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Cornwall-Jones, Jason --- "Breach of Contract and Misleading Conduct: A Storm in A Teacup?" [2000] MelbULawRw 10; (2000) 24(2) Melbourne University Law Review 249

Breach of Contract and Misleading Conduct: A Storm in A Teacup?

JASON CORNWALL-JONES[*]

[Section 52 of the Trade Practices Act 1974 (Cth) prohibits misleading and deceptive conduct. In its contractual context s 52 is most commonly used as a basis for establishing precontractual liability. Recently, however, courts have been prepared to apply the provision to situations of breach of contract. It has been claimed that this may be detrimental to the well-established rules of contract, and have an adverse effect on business. This article examines the possible effects of these developments on the law of contract and investigates their wider sociopolitical implications. The article concludes that the concerns are unfounded and argues that the novel application of s 52 could help promote fairness and good faith in contractual behaviour.]

[T]he precise boundaries of the territory within which ... section 52 operates remain undetermined.[1]

I INTRODUCTION

In 1974 the then Attorney-General, Senator Lionel Murphy, introduced the Trade Practices Bill 1974 (Cth) (‘Trade Practices Bill’) into Parliament. When the Trade Practices Act 1974 (Cth) (‘TPA’) came into operation on 1 October 1974, s 52 stated simply: ‘[a] Corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive’.

Following amendment in 1977, the words ‘or is likely to mislead or deceive’ were added to the provision.[2] It is unlikely that anyone involved in the formulation of this simple provision appreciated the impact s 52 would come to have. Yet given the generality of its wording, coupled with the ‘forensic creativity of practitioners’,[3] it is hardly surprising that s 52 has become as influential in as many areas of law as it has.[4] Indeed, the provision has been described as a ‘statutory comet’ when contrasted with the common law causes of action, which have been described as ‘slow-growing sauropods’.[5]

The ways in which the law relating to misrepresentation has been rendered virtually redundant by s 52 have been well documented. Cases in which misrepresentation is pleaded are now rarely reported, whereas remedies based on s 52 are considered in most commercial contractual disputes.[6] Francey has suggested that in a practical sense s 52 is to the jurisprudence of contract what Donoghue v Stevenson[7] is to tort or Salomon v Salomon & Co Ltd[8] is to the law of corporations.[9]

The academic and jurisprudential discourse surrounding the impact of s 52 on the law of contract has generally focused on the significance of s 52 as a basis for precontractual liability.[10] This article, however, seeks to investigate the circumstances in which s 52 may be pleaded in situations of breach of contract. Firstly, the background to s 52 will be discussed and, secondly, the way the provision has been interpreted and utilised in the courts will be examined. Following a basic outline of the ambit of the provision, a more detailed analysis of the possible relevance of s 52 in breach of contract situations is undertaken.

It will become apparent that the law now recognises that, in some circumstances, a breach of contract may contravene s 52. This development caused some concern amongst more traditionally-minded commentators on the law of contract. Recently, for example, it has been argued that the potential of the statutory prohibition on misleading and deceptive conduct to move into the realm of breach of contract ‘brings no credit to the legislation’.[11]

Despite the level of alarm caused by the prospect of s 52’s escape from its natural precontractual habitat, there is a notable absence of persuasive arguments as to why the section should not embrace breach situations. Accordingly, in the final part of this article, an attempt is made to evaluate critically concerns that recent developments have subverted the law of contract. The foundation of this article is that these developments in the jurisprudence of s 52 are not necessarily undesirable. On the contrary, I will argue that they are a welcome, albeit novel and unexpected, application of the provision.

II THE BACKGROUND TO SECTION 52

When the Whitlam-led federal Australian Labor Party (‘ALP’) came to power in December 1972, the consumer protection and trade practices legislation enacted in 1974 was just one part of a far-reaching platform of reforms. Wide-ranging changes were to be expected, given that the ALP was returning to office after a 23-year period in opposition.

One facet of the dominant political discourse at the time, both in Australia and overseas, was a tendency towards ‘consumerism’.[12] Traditionally, the law governing transactions was founded on the principle of caveat emptor — let the buyer beware.[13] However, a growing recognition of the unequal bargaining power between sophisticated and well-resourced businesses and the individual consumer led to the introduction of legislative consumer protection. As Attorney-General Senator Lionel Murphy indicated when presenting the Trade Practices Bill to the Senate for its second reading, it was no longer appropriate to leave the consumer to protect him- or herself in the marketplace:

That principle [caveat emptor] may have been appropriate for transactions conducted in village markets. It has ceased to be appropriate as a general rule. ... The untrained consumer is no match for the businessman ... The consumer needs protection by the law and this Bill will provide such protection.[14]

The constitutional authority for the introduction of the national trade practices legislation was clarified in the 1971 decision of Strickland v Rocla Concrete Pipes Ltd.[15] In this case an expansive reading was given to the corporations power contained in s 51(xx) of the Australian Constitution to allow the federal Parliament to legislate with respect to the trading activities of corporations, irrespective of whether the transactions are international, interstate or intrastate. Thus, the Whitlam Government was provided with the constitutional authority to introduce nationwide legislation governing the trade practices of corporations, an opportunity that was swiftly accepted with the enactment of the TPA.

It is debatable exactly how the sponsors of s 52 envisaged the provision would be utilised. Harland has hypothesised that the framers of the provision considered its focus to be primarily on misleading advertising and promotional material.[16] This view is sustainable in light of the various speeches made in Parliament during the introduction of the Trade Practices Bill. For example, when the Trade Practices Bill 1973 (Cth) was presented to the House of Representatives for its second reading, the proposed s 52 was discussed in conjunction with more specific provisions pertaining exclusively to false advertising.[17] However, it was always intended that the provision remain flexible and open to novel application.[18] Indeed, it was this very flexibility that made the provision attractive to Attorney-General Senator Lionel Murphy, as it furnished the law with the ability to avoid becoming ‘continually one step behind those who resort to sharp practices.’[19]

A The Scope of the Prohibition of Misleading and Deceptive Conduct

Whatever the intentions of the framers, s 52 has been interpreted expansively by the courts, and has thus moved into many fields of law that would not have been foreseen. At its most basic, the provision comprises certain essential elements. A plaintiff founding an action on s 52 must successfully satisfy four threshold tests. First, the party whose conduct is impugned must be subject to the provision. This primarily includes corporations,[20] but may also include individuals under the extended application of the TPA.[21] Furthermore, s 84 provides that any knowledge, intention, opinion, belief or purpose held by an agent or employee acting within their actual or apparent authority may be ascribed to the corporation.[22]

Second, the conduct must have occurred in trade or commerce. ‘Trade or commerce’ includes all commercial transactions, whether or not the transaction is an isolated ‘one-off’ bargain or part of a corporation’s usual course of dealing.[23] Although the phrase was initially given an expansive interpretation,[24] the decision in Concrete Constructions[25] curtailed the tendency to read the phrase so broadly as to verge on the absurd. Since then, a more restrictive approach has been adhered to. Instead of encompassing all conduct incidental or internal to the operation of a business, ‘conduct in trade and commerce’ is limited to conduct which is itself of a commercial character.[26]

Third, the offending party must have ‘engaged in conduct’. ‘Conduct’ is defined in s 4(2)(a) as:

The doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant.

Initially, dicta by Deane and Fitzgerald JJ in Taco Co of Australia Inc v Taco Bell Pty Ltd suggested that conduct which does not contain a misrepresentation of existing fact would not amount to misleading conduct for the purposes of s 52.[27] This view has been rejected in subsequent cases.[28] It is now generally accepted that while most s 52 actions will consist of misrepresentations, ‘it is erroneous to approach s 52 on the assumption that its application is confined exclusively to circumstances that constitute some form of representation.’[29] This has the potential to make exaggerated sales puffs[30] and mere silence[31] actionable as misleading conduct.

The final element is that the impugned conduct must be misleading or deceptive, or likely to mislead or deceive. For the purposes of defining such conduct, it is not necessary to consider the meaning of ‘deceptive’. ‘Deceptive’ carries a suggestion of dishonesty or moral turpitude — this can be contrasted with conduct that is merely misleading and has no suggestion of bad faith.[32] ‘Misleading’ is given its ordinary meaning and is interpreted simply as conduct that ‘lead[s] into error’[33] or gives ‘cause to err’.[34]

To demonstrate a breach of s 52, it is unnecessary that the impugned conduct actually lead another into error; to engage in conduct that is likely to lead into error is sufficient.[35] However, in contract-related actions, it will still be necessary to establish a causal nexus between conduct and loss in order to claim remedies under ss 82 and 87.[36]

Whether or not the party whose conduct is impugned intended to mislead is irrelevant.[37] A party whose actions are neither dishonest nor negligent may still be liable under s 52.[38] This may mean that the unwitting agent who merely passes on misleading information can still be liable under s 52.[39]

In deciding whether or not conduct is misleading, the courts have had to grapple with the question of how much intelligence should be accorded to the subject of any impugned conduct. In the case of contractual representations, ‘the capacity of the conduct to deceive or mislead is determined with reference to the characteristics of the actual recipient.’[40]

Actions under s 52 may be brought by both individual consumers and commercial parties. Indeed, one of the reasons that s 52 has been so extensively utilised is that commercial organisations, which have the resources to fund litigation, have not been denied access to its benefits. Although s 52 appears in Part V of the TPA under the heading of ‘Consumer Protection’, few of the reported s 52 cases have been brought by individual consumers.[41] Despite the fact that the legal profession was slow to appreciate that a consumer protection provision could have a commercial use,[42] the wider application is now generally accepted.[43]

Finally, at common law commercial parties may be able to shield themselves from liability arising from a contract by inserting a carefully drafted exclusion clause into the contract.[44] Such clauses are often found in standard form contracts that provide the basic terms on which goods and services are most commonly offered. If an exclusion clause is properly drafted, it may completely exclude liability for breach, limit liability to a fixed sum, or place restrictions on the plaintiff’s right to sue for breach.[45] By contrast, under the law of s 52, the effectiveness of exclusion clauses is greatly reduced.[46] It is possible that a disclaimer may in some circumstances be found to have precluded liability,[47] but if a disclaimer is to operate, ‘it must be by enabling the conduct as a whole ... to be seen as not misleading.’[48] It is well established, however, that the application of s 52 cannot be excluded[49] and, furthermore, that the circumstances in which an exclusion clause will render conduct that is otherwise misleading not misleading are ‘comparatively rare’.[50]

B Remedies under the Trade Practices Act 1974 (Cth)

1 Damages

The most obvious attraction of an action under s 52 is the wide range of remedies available[51] against the offender or other person involved in the contravention.[52] Section 52 does not provide any remedies itself; it merely lays down a norm of conduct.[53] Remedies for a breach of s 52 are found in Part VI of the TPA, and include s 82 damages, s 87 court orders and s 80 injunctions.[54]

Section 82 provides for the recovery of damages where s 52 has been contravened.[55] It is not enough for a plaintiff to demonstrate a mere breach of s 52 to recover damages; the plaintiff must also demonstrate losses incurred as a consequence of being misled.[56] The manner in which damages are assessed under the TPA is not set out in the statute, nor is guidance provided in the explanatory memorandum. The courts have debated whether to award contractual or tortious measures of damages. The difference between the contractual and tortious measure is that contractual damages may allow for the recovery of expectation losses, so that the plaintiff is put in the position in which he or she would have been had the contract been performed. Tortious damages, on the other hand, will only compensate to the extent to which the plaintiff is ‘worse off’ as a result of having relied on the defendant.[57] Generally, the tortious measure will be the lesser in quantum of the two. Although the TPA does not give directions on which measure to apply, courts have applied the tortious measure in s 52 cases.[58] In Gates the proffered rationale was that misleading conduct is ‘similar both in character and effect to tortious conduct’.[59] In the recent case of Marks v GIO Australia Holdings Ltd, however, the High Court left the door ajar to allow courts to award damages as they see fit:

Very often, the amount of the loss or damage caused by a contravention of s 52 will coincide with what would have been allowed in an action for deceit ... But the analogy cannot be pressed too far. It should not be pressed to the point of concluding that the only damages that may be allowed under s 82 are those that would be allowed in an action for deceit. The question presented by s 82 is not what would be allowed in deceit, it is what loss or damage has been caused by the conduct contravening the Act.[60]

This leaves open the possibility that an applicant in an appropriate case may be compensated for loss of expectation.

2 Compensatory Orders

In addition to, or as an alternative to damages, a variety of orders may be available at the discretion of the court under s 87.[61] Most commonly, the courts will make an order declaring the contract void ab initio or from a specified time, and order the return of any property or monies paid.[62] Although the words of the statute do not specifically empower the courts to offer the remedy of rescission,[63] this is what the usual combination of orders made amounts to.[64] Unlike rescission under the common law, the traditional bars[65] do not automatically apply under s 87.[66] However, since s 87 orders are discretionary, it is open to the court to borrow general law principles for guidance in exercising its discretionary power.[67]

The preceding explanation of the operation of s 52 and its related remedial provisions represents only a rudimentary discussion of the most fundamental principles surrounding the provision. There are many other issues relating to s 52 that might be canvassed if anything approaching a comprehensive understanding of the provision were to be conveyed. The focus of this article, however, is the operation of the provision in relation to breach of contract. This is a complex and highly technical area of law that can be confusing, even to those with some understanding of the relevant law and terminology. This article does not attempt a more comprehensive explanation of the law of s 52 than has already been offered. To do so would risk diverting the reader’s attention from the primary issue at hand, which is to sift through the often inconsistent and contradictory case law relating to s 52 and breach of contract.

C Breach of Contract as Misleading Conduct

In 1987 Pengilley described s 52 of the TPA as the ‘plaintiff’s new Exocet.’[68] Yet despite his belief in the versatility and potency of the provision, he nevertheless unequivocally accepted that s 52 was not a surrogate for breach of contract actions.[69] Pengilley was not alone in holding the view that breach of contract and misleading conduct are not coextensive. In their book, Misleading or Deceptive Conduct, Healey and Terry explicitly endorse Pengilley’s analysis.[70] They state categorically that ‘contract law is concerned with promissory conduct, sec. 52 is concerned with representational conduct’.[71] By representational conduct, they mean conduct involving extra-contractual statements of fact. This view reflects the approach taken by the courts in the early days of s 52, when it was thought that ‘conduct’ necessarily consisted of a representation.[72] As has previously been pointed out, this narrow view has since been rejected.[73]

It has been argued by Skapinker and Carter, in one of the few pieces of academic work devoted exclusively to the study of the relationship of s 52 to breach of contract, that, in recent times, the distinction between breach of contract and s 52 has become blurred.[74] The whole issue of breach of contract and s 52 can be broken down into two separate questions: first, can warranties be a breach of s 52 and, second, can the breach of other promises contravene s 52?

1 Contractual Warranties

Contractual terms may consist of statements of an existing state of affairs: for example, ‘this land measures 10 metres by 30 metres’. Alternatively, they may comprise of promissory statements as to the future, for example, ‘I will paint your fence next Thursday’. The former category may be either true or false at the time of contracting; the latter may not be so. For present purposes, contractual affirmations or guarantees of existing facts will be referred to as warranties. However, it should be recognised that the courts use this term in a range of ways, including, for example, to delineate non-core promissory statements.[75]

Often, contractual warranties will be mere reaffirmations of precontractual representations made during the course of negotiations.[76] In such circumstances, if the facts are false, the applicability of s 52 seems clear — a false statement of fact has induced entry into the contract; the plaintiff can be said to have been led into error. In Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd,[77] however, the situation arose where an inaccurate contractual warranty could not be tied to any precontractual conduct. Moreover, the applicant could not bring an action for breach for want of privity of contract and was forced to resort to s 52.

(a) The Accounting Systems Case

Accounting Systems 2000 (Developments) Pty Ltd (‘Developments’) and a related company, Accounting Systems 2000 Pty Ltd (‘Systems 2000’) operated as a computer software business. Systems 2000 acquired a computer program from an unnamed third party. Under the terms of the agreement with the third party, Systems 2000 acquired the right to use the computer program, but not an assignment of copyright. Despite the terms of this agreement, Developments purported to assign copyright in the program to another company, Castle Douglas. Castle Douglas in turn licensed another company, CCH, to use the program. In the contract between Developments and Castle Douglas, Developments warranted that it was entitled to assign copyright without the consent of any person whomsoever. Given the terms on which Systems 2000 itself obtained the use of the computer program, this warranty amounted to a false statement of the existing state of affairs, although Developments was unaware of this.

The trial judge found at first instance that Developments had engaged in conduct contrary to s 52. On appeal to the full Federal Court, Lockhart and Gummow JJ, speaking as the majority, accepted that the ‘making of a statement as to a presently existing state of affairs, if false, may be the engaging in misleading or deceptive conduct’.[78] In arriving at this conclusion they followed the example set by Lockhart J in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd[79] and defined ‘engaging in conduct’ as including more than mere precontractual representations.[80] Despite the fact that no precontractual representation had been made, Lockhart and Gummow JJ found that the false factual warranty was misleading, even though given solely as a term of the contract.

Lockhart and Gummow JJ also upheld the remedies awarded at first instance. The contract between Castle Douglas and Developments was declared void ab initio pursuant to s 87, and damages were awarded to CCH against Developments under s 82 to compensate CCH for having expended money on a licence from Castle Douglas on the faith of the false warranty given by Developments to Castle Douglas.

In summary, on the basis of Lockhart and Gummow JJ’s judgment in Accounting Systems, and the accepted view that intention to mislead is irrelevant,[81] the following conclusions can be drawn in relation to the law of contractual warranties as to existing or past facts:

  1. A contractual warranty as to an existing fact or state of affairs contravenes s 52 if false.
  2. There need be no anterior or precontractual representations as to the truth of the warranty to bring the giving of the warranty within the definition of ‘conduct’ for the purposes of s 52.
  3. That the warrantor is unaware of the falsity of the warranty is not relevant.

2 Contractual Promises as to Future Events

The problem with bringing the non-fulfilment of contractual promises under s 52 is that, unlike warranties as to existing or past facts, contractual promises relating to future events are not capable of being false at the time they are made.[82] Often, they will require subsequent acts of performance or non-performance to render them accurate or otherwise. In addition, in Bill Acceptance Corporation Ltd v GWA Ltd Lockhart J held that conduct must be misleading or deceptive at the time it is engaged in to contravene s 52.[83] It follows from this that promises as to the future cannot, of themselves, mislead.

(a) The Global View: Promise and Breach

Some attempt has been made to depict broken promises as to the future as misleading per se. Greig and Davis, for example, have argued that rather than divorce the making of the promise from the breach, ‘conduct’ can be viewed globally as consisting of a course of conduct comprising both promise and performance.[84] In this way the making of a promise that is subsequently breached can be said to be part of a course of conduct which leads into error, and is therefore contrary to s 52. If this argument were accepted, all broken contractual promises would be brought within the reach of s 52.

The problem with this assertion is that even if promise and breach are viewed globally, it is impossible to see how the promisee is led into error at the point of contracting.[85] Since the breach has not occurred at that stage, it follows that ‘the breach is irrelevant, for that breach could have played no part in misleading [the plaintiff].’[86] Although the Greig and Davis analysis has received limited judicial support,[87] it has not generally been followed. Rather, Ormiston J’s view that ‘the mere acceptance of the promise by a promisee cannot ordinarily be characterised as being led into error’[88] is considered correct.[89]

(b) Implied Representations of Existing Fact

Despite the proposition that promises as to the future cannot, without something more, be misleading, there are some situations where promises as to the future may be deemed misleading when considered in light of other factors. Drawing on the treatment of opinions, predictions and promises as to the future under the common law of misrepresentation,[90] the courts have recognised that promises may convey an implied representation that the promisor has the intention or capacity to carry out his or her obligations.[91] If, in fact, the promisor has no such intention, then the promisor misstates the present state of his or her mind. This constitutes a false statement of fact at the time the promise is made, since the state of mind is ‘as much a fact as the [speaker’s] ... digestion.’[92] It is therefore capable of leading into error.[93] Justice French, writing extra-judicially, observes that in practice, ‘it is hard to imagine a promise or prediction in a commercial context that does not convey some representation if only of a contemporaneous belief in an ability to perform the promise.’[94]

Promises as to the future can be brought within the realm of s 52 where the promise vis-à-vis the future can be tied to a statement of past or present fact, whether express or implied. The facts of Futuretronics are an example on point; in that case the defendant, Gadzhis, made the only genuine bid in an auction and duly had the property knocked down to him, thereby entering into an oral contract to purchase the property. Within minutes of the sale, Gadzhis changed his mind and refused to sign a written contract in accordance with the terms of the auction. Since the oral agreement was unenforceable for lack of writing,[95] Futuretronics elected to bring an action under s 11 of the Fair Trading Act 1985 (Vic)[96] and sought specific performance of the verbal contract.

It was argued, amongst other things, that by making the bid Gadzhis had impliedly represented that he intended to execute the written contract. The court accepted that Gadzhis had made an implied representation that he intended to sign a contract of sale.[97] If Gadzhis did not actually intend to sign the contract, then he had misstated a present fact, namely, the state of his mind. On the facts, however, Ormiston J found that there was insufficient evidence to support the view that Gadzhis never intended to sign the written contract.[98] Whilst the court ultimately found that Gadzhis had engaged in misleading or deceptive conduct on other grounds, it also found that Futuretronics had suffered no loss.[99]

The Futuretronics case illustrates that it may often be difficult to provide sufficient evidence as to the promisor’s state of mind. An unfulfilled promise or failed prediction will not of itself ‘establish that the [speaker] ... did not believe that it would eventuate or that the belief lacked any, or any adequate, foundation.’[100] The significant evidentiary burden of demonstrating an absence of intention to perform at the time of contracting has been lessened by the enactment of s 51A of the TPA. Section 51A, in conjunction with an occasionally compliant judiciary has brought about the situation where many broken contractual promises are now realistically actionable under s 52. To illustrate the process by which this has occurred, the scope of s 51A will be examined, followed by a discussion of the way this statutory innovation has been applied by the courts in relation to breach of contract.

(c) Section 51A

Section 51A was introduced to the TPA in 1986. It states in part:

(1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter ... and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

(2) For the purposes of the application of subsection (1) ... the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

This provision does not, of itself, create a new cause of action. Rather, it acts as an evidentiary aid in determining whether or not a party making a representation about a future matter had either the intention to make good or the capability for making good the representation.[101] Instead of the representee bearing the burden of showing that the representor lacked grounds for making the representation, s 51A reverses the onus.[102] If the representor cannot produce evidence that he or she had reasonable grounds for making the representation, the representation is presumed to be misleading.[103]

(d) Section 51A and Contractual Promises as to the Future

What is the relationship of s 51A to contractual promises? A degree of confusion has surrounded the provision and the type of conduct covered, as the phrase ‘representation with respect to any future matter’ is not defined.[104] The main issue is whether a promise can be regarded as a representation with respect to a future matter — that is, a representation that the promisor will perform.

The focus of s 51A is representations as to future matters. This is a somewhat narrower concept than conduct.[105] Contractual promises may amount to engaging in conduct according to the s 4(2)(a) definition, but are not of themselves representations, in the sense that they do not necessarily convey a statement of past or present fact. As such, the making of contractual promises as to the future does not prima facie fall within the coverage of s 51A. Some representation must first be implied from the making of the promise.[106]

In considering the application of s 51A to broken promises, McHugh JA declared in his dissenting judgment in Wright v TNT Management Australia Pty Ltd:

A promise to do something in the future is to be regarded as a representation that it will be performed. It will be deemed misleading, therefore, unless the corporation proves that it had reasonable grounds for making the promise.[107]

In Futuretronics Ormiston J denied that the Victorian equivalent provision of s 51A[108] deemed ‘every contractual promise as giving rise to an implied representation of the kind referred to in s. 10A (and s. 51A).’[109] Ormiston J continued:

However, I am persuaded that if there be an unconditional promise which forms part of the contractual obligations, then it is proper to treat the giving of that promise, at least in the ordinary case, as the making of a representation as to a future matter ... Perhaps conditional promises may also be treated as the making of a representation as to future conduct ... It is, however, not necessary to determine this latter point.[110]

On the facts before him in Futuretronics, Ormiston J held that Gadzhis had impliedly represented that his bid was genuine and that he would be bound by the terms of the auction. This, according to Ormiston J, was a representation as to the future: namely, that he would execute the contract. Subject to s 51A, therefore, the onus shifted to Gadzhis to adduce evidence of reasonable grounds for making the representation. Since he led no such evidence, his conduct was deemed misleading.[111]

Another issue regarding s 51A is whether an implied representation as to a promisor’s current state of mind is a representation as to a future matter and thus covered by s 51A. The object of the provision is representations as to future matters — the question is whether this includes representations as to existing intention and capability implied from a promise as to the future.

Spender J, in Jacques v Cut Price Deli Pty Ltd, argued that a representation as to present state of mind should be viewed in isolation from any promise as to the future, thus arguably not coming under the coverage of s 51A.[112] Recent decisions have cast doubt over the correctness of Spender J’s views. In Ting[113] Hill J was not willing to divorce the representation regarding present state of mind from a promise as to the future. In particular, he referred to cases which have held that the phrase ‘with respect to future matters’ means ‘in respect of’, or ‘in connection with’.[114] In Miba Pty Ltd v Nescor Industries Group Pty Ltd,[115] however, Merkel J cast doubt on the view expressed by Hill J in Ting. In considering the status of an opinion given as to the likely turnover of a fast food outlet, Merkel J stated:

Although the sales projection necessarily has a future element in it, that element does not transform the characterisation of the representation into one which is with respect to a future matter. In my view the applicability of s 51A is to be ascertained by a proper characterisation of the representation made in each case. It is difficult to see how s 51A can operate in a case such as the present where the grounds for the sales projection are expressly stipulated and an assessment of their reasonableness is left for evaluation by the representee. In these circumstances a representation that the grounds are reasonable, rather than that the representor believes that they are reasonable, is inconsistent with the representation made.[116]

(e) Summary

In light of the preceding discussion, the state of the law pertaining to s 52 and contractual promises as to the future may be summarised thus:

  1. Broken contractual promises are not misleading per se. This is because the promise must be misleading at the time the contract is made, and it cannot be made misleading by a subsequent breach.
  2. Where a promisor has neither the intention nor the capability of performing his or her obligations at the time of contract, the conduct may be misleading.
  3. Providing sufficient evidence as to a promisor’s state of mind will often be difficult. Section 51A, however, reverses the onus and deems representations relating to the future, with no evidence of reasonable grounds, to be misleading.
  4. Contractual promises, although distinguishable from representations as to the future, may convey an implied representation as to the future. Thus contractual promises may be covered by s 51A.
  5. In the event of a breach of contractual promise, if the promisor/representor cannot adduce evidence of reasonable grounds for making the promise/representation, he or she may be held to have contravened s 52 by virtue of s 51A.

III NEED WE FEAR THE RECENT DEVELOPMENTS IN THE LAW OF SECTION 52?

A The Carter and Skapinker Concerns

The preceding discussion indicates that in some circumstances a plaintiff may be able to take action under s 52 in breach of contract situations. Does this present any problems? Skapinker and Carter answer in the affirmative.[117] They draw attention to what they perceive to be a number of worrying aspects regarding s 52’s advance into the area of breach of contract. They warn that well-established, carefully evolved and complex principles of contract law will be steamrolled by the application of s 52 jurisprudence to breach of contract situations.

Skapinker and Carter present three main arguments. First, if s 52 is pleaded as an alternative to breach and Part VI remedies become available, some of the traditional bars to rescission, and the distinction made between conditions and warranties in relation to termination for breach, will become mere factors to be considered in the exercise of the court’s discretion.[118]

Second, given that remedies for an action based on s 52 are available against accessories not party to a contract, if plaintiffs forego common law actions en masse in favour of s 52 actions, the common law rules relating to privity of contract will effectively be supplanted.[119] Similarly, statutory rules relating to contractual formalities may become relatively less meaningful if easily sidestepped by resort to the TPA,[120] as was the case in Futuretronics.

Third, bearing in mind the difficulty of avoiding s 52 liability by the use of exemption provisions,[121] freedom of contract and the ability to utilise standard form contracts and rely on exclusion clauses will be severely limited.[122]

After identifying possible ramifications for the substantive law of contract, Skapinker and Carter turn their attention to the workability of the law following the recent developments. They point out that since the introduction of s 51A, the courts have on occasion been willing to imply representations as to ability and willingness to perform from contractual promises. A possible ramification of this is that a promisor/representor may be deemed to have engaged in misleading conduct if he or she is unable to adduce evidence of reasonable grounds for making the promise/representation.

Skapinker and Carter argue that on this basis, corporations could be found to have contravened s 52 even if the contract is performed without breach, or if performance is imminent.[123] Furthermore, those entering contracts will have to be confident of their ability to perform their obligations at the time of contracting. This may mean that contractors will be forced to ascertain the availability of finances or particular goods before assuming obligations. Unfortunately, Skapinker and Carter do not say clearly why this is a bad thing, only that it is.[124]

Finally, Skapinker and Carter imply that the courts have perverted the will of Parliament in the way they have applied s 52. The authors claim that it was never the intention of Parliament for s 52 to be used in the context of breach of contract.[125] Skapinker and Carter assert that it is ‘patently obvious that this provision does not focus on breach of contract. Clearly enough ... [s 52] is a basis for precontractual liability.’[126]

The concerns held by Skapinker and Carter are arguably misplaced. This is because, to the extent that s 52 overlaps with breach of contract, the likely effects on established contractual doctrines are not necessarily detrimental — the article brews up a ‘storm in a teacup’.

IV ‘A STORM IN A TEACUP’

A Why Bring an Action under Section 52?

Many of the events that Skapinker and Carter warn against, particularly the supplanting of established doctrines, will occur only if litigants choose to bring their actions under the TPA rather than at common law. If plaintiffs do not abandon the common law, the common law contractual principles will retain their significance. It is only if litigants choose to use s 52 in preference to the common law, or if there is an upsurge in litigants pleading s 52 where redress at common law is restricted, that the common law doctrines will become relatively less influential. It is therefore surprising that Skapinker and Carter do not ask why litigants might want to plead s 52 in their article.

1 Situations Where Common Law and Statutory Actions Are Available

In some circumstances, actions under both the common law and the TPA may be possible. In other circumstances, only an action under s 52 may be available. In situations where the plaintiff has a choice, in practice, it will often be the case that an action for breach of contract will provide a litigant with a more generous remedy, not to mention a longer limitation period. In such circumstances, recourse to s 52 is unnecessary. If the simple recovery of monetary damages for breach of a warranty or condition is the sole concern of a plaintiff, they may be better served by bringing an action for breach of contract, remembering the tendency of courts to award the lower tortious measure of damages for contravention of s 52.[127] Whilst the courts are not bound to award any particular measure of damages for misleading conduct, in practice they usually apply the tortious measure.[128]

If damages are not the sole concern of the plaintiff, and the plaintiff wants the contract rescinded or terminated, this is an option that is effectively available under both the common law and the TPA. Under the common law, however, termination for breach is available only for breach of a contractual condition,[129] and is de futuro rather than ab initio. Where s 87 may be seen to improve on the common law, from a plaintiff’s point of view, is that it theoretically allows termination for a breach of a mere warranty, made at any point the court sees fit. Under the common law, of course, a breach of warranty will only give rise to a claim for damages.[130] Similarly, in theory, many of the traditional bars to rescission do not apply to s 87 orders.[131] In practice, although not obliged to, courts may exercise their discretion under the TPA with the common law doctrines in mind.[132] As s 87 orders are not available as of right, although the provision may theoretically offer greater remedial scope than the general law, it cannot be guaranteed that the courts will not simply apply common law reasoning to the issue of a s 87 order. A court may, for example, terminate the contract de futuro as opposed to ab initio, or it may not terminate it at all.

2 Situations Where a Common Law Action Is Not an Option

Where s 52 and common law breach of contract can be pleaded concurrently, both options have their own particular advantages and disadvantages. Actions based on s 52 may be attractive in situations where an action or a remedy for breach of contract is not possible. There are a number of circumstances where s 52 sidesteps obstacles that prevent redress under the common law. An obvious example is where a remedy is denied due to the doctrine of privity of contract. Under the law of contract, a person who is not party to a contract may not sue or enforce obligations created under the contract.[133] A person who is not party to a contract, yet who is detrimentally affected by a breach of a contractual term, has no standing at common law to gain recompense for his or her loss.

Under s 52, however, a party who has engaged in misleading conduct is potentially liable to whomsoever they might mislead, irrespective of privity considerations. In Accounting Systems,[134] for example, a breach of warranty arising from a contract between two companies affected a third company further down the line that had no contractual relationship with the company in breach. In this instance s 52 was successfully pleaded, whereas at common law, no redress would have been available. Moreover, the possibility of targeting an accessory through s 75B should not be forgotten. If the offending party appears unable to satisfy damages for some reason, it may be possible to bring an action against a solvent accessory to the breach of s 52, an option not available under the common law, again due to the privity requirement.

Section 52 may also provide a remedy when contracts are unenforceable due to a deficiency in contractual formalities. Contracts for the sale or disposition of an interest in land, for example, must be evidenced in writing in order to be enforceable.[135] A knockdown bid at an auction may not be enforceable under contract law if the bidder refuses to sign a written contract. In Futuretronics, however, the court held that such conduct was misleading, and therefore contrary to s 11 (as it then was) of the Fair Trading Act 1958 (Vic).

Thus, where both common law and statutory actions are available, there are few significant advantages in bringing a statutory action. Where a common law action is not an option, there are situations where the TPA may be helpful. Yet despite the possibility of bringing an action under s 52 in these circumstances, cases where litigants have taken advantage of this opportunity are relatively rare.[136] Futuretronics and Accounting Systems are remarkable in one sense because they are such isolated cases. Skapinker and Carter’s fears that established rules of contract will be made redundant by recourse to the TPA in a post-contractual context have certainly not materialised to date. Whether or not they do so in the future remains to be seen. Nevertheless, the cases on which the current law is based are relatively settled. The opportunity for the floodgates to open has existed for some time, yet the flow of cases remains a trickle.

B The Workability of the Law as It Stands

Skapinker and Carter express concern that a number of absurd consequences may flow from the way s 52 has been applied in recent times. Further to s 51A, contractual promises as to the future might be deemed misleading for lack of evidence as to reasonable grounds for making the promise, even if the promise has since been performed.[137] This is not something that merits concern. If a promisor/representor was asked to provide evidence that they had the ability and intention of performing their contractual obligations at the time of contracting, what court would overlook such evidence of ability and willingness as that provided by performance itself? Australian courts on the whole have shown themselves to be capable of distinguishing between cases that are deserving and those that are undeserving of remedy. In order for a breach of s 52 via s 51A to occur, a representation as to the future must be implied from a contractual promise. It is always open for courts to deny the implication.[138] This is just one means by which courts may stave off the scenario warned against by Skapinker and Carter.

Another more likely method is the use of the court’s discretion over the issuing of remedies. Imagine the following situation: it is argued in court that a painting company is contracted to paint a fence. After the fence is painted, the fence owner alleges that the painting company can produce no evidence that they had the intention or ability to meet their obligation at the time the contract was made.

What remedy might a court offer? Damages under s 82 are unlikely, as there appears to be no loss resulting from reliance on the promise. The court may next consider issuing orders under s 87. Is it likely to do so? Since s 87 orders are discretionary, it is doubtful that a court would do so. The court’s good sense —coupled with an adherence to the maxim de minimis non curat lex[139] — will ensure that the absurd scenario feared by Skapinker and Carter is given short shrift, if indeed anyone ever bothered to litigate such a case. Indeed, it is again interesting to note that, to date, few cases, if any, containing such a factual scenario have been brought before the courts. Skapinker and Carter hypothesise that this is because practitioners have not yet realised that the possibility exists.[140] It may be, however, that practitioners understand the manner in which courts exercise their discretion, and do not wish to waste the courts’ time.

Skapinker and Carter also point out that pursuant to s 51A, contracting parties will have to make sure of finance, resources and other factors that may have a bearing on their ability to perform before making contractual promises as to the future. If not, contractors might leave themselves open to liability for misleading conduct in the event that performance is not possible.[141] This is quite possibly true, though whether this is a bad thing is debatable. The policy implications of all the eventualities warned against by Skapinker and Carter will be addressed in Part V.

C Giving Effect to the Intentions of Parliament

Finally, Skapinker and Carter intimate that the courts have not given effect to the intentions of the legislature in their application of s 52 to questions of contractual performance. Yet the context in which Parliament intended s 52 to be used is unclear. Though it may be ‘patently obvious’[142] to Skapinker and Carter, their view on the intended purview of the provision is not universally shared. It is quite probable that when he introduced the statute, Attorney-General Senator Lionel Murphy only foresaw that s 52 would be used in cases of misleading advertising. Senator Murphy, however, was explicit that the wording was non-specific in order to cover the very circumstances he could not foresee.[143] If the wording of the provision and the remarks of Senator Murphy when introducing the provision are any guide, s 52 is aimed neither at precontractual nor postcontractual conduct, but at any conduct that is misleading.

Even if the framers of the provision neither foresaw nor intended s 52 to be used as an alternative to breach of contract, this should not necessarily prevent the courts from giving the provision such an application. We live in a constantly evolving society that requires the law to evolve with it. This may be achieved through the courts’ constant updating of the law to meet the needs of the present by their interpretation of pre-existing law. Indeed, in this way many statutory provisions have been given useful, albeit novel and unintended applications.[144]

If the law is stretched beyond the point that Parliament finds acceptable, Parliament retains the power to legislate to define its intentions more accurately. In the case of s 52, the only legislative alterations since its inception (the insertion of ‘or is likely to mislead or deceive’ in 1977[145] and the introduction of s 51A in 1986[146]) have had the effect of widening the provision’s application. To date, therefore, the legislature has hardly shown itself to object to the continued expansion of s 52 — indeed, quite the opposite.[147]

V SHOULD THE RULES OF CONTRACT LAW REMAIN INVIOLATE?

One criticism that may be directed at Skapinker and Carter’s article is its tendency to make unsubstantiated assertions regarding the merits of maintaining the present law of contract.[148] Opposing change simply because it represents change is not persuasive. The preservation of the common law for its own sake is no justification. It is clear that s 52 provides an alternative to breach of contract. This is entirely consistent with other areas of law where overlaps exist, for example, where contract overlaps with tort,[149] restitution[150] and equity.[151] Rather than condemn developments in the law by mere assertion, some investigation of the benefits should first be attempted. Arguments surrounding such development can be roughly divided into economic arguments against, and consumer welfarist[152] or fair trading arguments in favour of the changes.

A The Economic Approach

Economic theorists, influenced by classical liberal notions of removing barriers to free trade and the minimisation of transaction costs, might see changes to the law of contract as a bad thing. Theorists such as Posner[153] and Coase[154] base their theories of economics and law on some basic assumptions. These are, primarily, that in a world of finite resources and rational people, resources should gravitate to their most valuable use.[155] For example, if Person A has a bag of corn that he or she values at $100, and Person B values the corn at $150, in the absence of transaction costs, if Person A sells to Person B at a price between $100 and $150, say $125, both parties are better off. So too is society. Before the transaction the combined assets were $100 worth of corn plus $125 cash equalling $225. After the transaction, the combined assets are $125 cash and $150 worth of corn, totalling $275; the wealth of society is therefore increased by $50.[156] Thus, the wealth of society can be maximised in economic terms by free exchange.

This can only be achieved, however, if transaction costs are lower than the net gain for both parties. Transaction costs may include costs associated with negotiating the terms of the contract, guarding against such uncertainties as parties reneging and possible litigation arising from the transaction. For an advocate of the market-based economic model, the role of the law of contract is to maximise market efficiency by facilitating free exchange and minimising transaction costs.[157] It is arguable that traditional principles of classical contract law may be viewed as largely accommodating this view.[158] Changes to contract law such as those threatened by the expansion of s 52 may be seen by economists as threatening economic success by driving up transaction costs, introducing uncertainty and stifling investment.

1 Transaction Costs

Looking first at increased transaction costs: if s 52 becomes influential in the law of breach of contract, businesses will have to plan contracts more extensively and may not be able to rely on cheaper standard form contracts containing risk-minimising exclusion clauses. Reduced freedom of the individual to rely on standard form contracts and exclusion clauses because of trade practices regulation has been roundly condemned by advocates of free market economics.[159] It has been argued that statutory interference with freedom of contract is both unnecessary and detrimental to the majority of society.[160]

Parish, for example, claims that the common assumption underlying consumer protection legislation — that an imbalance of bargaining power exists — is incorrect.[161] He argues that although most transactions are not negotiated but, rather, offered on a ‘take-it-or-leave-it’ basis, the buyer always has the option of going where more favourable terms are offered.[162] Given that the seller sets the price and terms and the buyer merely responds, the pressure is on the seller to offer terms favourable enough to tempt buyers. This means that goods and services tend to be offered at below what the seller considers to be their true value: hence, Parish’s assertion that the buyer is not actually at a disadvantage in terms of power compared to the seller.[163] Developments in the law, such as those described in this article, which tip the imbalance still further in the direction of the buyer are therefore unnecessary, according to Parish.[164]

Parish argues that as well as being unnecessary, stripping traders of their ability to rely on standard form contracts and exclusion clauses will also be costly.[165] Standard form contracts and exclusion clauses reduce transaction costs. Removing them will increase costs that must be passed on to the consumer, resulting in higher prices for everyone. Parish argues that the extra protection afforded to consumers by these provisions goes only to those consumers who choose to deal with ‘dishonest or shady business [people]’[166] and those consumers who are themselves irresponsible or imprudent.[167] The ‘ordinary, honest consumers dealing with reputable business [people]’[168] carry the cost of paying higher prices, while rarely having recourse to the law’s protection. If government interference in the contractual process were minimised and more traditional notions of freedom of contract and caveat emptor were to prevail, the only losers would be the feckless minority, whereas lower costs would be available to the remainder.[169]

2 Access to Remedies

That recent developments in the law of s 52 could theoretically provide plaintiffs with a greater measure of relief than would be available at common law is something economists may view as problematic. Similarly, under the TPA plaintiffs might have access to a remedy where there would be none at common law. Skapinker and Carter argue that:

Contract is a sophisticated institution, and the remedies for breach of contract are extensive. ... [O]ne can expect that Australian lawyers will soon plead section 52 in most cases of breach of contract ... for the very purpose of obtaining the quite disproportionate relief potentially available for every contravention of section 52.[170]

According to economic theorists, the possibility of overly harsh penalties and overly generous remedies for breach of contract may not be in society’s interests. Posner has argued that most breaches of contract are not opportunistic but either involuntary, or voluntary but efficient[171] — that is, the costs in performing the contract outweigh the benefits in performing, including the avoidance of potential damages for breach.[172] By not imposing prohibitive penalties for breach, efficient resource allocation is encouraged, and the wealth of society is enhanced.

The policy of the law of contract, according to classical economic theorist Justice Holmes, should only be to ensure ‘that you must pay damages if you do not [perform] ... and nothing else’.[173] The policy of the law should not be to demand performance, as this may be inefficient.[174]

3 Uncertainty

Recent developments may be criticised by economists as creating uncertainty and stifling entrepreneurialism. Uncertainty, it may be argued, is derived from the imprecise nature of s 52 and the fact that orders under s 87 are discretionary rather than available as of right. Businesses prefer predictability.[175] Furthermore, reducing the capacity to guard against incurring liability through exclusion clauses might make entrepreneurs think twice about investing. This might stifle entrepreneurial risk-taking and retard trade in general. Innovative new businesses may be stifled because the risks involved may be too great.

4 The Fair Trading Approach

The views expressed by economic theorists are not universally held. Underlying the economists’ approach is a particular philosophy that many might find unpalatable. It may be contended that the free market approach is based on some faulty assumptions and carries some unfortunate public policy implications.

The argument that the buyer is in the stronger bargaining position and does not require statutory intervention[176] seems misguided. Cranston observes that in many situations a complete lack of competition exists, and the only terms offered may be contained in standard form contracts containing disadvantageous exclusion clauses.[177] In these circumstances, the buyer has the option of either accepting the terms or doing without the goods or services offered. It is hard to see how the buyer holds the balance of power in this scenario.

In situations where competition exists, competing sellers may offer a wide variety of terms. However, given the length, complexity of language and legal technicality adopted in many standard form contracts, it is often beyond the capability of most people to understand fully the nature of the terms offered. It is therefore difficult for them to make a rational decision on which terms are most favourable. The impossibility of making a rational, interest-maximising choice may place the buyer in a position not much more powerful than the buyer who has no choice at all.[178]

The question that is posed then is not whether inequality in bargaining power exists — it does. Rather, the issue is whether statutory intervention in the marketplace is appropriate. Economists say no, while fair trading advocates disagree and argue in favour of the imposition of a degree of fairness and good faith in the contractual process. In considering the policy concerns of the economists regarding the possible implications of the expansion of the coverage of s 52, each concern can be countered by recourse to arguments based on fairness and ‘doing the right thing’.[179]

5 ‘Good Faith’ Developments

Over the past few decades, adherence to strict formalism and freedom of contract has been steadily eroded in favour of notions of fairness and good faith. The universal duty to act fairly in contractual relationships, which is currently being promoted by Australian courts generally,[180] arguably imposes an obligation to have regard to the other party’s legitimate expectation of performance.[181] Other developments in the law of contract, such as the introduction of statutory and general law unconscionability,[182] the development of equitable estoppel[183] and the various terms implied by statute[184] reflect the movement towards a more justice-orientated law of transactions.[185] The more recent addition of s 51AC to the TPA, which extends the statutory prohibition of unconscionable conduct to commercial contracts,[186] indicates that fairness applies beyond the consumer context. The movement toward fairness, referred to as a ‘measured mutation’ by Seddon,[187] is general in nature. Any expansion of s 52 can easily be reconciled with this evolution of the law, and is to be encouraged.

6 Remedial Discretion

In response to those economists who are concerned that the option to breach contracts when efficient to do so will be jeopardised, the argument made previously that the courts can be trusted to behave sensibly holds good in the present environment.[188] Courts are unlikely to hand down excessively harsh remedies where harshness is not merited, and they may pay heed to general law remedial principles in exercising their discretion under the TPA.[189] In this way, grossly inefficient relief may be avoided and fairness may be achieved.

The alternative argument is that the law of contract should be guided solely by an economic cost–benefit analysis in the way described by Holmes.[190] This option, however, is most unappealing. Even some advocates of economic theory identify morality and fairness as possible casualties of the blinkered pursuit of efficiency.[191] Fortunately, the law has always been fashioned to some extent by ‘notions of justice, fairness, even of morality (though subject to some limitations) and do[es] not reflect concepts of economic utility, efficient use of resources and maximisation of wealth.’[192] Indeed, if the courts were to allow a cost–benefit analysis to be the determinant of the extent of liability, rather than considerations of justice, the standing of the courts would be greatly diminished.[193]

7 Externalities

A further factor mitigating against the notion of facilitating efficient breaches are the costs that the behaviour of contracting parties can impose on others. These costs have been referred to as ‘externalities’.[194] Whether or not a contract is performed can have enormous implications for third parties. Trebilcock uses the radical example of a contract between a trader and an assassin to kill a rival trader.[195] This contract may well be in the interests of both parties to the contract, yet the external costs are extreme, particularly for the rival trader. In this circumstance, therefore, we have laws that properly seek to intervene in this type of contract. Similarly, though less extreme, in some circumstances, a breach of contract may be the most efficient solution for the parties to the contract, but impose costs on the wider society. Even if these costs amount only to intangibles such as the diminution of the shared perception that promises will be kept, they are vital to a functional business environment. The remedial provisions available under the TPA, it is contended, are better able to minimise externalities than remedies under the common law, due to their greater flexibility.[196]

Similarly, Parish’s argument that the consumer suffers from increased costs caused by government intervention in the capacity of parties to contract[197] fails to take into account the bigger picture. By relying on standard form contracts and exclusion clauses, businesses may save time and money, costs which might otherwise be passed on to the buyer. Does it necessarily follow from this that making it harder for sellers to behave irresponsibly by limiting the effectiveness of exclusion clauses is a bad thing? It is contended that marginally higher transaction costs may be a price well worth paying for a more transparent transactional environment. Obviously, in a world where sellers have no responsibility for their products or promises, point of sale prices could fall. It goes without saying, however, that there are other less tangible benefits to the public in having some degree of legal accountability.

8 The Uncertainty of ‘Bad Faith’ Conduct

What about the economists’ argument that statutory intervention in the contractual process breeds uncertainty? The answer to this question may be found in another question: what is certain about a system in which it is sometimes impossible for contracting parties to make those who breach promises and hide behind exclusion clauses accountable?[198] In addition, let us not forget the inherent uncertainty of the common law itself, or rather, its inherent flexibility.[199] A system which attempts to guard against any kind of misleading conduct creates a fairer, and therefore more certain, environment in which businesses can operate. The argument that certainty will be jeopardised does not take into account the uncertainty that springs from a system that facilitates sharp practice and deception. An environment in which fairness is the norm breeds another, more desirable kind of certainty. Sir Robin Cooke has argued convincingly that

the criterion of fairness can produce more certainty than the a priori arguments of technically learned lawyers ... [I]t may be that once the facts of any given case have been fully elicited most people would agree on the fair result. If the law provides that answer, it satisfies proper expectations.[200]

Notions of fairness should also be considered when arguments regarding encouraging investment are considered. The argument that an inability to minimise risk will stifle investment and innovation has some rather dubious moral connotations. Is it morally acceptable to expect a party who does not stand to gain from a false promise to assume the risk of non-performance by an entrepreneur who makes a contractual promise without being sure of their ability or willingness to perform?

A fairer and more efficient apportionment of risk would involve the risk being borne by the party in the best position to ensure that no losses arise from an inaccurate promise. That person is arguably the person who actually makes the promise.[201] If a result of the proposed changes is that contractual promises have to be thoroughly thought through and adequate research done to ensure that performance is possible, this can only be in the public interest. Indeed, if Seddon’s experience of seminar work with commercial managers is any guide, this is already the practice of business people in any case.[202]

9 Marginality and Contract Law

More detailed empirical studies seem to confirm that ‘doing the right thing’ in ongoing business relationships is paramount. Businesses understand that acting in good faith is in their mutual interests. A number of empirical studies conducted in the United States and the United Kingdom by Macaulay,[203] Beale and Dugdale[204] and Arrighetti, Bachmann and Deakin[205] suggest that the significance of contract law in ongoing business relationships, as opposed to discrete business transactions, may be marginal. Macaulay’s 1963 study is based on the practices of a number of manufacturers in Wisconsin; Beale and Dugdale’s 1975 study is based on engineering manufacturers in Bristol; and Arrighetti, Bachmann and Deakin’s is based on British, Italian and German manufacturers in the mid-1990s.

These studies focus on the extent to which businesses engage in detailed contractual planning, and the circumstances in which legal sanctions are used to enforce contractual performance. With regard to contractual planning, Beale and Dugdale found that, on the whole, detailed planning beyond primary obligations is uncommon.[206] Macaulay suggests that one reason for this is that standard form planning reduces transaction costs, and avoids unseemly haggling over contractual intricacies between parties attempting to foster an ongoing, trustful business relationship.[207] The findings of Beale and Dugdale concur with those of Macaulay in that maintaining ongoing business relationships is given prominence over detailed planning. They allude to industry practices and customs alleviating the need to engage in planning to some extent.

The researchers also found that recourse to the law to enforce contracts in situations of non-performance is, on the whole, minimal. Rather than enforce contracts to the letter through the courts, businesses often consider that the damage to their reputations caused by involvement in litigation outweighs the value of insisting on their strict legal rights. Instead of spending time, money and energy on court cases that often cannot provide flexible remedies or certain outcomes, businesses are prepared to compromise and factor a certain amount of loss due to non-performance into their financial planning.[208]

The studies indicate that trust and the fostering of good relations are considered the most effective means of conducting a business. Methodological criticisms aside, it is arguable that even though the law of contract may not be consciously considered during the contractual process, contractual behaviour is shaped to some extent by the shadow that the law of contract casts.[209] Though the law may not be at the forefront of the contractual process, it maintains a discreet presence in influencing the behaviour of contracting parties.

This being the case, it may be argued that a body of law that exacts a higher standard of conduct is beneficial. Given that it will rarely be invoked, according to the empiricists, and merely casts its shadow over proceedings, would it not be better if the norm laid down by the law was of a higher standard? There is not likely to be a stampede toward litigation, because people rarely resort to litigation in any case.[210] In order to guard against the possibility of litigation, however, businesses may be inclined to confine themselves to making promises they intend to keep and only commit themselves to obligations they are capable of performing. This would not be difficult for business to achieve.[211] This would also help provide businesses with a trustful and fair commercial environment based on good faith, which the studies indicate they desire.[212] It is, therefore, something to be encouraged.

VI CONCLUSION

It is apparent that s 52 of the TPA has some potential, even if only limited, to move into the realm of breach of contract. Under the recent developments, any contractual warranty of a factual nature that is false can be characterised as misleading conduct. Furthermore, pursuant to s 51A, a contractual promise as to the future may give rise to a representation that the promisor will perform, which may be deemed misleading if the promisor/representor cannot adduce evidence that they had the capability and intention of performing their obligations. The effect this may have will not be as dramatic as Skapinker and Carter suggest, since in most cases plaintiffs will continue to plead breach of contract under the common law. Where the TPA is utilised, an applicant may (but will not necessarily) enjoy remedies which would not otherwise be available at common law.

These developments are not a cause for alarm. Indeed, in order to meet the standard of behaviour required by s 52, businesses need only check the accuracy of any factual guarantees they give, and should only make promises they intend to keep, and can reasonably expect to be able to perform. This being so, the recent developments in the jurisprudence of s 52, in the context of breach of contract, should not necessarily be criticised as ‘bring[ing] no credit to the legislation’.[213] Rather, the expansion of s 52 can be seen as another beneficial application of this most versatile statutory provision.


[*] BA, LLB (Hons) (La Trobe); Articled Clerk, Blake Dawson Waldron, Melbourne. This article is based on an Honours thesis submitted at La Trobe University. I am grateful to Heather King for her kind supervision and comments on the drafting of this article. Needless to say, any errors or omissions are the responsibility of the author.

[1] Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594, 601 (Mason CJ, Deane, Dawson and Gaudron JJ) (‘Concrete Constructions’).

[2] Trade Practices Amendment Act 1977 (Cth) s 29.

[3] Justice R S French, ‘The Action for Misleading or Deceptive Conduct: Future Directions’ in Colin Lockhart (ed), Misleading or Deceptive Conduct: Issues and Trends (1996) 279, 279.

[4] Eg, false advertising, passing off, defamation and common law misrepresentation. See generally Helen Jordan, ‘The Injunction against Misleading and Deceptive Conduct — The Quiet Achiever’ (1992) 20 Australian Business Law Review 244; Justice Kingsley Malcolm, ‘Introduction’ in Colin Lockhart (ed), Misleading or Deceptive Conduct: Issues and Trends (1996) 2, 2.

[5] Justice R S French, ‘A Lawyers’ Guide to Misleading or Deceptive Conduct’ (1989) 63 Australian Law Journal 250, 250.

[6] David Harland, ‘The Statutory Prohibition of Misleading or Deceptive Conduct in Australia and Its Impact on the Law of Contract’ (1995) 111 Law Quarterly Review 100, 132.

[7] [1932] AC 562.

[8] [1897] AC 22.

[9] Neil Francey, ‘Section 52: Its Rationale, Justification and Deficiencies — and Some Suggestions for Its Improvement’ (1997) 5 Trade Practices Law Journal 162, 162.

[10] Warren Pengilley, ‘“But You Can’t Do That Any More!” — The Effect of Section 52 on Common Negotiating Techniques’ (1993) 1 Trade Practices Law Journal 113.

[11] Diane Skapinker and J W Carter, ‘Breach of Contract and Misleading or Deceptive Conduct in Australia’ (1997) 113 Law Quarterly Review 294, 294.

[12] Identifying what was the dominant political discourse more than 28 years ago is obviously not an exact science. Authority for the assertion that there was a tendency towards consumerism at this time includes John Llewellyn, ‘Local and Overseas Trends in Consumer Protection’ in University of Sydney Committee for Post-Graduate Studies (ed), The Consumer and the Law (1973) 1. For an overview of the concurrent overseas movement towards consumerism at that time, see Ewoud Hondius, ‘Unfair Contract Terms: New Control Systems’ (1978) 26 American Journal of Comparative Law 525.

[13] See generally Malcolm, above n 4, 7.

[14] Commonwealth, Parliamentary Debates, Senate, 30 July 1974, 540–1 (Lionel Murphy, Attorney-General).

[15] (1971) 124 CLR 468.

[16] Harland, above n 6, 100.

[17] Commonwealth, Parliamentary Debates, House of Representatives, 25 October 1973, 2738 (Keppel Earl Enderby, Minister for Secondary Industry, Minister for Supply).

[18] Commonwealth, Parliamentary Debates, Senate, 30 July 1974, 541 (Lionel Murphy, Attorney-General).

[19] Ibid.

[20] A corporation is defined in s 4(1) of the TPA as a trading or financial corporation formed within Australia, a foreign corporation, or the holding company of any such corporation.

[21] Despite the wording of s 52 of the TPA, which specifically refers to the conduct of corporations, s 6(2) extends the operation of s 52 to individuals conducting interstate and territory trade, trade with parties outside Australia, or individuals supplying goods or services to an authority or instrumentality of the Commonwealth. Section 6(3) further extends the coverage of s 52 of the TPA to the conduct of individuals involving the use of postal, telegraphic or telephonic services.

[22] This provision is defined in detail in Yorke v Lucas (1985) 158 CLR 661, 669 (Mason CJ, Wilson, Deane and Dawson JJ).

[23] Bevanere Pty Ltd v Lubidineuse [1985] FCA 134; (1985) 7 FCR 325, 330.

[24] Prior to the decision in Concrete Constructions, for example, a submission made by a trader to a Minister was held to be conduct in trade or commerce: see Merman Pty Ltd v Cockburn Cement Ltd (1988) 84 ALR 521. This finding was held to be arguable in a preliminary hearing in the Federal Court.

[25] [1990] HCA 17; (1990) 169 CLR 594.

[26] See, eg, E v Australian Red Cross Society [1991] FCA 20; (1991) 27 FCR 310; Durant v Greiner (1990) 21 NSWLR 119.

[27] [1982] FCA 136; (1982) 42 ALR 177, 202.

[28] Lockhart J has held that any conduct that is misleading or deceptive may be contrary to s 52, irrespective of whether the impugned conduct constitutes a misrepresentation: see, eg, Bridge Stockbrokers Ltd v Bridges (1984) 4 FCR 460, 474; Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd [1986] FCA 218; (1986) 12 FCR 477, 504; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [No 1] [1988] FCA 40; (1988) 39 FCR 546, 555 (‘Henjo’).

[29] Henjo [1988] FCA 40; (1988) 39 FCR 546, 555 (Lockhart J).

[30] See General Newspapers Pty Ltd v Telstra Corporation [1993] FCA 473; (1993) 45 FCR 164, 178 (Davies and Einfeld JJ).

[31] Whether silence is actionable under s 52 has been a contentious issue. Differing approaches have been taken. Eg, in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd [1986] FCA 218; (1986) 12 FCR 477 the failure to disclose certain information was held not to be misleading conduct, whereas in Henjo [1988] FCA 40; (1988) 39 FCR 546 the failure to disclose full details was held to be misleading conduct. More recent cases also tend to contradict each other. Cf, eg, Australian Consolidated Investments Ltd v England [1995] FCA 1069; (1995) 13 ACLC 296 and Diversified Mineral Resources NL v CRA Exploration Pty Ltd [1995] FCA 1049; (1995) ATPR 41-381. For a full discussion of this area of law, see Warren Pengilley, ‘Section 52: Can the Blind Mislead the Blind?’ (1997) 5 Trade Practices Law Journal 4. See also Diane Skapinker, ‘The Imposition of a Positive Duty of Disclosure under Section 52 of the Trade Practices Act 1974 (Cth)’ (1991) 4 Journal of Contract Law 75, 75; Daniel Clough, ‘Misleading and Deceptive Silence: Section 52, Confidentiality and the General Law’ (1994) 2 Trade Practices Law Journal 76.

[32] Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191, 198 (Gibbs CJ) (‘Parkdale’).

[33] Henjo [1988] FCA 40; (1988) 39 FCR 546, 554–5 (Lockhart J).

[34] Ibid 555.

[35] Parkdale [1982] HCA 44; (1982) 149 CLR 191, 198 (Gibbs CJ).

[36] Brown v Jam Factory Pty Ltd (1981) 53 FLR 340. By contrast, in cases of misleading advertising it is unnecessary to show detrimental reliance, as the purpose of the action is usually to seek an injunction under s 80. The remedial provisions that apply to s 52 are discussed in more detail in below Part II(B).

[37] Brown v Jam Factory Pty Ltd (1981) 53 FLR 340, 349.

[38] See Parkdale [1982] HCA 44; (1982) 149 CLR 191, 197 (Gibbs CJ).

[39] This issue was discussed in Yorke v Lucas (1985) 158 CLR 661. In this case the majority of the High Court held that an agent who passes on misleading information will be prima facie liable under s 52, unless they are acting as a ‘mere conduit’, that is, they do not implicitly or expressly endorse the misleading information in any way. This approach was followed in Saints Gallery Pty Ltd v Plummer (1988) 80 ALR 529.

[40] Andrew Terry, ‘Misleading or Deceptive Conduct in Commercial Negotiations’ (1986) 16 Australian Business Law Review 189, 192.

[41] Harland, above n 6, 110.

[42] Ibid 100.

[43] The High Court settled this question — albeit by a narrow majority — in Concrete Constructions [1990] HCA 17; (1990) 169 CLR 594, 601 (Mason CJ, Deane, Dawson and Gaudron JJ).

[44] Subject to statutory rules which prevent contracting out of various provisions. See, eg, TPA s 68; Goods Act 1958 (Vic) s 95.

[45] For a general discussion, see J W Carter and D J Harland, Cases and Materials on Contract Law in Australia (3rd ed, 1998) 293. See also Pengilley, ‘The Effect of Section 52 on Common Negotiating Techniques’, above n 10, 121. See, more specifically, Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500.

[46] Clark Equipment Australia Ltd v Covcat Pty Ltd [1987] FCA 96; (1987) 71 ALR 367, 371 (Sheppard J). See also Byers v Dorotea Pty Ltd (1986) 69 ALR 715 (‘Byers’).

[47] See, eg, Keenmar Corporation Pty Ltd v Labrador Park Shopping Pty Ltd (1989) ATPR 46-048.

[48] Lezam Pty Ltd v Seabridge Australia Pty Ltd [1992] FCA 206; (1992) 35 FCR 535, 557 (Burchett J); affirmed in Bowler v Hilda Pty Ltd (1998) 80 FCR 191, 207 (Heerey J) (‘Bowler’).

[49] Netaf Pty Ltd v Bikane Pty Ltd [1990] FCA 35; (1990) ATPR 41-011.

[50] INXS v South Sea Bubble Co Pty Ltd (1986) ATPR 40-667, 47,378 (Wilcox J).

[51] See C E K Hampson, ‘Blocked Contractual Arteries? Try a Section 52 By-Pass’ (1993) 1 Trade Practices Law Journal 22, 30–6; Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, 526–7 (Mason CJ, Dawson, Gaudron and McHugh JJ); Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281. But contrast Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445, 461 (Hill J).

[52] Section 75B of the TPA defines a person involved in a contravention as anyone who has aided, abetted, counseled, procured, induced, been concerned in or conspired to effect the contravention.

[53] Harland, above n 6, 118.

[54] Section 80 injunctions, however, have little relevance to contract-related actions and will not be discussed further.

[55] See Deborah Healey, ‘Recent Developments in Assessment of Damages under the Trade Practices Act’ in Colin Lockhart (ed), Misleading or Deceptive Conduct: Issues and Trends (1996) 263, 263.

[56] Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, 525 (Mason CJ, Dawson, Gaudron and McHugh JJ). Mason CJ places great emphasis on the fact that the wording of s 82 stipulates compensation for loss or damage ‘by’ the conduct of another person.

[57] Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1, 11–12 (Mason, Wilson and Dawson JJ) (‘Gates’). See also Marks v GIO Australian Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332.

[58] Hampson, above n 51, 31.

[59] [1986] HCA 3; (1986) 160 CLR 1, 14 (Mason, Wilson and Dawson JJ).

[60] [1998] HCA 69; (1998) 196 CLR 494, 512 (McHugh, Hayne and Callinan JJ) (‘Marks’).

[61] The wide range of orders that may be made under s 87 are set out in s 87(2). They comprise: orders declaring a contract void, either wholly or in part; orders varying the contract from such a date as the court deems fit; orders refusing enforcement; orders to return property or refund money; orders for the payment of damages; orders for specific services or goods to be supplied; and orders terminating or varying instruments creating or transferring an interest in land.

[62] See, eg, GIO Australia Holdings Ltd v Marks (1997) ATPR 41-544, 43,545 (Wilcox and Tamberlin JJ).

[63] See, eg, E R Squibb & Sons Pty Ltd v Tully Corp Pty Ltd (1986) 6 IPR 489, 512 (Gray J).

[64] See, eg, Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281, 298 (Brennan, Deane, Dawson, Gaudron and McHugh JJ).

[65] Eg, Seddon v North Eastern Salt Co Ltd [1904] UKLawRpCh 170; [1905] 1 Ch 326.

[66] Eg, Byers (1986) 69 ALR 715, 730–1.

[67] For example, the common law rule against rescission where the interests of innocent parties may be prejudiced applies equally to orders under s 87 on the general grounds of fairness: see Collier v Electrum Acceptance Pty Ltd (1986) 69 ALR 355, 360 (Woodward J). As to the purposes of the remedies offered under ss 87 and 82 of the TPA generally, see Munchies Management Pty Ltd v Belperio [1988] FCA 413; (1988) 58 FCR 274, 288 (Fisher, Gummow and Lee JJ) (‘Munchies Management’).

[68] Warren Pengilley, ‘Section 52 of the Trade Practices Act: A Plaintiff’s New Exocet?’ (1987) 15 Australian Business Law Review 247, 274.

[69] Ibid 249. See also Thompson v Mastertouch TV Service [No 1] (1977) 29 FLR 270.

[70] Deborah Healey and Andrew Terry, Misleading or Deceptive Conduct (1991) 276–7.

[71] Ibid 277.

[72] See, eg, Taco Co of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177, 202.

[73] Henjo [1988] FCA 40; (1988) 39 FCR 546, 554–5 (Lockhart J). For a more comprehensive discussion refer to the earlier examination of the definition of ‘conduct’ in above Part II(A).

[74] Skapinker and Carter, above n 11, 318.

[75] Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470, 504–5 (Lockhart and Gummow JJ) (‘Accounting Systems’).

[76] As was the case in Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216.

[77] (1993) 42 FCR 470.

[78] Ibid 505.

[79] [1988] FCA 40; (1988) 39 FCR 546, 555.

[80] Accounting Systems (1993) 42 FCR 470, 505 (Lockhart and Gummow JJ).

[81] See Parkdale [1982] HCA 44; (1981) 149 CLR 191, 198 (Gibbs CJ); James v Australia and New Zealand Banking Group [1986] FCA 41; (1986) 64 ALR 347, 372 (Toohey J) (‘James’).

[82] R v Sunair Holidays [1973] 1 WLR 1105, 1109 (MacKenna J); affirmed in Futuretronics International Pty Ltd v Gadzhis [1992] VicRp 63; [1992] 2 VR 217, 236 (Ormiston J) (‘Futuretronics’).

[83] (1983) 50 ALR 242, 250.

[84] D W Greig and J L R Davis, The Law of Contract (1987) 814–15. See also the discussion in Futuretronics [1992] VicRp 63; [1992] 2 VR 217 (Ormiston J); Bowler (1998) 80 FCR 191, 205.

[85] See, eg, Futuretronics [1992] VicRp 63; [1992] 2 VR 217, 239 (Ormiston J).

[86] Ibid 238.

[87] Holt v Biroka Pty Ltd (1988) 13 NSWLR 629, 635–6 (Kearney J); also discussed in Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901, 49,699 (French J).

[88] Futuretronics [1992] VicRp 63; [1992] 2 VR 217, 238–9 (Ormiston J).

[89] For an overview of this debate, see Bowler (1998) 80 FCR 191, 204–5 (Heerey J).

[90] See, eg, Balfour v Hollandia Ravensthorpe NL (1978) 18 SASR 240.

[91] The leading case in this area is James [1986] FCA 41; (1986) 64 ALR 347, 372 (Toohey J).

[92] Edgington v Fitzmaurice [1885] UKLawRpCh 83; (1885) 29 Ch D 459, 483 (Bowen LJ).

[93] See, eg, Hosmer Holdings v CAJ Investments Pty Ltd (1995) 57 FCR 45, 61 (Moore J).

[94] French, ‘The Action for Misleading or Deceptive Conduct’, above n 3, 293.

[95] Pursuant to s 126 of the Instruments Act 1958 (Vic).

[96] The then State equivalent of s 52 of the TPA. The current provision is s 9 of the Fair Trading Act 1999 (Vic).

[97] Futuretronics [1992] VicRp 63; [1992] 2 VR 217, 233 (Ormsiton J).

[98] Ibid.

[99] Futuretronics failed to obtain the remedies it sought because all of the bidders at the auction, with the exception of Gadzhis, were dummy bidders. Therefore, Futuretronics could not claim to have lost on a possible bid from any other party. The remedies under both the Fair Trading Act 1999 (Vic) and the TPA are ‘designed to compensate for misleading or deception, not as a substitute means of enforcing promises’: Futuretronics [1992] VicRp 63; [1992] 2 VR 217, 244 (Ormiston J).

[100] Global Sportsman Pty Ltd v Mirror Newsarticles Ltd (1984) 2 FCR 82, 88 (Bowen CJ, Lockhart and Fitzgerald JJ). See also James [1986] FCA 41; (1986) 64 ALR 347, 372 (Toohey J).

[101] Ting v Blanche (1993) 118 ALR 543, 552 (Hill J) (‘Ting’).

[102] Bowler (1998) 80 FCR 191, 207 (Heerey J) and 215–16 (Cooper J), affirming Cummings v Lewis [1993] FCA 190; (1993) 41 FCR 559, 567–8 (Sheppard and Neaves JJ).

[103] Hill J discusses the application of s 51A in Ting (1993) 118 ALR 543, 552–3.

[104] Futuretronics [1992] VicRp 63; [1992] 2 VR 217, 239 (Ormiston J).

[105] Wheeler Grace & Pirrucci Pty Ltd v Wright (1989) ATPR 40-940, 50,254 (Lee J).

[106] Skapinker and Carter, above n 11, 312.

[107] (1989) 15 NSWLR 679, 690.

[108] Section 10A as it then was of the Fair Trading Act 1985 (Vic); now contained in s 4 of the Fair Trading Act 1999 (Vic).

[109] Futuretronics [1992] VicRp 63; [1992] 2 VR 217, 241 (Ormiston J).

[110] Ibid.

[111] Ibid 242.

[112] (1993) ATPR 46-102, 53,406. This view is shared by Skapinker and Carter, above n 11, 317.

[113] (1993) 118 ALR 543, 553.

[114] Ibid, citing Nowegijick v The Queen (1983) 1 SCR 29, 38; 144 DLR (3rd) 193, 200 (Dickson J), approved by Toohey J in Smith v Federal Commissioner of Taxation (1987) 164 CLR 513, 533.

[115] [1996] FCA 834; (1996) ATPR 41-534, 42,817.

[116] Ibid.

[117] Skapinker and Carter, above n 11, 318.

[118] Ibid. See also earlier discussion in above Part II(B).

[119] Skapinker and Carter, above n 11, 318.

[120] Ibid.

[121] See discussion in above nn 4450 and accompanying text.

[122] Skapinker and Carter, above n 11, 318.

[123] Ibid 317–8.

[124] Ibid.

[125] Ibid 294, 318–9.

[126] Ibid 294.

[127] See earlier discussion in above Part II(B)(1).

[128] See, eg, Gates [1986] HCA 3; (1986) 160 CLR 1, 6–7 (Gibbs CJ), 14 (Mason, Wilson and Dawson JJ); Marks [1998] HCA 69; (1998) 196 CLR 494, 510–12 (McHugh, Hayne and Callinan JJ).

[129] Associated Newspapers Ltd v Bancks [1951] HCA 24; (1951) 83 CLR 322 (‘Associated Newspapers’). For repudiation or breach going to the root of the contract, see Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623.

[130] Associated Newspapers [1951] HCA 24; (1951) 83 CLR 322.

[131] See earlier discussion in above Part II(B)(2).

[132] Ibid.

[133] Coulls v Bagot’s Executor & Trustee Co Ltd [1967] HCA 3; (1967) 119 CLR 460, 478 (Barwick CJ). Readers should, however, note the limited exception made to the doctrine of privity in Trident General Insurance Co Ltd v McNeice Bros [1988] HCA 44; (1988) 165 CLR 107.

[134] (1993) 42 FCR 470.

[135] Property Law Act 1958 (Vic) s 53(1)(a); see also the Instruments Act 1958 (Vic) s 126. Note that the doctrine of part performance may make an unwritten contract enforceable, as may estoppel.

[136] Skapinker and Carter, above n 11, 319.

[137] Ibid.

[138] This occurred in Ransley v Medical Benefits Fund of Australia Ltd (1980) ATPR 40-160, 42,256 (Smithers J).

[139] ‘The law does not concern itself with trifles’.

[140] Skapinker and Carter, above n 11, 319.

[141] Ibid 318.

[142] Ibid 294.

[143] Commonwealth, Parliamentary Debates, Senate, 30 July 1974, 540–1 (Lionel Murphy, Attorney-General).

[144] See, eg, Rogers J in Mehta v Commonwealth Bank of Australia (1990) ATPR 41-026, 51,424: ‘[S]omewhat in the same way as the RICCO [sic] legislation in the United States has been used in commercial litigation, in a way never contemplated by Congress, the Act has been relied on for purposes very unlikely to have been foreseen by its framers.’ Rogers J was referring to the Racketeer Influenced and Corrupt Organizations Act of 1970, 18 USC s 1961 (1994).

[145] Trade Practices Amendment Act 1977 (Cth) s 29.

[146] Trade Practices Revision Act 1986 (Cth) s 21.

[147] Note that the insertion of s 65A was an exception introduced to discourage the use of s 52 in defamation cases where the publisher is a media organisation.

[148] Eg, they assert that limiting reliance on exclusion clauses is problematic without providing any reasons for their claims: Skapinker and Carter above n 11, 318.

[149] See, eg, Hawkins v Clayton (1988) 164 CLR 539.

[150] See, eg, Automatic Fire Sprinklers Pty Ltd v Watson [1946] HCA 25; (1946) 72 CLR 435.

[151] See, eg, Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41.

[152] This phrase is used by John Adams and Roger Brownsword, ‘The Ideologies of Contract’ (1987) 7 Legal Studies 205, 205.

[153] Richard Posner, Economic Analysis of Law (4th ed, 1992); see also Anthony Kronman and Richard Posner, The Economics of Contract Law (1979).

[154] R H Coase, ‘The Problem of Social Cost’ (1960) 3 Journal of Law and Economics 1.

[155] Kronman and Posner, above n 153, 2.

[156] The example was drawn from ibid.

[157] For an overview of an economic view of contract, see Michael Trebilcock, ‘An Introduction to Law and Economics’ [1997] MonashULawRw 8; (1997) 23 Monash University Law Review 123, 142.

[158] During the 19th century, paternalism was supplanted by a laissez faire philosophy. Contract law was viewed as a means of realising a person’s will. As such, notions of freedom of contract and the inviolability of contract became the cornerstones of the law. It was thought that individuals should be free to agree to whatever they choose and that courts should not interfere with, or impose, an agreement. The substance of modern contract law is built on these foundations. For example, the ‘meeting of minds’ rule, whereby both parties must objectively consent to be bound, derives from the belief that it is improper for the state to interfere in private bargains and impose obligations. The private agreement of the parties is fundamental to modern contract law. See P S Atiyah, Introduction to the Law of Contract (5th ed, 1995) 1, 1–36. See also Paula Baron, ‘Shells of Steel and Bodies of Pulp: Commercial Man, Commercial Morality’ (1993) 11(1) Law in Context 3.

[159] Notions of private autonomy achieving maximum social gain have been formulated by such scholars as F A Hayek, The Road to Serfdom (1944) and Milton Freidman, Capitalism and Freedom (1982).

[160] Ross Parish, ‘Consumer Protection and the Ideology of Consumer Protectionists’ in A J Duggan and L W Darvall (eds), Consumer Protection Law and Theory (1980) 229, 229.

[161] Ibid 236.

[162] Ibid.

[163] Ibid 236–7.

[164] Ibid 236.

[165] Ibid 237.

[166] Ibid 239.

[167] Ibid.

[168] Ibid.

[169] Ibid 239.

[170] Skapinker and Carter, above n 11, 298.

[171] Posner, above n 153,117–26.

[172] A general discussion of the concept of efficient breach can be found in Stephen Bottomley and Stephen Parker, Law in Context (2nd ed, 1997) 304–8.

[173] Justice Oliver Wendell Holmes, ‘The Path of the Law’ (1897) 10 Harvard Law Review 457, 462.

[174] Posner discusses the general issue of contractual damages in Posner, above n 153, 88–92.

[175] The Australian Chamber of Commerce and Industry regularly criticises increases in business regulation on grounds of uncertainty. See, eg, David McKenzie, ‘Employers Slam Law Amendments’, The Age (Melbourne), 13 January 1996, B3.

[176] Parish, above n 160, 229.

[177] Ross Cranston, ‘Consumer Protection and Economic Theory’ in A J Duggan and L W Darvall (eds), Consumer Protection Law and Theory (1980) 243, 247.

[178] Ibid.

[179] Nicholas Seddon, ‘Australian Contract Law: Maelstrom or Measured Mutation?’ (1994) 7 Journal of Contract Law 93, 94.

[180] See, eg, Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Hughes Aircraft Systems International v Airservices Australia [1997] FCA 558; (1997) 76 FCR 151; Alcatel Australia v Scarcella [1998] NSWSC 483; (1998) 44 NSWLR 349; Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903 (Unreported, Finkelstein J, 2 July 1999) <http://www

.austlii.edu.au/au/cases/cth/federal_ct/1999/903.html> at 26 August 2000 (copy on file with author).

[181] Finn argues that the duty to act in good faith or fairly or reasonably requires only having regard to the legitimate expectations of the other party. See P D Finn, ‘The Fiduciary Principle’ in T G Youdan (ed), Equity, Fiduciaries and Trusts (1989) 1, 3–11.

[182] See ss 51AA, 51AB and 51AC of the TPA. See also Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447; Commonwealth v Verwayen (1990) 170 CLR 394. For a general discussion of the statutory provisions, see Robert Baxt and Joel Mahemoff, ‘Unconscionable Conduct under the Trade Practices Act — An Unfair Response by the Government: A Preliminary View’ (1998) 26 Australian Business Law Review 5.

[183] See Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.

[184] See TPA pt V div 2 and the Goods Act 1958 (Vic) pt IV which imply certain, mostly non-excludable, terms in the case of consumer contracts for the supply of goods and services.

[185] Seddon, above n 179, 94.

[186] Section 51AC confers protection on business consumers and small business suppliers, provided that transactions are for commercial purposes, below $3 million, and the applicant is not a public corporation listed on the Australian Stock Exchange: see Trade Practices Regulations 1974 (Cth) reg 28AA.

[187] Seddon, above n 179, 94.

[188] See earlier discussion above nn 137141 and accompanying text.

[189] Munchies Management [1988] FCA 413; (1988) 58 FCR 274.

[190] Holmes, above n 173.

[191] Trebilcock, above n 157, 134.

[192] Sir Anthony Mason, ‘Law and Economics’ [1991] MonashULawRw 9; (1991) 17 Monash University Law Review 167, 171.

[193] Ibid.

[194] R R Officer, ‘The Role of Trade Practices Legislation’ (1978) 6 Australian Business Law Review 2, 3.

[195] Trebilcock, above n 157, 146.

[196] See earlier discussion of remedies in above Part II(B).

[197] Parish, above n 160, 230.

[198] In some cases exclusion clauses in the consumer context are already non-excludable. The recent introduction of s 51AC of the TPA also gives greater scope to tackle exclusion clauses as substantially unfair. The impact of s 52 of the TPA is consistent with such developments. See generally ACCC Guide to Unconscionable Conduct in Business Transactions (1998).

[199] See, eg, David Wright, ‘The New Law of Remedies’ (Paper presented at the Remedies Teachers’ Conference, Melbourne, 28–29 August 1999).

[200] Sir Robin Cooke, ‘Fairness’ (1989) 19 Victoria University of Wellington Law Review 421, 422.

[201] See Robert Cooter, ‘Law and the Imperialism of Economics: An Introduction to the Economic Analysis of Law and a Review of the Major Books’ (1982) 29 UCLA Law Review 1260, 1263.

[202] Seddon, above n 179, 94.

[203] Stewart Macaulay, ‘Non-Contractual Relations in Business: A Preliminary Study’ (1963) 28 American Sociological Review 55. See also Stewart Macaulay, ‘An Empirical View of Contract’ [1985] Wisconsin Law Review 465.

[204] Hugh Beale and Tony Dugdale, ‘Contracts between Businessmen: Planning and the Use of Contractual Remedies’ (1975) 2 British Journal of Law and Society 45.

[205] Alessandro Arrighetti, Richard Bachmann and Simon Deakin, ‘Contract Law, Social Norms and Inter-Firm Cooperation’ (1997) 21 Cambridge Journal of Economics 171.

[206] Beale and Dugdale, above n 204, 47.

[207] Macaulay, ‘Non-Contractual Relations in Business’, above n 203.

[208] Beale and Dugdale, above n 204, 49.

[209] Macaulay, ‘An Empirical View of Contract’, above n 203, 465.

[210] Marc Galanter, ‘Justice in Many Rooms’ in Mauro Cappelletti (ed), Access to Justice and the Welfare State (1981) 147, 149.

[211] Greig and Davis, above n 84, 812.

[212] For a general discussion on the implications and content of good faith, see H K Lücke, ‘Good Faith and Contractual Performance’ in P D Finn (ed), Essays on Contract Law (1987) 155.

[213] Skapinker and Carter, above n 11, 294.