BSB 111 – BUSINESS LAW AND ETHICS NOTES
SEMESTER 2, 2009
LECTURE 1: ETHICAL DECISION-MAKING
What is ethics?
Concerned with how we behave or “should” behave.
Theories that describe the ‗right‘ way to make a decision.
refers to the conduct of parties in business
Law and ethics
Law is limited because:
o it is simply not possible to predict and therefore outlaw all situations that give rise to bad conduct.
o law usually lags behind social trends because the law-making process is slow and reactive.
o the law itself is sometimes viewed as deficient and for this reason should not be treated or seen as
some sort of ethical or moral high ground (‗bad‘ law).
Ethics and morality
Morality is concerned with social practices defining right or wrong
Ethics is concerned with the theory as to why something is right or wrong
―Ethical theory and moral philosophy point to reflection on the nature and justification of right
• Ethics requires reference to external sources (objective) in order to justify actions. If only purely
personal (subjective) morals were considered, acts such as terrorism might be ethically justified because
the offender personally believed they were doing the right thing.
Kohlberg‟s Moral development stages
LEVEL ONE: PRE-CONVENTIONAL
Summary note: an individuals’ focus at this level is exclusively self-centred such that ethical decisions will only
be made if they bring about a benefit.
1. Individuals at this primary stage of maturity in ethical decisions will conduct themselves in an ethical
manner in order to avoid punishment. It follows that if the perceived risk of detection is low and/or the
punishment is low, then individuals will take a course of action that minimises personal harm and
maximises personal gain – irrespective of whether such action is ethical or not; or if it has an adverse
impact on others.
2. At this stage, individuals will only conduct themselves in an ethical manner if in doing so brings about
a benefit; and will only consider the interests of others if there is a mutual benefit.
These stages are mostly for young children
LEVEL TWO: CONVENTIONAL
Summary note: individuals at this secondary stage are increasingly concerned with conforming and
maintaining relationships within a community
3. At this stage of maturity, individuals conduct themselves in an ethical manner to please or avoid being
frowned upon by the immediate group of people around them such as family and friends.
4. The actions of individuals at this stage are motivated to conform to the norms and rules of the greater
community in order to preserve and respect social harmony. In business, these individuals will be
guided by company policies, codes of conduct, and the law.
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 2
Where most people are in these stages
LEVEL THREE: POST-CONVENTIONAL
Summary note: individuals at this stage go beyond the mere compliance to the law and are motivated by
5. Whilst individuals at this stage of maturity respect and follow laws, they will evaluate and question the
appropriateness of the laws and seek change where they are inconsistent with ethical principles.
6. At this large stage of maturity, individuals make decisions based entirely on ethical principles.
Approaches to the study of ethics
• Terms to describe different focuses of study:
– Descriptive (Scientific) approach: scholars examine the actual moral practices of a society (eg
– Conceptual approach: analysis of the meaning of key terms (concepts), eg: right, obligation,
justice, good etc
– Prescriptive (Normative) approach: aims to determine what ought to be done, rather than what is
Normative theories of ethics
• Involves looking at the outcome of a decision in terms of the effect it will have on you.
• Ethical egoism: Everyone ought to be motivated to act in their own self-interest.
• Psychological egoism: Everyone is always motivated to act in their own self-interest. It is really a
descriptive claim, rather than normative theory.
• A person should act in a way that maximises his/her own long-term self-interests.
• This does not mean that the egoist will always be greedy or selfish, but that the motivation for acting
will be to gain benefit themselves.
o may be by undergoing a short-term sacrifice or pain, or by doing something that benefits another…
o in the hope of reciprocation or gaining some intangible benefit like satisfaction, praise or fame – or
to avoid the detriment of punishment
one needs to discern between their own self interest and that of others.
• People should act in a way that maximises the good (utility) of society.
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 3
• ‗the greatest good for the greatest number‘ where good refers to happiness, pleasure, friendship,
• Difficulties with utilitarianism come with measurement as there is limited practical value and as all
types of good may not be valuable to all people
• Utility is measured as a whole – it advocates choosing the option that gives the greatest good
• Essence of this approach is that established rules, codes, responsibilities, duties, principles etc should
guide our behaviour. The process of making the decision (i.e. following the duties) is the important
factor, not the outcome of the decision. Doing the right thing for the wrong reasons cheapens the result.
Actions must come from a sense of duty.
Important factors from Kant’s theories:
• Universal acceptability – can the act be a rule performed by everyone without contradiction? E.g. if your
rule is ―I‘ll break promises when it suits me‖, this cannot be universal, because it would contradict the
purpose of a promise.
• Respect for persons – we are all rational, independent beings. Treating a person exclusively as a means
to some end fails to give them respect.
• Reversibility – would you like to be on the receiving end of such action?
Are there duties we should always keep?
• Would a ‗good‘ person (a person with good virtues / characteristics) do the act?
• They are characteristics of moderation. Too much or too little of something is a vice (not a virtue).
TEXTBOOK NOTES – Chapter 1: Ethical Theory and Business Practice
Morality and Ethical Theory
Morality: social practises of defining right and wrong
Ethical theory and moral philosophy point to reflection on the nature and justification of right actions.
These words attempt to introduce clarity, substance and precision of argument into the domain of
Morality and Law
Law is the public agency for translating morality into explicit social guidelines and practises for
stimulating punishments for offences
Law is not the sole repository of a society‘s moral standards and values even when directly concerned
with moral problems. A law-abiding person is not necessarily morally sensitive or virtuous and the fact
that something is legally acceptable does not mean it is morally acceptable
Approaches to the study of morality and ethical theory
o Descriptive – scientific study of ethics
o Conceptual – study of significant terms such as right, obligation, justice, good, virtue
o Normative – prescriptive study attempting to formulate and defend basic norms, aimed at what
ought to be down which should be distinguished from what is practiced. Normative makes a
value judgement, it delineates which standards or norms correctly determine right and wrong
All choices either involve or should involve self-promotion as the sole objective
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 4
Ethical egoism: supreme principle is to promote one‘s well-being above all others – normative theory as
it suggests people always ought to act on the basis of self-interest
Moral worth of actions or practises is determined by the consequences
It is right if it leads to the best possible balance of good consequences over bad consequences for all the
Actions are right if they promote happiness or an absence of pain and wrong insofar as they tend to
produce pain or displeasure
Act utilitarianism: in all situations one ought to perform that act that leads to the greatest good for the
Rule utilitarianism: rules are more significant in that they do not regard as expendable on grounds that
utility is maximised in a particular circumstance.
Respect for human being is said to be necessary – sometimes called respect for persons
Motives for actions is of high importance, in that it expects persons to make the right decisions for the
Persons must act for the sake of obligation not merely in accordance with obligation
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 5
LECTURE 2: CORPORATE SOCIAL RESPONSIBILITY & CORPORATE GOVERNANCE
Corporate Social Responsibility (CSR)
Focus: corporations (companies) - tend to be chosen by the larger businesses whose actions can impact
greatly on society, and because companies have the additional arguments that come with the separation
of ownership and control
Obligations of Business
Until relatively recent times, it‘s only obligation was to maximize profit, while staying within the
confines of the law
Specific Problems with companies
A company, or corporation, is considered at law to be a separate legal entity. This means that it is
legally a different ‗person‘ to all the people who own the company (shareholders), the people who
control the company (directors) and the employees.
Another distinct feature of a company is that it has limited liability. This means that the shareholders
(the owners of the business) will only lose the value of their investment if the company has too many
debts. Any creditors who are still owed money cannot claim from the shareholders‘ personal assets.
Consider company from stakeholder perspective not just shareholders
Corporate Social Reporting
“triple bottom line” was coined in the 1990‘s. It refers to businesses reporting not just on their
financial performance, but also on their environmental and social performance.
People planet profit
Companies having a set of in-built controls to make sure that the company is operating the way it‘s
The system by which companies are directed and managed. It influences how the objectives of the
company are set and achieved, how risk is monitored and assessed, and how performance is optimized.
Governance is concerned with all aspects of the direction and control of organisations. It is concerned
with the respective rights and responsibilities of the key stakeholders, including staff, suppliers and the
―Management is about running the business. Governance is about making sure that it is being run right.‖
―Corporate governance is concerned with improving the performance of companies for the benefit of
shareholders, stakeholders and economic growth. It focuses on the conduct of, and relationships
between, the board of directors, managers and the company shareholders.‖
―Corporate governance generally refers to the processes by which organisations are directed, controlled
and held to account. It encompasses authority, accountability, stewardship, leadership, direction
and control exercised in the organisation.‖
Models of Corporate Governance
ASX Corporate Governance Principles and Recommendations
Principle 1 – Lay solid foundations for management and oversight
Principle 2 – Structure the board to add value
Principle 3 – Promote ethical and responsible decision-making
Principle 4 – Safeguard integrity in financial reporting
Principle 5 – Make timely and balanced disclosure
Principle 6 – Respect the rights of shareholders
Principle 7 – Recognise and manage risk
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 6
Principle 8 – Remunerate fairly and responsibly
TEXTBOOK NOTES – Chapter 2: Corporate Social Responsibility and Corporate Governance
Stockholder management vs. Stakeholder management
Stockholders are the owners of the corporation – profits belong to them
Stockholders are entitled to their profits as a result of a contact among corporate stakeholders
Principles of governance for corporations
Governance is decision-making in the exercise of authority and control
Occurs at all levels of authority and decision-making
Governance practices can be evaluated on the basis of four elements:
o Both the processes and outcomes of decision making
o Requires rules and their consistent application
o Encompass well-defined rights and duties but for effective governance, it is also
necessary to have mechanisms for enforcing rules and settling disputes
o Stable system for creating and enforcing rules and regulations with not threat of change
o Availability of information to stakeholders and clarity of rules, decisions and outcomes
o Necessary at the system level to ensure clarity of laws and regulations affecting
o Requires disclosure
o Those with authority for decision-making are answerable to stakeholders from which
they derive their authority
o Applied to all participants, but primary focus on control and management
o Who is accountable, to whom are they accountable and for what are they accountable
o Ensures adequate and reliable disclosure to facilitate monitoring by or on behalf of
o Complements accountability
Transparency facilitates accountability, participation and predictability. Accountability safeguards
predictability and transparency.
Stakeholders in corporate governance
Any party that has an interest in property, an action or undertaking, or a decision.
Approaches to corporate governance
Good corporate governance exists when corporate decision-making necessarily reflects the rights and
responsibilities of stakeholders
Most likely to be achieved when governance is transparent, decision-makers are accountable to
stakeholders with ensured participation rgiths and where these principles are protected by a predictable
Can be accomplished formally or informally across four primary mechanisms:
o Stakeholder concentration to increase monitoring and control
o Market discipline
o Formal contacting between stakeholders and the company
o Law making
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 7
Most commonly occurs with block shareholdings, large loans from financial institutions or block
placement of bonds
Constrains voting power by limiting shareholders, therefore concentrated ownership
Primary mechanisms by which capital market disciplines decision making are capital availability, cost
Capital availability and cost is a function of both the debt and equity markets
Takeovers necessarily concentrate ownership of the company, thus they provide acquirers with the
ability to effectively direct or replace directors and management
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 8
LECTURE 3: REGULATION
What is regulation?
any method for controlling behavior
self-regulation: from the internal company – based no social expectations. Can be influenced through
demand (ie. Decreased demand and therefore profit)
control of corporate activities either by government agencies or by private actors or a combination of the
two eg. ATO/ACCC. Direct involvement from the state not necessary – may come from industry
associations, profession bodies or similarly independent bodies
law just one means
can also come from:
o industry codes of conduct
o regulatory bodies
o the market
Theories of regulation
three different theories:
o public interest
o private interest
o institutionalist theories
Public Interest Theories
those responsible for regulation do so with the objective of promoting the general welfare of the
community – why is regulation good for society
Can be further subdivided on the basis of what is seen to be in the public interest:
o Welfare economics approach:
suggests that regulation is a response to imperfections in the market
market supply is based on a profit motive
Correcting market failure increases the community‘s general welfare and is thus in the
public interest – about the allocation of resources
Why regulation in these situations? Prevent collusion, price fixing, anti-competitive
monopolies, public goods eg. Goods only the Australian government should provide
o Political approach NB: know how to explain both!
values such as social justice, redistribution or paternalism are what can justify regulation
implement collective goals.
Government regulates to sop unfair situations
Eg. Income tax laws to redistribute wealth from rich to poor
Counter arguments: is there any such thing as a public interest? Who regulates the
Private Interest Theories
that regulation often benefits particular groups in society, and not always those it was intended
skeptical of the purity of the public goals that those who regulate seek to pursue.
It assumes that regulation emerges from individuals or groups motivated to maximise their self-interest.
Stress the ease in which ‗regulatory failure‘ and ‗regulatory capture‘ occur.
• Regulatory failure is where the collective costs of regulation outweigh the benefits
• Regulatory capture is when officials regulate so that they promote the narrow interests of this
group instead of the broader community
Carbon Pollution Reduction Scheme
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 9
Public vs. Private
Public interest theories stress market failure and the capacity of regulation to correct such failures.
Private interest theories stress regulatory failure and the tendency of the market to allocate resources
Tripartism: focuses on cooperation
Public interest groups (eg community group, trade unions, environmental groups) become a legitimate
3 party in the regulation process between the regulating agency and the regulated
Who regulations NB: 1q on exam, know who, what they do and legislation relevant
Statutory authority – government creates a statute/act then create an independent body to regulation this
o Role involves investigation and enforcement of legislation, gathering information and
complaints, disseminating information and educating the public
Statutory Authorities - ACCC
ACCC is the Australian Competition and Consumer Commission
It regulates trade practices
It was established by the Trade Practices Act 1974 (Cth),
Aims of the ACCC would be to
o protect business and consumers from unconscionable and misleading or deceptive behaviour;
o ensure businesses comply with product safety standards;
o ensure manufacturers and importers are held liable for defective goods; and
o uphold the integrity of the market against anti-competitive behaviour such as abuse of
substantial market power, price fixing, resale price maintenance, market sharing, and anti-
competitive mergers or acquisitions.
Statutory Authorities – OFT
Office of Fair Trading performs a similar function to the ACCC, but it is a state body
administers the Fair Trading Act 1989 (Qld) - note different jurisdiction to the ACCC
Statutory Authorities – ASIC
ASIC is the Australian Securities and Investment Commission
It was created by the Australian Securities and Investment Commission Act 2001 (Cth)
administers is the Corporations Act 2001 (Cth)
Role of ASIC:
o Corporate regulator
o Market regulator
o Financial services regulator
Statutory Authorities – ATO
Australian Taxation Office is the principal revenue collection agency for the Commonwealth
Government and is part of the Treasury Department.
collects about 92% of the Commonwealth Government‘s revenue and administers a range of taxation
Has wide powers to investigate and enforce the law – theoretically, the most powerful regulator.
Other Statutory Authorities
Australian Prudential Regulation Authority (APRA) – responsible for the regulation of financial
institutions such as banks, societies, superannuation funds and insurance companies.
Australian Securities Exchange Limited (ASX) – operates the Australian Stock Exchange
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 10
Director of Public Prosecutions (DPP) – responsible for criminal prosecution in relation to
Commonwealth law. The Queensland DPP is responsible for criminal prosecution in relation to
Financial Reporting Council (FRC) - responsible for overseeing the process for setting accounting
standards in Australia.
Reserve Bank of Australia (RBA) - responsible for monetary policy and the stability of the financial
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 11
LECTURE 4: INTRODUCTION TO THE LEGAL SYSTEM
Set of rules, regulating peoples (corporations, government, individuals) interactions with each other which set
standards of conduct enforceable through sanction
Law and internet controls aren‘t well developed
What makes a legal system effective?
o Certain: A system that is uncertain would traumatise us
o Flexible: Capacity of the law to adapt to change (e.g. technology)
o Known: Publication of the law (accessible)
o Reasonable: Law must be fair, just and necessary (i.e. Rule of Law)
o Obeyed: Law must be obeyed and provide penalties for those who don‘t obey it
Types of ‘Legal Systems’
– Common Law system
• Originates from English system of law
• Source of law is both legislation from parliament and judge-made law through cases
• Courts operate in an adversarial manner (accusatorial ie. One party accuses another)
• System of law: Australia‘s system, source of law: judge made rule, division of law
– Civil Law system
• Originates from Roman system of law
• Source of law is mainly civil codes enacted by government
• Courts tend to operate in an inquisitorial manner
Rule of Law
• No person must be punished except for a breach of the law.
• All persons are equal before the law irrespective of status or position
• The rights or freedoms of citizens are enforceable in the courts.
• Prevents absolute power or person‘s using it unfairly
Procedural justice: outcome most important
Substantive justice: everyone should be treated the same
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 12
• To pass a referendum, an amendment needs a ‗double majority‘
– Majority (>50%) of voters from all of Australia; and
– Majority of states having a majority of voters.
• The constitution provides for three separate, independent arms of government. This is known as the
separation of powers doctrine, because only certain bodies can exercise certain powers.
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 13
– Legislature (makes laws)
– Executive (administers laws)
– Judicature (interpret/apply laws)
• Under the constitution, Federal (Commonwealth) parliament only has limited power to make laws.
– Exclusive powers: only the Federal parliament can make laws in this area.
– Concurrent powers: both state and Federal parliaments can legislate (eg Industrial Relations).
A Federal law overrides a state law to the extent of any inconsistency: s109 of the Constitution.
– Residual powers: Anything else goes to the states
Bicamerial – two houses: upper house and lower house. QLD is unicameral – only one house ( no
• A role of the courts is to apply the law, and to interpret the meaning of statutes.
• Sometimes words in statutes are ambiguous (not clear) and need to be interpreted
• How do judges do this?
– Judges rely on previous cases that have interpreted the legislation, common law rules of
statutory interpretation and the Acts Interpretation Act.
Interpreting a Statute
To interpret law: refer to previous cases and look for precedent
Literal Rule: The rule directs judges to give words in statutes their literal or exact meaning.
Golden Rule: Courts can modify a literal interpretation of the statute to remedy an absurd or
Mischief Rule/Purpose Rule: Statute is interpreted with the primary aim of preventing the mischief the
statute was designed to prevent. The judge determines this by looking at the purpose or intention of the
• There is a federal Acts Interpretation Act (―AIA‖) and most states have a AIA.
• Section 15AA(1) of the Cth AIA says that courts must use the purposive approach to interpret statutes
• Section 15AB of the Cth AIA allows courts to use extrinsic (outside) material when interpreting
TEXTBOOK NOTES – Chapter 1: Introduction to the Australian Legal System
Common Law: part of English law, developed form the common custom of the country as administered by
common law courts. Can also mean judge-made law as distinct from statute law
Equity: fairness and justice. Originally operated alongside the common law and intended as a supplement to it,
but now incorporated into a single system
Injunction: discretionary order or decree issued by a court in its equitable jurisdiction by which a party to an
action is required to do, or refrain from doing, a particular thing. Either restrictive (preventive), mandatory
(compulsory) and interlocutory (interim) or perpetual
Plantiff: one that brings a civil action against another
Statute: an act of parliament, law passed by legislature
Writ: document in the name of the Queen issued by a court or officer of the crown commanding the person to
whom it is addressed to do or stop doing a particular act.
Set of rules developed over a long period of time regulating people‘s interactions with each other and
which sets standards of conduct between individuals and other individuals, and the government which is
enforceable through sanction
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 14
Created through decisions of courts/reported decisions of judged
Also known as: precedent or case law
Developed from common application of law to the whole of England
Created by parliament
An action by one individual against another
Mode of procedure is accusatorial and emphasis is on remedies
Action bought by the Crown against an individual
Regulates conduct between nations
Domestic laws/states internal laws
Emphasis on fairness and justice
In the event of a conflict with common law, equity prevails
Common law damages available as of right while equitable remedies only available when damages not
an adequate remedy
Overrides ALL other laws in the event of conflict
Commonwealth of Australia
QLD is the only state iwth a uni-cameral parliament ie. Only one house
Exclusive powers of commonwealth prevail over state powers
Bulk of commonwealth powers are held concurrently with states
Residual powers are those that are not exclusive or concurrent powers
Changing the constitution is difficult – requires a referendum
Separation of Powers
In reality, there is little or no separation of powers between the executive and legislative functions in
Legislative powers: includes the queen and parliament (through house of representatives and the senate).
Enactment of making of laws
Executive function: queen, and governor general/state governors. Formulation of policy and its
Judicial function: high court and other federal courts. Responsible for the interpretation, applicagtion
and enforcement of law.
TEXTBOOK NOTES – Chapter 2: Legal Systems
The Role of the Courts
Role: administration of law
Criminal jurisdiction – state brings action against accused
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 15
Civil case – individual or organisation vs. Individual or organisation
Inferior (Magistrate/local) courts
Bottom of court hierarchy
Criminal jurisdiction – summary offences (ie. Drink driving, shoplifting), minor indictable matters and
Civil jurisdiction – restricted to minor matters
Original civil jurisdiction is generally set my money limit
Have limited appellate jurisdiction
Unlimited civil jurisdiction
Courts of record create precdent.
Federal Magistrates Court
Hears minor matters concerning consumer protect under the TPA, bankruptcy and family law
Federal Court of Australia
Jurisdiction all over other commonwealth matters
Both a federal court and final court of appeal in state system
Special leave must be given by the High Court for appeal
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 16
LECTURE 5: INTRODUCTION TO THE LEGAL SYSTEM – COURTS AND DISPUTE RESOLUTION
Courts exercise a judicial function: they interpret and apply the law.
Hierarchy of Courts: The ranking of courts according to their ability to hear matters. Each level of the
court system has a jurisdiction.
Jurisdiction: Authority of the Court to hear a case and make a decision.
o Courts have a criminal and civil jurisdiction
o Courts have an original and appellate jurisdiction
• Original jurisdiction: the power to hear a matter for the first time
• Appellate jurisdiction: the power to hear appeals from the decisions of lower courts
Hierarchy of Courts
High Court of Australia
• Original jurisdiction: the High Court can hear the following disputes:
– State Government and the Commonwealth Government
– Two State governments
– Residents of different states
– Foreign affairs matters
– Constitutional matters
– Indictable offences against the Commonwealth
• Appellate jurisdiction: the HC can hear appeals from State Supreme courts and the Full Court of the
Federal and Family Courts.
– Special leave, must be granted to appeal a matter to the High Court
Federal Court of Australia
• Original jurisdiction: Federal court is divided into two areas:
– The Industrial division;
– General division – matters such as bankruptcy, trade practices and administrative law.
• Appellate jurisdiction: the full court of the FC hears appeals on decisions from:
– A single Federal Court judge;
– A Federal magistrate
– A single judge of a State Supreme Court which is exercising federal jurisdiction (e.g. in matters
such as copyright, trade marks, taxation and bankruptcy). This is called ―cross-vesting‖
jurisdiction of the court.
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 17
Family Court of Australia
• Original jurisdiction:
– all family law matters
• Appellate jurisdiction:
– a single judge of the Family Court can hear appeals of family law decisions from the Federal
Federal Magistrates Court
• Original Jurisdiction: primarily with
– Family law matters, simple bankruptcy, administrative law and trade practices law matters up to
• Appellate Jurisdiction: Hears some appeals from
– Federal Tribunals
Supreme Court of Queensland
Highest court in the state – consists of the Trial Division and the Court of Appeal (superior courts)
o Trial division = 1 judge
o Court of appeal = full bench
Original jurisdiction: a single justice of the SC hears
o serious criminal matters such as murder
o civil matters where the amount of compensation claimed is more than $250,000.
o completes about 600 criminal and 300 civil cases per year
Appellate jurisdiction: the Court of Appeal (3 or 5 judges) hears appeals from the District Court, the
Supreme Court (trial division) and many tribunals.
o Some appeals require leave of the court
o There are 6 judges who are Appeal judges
o The top judge is called the President of the Court of Appeal.
If you a guilty, choose a jury AND if you are innocent, choose a judge
Considering removing juries – widens the gap between judges and society
District Court of Queensland
• Original jurisdiction:
– Civil claims between $50,000 and $250,000
– Moderately serious criminal matters
– Hears approx 8000 criminal and 1500 civil matters a year.
• Jury: A jury is used for criminal matters and for few civil claims. Same procedure as SC
• Appellate jurisdiction: DC judge may hear
– an appeal from the decision of the Magistrates Court. For example, the DC can overturn any
finding of fact or any point of law decided by the magistrate and increase or reduce a penalty or
jail sentence in criminal matters.
• Original jurisdiction:
– Criminally, they hear summary (minor) offences (e.g. drunk and disorderly), and committal
– civil matters where the amount claimed is less than $50,000.
– Approx 170,000 criminal and 100,000 civil cases are lodged each year.
• Committal Hearings: A preliminary hearing on indictable (serious) offences such as murder, to
determine whether the prosecution has sufficient evidence to indicate that the person charged could be
found guilty. If so, the accused will be sent to a higher court for trial by a judge and jury.
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 18
• Tribunals (definition): A body established by statute to regulate specific matters.
• Why Tribunals?: Increasing number of cases in the court system and the need for specialisation.
• Key differences with a Court:
– Judges (i.e. former lawyers) preside over courts, often non-lawyers preside over tribunals;
– Courts have a wider jurisdiction to hear matters, Tribunals are limited to jurisdiction outlined in
the statute which created them;
– Tribunals are not courts. Proceedings before the tribunals are not as formal as those before a
court. They have limited scope – based on legisilation ie. What it can hear
• Therefore, tribunals are often quicker, cheaper and easier for those involved
• Tribunals sit in executive arm of government – people administering are also the ones interpreting the
Small Claims Tribunal
– Where the amount in question is $7,500 or less;
• Eg building work, disputes between landlords and tenants; fencing disputes, damage
caused by car accidents etc
• Operation of SCT:
– Proceedings are informal and the parties are not entitled to be legally represented unless both
– Proceedings in the SCT are final. The loser can only appeal in circumstances where the tribunal
has acted in excess of its jurisdiction or where there has been a denial of natural justice.
Why have a hierarchy?
• Provides a system of appeals
• Allows for different forms of hearing according to the gravity of the case
• Instrumental in building up precedent (what has gone before and should be followed – creates fairness
as it suggests all situations should be treated the same)
Doctrine of Precedent
Because it is desirable that our legal system has certainty, similar cases should be treated in a similar
Like cases should be treated the same and the same decision/outcome achieved.
Precedent is relevant to the hierarchy of Courts – a Court is bound to follow precedents set by superior
courts in the same hierarchy.
Ratio Decidendi: The ratio is the reason for the judge‘s decision (i.e. the legal principle). This is what is
followed. This is a binding decision.
Obiter Dicta: Statements of law not necessary to decide a case. For example, observations made by
judges about the future direction of the law, or that a different decision may have been reached if the
facts were different. These are not binding, only persuasive.
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 19
March = plaintiff, Stramere = defendant
o Person who brings case is listed first
CLR = high court case – only report and official of the high court
‗And‘ is used in civil cases
When [ ] are used, the year is relevant. When ( ) are used, year is irrelevant
Parties in a Court Case
If it‘s the first time the case has come to court, the person bringing the case is the plaintiff. The person
answering the case is the defendant.
In a criminal case, the prosecution (the Crown) brings the case. This is often abbreviated in case
citations as the letter ―R‖.
If the case is an appeal from an earlier decision, the person bringing the appeal is the appellant and the
person opposing the appeal is the respondent.
Winning the Case
• The onus (or burden) of proof is on the person who has to prove their case. In most instances the onus
lies with the person bringing the case (i.e. the plaintiff or appellant)
• The standard of proof is the level that the person must prove their case.
• In a civil case, that is on the balance of probabilities.
• In a criminal case, the prosecution must prove their case beyond a reasonable doubt.
• Is a process of communication between the disputing parties, hopefully reaching an agreement
on the solution.
• information in relation to both parties‘ cases is given to an independent 3 party and s/he then
makes a recommendation about what would happen if the matter proceeded to court.
Mediation and Conciliation
• Mediation is where a third party assists the disputing parties in reaching consensus by keeping
them on track, allowing each party to speak their points etc.
• Conciliation is similar except that the 3 party may also offer advice/suggestions on how to
resolve the dispute etc.
• Similar to conciliation, but the third party makes a binding decision at the end on how the
dispute is to be fixed.
TEXTBOOK NOTES – Chapter 3: How Law is Made
Appellant: the party appealing the decision – may either be the plaintiff or the defendant from when the case
went to trial the first time
Delegated legislation: regulations and by-laws passed by a subordinate authority eg. Municipal council, in
reliance of some regulation-making powers conferred by an act of parliament upon it
Obiter dictum: a saying by the way – observation by a judge on a matter of law which is not essential to the
decision before and therefore not part of the binding precedent established by the case
Precedent: judgement or decision of a court of law cited as an authority for deciding a similar set of facts in
later cases. May be binding if it comes from a court in the same hierarch and on a higher level. Persuasive
precedents are non-binding on courts if they are outside their court hierarch or from a court on a lower level.
Ratio decidendi: the reason for a decision - binding
Redspondent: a person against whom an appeal is brought. They may be either the plaintiff or the defendant
from when the case went to trial the first time.
Statute: act of parliament, a law passed by legislation
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 20
Traditional Law Reports
Each report has its own abbreviation
Date will either appear in round or square brackets
o Reference is not essential to find volume – date is placed in round brackets
Ratio Decidendi and obiter dictum
Ratio = reason for deciding
Obiter = anything else said about law in the course of judgement which does not form part of matters at
Legal Cases as Precedent
Precedent: Judgement or decision of a court of law cited as an authority for the legal principle embodied
in its decision
Following precedent = question should be resolved in a certain way today because a similar question
was decided yesterday
Ensure people are treated equally and fairly
Promotes consistency Precedent may not be relevant to today‘s
circumstances but has to be followed
Coherence Slow to respond to community changes
Certainty May require an Act of Parliament to change
Justice – equity and fairness
Only binds courts in same hierarchy
Can only influence courts
Law made by parliament
Supreme law in Australia
Prevails over common law
Assume existence of common law
Modify or replace common law
Often react faster to and better reflect current community needs than common law
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 21
LECTURE 6: AGENCY AND TYPES OF BUSINESS ORGANISATIONS
• someone who has the authority to act on behalf of another, called a ‗principal‘.
• For example, an agent may enter contracts with third parties, on the principal‘s behalf. In this situation,
it is the principal who is contractually bound with the third party, not the agent.
• Agency is a foundation of partnerships nb: firm means partnership
• Arises from a contract
• Specify how long it lasts for, what pay rate is and what limits on agents authority are
Principal = musician
Agent = person who acts on principals behalf with 3 parties, can enter into contracts
3 party = contract between 3 party and principal (not AGENT)
• In order to bind the Principal, the Agent must be acting with authority
Actual Authority Apparent Authority (Ostensible)
• Express Authority: the authority of the agent that is expressly agreed upon.
• Implied Authority: The parties may not have expressed it, but it was their intention that the agent could
perform certain tasks.
• It appears to the third party that the agent has actual authority (even though they may not); and
• The principal is responsible, to some degree at least, in creating this appearance.
• In this case, the third party is still able to enforce the contract with the principal.
Rights of an agent
– Indemnity for liabilities and reimbursement for expenses incurred by the agent in the course of
Types of Businesses
• His or her own business for profit.
• It is the simplest form of ownership
• Owner maybe the only person working in the business, or could have many employees
Full ownership over profits
Limited capital source
No separate legal entity
• Partnership Act 1891 (Qld) relation which exists between persons [2-20 persons]
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 22
o carrying on a business
o in common
o with a view of profit
partnership agreement = a contract/evidence. Not required.
Mutual agency – decisions of other partners can bind the business
Not a separate legal entity
More people to contribute ideas
Lack of control
Difficulty selling your interest
No separate legal entity
work together for a certain purpose 0 not intending to be partners
entity recognised by the law as a legal person with rights and liabilities
limited by shares
separate legal entity
A public company is one which has shares available to the public (e.g. by trading on the stock
o It is distinguished (usually) by the abbreviation ‗Ltd‘ in the company name – need to have
A private (or proprietary) company is one where shares are not publically available. It is
distinguished by ‗Pty Ltd‘.
o No annual reporting needed
o Less rules
– Limited liability
– Perpetual succession (unlimited life)
– More sources of capital
– Expert managers to run the business
– Shares can be transferred (esp. in Public Co)
Formalities and costs
Limited rights as a owner
Agency costs of making sure the directors are acting in the interests of the company. (Recall week 2 on
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 23
• person (the settlor) grants ownership of property to a person (the trustee – has legal ownership for the
benefits of the beneficiaries) to use for the benefit of certain other people (the beneficiaries). The settlor
can be a trustee and one of the beneficiaries also.
• A trust is NOT a separate legal entity.
• The trustee has legal ownership of the property, but the beneficiaries have equitable/beneficial
• The trustee has a fiduciary duty to act in the best interests of the beneficiaries.
• The trustee can be a company.
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 24
LECTURE 7: FORMATION OF CONTRACTS
• Contract (definition): An agreement between two or more persons intended to be binding, which is
enforceable at law.
Types of Contracts
• Formal Contracts: Agreements made in writing which must follow strict requirements, but do not
require consideration (e.g. Trust deed).
• Simple Contracts: Any contract other than a formal contract. Simple contracts require consideration and
unless required by law (e.g. sale of land), can be in writing, spoken or a combination of both.
Elements of a Simple Contract
1,2 ,3 = form an apparent contract
Formation 1 – Intention
• The court starts with 2 presumptions
– Where the agreement between the parties is of a social or domestic nature, it is presumed that the
parties do not intend to create legal relations – this means that the agreement is presumed to not
be a binding contract.
– Where the agreement between the parties is of a commercial nature, it is presumed that the
parties do intend to create legal relations – this means that the agreement can be a binding
BUT, These are only presumptions
Presumed NOT to have intent
• Balfour v Balfour (1912)
– Facts: The husband promised to pay a monthly allowance to the sick wife (who lived in UK)
until the wife was able to join him in Sri Lanka. The husband failed to pay and the wife sued.
• Held: Parties had no intention to be legally bound.
– Merritt v Merritt (1970): The husband had separated from his wife. He promised to give her his
share of the house. It was held that the presumption did not apply to parties who were separated.
– Wakeling v Ripely (1951): A wealthy old man persuaded his sister and her family to move to
Australia from England on the basis that they would get his house in his will. The plaintiff did
move, but after a year, the defendant changed his will after a falling out. Court held that the
presumption was rebutted, as the plaintiffs had acted in reliance on the promise, expecting it to
be enforced. This could be seen by their willingness to risk serious consequences on moving to a
• This case was more than a social/domestic issue – as it had serious monetary
consequences for the plantiff.
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 25
Broad categories of rebutting this presumption
• The nature of the document (if any) may indicate intention (eg if drafted by a solicitor)
• The agreement may expressly state that it creates legal relations (Rose & Frank Co v J R Crompton &
Bros Ltd (1925))
• The surrounding circumstances may indicate intention (eg Merritt v Merritt)
• One party may have changed position significantly in reliance on the agreement - the consequences are
sufficiently serious (eg Wakeling v Ripley)
• Presumed TO have intention to be bound
• Case example: Edwards v Skyways Ltd (1964)
– During an industrial dispute, an airline company promised employees that they would make an
ex gratia payment to anyone made redundant. The company later refused to pay a redundant
employee. The court held that as the agreement was commercial, it was presumed to have
• Examples of when the presumption has been rebutted (see textbook)
– Rose & Frank Co v J R Crompton & Bros Ltd (1925)
– This was an example of an ‗honour clause‘ where the parties agreed that their deal was binding
in honour only
Advertisements/Promotions where advertising can have invention but there is a line where it becomes a
– Carlill v Carbolic Smoke Ball Co (1893): Facts: an advertisement was placed in several
magazines by CSBC. CSBC manufactured a ‗carbolic smoke ball‘ that allegedly prevented the
user from contracting influenza or a cold - an offer of £100 was made to any reader who
contracted a cold after using the smoke ball three times a day for two weeks. The ad also stated
that the company had deposited funds in a London bank as an indication of its good faith. Mrs.
Carlill purchased the smoke ball and used it as directed. However, she caught influenza - The
company refused to pay her. The court held that there was a clear intention to create legal
relations, as indicated by setting aside money in the bank to pay.
– Leonard v Pepsico Inc (2000): As part of a promotion, Pepsico offered a Harrier fighter jet to
anyone who collected 7,000,000 points from Pepsi products. The plaintiff collected the required
points, but the court held the advertisement to be an attention-grabbing joke, an advertising
Letters of comfort: statements of current inventions for the future of current policy – provide comfort
not assurance and are not promissory in nature
– Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad . A subsidiary company
wanted a loan from a merchant bank, and to help gain this, the parent company gave a ‗letter of
comfort‘ to the bank stating ―It is our policy to ensure that the business of [subsidiary] is at all
times in a position to meet its liabilities to you under the above arrangements‖. After the loan
was made, the market in which the subsidiary operated crashed and the company wound-up with
heavy losses. The bank sued the parent company for a breach of contract, but it was held that
there was never an intention to create legal relations.
Anyone wishing to rebut the commercial presumption bears a heavy onus of proof (Edwards v Skyways
Formation 2 – Agreement
• Agreement means that there has been a valid offer made and that it has been accepted.
• Agreement is the manifestation by two or more persons of the substance of the contract (i.e. not every
single detail has to be agreed upon in order to form a contract).
• In deciding whether agreement was reached, the courts use an objective test
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 26
• Agreement can be shown by the parties‘ conduct – you don‘t need express words
• The person making the offer is called the offeror, and the person receiving the offer is the offeree
Rules of Agreement - Offer:
Rule 1: Offers must be distinguished from an invitation to treat or request for information.
• Invitation to treat (definition): An invitation to another person to make an offer. The invitation to
treat can specify the form the offer must take (e.g. in writing and/or made before a certain date).
• Advertisements/catalogues: Invitation to treat, unless there are specific terms in the advertisement
which demonstrate an intention to make an offer (case example: Carlill v Carbolic Smoke Ball Co.)
• Display of goods: Invitation to treat
Case Example: Pharmaceutical Society v Boots Cash Chemists.
– Facts: Boots Cash Chemists, which operated a pharmacy, had certain medicine displayed on
their shelves which could only be sold under prescription.
– Issue: Did the display of the medicine constitute an offer to sell the medicine or an invitation to
– Held: As a matter of common sense and commerce, the display of goods is an invitation to treat.
Responding to a question does not itself create an offer:
– Harvey v Facey  (G&F p271)
– The plaintiffs asked the defendant what was the lowest cash price for some property. When the
defendant replied, the plaintiff took it as an offer and purported to accept it. However, the court
said that the defendant was merely indicating their minimum price if they decided to sell, and
weren‘t actually offering to do so.
Rule 2: Offers must be communicated to the person or persons for whom it was intended
• The offer must be communicated to the offeree for them to be able to accept it.
Rule 3: An offer may be made to a particular person, to a class of persons or to the whole world
• An offer may be made to a particular person, to a class of persons or to the whole world.
– Carlill v Carbolic Smoke Ball Co 
The defendants had shown their intention to make an offer to the whole world, or rather
those people who came forward and bought the product. The terms of the advertisement
were specific enough to make it an offer.
Rule 4: Offers may be terminated at any time prior to its acceptance
• May be terminated before acceptance takes place (or else an agreement has been reached)
• Terminates by
– Revocation (ie the offer is withdrawn by giving notice to offerees). This can happen even if the
offeror had promised that the offer would remain valid for a certain period of time, so long as the
offeree has not paid anything for that promise.
• Dickinson v Dodds (offer revoked)
• Byrne & Co v Leon Van Tienhoven & Co (revoked too late)
– Rejection: offeree says no
– Counter-offer: offeree makes a counter-offer. This is seen as a rejection of the original offer.
Case: Hyde v Wrench  (see textbook p191)
– Lapse of time: either at a time specified by the offeror, or else a ‗reasonable‘ time:
• Ramsgate Victoria Hotel Co Ltd v Montefiore 
An offer to buy shares from a company took over 5 months to be accepted. The offeror
refused to pay. The court said that the acceptance was not within a reasonable time, and
therefore the offer had lapsed.
– Lapse by death: Depends on whether contract was of a personal nature.
Carter v Hyde (1923) (textbook p192)
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 27
– Lapse by failure of a condition: A ―condition precedent‖ is a condition that must happen before
the agreement can become a contract. If the condition doesn‘t happen, the offer lapses & no
contract is ever formed.
(A ―condition subsequent‖ is a condition that must happen after the contract has been formed. If
it doesn‘t happen, the contract is ended.)
Rules of Agreement – Acceptance:
• Rule 1: Acceptance must be in reliance on the offer
• This matches up with the rule that an offer must be communicated to the offeree. Obviously, a
person cannot accept something that they don‘t know about.
• Case Example:
R v Clarke (1927): a person charged with murder gave information to authorities that led to
someone else (the true offender) being arrested instead. He later tried to claim a reward being
offered for information. He could not accept the offer, because when he gave the information, he
did not know about it.
• Rule 2: Unless dispensed with, acceptance must be communicated to the offeror, by the offeree.
• General rule that ‗silence cannot be acceptance‘.
• Case Example:
Felthouse v Bindley (1862): Felthouse wrote to his nephew, offering to buy his horse, and added
that if he heard nothing, he‘d consider the proposal acceptable. Held: no acceptance took place.
• Silence can be acceptance where the offeree says they‘ve accepted if nothing further is
communicated by a certain time. That is, the offeree volunteers to take on a positive duty to
reject the offer.
• Unilateral contracts – (promise for an act). Eg: Promising a reward for finding a lost dog where
Communication of acceptance is not necessary, doing the required act is the acceptance (as well
as the consideration/payment).
• Acceptance must be communicated in the prescribed form (if any)
Postal Acceptance Rule (PAR):
If acceptance by post was contemplated by the parties, acceptance occurs when the letter is
posted, not when it is actually received – Case example: Adams v Lindsell (1818) (textbook
• It only applies to the post (& telegraph), and only to acceptances. And only where post was
contemplated (eg if the offer was made by post, or that post was specified as being okay).
The risk should lie with the offeror because they have control over the form of acceptance,
and the offeree loses control of the acceptance once posted.
the PAR is more of an exception than a rule. Instantaneous forms of communication (phone,
fax etc) require actual receipt of the acceptance.
The Acts say that the time an electronic communication is received is the time it enters an
information system designated by the addressee to receive such information. If no
information system has been designated, then the time is the time that comes to the
addressee‘s attention. The parties can agree otherwise though.
What does this mean? If an offer is made to a person and they are told to accept via a certain
email address, the acceptance occurs when the email arrives at that address. But if an offer is
made by fax, and the offeree just decides to accept by email, the acceptance will be when the
email is actually seen.
• Rule 3: Must be absolute and unqualified
• Acceptance with a condition attached is not acceptance…―I‘ll accept if you do this‖. It may
amount to a counter-offer or create a collateral contract (this is explained in next topic –
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 28
• Case Example:
Masters v Cameron (1954) (text p196): Unless the parties intended to be bound immediately, an
agreement reached ‗subject to contract‘ is not a binding agreement until the actual contract is
• Rule 4: Cannot be revoked
• Once the offeree accepts the offer, an agreement has been reached.
• An offeree cannot change their mind after accepting, unless the offeror agrees to release them
from the contract (and this would require consideration).
• This matches the rule for offerors not being able to revoke the offer once it‘s been accepted.
TEXTBOOK NOTES – Chapter 11: Introduction to Contracts
Bilateral contract: promise for a promise
Consideration: may consist either in some right, interest, profit or benefit accruing to one party or some
forbearance, detriment, loss or responsibility given or undertaken by another
Contract: agreement that gives rise to legal rights and obligations between parties which will be enforced by
Executed contract: fully completed or carried out by both parties
Executor contract: one or both parties agree to perform contractual obligations in the future
Formal contract: contract which is signed, sealed and delivered and does not require consideration
Simple contract: a contract that is not special and requires consideration to be valid unlike contracts that are
described as formal or under seal
Unenforceable contract: a contract which is not valid because of technical faults.
Unilateral contact: contract consisting of an exchange of an act for a promise.
Courts try to give effect to the intentions of the parties through the application of an objective test based
on what a reasonable person would conclude from looking at the words and conduct of the parties and
whether they intended to be legally bound
Contract is a legally enforceable agreement
An agreement must contain a promise and be intended to be legally enforceable
The agreement must contain a promise and must have been intended by the parties to be legally
enforceable in the court
A promise is seen as a commitment or undertaking by a person that something will or won‘t happen
Person who makes the promise is called the promisor and person to whom promise is made is the
A contract can be defined as an agreement containing promises made between two or more parties with
the intention of creating certain legal rights and obligations and enforceable in the court of law.
Failure to perform a contractual promise incurs a legal liability
Classification of Contracts
Bilateral: both parties have to perform their promises
Unilateral: offeree still has to perform their part of the bargain
Classification according to enforceability
Valid: one that the law will enforce
Voidable: contract remains valid and binding unless and until its repudiated
Void: no legal rights or obligations from outset
Unenforceable: no legal action be brought on it
Jessica King BSB111 – Business Law and Ethics Semester 2, 2009 29
Illegal: purpose of contract contravenes statute law, therefore void and illegal
Formal contracts: may not be the result of agreement or require consideration
Simple contracts: must have consideration
Parol evidence rule: contracts wholly in writing a presumed to be complete