
(b) a transfer of the investment instrument may be registered on books maintained
for that purpose by or on behalf of the issuer (or the certificate states that a
transfer of the instrument may be so registered); and
(c) any of the following applies:
(i) the possessor has possession of the certificate;
(ii) another person (other than the grantor or the debtor) has possession of
the certificate on behalf of the possessor;
(iii) the registered owner (who is not the grantor or debtor) of the investment
instrument acknowledges in writing that he, she or it has possession of the
investment instrument on behalf of the possessor.

Section 24 reflects the realities associated with applying the concept

of possession to different forms of collateral. The s 24 concept is
different from the common law concept of possession. Unlike the
common law concept, s 24 does not extend to include constructive
possession. It also makes it clear that possession is a mutually exclusive
concept in the sense that the grantor and secured party cannot both
have possession of the collateral at the same time: s 24(1) and (2).
Perfection by possession is effective from the time the secured party
obtains possession of the collateral without the need for any further
formal requirements. A security interest remains perfected by
possession provided it is continuously perfected in accordance with s56.
If, for example, the secured party transfers possession of the collateral
to the grantor, the security interest will, from that time, be
unperfected.23 This is why registration, even where the secured party
has possession or control of the collateral, is prudent. For example,
(adapted from the Example provided in the Explanatory Memorandum
at [2.29]):

Example
Ready Finance has a security interest in a Charles Condor painting, Hot Wind, owned by
Charlotte. Ready Finance perfects the security interest by taking possession of the
painting on 1 April 2014. Ready Finance returns the painting to Charlotte on 28 April 2014
for a dinner party held by Charlotte. Ready Finance resumes possession on 1 May. Ready
Finance’s security interest ceased to be perfected on 28 April. Perfection of the security
interest commenced from 1 May 2014.

[page 342]

Special rules about possession apply in respect of:

goods transported by a common carrier;
negotiable instruments not evidenced electronically;
chattel paper evidenced electronically; and
investment instruments evidenced by a certificate.

Perfection by control
10.20 Perfection by control applies to certain types of security
interests, and specific rules are set out in ss 25–29 which deal with:
ADI accounts;
intermediated securities;
investment instruments;
letters of credit; and
negotiable instruments not evidenced by a certificate.
Specific rules that apply to the proceeds from
collateral
10.21 Part 2.4 Div 2 deals with the important issue of security
interests in the proceeds of collateral. ‘Proceeds’ is extensively defined
in s 31. Relevantly, it is defined to mean identifiable or traceable
personal property of various types, including personal property that is
derived directly or indirectly from a dealing with the collateral (or
proceeds of the collateral): s 31(1)(a). Proceeds are traceable whether
or not a fiduciary relationship exists between the person with the
security interest in the proceeds and the person who has rights in or
has dealt with the proceeds: s 31(2). Similarly to the attachment
principle, in order to qualify as proceeds under s 31, the grantor must
have an interest in the proceeds or the power to transfer rights in the
proceeds to the secured party: s 31(3).
Section 32 provides:
32 Proceeds — attachment
Continuation of security interest in collateral, and attachment to proceeds
(1) Subject to this Act, if collateral gives rise to proceeds (by being dealt with or
otherwise), the security interest:
(a) continues in the collateral, unless:
(i) the secured party expressly or impliedly authorised a disposal giving rise to
the proceeds; or
(ii) the secured party expressly or impliedly agreed that a dealing giving rise to
the proceeds would extinguish the security interest; and
(b) attaches to the proceeds, unless the security agreement provides otherwise.

[page 343]

Note 1: The effect of paragraph (a) is to extinguish the security interest in the
collateral if the secured party expressly or impliedly authorised the dealing
mentioned.
Note 2: A transferee can also take the collateral free of the security interest because of
the operation of another provision of this Act (for example, under Part 2.5).
Enforcement of security interest against collateral and proceeds
(2) If the secured party enforces a security interest against both collateral (other than
 an investment instrument or an intermediated security) and proceeds, the amount
secured by the security interest in the collateral and proceeds is limited to the market
value of the collateral immediately before the collateral gave rise to the proceeds.
Note: For the enforceability of a security interest against a third party in relation to
proceeds, see also subsection 20(6).
(3) However, subsection (2) does not apply if, at the time of the transfer of the
collateral, the transferee has actual or constructive knowledge that the transfer was in
breach of a security agreement that provides for the security interest in the collateral.
(4) To avoid doubt, subsection (2) does not affect any right the secured party may
have to recover the amount secured without enforcing the security interest.
Priority of proceeds
(5) For the purposes of section 55 (default priority rules), the time of registration or
possession in relation to original collateral, or the time of perfection of a security
interest in original collateral, is also the time of registration, possession or perfection
in relation to the proceeds of the original collateral.
Note: The effect of subsection (5) is that the security interest in the proceeds has the
same default priority as the security interest in the original collateral.

The following is an example of how the proceeds provisions apply:24

Example
Nicholas grants Australia Bank a security interest in his sapphires. Nicholas then transfers
the sapphires to Annabelle in exchange for rubies without Australia Bank’s authorisation.
Australia Bank would have a security interest in the rubies as proceeds of the sapphires.

[page 344]

WHEN A THIRD PARTY CAN TAKE

PERSONAL PROPERTY FREE OF AN
EXISTING SECURITY INTEREST
10.22 Ordinarily a person who bought or leased personal property
that was subject to a security interest would take the property subject to
that interest. However, like the common law exceptions that developed
in relation to the application of the nemo dat rule in the context of the
wrongful sale of goods by non-owners to innocent buyers, the PPSA
provides for a number of situations where a buyer or lessee may take
collateral free from an existing security interest. The PPSA does not
exclude the operation of state and territory laws provided they are not
inconsistent with its provisions: Pt 7.4. But the width of the ‘taking free’
rules arguably leaves limited scope for the application of the sale of
goods exceptions to the nemo dat rule.25
The rules for when personal property may be bought or leased free
of a security interest are contained in Pt 2.5 of the Act and include,
relevantly:
1. unperfected security interests;
2. serial number defects;
3. motor vehicles;
4. taking in the ordinary course of business; and
5. personal, domestic or household property.

Unperfected security interest

10.23 General rule: A buyer or lessee of personal property, for value,
takes that personal property free of an unperfected security interest: s
43(1); Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG
Electronics Australia Pty Ltd [2014] VSC 644 at [38].
Exception: The rule does not apply if the buyer or lessee was a party to
the transaction which created or provided for the unperfected security
interest: s 43(2).
This provision effectively places the onus on the secured party to
perfect their security interest.

Example
Con obtains secured finance from Reliance Bank to purchase a forklift. Reliance Bank
does not register the forklift on the PPS Register or perfect it using the other perfection
methods. Con sells the forklift to Tony. Tony would acquire his interest in the forklift free of
Reliance Bank’s security interest.26
 [page 345]

Where serial number incorrect on PPSR (s 44 of

the PPSA)
10.24 General rule: If a security interest may or must be described by
serial number and a search of the register immediately before the sale
or lease by serial number would not disclose the registration of that
security interest, the buyer or lessee takes the relevant personal
property free from the security interest: s 44(1).
‘Serial number’ is defined in s 10:
‘serial number’, in relation to collateral, means a serial number by which the
regulations require, or permit, the collateral to be described in a registration.

The rules for determining whether personal property needs to be

registered by serial number are set out in cl 2.2 of Sch 1 to the PPS
Regulations. There it is provided that the following collateral, if
described as consumer property, must be described by serial number in
the Register: certain categories of intangible property, motor vehicles
and watercraft: cl 2.2(1)(a). The same collateral, if described as
commercial property, may be described by serial number: cl 2.2(1)(c).
Aircraft must always be described by serial number: cl 2.2(1)(a)(i) and
(b).
‘Commercial property’ is defined to mean ‘personal property other
than consumer property’: s 10. ‘Consumer property’ is defined to mean
‘personal property held by an individual, other than personal property
held in the course or furtherance, to any degree, of carrying on an
enterprise to which an ABN has been allocated’: s 10.
Exceptions: This does not apply where:
1. the buyer or lessee holds the property as inventory after the
sale, either for themselves or on behalf of someone else; or
2. the buyer or lessee was a party to the transaction which
created or provided for the security interest: s 44(2).
‘Inventory’ is defined in s 10 as personal property that, in the course
of an enterprise to which an ABN has been allocated:
is held for sale or lease;
is held to be provided under a contract of service;
is held as raw materials or as work in progress; or
is held, used or consumed by the person as materials.

[page 346]

Example
Annabelle buys a boat from Peter. Reliable Finance has registered against the boat on the
PPS Register by reference to its serial number. Annabelle does not take the boat free of
Reliable Finance’s security interest, as a search of the PPS Register would have disclosed
Reliable Finance’s registration against the boat. Had Annabelle searched the PPS Register,
she would have discovered Reliable Finance’s registration and been aware that she would
not be able to buy the boat free of Reliable Finance’s security interest.27

Had Reliable Finance negligently recorded the wrong serial number

on the PPS Register, the outcome would have been different.
Annabelle’s search of the register by reference to the serial number
would not have disclosed the security interest held by Reliable Finance.
Annabelle would take her interest in the boat free of Reliable Finance’s
security interest in the boat.

Taking motor vehicles free of security interest (s

45 of the PPSA)
10.25 The circumstances in which a motor vehicle may be taken free
from a security interest are set out in s 45. It provides:
45 Taking motor vehicles free of security interest
Incorrect or missing serial number
(1) A buyer or lessee, for new value, of a motor vehicle of a kind prescribed by the
regulations for the purpose of this section, takes the motor vehicle free of a security
interest in the motor vehicle if:
(a) the regulations provide that motor vehicles of that kind may, or must, be
 described by serial number; and
(b) there is a time during the period between the start of the previous day and the
time of the sale or lease by reference to which a search of the register (by
reference otherwise only to the serial number of the motor vehicle) would not
disclose a registration that perfected the security interest; and
(c) the seller or lessor is:
(i) the person who granted the security interest; or
(ii) if the person who granted the security interest has lost the right to possess
the motor vehicle, or is estopped from asserting an interest in the motor
vehicle — another person who is in possession of the motor vehicle.

[page 347]

(2) Subsection (1) does not apply if:

(a) the secured party is in possession of the motor vehicle immediately before the
time of the sale or lease; or
(b) the motor vehicle is bought at a sale held by or on behalf of an execution
creditor; or
(c) the buyer or lessee holds the motor vehicle:
(i) as inventory; or
(ii) on behalf of a person who would hold the motor vehicle as inventory; or
(d) the buyer or lessee buys or leases the motor vehicle with actual or constructive
knowledge of the security interest.
Taking from prescribed persons
(3) A buyer or lessee, for new value, of a motor vehicle of a kind prescribed by the
regulations for the purpose of this section takes the motor vehicle free of a security
interest in the motor vehicle if:
(a) the regulations provide that motor vehicles of that kind may, or must, be
described by serial number; and
(b) the seller or lessor is in a class of persons prescribed by the regulations for the
purposes of this subsection.
(4) Subsection (3) does not apply if:
(a) the secured party is in possession of the motor vehicle immediately before the
time of the sale or lease; or
(b) the motor vehicle is bought at a sale held by or on behalf of an execution
creditor; or
(c) the buyer or lessee holds the motor vehicle:
(i) as inventory; or
(ii) on behalf of a person who would hold the motor vehicle as inventory; or
 the buyer or lessee buys or leases the motor vehicle with actual or constructive
(d) knowledge that the sale or lease constitutes a breach of the security agreement
that provides for the security interest.

General rules: Under s 45, a buyer can purchase a motor vehicle free
of a security interest if there is a time during the period between the
start of the previous day and the time of the sale or lease by reference
to which a search of the register would not disclose a registration and
the seller or lessor is either the person who granted the security interest
or is in possession of the motor vehicle: s 45(1).
If the seller or lessor of the motor vehicle was a licensed motor
vehicle dealer (see reg 2.2 of the PPS Regulations), the buyer or lessee
takes free of the security interest without the need to search the PPSR: s
45(3).
Exceptions: The rules do not apply if:
1. the secured party is in possession of the motor vehicle
immediately before the transaction;

[page 348]

2. the motor vehicle is bought at a sale held by or on behalf of

an execution creditor;
3. the buyer or lessee holds the motor vehicle as inventory; or
4. the buyer or lessee had actual or constructive knowledge of
the security interest at the time of the sale or lease, or, in the
case where the seller or lessor is a licensed motor vehicle
dealer, that the sale or lease constituted a breach of the
security agreement that provides for the security interest.

Example
Olly is a motor vehicle dealer. Olly has cars in stock financed under a floor plan
arrangement with bailment company Cheap Finance. Under the floor plan arrangement
Cheap Finance purchases the vehicles from Luxury Car Manufacturers and allows Olly to
retain them on his premises for sale. Cheap Finance registers its security interest in each
vehicle. William wants to purchase a car from Olly with finance provided by Better Bank.
Neither William nor Better Bank need to search the Register as the transferor, Olly, is a
 motor vehicle dealer. William acquires his interest in the car free of Cheap Finance’s
interest. Although William may have been aware that generally motor vehicles, held by
dealers such as Olly, as inventory are subject to a security interest, this knowledge does
not amount to ‘actual or constructive knowledge that the sale constitutes a breach of the
security agreement’.28

Collateral sold in the ordinary course of business

(s 46 of the PPSA)
10.26 General rule: If a buyer or lessee acquires or leases personal
property in the ordinary course of the seller’s or lessor’s business of
selling or leasing personal property of that kind, they take the personal
property free of a security interest given by the seller or lessor or under
s 32: s 46(1). This means that if a seller or lessor is in the business of
dealing in goods of the kind the subject of the transaction, he or she
bears the risk of any unknown security interests held in respect of those
goods.
Exceptions: The rule does not apply if:
1. in the case where the personal property may or must be
described by serial number, the buyer or lessee holds the
property as inventory after the sale, either on their own behalf
or for someone else; or
2. in any case, the buyer or lessee has actual knowledge that the
sale or lease constitutes a breach of the security agreement
that creates the security interest.
The sale of goods legislation can be referred to in considering
whether a person is a ‘buyer’ of personal property that has been ‘sold’
under s 46 of the PPSA: s 254;

[page 349]

Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics
Australia Pty Ltd [2014] VSC 644 at [47]. The PPSA is not a Code and
discloses no intention to displace the existing law relating to the sale of
personal property (as opposed to the creation and operation of security
interests in respect of personal property): at [47].
The operation of the buyer protection provisions, namely ss 32 and
46, was considered in Warehouse Sales in relation to a number of
different factual scenarios. One scenario concerned whether customers
who had bought goods from WHS, who had themselves acquired the
goods from suppliers subject to a retention of title clause, took free of
the suppliers’ security interest. It was held that, other than in the case
of laybys, the suppliers no longer had a security interest in the goods
sold because the sales were in the ordinary course of business of WHS
(s 46) and the sales had been specifically authorised by the suppliers (s
32(1)(a)(i)): at [51]. Layby sales were in a different category because
there was no ‘sale’ under sale of goods legislation. Consequently, goods
subject to a layby which were in the possession of WHS remained
subject to the suppliers’ security interests: at [60].
The same applied to goods sold by WHS to its subsidiary, WHS2. The
court observed, in relation to that scenario, that unless there was a sale
in the ordinary course of the business of WHS of selling goods of the
kind sold to WHS2, s 20 would preserve the security interest over the
collateral in the hands of the third party, namely WHS2. The court held
that a sale between a company and its subsidiary could be a sale in the
ordinary course of business. The court, in finding that there was, in
fact, a sale in the ordinary course of business, relied on a number of
factors (at [103]–[110]):
First, the evidence establishes that WHS was engaged in the business of selling white
goods. This business activity was not conducted exclusively as the basis of sales to retail
mum and dad customers. The same goods were also sold in a different way, that is,
through WHS2 to its retail customers. This represents a different mode of selling the
same goods. This mode was regularly engaged in, not only to WHS2 but also others. It
is no less a part of the ordinary business of WHS than the retail sales to customers
despite being a small part of the business of WHS.
Secondly, the Saskatchewan Wheat Pool case, used as an example in the REM,
provides some support for this view. In that case, dealing in cattle was not restricted to
sales of cattle and included the other regular activity of exchanging cattle for food.
The point is that the cattle was dealt with in different ways. So were the white goods in
the case at hand. Both ways were part of the business.
Thirdly, it is the seller’s (WHS’s) way of doing business that is relevant. The seller
 may do business in a particular way that may not be consistent with the more general
industry practice. It may engage in diverse or complementary activities. In Camco, a
property developer sold appliances as a secondary or incidental part of its business
which was primarily the sale of real estate. The Saskatchewan Court of Appeal held
that the sale of the appliances was in the ordinary course of the business of the
property developer. In the case at hand, the Goods sold were part of the same or
primary line

[page 350]

of business of WHS. They were sold as part of its business plan or model. The only
difference, to the bulk of the retail sales, was price and quantity.
Fourthly, there are no factors that point to the unusual or extraordinary nature of
the sales. The fact that the sales to WHS2 were less frequent than the bulk of the sales
is not to the point. Whilst there may be cases where irregular or infrequent
transactions call for comment and are not usual, this is not the case where the very
Goods were regularly sold for the purpose of on-sale or as part of a diverse and multi-
faceted — in a very limited way — business model. Again, price and quantity are the
only factors that call for comment.
Although price is a relevant factor, the sale below market value at or the same price
paid by the seller is not determinative. In my view, in this case, it is at best a neutral
factor. Consistent with these reasons it must be emphasised that the price in relation
to these sales differs from the price of goods sold to retail customers, given the
different mode of sale undertaken by WHS. Also the quantities sold are entirely
consistent with this part of the business model of WHS.
Fifthly, none of the other factors referred to affect this analysis. The reasons for the
transactions are entirely cogent and explicable and consistent with the operation of
the business of WHS. They do not represent an endeavour to do anything other than
operate a business in a particular way. The point is that regular activity of whatever
nature may become part of the ordinary business activities of a company in
circumstances where had the activity been engaged in once it would call for comment.
Further, it matters not whether a supplier is aware of such activity and the extent of
the departure from the main business of the company.
Accordingly, s 32 applies because the Suppliers (other than Panasonic) expressly or
impliedly authorised a disposal of the Goods in these circumstances.
Further, s 46 applies because the Goods were sold in the ordinary course of the
business of WHS in relation to the sale of goods of the kind sold.

Any goods on-sold by WHS2 to customers were also not subject to a

security interest because the security interest had already been
extinguished by the time the goods were on-sold. For similar reasons to
above, layby sales made by WHS2 were not relevantly sales and those
goods remained the property of WHS2.

Low-value personal, domestic or household

property (s 47 of the PPSA)
10.27 General rule: A buyer or lessee who acquires personal property
for new value and who intends at the time of the sale or lease to use the
property predominantly for personal, domestic or household purposes
takes the personal property free of a security interest in the property: s
47. New value means ‘value other than value provided to reduce or
discharge an earlier debt or liability owed to the person providing the
value’: s 10. The market value of the total new value for the property
must not exceed $5000.

[page 351]

The benefit of this rule is that it enables consumers to purchase

goods for personal, domestic or household use under $5000 without
the need to search the PPSR.
Exceptions: The rule does not apply if:
1. the personal property may or must be described by a serial
number;
2. the buyer or lessee buys or leases the personal property with
actual or constructive knowledge that the sale or lease
constituted a breach of the relevant security agreement; or
3. at the time the sale or lease was entered into, the buyer or
lessee believes, and it is actually the case, that the market value
of the personal property is more than $5000.
In Re Renovation Boys Pty Ltd (admins apptd) [2014] NSWSC 340,
purchasers of bathroom and kitchen products who had purchased the
goods from sellers who had acquired them from suppliers on the basis
of a retention of title were entitled to take their goods free of the
suppliers’ security interests on the basis of s 46 or, alternatively, s 47: at
[28].

DETERMINING PRIORITY WHERE THERE

ARE COMPETING SECURITY INTERESTS
10.28 The PPSA deals with the issue of priority between competing
security interests in Pt 2.6. These provisions are default rules in the
sense that they are general rules which do not apply if there are specific
rules elsewhere in the Act that apply or where the parties have agreed
to a different order of priorities. It has been said in relation to such a
dispute that it cannot be resolved through the determination of who
has title to the collateral, because the dispute is one of priority, not
ownership: Re Maiden Civil (P & E) Pty Ltd [2013] NSWSC 852 at [35].
Priorities between competing security interests are dealt with in s 55.

General priority rules

10.29 The general rules are as follows:
1. Perfected interests: first in time. Where there are two or more
competing perfected security interests, priority will be given to
the interest that was perfected first in time: s 55(4). This time,
called priority time, is defined to mean the earliest of the
following times:
(a) registration time;
(b) the time the secured party first took possession or control
of the collateral; or
(c) the time the security interest is temporarily perfected, or
otherwise perfected by the Act: s 55(5).

[page 352]
 2. Unperfected interests: order of attachment. If the competing
security interests are unperfected, priority will be given in
accordance with the order of attachment of the security
interests, which means that the security interest which was
attached first will take priority to those interests attached later
in time: s 55(2).
3. Perfected v unperfected interests: perfected takes priority. A
perfected security interest will take priority over an
unperfected security interest in the same collateral: s 55(3).
Section 55 therefore directs attention to whether, and if so when, an
interest is perfected. The concept of perfection is governed by s 21. In
turn, s 21 directs attention to whether the interest has attached to the
collateral (s 19) and is enforceable against a third party (s 20).
The priority rules were applied in Re Maiden Civil (P & E) Pty Ltd
[2013] NSWSC 852 to give priority to a registered security interest
created by the registration of a general security deed which was
attached to three Caterpillars and enforceable against third parties over
the unregistered and therefore unperfected security interest of a lessor
under a PPS lease. Section 55(3) applied to give priority to the
perfected interest. Moreover, upon the lessee going into
administration, the lessee became entitled to the Caterpillars, subject to
the perfected interest, because the unperfected security interest of the
lessor vested in the lessee: at [91]. Further, it was held that the secured
party’s rights were not limited to the rights of the lessee under the
lease; in other words, the fact the lease had been repudiated did not
mean that the secured party could no longer exercise its rights under
the PPSA because the property was now the property of the lessor: at
[76]–[80].

Special priority rules

10.30 Special rules governing priority apply in some instances:
1. Purchase money security interests. These are a category of
security interest whereby the secured party has provided the
 finance required by the grantor to acquire the collateral. They
include, for example, retention of title arrangements, certain
leases and bailments of goods and commercial consignments
of goods. The holder of this type of security interest has what
is termed a ‘super-priority’ in respect of the collateral, which
takes precedence over all other security interests which have
been perfected by registration or possession: s 62.
2. Acceded goods. Specific provisions apply to goods which have
become physically attached by accession to other goods: ss 88–
97.
3. Commingled goods. Specific provisions apply to security
interests in personal property that have become an
unidentifiable part of a larger product through a process of
manufacture, processing or mixing: ss 99–103.

[page 353]

ENFORCEMENT OF SECURITY INTERESTS

10.31 The enforcement of security interests upon default is dealt
with in Chapter 4 of the PPSA. That chapter contains provisions
dealing with the seizure (s 127), disposal (s 128) and retention (s 134)
of property by the secured party in circumstances where there has been
default under the security agreement. These remedies may be
contracted out of in some circumstances involving property which is
not used predominantly for personal, domestic or household purposes
(s 115) and are intended to complement other available rights and
remedies: s 110.

_______________
1 LexisNexis Butterworths, Personal Property Securities in Australia, ‘Background and Overview
of PPSA’ at [1.50].
2 Section 8(1)(c) of the PPSA. Liens, being generally possessory securities in the sense that
 the secured party takes possession of the secured property until the debt or other
obligation is satisfied, are not as likely to lead to a situation where a third party is misled
into taking the secured property thinking it was free of a security interest. The protections
provided to third parties under the PPSA do not, therefore, need to extend to these types
of securities. Mechanics, therefore, for example, who keep a car as security for payment do
not need to comply with the PPSA.
3 Section 8(1)(b) of the PPSA.
4 Section 8(1)(j) of the PPSA. ‘Fixtures’ is defined in s 10 to mean goods that are affixed to
land, not including crops.
5 Section 8(1)(ja) and (6) of the PPSA.
6 Explanatory Memorandum to the Personal Property Securities Bill 2009, p 10.
7 See generally J Harris and N Mirzai, Annotated Personal Property Securities Act 2009 (Cth),
CCH Australia Ltd, 2011 at [12.5.1].
8 See below at 10.9.
9 See below at 10.10.
10 ‘Chattel paper’ is defined in s 10 of the PPSA and includes a writing which evidences both
a monetary obligation and a security interest in or lease of specific goods — for example, a
hire-purchase agreement or lease.
11 ‘Commercial consignment’ is defined in s 10 of the PPSA.
12 ‘PPS lease’ is defined in s 13 of the PPSA.
13 Defined in s 10 of the PPSA.
14 Defined in s 10 of the PPSA.
15 Also called Romalpa clauses after Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd
[1976] 1 WLR 676.
16 See further at 10.29 below in relation to relevant priority rules.
17 Australian Encyclopaedia of Forms and Precedents, Retention of title clauses in sales of goods
and other consumer transactions, 2012 at [410-251].
18 Ibid.
19 Australian Encyclopaedia of Forms and Precedents, Consignment in sale of goods and other
consumer transactions, 2012 at [410-261].
20 Explanatory Memorandum to the PPS Bill 2009 at [2.9]. In order for a security interest to
be enforceable against third parties, the security interest would need to be attached AND
perfected. The concept of ‘perfection’ is discussed below at 10.17.
21 Explanatory Memorandum to the PPS Bill 2009 at p 6.
22 See for example Waller v New Zealand Bloodstock Ltd [2006] 3 NZLR 629; Re Maiden Civil (P
& E) Pty Ltd [2013] NSWSC 852; Albarran v Queensland Excavation Services Pty Ltd (2013)
277 FLR 337; [2013] NSWSC 852; Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v
LG Electronics Australia Pty Ltd [2014] VSC 644; Dura (Australia) Constructions Pty Ltd v Hue
Boutique Living Pty Ltd [2014] VSCA 326.
23 Although a security interest becomes unperfected, the security agreement remains valid
and effective as between the secured party and the grantor.
24 Adapted from the example which appears in the Explanatory Memorandum to the PPS
 Bill 2009 at [2.41].
25 See further D McGill, ‘Transfer of Title by a Non-owner: the Personal Property Securities
Act 2009 (Cth) Exceptions to the Nemo Dat Rule’ (2011) 39 ABLR 209 at 225.
26 Adapted from the example provided in the Explanatory Memorandum to the PPS Bill
2009 at [2.75].
27 Example adapted from that provided in the Explanatory Memorandum to the PPS Bill
2009 at [2.87].
[page 355]
CHAPTER 11
Insurance

REGULATION OF THE INSURANCE INDUSTRY

Introduction
Overview of regulatory framework
Role of regulatory authorities
The present prudential regulatory framework
General Insurance Code of Practice
National Privacy Principles

FORMATION OF THE CONTRACT OF INSURANCE

DISCLOSURE
The insured’s duty of disclosure
When is something ‘known’ by the insured?
Matters ‘relevant to the decision of the insurer whether to accept
the risk’
Matter includes an opinion
The reasonable insured
What matters do not need to be disclosed?
Disclosure and ‘eligible contracts’ of insurance
The consequences of non-disclosure

MISREPRESENTATION
When is a statement a misrepresentation?
Excluded misrepresentations
The consequences of misrepresentation
 [page 356]

DUTY OF GOOD FAITH

Introduction
The insured and the duty of utmost good faith
The insurer and the duty of utmost good faith

CONSTRUING THE POLICY

Introduction
Structure of the insurance contract
Determining the meaning of the policy: principles of construction
Unusual terms: ss 14 and 37 considered

BREACH BY INSURED OF A TERM IN THE POLICY

Introduction
The application of s 54
Insurer’s remedy for a breach of condition

MAKING A CLAIM
Loss covered by the policy
Causation
When and whether a ‘claim’ is in fact made against the insurer
Delay in the notification of a claim

FRAUDULENT CLAIMS
What is a ‘fraudulent claim’?
The effect of a fraudulent claim
What if the value of the claim is exaggerated or an otherwise valid
claim is supported by false evidence?
The fraud of a co-insured and its effect on other insureds and third
parties
The interaction between ss 13, 54 and 56
 No fraud, but has the insured proved the loss falls within the
policy?

SUBROGATION
What does subrogation mean?
When can the insurer exercise its right of subrogation?
What rights can the insurer receive through subrogation?
What if the insurer recovers more from the third party than the
insurer has paid to the insured?
How is subrogation different from an insurer’s right of
contribution?
Subrogation to rights against family
Subrogation to rights against employees
Release and settlement of claims by insured

[page 357]

DOUBLE INSURANCE AND CONTRIBUTION

Introduction
Nature of double insurance and the right of contribution
Obligation of insured to notify of other insurance
Determining the amount of contribution where double insurance
exists
 [page 358]

REGULATION OF THE INSURANCE

INDUSTRY
Introduction
11.1 Insurance is the payment of a premium to an insurer for a
payment back in return should an identified event, the occurrence of
which is uncertain, take place. It is risk sharing at a price.
Not surprisingly, risk sharing in a commercial context is an old
practice. Although not ‘insurance’ in modern terms, there is evidence
from some 4000 years ago of Chinese and Hindu traders plying
treacherous inland waterways like the Yangtze or the Yellow Rivers, or
perhaps the Ganges, routinely dividing their cargoes among many
vessels. Were one vessel to be lost to a pirate, or sunk, a calamitous loss
was avoided because each trader lost only some of their produce.
The traders of ancient Rhodes, in the first millennium BC, developed
a more sophisticated thesis. There, if a merchant ship ran aground, and
one trader’s goods had to be pushed overboard to save the ship, the law
imposed an obligation on the others to contribute to the loss of the
unfortunate trader. Interestingly, that principle now forms the basis of
the principle of contribution between insurers both of whom have
insured the same risk.
The earliest true insurance covers have been traced to Genoa, in
1343. A broker carried a contract and shopped around for people to
accept part of the risk. Those who did accept part of the risk signed
their names and their amounts under each other (hence the term
‘underwriter’).
Insurance has come a long way since then. It is traditionally
categorised according to the nature of the event insured against, that is,
fire, accident (a catch-all category), life and marine insurance.1
Insurance now extends even to the protection of businesses in exotic
lands and volatile political climates against political unrest or
government acquisition of assets.
Another way of categorising insurance is according to the benefits
provided under the contract, that is, between indemnity and non-
indemnity insurance. In the case of indemnity insurance, the insurer
agrees to indemnify the insured for the limited loss actually suffered by
the insured up to the amount covered by the policy. If the insurance is
non-indemnity in nature, liability of the insurer is fixed. Some
examples of such insurance include life insurance and health
insurance.

Overview of regulatory framework

11.2 The laws relating to insurance, and the laws relating to the
conduct of insurers, can be found mostly in these statutes:

[page 359]

(a) in respect of the conduct of general insurers, the Insurance

Act 1973 (Cth), which was substantially amended by the
General Insurance Reform Act 2001 (Cth);
(b) in respect of the conduct of life insurers, the Life Insurance
Act 1995 (Cth); and
(c) in respect of insurance law in general insurance, and in many
respects concerning life insurance, the Insurance Contracts
Act 1984 (Cth).
Insurance, other than state insurance, is one of the specific
Commonwealth powers in s 51(xiv) of the Constitution.
For brokers and intermediaries, the Financial Services Reform Act
2001 (Cth) introduced, by its Schedules, substantial amendments to the
Corporations Act 2001 (Cth). Now, the provisions relating to the
licensing of providers of financial services, financial services disclosure,
the conduct of financial service providers, and enforcement and
offence provisions can be found in Pts 7.6–7.9 of the Corporations Act.
Under the Insurance Act 1973, an insurer must be a body corporate.
Consequently, those laws in the Corporations Act relating to the
conduct of directors and officers relate to the conduct of business by
the officers of an insurance company.
The main object of the Insurance Act is ‘to protect the interests of
policyholders and prospective policyholders under insurance policies
(issued by general insurers and Lloyd’s underwriters) in ways that are
consistent with the continued development of a viable, competitive and
innovative insurance industry’.2 The Act seeks to achieve that object by:
(a) restricting who can carry on insurance business in Australia, by requiring general
insurers, and the directors and senior management of general insurers, to meet
certain suitability requirements; and
(b) imposing primary responsibility for protecting the interests of policyholders on
the directors and senior management of general insurers; and
(c) imposing on general insurers requirements to promote prudent management of
their insurance business (including requirements concerning capital adequacy,
the valuation of liabilities, reinsurance arrangements and the effectiveness of risk
management strategies and techniques); and
(d) providing for prudential supervision of general insurers by APRA; …3

To carry on business as an insurer, a person must be a body

corporate or a Lloyd’s underwriter4 and be authorised by the
Australian Prudential Regulation Authority (APRA) to carry on
insurance business in Australia.5 No part of the insurance business of a
general insurer may be transferred to another general insurer or
amalgamated with the business of another general insurer except
under a scheme confirmed by the Federal Court.6

[page 360]

Who may and may not act as directors of insurance companies is

regulated under the Act.7
Under the Life Insurance Act 1995, life companies are required to be
registered8 and significant legislative attention is given to statutory
funds of life companies.9 The Act sets solvency and capital standards,
restricts the transfer of insurance business, defines the necessary
financial records and statements, provides for the appointment of
actuaries and a Life Insurance Actuarial Standards Board and provides
for the monitoring and investigation of life companies.10

Role of regulatory authorities

11.3 There are two relevant regulatory authorities: the Australian
Prudential Regulation Authority (APRA) and the Australian Securities
and Investments Commission (ASIC).
APRA was established by the Australian Prudential Regulation Act
1998 (Cth).11 It was established for the purpose of regulating bodies in
the financial sector in accordance with other laws of the
Commonwealth that provide for prudential regulation, and for
developing the administrative practices and procedures to be applied
in performing that regulatory role.12 In performing and exercising its
functions and powers, APRA is to balance the objectives of financial
safety and efficiency, competition, stability and competitive neutrality.13
APRA is obliged by its Act to advise the minister as soon as practicable if
it considers that a body regulated by APRA is in financial difficulty. It
has an advisory role to the minister in respect of regulation of the
industry.14 Provisions are made in the Act for the appointment of
members of APRA.15
By s 32 of the Insurance Act, APRA may determine prudential
standards for insurers. Prudential standards may impose different
requirements for different classes of general insurers, in different
situations or in respect of different activities,16 and insurers are obliged
to comply with them.17 The functions of APRA include the collection
and analysis of information on prudential matters concerning general
insurers, encouraging and promoting the carrying out of sound
practices in relation to prudential matters by general insurers and
evaluating the effectiveness and carrying out of those practices.18
 [page 361]

General insurers are required by the Act to have an auditor and an

actuary,19 and the auditor and actuary must be approved by APRA.20
The auditor and the actuary are required by the Act to supply
information to APRA upon request.21 The auditor’s and actuary’s roles
are defined by the Act.22 General insurers are required, in accordance
with the prudential standards, to lodge annually with APRA the
auditor’s certificate and reports and the actuary’s reports.23 APRA is
given power to investigate an insurer where it appears to APRA that a
general insurer is or is likely to become unable to meet its liabilities, or
has contravened or failed to comply with a provision of the Act or a
direction made under it.24
ASIC was established by s 7 of the Australian Securities and
Investments Commission Act 1989 (Cth) and is continued in existence
by s 261 of the Australian Securities and Investments Commission Act
2001 (Cth). It has a particular role in respect of the regulation and
administration of laws relating to financial products, which by
definition include insurance,25 and financial services, which by
definition are services related to financial products.26 There are, in the
Act, substantial provisions relating to consumer protection in relation
to the provision of financial products. ASIC is enabled by the Act to
make investigations for the due administration of the corporations
legislation,27 to carry out examinations of persons and to inspect
books.28 Under Div 4 of Pt 3 there are requirements to disclose
information about financial products. ASIC has power to cause
prosecutions to be carried out, or civil proceedings to be begun,29 for
breaches of the provisions of the Australian Securities and Investments
Commission Act 2001 or Corporations Act.
Under Pt 12 of the Act, the Financial Reporting Council established
under the Act is charged with the function of facilitating the
development of accounting standards that require the provision of
financial information. This is intended to make financial products and
financial services, among other things, more transparent and
understandable.
ASIC, of course, is charged with overseeing the Corporations Act,
and hence those provisions in the Act relating generally to companies,
and relating to the provision of financial services, are also administered
by ASIC.

[page 362]

The present prudential regulatory framework

11.4 The present prudential framework for the supervision of
general insurance became effective on 1 July 2002, upon the
commencement of the General Insurance Reform Act 2001. By virtue
of that Act, APRA now has the power to determine prudential
standards.30 There are three tiers to the regulatory regime:
the statutory provisions in the Insurance Act 1973;
the prudential standards issued by APRA; and
guidance notes, also issued by APRA.
The Insurance Act 1973 sets out overarching principles and powers
that are necessary for effective prudential supervision. The prudential
standards set out the main requirements with which authorised insurers
must comply while the guidance notes assist in their interpretation.
APRA has issued five prudential standards since being granted the
power. The framework is supported by a new regulatory reporting
regime contained in the reporting standards made under the Financial
Sector (Collection of Data) Act 2001 (Cth).
The new regime is an attempt at a holistic approach to prudential
regulation. Reporting standards are defined and are intended to
provide uniformity in financial reporting. The reports ought
theoretically to show, on their face, compliance with the prudential
standards. If something looks doubtful, APRA has wide powers of
investigation and has the power to require the giving of further
information, including the valuation of an asset or liability.
The most important changes introduced by the General Insurance
Reform Act 2001 were:
(a) The minimum capital requirement for general insurers was
increased.
(b) Risk-weighted capital solvency requirements were introduced
such that high-risk activities needed to be supported by more
capital.
(c) A conservative insurance liability valuation standard was
imposed, including a requirement for a prudential margin.
(d) A requirement that the board of each insurer prove an
appropriate, formal reinsurance-management strategy was
introduced.
(e) There was a general tightening of corporate governance and
other management requirements, such as the requirement for
insurers to adopt formal risk and other management strategies
and more stringent ‘fit and proper person’ tests for the
directors, senior managers, auditors and actuaries.
(f) Greater controls and requirements were imposed on auditors
and actuaries.

[page 363]

General Insurance Code of Practice

11.5 The General Insurance Code of Practice (GICP) was developed
by the Insurance Council of Australia Ltd (ICA), the national
representative body for the general insurance industry, in 1994. A
revised Code came into effect on 1 July 2014, with a 12-month period,
until 30 June 2015, for insurers to transition to the Code. The GICP is
self-regulatory: a breach of its provisions does not, apart from the
sanctions set out in the GICP, give rise to any legal right or liability. The
GICP applies to general insurance excluding workers’ compensation,
marine insurance, medical indemnity insurance, compulsory third-
party insurance and reinsurance: GICP cl 3.5. The Code applies
differently to retail insurance and wholesale insurance: GICP cl 3.7.
‘Retail Insurance’ means ‘a general insurance product that is provided
to, or to be provided to, an individual or for use in connection with a
Small Business, and is one of the following types: a motor vehicle
insurance product; a home building insurance product; a home
contents insurance product; a sickness and accident insurance product;
a consumer credit insurance product; a travel insurance product; or a
personal and domestic property insurance product as defined in the
Corporations Act 2001 and the relevant Regulations’. ‘Wholesale
Insurance’ means ‘a general insurance product covered by this Code
which is not Retail Insurance’: GICP cl 15.
The objectives of the GICP are (cl 2.1):
to commit insurers and the professionals they rely upon to high
standards of service;
to promote better, more informed relations between insurers and
their customers;
to maintain and promote trust and confidence in the general
insurance industry;
to provide fair and effective mechanisms for the resolution of
Complaints and disputes between insurers and their customers;
and
to promote continuous improvement of the general insurance
industry through education and training.
The GICP requires general insurers to:
conduct claims-handling in an honest, fair, transparent and timely
manner: cl 7;
comply with certain time frames when handling claims: cl 7. For
example, once the insurer has all the necessary information it
requires in relation to the claim, the insurer is required to either
accept or deny the claim and notify the insured of that decision
 within 10 business days of receipt of the claim. If more
information is required, the insurer must request this information
from the insured within 10 business days of the receipt of the
claim. Insured parties are to be informed at least every 20 business
days of the progress of their claim;
fast-track certain claims or make advance payments where the
insured can demonstrate that he or she is in urgent financial need
of the benefits they are entitled to under the policy as a result of
the event causing the claim: cl 7.7;

[page 364]

permit settled property claims arising from a catastrophe or

disaster which were finalised within one month of the catastrophe
or disaster to be reviewed notwithstanding that a release may have
been signed by the insured: cl 9.3;
provide reasons for refusing to insure somebody and refer that
person to another insurer, the Insurance Council of Australia or
the National Insurance Brokers Association (NIBA) for
information about alternative insurance options: cl 7.19.
The GICP is monitored and enforced by the Financial Ombudsman
Service (FOS), which is to report non-compliance with the Code and
agree on corrective action with the insurer. If this fails, the FOS is to
refer the matter to the Code Compliance Committee, which can
impose sanctions including a requirement that corrective action be
taken within a particular time, require a compliance audit to be
undertaken by the relevant insurer and require corrective advertising
and/or publication of the relevant insurer’s non-compliance: cl 13.15.

National Privacy Principles

11.6 The Privacy Act 1988 (Cth) commenced on 1 January 1989. The
Act requires most organisations with a turnover greater than $3 million
to comply with the National Privacy Principles when handling personal
information. If the principles are not complied with, the aggrieved
person may obtain damages. The legislation applies not only to
insurance companies but also to brokers, insurance investigators and
law firms.

FORMATION OF THE CONTRACT OF

INSURANCE
11.7 A proposal form submitted by the proposed insured generally
constitutes an offer by the insured to enter into a contract. In most
cases, the contract of insurance is complete when the insurer notifies
the insured of its acceptance of the proposal. If an insurer does not
accept the proposal but offers to the proposed insured to insure on
different terms, the insurer will have made a counter-offer, then
capable of acceptance by the proposed insured. A good example is
where, after consideration of the proposal, a life insurer offers cover
with a life loading.
Whether or not agreement has been reached is to be determined by
looking objectively at the circumstances. It is not to the point that one
of the parties may believe a contract has, or has not, been completed.
The correspondence from the insurer to the insured following the
proposal must always be read carefully to ascertain whether indeed it
constitutes an acceptance. Sometimes the correspondence may require
payment of a premium before a contract will be deemed to come into
effect. Thus, a paragraph in a letter accompanying the policy terms
informing the insured that the contract of

[page 365]

insurance will not be in existence before the premium is paid would be

effective as a condition precedent to the formation of the contract.31
 An interesting issue arises where the payment of the premium is
expressed to be required before, for example, coverage is ‘effective’.
What if the risk increases between the time the insured is so notified
and the payment by the insured of the premium? Is the insurer entitled
to refuse payment of the cheque? The answer to this question depends
on whether there is in fact a contract formed, and the payment of the
cheque a condition precedent to liability, or whether the cheque is a
condition precedent to the formation of the contract itself. In the
former case, the insurer would be bound to accept the cheque; in the
latter, it would not.
It is important to note that the time at which cover commences may
be different from the time at which the contract is entered into. The
time at which a contract of renewal is reached depends, usually, upon
the terms upon which the renewal is offered. The letter may simply be
an offer to renew, in which case the renewal will usually be effective
upon the payment of the premium. On other occasions, the renewal
notice may be in the form of an invitation to the insured to make an
offer of renewal. The renewal will then be effective upon acceptance of
the insured’s offer of renewal.
Usually insurers will issue interim cover pending completion of the
proposal by the insured or acceptance of the proposal. Interim cover is
often provided in the form of a cover note. A cover note is a contract of
insurance which insures the proponent (prospective insured) until
either the issue of a formal policy or the time specified in the cover
note expires or a notice of termination is given.
The proposal stage and the insurance contract itself are subject to
the Insurance Contracts Act 1984 (Cth).32
The parties to the insurance contract are the insurer and the
insured. The contract of insurance may also refer to someone who is
not a party to the contract but who is intended to benefit from its
terms. Such a person is referred to as a ‘third party beneficiary’: s
11(1). Section 48 of the Act addresses the position of non-party
insureds in contracts of general insurance and modifies the principle of
privity of contract33 (s 48A is the equivalent provision for life
insurance):
 48 Contracts of general insurance — entitlements of third party beneficiaries
(1) A third party beneficiary under a contract of general insurance has a right to
recover from the insurer, in accordance with the contract, the amount of any loss
suffered by the third party beneficiary even though the third party beneficiary is not a
party to the contract.

[page 366]

Thus, a person who is specified in the insurance contract as one to

whom the insurance contract extends has a direct right of action
against the insurer. Where third parties take action they are subject to
the defences which the insurer could raise against the insured based on
the insured’s conduct; that is, the success of the third party’s claim
depends upon the conduct of the insured: s 48(3); CE Heath Casualty &
General Insurance Ltd v Grey (1993) 32 NSWLR 25. Section 48 confers a
statutory right of recovery upon third-party beneficiaries. It does not
deem a third party to be a party to the insurance contract thus
attracting the rights conferred on a party: Smart v Westpac Banking
Corporation [2011] FCA 829; (2011) 282 ALR 400 at [10] citing Zurich
Australian Insurance Ltd v Metals and Minerals Insurance Pte Ltd (2009)
240 CLR 391; [2009] HCA 50 at [24]. Including a party within the
definition of ‘insured’ in the insurance contract does not mean that
person is a party to the contract or an ‘insured’ within the meaning of
the Act: ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65
at [1635]; Lambert Leasing Inc v QBE Insurance Ltd [2015] NSWSC 750.
However, for the purposes of the application of the duty of good faith
after the contract of insurance is entered into, s 13(3) now provides,
following amendments introduced by the 5Insurance Contracts
Amendment Act 2013 Cth), that a reference in s 13 to a party to a
contract of insurance ‘includes a reference to a third party beneficiary
under the contract’. Section 13(4) provides that s 13, which implies a
term requiring each party to act with the utmost good faith, applies in
relation to a third-party beneficiary upon entry into the contract of
insurance.
At common law, it is necessary for a person, in order to make a
contract of insurance, to have an ‘insurable interest’ in the subject
matter of the insurance, that is, a legal or equitable proprietary interest
at the time of entry into the contract: Macaura v Northern Assurance Co
Ltd [1925] AC 619; Truran Earth Movers Pty Ltd v Norwich Union Fire
Insurance Society Ltd (1976) 17 SASR 1. Under the Act, however, an
insurable interest requirement at the time of entry into the insurance
contract is no longer required: s 16(1). Instead, under s 17, if the
insured has suffered a ‘pecuniary or economic loss’ as a result of the
insured property being damaged or destroyed, the insurer cannot
escape liability under the contract by reason only that the insured at
the time of loss did not have an interest at law or in equity in the
property. The effect of s 17 has been to replace the strict proprietary
interest requirement with a broader and more easily satisfied economic
loss test. In relation to life insurance, s 18 provides that a contract is not
void by reason only that, at the time of entry into the contract, the
insured did not have an interest in the subject matter of the contract.34
Hence, it is of importance to determine whether or not the contract is
one which falls within the Act.
The principal issues arising prior to the entry into an insurance
contract are the breadth and effect of the duty of good faith, issues
relating to disclosure by the insured and misrepresentation by the
insured to the insurer in the course of obtaining the policy.

[page 367]

Good faith is an obligation that applies to both parties throughout

the contract of insurance and to a third-party beneficiary after the
contract has been entered into.35 Non-disclosure refers to the failure by
an insured to disclose relevant information to the insurer at the
proposal stage. Misrepresentation applies where the insured has
communicated incorrect or inaccurate information to the insurer,
usually in response to a question in the proposal form.
DISCLOSURE
The insured’s duty of disclosure
11.8 While the Insurance Contracts Act 1984 must be construed
according to its terms, its purport can best be understood if the
common law principles it was intended to ameliorate are also
understood.
In broad terms, under the common law, the matters which had to be
disclosed were of wider compass than they are now, and the
consequences of a failure to disclose were harsher and less flexible.
Under the common law, the insured had a duty prior to entry into
the contract to disclose all facts which they knew and which would
reasonably affect the mind of a prudent insurer. The test of materiality
was put this way by Samuels J in Mayne Nickless Ltd v Pegler [1974] 1
NSWLR 228 at 239:
The question is whether [the] information would have been relevant to the exercise
of the insurer’s option to accept or reject the insurance proposed.
It seems to me that the test of materiality is this: a fact is material if it would have
reasonably affected the mind of a prudent insurer in determining whether he will
accept the insurance, and if so, at what premium and on what conditions.

This was an onerous obligation. It required the insured to disclose

not only that which they thought, or an insured in their position might
reasonably think, material, but also those matters which would
reasonably affect the mind of a prudent insurer. It was quite
conceivable that the insured might not have understood that the facts
which they knew would be relevant to an insurer. The rule was hence
subject to the criticism that it went beyond the obligation of utmost
good faith.
Further, if there had been a failure to disclose material facts, the
insurer was entitled to be released from its obligations under the
contract. There was conflicting authority as to whether the insurer, in
addition, had to show it had been induced to enter the contract by the
non-disclosure, a requirement which applied to misrepresentation.
There was support for the view that the insurer could avoid the
contract even if the facts not disclosed would not actually have made
any difference to whether that particular insurer accepted the risk or to
the terms upon which it would do so: Mayne Nickless at 239;

[page 368]

Zurich General Accident and Liability Insurance Co Ltd v Morrison [1942] 2

KB 53. Nondisclosures were fatal without proof of reliance by the
insurer and without proof of actual prejudice. However, in Pan Atlantic
Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501, the House
of Lords decisively affirmed the contrary view that inducement of the
actual insurer was required.
If the insurer did avoid the contract, the contract was avoided from
its inception, which meant that each party was returned to the position
it was in at the very beginning of the contract. For instance, if the
insurer had previously paid out on a claim, this money would have to
be returned to the insurer. Premiums paid by the insured would in turn
have to be refunded, unless the failure to disclose was fraudulent.
The common law was considered harsh in its application to insureds.
Consequently, major reforms were introduced by the Act. Part IV Div 1
deals with non-disclosure and Div 2 with misrepresentation, while the
remedies for each are contained in Div 3. In this respect, the Act is to
be regarded as a Code which replaces the common law: s 33; Advance
(NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606. An
alternative claim brought by an insurer against an insured on the basis
of the misleading and deceptive conduct provisions of the ASIC Act
2001 (Cth) or Fair Trading Act 1985 (Vic) was found to have no basis
given that life insurance is regulated by the Life Insurance Act and the
Insurance Contracts Act: Montclare v Metlife Insurance Ltd [2015] VSC
306 at [785].
An insurer must, before a contract of insurance is entered into,
clearly inform the insured in writing of the general nature and effect of
the duty of disclosure and, if s 21A applies, also clearly inform the
insured in writing of the general nature and effect of s 21A: s 22. If the
insured is not notified, the insurer cannot avoid the policy on the
grounds of non-disclosure unless the insured has been fraudulent: s
22(3). There are limited exceptions provided for in s 69. The onus is
on the insurer to show compliance with s 22: Montclare. The insurer’s
rights to rely upon a misrepresentation are not affected by any failure
to inform the insured of its duty of disclosure: Dawes Underwriting
Australia Pty Ltd v Roth [2009] NSWCA 152 at [40].
Clarity is required not only in the contents of the notice but also in
the manner in which the notice is made known. It may be insufficient if
the notice regarding disclosure obligations is on the back of the
certificate of insurance: Suncorp General Insurance Ltd v Cheihk (1999) 10
ANZ Ins Cas 61–442; O’Farrell v Allianz Australia Insurance Ltd [2015]
NSWCA 48. In the life insurance context, a notice in the application
form that was laden with technical language, was addressed to the life
insured rather than the insured and failed to explain in clear terms that
a policy could be avoided or claim denied due to non-disclosure was
held not to comply with s 22: Montclare at [181]–[183]. On the other
hand, it is not necessary each time a policy is renewed for the disclosure
obligations to be re-identified. It is permissible to look to the course of
dealings between the parties to see whether, in truth, the notice
requirements have been satisfied. This may include notice given on
previous occasions: GIO General Ltd v Wallace (2001) 11 ANZ Ins Cas
61–506; [2001] NSWCA 299.

[page 369]

Section 11(10) provides that if information required by s 22 is given

before entry into a contract of insurance or a renewal, the requirement
will be deemed to have been satisfied at or before any subsequent
renewal. If, however, the renewal amounts to a variation, s 22 must be
complied with: s 11(10)(b); GIO.
There are other sections which impose a pre-contractual duty on the
insurer to inform the insured about the nature of specific terms in the
insurance contract.36
The insured’s obligation of disclosure is set out in s 21, which
provides as follows:
21 The insured’s duty of disclosure
(1) Subject to this Act, an insured has a duty to disclose to the insurer, before the
relevant contract of insurance is entered into, every matter that is known to the
insured, being a matter that:
(a) the insured knows to be a matter relevant to the decision of the insurer
whether to accept the risk and, if so, on what terms; or
(b) a reasonable person in the circumstances could be expected to know to be a
matter so relevant, having regard to factors including, but not limited to:
(i) the nature and extent of the insurance cover to be provided under the
relevant contract of insurance; and
(ii) the class of persons who would ordinarily be expected to apply for
insurance cover of that kind.

Under s 21, there are three prerequisites before the duty of

disclosure requires a fact to be disclosed:
1. there must exist a matter which is relevant to the insurer’s
decision;
2. the matter must be known to the insured; and
3. the insured must know that the matter is relevant to the
insurer’s decision or, if the insured does not know, then
disclosure is required if a reasonable person in the
circumstances could be expected to know that it was relevant.
This is a critical change from the common law: instead of there being
an obligation on the insured to disclose material facts known to the
insured, which would be relevant to a prudent insurer, only those
material facts known to the insured which they knew to be relevant to
the insurer, or which a reasonable person in the circumstances would
have known to be so relevant, must be disclosed. The phrase ‘in the
circumstances’ is not intended to include the individual idiosyncrasies
of the insured: Twenty-first Maylux Pty Ltd v Mercantile Mutual Insurance
(Aust) Ltd (1989) 6 ANZ Ins Cas 60–954. The insured remains the
reasonable person, although whether such a person would regard a fact
as one to be disclosed is judged in the insured’s circumstances.
 [page 370]

The statutory disclosure obligation was described by the High Court

in CGU Insurance Ltd v Porthouse (2008) 235 CLR 103; [2008] HCA 30 at
[52]–[53] as follows:
The statutory test for disclosure now to be found in s 21 of the Insurance Contracts
Act focuses on the ‘reasonable insured’, not the ‘prudent insurer’, and operates, first,
by reference to the actual knowledge of the insured (s 21(1)(a)), and secondly, by
reference to what ‘a reasonable person in the circumstances could be expected to
know’ (s 21(1) (b)). That latter statutory phrase has been interpreted as meaning that
one should take into account only factors which are ‘extrinsic’ to the insured, such as
the circumstances in which the policy was entered into, rather than ‘intrinsic’ factors
such as the individual idiosyncrasies of the insured. Whilst it is possible to take into
account the circumstances of the insured, the ultimate question under s 21(1)(b)
turns on consideration of a reasonable person’s state of mind, not the insured’s state
of mind.
A test of disclosure, which operates by reference to both the insured’s actual
knowledge and the knowledge of a reasonable person in the same circumstances, is
calculated to balance the insured’s duty to disclose and the insurer’s right to
information. The insurer is protected against claims where the insured’s disclosure is
inadequate because the insured is unreasonable, idiosyncratic or obtuse and the
insured is protected from exclusion from cover, provided he or she does not fall below
the standard of a reasonable person in the same position.

When is something ‘known’ by the insured?

11.9 The section, in its terms, provides that the insured needs to
know of a relevant fact. It remains an open issue as to whether such
knowledge may be imputed to them through the knowledge of an
agent.
In Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq)
(2003) 214 CLR 514 at 531 McHugh, Kirby and Callinan JJ in obiter dicta
said it was the knowledge of the insured himself or herself which was
relevant, not an agent or intermediary, although the minority
(Gummow, Hayne JJ) held the knowledge of relevant employees and
agents might be taken into account. In QBE Mercantile Mutual Ltd v
Hammer Waste Pty Ltd [2003] NSWCA 356; (2004) 13 ANZ Ins Cas 61–
586, the New South Wales Court of Appeal found the issue unnecessary
to decide and determined the appeal on the issue of relevance of the
knowledge to the risk. By way of contrast, in Lindsay v CIC Insurance Ltd
(1989) 5 ANZ Ins Cas 60–913, the court held that an agent’s knowledge
of the use to which premises were put was relevant to the sufficiency of
the insured’s disclosure. The wider view was applied by Gyles J in Tosich
v Tasman Investment Management Ltd (2008) 250 ALR 274; [2008] FCA
377 at [93], referring to Macquarie Bank Ltd v National Mutual Life
Association of Australasia Ltd (1996) 40 NSWLR 543 per Powell JA at
610–11 (agreed with by Priestley and Clarke JJA). Knowledge of an
insured’s broker as to what is relevant to the insurer’s decision has been
treated as knowledge of the insured for the purpose of determining
what needs to be disclosed: Ayoub v Lombard Insurance Co (Aust) Pty Ltd
(1989) 97 FLR 284; Kalabakas v Chubb Insurance Company of Australia Ltd
[2015] VSC 705 at [197].

[page 371]

This is an important issue. The High Court appears divided. Three

members have expressed a tentative view that knowledge means the
knowledge of the insured, two have disagreed and the views of the
other two members are not yet apparent. The issue awaits
determination in the High Court.
While the issue of ‘whose knowledge’ remains unclear, it was held (at
531) in Permanent Trustee that ‘the word “knows” [in the context of s 21]
is a strong word. It means considerably more than “believes” or
“suspects”, or even “strongly suspects”’. Moreover, there must be
knowledge of matters relevant to the decision of the insurer whether to
accept the risk, as distinct from matters relevant to the insurer’s
consideration of the commerciality of the contract: at 531–2. Whether a
matter is ‘known’ is a question of fact for the judge (or jury): Commercial
Union Assurance Co of Australia Ltd v Beard (1999) 47 NSWLR 735;
(2000) 11 ANZ Ins Cas 61–458.
The terms ‘knows’ and ‘known’ in s 21 are used in their common law
sense and, in the case of a corporation, primarily denote actual
knowledge in the minds of relevant officers, agents or employees who,
in the circumstances, constituted the mind of the company: Metropolitan
Fire and Energy Services Board v Yarra City Council [2015] VSC 773.
The obligation to disclose something ‘known’ can only attach to
something which, at the time for disclosure, a person actually has in his
or her consciousness, or else something which exists in some record or
other source of information which the person actually knows about and
to which the person has access: Hammer Waste Pty Ltd v QBE Mercantile
Mutual Ltd [2002] NSWSC 1006; (2003) 12 ANZ Ins Cas 61–553 at [56];
QBE Mercantile Mutual Ltd v Hammer Waste Pty Ltd [2003] NSWCA 356;
(2004) 13 ANZ Ins Cas 61–586 at [28].
Whether the insured knew of the relevance of a matter, or ought to
have known, permits reference not only to the immediate
circumstances but also to any prior course of dealings between the
insured and the insurer. Thus, in Twenty-first Maylux Pty Ltd v Mercantile
Mutual Insurance (Aust) Ltd (1989) 6 ANZ Ins Cas 60–954, it was held
that a director of a company knew that a prior criminal conviction was
relevant because he had been asked that question in previous proposal
forms. It did not matter that subsequent proposal forms did not ask
about prior convictions.

Matters ‘relevant to the decision of the insurer

whether to accept the risk’
11.10 The expression ‘matter relevant to the decision of the insurer
whether to accept the risk and, if so, on what terms’ appears in ss 21(1)
(a) and 26(2) of the Insurance Contracts Act. The High Court
considered the expression in Permanent Trustee Australia Ltd v FAI
General Insurance Co Ltd (in liq) (2003) 214 CLR 514. There, the High
Court emphasised that the relevant knowledge was knowledge of
matters relevant to the decision of the insurer whether to accept the risk. It
did not extend, for example, to considerations, commercial or
otherwise, which may be relevant to that insurer’s assessment of the
risk.
 [page 372]

‘The words “accept the risk” are key words’; that is, the Act focuses on
the particular risk of the insurance propounded: at [32].

Matter includes an opinion

11.11 A ‘matter’ may include an opinion: Prepaid Services Pty Ltd v
Atradius Credit Insurance NV [2013] NSWCA 252 at [99]. In Prepaid
Services the issue arose as to whether the insured had a duty to disclose
the opinion or belief that their financial situation was ‘very serious’ and
‘dicey’. The court held, in relation to matters of opinion:
The fact that an opinion is held is something that may be known and an insurer may
be influenced in its decision to accept a risk, or as to the terms on which it will do so,
by the fact that an opinion is held. That is so irrespective of whether the opinion is
held by the insured or by a third party, as for example might be the case with a
medical opinion concerning the insured. Under the common law such opinions are
capable of constituting material facts required to be disclosed: The British Equitable
Insurance Company v The Great Western Railway Company (1869) 38 LJ Ch 314; Khoury v
Government Insurance Office of New South Wales [1984] HCA 55; 165 CLR 622 at 632–633.
In ordinary language a ‘matter’ includes an opinion.

Whether an opinion is relevant to the insurer’s decision to accept the

risk or as to the terms on which it is prepared to do so has been said to
depend upon factors including:
the subject matter of the opinion;
the identity of the person holding it; and
the facts or premises upon which it is based and whether those
facts or premises are true or believed by the insurer to be true:
Prepaid Services at [100].
Relevance is assessed at the time when the contract is made: Prepaid
Services at [100], citing as examples Prime Forme Cutting Pty Ltd v Baltica
General Insurance Co Ltd (1990) 6 ANZ Ins Cas 61-028 (Tadgell J);
Summerton v SGIC Life Ltd (1999) 10 ANZ Ins Cas 90-102; [1999] SASC
121 (Doyle CJ). This reflects the position at common law: Prepaid
Services at [100] citing Canning v Farquhar (1886) 16 QBD 727 at 732
(Lord Esher MR); Brotherton v Aseguradora Colseguros SA (No 2) [2003]
EWCA Civ 705; [2003] Lloyd’s Rep IR 746 at [18]. It is possible
therefore for an opinion which was once relevant to cease to be
relevant if the circumstances upon which the opinion was based change
or the opinion is no longer held. However, it may be that the fact an
opinion was once held or recently held is sufficient for it to continue to
be relevant: Prepaid Services at [100]. The insurer has the onus of
proving relevance: Prepaid Services at [100].

The reasonable insured

11.12 Section 21(1)(b) meets difficulties with proof in s 21(1)(a) by
imposing an alternative test of whether a reasonable person in the
circumstances could be expected to know that the matter was relevant
to the insurer’s decision. This test, it has been said, ‘directs attention to
the state of mind of a reasonable person in the circumstances

[page 373]

of the insured and protects the insurer against inadequate disclosure by

an insured who is unreasonable, idiosyncratic or obtuse: CGU Insurance
Ltd v Porthouse [2008] HCA 30; 235 CLR 103 at [52], [53] (Gummow,
Kirby, Heydon, Crennan and Kiefel JJ)’: Prepaid Services Pty Ltd v
Atradius Credit Insurance NV [2013] NSWCA 252 at [98].
Sutton suggests that ‘the knowledge of the reasonable man … as to
what would influence the prudent insurer … would not go much
beyond [an insured’s] recent claims history and any special features
which might increase the physical hazard and hence the risk. The
moral hazard or the rejection of the proposal by another insurer would
probably not enter into her or his calculations at all’: Sutton, Insurance
Law in Australia, 3rd ed, LBC Information Services, Sydney, 1999, p
230.
In Stealth Enterprises Pty Ltd t/as The Gentleman’s Club v Calliden
Insurance Ltd [2015] NSWSC 1270 the knowledge of an insured about
the Comancheros membership of its director and manager coupled
with what was, by 2010, a matter of common knowledge about the
activities of the Comancheros and its members was held to amount to
knowledge that a reasonable person could be expected to know was
relevant to the insurer’s decision to accept the risk of insuring the
brothel which the insured owned and operated.
In Bergman v CGU Insurance Ltd [2016] VSC 81 the court found that
although the insured had said the matters not disclosed ‘had never
entered his mind’, a reasonable person could be expected to know that
the prospect the insured building may be demolished and/or
developed was relevant to the risk, even though the project may, at the
time of renewal, have been ‘on hold’.
There is an issue as to what ‘circumstances’ means, that is, whether
extrinsic factors only are to be considered, or whether intrinsic factors,
such as the education, culture, experience or language skills of the
insured, can be taken into account. The better view is that only
extrinsic circumstances are relevant: Twenty-first Maylux Pty Ltd v
Mercantile Mutual Insurance (Aust) Ltd (1989) 6 ANZ Ins Cas 60–954 per
Brooking J and HIH Casualty and General Insurance Australia Ltd v
Dellavedova (1999) 10 ANZ Ins Cas 61–431. The Insurance Contracts
Amendment Act 2013 (Cth) has amended the objective limb of s 21(1)
to clarify its interpretation by including two non-exclusive extrinsic
factors that the court may have regard to in determining whether a
reasonable person in the circumstances could be expected to know
something was relevant to the insurer: Explanatory Memorandum,
Insurance Contracts Amendment Bill 2013 at [1.53]. From 28
December 2015, s 21(1)(b) provides that an insured has a duty to
disclose every matter known to the insured, being a matter that:
(b) a reasonable person in the circumstances could be expected to know to be a
matter so relevant, having regard to factors including, but not limited to:
(i) the nature and extent of the insurance cover to be provided under the
relevant contract of insurance; and
(ii) the class of persons who would ordinarily be expected to apply for insurance
cover of that kind.
 [page 374]

What matters do not need to be disclosed?

11.13 Section 21(2) restates the common law by setting out a
number of matters which an insured is not required to disclose. These
are matters:
(a) that diminish the risk;
(b) that are of common knowledge;
(c) that the insurer knows or ought to know in the ordinary
course of business; and
(d) as to which compliance is waived by the insurer.
Matters which diminish the risk are matters which need not be
disclosed, and in the scheme of the Act the section is unlikely to be the
subject of great controversy. Whether a matter is of common
knowledge is a matter of proof. Matters of common knowledge may
extend beyond matters known to the insurer and, it would seem as a
matter of construction, arguably beyond those which the insurer knows
or ought to know in the ordinary course of its business.

When will the insurer be deemed to know something?

11.14 Matters will be known to the insurer if the knowledge is
possessed by a responsible officer of the company who either
appreciated the significance of the knowledge or should have
appreciated its significance: Evans v Sirius Insurance Co Ltd (1986) 4
ANZ Ins Cas 60–755. The status and authority of the employee or agent
of the insurer is relevant. There needs to be a connection between the
acquisition of the information and the particular application for
insurance: Macfie v SGIO (Qld) (1985) 3 ANZ Ins Cas 60–606.
In Macfie, the claims history of the insured was not disclosed when a
cover note was applied for. It was argued by the insured in response to
a claim of non-disclosure that there was, in the insurer’s files, and
therefore within its knowledge, information that the insured had
previously been employed by a firm also insured with the defendant
and that he had been involved in accidents while driving the firm’s
vehicles which had resulted in claims by the firm. Consequently, it was
argued, there was no non-disclosure.
Derrington J rejected this argument. His Honour pointed out that a
cover note was an interim contract of insurance which was issued
without a proposal or other inquiry of a substantial nature from the
insurer and that therefore the obligation of the utmost good faith
attained an enhanced importance. That relationship was hardly
consistent with the notion that the insurer should be deprived of the
protection embodied in the requirement of full disclosure because in
its voluminous records there were statements that the insured was
involved in accidents, although he was not the insured claimant. While
it was true that the insurer would be bound by information given to or
acquired by its agent, that did not extend to saying that any knowledge
obtained in the past and in unconnected circumstances by an agent was
to be attributed to the principal.

[page 375]

His Honour held at 78,688–9:

Knowledge is knowing, not the possession of information … [knowledge] cannot
extend to information, past or present, which, though in the possession of the insurer
or its agents, is for some reason remote to such a degree that it cannot reasonably be
said to be within the knowledge of the insurer.

However, his Honour foreshadowed the impact of computers and

technology in this area and it may be that the introduction of
sophisticated electronic information retrieval systems would produce a
different result: Kirby P in Antico v CE Heath Casualty & General
Insurance Ltd (1996) 38 NSWLR 681 at 702–3; see also Sutton, Insurance
Law in Australia, p 234.
In Commercial Union Assurance Co of Australia Ltd v Beard (1999) 47
NSWLR 735; (2000) 11 ANZ Ins Cas 61–458, the New South Wales
Court of Appeal considered whether an extract from the newspaper
held on the insurer’s files meant that an insurer knew that a well-known
identity, Mr Saffron, had an interest in the building which its insured
occupied. The court concluded that the insurer did not know (at [62]–
[63]):
[Section] 21(2)(c) is speaking of actual knowledge. The relevant matter must be
known to an appropriate officer or agent of the insurer or contained in current
official records. Ordinarily the appropriate officers will be those who are handling the
particular insurance on behalf of the insurer: see Meridian Global Funds Management
Asia Ltd v Securities Commission (1995) 13 ACLC 3245.
An extract from a newspaper does not amount to knowledge; it is merely a source
from which knowledge can be gained. Access to a means of knowledge is not
sufficient: Bates v Hewitt (1867) LR 2 QB 595.

When will an insurer be held to have waived disclosure?

11.15 An insurer may be taken to have waived disclosure. The test
has been stated as follows:
If the insurer receives information from the assured or his agent which, by its content
or form, should suggest a doubt to the mind of the reasonably prudent insurer and
put him on inquiry, then, if he omits to make the check or inquiry, assuming it can be
made simply, he will be held to have waived disclosure of the material facts which that
inquiry would necessarily have revealed.37

An insurer may also waive disclosure due to questions asked in the

proposal. For example, if an insurer asks ‘Have you claimed on other
insurers in the last five years?’, it might reasonably be implied that it
has waived its right to know of claims made before that time, though
these might be material to the risk.38 In QBE Insurance Ltd v Giampaolo
[1993] ACTSC 381 a question in a proposal asked about traffic
convictions and made no mention of traffic infringement notices. It
followed that even if the insured should, as

[page 376]

a reasonable person, have been aware that the information was

relevant, the insurer had waived compliance with the duty of disclosure
under s 21(2)(d).
 However, it would be wrong to think that the duty is confined to
answering questions in the proposal, and the insurer will be held to
have waived disclosure by asking limited questions only in certain
circumstances: Quinby Enterprises Ltd (in liq) v General Accident Fire & Life
Insurance Corp plc [1995] 1 NZLR 736; Phillips v ING Life Ltd [2009] FCA
283. It has been said:
Whether or not such waiver is present depends on a true construction of the proposal
form, the test being, would a reasonable man reading the proposal form be justified in
thinking that the insurer had restricted his right to receive all material information
and consented to the omission of the particular information in issue.39

An insurer will be deemed to have waived compliance with disclosure

where an insured fails to answer a question in a proposal form or gives
an obviously incomplete or irrelevant answer: s 21(3). This provision
was applied in Hitchens v Zurich Australia Ltd [2015] NSWSC 825 in
respect of a failure by the insured to provide requested details about
the last doctor or centre he attended. The court held, in relation to the
matter about which the question was asked, that the duty of disclosure
had been waived under s 21(3). However, the insurer was held not to
have waived disclosure in respect of its failure to follow up answers to
questions about pain medication where the answers provided did not
put the insurer on notice: at [156].

Disclosure and ‘eligible contracts’ of insurance

11.16 Section 21A was inserted into the Insurance Contracts Act in
1998.40 It applies to ‘eligible contracts of insurance’ which were
declared by regulation in June 2000. The object of the section was to
better enable the insured to comply with its duty of disclosure in
respect of domestic and personal lines of insurance where it was
thought that the insured was less likely to comprehend their obligations
properly.
‘Eligible contract’ is defined in reg 2B(1) and (2) of the Insurance
Contracts Regulations 1985 as:
1. ‘new business’ as distinct from renewal; and
2. one declared to be a contract covered by s 21A.
 Those contracts comprise:
motor vehicle insurance;
home buildings insurance;
home contents insurance;
sickness and accident insurance;

[page 377]

consumer credit insurance; and

travel insurance.
It is important to note what the section does not apply to. It does not
apply to, for example, professional indemnity insurance, directors’ and
officers’ insurance and all risks insurance for business. Regulation
2B(2) effectively permits the insurer to make any new business contract
of insurance an eligible contract under s 21A providing the appropriate
notices are given. Those notices, which are referred to in the
regulations, can be found in the schedules. They require the insurer to
inform the insured of the nature and effect of s 21A.
The effect of s 21A is to hold that the insurer waives the duty of
disclosure under s 21 unless it complies with s 21A. Subsection (2)
permits the insurer to ask the insured to answer one or more specific
questions that are relevant to the decision of the insurer. If the insured
answers the insurer’s questions in accordance with subs (5)(b), the
insured is taken to have complied with the duty: s 21A(5).
If the insurer does not make a request it is deemed to have waived
compliance with the duty of disclosure in relation to the contract: s
21A(3). If the insurer makes a request but also asks the insured to
disclose any other matter that would be covered by the duty of
disclosure the insurer is deemed to have waived compliance with the
duty of disclosure in relation to that other matter: s 21A(4).
The disclosure requirements for eligible contracts were reformed by
the Insurance Contracts Amendment Act 2013 (Cth). The new regime
applies from 28 December 2015. From then, s 21A applies to the
original entering into of an eligible contract and s 21B to the renewal
of those contracts. Under s 21B, if an insurer wishes to rely on the
insured’s duty of disclosure upon renewal, it must:
ask specific questions; and/or
provide the insured, prior to the renewal, with a copy of any
matters previously disclosed by the insured in relation to the
contract, and request the insured to disclose any changes or to
advise if there are no changes.
If the insurer does neither of those things, it will be taken to have
waived compliance with the duty of disclosure in relation to the
renewed contract: s 21B(4). If the insurer asks a catch-all question in
relation to other matters not covered by the specific questions, it will be
seen to have waived compliance with the duty of disclosure in relation
to those other matters: s 21B(5) and (6).
The new s 21A, which commenced on 28 December 2015, makes the
disclosure requirements simpler for insureds. It provides:
21A Eligible contracts of insurance — disclosure before contract originally entered
into

Scope

(1) This section applies in relation to the original entering into of an eligible contract
of insurance.

[page 378]

Note: This section does not apply in relation to the renewal, extension, reinstatement
or variation of an eligible contract of insurance. Section 21B applies in relation to the
renewal of an eligible contract of insurance.
Position of the insurer
(2) Before the contract is originally entered into, the insurer may request the insured
to answer one or more specific questions that are relevant to the decision of the
insurer whether to accept the risk and, if so, on what terms.
(3) If the insurer does not make a request in accordance with subsection (2), the
insurer is taken to have waived compliance with the duty of disclosure in relation to
the contract.
 (4) If the insurer:
(a) makes a request in accordance with subsection (2); and
(b) requests the insured to disclose to the insurer any other matter that would be
covered by the duty of disclosure in relation to the contract;
then the insurer is taken to have waived compliance with the duty of disclosure in
relation to that other matter.
Position of the insured
(5) If:
(a) the insurer makes a request in accordance with subsection (2); and
(b) in answer to each specific question included in the request, the insured
discloses each matter that:
(i) is known to the insured; and
(ii) a reasonable person in the circumstances could be expected to have
disclosed in answer to that question;
then the insured is taken to have complied with the duty of disclosure in relation to
the contract.

To summarise, under the new disclosure regime, the insured’s

disclosure obligation is limited:
upon the original entering into of an eligible contract, to
answering specific questions put by the insurer; and
upon renewal, to either answering specific questions put by the
insurer and/or checking the disclosure previously made and then
advising the insurer as to whether anything has changed.
The same approach to knowledge applied to s 21 has been held to
apply to s 21A: Michail v Australian Alliance Insurance Co Ltd [2013] QDC
284 at [15].

The consequences of non-disclosure

11.17 Section 28 sets out the consequences of non-disclosure:
28 General insurance
(1) This section applies where the person who became the insured under a contract of
general insurance upon the contract being entered into:

[page 379]
 (a) failed to comply with the duty of disclosure; or
(b) made a misrepresentation to the insurer before the contract was entered into;
but does not apply where the insurer would have entered into the contract, for
the same premium and on the same terms and conditions, even if the insured
had not failed to comply with the duty of disclosure or had not made the
misrepresentation before the contract was entered into.
(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the
insurer may avoid the contract.
(3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the
contract (whether under subsection (2) or otherwise) has not done so, the liability of
the insurer in respect of a claim is reduced to the amount that would place the insurer
in a position in which the insurer would have been if the failure had not occurred or
the misrepresentation had not been made.

Four things are immediately apparent. First, s 28 applies where the

duty of disclosure has not been complied with, or there has been a
misrepresentation (dealt with below). Second, there is no remedy
where the insurer, notwithstanding any non-disclosure or
misrepresentation, would have accepted the risk and on the same
terms. Third, fraud is fatal to the insured providing it made a
difference to the insurer: the insurer may avoid the policy, and need
not otherwise show prejudice. Having said that, the court has the power
under s 31 to override this right where it would be harsh and unfair not
to do so and where the insurer has not been significantly prejudiced:
Plasteel Windows Pty Ltd v CE Heath Underwriting Agencies (1989) 5 ANZ
Ins Cas 60–926. Fourth, and critically, the section provides that, in
respect of innocent non-disclosures and innocent misrepresentations,
there is no right to void the policy, only a right to reduce liability to the
extent that the insurer’s position has been prejudiced by the non-
disclosure or misrepresentation.
The statutory remedies are a Code and fully set out the remedies
where the Act applies: s 33.
It can be difficult to prove the insured was fraudulent. The insurer
bears the onus and must prove fraud on a balance of probabilities:
Briginshaw v Briginshaw (1938) 60 CLR 336 at 362. In respect of
misrepresentation, fraud is proved when it is shown that a false
representation is made:
1. knowingly; or
 2. that the insured had no honest belief in its truth (Krakowski v
Eurolynx Properties Ltd (1995) 183 CLR 563 at 578); or
3. recklessly, without caring whether it was true or false: Plasteel
at 75,971; Von Braun v Australian Associated Motor Insurers Ltd
(1998) 135 ACTR 1 at [83]–[88]; Dawes Underwriting Australia
Pty Ltd v Roth [2009] NSWCA 152 at [43].
In seeking to establish fraud based on recklessness, it is not enough
to show carelessness on the part of the insured. To make a finding
based on conscious indifference, it needs to be shown that the insured
did not care whether the answers were true or not: Prepaid Services Pty
Ltd v Atradius Credit Insurance NV [2013] NSWCA 252 at [55].

[page 380]

The three instances of fraud overlap in the sense that to prevent

something being fraudulent, there must always be an honest belief in
its truth. If someone makes a statement recklessly, they can have no real
belief in the truth of the statement, and someone who makes a
statement knowing it is false has obviously no such honest belief: Derry v
Peek (1889) 14 App Cas 337 at 374 per Lord Herschell.
In Prepaid Services the insured argued that the insurer had to show
not only recklessness but also knowledge that there was a substantial
prospect that the answers were false. The court rejected this argument
and held that ‘the conclusion that [the insured] was recklessly
indifferent as to the truth of the answers was, or necessarily involved, a
finding as to the absence of an honest belief in their truth’: at [36]. In
considering the principles as to what must be proved to establish fraud,
the court said at [39]–[40]:
For fraudulent misrepresentation to be made out it must be established that the
representor had no honest belief in the truth of the representation in the sense in
which the representor intended it to be understood: John McGrath Motors (Canberra) Pty
Ltd v Applebee [1964] HCA 1; 110 CLR 656 at 659–660 (Kitto, Taylor and Owen JJ);
Krakowski v Eurolynx Properties Ltd [1995] HCA 68; 183 CLR 563 at 578–579 (Brennan,
Deane, Gaudron and McHugh JJ). In Forrest v Australian Securities and Investments
Commission [2012] HCA 39; 86 ALR 1183 at [22] (French CJ, Gummow, Hayne and
 Kiefel JJ) it was emphasised that a false statement ‘made through carelessness and
without reasonable grounds for believing it to be true, may be evidence of fraud but
does not necessarily amount to fraud’.
As Lord Herschell observed at 374, the formulation in Derry v Peek covers the whole
ground because someone who knowingly represents what is false obviously has no
honest belief, and someone who is indifferent to whether a representation is true or
false can have no honest belief as to its truth. Being reckless or indifferent as to the
truth of something describes a state of mind or consciousness: Angus v Clifford [1891]
2 Ch 449 at 471 (Bowen LJ); Le Lievre v Gould [1893] 1 QB 491 at 500–501 (Bowen LJ);
Banditt v The Queen [2005] HCA 80; 224 CLR 262 at [2] (Gummow, Hayne and
Heydon JJ); Fidock v Legal Profession Complaints Committee [2013] WASCA 108 at [93]–
[97] (Martin CJ, Newnes and Murphy JJA). The fact of that indifference is the basis
for the conclusion as to the absence of any real belief, which is a finding as to the
relevant person’s state of mind: Banditt v The Queen at [2].

It has subsequently been held that it is sufficient to establish fraud for

the insured to be ‘consciously indifferent’ to the truth of answers given
in a proposal form: Poole v Chubb Insurance Company of Australia Ltd
[2014] NSWSC 1832 at [151]; Kalabakas v Chubb Insurance Company of
Australia Ltd [2015] VSC 705 at [39].
A non-disclosure is fraudulent if the insured knew a matter was
relevant to the risk and deliberately concealed it because they believed
the insurer might decline the risk or impose a higher premium or
disadvantageous terms if it was disclosed: Dalgety & Co Ltd v Australian
Mutual Provident Society [1908] VLR 481 at 499.
There was some doubt until recently as to whether an insurer’s
liability could be reduced to nil under s 28(3), for example, where the
insurer could show that, had it

[page 381]

known the true facts, it would not have entered into the insurance
contract at all. The Queensland Court of Appeal held that an insurer’s
liability could be reduced to nil under s 28(3): CIC Insurance Ltd v
Midaz Pty Ltd (1998) 10 ANZ Ins Cas 61–394; see also Unity Insurance
Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; Green v CGU
Insurance Ltd (2008) 67 ACSR 398; [2008] NSWSC 825; Michail v
Australian Alliance Insurance Co Ltd [2013] QDC 284; Kalabakas.
 The issue has been raised as to whether, if liability is reduced to nil
under 28(3), the insured is entitled to a refund of the premium paid:
Michail at [95]–[105]; see also Anderson v Aon Risk Services Australia Ltd
[2004] QSC 49. Although there was an obligation at common law to
refund the premium where the contract was avoided for innocent non-
disclosure or misrepresentation, that is not the situation envisaged by s
28(3). Under s 28(3), the contract remains binding, and there is a
determination of liability for ‘an amount’ in respect of a claim. A claim
for the repayment of premium in circumstances where liability was
reduced to nil for non-disclosure and misrepresentation was refused in
Michail. There it was held (at [103]):
While it would be otherwise ‘fair’, I cannot see any statutory basis for holding that the
premium is refundable by repayment. If the Legislature has wished to provide for this
outcome, it could easily have provided, as it did in s 29(3), concerning life insurance,
for such avoidance.

The insurer may also cancel the contract of insurance: s 60(1)(b)

and (c). This, however, applies to the future and not to the past, and
hence is different from avoiding the policy from its inception, as was
the insurer’s right under the common law.
One important rationale behind s 28 is to make the insurer’s
remedies commensurate with its loss. An insurer can no longer avoid a
contract for an innocent non-disclosure which would not have had any
effect on its decision to insure.
Where there are co-insureds and one but not the other fails to
disclose a material matter, the failure will affect the claim by the other
insured: Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166
CLR 606. There, a husband and wife were issued with an insurance
policy for their home. The husband had fraudulently failed to disclose
the rejection of an earlier claim made by a partnership of which he was
a member. The High Court held that s 21 of the Act imposed a duty on
each person who became insured to disclose a material matter to the
insurer, and it was logical to read s 28(1) as referring to a failure of one
co-insured to disclose, even though the other co-insured was not guilty
of such a failure. It followed that the reference in s 28(2) to a failure
that was fraudulent was a reference to a fraudulent failure to disclose
on the part of a co-insured.
The non-disclosure of a contracting party may affect the position of a
third party to the insurance contract. Section 48 of the Act provides,
relevantly, that a person specified in a contract of insurance, although
not a party to it, may recover under the policy. However, it also
provides that the third party has the same obligations to the insurer as
the contracting party (s 48(2)), and that the insurer has the same
defences to the claim as it would have were the claimant the
contracting party: s 48(3). In CE Heath Casualty

[page 382]

& General Insurance Ltd v Grey (1993) 32 NSWLR 25, the New South
Wales Court of Appeal held that, while there was no duty of disclosure
upon the third party under the Act, a claim under s 48(1) by a person
not party to the contract may nevertheless be rejected by the insurer
under s 48(3) on the grounds of the insured’s pre-contractual
nondisclosure or misrepresentation.
Remedies for non-disclosure or misrepresentation by an insured
under a contract of life insurance are dealt with in s 29. Unlike s 25,
which attributes misrepresentations by the life insured to the insured,
there is no equivalent provision attributing responsibility for the life
insured’s non-disclosure of matters to the insured.

MISREPRESENTATION
When is a statement a misrepresentation?
11.18 While the principle of non-disclosure is concerned with the
insured’s duty to volunteer information, misrepresentation concerns an
insured’s duty to accurately respond to questions by the insurer, usually
in the form of a proposal.
At common law, an insurer could avoid a claim and a contract if it
relied upon the misrepresentations in entering the contract. The
requirement of reliance upon the misrepresentation before the
contract could be avoided distinguished misrepresentations from non-
disclosures: in respect of the latter, providing the non-disclosure was
material, reliance and prejudice were immaterial and inessential for an
insurer to avoid the contract: Mayne Nickless Ltd v Pegler [1974] 1
NSWLR 228 at 239; Zurich General Accident and Liability Insurance Co Ltd
v Morrison [1942] 2 KB 53; compare Western Australian Insurance Co Ltd v
Dayton (1924) 35 CLR 355. To overcome this obstacle, insurers
habitually inserted ‘basis of insurance’ clauses in their policies. Such
clauses provided that the insured agreed to guarantee the truth of all of
the answers in the proposal. This meant that any inaccuracy in the
proposal was a breach of the condition in the contract and entitled the
insurer to avoid a particular claim or the entire contract, without the
need to prove materiality. As Viscount Haldane said in Dawsons Ltd v
Bonnin [1922] 2 AC 413 at 421:
If the [insurers] can show that they contracted to get an accurate answer to this
question, and to make the validity of the policy conditional on that answer being
accurate, whether the answer was of material importance or not, the fulfilment of this
contract is a condition of the [insured] being able to recover.

‘Basis of contract’ clauses are no longer effective due to s 24, which

does not permit statements by the insured as to the existence of a state
of affairs to be incorporated as a term of the contract.
Whether the answer is false can be difficult even for the courts to
determine. For example, in Deaves v CML Fire and General Insurance Co
Ltd (1979) 143 CLR 24, the proposal asked the insured to ‘[g]ive
particulars of sum already insured with this and other

[page 383]

insurers on identical property proposed to be insured …’. The insured

answered ‘N/A’. One judge held the answer was a misrepresentation
because it meant that there was no coexisting insurance on the
property, which was false. The question was interpreted by this judge as
going to all existing insurance on the property whether intended to be
continued or not. A different judge held there was no
misrepresentation because ‘N/A’ did not convey the impression that
there was no existing insurance, just that those particulars were not
relevant to the proposal. Two other judges held that the answer was
ambiguous. The insurer knew that the insurance was to replace existing
cover and therefore that ‘N/A’ should be construed to mean that the
request was inapplicable in the circumstances.
The court, when considering whether a misrepresentation has
occurred, will adopt the insured’s interpretation of the relevant
question in the proposal where a reasonable person in the
circumstances would (as opposed to might) have understood the
question to have that meaning: s 23; Condogianis v Guardian Assurance
Co (1921) 29 CLR 341; Fruehauf Finance Corp Pty Ltd v Zurich Australia
Insurance Ltd (1990) 20 NSWLR 359.
If an insured answers a question technically correctly but creates a
false impression, that may be held to constitute a misrepresentation.
For example, in Guardian Assurance Co Ltd v Condogianis (1919) 26 CLR
231, the proposal asked the insured whether the insured had ever been
a claimant on a fire insurance company in respect of the property now
proposed or any other property. The insured answered ‘Yes. 1917,
Ocean.’ This answer created the impression that the claim on Ocean in
1917 was the only one. In fact, the insured had claimed on another
insurer. The answer was therefore untrue.

Excluded misrepresentations
11.19 The insured benefits further by s 26, which lists circumstances
where certain untrue statements are not to constitute a
misrepresentation:
26 Certain statements not misrepresentations
(1) Where a statement that was made by a person in connection with a proposed
 contract of insurance was in fact untrue but was made on the basis of a belief that the
person held, being a belief that a reasonable person in the circumstances would have
held, the statement shall not be taken to be a misrepresentation.
(2) A statement that was made by a person in connection with a proposed contract of
insurance shall not be taken to be a misrepresentation unless the person who made
the statement knew, or a reasonable person in the circumstances could be expected to
have known, that the statement would have been relevant to the decision of the
insurer whether to accept the risk and, if so, on what terms.
…

The circumstances, therefore, where an insured is excused include:

1. where a statement was untrue but the insured believed it to be
true and a reasonable person in the circumstances would have
believed it to be true: s 26(1); and

[page 384]

2. where the insured or a reasonable person in the

circumstances did not know or could not be expected to have
known that the statement would have been relevant to the
insurer: s 26(2).
The onus of proof under s 26(2) is upon the insurer: Plasteel Windows
Australia Pty Ltd v CE Heath Underwriting Agencies Pty Ltd (1990) 19
NSWLR 400; Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd
[2003] QCA 182. Opinion is divided as to who bears the onus under s
26(1): Plasteel at 407–8 (onus lies upon the insured); Schaffer per Davies
JA at [10].
Consider this example taken from the draft Insurance Contracts Bill
1982 (Cth):

Mr X takes out motor vehicle insurance. In answer to a question in the proposal he

misstates his age as 59 when in fact he is 60. In answer to a question about
roadworthiness Mr X states that his car is roadworthy when in fact, unknown to Mr X, his
brakes are in need of repair. Mr X’s brakes have always worked properly in the past and
Mr X has had his car regularly serviced. Unknown to Mr X, the insurer does not insure
people 60 or over. Mr X is involved in an accident.
 Could the insurer refuse to pay his claim on the basis of
misrepresentation?
The answer is ‘no’. Section 26(1) would prevent the insurer from
avoiding the claim because of the misstatement regarding
roadworthiness, and s 26(2) would prevent the insurer from avoiding
the claim due to misstatement of age.
Section 27 sets out circumstances where an insured will be taken not
to have made a misrepresentation. It provides:
27 Failure to answer questions
A person shall not be taken to have made a misrepresentation by reason only that the
person failed to answer a question included in a proposal form or gave an obviously
incomplete or irrelevant answer to such a question.41

In Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013]

NSWCA 252 it was argued that s 27 applied because the insurer knew,
based on information it had, that the insured’s answers to questions in
the proposal were ‘obviously incomplete’. This argument was rejected.
The court held at [64]–[65]:
This argument misunderstands the scope and operation of s 27. It also wrongly
proceeds upon the basis that whether an answer is ‘obviously incomplete’, as that
expression is used in this context, is to be determined taking into account the
knowledge of the insurer to whom the answer is directed.
Under the common law the meaning conveyed by the answer to a question in a
proposal, and whether that answer is incomplete, is determined objectively by
reference to its ‘fair and reasonable’ construction. The question and answer must be
considered together to ascertain the effect of the answer given or statement made; the
question by

[page 385]

reference to what a reasonable proponent would fairly have understood it to mean

and the answer by reference to what that reasonable person would fairly have
understood it to convey to the insurer: Condogianis v Guardian Assurance Co Ltd [1921]
UKPCHCA 1; (1921) 29 CLR 341 at 344–345 (Privy Council); Saunders v Queensland
Insurance Co Ltd [1931] HCA 42; 45 CLR 557 at 566–567; Deaves v CML Fire and General
Insurance Co Ltd [1979] HCA 12; 143 CLR 24 at 46–47, 61, 69.

The critical words in s 27 are ‘by reason only’. They make it clear that
the provision is directed to misrepresentations which arise solely
because there has been either a failure to answer or an obviously
incomplete or irrelevant answer given. Such misrepresentations would
include those made by a negative answer which is inferred only from
the fact of the incomplete or partial answer as well as those which result
from a contractual term having that effect.
The court held that s 27 could not apply to the relevant
misrepresentations, which had arisen from parts of answers given to two
questions. The misrepresentations did not arise solely because those
answers were obviously incomplete or irrelevant. They were not
‘obviously incomplete’ based on their construction. Instead, the
misrepresentations arose because the answers were inconsistent with
information the insurer already had: at [69].

The consequences of misrepresentation

11.20 The consequences of misrepresentation are set out in s 28,
which has been considered above. The remedies for non-disclosure and
misrepresentation in relation to life insurance policies are covered by ss
29 and 30. Section 29 provides:
29 Life insurance

Scope

(1) This section applies where the person who became the insured under a contract of
life insurance upon the contract being entered into:
(a) failed to comply with the duty of disclosure; or
(b) made a misrepresentation to the insurer before the contract was entered into;
but does not apply where:
(c) the insurer would have entered into the contract even if the insured had not
failed to comply with the duty of disclosure or had not made the
misrepresentation before the contract was entered into; or
(d) the failure or misrepresentation was in respect of the date of birth of one or
more of the life insureds.
…
Insurer may avoid contract
(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the
insurer may avoid the contract.
(3) If the failure was not fraudulent or the misrepresentation was not made
 fraudulently, the insurer may, within 3 years after the contract was entered into, avoid
the contract.

[page 386]

Insurer may vary contract

(4) If the insurer has not avoided the contract, whether under subsection (2) or (3) or
otherwise, the insurer may, by notice in writing given to the insured before the
expiration of 3 years after the contract was entered into, vary the contract by
substituting for the sum insured (including any bonuses) a sum that is not less than
the sum ascertained in accordance with the formula

where:
‘S’ is the number of dollars that is equal to the sum insured (including
any bonuses).
‘P’ is the number of dollars that is equal to the premium that has, or to
the sum of the premiums that have, become payable under the
contract; and
‘Q’ is the number of dollars that is equal to the premium, or to the sum
of the premiums, that the insurer would have been likely to have
charged if the duty of disclosure had been complied with or the
misrepresentation had not been made.

…
(5) In the application of subsection (4) in relation to a contract that provides for
periodic payments, the sum insured means each such payment (including any bonuses).
…
Date of effect of variation of contract
(9) A variation of a contract under subsection (4) or (6) has effect from the time when
the contract was entered into.
…

Section 30 deals with misstatements as to the age of the insured.

DUTY OF GOOD FAITH

Introduction
11.21 A contract of insurance is a special class of contract known as
uberrima fides, Latin for ‘good faith’. The principle is now embodied in s
13(1) of the Insurance Contracts Act, which implies the obligation into
the contract of insurance. ‘Good faith’ and ‘utmost good faith’ are used
interchangeably in this chapter, although the word ‘utmost’ adds
something. ‘Utmost good faith’ means more than a measure of good
faith; it means the highest degree of good faith.42 In Manifest Shipping
Co Ltd v Uni-Polaris Shipping Co Ltd (The ‘Star Sea’) [2003] 1 AC 469,
Lord Hobhouse held at [44] that the word ‘utmost’ connotes the ‘most
extensive, rather than the greatest, good faith’.

[page 387]

‘Good faith’ has been held to mean to act with scrupulous fairness
and honesty: Vermeulen v SIMU Mutual Insurance Association (1987) 4
ANZ Ins Cas 60–812 at 74,987. In determining what good faith
requires, community standards of decency and fair dealing are taken
into account.43 The duty is wide and has been applied before and
during the insurance contract: CGU Insurance Ltd v AMP Financial
Planning Pty Ltd (2007) 235 CLR 1; [2007] HCA 36 at [15] per Gleeson
CJ and Crennan J; Distillers Co Biochemicals (Australia) Pty Ltd v Ajax
Insurance Co Ltd (1974) 130 CLR 1 (Distillers) at [53]–[54] per Stephen
J. The circumstances in which the duty will be offended are by no
means closed. As the law has developed, the duty of utmost good faith
has been applied to both parties to the insurance contract, that is, to
the insured and to the insurer. This means that each party to the
contract must act towards the other with the utmost good faith. The
duty implied by s 13 extends to third-party beneficiaries but only after
entry into the contract: s 13(3) and (4).
The duty applies to:
(a) the negotiations which lead to the making of the contract;
(b) the management of the contract; and
(c) the circumstances in which a claim is made and handled.
 The duty has been held not to extend to the conduct of an insurer in
the course of litigation, even if the litigation concerns a contract of
insurance: Imaging Applications Pty Ltd v Vero Insurance Ltd [2008] VSC
178 at [55].
The scope of the duty of utmost good faith was recently considered
in Matton Developments Pty Ltd v CGU Insurance Ltd (No 2) [2015] QSC 72
at [237]–[248]. The duty extends beyond the duty to disclose all
material matters to the insurer, although the duty of disclosure is the
most important obligation upon the insured to arise from the duty of
utmost good faith. The two concepts are interrelated, and the link
between the duty of good faith and disclosure was evident more than
200 years ago in the case of Carter v Boehm (1766) 3 Burr 1905. In that
case Lord Mansfield said:
Insurance is a contract upon speculation. The special facts, upon which the
contingent chance is to be computed, lie more commonly in the knowledge of the
insured only; the underwriter trusts to his representation, and proceeds upon
confidence that he does not keep back any circumstances in his knowledge, to mislead
the underwriter … Good faith forbids either party by concealing what he privately
knows, to draw the other into a bargain … to protect both parties by requiring each of
them to exercise, as between themselves, the utmost good faith in their dealings.

Notwithstanding the commonality of reasoning behind them, the Act

has separately dealt with the obligation of good faith and the obligation
of disclosure. The insured’s duty to disclose is clearly defined in s 21,
and the Act specifically provides in s 12 that it is not permissible for the
insurer to seek to widen the scope of the disclosure obligation by
applying arguments of good faith. That is, s 21 sets out the breadth of
the insured’s duty

[page 388]

of disclosure. It does not impose an obligation of disclosure after the

contract has been entered into. Hence, the duty of good faith cannot
be used to impose a duty of disclosure on the insured which operates
after the contract is entered into. For an insurer to require an insured
to continue disclosure after the contract, the insurance policy must so
provide: NSW Medical Defence Union Ltd v Transport Industries Insurance
Co Ltd (1985) 4 NSWLR 107.
The remedy for a breach of the duty of good faith under the Act is
damages for breach of an implied term: Lomsargis v National Mutual Life
Association of Australasia Ltd [2005] QSC 199; [2005] 2 Qd R 295 at 316.
There is no concurrent liability in tort, whether by way of a statutory
duty or tort of bad faith: Matton Developments at [268]. A breach of the
duty in s 13 is also a breach of the Act: s 13(2). To avoid doubts which
existed in relation to remedies for a breach of the duty with respect to
claims handling or settlement, s 14A was inserted by the Insurance
Contracts Amendment Act 2013 (Cth) to clarify that the Australian
Securities and Investments Commission may exercise its power under
parts of the Corporations Act 2001 (Cth) in respect of an insurer’s
failure to comply with the duty. In the rare circumstances in which the
Act does not apply, the remedy for a breach of the duty of good faith is
not as clear. It may sound in damages, although in Banque Financiere v
Westgate Insurance Co Ltd the Court of Appeal ([1989] 2 All ER 952 at
991–7) and Lord Templeman of the House of Lords on appeal ([1990]
2 All ER 947 at 959) held that a breach of the obligation does not
sound in damages and that the only remedy was to rescind the policy
and recover the premium. The rationale for this approach is that the
common law duty is ‘in the way of an obligation imposed as an incident
of the relationship between the parties to the contract rather than an
implied term or condition of the contract itself’: Smart v Westpac
Banking Corporation [2011] FCA 829; (2011) 282 ALR 400 at [6] citing
Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622 at 637.

The insured and the duty of utmost good faith

11.22 There are many circumstances in which it has been held that
an insured has breached the duty of utmost good faith.44 They extend
to:
deliberately providing false answers in a claim form: Gugliotti v
Commercial Union Assurance Co of Australia (1992) 7 ANZ Ins Cas
61–104;
 in the case of a legal indemnity policy, failing to advise the insurer
that proceedings had been initiated against it and hence failing to
provide the insurer with the opportunity to assume conduct of the
matter: UEB Packaging Ltd v QBE Insurance (International) Ltd
[1996] 2 NZLR 467;
intentionally withholding information in making a claim,
intending to deceive the insurer: New Zealand Insurance Co Ltd v
Forbes (1988) 5 ANZ Ins Cas 60–871;

[page 389]

failing to act reasonably so as to reduce or minimise the insurer’s

liability: Newnham v Baker [1989] 1 Qd R 393;
failing to provide information required by the insurer and
required by the terms of the policy: NSW Medical Defence Union Ltd
v Transport Industries Insurance Co Ltd (1985) 4 NSWLR 107; and
knowingly making a fraudulent claim.

The insurer and the duty of utmost good faith

11.23 Section 13 applies to both the insured and the insurer. What
does the duty of good faith upon an insurer mean, in practical terms?
What does it encompass, and in what circumstances might it be
breached? The following represents a summary of the circumstances
where the insurer has been held to have breached the duty of good
faith,45 being where the insurer has:
failed to explain the important provisions of the policy to the
insured: AAMI v Ellis (1990) 6 ANZ Ins Cas 60–957;
failed to notify the insured of the serious consequences of
breaching a condition of the policy;46
failed to inform the insured of any conditions which are
precedent to the insurer’s liability to pay the claim: Re Bradley and
Essex and Suffolk Accident Indemnity Society [1912] 1 KB 415;
failed to observe the strict terms of the insurance contract: Banks v
NRMA Insurance Ltd (NSWSC, Brownie J, 1 September 1988,
unreported); Ibrahim v Greater Pacific Life Insurance Co Ltd (1996) 9
ANZ Ins Cas 61–330;
failed to advise the insured that the policy they had obtained did
not afford the protection they had explicitly requested: Speno Rail
Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2001) 11
ANZ Ins Cas 61–485;
failed to progress a claim and to make a decision on liability within
a reasonable period of time;47
failed to provide an adequate explanation for denying the claim
within a reasonable period of time: RAF England v Zurich Australian
Insurance Ltd (Dist Ct of Adelaide, Kitchen J, 30 July 1991,
unreported);
failed to make a settlement payment on a legitimate claim within a
reasonable time: Moss v Sun Alliance Aust Ltd (1990) 55 SASR 145;

[page 390]

failed to investigate a claim prior to denying it;48

failed to act reasonably and to carefully assess the interests of both
the insured and insurer when making the decision to defend
rather than settle the claim: Distillers at 29, 31. This extends to a
requirement not to take points in respect of the policy which are
unarguable: see, for example, the observations of the trial judge in
Hammer Waste Pty Ltd v QBE Mercantile Mutual Ltd [2002] NSWSC
1006; (2003) 12 ANZ Ins Cas 61–553; and Re Zurich Australian
Insurance Ltd (1999) 10 ANZ Ins Cas 61–429;
failed to consult with and to make proper disclosure to the
insured where there was a conflict of interest between the parties:
ACN 007 838 374 Pty Ltd v Zurich Australia Insurance Ltd (1997) 69
SASR 374;
failed to be candid and failed to make clear to the insured at an
 early stage the limits of any obligations arising under the policy.
The insurer also failed to advise the insured of differential liability,
as well as the risks the insured faced and for which it may have
required independent legal advice: Nigel Watts Fashion Agencies Pty
Ltd v GIO General Ltd (1995) 8 ANZ Ins Cas 61–235;
failed to act properly and reasonably in assessing claims. This
obligation becomes more onerous in circumstances where the
insurer is making a determination in its own interests. The duty
requires the insurer in certain circumstances to disclose material
which may be adverse to its case, as well as providing the insured
with the opportunity to address any matters upon which the
insurer has relied in making their determination;49
failed to consult with the insured in settling the claim and to
explain the consequences of the settlement: Horry v Tate and Lyle
Refineries Ltd [1982] 2 Lloyd’s Rep 416; or
declined the claim without credible and genuine reasons. Mere
suspicion is not sufficient to reject the claim. Nor is the insurer
permitted to unmeritoriously test the claim by putting the insured
to proof: Stuart v Guardian Royal Exchange Assurance of New Zealand
Ltd (No 2) (1988) 5 ANZ Ins Cas 60–844.
The following circumstances have been identified as instances where
a breach of the duty may arise,50 namely where the insurer:
fails to notify the insured of an entitlement they have under a
policy of which the insured lacks knowledge;51

[page 391]

engages in ‘horse trading’, something which is prevalent in claims

negotiations;52
fails to draft the policy of insurance in clear and unambiguous
language, so that the insured clearly understands the policy.53 In
Re Bradley per Farwell LJ at 430, the requirement of good faith
from both insurer and insured was seen as providing the rationale
 for construing policies of insurance contra proferentem. Because the
insurer invariably prepares the policies and chooses the wording
and because it must act in good faith towards its insured, it is
obliged to make the meaning of its policies plain. If it does not,
any ambiguity is resolved in favour of the insured (referred to by
Chesterman J in Re Zurich at [38]);
fails to disclose to the insured pertinent information which would
have a substantive effect upon the insured’s decision to insure
against the risk: Banque Financiere (CA);
without a valid reason, offers the insured uncommercial
conditions on the renewal of a policy attempting to dissuade the
holder to discontinue coverage;
delays payment of a claim to secure an investment benefit;54 or
makes an unreasonable and unnecessary request for information:
Haghis Persian Carpet Trading Co v General Accident Insurance Co NZ
Ltd (1990) 6 ANZ Ins Cas 61–003.
It has been held that a failure by an insurer to advise an insured of a
broker’s fraud is not a breach of the duty of good faith: Banque
Financiere (HL). Further, it has been held, in the context of statutory
home building insurance, that it is not a breach of the duty of utmost
good faith for the insurer to require, as a condition of providing that
insurance, that the builder enter into deeds of indemnity with the
insurer: Allianz Australia Ltd v Anthony Vitale [2014] NSWSC 364. In that
case, it was held at [125]:
In any event even assuming Avcon and/or the defendants were able to take advantage
of section 13 I do not regard the obligation of utmost good faith as requiring a party
to surrender any commercial advantage which they may seek to take advantage of
during negotiations in favour the other party: Burger King Corporation v Hungry Jack’s
Pty Ltd [2001] NSWCA 187 and Camellia Properties v Wesfarmers General Insurance Ltd
[2013] NSWSC 1975.

While s 13 of the Act is of general application to both insurer and

insured, s 14(1) expressly provides that if reliance by a party to the
contract on a provision of the contract would be to fail to act with the
utmost good faith, the party may not rely on the provision. Section
14(3) then goes on to provide that in deciding whether reliance by an
insurer on a provision would be to fail to act with the utmost good
faith, the court shall have regard to any notification of the provision
that was given to the insured. Section 14 is not to limit the operation of
s 13: s 14(2).

[page 392]

Third-party beneficiaries of contracts of insurance under s 48 of the

Act or the principles enunciated by the High Court in Trident General
Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 were, until
recently, not owed any duty of utmost good faith by insurers under s 13.
This was because they are not parties to the contract, which was one of
the prerequisites of s 13. Subsections 13(3) and (4), recently
introduced by the Insurance Contracts Amendment Act 2013 (Cth),
now extend the duty to third-party beneficiaries, but only from the time
when the contract is entered into. The reasons for limiting the
application of the duty to after entry into the contract were that:
1. applying the duty pre-contractually would be impractical; and
2. the duty was of most relevance to a third-party beneficiary
when it wished to make a claim: Explanatory Memorandum,
Insurance Contracts Amendment Bill 2013 at [1.19].
The existence of such a duty has been held to apply, depending
arguably upon the nature of the third party, at common law: see, for
example, CE Heath Casualty & General Insurance Ltd v Grey (1993) 32
NSWLR 25; Wyllie v National Mutual Life Association of Australasia Ltd
(1997) 217 ALR 324; Hannover Life Re of Australasia Ltd v Sayseng (2005)
13 ANZ Ins Cas 90–123; [2005] NSWCA 214 at [56]; Dumitrov v SC
Johnson & Son Superannuation Pty Ltd [2006] NSWSC 1372 at [5];
compare Bank of Nova Scotia v Hellenic Mutual War Risks Association
(Bermuda) Ltd [1998] 1 Lloyd’s Rep 514. The content of the duty owed
to third parties will depend upon the circumstances. In Hannover Life it
was held that the insurer had breached its duty of utmost good faith by
failing to give the insured person an opportunity to comment on the
material it had obtained. Independently of the duty of utmost good
faith, where a contractual right depends upon the formation of an
opinion of one of the contracting parties, or the satisfaction that a
particular state of affairs exists, the issue arises as to whether there is a
requirement to act reasonably in arriving at the opinion or state of
satisfaction. In insurance such a term is implied: Edwards v Hunter Valley
Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61–113. Although the duty of
utmost good faith is broader than the implied term to act reasonably in
forming an opinion and imposes a higher standard, it has been said, in
the context of determining a claim for total and permanent disability
under a group life scheme, that if an insurer forms an opinion or
reaches a state of satisfaction about a matter and acts reasonably in
doing so, it is difficult to see how the insurer breached its duty merely
because it formed that opinion or was satisfied about a particular
matter: Ziogos v FSS Trustee Corporation as Trustee of the First State
Superannuation Scheme [2015] NSWSC 1385 at [73]. However, if a policy
requires the insurer to be satisfied of a particular matter, it is not
sufficient to show that some other insurer acting reasonably could have
reached the same conclusion. The insurer has to form the opinion
itself and is required to act with the utmost good faith in doing do. This
extends to giving reasons for its decision so that the insured can
determine whether the decision was reached in the utmost good faith:
Ziogos at [75]. Where a third party has an evidential burden to put
forward material for the insurer to rely on in making its decision, it has
been held that an obligation arises from the

[page 393]

duty of utmost good faith to give the third party a reasonable

opportunity to do so and, further, that if the material is insufficient, the
insurer will say so and give the claimant an opportunity to put forward
additional material: Ziogos at [78].
CONSTRUING THE POLICY
Introduction
11.24 A contract is a legally binding agreement. Some contracts, to
be binding, must be in or evidenced by writing. Others are binding
although agreed between parties orally. Insurance contracts may be
oral or in writing, although, with the exception of contracts of interim
cover, it is rare nowadays to find a contract of insurance which is not
documented.
One of the great advantages of reducing an agreement to writing is
certainty of its terms. The common law has jealously protected the
written form of contract from interference from correspondence,
conversations and discussions before it, and, generally speaking, where
parties have committed their agreement to writing, their rights will be
determined in accordance with its terms and none other.

Structure of the insurance contract

11.25 Modern policies of insurance generally include terms which:
1. define the risks covered (the insuring clause);
2. set out exclusions to that cover (exclusion clauses);
3. identify conditions which must be fulfilled, or occur, before
the insurer is liable; and
4. set limits as to the period or amount of cover.
Terms such as this are often found in a schedule to the policy. A
typical policy of insurance begins by stating generally the particular
events on the occurrence of which, if giving rise to loss or damage, the
insured can claim an indemnity up to a stated maximum amount, and
this is then followed by a list of defined exceptions under which risks
prima facie within the policy are excluded from its ambit. The
obligations of the insurer are further circumscribed by a statement of
the conditions of the policy which, in so far as they concern anything to
be done by the insured, were, at least in the past, expressly designated
as conditions precedent to any liability of the insurer. The effect of
such designation is now severely limited by s 54 of the Insurance
Contracts Act 1984 (Cth).
Thus, the typical policy includes the policy document itself and the
schedule or certificate and any indorsements thereon, all of which are
to be read together. The schedule or certificate gives particulars of the
insured and of the various types of cover provided in the different
sections of policy, together with a maximum amount of liability in
respect of each section and any special conditions applicable to that
particular cover.

[page 394]

Determining the meaning of the policy: principles

of construction
11.26 A number of fundamental rules, common to the construction
of all contracts, should always be borne in mind.
First, the object of the exercise is to ascertain the intentions of the
parties to the contract.
Second, and importantly, it is the intentions of the parties objectively
determined which are relevant. The subjective intentions of the parties
are irrelevant. Thus, evidence from the officer of the insurer who
drafted the clause as to what they intended is inadmissible in a court, as
is evidence from any officer within the insurer who wishes to say what
the insurer intended to achieve by wording a particular clause in a
particular way.
Third, in the vast majority of cases, insurance contracts are construed
by reference to the written terms alone. It is the case that some special
rules relating to the interpretation of insurance contracts have
developed. However, in the vast bulk of cases, an approach to
construction issues which seeks a sensible, commercial meaning will
achieve the correct outcome: see, for example, Wilkie v Gordian Runoff
Ltd (2005) 221 CLR 522; [2005] HCA 17 at [15] and [46].
The principles of construction to be applied to insurance contracts
were recently summarised by Williams J in Messagemate Aust Pty Ltd v
National Credit Insurance (Brokers) Pty Ltd (2003) 85 SASR 303 at 319–20
as follows:
(1) An insurance policy is a species of commercial contract. It must be interpreted so
as to give the words used their ordinary meaning. The primary duty of a court is
to discern from the language, structure and apparent purpose of the document
what it means. A court should give the words used their ordinary operation. The
court is to search for the meaning of the words used. If in those words there is
only one meaning, a court may not reject it simply because it regards the result as
unfair or otherwise undesirable: Johnson v American Home Assurance Co (1998) 192
CLR 266, per Kirby J at 272; McCann v Switzerland Insurance Australia Ltd (2000)
176 CLR 579; 176 ALR 711 at 716 and 725–7.
(2) Where a word or a phrase has a settled meaning in insurance contracts, the court
will hesitate before departing from that meaning: Johnson v American Home
Assurance Co.
(3) A fair and reasonable construction should be adopted which would take into
account the variety of persons entering into an insurance contract of the type in
question. The ordinary meaning of the words in a policy is to be ascertained
having regard to the context in which they appear, the purpose of the policy, the
presumed common intention of the parties and in the light of all the relevant
circumstances, or objective background facts, known to both the parties. The
presumed intention must be derived from the words used in the policy and the
objective facts: Johnson v American Home Assurance Co; Botany Fork & Crane Hire Pty
Ltd v New Zealand Insurance Co Ltd (1993) 44 FCR 27 at 30–31; Australian Casualty
Co Ltd v Federico (1986) 160 CLR 513 at 520; United City Merchants (Australia) Pty
Ltd v MGICA Ltd (1984) 3 ANZ Ins Cas ¶60–603 at 78,673; Wilson v Harvey Trinder
(NSW) Pty Ltd [1973] 2 NSWLR 870 at 874–5.

[page 395]

(4) It is the objective intention of the parties that the court looks to only and not the
subjective intention or actual intention of the parties. The fact that a particular
assured has interpreted the words in a particular way is irrelevant: Bank of
Australasia v North German Insurance Co (1899) 17 NZLR 387 at 399; Todaro v
Farmers & Graziers Co-operative Co Ltd [1982] VR 73 at 79; Nosic v Zurich Australian
Life Insurance Ltd [1997] 1 Qd R 67 at 77 and 78.
(5) The meaning to be given to the insurance policy must take into account the
commercial and social purposes for which it was written. Wherever possible, an
 absurd or manifestly unjust result will be avoided upon the hypothesis that such
would not have been intended by the parties. However, because the primary
search is for the ordinary and fair meaning to be attributed to the words used, no
court is authorised under the guise of construction, to make a new contract for
the parties which is at odds with the terms of the contract to which they have
agreed: Johnson v American Home Assurance Co; Charter Reinsurance Co Ltd v Fagan
[1997] AC 313 at 387–8; Investors Compensation Scheme Ltd v West Bromwich Building
Society [1998] 1 BCLC 531.
(6) If the words used in the policy are intractably ambiguous, the words will be
construed contra proferentem. This principle is to be applied as a ‘last resort’ if the
true meaning cannot otherwise be determined from dictionaries and logic alone.
The maxim does not apply if the words used in the policy are not ambiguous,
obscure or uncertain. An apparent ambiguity in the policy may be resolved by
reading it as a whole and in examining the commercial purpose of the contract:
Johnson v American Home Assurance Co; MGICA Ltd v United City Merchants
(Australia) Ltd (1986) 4 ANZ Ins Cas ¶60–729; CE Heath Underwriting & Insurance
(Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 at 541–2; Maye v
Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14; Darlington Futures Ltd v
Delco Australia Pty Ltd (1986) 161 CLR 500 at 510–11.

Kirby J (in dissent) also provides a useful summary of relevant

principles in Johnson v American Home Assurance Co (1998) 192 CLR 266
at 272–6 and in McCann v Switzerland Insurance Australia Ltd (2000) 203
CLR 579 at 600–3.

Unusual terms: ss 14 and 37 considered

11.27 In certain circumstances, specific notice of particular terms in
an insurance contract is required to be given by the insurer to the
insured prior to entry into the insurance contract. These include:
where reliance on the term would constitute a breach of the
obligation of good faith owing to the lack of notification of the
term provided by the insurer to the insured: s 14;
in the case of standard cover (which applies to those categories of
insurance contracts prescribed by the Regulations to the Act),
where the term constitutes a departure from the standard cover
terms: s 35;
in the case of standard cover, whether the contract provides cover
in respect of loss or damage caused by, or resulting from, flood: s
37C; and
 in other contracts where the term is ‘unusual’: s 37.

[page 396]

BREACH BY INSURED OF A TERM IN THE

POLICY
Introduction
11.28 Section 54 is concerned with acts and omissions of the insured
after the contract of insurance is formed.
At common law, if a warranty was breached by the insured, the
insurer was entitled to avoid its obligations under the insurance
contract and sue for damages. This was the case even where the breach
of warranty relied upon by the insurer did not contribute to the loss
suffered by the insured under the insurance contract.
The common law position was considered by the Australian Law
Reform Commission (ALRC) in its report which preceded the
enactment of the Insurance Contracts Act 1984 (Cth): ALRC Report
No 20, Insurance Contracts. The ALRC considered that reliance by the
insurer on a breach of a term in the policy to avoid a contract where
the insured’s breach did not contribute in any way to the loss suffered
under the policy was harsh and unjust. This was remedied by the
enactment of s 54.

The application of s 54
11.29 Under s 54, the insurer’s remedy for a breach by the insured
must be commensurate with the loss or prejudice suffered by the
insurer as a result of the insured’s breach. The section covers both acts
or omissions by the insured which could have contributed to a loss
under the policy and those which could not. If the insured’s conduct
could not reasonably have contributed to a loss, then subs (1) applies,
which effectively limits the insurer’s remedy by the amount of prejudice
suffered by the insurer as a consequence of the insured’s conduct. If
the insured’s conduct could have contributed to a loss, subss (2) and
(4) apply. In that case, the insurer may refuse to pay the claim unless
the insured can prove that the act or omission did not cause or
contribute to the loss or only caused a part of the loss. If the insured
can prove that their conduct only partly contributed to the loss, the
insured is entitled to a partial recovery.
Section 54 provides:
54 Insurer may not refuse to pay claims in certain circumstances
(1) Subject to this section, where the effect of a contract of insurance would, but for
this section, be that the insurer may refuse to pay a claim, either in whole or in part,
by reason of some act of the insured or of some other person, being an act that
occurred after the contract was entered into but not being an act in respect of which
subsection (2) applies, the insurer may not refuse to pay the claim by reason only of
that act but the insurer’s liability in respect of the claim is reduced by the amount that
fairly represents the extent to which the insurer’s interests were prejudiced as a result
of that act.

[page 397]

(2) Subject to the succeeding provisions of this section, where the act could reasonably
be regarded as being capable of causing or contributing to a loss in respect of which
insurance cover is provided by the contract, the insurer may refuse to pay the claim.
(3) Where the insured proves that no part of the loss that gave rise to the claim was
caused by the act, the insurer may not refuse to pay the claim by reason only of the
act.
(4) Where the insured proves that some part of the loss that gave rise to the claim was
not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns
that part of the loss, by reason only of the act.
(5) Where:
(a) the act was necessary to protect the safety of a person or to preserve property;
or
(b) it was not reasonably possible for the insured or other person not to do the act;
the insurer may not refuse to pay the claim by reason only of the act.
(6) A reference in this section to an act includes a reference to:
(a) an omission; and
 an act or omission that has the effect of altering the state or condition of the
(b) subject-matter of the contract or of allowing the state or condition of that
subject-matter to alter.

A framework for applying s 54 is illustrated by the diagram below:

It is useful to consider the application of s 54 to different fact

scenarios.55

Example 1
11.30

A motor vehicle policy contains a term by which the insured warrants that the vehicle will
be maintained in a roadworthy condition. As a result of a brake failure,

[page 398]

the vehicle, while being driven by the insured, collides with another vehicle. The driver of
the other vehicle was 50 per cent to blame for the accident.

1. What was the relevant act or omission of the insured?

The relevant act or omission of the insured was the insured’s
conduct in allowing the vehicle to become unroadworthy.
 Was this an act which could reasonably have contributed to a
2.
loss?
This was an act which could reasonably have contributed to
the loss, and therefore s 54(2) applies.
3. If so, did the act in fact cause the loss?
The other driver was 50 per cent to blame. The insured,
therefore, may be able to prove that he was, at most, only 50
per cent to blame for the accident. Therefore, the insurer will
be entitled to deduct only 50 per cent of the claim.

Example 2
11.31

A motor vehicle policy contains a term by which the insured warrants that the vehicle will
be maintained in a roadworthy condition. The insured fails to do this. The insured’s vehicle
is damaged while parked.

1. What was the relevant act or omission of the insured?

The relevant act or omission of the insured was the insured’s
conduct in allowing the vehicle to become unroadworthy.
2. Was this an act which could reasonably have contributed to a
loss?
This was an act which could reasonably have contributed to
the loss, and therefore s 54(2) applies.
3. If so, did the act in fact cause the loss?
The act did not cause the loss. Therefore, the insured can
recover his loss in full.

Example 3
11.32

The insured’s motor vehicle policy contains a term which excludes the insurer’s liability if
the driver of the vehicle is unlicensed. While driving the car, the insured is involved in an
 accident. He was unlicensed at the time, having forgotten to renew his licence, which
expired two weeks previously.

[page 399]

1. What was the relevant act or omission of the insured?

The relevant act or omission of the insured was his omission
to renew his licence.
2. Was this an act which could reasonably have contributed to a
loss?
This was not an act which could reasonably have contributed
to the loss, and therefore s 54(1) applies.
3. What prejudice was caused to the insurer by the insured’s
omission?
The insurer could not be prejudiced by the insured driving
the car without a licence. Therefore, the insured can recover
his loss in full.
The leading case on s 54 is FAI General Insurance Co Ltd v Australian
Hospital Care Pty Ltd (2001) 204 CLR 641. There the court applied s
54(1) to excuse the insured from a failure to notify the insurer during
the policy period of circumstances which might give rise to a claim.
This case represents the final say in a long debate conducted over the
course of several cases including East End Real Estate Pty Ltd v CE Heath
Casualty & General Insurance Ltd (1992) 25 NSWLR 400 and FAI General
Insurance Co Ltd v Perry (1993) 30 NSWLR 89. The debate focused on
whether s 54(1) could cure the failure by an insured to take advantage
of a ‘deeming provision’ or ‘discovery clause’ in a liability policy. An
example of a ‘deeming provision’ is as follows:
A claim first made against the insured after the insurance period will be deemed to
have been made during the insurance period, but only if the insured notifies the
insurer during the insurance period of circumstances which they first become aware
of during the insurance period which may give rise to a subsequent claim of that
nature against the insured.
 It was held in FAI General Insurance v Australian Hospital Care that s
54(1) could apply to a failure by an insured during the policy period to
notify of circumstances that might give rise to a claim. Section 54 is not
expressed so that it applies only when the insured is in breach of a
contractual term. The section is broader than that. It applies to ‘acts or
omissions’ relevant to all contractual terms, regardless of how they may
be categorised: FAI General Insurance v Australian Hospital Care at [33]
per Gleeson CJ applied in Aussie Tax Pty Ltd v Markel Capital Ltd [2008]
VSC 592.
Determining whether there is a relevant ‘act or omission’ for the
purposes of s 54 can be difficult, particularly where it is said by the
insured that the act or omission is the reason why the insured’s claim is
not with respect to a risk or event covered by the policy: see for
example Johnson v Triple C Furniture & Electrical Pty Ltd (2010) 243 FLR
336 and Maxwell v Highway Hauliers Pty Ltd [2013] WASCA 115. In
applying s 54 it has been held that close ‘attention must be given to the
elements with which s 54 deals: the effect of the contract of insurance
between the parties; the “claim” which the insured has made; and the
reason for the insurer’s refusal to pay that claim’: FAI General Insurance
v Australian Hospital Care at [39]. ‘Act’ has been held generally to mean
‘something done or being done by a person’ as opposed to a state of
affairs or the result of an act: Allianz Australia

[page 400]

Insurance Ltd v Inglis [2016] WASCA 25 at [36]–[37]. In Allianz v Inglis,

an exclusion clause excluded cover from a liability policy in respect of
injury caused to a person ‘who normally lives with you’. The insureds
sought cover on the basis that, although the injured person (the
insureds’ daughter and sister respectively) normally lived with them,
this was an ‘act’ within s 54(1). The court, however, disagreed (at [42];
see also at [72]):
Where the ultimate fact (did the claimant normally live with the insured at the
relevant time) depends on the drawing of an inference from the conduct of all
 relevant persons over an extended period and does not depend on there being any
act on the relevant day, the ultimate fact is not an ‘act of the insured or of some other
person’; it is properly characterised as a state of affairs or description of a relationship.

In FAI General Insurance v Australian Hospital Care it was held at [41]–

[42]:
[Section 54] does not operate to relieve the insured of restrictions or limitations that
are inherent in the insured’s claim. The restrictions that are inherent within a claim
vary according to the type of insurance in issue.

The difficulties in making the distinction between matters inherent

in the claim which cannot be cured by s 54 and those that can is
apparent from Johnson v Triple C and Maxwell v Highway Hauliers.
In Johnson v Triple C the relevant conduct was identified as the failure
of the pilot to have satisfactorily completed an aeroplane flight review
within two years of the flight the subject of the claim. The policy did
not apply while the aircraft was being operated in breach of civil
aviation regulations. The majority concluded that the conduct was not
an omission for the purposes of s 54 because for it to constitute an
‘omission’ it had to be ‘within the power of the omitter to have done’
and this was something which was subject to the assessment and
approval of a third party, not the pilot. In Maxwell v Highway Hauliers
the relevant omission was held to be the failure of the insured’s drivers
to satisfactorily complete the PAQS test before driving the insured’s
nominated vehicles, which was a s 54(1) omission: at [82]–[83] and
[121]. Although the decisions in Johnson v Triple C and Maxwell v
Highway Hauliers may seem inconsistent, it is possible to reconcile them
on the basis that the failure in Johnson v Triple C was something which
went to the core or essence of the cover, in the sense that compliance
with the aviation regulations was an inherent requirement for that type
of cover and was not something which could be ‘cured’ by s 54, whereas
the failure to pass the test in Maxwell v Highway Hauliers was merely
peripheral to the core of the insurer’s promise. Indeed, the policy itself
contemplated the activity of operating or driving vehicles without the
driver holding the relevant qualification: Maxwell v Highway Hauliers at
[150].
Whether s 54 applies, therefore, will depend upon the
characterisation of the effect of the contract. In addressing that effect,
it was held in Prepaid Services Pty Ltd v Atradius Credit Insurance NV
[2013] NSWCA 252 at [135]–[136] that it is necessary to have regard to
‘the nature of the risk and subject matter insured as well as the
commercial or other context in which the insurance is written, to the
extent that evidence of that kind is admissible on that question of
construction’.

[page 401]

In Allianz v Inglis it was held, in obiter, that the temporal exclusion

relating to where the claimant normally lived did not go to the core of
the policy, in other words, that it was not a restriction or limitation
which must necessarily be acknowledged in the making of a claim: at
[60]. Similarly, in Pantaenius Australia Pty Ltd v Watkins Syndicate 0457 at
Lloyds [2016] FCA 1, a clause which suspended cover from the time a
vessel cleared Australian customs was held not to go to the core of the
policy and was therefore ‘amenable to the beneficial operation of s 54’:
at [79].
Whether an act is an s 54(1) or s 54(2) act is not always clear. In Gibbs
Holdings Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd (2001) 11
ANZ Ins Cas 61–484, a clause in the policy provided that, if there was
an alteration in the nature of the occupation of the insured premises
which might increase the risk, the insured must notify the insurer and
the insurer agree to the change, otherwise no benefits would be
payable under the policy. During the policy, a plastics manufacturer
moved into the relevant premises and the insured did not notify the
insurer. If the insurer had been notified it would have cancelled the
policy. The insured premises were destroyed by fire but the fire was in
no way related to the presence of the plastics manufacturer. The
majority held that the relevant act was the insured’s failure to notify,
which was an s 54(1) act. Pincus JA, however, held that the relevant act
was a combination of the insured’s act in permitting the plastics
manufacturer to move into the insured premises and the insured’s act
in failing to notify the insurer of this fact. Therefore, his Honour
reasoned, it was properly categorised as an s 54(2) act. Pincus JA
concluded that the insurer was bound to indemnify the insured under s
54(3) because the insured proved that no part of the loss that gave rise
to the claim was caused by the whole of the act of the insured.

Insurer’s remedy for a breach of condition

11.33 An insurer may no longer avoid the claim as a consequence of
any wrongful act by the insured after the contract of insurance is
entered into. Section 54 outlines the sole remedy for an insurer where
an insured or some other person is responsible for an act or omission
which occurred after the insurance contract was entered into and
which, but for s 54, would have allowed the insurer to refuse to pay the
claim. If the act or omission caused or contributed to the loss, the
insurer is entitled to reduce the insured’s claim by an amount
representing the prejudice suffered by the insurer as a result.
If the insurer can prove it would have cancelled the policy if the act
or omission by the insured had not occurred, then the insurer’s
prejudice will equal the amount of the claim. In Ferrcom Pty Ltd v
Commercial Union Assurance Co (Aust) Ltd (1993) 176 CLR 332; 67 ALJR
264, the High Court held that the insured’s conduct, in failing to
comply with a clause requiring the insured to notify the insurer of any
material variation of facts to those which existed at the commencement
of the policy, meant that the insurer had lost the opportunity to cancel
the policy. The value of that lost opportunity was equivalent to the
liability imposed prima facie by s 54(1). The liability imposed by s 54(1)
should therefore, it was held, be ‘reduced’ to nil.

[page 402]

Calculating the insurer’s prejudice is often a difficult exercise. That

was demonstrated by Moltoni Corporation Pty Ltd v QBE Insurance Ltd
(2001) 205 CLR 149. The facts and early determinations were as
follows.56
In 1986, QBE issued a workers’ compensation policy of insurance to
a company which traded under the name of Mainline Demolition. The
policy was renewed each year and was in force in November 1992. At all
relevant times the appellant was insured under the policy. An employee
of the appellant alleged that in November 1992 he suffered injury in
the course of his employment by the appellant in its demolition
business. The employee brought an action against the appellant in the
District Court of Western Australia, claiming damages for negligence. It
was a condition of the policy that the appellant should give notice to
the respondent of any personal injuries suffered by an employee ‘as
soon as practicable after information as to the happening of such, or
any incapacity arising therefrom, comes to the knowledge’ of the
appellant or a representative of the appellant.
The appellant omitted to give notice of the employee’s injury to the
insurer until 17 months after it had happened. The insurer denied it
was liable to indemnify the appellant against the employee’s claim. It
alleged that the appellant’s failure to notify it of the employee’s claim
as soon as practicable after it became aware of it had prejudiced it in
three ways:
1. It had ‘lost the opportunity to timeously investigate the
accident and the injuries allegedly sustained by the employee’.
2. The employee had returned to work after the relevant
accident and then suffered another injury which prevented it
properly investigating the injuries sustained in the accident
which was the subject of the claim.
3. If it had been notified of the accident in accordance with the
policy, it would have arranged different rehabilitation and
medical treatment from that which the employee received.
At trial, the employee succeeded in his claim against the appellant
and obtained judgment for $349,837. An order was made that the
insurer indemnify the appellant against its liability under the judgment
to the employee. The respondent insurer appealed to the Full Court of
the Supreme Court of Western Australia against the order for
indemnity, and the appeal was allowed.
At trial, the insurer relied principally upon evidence given by its
major claims controller at the relevant time. He gave evidence of what
the respondent would have done if the appellant had given a notice of
the employee’s injuries soon after they had happened. He said that,
ordinarily, within three months of the injury, an injured worker would
be referred to a rehabilitation provider, particularly when, as was the
case here, the worker had been certified fit only for light duties. He
could not, however, refer to an example of this having been done. In
addition, although the question of referring a worker to a

[page 403]

medical specialist was within the discretion of the person responsible

for the file on the respondent’s behalf, the respondent’s policy was to
refer a worker to a specialist of its choice within three months of receipt
of a claim.
In a unanimous judgment, the High Court held that it was not
appropriate to approach the exercise as a loss of a chance from the
insurer’s perspective. The insurer needed to show not what the insurer
might have done but what it would have done. The insurer must
therefore prove on the balance of probabilities that it would have
exercised the right in question. In Ferrcom, this required proof on the
balance of probabilities that the insurer would have gone ‘off risk’.
The insurer had failed to prove, on balance, any loss as a result of the
failure to comply with the policy.

MAKING A CLAIM
Loss covered by the policy
11.34 An insured who wishes to make a claim under the policy must
establish that the loss comes within the ambit of the policy. The insured
must therefore show on the balance of probabilities:
1. a valid contract of insurance was in existence at the relevant
time;
2. an event covered by the policy has occurred;
3. the insured has suffered a loss as a result; and
4. generally, that the event is the dominant, effective or
operative cause of the loss: Skandia Insurance Co Ltd v Skoljarev
(1979) 142 CLR 375.
After the insured has established that prima facie the loss is covered
by the policy, the onus then shifts to the insurer to demonstrate either:
1. a breach of duty by the insured entitling the insurer to avoid
liability; or
2. that the claim comes within an exception to the policy: Toikan
International Insurance Broking Pty Ltd v Plasteel Windows
Australia Pty Ltd (1989) 15 NSWLR 641; Boonham v CE Heath
Underwriting & Agency Services (1993) 7 ANZ Ins Cas 61–189.
The onus rules are stated in more detail in Munro Brice & Co v War
Risks Association Ltd [1918] 2 KB 78 at 88. The principles in Munro Brice
were recently applied in the context of a fire insurance policy in
McLennan v Insurance Australia Ltd [2014] NSWCA 300; see also
Derrington, ‘Conditions in Policies of Insurance — Onus of Proof’
(1985) 59 ALJ 554.

Causation
11.35 The necessary nexus between the occurrence of the risk
insured against and the damage or injury in respect of which the claim
under the policy is made is described in policies in different ways. Thus,
the test for causation in insurance will usually be

[page 404]
different from the test in (for example) negligence. To illustrate the
difficulties which may be involved, consider these circumstances. A man
works in an industry which involves exposure to asbestos. He works for
a number of different employers in the industry, each for different
periods. He contracts mesothelioma as a result. The evidence shows
that the cancer is caused by the combined effects of the exposure, but
does not show that exposure during the course of employment by any
one employer was sufficient to cause the disease. Is any employer liable
and is his insurer bound to cover him? This is in fact a situation unclear
at common law: Fairchild v Glenhaven Funeral Services Ltd [2002] 1 WLR
1052. But what would be the outcome if you had to apply common
words of causation found in insurance policies, such as ‘arising out of’,
‘resulting from’, ‘traceable to’ or ‘occasioned by or happening
through’?
In an action in negligence, it is sufficient to show that a wrong was a
‘material’ cause of the damage. The negligence need not be the sole
cause or the dominant cause of the loss: Chapman v Hearse (1961) 106
CLR 112.
The words ‘caused by’ have a different meaning in insurance
policies.
Without more, those words have been construed to mean ‘proximate
cause’: Government Insurance Office (NSW) v R J Green & Lloyd Pty Ltd
(1966) 114 CLR 437. ‘Proximate cause’ has been construed to require a
more immediate connection than causation in negligence. Thus, to be
the proximate cause, an event must be the ‘dominant’, ‘real’ or
‘effective’ cause: Wayne Tank and Pump Co Ltd v Employers’ Liability
Assurance Corp Ltd [1974] 1 QB 57; Wood v Associated National Insurance
Co Ltd [1985] 1 Qd R 297; Halvorsen Boats Pty Ltd v Robinson (1993) 31
NSWLR 1.
Whether something is the proximate cause of loss is often
contentious. The issue is a question of fact and involves the application
of common sense: Lipertis v Australian Casualty Co [1983] 2 VR 280 and
National and General Insurance Co Ltd v Chick [1984] 2 NSWLR 86 at 98
per Samuels JA:
 The choice of the real or efficient cause from the whole complex of facts must be
made by applying common sense standards. Causation is to be understood as the man
in the street and not as either the scientist or the metaphysician would understand it.

The proximate cause will not necessarily be the cause latest in time.
In Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd
[1918] AC 350, a ship was insured against losses caused by perils of the
sea but the policy contained an exception in respect of war losses. The
ship was torpedoed by a German submarine off the coast of France and
was brought into the harbour with the aid of tugs. While docked, a gale
caused the ship to bump into the quay to which it was moored. The
port authorities, fearful of damage to the quay, ordered it to a location
where it was buffeted by heavy seas. The ship sank and its owners
contended that this was a loss through ‘perils of the sea’. The insurers
argued that it was loss caused as a consequence of hostilities and
therefore fell within the exclusion.

[page 405]

The House of Lords held (per Lord Shaw at 369–70) that the
proximate cause was the torpedo:
Proximate in this context did not refer to proximate in time. The proximate cause is
that which is proximate in efficiency. That efficiency may have been preserved
although other causes may meantime have sprung up which have not yet destroyed it
… and it may culminate in a result of which it still remains the real efficient cause to
which the event can be ascribed … In my opinion, accordingly, proximate cause is an
expression referring to the efficiency as an operating factor upon the result. Where
various factors or causes are concurrent, and one has to be selected, the matter is
determined as one of fact, and the choice falls upon the one to which may be variously
ascribed the qualities of reality, predominance, efficiency.

The words ‘arising out of’, however, do not import the test of
‘proximate cause’, and have been construed to require only a non-
coincidental nexus between the peril and the loss (Lamont v Motor
Accidents Board [1983] VR 88); nor do the words ‘resulting from’, which
require more than a predisposition for the loss to occur but will be
satisfied if there is an unbroken causal chain between peril and the loss
and if the peril provides the relevant causal explanation of the loss
(Kooragang Cement Pty Ltd v Bates (1994) 10 NSWCCR 796).57
Phrases which permit a more tenuous link between the event and the
loss include ‘directly or indirectly caused by’ and ‘occasioned by or
happening through’.
The last causal event to occur will usually be an effective contributing
cause, especially where it has a cumulative and independent origin:
Leyland; National and General Insurance v Chick at 97; City Centre Cold Store
Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 739 at 744–
5; Petersen v Union des Assurances de Paris IARD (1995) 8 ANZ Ins Cas 61–
244 at 75,749 (SC(NSW)); (1997) 9 ANZ Ins Cas 61–366 at 77,034
(CA(NSW)); Hams v CGU Insurance Ltd (2002) 12 ANZ Ins Cas 61–542;
[2002] NSWSC 273 at [163].
Difficulties may arise when there are multiple causes contributing to
a loss, particularly if one of those causes is excluded under the
insurance contract.
If a loss has two or more proximate or effective causes and at least
one cause is excluded from cover, the insurer is not liable: Wayne Tank
and Pump; Petersen (CA).
If a loss has two or more causes, and loss from one is insured against
and none of the others is expressly excluded, the insured is entitled to
recover: HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc
(1998) 43 NSWLR 601 at 612.
The above principles were applied in Hams; Eastern Suburbs Leagues
Club Ltd v Royal & Sun Alliance Insurance Australia Ltd (2004) 13 ANZ
Ins Cas 61–599; [2003] QSC 413; and ABN Amro Bank NV v Bathurst
Regional Council [2014] FCAFC 65.

[page 406]

When and whether a ‘claim’ is in fact made

against the insurer
11.36 In many policies, particularly liability policies, a clause is
inserted to the effect that on the happening of any occurrence which
might give rise to a claim, written notice is to be given to the insurer
either immediately or as soon as possible.
Section 40(3) is regarded as the statutory equivalent of such clauses.
This provision, which is currently under review, allows an insured to
obtain indemnity for a late claim (that is, made after expiration of
insurance cover) in the following circumstances:
1. there is a contract of liability insurance (defined in s 11(7) as
a contract of general insurance that provides cover in respect
of the insured’s liability for loss or damage caused to a person
who is not the insured);
2. the effect of that contract is that the insurer’s liability is
excluded or limited by reason that notice of a claim against
the insured in respect of a loss suffered by some other person
is not given to the insurer before the expiration of insurance
cover; and
3. the insured gave notice in writing to the insurer of facts that
might give rise to a claim against the insured as soon as was
reasonably practicable after the insured became aware of
those facts but before the insurance cover provided by the contract
expired.
The issue of what constitutes effective notification of a claim by an
insured for the purposes of s 40(3) was considered by the New South
Wales Court of Appeal in Antico v CE Heath Casualty & General Insurance
Ltd (1996) 38 NSWLR 681. (The case went on appeal to the High
Court, but on a different issue.) The court held that notification
required more than the incidental conveying of information.
Notification was to be distinguished from knowledge. Briefly, in Antico,
letters and enclosures sent with a proposal form in respect of a second
policy to a different branch of the same insurer were held not to
constitute notification of a claim under a different policy, even though
it was held with the same insurance company. The provision of
information, in order to be effective notification, must be supplied to
the insurer in its capacity as insurer in respect of a particular policy.
The circumstances notified must also be capable of giving rise to a
claim; that is, the insured should notify of possible negligence as
opposed to the fact of a threatened claim. The insurer needs to know
when the insured became aware of circumstances which may give rise to a
claim. Whether letters from a potential plaintiff constitute a claim or
the threat of a claim, for example, can be a difficult issue. In Junemill
Ltd (in liq) v FAI General Insurance Co Ltd (1996) 9 ANZ Ins Cas 61–315,
Dowsett J said at first instance:
… had the plaintiff become aware of a negligent valuation which had not yet caused a
demonstrable loss, then that negligent valuation would be an occurrence for the
purposes of condition 3 provided that the plaintiff had not been aware of it prior to
the commencement of the period of cover.
Before me, the plaintiff did not seek to rely upon such a possible negligent
valuation as being an occurrence for the purposes of condition 3 but rather sought to
cast the

[page 407]

‘claim’ by IOOF as an occurrence for that purpose. The fact that IOOF had written,
asserting that it may, in some circumstances, sue the plaintiff was certainly an
occurrence. However, it was not an occurrence which might subsequently give rise to a claim.
It predicted such a claim, but that is quite a different thing …
Had the plaintiff been previously unaware of that possibility, then the alleged act of
negligence may have been an occurrence for present purposes, and relevant
circumstances (ie the possibility of negligence) may then have come to the plaintiff’s
knowledge for the first time during the period of cover. However the plaintiff did not
conduct its case on that basis, and in particular, did not seek to establish that it had
not previously been aware of any possible negligence.

On appeal, the decision was reversed: Junemill Ltd (in liq) v FAI
General Insurance Co Ltd [1999] 2 Qd R 136. There it was noted by
Fryberg J that the question of what amounts to a claim has been dealt
with by the courts as one of substance and not of form. His Honour
referred to Triden Properties Ltd v Capita Financial Group Ltd (1995) 12
BCL 402, where the threat of legal action if certain defects were not
rectified was held to constitute a ‘claim’ against the insured for
damages for the defective design if the insured did not correct them. In
Junemill, it was held that the two letters read together constituted a
claim. It did not matter that the second letter had not particularised
the remedy sought. However, as Fryberg J held, it was well known to the
third party and to the insured what the nature of the work done had
been. In that situation, his Honour held ‘the legal proceedings referred
to must almost certainly have been for damages: and such a claim is
quite properly described as one for “compensation” in this context’.
A wrongdoers’ knowledge of their own wrongful acts may constitute
awareness by them of circumstances that might give rise to a claim
against them: Guild Insurance Ltd v Hepburn [2014] NSWCA 400. In
Hepburn the ‘excruciating’ pain Ms Hepburn would have suffered as a
result of the relevant dentistry work being conducted without
anaesthetic was held to constitute a basis for inferring that the dentist
in question was aware that her conduct might give rise to a claim: at
[33] and [56].
In King v McKean & Park (A Firm) (2002) 12 ANZ Ins Cas 61–534, the
question was whether the issue of a writ could amount to a ‘claim …
made against the insured and reported to the insurer’ within the
meaning of a ‘claims made and notified’ professional indemnity policy.
In this case, the insured barrister had been named as a defendant in a
writ which had been issued within the policy period but served outside
it. It was held that the mere issue of the writ did not constitute a ‘claim’
as defined in the policy. It was held that the intention of the parties,
having regard to the terms of the policy as a whole, was that the making
of a claim against the insured required communication to the insured:
per Osborn J at [10].
If a claim made against an insured is amended to include different
causes of action, the insured must be careful to ensure that the
amended claim is notified to the insurer rather than attempting to rely
on an earlier notification of the original claim: American Home Assurance
Co v Kirby (2004) 13 ANZ Ins Cas 61–600; [2003] NSWCA 395.

[page 408]
Delay in the notification of a claim
11.37 If an insured fails to comply with a term in the policy which
sets out a time within which notification of a claim must occur, this
breach will not entitle the insurer to refuse indemnity. The breach is
subject to s 54 of the Insurance Contracts Act 1984 (Cth). As this
breach could not have contributed to the loss suffered under the
policy, the insurer’s remedy is to reduce the amount of the insured’s
claim by an amount representing the prejudice suffered to the insurer
by the delay in notification.
Section 54 applies not only to a breach of such a clause but also to a
failure by an insured to take advantage of a clause which allows an
insured to notify circumstances which may give rise to a claim: FAI
General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204
CLR 641. If an insured does notify such circumstances within the policy
period, then the claim when eventually made is covered by the policy,
even if the claim is made after the policy has expired.
Section 54 does not apply to a failure by an insured to take advantage
of s 40(3), the statutory equivalent to a ‘circumstance notification
provision’ in an insurance contract: McInally Nominees Pty Ltd v HTW
Valuers (Brisbane) Pty Ltd (2002) 188 ALR 439; Gosford City Council v GIO
General Ltd (2003) 56 NSWLR 542.

FRAUDULENT CLAIMS
What is a ‘fraudulent claim’?
11.38 It is necessary to define what is meant by ‘fraud’. The word
‘fraudulently’ is not defined in the Act. The common law definition
should be applied. Hence, in order to prove fraud, the insurer must
show that the insured intended to deceive the insurer: Purcell v SIO
(1982) 2 ANZ Ins Cas 60–702. In the absence of a clause which deals
more specifically with the nature of dishonest conduct proscribed, the
insurer must prove that there was not merely an error or carelessness or
mistake on the part of the insured, but an intention to deceive.
In Walton v Colonial Mutual Life Assurance Society Ltd (2004) 13 ANZ
Ins Cas 61–620; [2004] NSWSC 616 at [144], it was held:
… the test for fraud is satisfied if the insured has a dishonest intent to induce a false
belief in the insurer for the purpose of obtaining payment or some other benefit
under the policy. As such, where the insured makes a false statement with knowledge
in a claim to induce the insurer to meet the claim, the claim is made fraudulently. The
fraudulent statement need not be material to the insured’s claim nor is the insured
absolved of any responsibility by asserting that he considered his claim to be valid.
(See Tiep Thi To v Australian Associated Motor Insurers Ltd (2001) 3 VR 279; Naomi
Marble & Granite Pty Ltd v FAI General Insurance Co Ltd (No 1) [1999] 1 Qd R 507 and
Mourad v NRMA Insurance Ltd (2003) 12 ANZ Ins Cas ¶61–560.)

The insurer bears the onus of proof.

[page 409]

The burden of proof in respect of proof of fraud remains the balance

of probabilities, but because of the seriousness of the allegation, the
court requires there to be cogent evidence of such conduct: Briginshaw
v Briginshaw (1938) 60 CLR 336. It is as a consequence sometimes said
that it is difficult to prove fraud, but cogent evidence would be
provided, for example, by documentary evidence from which a sensible
inference of dishonesty could be drawn. A finding of fraud involves a
finding that a person has been untruthful and deliberately so, with the
intent of obtaining a financial gain: Sgro v Australian Associated Motor
Insurers Ltd [2015] NSWCA 262 at [57]. In Sgro it was not enough for
the primary judge to find that false statements in support of the claim
had been made. It was necessary to also make a finding that those
statements had been made for a fraudulent purpose: at [73]. Of course,
dishonesty may attach to all or only part of a claim. If a person claims
under a policy for a stolen piece of jewellery and the jewellery never
existed or was not stolen, in practical terms the whole claim was made
fraudulently. If a person suffers a loss because his business is
interrupted, and he overstates his lost income, part of the claim is made
dishonestly. Does this distinction make a difference to the insurer’s
remedies?
The common law permitted avoidance of the policy for fraud. Now, s
56 of the Insurance Contracts Act 1984 (Cth) sets out the consequences
of such conduct.

The effect of a fraudulent claim

11.39 Section 56(1) provides:
Where a claim under a contract of insurance, or a claim made under this Act against
an insurer by a person who is not the insured under a contract of insurance, is made
fraudulently, the insurer may not avoid the contract but may refuse payment of the
claim.

The court has a discretionary power under s 56(2) to order the

insurer to pay some of the claim in certain circumstances.
Section 56(2) provides:
… the court may, if only a minimal or insignificant part of the claim is made
fraudulently and non-payment of the remainder of the claim would be harsh and
unfair, order the insurer to pay, in relation to the claim, such amount (if any) as is just
and equitable in the circumstances.

In exercising this power, s 56(3) provides that:

… the court shall have regard to the need to deter fraudulent conduct in relation to
insurance but may also have regard to any other relevant matter.

It can be seen by an examination of s 56 that the impact of the Act

on the common law position in respect of fraudulent claims is less
significant than the impact of s 54 upon breaches of the policy.
Although the insurer may no longer avoid the policy under the Act,
other than in exceptional circumstances it is entitled to refuse to pay
the claim. Thus, by and large, the Act preserves a position where
fraudulent conduct is not tolerated.
Cases which satisfy s 56(2) are rare; see, for example, Entwells Pty Ltd
v National and General Insurance Co Ltd (1991) 6 ANZ Ins Cas 61–059,
where the subsection was applied, and
 [page 410]

Ricciardi v Suncorp Metway Insurance Ltd (2001) 11 ANZ Ins Cas 61–493;
[2001] QCA 190, where it was held not to apply.
Cancellation of the policy pursuant to s 60(1)(e) is also available in
respect of fraudulent claims. ‘Cancellation’ in s 60 means that the future
obligations of the insurer may be cancelled. Cancellation cannot affect
rights of the insured already accrued, which, if they are to be
disregarded by the insurer, must be so under s 56(1).

What if the value of the claim is exaggerated or

an otherwise valid claim is supported by false
evidence?
11.40 There is a reluctance by the courts to draw an inference of
fraud where the claim is greatly exaggerated or overvalued. This is
perhaps reasonable where the valuation of the subject matter of the
claim is difficult to ascertain: for example, in Dawson v Monarch
Insurance Co of New Zealand [1977] 1 NZLR 372 where the insured
claimed $6000 for the loss of an inflatable rabbit. In that case the court
considered that it was difficult to assess the value of a rabbit because
there was no market for inflatable rabbits. Exaggeration could not be
intentional where the insured did not know of it. The insured was
awarded $3500. In other cases, for example, where the insured claims
for the cost price of new goods as the value of second-hand goods
destroyed in a fire, the approach is less justifiable.
In GRE Insurance Ltd v Ormsby (1983) 29 SASR 498 a distinction was
drawn between fraudulent claims and valid claims supported by false
evidence. In that case the Full Court held that the insured, who had
produced false evidence to support an otherwise valid claim, could
recover under a policy of insurance. The policy covered loss of stock in
shop premises caused by theft consequent upon entry into the building
by forcible and violent means. The lock on the insured’s shop was
forced, the shop was broken into and a number of items were stolen.
The insurer refused to indemnify the insured, alleging that the insured
had attempted to bolster their claim by causing further damage to the
door and lock at a later time. Photographs of the door in a heightened
state of disrepair were sent by the insured to the insurer in support of
the claim. Mitchell J held that the false statement did not entitle the
insurer to refuse to pay the claim because ‘the claim itself was valid’. It
did not become a fraudulent claim because there was an attempt to
support it by evidence which was intentionally false. Walters J agreed
and held that the claim was not fraudulent because ‘there was never an
intention on the part of the respondents to get, and knowingly to get,
more than what they had really lost’. Cox J said that ‘I do not think that
an assured should be held to have vitiated his claim by reason merely of
the kind of conduct, subsequent to the claim, that the appellant alleges
to have happened here’.
This case was not followed by the Victorian Court of Appeal in To v
Australian Associated Motor Insurers Ltd (2001) 3 VR 279. Buchanan JA
held at 286:

[page 411]

I regret to say that I find I cannot agree with the conclusion in Ormsby … I consider
that the existence of an underlying valid claim does not render fraud irrelevant; the
dishonest intention required for fraud is at least one to induce a false belief in the
insurer for the purpose of obtaining payment or some other benefit under the policy,
with or without belief or knowledge of a lack of entitlement; and fraud which relates
to the claim made with the requisite intent will disentitle the claimant even if made
subsequent to the first presentation of the claim.

In To, the appellant was the owner of a Toyota Land Cruiser which
was comprehensively insured by AAMI. One day the appellant went out
leaving her 15-year-old at home. He drove his mother’s car without her
consent and had an accident. The appellant returned to find her car
and son near her home. She moved the car a short distance. Three days
later she made a statement to the police. She said the car had been
stolen and damaged when her son was set upon by a gang of youths.
The next day she claimed upon the insurance policy and repeated the
false story she had told the police. The appellant lied because she
believed (wrongly, as it turned out) that the policy would not have
covered damage to the car caused when the car was being driven by an
unlicensed person without the consent of the insured.
The insurer refused to pay the claim on the basis that the claim was
fraudulent and thus the insurer was entitled to refuse payment under s
56; alternatively, that the false claim constituted a breach of the duty
implied by s 13 requiring the appellant to act with the utmost good
faith. The insured argued that the effect of s 56 was to prevent a
fraudulent claimant being punished by limiting the effect of fraud to
reduction of liability of the insurer by the extent to which it had been
prejudiced by the insured’s fraud. Accordingly, if the insured did suffer
loss covered by the policy, they could recover the amount of the loss
notwithstanding the commission of fraud in connection with the
making of the claim. The fraud itself would have no legal
consequences.
The court disagreed. It was held that the changes to the common law
position by s 56 are only to limit the insurer’s remedy in the event of
fraud to the denial of the fraudulent claim rather than avoidance of the
policy, and to enable the court to order payment where only a minimal
or insignificant part of the claim is fraudulent and it would be harsh
and unfair not to pay the remainder. Otherwise the legal position
remains unaltered: an insurer need not pay a fraudulent claim whether
or not there is an underlying loss which is covered by the policy. There
was a moral or public policy dimension to the common law principle,
which is preserved in s 56.
The insured then contended that the claim was not false. It
contended that the false statement had to be false in the sense that the
falsity attached to the basis upon which the insurer is claimed to be
liable. Here, it was said, the insured’s claim that the car had been stolen
was true (it had been stolen by her son in accordance with the wide
definition of ‘theft’ in the Crimes Act 1958 (Vic)). The appellant had
merely misstated the identity of the thief and this, it was argued, did
not render the claim ‘false’. This argument was also rejected. Section
56(1) was concerned with fraud in the formulation and presentation of
the

[page 412]

claim. If a false statement is knowingly made in connection with a claim

for the purpose of inducing the insurer to meet the claim, the claim is
one made fraudulently within the meaning of s 56(1). It is not
necessary to analyse the false statement to see whether the falsity
attaches to the basis upon which the insurer is claimed to be liable.
It was also argued by the insured that s 56 only applied to material
fraudulent misstatements, that is, to misstatements which would
influence a prudent insurer’s decision to accept, reject or compromise
a claim. The court held that s 56 did not distinguish between material
and immaterial fraud.
An attempt by the insured to invoke s 56(2) also failed. Counsel for
the insured argued that if the fraud could not affect the insurer’s
liability, it was ‘minimal or insignificant’ within the meaning of the
subsection. The difficulty with this submission was that s 56(2) applies
where the fraud applies to only part of the claim so that non-payment
of the remainder of the claim would be harsh and unfair. Here, the
fraud related to the entire sum claimed and no division as per s 56(2)
could be achieved.
Section 56(2) was applied in the case of an exaggerated claim in
Entwells Pty Ltd v National and General Insurance Co Ltd (1991) 6 ANZ Ins
Cas 61–059. There the insureds fraudulently inflated the value of
supermarket stock destroyed as a result of a fire. The insureds had
fraudulently included stock to the value of $27,412 with the total claim
which was between $222,589 and $528,000. Ipp J held the fraudulent
part of the claim amounted to approximately 5 to 12 per cent of the
claim, that this was ‘relatively small’ and that non-payment of the entire
claim would be harsh and unfair. His Honour however would have
disallowed the whole part of the claim in respect of stock
(approximately $100,000) as this was what the fraud applied to.
Some further insight into the application of s 56(2) was provided by
the Queensland Court of Appeal in Ricciardi v Suncorp Metway Insurance
Ltd [2001] QCA 190. There the insured was found to have fraudulently
inflated the value of his property which had been destroyed by fire. The
court held that it was not necessary to find the actual value of the
house. It was enough to conclude that the overstatement was not a
minimal or insignificant part of the claim; it was at least $10,000 of a
$30,000 claim. The court identified another problem with the
application of s 56(2). There was no ‘fraudulent part’ of the claim to
which the subsection could be applied. Here there was one claim for
the loss of one property. As Chesterman J said (expressly without
deciding): ‘s 56(2) seems only to apply where there is a distinct
component of a claim which, although fraudulent, is minimal’ at [39].
Section 56 was held not to apply to representations made in evidence
to support a claim of estoppel against the insurer as opposed to a claim
made under the policy: Allianz Australia Insurance Ltd (ACN 000 122
850) v Douralis [2008] VSCA 72.

[page 413]

The fraud of a co-insured and its effect on other

insureds and third parties
11.41 It is often the case that more than one insured is a party to the
policy. For example, a policy may insure the assets of A and B as co-
partners. The policy may insure the interests of the owner and
mortgagee of property and frequently the interests of a third party (for
example, the financier) are noted on a policy.
Where, in the course of a claim, one of the insureds acts
fraudulently, but the other does not, can the innocent co-insured
recover, or is the innocent party’s position also affected by s 56 of the
Act so that the insurer may refuse the claim?
To answer this question, one must look to the nature of the promise
to insure: is the promise made to the insureds jointly, or separately? In
determining the answer to this question, regard must be had both to
the terms of the policy and to the nature of the property or interest
insured.
The rule is that where the policy is a joint contract of insurance the
innocent co-insured will not be able to recover in the event of a
fraudulent claim by the other: Lombard Australia Ltd v NRMA Insurance
Ltd (1968) 72 SR (NSW) 45. Where the insurance is in respect of the
insureds’ interests separately (a composite policy), the rights of the
innocent co-insured will be unaffected by the fraud of the other
insured.
In the absence of a provision to the contrary in the policy, where two
insureds insure separate interests in property, the contract will be held
to be a composite one, and the interests of an innocent co-insured will
be unaffected by the fraud of the other. There is no logical reason why
this should not be so. A good example is the interest of a mortgagee
and an owner.
On the other hand, and in the absence of a clause to the contrary,
where property is jointly owned, in the strict legal sense, then the rights
of an innocent co-insured under the policy should be affected by the
fraud of the other. Were it otherwise, the innocent co-insured would
recover that which the fraudulent co-insured could not, and the
fraudulent co-insured would thereby benefit from their own fraud.
That will not be permitted: see, for example, MMI General Insurance Ltd
v Baktoo (2000) 48 NSWLR 605.
In that case, the husband and wife insureds conducted a restaurant
from premises jointly owned as partners. The premises were damaged
by fire. The insurer contended the fire had been deliberately lit by the
husband. The trial judge found, however, that the wife had played no
part in the fire and was not privy to the fraud. The trial judge held that
she, as an innocent party, was entitled to indemnity in respect of her
proportion of the loss. The decision was overturned on appeal. The
Court of Appeal held that, where the interests of the insured parties are
inseparably connected to the insured property, fraud by one party will
prevent a successful claim by the other.
The above discussion concentrates on the nature of the interests held
by the insureds in the property insured. The nature of the interests
held is a guide in the interpretation of the

[page 414]

policy where the policy is otherwise silent as to the nature of the

promise of the insurance. Of course, it may be that the insurance is in
respect of something other than property. It may insure, for example, a
partnership against legal liability. One would expect in policies of such
a nature, absent something to the contrary in the policy, that the fraud
of one partner in the claim would prevent the others from recovering
under a liability policy.
It goes without saying that the innocent co-insured’s position will
differ depending upon the terms of the policy. It would not be unusual
to find a policy which prevented recovery by an innocent co-insured
whether or not the property was owned jointly or severally. It is
dangerous therefore to reduce the argument to convenient but
potentially misleading jargon: the distinction between a ‘composite’
and ‘joint’ policy is an outcome reached only by construing the policy,
by reference first to its terms and, in the absence of any clear indication
there, to the nature of the property insured. Thus, in Advance (NSW)
Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606, the High
Court held that the policy was a joint one but only because on its
proper construction it applied indifferently to jointly owned and
separately owned property.
In relation to third-party beneficiaries, s 48 relevantly provides that:
(3) The insurer has the same defences to an action under this section as the insurer
would have in an action by the insured, including, but not limited to, defences
 relating to the conduct of the insured (whether the conduct occurred before or after
the contract was entered into).

Whether a claim by a third-party beneficiary will be defeated by the

fraud of a co-insured may be decided upon the terms of the policy. In
Secure Funding Pty Ltd v Insurance Australia Ltd [2010] FCA 1094, for
example, the mortgagee was unable to recover in respect of damage
allegedly deliberately caused to the insured property. The court based
its decision on an exclusion in the policy which expressly stated that the
policy would not cover loss or damage as a result of fire started with the
intention of causing damage by ‘you or by someone who … entered
your home or site with your consent.’ The court held that the exclusion
was not dependent upon whether the claimant was the named insured
or the third party mortgagee. The person who entered the property
and deliberately set fire to it had entered with the consent of a person
who lived there. Accordingly, the court held that the policy did not
cover the event that had resulted in the loss and damage.

The interaction between ss 13, 54 and 56

11.42 There has been some debate as to whether s 54 can apply to
cases which fall within s 56(1). The better view is that s 54 does not
apply to cases which fall within s 56: Gugliotti v Commercial Union
Assurance Co of Australia (1992) 7 ANZ Ins Cas 61–104; To v Australian
Associated Motor Insurers Ltd (2001) 3 VR 279; and Walton v Colonial
Mutual Life Assurance Society Ltd (2004) 13 ANZ Ins Cas 61–620; [2004]
NSWSC 616.
In To, Buchanan JA (at [28]) gave two main reasons why s 54 did not
apply to s 56 cases:

[page 415]

Section 54 modifies the effect of contracts of insurance, whereas the entitlement of an

insurer to refuse to pay a fraudulent claim is derived from a statutory prescription.
Further, the regime established by s 54 is at odds with the amelioration of the effect of
fraud provided by s 56(2). If s 54(1) applies to a fraudulently exaggerated claim, an
 insurer will always be obliged to pay the true loss of the claimant, whereas s 56(2)
requires the overstatement to be minimal or insignificant and non-payment of the
remainder to be harsh and unfair before the amount of the loss must be paid.

It is often difficult to prove this and that is why some insurers insert
clauses similar to the one referred to earlier. By doing this, all the
insurer has to show is that the insured made a false statement in breach
of the condition. If there is no proof of fraud, s 13 may apply. The
remedy for a breach of s 13 is s 54 which means the insurer may not
refuse to pay the claim but instead may reduce the insured’s claim by
an amount representing the prejudice suffered by the insurer by reason
of the insured’s false statement.
In Purcell v State Insurance Office (1982) 2 ANZ Ins Cas 60–495, the
insured lent his car to his father-in-law who crashed the vehicle. The
father-in-law had been drinking but was later acquitted of a blood
alcohol charge on technical grounds. The insured submitted a claim in
respect of vehicle damage and the father-in-law, as driver, stated in the
form that he had not consumed any alcohol within 6 hours before the
accident. The insurer argued this was false and breached a clause in the
policy which read:
If the claim be in any respect fraudulent, or if any false declaration or statement be
made or used in support thereof, or if fraudulent means or devices are used by the
insured all benefit under this policy shall be forfeited.

The insurer was successful. Although it could not be established that

the insured knew that a false statement had been made, it was sufficient
for the purposes of the clause that a false statement had been used to
support the claim. This illustrates that it is easier to prove a breach of
an express condition in the policy relating to dishonest claims than to
actually prove fraud or fraudulent conduct.
Alternatively the insurer may be able to avoid liability on the basis
that the insured was in breach of the duty of good faith either at
common law or, if the contract is covered by the Insurance Contracts
Act, then under s 13. It remains to be seen how the courts will reconcile
a breach of the duty of good faith by the insured with s 54. Some
commentators argue that the uberrima fides doctrine would be
substantially undermined if the insurer could not cancel a contract
where the insured had been guilty of fraud, notwithstanding that the
breach of duty may not have caused the loss: Sampson v Gold Star
Insurance Co Ltd [1980] 2 NZLR 742; compare GRE Insurance Ltd v
Ormsby (1982) 29 SASR 498.
In Gugliotti, the insured deliberately answered falsely questions in a
claim form as to alcohol consumption by the driver of the insured
vehicle. Fullagar J of the Supreme Court of Victoria held that this
amounted to a breach of the implied term of the utmost good faith
pursuant to s 13 of the Act. Moreover, the insured’s claim was made
fraudulently within s 56(1) and the fraud tainted the whole claim.
Further, it was held that s 54 has no

[page 416]

application to cases which fall within s 56, that is, the failure to answer
questions in the claim form correctly was not an omission within s
54(1). This is in contrast with Entwells Pty Ltd v National and General
Insurance Co Ltd (1991) 6 ANZ Ins Cas 61–059.
Walton concerned an income-protection life insurance policy taken
out in 1994 and renewed annually.58 It entitled the insured to the
payment of a monthly benefit of $8500 in the event the insured became
totally disabled within the meaning of the policy. The insured suffered
a cardiac condition in November 2000. A claim was made pursuant to
the policy in December 2000. Payments were made under the policy
from December 2000 to May 2003. The insured was required to
complete a Progress Certificate for Income Protection Benefits each
month and submit it to the insurer in order to be entitled to receive
monthly income protection benefits under the policy. A question in the
Progress Certificates asked ‘… have you been able to perform any
occupational duties, supervisory or otherwise?’. In each Progress
Certificate from November 2000 to June 2003 the insured answered
‘no’ notwithstanding that the insured had, in fact, continued to
perform the duties of his occupation.
 The insurer purported to terminate the policy by letter dated 28 May
2003. No payments were made by the insurer from then on.
The insurer claimed it was entitled to:
1. refuse further payments under s 56 of the Act on the basis that
the insured’s claim was fraudulent in that the insured had
stated in his claim forms that he was not working when he in
fact was working;
2. cancel the policy on the basis that, by his fraudulent claim, the
insured breached his duty of utmost good faith under s 13 by
deliberately or recklessly giving false answers in claim forms
submitted by him: at [14].
The insured was able to satisfy the requisite policy criteria in order
for him to be ‘disabled’ within the meaning of the policy. He could
prove that his heart attack caused him to be relevantly disabled and as a
result left him unable to perform one or more of the important duties
of his occupation leading to a reduction in income and that he was
under the regular care of a doctor. From this point the insured had an
accrued right under the policy. Cancellation, which operates
prospectively, could not affect those rights: Halsbury’s Laws of Australia,
Butterworths, Sydney, vol 15, Michael Ball and David Kelly, Insurance
[235–642], at fn 1, cited in Walton at [37].
The insurer argued that the answers it claimed were false in the
progressive monthly claim forms submitted by the insured nonetheless
entitled it to terminate or cancel the contract either under s 56 or by
virtue of a breach of the duty of good faith under s 13.
The insurer argued that ‘avoid’ in s 56 only referred to avoid ab initio
and did not exclude the right of the insurer to avoid in futuro: at [49].
The insurer relied on two recent

[page 417]

cases from the United Kingdom involving contract law: Super Chem
Products Ltd v American Life & General Insurance Co Ltd [2004] 2 All ER
358 and Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (The ‘Star
Sea’) [2003] 1 AC 469. His Honour (at [51]) considered that the
reasoning in those cases did not apply to s 56:
It would be to strain the words of section 56 of the Insurance Contracts Act to utilise
United Kingdom case law from a very different context to give the meaning to an
expression in a very specific Australian statutory context.

The ‘real issue’, as identified by his Honour, was whether the insurer
was entitled to reject the claim: at [53]. The insurer argued that there
was, within the meaning of the policy, only one claim which the insurer
was, applying s 56, entitled to reject.
The court found that the insured had at least downgraded his
activities following the heart attack. He was therefore still ‘disabled’
within the meaning of the policy. On the other hand, he was held to be
still ‘working in an occupation’ within the meaning of the policy. It
then remained to be considered whether he had made a fraudulent
claim under the policy by virtue of his answers in the Progress
Certificates.
It was held at [144]:
… the test for fraud is satisfied if the insured has a dishonest intent to induce a false
belief in the insurer for the purpose of obtaining payment or some other benefit
under the policy. As such, where the insured makes a false statement with knowledge
in a claim to induce the insurer to meet the claim, the claim is made fraudulently. The
fraudulent statement need not be material to the insured’s claim nor is the insured
absolved of any responsibility by asserting that he considered his claim to be valid.
(See Tiep Thi To v Australian Associated Motor Insurers Ltd (2001) 3 VR 279; Naomi
Marble & Granite Pty Ltd v FAI General Insurance Co Ltd (No 1) [1999] 1 Qd R 507; and
Mourad v NRMA Insurance Ltd (2003) 12 ANZ Ins Cas 61–560.)

The insured was held not to have been fraudulent, nor to have
breached the duty of good faith. The court held that various medical
reports having been made at the request of the insurer were ‘powerful
support’ for a rejection of the insurer’s case. The court considered it
‘extremely important’ that the reports were made at the request of the
insurer by the claims assessor in order to ascertain the insured’s current
status. It followed that the insured was ‘entitled to assume that the
insurer would be relevantly informed by the reports of his status and
intentions and abilities and of the problems and work possibilities and
proposals’: at [167].
 Further, the court took into account the insured’s internal dictionary
definition which the insured applied in answering the relevant
questions. This dictionary was to be read in view of his knowledge and
belief that the insurer would be relevantly informed by the reports of
what the insured was willing and able to do: at [168].
As the insured had satisfied the court, albeit ‘only just’, on the
balance of probabilities that the peril insured against was the causal
factor leading to the loss in income, the insured was entitled to
indemnity under the policy and to continue to receive monthly
payments from the insurer while he satisfied the policy criteria: at
[200].

[page 418]

Clearly, the insurer cannot avoid the contract in the event of a

fraudulent claim made by the insured. It may only refuse to pay the
claim. This was the essence of the reform introduced by s 56. The
insurer is entitled to cancel the contract under s 60(1)(e) but this only
operates prospectively so as not to affect any accrued rights of the
insured. The duty of good faith may be breached by the insured after
the contract has been entered into. In the context of the claims process
itself and already accrued rights, however, the better view is that the
remedies in ss 54 and 56 cover the field. That was (in the context of a
fraudulent claim) the view taken by Ipp J in Entwells at 77,136, approved
in Walton at [43]. (It is respectfully submitted that his Honour in Walton
at [43] may have intended to refer to s 13 in place of s 56(1)). As held
by Ipp J in Entwells at 77,136:
The effect of s 54(1) is that a breach of duty of utmost good faith by the insured
entitles the insurer to refuse to indemnify the insured only to the extent that the
insurer’s ‘interests are prejudiced by that breach’. This view is consistent with the
policy embodied in s 56 of the Act. It is unlikely that the Legislature intended that a
breach of the duty of utmost good faith should be dealt with in a way fundamentally
different to a fraudulent claim.

Section 54, on the other hand, has no application to cases falling

within s 56: To v Australian Associated Motor Insurers Ltd (2001) 3 VR 279,
approved in Walton at [47].

No fraud, but has the insured proved the loss

falls within the policy?
11.43 It should not be overlooked that the inability of an insurer
successfully to establish the fraud exception does not relieve the
insured from proving that the loss falls within the policy. That is,
although the insurer may fall short of the cogent evidence necessary to
show fraud, that evidence may nonetheless persuade a court that the
insured has failed to discharge the onus upon them.
Thus, a non-finding of fraud is not commensurate with a finding for
the insured that there was theft within the meaning of the policy:
Hammoud Brothers Pty Ltd v NRMA Insurance Ltd (2005) 13 ANZ Ins Cas
61–639; [2004] NSWCA 1; Simon v NRMA Insurance Ltd [1991] NSWCA
247; Sgro v Australian Associated Motor Insurers Ltd [2015] NSWCA 262 at
[57].
An example of the application of this principle is Ocean Harvester
Holdings Pty Ltd v MMI General Insurance Ltd [2004] QCA 41. There, the
insured was the owner of a trawler, Ocean Harvester, which sank near
Keeper Reef. The insured claimed $276,550 under a contract of
insurance which provided relevantly that the insurer would indemnify
the insured for loss or damage to the boat caused by accident. The trial
judge was not satisfied that the insured had established that the boat
was lost by accident and dismissed its claim. On appeal, the insured
argued that the trial judge had in effect reversed the onus of proof, and
that if the insurer could not establish fraud then the insured should
recover. The insured’s case was that it did not know what caused the
boat to sink. The insurer had advanced a positive case of scuttling; it
led evidence of motive (financial difficulties of

[page 419]
the insured) and called direct evidence of the scuttling from a
deckhand of a boat said to have assisted the insured in the scuttling.
The trial judge was not prepared to find that the incident fell within
the policy, and his determination was upheld on appeal. The court
held that the insured had not made out its claim. McMurdo P said at
[12]:
Under the contract of insurance the appellant had to establish the ship sank by
accident; this was a matter to be determined by his Honour on the evidence at trial,
which included Dobbins’ evidence that Kerr and Thompson scuttled the boat. On the
accepted evidence, his Honour was not persuaded on the balance of probabilities that
Kerr and Thompson had scuttled the boat, a criminal offence, but nor did the
evidence satisfy him on the balance of probabilities that the boat was accidentally
sunk; the appellant’s claim was unproved and failed. Whilst it is unusual for judges to
be left in such a state of uncertainty as to evidence, it is not uncommon in cases of this
sort where judges are not lightly persuaded to accept that protagonists have acted with
criminal intent but nor are they necessarily satisfied to the civil standard that the claim
is made out: La Compania Martiartu v Royal Exchange Assurance [1923] 1 KB 650, 657,
approved in Skandia Insurance Co Ltd v Skoljarev (1979) 142 CLR 375, 391–2; Compania
Naviera Vascongado v British and Foreign Marine Insurance Co Ltd (The Gloria) [1936] 54
LIR 35, 50–1; Northwestern Mutual Life Insurance Co v Linard Edinburgh Assurance Co (The
‘Vainqueur’) [1974] 2 LIR 398, 402–3; Regina Fur Co Ltd v Bossom [1958] 2 LIR 425, 434.

SUBROGATION
What does subrogation mean?
11.44 To subrogate means to substitute one person for another, so
that the same rights and duties that attached to the original person
attach to the person substituted. The substitution takes place by
operation of law, which means it happens without the need for a formal
assignment of rights by the original party or even with their consent.
The purpose of subrogation is to prevent one person being unjustly
enriched at the expense of another. Subrogation is applied most often
in the context of insurance. In insurance the doctrine of subrogation
allows the insurer to exercise the insured’s rights against third parties.
The right has been said to be inherent in indemnity contracts: State
Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123
CLR 228. Its application is designed to prevent the insured from
recovering twice for their loss: once against the insurer and then, again,
against the third party.
There is some difference in views as to the source of subrogation
rights in insurance: Woodside Petroleum Development Pty Ltd v H & R—E
& W Pty Ltd (1997) 10 ANZ Ins Cas 61–395; compare Insurance
Commissioner of Western Australia v Kightly (2005) 225 ALR 380. In Zurich
Australian Insurance Ltd v Metals and Minerals Insurance Pte Ltd (2007) 14
ANZ Ins Cas 61–728; [2007] WASC 62 at [402], Johnson J quoted from
National Fire Insurance Co v McLaren (1886) 12 OR 682:

[page 420]

The doctrine of subrogation is a creature of equity not founded on contract, but

arising out of the relations of the parties. In cases of insurance where a third party is
liable to make good the loss, the right of subrogation depends upon and is regulated
by the broad underlying principle of securing full indemnity to the insured, on the
one hand, and on the other of holding him accountable as trustee for any advantage
he may obtain over and above compensation for his loss.

Similarly, Einstein J in Owners Strata Plan 56587 v TMG Developments

Pty Ltd [2007] NSWSC 1364 said at [31]:
In my view it may be accepted that the doctrine of subrogation whether or not
exclusively founded upon equitable principles, certainly finds a heartland in those
principles.

The following example shows how the doctrine applies.

The insured, Billy Bloggs, is injured when the gas barbeque he is lighting explodes due
to a defective gas valve. The barbeque was manufactured by Barbie’s A Gas Pty Ltd. Billy is
insured for personal injury under his public liability insurance policy held with Gold Cover
Insurance Pty Ltd. Barbie’s A Gas Pty Ltd is unable to escape liability on the basis that Billy
is insured for his personal injury. Gold Cover is unable to refuse indemnity to Billy on the
basis that he can recover against Barbie’s A Gas Pty Ltd. The insurer, once it has
indemnified Billy, is entitled to be substituted for Billy (sometimes expressed as ‘stand in
the shoes’ of the insured) and receive the benefit of all rights and remedies which Billy may
have against Barbie’s A Gas Pty Ltd in respect of his loss. If Billy has already recovered
against Barbie’s A Gas Pty Ltd, he cannot retain any money received from his insurer for to
do so would mean that he was over-compensated for his loss. If he does, he must reimburse
the insurer for any surplus.
When can the insurer exercise its right of
subrogation?
11.45 The insurer is only entitled to pursue the insured’s rights
against third parties after it has indemnified the insured for its loss in
accordance with the terms of the insurance policy: Santos Ltd v American
Home Assurance Co (1986) 4 ANZ Ins Cas 60–795. Once the insurer has
indemnified the insured, it may commence or take over proceedings
against the third party in the name of the insured.

What rights can the insurer receive through

subrogation?
11.46 The insurer is entitled to be subrogated to any right of action
which the insured has against a third party, whether that right arises
out of contract, tort or in equity: Castellain v Preston (1883) 11 QBD 380.
If the insured is able to recover under the terms of statute the whole or
part of the insured’s loss, the insurers may also be subrogated to this

[page 421]

right: Owners Strata Plan 56587 v TMG Developments Pty Ltd [2007]
NSWSC 1364 at [42] citing Ellerbeck Collieries Ltd v Cornhill Insurance Co
Ltd [1932] 1 KB 401.
However, the rights of the insurer can be no better than the rights of
the insured. The insurer assumes exactly the same rights the insured
has against the third party: Stratti v Stratti (2000) 50 NSWLR 324 at
[19]. The third party is entitled to raise against the insurer all of the
defences it has against the insured. If the insured has limited rights
against the third party due to the terms of the contract entered into
between the insured and the third party, the insurer is bound by those
terms. For example, if the insured engaged a third party to do some
work for them but the third party would do so only on condition that
the insured agree to the insertion of a term in the contract excluding
the third party from liability for loss or damage arising from the
negligent performance by the third party of that work, the insurer
would be bound by that exclusion. The exclusion in effect means that
the insured never had any rights against the third party to which the
insurer could be subrogated: State Government Insurance Office (Qld) v
Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228.
Some insurance policies may include a term to the effect that, if the
insured has entered into a contract which restricts the insured’s right to
recover damages from a third party in respect of a loss which is covered
by the insurance, then the insured will not be entitled to indemnity. An
insurer is not permitted to rely on terms of that nature in the policy
unless it has specifically notified the insured of the term: Insurance
Contracts Act 1984 (Cth) s 68.
There may be a term in the insurance contract which amounts to a
waiver of the insurer’s right to subrogation. Persons not party to the
contract may, depending on the wording of the clause, be protected by
the clause: Woodside Petroleum Development Pty Ltd v H & R—E & W Pty
Ltd (1997) 10 ANZ Ins Cas 61–395; GPS Power Pty Ltd v Gardiner Willis &
Associates Pty Ltd (2001) 11 ANZ Ins Cas 61–482.
In some cases, the arrangement entered into between the insured
and third party may be seen to have impliedly prevented the insurer
from taking action against the third party. For example, in Mark
Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211, the terms of a lease
between the landlord (insured) and the tenant (third party) obliged
the landlord to insure the premises and to use any insurance moneys
on rebuilding and reinstatement. The insurance was to be for the
benefit of the tenant. The tenant was obliged to repair the premises
except where the damage was caused by fire. The tenant was negligent
and this caused the fire which damaged the premises. The landlord was
indemnified and the insurer then sought to bring an action in
negligence against the tenant. The issue in the case was whether the
terms of the lease meant that the landlord was prevented from suing
the tenant in which case the insurer would have no rights to be
subrogated to. The court held that the terms of the lease properly
construed meant that the landlord was not to sue the tenant but
instead was to recoup its loss from the insurer. The insurer therefore
was unable to recover from the tenant. A similar argument was
unsuccessful in Bit Badger Pty Ltd v Cunich (1996) 9 ANZ Ins Cas 61–
312. There, the distinguishing factor

[page 422]

was the existence of an express term in the relevant lease which made
the tenant liable for damage caused by fire resulting from the tenant’s
negligence.
An insurer does not have a right of subrogation against its insured or
a co-insured: Petrofina (UK) v Magnaload Ltd [1984] QB 127. This
principle extends to wide descriptions of the insured which include, for
example, in the case of construction contracts, a subcontractor:
Woodside Petroleum.

What if the insurer recovers more from the third

party than the insurer has paid to the insured?
11.47 This situation might arise where the insured’s loss is greater
than the amount for which he is insured. Section 67 provides that the
insured is entitled to any amount which the insurer recovers from the
third party and which exceeds the amount the insurer has had to pay
the insured under the policy. The insurer and insured are entitled to
enter into an agreement to the contrary after the loss has occurred: s
67(3). The insurer is entitled to keep an amount representing its
administrative and legal costs incurred in connection with recovering
the amount from the third party: s 67(4); see also Small Business
Consortium Lloyd’s Consortium No 9056 v Angas Securities Ltd [2015]
NSWSC 1511.
How is subrogation different from an insurer’s
right of contribution?
11.48 Rights of subrogation may be exercised against any relevant
third party. But subrogation is different from an insurer’s right of
contribution exercisable against another insurer also liable to
indemnify the insured. In Collyear v CGU Insurance Ltd (2008) 15 ANZ
Ins Cas 61–760; [2008] NSWCA 92, the New South Wales Court of
Appeal said at [21]:
Questions of rights to subrogation are separate and should be kept distinct from
claims for contribution on the basis of double insurance: see Commercial & General
Insurance Co Ltd v Government Insurance Office of New South Wales (1973) 129 CLR 374 at
380–4.

The difference between the doctrines is well illustrated by Sydney Turf

Club v Crowley (1972) 126 CLR 420. In that case, the insured’s loss was
covered both by his public liability policy and his employer’s liability
policy. One of the insurers indemnified him and then brought an
action using the doctrine of subrogation against the other insurer. The
High Court held that once the insured had received indemnity from
the first insurer, the insured ceased to come within the terms of the
second policy as he had not suffered a ‘loss’. Consequently there was no
right against the second insurer to which the first insurer could be
subrogated. Instead, the first insurer had a right of contribution against
the second insurer.59

[page 423]

Subrogation to rights against family

11.49 There are some limits imposed by the Insurance Contracts Act
on the people the insurer can pursue using the doctrine of
subrogation. In particular, if, because of a family or other personal
relationship between the insured and the third party, the insured has
not or is not reasonably expected to sue the third party, then the
insurer is not able to be subrogated to the insured’s rights against that
person where that person is not insured themselves in respect of their
liability to the insured: s 65. If, on the other hand, that person does
have relevant insurance, then the insurer can recover against that
person but only to the extent that that person is entitled to recover
from their own insurer: s 65(4).
This protection given to family or those in a personal relationship
with the insured does not apply where the conduct of the third party
that gave rise to the liability to the insured either:
arose out of their employment; or
was ‘serious or wilful misconduct’.
The meaning of the phrase ‘serious and wilful misconduct’ was
considered in Wood v Associated National Insurance Co Ltd [1985] 1 Qd R
297.

Subrogation to rights against employees

11.50 Prior to the enactment of the Insurance Contracts Act 1984
(Cth), an insurer was able to be subrogated to the rights of an insured
employer against its negligent employee: Lister v Romford Ice and Cold
Storage Co Ltd [1957] AC 555; Northern Assurance Co Ltd v Coal Mines
Insurance Pty Ltd [1970] 2 NSWR 223. The right of an employer to sue
an employee was removed by legislation in several states.
In relation to the insurer’s rights of subrogation, s 66 of the Act
provides:
66 Subrogation to rights against employees
Where —
(a) the rights of an insured under a contract of general insurance in respect of a loss
are exercisable against a person who is the insurer’s employee; and
(b) the conduct of the employee that gave rise to the loss occurred in the course of or
arose out of the employment and was not serious or wilful misconduct,
the insurer does not have the right to be subrogated to the rights of the insured
against the employee.

Therefore, if the insured’s employee, though in the course of

employment, has been guilty of serious or wilful misconduct that gave
rise to the loss, the insurer may still recover against that employee. It is
important to understand what is meant by ‘serious and wilful
misconduct’. This is not clear. The phrase was considered in Boral
Resources (Qld) Pty Ltd v Pyke (1989) 93 ALR 89. In that case the
insured’s employee, Pyke, fell asleep while driving the company’s truck.
He had an accident on his way home from the pub, where he had
consumed 12 beers after a 17-hour-long working day. The employer’s
insurer

[page 424]

indemnified Boral for the loss and the issue was then whether the
insurer was entitled to be subrogated to the rights of Boral against its
employee, Pyke.
Counsel for Pyke argued that the insurer was prevented by s 66 of the
Act from pursuing Pyke. Counsel for the insurer relied on para (b) of s
66, that is, that Pyke’s conduct was ‘serious and wilful misconduct’.
The court held that the insurer was entitled to be subrogated to the
rights of Boral against Pyke. The majority held that the employee’s
actions constituted misconduct which was both serious and wilful. His
misconduct was drink-driving. The misconduct was ‘serious’ because it
constituted a breach of the criminal law. It was also, Ambrose J
emphasised, a breach of the employer’s standing orders and
constituted grounds for instant dismissal. The misconduct was ‘wilful’
because the employee had deliberately run the risk of dismissal by
electing to drive while under the influence of alcohol.

Release and settlement of claims by insured

11.51 The insured must not prejudice the insurer’s rights of
subrogation whether or not there is a clause to this effect in the policy:
State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd
(1969) 123 CLR 228. Having said that, there will usually be an express
clause in the insurance policy stating, for example, that the insured is
not to negotiate or compromise any claim without the insurer’s written
consent.
If an insured releases a third party after a loss has occurred so that
the insured no longer has a right of action against that party, this will
constitute a breach of the insured’s obligation not to prejudice the
insurer’s right of subrogation. If an insured enters into a release with a
third party and the third party knows that the release will prejudice the
insurer’s rights, the insurer is not bound by the release: Morganite
Ceramic Fibres Pty Ltd v Sola Basic Australia Ltd (1988) 5 ANZ Ins Cas 60–
883. If, on the other hand, the third party is not aware of the existence
of the insurer, the release by the insured will be an effective defence to
an action by the insurer. The insurer would in such a case still be able
to sue the insured for damages for the reduction or extinguishment of
its rights of subrogation.
The parties to an insurance contract may agree to modify the
insurer’s right of subrogation, usually by inserting a ‘waiver of
subrogation’ clause in the contract: Woodside Petroleum Development Pty
Ltd v H & R—E & W Pty Ltd (1997) 10 ANZ Ins Cas 61–395. Such a
clause operates by preventing an insurer from exercising its
subrogation rights against some or all of the insured parties, and can
extend to protect parties not insured by the contract: GPS Power Pty Ltd
v Gardiner Willis & Associates Pty Ltd (2001) 11 ANZ Ins Cas 61–482;
Larson-Juhl Australia LLC v Jaywest International Pty Ltd (2001) 11 ANZ
Ins Cas 61–499; [2001] NSWCA 260. ‘Waiver of subrogation’ clauses are
common in insurance contracts which purport to cover an entire
construction project and all of those parties involved in it: Co-operative
Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257; Petrofina
(UK) v Magnaload Ltd [1984] QB 127.

[page 425]

DOUBLE INSURANCE AND

CONTRIBUTION
Introduction
11.52 A right to contribution from another party or from the other
party’s insurer can arise in a number of different ways:
1. because there is double insurance;
2. because there exists between the defendants coordinate
liability; or
3. there is a right to contribution under the relevant tortfeasors
statute.
In this chapter we will focus on the right to contribution which arises
where there exists double insurance.

Nature of double insurance and the right of

contribution
11.53 Double insurance exists where two or more insurers have each
agreed to indemnify the insured against the same loss: Albion Insurance
Co Ltd v GIO (NSW) (1969) 121 CLR 342. It does not matter that the
policies are in other respects quite different, for example, that one
policy is a workers’ compensation policy while the other is a
compulsory third-party motor vehicle policy. It is not necessary for the
insured person to be a named insured under each insurance contract.
It is sufficient if the person benefits under each contract: Esanda
Finance Corp Ltd v Colonial Mutual General Insurance Co Ltd (1993) 217
ALR 180.
It is perfectly legal for the insured to take out double insurance. In
some cases it may be accidental. However, most contracts of insurance
are indemnity contracts (life insurance is a notable exception), which
means that the insured is only to be indemnified for their loss, in other
words, that the insured cannot recover more than their actual loss. One
effect of this is that, in the case of double insurance, the insured is not
permitted to recover twice in respect of their loss: GRE Insurance Ltd v
QBE Insurance Ltd [1985] VR 83; and see Insurance Contracts Act 1984
s 76(2).
The insured is entitled to call upon one of the insurers to indemnify
the insured. The insurer who indemnifies the insured may then call
upon the other insurer/s to contribute their share of the loss and to
pay their proportion of the amount already paid under the first policy:
Albion cited in Tarr, Australian Insurance Law, Law Book Company,
Sydney, 1987, p 274.
The principles of contribution between insurers were set out by the
High Court in Albion, in particular at 345–6:
There is double insurance when an assured is insured against the same risk with two
independent insurers. To insure doubly is lawful but the assured cannot recover more
than the loss suffered and for which there is indemnity under each of the policies.
The insured may claim indemnity from either insurer. However, as both insurers are
liable, the doctrine of contribution between insurers has been evolved. It began in the

[page 426]

second half of the eighteenth century with Lord Mansfield’s decisions with respect to
marine insurers and there is no doubt that it now applies generally to insurance which
provides the insured with an indemnity. There is no reason why the doctrine should
not apply to insurance against liability to third parties and there is every reason in
principle that it should. The doctrine, however, only applies when each insurer
insures against the same risk, although it is not necessary that the insurances should
be identical. Thus one insurer may insure properties A and B against fire and the
other insurer may only insure property A against fire. Again, one policy may be for a
limited amount and the other may be for an unlimited amount. One policy may cover
the risk of a whole voyage and the other may cover only part of the voyage. Differences
of this sort may affect the amount of contribution recoverable but they do not bear
upon the question whether or not each insurer has insured against the same risk so as
to give rise to some contribution. The element essential for contribution is that,
whatever else may be covered by either of the policies, each must cover the risk which
has given rise to the claim. There is no double insurance unless each insurer is liable
under his policy to indemnify the insured in whole or in part against the happening
which has given rise to the insured’s loss or liability.

It can be difficult to determine whether a case of double insurance

exists. Various tests to assist in identifying double insurance have been
formulated. In Australian Eagle Insurance Co Ltd v Mutual Acceptance
(Insurance) Pty Ltd [1983] 3 NSWLR 59, Priestley JA said at 64:
It seems to me therefore that a sound way of deciding whether one insurer can claim
contribution from another on the ground of double insurance is to ask two questions
(1) did the two insurers have a common burden? (2) if the insured were to be paid
under both policies would he be paid twice in respect of the same damage?

A different approach was applied by Sackville J in Drayton v Martin

(1996) 137 ALR 145 at 156:
An insurer under an indemnity policy seeking contribution from a co-insurer must
establish that:
it is liable to indemnify the insured under its own policy;
it has paid out sums in respect of that liability;
the co-insurer is also liable under its policy to indemnify the insured; and
the co-insurer has not paid out moneys to meet its liability to the insured.

The question whether the loss or liability is covered by both policies

is determined at the time of the insuring clause event: QBE Insurance
(Australia) Ltd v Lumley General Insurance Ltd (2009) 24 VR 326. Both
tests were applied in Collyear v CGU Insurance Ltd (2008) 15 ANZ Ins Cas
61–760; [2008] NSWCA 92. There, no double insurance was found to
exist on the basis that, although each policy covered the same risk to
the trustee, policy 1 covered an additional risk to the lessee, namely the
risk that the lessee would be required to reinstate the premises under a
clause in the lease; and that payment actually made by the policy 1
insurer was in respect of that different risk. So, although both policies
did cover identical losses of identical insureds (the trustee), the trustee
did not

[page 427]

receive any indemnity against that loss from the insurer. The interest of
the lessee and the risk to the lessee insured against were different from
the interest of the trustee and the risk to the trustee insured against: at
[35], citing North British and Mercantile Insurance Co v London, Liverpool
and Globe Insurance Co (1876) 5 Ch D 569. It was held at [33]:
 In terms of the test suggested in Australian Eagle Insurance, the Trustee was not paid
under either policy. In terms of the test suggested in Drayton, Lloyds did not pay out
any sum in respect of its liability to indemnify the Trustee.

Under s 76(1) of the Act, where double insurance exists, an insurer is

required, at the election of the insured, to pay out the full amount of
the claim; that is, the insurer cannot insist on paying only a rateable
proportion of the loss. Clauses which permit the insurer to pay only its
rateable proportion when the claim is made are no longer valid.
The insurer is required to pay the insured immediately and is not
entitled to wait until issues of contribution with the other insurer have
been resolved: s 76(1).
The insurer claiming contribution bears the onus of establishing that
all the prerequisites for double insurance exist.

Obligation of insured to notify of other insurance

11.54 Some insurance policies require the insured to give notice in
writing to the insurer of any insurance entered into or which might be
entered into covering the same risk. If notice is not given, the policy
may provide that liability of the insurer is excluded. If the insured is not
aware of other relevant insurance, it is arguable that they are not
required to comply with the provision: Western Australian Bank v Royal
Insurance Co (1908) 5 CLR 533 cited in Kelly and Ball, Principles of
Insurance, LexisNexis, Sydney, 2002 at [10.0020.5].
In relation to contracts covered by the Insurance Contracts Act, s
45(1) now provides:
(1) Where a provision included in a contract of general insurance has the effect of
limiting or excluding the liability of the insurer under the contract by reason that the
insured has entered into some other contract of insurance, not being a contract
required to be effected by or under a law, including a law of a State or Territory, the
provision is void.

This means that if such a term has been included in the insurance
policy that term will be of no effect. The validity of the insurance
contract itself is not affected. If, however, the insured is obliged by law
to enter into a contract, it is permissible for insurers to limit or exclude
liability covered by that compulsory insurance. Section 45 does not
apply to provisions which purport to exclude or limit liability where the
insured is not a party to the other contract of insurance but is named in
it as an insured person: Zurich Australian Insurance Ltd v Metals and
Minerals Insurance Pte Ltd (2009) 240 CLR 391; [2009] HCA 50.
Section 45(2) specifically excludes policies which cover only that part
of the loss not covered by other specified policies. This is intended to
exclude layered policies, where each policy is intended to cover a
particular range of the total risk and there is no

[page 428]

overlap, or true excess liability policies: Speno Rail Maintenance Australia

Pty Ltd v Metals & Minerals Insurance Pty Ltd (2009) 253 ALR 364;
[2009] WASCA 31 at [29]. The second liability policy should specify the
first liability policy, preferably by detailed description or by reference to
the particular insurer, if it is to be regarded as a true excess policy
within the meaning of s 45(2): HIH Casualty & General Insurance Ltd v
Pluim Constructions Pty Ltd (2000) 11 ANZ Ins Cas 61–477.
‘Excess insurance’ was defined in Speno Rail at [29] to mean:
… insurance in addition to primary insurance which is first in order of liability for
loss; an excess policy applies only after the predetermined amount of the primary
cover is exhausted: see DK Derrington and KS Ashton, The Law of Liability Insurance,
2nd ed, LexisNexis Australia, Chatswood, New South Wales, 2005, at [11.78].

Determining the amount of contribution where

double insurance exists
11.55 Where double insurance exists there is a right of contribution
between insurers. The difficulty lies in determining the proper method
of apportioning liability between insurers. The guiding principle is to
determine what is equitable in the circumstances of the case. The
calculation of contribution must be based upon ‘reason, justice and
fairness’: Albion Insurance Co Ltd v GIO (NSW) (1969) 121 CLR 342 at
351 per Kitto J.
In some cases, the appropriate way to determine apportionment of
liability between insurers was to have each insurer contribute equally to
the insured’s loss: Albion at 351; Commercial & General Insurance Co Ltd v
Government Insurance Office of New South Wales (1973) 47 ALJR 612. This
is not, however, a hard-and-fast rule.
Preferred methods of determining contribution are:
1. the maximum potential liability approach; and
2. the independent actual liability approach.
Under the maximum potential liability approach, each insurer is
bound to contribute rateably to the loss in proportion to the amount
for which it is liable under the contract. This is the method usually
applied in the case of property insurance: Commercial Union Assurance Co
Ltd v Hayden [1977] QB 804.60
Under the independent actual liability approach, the liability of each
insurer is first ascertained as if each had been the only insurer and the
total liability to the insured is then divided in proportion to those
independent liabilities: Government Insurance Office of New South Wales v
Crowley [1975] 2 NSWLR 78; QBE Insurance Ltd v GRE Insurance Ltd
(1983) 2 ANZ Ins Cas 60–533 (QBE); Drayton v Martin (1996) 137 ALR
145. This approach is favoured in cases involving liability insurance and
fire insurance.
The QBE decision provides a helpful illustration of both methods of
apportionment.

[page 429]

In that case:
Insurer A had insured certain property against the risk of fire on a
replacement basis for $1,500,000.
Insurer B had insured the same property in respect of the same
 risk for $700,000 on an indemnity basis.
Insurer B argued that the maximum liability approach should apply.
Using this method, the most Insurer B would have to contribute would
be 7/22 ($1,500,000 plus $700,000 = $2,200,000) of an $800,000 loss
caused by a fire.
It was held, however, that the independent liability ‘test’ should be
applied. This involved determining the liability of each insurer had it
been the only insurer, and then the total liability to the insured being
divided in proportion to those independent liabilities. On that basis,
the liability of Insurer A had it been the only insurer would have been
$800,000, whereas Insurer B’s liability would have been $700,000.
Consequently, the liability to the insured of $800,000 was divided this
way:
Insurer A: 8/15
Insurer B: 7/15

_______________
1 The term ‘general insurance’ is used to refer to every class of insurance bar life insurance:
Insurance Contracts Act 1984 (Cth) s 11(6).
2 Section 2A.
3 Section 2A.
4 Section 9.
5 Section 12.
6 Section 17B.
7 See ss 24–27.
8 Part 3.
9 Part 4.
10 Part 7.
11 Section 7.
12 Section 8.
13 Section 8(2).
14 Section 10.
15 See Pt 3 of the Act, for remuneration and allowances of members and for the conduct and
time and place of meeting.
16 Section 32.
17 Section 35.
18 Section 38.
19 Section 39.
20 Section 40.
21 Section 49.
22 Sections 49J and 49K respectively.
23 Section 49L.
24 Section 52.
25 Section 12BAA.
26 Section 12BAB.
27 Section 13.
28 Pt 3 Divs 1–3.
29 See ss 49 and 50.
30 Section 32.
31 See, for example, Goodwin v State Government Insurance Office (Qld) [1994] 2 Qd R 15.
32 Contracts exempt from the operation of the Act are set out in s 9 and include, among
other things, workers’ compensation contracts, compulsory third-party motor vehicle
insurance and contracts of reinsurance.
33 Reflecting the position at common law in Trident General Insurance Co Ltd v McNiece Bros Pty
Ltd (1988) 165 CLR 107.
34 In relation to marine insurance, see s 10 of the Marine Insurance Act 1909 (Cth).
35 Section 13(3) and (4) of the Insurance Contracts Act 1984 (Cth).
36 For example, s 35, which applies to standard contracts, and imposes an obligation on the
insurer to advise the insured of any term which results in the insured being covered for
less than the standard cover. Section 37 is the equivalent section for non-standard cover. If
the insurer does not inform the insured, the insurer may not rely on the term. See also s
37C, which requires an insurer to clearly inform the insured in writing whether the
prescribed contract provides cover for flood as defined by the regulations.
37 Australian Law Reform Commission, Insurance Contracts, Report 20, December 1982, p 98,
quoting MacGillivray and Parkington at [685]; see also Sutton, Insurance Law in Australia,
pp 236–7; General Accident Insurance Asia Ltd v Sakr [2001] NSWCA 402.
38 ALRC, Report 20, p 98.
39 ALRC, Report 20, p 98, quoting MacGillivray and Parkington at [685].
40 By the Insurance Laws Amendment Act 1998 (Cth).
41 See s 21(3) in relation to non-disclosure.
42 Drummond, ‘Unconscionable Conduct and Utmost Good Faith’ (2003) 14 ILJ 208, citing
Sheldon v Sun Alliance Ltd (1989) 53 SASR 97 at 152 per Bollen J.
43 Sutton, Insurance Law in Australia, p 158.
44 See, generally, Godfrey, ‘The Duty of Utmost Good Faith — the Great Unknown of
Modern Insurance Law’ (2002) 14 ILJ 56.
45 See, generally, Godfrey, ‘The Duty of Utmost Good Faith — the Great Unknown of
 Modern Insurance Law’ (2002) 14 ILJ 56.
46 AAMI; compare Re Zurich Australian Insurance Ltd (1999) 10 ANZ Ins Cas 61–429 at 74,840
per Chesterman J, who indicated that such a finding ‘elevated [the] obligation in an
insurer to coddle its insured and [allowed] idiosyncratic judicial solicitude to replace
principle’.
47 While an insurer can delay a determination in relation to the claim pending verification
and investigation of the matter, it must carry out these tasks within a timely manner:
Distillers; Moss v Sun Alliance Aust Ltd (1990) 55 SASR 145.
48 Loo, ‘The Duty of Utmost Good Faith: Is the Duty Expanding?’ Allens Arthur Robinson,
Insurance, May 2001, p 6.
49 See Godfrey, above, citing Wyllie v National Mutual Life Association of Australasia Ltd (1997)
217 ALR 324; Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61–113;
Beverley v Tyndall Life Insurance Co Ltd (1999) 10 ANZ Ins Cas 61–453.
50 See, generally, Godfrey, ‘The Duty of Utmost Good Faith — the Great Unknown of
Modern Insurance Law’ (2002) 14 ILJ 56.
51 Hoffmann, Knowing the rights and obligations under the duty of utmost good faith, paper
presented at the IIR Conferences, The 1995 National Insurance Law and Litigation
Congress, Sydney, 29 March 1995.
52 Hoffmann, Knowing the rights and obligations under the duty of utmost good faith.
53 Loo, ‘The Duty of Utmost Good Faith: Is the Duty Expanding?’, p 6.
54 Gill and Radford, ‘Utmost Good Faith — the Coming of Age’ (1994) 9 AILB 81.
55 The following examples are those contained in the notes to the draft Insurance Contracts
Bill 1982.
56 This summary of the facts is taken from Traves, ‘Prejudice under s 54’ (2002) 23 Qld
Lawyer 11.
57 There is a very helpful discussion of these matters in Davies, ‘Proximate Cause in
Insurance Law’ (1995) 7 ILJ 135.
58 Observations on Walton taken from Traves, ‘Claim Forms and Fraud: Walton v Colonial
Mutual Life Assurance Society Ltd’ (2004) 25(2) Qld Lawyer 79.
59 Contribution is discussed below at 11.52–11.55.
60 Although this was said in the case, it was a case involving public liability insurance and the
method employed for determining contribution was the independent liability approach.
[page 431]
CHAPTER 12
Guarantees1

WHAT IS A GUARANTEE?
A definition
The purpose and nature of a guarantee
Consideration

THE PRIMARY OBLIGATION OF THE PRINCIPAL DEBTOR

THE COLLATERAL OBLIGATION OF THE GUARANTOR

A secondary obligation
The collateral obligation is co-extensive
Continuing collateral obligations
All moneys clauses
Revocation of the collateral obligation

FORMALITIES
The Statute of Frauds
Consumer Credit Code
Electronic Transactions Act

[page 432]

PERSONAL LIABILITY OF THE GUARANTOR

Personal liability is not necessary element of a guarantee
 Personal liability and the Statute of Frauds

THE RULES OF CONSTRUCTION

DISTINGUISHING GUARANTEES FROM SIMILAR COMMERCIAL

TRANSACTIONS
Indemnities
Insurance

DISCHARGING THE LIABILITY OF THE GUARANTOR

Agreement to the contrary
Grounds for discharge of the liability of the guarantor
The Marston contention

VITIATING FACTORS
Unconscionability
Undue influence
Non-disclosure
Setting aside the guarantee on other grounds
Independent advice

STATUTORY REGULATION OF GUARANTEES AND THE

CREDITOR’S CONDUCT

RIGHTS OF THE GUARANTOR

Indemnity
Restitution
Subrogation
Contribution
 [page 433]

Shylock:
Go with me to a notary, seal me there
Your single bond; and, in a merry sport,
If you repay me not on such a day,
In such a place, such sum or sums as are
Express’d in the condition, let the forfeit
Be nominated for an equal pound
Of your fair flesh, to be cut off and taken
In what part of your body pleaseth me.
Antonio:
Content, i’ faith: I’ll seal to such a bond …
Bassanio:
You shall not seal to such a bond for me:
I’ll rather dwell in my necessity.
Antonio:
Why, fear not, man; I will not forfeit it:
Within these two months, that’s a month before
This bond expires, I do expect return
Of thrice three times the value of this bond.
(William Shakespeare, The Merchant of Venice, Act 1, Scene III)

WHAT IS A GUARANTEE?
A definition
12.1 In Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 254,
Mason CJ defined a contract of guarantee as ‘a collateral contract to
answer for the debt, default or miscarriage of another who is or is
contemplated to become liable to the person to whom the guarantee is
given’. See also Yeoman Credit Ltd v Latter [1961] 1 WLR 828; Re Conley;
Ex parte Trustee v Barclays Bank Ltd [1938] 2 All ER 127; Total Oil Products
(Australia) Pty Ltd v Robinson [1970] 1 NSWR 701 at 703. In 1874, De
Colyar, in his Treatise on the Law of Guarantees and Principal & Surety,
Butterworths, London, 1874, p 1, described the key parties to a
guarantee transaction in terms that remain frequently preferred by
modern courts and commentators:
The person, who gives the guarantee, is called the surety or guarantor; the person, to
whom it is given, is called the creditor or guarantee; and the person, whose debt, default
or miscarriage is the foundation of the guarantee, is called the principal debtor, or
simply, the principal.

Where the contract is guaranteed by more than one person, the

sureties are called co-guarantors or co-sureties.
Despite the tenor of the terms principal debtor, guarantor and creditor,
the principal obligation underlying a guarantee transaction need not
be restricted to the payment of a debt, and may extend to performance
of existing or future legal obligations arising from

[page 434]

contract, bailment, tort or an unsatisfied judgment: Moschi v Lep Air

Services Ltd [1973] AC 331 at 347–8 per Lord Diplock; see also Sunbird
Plaza at 254–5, where Mason CJ stated:
Because many guarantees are given in relation to the payment of debts, it is common
to speak of the parties to the relationship as creditor, guarantor and principal debtor.
However, the payment of a debt is but one instance of the wide range of obligations
the performance of which may be made the subject of a guarantee. Just as I may
guarantee the payment of a debt so I may guarantee the performance of a contractual
obligation which does not involve the payment of money.

The purpose and nature of a guarantee

12.2 Typically, the purpose of the guarantee is to secure the
performance of the principal debtor’s obligations to the creditor: Jowitt
v Callaghan (1938) 38 SR (NSW) 512; Re Conley; Ex parte Trustee v
Barclays Bank Ltd [1938] 2 All ER 127; Neonbrook Pty Ltd v Thusi Pty Ltd
[1991] 1 Qd R 429. However, the principal debtor cannot generally sue
or be sued upon the guarantee: the guarantee is an agreement between
the creditor and the guarantor.
A guarantee is not, of itself, an assurance of the principal debtor’s
ability or intention to repay the debt or to fulfil other contractual
obligations: Blashki v Utara (2003) Aust Contract R ¶90–159; Precious
Metals Australia Ltd v Xstrata (Schweiz) Ag [2005] NSWSC 220; R v
Gurofsky (1919) 16 QWN 19. Nor is it a promise to ‘see to it’ that the
principal debtor fulfils their obligations to the creditor: Sunbird Plaza
Pty Ltd v Maloney (1988) 166 CLR 245 at 256 per Mason CJ considering
the view of Lord Diplock in Moschi v Lep Air Services Ltd [1973] AC 331
at 348. Rather, the guarantor’s promise is to be accountable to the
creditor should the primary debtor default. The contractual
relationship between the guarantor and the creditor presupposes the
principal debtor’s obligation to the creditor. Jordan CJ in Jowitt at 516–
17 considered the nature of a guarantee:
A contract of guarantee or suretyship is a contract between two persons which is
intended by them to secure the performance of the obligation of a third person to
one of them. The existence, present or future, of the obligation of a third person, and
an intention in the parties to the contract to secure the performance of that
obligation, are essential features of a contract of guarantee. If these elements are
present, the contract is one of guarantee whether the promise be collateral to the
promise of a principal obligor and in the nature of a distinct and separate promise to
perform the principal obligation if it does not: Inland Revenue Commissioners v Holder
[1931] 2 KB 81 at 101–2; Elder v Northcott [1930] 2 Ch 422 at 430; or whether it be a
joint promise with the principal obligor by virtue of which an immediate obligation is
assumed to the obligee which is joint with that of the principal obligor: Permanent
Trustee Co of New South Wales Ltd v Hinks (1934) 34 SR (NSW) 130 (in which case there
is surety in equity though not at common law: Wauthier v Wilson (1912) 28 TLR 239);
and whether the promise be a promise to be personally liable if the principal obligor
does not perform the obligation, or a promise merely that certain property of the
promisor shall be a

[page 435]
 security for the performance of the principal obligation: Re Conley; Ex parte Trustee v
Barclays Bank Ltd [1938] 2 All ER 127.

The concept of the secondary obligation of the guarantor

presupposing the primary obligation of the principal debtor lies at the
heart of Lord Selborne’s classification of guarantees in Duncan, Fox &
Co v The North and South Wales Bank (1880) 6 App Cas 1. In that case,
Lord Selborne (at 10–11) observed that guarantees can be divided into
three broad categories, distinguished by the circumstances in which
they arise:
In examining the principles and authorities applicable to this question, it seems to me
to be important to distinguish between three kinds of cases:
1. Those in which there is an agreement to constitute, for a particular purpose, the
relation of principal and surety to which agreement the creditor thereby secured
is a party;
2. Those in which there is a similar agreement between the principal and surety
only, to which the creditor is a stranger; and
3. Those in which, without any such contract of suretyship, there is a primary and a
secondary liability of two persons for one and the same debt, the debt being, as
between the two, that of one of those persons only, and not equally of both, so
that the other, if he should be compelled to pay it, would be entitled to
reimbursement from the person by whom (as between the two) it ought to have
been paid.

A guarantor is immediately liable to the full extent of its obligation

on the default of the principal promissor, unless the guarantee
provides otherwise: see for example Moschi at 356–7, cited with
approval in Filmana Pty Ltd v Tynan [2013] QCA 256 at [36]. A right to
a demand will not be implied and needs to be expressly provided for if
liability is not to arise before it is given: MS Fashions Ltd v Bank of Credit
and Commerce International SA (in liq) (No 2) [1993] Ch 425 at 436 per
Hoffman LJ; Re Taylor; Ex parte Century 21 Real Estate Corp (1995) 130
ALR 723 at 725.

Consideration
12.3 The general principles of contract law as to the formation of
contracts apply to contracts of guarantee, including the requirement
that the agreement be supported by valuable consideration: Barrell v
Trussell (1811) 128 ER 273; Coghlan v S H Lock (Aust) Ltd (1987) 8
NSWLR 88. However, if the guarantee is formed pursuant to a formal
deed signed under seal, no further consideration is required: Rann v
Hughes (1778) 101 ER 1014; see also Rose & Burgess & Topex Nominees
Pty Ltd v Commissioner of Stamps (SA) (1979) 22 SASR 84. Where the
guarantee is not embodied in such a deed, in accordance with the
general principles of contract law, consideration must move from the
promisee (the creditor), but need not move to the promisor (the
guarantor): Morley v Boothby (1825) 3 Bing 108; 130 ER 455. This means
that a guarantee is supported by valuable consideration in
circumstances including, for example, where the creditor agrees at the
request of the guarantor to:

[page 436]

refrain from suing the principal debtor to enforce a debt: Rolt v

Cozens (1856) 18 CB 673; Murphy v Timms [1987] 2 Qd R 550; Thew
v Clarke & Walker Pty Ltd [1967] 2 NSWR 268; Edlin v Williams
[1998] QCA 439; McKay v National Australia Bank Ltd [1998] 1 VR
173;
advance funds to the principal debtor: White v Woodward (1848) 5
CB 810; Johnston v Nicholls (1845) 1 CB 251; 135 ER 535; Coghlan;
supply goods or services to the principal debtor: Johnston; Robertson
v Healy (1866) 5 SCR (NSW) 290; or
enter into a lease with the principal debtor: Chan v Cresdon Pty Ltd
(1989) 168 CLR 242.
Consideration must be of value in the eyes of the law and must not
be past: French v French (1841) 2 M & G 644; 133 ER 903; Roscorla v
Thomas (1842) 3 QB 234; Eastwood v Kenyon (1840) 113 ER 382. For that
reason a guarantee ‘given to secure a debt already incurred, but
unsupported by any further consideration, will fail for want of valuable
consideration’: McKay at 177 per Winneke P; French. However, where
the consideration is contemporaneous, it will be sufficient: Coghlan;
Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311.
 The terms used on the face of the guarantee need to be carefully
considered. Where they are ambiguous, extrinsic evidence is admissible
to demonstrate whether the guarantee was given in circumstances
indicative of valuable consideration rather than past consideration:
Breusch; Guthridge v Coco [2002] QSC 392; Coghlan; Ankar Pty Ltd &
Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987)
162 CLR 549; Investors Compensation Scheme Ltd v West Bromwich Building
Society [1998] 1 WLR 896.

THE PRIMARY OBLIGATION OF THE

PRINCIPAL DEBTOR
12.4 The primary obligation underlying a guarantee transaction is
the obligation of the principal debtor to the creditor. The principal
debtor’s liability is not primary in the sense that it must be the first
recourse of the creditor in the event of default. Unless otherwise
provided in the guarantee, the creditor need not exhaust its remedies
against the principal before proceeding against the guarantor. Upon
the default of the principal, the creditor is generally free to enforce the
guarantee before proceeding against the principal: Sunbird Plaza Pty Ltd
v Maloney (1988) 166 CLR 245 at 255 per Mason CJ:
So it is that a creditor’s rights against a guarantor depend on the terms of the
guarantee and the nature of the obligation, performance of which is guaranteed. If
the subject of the guarantee is payment of a debt or a sum of money which has
accrued due, the creditor may, on default by the principal debtor, sue the guarantor
instead of the principal debtor for the debt or sum of money, his claim being for a
liquidated amount. If, on the other hand, the subject of the guarantee is the
performance of some other

[page 437]

obligation, then the person having the benefit of the guarantee may, upon default,
sue the guarantor for damages for breach of contract.
 Should the guarantor be compelled to satisfy the creditor, the
guarantor has rights of recourse against the principal and is entitled to
be reimbursed: Sunbird Plaza. It is in this sense that the principal’s
liability is primary; liability finally rests with the principal debtor:
Duncan, Fox & Co v The North and South Wales Bank (1880) 6 App Cas 1;
Sunbird Plaza at 254 per Mason CJ.

THE COLLATERAL OBLIGATION OF THE

GUARANTOR
A secondary obligation
12.5 A guarantee is a collateral obligation, ancillary to and premised
upon some other present or future liability: McDonald v Dennys Lascelles
Ltd (1933) 48 CLR 457 at 479–80 per Dixon J. The guarantor’s
obligation to the creditor is a secondary obligation in that it is
dependent upon the continued existence and enforceability of the
principal debtor’s obligation. In McDonald, Starke J described this
notion as the essence of the guarantor’s obligation: at 471; see also Re
Taylor; Ex parte Century 21 Real Estate Corp (1995) 130 ALR 723. Unless
there is a present or future principal debtor and primary obligation,
there can be no guarantee: Bank of NSW v Permanent Trustee Co of NSW
Ltd (1943) 68 CLR 1; Heysham Properties Pty Ltd v Action Motor Group Pty
Ltd [1997] ANZ ConvR 440; (1996) 14 BCL 145. According to Latham
CJ in Bank of NSW at 11, a person cannot guarantee the performance of
his or her own primary obligation:
A person cannot guarantee the payment of money by himself. He may undertake an
additional obligation to pay money which he is already bound to pay, but that added
obligation cannot be described as a guarantee. A guarantee is essentially a promise to
answer for the debt, default or miscarriage of another, and it does not include as such
the case of a person incurring an additional liability in respect of a sum of money for
which he is already liable.

McDonald is illustrative of the secondary nature of the guarantor’s

obligation. In that case, the High Court considered the nature of a
guarantee as a collateral obligation. A parcel of land in Victoria had
been sold by instalment contract to Besley in 1925. Title was to be
transferred upon receipt of the final instalment in April 1931. Prior to
that date, Besley on-sold the property to Dunkley and the Rye Grazing
Company Pty Ltd. The purchasers under this second contract paid a
deposit of £6000. The balance of the purchase price was to be paid by
four instalments: three annual payments of £1000 and a final
instalment of £14,462 to be paid on 24 January 1931. In the event of
default, the contract provided for the forfeiture of the deposit and
rescission of the contract. Time was of the essence. The purchasers paid
the first two instalments, but sought an extension of time in which to
pay the third instalment until 24 January 1931, the same date that

[page 438]

the final instalment was due. Besley had assigned his interest in the
contract to Dennys Lascelles Ltd. McDonald and Holdsworth, directors
of Rye Grazing Company, executed a guarantee in favour of Dennys
Lascelles, guaranteeing that the purchasers would pay the instalment
on 24 January 1931. On the basis of the guarantee, Dennys Lascelles
agreed to the extension of time. When the purchasers failed to pay
either of the deferred or final instalments when they fell due, Dennys
Lascelles instituted proceedings to enforce the guarantee. Shortly
afterwards, the first contract was rescinded. The purchasers then
purported to rescind the second contract, arguing that the second
contract could not be effective to pass title given the failure of the first
contract. All parties treated the second contract as at an end. One of
the issues to be determined by the High Court was the enforceability of
the guarantee.
It was held that the guarantors were not liable under the guarantee
as a legal consequence of the rescission of the contract. Since the
principal debt was no longer enforceable or recoverable, ‘the
groundwork of the accessory obligation [had] disappeared’: at 467 per
Rich J. Dixon J explored the issue in terms of well-recognised principles
of English law noting that these rules had been established by dicta in
the course of particular application rather than by formal
pronouncements. Dixon J considered that:
… the extinction of the principal obligation necessarily induces that of the surety; it
being of the nature of an accessory obligation, that it cannot exist without its
principal; therefore, wherever the principal is discharged, in whatever manner it may
be, not only by actual payment or a compensation, but also by a release, the surety is
discharged likewise; for the essence of the obligation being, that the surety is only
obliged on behalf of a principal debtor, he therefore is no longer obliged, when there
is no longer any principal debtor for whom he is obliged: at 479–80 citing Evans
(trans), Pothier on Obligations (Treatise on the Law of Obligations, or Contracts), RH Small,
Philadelphia, 1826, vol i, p 235.

The collateral obligation is co-extensive

12.6 The liability of the guarantor and the principal debtor must be
co-extensive. This principal is so fundamental that, generally, unless the
liability of the promisor is co-extensive with the liability of the principal
debtor, the agreement is not a guarantee: Yeoman Credit Ltd v Latter
[1961] 1 WLR 828; Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003]
NSWSC 874.
Generally, the guarantor will not be liable if the obligation of the
principal debtor is discharged, significantly altered or otherwise
determined: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; Jowitt v
Callaghan (1938) 38 SR (NSW) 512; Ankar Pty Ltd & Arnick Holdings Ltd
v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549;
Commercial Banking Co of Sydney Ltd v Patrick Intermarine Acceptance Ltd (in
liq) (1978) 52 ALJR 404 at 406; Hancock v Williams (1942) 42 SR (NSW)
252. This rule is subject to some exceptions; for example, the parties
may agree otherwise: Perry v National Provincial Bank of England [1910] 1
Ch 464. Similarly, the obligations of the guarantor will not be
determined by

[page 439]

the bankruptcy, winding up, placement into official management or

entry into a scheme of arrangement by the principal debtor: see Helou v
Mulligan Pty Ltd [2003] NSWCA 92; (2003) 57 NSWLR 74; Jowitt;
Quainoo v New Zealand Breweries Ltd [1991] 1 NZLR 161; Hill v Anderson
Meat Industries Ltd [1971] 1 NSWLR 868; [1972] 2 NSWLR 704;
Commercial Banking Co of Sydney Ltd v Gaty [1978] 2 NSWLR 271; Gan v
Sanders (1994) 15 ACSR 298; Care Builders Pty Ltd (1997) 23 ACSR 754;
Ehrenfeld v Oriana Nominees Pty Ltd [1999] WASCA 222; Ex parte Jacobs; Re
Jacobs (1875) LR 10 Ch 211; Re London Chartered Bank of Australia [1893]
3 Ch 540.
The concept of the co-extensive liability is complex. The guarantor’s
liability cannot exceed, replace or terminate the liability of the
principal debtor: Direct Acceptance Finance Ltd v Cumberland Furnishings
Pty Ltd [1965] NSWR 1504; Permanent Trustee Co of New South Wales Ltd v
Hinks (1934) 34 SR (NSW) 130; Yeoman Credit; St George Wholesale
Finance Pty Ltd v Spalla (2000) 181 ALR 682. Nor can the guarantor’s
liability differ in kind from the obligation of the principal debtor:
Duncan, Fox & Co v The North and South Wales Bank (1880) 6 App Cas 1.
In Direct Acceptance Finance, the Full Court of the Supreme Court of
New South Wales considered that a recourse agreement could not
constitute a guarantee as the liability of the guarantor was not co-
extensive with the liability of the principal debtor. The agreement
provided that where the account of any customer should, in the
opinion of the financier, be unsatisfactory, the financier could give
notice to the dealer requiring the dealer to pay the financier the total
amount due on the contract, less any amount paid by the customer. It
was held that the recourse agreement was not a guarantee. Walsh J,
with whom the rest of the court agreed, explained that there were two
factors which prevented the recourse agreement from constituting a
guarantee. First, the recourse provisions could operate in a situation in
which there had been no default at all. Second, even if a customer was
in default, the financier could require the dealer to pay an amount in
excess of that which the customer itself would be liable to pay in
default. A customer’s liability in default was limited to the amounts due
and unpaid under the purchase agreement as at the date of default. Yet
the dealer could be required to pay the whole of the amount which the
financier would have received if the agreement had run its full term
and all purchase instalments had been paid.

Continuing collateral obligations

12.7 The guarantee may limit the liability of the guarantor to
securing the principal debtor’s performance of a particular obligation
or transaction. A guarantee is a continuing guarantee where it extends
to securing the performance of the principal debtor’s obligation to the
creditor in a course of dealing continuing through a series of future
transactions rather than being confined to a particular transaction:
Turner Manufacturing Co Pty Ltd v Senes [1964] NSWR 692; Parr’s
Banking Co Ltd v Yates [1898] 2 QB 460.

[page 440]

Whether a guarantee is limited or continuing is determined

according to the ordinary rules of construction. The agreement will be
construed according to its natural and ordinary meaning, in the
context of the contract as a whole: Andar Transport Pty Ltd v Brambles Ltd
(2004) 217 CLR 424; Royal Botanic Gardens and Domain Trust v South
Sydney City Council (2002) 186 ALR 289. The language used in the
guarantee may indicate that the guarantor’s liability is continuing, for
example, where the guarantee is referred to as a ‘continuing security’
or stipulates that the guarantee secures ‘any goods’ supplied or ‘all
moneys’ advanced to the principal debtor from time to time: Mason v
Pritchard (1810) 2 Camp 436; 170 ER 1210; National Bank of Nigeria Ltd v
Awolesi [1964] 1 WLR 1311; Paradise Constructors Pty Ltd v Lofts Quarries
Pty Ltd [2003] VSC 370; Re Piccolo; McVeigh v National Australia Bank
[1999] FCA 386, affirmed in McVeigh v National Australia Bank Ltd
[2000] ANZ ConvR 50.

All moneys clauses

12.8 An ‘all moneys’ clause typically seeks to extend liability of the
guarantor to all moneys that may be owing by the principal debtor to
the creditor. For example, in National Bank of New Zealand Ltd v West
[1978] 2 NZLR 451, the guarantor promised to pay ‘all moneys …
which may be owing or unpaid to the bank by the principal on any
account whatsoever’. In Re Bankrupt Estate of Murphy; Donnelly v
Commonwealth Bank of Australia Ltd (1996) 140 ALR 46, it was held that
the creditor was entitled to rely on an all moneys clause to recover
moneys stolen from it by the principal debtor. In McVeigh v National
Australia Bank Ltd [2000] ANZ ConvR 50, the guarantor agreed to pay
the creditor, upon the default of the principal debtor, ‘any amounts’
which the principal debtor owed to the creditor at the time the creditor
demanded payment by the guarantor. In that case, Kenny J noted that
such clauses are ‘plainly enough, intended by their authors to cover all
eventualities’ even though ‘that may not be the common intent of the
parties at the point of execution’: at [82].
While all moneys clauses may be construed literally, the approach
taken in Australian courts tends to confine the operation of these
clauses to their ‘context and commercial purpose’: McVeigh at [83] per
Kenny J; see also Estoril Investments Pty Ltd v Westpac Banking Corp (1993)
6 BPR 13,146; Australia & New Zealand Banking Group Ltd v Comer
(1993) 5 BPR 11,748; Jageev Pty Ltd v State Bank of New South Wales
(1996) 2 ACCR 396; and Meldov Pty Ltd v Bank of Queensland [2015]
NSWSC 378. It has been argued that such an approach is capable of
giving rise to ambiguity in an otherwise unequivocal all moneys clause:
see, for example, Middleton Nominees Pty Ltd v Westpac Banking Corp
[2008] FCA 371. If such an ambiguity were to arise then, according to
the general principles of construction of contracts established in Ankar
Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia)
Ltd (1987) 162 CLR 549, the all moneys clause would be construed
against the party seeking to rely on it; that is, the ambiguity would be
resolved in favour of the guarantor. In ANZ v Comer, Young J explained
at 11,758:

[page 441]
 It seems to me that the way courts approach these very wide all obligations mortgages
is to read them down so that the wide words have some operation but do not include
situations that would never have been contemplated by the ordinary mortgagor by the
use of the words.

The use and effectiveness of all moneys clauses may be impinged

upon by the operation of consumer protection legislation and banking
codes of conduct, including the Consumer Credit Code s 55 and the
Australian Bankers’ Association’s Banking Code of Practice 2004 cl
28.13. In New South Wales, the operation of an all moneys clause may
be grounds for review of the contract as an unjust transaction within
the meaning of s 7 of the Contracts Review Act 1980 (NSW).

Revocation of the collateral obligation

12.9 The parties are free to stipulate in their guarantee the manner
in which the guarantee may be revoked by the guarantor. The
guarantor may revoke the guarantee in accordance with such a
stipulation: Commercial Bank of Australia Ltd v Cavanaugh (1980) 7 NTR
12. Unless the guarantee stipulates otherwise, the event of revocation
pursuant to the terms of the guarantee will be to relieve the guarantor
of its future liability: Cavanaugh. The accrued liabilities of the
guarantor will endure the revocation, unless there has been a total
failure of consideration: Cavanaugh; Baltic Shipping v Dillon (1993) 176
CLR 344.
Where the guarantee is silent as to revocation, and the guarantee is
not formed pursuant to a formal deed signed under seal, it is open to
the guarantor to revoke the guarantee up until the creditor furnishes
consideration: North British and Mercantile Insurance Co v Kean (1888) 16
OR 117.
Where the guarantee is continuing and the consideration furnished
by the creditor is divisible in accordance with the obligations of the
principal debtor, then the guarantee can be revoked by the guarantor
at any time in respect of the guarantor’s future liability: Coulhart v
Clementson (1879) 5 QBD 42; Lloyd’s v Harper (1880) 16 Ch D 290. This
rule applies where the secondary obligation of the guarantor is
premised upon a series of separate and distinct obligations of the
principal debtor to the creditor, for example, a succession of further
advances or a supply of further goods to the principal debtor. James LJ
in Lloyd’s at 314 explained the practical rationale for this rule:
It may be considered equitable and right that where a man is not under any obligation
to make further advances or to sell further goods, a person who has guaranteed
repayment of such advances, or payment of the price of such goods, may say, ‘Do not
sell any further goods or make further advances; I give you warning that you are not to
rely upon my guarantee for any further advances which you make, or for any further
goods you sell’.

Unless the guarantee stipulates otherwise, generally, the death of the

guarantor will effectively revoke the guarantee as to future liability once
the creditor is notified of the guarantor’s death: Coulhart; Ronan v
Australia & New Zealand Banking Group Ltd (2000) 2 VR 531.

[page 442]

However, the death of a guarantor will not discharge the liability of

co-guarantors where their liability is joint and several: Beckett & Co v
Addyman (1882) 9 QBD 783.

FORMALITIES
The Statute of Frauds
12.10 The Statute of Frauds 1677 Ch 3 (Eng) provides that no action
can be brought upon a ‘special promise to answer for the debt, default
or miscarriage of another’ unless the promise is evidenced in writing
and signed by the party to be charged: s 4. This requirement still exists
in most Australian states and territories: Law of Property Act 2000 (NT)
s 58; Property Law Act 1974 (Qld) s 56; Mercantile Law Act 1935 (Tas) s
6; Instrments Act 1958 (Vic) s 126; Law Reform (Statute of Frauds) Act
1962 (WA) s 2. In the Australian Capital Territory, the statutory
provisions requiring such a promise to be evidenced in writing only
apply to those executed prior to 1986: Imperial Acts (Substituted
Provisions) Act 1986 (ACT) s 3(1). Most guarantees fall within the
ambit of these statutory provisions. Essentially, the provisions will only
apply to those promises to ‘answer for the debt, default or miscarriage
of another’ where the guarantor’s promise is made to a party to whom
the principal debtor is answerable (Eastwood v Kenyon (1840) 113 ER
382), the principal obligation exists or is expected to exist (Lakeman v
Mountstephen (1874) LR 7 HL 17) and the principal debtor remains
liable to perform the principal obligation (Rounce v Woodyard (1846) 8
LTOS 186).
The purpose of these provisions was explored by Lord Bingham in
Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA [2003] 2
WLR 1060 at 1062:
[Section] 4 of the Statute of Frauds was enacted in 1677 to address a mischief
facilitated, it seems, by the procedural deficiencies of the day: the calling of perjured
evidence to prove spurious agreements said to have been made orally: citing
Holdsworth, A History of English Law (2nd edn, 1937) vol VI, pp 388–390. The solution
applied to the five classes of contract specified in s 4 was to require, as a condition of
enforceability, some written memorandum or note of the agreement signed by the
party to be charged under the agreement or his authorised agent.

The solution provided by the Statute of Frauds to address this

‘mischief’ was to require that certain promises be evidenced in writing
and signed by the party to be charged in order to be enforceable.
However, as Lord Bingham noted at 1062:
It quickly became evident that if the seventeenth century solution addressed one
mischief it was capable of giving rise to another: that a party, making and acting on
what was thought to be a binding oral agreement, would find his commercial
expectations defeated when the time for enforcement came and the other party
successfully relied on the lack of a written memorandum or note of the agreement.

In Actionstrength, Actionstrength Ltd, a recruitment agency

specialising in providing engineering and construction workers,
entered into an agreement with Inglen to supply labour for the
construction of a factory Inglen had agreed to build for Saint Gobain.

[page 443]
When Inglen fell seriously into arrears in its payments, Actionstrength
indicated that unless the arrears were paid, it would withdraw its labour
from the site. Actionstrength and Saint Gobain then orally agreed that,
in consideration for Actionstrength not withdrawing its labour from the
site, Saint Gobain would ensure that Inglen attended to the payment of
all amounts due to Actionstrength, if necessary by redirecting to it
payments due from Saint Gobain to Inglen. Work continued but
Inglen’s arrears continued to mount. When Actionstrength brought
proceedings to enforce the agreement, Saint Gobain contended that
the oral agreement was a ‘special promise to answer for the debt,
default or miscarriage of another’, within the ambit of the Statute of
Frauds. If this was so, then the agreement was not enforceable as it was
not evidenced in writing. Actionstrength argued that Saint Gobain was
estopped from relying upon the Statute of Frauds to defeat the
enforceability of the promise.
In the Court of Appeal it was held that the promise was
unenforceable as it was plainly within the Statute of Frauds:
Actionstrength Ltd v International Glass Engineering IN.GL. EN SpA [2002]
1 WLR 566. In the appeal to the House of Lords, this finding was not
challenged. The House of Lords was called upon to determine whether
Saint Gobain was estopped from relying upon the Statute of Frauds to
defeat the enforceability of the promise. In dismissing the appeal, their
Lordships held that the oral promise did not extend to a
representation that it would be enforceable and, further, that to raise
an estoppel in these circumstances would be subversive. It would defeat
the purpose of a statute which ‘remains in operation by Parliament’s
considered choice’: Actionstrength per Lord Walker at 1074.
In order to satisfy the requirements of writing set out in the Imperial
Acts (Substituted Provisions) Act 1986 (ACT) s 3(1), Law of Property
Act 2000 (NT) s 58, Property Law Act 1974 (Qld) s 56, Mercantile Law
Act 1935 (Tas) s 6, Instruments Act 1958 (Vic) s 126 and Law Reform
(Statute of Frauds) Act 1962 (WA) s 2, the writing must be signed by
the party to be charged, namely, the guarantor or his or her lawfully
authorised agent. The writing must sufficiently identify the parties and
set out all the material terms of the agreement: Riley v Melrose Advertisers
(1915) 17 WALR 127; Albert Building Society v Pratt (1893) 19 VLR 195;
Harvey v Edwards, Dunlop & Co Ltd (1927) 39 CLR 302.
However, a party to a guarantee may be acting in the capacity of an
agent for a principal and, in those circumstances, the principal may
enforce the guarantee although not named within it: Garrett and
Bodenham, surviving Partners of Phillips v Handley (1825) 4 B & C 664,
cited with approval in Goldsmith v Macquarie Leasing Pty Ltd [2013] VSC
332.

Consumer Credit Code

12.11 Writing requirements are also imposed upon certain
transactions by the Consumer Credit Code: see further Consumer
Credit Act 1995 (ACT); Consumer Credit (New South Wales) Act 1995;
Consumer Credit (Northern Territory) Act 1995; Consumer Credit
(Queensland) Act 1994; Consumer Credit (South Australia) Act 1994;

[page 444]

Consumer Credit (Tasmania) Act 1996; Consumer Credit (Victoria)

Act 1995; Consumer Credit (Western Australia) Act 1996. In
circumstances where the Consumer Credit Code applies, a guarantee
will not be enforceable unless it is in writing, is signed by the guarantor
and complies with the requirements set out in the regulations:
Consumer Credit Code s 50.

Electronic Transactions Act

12.12 The writing requirements of the Consumer Credit Code and
the Imperial Acts (Substituted Provisions) Act 1986 (ACT) s 3(1), Law
of Property Act 2000 (NT) s 58, Property Law Act 1974 (Qld) s 56,
Mercantile Law Act 1935 (Tas) s 6, Instruments Act 1958 (Vic) s 126
and Law Reform (Statute of Frauds) Act 1962 (WA) s 2 should be
considered in the light of the Electronic Transactions Act 1999 (Cth),
which applies to all laws of the Commonwealth unless excluded by
regulation and binds the Crown. In order to overcome the
constitutional limitations on the legislative power of the
Commonwealth, all states and territories have enacted similar
legislation to enable a national legislative scheme.2
Each of these statutes provides that the fact that a transaction has
taken place electronically is not an automatic bar to its validity.3
Where the law requires a signature, the requirement is taken to have
been met by electronic communications, where the person uses some
other method which both identifies them and verifies their approval to
the information communicated. The method must be used with the
recipient’s consent and must be as reliable as is appropriate given the
purposes for which the information was communicated.4
The impact of the electronic transactions legislation is that electronic
communications have the potential to satisfy the statutory requirements
of writing for guarantees.

PERSONAL LIABILITY OF THE

GUARANTOR
Personal liability is not necessary element of a
guarantee
12.13 The guarantor may limit his or her liability to the creditor by
way of a charge or mortgage over particular property as security for the
performance of the principal’s obligation. While a guarantor can agree
to be personally liable to the creditor in the event that the principal
debtor fails to perform the obligation, it is not necessary: Re Conley; Ex
parte Trustee v Barclays Bank Ltd [1938] 2 All ER 127; Edwards v Lennon
(1866) 6 SCR

[page 445]
(NSW) Eq 18; Bolton v Salmon [1891] 2 Ch 48; Smith v Wood [1929] 1 Ch
14; Jowitt v Callaghan (1938) 38 SR (NSW) 512. In Re Conley, Luxmoore
J at 138–9 considered that the term ‘guarantor’ would include persons
who, ‘pledge, mortgage or charge their property for the debt of
another, as well as those who pledge their personal credit’. Greene MR
at 131–2 found:
It appears to me that the assumption of personal liability is not a necessary element in
suretyship. ‘Surety’ and ‘security’ are in origin the same, and a person who provides a
pledge or security for the performance of another’s obligation is, I think, making
himself, by means of that pledge or security, a surety for that other, just as much as if
he pledges his personal credit.

In Jowitt, Jordan CJ did not consider personal liability to be an

essential feature of a guarantee. His Honour found that so long as the
essential features were present, it was of no consequence whether the
guarantor’s promise included ‘a promise to be personally liable if the
principal obligor does not perform the obligation, or a promise merely
that certain property of the promisor shall be a security for the
performance of the principal obligation’: at 157 citing Re Conley; see
also Bolton v Darling Downs Building Society [1935] St R Qd 237. Jordan
CJ considered that whether or not a promise amounted to a guarantee
turned upon whether the agreement was intended to secure the
performance of the existing or future obligations of the principal
debtor to the creditor. When a court is required to determine whether
a particular promise is a guarantee or some other obligation, the
inquiry tends not to focus on the presence of a personal liability.
Rather, the issue turns upon the nature of the obligation as primary or
collateral, the extent to which the obligations of the promisor and the
principal debtor are co-extensive, the right of the promisor to
subrogation and whether the liability of the promisor arises only upon
the default of the principal debtor: see, for example, Yeoman Credit Ltd
v Latter [1961] 1 WLR 828; Biscayne Partners Pty Ltd v Valance Corp Pty Ltd
[2003] NSWSC 874.

Personal liability and the Statute of Frauds

12.14 If the promisor does no more than offer certain property or
proceeds as security for the obligation of the principal debtor, High
Court authority suggests that the promise may not fall within the ambit
of the Statute of Frauds: Harvey v Edwards, Dunlop & Co Ltd (1927) 39
CLR 302, and compare Actionstrength Ltd v International Glass Engineering
IN.GL.EN SpA [2002] 1 WLR 566. This illustrates the point that while
most guarantees fall within the Statute of Frauds, not all guarantees will
constitute ‘a special promise to answer for the debt, default or
miscarriage of another’.5

[page 446]

The High Court: Harvey

12.15 In Harvey v Edwards, Dunlop & Co Ltd (1927) 39 CLR 302, the
High Court considered the enforceability of a transaction in which
Harvey had promised to pay the proceeds of sale of his property in
Paisley to Edwards, Dunlop & Co Ltd, a creditor of Inter-state
Stationery Co Ltd, the debtor. In consideration of Harvey’s promise,
the creditor agreed not to bring proceedings against the debtor.
Harvey subsequently refused to pay the proceeds of sale to the creditor.
When the creditor sought to enforce the promise, Harvey argued that
their agreement was not enforceable as it amounted to ‘a promise to
answer for the debt of another’ within the Statute of Frauds
(Instruments Act 1915 (Vic) s 228). Pursuant to the statute, ‘a promise
to answer for the debt of another’ is not enforceable unless it is in
writing and signed by the party to be charged.
In the High Court, all members of the court expressing an opinion
dismissed Harvey’s appeal, finding in favour of the creditor. Higgins J
considered that the agreement could not constitute ‘a promise to
answer for the debt of another’ in the terms of the statute, as Harvey
had not promised to be personally liable for the debt out of his general
assets and had instead limited his liability to the proceeds of sale of a
particular property. Knox CJ, Gavan, Duffy and Starke JJ found that it
was not necessary to determine whether the agreement constituted ‘a
promise to answer for the debt of another’ as, in any event, the
agreement would satisfy the statutory requirements for writing and so
was enforceable whether or not it fell within the scope of the statute.
Isaacs J indicated that he was inclined to doubt the sufficiency of the
writing, but considered it futile to offer an opinion given that it would
not influence the outcome of the case.

The English position: Actionstrength

12.16 The High Court’s decision in Harvey v Edwards, Dunlop & Co
Ltd (1927) 39 CLR 302 was closely scrutinised by the English Court of
Appeal in Actionstrength Ltd v International Glass Engineering IN.GL.EN
SpA [2002] 1 WLR 566. In that case, it was successfully argued that the
application of the Statute of Frauds was not confined to a liability
imposed on the promisor’s assets generally as distinct from one
imposed on a particular asset or source. It was held that there was no
reason to confine the operation of the Statute of Frauds in such a way.
Brown and Gibson LJJ refused to be persuaded by the judgment of
Higgins J in Harvey. Their Lordships both noted that Higgins J had
failed to provide any reasons for his conclusion that, in order to fall
within the ambit of the Statute of Frauds, the promisor must be
accountable from his general assets. Their Lordships considered that,
in the absence of further authority, the judgment of Higgins J alone
was ‘too slender to sustain’ such a position: see Gibson LJ at 579 and
Brown LJ at 576:
The facts of that case were somewhat unusual and, I think, go some way towards
explaining Higgins J’s observations. But in so far as the case is said to be authority for
the bald proposition that the Statute embraces only a liability imposed on the
promisor’s assets generally rather than on a particular asset, I for my part cannot
accept it. It is

[page 447]

not disputed that a primary debt can be guaranteed to a limited extent—that, indeed,
is commonplace. How, then, can it be asserted that a promise to ‘answer for’ the debt
of another up to £100,000 out of general assets is caught by the Statute but a similarly
 limited guarantee to be satisfied out of a particular £100,000 account (or fund or
other asset) would not be? There is no good reason in principle for such a distinction
nor am I able to find any basis for it within the statutory language. In truth, [this]
approach requires that there be read into the Statute, after the words ‘to answer’,
additional words such as ‘from the defendant’s general assets’. I would not subject the
section to any such gloss. Rather I would follow the approach in the not dissimilar
situation considered in the old case of Morley v Boothby (1825) 3 Bing 107; 130 ER 455,
a decision of Best CJ … that a promise to pay another’s debt out of money due to the
promisor himself when he came to receive it fell within the Statute: citing Halsbury’s
Laws of England, 4th ed reissue, vol 20, para 152.

Reconciling these decisions

12.17 These decisions highlight the difficulty encountered in many
cases analysing the nature of the promisor’s secondary liability. The
primary focus in both cases was whether the promise was one to which
the Statute of Frauds applied. However, whether a particular
agreement falls within the scope of the Statute of Frauds does not
dictate to the more general inquiry as to whether the promise amounts
to a guarantee: see O’Donovan and Phillips, The Modern Contract of
Guarantee (English ed), Sweet & Maxwell, London, 2003, pp 12–13.
A number of authorities exist for the proposition that personal
liability is not a prerequisite for an obligation to amount to a
guarantee. For example, the obligation of the promisor may amount to
a guarantee where the promisor has charged his or her property in
favour of the creditor for the debt of another: Bolton v Salmon [1891] 2
Ch 48; Smith v Wood [1929] 1 Ch 14; Edwards v Lennon (1866) 6 SCR
(NSW) Eq 18; Perry v National Provincial Bank of England [1910] 1 Ch
464; Re Conley; Ex parte Trustee v Barclays Bank Ltd [1938] 2 All ER 127.
Even if the decision on this point in Harvey v Edwards, Dunlop & Co Ltd
(1927) 39 CLR 302 is correct, and such a promise does not amount to
an obligation upon which the Statute of Frauds imposes a requirement
of writing, it may still be properly construed as a guarantee.

THE RULES OF CONSTRUCTION

12.18 The terms of a guarantee are construed contra proferentem with
a strict regard to its terms (that is, strictissimi juris). This means that,
where the natural and ordinary meaning of the terms is unclear, terms
are construed in favour of the surety: Mason v Pritchard (1810) 2 Camp
436; 170 ER 1210; Coghlan v S H Lock (Aust) Ltd (1987) 8 NSWLR 88;
Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance
(Australia) Ltd (1987) 162 CLR 549; Chan v Cresdon Pty Ltd (1989) 168
CLR 242; Andar Transport Pty Ltd

[page 448]

v Brambles Ltd (2004) 217 CLR 424. In Gattellaro v Westpac Banking Corp
(2004) 204 ALR 258, Kirby J noted at 280 that:
In Australian law, the surety is a favoured debtor, viewed with solicitude both at law
and in equity. Many are the creditors that have failed to recover from a surety because
of the doctrine of strictissimi juris.

In construing the terms of a guarantee in Ankar at 561, Mason ACJ,

Wilson, Brennan and Dawson JJ stated the underlying rationale for this
rule:
At law, as in equity, the traditional view is that the liability of the surety is strictissimi
juris and that ambiguous contractual provisions should be construed in favour of the
surety. The doctrine of strictissimi juris provides a counterpoise to the law’s
preference for a construction that reads a provision otherwise than as a condition.

This statement has been subsequently confirmed by the High Court

as representing ‘a settled principle governing the interpretation of
contracts of guarantee’: Chan at 256; Andar Transport. The same
principles are relevant in the construction of indemnity clauses: Andar
Transport at 437. However, these principles ‘do not, of course, mean
that where parties to such a document have deliberately chosen to
adopt wording of the widest possible import that wording is to be
ignored. Nor do they oust the principle that where wording is
susceptible of more than one meaning regard may be had to the
circumstances surrounding the execution of the document as an aid to
construction’: Coghlan at 92; Rava v Logan Wines Pty Ltd [2007] NSWCA
62. See also Royal Botanic Gardens and Domain Trust v South Sydney City
Council (2002) 186 ALR 289.
Contracts of guarantee are generally construed according to the
ordinary rules for the construction of contracts. That is, the agreement
will be construed according to its natural and ordinary meaning, in the
context of the contract as a whole: Andar Transport; Royal Botanic
Gardens; Pearson v Goldsbrough Mort & Co [1931] SASR 320; Mason.
However, ‘if detailed semantic and syntactical analysis of words in a
commercial contract is going to lead to a conclusion that flouts
business commonsense, it must be made to yield to business
commonsense’: see Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001)
210 CLR 181 at 248 per Gleeson CJ, Gummow and Hayne JJ.
Guarantees, like other commercial agreements, may be construed so as
to be given a rational, commercial and reasonable operation: Maggbury;
Upper Hunter County District Council v Australian Chilling and Freezing Co
Ltd (1968) 118 CLR 429; Australian Broadcasting Commission v
Australasian Performing Right Association Ltd (1973) 129 CLR 99. See also
Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15; Club
Hotels Operations Pty Ltd v CHG Australia Pty Ltd [2005] NSWSC 998.
In Ankar, Mason ACJ, Wilson, Brennan and Dawson JJ regarded that
it was also necessary to consider ‘the special character of a suretyship
contract and of the relationship that it creates between the parties’ and
the ‘general setting in which the contract has come into existence’: at
561. See also Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989.
McColl JA in Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd
(2004) 12 BPR 22,879 at [69] held:

[page 449]

If the words used (in a written contract) are unambiguous the Court must give effect
to them, notwithstanding that the result may appear capricious or unreasonable, and
notwithstanding that it may be guessed or suspected that the parties intended
something different. The Court has no power to remake or amend a contract for the
purpose of avoiding a result which is considered to be inconvenient or unjust. On the
other hand, if the language is open to two constructions, that will be preferred which
 will avoid consequences which appear to be capricious, unreasonable, inconvenient or
unjust, ‘even though the construction adopted is not the most obvious, or the most
grammatically accurate’: Australian Broadcasting Commission v Australasian Performing
Right Association Ltd (1973) 129 CLR 99 at 109–110 per Gibbs J (as he then was).
However, in construing written contracts it should be presumed that the parties did
not intend their terms to operate unreasonably. The more unreasonable the result a
party’s construction would produce, the more unlikely it is that the parties would have
intended it. If the parties did intend an unreasonable result, it is essential that that
intention be made ‘abundantly clear’.

In Royal Botanic Gardens, the High Court confirmed that while

extrinsic evidence is not admissible to contradict the plain meaning of
the terms, ‘it is appropriate to have regard to more than internal
linguistic considerations and to consider the circumstances with
reference to which the words in question were used and, from those
circumstances, to discern the objective which the parties had in view’:
per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ at [10]
citing Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149
CLR 337 at 352 per Mason J. Their Honours continued at [10]:
In particular, an appreciation of the commercial purpose of a contract …
‘presupposes knowledge of the genesis of the transaction, the background, the
context, the market in which the parties are operating’ (citing Reardon Smith Line Ltd v
Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995–6).

In Royal Botanic Gardens, the High Court confirmed that the leading
authority on this point remains Codelfa Construction, where it was held at
352 per Mason J:
The true rule is that evidence of surrounding circumstances is admissible to assist in
the interpretation of the contract if the language is ambiguous or susceptible of more
than one meaning. But it is not admissible to contradict the language of the contract
when it has a plain meaning. Generally speaking facts existing when the contract was
made will not be receivable as part of the surrounding circumstances as an aid to
construction, unless they were known to both parties, although, as we have seen, if the
facts are notorious, knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations.
Obviously the prior negotiations will tend to establish objective background facts
which were known to both parties and the subject matter of the contract. To the
extent to which they have this tendency they are admissible. But in so far as they
consist of statements and actions of the parties which are reflective of their actual
intentions and expectations they are not receivable. The point is that such statements
and actions reveal the terms of the contract which the parties intended or hoped to
make. They are superseded by, and merged in, the contract itself. The object of the
parol evidence
 [page 450]

rule is to exclude them, the prior oral agreement of the parties being inadmissible in
aid of construction, though admissible in an action for rectification.

In Maggbury, Gleeson CJ, Gummow and Hayne JJ confirmed at 248

that the interpretation of a written contract involves:
… the ascertainment of the meaning which the document would convey to a
reasonable person having all the background knowledge which would reasonably have
been available to the parties in the situation in which they were at the time of the
contract (citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998]
1 WLR 896 at 912–13 per Lord Hoffmann).

In Investors Compensation Scheme, Lord Hoffmann stated at 912–13:

… the background knowledge which a reasonable person in the position of the parties
will be regarded as having, for the purposes of the construction of contracts, includes
absolutely anything which would have affected the way in which the language of the
document would have been understood by a reasonable man with the proviso that it
should have been reasonably available to the parties.

However, it appears that the High Court in Maggbury did not intend
to indorse this statement of Lord Hoffmann’s to its fullest extent. In
Royal Botanic Gardens, a decision of the High Court handed down just
weeks after its decision in Maggbury, the majority (Gleeson CJ,
Gaudron, McHugh, Gummow and Hayne JJ) clarified its position,
noting that until a future determination is made by the High Court as
to the extent of admissible ‘background’ information, Australian courts
should continue to follow Codelfa Construction: at [39]. See also Club
Hotels Operations.

DISTINGUISHING GUARANTEES FROM

SIMILAR COMMERCIAL TRANSACTIONS
12.19 It is often necessary to distinguish a guarantee from similar
transactions such as indemnities, contracts of insurance, warranties,
letters of credit and letters of comfort. The distinction is directly
relevant in a number of respects, including the extent of the
guarantor’s liability, the circumstances in which that liability may be
discharged and whether or not the agreement may need to be in
writing to be enforceable.
Since the liability of a guarantor is generally co-extensive with the
liability of the principal debtor, the guarantor will not ordinarily be
liable if the obligation of the principal debtor is void, is unenforceable
or has otherwise been discharged: McDonald v Dennys Lascelles Ltd
(1933) 48 CLR 457; Jowitt v Callaghan (1938) 38 SR (NSW) 512; Ankar
Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia)
Ltd (1987) 162 CLR 549. However, if the obligation is an indemnity, the
promisor’s liability to the creditor would endure even if the principal
debtor’s obligation is void or unenforceable: Yeoman Credit Ltd v Latter
[1961] 1 WLR 828. Further, the grounds upon which the guarantor’s
liability can be discharged by the creditor’s conduct are broader than
the grounds upon

[page 451]

which the promisor of a similar undertaking, such as an indemnity, can

be discharged: Jowitt; Ankar, Hancock v Williams (1942) 42 SR (NSW)
252.
In many jurisdictions, guarantees are not enforceable unless they are
evidenced in writing and signed by the party to be charged: Imperial
Acts (Substituted Provisions) Act 1986 (ACT) s 3(1); Law of Property
Act 2000 (NT) s 58; Property Law Act 1974 (Qld) s 56; Mercantile Law
Act 1935 (Tas) s 6; Instruments Act 1958 (Vic) s 126; Law Reform
(Statute of Frauds) Act 1962 (WA) s 2; see also Consumer Credit Code
s 50. With the exception of the Consumer Credit Code, the statutory
writing requirements apply only to transactions amounting to
guarantees. They do not apply to indemnities or other similar
agreements. Where the Consumer Credit Code applies, indemnities do
need to comply with the writing requirements as ‘guarantee’ is defined
in Sch 1 of the Code to include ‘indemnity’.
 In distinguishing a guarantee from other similar transactions, the
general rules for the construction of contracts apply: Pearson v
Goldsbrough Mort & Co [1931] SASR 320. Extrinsic evidence is
admissible to show ‘who is in substance a guarantor, and who is in
substance a principal debtor’: AGC (Advances) Ltd v West (1984) 5
NSWLR 590; Manzo v 555/225 Pitt Street Pty Ltd (1990) 21 NSWLR 1;
Reale Bros Pty Ltd v Reale (2003) 179 FLR 427.
In AGC (Advances), affirmed in the Court of Appeal as West v AGC
(Advances) Ltd (1986) 5 NSWLR 610, Mrs West borrowed $68,000 from
AGC pursuant to a deed of loan and guarantee describing her as the
principal debtor. The bulk of these funds was provided to World of
Quiche Pty Ltd. Mrs West’s obligations under the deed were
guaranteed by her husband, World of Quiche Pty Ltd and three
directors of World of Quiche. Mrs West also provided a mortgage over
her home as security for the loan. Upon default, the creditor sought to
enforce the deed of loan and guarantee and mortgage against Mrs West
as principal debtor. Mrs West claimed that she was in substance not the
principal debtor, but merely a guarantor of a loan to World of Quiche.
On the facts, Hodgson J found that there was an agreement between
Mrs West and World of Quiche that the company would make all
payments due under the deed of loan and guarantee, and that this
agreement was known to all the guarantors and the creditor. Until
default, all loan repayments had been paid by World of Quiche. It was
held that the true nature of the transaction was that the loan was a
borrowing by the company, to be repaid by it or its guarantors, secured
by the mortgage over Mrs West’s home. World of Quiche was in
substance the principal debtor, and Mrs West along with the three
directors had coordinate liability as guarantors with rights of
contribution and indemnity reflecting the true substance of the
transaction.
In distinguishing a guarantee from other similar transactions, the
focus of the court’s inquiry is the substance of the transaction rather
than its form: AGC (Advances) Ltd v West (1984) 5 NSWLR 590. The
terminology that the parties use to describe their transaction
 [page 452]

is not conclusive of its legal nature, as explained by Olsson J in Micarone

v Perpetual Trustees (1999) 75 SASR 1 at [455]:
There is clear authority for the proposition that at least in equity, if not at common
law, the form of a security is not necessarily conclusive as to the nature of the liability
pursuant to it. The Court will look to the substance and intrinsic nature of the
transaction and characterise it accordingly (citing Wauthier v Wilson (1912) 28 TLR
239, Jowitt v Callaghan (1938) 38 SR (NSW) 512 at 516–17 and Permanent Trustee Co of
NSW Ltd v Hinks (1934) 34 SR (NSW) 130 at 139).

In Stadium Finance Co Ltd v Helm (1965) 109 Sol J 471, the Court of
Appeal considered whether the obligations contained in a document
headed ‘indemnity form’ constituted a guarantee. It was held that the
agreement was a guarantee, as the true test was not the terminology
used by the parties but whether the parties had assumed a primary or
secondary liability to perform the obligations.
In Phoenix Assurance Co Ltd v Wren [1950] SASR 89, Abbott J found
that despite the terminology used by the parties, the true nature of an
agreement described as a ‘bond guarantee’ was a contract of insurance
involving an obligation to be bound in the event of a default by a
company in paying certain taxes.
In Housing Guarantee Fund Ltd v Johnson (1995) V ConvR ¶54–524,
the court considered the true nature of an obligation referred to as a
‘guarantee’ in Pt 2 of the Housing Contracts Guarantee Act 1987 (Vic).
The case concerned a building contract which amounted to a ‘domestic
building work contract’, as defined by the Act. According to various
provisions appearing in Pt 2 of the Act, the owner was guaranteed
performance of the builder’s contractual obligations by the Housing
Guarantee Fund. A dispute between the owner and the builder led to
the termination of the building contract pursuant to a settlement
agreement. There was no doubt that the builder had ceased to be liable
to the owner. The issue was whether, in spite of the release of the
builder, the fund remained liable to the owner. If the statutory
obligations of the fund were a guarantee, then its liability would be
discharged. However, if the obligation amounted to an indemnity, the
fund would remain liable to the owner and the fund would be entitled
to seek reimbursement from the builder. The Court of Appeal
considered that the wording of the statute, while not irrelevant, was not
decisive of the nature of the obligation. Rather, the matter turned
upon a consideration of the statute as a whole and the nature of the
obligation of the parties.

Indemnities
12.20 An indemnity is ‘a promise by the promisor that he will keep
the promisee harmless against loss as a result of entering into a
transaction with a third party’: Sunbird Plaza Pty Ltd v Maloney (1988)
166 CLR 245 at 254 per Mason CJ; see also Yeoman Credit Ltd v Latter
[1961] 1 WLR 828; Total Oil Products (Australia) Pty Ltd v Robinson
[1970] 1 NSWR 701; Canty v PaperlinX Australia Pty Ltd [2014] NSWCA
309. While a guarantee involves a secondary obligation arising on the
default of the principal debtor, ‘a true

[page 453]

indemnity involves a primary obligation’: Re Taylor; Ex parte Century 21

Real Estate Corp (1995) 130 ALR 723 at 728 per Burchett J. The
promisor’s liability is independent of the liability of the principal
debtor. The promisor is primarily liable to the creditor irrespective of
whether the principal debtor defaults and notwithstanding that the
obligation of the principal debtor is unenforceable: Yeoman Credit; Total
Oil Products; Lakeman v Mountstephen (1874) LR 7 HL 17. This can be
distinguished from a contract of guarantee. The liability of a guarantor
is triggered by the default of the principal debtor. The guarantor’s
liability is a secondary obligation premised upon the liability of the
principal debtor. It is dependent upon the continued existence and
enforceability of the principal debtor’s obligation: McDonald v Dennys
Lascelles Ltd (1933) 48 CLR 457. Even upon default, the principal
remains primarily liable to the creditor and accountable to any
guarantor called upon to fulfil the obligation: Sunbird Plaza. Whether a
document is a guarantee or indemnity or whether it imposes a
secondary or primary liability depends upon the true construction of
the words used to express the promise: Moschi v Lep Air Services Ltd
[1973] AC 331 at 349 cited in Canty at [41].
In Yeoman Credit, Latter entered into a hire-purchase agreement with
Yeoman Credit for the purchase of a car. As Latter was under the age of
21, Yeoman Credit required an adult, Owen, to complete further
documentation described in the hire-purchase agreement as a ‘special
form of indemnity’. Owen signed a document titled ‘Hire-Purchase
Indemnity and Undertaking’, pursuant to which he agreed to
indemnify Yeoman Credit against any loss resulting from the hire-
purchase agreement. Yeoman Credit was prevented by statute from
enforcing the hire-purchase agreement against Latter and so, when
Latter defaulted, it sought to enforce the indemnity. In the Court of
Appeal, Owen argued that his agreement with Yeoman Credit was a
guarantee, not an indemnity, and as such was not enforceable against
him given the unenforceability of the hire-purchase agreement against
Latter. The Court of Appeal found that it was the substance of the
transaction and not the terminology of the agreement which was
conclusive. The court took into account the nature of the parties’
obligations, including the extent to which the creditor’s rights against
Latter and Owen were co-extensive, Owen’s right, if any, to
subrogation, and whether or not his liability arose only upon the
default of Latter. It was held that the agreement was an indemnity:
Owen had assumed a primary liability to the creditor and as a result was
liable to Yeoman Credit.
In Lakeman, a sewerage contractor for the Board of Health was
reluctant to undertake certain works for fear he would not be paid by
the Board. Lakeman, who wanted the work to be done, encouraged
Mountstephen to undertake the work by stating, ‘Go on,
Mountstephen, and do the work, and I will see you paid.’ The House of
Lords held that these words indicated a primary liability, not a promise
to pay the debt of another.
In Canty there was an apparent inconsistency within the relevant
document. The recital said that the appellants had offered to
indemnify PaperlinX against certain losses due to any default by the
customers in meeting their obligations and indebtedness to PaperlinX.
On the other hand, the operative provision which expressed the
parties’ agreement

[page 454]

provided that the appellants would indemnify PaperlinX against all

losses which it may suffer or incur directly or indirectly as a result of not
recovering ‘for any reason’ from the customers any money owing to it.
The object of that clause was held to be ‘to protect PaperlinX against
loss — to see it harmless — rather than to make good TQG’s liability.
There is no promise to be answerable for the debt of TQG’: at [44].
The court held that an indemnity was intended and that the recital was
not inconsistent with the intention in the operative clause to provide an
indemnity against loss. In any event, had there been an inconsistency,
the operative provision would prevail over the recital: at [47].

Insurance
12.21 Contracts of insurance are generally akin to indemnities as the
amount to be paid is to reimburse the insured to the extent of their
loss, life insurance being the obvious exception: see Prudential Insurance
Co v Commissioners of Inland Revenue [1904] 2 KB 658; Dane v Mortgage
Insurance Corp Ltd [1894] 1 QB 54; Yeoman Credit Ltd v Latter [1961] 1
WLR 828. In Prudential Insurance, Channell J at 663 defined a contract
of insurance by reference to a number of key essential elements:
It must be a contract whereby for some consideration, usually but not necessarily for
periodical payments called premiums, you secure to yourself some benefit, usually but
not necessarily the payment of a sum of money, upon the happening of some event …
which involves some amount of uncertainty. There must be either uncertainty whether
the event will ever happen or not, or if the event is one which must happen at some
time there must be uncertainty as to the time at which it will happen … [T]he
uncertain event which is necessary to make the contract amount to an insurance must
be an event which is prima facie adverse to the interest of the assured.
 In order to distinguish a contract of guarantee from a contract of
insurance, the court will focus upon the nature of the obligations
created by the contract: Dane. While a guarantee involves a secondary
obligation arising on the default of the principal debtor, insurance
contracts involve primary obligations triggered by the happening of the
event the subject of the insurance. Guarantees must be distinguished
from insurance contracts where the event insured against is default in
the performance of an obligation by a third party: see Dane; Re
Australian and Overseas Insurance Co Ltd [1966] 1 NSWR 558. The
manner in which the contract is effected and the language used in the
agreement will also aid in the construction of the agreement: Dane.
The distinction between a contract of insurance and a guarantee is
an important one. A contract of insurance is one of the utmost good
faith; a guarantee is not. In a real sense, this means that a contract of
insurance imposes obligations of disclosure upon the insured which a
contract of guarantee does not impose upon the creditor: see Seaton v
Heath [1899] 1 QB 782; Yerkey v Jones (1939) 62 CLR 649; Commercial
Bank of Australia Ltd v Amadio (1983) 151 CLR 447.

[page 455]

DISCHARGING THE LIABILITY OF THE

GUARANTOR
Agreement to the contrary
12.22 The circumstances in which the liability of the guarantor can
be discharged are numerous and must be considered against the terms
of guarantee itself. It is open to the parties to agree in advance that the
guarantor will remain liable in circumstances that might otherwise
discharge the liability of the guarantor: Bank of Adelaide v Lorden (1970)
127 CLR 185; Sabemo Pty Ltd v De Groot (1991) BCL 132; LMCS SA Pty
Ltd v Westpac Banking Corp [2015] SASC 147. Where the creditor and
guarantor have reached such an agreement, the guarantor will remain
liable despite discharge or variation of the terms of the primary liability
of the principal debtor: Bank of Adelaide; Sabemo; see also Gold Ribbon
(Accountants) Pty Ltd v Stoddart [2003] QSC 332.
In Bank of Adelaide, Mr and Mrs Lorden, directors of Godfrey Lorden
Motors Pty Ltd, had executed a guarantee in favour of the Bank of
Adelaide in respect of the company’s overdraft account. Pursuant to
the terms of the guarantee, the guarantors agreed to remain liable on
the guarantee even in the event that the debt of the principal debtor
was discharged by composition or some means other than payment.
The guarantor’s liability was limited to £4000 plus interest. The bank
accepted a sum in full settlement of the debt owing to it by the
company, but did not close the overdraft account which was left with
the balance that had not been met by the settlement. From time to
time interest was debited to the account. Eight years after the release of
the principal debtor, the bank sought to enforce the guarantee to the
extent of the outstanding amount plus interest. At first instance it was
held that the liability of the guarantors had been extinguished upon
the release of the principal debtor. In the High Court it was held that
the guarantors remained liable because the contract between the
guarantors and bank had stipulated that the guarantor would remain
liable even where the liability of the principal debtor came to an end.
Barwick CJ held at 191:
In general, a composition with the principal debtor by which a sum is accepted in full
satisfaction of the obligation to the creditor will discharge the surety unless the surety
be a party to the transaction or there is an express reservation at the time of the
making of the composition of the creditor’s rights against the surety. Where such
rights are reserved at the time the creditor makes the composition with the principal
debtor the surety’s rights against the principal debtor on payment of the amount
guaranteed remain so that notwithstanding the composition the principal debtor can
be called upon to pay to the surety the whole amount paid by the surety to the
creditor. Where there is such a reservation, what apparently was a discharge of the
principal debtor’s debt to the creditor may be construed as merely a covenant not to
sue. But the surety may agree in advance to remain liable though the debt of the
principal debtor be discharged by other means than payment as, for example, by
composition.
 [page 456]

Grounds for discharge of the liability of the

guarantor
12.23 The guarantor’s liability can be discharged where the creditor
releases the principal debtor from performance of the primary
obligation or the principal obligation is otherwise unenforceable: Jowitt
v Callaghan (1938) 38 SR (NSW) 512; Hancock v Williams (1942) 42 SR
(NSW) 252. The guarantor will also be released from liability where the
creditor agrees to a novation where another debtor is substituted for
the principal debtor, since the novation effectively terminates the
original agreement between the principal debtor and the creditor:
Commercial Bank of Tasmania v Jones [1893] AC 313. These principles
illustrate the co-extensive nature of the guarantor’s obligation.
However, the obligations of the guarantor will not be determined by
the bankruptcy, winding up, placement into official management or
entry into a scheme of arrangement by the principal debtor, as in these
cases the primary obligation remains potentially enforceable by the
creditor: see Helou v Mulligan Pty Ltd [2003] NSWCA 92; (2003) 57
NSWLR 74; Jowitt; Quainoo v New Zealand Breweries Ltd [1991] 1 NZLR
161; Hill v Anderson Meat Industries Ltd [1971] 1 NSWLR 868; [1972] 2
NSWLR 704; Commercial Banking Co of Sydney Ltd v Gaty [1978] 2
NSWLR 271; Gan v Sanders (1994) 15 ACSR 298; Re Care Builders Pty Ltd
(1997) 23 ACSR 754; Ehrenfeld v Oriana Nominees Pty Ltd [1999] WASCA
222; Ex parte Jacobs; Re Jacobs (1875) LR 10 Ch 211; Re London Chartered
Bank of Australia [1893] 3 Ch 540. For example, even in the event of the
bankruptcy of the principal debtor, since it is still open to the creditor
to prove in the bankruptcy, the guarantor is not discharged: Jowitt at
518–19. In Helou, Helou, a director and shareholder of a company, had
guaranteed payment of the company’s indebtedness to the creditor.
The company subsequently entered into a scheme of arrangement with
the creditor involving a moratorium of proceedings against the
company. The Corporations Act 2001 (Cth) operated to the effect that
parties to the scheme could not bring proceedings against the company
without first obtaining the leave of the court. It was held that the
scheme did not discharge the guarantor’s liability as the creditor could
still obtain the leave of the court to bring enforcement proceedings in
relation to the company’s obligation as principal debtor. Jordan CJ in
Jowitt at 519 explained the underlying rationale for these rules:
Since the very purpose of a contract of guarantee is to secure the obligee in the event
of the principal obligor being or becoming unable or unwilling to discharge his
obligation, the fact that, by reason of a sequestration order, the principal obligation is
no longer enforceable against the principal obligor by the ordinary machinery of the
common law or that, by reason of an order of discharge, he is released from his
personal liability, has never been regarded as operating to release a guarantor from
liability; and it is now expressly provided by statute that an order of discharge shall not
so operate: Bankruptcy Act, 1924, s 121(2). In such a case, the fact that the obligation
has ceased to exist as a personal obligation binding the obligor himself does not
annihilate its operation for all purposes. It continues to exist as the source of a right to
obtain payment out of certain assets, just as, upon the death of the obligor, although
any personal obligation on his part comes to an end, the obligation continues as the
source of a right to obtain payment out of his assets. In neither case

[page 457]

does the fact that the personal liability of the debtor has come to an end operate to
discharge any guarantor of the debt.

If the terms of the principal agreement between the principal debtor

and creditor are varied in a material way, the guarantor’s liability will be
discharged unless the variation is for the benefit of the guarantor:
Hancock; Holme v Brunskill (1877) 3 QBD 495; see also Pritchard v DJZ
Constructions Pty Ltd (2012) 16 BPR 31,141; [2012] NSWCA 196.
Material variations include where the creditor and principal debtor
agree to an extension of time for the repayment or performance of the
principal obligation or an increase in the interest rate payable upon
default: Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster
Finance (Australia) Ltd (1987) 162 CLR 549; Invercargill Savings Bank v
Genge [1929] NZLR 375; Burnes v Trade Credits Ltd [1981] 1 NSWLR 93.
Similarly, the guarantor is discharged if the principal agreement
between the principal debtor and creditor is determined by operation
of law. For example, if the contract between the principal debtor and
creditor is frustrated, the guarantor’s liability is discharged: General
Produce Co v United Bank Ltd [1979] 2 Lloyd’s Rep 255.
Where the principal debtor validly terminates the principal
agreement with the creditor on account of a breach by the creditor, the
guarantor is discharged: Insurance Office of Australia Ltd v T M Burke Pty
Ltd (1935) 35 SR (NSW) 438. Where the creditor breaches an essential
term of the guarantee, the guarantor may elect to terminate and the
guarantor is relieved from future liability: Ankar.
In Ankar, Ankar had entered into a security deposit agreement with
the creditor to secure the performance of a manufacturing company’s
obligations under a lease agreement for plant and equipment. Pursuant
to the security deposit agreement, Ankar gave the creditor a charge
over a deposit of $125,000. The creditor subsequently breached two
clauses of the security deposit agreement when it failed to notify or
consult with Ankar as to either the fact that the company was in default
and that the company intended to assign its interest in the plant and
equipment or the fact that the company was in default under the lease
agreement. It was held that obligations breached by the creditor were
conditions, and the guarantor was entitled to terminate and recover the
money placed on deposit with the creditor. Upon termination, the
guarantor was released from further liability. Mason ACJ, Wilson,
Brennan and Dawson JJ held at 561:
If the surety is to be discharged for breach of a promissory term in the suretyship
contract, the justification for the discharge must be that the creditor has failed to
comply with a provision that, as a matter of interpretation, requires strict performance
as a condition precedent to the surety’s obligation or at least requires substantial
performance of the promise such that the surety would not have entered into the
contract if it had not been assured that there would not be a breach such as the
breach which in fact occurred. If on its true interpretation the term is not intended so
to operate, it is not easy to understand why the surety should be discharged by its
breach. Of course, in construing the contract the court is entitled to look to the
general setting in which the contract has come into existence: see, for example, the
discussion in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 996–7.

[page 458]
 The Ankar principle also applies so as to discharge the surety when
conduct on the part of the creditor has the effect of altering the
surety’s rights, unless the alteration is unsubstantial and not prejudicial
to the surety, for example, a reduction of the debtor’s debt. This aspect
of Ankar was applied in ANZ Banking Group Ltd v Manasseh [2016]
WASCA 41 to discharge the surety in circumstances where the bank
had not obtained her consent to the changes to the ‘guaranteed
arrangements’ consequent upon a new credit contract being agreed to
between the bank and the debtor.

The Marston contention

12.24 If the creditor and the guarantor agree that the principal
obligation is to be secured in a particular way, then that particular
security must be provided in order for the guarantor to be liable:
Marston v Charles H Griffith & Co Pty Ltd (1982) 3 NSWLR 294; Williams
v Frayne (1937) 58 CLR 710; see also Gattellaro v Westpac Banking Corp
(2004) 204 ALR 258. The creditor has a duty in equity to maintain for
the benefit of the guarantor any security that it holds for the
performance of the principal debtor’s obligation: Buckeridge v Mercantile
Credits Ltd (1981) 147 CLR 654. If the creditor has, in breach of that
duty, impaired, surrendered, released or abandoned any such security,
and the guarantor can establish loss or damage, then the guarantor’s
liability may be discharged to an equivalent extent in equity: Smith v
Wood [1929] 1 Ch 14; Bank of Victoria v Smith (1894) 20 VLR 450;
Buckeridge; see also Surf Road Nominees Pty Ltd v James [2004] NSWSC
223.
Where the creditor and the guarantor agree that there are to be
other co-sureties for the principal obligation, then all the other
proposed co-sureties must become guarantors in order for the
guarantor to become liable: Gattellaro.
In Marston, Powell J stated, at 300–1:
1. if it is a term, whether express or implied, of the arrangements pursuant to which a parol
contract of guarantee is executed, that there will be another co-surety or other co-
sureties, or that the principal debt, or the guarantee, will be secured in an
 identified way, then, unless the intended surety who has executed the guarantee
consents to the other co-surety or co-sureties not thereafter executing the
guarantee (Hansard v Lethbridge (1892) 8 TLR 346) or to the contemplated
security not being provided (Re Parent Trust & Finance Co Ltd [1936] 3 All ER 432
(CA); affirmed sub nom Greer v Kettle [1938] AC 156) then the intended surety
never becomes liable under the guarantee despite his execution of it — the
failure of the other co-surety or co-sureties to execute the guarantee, or the
failure to provide the intended security, thus affords the intending surety who
executed the guarantee a defence at law to an action on the guarantee;
2. if a parol contract of guarantee which is executed by an intending surety is drawn
in a form showing another or others as intended joint and several sureties, it will
be presumed, in the absence of acceptable evidence to the contrary, that the
execution of that other, or those others, was a condition precedent to the surety
who signed the guarantee becoming liable under it, and his, or their, failure to
execute the

[page 459]

guarantee will afford to the intending surety who executed the guarantee a
defence at law to an action on the guarantee.
[Emphasis added.]

In Dimitrakipoulos v Farm Pride Foods Ltd [2000] QCA 80, the Court of
Appeal of the Supreme Court of Queensland considered these
statements from Powell J in Marston, and unanimously held that the
true test of whether all guarantors must sign before any are bound lies
in the objective intention of the parties. Williams J held at [29]:
It is the intention of the parties objectively ascertained that is determinative. Of course
when there is no relevant evidence of intention other than the form of the document
used, the form itself may well lead to the inference that the intention was that both
would sign.

Williams J, with whom the rest of the court agreed, considered it

preferable to equate Powell J’s expression, ‘term, whether express or
implied, of the arrangements’ with ‘intention of the parties’. His
Honour held that this was preferable because ‘the common intention
may not have reached the stage of being expressed as a term of the
arrangement’: at [30].
In Gattellaro, the High Court referred to this statement of Powell J in
Marston as ‘the Marston contention’. The decision of the High Court in
Gattellaro is illuminating as to the extent to which the Marston
contention is a binding legal principle. In Gattellaro, Mr and Mrs
Gattellaro were the sole directors and shareholders of a company. The
company and the Gattellaros held accounts with the Commercial Bank
of Australia and later, by novation, with Westpac. Eventually, Westpac
brought proceedings to enforce a mortgage provided by the Gattellaros
over their family home to secure the indebtedness of the company. The
enforceability of the mortgage turned upon whether Mr and Mrs
Gattellaro had personally guaranteed the company’s indebtedness to
the bank. Westpac was not able to produce guarantees signed by either
Mr or Mrs Gattellaro, but led significant evidence that Mr Gattellaro
had given such a guarantee and that it had also been intended to take a
guarantee from Mrs Gattellaro.
At trial it was found that Mr Gattellaro had executed a guarantee, but
Mrs Gattellaro had not. In the Court of Appeal, it was argued by the
Gattellaros that, even if Mr Gattellaro was found to have provided such
a guarantee, it could not operate if it was in the form of a co-guarantee
unless Mrs Gattellaro had also signed a guarantee. Westpac submitted
that Mr Gattellaro would have been required to sign its standard form
of guarantee, which contained an express term to the effect that Mr
Gattellaro would be liable on the guarantee even if Mrs Gattellaro
failed to sign. The Court of Appeal took judicial notice of the terms of
the standard form of guarantee, finding that Mr Gattellaro had given a
guarantee, and that it was therefore unnecessary to decide whether Mrs
Gattellaro had given one. The Gattellaros appealed to the High Court.
The High Court unanimously agreed that the Court of Appeal erred
in taking judicial notice of the terms of the standard form of guarantee.
However, the Gattellaros were

[page 460]

ultimately unsuccessful because of a last-minute amendment to

Westpac’s notice of contention. Special leave to appeal to the High
Court had been granted on the basis of the issue of judicial notice.
However, on the day before the hearing, Westpac sought leave to
amend its notice of contention to add a new ground of appeal: that the
decision of the Court of Appeal should not be affirmed as:
the Gattellaros had not pleaded or advanced the Marston
contention below; and
even if the Marston principles applied, the Gattellaros had not met
the burden of proving either that the guarantee given by Mr
Gattellaro was subject to Mrs Gattellaro giving a guarantee or that
Mrs Gattellaro had not given the guarantee.
The Gattellaros argued that Westpac should not be given leave to
raise a defence that it had not relied upon below. The majority
(Gleeson CJ, McHugh, Hayne and Heydon JJ) granted leave to amend.
Kirby J vigorously dissented, considering that this was an issue that
should be remitted to the Court of Appeal to be decided in light of the
unanimous ruling that it had erred in taking judicial notice of the
terms of the standard form guarantee.
Leave to amend having been granted, the Gattellaros conceded that
as a matter of law they did bear the onus of proving the factors
fundamental to the Marston contention. That is, they needed to prove
that the guarantee of Mr Gattellaro was given subject to Mrs Gattellaro
giving a guarantee and that Mrs Gattellaro had not given a guarantee.
The majority of the High Court found that the Gattellaros had not met
this onus and that Westpac was not prevented from relying upon that as
a defence. The appeal was dismissed.
Two comments were made in the High Court as to the validity of the
Marston contention. While both comments are obiter at best, they
indicate the manner in which the High Court may be inclined to treat
the principles emerging from Marston in future. First, the majority, in a
footnote to the joint judgment, noted that in view of the fact that it was
‘possible to decide this appeal by assuming that the law is as stated in
Marston’s case, it is convenient to proceed by assuming, but not
deciding, both that the law is as stated in that case and that the
Gattellaros bore the onus of establishing facts which would enable
them to take advantage of the law so stated’: at 265 per Gleeson CJ,
McHugh, Hayne and Heydon JJ. Second, Kirby J, with spirited
reservation, expressed his opinion of the Marston contention at 279:
My strong preference would therefore be for this court to determine the content of
the governing rule for joint sureties after that question had been fully litigated at trial,
or at least fully considered in a court of appeal. If forced without these normal
advantages to decide the question in the peculiar circumstances of this case, I would
express the following conclusion. If a contract of guarantee is to be signed by co-
sureties, so that a principal debt will be secured in that way then, unless the intended
surety who has executed the guarantee consents to the other co-surety who has not
executed the guarantee not thereafter executing it, the intended surety never
becomes liable under the guarantee. This is so despite the execution of it by one party
alone.

[page 461]

Parties to a guarantee may, by the terms of their contract, displace

the equitable principle. This was held to be the case in C.A.R.S. Pty Ltd
v Brent [2015] TASSC 23, where, although one guarantor’s signature
was found to have been forged, the other guarantor was nonetheless
still liable, the deed having expressly provided that the liability of any
guarantor who executed the deed was not to be contingent upon its
execution by any other guarantor.

VITIATING FACTORS
Unconscionability
12.25 The guarantee may be set aside where the guarantor is able to
establish unconscionable conduct on the part of the creditor: see
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; see also
Competition and Consumer Act 2010 (Cth) Sch 2 Australian Consumer
Law (ACL) ss 20, 21 and 22; Fair Trading Act 1992 (ACT) s 13; Fair
Trading Act 1987 (NSW) s 43; Contracts Review Act 1980 (NSW) s 7;
Consumer Affairs and Fair Trading Act 1990 (NT) s 43; Fair Trading
Act 1989 (Qld) s 39; Fair Trading Act 1987 (SA) s 57; Fair Trading Act
1990 (Tas) ss 15 and 15A; Fair Trading Act 1999 (Vic) ss 7, 8 and 8A;
Fair Trading Act 1987 (WA) s 11.
Unconscionable dealing was described by Mason J in Commercial Bank
v Amadio at 462 as ‘whenever one party by reason of some condition or
circumstance is placed at a special disadvantage vis-à-vis another and
unfair or unconscientious advantage is then taken of the opportunity
thereby created’. In Blomley v Ryan (1956) 99 CLR 362 at 405, Fullagar J
considered that equity may set a transaction aside where a person is
adversely affected by factors including ‘poverty or need of any kind,
sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or
lack of education, lack of assistance or explanation where assistance or
explanation is necessary’. In considering whether the guarantors in
Commercial Bank v Amadio were at a special disadvantage, Deane J (at
477) considered the relevant considerations included that:
… the result of the combination of their age, their limited grasp of written English,
the circumstances in which the bank presented the document to them for their
signature and, most importantly, their lack of knowledge and understanding of the
contents of the document was that, to adapt the words of Fullagar J quoted above, they
lacked assistance and advice where assistance and advice were plainly necessary if
there were to be any reasonable degree of equality between themselves and the bank.

The leading cases in this area generally describe the essence of the
relevant weakness referred to in Blomley as the inability of the weaker
party to judge what is in their own best interests: Commercial Bank v
Amadio at 467; ACCC v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at
64.
Mere inequality of bargaining power is not sufficient to constitute a
special disadvantage: Commercial Bank v Amadio; ACCC v CG Berbatis;
Maggbury Pty Ltd v Hafele Australia Pty Ltd

[page 462]

(2001) 210 CLR 181; Toll Global Forwarding Pty Ltd v Thiess Pty Ltd
[2015] WASC 64 at [333]–[339]; Australia & New Zealand Banking
Group Ltd v Fink [2015] NSWSC 506 at [81]; Australian Competition and
Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA
1405.
Deane J in Commercial Bank v Amadio at 474 explained that in order to
set the transaction aside, the special disadvantage of the weaker party
must be:
… sufficiently evident to the stronger party to make it prima facie unfair or
‘unconscientious’ that he procure, or accept, the weaker party’s assent to the
impugned transaction in the circumstances in which he procured or accepted it.
Where such circumstances are shown to have existed, an onus is cast upon the
stronger party to show that the transaction was fair, just and reasonable.

In establishing unconscionable conduct, it is not necessary to

establish that the will of the weaker party has been overborne; conduct
may be unconscionable even where the weaker party’s act is
independent and voluntary: ACCC v CG Berbatis. As the New South
Wales Court of Appeal put it in Australia & New Zealand Banking Group
v Karam (2005) 64 NSWLR 149, in assessing whether or not conduct is
unconscionable, it is a ‘combination of the conduct or circumstances of
each party which must be taken into account’: at [46].
In Commercial Bank v Amadio, the High Court set the security aside
where the lender had taken unconscientious advantage of the special
disadvantage of the guarantors. The guarantors were elderly
immigrants who had only a limited grasp of written English. At the
request of their son, they executed a mortgage over their land to the
bank. The mortgage secured an overdraft to the son’s company. The
son had told his parents that the mortgage was limited in time and to a
value of $50,000. In fact, the mortgage contained a guarantee securing
all moneys owing by the son’s company. The bank knew that the
guarantors had been misinformed as to the nature of the security, and
failed to disclose to the guarantors unusual features of the transaction,
including that the company was largely insolvent and that the bank had
been engaged in the selective dishonouring of cheques to preserve the
appearance of solvency. It was held that the security should be set aside
as the guarantors were at a special disadvantage sufficiently evident to
the bank that it would be unconscionable to rely upon the guarantee.
The bank had not satisfied the onus upon it of demonstrating that the
guarantee was fair and reasonable.
 The parameters of what may constitute a ‘special disadvantage’ have
been steadily tested through cases involving a variety of relationships
and transactions. For example, in Clarke v Lopwell Pty Ltd [2008]
NSWSC 615, Hamilton J set aside guarantees and mortgages given by
two university-educated farmers, a husband and wife aged 68 and 69
respectively, in circumstances where they had been led by their trusted
friend and accountant to swiftly enter into transactions for his benefit
at an exorbitant interest rate with no clear benefit to themselves and
without the benefit of independent legal or financial advice. In ANZ
Banking Group Ltd v Alirezai [2004] QCA 6, the Queensland Court of
Appeal remained open to the possibility that the guarantor could have
been under a special disadvantage where the level of trust and
confidence the guarantor

[page 463]

reposed upon his good friend was such that it would be objectively
unreasonable for the guarantor to provide a guarantee without any
obvious benefit flowing to him. However, the court upheld the findings
below that, even if such a special disadvantage existed, the lender had
no knowledge of it and had in any event ensured that the guarantor
had received independent legal advice. The principles relating to
unconscionability and special disadvantage were discussed recently
(albeit in a different context) in Kakavas v Crown Melbourne Ltd (2013)
298 ALR 35; W & K Holdings (NSW) Pty Ltd v Mayo [2013] NSWSC 1063;
Re Mahoney [2015] VSC 600; Bodapati v Westpac Banking Corp [2015]
QCA 7; and Ling v Pan Pac Investment Pty Ltd; Ling v Wu [2015] NSWSC
850.
Yet the parameters of unconscionability are most likely to be
expanded in the relatively untested waters of statutory
unconscionability such as that encompassed by provisions including
Competition and Consumer Act 2010 (Cth) Sch 2 ACL s 22.
Section 22 applies to corporations engaged in trade and commerce
and prohibits unconscionable conduct in connection with the supply of
goods or services to a person. It is apparent from s 20 that the meaning
of ‘unconscionable’ in s 22 is wider than the notion of ‘unconscionable
conduct’ at general law: ACCC v CG Berbatis Holdings Pty Ltd (No 2)
(2000) 96 FCR 491; ACCC v Keshow [2005] FCA 558; ASIC v National
Exchange Pty Ltd (2005) 148 FCR 132; ACCC v Simply No-Knead
(Franchising) Pty Ltd (2000) 104 FCR 253; Canon Australia Pty Ltd v
Patton (2007) 244 ALR 759; [2007] NSWCA 246; and ACCC v Coles.
In Simply No-Knead, SundbergJ considered the list of factors indicative
of unconscionable conduct stipulated in s 51AC of the former TPA
(now ACL s 22) to be the principal indicator of an ‘enlarged notion of
unconscionability in s 51AC’: at [31]. This list of indicative factors aids
in the characterisation of conduct as unconscionable but is not
exhaustive: ASIC v National Exchange. Consideration should also be
given to the natural and ordinary meaning of the words used in the
statute. In Hurley v McDonald’s Australia Ltd (2000) ATPR 41–741;
[1999] FCA 1728, the Full Federal Court held, citing Cameron v Qantas
Airways Ltd (1995) 55 FCR 147, that the term ‘unconscionable’ as used
in ss 51AB and 51AC of the former TPA (now ss 21 and 22 of the ACL)
imports a pejorative moral judgment and would include its dictionary
meaning of ‘actions showing no regard for conscience or that are
irreconcilable with what is right or reasonable’: at [22]. While a
consideration of the meaning of ‘unconscionable’ in s 22 ought not be
confined by pre-existing notions and constraints on the general law
doctrine of unconscionability (see Simply No-Knead at [30]), it is not
entirely unfettered: see Hurley at [22], where the court held that ‘for
conduct to be regarded as unconscionable, serious misconduct or
something clearly unfair or unreasonable must be demonstrated’.
Further, in Canon Australia, in considering the meaning of
‘unconscionable’ in s 51AC of the former TPA (now ACL s 22), the
court noted the relevance of the warning of Spigelman CJ in AG (NSW)
v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583 in the context of
another statute using similar terminology:

[page 464]
 Over recent decades legislatures have authorised courts to rearrange the legal rights of
persons on the basis of vague general standards which are clearly capable of misuse
unless their application is carefully confined. Unconscionability is such a standard. …
Unconscionability is a concept which requires a high level of moral obloquy. If it were to
be applied as if it were equivalent to what is ‘fair’ or ‘just’, it could transform commercial
relationships.

A ‘high level of moral obloquy’ has been said to require ‘some

degree of moral tainting in the transaction of a kind that permits the
opprobrium of unconscionability to characterise the conduct of the
party’: Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389
at [239]. However, in applying notions of moral tainting, it is important
to recognise that it is conduct against conscience by reference to the
norms of society, rather than by reference to personal intuition, that is
relevant: Australian Competition and Consumer Commission v Lux
Distributors Pty Ltd [2013] FCAFC 90 at [41]; Australian Competition and
Consumer Commission v ACN 117 372 915 Pty Ltd (in liq) (formerly
Advanced Medical Institute Pty Ltd) [2015] FCA 368. Further, it has been
said that the phrase ‘moral obloquy’ is not to be taken to import into
unconscionability a requirement of dishonesty: Paciocco v Australia and
New Zealand Banking Group Ltd [2015] FCAFC 50 at [262] and [305].
The concept is not limited to circumstances where an individual is
disadvantaged by the conduct: ACCC v ACN 117 372 915; ACCC v Lux
Distributors.

Undue influence
12.26 In Johnson v Buttress (1936) 56 CLR 113 at 134, Dixon J
explained the basis of relief in equity:
The basis of the equitable jurisdiction to set aside an alienation of property on the
ground of undue influence is the prevention of an unconscientious use of any special
capacity or opportunity that may exist or arise of affecting the alienor’s will or
freedom of judgment in reference to such a matter. The source of power to practise
such a domination may be found in no antecedent relation but in a particular
situation, or in the deliberate contrivance of the party. If this be so, facts must be
proved showing that the transaction was the outcome of such an actual influence over
the mind of the alienor that it cannot be considered his free act. But the parties may
antecedently stand in a relation that gives to one an authority or influence over the
other from the abuse of which it is proper that he should be protected. When they
stand in such a relation, the party in the position of influence cannot maintain his
 beneficial title to property of substantial value made over to him by the other as a gift,
unless he satisfies the court that he took no advantage of the donor, but that the gift
was the independent and well-understood act of a man in a position to exercise a free
judgment based on information as full as that of the donee.

In determining whether or not relief is available on the grounds of

undue influence, equity focuses on the ‘quality of assent of the weaker
party’. Where the voluntary and independent will of the weaker party is
overborne, the weaker party may seek to have the transaction set aside:
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.

[page 465]

In Bridgewater v Leahy (1998) 194 CLR 457 and Commercial Bank v

Amadio, the High Court explored the distinction between the closely
related doctrines of undue influence and unconscionability. Deane J in
Commercial Bank v Amadio at 474 explained the distinction in this way:
The equitable principles relating to relief against unconscionable dealing and the
principles relating to undue influence are closely related. The two doctrines are,
however, distinct. Undue influence, like common law duress, looks to the quality of
the consent or assent of the weaker party (see Union Bank of Australia Ltd v Whitelaw
[1906] VLR 711 at 720; Watkins v Combes (1922) 30 CLR 180 at 193–4; Morrison v Coast
Finance Ltd (1965) 55 DLR (2d) 710 at 713). Unconscionable dealing looks to the
conduct of the stronger party in attempting to enforce, or retain the benefit of, a
dealing with a person under a special disability in circumstances where it is not
consistent with equity or good conscience that he should do so.

Hodges J defined undue influence in Union Bank of Australia Ltd v

Whitelaw [1906] VLR 711 at 720:
… equity recognises that persons possessed of the usual capacity to contract may, as a
matter of fact, not be free agents, and may enter into obligations under the pressure
of what it calls undue influence. ‘Influence’, as I understand the term in this
connection, is the ascendancy acquired by one person over another. ‘Undue
influence’ is the improper use by the ascendant person of such ascendancy for the
benefit of himself or someone else, so that the acts of the person influenced are not,
in the fullest sense of the word, his free, voluntary acts.

In Johnson at 134, Dixon J explained the nature of undue influence as

falling into two categories. In the first category, undue influence may
be established by proving actual express influence by the ascendant
party over the weaker party:
… facts must be proved showing that the transaction was the outcome of such an
actual influence over the mind of the alienor that it cannot be considered his free act.

In order to establish actual undue influence, the party relying on the

plea must show that the ascendant party has improperly exercised
undue influence in bringing about the transaction: Johnson; Allcard v
Skinner (1887) 36 Ch D 145; Bank of Credit and Commercial International
SA v Aboody [1989] 1 QB 923.
In the second category, undue influence may be presumed as a
consequence of a relationship of trust and confidence. In Johnson at
134, Dixon J observed:
… the parties may antecedently stand in a relation that gives to one an authority or
influence over the other from the abuse of which it is proper that he should be
protected.

The presumption of undue influence arises in ‘certain well-known

relations as soon as it appears that the relation existed and that he has
obtained a substantial benefit from the other’: Johnson at 134 per Dixon
J. Dixon J continued:
A solicitor must thus justify the receipt of such a benefit from his client, a physician
from his patient, a parent from his child, a guardian from his ward, and a man from
the woman he has engaged to marry.

[page 466]

It is open to the party seeking to rely on the plea to establish that a

special relationship of influence exists, beyond any established
presumed relationships. If it can be established that the ascendant
party has received a substantial benefit, then a presumption will arise
that the transaction has arisen as a result of undue influence: Johnson.
The onus falls on the ascendant party to show that they have not taken
unconscionable advantage of their ascendant position and that the
transaction was a result of the free and independent will of the weaker
party. While a number of factors can assist in such an argument,
Latham CJ in Johnson at 120 considered that independent advice would
be an important consideration:
It may not be necessary in all cases to show that the donor received competent
independent advice (Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 and Haskew v
Equity Trustees, Executors and Agency Co Ltd (1919) 27 CLR 231); the law as to this
matter is still a subject of discussion (Lancashire Loans Ltd v Black [1931] 1 KB 380).
But evidence that such advice has been given is one means, and the most obvious
means, of helping to establish that the gift was the result of the free exercise of
independent will; and the absence of such advice, even if not sufficient in itself to
invalidate the transaction, would plainly be a most important factor in determining
whether the gift was in fact the result of a free and genuine exercise of the will of the
donor.

Re Mahoney [2015] VSC 600 is a recent example of undue influence

of the second category, namely, where an antecedent relationship
between a mother, since deceased, and her eldest son (the defendant)
existed, such as to raise a presumption that the defendant had relevant
influence over his mother: cf Daunt v Daunt [2015] VSCA 58 and Mace v
Mace [2015] NSWSC 1659 where no undue influence was held to arise.

The rule in Yerkey

12.27 In Garcia v National Australia Bank Ltd (1998) 194 CLR 395;
155 ALR 614, the High Court upheld the rule established in Yerkey v
Jones (1939) 62 CLR 649 recognising the right of a married woman to
set aside a guarantee as unconscionable in circumstances where,
according to Gaudron, McHugh, Gummow and Hayne JJ in Garcia at
[31]:
(a) in fact the surety did not understand the purport and effect of the transaction;
(b) the transaction was voluntary (in the sense that the surety obtained no gain from
the contract the performance of which was guaranteed);
(c) the lender is to be taken to have understood that, as a wife, the surety may repose
trust and confidence in her husband in matters of business and therefore to have
understood that the husband may not fully and accurately explain the purport
and effect of the transaction to his wife; and yet
(d) the lender did not itself take steps to explain the transaction to the wife or find
out that a stranger had explained it to her.

In Garcia, Mrs Garcia, a physiotherapist, and her husband mortgaged

their family home to the bank to secure all moneys owing by either of
them to the bank in the future. In the years before their divorce, Mrs
Garcia signed several guarantees at the request of her husband. The
guarantees were security for the debts of a company of

[page 467]

which her husband was a director, and allowed the company greater
capacity to deal in gold bullion. Mrs Garcia claimed that she did not
understand that the guarantees were secured by the mortgage over the
family home and that her husband had assured her that there was no
risk because ‘if the money isn’t there, the gold is there’. Bank officers
did not explain to Mrs Garcia that the guarantees were secured by the
mortgage. Upon her divorce, Mrs Garcia sought to have the guarantees
set aside. The bank sought to enforce the guarantees. In the High
Court, it was held that the guarantees should be set aside in accordance
with the rule in Yerkey. The court noted that, while the rule presently
extends only to a married woman entering into a guarantee for the
benefit of her husband, it may in future be extended to ‘long term and
publicly declared relationships short of marriage between members of
the same or opposite sex’: per Gaudron, McHugh, Gummow and
Hayne JJ at [22]. The court did not accept that the rule in Yerkey had
been subsumed into the general principles of unconscionability
espoused in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR
447. Gaudron, McHugh, Gummow and Hayne JJ at [41] stressed the
importance of the guarantor receiving independent advice and the role
that such advice may play when the creditor seeks to enforce the
guarantee:
As is apparent from what was said in Yerkey v Jones the creditor may readily avoid the
possibility that the surety will later claim not to have understood the purport and
effect of the transaction that is proposed. If the creditor itself explains the transaction
sufficiently, or knows that the surety has received ‘competent, independent and
disinterested’ advice from a third party, it would not be unconscionable for the
creditor to enforce it against the surety even though the surety is a volunteer and it
later emerges that the surety claims to have been mistaken (citing Yerkey v Jones (1939)
63 CLR 649 at 686 per Dixon J).

The principles in Yerkey and Garcia were recently relied on

successfully in National Australia Bank Ltd v Savage [2013] NSWSC 1718,
where it was held that it would be inequitable to enforce the guarantee
against Mrs Savage, a volunteer who the bank knew was married to the
debtor and who did not understand the nature and purport of the
transaction, in circumstances where the bank had taken no steps either
to explain the guarantee to Mrs Savage itself or to have a third party
explain it to her: cf Amtel Pty Ltd v Ah Chee [2015] WASC 341; ANZ
Banking Group v Londish [2014] NSWSC 202; Groves v Groves [2013] QSC
277.

Non-disclosure
12.28 At general law, the creditor need not disclose to the guarantor
all information that might be relevant to their decision to provide the
guarantee: a contract of guarantee is not a contract of the utmost good
faith (uberrimae fidei): Commercial Bank of Australia Ltd v Amadio (1983)
151 CLR 447. A creditor is not generally required to disclose to the
guarantor matters directly relevant to the principal debtor’s credit:
Wythes v Labouchere (1859) 44 ER 1397. The creditor is required to
disclose to the guarantor any unusual circumstances that may be
different from what the guarantor may expect: Commercial Bank v
Amadio. The creditor need only disclose unusual matters to the
guarantor, as explained by Lord Campbell in Hamilton v Watson (1845)
2 Cl & Fin 109 at 119:

[page 468]

I should think that this might be considered as the criterion whether the disclosure
ought to be made voluntarily, namely, whether there is anything that might not
naturally be expected to take place between the parties who are concerned in the
transaction, that is, whether there be a contract between the debtor and the creditor,
to the effect that his position shall be different from that which the surety might
naturally expect; and, if so, the surety is to see whether that is disclosed to him. But if
there be nothing which might not naturally take place between these parties, then, if
the surety would guard against particular perils, he must put the question, and he
must gain the information which he requires.
 The rationale for these rules was explained by the High Court in
Commercial Bank v Amadio at 455 per Gibbs CJ:
The reason why a creditor is bound to reveal to an intending surety anything in the
transaction between himself and the debtor which the surety would expect not to exist
is that a failure to make disclosure in those circumstances would amount to an implied
representation that the thing does not exist: see Lee v Jones (1864) 17 CB (NS) 482 at
503–4, 506; 144 ER 194 at 202–3, 204; London General Omnibus Co Ltd v Holloway [1912]
2 KB 72 at 77, 79, 87–8; Union Bank of Australia Ltd v Puddy [1949] VLR 242 at 247. A
surety who guarantees a customer’s account with a bank will not expect that the
account has not been overdrawn or that the bank is satisfied with the customer’s
credit, for the probable reason why the bank requires the guarantee is that the
customer has been overdrawing his account, and wishes to do so again, and that the
bank is not satisfied with his credit.

Despite the general rules as to disclosure, the creditor must take care
not to mislead the guarantor as to the circumstances in which the
principal debtor’s obligation takes place: Commercial Bank v Amadio. In
circumstances where non-disclosure amounts to a misrepresentation,
the guarantee may be set aside: Yerkey v Jones (1939) 62 CLR 649.
The general rules of disclosure of the creditor must be considered in
light of statute and regulation which may provide a remedy to the
guarantor where the creditor’s nondisclosure is misleading and
deceptive, unconscionable or unjust.6 Further, the Consumer Credit
Code and the Code of Banking Practice, where they apply, both impose
disclosure requirements upon the creditor in respect of certain
guarantees.

Setting aside the guarantee on other grounds

12.29 A guarantee may also be set aside where the guarantor has a
right to rescind arising through misrepresentation, mistake, illegality or
duress. These doctrines involve a complex interplay of general law and
statute, a detailed analysis of which is beyond the scope of this text.

[page 469]
Independent advice
12.30 It is clear from the leading cases in undue influence and
unconscionability that independent legal advice can play a significant
role where the creditor attempts to argue that a guarantor has entered
into a guarantee in an act of free and independent will, aware of the
nature and effect of the securities: Yerkey v Jones (1939) 62 CLR 649 at
686; Garcia v National Australia Bank Ltd (1998) 194 CLR 395; 155 ALR
614 at [41]–[42]; Commercial Bank of Australia Ltd v Amadio (1983) 151
CLR 447 at 468 and 476; Johnson v Buttress (1936) 56 CLR 113 at 134.
The purpose of independent legal advice is to ensure that the
guarantor understands the nature and effect of the transaction and the
documents to be signed: see Royal Bank of Scotland v Etridge (No 2)
[2001] 3 WLR 1021 per Lord Nicholls at 1040. In Royal Bank of Scotland,
the House of Lords considered eight conjoined appeals. Seven of the
appeals shared a reasonably similar scenario: a wife seeking to set aside
a guarantee securing the debts of her husband or his company on the
basis of the presumed undue influence of the husband, of which the
lender was alleged to have had notice. The wife appeared to have a
solicitor acting for her. In the eighth appeal, Kenyon-Brown v Desmond
Banks & Co (see Royal Bank of Scotland at 1112), in an action arising
from a scenario not unlike the first seven appeals, the wife was seeking
to recover damages from the solicitor who had appeared to act for her
in the transaction. Each appeal put squarely before the court the issues
faced by lenders who take security from wives for the debts of their
spouses and the real problems faced by solicitors who attempt to
provide a guarantor with independent legal advice. In considering the
purpose of independent legal advice, Lord Nicholls stated that the
lender should ‘take reasonable steps to satisfy itself that the wife has
had brought home to her in a meaningful way the practical
implications of the proposed transaction’: at 1040. His Lordship
acknowledged that this approach would not wholly eliminate the risk of
undue influence or misrepresentation, but it would at least ensure that
the guarantor entered into the transaction ‘with her eyes open so far as
the basic elements of the transaction are concerned’: at 1040.
 The extent to which the solicitor is able to bring these risks home to
the guarantor is inextricably linked with the nature of the information
available to him or her. Further, the commercial reality of how much
the client is prepared to pay for such advice has appeared to play a role
in just how perfunctory the advice commonly provided may be. In
several of the appeals before the House of Lords in Royal Bank of
Scotland, the guarantors complained that the independent legal advice
given to them was a mere formality given in an interview lasting less
than five minutes. It was argued before the House per Lord Nicholls at
1039 that:
… under the current practice the legal advice is often perfunctory in the extreme and
further, that everyone including the banks, knows this. Independent legal advice is a
fiction. The system is a charade. In practice it provides little or no protection for a wife
who is under a misapprehension about the risks involved or who is being coerced into
signing.

[page 470]

Lord Nicholls warned that the task of providing independent legal

advice was an important one and was not a mere formality: at 1043. In
light of the appeals before the court, Lord Nicholls considered it was
necessary to outline in some detail precisely what was required of a
solicitor giving independent legal advice. In summary, his Lordship
considered that the solicitor should explain to the guarantor the
purpose for which the solicitor has become involved and that if
necessary the lender may rely upon his or her involvement to counter
any suggestion that the will of the guarantor had been overborne or
that the guarantor did not understand the implications of the
transaction. Then, in a face-to-face meeting, in the absence of the
borrower, the solicitor should advise the guarantor on certain core
minimum matters including a detailed analysis of the obligation being
undertaken, the extent to which the guarantor is financially capable of
meeting the obligation, should it be necessary to do so, the nature of
the documents to be signed and their practical consequences for the
guarantor should he or she sign them: at 1042. Finally, the guarantor
should be advised that they have a choice as to whether or not to
proceed with the transaction and that they are open to instruct the
solicitor to negotiate with the creditor on the terms of the transaction:
at 1042–3.
King CJ in McNamara v Commonwealth Trading Bank of Australia
(1984) 37 SASR 232 at 241 provided valuable guidelines for solicitors
providing independent advice. In summary, he declared that a solicitor
should carefully explain the terms of the document and its legal effect
and discuss the wisdom of entering into the guarantee, the state of the
financial affairs of the principal debtor and the extent of the assets of
the guarantor.
In Tarzia v National Australia Bank Ltd [1996] ANZ ConvR 379, it was
subsequently decided that a solicitor would only owe a duty to ensure
the client received financial advice in situations where the ‘client is at a
disadvantage with respect to the other parties to the transaction and
where the results are potentially disastrous for the client’: at 383. Such a
duty was found to exist in the circumstances in State Bank of New South
Wales v Sullivan [1999] NSWSC 596. Generally, there is no duty to
explain ‘the financial result or prudence of the transactions involved in
documents that they are merely instructed to explain’: Tarzia at 383. In
Micarone v Perpetual Trustees (1999) 75 SASR 1, the majority considered
that a solicitor is not under a duty to advise as to the prudence or
wisdom of the transaction. See also Citibank Savings Ltd v Nicholson
(1997) 70 SASR 206, where Perry J, while agreeing with King CJ’s
guidelines in McNamara, decided that it was not incumbent upon the
solicitor to provide the financial advice himself or herself. It would be
adequate if the solicitor suggested that the advice be obtained from a
suitably qualified person such as an accountant: at 234. See also State
Bank of NSW v Sullivan at [397].
In McNamara, King CJ considered it essential that the solicitor act for
the guarantor alone: at 241. It has been considered that, to give
genuinely independent advice, the guarantor should be seen in private,
in the absence of the debtor and in the absence of the guarantor’s
children: see Micarone; Beneficial Finance Corp v Comer (1991) ASC ¶56–
042. See also Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482,
where Handley JA stated at 486:

[page 471]

The client must be able to ask questions and express opinions free from any influence
or constraints created by the presence of others, particularly conflicting interests.

However, it may not be fatal to the creditor’s case if the advice is

given in the presence of the borrower: Tarzia; State Bank of NSW v
Sullivan at [410]–[411].
In Roberts v Goldenburg (1997) NSW ConvR ¶55–809, the creditor was
entitled to rely on independent legal advice, despite the fact that the
advice was defective, the creditor had no notice that there was a real
possibility of a conflict of interest as the solicitor acted for both the
mortgagor and guarantors, the mortgagor was elderly and spoke little
English and the independent advice provided to her had not only been
given to her in the presence of the borrower but also been translated to
her by the borrower’s husband.
In State Bank of NSW v Sullivan, the guarantor claimed that the
creditor should not be permitted to enforce the security taken over his
home despite the fact that the guarantor had received independent
legal advice. It was decided in the circumstances that the independent
legal advice would not be enough to save the creditor in circumstances
where:
the creditor was aware that the solicitor who had provided the
advice also acted for the borrower (an established client of the
solicitor);
there was no evidence of any discussion of the financial wisdom or
prudence of Mr Sullivan giving the mortgage: at [350];
the advice that had been given to the guarantor was given in the
presence of the borrower: at [390]–[393] citing Handley JA in
Esanda Finance at 486.
The creditor will not be able to rely on the advice where the creditor
knew that the advice was neither independent nor proper and that the
transaction was so disadvantageous that it should not have been
entered into: State Bank of NSW v Sullivan; Micarone; Esanda Finance;
Tarzia.
While independent legal advice may be of specific relevance under
the Contracts Review Act 1980 (NSW) in deciding whether or not a
transaction is unjust pursuant to s 9, it is not entirely clear what bearing
it will have on whether or not the transaction is unconscionable within
the meaning of ACL ss 21 and 22. The factors listed in ss 21 and 22 do
not include a reference to independent advice, but the factors are not
exclusive, and independent advice, or more probably the absence of an
opportunity to receive it, may play a role: see, generally, Australia and
New Zealand Banking Group Ltd v Heyward (1994) ATPR ¶46–137.

STATUTORY REGULATION OF
GUARANTEES AND THE CREDITOR’S
CONDUCT
12.31 The law pertaining to guarantees is impinged upon by a range
of statutes, some specifically dealing with guarantees. This chapter has
already considered, for example,

[page 472]

the impact of the unconscionability provisions of the Australian

Consumer Law and Fair Trading Acts, and the various statutes
imposing writing requirements on contracts of guarantees. Other
statutes having a significant impact are the Consumer Credit Code, the
Australian Securities and Investments Commission Act 2001 (Cth) and
the Contracts Review Act 1980 (NSW). Guarantees are also regulated by
the Australian Bankers’ Association’s Codes of Conduct.
 The Consumer Credit Code applies to credit contracts, as defined in
s 5, and guarantees associated with credit contracts: s 9. The Code
imposes writing requirements (s 50) and pre- and post-contractual
disclosure requirements (ss 51 and 52). Section 70 provides for the
reopening of unjust credit contracts or guarantees and is similar in its
terms to the provisions of the Contracts Review Act 1980 (NSW).
Section 55(1) enshrines the principles of co-extensiveness of liability in
contracts of guarantee caught within the ambit of the Code. Section 56
stipulates the circumstances in which the guarantor’s liability may
increase, where there has been an increase in the indebtedness of the
principal debtor.
Pursuant to the Contracts Review Act 1980 (NSW), a court may make
a range of orders or refuse to enforce a contract where the court finds
‘a contract or a provision of a contract to have been unjust in the
circumstances relating to the contract at the time it was made’: s 7.
‘Unjust’ is defined in s 4 to include ‘unconscionable, harsh or
oppressive’. In order to determine whether a contract or one of its
terms is unjust, the court must:
take into account the public interest and all the circumstances of
the case including the consequences of compliance or non-
compliance with the contract, but must not consider injustice that
may arise from circumstances not reasonably foreseeable when the
contract was made: s 9(1) and (4); and
to the extent that they are relevant, have regard to the long list of
factors set out in s 9(2). These factors include:
– whether there was any material inequality in bargaining
power between the parties;
– whether the terms of the contract were the subject of
negotiation or whether it was reasonably practicable for the
party seeking relief to negotiate for the alteration or rejection
of any provision;
– whether or not any terms of the contract were unreasonably
difficult to comply with or not reasonably necessary for the
protection of the legitimate interests of any party;
 – whether or not any of the parties were not able to protect
their interests because of age, physical or mental capacity, the
relative economic circumstances, educational background
and literacy of the parties to the contract (other than a
corporation) and their representatives;
– where the contract is wholly or partly in writing, the physical
form of the contract and the intelligibility of the language in
which it is expressed;

[page 473]

– whether or not and when independent legal or other expert

advice was obtained;
– the extent to which the legal and practical effect of the
provisions of the contract were accurately explained;
– whether undue influence or unfair pressure or tactics were
used;
– the conduct of the parties in relation to similar contracts or
courses of dealing to which any of them has been a party; and
– the commercial or other setting, purpose and effect of the
contract.
Part 2 Div 2 of the Australian Securities and Investments Commission
Act 2001 (Cth) prohibits unconscionable conduct and misleading and
deceptive conduct in relation to financial services. Subdivision E
implies terms into consumer transactions for the supply of financial
services. The provisions of Pt 2 Div 2 cannot be contracted out of and
apply to the provision of financial services in trade or commerce.
The Australian Bankers’ Association has several Codes of Practice,
which, although not legislation, impact upon certain guarantees. Those
banks voluntarily adopting the Banking Code of Practice 2013 agree to
comply with the terms of the Code in respect of guarantees obtained or
banking services provided to individuals or small businesses: cll 1, 2 and
31. The 2013 Code takes effect for subscribers on 1 February 2014. The
Australian Bankers’ Association claims that once a bank chooses
voluntarily to adopt the Code, it becomes a binding agreement between
customers and the bank: see www.bankers.asn.au. The Code requires
that the bank must act ‘fairly and reasonably … in a consistent and
ethical manner’: cl 3.2. Pursuant to the Code, liability of the guarantor
must be limited to either a specific amount or a specific security and
the guarantee will not be enforceable in relation to future advances
without the written consent of the guarantor: cll 31.2 and 31.13. Clause
31.4 stipulates the disclosure required of the bank. The guarantor must
be given copies of documents relating to the facility including the loan
agreement, the final letter of offer, credit reports, credit insurance
contracts, financial accounts, current statements, dishonourings,
overdrawings and unsatisfied notices of demand. The bank must advise
the guarantor that they should seek independent legal and financial
advice on the effect of the guarantee, that they can refuse to provide
the guarantee and whether, as a result, any existing or proposed facility
will be cancelled. The Code stipulates that the bank must not give the
guarantee to the principal debtor to arrange signing and, further, that
if the execution of the guarantee is to be attended by the bank, the
bank will ensure that the principal debtor is not present: cl 31.6.

RIGHTS OF THE GUARANTOR

12.32 In the event of the primary debtor’s default, the creditor may
call upon the guarantor, or any one of the co-guarantors, to perform
the obligation of the principal

[page 474]

debtor. Where the creditor does so, the guarantor’s rights lie in the
doctrines of indemnity, restitution, subrogation and contribution.
Indemnity
12.33 Once the guarantor has paid an amount under the guarantee,
the guarantor has an independent right to recover from the principal
debtor by way of indemnity or in restitution: Israel v Foreshore Properties
Pty Ltd (in liq) (1980) 30 ALR 631; Rowe v Willcocks [1923] GLR 149;
Morris v Ford Motor Co [1973] 2 All ER 1084. The guarantor’s right of
reimbursement or indemnity may be excluded: Bradford v Gammon
[1925] Ch 132; Shiel v Stables [1933] NZLR 45; Israel. The guarantor
need not pay the full amount of his or her liability before seeking to
recover from the principal debtor: Davies v Humphreys (1840) 6 M & W
153; 151 ER 361. If the principal debtor has become insolvent or
bankrupt, the guarantor would need to prove the debt in the
bankruptcy or liquidation.
A guarantor’s right of indemnity from the principal debtor can arise
as a matter of contract. If the guarantee contains an express right of
indemnity, then the guarantor’s right to be indemnified will be
regulated by that express provision. If the guarantee does not contain
an express right of indemnity, then the guarantor may still have an
implied right of indemnity if the principal debtor requested that the
guarantee be given: Israel. The request may be express or implied:
Alexander v Vane (1836) 1 M & W 511; 150 ER 537; Re A Debtor [1937]
Ch 156 at 163; Anson v Anson [1953] 1 QB 636 at 641; Rogers v ANZ
Banking Group Ltd [1985] WAR 304.
In Rogers, the principal debtor company had made no formal request
that the plaintiff guarantee payment of the company’s debts. The
majority of the company’s directors knew that the plaintiff intended to
provide the security to the creditor for the company’s debts. In these
circumstances, Burt CJ held at 313:
… as the company by at least the majority of its directors knew what the plaintiffs
intended to do and stood by and allowed them to do it and thereafter took the benefit
of what they had done, it is not now open for the company to say that the debts were
not guaranteed by the plaintiffs at its request … In such a case, the debtor company
will be taken to have requested the guarantee and the guarantor will have an implied
right of indemnity.
Restitution
12.34 The guarantor may seek reimbursement from either the
principal debtor or the creditor in restitution.

The claim for reimbursement from the principal debtor

12.35 There are three pre-conditions which must be established in
order for the guarantor to bring a successful claim for reimbursement
against the principal debtor:

[page 475]

1. The payment to the creditor must have been made under

compulsion of law: Moule v Garrett (1872) LR 7 Ex 101. This
requirement is satisfied if the creditor calls for payment on the
guarantee. It is sufficient that ‘being compellable by law [the
surety] has paid money which the defendant was ultimately
liable to pay’: Moule at 104.
2. The guarantor must establish that the guarantee was
requested by the principal debtor, or that it was given with the
principal debtor’s express or implied consent: The Esso Bernica
[1989] AC 643; Moule at 138 per Channell B. In Owen v Tate
[1976] 1 QB 402, the court found that it was neither just nor
equitable to grant a surety a right of reimbursement where the
surety had ‘acted … behind the backs of the (debtor)’: per
Lord Scarman at 412.
3. The guarantor’s payment must have provided a benefit to the
principal debtor: Moule at 104; Brook’s Wharf Ltd v Goodman
Bros [1937] 1 KB 534 per Lord Wright MR at 544. For
example, the guarantor will have conferred a benefit on the
principal debtor where the principal debtor’s liability is
discharged or is reduced in proportion to the guarantor’s
payment.
 The guarantor’s right of reimbursement can be excluded: Bradford v
Gammon [1925] Ch 132; Shiel v Stables [1933] NZLR 45; Israel v Foreshore
Properties Pty Ltd (in liq) (1980) 30 ALR 631.

The claim for reimbursement from the creditor

12.36 If the guarantor’s action against the principal debtor fails on
the grounds that the guarantee was given freely or without the express
or implied consent of the principal debtor (see The Esso Bernica; Moule v
Garrett (1872) LR 7 Ex 101 at 138 per Channell B), then the guarantor
may still recover from the creditor in restitution on the basis that there
has been a total failure of consideration: Walter v James (1871) LR 6 Ex
124; Baltic Shipping v Dillon (1993) 176 CLR 344. Since the principal
debtor has not authorised or consented to the guarantor’s payments,
those payments cannot reduce or discharge the liability of the principal
debtor. This would constitute a total failure of consideration for the
guarantor’s promise. The guarantor would be entitled to recover the
payment from the creditor on that basis. The foundation of this claim is
that the creditor has accepted the guarantor’s ‘suretyship and his
payment’: Goff and Jones, The Law of Restitution, 5th ed, Sweet &
Maxwell, London, 1998, p 446. While the guarantor’s ‘conduct may be
condemned as officious vis-à-vis the debtor … it cannot be so
condemned vis-à-vis the creditor who accepted his payment qua surety’:
see Goff and Jones, p 446.

Subrogation
12.37 When the principal obligation to the creditor has been
satisfied, the guarantor has a right to be subrogated to the rights of the
creditor in relation to all securities held by it for the principal
obligation: see Duncan, Fox & Co v The North and South Wales Bank

[page 476]
(1880) 6 App Cas 1; see also Sunbird Plaza Pty Ltd v Maloney (1988) 166
CLR 245 at 254 where Mason CJ held:
Once default has occurred, the party having the benefit of the guarantee can call on
the guarantor to honour his promise before calling on the principal contracting party
to perform his obligation, but the guarantor, having honoured his promise, can hold
the principal contracting party to account by virtue of the doctrine of subrogation.

In the context of guarantees, it is the notion of the ultimate liability

of the principal which provides a foundation for the application of
subrogation in favour of a surety: Bofinger v Kingsway Group Ltd (formerly
Willis & Bowring Mortgage Investments Ltd) (2009) 239 CLR 269 at [8].
The equity for subrogation is derived from the obligation of the
principal debtor to indemnify the surety: Yonge v Reynell (1852) 9 Hare
809 at 818–819, cited with approval in Bofinger at [8].
Through subrogation, the guarantor is entitled to the benefit of any
securities held by the creditor given by the principal debtor for
performance of the principal debtor’s obligation: McColl’s Wholesale Pty
Ltd v State Bank of New South Wales [1984] 3 NSWLR 365 at 379 per
Powell J. Subrogation provides an avenue for the guarantor to
effectively enforce its rights by standing in the shoes of the creditor.
This includes a right to be subrogated to any securities held by the
creditor for performance of the principal debtor’s obligation. Although
the guarantor seeking subrogation need not have paid the whole of the
principal debt themselves, the guarantor can only be subrogated to the
rights of the creditor to the extent that they have reduced the principal
debt: A E Goodwin Ltd v A G Healing (1979) 7 ACLR 481; Equity Trustees
Executors & Agency Co Ltd v New Zealand Loan & Mercantile Agency Co Ltd
[1940] VLR 201. Through subrogation, the guarantor can enforce their
rights of indemnity against the principal debtor or rights of
contribution against co-guarantors.
Subrogation is ‘a creature of equity, and does not depend on
contract’: McColl’s Wholesale at 378 per Powell J. However, the parties to
the contract of guarantee are free to vary or exclude the guarantor’s
equitable right of subrogation, or the surety’s conduct may make it
inequitable to enforce it: Equity Trustees, cited with approval in Bofinger
at [56].
Contribution
12.38 Upon the default of the principal, the creditor is generally
free to enforce the guarantee against the guarantor before proceeding
against the principal: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR
245. Similarly, where the principal obligation is guaranteed by more
than one guarantor, the creditor is generally free to proceed against
any one of the guarantors upon the default of the principal. In these
circumstances, a guarantor may seek contribution from their co-
guarantors to recoup any amount paid in excess of the guarantor’s
proportionate share of the ‘common burden’: Albion Insurance Co Ltd v
GIO (NSW) (1969) 121 CLR 342; Cockburn v GIO Finance Ltd (No 2)
(2001) 51 NSWLR

[page 477]

624; Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184 and see
Ellesmere Brewery Co v Cooper [1896] 1 QB 75 at 79, where Lord Russell CJ
explained it thus:
[T]he principal upon which liability for sureties inter se rests … is, that sureties for
the same principal and for the same engagement, even though bound by different
instruments and for different amounts, have a common interest and a common
burthen [sic]; so that if one surety who is directly liable to the creditor pays such
creditor, he can claim contribution from his co-sureties whose obligations to the
creditor he has discharged.

It is the ‘common burden’ which is key to the guarantor’s right of

contribution. The co-guarantors must be ‘liable in respect of the same
debt’: Mahoney v McManus (1981) 180 CLR 370 at 376. In Mahoney,
Gibbs CJ continued at 376:
A surety is entitled to contribution from his co-sureties so that the common burden is
borne equally and so that no surety is required, as between himself and his co-sureties,
to pay more than his due share. The right arises whether the sureties are bound
jointly, jointly and severally, or severally, and whether by the same or different
instruments, and whether or not the sureties knew of each other’s existence, provided
that they are liable in respect of the same debt. The right to contribution arises when
a surety has paid or provided more than his proper share of the principal debt.
 The amount which a guarantor can recover in contribution will
depend upon ‘the number of sureties who are solvent at the time when
contribution is sought and on the proportion for which each is liable’:
Mahoney at 376 per Gibbs CJ. The guarantor’s right to contribution
arises at general law: Mahoney. In Spika Trading Pty Ltd v Harrison (1990)
19 NSWLR 211 at 214, Giles J explained:
The right to contribution arises at law where one of several persons has paid more
than his proper share towards discharging a common obligation, and it arises in
equity when a liability of one of several persons to pay more than his share has been
ascertained.

The co-guarantors may agree among themselves to vary or exclude

their right of contribution: Craythorne v Swinburne (1807) 14 Ves Jun
160; 33 ER 482; Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119
CLR 460 at 488.

_______________
1 By Anne Matthew, LLB (UQ), LLM (QUT), Faculty of Law, Queensland University of
Technology. Updated by Samantha Traves.
2 Electronic Transactions Act 2001 (ACT); Electronic Transactions Act 2000 (NSW);
Electronic Transactions Act 2000 (NT); Electronic Transactions (Queensland) Act 2001
(Qld); Electronic Transactions Act 2000 (SA); Electronic Transactions Act 2000 (Tas);
Electronic Transactions (Victoria) Act 2000 (Vic); Electronic Transactions Act 2003 (WA).
3 Cth s 8(1); ACT s 7; NSW s 7; NT s 7; Qld s 8; SA s 7; Tas s 5; Vic s 7; WA s 7.
4 See Cth s 10; ACT s 9; NSW s 9; NT s 9; Qld s 14; SA s 9; Tas s 7; Vic s 9; WA s 9.
5 See Imperial Acts (Substituted Provisions) Act 1986 (ACT) s 3(1); Law of Property Act
2000 (NT) s 58; Property Law Act 1974 (Qld) s 56; Mercantile Law Act 1935 (Tas) s 6;
Instruments Act 1958 (Vic) s 126; Law Reform (Statute of Frauds) Act 1962 (WA) s 2.
6 See Consumer Credit Code, Code of Banking Practice, Australian Consumer Law s 18; Fair
Trading Act 1992 (ACT); Contracts Review Act 1980 (NSW) s 7; Fair Trading Act 1987
(NSW); Consumer Affairs and Fair Trading Act 1990 (NT); Fair Trading Act 1989 (Qld);
Fair Trading Act 1987 (SA); Fair Trading Act 1990 (Tas); Fair Trading Act 1999 (Vic); Fair
Trading Act 1987 (WA).
[page 479]
CHAPTER 13
E-commerce1

INTRODUCTION: THE RISE OF E-COMMERCE

THE INTERNET
The origins of the internet
What is the internet?
The internet and the world wide web
Communication on the internet: packet switching
The growth of e-commerce and the information economy
Restraints on the development of e-commerce: access, user
confidence and security
Regulation of the internet and legislative intervention
The Australian approach

ELECTRONIC COMMERCE AND CONTRACT LAW

Shrinkwrap agreements
Clickwrap agreements
Browsewrap agreements

[page 480]

JURISDICTION
A new law for the internet?
Jurisdiction
Choice of law
Forum non conveniens
Enforcement of foreign judgments, internet publication and
defamation
 [page 481]

INTRODUCTION: THE RISE OF E-

COMMERCE
13.1 Electronic commerce or ‘e-commerce’ refers to commercial
transactions enabled through electronic technologies, particularly
computers and other communication devices. In broad terms, e-
commerce involves the use of electronic technologies to enhance or
augment traditional business methodologies. For example, a traditional
business methodology could be enhanced by using email to streamline
and speed communication with clients. E-commerce augmentation of
traditional business practices is not a new phenomenon. Well before
the explosive growth of e-commerce activity, electronic data
interchange (EDI) was used by industry for many years as an automated
electronic tool to facilitate the exchange of documents and
information from one business to another. EDI was initially confined to
businesses within particular industries using closed networks.
In recent years, the growth of the internet has caused a rapid
escalation in the scale and nature of e-commerce activities. The United
Nations Conference on Trade and Development (UNCTAD) has
described e-commerce as:
… a complex web of commercial activities transacted on a global scale between an
ever-increasing number of participants, corporate and individual, known and
unknown, on global open networks such as the Internet.2

Electronic commerce has facilitated the emergence of business

models entirely based on electronic platforms. These businesses are not
simply enhanced by electronic technologies; rather, the business model
itself is based upon and enabled by networking technologies.
Amazon.com is an example of an e-business model premised upon and
enabled by the internet. The role the internet has played in the rise of
e-commerce is largely explained by the nature of the internet itself.
THE INTERNET
The origins of the internet
13.2 In the United States decision in American Civil Liberties Union
(ACLU) v Reno 929 F Supp 824 (ED Pa 1996), the court
comprehensively described the origins of the internet from an
experimental project developed by the United States Defense
Department (at 831):
The Internet had its origins in 1969 as an experimental project of the Advanced
Research Project Agency (‘ARPA’), and was called ARPANET. This network linked
computers and computer networks owned by the military, defense contractors, and
university laboratories conducting defense-related research. The network later allowed
researchers across the country to access directly and to use extremely powerful
supercomputers located at a few key universities and laboratories. As it evolved far
beyond its research

[page 482]

origins in the United States to encompass universities, corporations, and people

around the world, the ARPANET came to be called the ‘DARPA Internet,’ and finally
just the ‘Internet.’
From its inception, the network was designed to be a decentralized, self-maintaining
series of redundant links between computers and computer networks, capable of
rapidly transmitting communications without direct human involvement or control,
and with the automatic ability to re-route communications if one or more individual
links were damaged or otherwise unavailable. Among other goals, this redundant
system of linked computers was designed to allow vital research and communications
to continue even if portions of the network were damaged, say, in a war.

What is the internet?

13.3 The internet is an international network of linked computers
and computer networks using a common format for communication.
This shared communication protocol has evolved alongside the
internet, beginning with the transmission control protocols originally
used by ARPANET. The user-friendly protocol used by the internet
today is called Transmission Control Protocol/Internet Protocol
(TCP/IP). In American Civil Liberties Union (ACLU) v Reno 929 F Supp
824 (ED Pa 1996) the court offered this definition of the internet at
830–1:
The Internet is not a physical or tangible entity, but rather a giant network which
interconnects innumerable smaller groups of linked computer networks. It is thus a
network of networks … Many networks are connected to other networks, which are in
turn connected to other networks in a manner which permits each computer in any
network to communicate with computers on any other network in the system. This
global Web of linked networks and computers is referred to as the Internet … Some
of the computers and computer networks that make up the Internet are owned by
governmental and public institutions, some are owned by non-profit organizations,
and some are privately owned. The resulting whole is a decentralized, global medium
of communications — or ‘cyberspace’ — that links people, institutions, corporations,
and governments around the world. The Internet is an international system.

The internet’s defining characteristics include its extraordinary scale,

speed and accessibility. In Dow Jones & Co Inc v Gutnick (2002) 210 CLR
575 at 597, Gleeson CJ, McHugh, Gummow and Hayne JJ in their joint
judgment adopted this description of the communication facilitated by
the internet:
[T]he Internet ‘enables inter-communication using multiple data-formats … among
an unprecedented number of people using an unprecedented number of devices
[and] among people and devices without geographic limitation’.

The decentralised nature of the networks composing the internet has

contributed to its accessibility and growth throughout the world. In Dow
Jones v Gutnick, Kirby J stated at 616:
The Internet is essentially a decentralised, self-maintained telecommunications
network. It is made up of inter-linking small networks from all parts of the world. It is
ubiquitous,

[page 483]

borderless, global and ambient in its nature. Hence the term ‘cyberspace’. This is a
word that recognises that the interrelationships created by the Internet exist outside
conventional geographic boundaries and comprise a single interconnected body of
data, potentially amounting to a single body of knowledge. The Internet is accessible
in virtually all places on Earth where access can be obtained either by wire connection
or by wireless (including satellite) links. Effectively, the only constraint on access to
 the Internet is possession of the means of securing connection to a
telecommunication system and possession of the basic hardware.

The internet and the world wide web

13.4 In common parlance, ‘the net’ and ‘the web’ are often used
interchangeably. However, the internet and the world wide web (www)
are not synonymous. Rather, it is the internet, through its physical
infrastructure of networks sharing common communication protocols,
which enables the operation of the world wide web as a dynamic system
facilitating the storage and retrieval of data in a variety of formats. In
the United States decision Re Doubleclick Inc Privacy Litigation 154 F
Supp 2d 497 (SDNY 2001), Buchwald J explained the distinction
between the internet and the world wide web at 501:
The World Wide Web (‘the Web’ or ‘WWW’) is often mistakenly referred to as the
Internet. However, the two are quite different. The Internet is the physical
infrastructure of the online world: the servers, computers, fiber-optic cables and
routers through which data is shared online. The Web is data: a vast collection of
documents containing text, visual images, audio clips and other information media
that is accessed through the Internet. Computers known as ‘servers’ store these
documents and make them available over the Internet through ‘TCP/IP’
(Transmission Control Protocol/Internet Protocol), a set of standard operating and
transmission protocols that structure the Web’s operation. Every document has a
unique ‘URL’ (Universal Resource Locator) that identifies its physical location in the
Internet’s infrastructure. Users access documents by sending request messages to the
servers that store the documents. When a server receives a user’s request (for
example, for Lycos.com’s home page), it prepares the document and then transmits
the information back to the user.

In Dow Jones & Co Inc v Gutnick (2002) 210 CLR 575 at 597–8,
Gleeson CJ, McHugh, Gummow and Hayne JJ in their joint judgment
explained the operation of the world wide web:
The World Wide Web is but one particular service available over the Internet. It
enables a document to be stored in such a way on one computer connected to the
Internet that a person using another computer connected to the Internet can request
and receive a copy of the document … [T]he terms conventionally used to refer to
the materials that are transmitted in this way are a ‘document’ or a ‘web page’ and a
collection of web pages is usually referred to as a ‘web site’. A computer that makes
documents available runs software that is referred to as a ‘web server’; a computer that
requests and receives documents runs software that is referred to as a ‘web browser’.
 [page 484]

The originator of a document wishing to make it available on the World Wide Web
arranges for it to be placed in a storage area managed by a web server. This process is
conventionally referred to as ‘uploading’. A person wishing to have access to that
document must issue a request to the relevant server nominating the location of the
web page identified by its ‘uniform resource locator’ (URL). When the server delivers
the document in response to the request the process is conventionally referred to as
‘downloading’.

Communication on the internet: packet switching

13.5 One of the key defining features of the internet is
communication through packet-switching protocols. Packet-switching
technology takes advantage of the decentralised nature of the internet
and is fundamental to internet efficiency and reliability. Packet-
switching technology enables the near instantaneous transfer of
information including data, computer programs, software, text, sound
and digital images such as pictures and video. The nature of packet
switching was explained in Re Doubleclick Inc Privacy Litigation 154 F
Supp 2d 497 (SDNY 2001) by Buchwald J at 501–2:
The computer wishing to send a document (‘originating computer’), such as a music
file or digital image, cuts the document up into many small ‘packets’ of information.
Each packet contains the Internet Protocol (‘IP’) address of the destination Web site,
a small portion of data from the original document, and an indication of the data’s
place in the original document. The originating computer then sends all of the
packets through its local network to an external ‘router’. A router is a device that
contains continuously-updated directories of Internet addresses called ‘routing tables’.
The router takes each packet from the original document and sends it to the next
available router in the direction of the destination Web site. Because each router is
connected to many other routers and because the connection between any two given
routers may be congested with traffic at a given moment, packets from the same
document are often sent to different routers. Each of these routers, in turn, repeats
this process, forwarding each packet it receives to the next available router in the
direction of the destination Web site. Obviously, the packets arrive out of their
original order because some have been forced to take much longer or slower routes
between the originating and destination computers. However, because each packet
contains a code that identifies its place in the original document, the destination
computer is able to reassemble the original document from the disorganized packets.
At that point, the destination computer sends a message back to the originating
computer either reporting that it received the full message, or requesting that the
 originating computer re-send any packets that never arrived. This entire process
typically occurs in a matter of seconds.

The growth of e-commerce and the information

economy
13.6 The growth of e-commerce has been driven by the exponential
escalation of worldwide internet use in recent years. The size of the
internet is limited only by the number of linked networks and
computers choosing to link and communicate

[page 485]

using standard operating and transmission protocols. It is estimated

that fewer than 300 computers were linked to the internet in 1981. The
internet today has 1.7 billion users worldwide. Current predictions
indicate that internet users will reach nearly 5 billion by 2020. While
the number of users continues to grow, so too do the ways in which
existing users access the internet. It is anticipated that the next decade
will see increasing use of multi-function mobile communication devices
capable of internet access:
The familiar industrial economy is gradually giving way to the ‘Information Economy’,
which brings with it not only new ways of doing business but new ways of interacting
socially, culturally and politically. Enabled by technology, the global market place is
increasingly accessible, the fortunes of individual nations increasingly interdependent.
The balance is altering to accommodate a new order where the ‘information rich’ are
already beginning to dominate.
All around the world, governments, private enterprise, educators, professionals in
every field, communities and individuals are striving to come to terms with this new
order, with some faring better than others. The success stories are those who respond
positively to the changing environment, embrace its possibilities, anticipate its growth
and commit themselves to active participation in its future.
Exactly what is the Information Economy? In general terms, it’s the global economy
that has emerged from the relatively newly acquired ability to access and transfer
information from anywhere to anywhere at any time. In reality it goes far beyond a
simple economic state to encapsulate all aspects of everyday life … from government
to big business to the home. Across the world, 24 hours a day, intelligence and
defence organisations exchange information, governments confer on political crises,
 business negotiates multi-million-dollar deals, products and services are bought and
sold, banks process millions of financial transactions, journalists report news stories
from where and as they happen, travel agents organise business and holiday trips,
students research assignments, friends and families chat, exchange letters and pictures
— all via electronic communications. This is the Information Economy.3

You don’t need to touch a computer to be part of the Information

Economy — your government, your workplace, your bank, your
telecommunications carrier, your supermarket, your petrol station and
your school are already doing it for you. ‘Connectivity’ has become the
life force of the future.
Digital communication technologies are the cornerstone of the
information economy, which is based upon the transfer of information
and information services, rather than tangible goods and services.
Businesses, governments and consumers are engaged in the
widespread implementation of e-commerce practices and participation
in the information economy. Consumers may be attracted by the ease
and convenience of having near-instantaneous access to information
and products online. The benefits for business include the opportunity
to reduce expenses through improved efficiency and potential growth.
E-commerce offers

[page 486]

unprecedented ease of access to a larger market, domestically and

internationally. It follows that as internet users increase, so too does the
capacity of business to reach that expanding market. Economies
cultivating e-commerce are likely to profit from expanded opportunity
to participate in international trade. The economic benefits are such
that participation is pursued and encouraged by government:
To ensure that Australia can take advantage of the opportunities provided by the
information economy the government is working with the community and business to
make the online environment more secure, help business make better use of new and
emerging e-business practices, increase the reach of broadband and ensure that
Australia is at the forefront of international developments.
Strengthening Australia’s participation in the information economy will benefit all
 Australians by improving the efficiency of Australian firms, boosting the Australian
economy and enhancing national wealth.4

The widespread uptake of e-commerce augmentation is such that

businesses may find it more difficult to survive in their current markets
if they fail to adapt to the new business practices of their existing
trading partners and competitors. If e-commerce is allowed to continue
to flourish and mature, consumers and business will both enjoy the
benefit. In 1998 UNCTAD noted international concern as to the future
of business operators unable to adapt to new e-commerce trading
environments:
More and more major trading companies are using electronic means of
communication. Traders from developing countries are under pressure to adopt the
new trading patterns. As the World Bank report concluded: ‘Already some
organizations will only accept new suppliers if they can demonstrate an EDI capability.
There are cases of companies, particularly traditional, small, older firms, who have
gone out of business because of inability, or unwillingness to comply or disbelief in the
need to comply … Ultimately there is an even harder fact to consider. There is no
longer any choice about compliance; the market has made the decision for everyone.
The remaining choices involve timing, to a diminishing extent, and the level of
participation. It may be possible to adopt a cosmetic approach, or minimum level
compliance. But that represents considerable pain for limited, and transient gain.
Market conditions will, in time, demand maximum participation and the adoption of
best practice for survival.’5

Restraints on the development of e-commerce:

access, user confidence and security
13.7 Without the confidence of consumers, businesses and
government, e-commerce is unlikely to flourish to its fullest extent.

[page 487]

Access
13.8 A number of social and economic factors contribute to capacity
to fully participate in e-commerce and the information economy.
Participation can be hampered for want of access, technological skill or
affordability. As e-commerce continues to develop, there is significant
concern that so too will the digital divide deepen, making it more
difficult for certain sectors of the world, national and local economy to
access and fully engage with the range of social, commercial and
government information and services that can be accessed in this
digital age.

Confidence in e-commerce
13.9 The internet, by its very nature, poses genuine risks for the
integrity and security of information. The multitude of networks and
pathways through which packets of information travel through the
internet make them susceptible to unintended or unauthorised access.
In Building Confidence: Electronic Commerce and Development (2000),
UNCTAD encapsulated the difficulty with security concerns:
Without adequate security technology, therefore, e-business rapidly becomes
untenable. The trouble is that the Internet was originally designed with
interoperability rather than security in mind. Grafting the requirements of business —
that transactions should be private, secure, guaranteed and timely — on to the
Internet has not been easy.6

User confidence may be inhibited by concerns for the integrity and

reliability of electronic transactions:
The Australian public has expressed concern about doing business online, and this
concern could frustrate the growth of electronic commerce. The Government
acknowledges that user confidence in the way personal information is handled in the
online environment will significantly influence consumer choices about whether to
use electronic commerce. Any business demonstrating that it will protect the privacy
of its customers will therefore gain a competitive advantage. Similarly, a country that
can demonstrate it protects its citizens’ privacy will have an advantage over those
countries that do not.7

Security
13.10 Security concerns associated with e-commerce include:
preservation of confidentiality, intellectual property and privacy;8
authentication of user identity and the related risk of online
identity theft;
security of payments;
 increased vulnerability to attacks designed to impact upon a user’s
capacity to conduct business; and
exposure to downstream liability flowing from breaches of online
security.

[page 488]

Many of these concerns for e-security are being alleviated by the

development of more effective technologies, including public key
infrastructure, electronic and digital signatures and encryption.

Regulation of the internet and legislative

intervention
13.11 Fostering user confidence requires predictability in the
legality and enforceability of internet-facilitated transactions. This will
require some certainty of what laws will apply to govern e-commerce
transactions.
The decentralised, ubiquitous nature of the internet poses unique
problems in administration and regulation. The internet is not
administered in a traditional sense. In American Civil Liberties Union
(ACLU) v Reno 929 F Supp 824 (ED Pa 1996), the court considered the
feasibility of regulating internet activity at 832:
No single entity — academic, corporate, governmental, or non-profit — administers
the Internet. It exists and functions as a result of the fact that hundreds of thousands
of separate operators of computers and computer networks independently decided to
use common data transfer protocols to exchange communications and information
with other computers (which in turn exchange communications and information with
still other computers). There is no centralized storage location, control point, or
communications channel for the Internet, and it would not be technically feasible for
a single entity to control all of the information conveyed on the Internet.

Internet activity, however, is not completely unregulated. Internet

activity is regulated by a number of factors in concert, including the
self-regulation of users, particularly user-industries, and the
development of supportive legislative frameworks. In Code and Other
Laws of Cyberspace, Basic Books, New York, 1999, Lessig proposed that
the most powerful regulator of internet activity was the code or
architecture which constructed the internet. A good example of this
type of regulation arises in the protection of intellectual property.
While intellectual property rights may be protected as a matter of law,
the ubiquitous nature of the internet may make it difficult to enforce
such legal rights. It may be more effective to use the code technology
itself to make further publication or reproduction of copyright material
more difficult, if not impossible. It is through the manipulation of the
code technologies that digital rights management systems (DRMS) and
content protection technology (CPT) seek to protect intellectual
property rights.
The borderless and paperless nature of the internet can be
problematic for our traditional legal systems. For example, the
traditional requirements for writing, original documents and signatures
do not easily translate into an electronic environment. Other examples
are raised in UNCTAD’s Building Confidence: Electronic Commerce and
Development:
Electronic commerce raises a number of legal issues. Questions and uncertainties
concern the validity, legal effect and enforceability of transactions conducted through
electronic means, in a legal environment based on paper. The existing requirements
in national and international law for the use of written documents or manual
signatures in international trade transactions are considered to constitute major
obstacles to the

[page 489]

development of electronic commerce at global level. Other areas involving legal issues
relevant to electronic commerce include: data protection, taxation, customs duties,
security and authentication, intellectual property rights, liability of Internet service
providers, illegal and harmful content, Internet governance, electronic payment
systems, consumer protection, jurisdiction, applicable law and dispute resolution
mechanisms. Although there is a general consensus that electronic commerce is not
taking place within a legal vacuum for which a totally new legal framework needs to be
created, it is as well acknowledged that there is a need to adapt the existing laws and
regulations to accommodate electronic commerce. This would increase legal certainty
and boost the trust of both businesses and consumers in electronic commerce.9
 Unless these and other difficulties can be resolved to an extent such
that participants in e-commerce activities can be assured of certainty,
then e-commerce cannot flourish to its fullest extent. The impact of
uncertainty and other obstacles upon international trade has been long
recognised in international forums.
As has been seen, efforts have been continuing at both national and international
levels to create a legal and technical environment for accommodating electronic
commerce. National Governments have been involved in enacting legislation and
establishing a regulatory framework that would remove any uncertainty which might
exist owing to the use of electronic means of communication in international trade.
International organizations concerned with harmonization of international trade law
and trade efficiency have been active in preparing model rules and guidelines, setting
directions for future legislative reforms. Private sector organizations have been
working towards establishing technical standards, infrastructures and required
services. The objective of all these efforts is to create a favourable legal environment
for electronic commerce.
As stated earlier, contractual arrangements are not sufficient to overcome
uncertainties arising from the use of electronic means of communication in
international trade or communication in an open network such as the Internet. The
investigations conducted within a number of organizations, such as the ECE,
UNCITRAL and the Commission of the European Communities, have confirmed that
the existing rules and legislation pertaining to trade transactions are not appropriate
for an electronic commerce environment and are likely to create uncertainties as to
their validity and enforceability. Furthermore, it is acknowledged that the full benefit
of electronic commerce cannot be obtained without the existence of a suitable
regulatory framework.10

Consequently, there has been considerable international and

national action toward the creation of a legal environment that
alleviates legal obstacles and uncertainties and as a result is conducive
to the further development of electronic commerce, including, for
example, the United Nations Commission on International Trade Law
(UNCITRAL) and the Council of Europe Convention on Cybercrime.
UNCITRAL has played a significant role in addressing legal obstacles
to the flow of international trade. The commission has a working group
dedicated to electronic

[page 490]
commerce. Sixty member states, any other states and interested
international organisations are able to participate in the discussions of
the working group. The result has been broad international acceptance
of the UNCITRAL model e-commerce laws: The UNCITRAL Model
Law on Electronic Commerce 1996 and the UNICITRAL Model Law on
Electronic Signatures 2001. The UN Convention on the Use of
Electronic Communications in International Contracts (New York,
2005), which became operative on 1 March 2013,11 builds upon the
model e-commerce laws with the purpose of:
… facilitating international trade by offering practical solutions for issues arising out
of the use of electronic communications in the formation or performance of contracts
between parties located in different countries. It aims to enhance legal certainty and
commercial predictability but does not otherwise purport to vary or create contract
law.12

In May 2010, the state Attorneys-General announced they would

enact legislation enforcing the Convention. Queensland remains the
only jurisdiction not to have fully implemented the Convention.
The Convention applies to all electronic communications13
exchanged between parties whose places of business are in different
states when at least one party has its place of business in a contracting
state (Art 1), and may also apply by choice.14
The Convention provides that a communication or contract is not to
be denied validity or enforceability on the sole ground it is in the form
of an electronic communication: Art 8. More specifically, where the law
requires a communication or contract to be in writing, that
requirement is met by an electronic communication if ‘the information
therein is accessible so as to be usable for subsequent reference’: Art
9(2). Further, by Art 9(3), where the law requires a communication or
contract be signed, that will be satisfied by an electronic
communication if:
(a) A method is used to identify the party and to indicate that party’s intention in
respect of the information contained in the electronic communication; and
(b) The method used is either:
(i) As reliable as appropriate for the purpose for which the electronic
communication was generated or communicated, in the light of all the
circumstances, including any relevant agreement; or
 Proven in fact to have fulfilled the functions described in subparagraph (a)
(ii) above, by itself or together with further evidence.

[page 491]

The principles governing formation of a contract electronically are

set out in Art 10, which provides the following points:
1. The time of dispatch of an electronic communication is the
time it leaves an information system under the control of the
originator or of the person who sent it on their behalf.
2. If the electronic communication does not leave an
information system under the control of the originator, then
the time of dispatch is the time it is received.
3. The time of receipt of an electronic communication is the
time it becomes capable of being retrieved by the addressee at
an electronic address designated by the addressee.
4. The time of receipt at another address of the addressee (not
designated) is when it becomes capable of being retrieved at
that address and the addressee becomes aware that it has been
sent to that address.
5. An electronic communication is deemed to be dispatched at
the place where the originator has its place of business and
received at the place where the addressee has its place of
business (as determined by Art 6).
If a contract is formed by the interaction of an automated message
system15 and a natural person, or by the interaction of automated
message systems, it will not be denied validity or enforceability on the
sole ground that no natural person reviewed or intervened in each of
the individual actions carried out by the automated message systems or
the resulting contract: Art 12.
Further, a proposal to conclude a contract made through electronic
means and not addressed to specific parties but generally accessible to
parties making use of information systems amounts to an invitation to
make offers, rather than an offer, unless it clearly indicates the
intention of the party making the proposal to be bound in case of
acceptance: Art 11.
Finally, if a party makes an input error in an electronic
communication exchanged with the automated message system of
another party and that system does not allow the person to correct the
error, that person has the right to withdraw the portion of the
electronic communication in which the input error was made in certain
circumstances: Art 14.

The Australian approach

The Electronic Transactions Acts
13.12 In 1998 the Attorney-General for the Commonwealth of
Australia established the Electronic Commerce Expert Group to
evaluate and report on the need for legislation in this area. The Expert
Group identified a broad range of potential legal impediments to the
flow of electronic commerce and recommended that they be addressed
through Commonwealth legislation based upon the UNCITRAL Model
Law

[page 492]

on Electronic Commerce 1996. The Expert Group recommended a

minimalist legislative framework achieved through a national scheme of
legislation. The legislation would take a technology-neutral approach in
order to be able to seamlessly adapt to future technological
developments employed in e-commerce. The recommended legislation
was designed to reduce the uncertainties and legal obstacles
surrounding the use of electronic commerce. In its 1998 report to the
Attorney-General, Electronic Commerce: Building the Legal Framework, the
Expert Group stated:
It is our view that legislation would:
 directly remove legal impediments to the implementation of electronic
(a)
commerce;
(b) ensure certainty as to the application of the law to electronic commerce and
enhance business and consumer trust and confidence;
(c) minimise costs and litigation;
(d) be applied to a wide range of transactions, facilitating both related and un-related
transactions;
(e) satisfy the objective of minimising regulatory burdens upon government and
business by adopting a minimal approach and simply ensuring functional
equivalence between paper-based and electronic transactions;
(f) provide a vehicle for the harmonisation of laws governing electronic commerce
across Australia; and
(g) facilitate the cross-border recognition and enforcement of electronic transactions
and signatures.16

The recommended legislative scheme was designed to play a

significant role in achieving functional equivalence in the eyes of the
law for both paper-based and electronic commerce. Functional
equivalence does not strive to give a statutory advantage to e-commerce.
Rather, e-commerce would be on a level playing field with traditional
paper-based business methods in a legal sense.
The Commonwealth passed the Electronic Transactions Act 1999
(Cth) based upon the UNCITRAL Model Law. Section 3 outlines the
objectives of the legislation:
3 Object

The object of this Act is to provide a regulatory framework that:

(a) recognises the importance of the information economy to the future economic
and social prosperity of Australia; and
(b) facilitates the use of electronic transactions; and
(c) promotes business and community confidence in the use of electronic
transactions; and
(d) enables business and the community to use electronic communications in their
dealings with government.

[page 493]

The Electronic Transactions Act applies to all laws of the

Commonwealth unless excluded by regulation and binds the Crown. In
order to overcome the constitutional limitations on the legislative
power of the Commonwealth, all states and territories have enacted
similar legislation to enable a national legislative scheme: Electronic
Transactions Act 2001 (ACT); Electronic Transactions Act 2000 (NSW);
Electronic Transactions (Northern Territory) Act 2000 (NT);
Electronic Transactions (Queensland) Act 2001 (Qld); Electronic
Transactions Act 2000 (SA); Electronic Transactions Act 2000 (Tas);
Electronic Transactions (Victoria) Act 2000 (Vic); Electronic
Transactions Act 2011 (WA).

Validity
13.13 Clarity is provided on the validity of electronic transactions.
The fact that a transaction has taken place electronically is not an
automatic bar to its validity. The general rule set out in Electronic
Transactions Act s 8(1) is not absolute. The general rule can be
displaced by other provisions in Pt 2 Div 2 of the Act and can be
excluded by regulation from applying to particular legislation or
transactions: s 8(2)–(4). Section 8(1) provides:
(1) For the purposes of a law of the Commonwealth, a transaction is not invalid
because it took place wholly or partly by means of one or more electronic
communications.17

The Acts allow for electronic communications to be used when

fulfilling legal requirements for providing or retaining information,
records, documents or signatures. The impact of the legislation is
functional equivalence: the electronic communication will have the
same legal effect as paper-based communications.

Satisfying legal requirements to provide information in writing

13.14 The general proposition under the legislation is that if the law
requires a person to provide written information, the requirement is
taken to have been met where the information is provided via
electronic communication. The recipient must consent to the use of
electronic communication to furnish the information and it must be
reasonable to expect that the information will be useable and accessible
in future.18
The Electronic Transactions Act also makes provision for electronic
communication to be used to meet requirements to provide written
information to Commonwealth Government entities. In such cases, the
requirement is taken to have been satisfied where information is
provided via electronic technologies so long as the relevant agency’s
information technology and verification requirements have been met,
and it is reasonable to expect that the information will be usable and
accessible in future: see s 9.

[page 494]

Satisfying legal requirements to provide a signature

13.15 The legislative treatment of electronic and digital signatures is
confined to their legal effect. In Electronic Commerce: Building the Legal
Framework, the Electronic Commerce Expert Group recommended
against legislating on signature issues beyond legal effect, such as
compulsory standards for the security and reliability necessary for a
valid digital signature. It cautioned that a wait-and-see approach might,
more appropriately, leave these issues to be determined by the market.
It acknowledged that while the existing law may not have been well-
placed to address these issues, their resolution at that stage was likely to
exceed functional equivalence and place electronic commerce at a
legislative advantage to traditional business methodologies. The
technological neutrality of the legislation is particularly clear. It
confines itself to treatment of identification ‘methods’ utilising
electronic communication.
The legislation provides that, if the law requires a signature, the
requirement is taken to have been met by electronic communications
where the person uses some other method which both identifies them
and verifies their approval to the information communicated. The
method must be used with the recipient’s consent and must be as
reliable as is appropriate given the purposes for which the information
was communicated.19 In Luxottica Retail Australia Pty Ltd v 136 Queen St
Pty Ltd [2011] QSC 162, the court held that the requirements for a
signature in s 59 of the Property Law Act 1974 (Qld) had been satisfied
given the provisions of s 14 of the Electronic Transactions
(Queensland) Act 2001. The court said:
It is clear that the electronic footer used conveys all the appropriate information as
required by s14(a); and s14(b) is satisfied as both parties were content to engage in
negotiation by email and the consent required by s14(c) can be reasonably inferred in
the circumstances.

In Russells Solicitors v McCardel [2014] VSC 287 the court, relevantly,

had to consider whether a conditional costs agreement had been
‘signed’ in accordance with the requirements of the Legal Profession
Act 2004 (Vic). The court held that the requirement for signature
could be met electronically provided the general conditions in s 9 of
the Electronic Transactions (Victoria) Act 2000 were satisfied, namely:
(a) the electronic communication must use a method to identify
the person and indicate their relevant intention;
(b) the method must be as reliable as appropriate in the
circumstances and be proved to have fulfilled the functions of
identifying the person and indicating their intention; and
(c) the person to whom the signature must be given must consent
to the method used for doing so.
In this case the solicitors, as the party seeking to establish that a
signature was supplied by electronic communication, had the onus of
proving the conditions were met. The

[page 495]

court held that, although conditions (b) and (c) were satisfied,
condition (a) was not. In that respect the court held:
The question whether a person has, in an electronic communication, used a method
to identify himself or herself in a document and to indicate a relevant intention is
 essentially one of fact. The relevant intention is that the electronic communication
constitute the person’s signature in the document.
Such identification and intention can, for example, be given by sending an email
containing the printed signature of the person at the end of the message or by typing
a name into the relevant document and confirming by email that it should stand as
the person’s signature: at [61]–[62].

The court found that the email in question was not intended to
represent an electronic signature or signing of the agreement. The
court concluded the closest it came was to confirm discussions about
the client’s agreement to sign a cost retainer with certain amendments.
It was held, therefore, to represent a confirmation of an agreement to
sign the retainer when it was amended, rather than indicating an
intention, by those words, to treat the retainer as signed: at [65].
The court accepted that the issue as to whether s 9 was complied with
was a question of fact and on that basis it was relevant to consider
evidence of the general context and surrounding circumstances in
which the email was sent and the course of the negotiations: at [66].
Where the signature is required by a Commonwealth Government
entity, the requirement is taken to have been satisfied where the person
uses a method which both identifies them and verifies their approval to
the information communicated. The method must be as reliable as is
appropriate given the purposes for which the information was
communicated and the relevant entity’s information technology
requirements must have been met: see Electronic Transactions Act
1999 (Cth) s 10.

Satisfying legal requirements to produce documents

13.16 The general position under the legislation is that where a
person is by law required to produce a document, the requirement is
taken to have been satisfied if the person produces an electronic form
of the document by means of electronic communication. This will be
the case so long as the recipient has consented to production in an
electronic format, and it is reasonable to expect that the information
contained in the electronic document will be readily accessible in
future. Further, the method of generating the electronic form of the
document must have provided a reliable means of assuring the
maintenance of the integrity of the information contained in the
document. The integrity of information contained in a document is
maintained where the information has remained complete and
unaltered, apart from immaterial changes or the addition of
endorsements arising in the normal course of communication, storage
or display.20

[page 496]

In Curtis v Singtel Optus Pty Ltd [2014] FCCA 1286 the issue was raised
as to the validity of an electronically issued bankruptcy notice which did
not, as required by the bankruptcy legislation, ‘attach’ the relevant
judgment founding the notice. It was held that this was resolved by the
application of s 11 of the Electronic Transactions Act (Cth) and that,
provided the bankruptcy notice and judgment were downloaded from
the .pdf file provided in the Australian Financial Security Authority
email onto paper, the requirements of s 11(1)(a)–(e) were satisfied and
the electronic notice valid.
If the document is to be provided to a Commonwealth Government
entity, then the requirement is taken to have been satisfied where the
person produces an electronic form of the document by means of
electronic communication, so long as the relevant agency’s information
technology and verification requirements have been met and it is
reasonable to expect that the information contained in the electronic
document will be readily accessible in future. Again, the method of
generating the electronic form of the document must have provided a
reliable means of assuring the maintenance of the integrity of the
information contained in the document: see Electronic Transactions
Act s 11.

Satisfying legal requirements to keep records of information

in writing
13.17 Where a person is required by law to record information in
writing, that requirement is taken to have been met if the person
records the information in an electronic form. It must be reasonable to
expect that the information recorded in the electronic record will be
useable and readily accessible in future. The electronic records should
comply with any specific legislative requirements as to the particular
kind of data storage device on which the information must be
recorded.21

Satisfying legal requirements to retain documents and

communications
13.18 Where a person is required by law to retain documents, the
person will have been taken to have met the requirement where the
documents have been retained in an electronic format for the required
period. The requirements are similar to those for electronic records of
written information discussed above. It must be reasonable to expect
that the information recorded in the electronic format of the
document will be useable and readily accessible in future. The
electronic records should comply with any specific legislative
requirements as to the particular kind of data storage device on which
the information must be recorded. Further, the method of generating
and retaining the electronic version of the document must have
provided a reliable means of assuring the maintenance of the integrity
of the information contained in the original document. That is, the
information must remain complete and unaltered, apart from
immaterial changes or the addition of endorsements arising in the
normal course of communication, storage or display. Where the law
requires electronic communications to be retained, there is an
additional requirement to retain information as to the origin of the
electronic

[page 497]
communication, the time it was sent, the destination of the
communication and the time it was received.22

Receipt of electronic communications

13.19 The Electronic Transactions Acts stipulate the time and place
of receipt of electronic communications. It is open to the parties to
contract out of these provisions. The electronic communication is
taken to have been received at the addressee’s place of business. The
time of receipt depends upon whether the sender has designated an
information system for the purpose of receiving the electronic
communication. Where the sender has designated an information
system for the purpose of receiving electronic communications, the
electronic communication is received at the time when the electronic
communication enters that information system. Where the sender has
not stipulated a designated information system for the purpose of
receiving electronic communications, the electronic communication is
received at the time when the electronic communication comes to the
attention of the addressee.23 The legislation does not elaborate on what
may constitute ‘coming to the attention of the addressee’ for the
purposes of receipt. Given the nature of some electronic
communications, particularly email, there are a number of alternatives
that amount to something less than reading the email, such as seeing
new mail notifications, or scanning inbox listings. Whether or not these
constitute ‘coming to the attention of the addressee’ for the purposes
of the legislation is yet to be seen.24 The issue as to whether
attachments to an email had been served within time arose in Re Ellis
(No 2) [2013] WASC 161. The attachments had been sent as an. rar file
and then via a yousendit link. The recipient (the adjudicator in a
dispute under the building payments legislation) argued the
attachments had not been served within time because he could not
open the .rar files and, in the case of the yousendit link, did not have
the software required to ‘decompress’ the files and therefore open
them. Although the court suggested it was ‘objectively reasonable to
expect that the information would be readily accessible to the
adjudicator so as to be usable for his subsequent reference immediately
upon the transmission’, this was a question of fact which needed to be
determined on the evidence, and the adjudicator had not made a
jurisdictional error in coming to the opposite conclusion. The court
said:
There was no evidence before the adjudicator about the availability of other
programmes or applications to download the ‘.rar’, ‘.pdf’ or ‘Yousendit’ compressed
files other than the adjudicator’s inability to use them or his ignorance of their
existence or availability. It was that which was the basis of the inference that the
information was not readily available.

In Chidbundid v Minister for Immigration and Citizenship (2012) 259 FLR

1; [2012] FMCA 59 the transmission of an email cancelling a student
visa sent to the applicant’s email address was held to have satisfied s
14(3) of the Electronic Transactions Act (Cth) ‘when

[page 498]

the email was sent’, that is, transmitted to the applicant’s email address.
The issue is not when it came to the attention of the addressee: at [64];
Sainju v Minister for Immigration and Citizenship (2010) 185 FCR 86;
[2010] FCA 461 at [73]–[77]. The relevant time is the point at which
the communication reaches a mail server from which the recipient can
access it: Reed Constructions Pty Ltd v Eire Contractors Pty Ltd [2009]
NSWSC 678 at [34].

Dispatch of electronic communications

13.20 The Acts also stipulate the time and place of dispatch of
electronic communications. Again, the parties are free to contract out
of these provisions. The time of dispatch depends upon whether the
electronic communication enters one or more information systems
outside the control of the sender. Essentially, dispatch occurs when the
electronic communication enters the first information system outside
the sender’s control. The electronic communication is taken to have
been dispatched from the sender’s place of business.25
Attribution
13.21 The legislation essentially restates the existing legal position as
to attribution for communications. The originator of an electronic
communication will only be bound by the electronic communication if
in fact the electronic communication was sent by that person or with
their authority in accordance with existing principles of the law of
agency. The parties are free to contract out of these provisions.26

Other legislation enabling e-commerce

13.22 Further Australian legislation has also been enacted to address
impediments to e-commerce activity. The Privacy Amendment (Private
Sector) Act 2000 (Cth) and the Privacy Amendment (Enhancing
Privacy Protection) Act 2012 (Cth), amending the Privacy Act 1988
(Cth), were enacted to address concerns for the security of private
information in an online environment.27 The Cybercrime Act 2001
(Cth) introduced new criminal laws and strengthened investigative
powers targeted at criminal activities posing a threat to the integrity
and security of electronic data, such as hacking, website vandalism,
‘denial of service’ and virus attacks. In his second reading speech to the
Bill, the Attorney-General for the Commonwealth estimated that
‘cybercrime is costing companies worldwide approximately 3 trillion
dollars a year’.
The Spam Act 2003 (Cth) establishes a scheme for regulating the
sending of commercial electronic messages. While there is at this stage
little case law available to aid in the interpretation of the statute, the
Australian Communications and Media Authority’s first successful
enforcement action provides some insight into the practical application
of many of the provisions of the statute: see Australian Communications
and Media Authority

[page 499]

v Clarity1 Pty Ltd (2006) 229 ALR 658. That case concerned s 16, which
provides that a person must not send a commercial electronic message
that has an Australian link and is not a designated commercial
electronic message. It also raised s 22, which prohibits the use of
address-harvesting software or harvested email lists. Both sections are
civil penalty provisions. Section 24(2) sets out the matters the court
must have regard to when determining an appropriate penalty.
Australian Communications and Media Authority v Mobilegate Ltd (2009)
256 ALR 85 and related litigation also involved a breach of s 16. There,
the relevant conduct involved the sending of unsolicited short-message-
service messages to the mobile telephones of users who had been
deceived into providing their mobile numbers to representatives of
Mobilegate or Winning Bid under the belief they were corresponding
with individuals seeking to form a relationship with them via online
dating sites. The court held there had been a breach of s 16 and
ultimately ordered the entity Mobilegate to pay $5m by way of penalty,
and Winning Bid $3.5m. Logan J, in considering the legislative purpose
of s 16, held at [1] and [3]:
The use of trickery to prey for reward upon the lusts or emotional vulnerabilities of
others is hardly a vice confined to modern times. What modern times do offer, for
those disposed to such a vice, are new means of prey, the internet and the mobile
telephone.

The prohibition for which s 52 of the TPA provides against a corporation engaging
in misleading or deceptive conduct in trade or commerce is well known. Perhaps less
well known, at least until now, but no less important, is the very particular prohibition
found in s16 of the Spam Act against the sending of unsolicited commercial electronic
messages.

The Spam Act confers on the Australian Communications and Media

Authority the function of bringing proceedings for civil penalties and
injunctive relief in respect of contraventions of the Act. Section 26
provides for the institution of civil penalty proceedings. Final injunctive
relief may be granted by the court pursuant to s 32, while s 33 makes
separate provision for the granting of interim injunctions. A non-
exhaustive list of factors relevant in arriving at an appropriate
pecuniary penalty is set out in s 24(2) and includes the nature and
extent of the contravention, the nature and extent of any loss or
damage suffered as a result, whether the person has been found
previously to have engaged in similar conduct and, if the court
considers it appropriate, whether the person has previously been found
by a court in a foreign country to have engaged in similar conduct.
These factors as well as other factors the court considered relevant were
applied in Australian Communications and Media Authority v Mobilegate Ltd
(No 9) [2010] FCA 1383 at [11]–[40] and in Australian Communications
and Media Authority v Atkinson [2009] FCA 1565, a case where the
defendant sent spam over a 14-month period in order to promote
particular products.

[page 500]

Spam impacts upon user confidence, network integrity and privacy.

Spam may contain illegal content or engage in deceptive practices such
as ‘spoofing’. The financial burdens on end-users include increased ISP
costs and download times and lost productivity. It is difficult to precisely
measure the extent of the loss to end-users, but it was noted by the
Attorney-General in his second reading speech to the Bill that those
who have tried to do so have calculated the loss in terms of billions of
dollars each year.
While this chapter has focused on issues pertaining to e-commerce in
isolation, it should be borne in mind that e-commerce takes place
against a background of all the general laws that apply to the conduct
of local, national and international business generally. These laws cut
across e-commerce in a variety of ways. For example, the laws relating to
privacy, defamation, crime, trade practices, consumer protection, fair
trading, discrimination, intellectual property and copyright all have a
bearing on the way that business is done, whether that business is
transacted using traditional methodologies or through the
implementation of electronic communication technology. The general
law needs to be considered in any commercial activity which is e-
commerce based. The statutes enacted to facilitate e-commerce address
particular issues arising in e-commerce activity, but they do not
represent the four corners of the law pertaining to e-commerce.

ELECTRONIC COMMERCE AND

CONTRACT LAW
13.23 E-commerce facilitates and enhances the formation and
performance of contracts in both online and traditional forums. The
new business paradigm associated with the rise of the internet and e-
commerce poses significant challenges for traditional legal systems.
With a loose legislative framework in place, it is essentially the existing
law of contract which will be expected to confront and incrementally
adapt to the particular demands of e-commerce. The laws which govern
the formation, performance and enforcement of contracts remain.
Unique complexities arise when these laws are applied in an online
environment.
The role of the legislative intervention to date has not been to
resolve all these difficulties. In the case of the Electronic Transactions
legislation, the goal was not to resolve contractual issues in electronic
commerce, but rather to place electronic commerce on a level playing
field with paper-based commerce through functional equivalence. The
provisions of the Electronic Transactions legislation pertaining to time
and place of dispatch and receipt may assist in determining when and
where the contract was formed for the purposes of the general law. The
general principle at common law is that a contract is formed when
acceptance is communicated to and received by the offeror: Entores Ltd
v Miles Far East Corp [1955] 2 QB 327 at 335 per Birkett LJ.
The ordinary rule of law, to which the special considerations governing contracts by
post are exceptions, is that the acceptance of an offer must be communicated to the
offeror, and the place where the contract is made is the place where the offeror
receives the notification of the acceptance by the offeree.

[page 501]
 The postal rule is an exception to this general rule: Adams v Lindsell
(1818) 106 ER 250; Henthorn v Fraser [1892] 2 Ch 27. In Henthorn, Lord
Herschell explained at 33:
Where the circumstances are such that it must have been within the contemplation of
the parties that, according to the ordinary usages of mankind, the post might be used
as a means of communicating the acceptance of an offer, the acceptance is complete
as soon as it is posted.

Where the postal rule applies, the contract is formed at the time of
posting the acceptance. The courts have traditionally confined the
postal rule to non-instantaneous communications: see Entores; Brinkibon
Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34;
Mendelson-Zeller Co Inc v T and C Providors Pty Ltd [1981] 1 NSWLR 366;
EGIS Consulting Australia Pty Ltd v First Dynasty Mines Ltd [2001] WASC
22. In Entores at 332 and 333–4, Lord Denning stated:
When a contract is made by post it is clear law throughout the common law countries
that the acceptance is complete as soon as the letter of acceptance is put into the post
box, and that is the place where the contract is made … [T]he rule about
instantaneous communications between the parties is different from the rule about
the post. The contract is only complete when the acceptance is received by the
offeror: and the contract is made at the place where the acceptance is received.

In Entores, it was held that the postal rule did not apply to telexed
communications.28 Unlike the post, telexed communications were
considered ‘virtually instantaneous’ and likened to telephone
communications. Accordingly, it was held that the ordinary rule for
communication of acceptance applied and the contract was formed
when and where acceptance was received.
The rule has been applied to facsimiles: Reece Bros Plastics Ltd v
Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11,106; Benson-Brown v
HIH Casualty & General Insurance [2001] WASC 6; Tallangalook Pty Ltd v
Duketon Goldfields NL (VICSC, Hansen J, 13 February 1997,
unreported); EGIS Consulting; Showtime Touring Group Pty Ltd v Mosely
Touring Inc [2010] NSWSC 974.
The rule as to instantaneous communications emerging from Entores
was accepted by the House of Lords in Brinkibon. That case involved a
telexed acceptance. On the facts, the House of Lords found that the
use of the telex amounted to a simple case of instantaneous
communication between principals. However, Lord Wilberforce (at 42)
cautioned that the rule, though sound, may not always have universal
application:
Since 1955 the use of telex communication has been greatly expanded, and there are
many variants on it. The senders and recipients may not be the principals to the
contemplated contract. They may be servants or agents with limited authority. The
message may not reach, or be intended to reach, the designated recipient
immediately: messages may be sent out of office hours, or at night, with the intention,
or on the assumption, that they will be read at a later time. There may be some error
or default at the recipient’s end which prevents receipt at the time contemplated and
believed in by the sender. The message may have been sent and/or received through
machines

[page 502]

operated by third persons. And many other variations may occur. No universal rule
can cover all such cases; they must be resolved by reference to the intentions of the
parties, by sound business practice and in some cases by a judgment where the risks
should lie …

Although the provisions as to dispatch and receipt in the Electronic

Transactions legislation may be useful in determining the point at
which acceptance may have been communicated to the offeror, they do
not assist in determining whether particular electronic communications
are to be considered instantaneous or non-instantaneous.
Although contracting electronically raises unique and complex
issues, the general principles of law apply to contracts formed in e-
commerce transactions. In this context it is useful to consider contracts
unique to the online environment of the internet such as shrinkwrap,
clickwrap and browsewrap agreements.

Shrinkwrap agreements
13.24 The nature of a typical ‘shrinkwrap’ agreement was explained
in a decision of the United States Court of Appeals for the Seventh
Circuit, ProCD Inc v Zeidenberg and Silken Mountain Web Services, Inc 86 F
3d 1447 (Seventh Circuit 1996), by Easterbrook CJ:
 The ‘shrinkwrap license’ gets its name from the fact that retail software packages are
covered in plastic or cellophane ‘shrinkwrap,’ and some … have written licenses that
become effective as soon as the customer tears the wrapping from the package.

These licences are typically used in the sale of retail products such as
software. Shrinkwrapped around the product is a notice to the effect
that the use of the product is subject to the terms of an agreement.
Typically, the notice states that by opening the shrinkwrap packaging,
the customer agrees to the terms of the agreement. The difficulty arises
in that the full terms of the agreement are usually only revealed once
the packaging has been removed. Shrinkwrap agreements have been
examined in US courts: ProCD Inc; Hill v Gateway 2000 Inc 105 F 3d 1147
(Seventh Circuit 1997); M A Mortenson Co v Timberline Software Corp 998
P 2d 305 (Wash 2000); Brower v Gateway 2000 Inc 246 AD 2d 246; 676
NYS 2d 569 (App Div 1998); and Klocek v Gateway 2000 Inc 104 F Supp
2d 1332 (D Kan 2000).
In ProCD Inc, ProCD had spent over $10 million compiling a database
and search directory of 3000 telephone directories called SelectPhone.
The software was available under either a commercial or a consumer
licence. Where the software was to be used for personal use, it could be
purchased at a lower price. Every box containing the consumer
software product declared that the software came with the restrictions
stated in an enclosed licence. The terms of the licence were printed in
the manual and encoded on the disks, and appeared on the user’s
screen every time the software was run. The terms of the licence
restricted use of the consumer software product to noncommercial
purposes. Zeidenberg, a postgraduate computer studies student,
purchased the SelectPhone consumer software from a retailer and,
disregarding the terms of the

[page 503]

licence, proceeded to resell information from the SelectPhone

database over the internet through his company, Silken Mountain Web
Services, Inc. At first instance, it was decided that because the terms of
the licence did not appear in full on the outside of the software
packages, the licences were ineffectual. The purchaser could not be
bound by terms that were secret at the time of purchase. This decision
was reversed on appeal. The impracticality of putting all the terms of
the licence agreement on the packaging gave way to commercial
realism (at 1451):
Vendors can put the entire terms of a contract on the outside of a box only by using
microscopic type, removing other information that buyers might find more useful
(such as what the software does, and on which computers it works), or both. The
‘Read Me’ file included with most software, describing system requirements and
potential incompatibilities, may be equivalent to ten pages of type; warranties and
license restrictions take still more space. Notice on the outside, terms on the inside,
and a right to return the software for a refund if the terms are unacceptable (a right
that the license expressly extends), may be a means of doing business valuable to
buyers and sellers alike.

It was held that shrinkwrap agreements are enforceable ‘unless their

terms are objectionable on grounds applicable to contracts in general
(for example, if they violate a rule of positive law, or if they are
unconscionable)’: at 1449 per Easterbrook CJ. This decision reversed
the position emerging from earlier US cases where it had been held
that shrinkwrap agreements were not enforceable as the customer had
not assented to the terms of the licence agreement: see Step-Saver Data
Systems Inc v Wyse Tech 939 F 2d 91 (3d Cir 1991).

Clickwrap agreements
13.25 Clickwrap agreements are formed online. The user is
presented with a message requiring the user to demonstrate assent to
the terms of the agreement by clicking on an icon, typically marked ‘I
accept’ or ‘I agree’. The user may first need to scroll down a screen
listing the terms of the agreement. Clickwrap agreements are, in
certain circumstances, enforceable in the US: Hotmail Corp v Van Money
Pie Inc 47 USPQ 2d 1020 (ND Cal 1998); Caspi v Microsoft 323 NJ Super
118; 732 A 2d 528 (NJ Super Ct App Div 1999); Forrest v Verizon
Communications 805 A 2d 1007 (DC App 2002); Koch v America Online,
Inc 139 F Supp 2d 690 (D Md 2000); and Barnett v Network Solutions, Inc
38 SW 3d 200 (Texas Ct App 2001).
 Caspi concerned the enforceability of a forum selection clause in a
Microsoft MSN online messenger agreement. The terms of the
membership agreement, including the forum selection clause,
appeared on the prospective subscriber’s computer screen in a
scrollable window next to blocks providing the choices ‘I Agree’ and ‘I
Don’t Agree’. The prospective member could choose which option to
click at any point while scrolling through the agreement. It was not
possible for a prospective member to register unless and until they had
assented to the terms of the agreement by clicking on ‘I Agree’. It was
held that Microsoft could enforce the forum selection clause. Despite
the use of an

[page 504]

electronic medium, the plaintiffs had still been afforded an opportunity

to peruse the terms of the agreement before indicating their
agreement.
In Forrest, the court again considered the enforceability of a forum
selection clause. To become a subscriber to Verizon’s Digital Subscriber
Line Service (DSL), prospective subscribers were required to agree to
the terms of the Verizon Internet Services Access Agreement. The 13-
page agreement, including the forum selection clause, appeared in a
scrollable window on the computer monitor of prospective subscribers.
At the top of the agreement, it stated ‘Please read the following
agreement carefully’. Only a small portion of the agreement was visible
in the scroll box at any one time. The contract could only be entered
into by clicking an ‘Accept’ icon appearing below the scrollable
window. It was held that the forum selection clause was enforceable.
The scrollable window had effectively communicated the terms of the
agreement and provided adequate notice of the clause.

Browsewrap agreements
13.26 Browsewrap agreements arise in an online environment.
Unlike clickwrap agreements, they do not involve the use of an ‘I agree’
or ‘I accept’ button in order to gain access to the product or service
available online. The prospective customer may choose whether or not
to view the terms of the agreement elsewhere on the website, usually
accessible via hyperlink. This raises significant issues as to reasonable
notice and assent.
In Specht v Netscape Communications Corp and AOL 306 F 3d 17 (2d
Circuit 2002), the court was required to determine the enforceability of
an arbitration clause contained in the ‘Netscape SmartDownload
Software Licensing Agreement’. The dispute arose in relation to the
downloading of free plug-in software (SmartDownload) from the
Netscape website. The website contained a link to the licensing
agreement, headed with the statement, ‘Please review and agree to the
terms of the Netscape SmartDownload software license agreement
before downloading and using the software’. The link was only visible
when the user scrolled down the screen. It was not necessary to view the
agreement in order to download the free software. It was held that the
terms of the agreement were not enforceable. The court held (at 20)
that the user was not bound by the arbitration clause:
[A] reasonably prudent Internet user in circumstances such as these would not have
known or learned of the existence of the license terms before responding to
defendants’ invitation to download the free software, and that defendants therefore
did not provide reasonable notice of the license terms. In consequence, plaintiffs’
bare act of downloading the software did not unambiguously manifest assent to the
arbitration provision contained in the license terms.

The validity and enforceability of shrinkwrap, clickwrap and

browsewrap agreements are yet to be determined in Australia. Issues as
to the validity and enforceability of such contracts in Australia are likely
to focus on the general principles of contract law

[page 505]

requiring disclosure, assent and reasonable notice of the existence of

term prior to the formation of the contract: Balmain New Ferry Co Ltd v
Robertson (1906) 4 CLR 379 and Thornton v Shoe Lane Parking Ltd [1971]
2 QB 163.

JURISDICTION
13.27 The borderless nature of the internet is problematic for our
legal system, which has, to date, developed in a paradigm of clearly
defined geographic boundaries and international acceptance of a
state’s sovereignty within those boundaries: see further American Bar
Association, Transnational Issues in Cyberspace: A Project on the Law
Relating to Jurisdiction (2000).29 The difficulty, of course, arises when e-
commerce transactions which have taken place in the borderless,
ubiquitous cyberspace touch the lives of real persons who wish to
enforce legal rights in a legal system which is premised upon the
existence of geographic borders and sovereign rights within those
borders. Where jurisdiction is an issue, traditional international
disputes have typically required determination of three closely related
matters:
1. whether the matter is so connected to a jurisdiction that the
court has authority to hear and determine the dispute;
2. choice of law; and
3. forum non conveniens.
A closely related concern is the recognition and enforcement of
foreign judgments, where the three jurisdictional issues may be re-
evaluated by the court asked to enforce a foreign judgment.
In Dow Jones & Co Inc v Gutnick (2002) 210 CLR 575, the High Court
considered the issue of jurisdiction in a cyberspace dispute concerning
defamatory material uploaded onto the internet. The matter drew
considerable attention from internet publishers and industry leaders
both in Australia and overseas, because the High Court was, at the time,
the most superior court to have heard these issues. The case presented
a good example of the challenges the internet poses to the present
legal paradigm and will be considered at length.30 For example, in
relation to the issue of whether a Victorian court had authority to hear
the dispute and, if so, what law should apply, the court had to
determine where the tort had taken place.
Dow Jones published an article in its weekly hard-copy financial
magazine Barron’s and in an online edition of the magazine where the
article was available to download from a subscription website. The
article alleged that Gutnick was a tax evader and a money launderer.
The relevant edition sold 305,563 print copies, some of which were sold
in

[page 506]

Victoria. Dow Jones confirmed that 1700 subscribers paid their

subscriptions with credit cards from Australia. Gutnick was able to
prove that the article had been downloaded by 300 Victorians and that
an additional 14 Victorians had seen the print version.
Gutnick instituted proceedings in the Supreme Court of Victoria
alleging publication of defamatory matter through both the online and
hard copies of Barron’s sold in Victoria. Strategically, Gutnick limited
his claim to damage suffered to his reputation in Victoria through the
publication of the article in Victoria. Gutnick was a Victorian resident
whose business was primarily based in Victoria. While his business and
charitable interests did extend abroad, his business and social life were
principally in Victoria.
Dow Jones was a US-based corporate entity. Its corporate
headquarters were in New Jersey, its editorial offices were in New York
and the web servers upon which the article was uploaded were also in
New Jersey. Dow Jones argued that the dispute should be heard in the
US, applying the law of New Jersey, where it would be able to take
advantage of the significant defences afforded by the US constitutional
protection of freedom of speech.
It was held in the High Court (Gleeson CJ, McHugh, Gummow,
Hayne, Gaudron, Kirby and Callinan JJ) that Victoria had jurisdiction
to hear the dispute applying Victorian law and, further, that Victoria
was not a clearly inappropriate forum.

A new law for the internet?

13.28 Their Honours concurring in the joint judgment in Dow Jones
& Co Inc v Gutnick (2002) 210 CLR 575 (Gleeson CJ, McHugh,
Gummow and Hayne JJ, with whom Gaudron J agreed) found that the
internet did not necessitate modification of the existing defamation
law, which had proved able to contend with other widely disseminated
communications. Their Honours were not moved by the defendant’s
fears of virtually unlimited liability and canvassed the possibility of the
development of a new defence for internet publishers on the grounds
of reasonableness.
Callinan J largely agreed with their Honours concurring in the joint
judgment, but noted that Dow Jones was engaged in international
business for profit through their subscription website and, as such,
‘they can hardly be expected to be absolved from compliance with the
laws of those countries’: at 649–50.
Kirby J took a different approach, agreeing with Dow Jones that the
technological features of the internet required that the law, its
underlying principles and policy be reconsidered. However, Kirby J
regarded the present proceedings as an inappropriate place to
undertake the necessary reformulation. By their very nature, adversarial
proceedings did not allow the requisite degree of consultation with
industry, government and other key players. His Honour felt a truly
international and more appropriate resolution could be achieved
through the admittedly slow process of continuing multilateral
international negotiations in order to ensure ‘national legislative
attention’ and ‘international discussion in a forum as global as the
Internet itself’: at 639–40 and 642–3.

[page 507]
 Kirby J considered that internet publishers could take reasonable and
practical steps in order to limit their fear of unlimited liability, for
example, through a consideration of the law of the jurisdiction of the
subject’s habitual residence, which is most likely to be the place of loss
of reputation. His Honour’s concerns were tempered by the reality of
the expense of bringing multiple suits and the prime restriction that
the plaintiff must have a reputation to be vindicated in the jurisdiction.
While Kirby J shared their concern that internet publication could give
rise to significant legal difficulties where a plaintiff sought to vindicate
damage to their reputation in multiple jurisdictions arising from a
single internet posting, downloaded worldwide, this was not an issue in
the present case. Gutnick had framed his case in such a way that these
concerns were not before the court. The action was limited to damage
to the plaintiff’s reputation in Victoria, as the place of his residence
and centre of his business undertakings.
No member of the court accepted the defendant’s contention that a
new rule be adopted such that publication be taken to occur at point of
upload.
These and related issues have received more attention following Dow
Jones v Gutnick. For example, recent cases have explored the issue as to
whether passive facilitators of the dissemination of defamatory material
should be regarded as ‘publishers’. In Bunt v Tilley [2007] 1 WRL 1243
and Metropolitan International Schools Ltd t/as Skills Train and/or
Train2Game v Designtechnica Corp t/as Digital Trends [2009] EWHC 1765
(QB), Eady J found that the defendants, an ISP in the former case and
a search engine (Google) in the latter case, were not publishers but
merely passive facilitators.31 In a different context, the High Court held
recently that Google had not engaged in misleading and deceptive
conduct in breach of s 52 of the former Trade Practices Act 1974 (Cth)
by publishing misleading sponsored links which it had not created:
Google Inc v Australian Competition and Consumer Commission (2013) 294
ALR 404.
It has been said that the judgments of Eady J in Bunt and Metropolitan
International Schools should be viewed in light of the facts in those cases:
Trkulja v Google (No 5) [2012] VSC 533 at [28]. In Trkulja it was held:
 To say as a general principle that if an entity’s role is a passive one then it cannot be a
publisher, would cut across principles which have formed the basis for liability in the
newsagent/library type cases and also in those cases where someone with power to
remove a defamatory publication chooses not to do so in circumstances where an
inference of consent can be drawn.

The court considered the issue of whether Google was a publisher in

the context of an application by Google to set aside the writ on the
basis it had no real prospect of success. In this respect the court held,
relevantly, that assuming in Google’s favour it had no intention of
publishing the particular combination of words or images said to be
defamatory, it did not follow that the plaintiff had no real prospect of
establishing at trial

[page 508]

that Google was a publisher of that material. To the contrary, the court
held, provided that Google had an intention to publish the results that
its search engine produced, Google may still be found to be a
publisher: at [21].
Further, in Duffy v Google Inc [2015] SASC 170, it was held that
Google was a publisher of allegedly defamatory paragraphs on its
websites and a republisher via hyperlinks to defamatory ‘Ripoff Report’
webpages. Google was found liable as a secondary publisher because it
had failed to delete all the material after being notified of the
defamatory websites and associated hyperlinks; see also Bleyer v Google
Inc (2014) 88 NSWLR 670; [2014] NSWSC 897 at [65]–[85].

Jurisdiction
13.29 In order to determine where the tort had been committed in
Dow Jones & Co Inc v Gutnick (2002) 210 CLR 575, their Honours
concurring in the joint judgment applied the test of ‘where in
substance did this cause of action arise’: at 606. Their Honours
considered this to be the appropriate test, despite the fact that it had
been established in an entirely different context in Distillers Co
(Biochemicals) Ltd v Thompson [1971] AC 458, and subsequently
approved by the High Court in Voth v Manildra Flour Mills Pty Ltd
(1990) 171 CLR 538. The place in substance where the cause of action
arose was found to be the place where damage to reputation was
suffered: the point of download. Callinan J considered that it was highly
inappropriate to use a test for jurisdiction to determine the place of
publication in a defamation law context. Kirby J agreed that the act
complained of in defamation law was the place of publication, but did
not specifically agree that this included the point of download. His
Honour considered that the place of publication would include
Victoria, at the very least as the place of residence of the plaintiff.
The court was accordingly unanimous that the existing rules of
defamation were to be applied to the internet and that the place of
publication included Victoria. All members of the court agreed that, as
Gutnick alleged damage to his reputation in Victoria arising from the
publication of the article, jurisdiction was established.

Choice of law
13.30 Their Honours concurring in the joint judgment in Dow Jones
& Co Inc v Gutnick (2002) 210 CLR 575 determined that the dispute
should be determined applying Victorian law, as Gutnick’s claim sought
only to vindicate damage to his reputation caused by publication in
Victoria. Callinan J agreed that given that publication had occurred in
Victoria, Victorian law should apply to determine the dispute between
the parties. While cognisant of the difficulties this would pose to
internet publishers, Kirby J concurred that the focus of the choice of
law inquiry should be upon the place of publication, which, in his
opinion, included Victoria.

[page 509]

Forum non conveniens

13.31 Supreme Court (General Civil Procedure) Rules 2005 (Vic) r
7.05(2)(b) provides that the court has discretion to stay proceedings
where ‘Victoria is not a convenient forum for the trial of the
proceeding’. The primary judge had decided not to exercise this
discretion. The High Court could not overturn this exercise of
discretion unless error warranting disturbance was shown. The entire
court agreed that no such error could be shown in this case. Victoria
had jurisdiction to determine the dispute applying Victorian law, and
Victoria was the place where the wrong had been committed. There was
no basis upon which to set aside the exercise of discretion.

Enforcement of foreign judgments, internet

publication and defamation
13.32 The complex legal and technical issues evoked by the internet,
such as jurisdiction, are closely related to issues pertaining to the
enforcement of foreign judgments in internet-based litigation.
Particularly in the arena of defamation law, the dominance of the
United States in internet publication is likely to have significant
bearing. The attitude of its courts is more likely to be determinative of
the extent to which a plaintiff in an action for defamation arising over
the internet is likely to be successful in the enforcement of judgments
in their favour. For example, even if a plaintiff such as Gutnick were
successful in his or her defamation action, it remains to be seen
whether any resulting judgment is enforceable outside the jurisdiction:
see Australian Competition and Consumer Commission v Chen (2003) 201
ALR 40. The publisher may not have sufficient assets in the jurisdiction
against which the judgment could be enforced. Should the publisher
have substantial assets in the United States, the plaintiff may seek to
have the Australian judgment enforced in a United States court.
A United States court would be entitled to re-examine the authority
of the Australian court to hear and determine the dispute. Rather than
focusing on the place of publication, the United States courts take a
different approach to determining jurisdiction and consider the effects
of the defendant’s action, the nature of the website upon which the
material was published and whether the website targeted the
jurisdiction in which the plaintiff claims to have been defamed: see
Calder v Jones 465 US 783 (1984); Zippo Manufacturing Co v Zippo Dot
Com, Inc 952 F Supp 1119 (WD Pa 1997); Young v New Haven Advocate
315 F 3d 256 (4th Cir 2002); Revell v Lidov 317 F 3d 467 (5th Cir 2002);
and Pavlovich v Superior Court and DVD Copy Control Association Inc 29 Cal
4th 262 (2002).

_______________
1 By Anne Matthew, LLB (UQ), LLM (QUT), Faculty of Law, Queensland University of
Technology. Updated by Samantha Traves.
2 UNCTAD, Electronic Commerce: Legal Considerations, 15 May 1998, p 3,
<http://www.uncitral.org/uncitral/en/uncitral_texts/electronic_commerce.html>.
3 Information Economy 2002: Delivering the Future, Government of South Australia, available at
<http://www.egov.vic.gov.au/pdfs/ie2002.pdf>.
4 Federal Government Department of Communications, Information Technology and the
Arts, Future Directions of the Digital Economy.
5 UNCTAD, Electronic Commerce — Legal Considerations, 15 May 1998, p 4 citing Schware and
Kimberley, Information Technology and National Trade Facilitation, World Bank Technical
Paper No 317, World Bank, Washington DC, 1995, p 19.
6 UNCTAD, Building Confidence: Electronic Commerce and Development, 1 February 2000, p 24.
7 Explanatory Memorandum to the Privacy Amendment (Private Sector) Bill 2000.
8 See Australian Law Reform Commission, IP 43 Serious Invasions of Privacy in the Digital Era,
issues paper, 8 October 2013.
9 UNCTAD, Building Confidence — Electronic Commerce and Development, 1 Feb 2000, p 39.
10 UNCTAD, Electronic Commerce: Legal Considerations, 15 May 1998, p 58.
11 Having been acceded to by Honduras (15 June 2010), Singapore (7 July 2010) and the
Dominican Republic (2 August 2012). Three member nations need to accede to the
Convention in order for it to become operative, that is, binding internationally. To be
binding in the internal law of a country, it must be implemented into the law through the
passage of legislation which sets down as domestic law the provisions of the Convention
12 Dr Alan Davidson, Adoption of the United Nations Convention on the Use of Electronic
Communications in International Contracts: A Critique, <http://www.law.uq.edu.au/>.
13 ‘Electronic communication’ is defined to mean ‘any communication that the parties make
by means of data messages’: Art 4(b). ‘Data message’ means ‘information generated, sent,
received or stored by electronic, magnetic, optical or similar means, including, but not
limited to, electronic data interchange, electronic mail, telegram, telex or telecopy’: Art
4(c).
14 Some contracts are excluded: Art 2.
15 ‘Automated message system’ is defined to mean ‘a computer program or an electronic or
 other automated means used to initiate an action or respond to data messages or
performances in whole or in part, without review or intervention by a natural person each
time an action is initiated or a response is generated by the system’: Art 4(g).
16 Report of the Electronic Commerce Expert Group to the Attorney-General, Electronic
Commerce: Building the Legal Framework, 31 March 1998.
17 See also: Electronic Transactions Act 2001 (ACT) s 7; Electronic Transactions Act 2000
(NSW) s 7; Electronic Transactions (Northern Territory) Act 2000 (NT) s 7; Electronic
Transactions (Queensland) Act 2001 (Qld) s 8; Electronic Transactions Act 2000 (SA) s 7;
Electronic Transactions Act 2000 (Tas) s 5; Electronic Transactions (Victoria) Act 2000
(Vic) s 7; Electronic Transactions Act 2011 (WA) s 8.
18 See further: Cth s 9; ACT s 8; NSW s 8; NT s 8; Qld s 9; SA s 8; Tas s 6; Vic s 8; WA s 9.
19 See further: Cth s 10; ACT s 9; NSW s 9; NT s 9; Qld s 14; SA s 9; Tas s 7; Vic s 9; WA s 10.
20 See further: Cth s 11; ACT s 10; NSW s 10; NT s 10; Qld s 16; SA s 10; Tas s 8; Vic s 10; WA
s 11.
21 See further: Cth s 12(1); ACT s 11(1); NSW s 11(1); NT s 11(1); Qld s 19; SA s 11(1); Tas s
9(1); Vic s 11(1); WA s 12.
22 See further: Cth s 12(1); ACT s 11(1); NSW s 11(1); NT s 11(1); Qld s 19; SA s 11(1); Tas s
9(1); Vic s 11(1); WA s 12.
23 The wording is different in WA. There, s 14 provides that the time of receipt to a non-
designated address is when both the electronic communication has become capable of
being retrieved and ‘the addressee has become aware that the electronic communication
has been sent to that address’: Electronic Transactions Act 2011 (WA).
24 See: Cth s 14; ACT s 13; NSW s 13; NT s 13; SA s 13; Qld ss 24 and 25; Tas s 11; Vic s 13;
WA s 14.
25 See: Cth s 14; ACT s 13; NSW s 13; NT s 13; Qld ss 23 and 25; SA s 13; Tas s 11; Vic s 13;
WA ss 13 and 15.
26 See: Cth s 15; ACT s 14; NSW s 14; NT s 14; Qld s 26; SA s 14; Tas s 12; Vic s 14; WA s 16.
27 See further in this context Australian Law Reform Commission, IP 43 Serious Invasions of
Privacy in the Digital Era, issues paper, 8 October 2013.
28 A telex is a now-superseded method formerly used to transmit printed messages via
telephone lines.
29 <www.kentlaw.edu/cyberlaw>.
30 See further B Fitzgerald and S X Shi, ‘Chapter 20: Civil jurisdiction, intellectual property
and the internet’ [2008] SydUPLawBk 26, in B Fitzgerald, F Gao, D O’Brien and S X Shi
(eds), Copyright Law, Digital Content and the Internet in the Asia-Pacific (2008) 381.
31 See further David Rolph, ‘Publication, Innocent Dissemination and the Internet after Dow
Jones & Co Inc v Gutnick’ (2010) 33 UNSW Law Journal 562.
Index

References are to paragraphs

A
Abandonment
abandoned chattel
occupier becoming owner …. 3.6
acquisition of ‘ownerless’ property …. 3.2
bailors
rights of possession or property …. 9.30
divesting ownership of chattel …. 3.2
elements of …. 3.3
intention by owner to abandon …. 3.2, 3.5
physical act of abandoning …. 3.4
finding dispute …. 3.1
loss of ownership …. 2.16, 3.2
meaning …. 3.2
Accession, doctrine of
acquisition of ownership by …. 4.2
chattel annexed to another …. 4.1
detachment of chattel …. 4.2
intention of owner of
 principal chattel …. 4.2
‘principal’ and ‘accessory’ …. 4.2
definition …. 4.2
effect of …. 4.3
principles of …. 4.2
remedies of owner of accessory …. 4.4
specification, intermixture and, compared …. 4.5–4.11
transfer of property and title in goods …. 8.50
Agency see also Agents
actual express authority …. 5.6
actual implied authority …. 5.7
conduct of parties …. 5.7
course of dealing, by …. 5.7
customary authority …. 5.7
incidental authority …. 5.7
usual authority …. 5.7
agent’s authority, sources of …. 5.5
ostensible authority …. 5.5
capacity required
agent …. 5.4
principal …. 5.3
concept of …. 5.1
descriptions …. 5.1
doctrine of attribution, and …. 5.36
general rules …. 5.38
exceptions …. 5.38
primary rules …. 5.37
special rules …. 5.39
 Tesco principles …. 5.37
vicarious liability distinguished …. 5.36
imputed knowledge …. 5.35
operation of law, by …. 5.39, 5.43
agency of necessity …. 5.39
ostensible agency and forgery …. 5.24
ostensible authority …. 5.8, see also Ostensible authority
practical methodology
whether person agent of principal …. 5.2
proving agency …. 5.54
ratification, doctrine of …. 5.26
acquiescence and estoppel, distinguished by …. 5.31
act of ratification …. 5.29
authority to ratify …. 5.28
communication of …. 5.30
contract expressly entered, on behalf of principal …. 5.27
exceptions to …. 5.34
knowledge of circumstances by principal …. 5.32
process of …. 5.26
ratification of the whole …. 5.33
termination of authority …. 5.51
undisclosed principal, doctrine of …. 5.40
application of doctrine …. 5.41
limits on …. 5.42
Agents see also Agency
actual authority
express …. 5.6
implied …. 5.7
 authority, sources of …. 5.5
capacity required …. 5.4
duties …. 5.40, 5.44
liability to third party, where no authority …. 5.48
agent personally liable on contract …. 5.49
breach of warranty of authority …. 5.50
ostensible authority …. 5.8, see also Ostensible authority
person, whether agent of principal …. 5.2
principal and agent, relationship …. 5.1
principals’ duties and agents’ rights
indemnity …. 5.46–5.47
lien …. 5.46
remuneration …. 5.45
termination of authority by parties …. 5.51–5.52
operation of law, by bankruptcy or insolvency …. 5.53
death …. 5.53
insanity …. 5.53
Assignment
after-acquired property …. 1.22
agency, of …. 5.51
choses in action …. 1.21
equity, in …. 1.21
legal assignment …. 1.21
Australian Bankers’ Association Codes of Conduct
guarantees, regulation of …. 12.31
Australian Consumer Law
application …. 6.1
financial products and services, exception …. 7.2
 non-excludable …. 6.1
‘applied ACL’ as law of the states and territories …. 6.1, 7.1
Commonwealth Consumer Affairs Advisory Council (CCAC) …. 7.1
concurrent operation of state and territory laws …. 6.1
conduct in trade or commerce …. 7.1
consumer guarantees see Consumer guarantees
defective goods …. 6.1
enforcement …. 7.2
goods
correspondence with description …. 6.21
defective goods …. 6.1
fitness for purpose …. 6.31
merchantable quality …. 6.39
non-excludable …. 6.1
sale by sample …. 6.44
law of the Commonwealth …. 6.1, 7.1, 7.2
national approach …. 6.1
persons injured by unsafe goods …. 7.25
supply of goods and services, conduct …. 6.1, 7.3
transactions and conduct prior to 1 January 2011 …. 6.1
2008 Review of Australia’s Consumer Policy Framework …. 7.1
Australian Prudential Regulation Authority (APRA)
general insurers’ requirements …. 11.3
protection of interest of policy holders …. 11.3
prudential standards for insurers …. 11.3, 11.4
Financial Sector (Collection of Data) Act 2001 (Cth) …. 11.4
regulation of bodies in financial sector …. 11.3
Australian Securities and Investment Commission (ASIC)
 insurance and financial services
Financial Reporting Council …. 11.3
regulation and administration of laws …. 11.3
Australian Securities and Investments Commission Act 2001
(Cth)
regulation of guarantees …. 12.31
Authority
agent, of
actual express authority …. 5.6
actual implied authority …. 5.7
ostensible authority …. 5.5, 5.8, see also Ostensible authority
termination of …. 5.51–5.52

B
Bailees see also Bailment
definition …. 9.1
delegation of performance of bailment …. 9.36
delivery of goods bailed …. 9.15
duty of care …. 9.13, 9.14
knowledge and consent
bailment, for …. 9.4
liability for acts of employees …. 9.28
transfer of property and title in goods
risk, obligations as bailee …. 8.27
Bailment see also Bailees; Bailors
abandonment …. 9.30
bailee, knowledge and consent of …. 9.4
bailment for reward …. 9.22
 custody for reward …. 9.24
hire of chattels for reward …. 9.27
hire of work and labour …. 9.25
legislative provisions
Australian Consumer Law …. 9.23
Fair Trading Acts …. 9.23
Trade Practices Act …. 9.23
pledge …. 9.26
classification of bailments …. 9.13
bailments for reward …. 9.13
gratuitous bailments …. 9.13
context of other relationships, in …. 9.5
deposits of money …. 9.9
hire purchase …. 9.7
mutuum …. 9.8
sale …. 9.6
sub-bailment …. 9.10
contract, and …. 9.12
creation of …. 9.1
definition …. 9.1
delegation of performance of by bailee …. 9.36
delivery, and …. 9.3
possession …. 9.3
deposit …. 9.19
duties common to bailments
bailee, duty of care of …. 9.14
goods bailed, to deliver …. 9.15
quality of goods, bailor’s obligations …. 9.17
 terms of bailment
not to deviate or convert …. 9.16
enforcement
breach of obligation to take due care …. 9.32
conversion, damages for …. 9.33–9.34
detinue, for delivery up of goods …. 9.33–9.34
right granted by contract, action based on …. 9.33
trespass to goods, damages for …. 9.33
essential feature of …. 9.1
exemption clauses …. 9.35
gratuitous bailment …. 9.18
deposit …. 9.19
gratuitous loan for use …. 9.21
mandate …. 9.20
joint bailment …. 9.11
occupiers, and …. 9.29
onus of proof …. 9.32
possession, right of actions depend on …. 9.34
PPSA
effect of …. 9.2
provisions, purpose of …. 10.8
sub-bailments …. 9.35
tangible chattels in relation to …. 9.1
termination …. 9.31
Bailors
definition …. 9.1
obligation as to quality of goods …. 9.17
Bankruptcy
 agent, termination of authority …. 5.51
Browsewrap agreements …. 13.26
Buyers see Sale of goods; Transfer of property and title

C
Carriers
special rules of delivery relating to …. 6.15
Causation
insurance claim, making …. 11.35
Chattels …. 1.2
ability to alienate …. 1.3
bailment …. 9.1, see also Bailment
hire of chattels for reward …. 9.27
changing nature of chattel …. 4.1
accession, doctrine of …. 4.1, 4.2–4.4, 4.11
fixtures …. 4.12
intermixture …. 4.6–4.10, 4.11
specification …. 4.5, 4.11
chattels personal …. 1.6
choses in action …. 1.8, see also Choses in action
choses in possession …. 1.7, see also Choses in possession
chattels real …. 1.6
definition …. 6.5
finding …. 3.2, see also Finding
meaning …. 1.6
mortgages …. 1.15
ownership …. 2.16
 more than one person …. 2.16
possession …. 2.3, see also Possession
possessory liens …. 1.16
property rights …. 2.2, see also Property rights
Choses in action …. 1.2
definition …. 1.8
equitable …. 1.8
legal …. 1.8
personalty …. 1.6
transfer of …. 1.18
assignment …. 1.21, 1.22
Choses in possession …. 1.2
frozen sperm …. 1.7
human tissue …. 1.7
law regulating use and disposition …. 1.7
meaning …. 1.7
personalty …. 1.6
transfer of …. 1.18
gift …. 1.20
Clickwrap agreements …. 13.25
Compensation
accession
owner of accessory chattel …. 4.4
Competition and Consumer Act 2010 (Cth)
Australian Consumer Law (ACL) see Australian Consumer Law
conduct in trade or commerce …. 7.1
consumer guarantees see Consumer guarantees
law of the Commonwealth …. 7.1
 national approach …. 6.1
supply of goods and services, conduct …. 6.1
Consideration
guarantees …. 12.3
Consumer Credit Code
guarantees …. 12.11
regulation of …. 12.31
Consumer guarantees
acceptable quality …. 7.8
abnormal use of goods, exception …. 7.10
durability …. 7.1
examination of goods, exception …. 7.11
objective assessment …. 7.8
representations …. 7.8
second-hand goods …. 7.8
sold ‘as is’ …. 7.8
two-step inquiry …. 7.8
action against manufacturer …. 7.20
acceptable quality …. 7.21
correspondence with description …. 7.22
indemnification of suppliers by manufacturers …. 7.24
spare parts and express warranties …. 7.23
action against supplier
‘major failure’ …. 7.18
rejection of goods …. 7.19
consumer, meaning …. 7.4
contracts for the supply of goods …. 7.1
correspondence with description …. 6.21, 7.13
 interpretation …. 7.13
prior inspection of goods, and 7.13
sale by description …. 7.13
defective goods …. 6.1
due care and skill …. 6.3
work and materials …. 6.3
exceptions …. 7.3, 7.9
private sales by individuals …. 7.3
sale by auction …. 7.3
express warranties
manufacturer …. 7.16
oral statements …. 7.16
pre-contractual statements …. 7.16
supplier …. 7.16
fitness for purpose …. 6.31, 7.8, 7.12
reasonably fit for disclosed purpose …. 7.12
definition …. 7.12
elements …. 7.12
goods acquired for personal or domestic use …. 7.3
goods supplied in trade or commerce …. 7.3
manufacturers and suppliers …. 6.1
merchantable quality …. 6.39
non-excludable …. 6.1
remedies for non-compliance …. 7.18
action against manufacturer …. 7.20–7.24
action against suppliers …. 7.18
repairs and spare parts …. 7.15
reasonably available for reasonable period …. 7.15
sale by sample …. 6.44
 demonstration model …. 7.14
free from defect …. 7.14
title …. 7.5
‘supply of limited title’ …. 7.5
undisclosed securities …. 7.7
goods, free from security, charge or encumbrance …. 7.7
undisturbed possession …. 7.6
Content protection technology (CPT)
intellectual property rights, protection …. 13.11
Contract law
electronic commerce, and …. 13.23
acceptance …. 13.23
browsewrap agreements …. 13.26
clickwrap agreements …. 13.25
instantaneous communications, rule …. 13.23
postal rule …. 13.23
shrinkwrap agreements …. 13.24
Contracts
agent personally liable on …. 5.45
bailment, and …. 9.12
bailor and bailee, enforcement of rights …. 9.33
insurance …. 11.7, see also Insurance
sale of goods …. 6.2, 6.3, see also Sale of goods
CIF or FOB contracts, acceptance …. 6.46
specific performance …. 6.42
transfer of property or title …. 8.1, see also Transfer of property
and title
Contracts Review Act 1980 (NSW)
 guarantees, regulation of …. 12.31
Contribution
guarantees …. 12.38
Conversion
damages …. 2.15
bailment …. 9.32
features …. 2.15
trover for wrongful conversion of goods …. 2.12, 2.15
Corporations
control of …. 5.37
Tesco principles …. 5.37
doctrine of attribution, and …. 5.36
general rules …. 5.38
primary rules …. 5.37
special rules …. 5.39
imputed knowledge, and …. 5.37
Corporations Act 2001 (Cth)
financial service providers …. 11.2
Council of Europe Convention on Cybercrime
e-commerce, development of …. 13.11
restraints …. 13.7–13.10
Creditors
guarantees …. 12.1
purpose and nature of …. 12.2
Custody
bailment
custody for reward …. 9.24
delivery, and …. 9.3
 possession, form of …. 2.4, 2.5
Cybercrime Act 2001 (Cth)
e-commerce …. 13.22

D
Damages
conversion …. 2.15
bailment …. 9.32
trespass to goods …. 9.33
infringement of property right …. 2.2
sale of goods
non-acceptance …. 6.53
non-delivery or delayed delivery …. 6.49
remedy for defective instalment deliveries …. 6.48
trespass to goods …. 2.13
Defamation
internet publications …. 13.32
Delivery
actual or constructive …. 2.3
bailment, and …. 9.3
definition …. 2.3
transfer of property and title in goods …. 8.1, see also Transfer of
property and title
Detinue
bailment, action in …. 9.33
remedy in …. 2.14
wrongful detention of goods …. 2.12, 2.14
Digital rights management system (DRMS)
intellectual property rights, protection …. 13.11
Disclosure
eligible contracts of insurance, and
domestic and personal lines of insurance …. 11.16
eligible contract, definition …. 11.16
guarantees, non-disclosure …. 12.28
insured, when matter known by …. 11.9
insured’s duty of disclosure …. 11.8
clarity, requirement of …. 11.8
failure …. 11.8
test of materiality …. 11.8
matters not needed to be disclosed …. 11.13
insurer deemed to know something …. 11.14
waiver of disclosure, insurer by …. 11.15
matters relevant to insurer’s decision to accept risk …. 11.10
non-disclosure, consequences …. 11.17
fraud …. 11.17
remedies …. 11.17
reasonable insured …. 11.12
extrinsic factors …. 11.12
Duress
guarantees, setting aside …. 12.29
Duty of care
bailees …. 9.13
reasonable care …. 9.14
E
E-commerce see also Internet
attribution of communications …. 13.21
Australian approach to regulation
Cybercrime Act 2001 (Cth) …. 13.22
Electronic Transactions Acts …. 13.12, see also Electronic
Transactions Act 1999 (Cth)
Privacy Amendment (Enhancing Privacy Protection) Act 2012
(Cth) …. 13.22
Privacy Amendment (Private Sector) Act 2000 (Cth) …. 13.22
Spam Act 2003 (Cth) …. 13.22
computers …. 13.1
contract law, and …. 13.23
browsewrap agreements …. 13.26
clickwrap agreements …. 13.25
shrinkwrap agreements …. 13.24
definition
United Nations Conference on Trade and Development
(UNCTAD) …. 13.1
development, restraints on …. 13.7–13.10
access …. 13.8
confidence in e-commerce …. 13.9
security …. 13.10
dispatch of electronic communications …. 13.20
electronic data interchange (EDI) …. 13.1
electronic technologies, use of …. 13.1
electronic transactions, validity …. 13.13
email …. 13.1
internet, growth of …. 13.1, 13.3, see also Internet
 growth of e-commerce on …. 13.6
information economy …. 13.6
jurisdiction …. 13.29
authority to hear and determine dispute …. 13.27, 13.29
choice of law …. 13.27, 13.30
enforcement of foreign judgments …. 13.32
forum non conveniens …. 13.27, 13.31
internet publication and defamation …. 13.32
law for the internet …. 13.28
receipt of electronic communications …. 13.19
regulation of the internet
content protection technology (CPT) …. 13.11
Council of Europe Convention Cybercrime …. 13.11
digital rights management systems (DRMS) …. 13.11
UN Convention on the Use of Electronic Communications in
International Contracts …. 13.11
UNCITRAL Model Law on Electronic Commerce …. 13.11
UNCITRAL Model Law on Electronic Signatures …. 13.11
United Nations Commission on International Trade Law
(UNCITRAL) …. 13.11
restraints on development of …. 13.7–13.10
access …. 13.8
confidence in e-commerce …. 13.9
security …. 13.10
satisfying legal requirements as to
information in writing …. 13.14
keeping records of information in writing …. 13.17
producing documents …. 13.16
providing signatures …. 13.15
 retaining documents and communications …. 13.18
Electronic communication technology see E-commerce;
Internet
Electronic data interchange (EDI) …. 13.1
Electronic Transactions Act 1999 (Cth)
attribution …. 13.21
contract law, and …. 13.23
electronic commerce …. 13.11
Electronic Commerce Expert Group …. 13.12
objectives of legislation …. 13.12
electronic communications
dispatch of …. 13.20
receipt of …. 13.19
guarantees …. 12.13
satisfying legal requirements as to
information in writing …. 13.14
keeping records of information in writing …. 13.17
producing documents …. 13.16
provision of signature …. 13.15
retaining documents and communications …. 13.18
validity of electronic transactions …. 13.13
Emblements …. 6.5
Employees
bailees, liability for acts of …. 9.28
Equitable charge
security interest …. 1.11, 1.14, 1.17
Estoppel
nemo dat rule, exceptions to …. 8.30, 8.31
 estoppel by omission …. 8.33
estoppel by representation …. 8.32
ratification of agency …. 5.31

F
Fair Trading Acts
bailment for reward …. 9.24
guarantees, regulation of …. 12.25, 12.31
Financial Reporting Council …. 11.3
Financial Sector (Collection of Data) Act 2001 (Cth) …. 11.4
Financial service providers
regulation …. 11.2
Financial services
regulation of by ASIC …. 11.3
Finding
abandonment …. 3.2–3.6, see also Abandonment
Aboriginal objects …. 3.10
meaning of …. 3.10
protection …. 3.10
acquiring priority of entitlement
identification of owner …. 3.7
Parker principles …. 3.7, 3.8
finding goods in course of employment …. 3.8
‘in or attached to land’ …. 3.8
items attached to land …. 3.8
title to goods …. 3.7
treasure trove …. 3.9
 definition …. 3.9
development of doctrine …. 3.9
finding dispute, definition …. 3.1
goods lost or abandoned …. 3.1
Fixtures
meaning …. 4.12
object attached to land …. 4.12
tenant’s fixture …. 4.12
test of …. 4.12
Forgery
ostensible authority, and …. 5.24
Fraud
fraudulent insurance claims …. 11.38–11.43

G
General Insurance Code of Practice (GICP)
general insurers, requirements …. 11.5
objectives …. 11.5
General Insurance Reform Act 2001 (Cth) …. 11.2, 11.4
Gifts
declaration of trust …. 1.20
deed, by …. 1.20
definition …. 1.20
inter vivos …. 1.20
oral or written words …. 1.20
ownership of goods …. 2.16
real or personal property …. 1.20
 will, by …. 1.20
Good faith
insurance contracts …. 11.20–11.23
Goods see also Chattels; Personal property; Sale of goods
bailment …. 9.1, see also Bailment
correspondence with description …. 6.21
defective goods …. 6.1
definition …. 6.5
finding dispute …. 3.1, see also Finding
fitness for purpose …. 6.31
merchantable quality …. 6.39
non-excludable …. 6.1
ownership …. 2.16
possession …. 2.3, see also Possession
proprietary right …. 2.2
sale by sample …. 6.44
transfer of property and title in …. 8.1, see also Transfer of property
Guarantees
co-guarantors …. 12.1
consideration …. 12.3
terms on face of guarantee …. 12.3
co-sureties …. 12.1
creditor …. 12.1
definition …. 12.1
formalities
Consumer Credit Code …. 12.11
Electronic Transactions Acts …. 12.12
Statute of Frauds …. 12.10
 guarantor …. 12.1, see also Guarantors
principal debtor …. 12.1
primary obligation …. 12.2, 12.4
purpose and nature of
agreement between creditor and guarantor …. 12.2
principal debtor’s obligations …. 12.2
secondary obligation of guarantor …. 12.2
rules of construction
terms of a guarantee …. 12.18
similar commercial transactions, distinguished …. 12.19
indemnities …. 12.20
insurance …. 12.21
statutory regulation
creditors conduct, and …. 12.31
vitiating factors
independent legal advice …. 12.30
defective advice …. 12.30
purpose of …. 12.30
requirements of solicitor …. 12.30
non-disclosure …. 12.28
setting aside guarantee on other grounds …. 12.29
unconscionability …. 12.25
undue influence …. 12.16
Yerkey v Jones, rule in …. 12.27
Guarantors …. 12.1
collateral obligation of
all moneys clauses …. 12.8
co-extensive, must be …. 12.6
 continuing collateral obligations …. 12.7
revocation of …. 12.9
secondary obligation …. 12.5
discharging liability of
agreement to the contrary …. 12.22
grounds for discharge
breach by creditor …. 12.23
novation …. 12.23
release of principal debtor …. 12.23
variation of agreement …. 12.23
Marston contention …. 12.24
personal liability of
element of guarantee, not necessary as …. 12.13
Statute of Frauds, and …. 12.14
rights of …. 12.32
contribution …. 12.38
indemnity …. 12.33
restitution …. 12.34
creditor, claim for reimbursement …. 12.36
principal debtor, claim for reimbursement …. 12.35
subrogation …. 12.37
Statute of Frauds …. 12.14
English position
Actionstrength Ltd v International Glass Engineering IN.GL.EN
SpA …. 12.16
High Court of Australia
Harvey v Edwards, Dunlop & Co Ltd …. 12.15
reconciling the decisions …. 12.17
H
Hire purchase
bailment, and …. 9.7

I
Illegality
guarantees, setting aside …. 12.29
Indemnities
agents …. 5.43
guarantees, and, distinguished …. 12.19, 12.20
guarantors, rights of …. 12.32
Independent legal advice
guarantees …. 12.30
Information economy
access …. 13.8
growth of e-commerce, and …. 13.6
Insurance see also Insurance Contracts Act 1984 (Cth)
accident insurance …. 11.1
breach by insured of term in policy
acts and omissions …. 11.28
common law position …. 11.28
Insurance Contracts Act 1984 (Cth)
application of s 54 …. 11.29
examples of application …. 11.30–11.32
insurer’s remedy for …. 11.33
proposals for reform of s 54
FAI General Insurance Company v Australian Hospital Care Pty
 Ltd …. 11.32
claim, making
causation …. 11.35
delay in notification of claim …. 11.37
loss covered by policy …. 11.34
made against insurer
whether in fact made …. 11.36
contract of insurance, formation
good faith …. 11.7
insurable interest …. 11.7
non-party insured …. 11.7
parties to …. 11.7
payment of premium …. 11.7
proposal for …. 11.7
third-party beneficiaries, recovery …. 11.7
time at which cover commences …. 11.7
disclosure …. 11.8–11.17, see also Disclosure
double insurance and contribution …. 11.52
amount of contribution where double insurance …. 11.55
nature of …. 11.53
other insurance, obligation to notify of …. 11.54
fire insurance …. 11.1
fraudulent claims
co-insured, effect on others and third parties …. 11.41
effect of …. 11.39
Insurance Contracts Act 1984 (Cth)
ss 13, 54 and 56, interaction between …. 11.42
meaning of …. 11.38
not fraudulent
 proof that claim falls within policy …. 11.43
valid claim supported by false evidence …. 11.40
value of claim exaggerated …. 11.40
good faith, duty of
application of …. 11.21
insured, and …. 11.22
insurer, and …. 11.23
remedy for breach …. 11.21
guarantees and contracts of, distinguished …. 12.19, 12.21
life insurance …. 11.1
Life Insurance Act 1995 (Cth) …. 11.2
marine insurance …. 11.1
misrepresentation …. 11.18
consequences …. 11.20
excluded misrepresentations …. 11.19
statement, when is …. 11.18
policy of insurance
contract, structure of …. 11.25
documentation of contract …. 11.24
meaning of policy
principles of construction …. 11.26
unusual terms …. 11.27
regulation of insurance industry …. 11.1, 11.2
brokers and intermediaries …. 11.2
Financial Service Reform Act 2001 (Cth) …. 11.2
General Insurance Code of Practice …. 11.5
General Insurance Reform Act 2001 (Cth) …. 11.2
Insurance Act 1973 (Cth) …. 11.2
 Insurance Contracts Act 1984 (Cth) …. 11.2
Life Insurance Act 1995 (Cth) …. 11.2
National Privacy Principles …. 11.6
prudential regulatory framework …. 11.4
regulatory authorities, role of APRA and ASIC …. 11.3
subrogation …. 11.44–11.51, see also Subrogation
Insurance Act 1973 (Cth) …. 11.2
Insurance Contracts Act 1984 (Cth) …. 11.7
breach of term in policy …. 11.28
application of s 54 …. 11.28–11.32
remedy …. 11.33
double insurance and contribution …. 11.53–11.55
duty of disclosure …. 11.8
eligible contracts of insurance, and …. 11.16
knowledge of insured …. 11.9
no need for disclosure, where …. 11.12–11.15
non-disclosure, consequences …. 11.17
opinions or belief …. 11.11
reasonable insured …. 11.12
relevant matters …. 11.10
duty of good faith …. 11.20–11.23
economic loss test …. 11.7
fraudulent claims …. 11.38–11.43
ss 13, 54 and 56, interaction between …. 11.42
insurance policy …. 11.24
insurance contract, structure …. 11.25
principles of construction …. 11.26
unusual terms, ss 14 and 37 …. 11.27
 misrepresentation …. 11.8
consequences …. 11.20
excluded misrepresentations …. 11.19
non-party insureds …. 11.7
s 54, proposals for reform …. 11.33
subrogation …. 11.44–11.51
Intellectual property
rights, protection of
internet …. 13.10
Intermixture
accession, specification and …. 4.11
authorised …. 4.7
contract, governed by …. 4.7
entitlement to resultant mixture …. 4.6
goods mixed with another’s …. 4.1, 4.6
unauthorised …. 4.8
goods of different kind …. 4.10
goods of similar kind …. 4.9
Internet see also E-commerce
communication facilitated by …. 13.3
communication on
packet switching …. 13.5
definition …. 13.3
e-commerce, growth of …. 13.6
growth of …. 13.1, 13.3
information economy …. 13.6
jurisdiction …. 13.27–13.32
authority to hear and determine dispute …. 13.27
 choice of law …. 13.30
foreign judgments, enforcement …. 13.32
forum non conveniens …. 13.31
internet publications and defamation …. 13.32
new law for internet …. 13.28
origins of …. 13.2
Transmission Control Protocol/Internet Protocol (TCP/IP) ….
13.4
world wide web, and …. 13.4

J
Jurisdiction
electronic communications …. 13.27
authority to hear and determine disputes …. 13.27
choice of law …. 13.30
foreign judgments, enforcement …. 13.32
forum non conveniens …. 13.31
internet publications and defamation …. 13.32
new law for internet …. 13.28

L
Land see also Real property
ability to alienate …. 1.3
estate in fee simple …. 1.3
feudal tenure …. 1.2
interests in …. 1.9
real property …. 1.2
 recovery of, remedy for …. 1.5
succession after death …. 1.4
Letters of comfort
guarantees, distinguished from …. 12.19
Letters of credit
guarantees, distinguished from …. 12.19
Liens
agents …. 5.45
contractual lien …. 1.11, 1.13
possessory lien …. 1.16, 1.17
Life Insurance Act 1995 (Cth) …. 11.2

M
Mandate
bailment …. 9.20
Manufacturers’ liability …. 6.1
actions against manufacturers or importers …. 7.3, 7.25
fitness for purpose …. 6.31
merchantability …. 6.39
consumer guarantees, non-compliance …. 7.20
acceptable quality …. 7.21
correspondence with description …. 7.22
indemnification of suppliers by manufacturer …. 7.23
spare parts and express warranties …. 7.24
persons injured by defective goods …. 7.25
Market overt
transfer of title in goods …. 8.49
Marston contention
guarantor, discharging liability of …. 12.24
Mercantile agent
definition …. 8.37
sale of goods by
nemo dat rule, exception to …. 8.37
Misrepresentation
guarantees, setting aside …. 12.29
insurance contract …. 11.18
consequences …. 11.20
excluded misrepresentations …. 11.19
Mistake
guarantees, setting aside …. 12.29
Money
deposits of
bailment, and …. 9.9
Mortgages
security interest
transfer of title …. 1.15
Mutuum
contract of bailment, and …. 9.8

N
National Privacy Principles
brokers …. 11.6
insurance companies …. 11.6
insurance investigators …. 11.6
 law firms …. 11.6
Nemo dat quod non habet
retention of title clauses
operation of exceptions to rule …. 8.22
transfer of title by non-owner, exceptions …. 8.30
estoppel …. 8.31–8.33
mercantile agent, sale by …. 8.37
voidable title, sale under …. 8.34–8.35

O
Occupiers
bailment, and …. 9.29
Ostensible authority …. 5.5
conduct representing authority …. 5.12
business card, permitting use of …. 5.18
delegation of power to company officer …. 5.17
entrusting indicia of title to an ‘agent’ …. 5.13
occupancy of particular position …. 5.15
possession of property for purpose of sale …. 5.14
previous course of dealings …. 5.19
within ordinary scope of agent’s business or custom …. 5.16
elements of …. 5.9
detriment …. 5.23
reliance …. 5.22
representation by principal …. 5.10
manner in which made …. 5.11
representation made to whom …. 5.21
who can make representation …. 5.20
 estoppel …. 5.8
extent of …. 5.8
meaning …. 5.8
ostensible agency
consequences of finding of …. 5.25
ostensible agency and forgery
company dealings
indoor management rule …. 5.24
Ownership see Personal property; Possession; Property rights

P
Packet-switching technology
internet, on …. 13.5
Personal property see also Possession; Property; Property
rights
chattels personal …. 1.6
chattels real …. 1.6
choses in action …. 1.6, 1.8
choses in possession …. 1.7
interests created by way of security
common forms of consensual security …. 1.11
contractual lien …. 1.13
equitable charge …. 1.14
pledge …. 1.12
operation of law, by …. 1.17
possession, by …. 1.16
security interests …. 1.10
transfer of title, by mortgage …. 1.15
 interests in property
equitable rights …. 1.9
goods …. 1.9
ownership and possession …. 1.9
land, ownership of …. 1.9
limited interests in personalty …. 1.9
property
classification …. 1.1
meaning …. 1.1
real property, and
ability to alienate …. 1.3
different forms of property …. 1.2
feudal tenure …. 1.2
laws governing …. 1.2
property in land and property in chattels …. 1.2
recovery of land and goods, remedies …. 1.5
succession after death …. 1.4
transfer of …. 1.18
assignment, by …. 1.21
after-acquired property, of …. 1.22
choses in action …. 1.18
choses in possession …. 1.18
gift, by …. 1.20
declaration of trust, by …. 1.20
deed, by …. 1.20
oral or written words …. 1.20
sale, by …. 1.19
Personal Property Securities Act 2009 (Cth) …. 10.1
 application …. 10.2
commencement …. 10.2
effect …. 8.2, 9.2
Personal Property Securities Register (PPSR) …. 10.2
incorrect serial numbers …. 10.24
serial number, definition …. 10.24
Personal property security interests
attachment …. 10.12
pre-condition …. 10.13
bailment …. 10.8
collateral …. 10.7
grantor has rights in …. 10.13
proceeds from …. 10.21
conditional sale agreements (retention of title clauses) …. 10.9
consensual …. 10.3
consignment contracts …. 10.10
creation …. 10.12
grantor has rights in collateral …. 10.13
value or act by grantor …. 10.14
deemed security interests …. 10.4
definition …. 10.1, 10.3
elements …. 10.11
enforceability …. 10.1, 10.2
default, on …. 10.31
requirements for …. 10.16
third parties, against …. 10.15, 10.16
excluded interests …. 10.3
grantor …. 10.5
 rights in collateral …. 10.13
value or acts by …. 10.14
lease …. 10.8
national register …. 10.2
nature and effect …. 10.1
perfection …. 10.17
control, by …. 10.20
possession, by …. 10.19
registration, by …. 10.18
possession …. 10.19
chattel paper evidenced electronically …. 10.19
goods transported by common carrier …. 10.19
investment instruments …. 10.19
negotiable instruments …. 10.19
priority …. 10.2, 10.28
acceded goods …. 10.30
commingled goods …. 10.30
general priority rules …. 10.29
perfected interests …. 10.29
perfected v unperfected interests …. 10.29
special priority rules …. 10.30
unperfected interests …. 10.29
registration
financing statement …. 10.18
perfection …. 10.18
secured party …. 10.6
taking free of an existing security interest …. 10.22
collateral sold in the ordinary course of business …. 10.26
low-value personal, domestic or household property …. 10.27
 motor vehicles …. 10.25
serial number incorrect on PPSR …. 10.24
unperfected security interest …. 10.23
third parties, and …. 10.3
types of transactions …. 10.3
Personalty see Personal property
Pledge
bailment for reward …. 9.26
security interest by agreement …. 1.11, 1.12
Possession
bailment
actions depend on right of possession …. 9.33
delivery, and …. 9.3
forms of possession …. 2.4
actual or de facto …. 2.4, 2.6
constructive …. 2.4, 2.9
custody …. 2.4, 2.5
lawful …. 2.4, 2.8
legal or possession in law …. 2.4, 2.7
right to possession …. 2.4, 2.10
interference with
detinue for wrongful detention …. 2.12, 2.14
trespass for wrongful taking …. 2.12, 2.13
trover for wrongful conversion …. 2.12, 2.15
nature and relevance …. 2.3
deliver, definition …. 2.3
personal property law, in …. 2.3
possessory title …. 2.11
 seizure of goods …. 2.11
unlawfully obtained …. 2.11
Principal and agent see Agency; Agents
Principal debtor
guarantee …. 12.1
primary obligation of …. 12.4
purpose and nature of …. 12.2
Privacy Act 1988 (Cth)
e-commerce …. 13.22
Privacy Amendment (Enhancing Privacy Protection) Act 2012
(Cth) …. 13.22
Property see also Personal property
meaning …. 1.1
Sale of Goods Acts
definition in …. 6.4
transfer of property in goods …. 8.1, see also Transfer of property
Property rights
definition …. 2.1
ownership …. 2.2
acquiring …. 2.16
definition …. 2.16
possession …. 2.2, see also Possession
possessory title …. 2.11
remedy for infringement …. 2.2
transferability …. 2.2
Proprietary rights see Property rights
R
Ratification
agency …. 5.26
acquiescence and estoppel, distinguishing …. 5.31
act of ratification …. 5.29
authority to ratify …. 5.28
communication of …. 5.30
contract entered on principal’s behalf …. 5.27
exceptions to …. 5.34
knowledge by principal …. 5.32
ratification of the whole …. 5.33
Real property see also Land; Personal property
personal property, and …. 1.2
security interests, creation of …. 1.10
Realty see Land
Remedies
accession
owner of accessory chattel …. 4.4
conversion …. 2.15
detinue …. 2.14
infringement of property rights …. 2.2
insurance contract
fraud …. 11.17
non-disclosure …. 11.17
sale of goods
buyers …. 6.45–6.58
trespass to goods …. 2.13
Remuneration
 agents …. 5.45
Restitution
guarantors, rights of …. 12.34
claim for reimbursement
creditor, from …. 12.36
principal debtor, from …. 12.35
Retention of title clauses
nemo dat rule, operation of exceptions to …. 8.22
proceeds clause, effectiveness …. 8.25
protection of seller of goods …. 8.20
right of disposal of goods …. 8.24
Romalpa clauses …. 8.20
security interest in seller
retention of title does not create …. 8.23
typical clause …. 8.21
Risk
transfer of property and title in goods …. 8.1
bailee, obligations, as …. 8.27
delayed delivery, party at fault …. 8.26
goods already perished at time of sale …. 8.29
goods perish after agreement and before sale …. 8.28
goods sent by sea …. 8.26
goods sold FOB or CIF …. 8.26
person bearing risk …. 8.26
risk passes with property in goods …. 8.26

S
Sale of goods
Australian Consumer Law see Australian Consumer Law
bailment …. 9.6
consumer guarantees see Consumer guarantees
contract of sale …. 1.19
correspondence with description …. 6.21–6.30
fitness of goods for purpose …. 6.31–6.45
implied terms of contract …. 6.17–6.25
legislation
consumer protection …. 6.1
manufacturers, liability of …. 6.1, see also Manufacturers’ liability
rules of interpretation …. 6.1
merchantable quality of goods …. 6.39–6.51
performance of the contract …. 6.13
general rules of delivery …. 6.14
special rules of delivery relating to carriers …. 6.15
wrong quantity …. 6.16
remedies of buyer
breach of condition …. 6.45
breach of warranty …. 6.47
CIF or FOB contracts, acceptance …. 6.46
defective instalment deliveries …. 6.48
non-delivery or delayed delivery …. 6.49
specific performance, for …. 6.50
remedies of seller …. 6.51
unpaid seller against buyer …. 6.52–6.58
Sale of Goods Acts …. 6.1, 6.2–6.12, see also Sale of Goods Acts
Trade Practices Act 1974 (Cth) …. 6.1, see also Trade Practices Act
1974 (Cth)
 transfer of property and title …. 8.1, see also Transfer of property
and title
Sale of Goods Acts …. 6.1
application, requirements for …. 6.2
contract of sale …. 6.3
definition …. 6.3
future goods …. 6.3
sale, distinguished …. 6.3
fitness of goods for purpose …. 6.31
breach of condition, whether …. 6.38
buyer aware of particular purpose, whether …. 6.32
buyer suffers abnormality or idiosyncrasy …. 6.33
goods of description, seller’s business to supply …. 6.36
purpose disclosed, reliance on seller’s skill …. 6.34
partial reliance sufficient …. 6.35
trade name exception, application …. 6.37
goods
attachments to or forming part of land …. 6.5
categories …. 6.6
ascertained goods …. 6.9
future goods …. 6.10
specific goods …. 6.7, 8.8
unascertained goods …. 6.8
chattels …. 6.5
definition …. 6.5
emblements …. 6.5
proper classification of, significance …. 6.11
implied conditions of contract …. 6.17
buyer shall have quiet possession …. 6.19
 goods are free from encumbrance …. 6.20
seller has the right to sell …. 6.18
merchantable quality of goods …. 6.39
breach of condition …. 6.43
goods bought by description …. 6.40
prior examination proviso …. 6.42
seller must deal in goods by description …. 6.41
performance of the contract …. 6.13
general rules of delivery …. 6.14
special rules of delivery relating to carriers …. 6.15
wrong quantity …. 6.16
personal property security interest …. 1.10
legislative framework …. 1.10
price …. 6.12
property
definition …. 6.4, 8.1
remedies for buyer
breach of conditions …. 6.45
breach of warranties …. 6.47
CIF or FOB, acceptance …. 6.46
defective instalment deliveries …. 6.48
non-delivery or delayed delivery …. 6.49
specific performance …. 6.50
remedies for seller …. 6.51
unpaid seller against buyer …. 6.52–6.58
damages for non-acceptance …. 6.53
lien or right to retain goods …. 6.55
price …. 6.52
resale …. 6.58
 stoppage in transitu …. 6.57
unpaid seller against goods …. 6.54
withholding goods …. 6.56
sale by description …. 6.21
analysis and meaning …. 6.23
significance of sale by description …. 6.24–6.25
goods corresponding with description …. 6.27, 6.29
Christopher Hill and Ashington Piggeries, contract …. 6.28
Christopher Hill and third party, contract …. 6.30
Sales of Goods Act, under …. 6.22
words comprising description …. 6.27
identity as opposed to quality …. 6.26
meaning of words …. 6.27
sale by sample …. 6.44
transfer of property and title …. 8.1, see also Transfer of property
and title
Security
e-commerce …. 13.10
Security interests …. 1.10
operation of law, created by …. 1.17
personal property, in …. 1.10
contractual lien …. 1.11, 1.13
equitable charge …. 1.11, 1.14
personal property security interest …. 1.10, see also Personal
property security interests
pledge …. 1.11, 1.12
possession, created by …. 1.16
transfer of title, created by
 mortgage …. 1.15
Sellers see Sale of goods; Transfer of property and title
Shrinkwrap agreements …. 13.24
Spam Act 2003 (Cth)
e-commerce …. 13.22
Specification
accession, distinguished from …. 4.5
accession, intermixture and, compared …. 4.11
alteration of chattel
unauthorised by original owner …. 4.5
intermixture, and …. 4.5
Statute of Frauds
guarantees …. 12.10
guarantor, personal liability of …. 12.14
English position
Actionstrength Ltd v International Glass Engineering IN.GL.EN
SpA …. 12.16
High Court of Australia
Harvey v Edwards, Dunlop & Co Ltd …. 12.15
reconciling the decisions …. 12.17
Subrogation
application of doctrine …. 11.44
employees, to rights against …. 11.50
entitlements of rights …. 11.46
family, to rights against …. 11.49
guarantees …. 12.37
insured’s loss greater than amount insured …. 11.46
insurer’s right of contribution, and
 difference …. 11.48
meaning …. 11.44
release and settlement of claims
insured, by …. 11.51
right of, when insurer can exercise …. 11.45

T
Title in goods
meaning …. 8.1
transfer …. 8.1, see also Transfer of property and title
Transfer of property and title
goods other than unascertained goods …. 8.5
miscellaneous exceptions
doctrine of accession …. 8.50
market overt …. 8.49
stolen goods …. 8.48
writ of execution against goods …. 8.47
non-owner, transfer of title by …. 8.30
buyer in possession …. 8.41
bought or agreed to buy …. 8.42
delivery of goods by buyer to third party …. 8.45
disposition by buyer in possession …. 8.46
possession by buyer …. 8.43
possession obtained with consent of seller …. 8.44
estoppel exception …. 8.31
estoppel by omission …. 8.33
estoppel by representation …. 8.32
exceptions to nemo dat rule …. 8.30–8.46
 mercantile agent, sale by …. 8.37
sale under voidable title …. 8.34
voidable title, meaning …. 8.35
when avoided …. 8.36
seller in possession …. 8.38
delivery of goods to third party …. 8.40
seller to continue possession of goods …. 8.39
passing of property in sale of goods contract …. 8.3
PPSA, effect of …. 8.2
presumptions where no contrary intention
goods delivered ‘on approval’ or ‘sale or return’
reasonable time is question of fact …. 8.15
retention of title clauses …. 8.20
exception to nemo dat rule …. 8.22
proceeds clause, effectiveness of …. 8.25
right of disposal of goods …. 8.24
security of interest in seller, does not create …. 8.23
typical clause …. 8.21
specific goods in deliverable state …. 8.6
deliverable state …. 8.9
expression of contrary intention …. 8.11
specific goods …. 8.8
unconditional contract …. 8.7
when contract made …. 8.10
specific goods not in deliverable state …. 8.12
notification to buyer …. 8.13
specific goods, weighed, measured or tested
price, to ascertain …. 8.14
unascertained or future goods …. 8.16
 goods of that description in deliverable state …. 8.18
meaning …. 8.17
unconditional appropriation …. 8.19
property, definition …. 8.1
property and title, distinguished …. 8.1
risk …. 8.1, 8.26
bailee, obligations as …. 8.27
goods already perished at time of sale …. 8.29
goods perish after agreement but before sale …. 8.28
title, meaning …. 8.1
unascertained goods
no transfer of property …. 8.4
Trespass to goods
bailment, action for damages …. 9.32
damages for …. 2.13
wrongful taking of goods …. 2.12, 2.13
Trover see Conversion

U
Unconscionability
guarantees …. 12.25
Yerkey v Jones, rule in …. 12.27
Undue influence
guarantees …. 12.26
United Nations Commission on International Trade Law
(UNCITRAL)
e-commerce, development …. 13.11
 Model Law on Electronic Commerce 1996 …. 13.11, 13.12
Model Law on Electronic Signatures 2001 …. 13.11
United Nations Conference on Trade and Development
(UNCTAD)
e-commerce
confidence in …. 13.9
definition …. 13.1
new trading environments …. 13.6
regulation …. 13.11
security concerns …. 13.9, 13.10
writing, original documents and signatures …. 13.11
United Nations Convention on the Use of Electronic
Communications in International Contracts …. 13.11

W
Warranties
guarantees distinguished from …. 12.19
Wills
gift by …. 1.20
ownership of goods, by …. 2.16
World wide web
internet, and …. 13.4
Writ of execution
goods against …. 8.47