Chapter 1 and 2

Chapter 1.
The Courts and the Entrepreneur
CHAPTER 1: THE COURTS AND THE ENTREPRENEUR
‘The time has come,’ the Walrus said,

‘To talk of many things:
Of shoes — and ships — and sealing wax —
Of cabbages — and kings —
And why the sea is boiling hot —
And whether pigs have wings.’
‘Through the Looking Glass’ by Lewis Carroll.
Introduction: The Entrepreneur and the Law
In this book we ‘talk of many things’ concerning the relationship

of the law and the entrepreneur. We will see that at times the law
operates to encourage and enable the entrepreneur. At other times
it seeks to regulate and control her. Each chapter of this book
concludes with a case study of an Australian entrepreneur and
some hypothetical legal problems that he or she may face.
Every society has its heroes and villains. Lewis Carroll’s Walrus
was a villain. In Western literature we meet the psychopathic
warrior Achilles, Aeneas who founded an empire, and Hector, the
doomed Trojan hero. The Mahabharata, India’s classic, portrays
the wicked usurper Duryodhana and Bhima, his conqueror, who
had the strength of 8000 elephants. In the Chinese classic The
Three Kingdoms, the legitimate Liu Bei competes for power with
Cao Cao, a ruthless poem-writing general, and Zhuge Liang, a
Taoist scholar and master strategist. However in this weak piping
time of peace, our heroes and villains are politicians, rock stars
and footballers. How mistaken! The real heroes and villains in our
society should be the entrepreneurs –- like the characters in the
classics capable of great good and great evil.
Let us begin with the word ‘entrepreneur’ itself. This is a loan

word from French, which an economist, Jean-Baptiste Say,
Chapter 1. The Courts and the Entrepreneur
invented in 1800. Say defined an entrepreneur as ‘one who

undertakes an enterprise, especially a contractor, acting as
intermediatory between capital and labour’. Today the Concise
Oxford dictionary defines the entrepreneur as a ‘person in
effective control of commercial undertaking’. The word
‘entrepreneur’ carries various connotations, sometimes negative,
sometimes positive.
Enter the villains. In its negative sense, the word ‘entrepreneur’ is

associated with reckless or fraudulent traders. Newspaper baron
and British peer Conrad Black stole millions from his investors
while Enron CEO Jeffrey Skilling ruined his. Lifestyle guru
Martha Stewart protected her fortune by insider trading and
Bernie Madoff built his through a $65 billion Ponzi scheme. All
have been imprisoned for their crimes.
In Australia the excesses of entrepreneurs in the 1980s such as

Christopher Skase1 or Alan Bond2 contributed to the 1987 share
market collapse and a recession some years afterwards. More
recently the global financial crisis in 2008 was blamed on
‘entrepreneurial’ excesses by firms such as Lehman Brothers in
the USA and Babcock & Brown in Australia. Disgraced
Australian entrepreneurs from this period include John Elliot,3
1
In the 1980s Skase’s company, Quintex, had became one of Australia’s
largest corporations, owning the Seven television network and luxury resorts.
However his empire was built on unsustainable borrowings. In 1989 Skase
began illegally to move moneys into foreign bank accounts. In 1991 when
Quintex collapsed Skase fled to Majorca, becoming Australia’s most notorious
fugitive.
2
Alan Bond started his business in property development and in the 1980s
diversified into television, mining and brewing. Like Christopher Skase his
empire was built on unsustainable borrowings. In 1992 he was declared
bankrupt with debts of $1.8 billion. In 1997 he was sentenced to seven years
prison for siphoning off $1.2 billion from Bell Resources, a company he
controlled, to try to prop up Bond Corporation. See Paul Barry, The Rise and
Fall of Alan Bond, Bantam Books, 1991.
3
After 30 years at the top of Australian business, John Elliot was ordered to
pay a fine of $1.3 million and disqualified for four years for allowing a
company to trade while insolvent in breach of the Corporations Act. In fighting
this and other proceedings Elliot lost his entire fortune of $78 million and was
declared bankrupt in 2005.
Rene Rivkin4 and Steve Vizard.5 Clearly there is a need for any
legal system to deter or punish reckless or fraudulent conduct by
entrepreneurs.
However there is also a positive sense to the word ‘entrepreneur’.

We are all familiar with Bill Gates of Microsoft and Steve Jobs of
Apple. They have built great businesses and in so doing
fundamentally changed our world. Entrepreneurs made real the
potential of the steam engine in the nineteenth century, of electric
power in the early twentieth century and of the computer in the
late twentieth century. Without entrepreneurs the discoveries of
the scientists would just be speculations on paper. Leonardo da
Vinci (1452-1519) invented the aeroplane, the submarine, the
parachute and the motor-car, but it was hundreds of years before
these inventions were actually manufactured. Entrepreneurs were
required. It is the entrepreneurs who have created the great
industrial societies of our time.
Often the entrepreneur is neither pure hero nor pure villain.

Illiterate Chinese real-estate tycoon Lai Chanxing fled to Canada
in 1999 to avoid bribery charges and claims that he had
masterminded a $10 billion smuggling scheme. Over 10,000
officials alleged to be complicit in his scheme were dismissed;
indeed some officials were executed or imprisoned. Some
considered Lai to be ‘the most corrupt man in China’. For others
he was ‘China’s Robin Hood’, a big-hearted billionaire who
helped poor people more than government cadres ever could.6 In
4
Multimillionaire stockbroker and entrepreneur Rene Rivkin was imprisoned
and banned for life from having a stockbroking licence for insider trading in
Qantas shares in 2003. Government regulators were also pursuing him for tax
avoidance schemes with Swiss banks when he committed suicide in 2005. See
Andrew Main, Rivkin, Unauthorised: The Rise and Spectacular Fall of an
Unorthodox Money Man, HarperCollins, 2005 and Neil Chenoweth, Packer’s
Lunch: A Rollicking Tale of Swiss Bank Accounts and Money-Making
Adventures in the Roaring 90s, Allen & Unwin, 2007.
5
Former television entertainer Steve Vizard was appointed a director of
telecommunications giant Telstra in 1996. In 2005 he was convicted of
breaching the Corporations Act by trading in shares of companies based on
highly confidential information he had received in his capacity as a director
with Telstra. He was fined $390,000 and disqualified from being a director for
10 years. See Leonie Wood, Funny Business: The Rise and Fall of Steve
Vizard, Allen & Unwin, 2007.
6
Oliver August, Inside the Red Mansion: On the Trail of China’s Most Wanted
some ways Lai is typical: entrepreneurs may be neither pure white

nor pure black: but they are rarely grey.7 Lai Chanxing may be
seen as a twenty-first century reincarnation of the great ‘robber
barons’ who built America in the nineteenth century into the
world’s most powerful economy. These entrepreneurs engaged in
unethical or illegal business practices and included Andrew
Carnegie (railroads and steel), John Rockefeller (oil), Cornelius
Vanderbilt (railroads) and J.P. Morgan (finance). Historians still
debate whether such entrepreneurs should be judged to be ‘robber
barons’ or ‘industrial statesmen’.8
In this book we will meet various Australian entrepreneurs. They

include Christopher Morris of Computershare, Andrew Forrest of
Fortescue Metals, Peter Farrell of ResMed, Jan Cameron of
Kathmandu and Lindsay Fox of Linfox. There are also thousands
of small entrepreneurs, present and future, who are endeavouring
to build a business for their own immediate benefit but indirectly
for the benefit of the whole society.
It is important for these entrepreneurs to have a broad

understanding of the legal environment of business. This is even
more important for their professional advisors including their
lawyers, accountants, bankers and managers. That is the function
of this book. This book does not attempt to summarise the whole
body of commercial law. It focuses on selected areas of
commercial law in an attempt to show that the entrepreneur’s
legal strategy is as important to her ultimate success as her
technological or marketing or financing strategies. And this is
how we will do it.
In the first two chapters of this book we examine various

Man, John Murray, 2007.
7
You could investigate the stories of ‘India’s Enron’ Ramalinga Raju of
Satyam Computers, or imprisoned Russian oil oligarch Michael
Khodorkovsky, or Japanese dot.com mogul Takafumi Horie, once celebrated as
the face of Japan’s new generation of entrepreneurs.
8
Compare Matthew Josephson, The Robber Barons: The Great American
Capitalists, 1861-1901, Harcourt, Brace and Company, New York, 1934 and
Allan Nevins, John D. Rockefeller: The Heroic Age of American Enterprise,
Scriber’s Sons, New York, 1940. See especially John Mickleton & Adrian
Wooldridge, The Company: A Short History of a Revolutionary Idea,
Weidenfeld & Nicolson, 2003, Chapter 4.
introductory matters. In this first chapter we consider how the

courts and the law impact on the entrepreneur. We consider the
functions that law plays in society, the doctrine of precedent, and
the role of the courts in reforming the law. We examine two case
studies: one on the liability of farmers and the other on the
enforceability of bank guarantees.
In the second chapter we complete our introductory study with a

consideration of the interpretation of statutes and other legal
regulations. After the two introductory chapters we look at
examples of commercial laws relevant to entrepreneurs. We
commence with chapters on contract law and continue with an
case-studies from tort law, company law and the statutory
regulation of business. Let us now begin with a brief
consideration of the nature and function of business law.
The Nature and Functions of Business Law
There are various definitions of law. For our purposes we adopt

the approach of Professor Hart in The Concept of Law.9 Hart sees
law as a system of rules enforced through a set of institutions.
Hart’s theory of legal positivism holds that human beings make
laws and that there is no necessary link between law and
morality.10 Instead law should be seen in its social context.
Business law should not be seen as simply a set of rules operating
in a social vacuum. Law reflects social needs and values, and the
development of business law mirrors the development of modern
society.
From this perspective it is important to understand the major

functions that business law performs for society. First business
law should promote economic prosperity. A second function is to
enhance individual liberty. A third function is to strive for social
justice.
9
H.L. A., Hart, The Concept of Law, Clarendon Press, Oxford, 1994.
10
An analysis of other definitions of law lies outside this book. Other views
include those of John Austin, Max Weber, Hans Kelsen and Ronald Dworkin.
(i) Economic prosperity
One objective of the law is to promote economic efficiency and

economic growth. Society expects the legal system to encourage
trade and economic development. The Industrial Revolution was
a major turning point in human society. It began in Britain in the
late eighteenth century and subsequently spread to Europe and
North America. The Industrial Revolution of the nineteenth
century saw a shift in economic activity from agriculture to trade
and manufacture. A similar revolution is taking place in the
developing economies of Asia and the rest of the world in our era.
There were many legal developments that facilitated this process

of industrialisation. For example Parliament enacted company
legislation in the nineteenth century to enable entrepreneurs to
build large-scale businesses. A sole trader or a partnership could
not carry on massive enterprises such as a railway service
operating across the American continent. This important
legislation will be examined in chapters 9 and 10. Similarly the
courts created contract law in the nineteenth century to help
entrepreneurs to build businesses and create prosperity. We will
begin our study of contract law in chapter 3.
(ii) Individual liberty
A second function of commercial law in the free enterprise world

is the protection of individual liberty. In the nineteenth century,
the era of the Industrial Revolution, English law attempted to
maximise individual freedom. Laissez faire capitalism (meaning
‘let do’) believed in little or no state intervention on economic
issues. The father of modern economics, Adam Smith, in The
Wealth of Nations (1776) propounded the view that the free
market, while appearing chaotic and unrestrained, produces the
right amount and variety of goods by a so-called ‘invisible hand’:
millions of people freely contracting to buy and sell land, labour
and capital.
Laissez-faire economics believes in free markets, private

ownership of property and minimal government regulation. Their
legal counterparts are the concepts of freedom of contract,
freedom of property and freedom of association. The entrepreneur

has the freedom to choose what sort of agreements to make and
what sort of vehicles to use in building his or her business.
(iii) Social justice
In modern societies there has been a movement from freedom of

contract back to regulation. The legal system has recognised that
in many circumstances there may be unequal bargaining power.
The employee is not able to bargain on equal terms with the
employer, nor is the consumer with the manufacturer, nor the
tenant with the landlord, nor the investor with her company’s
directors. Therefore Parliament has enacted employment laws,
consumer protection legislation, landlord-tenant regulations and
securities regulations that impose rights and obligations that
cannot be ‘contracted away’ by the worker, the consumer, the
tenant or the investor. Equally the courts have reformed contract
law to give more protection to those without effective bargaining
power. In this task, the Parliament and the courts reflect another
objective of the law: social justice.
The law should provide protection for the powerless against abuse
of power by the powerful. It should protect the individual or the
small entrepreneur against Big Government, Big Business and
Big Unions. In chapter 8 we examine the controls in the Trade
Practices Act on misleading advertising, which are aimed at
protecting consumers and honest traders.
There is a vast literature on the economic analysis of law that

examines the balance between the law and its three functions:
economic development, individual liberty and social justice. A
detailed consideration of an economic analysis of law falls
outside this introductory book. It is sufficient for us to be aware
that one of the reasons for the complexity of business law is that
often it is attempting to balance two or more competing functions.
For example social justice may call for rent controls to protect
poor tenants but this may put a brake long-term growth by
deterring investment in new residential construction. The law
must establish compromises or priorities between the competing
goals of social justice and economic growth. Further complexity
comes from the necessity for the law to change as society

changes.
Let us now begin our examination of business law with a

consideration of the two major legal traditions: the common law
and the civil law.
The Entrepreneur and the Civil Law Tradition
The entrepreneur in modern business may not simply be thinking

of the domestic marketplace. Often he or she will want to expand
into the global marketplace. Therefore it is necessary for the
entrepreneur to understand the role of business law in other
countries and in international transactions.
There are over two hundred countries in our world, and therefore
over two hundred different legal systems. Is it necessary for an
entrepreneur to have a detailed understanding of each one?
Thankfully the answer is no, because most of these different legal
systems are part of either the common law or the civil law
tradition. It is important for entrepreneurs to have a broad
understanding of both these traditions, especially the common law
system, which is becoming increasingly dominant in international
business.11
One great legal tradition in world business is the ‘civil law’

tradition. In a civil law jurisdiction there are typically six basic
codes: the Constitution, the civil code, the commercial code, the
code of civil procedure, the penal code and the code of criminal
procedure. In the civil law tradition, the legal system is primarily
based on written legal rules established by legislation.
The courts have a significantly lesser role than in the common

law tradition. In the civil law judicial decisions are not a source of
law. Earlier decisions are not binding on later courts. However in
practice lower courts follow the decisions of the courts at the top
11
There are also other important legal traditions. These include socialist law,
Islamic law, Judaic law, Hindu law and Chinese law.
of the judicial hierarchy. In practice therefore the difference

between the civil law systems and the common law traditions may
not be as great as one would expect in theory.
The basis of the civil law tradition is Roman law. Roman law was
codified in the Corpus Juris Civilis of Emperor Justinian,
published in Constantinople in 533 AD.12 This code was the basis
of European law as it recovered from the Dark Ages, beginning in
the University of Bologna in eleventh century.13
There are two major sources of the modern civil law system --
France and Germany. The civil law system developed in Europe
but spread in the nineteenth century through European
colonisation or Japanese borrowings. Today important economies
such as Japan, Korea, China, Vietnam and Indonesia have a
domestic business law system that is part of the civil law family.
The Entrepreneur and the Common Law Tradition
The Australian legal system is a member of the ‘common law’

family. Its system is similar to other nations with a British
background such as the United States, New Zealand, India, Hong
Kong, Malaysia and Singapore. In this context common law is
called ‘common’ because, in theory, it was the law handed down
by the King’s courts from the reign of Henry II in 1189,
representing the common custom of the people. There are two
sources of law in the common law tradition: statute law and
judge-made law.
Statute law is made up of Acts of Parliament and delegated

legislation variously called rules, regulations, by-laws,
ordinances, proclamations, etc. We will examine the principles of
statutory interpretation in the next chapter. In subsequent chapters
we will examine three Acts of Parliament (or statutes) of great
12
The traditional date of the origin of Roman law is 450 BC, the date of
publication of the XII Tables in Rome.
13
Other important historical bases of the civil law were the canon law of the
Roman Catholic Church and commercial law developed in commercial courts
where merchants were the judges.
significance for business, the Goods Act 1958 (Vic), the

Corporations Act 2001 (Cwlth) and the Trade Practices Act 1974
(Cwlth).
The second major source of laws in the Australian legal system is

common law, also known as ‘case law’ or ‘judge-made’ law. In
the common law tradition courts ‘make law’ as part of the process
of deciding cases. Many areas of law essential to business
primarily consist of case law, such as contract and tort law.
Therefore it is essential for an entrepreneur to have an
understanding of the process of judicial law-making.
When a court decides a case, particularly upon an appeal from a

lower court decision, the judge or judges write a judgment setting
forth, amongst other things, the relevant principles of law. These
decisions are reported in Law Reports. An important difference
between the common law tradition and the civil law system is that
decisions of the courts are a formal source of law in the common
law tradition. This is known as the doctrine of precedent.
The Doctrine of Precedent: The Common Law approach
The common law doctrine under which past judicial decisions are
applied to decide a case is called stare decisis (to stand by that
which has been decided).14 A principle of law laid down by the
highest court of a jurisdiction is binding on all lower courts within
that jurisdiction. It is also binding in the same court’s later cases
unless that court overrules its earlier decision. It is not binding on
courts in other jurisdictions, although they may find the principle
persuasive.
The legal principle laid down in the precedent case must be

followed in future cases involving the same legal issue. We will
see that the doctrine of precedent has nothing to do with the facts
of two cases being similar. Subsequent courts are bound to follow
the legal principle laid down in the precedent case even if the
14
Stare decisis et non quieta movere, ‘Stand by what has been decided and do
not alter that which has been established’.
facts of the case are completely different. For example in chapter

9 we will examine the fundamental case in company law,
Salomon v Salomon & Co.15 This case involved the priority of
different creditors in the winding up of a company. In the
Salomon case, England’s highest court, the House of Lords, laid
down a principle of law concerned the nature of the company.
This principle was then binding on subsequent courts. We will see
how the courts have applied the Salomon principle in cases
involving quite different fact situations, such a widow’s
entitlement to workers’ compensation benefits16 or the obligations
of the insurance company when a timber mill was destroyed.17
Though the facts of these two cases were quite different from
Salomon, both involved the same legal issue, the nature of the
company. Therefore both courts were bound to apply the
Salomon principle and did so.
Not everything said by a judge in a case constitutes a binding

precedent. The ratio decidendi (literally the reason for deciding)
is the proposition of law or legal principle laid down by the court
on the legal issue (or issues) raised in the case. An obiter dictum
is a statement of law on a legal issue that the court is not called
upon to decide. An obiter dictum is not binding on lower courts
although it may have a very high persuasive authority, especially
if it was stated by one of the higher courts such as the High Court
of Australia or the House of Lords (now the Supreme Court) in
the United Kingdom.18
The purpose of the doctrine of precedent (stare decisis) is to

provide stability, justice and predictability in the judicial system.
Lower court judges are prevented from arbitrary decision-making
by the doctrine because they are bound to follow the precedents
or face reversal by a higher court. Appellate courts also will
usually follow their previous decisions in later cases involving
the same legal issue.
Take, for example, an entrepreneur who is considering purchasing

15
(1897) AC 22.
16
Lee v Lee’s Air Farming (1960) 3 All ER 420.
17
Macura v Northern Assurance Co (1925) AC 619.
18
In October 2009 the Supreme Court of the United Kingdom replaced the
House of Lords.
a business. One concern he will have is the possibility that the

former owner, after receiving full payment, might set up a new
competing business and attract to it her former clients. The
entrepreneur can protect himself against competition from the
former owner by incorporating a well-drafted restraint of trade
clause in the contract for the sale of the business. The vendor of
the business would promise that she will not to open a competing
business within a defined area for an agreed period of time. As we
shall see in chapter 6, the relevant principles on the enforceability
of such restraint of trade clauses were laid down in the Nordenfelt
case in 1894.19
The entrepreneur and his professional advisors know that the

doctrine of precedent means that the Nordenfelt principles will be
applied in any dispute concerning the restraint of trade clause. It
will not depend on the personal opinions of the judge hearing the
case on whether the restraint of trade clause is fair. The
entrepreneur can be confident that the restraint of trade clause is
enforceable if it has been drafted on the basis of the Nordenfelt
principles. The doctrine of precedent has therefore given this
entrepreneur the certainty he needs to proceed with the purchase
of the business. This example shows why it is important that
courts decide cases by applying the principles of law laid down in
the precedent cases. It is important that the legal system provides
certainty and predictability for entrepreneurs.
Precedent and Judicial Law Reform
As society changes, the law must change. Technological change

such as the computer, or changes in social values such as equal
opportunity, may require that changes be made to the law. Should
Parliament or the courts do this? When should the judges refuse
to follow an outdated precedent? When should they instead lay
down a new legal principle to replace the obsolete one?
At one extreme, some argue that it is not the job of courts to

create new law. It is said that the judges’ fundamental role is the
19
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co (1894) AC 535.
fair adjudication of disputes, which is done by applying the

established precedents. It should not matter what the personal
values, past history or political preferences of the judges are,
because they should adjudicate not on the basis of what they think
law should be, but rather on what the existing law is. On this view
Parliament, not the judiciary, is responsible for ensuring that the
law is adapted to changes in society. The courts should exercise
‘judicial restraint’ and leave law reform to the democratically
elected Parliament. The courts should concentrate on their key
role: the fair and impartial resolution of disputes.
On the other hand, some believe that the courts should be bold in
modernising the law. Some appellate courts may overrule existing
precedents when they feel there is good reason for so doing. This
philosophy is sometimes called ‘judicial activism’.
Lord Denning of the Court of Appeal in the United Kingdom was

the doyen of judicial activists. One commentator said: ‘Denning is
certainly the most interesting and possibly the most important
English judge of the twentieth century’.20 He fought many battles
with the House of Lords over judicial reform of commercial law.
Denning contrasted the ‘bold spirits’, the judges who believed in
judicial activism, with the ‘timorous souls’, the judges who were
not prepared to keep the law in step with modern society. 21 Critics
from the right and the left say that Denning’s philosophy means
that unelected judges are implementing their political
preferences.22
There is a debate in any common law system about the

appropriate role for judges in reforming the law. What is the
appropriate balance between ‘judicial restraint’ and ‘judicial
activism’? Let us briefly consider ‘judicial activism’ in two
important common law jurisdictions, the United States and India.
We will then turn our attention to the position in Australia.
20
Robert Stevens, Law and Politics: The House of Lords as a Judicial Body
1800-1976, University of North Carolina Press, 1978.
21
Candler v Crane, Christmas and Co (1951) 2 KB 164 at 178.
22
See the collection of essays from a critical Marxist perspective in Peter
Robson & Paul Watchman, Justice, Lord Denning and the Constitution, Glover
Publishing, 1981.
(i) Judicial Activism in the United States
In the United States of America, the tension between judicial

activism and judicial restraint has been present since the
foundation of the republic and the creation of its Supreme Court.
In Marbury v Madison in 1803 the Supreme Court first ruled that
it had the power of judicial review: the power to invalidate laws
passed by the Congress if they violated the Constitution.23 The
President, Thomas Jefferson, protested that this gave the courts
too much power, making the Constitution ‘a mere thing of wax in
the hands of the judiciary, which they may twist and shape into
any form they please’.24
The high point in the use of judicial power to bring about social
change in the U.S. was the Supreme Court under Chief Justice
Earl Warren between 1953 and 1969. Chief Justice Warren was a
former Republican governor of California who had been
nominated to the Supreme Court by the Republican President
Eisenhower. The President expected that Warren would be a
conservative judge but, to his surprise, Warren led the most
activist court the United States has ever experienced. President
Eisenhower later said that nominating Warren for the Supreme
Court was ‘the biggest damned-fool mistake I ever made’.25
The Warren Supreme Court handed down a series of landmark

decisions that overturned established precedents. These concerned
such fundamental matters as the desegregation of American
society, police powers, civil rights, and the powers of the federal
and state governments. Some of these cases were:
• Brown v Board of Education in 1954 which banned the
segregation of public schools.26 This case paved the way
for the civil rights movement of the 1960s.
• Loving v Virginia which allowed inter-racial marriage,
holding the Racial Integrity Act to be unconstitutional.27
• Gideon v Wainwright in 1963 which required that criminal
23
5 U.S. (Cranch 1) 137 (1803).
24
Letter to Judge Spencer Roane, November 1819.
25
David Nichols, Eisenhower and the Beginning of the Civil Rights Revolution,
Simon Schuster, 2007.
26
347 US 483 (1954).
27
388 US 1 (1967).
defendants receive legal aid.28

• Miranda v. Arizona in 1966 which required that the police
clearly explain his or her rights to any person being
interrogated in police custody, including the right to legal
representation and the right not to incriminate himself or
herself.29
• Reynolds v Sims in 1964 which laid down the ‘one person,
one vote’ principle and ruled that state legislative districts
had to be roughly equal in population.30
• Griswold v Connecticut in 1965 which established a
constitutional right of privacy.31
Critics of the Warren Supreme Court claimed it converted

constitutional law into mere politics. Richard Nixon promised on
becoming President to appoint judges who would be ‘strict
constructionists’ who would exercise judicial restraint.
After Chief Justice Warren’s retirement in 1969, subsequent

appointments were more conservative. While the Supreme Court
has subsequently exercised more restraint, it is still capable of
significant law reform as was shown by the decision legalizing
abortion in certain circumstances in Roe v Wade.32
All common law jurisdictions see a debate between ‘judicial

activism’ and ‘judicial restraint’. The Supreme Court of India is
another example of ‘judicial activism’ like the more famous
Warren Supreme Court in the United States.
(ii) Judicial Activism in the Supreme Court of India
The Indian Supreme Court was established in 1950, two days

after India became a sovereign democratic republic. However the
independence of the judiciary was severely curtailed during
Emergency Rule under Prime Minister Indira Gandhi from 1975
to 1977. There was a reaction and after 1980 an assertive
Supreme Court, led by Chief Justice Bhagwati, has developed
28
372 US 335 (1963).
29
384 US 436 (1966).
30
377 US 533 (1964).
31
381 US 479 (1965)
32
410 US 113 (1973).
many important social and economic rights. This has led some,
such as Supreme Court Justice Markandey Katju, to express
reservations about the ‘judicial activism’ of the court.
In a series of judgements the Indian Supreme Court adapted the

common law and the Indian constitution to contemporary Indian
problems. The court established basic principles on matters such
as:
• The right to go abroad;33
• The right to privacy;34
• The right to protection against solitary confinement;35
• The right of an indigent person to have legal aid;36
• The right to speedy trial;37
• The right against public hanging;38
• The right to the provision of physical shelter.39
(iii) Judicial Activism in Australia
Let us now turn to the role of the courts in law reform in

Australia. We will examine two Australian case studies where the
High Court of Australia was asked to overturn established
precedents. These two studies provide important insights into the
debate on when judges should reform the law.
Our first case study concerns the liability of the farmer whose
animals stray onto a highway and cause an accident. This case
illustrates the powerful arguments both for and against law reform
by judges.
33
Satwant Sing Sawhney v D Ramarathnan APO New Delhi, AIR 1967 SC
1836
34
Govind v State of MP, 1975 Cri LJ 1111: AIR 1975 SC 1378. Reliance was
placed upon the American Supreme Court decision in Griswold v Connecticut
381 US 479 (1965).
35
Sunil Batra v Delhi Administration, AIR 1978 SC 1675; Cri LJ 1741.
36
M H Hoaskot v State of Maharashtra, AIR 1978 SC 1548: 1978 Cri LJ
1678.
37
Hussainara Khatoon v Home Secretary, State of Bihar, AIR 1979 SC 1360:
1979 Cri LJ 1036.
38
Attorney General of India v Lachma Devi, AIR 1986 SC 467: 1986 Cri LJ
364.
39
Shelter Shantistar Builders v N K Totame, AIR 1990 SC 630.
Our second case study concerns the enforceability of bank

guarantees. This case is an example in the period from 1986 to
1995 when the Australian High Court adopted a philosophy of
judicial activism similar to that of the Warren Supreme Court in
the United States and the Supreme Court in India since 1980.
The Dilemma of Judicial Decision-Making: The Rule of

Searle v Wallbank
The greatest judicial law-making in the 20th century was in the

tort of negligence. In general, a plaintiff in an action for the tort of
negligence must prove three things:
(i) that the defendant owed the plaintiff a duty of care;
(ii) that the defendant breached that duty; and
(iii) that the defendant’s conduct caused the injury for
which the plaintiff claims compensation.
In 1932 the House of Lords in England in the case of Donoghue v

Stevenson laid down a general principle of liability in tort for
negligent actions.40 Lord Atkin said that:
‘you must take reasonable care to avoid acts or omissions
which you can reasonably foresee would be likely to
injure your neighbour’.
In general a person running a business owes a duty to others to

take care if it is reasonable foreseeable that carelessness could
cause loss or injury. Donoghue v Stevenson is a classic example
of judicial law making. We shall examine this principle further in
chapter 5.
How does the tort of negligence and the Donoghue v Stevenson

principle apply to farmers? Does a farmer owe a duty to roadusers
to keep its animals from straying? This issue was first determined
in 1700. The question to consider is whether the legal principle
laid down in 1700 is appropriate in the current time. If it is no
longer appropriate, how should the law be changed, by judicial
40
(1932) AC 562.
law reform or by statutory law reform?
The case of Mason v Keeling in 1700 held that farmers did not
owe a duty of care to roadusers to keep their animals from
straying onto roads.41 This principle was suited to the needs and
values of an agrarian society. One consideration is that
agriculture, as the most important industry in 1700, ought not to
have been burdened with additional expenses of fencing,
employing extra shepherds etc.42 Another is that with the slow
traffic conditions in eighteenth century England, it was easier for
the road user rather than the farmer to prevent accidents, simply
by riding or walking safely. In the eighteenth century straying
cattle did not present any undue threat to travellers and therefore
it was not appropriate to force farmers to maintain fencing or
otherwise prevent animals from straying.
In 1947 in Searle v Wallbank the highest court in England, the

House of Lords, was asked to reconsider the duty of care of
farmers.43 Did the 1932 decision of Donoghue v Stevenson mean
that farmers now owed roadusers a duty to take reasonable care to
prevent accidents? Would farmers have similar obligations to take
reasonable care as do firms in all other industries? Perhaps
surprisingly, the House of Lords said no.
The House of Lords refused to overrule the eighteenth century

case of Mason v Keeling even though by the twentieth century
farming was no longer the most important industry and the
invention of the motor car had completely changed traffic
conditions.44 The House of Lords in Searle v Wallbank held that a
landowner did not owe a duty of care to injured road users. The
House of Lords in 1947 continued the historic immunity of
farmers from the general rules of liability for negligence.
41
(1700) 12 Mod 332.
42
In England at this time the Enclosure movement had just begun. It was
common for land to be unfenced and for animals to stray around the
countryside.
43
(1947) 1 All ER 12. A bicyclist riding with dimmed lights in wartime
England collided with a horse.
44
Perhaps one consideration influencing the decision of the House of Lords
was the drastic food shortage in post-war England and the consequential
reluctance of the courts to impose additional burdens on agriculture.
The principle of Searle v Wallbank in Australia
The key issue for Australian courts was whether they should
follow the House of Lords decision in Searle v Wallbank. In a
series of cases the State Supreme Courts in the 1970s considered
the liability of landowners who negligently allowed their stock to
stray onto highways. The Supreme Court of Victoria followed
the principle of Searle v Wallbank but its counterpart in NSW
overturned it.45 The common law position in Australia was
unclear until settled conclusively by the High Court of Australia
in 1979.
In 1979 the High Court decided in State Government Insurance

Commission v Trigwell that the principle of Searle v Wallbank
should be followed by Australian courts.46 It said that if the law
should be changed, that should be done by Parliament.
In State Government Insurance Commission v Trigwell two sheep

had strayed onto a road at night. A motorist collided with the
sheep and then with another car. The motorist in the first car was
killed and the occupants of the second car were injured. What was
the law in Australia on the farmer’s duty of care? The High Court
decision revealed two contrasting philosophies on the role of
judges in law reform.
The majority of the court refused to overrule the principle of

Searle v Wallbank. There was also a powerful dissenting
judgement from Murphy J. that adopted a different philosophy on
the role of the judiciary in law reform. Read carefully the
following extracts from the two judgements.
State Government Insurance Commission v Trigwell

(1979) 53 ALJR 656, High Court of Australia
45
Brisbane v Cross (1979) VR 49 c.f. Kelly v Sweeney (1975) 2 NSWLR 720.
46
(1979) 53 ALJR 656.
Mason J said: The attack on Searle v Wallbank was chiefly

founded on the claim that the rule which it enunciated is illogical
and that the conditions on which it was based historically have
altered in a fundamental way.
…
It is then said that as there was a radical change in the relevant
conditions, a change brought about by the development of roads
and highways, the growth of fast moving motor traffic on a large
scale and a substantial increase in the fencing of properties, the
House of Lords should have held that the rule was no longer
appropriate to modern circumstances and that the ordinary
principles of negligence should apply to the occupier of land
whose straying animals caused accidents on the highway.
I do not doubt that there are some cases in which an ultimate

court of appeal can and should vary or modify what has been
thought to be a settled rule or principles of the common law on
the ground that it is ill-adapted to modern circumstances. If it
should emerge that a specific common law rule was based on the
existence of particular conditions or circumstances, whether
social or economic, and that they have undergone a radical
change, then in a simple or clear case the court may be justified
in moulding the rule to meet the new conditions and
circumstances. But there are very powerful reasons why the court
should be reluctant to engage in such an exercise. The court is
neither a legislature nor a law reform agency. Its responsibility
is to decide cases by applying the law to the facts as found. The
court’s facilities, techniques and procedures are adapted to that
responsibility; they are not adapted to legislative functions or to
law reform activities. The court does not, and cannot, carry out
investigations or inquiries with a view to ascertaining whether
particular common law rules are working well, whether they are
adjusted to the needs of the community and whether they
command popular assent. Nor can the court call for, and
examine, submissions from groups and individuals who may be
vitally interested in the making of changes to the law. In short,
the court cannot, and does not, engage in the wide ranging
inquiries and assessments which are made by governments and
law reform agencies as a desirable, if not essential, preliminary
to the enactment of legislation by an elected legislature.
These considerations must deter a court from departing too

readily from a settled rule of the common law and from replacing
it with a new rule. Certainly in this case they lead to the
conclusion that the desirability of departing from the rule in
Searle v Wallbank is a matter which should be left to Parliament.
It is beyond question that the conditions which brought the rule
into existence have changed markedly. But it seems to me that in
the division between the legislature and the judicial functions it is
appropriately the responsibility of Parliament to decide whether
the rule should be replaced and, if so, by what it should be
replaced. The determination of that issue requires an assessment
and an adjustment of the competing interests of motorists and
landowners; it might even result in one rule for urban areas and
another for rural areas. It is a complicated task, not one which
the court is equipped to undertake.
My conclusion is, then, that we should accept that what was and
has been the common law for England was correctly decided by
Searle v Wallbank.
Murphy J (dissenting):
The argument that judicial alteration of judge-made law is

usurpation of Parliament’s role is untenable.
…
a judge in a common law system may rightly refuse to follow a
precedent which is absurd, contrary to reason, or plainly
inconvenient.
…
The virtue of the common law is that it can be adapted day by day
through an inductive process which will achieve a coherent body
of law. The legislatures have traditionally left the evolution of
large areas in tort, contract and other branches of the law to the
judiciary on the assumption that judges will discharge their
responsibility by adapting the law to social conditions. It is when
judges fail to do this that Parliament has to intervene. The
extreme case is where the judiciary recognises that a rule
adopted by its predecessors was either unjust or has become so
and yet still maintains it, suggesting that the legislature should
correct it. This is the nadir of the judicial process...
People will respect judge-made law only as long as they think it

is rational and just. The exception in Searle v Wallbank is
neither.
Liability for straying animals: The interrelationship of

judicial and statutory law reform
In State Government Insurance Commission v Trigwell the High

Court decided not to reform the law on farmers’ liability for
straying stock. This High Court decision settled the position at
common law in Australia. The Court followed the House of Lords
decision from 1947 in Searle v Wallbank that dated back to the
case of Mason v Keeling in 1700. The court held that a farmer did
not owe a duty of care to roadusers to keep animals from straying
onto roadways. However Parliament is the supreme lawmaker and
Parliament can decide to reform the law.
The majority of the High Court in Trigwell believed that if the

law should be changed, it ought be done by Parliament. The
Victorian government instituted an inquiry into this area of law.
The Statute Law Revision Committee on the Liability of Land
Owners took evidence from a wide range of interested parties
including representatives of farmers, motorists, animal rights
groups, road traffic authorities, insurance industry, lawyers and
local governments.47 This range of expert evidence was not
available to the High Court in hearing the Trigwell case. It is a
concrete example justifying Justice Mason’s reluctance in
Trigwell to engage in law reform. Recall that he said that the High
Court:
47
Parties to give evidence included the following: Conservation Council of
Victoria, Country Roads Board, Graziers’ Association of Victoria, Insurance
Commissioner, Insurance Council of Australia, Law Institute of Victoria,
Motor Accidents Board, Mountain District Cattlemen’s Association, Municipal
Association of Victoria, Roadsides Conservation Committee, Royal
Agricultural Society of Victoria, Royal Automobile Club of Victoria, Royal
Society for the Prevention of Cruelty to Animals, and the Victorian Farmers’
Union.
‘is neither a legislature nor a law reform agency...The

court does not, and cannot, carry out investigations or
inquiries with a view to ascertaining whether particular
common law rules are working well...Nor can the court
call for, and examine, submissions from groups and
individuals who may be vitally interested in the making of
changes to the law.’
The Statute Law Revision Committee considered the submissions

from this wide range of interested parties. It recommended that
Parliament should abolish the immunity of landowners from the
ordinary principles of negligence. Subsequently in 1984 the
Victorian Parliament passed the Wrongs (Animals Straying on
Highways) Act. The Act added a new section 33 to the Wrongs
Act 1958. This provided that:
‘so much of the common law relating to liability for
negligence as excludes or restricts the duty which a
person might owe to others to take reasonable care to see
that damage is not caused by animals straying on to a
highway is hereby abolished’.48
The eighteenth century immunity of farmers has therefore been

abolished by statute, not by judicial law reform. The position now
in Victoria is that each particular case must be examined to
determine whether the landowner has a duty to take care. The
farmer, like any other businessperson, is subject to the rule of
Donoghue v Stevenson. The farmer has a duty to take care if it is
reasonably foreseeable that he could cause an injury to others. For
example a farmer may have a duty to adopt precautions against
his horses and cattle straying onto the road, but to stop not dogs
and cats straying. The former have less road sense and, being
bulkier, are more likely to cause a serious accident.
Law Reform: the Philosophy of the Australian High Court
48
Similar measures have been taken in other states. See for example the
Animals Act 1977 (NSW) and the Highways (Liability for Straying Animals)
Act 1983 (WA). In England it was abolished by statute in 1971.
The Trigwell case shows the debate on the role of the judiciary in
law reform in the common law tradition. For 800 years common
law judges have been developing legal principles to reflect the
social and commercial needs and values of the times. Sometimes
the philosophy of ‘judicial restraint’ has been dominant but at
other times the philosophy of ‘judicial activism’ has prevailed as
we have seen in the Warren Supreme Court in America and the
Indian Supreme Court today. What is the position of the High
Court of Australia?
The traditional approach of the High Court has been to refuse to

play an overt part in law reform. The classic exponent of this
philosophy was Sir Owen Dixon. At his swearing in as Chief
Justice of the High Court in 1952, he propounded a doctrine of
‘strict legalism’. According to this philosophy it is the role of
Parliament to reform the law. The role of judges is the fair
adjudication of disputes, which can only be done through the
application of the pre-existing principles of law. The courts
should apply the existing law, not reform it, because public policy
and law reform is the responsibility of the elected Parliament.
The majority of the High Court in Trigwell’s case did not

completely adopt the philosophy of ‘strict legalism’. They
believed that in some circumstances courts should reform the law.
Mason C.J. said:
‘in a simple or clear case the court may be justified in
moulding the rule to meet the new conditions and
circumstances. But there are very powerful reasons why
the court should be reluctant to engage in such an
exercise’.
Justice Murphy in dissent put forward a significantly more

activist role for the judiciary in law reform. He restated the view
that it was a ‘childish fiction’ that judges did not reform the law
and that society expected judges to ensure that the law is ‘rational
and just’.49
Justice Murphy lost the battle in Trigwell’s case but won the war
49
On Justice Murphy generally, see Jocelynne Scutt, Lionel Murphy, A Radical
Judge, MacMillan, 1987.
about ‘judicial activism’ versus ‘judicial restraint’. Over time he

persuaded the majority of the High Court, including Chief Justice
Mason, to adopt his philosophy. Judicial activism, or judge made
law, became the hallmark of the High Court in the 1980s. The
majority of the Court rejected the judicial self-restraint expressed
in the Trigwell case.50
Although Australia does not have a bill of rights, the High Court
in the 1980s created new law to protect the individual against
abuse of private and public power. Sometimes this involved
‘interpretation’ of the Australian Constitution or a statute and
sometimes reform of the common law. This period saw a series of
important decisions in which the High Court made dramatic
reforms to the law. Some of these cases were:
• The High Court’s Mabo51 and Wik52 decisions on native title.
These cases raise interesting analogies with the desegregation
cases in the US Supreme Court.
• The Capital Television case, which struck down controls on
political advertising and gave free speech a degree of
constitutional protection.53
• Changes to defamation law to protect free speech in political
debate.54
• Expansion of the powers of the Commonwealth government's
powers to legislate on economic matters.55
• The abolition of the common law immunity of a husband from
a charge of raping his wife.56
• Guarantees that accused in criminal offences would receive
due process.57
• The case of CBA v Amadio, where the High Court reformed the
common law on unfair contracts.58 This is the case study we
50
See David Solomon, The Political Impact of the High Court, Allen & Unwin,
1992.
51
Mabo v State of Queensland (No 2) (1992) 173 CLR 1.
52
Wik People v Queensland (1996) 71 ALJR 173.
53
Australian Capital Television Pty Ltd v the Commonwealth (1992) 177 CLR
106.
54
Theophanous v Herald and Weekly Times Ltd (1994) 182 CLR 104.
55
Cole v Whitfield (1988) 165 CLR 360.
56
R v L (1991) 174 CLR 379.
57
Dietrich v The Queen (1994) 177 CLR 292.
58
(1983) 151 CLR 447.
examine below.
There was a reaction to the judicial law making of the Mason

High Court in the period 1986-95. With the election of the Liberal
government in 1996 there was an attack on the judicial activism
of the High Court, which had broadly adopted the philosophy of
Murphy J. As in the American tradition, the appointment of new
justices became ‘political’. Deputy Prime Minister, Tim Fisher,
called for the appointment of ‘Capital C Conservative’ judges
who would return to the philosophy of judicial restraint of the
majority of the High Court in the Trigwell case.
Under Chief Justice Murray Gleeson, who was appointed in 1998,

the High Court shifted back towards this conservative philosophy:
to leave public policy and law reform to the Parliament. Thus, for
example, in 2004 the majority of the High Court upheld
legislation providing for a system of mandatory and indefinite
detention of asylum seekers, including children.59 In 2007 the
Court upheld Commonwealth anti-terrorism laws that provided
for control orders for people even if they have not even been
charged with an offence.60 One can speculate about whether the
activist High Court of the 1980s would have decided these cases
differently.
In 2008 Chief Justice Gleeson retired, in accordance with the

mandatory retirement provisions in the Australian constitution.
The Labour government of Kevin Rudd appointed Robert French
as Chief Justice. Some hoped that this represented a shift away
from the conservative legal approach that the Court had adopted
under his predecessor.
There is no ‘right’ answer to the question of whether and when

judges in the common law world should reform the law. There are
powerful arguments in support of the ‘conservative’ position: that
judges should rarely and reluctantly overrule established
precedents. Similarly there are powerful arguments in support of
the ‘activist’ position: that society expects judges to ensure that
59
Al-Kateb v Godwin (2004) HCA 37, Minister for Immigration v Al Khafaji
(2004) HCA 38, Behrooz v Secretary for the Department of Immigration
(2004) HCA 36.
60
Thomas v Mowbray (2007) HCA 33.
the law reflects current social needs and values. In the course of
this book you will experience both sides of this debate. As good
corporate citizens, entrepreneurs and their professional advisors
should be aware of, and participate in, this discourse. But they
should also participate because the decisions of courts create,
develop and change important areas of business law directly
relevant to the entrepreneur. The Amadio case on bank guarantees
demonstrates this clearly.
The Entrepreneur and Judicial law making: The Bank

Guarantee
The problem of cows staying onto roads will not be the typical
issue confronting entrepreneurs or their professional advisors. But
it is important for the entrepreneur to understand three concepts:
• that the highest courts in common law countries may reform
the law to ensure that it reflects current needs and values;
• that there are powerful reasons for courts to refuse to reform
the law, even if it is ‘unfair’;
• that the decision of the highest courts in the land constitute
precedents — principles of law which will be applied in
hundreds of subsequent lower court cases and in millions of
decisions by entrepreneurs, often on the advice of their
professional advisors.
Let us take the example of the entrepreneur seeking finance from

a bank. This is an important example of how the law has been
created by the High Court and its impact on the business
operations of entrepreneurs and financial institutions.
The entrepreneur has certain choices for financing his or her

business. Frequently the entrepreneur will have limited resources
and will have to tap into additional funding in order to turn a good
idea into a successful business. There are two types of funding
available: equity financing and debt financing.
Equity financing means bringing in capital from new investors.

Instead of trading as a sole trader, the entrepreneur may form a
partnership or a company. The entrepreneur may bring in family,

business associates or customers as partners or shareholders.
Another source of equity investment are venture capitalists who
are professional investors willing to take on the risk of backing an
attractive new business. These venture capitalists may be wealthy
individuals, corporations or investment funds. At a later stage in
the development of the business, the entrepreneur may decide to
raise further equity finance by floating the company on the Stock
Exchange.
There are advantages and disadvantages for the entrepreneur in

using equity finance in the development of the business. At an
early stage, the entrepreneur may find it difficult to secure a
business loan from a bank or other financial institution. Therefore
taking on new investors may be an essential step in growing the
business. These early investors may not expect an immediate
return, but they will expect the entrepreneur to be profitable after
a few years. Some early investors may be passive, content to
contribute capital but not to take an active part in running the
business. Other early investors will expect a significantly greater
involvement in the business.
The entrepreneur should be aware that equity financing is not

cheap. The new investors own their part of the business
indefinitely. If the business becomes wonderfully successful, the
entrepreneur has given up part of this success to the lucky early
investors.
The second source of finance for the entrepreneur is debt

financing. Financiers include institutions such as banks, finance
companies, credit unions and private companies. By borrowing
rather than taking on new investors, the entrepreneur does not
have to share control and future profits with other equity
investors. It also may be significantly easier to find a bank willing
to make a business loan to the entrepreneur rather than find
colleagues or venture capitalists prepared to invest equity. In
general debt financing is cheaper than equity financing because
the entrepreneur only owes repayment of principal, interest and
fees. The entrepreneur retains control of the business and the
profits it produces. Let us now examine the financial and legal
environment of the business loan from a bank.
A bank will be interested in two key aspects of the entrepreneur’s

application for a loan. The first is the ongoing viability of the
business — will the business be able to service the loan? The
second is the level of security provided by the entrepreneur.
Banks vary in their approach to these two concepts.
The loan officer of the bank will require significant information

regarding the ability of the business to repay the loan. Naturally
the bank will need to know what the loan will be used for and
why it is needed. An important consideration will be a solid
business plan, especially if the entrepreneur is just starting up a
business. The business plan will describe in detail the nature of
the entrepreneur’s business, how it is different from competitors
and how the available working capital will be allocated. The bank
will want to see previous years’ accounts if the business has
already been established. The entrepreneur will have to disclose
matters such as annual revenues and sales, profitability, payment
schedules, current debt and loan balances and order books. If the
entrepreneur is just starting up, the bank may want to see a
projected balance sheet and income statement. Another
consideration will be whether the entrepreneur is investing his or
her own money in the business. Typically lenders like to see that
the entrepreneur is contributing a significant equity stake. Banks
will also consider the business experience, competence and
personal credit history of the entrepreneur to help determine
whether he or she is a good credit risk for a business loan.
The second consideration of the bank will be the collateral that

the entrepreneur is able to pledge as security for the loan. The
bank will require some security so that if the business fails and
the firm is unable to pay, the bank may seize some assets and sell
them. Typically the bank will seek assets that will retain their
value and cannot easily be dissipated by a fraudulent or
incompetent entrepreneur. Ideally the bank may want the
entrepreneur to offer real estate as security. For example if the
firm owns a factory or warehouse, the bank will grant a business
loan secured by a mortgage over the factory or warehouse. A
mortgage is a charge over property as security for a debt. This
mortgage will be discharged when the loan has been paid off. But
what is the position if the entrepreneur has no business assets that
the bank will accept as security?
Frequently the directors of small and medium size businesses are

required by their banks to sign a personal guarantee of the
business loan. As we will see later in our examination of company
law, there are advantages for the entrepreneur to trade as a
company. We shall examine the Salomon principle: that the
company is a separate legal entity from its shareholders, with
separate rights and duties. If the bank lends money to the
company, it has a contract with the company, not the entrepreneur
even if she is the sole shareholder and director. If the business
fails to repay the loan, the bank has recourse only against the
company, not the entrepreneur. The bank will therefore be careful
to ensure that the company has assets such as the factory that the
bank can seize if the company defaults on its loan repayments. If
the company does not have sufficient assets, the bank will insist
that the entrepreneur sign a personal guarantee of the loan to the
company.
The director’s personal guarantee is a separate contract: if the

company fails to repay the loan, the entrepreneur will be
responsible for the company’s debt. This guarantee will typically
be secured by a mortgage over the entrepreneur’s house. If the
business fails, the entrepreneur may lose not just his or her
business assets but also the family home. But what is the situation
if the entrepreneur has a wonderful business plan but no business
or personal assets that can be pledged as security for a bank loan?
Commonly banks required entrepreneurs with few assets to have

their loan guaranteed by another person, often a parent or a
spouse. This involved a signed guarantee by (say) the parents that
the entrepreneur’s firm would repay the bank loan, secured by a
mortgage over the parents’ home.
For the past two decades borrowers and guarantors have been
battling banks over such business guarantees. Often parents or
spouses knew little about the business or the business loan they
were guaranteeing. Often also they knew even less about the legal
effects of the document that they were signing: that they could
lose their home as a result of the guarantee. The guarantee often
provided little financial benefit for the parents who usually signed
for emotional reasons to help their son or daughter. Do the parents
have any protection against losing their home if the bank calls in
the loan? How should a bank train its staff to ensure that the
guarantees are legally enforceable?
There are a variety of grounds on which the guarantee may not be

enforceable. These include duress, undue influence, fraud and
unconscionable conduct. A leading case in this area is the High
Court precedent of Commercial Bank of Australia v Amadio.61
This case shows the influence of Justice Murphy’s ‘judicial
activism’ on the High Court in the 1980s in reforming
commercial law.
The issue in Amadio’s case was the enforceability of a bank

guarantee by the parents of an entrepreneur in respect of all
existing and future debts to the bank. Vincenzo Amadio was a
builder who lived a very extravagant lifestyle. His business
appeared to be successful, but in fact was in a precarious financial
position. Vincenzo was in daily contact with his bank manager
and together they decided which bills would be paid and which
would be dishonoured. The bank insisted on more security for
Vincenzo’s overdraft. He persuaded his parents to guarantee his
debts for a limited time. The parents signed documents on their
kitchen table without reading them and with minimal explanation
from the bank manager. They had agreed to a guarantee that in
fact was unlimited as to amount and as to time: it covered any
amount Vincenzo borrowed for an indefinite time. The guarantee
was secured by a mortgage over the parents’ only asset, their
home. Inevitably Vincenzo’s business failed and the bank sought
to enforce the contract of guarantee the parents had signed.
The parents could not escape liability on the traditional grounds

of contract law. The bank had not made misrepresentations. It had
not been fraudulent. It had not been guilty of duress in the form of
physical threats or unacceptable commercial pressure. Nor had
the bank used undue influence, which involves abuse of a position
61
(1983) 151 CLR 447.
of power or influence over another. Had the High Court simply

applied the existing law, therefore, the contract of guarantee
would be enforceable and the parents would have lost their home.
However the High Court created a new ground for not enforcing a
contract to cover situations that did not easily fit into the existing
categories.
The High Court in Amadio laid down a new principle that an

unconscionable contract would not be enforced. This was based
on old cases in equity law and represented a significantly greater
willingness by the courts to set aside contracts where something
unfair had occurred. To succeed it is necessary to show that one
party suffers from some special disability or is at a special
disadvantage. It is not enough to show that one party did not have
equal bargaining power or that the contract was weighted in
favour of the other party.
The High Court held that the bank had been guilty of
unconscionable conduct in obtaining the guarantee and the
mortgage. The parents were elderly Italian migrants with a limited
knowledge of English. The bank manager should have realised
that the guarantors were under a special disability because of their
age, their language problems and their limited experience in
business. The bank manager should have ensured that the parents
received independent advice on the proposed guarantee and fully
understood the potential risks involved. The High Court held that
the guarantee was not enforceable.
Vincenzo’s parents were no doubt thankful that they did not have
to find a park bench to sleep on. But Amadio’s case involves
much more than just protecting one pair of loving parents. It sets
standards for entrepreneurs and financiers generally.
The Amadio case is an example of significant judicial law reform

by the High Court of Australia. The precedent established in the
Amadio case has been applied in a number of subsequent
guarantee disputes in the courts. But it is not just in the courts that
the Amadio precedent is applied. The case sets standards to guide
banks and entrepreneurs. Banks want to make sensible loans and
to have enforceable security. Immediately after the Amadio case,
every bank would have reviewed its procedures in assessing

business loans.
Following the Amadio decision, every bank will now have a

compliance system to ensure that potential guarantors understand
the consequences of signing.62 Typically this will include these
requirements:
• Bank officers will be instructed not to misrepresent facts to
the guarantors, for example not to assure the potential
guarantor that the business is operating soundly if this is not
so.
• Bank officers will be required to keep diary notes and
contemporaneous records of discussions with clients and
guarantors.
• Bank officers will be instructed not conceal information, for
example not to hide the unlimited nature of a proposed
guarantee.
• Bank officers must ensure that independent financial advice is
given to the guarantors. This may involve a signed certificate
from an independent expert that the guarantors understand the
financial aspects of the business.
• Bank officers must also ensure that independent legal advice
is given to the guarantors. This may also involve a signed
certificate from an independent lawyer that the guarantors
understand that they are risking their house if the business
does not repay the loan as required.
Conclusion and Preview
The purposes of law include promoting economic development,

protecting individual liberty and promoting social justice.
In the common law tradition, judicial decisions are a source of
62
Parliament subsequently enacted Section 51AB of the Trade Practices Act.
This aimed to clarify the doctrine of unconscionability by establishing a
statutory norm for the control of unconscionable conduct in consumer
transactions. The courts are directed to consider a range of factors, which go
beyond the special disadvantage identified in Amadio.
law. The principle of stare decisis gives certainty. Judges do not

decide cases on the basis of what the individual judge thinks is
fair and reasonable. Judges decide cases on the basis of principles
of law laid down in earlier cases.
However the law is not static. Law reflects commercial needs and
values. As society changes, the law must change. This can be
done either through the judges changing the law or through
legislation.
We saw in the decision of the High Court in Trigwell’s case that

there is significant debate in the common law tradition between
‘judicial restraint’ and ‘judicial activism’. The issue is when
should judges reform the law and when should law reform be left
to Parliament?
We examined the Amadio case as an example of judicial law

reform by the Australian High Court in the 1980s and its impact
on banks and entrepreneurs.
In this book we will see a number examples of precedent at work

and debate over judicial lawmaking. These examples include:
• The creation of contract law especially the rules of offer and
acceptance, the interpretation of the Goods Act, the
Nordenfelt principle on restraint of trade clauses and the
principle of Hadley v Baxendale on damages for breach of
contract.
• The development of tort law by the courts especially the
regarding the duties of a manufacturer in Donoghue’s case.
• The interpretation by the courts of s. 52 of the Trade
Practices Act both in its application to misleading advertising
and its dramatic extension into other areas of business law.
• The landmark case in company law, the Salomon case.
************************************
Case Study and Questions:

Toggs (www.toggs.com.au, Not listed on the ASX)
While at work, many employees dream of the beach, but Andrew

Mackie dreamt of beach-wear. His is a classic storey of the start-
up entrepreneur. Andrew Mackie had a sales and marketing job.
He had planned to leave paid employment at a time of his own
choosing and start his own business. However in 2008 the global
financial crisis intervened and his position was made redundant.
Mackie told the Australian Financial Review that his reaction

was: ‘That’s great. I’ve got nothing to stop me now, nothing to
take time away from my business plans.’ He had been doing
market research and putting together a business plan for 12
months. His research identified a niche market in swimwear.
There was a gap in the market between boardshorts aimed at
younger swimmers at one end and so called ‘budgie smuggler’
swimming briefs on the other.
Mackie envisioned a high quality product for 30 and 40 year-old

males. He began making swimwear for friends, working from a
small rented warehouse. He then visited trade fairs in China and
identified a manufacturer specializing in swimwear that provided
a product with the quality and price Mackie wanted. His product,
Toggs swimwear, was launched in December 2008. After a ‘stack
of rookie errors’ such as not making sufficient extra large sizes,
Mackie broke even in his first year and expected to make a profit
of $100,000 in his second year.
Consider the following hypothetical question concerning Andrew

Mackie:
1. Andrew Mackie is an entrepreneur interested in the

development of swimwear under the brand ‘Toggs’. He wants to
obtain $200,000 in working capital from a bank in order to
develop his idea to a point where he can attract other investors.
He has no assets. The bank wants to lend him the money but
requires some security for the loan. Mackie persuades his mother,
Marie, to guarantee the loan. Marie has only one asset, the family
home. Marie has no business experience. Marie signs a loan
guarantee secured by a mortgage over her home. The bank

officer, Felix, tells Marie that she could get independent advice
but it is not necessary because he is confident that Mackie’s
business will be successful. Unfortunately the business fails.
(a) Does the bank have a contract with Andrew?

(b) Does the bank have a contract with Marie?
(c) Is the guarantee enforceable under the traditional
principles of contract law?
(d) What is the effect of the mortgage?
(e) What is the principle of law laid down in Commercial
Bank of Australia v Amadio? Is this ratio decidendi or
obiter dictum?
(f) Is the Amadio principle binding in a County Court
action seeking to enforce the guarantee or only of
persuasive authority?
(g) Is Amadio’s case an example of judicial restraint or
judicial activism?
(h) How would the Amadio principle apply in Marie’s
case?
(i) What measures do you think that the bank should take
to ensure that the guarantee is enforceable after Amadio?
2.Which of the following statements best represents

(i) the definition of ratio decidendi
(ii) the definition of obiter dictum
(a) a statement by a judge on a question of law which he is called
upon to decide.
(b) a statement by a judge on a question of fact which he is called
upon to decide.
(c) a statement by a judge on a question of fact which will
determine the outcome of the case.
(d) a statement by a judge of the result in the case
(e) a statement by a judge on a question of law which he is not
called upon to decide.
3. Which of the following statements best represents the

philosophy of
(i) Murphy J in Trigwell's case

(ii) Mason CJ in Trigwell's case
(a) the common law can only be declared not altered by judicial
decision. If the law is inappropriate then it should be left to
Parliament to alter it.
(b) the virtue of the common law is that it can be adapted day by
day through an inductive process which will achieve a coherent
body of law ... It is when judges fail to do this that Parliament has
to intervene.
(c) the judicial alteration of judge-made law is usurpation of
Parliament's role. What might appear to be alterations are only
corrections of judicial misunderstandings of the common law.
(d) there are some cases in which an ultimate court of appeal can
and should vary or modify what has been thought to be a settled
rule or principle of the common law on the ground that it is ill-
adapted to modern circumstance ... But there are very powerful
reasons why the court should be reluctant to engage in such an
exercise.
(e) it is not proper for any court other than the High Court to take
upon itself to depart from a decision of the House of Lords
however irrational it may appear to be.
4 In Commercial Bank of Australia v Amadio (1983) the issue

was the enforceability of a bank guarantee by the parents of an
entrepreneur in respect of all existing and future debts to the bank.
The guarantee was secured by a mortgage over the parents’ home.
The parents were elderly Italian migrants with a limited
knowledge of English. The High Court held:
(a) It would apply the existing law. The guarantee was not
enforceable because the parents were not a party to the loan
contract.
(b) It would apply the existing law. The guarantee was
enforceable because it was signed by the parents. It does not
matter whether they have read or understood the guarantee.
(c) It would apply the existing law. The guarantee was not
enforceable since the bank was guilty of unconscionable conduct
in obtaining the guarantee.
(d) It would reform the law in this area and set down a new rule
that a contract may not be enforced if it is unconscionable. It held
that the guarantee was enforceable because it was fair.

(e) It would reform the law in this area and set down a new rule
that a contract may not be enforced if it is unconscionable. It held
that the guarantee was not enforceable because the bank’s conduct
was unfair.
************************************
CHAPTER 2: THE INTERPRETATION OF STATUTES
‘I don't know what you mean by “glory”’, Alice said.

Humpty Dumpty smiled contemptuously. ‘Of course you don’t — till I tell you. I
meant “there's a nice knock-down argument for you!’”
'But “glory” doesn't mean “a nice knock-down argument,’” Alice objected.
‘When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just
what I choose it to mean — neither more nor less.’
‘The question is,’ said Alice, ‘whether you CAN make words mean so many different
things.’
‘The question is,’ said Humpty Dumpty, ‘which is to be master — that's all.’
‘Through the Looking Glass’ by Lewis Carroll.
Statutory Interpretation: the Problem
Words can mean ‘so many different things’. How do we work out the appropriate
meaning of words in a statute? We saw in the last chapter that in both the common
law and the civil law traditions, statutes are a major source of law. In about half of all
reported cases in Australia, the courts are required to rule on the meaning of
legislation. The issue in these cases is the meaning of a word, a phrase or a concept in
a statute.
The draftsman’s dream is to draw up an Act expressed so precisely that Parliament’s

intention will be clear regardless of the situation to which the Act must be applied.
But language is not given to that kind of precision. Difficulties arise with the
interpretation of statutes in ‘marginal’ or ‘grey’ areas.
In the previous chapter we saw that in 1984 in Victoria, the Wrongs (Animals
Straying on Highways) Act added a new s. 33 to the Wrongs Act. The effect was to
abolish the Searle v Wallbank immunity of farmers whose animals strayed onto roads.
The new s. 33 reads:
‘So much of the common law relating to liability for negligence as excludes or
restricts the duty which a person might owe to others to take reasonable care
to see that damage is not caused by animals straying on to a highway is
hereby abolished’.
What does the word ‘highway’ mean in this provision? Does it only mean main
roads? Does it include an unmade country road, or a footpath, or a bicycle path?
The general idea of a ‘highway’ may be clear. However a judge may not find it easy
to decide whether a footpath is part of the ‘highway’. In problems like this, the
process of interpretation is similar to legislation: the judge is acting as a lawmaker. If

he or she decides that the footpath is a ‘highway’, this gives the statute a wider
application, whereas if he or she decides that it is not a highway, this gives the
provision a narrower meaning.
An examination of the cases that have interpreted the word ‘highway’ shows that the
courts have taken a wide interpretation of the word ‘highway’. The fundamental
meaning of ‘highway’ is ‘a road or way open to the public as of right for the purposes
of passing and repassing’. Therefore a ‘highway’ includes all public roads, not just
main roads. A small one-way street is still a ‘highway’.63 The ‘highway’ includes the
footpath64 and even a ditch on the verge of the highway.65 However a swing bridge
connecting two highways has been held not to be a highway66 and a path in a
churchyard has been held not to be a highway.67
How have the courts reached these decisions? The common law courts have
developed rules of statutory interpretation with which business people should be
familiar. There are three fundamental rules: the Literal Rule, the Golden Rule and the
Purpose Rule.
The Literal Rule:
The Literal Rule states that words should be given their ‘ordinary and natural
meaning’. This rule is based on the concept that Parliament’s intention is contained in
the words it has used in the statute. The courts do not launch into a separate inquiry
into Parliament’s intention.
The Literal Rule does not mean that the court will simply use a dictionary to
determine the meaning of the word ‘highway’ in s. 33 of the Wrongs Act. The word
will be interpreted in its context: of the phrase, the rest of the section, other sections
of the Act and the Act as a whole. The context will help indicate what Parliament
intended when it used the word ‘highway’.
As part of this literal approach, the courts have developed a number of presumptions
for the interpretation of words in specific situations. These presumptions are all
examples of words being interpreted according to their context.
(a) Ejusdem Generis (‘of the same kind’).
This maxim, sometimes known as the class rule, applies where several specific terms,
all coming within a particular genus or class, are followed by more general terms.
The general term will not be given its full literal meaning but will be confined to
things belonging to the same class.
63
Roberts v Webster (1967) 66 LGR 29.
64
Offin v Rochford (1906) 1 Ch 342, Robinson v Richmond Borough Council (1955) 1 QB 401.
65
Chorley v Nightingale (1906) 2 KB 612.
66
Guilfoyle v Port of London Authority (1932) 1 KB 336.
67
AG v Mallock 146 LT 344.
Assume a regulation allows a ferry to carry a ‘horse, cat, dog or other animal’. The
phrase ‘other animal’ would be read down to include only domesticated animals and
not, for example, crocodiles. The phrase ‘other animals’ would not be interpreted
literally as ‘any other animals whatsoever’ but as ‘any other animals like horses, cats
and dogs’.
An example of the ejusdem generis rule is Attorney-General v Brown.68 A regulation

under the Customs Act provided that ‘the importation of arms, ammunition,
gunpowder, or any other goods may be prohibited by Proclamation or Order in
Council’. The defendant imported six cases of pyrogallic acid without any licence.
Pyrogallic acid in its ordinary commercial use is a developer in photography. Had the
defendant breached the Customs Act?
The court held that the ejusdem generis rule must be applied to the interpretation of
the regulation. Therefore the phrase ‘any other goods’ meant goods of the same class
as arms, ammunition, and gunpowder. The Attorney General then contended that
pyrogallic acid was in the same class as arms, ammunition, and gunpowder. The
Attorney General argued that as pyrogallic acid can be used in photography, and as
photography is used in war, therefore pyrogallic acid is in the same class of goods as
arms, ammunition, and gunpowder. The court held however that it was hard to
conceive of any article that could not used in modern warfare. The court held that the
relevant class was not ‘goods that could be used in war’ but rather ‘goods intended to
be used in war’. It therefore held that pyrogallic acid is not in the same class as in the
same class as ‘arms, ammunition, and gunpowder’. The prosecution was therefore
dismissed, as the defendant did not need a licence to import pyrogallic acid.
Attorney-General v Brown
[1920] 1 KB 773 King's Bench Division
Sanky J.
The importation of arms, ammunition, gunpowder, or any other goods may be

prohibited by Proclamation or Order in Council.’
On 29 August 1919, an officer of His Majesty's Customs and Excise seized the six
cases of pyrogallic acid which had been imported into Manchester by the defendant
on board the steamship Bovic without any licence being given for the importation of
the same...
For these reasons I am of opinion that the ejusdem generis rule must be applied to
the construction of s. 43, and that the meaning of the general words must be
restricted to that of the particular words which precede them, and that ‘any other
goods’ means goods of the class of arms, ammunition, and gunpowder.
The Attorney-General then contended that even if the general words ‘any other
goods’ are controlled by the particular words arms, ammunition, and gunpowder, he
is still entitled to succeed upon the ground that pyrogallic acid is in the same class as
arms, ammunition, and gunpowder.
68
(1920) 1 KB 773.
The facts admitted upon this point are as follows: pyrogallic acid in its ordinary
commercial use is a developer in photography - owing to its properties it takes up
oxygen very easily. It is not the only developer, and photographs can be developed
without it. It is made from tanning materials, and its ordinary use, apart from
photography, is for hair-dyes and certain medicinal purposes. The Attorney-General
was instructed to argue that as pyrogallic acid can be used in photography, and as
photography is used in war, therefore pyrogallic acid is in the same class of goods as
arms, ammunition, and gunpowder. It is hard to conceive any article which is not
used in modern warfare or in the preparation of some article used therefor. It might
as well be contended that bread or meat could be prohibited because being used for
the purpose of feeding the soldiers engaged in the field, they are in the same class as
arms, ammunition, and gunpowder. In so far as it is a question of fact, I find that
pyrogallic acid is not in the same class as the particular articles set out in the section.
Finally it must be remembered that s. 43 is a penal section, and should be construed

strictly: Tuck & Sons v Priester (1887) 19 QBD 629 at 638 where Lord Esher MR
says: ‘We must be very careful in construing that section, because it imposes a
penalty. If there is a reasonable interpretation which will avoid the penalty in any
particular case we must adopt that construction. If there are two reasonable
constructions we must give the more lenient one.’
In my view it would not be proper to hold that Parliament intended to impose the
penalty demanded in this case by words which are uncertain and equivocal.
Judgment for the defendant
One advantage of the ejusdem generis rule is that people drafting a document do not
need to specify every possible situation that they want to cover. The drafter can, for
example, simply write ‘horse, cat, dog or other animal’. She knows that the courts
will interpret the phrase ‘other animal’ using the ejusdem generis rule. She therefore
does not have to attempt to list every conceivable animal she wants to include in the
statute she is drafting. The general phrase can even cover things that are not yet in
existence. Take for example the regulation of radio, television and the internet in
Australia.
Australia is a federation with the power to pass laws divided between the
Commonwealth and the six State Parliaments. Who should regulate radio and
television as a matter of policy? It should only take a moment’s reflection to say that
it is far better for the Commonwealth government to do so. If the individual States
have the power to regulate television and radio, there could be inconsistent technical
standards between (say) New South Wales and Victoria so that equipment did not
function in both States, or there could be overlapping allocation of frequencies so that
broadcasting in Albury NSW interfered with that in nearby Wodonga Victoria. While
it clearly is good policy for the Commonwealth Parliament to regulate television and
radio, the legal question is whether it has the constitutional power to do so.
The Australian Constitution was passed in 1900, before the development of television
and radio services. Consequently the Constitution makes no specific reference to the
regulation of these media. Section 51 of the Constitution allocates various powers to
the Commonwealth Parliament. The relevant head of power is s. 51(5) that gives the
Commonwealth the power to legislate on ‘postal, telegraphic, telephonic, and other
like services’. What are ‘other like services’? What is the relevant class or genus?
When interpreted ejusdem generis does this phrase cover radio and television?
In R v Brislan in 1935 the High Court decided that the phrase ‘other like services’ in
s. 51(5) included radio.69 Latham C.J. held that radio broadcasts were a service similar
to post, telegraphy or telephony services, as they were all forms of communication.
However there was a powerful dissent from Dixon J.
We saw in the previous chapter that Justice Dixon had a policy of ‘strict legalism’.
For him it was not relevant what would be good public policy. What was relevant was
the legalistic interpretation of the words in the Constitution. In his opinion the
Commonwealth did not have the power to regulate radio broadcasting.
Justice Dixon believed that s. 51(5) of the Constitution only empowered the
Commonwealth Parliament to make laws with respect to communication between
individuals, not mass communication such as radio. He said that postal, telegraphic
and telephonic services are ‘organized means of enabling people at a distance to
communicate one with another either by writing or by word of mouth’. The phrase
‘other like services’ therefore covers ‘every system or organized process of furnishing
means of individual communication’. Radio broadcasting does not provide a means
‘by which one individual can originate a message or establish communication with
another’. Therefore, according to Dixon J.’s dissenting judgement, the
Commonwealth did not have the power to regulate radio under s 51(5) of the
Constitution.
Fortunately for the well-being of the Australian economy, the majority of the High
Court agreed with Latham C.J. The phrase ‘other like services’ in s. 51(5), when
interpreted ejusdem generis, empowered the Commonwealth to pass laws on mass
communication. The result was that the federal legislation on radio broadcasting was
held to be constitutional in Brislan’s case.
Similarly in Jones v Commonwealth in 1965 the High Court held that s. 51(5)
empowered the Australian Parliament to legislate for television.70 This case
demonstrates that the phrase ‘other like services’ in s. 51(5) of the Constitution will
be interpreted to cover new technological developments. This raises the question:
what about the internet?
Many entrepreneurs will be using the internet in their business. In the future the High
Court may have to decide whether s. 51(5) of the Constitution allows the Federal
government to make laws relating to the internet. For example the Interactive
Gambling Act regulates the operation of online casinos in Australia. Is this legislation
constitutional? Other issues include the validity of laws on filtering undesirable
websites, copyright, privacy, defamation and electronic transactions over the internet.
For the modern economy it may be essential that the Commonwealth Parliament have
the constitutional authority to make laws facilitating e-commerce. It is likely that
69
(1935) 54 CLR 262.
70
(1965) 112 CLR 206.
High Court will hold that the Commonwealth has the power to make laws regarding
the internet under s. 51(5) of the Constitution. The internet is ‘like’ postal,
telegraphic and telephonic services.71 This will mean that an array of laws regarding
the internet, which may be of great importance to an entrepreneur, are constitutionally
valid.
This is why the interpretation of a simple phrase like ‘other like services’ is important.
This is why the ejusdem generis rule is a marvellous device!
(b) Noscitur a Sociis (‘one is known by the company one keeps’)
This Latin saying reflects the basic idea that words will be interpreted in light of the
context in which they are used. We saw above that the ejusdem generis rule tells us
how to interpret the words ‘other animals’ in the phrase ‘horse, cat, dog or other
animal’. The noscitur a sociis rule helps to interpret the specific words ‘horse’, ‘cat’
or ‘dog’. For example would the phrase include a ‘tiger’ on the ground that it is a
‘cat’? The answer is no: the word ‘cat’ in this phrase would be interpreted to be
domesticated cats because of its companion words ‘dog’ and ‘horse’.
In Fox v Warde the court had to interpret the word ‘occupier’ in the Vagrancy Act
1966.72 The Act provided that it was an offence to be the ‘tenant, lessee, occupier or
person in charge’ of premises used for the purposes of habitual prostitution. The
police had, in plain clothes, entered the Gentle Touch massage parlour. They
prosecuted the sex worker who greeted them. She was charged with being the
‘occupier’ of premises used the purposes of habitual prostitution. The issue was the
meaning of the word ‘occupier’. Ordinary words such as this often have a range of
possible meanings. What was the appropriate meaning in this Act? Was the defendant
the ‘occupier’ of the premises?
The prosecution submitted that the term ‘occupier’ meant simply any person who
used the premises, such as the defendant. The defence however argued that the word
‘occupier’ had a much narrower meaning. To be the ‘occupier’ of premises required
more than a person just being physically present or simply using the premises. It also
involved some authority to control the premises or to exclude other people. The
defendant was only one of the ordinary workers on the premises. There was no
evidence that she had any management powers. Therefore it was submitted that the
defendant was not the ‘occupier’ of the premises. This submission was successful.
The court took a ‘narrow’ interpretation of the word ‘occupier’ in the Act by using the
noscitur a sociis principle and dismissed the charge.
The judge in Fox v Warde said:

‘If one looks at the associated words, a tenant has lawful possession and the
power of excluding everyone including the landlord from the premises. So
also has the lessee. The person in charge of premises is, by the very words
used, a person with power to take control and exercise control over the
premises. In association with those three other words I think “occupier”
71
A separate issue is that it may be difficult to regulate the internet in practice because of its world-
wide nature, the anonymity of content creators, the lack of centralised control over the internet and the
unfamiliarity of law-makers with the technology.
72
(1978) VR 362.
means something more than a person who simply uses a particular room.
Certainly it means more than was established in the present case’.
The defendant in Fox v Warde was found not guilty because of the way the court
interpreted the word ‘occupier’ using the noscitur a sociis principle. She was just an
ordinary sex worker — she was not the owner or the Madame in charge of the brothel.
The defendant was therefore not the ‘occupier’ of the premises and had not breached
the Vagrancy Act. Quite simply the police had brought the prosecution against the
wrong person: they should have prosecuted the owner or the manager of the premises.
(c) Other Textual Rules
There are many similar rules for interpreting words in specific circumstances. These
include:
• Expressio unius est exclusio alterius (The express mention of one thing
excludes all other things). Where there is a list, things not on that list are not
covered by the statute. However this will not apply if the statute uses words
such as ‘includes’ to show that the list is not exclusive. The list ‘dogs, cats,
goats or sheep’ would not include cows. However the list ‘animals including
dogs, cats, goats and sheep’ may.
• Reddendo singula singulis (Refers only to the last). If a list of words has a
modifying phrase at the end, the modifying phrase refers only to the last on the
list e.g. ‘dogs, cats and sheep which are pregnant’.
• In pari material (Upon the same subject matter). Where a word is ambiguous,
its meaning may be gained from other statutes on the same subject matter. For
example the phrase ‘mining operation’ has been construed in the Income Tax
Assessment Act 1936 having regard to like expressions in State Mining Acts.
(d) Presumptions
There are also a number of general presumptions that courts use in the interpretation
of statutes. These are based on the courts’ idea of justice.
One important presumption is that in the case of an ambiguity, penal provisions will
be construed narrowly in favour of the accused. A person should not be convicted of
a crime by an ambiguity. An example of this is the case Attorney-General v Brown
discussed above. In contrast, remedial statutes are interpreted widely. Remedial
statutes confer a benefit, for example, workers compensation legislation, which
provides benefits for injured workers. Again this presumption is based on a concept of
justice: that a person should not lose a benefit because of an ambiguity in the
legislation. Thus the same word may have two different meanings in two different
statutes. In a penal statute it will be interpreted narrowly, in a remedial statute it will
be interpreted widely. This is an example of the courts interpreting a word in context;
in this situation the context is the whole of the Act.
There are various other presumptions that protect ‘fundamental rights and liberties’ in
interpreting statutes. There are rebuttable presumptions that Parliament did not intend
to:
• apply the statute retrospectively;
• invade common law rights;

• restrict access to the courts;
• abrogate the protection of legal professional privilege;
• exclude the privilege against self incrimination;
• interfere with vested property rights;
• alienate property without compensation;
• interfere with equality of religion; or
• deny procedural fairness to persons affected by the exercise of public power.
In interpreting statutes the courts will prefer an interpretation that does not interfere
with these fundamental rights and liberties. The courts will presume that Parliament
does not intend to take away fundamental rights unless it makes this intention clear
beyond doubt. Does the existence of these presumptions remove (or at least reduce)
the need for a written Bill of Rights in Australia? Consider the application of these
principles by the High Court to ensure that prosecutions of employers for safety
breaches are conducted fairly.
Perhaps no area of business law is more controversial than industrial safety

legislation. On the one hand powerful unions lobby for strong laws to protect the life
and safety of workers. On the other hand draconian safety legislation may not just be
unfair to individual employers, it may also put a brake on total employment and
economic growth.
For many years in Australia there has been debate on harmonisation of safety
legislation. NSW and Queensland laws differed from the other states. They required
employers to prove that they were not to blame for accidents at work. This reversed
the usual onus of proof in criminal matters.
Employer groups such as the Australian Chamber of Commerce and Industry argued
that there had been many unfair convictions of employers in NSW and Queensland.
Business commentator, Robert Gottliebsen said:
‘Years ago, NSW decided to embrace the French system of justice in its
occupational health and safety system by declaring a person guilty and then
giving them the chance to prove their innocence. It works well in France, but
when you combine the British and the French justice systems it can be very
unfair. And in NSW a series of boards and groups became attached to the
French system which gave them incredible power and stifled the state’.73
In a landmark decision in 2010, Kirk v Industrial Relations Commission, the High

Court put limits on these controversial elements of the NSW industrial safety
legislation.74 The High Court held that the administration of the Occupational Health
and Safety Act 1983 (NSW) (the OH&S Act) violated two fundamental common law
presumptions.
Mr Kirk was a businessman who left the day to day running of a small farm to his
employee Graham Palmer, who was an experienced farm manager. Kirk purchased an
All Terrain Vehicle (ATV) for work on the farm. While doing some fencing work,
73
Robert Gottliebsen, ‘A new dawn for NSW’, Business Spectator, 3 February 2010.
74
(2010) HCA 1.
Palmer, for some unknown reason, left the road leading to the work-site. He drove the
ATV down the side of a hill and it overturned. Tragically Palmer was killed. Kirk and
his company were charged with a breach of the OH&S Act, a serious offence which
carried a possible two-year prison sentence.
Section 15(1) of the Occupational Health and Safety Act 1983 (NSW) (the OH&S
Act) stated that:
‘Every employer shall ensure the health, safety and welfare at work of all the
employer’s employees’.
Section 53 of the OH&S Act provided a defence that puts the onus on the employer. It
stated:
‘It shall be a defence to any proceedings against a person for an offence
against this Act or the regulations for the person to prove that:
(a) it was not reasonably practicable for the person to comply with the
provision of this Act or the regulations the breach of which constituted the
offence, or
(b) the commission of the offence was due to causes over which the person
had no control and against the happening of which it was impracticable for
the person to make provision’.
The Industrial Court of NSW convicted Kirk of a breach of s. 15. He was fined
$11,000 and his company $110,000. However the High Court quashed this
conviction.
The charge laid against Kirk had not specified any measures that he could have taken
to address the risk of the ATV overturning. It did not specify any defect in the system
of work on his farm. The High Court found that this was contrary to established
principles of the common law. The court held that it was necessary for the prosecution
to specify the ‘time, place and manner of the defendant’s acts or omission’. Unless
there was a specific allegation of wrongdoing, a defendant could not defend himself
or herself. The court said:
‘The common law requires that a defendant is entitled to be told not only of
the legal nature of the offence with which he or she is charged, but also of the
particular act, matter or thing alleged as the foundation of the charge … The
acts or omissions the subject of the charges here in question had to be
identified if Mr Kirk and the Kirk company were to be able to rely upon a
defence under s. 53’.
There was a second breach of fundamental common law presumptions in Kirk’s case.
Section 179 of the Industrial Relations Act 1996 (NSW) provided that a decision of
the Industrial Court:
‘is final and may not be appealed against, reviewed, quashed or called into
question by any court or tribunal’.
Did this ‘finality’ or ‘privative’ provision mean that Kirk could not get redress from
the NSW Supreme Court or the High Court? The High Court held that it had the
authority to quash the decision of the Industrial Court. It held that the NSW State
Parliament did not have the constitutional power to take away the jurisdiction of the
Supreme Court and the High Court to supervise inferior courts and tribunals.
In Kirk v Industrial Relations Commission the High Court limited the NSW Industrial
safety legislation by applying general common law presumptions. This important
decision harmonised the laws on industrial safety in the six Australian States. Norton
Rose Australia partner Michael Tooma said:
‘This is a landmark case which overturns the line of authority consistently
applied in NSW which had to date given strict interpretation to the scope of
the duty of care. It brings the NSW jurisdiction in line with other jurisdictions
in that it requires the prosecutor to specifically identify what the risk the
health and safety is alleged to have been and, importantly, what the employer
would have been required to do to address that risk. The prosecution can no
longer rely on the apparent absolute nature of the duty. This spells the end of
what some people have called the reverse onus approach – guilty until proven
innocent approach – to the legislation … It will require a far more focused
approach by prosecutors in bringing prosecutions. They now have to turn
their minds specifically to what should have been done by the employer. This
has been an ongoing complaint of defendants. People need to understand
what it is they failed to do to prevent the risk rather than simply face generic
allegation about systems of work, training, instruction and supervision’.75
Before the Kirk case, there was significant union pressure on the federal Labor
government to apply the NSW work safety laws to the whole of Australia. This is
despite the concern that the NSW economy is the worst performer of all of the
Australian states. Applying the NSW industrial safety laws nationally could have had
major implications for the national economy.
On its face, the NSW system appeared to be one-sided. It provided for:

• criminal offences with the threat of imprisonment or heavy fines;
• prosecutions by unions, with the unions themselves receiving up to half of the
fines;
• a presumption that the employer was guilty instead of the normal presumption
of innocence;
• no right for any trial by jury;
• trials in the NSW Industrial Court instead of the normal criminal courts; and
• the prohibition of appeals against any decision of the Industrial Court.
One lone, elderly farmer was able to challenge this one-sided legislation in the High
Court of Australia. The High Court applied general presumptions that courts use in
the interpretation of statutes to overcome some of the unfair and dysfunctional
features in the administration of the NSW OH&S Act.
The Golden Rule
The second rule of statutory interpretation is the ‘Golden Rule’. The Golden Rule
states that if a literal interpretation of a statute would lead to a gross absurdity, the
sense of the words may be modified so as to avoid the absurdity. Rather than adhere
75
Robert Gottliebsen, ‘A new dawn for NSW’, Business Spectator, 3 February 2010.
strictly to the literal words of a statute and argue that it is for Parliament to correct any
problems, the court will sometimes adopt this approach.
Lord Wensleydale said:

‘The grammatical and ordinary sense of the words is to be adhered to, unless
that would lead to some absurdity, or some repugnance or inconsistency with
the rest of the instrument, in which case the grammatical and ordinary sense
of the words may be modified, so as to avoid the absurdity and inconsistency,
but no further’.76
Traditionally Lord Wensleydale’s Golden Rule is explained as a qualification to the

Literal Rule. The Golden Rule modifies the words of an Act where their ordinary
meaning creates a gross absurdity or gross injustice. This rule is rarely applied
because it is not very diplomatic for a court to hold that the legislation enacted by the
Parliament is grossly absurd.
Usually the Golden Rule is applied where a poorly drafted section of an Act would
result in an unintended and unfair result if the section were to be interpreted literally.
The courts then apply the Golden Rule to ‘interpret’ the Act so as to avoid the
absurdity.
An example of the Golden Rule is Anstee v Jennings.77 The Licensing Act 1928
prohibited the sale of alcohol on Sundays. However there were various exceptions.
One exception was that alcohol could be sold to a ‘bona fide’ traveller. This term was
defined in the Act. There was also a defence if the licensee ‘truly believed’ that they
were selling alcohol to a ‘bona fide’ traveller, even though the buyer was not in fact a
‘bona fide’ traveller.
The Licensing Act provided:

‘that on the hearing of any information against a licensed victualler ... under
s. 178 if the court is satisfied either that every person to whom the liquor was
sold was a bona fide traveller, or that the defendant truly believed that such
was the fact, it shall dismiss the case’.
The issue was whether a licensee could use this defence if her employee served
alcohol to someone who was not a bona fide traveller. What did the word ‘defendant’
mean in s. 178 of the Act?
In Anstee v Jennings the licensee was not on the premises; she was enjoying a well-
earned day off on a Sunday. She left an employee in charge of her hotel. He then sold
alcohol to a ‘rogue’ who falsely claimed to be a bona fide traveller and the employee
believed him. Had an offence been committed?
Any prosecution for a breach of licence is brought against the licensee. Note also that
any prosecution is a serious matter because convictions for breach of licence may
result in the person losing their livelihood. The ‘defendant’ in Anstee v Jennings was
therefore the licensee, not the employee who actually sold the alcohol. The employee
believed that the rogue was a bona fide traveller. But the licensee, the ‘defendant’,
76
Grey v Pearson (1857) 10 ER 1216.
77
[1935] VLR 144.
had no such belief. She was taking a holiday and was not even on the premises. She
had no knowledge of the sale or whether the sale was made to a bona fide traveller.
Had the court taken a literal interpretation of the Act, the defendant would have been
convicted. She, the ‘defendant’, could not take advantage of the defence because she
could not claim to have ‘truly believed’ that the rogue was a bona fide traveller. She
did not even know of his existence.
However the court refused to give a literal interpretation of the word ‘defendant’ in s.
178. It would be absurd to expect that every licensee should know the entitlement to
buy alcohol of every customer. Parliament must realise that licensees often have
employees dealing with customers. Clearly the statute was poorly drafted. The court
therefore applied the Golden Rule to interpret the word ‘defendant’ in the Act. It held
that the word would not be interpreted literally: instead the word ‘defendant’ would
be interpreted as if the statute said ‘the defendant or her employees’. Therefore the
licensee in Anstee v Jennings had a defence since her employee ‘truly believed’ that
the customer was a bona fide traveller. She had not breached her licence and thus her
livelihood was safe.
The Purpose Rule (the Mischief Rule)
The Purpose Rule is sometimes called the mischief rule or the rule in Heydon’s case
(1584). Like the Literal Rule it is designed to discover the intention of Parliament. It
differs from the Literal Rule because it is not limited to the words of the statute. A
court using a purpose approach would examine the origin of the statute, its history,
the circumstances in which it was originally passed, the mischief it was designed to
remove and the aim it was intended to achieve in order to interpret the word in
question in the Act.
The Purpose Rule is radically different from the Literal Rule because it departs from
the text of the statute by looking outside for the statute’s function. The justification
for the rule is that sometimes it is not possible to say, even when read in the light of
the whole statute, that words in a statute bear a plain meaning. Sometimes words or
phrases are ambiguous, vague or uncertain.
In the 1970s the Literal Rule was dominant in Australian courts. In particular the High
Court applied a narrow, literal construction of taxation legislation in favour of
taxpayers.78 Under Chief Justice Barwick, the High Court in the 1970s took a
staunchly pro-taxpayer approach.79 This encouraged artificial tax avoidance
arrangements. The ‘Bottom of the Harbour’ schemes symbolised the worst of these
artificial strategies.80 In its 1986/7 Annual Report the Australian Taxation Office
78
Mullens v Federal Commissioner of Taxation (1976) 135 CLR 290, Slutzkin v Federal
Commissioner of Taxation (1977) 140 CLR 314 and Cridland v Federal Commissioner of Taxation
(1977) 140 CLR 330.
79
For a stinging criticism of the Chief Justice see David Marr, Barwick, George Allen & Unwin, 1980.
80
Essentially the schemes involved stripping a company of its assets and accumulated profits before its
tax fell due, rendering it unable to pay the taxes. The company would then be sent to the ‘bottom of
Sydney harbour’ by transferring its ownership to a person of no means, often with the deliberate loss
of the company’s records.
stated that almost 7,000 companies had been involved with a loss to government
revenue of between $500 million and $1,000 million.81 These tax avoidance schemes
of the 1970s rebounded in public pressure for a change in the way the courts
interpreted statutes.
One reaction to this mounting pressure was judicial law reform concerning the
interpretation of statutes. In 1981 the High Court in Cooper Brooks Pty Ltd v
Commissioner of Taxation overturned its previous practice and adopted a purpose
approach to statutory interpretation.82 This reflected the new philosophy of the High
Court in the 1980s, adopting the ‘judicial activism’ of Justice Murphy in Trigwell’s
case that we examined in the previous chapter.
In Cooper Brooks, Mason and Wilson JJ. held that a literal interpretation of anti-
avoidance provisions of the Income Tax Assessment Act 1936 would have produced a
‘capricious and irrational operation’. The Court ignored the literal meaning of the
statute and gave it an effect that the Court did not consider capricious and irrational.
The second major reaction to the excessively literalist approach of the Barwick High
Court was statutory law reform. The Commonwealth Parliament enacted a new
interpretive provision in the Acts Interpretation Act.83 Section 15AA provided that:
‘In the interpretation of a provision of an Act a construction that would
promote the purpose or object underlying the Act (whether that purpose or
object is expressly stated in the Act or not) shall be preferred to a
construction that would not promote that purpose or object’.
Thus from the 1980s there has been both a judicial and statutory direction for courts
to make greater use of the purpose approach. In 1984, the Commonwealth Parliament
inserted a subsequent provision into the Act. Section 15AB provides:
‘In the interpretation of a provision of an Act, if any material not forming part
of the Act is capable of assisting in the ascertainment of the meaning of the
provisions, consideration may be given to that material …’
The Section then lists the sources that could be employed in statutory interpretation.
These include:
• documents attached to the Act itself;
• reports by Royal Commissions, Parliamentary committees etc made to
Parliament before the Act was enacted;
• treaties or other international agreements referred to in the Act;
• explanatory memorandum relating to the Bill;
• second reading speeches;
• documents declared to be relevant by the Act;
• relevant material in the Journals of the Senate, Votes and Proceedings or other
official records of Parliament.
The Purpose Rule, like the Literal Rule, is designed to discover the intention of
Parliament. It differs from the literal approach by examining a wider context in which
81
In 1980, the Crimes (Taxation Offences) Act put an end to bottom of the harbour schemes
82
(1981) 147 CLR 297.
83
It should be noted that a similar provision appears in the Victorian Interpretation of Legislation Act
1984.
the words of the statute are set. For example, a court using a purpose approach to
interpret the word ‘highway’ in s. 33 of the Wrongs Act could examine the debates in
Parliament and the report of the Statute Law Revision Committee on the Liability of
Land Owners (1977).
In other jurisdictions there is a similar movement towards a purpose approach. In

Europe the European Communities Act 1972 obliges the courts to take a purpose
approach in interpreting European Community law. In the United States the courts
have used a purpose approach to interpret legislation since the early twentieth century.
In the UK the courts have held that all sources, including the debates in Parliament,
should be used.
In the United Kingdom, the House of Lords in Pepper v Hart said in 1993 that:
‘The object of the court in interpreting legislation is to give effect so far as the
language permits to the intention of the legislature. If the language proves to
be ambiguous I can see no sound reason not to consult Hansard see if there is
a clear statement of the meaning that the words were intended to carry. The
days have long passed when the courts adopted a strict constructionist view of
interpretation which required them to adopt the literal meaning of the
language. The courts now adopt a purposive approach which seeks to give
effect to the true purpose of legislation and are prepared to look at much
extraneous material that bears upon the background against which the
legislation was enacted. Why then cut ourselves off from the one source in
which may be found an authoritative statement of the intention with which the
legislation is placed before Parliament’?84
The purpose and literal approaches may result in quite different interpretations of an
Act. An example can be seen in the amusing case of Corkery v Carpenter.85
In Corkery v Carpenter the defendant was pushing a bicycle on a highway when

drunk. He was charged with being drunk in charge of a ‘carriage’ in breach of s. 12 of
the Licensing Act 1872. This provided that it was an offence to be:
‘drunk while in charge on any highway or other public place of any carriage,
horse, cattle, or steam engine’.
The issue was whether a bicycle was a ‘carriage’ within the meaning of s. 12 of the
Act. The defendant argued that the grammatical and popular meaning of ‘carriage’
does not include a bicycle. However the court took a purpose rather than a literal
approach in interpreting the word ‘carriage’ in the Act.
A literal interpretation of the word ‘carriage’ could begin with a dictionary. It would
be an offence under s. 12 of the Licensing Act 1872 to drive a car when drunk. The
word ‘carriage’ clearly includes a horse-and-carriage and its modern replacement, the
car (a ‘horseless carriage’). But there is little, if anything, in the dictionary definition
of the word ‘carriage’ to indicate that a bicycle is a carriage. Furthermore this Act is a
penal statute so the word ‘carriage’ should be interpreted narrowly, in favour of the
defendant. Furthermore the noscitur a sociis maxim is relevant. The appropriate
meaning of the word ‘carriage’ can be gleaned from its context, from the surrounding
84
(1993) AC 573
85
[1951] 1 KB 102.
words ‘horse’, ‘cattle’, and ‘steam engine’ in the Act. When riding a horse, driving a
cattle-cart or riding on a steam engine, the rider is being carried. The same applies for
the horse-and-carriage or the motor car. But every bicycle rider knows who has done
the hard work when he reaches the top of a steep hill! A bicycle is quite a different
sort of vehicle. So the noscitur a sociis maxim also indicates that the word ‘carriage’
includes a car but not a bicycle. Finally what is the ordinary or ‘popular’ meaning of
the word ‘carriage’? Read the argument of the defence barrister in the extract below
where he sings the song ‘Daisy Bell’ to show that a bicycle is not a carriage.
A literal interpretation of the word ‘carriage’ would not include a bicycle.

Unfortunately for our singing lawyer, the judges took a purpose approach in the
interpretation of the Act and upheld the defendant’s conviction.
The court in Corkery v Carpenter held that the word ‘carriage’ in the 1872 Act
included a bicycle. The court took a purpose approach. The appeal court said that:
‘in this case the object of the Act is clear; it is the protection of the public and
the preservation of public order; and for this purpose I think a carriage can
include any sort of vehicle, certainly a vehicle which is capable of carrying a
person; and, it may be, a vehicle capable of carrying goods’.
The court therefore gave the word ‘carriage’ in the Act a meaning that is not its
normal dictionary interpretation. It held that a bicycle was a ‘carriage’ and therefore
that the defendant had committed an offence.
Corkery v Carpenter
[1951] 1 KB 102 Division Court
The defendant, Shane John Corkery, was charged before justices with being drunk in
charge of a bicycle on a highway at Ilfracombe on 18 January 1950 contrary to s. 12
of the Licensing Act 1872; and with maliciously causing damage to a police cell,
contrary to s. 14, sub-s. 1 of the Criminal Justice Administration Act 1914. The
justices found him guilty on both charges, sentencing him to one month’s
imprisonment on the first charge and three months’ imprisonment on the second.
He appealed to Quarter Sessions, at the hearing before which the following facts
were proved or admitted: At about 2.45 pm on 18 January 1950 the defendant was
pushing his pedal bicycle along Broad Street, Ilfracombe. He was drunk and
creating a disturbance and incapable of having proper control over his bicycle. A
police constable then arrested him without warrant for being drunk in charge of a
bicycle on the highway. The defendant resisted arrest. Two police constables took
him to the police station, where he was charged with being drunk in charge of a
bicycle, forcibly searched, and lodged in a cell. He wrenched the lavatory seat there
from its hinges and smashed 19 panes of glass in the cell window, and did other
damage in the cell, continuing to bang and shout most of the night.
It was contended for the defendant on his appeal to Quarter Sessions that a bicycle
was not a ‘carriage’ within the meaning of s. 12 of the Licensing Act 1872; that his
arrest without warrant and his confinement in the cell were therefore unlawful; that
he was entitled to break out of such unlawful confinement.
D M Scott for the defendant: The word ‘bicycle’ does not appear in s. 12 of the
Licensing Act 1872. The only word at all applicable is ‘carriage’, which does not
include a bicycle. … A cardinal principle of interpretation is that in statutes
concerning matters relating to the general public, words are presumed to be used in
their popular meaning. The popular meaning of ‘carriage’ does not include a
bicycle, as the words of the song ‘Daisy Bell’ show:
It won’t be a stylish marriage,

I can’t afford a carriage
But you’ll look sweet upon the seat
Of a bicycle made for two.
Section 12 is a penal section providing for the arrest without warrant of an offender
and that is sufficient to require the court to put a narrow construction on it. The test
is whether s. 12 conveys to the mind of the reader that it was Parliament’s intention
to include a bicycle. Violence must not be done to the language of the Act so as to
bring within its terms articles which are not expressly included...
Wilmers, for the prosecution, was not called upon to argue.
Lord Goddard CJ.
The first thing to do in constructing an Act of this sort is to see what was the purpose
of the particular section. … In this case the object of the Act is clear; it is the
protection of the public and the preservation of public order; and for this purpose I
think a carriage can include any sort of vehicle, certainly a vehicle which is capable
of carrying a person; and, it may be, a vehicle capable of carrying goods … nothing
can be more dangerous than a drunken man with a bicycle on a highway: he is
dangerous whether he is riding the bicycle or pushing it, because even if he is
pushing it, he has not proper control over it and can be a danger to others and
himself ... It follows that the defendant was lawfully arrested, and was accordingly in
lawful custody at the police station. There was no excuse whatever for his breaking
up the cell in the disgraceful manner in which he did, and he was properly sentenced
to three months imprisonment.
The case of Corkery v Carpenter shows that the purpose and Literal Rules may
produce different results in the interpretation of a statute. This case itself is hopefully
not very relevant in the life of the typical entrepreneur. But we shall meet this issue
again when we examine the most important case in company law, Salomon v
Salomon & Co.86 At issue in Salomon’s case was whether a small entrepreneur could
use a company as the vehicle to run his business. In 1897 the highest court in
England, the House of Lords, said yes. It took a literal interpretation of the
Companies Act. The court below had come to a different conclusion because it took a
purpose approach. Had the House of Lords also taken this approach in 1897, the
structure of our business world today could be fundamentally different.
86
(1897) AC 22.
Usually the literal and the purpose approaches will come to the same result. The
conflict we saw between them in Corkery v Carpenter is the exception rather than the
rule. For example in R v Smith the court had to interpret the word ‘offensive’.87 Both
the literal and the purpose approaches produced the same result.
In R v Smith the defendant was charged with an offence under s. 7 of the Summary
Offences Act 1970. This section provided:
‘A person who in or within view from a public place or a school behaves in a
riotous, indecent, offensive, threatening or insulting manner is guilty of an
offence’.
The defendant had made a provocative gesture to a policeman. The defendant and two
friends were sitting on the steps of the entrance to a bank with their legs blocking the
footpath. A policeman said: ‘Get on your feet boys, you know you can’t sit there’.
The defendant, who was smoking a cigarette, raised his hand in a ‘v’ gesture and then
continued the movement to put the cigarette to his mouth. He was charged with
behaving in an ‘offensive’ manner in breach of s. 7 of the Act.
The issue was the meaning of the word ‘offensive’. There were two possible
meanings of the word according to the Oxford English Dictionary. Which was the
appropriate one for this Act?
One dictionary definition of ‘offensive’ is:

‘Pertaining or tending to offence or attack; attacking; aggressive; adapted or
used for purposes of attack; characterised by attacking. Opposed to
defensive’.
On this narrow interpretation the defendant’s provocative gesture was not ‘offensive’
behaviour since there was no violence involved. On this definition the defendant had
not breached the Act.
However an alternative dictionary definition of ‘offensive’ is:

‘giving, or of a nature to give, offence; displeasing; annoying; insulting’.
On this wider definition the provocative gesture was offensive behaviour since it was
annoying and insulting. Which of the two dictionary meanings of the word ‘offensive’
was the appropriate meaning for this Act?
The court held that the second interpretation was the appropriate meaning of the word
‘offensive’ in the Summary Offences Act. Both the purpose and the literal approaches
led to this interpretation.
The court began with an application of the Literal Rule. The noscitur a sociis
principle (‘one is known by the company one keeps’) means that words will be
interpreted in the light of the context in which they are used. The word ‘offensive’ in
the Act was found in a phrase of five words ‘riotous, indecent, offensive, threatening
or insulting’. Since the words ‘indecent’ and ‘insulting’ did not have an element of
attack and aggression in them, the court held that the word ‘offensive’ should be
interpreted in the wider sense — as annoying and displeasing behaviour.
The court also took into account the purpose of the Act in interpreting the word
87
[1974] 2 NSWLR 586.
‘offensive’. The court said that the object of the Act was clear; it was ‘the
preservation of order and decorum in streets and other public places’. To give effect
to this policy, the word ‘offensive’ should be interpreted widely, as prohibiting both
violent and non-violent offensive behaviour.
The defendant therefore was convicted in R v Smith. He had behaved in an ‘offensive’

manner in making a rude gesture to the policeman. The literal and the purpose
approaches came to the same result. It is only exceptional cases like Corkery v
Carpenter where the two approaches will produce different results. Let us now see
these two approaches in action in the interpretation of one of the most important
statutes regulating how entrepreneurs conduct their businesses.
Statutory Interpretation and the Entrepreneur: A case study
The Trade Practices Act was passed in 1974 to protect consumers and to promote
competition in the marketplace. It is no exaggeration to say that the Act has
introduced a revolution in business law and litigation in Australia. This was not
something envisaged by those who drafted the legislation back in 1974. In chapter 8
we will examine the interpretation of s. 52. This case-study shows how the courts can
give legislation a very wide or very narrow interpretation.
Section 52 of the Trade Practices Act provides:

‘A corporation shall not, in trade or commerce, engage in conduct that is
misleading or deceptive or is likely to mislead or deceive’.
Because s. 52 is in such wide terms, breaches do not give rise to criminal liability.
There are other remedies. These are injunctions (s. 80), corrective advertising (s.
80A), damages (s. 82) and other orders such as an order declaring a contract void (s.
87).
The most important remedy under the Act is s. 80, which empowers the Federal Court
to grant injunctions to restrain breaches of s. 52. An injunction is an order from the
court that the misleading conduct cease. Breach of an injunction is a serious matter; it
is a contempt of court. The injunction may require the trader to stop using a
misleading advertisement, or a misleading name or misleading packaging of a good. It
may force the trader back to the drawing board for a complete makeover of its
marketing strategy.
Section 80 provides that the Minister, the Commission or ‘any other person’ can bring
an application for an injunction restraining some alleged misleading conduct in breach
of s. 52. What does the term ‘any other person’ in s. 80 of the Trade Practices Act
mean?
Does s. 80 permit an entrepreneur to bring an action against a rival trader? Or should

it be interpreted narrowly to allow only consumers to do so? The precedent case
interpreting the trader’s rights to sue under ss. 52 and 80 was heard by the High Court
in 1978, just a few years after the enactment of the Trade Practices Act. The outcome
of this case would determine whether the Act would, in practice, have a significant
impact on the marketing strategies of businesses.
In Hornsby Building Information Centre v Sydney Building Information Centre a

former employee of the Sydney Building Information Centre had established a
competing business in Hornsby, a suburb of Sydney, under the name Hornsby
Building Information Centre.88 The two businesses provided displays of building
products and techniques. The Sydney Centre sought an injunction preventing the use
of any name including the words ‘building information centre’.89 It argued that it was
‘misleading conduct’ in breach of s. 52 for its rival to use a deceptively similar name.
The first issue the High Court had to decide was whether a trader could seek an
injunction under s. 80 against a rival trader for alleged misleading conduct. The
defence argued that s. 80 should be interpreted as only permitting consumers to sue.
The literal approach states that words should be interpreted in their context. The
context is Part V of the Act, which is headed ‘Consumer Protection’. A similar
argument concerned the purpose of the legislation. In his Second Reading speech in
Parliament the Minister explained that the Trade Practices Bill was intended to protect
consumers.90 It was not intended to protect traders. The defence argued that therefore
s. 80 ought to be interpreted as only permitting applications by consumers, not
traders. These arguments were unsuccessful.
The High Court of Australia held that nothing in the Trade Practices Act restricts one
trader from suing another trader. Traders, as well as consumers, can bring an action
seeking an injunction to restrain misleading conduct. A literal interpretation of the
phrase ‘any other person’ in s. 80 includes traders as well as consumers. ‘Any other
person’ literally means any other person, including rival traders. It also promotes
Parliament’s objective if traders can seek injunctions restraining misleading conduct.
The reality is that consumers will rarely, if ever, sue. It is too expensive and too
intimidating for them to mount a legal action. However it is economically rational for
a trader to sue to stop a misleading campaign by a rival that is unfairly capturing
market share. These actions by traders indirectly protect consumers by stopping
practices in the marketplace that may mislead consumers.
The High Court in the Hornsby Building Information Centre case laid down the
binding precedent that a trader is able to bring an action for an injunction against a
rival. The court applied both the literal and purpose approaches in reaching this
decision. This precedent has subsequently been applied in hundreds of cases.
The second issue for the court in the Hornsby Building Information Centre case was
whether there had been a breach of s. 52. Had the ex-employee engaged in
88
(1978) 140 CLR 216.
89
The original application was simply that the Hornsby centre include on all its signs and letterheads a
statement that there was no connection with the Sydney centre.
90
The then Attorney-General, Lionel Murphy, explained in the Second Reading speech that: ‘In
consumer transactions unfair practices are widespread. The existing law is still founded on the
principle known as caveat emptor that principle may have been appropriate for transactions
conducted in village markets. It has ceased to be appropriate as a general rule. Now the marketing of
goods and services is conducted on an organised basis and by trained business executives. The
untrained consumer is no match for the businessman who attempts to persuade the consumer to buy
goods or services on terms and conditions suitable to the vendor. The consumer needs protection by
the law and this Bill will provide such protection’.
‘misleading conduct’ in using the term ‘building information centre’? The court held
that there was no misleading conduct. Stephen J. said:
‘The use by the Sydney Centre of the three descriptive words was no doubt
convenient. It thereby acquired a name which at the same time very clearly
described its activities … There is a price to be paid for the advantages
flowing from the possession of an eloquently descriptive trade name. Because
it is descriptive it is equally applicable to any business of a like kind, its very
descriptiveness ensures that it is not distinctive of any particular business and
hence its application to other like businesses will not ordinarily mislead the
public. … A plaintiff which uses descriptive words in its trade name will find
that quite small differences in a competitor’s name will render the latter
immune from action’.
Stephen J. gave examples such as the use of descriptive words like ‘art gallery’,
‘cleaning services’ or ‘child care centre’. The first business to use such descriptive
words cannot claim a monopoly over them. The court held therefore that there was no
breach of s. 52 and that no injunction would be issued to stop the Hornsby Building
Information Centre trading under that name. The result however may have been
different had the competing centre operated under a name like ‘Sydney Building
Information Centre No. 2’.
The Impact of the Hornsby Building Centre Case
In the Hornsby Building Information Centre case the High Court laid down the
important precedent that traders could bring an action against rival traders claiming
that they had engaged in misleading conduct. This case has led to a flood of actions
brought by private individuals. Traders seeking to protect their market positions
against the inroads of the marketing campaigns of trade rivals have instituted most of
these actions. Occasionally, however, public interest groups or trade unions have
brought actions. An example is Australian Federation of Consumer Organisations v
Tobacco Institute of Australia.91
In the Tobacco Institute case a consumer lobby group successfully argued that the
Tobacco Institute had engaged in misleading conduct in advertising concerning
‘passive smoking’. This advertising claimed that ‘there is little evidence and nothing
which proves scientifically that cigarette smoking causes disease in non-smokers’.
The court found that this breached s. 52 and issued an injunction restraining the
Tobacco Institute from republishing the advertisement or publicly restating its
sentiments. However this is an exceptional case; most of the private enforcement of
the Trade Practices Act has been through litigation by traders, not consumers.
In its 1981 publication, Private Actions under the Trade Practices Act, the Trade
Practices Commission listed some 199 actions commenced by private litigants under
the advertising provisions of the Act. This was only 3 years after the interpretation of
ss. 52 and 80 was authoritatively settled by the High Court in the Hornsby case. Let
us look at one case study of actions by traders against rivals’ misleading marketing in
an important sector of the modern economy: the telecommunication industry.
91
(1991) 98 ALR 670.
Advertising is a frequent source of s. 52 actions. One trader will go to court claiming

that a rival’s advertising is misleading, seeking an injunction against it. One type of
advertising that is fraught with controversy is comparative advertising. This is where
one trader compares its products or prices with a rival’s. There is nothing inherently
disreputable in comparative advertising; indeed it may provide valuable information
for the marketplace. But s. 52 will require that such comparisons must be accurate,
involving similar products and pricing structures. Oranges should be compared with
oranges and lemons with lemons. Consider this selection of cases involving
telecommunication giants Telstra and Optus following the decision in the Hornsby
Building Information Centre case.
• In TPC v Optus Communications Pty Ltd (1996) Optus’ television advertising

stated that local calls on weekends were free. This was misleading, as calls
from its mobile phones to other providers’ mobile phones were not free. A
statement that ‘some exclusions apply’ did not save the advertisement. The
court issued an injunction against the advertisement. 92
• In Telstra v Optus Communications Pty Ltd (1996) Optus claimed its long
distance or international calls were cheaper than Telstra’s prices. It was true
that Optus’ standard charges were cheaper than Telstra's standard charges.
However the range and variety of discounts made available by Telstra to its
customers made any comparison a task fraught with difficulty. Ultimately the
court issued an injunction against the advertising by Optus.93
• In Telstra v Optus Communications Pty Ltd (1997) Optus compared its local
rates with Telstra’s rates, claiming their rates were cheaper. The claims were
held to be misleading and Telstra obtained an injunction.94
• In Telstra v Cable & Wireless Optus (2001) Optus claimed that it had doubled
the size of its mobile network. Actually it had doubled the number of base
stations but not the coverage area. The court issued an injunction.95
• In ACCC v Telstra (2004) Telstra advertised mobile phones at ‘$0’. In fact
these phones were only available as part of a bundle of telephony services. If
bought separately, the mobile phones were expensive. The court issued an
injunction against Telstra.96
• In Singtel Optus v Telstra (2004) Optus unsuccessfully claimed that a series of
advertisements by Telstra for bundles of telecommunications services were
misleading.97
• In Telstra v SingTel Optus (2007) Telstra unsuccessfully applied for an
injunction.98 The application involved Optus’ comparisons of its ‘post-paid’
plans for mobile phones with the prices of Telstra’s services. As in earlier
cases the complexity of the plans made it difficult for the court to assess
whether the comparisons were accurate. The court said:
‘This case has something of a familiar flavour about it. It is a case in
which one of two competitors in the same market invokes the
92
(1996) FCA 1292.
93
(1996) FCA 1035, 1898.
94
(1997) ATPR 41-541.
95
(2001) FCA 1478.
96
(2004) FCA 987.
97
(2004) FCA 859.
98
(2007) FCA 824.
misleading and deceptive conduct provisions in the Trade Practices

against the other competitor, seeking to establish that the other
competitor has engaged in conduct that is misleading or deceptive or
is likely to mislead or deceive consumers. … There can be little doubt
that the two products specified in the Optus advertising campaign are
products that compete one with the other. That being the case, it is
legitimate for Optus to make a truthful comparison of whatever feature
or features of them it chooses to compare, without it being obliged to
inform consumers that the product with which it makes comparison is
not the only product in the Telstra range. It is open to Optus to select
whichever feature or features it wishes to compare, and as long as it
makes a truthful comparison, it does not have to correct any mistaken
assumptions on the part of the consumer about the choice of the
product with which the comparison is made’.
Let us leave Telstra and Optus to continue to ‘duke it out’. Hopefully their
competition will result in better products and prices for the consumer. And also in
more accurate marketing of them! A similar story could be told about many other
sectors of the economy. This series of cases in the telecommunications industry has
produced important results. If the Hornsby Building Information Centre case had been
decided the other way, the market place would be significantly less well-informed. In
devising their advertising, telecommunications firms would then only have to
consider the unlikely prospect of enforcement actions by consumers or the under-
resourced ACCC.99 But in the Hornsby Building Information Centre case the High
Court decided that traders also could enforce s. 52 of the Trade Practices Act.
Subsequently there have been hundreds of such actions like those between Optus and
Telstra.
The likelihood of close scrutiny by (say) Optus makes it important for Telstra to be
accurate in advertising its products and pricing. Its advertising copy will be carefully
vetted not just by its marketing division but also by its products divisions and its legal
advisers. Telstra will try to ensure there are no misleading statements in its
advertising, especially where it compares its products with those of its rival. Telstra
will not want to have to abandon a carefully crafted campaign and go back to the
drawing board with the consequent loss of time and momentum.
The Hornsby Building Information Centre precedent allows effective private

enforcement of the Trade Practices Act. This has made the marketplace work
significantly better, for the benefit of both individual traders and society generally.
Statutory Interpretation and the Civil Law Tradition
Let us conclude this introduction to statutory interpretation with a brief consideration

of the Civil Law tradition. As we saw in the previous chapter this is the legal tradition
originating in France and Germany. The courts in the civil law tradition are less
powerful than in the common law tradition. The civil law tradition disapproves of the
99
The Australian Competition and Consumer Commission. This replaced the original government
agency for the administration of the Act, the Trade Practices Commission.
judicial supremacy of the common law.
The civil law tradition is that there should be a strict separation of the legislative
bodies and the judicial bodies. The courts have no power to ‘make law’. The law is to
be found in the six great Codes and specific statutes. Some jurists say that the courts
should be denied any interpretative function and should be required to refer any
problems of statutory interpretation to the legislature itself for solution. In practice
however courts in the civil law tradition have a responsibility to interpret the Codes
and statutes. The courts have developed rules that are similar to the literal and purpose
approaches of the common law.
There are three situations where judicial interpretation is required to determine the
meaning of a statutory provision. The first is where the provision is unclear. The
second is where there is a lacuna, a gap in the statute. The third is where the terms of
the statute remain unchanged but the meaning should change in order to make the law
suitable for changed circumstances.
The Italian Civil Code provides an example of the orthodox approach to the problems
of statutory interpretation. The Code provides:
‘In interpreting the statute, no other meaning can be attributed to it than that
made clear by the actual significance of the words according to the
connections between them, and by the intention of the legislature. If a
controversy cannot be decided by a precise provision, consideration is given
to provisions that regulate similar cases or analogous matters; if the case still
remains in doubt, it is decided according to general principles of the legal
order of the State’.
The first part of this provision deals with the statute that is unclear or ambiguous. It is
similar to the Literal Rule in the common law tradition. The court is directed that the
statute should be interpreted according to its plain meaning. If there is no plain
meaning then the courts should look to the intention of the legislature in enacting the
statute. This, of course, is similar to the Purpose Rule in the common law tradition.
The second part of this provision deals with the problem of lacunae. There is a ‘gap’
in the statute if there is no provision bearing directly on the point. The judge is
directed to reason by analogy from other statutory provisions. If this does not work,
he or she is to resort to the ‘general principles of the legal order of the State’.
The most difficult problem for the judge in the civil law tradition is where an old
statute would produce a clearly undesirable result if applied in the traditional way. In
the common law tradition the judge may resort to the ‘Golden Rule’ to avoid a
manifest absurdity if the statute were to be interpreted literally. In the civil law
tradition the problem is that the judge will be making law if he or she reinterprets the
statute in order to produce a just result. Much of the jurisprudence in the civil law
tradition deals with when it is legitimate for the judge to do so.
Conclusion and Preview

It is important for entrepreneurs and their professional advisers to be aware of the

principles the courts use when interpreting statutes and other regulations. Statutes are
an important part of the legal environment of any business. In both the civil law and
the common law traditions there are two broad ways to interpret statutes; the literal
and the purpose approaches.
The Literal Rule gives words and phrases in dispute their ordinary grammatical
meaning. Frequently a word will not have a single fixed meaning. The court will
adopt an appropriate meaning by taking into account the context.
Sometimes this context will be the rest of the phrase or section in which the word is
found. One example of this is the ejusdem generis rule which was applied in Attorney
General v Brown to interpret the phrase ‘any other goods’ and R v Brislan to interpret
the phrase ‘other like services’. Another example of interpreting a word in its context
is the noscitur a sociis rule. This was applied in Fox v Warde to interpret the word
‘occupier’ in the Vagrancy Act.
Sometimes the context will be the whole of the Act. For example a word in dispute in
a penal statute is interpreted narrowly, in favour of the accused as we saw in Attorney
General v Brown.
In interpreting statutes the courts will prefer an interpretation that does not interfere
with fundamental rights and liberties. In 2010 the High Court in Kirk v Industrial
Relations Commission, used these presumptions to ensure that prosecutions of
employers under NSW industrial safety legislation were conducted fairly.
If a literal interpretation would result in a gross absurdity, then the Golden Rule
permits the court to give a non-literal interpretation of a word in dispute, so as to
avoid that absurdity. We saw this applied in Anstee v Jennings where the court had to
interpret the word ‘defendant’ in the Licensing Act 1928.
The Purpose Rule allows the courts to consider the intention of Parliament and to give
an interpretation to a word or phrase in dispute that achieves the purpose of the
legislature. The courts may go beyond the words of the statute to do this, including
examining the Parliamentary debates and reports of committees of inquiry. In recent
years courts in Australia have moved from a very literal approach to one that does
take into account the purpose of Parliament.
At times the literal and purpose approaches will produce different results. An example
is the case of Corkery v Carpenter where the courts had to interpret the word
‘carriage’ in the Licensing Act 1872.
Usually, however, the literal and the purpose approaches will produce the same
interpretation. The reason for this is that often the clearest guide to the intention of
Parliament is to examine the words that the Parliament has used in the legislation. We
saw how the court applied the two approaches in R v Smith to interpret the word
‘offensive’ in the Summary Offences Act 1970.
We concluded with a precedent that is very important for entrepreneurs. In 1978 the
High Court in the Hornsby Building Information Centre case had to interpret the
phrase ‘any other person’ in s. 80 of the Trade Practices Act 1974. It applied both the
Literal and Purpose Rules to hold that the Act allows a trader to bring an action
against a rival trader. This precedent has been an important part of a process of
interpretation of the Trade Practices Act that has revolutionised commercial law in
Australia.
In this book we shall be examining three statutes that are of fundamental importance
to business. When reading subsequent chapters pay attention to the way in which
these statutes have been interpreted by the courts. They are:
• The Goods Act 1958 (Vic);
• The Corporations Act 2001 (Cwlth);
• The Trade Practices Act 1974 (Cwlth).
************************************
Case Study and Questions:
Computershare (www.computershare.com, ASX code: CPU)
Isn’t it aggravating when you get a speeding ticket in the mail? Who benefits? You
may be surprised to learn that every shareholder in Computershare benefits from your
misfortune.
In 1978 Christopher Morris founded Computershare Limited (CPU) in Melbourne to

provide administrative services to Australian companies. It has grown to be the
world’s largest share registry business, largely by acquisitions of existing companies.
Computershare was first listed on the Australian stock exchange in 1994 with 40 staff
and a market capitalisation of just $36 million. Investors who subscribed for shares at
that time have made more than sixty times their money simply by holding this stock
(investors call this a ‘60 bagger’). Today Computershare has a market capitalisation
of nearly $6 billion and revenues of over $1.8 billion and Christopher Morris’s 9.2%
stake is valued at around $560 million.
Computershare has two core businesses. Its share registry business manages share
registries for companies, pays dividends, administers the annual general meeting and
provides a contact point for shareholders. Its second business is servicing corporate
actions such as rights issues, floats (IPOs) and mergers.
Computershare is also diversifying into non-cyclical businesses such as designing and

issuing utility bills. Computershare has a contract to process speeding fines in
Victoria for the government. That is how each Computershare shareholder benefits
from the speeding ticket you have received in the mail.
Consider the following hypothetical questions concerning Computershare.
1. Computershare has a rival in Australia called Link Market Services (formerly ASX
Perpetual Registrars). Assume that Link Market Services mounted an extensive

advertising campaign claiming that it is ‘The No 1 share registry company in
Australia’. Computershare believes that this is misleading as it has a substantially
greater market share. What rights does Computershare have under the Trade
Practices Act?
(a) What does s. 52 provide?
(b) What does s. 80 provide?
(c) How was the Act interpreted in Hornsby Building Information Centre v
Sydney Building Information Centre (1978)?
(d) How might Computershare use the Hornsby principle?
2. Assume that the Victorian Government passed the following fictitious Act. Assume
further that Computershare was responsible for issuing proceedings under the Act.
Computershare seek your advice on whether the following situations may constitute
offences.
AN ACT TO DEAL WITH ANIMALS STRAYING ONTO ROADWAYS
Whereas it is necessary to preserve the safety of road-users from the dangers of

straying animals. Be it enacted that:
Section 1: A farmer has a duty to prevent his animal or animals from straying onto
any road, footpath or other place. This section does not apply to dogs or cats.
Penalty for first offence: Fine of $1000
For second offence: Fine of $3000
In her Second Reading Speech in Parliament on the Act the Minister said: ‘The High
Court in Trigwell’s case refused to impose a duty of care on farmers to keep their
animals from straying. This government is not prepared to stand by while straying
horses, cattle, sheep etc cause road accidents with damage to cars and injuries to
motorists. This government will force farmers to take care’.
How would the Act apply to the following situations?
(a) Freda is a goat farmer. Her goats escape and destroy the vegetable patch of
her neighbour Rebecca.
(b) Alexander is a sheep farmer. He has been convicted once before when his
sheep escaped and wandered onto a road and another time when they strayed
onto a footpath. His sheep escape and stray onto a bike-path.
(c) Sam farms worms. He sells the worm castings as fertiliser. One of his
worms escapes onto the footpath. Hunter slips on the worm and is injured.
(d) Ruben has a small herd of cattle. He wants to move them from one
paddock to another. With his cattle-dog, Winston, he drives the cattle 100
metres down the country road to the gate of the paddock with good feed.
(e) Helena raises lions for sale to zoos and circuses. One of her lions escapes
and strays onto a road. Has she a defence to a prosecution under s. 1 of the
Act?
3. Review of the principles of statutory interpretation

(a) What is the ‘Literal Rule’ on statutory interpretation?
(b) What is the ejusdem generis rule? How was it applied in Attorney-General v
Brown?
(c) What is the noscitur a sociis rule? How was it applied in Fox v Warde?
(d) What does the ‘narrow interpretation of penal statutes’ mean? How was it applied
in Attorney-General v Brown?
(e) What is the ‘Golden Rule’? How was it applied in Anstee v Jennings?
(f) What is the ‘Purpose Rule’ on the interpretation of statutes? How was it applied in
Corkery v Carpenter? How was it applied in R v Smith? How was it applied in the
Hornsby Building Information Centre case?
***********************************

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Chapter 1.

The Courts and the Entrepreneur

CHAPTER 1: THE COURTS AND THE ENTREPRENEUR

‘The time has come,’ the Walrus said,

‘Through the Looking Glass’ by Lewis Carroll.

Introduction: The Entrepreneur and the Law

In this book we ‘talk of many things’ concerning the relationship

Let us begin with the word ‘entrepreneur’ itself. This is a loan

invented in 1800. Say defined an entrepreneur as ‘one who

Enter the villains. In its negative sense, the word ‘entrepreneur’ is

In Australia the excesses of entrepreneurs in the 1980s such as

However there is also a positive sense to the word ‘entrepreneur’.

Often the entrepreneur is neither pure hero nor pure villain.

some ways Lai is typical: entrepreneurs may be neither pure white

In this book we will meet various Australian entrepreneurs. They

It is important for these entrepreneurs to have a broad

In the first two chapters of this book we examine various

introductory matters. In this first chapter we consider how the

In the second chapter we complete our introductory study with a

The Nature and Functions of Business Law

There are various definitions of law. For our purposes we adopt

From this perspective it is important to understand the major

(i) Economic prosperity

One objective of the law is to promote economic efficiency and

There were many legal developments that facilitated this process

(ii) Individual liberty

A second function of commercial law in the free enterprise world

Laissez-faire economics believes in free markets, private

freedom of property and freedom of association. The entrepreneur

(iii) Social justice

In modern societies there has been a movement from freedom of

There is a vast literature on the economic analysis of law that

comes from the necessity for the law to change as society

Let us now begin our examination of business law with a

The Entrepreneur and the Civil Law Tradition

The entrepreneur in modern business may not simply be thinking

One great legal tradition in world business is the ‘civil law’

The courts have a significantly lesser role than in the common

of the judicial hierarchy. In practice therefore the difference

The Entrepreneur and the Common Law Tradition

The Australian legal system is a member of the ‘common law’

Statute law is made up of Acts of Parliament and delegated

significance for business, the Goods Act 1958 (Vic), the

The second major source of laws in the Australian legal system is

When a court decides a case, particularly upon an appeal from a

The Doctrine of Precedent: The Common Law approach

The legal principle laid down in the precedent case must be

facts of the case are completely different. For example in chapter

Not everything said by a judge in a case constitutes a binding

The purpose of the doctrine of precedent (stare decisis) is to

Take, for example, an entrepreneur who is considering purchasing

a business. One concern he will have is the possibility that the

The entrepreneur and his professional advisors know that the

Precedent and Judicial Law Reform

As society changes, the law must change. Technological change

At one extreme, some argue that it is not the job of courts to

fair adjudication of disputes, which is done by applying the

Lord Denning of the Court of Appeal in the United Kingdom was

There is a debate in any common law system about the

(i) Judicial Activism in the United States

In the United States of America, the tension between judicial

The Warren Supreme Court handed down a series of landmark

defendants receive legal aid.28