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MODULE 1: WHAT IS LAW AND THE AUSTRALIAN


LEGAL FRAMEWORK


Introduction


Most students undertaking Business Law 1 do not intend to become practising


lawyers. However, to be successful managers they will need to be able to


recognise legal principles and the context in which they arise, in their daily


business lives. To truly understand legal principles it is necessary to look to


their source. This is important because it gives students a framework from


which they can base their application of the law. Where did the set of binding


customs, rules and regulations applied in Australia and many other countries


come from? Are they still binding, or can they be changed? What is the source


of all legal power in this country? Is it similar to other countries?


Also, in this course, we analyse legal cases which give an understanding of


legal principles and their application. For a good introduction to legal type


thinking, read Appendix A (i) “A Student’s Guide to Legal Analysis” by


McFadden.


Managers also need to understand the important differences between various


entities in which business is conducted. From the sole trader through to the


trading trust and partnership, the manager must have knowledge of the


similarities between these structures and how they differ. Different types of


business entities have evolved and are still evolving in response to various


business aspects. Many have been structured for taxation purposes while


others are structured to take advantage of the legal rights and protection


afforded them, for example, limited liability of officers and members of body


corporates. It is therefore fundamental in business law to have an


understanding of the legal nature of business associations.


This module introduces students to the legal environment in which a business


operates and examines the authoritative sources of law in Australia. We will


look at the Australian Constitution, which sets out the way in which a law may


be created, maintained and shared in Australia. It is important to understand


this document, as it provides a working application of a legal system similar to,


but in many respects, a melding of governmental systems and ideologies from


other countries. We will also consider the common law system and the


development and role of equity law.


In this module, a classification of law is undertaken since in business it is not


possible to solve a legal problem unless you are able to classify the areas of law


that impacts on your problem. We will identify law in private and public


matters and see how law has been classified into separate areas such as


contract, tort and crime.


 


Objectives


On completion of this module, you will be able to:


Have an understanding of what is law and other legal systems;


Understand how the Australian legal system works, the interplay of


statutory and case law and be able to classify


Identify the areas of law that impact on any business law problem.



 


2 GSN412: Business Law 1


 


Texts


Gibson, A. & Fraser, D. 2005, Business Law, Pearson


Education Australia Pty Ltd, Frenchs Forest, NSW. [“G&F


2005”]. The required reading is G&F2005 but references to


Gibson & Fraser (2003) have also been included to show the


passages from the earlier edition. For students reading G&F


(2005), it is NOT necessary to also read G& F (2003)


 


Reference texts


Ardagh, A. 2001, Business Law of Australia Workbook, 10th edn, Butterworths,


Sydney (an accompanying workbook for Vermeesch & Lindgren).


Butterworths Business and Law Dictionary, 2002, 2nd edn, Butterworths,


Sydney


Caffrey, B.A. (1991) Guidebook to Contract Law in Australia. North Ryde: CCH.


Chisholm, R. C. & Nettheim, G. 1997, Understanding Law, Butterworths,


Sydney.


Griggs, L., Clark, E., & Iredale, I. 2003, Managers and the Law, 2nd end,


Lawbook Company, Sydney.


Heilbronn, G. N., Kovacs, D., Latimer, P., Nielsen, J. & Pagone, T. 1996,


Introducing the Law, 5th edn, CCH Australia, North Ryde, NSW.


Heffey, P., Paterson, J., Robertson, A. 2002, Principles of Contract Law,


Lawbook Co, Sydney


Latimer, P. 2004, Australian Business Law, 23rd edn, CCH, North Ryde.


Pendelton, W. & Vickery, R. 2000, Australian Business Law—Principles and


Applications, 3rd edn, Pearson Education Australia.


Pentony, B., Graw, S., Lennard., J & Parker, D. 2003 Understanding Business


Law, 3rd edn, Butterworths, Sydney.


Sweeney, B & O’Reilly, J. 2001, Law in Commerce, Butterworths, Sydney


Turner, C. 2003 Australian Commercial Law 24th edn Lawbook Co, Sydney


Vermeesch, R. B. & Lindgren, K. E. 2001, Business Law of Australia, 10th edn,


Butterworths, Sydney.


Waller, L. 2000, Derham, Maher, Waller: An Introduction to Law, 8th edn, LBC


Information Services, Sydney.



 


 


Module 1: What is law and the Australian Legal Framework 3


 


Topic 1 Required readings


G&F (2005) Ch 1-31


1.1 What is Law?


Additional Readings


Griggs et al. (2nd edn) Ch 1 (pp3-5; 14-15).


Horrigan, B. “Adventures in Law and Justice” [2003] Sydney Ch 1


McFadden, P. “A Student’s Guide to Legal Analysis”


1.2 Major Legal Systems


Additional Readings


Carrigan, F. “Globalisation and Legal Transnationalisation” (1999) 10 ACJL 122


David, R and Brierley, J. “Major Legal Systems in the World Today” [1985]


London


Kamural, B. “Reforming Economic Law in the Asia Pacific Region” (1996) 6


AJCL 93


1.3 The Australian Constitution


Additional readings


Griggs et al. (2nd edn) Ch 1 (pp14-20; 22-24).


Derham, Maher & Waller (8th edn) ch. 1, pp. 4–8, ch. 5, pp. 69–73, 82–83.


Vermeesch & Lindgren (10th edn) ch. 2, paras 2.21–2.30, 2.48–2.54, 2.59–2.63;


ch. 3, para. 3.55.


1.4 Sources of law


Additional readings


Griggs et al. (2nd edn) Ch 1 (pp14-20; 22-24).


Derham, Maher & Waller (8th edn) ch. 2, pp. 25–34, 37–39, ch. 4, pp. 62–65.


Vermeesch & Lindgren (10th edn) ch. 1, Introduction, paras 1.1–1.4, 1.30–1.45,


ch. 2, para. 2.29.


Latimer (21st edn), ch. 1 [1-180] – [1-420].


Queensland Legal Handbook [2005] Ch 1


1 G& F (2003) Ch 1-3



 


4 GSN412: Business Law 1


1.5 Classification of law


Additional readings


Derham, Maher & Waller (8th edn), chs. 5 and 6.


Vermeesch & Lindgren (10th edn), ch. 15, para. 15.25.


1.6 Alternatives to Legal Proceedings


Additional Readings


Latimer [23rd edn] pp47-55


Turner [24th edn] pp47-54


Activity


Check out the GSN412 OLT site for important links to web sites that will assist


your understanding of this module.


 



 


Module 1: What is law and the Australian Legal Framework 5


1.1: What is Law?


According to Griggs, Clark and Iredale (see pp3-5 and 14-15), laws have been


found necessary to regulate social conduct in order to protect individuals and


their property. This system of regulation is called a legal system and the


regulations themselves are called laws.


The legal system is designed to avoid conflict but where conflict arises, to then


have a means of impartial settlement to promote social order.


Griggs, Clark and Iredale recognise that legal rules and moral rules can


overlap. For instance, contract law can be seen as enforcing a moral rule of


keeping promises.


They draw a distinction between law and justice (p 15) and show how difficult it


can be to apply “justice” in practice in view of different individual view as to


what justice means.


For an interesting and thought provoking discussion on this issue of the law


and justice, see the excerpt from Horrigan, Adventures in Law and Justice


(Appendix A(ii)). He sees a legal system as having three senses:


(a) As a set of legal rules for decision making within the legal


system;


(b) As one form of community governance, regulation and


standard setting; and


(c) As part of the institutionalised constitutional (government)


framework.


He further notes that the legal system certainly sets legal standards of justice


and fairness but that we need to recognise that there are different views about


the legal system. As he says:


(a) Some view law as the formal embodiment of justice (even if


imperfect);


(b) Some view it as a means of imposing law and order as well as


social control;


(c) Some view law as the primary form of regulation, guidance


and authoritative dispute resolution;


(d) Some see it as the ultimate source of authority in the state;


(e) Some see the law as a political mechanism protecting


interests and position; and


(f) Others view it as giving justification for state sanctions.


Of course, these views are not exclusive and it is possible to hold some or all of


these views. Horrigan’s point is that “Law defies any once-and-for-all definition


which all . …accept”.


In discussing law and social justice, Horrigan says that there are five


fundamental questions:


1. What are the elements of a just society and what are the


foundations of a society devoted to justice for all?


2. How do we identify and distinguish what is law from what is


not law but is grounded in moral or other behaviour norms?


3. How do we justify state sanctions to enforce the law if its


application is disproportionate to some social groups and is


disputed, non-consensual and disadvantageous?



 


6 GSN412: Business Law 1


4. To what extent are standards of law and justice responsive to


social and economic conditions in a wider society?


5. What part of government is best equipped to make particular


kinds of decisions and how are these decisions influenced by


institutional considerations as well as legal regulations?


Answering these questions requires an understanding of how law and justice


are linked within a liberal democracy like Australia. The values of a liberal


democracy include:


The separation of government power;


Representative democracy;


Responsible democracy; and


Equality before the law


But how do we balance up competing social and economic interests in ensuring


a just society?


Which of the three competing philosophies outlined by Horrigan do you feel


best addresses this issue, namely:


1. Social Contract Theory


Basic liberties and opportunities are given priority over other


socio-economic considerations. The status of majority rule in


a democracy must take account of underlying notions of


equality and guaranteeing basic rights;


2. Utilitarian Theory


This seeks the greatest benefit for the greatest number and


so, some disadvantage might be tolerated in a trade-off for


overall costs and benefits; or


3. Natural Law Theory


This theory believes in universal fundamental values, human


good and rights which are independent of any social contract


or utilitarian theories, and which must be met in order to


ensure and just society.


Let’s consider some major legal systems and you should also consider the


relevance of these theories to them.



 


Module 1: What is law and the Australian Legal Framework 7


1.2: Major Legal Systems


Australia’s legal system is derived from Britain. It is a heritage we share with


many other common law countries that were originally part of the British


Empire including the United States. Although there is a common heritage,


there are still significant differences between laws in Australia, New Zealand,


Canada, USA, India, Singapore, Malaysia, South Africa, Ireland, Jamaica,


Nigeria, Zimbabwe etc to name but a few.


There are however, many other legal systems including Romano-Germanic law


(which predominates in Europe and Scotland) and other national systems


including those in always independent nations such as China and Japan, and


those in countries which have become independent from former colonial powers


and have since adopted their own unique national system even though it may


be based on their traditional legal heritage eg. Malaysia (British), Singapore


(British), Indonesia (Dutch law) and the Philippines (Spanish law and then


American law) etc.


See the article Major Legal System in the World Today, by David and Brierley,


for an overview of the different legal systems. [Appendix A (iii)].


There are a number of “legal families”.


1. Romano-Germanic Law


This is the legal science developed from the Roman Empire


civil law. Rules are conceived as rules of conduct related to


justice and morality.


It developed in Europe from legal scholars (particularly in the


universities) setting out doctrines, which were applied


administratively. These doctrines were adapted and extended


through European colonisation. A distinctive feature of this


system is codification, that is, setting out the doctrines or


laws in codes such as the Napoleonic Code.


2. Common Law


This law developed in England and in countries whose laws


are modelled on English law. It was formed primarily by


judges in relation to specific legal disputes and so, it deals


also with those matters relevant to a trial such as the rules of


evidence and procedure.


The western law tradition includes both Romano-Germanic law and the


Common Law. The close contact between European countries and England,


particularly in trade has led to some common developments. For instance,


some practical examples are:


English Law regarding cheques has been adapted in other Romano –


Germanic systems;


The concept of limited liability companies (a feature of our system) was


developed in Germany; and


The use of a suspended term of imprisonment came from Belgium.



 


8 GSN412: Business Law 1


3. Socialist Law


This is the third major legal system and originated in the


former USSR. It has been a model for other socialist regimes


although there are substantial differences between them in


view of their unique social systems. Socialist laws rely on the


paramountcy of the legislature that is, popular will which is


often expressed by the entrenched ruling political party. In


socialist systems, the law is primarily public law that is, the


rules of conduct are mandated by the state and private law -


the law where individuals are able to regulate their behaviour


and enforce individual rights eg contract law or tort law – is


limited. See further Module 5, part 5.2.30 for the article on


Chinese contract law (Appendix xiii) which shows the reliance


on state directed concepts and administrative controls.


4. Muslim, Hindu and Jewish systems


These systems relate law to a religious ideal of behaviour. The


model law is linked to religious beliefs and a recent example


of this is Iran where parliamentary made law is subject to


veto by a council of religious deputies. The overriding


principle is that “true law” is to be found elsewhere than in


legislation, custom or judicial decisions.


5. China and Japan


In China and Japan, there is an emphasis on social harmony


and the western idea that law is necessary for good social


order, is not accepted to the same degree. The citizen’s duty


to conform socially is distinct from any legal requirement and


indeed, any legal compulsion in enforcing this is seen as


unnecessary. More important than legal action to enforce


rights, is social harmony with an emphasis on reconciliation


and mediation. These concepts are, however, changing due to


globalisation and the extension of western economic and


social thought.


A knowledge of different legal systems is important because the increasing


trend towards globalisation means that in the future, if not already, that you


are likely to engage in international business either from Australia or from


overseas countries. In modules 3 and 4, we will look at contract law and then,


in module 5 in relation to the sale of goods and the international sale of goods


contract.


The trend towards globalisation has led to a number of reforms in economic law


in the Asia-Pacific region. The increasing trend towards globalisation is an


incentive to reform economic legal systems to accommodate international trade.


The article by Bahrin Kamarul [see Appendix (iv)] outlines those trends leading


towards law reform and economic development in the Asia-Pacific region. His


view is that although Asian states have borrowed extensively from western legal


systems and have incorporated international norms and standards in their


laws, there are still cultural differences which means that there are still


differences between the way those laws will operate within those Asian societies


as compared with western countries. In dealing with Asia, he states that


consideration needs to be given not only to the differences in legal regimes of


the various Asian countries but also, the differences in social and cultural


diversity within those nations which affect how laws are applied.


The article by Frank Carrigan, Globalisation and Legal Trans-Nationalisation


[see Appendix (v)] also examines the impact of globalisation on international


business laws. His view is that the role of multi-national corporations (or transnational


corporations) in the three major trading blocks of the European Union,



 


Module 1: What is law and the Australian Legal Framework 9


North America and Japan means that their competition for economic


supremacy inhibits the movement towards harmonisation of international trade


and business laws. He sees globalisation as being spear-headed by the


explosive growth of giant firms. He points out that the top 15 global


corporations have a combined income greater than that of over 120 companies.


Further, the 500 largest multi-national corporation control over two thirds of


world trade and that nearly half of world trade concerns transactions


conducted within 180 multi-national corporations. According to Carrigan,


multi-national corporations exercise sufficient economic power to ensure that


legal reform in developing countries takes account of their interests. This can


be done in two ways either through the need to preserve foreign investment


made in the national economy by multi-national corporations or alternatively,


by the influence which multi-national corporations exercise on international


agencies including the World Trade Organisation and the International


Monetary Fund.


Interestingly, Carrigan sees alternative legal systems such as international


arbitration (particularly the International Chamber of Commerce Court of


Arbitration) as meeting the needs of multi-national corporations in bypassing


national courts in favour of trans-national arbitral bodies applying rules based


on the customary law of international business practices as employed by multinational


corporations.


Although Carrigan identifies these trends, he does not, however, consider


whether this is a necessary response from international business to set up a


common regime in the interests of economic efficiency for international trade to


avoid being subject to a variety of restrictions from differing national laws


which would increase costs.


In module 5, we will look at this topic further in relation to international sales


of goods. See also, the article by Shum [Appendix (xiii) for Topic 5] which sets


out some major differences between contract law in Australia and China and


we can examine this in seeing how agreed international rules can be used to


overcome different national legal systems.


Let us look, however, at the Australian Legal System.



 


10 GSN412: Business Law 1


1.3: The Australian Constitution


Australia is a federal system. What this means is that a number of independent


states (colonies) all agreed to give up some of their individual powers to a


central government. In Australia, the six colonies (which are now the six states)


referred their powers to the Commonwealth Government in 1901. This grant of


power is set out in a document, the Australia Constitution. The States also


have their own constitutions – these set out the powers of the State


Governments to govern and make laws in their own areas.


1.3.1 Introduction


Students should study this topic in conjunction with in the materials in


Appendix A (vi) to (x). For background information about the Constitution, see


House of Representative’s web site:


http://www.aph.gov.au/house/info/infosheets/index.htm


Parliament of Australia, Senate web site—The Australian Constitution:


http://www.aph.gov.au/senate/general/constitution/


Also, see OTL site, Instructor Recommended Sites.


The Australian Constitution is contained in an Act of the British Parliament.


The name of the United Kingdom Act is Commonwealth of Australia Constitution


Act 1900 (UK). The Constitution provides for the arrangement of the Australian


legal system and prescribes the powers of its various organs.


In understanding the legal system it is necessary to understand the concepts of


the ‘separation of powers’ and the ‘division of powers’ (they should not be


confused).


1.3.2 Separation of powers between the legislature,


executive and judiciary


1.3.2.1 Overview


Separation of powers’ refers to the method by which control of the legal


system is separated between three ‘organs’ of government: the legislature that


makes the law, the executive that administers the law, and the judiciary that


applies and interprets the law.


The legislature (or parliament) makes law in the form of Acts of parliament (or


statutes). The Commonwealth parliament in Australia is composed of the


Queen and two houses of parliament.


The federal executive in Australia is composed of the Governor-General, the


Federal Executive Council (also called the Cabinet), State departments, public


servants, administrative boards and tribunals. The Cabinet is made up of


Ministers who are in charge of the various government departments.


The judiciary is another name for the courts.



 


Module 1: What is law and the Australian Legal Framework 11


Under a strict separation of powers, the three organs of government should be


independent of each other; each organ should exercise one function only. One


person should be a member of one organ only and one organ should not


exercise the function of another organ.


However, under the Australian Constitution, there is not a strict separation of


powers, e.g. Ministers who form the Cabinet must be elected members of the


legislature (s 64). There is also a blurring of functions. With respect to


subordinate (or delegated) legislation, the executive makes law, and not the


legislature.


It is essential for the liberty of the citizen that the judiciary remain independent


of the legislature and executive. This aspect of the separation of powers


doctrine is strictly enforced.


1.3.2.2. Role of the judiciary


The judiciary stands as the safeguard against the excesses of the other two:


(a) If the legislature passes laws that are unconstitutional (i.e. the legislature


does not have the power under its Constitution to make a law of that


nature), then the court can independently, pending a Constitutional


challenge, rule that the law is invalid and that ordinary citizens do not


have to obey it. Similarly, a court can declare an Act of Parliament invalid


if the proper procedures were not complied with in enacting the Act


(known as the ‘manner and form’ requirements).


(b) If the executive, or some minister or public servant or administrative


board or tribunal, makes a decision with no authority to do so, or they


exercise their discretion improperly, the courts can interfere with those


decisions of the executive, and declare them null and void (that is, ‘quash’


them). Citizens can appeal to the State supreme courts (in the State


sphere) or to the High Court (in the federal sphere). These courts have


traditionally had an inherent jurisdiction to issue prerogative writs (see


Vermeesch & Lindgren, para. 3.55 (10th edn); Latimer, para. 1-165). Note


that the Judicial Review Act 1991 (Qld) abolished the prerogative writs


of mandamus, prohibition and certiorari and replaced them with statutory


orders (called prerogative orders). These procedures of judicial review are


appropriate to test the validity of, or the operation of, regulations or


orders made as delegated legislation.


1.3.3 Division of powers between the Commonwealth


parliament and the State parliaments


Division of powers refers to the manner in which legislative power


(Constitutional power of parliaments to pass laws on various matters) is divided


between the Commonwealth Parliament on the one hand, and the State


parliaments on the other.


Australia chose a federal system where specific legislative powers are vested in:


(a) the Commonwealth Parliament – known as the ‘exclusive powers’ of


the Commonwealth;


(b) the Commonwealth Parliament and the States who share some


areas of power – ‘known as ‘concurrent powers’; and


(c) the States which retain power over the remaining areas of powers –


the ‘exclusive powers ‘ of the States.



 


12 GSN412: Business Law 1


Prior to federation, the colonies in Australia (which became States on


federation) each had their own Constitution conferring very wide law-making


powers on the colonial legislatures, for example, see s 2 of the Constitution Act


of 1867 (Qld) (which was not repealed nor consolidated into the recently passed


Constitution of Queensland 2001 which commenced on 6 June 2002). For


background information and to see an annotated copy of the new Constitution


of Queensland 2001 (see link on OLT site, Instructor Recommended Sites):


http://www.constitution.qld.gov.au/constitution/constitution.pdf


These State Constitutions have continued to operate after Federation but are


subject to the Australian Constitution and the Division of Powers doctrine as


set out in the Australian Constitution.


The Australian Constitution specifies the way in which legislative power is


divided up between the Commonwealth Parliament and the State parliaments.


Broadly, the Constitution has the effect of dividing legislative power into three


categories, viz.


1.3.3.1. Exclusive powers of the Commonwealth


Only the Commonwealth has power to make laws with respect of only those


areas as specified in the Constitution: For example:


Section 114 — defence


Section 90 — customs and excise matters


Section 122 — Commonwealth Territories.


Therefore, if a State parliament tries to legislate in any of these areas, the State


‘law’ is totally invalid.


1.3.3.2. Concurrent powers


Both the Commonwealth and State parliaments have power to make laws.


Section 51 of the Constitution confers the power to make laws for the peace,


order and good government of the Commonwealth with respect to various areas


including:


(a) Trade and commerce with other countries, and among the States.


(b) Taxation, but so as not to discriminate between States or parts of States


etc. to (xxxix).


See Appendix A (vi) for a list of powers under s51.


1.3.3.3. Exclusive powers of the States (‘residual’ powers)


Only the State parliaments have power to make laws with respect to these


areas. Therefore, if the Commonwealth parliament tries to legislate in any of


these areas, the Commonwealth ‘law’ is totally invalid.


By virtue of s 107 of the Constitution, those areas not specified by the


Constitution to be within the exclusive or concurrent powers of the


Commonwealth, are within the exclusive power of the States.



 


Module 1: What is law and the Australian Legal Framework 13


1.3.4 Interpretation of the Constitution


It will be seen from the above that the Commonwealth has very little power.


However, in interpreting the concurrent powers given to the Commonwealth


and State Parliaments by s 51 of the Australian Constitution, the High Court of


Australia has used a very liberal interpretation to extend Commonwealth


powers.


Thus, since 1901, there have been significant extensions of the power of the


Commonwealth as opposed to the reduction of powers of the States, simply by


the High Courts interpretation of the s51 powers.


For example, Koowarta v Bjelke-Petersen [Vermeesch & Lindgren, 10th edn,


para. 2.56] Commonwealth v Tasmania [The Franklin Dam case],


[Vermeesch & Lindgren (10th edn), para. 2.56].


1.3.5 Conflict between State and Commonwealth laws


Section 109 of the Australian Constitution provides that:


When a law of a State is inconsistent with a law of the Commonwealth, the


latter shall prevail, and the former shall, to the extent of the inconsistency, be


invalid.


1.3.6 Amendment of the Constitution


Section 128 of the Australian Constitution provides as follows:


(1)


(i) A proposal for amendment of the Australian Constitution


must initially be passed by an absolute majority in both


houses of the Australian Parliament and then submitted to


the electors in each State and Territory by means of a


referendum.


OR


(ii) If the proposal for amendment is twice rejected by one of


the Houses of Parliament whilst being passed by the other


House with an absolute majority on both occasions, the


Governor-General, on advice of the ministers, may submit


the proposed law to the electors in each State and Territory


in the form in which it was last proposed to the House


which has passed the proposal.


(2) Must be voted on by the electors within 2–6 months of being


passed by the parliament.


(3) Must be passed by a majority of electors voting in a majority


of States with a majority overall.


(4) If passed in the referendum, goes to the Governor-General for


royal assent.


1.3.7 Amendment of State Constitutions


In order to amend their Constitutions, States must conform with manner and


form requirements required by the particular Act of Parliament of the State in


question, which was enacted as a law before or after the commencement of the


Australia Act 1986, (see s 6).



 


14 GSN412: Business Law 1


In general, only an ordinary Act of Parliament is required to amend a


Constitution of a State. (That is, unless the matter has been doubly


‘entrenched’ (i.e. it is particularly difficult to amend a provision because


additional steps must be followed before the amendment can proceed), in which


case a referendum is also required — and, in order to abolish the necessity for


a referendum, that abolition must be agreed to by means of a referendum; for


example, re-introduction of the Legislative Council in Queensland) — see s 53


of the Queensland Constitution.


1.3.8 Constitutional Development and the Federal System


The Constitutional Development of Australia as a sovereign nation can be seen


in:


Statute of Westminster 1931 (adopted in Australia in 1942);


the limiting of appeals to the Privy Council (in 1968, 1975 and 1986); and


the Australia Act 1986.


See Appendix (vi) (b) and (vi) (c) for excerpts from the Australia Act 1986 and


the article by Mr Ian Harris as to the effects of the Act.


Australia is a federal legal system which means that there is a central


government (the Commonwealth) which has been given power to act in


designated areas by the original six colonies (now the States).


The state governments continue to act in those areas where the Commonwealth


was not given exclusive power under the constitution.


The states can also refer powers to the Commonwealth, that is, they can


voluntarily agree to the Commonwealth exercising powers which the states


have the right to exercise. This has happened with income tax which the state


governments gave over to the Commonwealth in World War Two. It has also


happened recently where the States have referred their power to act in respect


of corporations to the Commonwealth so that there is a national uniform


scheme dealing with corporations under Commonwealth law.


There is also a third tier of government in Australia which is local government.


State Governments have delegated powers to local governments so that they


can make laws in those areas where they have been responsibility.



 


Module 1: What is law and the Australian Legal Framework 15


1.4: Sources of law — legal problem solving in


business


The term ‘sources of law’ can have several different meanings. Two of these are:


(a) Authoritative sources of law (the laws we must obey).


(b) Material sources of law (historical source).


This course deals with authoritative sources of law. There are only two types


of authoritative law:


(i) Legislation (law made by parliament — Acts of Parliament/statutes).


(ii) Precedent (law made by the courts — case law/common law).


For a succinct overview, read appendix A (vii) which is the Queensland Legal


Handbook published by Caxton Legal Service as to where the law comes from.


Students are also, referred to sections 1 and 2 of the Appendix to Waller, L.


2000, Derham, Maher and Waller, An Introduction to Law, 8th edn, LBC


Information Services, Sydney, for examples of a statute (or Act of Parliament)


and a law report; and MacAdam, A.I. and Smith, T.M. (1989) Statutes, Sydney:


Butterworths in Appendix A(x) for an example of a statute (or Act of


Parliament).


See also G&F [2005] p612, for a case report headnote.


1.4.1 Legislation


1.4.1.1. Composition of Australian Parliaments (Commonwealth


and State)


The Commonwealth Parliament in Australia consists of:


(a) the Queen;


(b) an upper house (called the Senate); and


(c) a lower house (called the House of Representatives) — see s 1 of the


Australian Constitution (see Appendix A(vi)(a)).


A parliament consisting of two houses is called a ‘bicameral parliament’.


Queensland has a unicameral parliament that is, there is only one house of


parliament — called the Legislative Assembly. The upper house, the Legislative


Council, was abolished in 1922. The Queensland Constitution provides that the


Queensland parliament consists of the Queen and the Legislative Assembly —


see s 2A(1) of the Queensland Constitution.


The term ‘Parliament’ should be distinguished from the term ‘Government’. The


political party (or coalition of parties such as Government.


1.4.1.2. Procedure for passing Acts of Parliament


See ‘How to Pass Acts of Parliament’ in Appendix A(vi)(d)


2 G&F [2003] p 59



 


16 GSN412: Business Law 1


1.4.1.3. Subordinate (or delegated) legislation


Overview


Subordinate (or delegated) legislation refers to legislation made by some


executive person, authority or body other than the legislature (parliament).


Most of the rules that run our daily lives come from this area of legislation.


Subordinate legislation usually comes under the name of ‘regulations’,


‘by-laws’, ‘rules’ or ‘orders’.


Delegated power


The executive only has power to make law through a delegation to it of lawmaking


power from Parliament. In Acts of Parliament, whether Commonwealth


or State, there is usually a section towards the end of the Act in which


parliament delegates its authority to make laws to the Governor-in-Council (in


a State statute). If it were a federal statute, then the Governor-General-in-


Council would be referred to.


The term ‘Governor-in-Council’ means the Governor acting on the advice


of the Executive Council.


The Executive Council is the formal name for Cabinet. Cabinet comprises


members of parliament, who are called ‘ministers’. The formal name for


Cabinet in the federal sphere is the Federal Executive Council.


Chapter II of the Australian Constitution deals with the Executive Government.


See ss 62, 63 and 64.


Advantages and disadvantages of subordinate (or delegated) legislation, see


Waller, L. 2000, Derham, Maher, Waller: An Introduction to Law, 8th edn, LBC


Information Services, Sydney, pp. 8–10 and Heilbronn, G. N., Kovacs, D.,


Latimer, P., Nielsen, J. & Pagone, T. 1996, Introducing the Law, 5th edn, CCH


Australia, North Ryde, NSW, paras 338–40. See also, Appendix (viii) for the


steps in making delegated legislation.


1.4.1.4. Conflict between rules of law


The general rule is that the law made by parliament (statutory law) is supreme


over judge made law (case law). Therefore, when case law is inconsistent with


statutory law, the statute will override the case law to the extent of the


inconsistency.


Thus, however authoritative the decision or however eminent the bench, a


court decision can always be changed by an Act of the relevant parliament.


The only way in which a court can override a law made by parliament is for the


court to find either:


(a) The proper procedures have not been complied with in enacting the law


(for example, for a Commonwealth Act generally it must be passed by both


houses of parliament and assented to by the Governor-General).


OR


(b) That the parliament does not have power under its Constitution to make a


law of that nature.


Even though statute law overrides case law, there is still a need for case law


when attempting to solve a legal problem.



 


Module 1: What is law and the Australian Legal Framework 17


1.4.2 The role of the courts


Courts make laws in two ways:


(a) Statutory interpretation


The parliament makes laws but the courts interpret these laws.


(b) In areas where there is little or no statute law; for example, contract law


— the courts have been responsible for building up the whole body of law.


Indeed, some Acts (Partnership, Sale of Goods) represent the codification of law


developed by the courts.


1.4.3 Precedent


1.4.3.1. Doctrine of precedent


The reason why the courts are said to be a source of law is because of what is


known as the doctrine of precedent. Briefly, this means that, if a court makes a


decision on a set of facts one way today, if a similar set of facts arises


tomorrow, it will make the same decision. People under the jurisdiction of the


courts are aware of this doctrine and thus decisions of the courts have the


effect of becoming laws.


1.4.3.2. Understanding case reports


Ratio decidendi and obiter dicta


A case report is a report of the presentations made by disputing parties in court


and the conclusion of the judge or judges hearing the case.


If there is more than one judge, the report usually includes all the judges’


reasons and decisions. The main reasoning or principle of the case is known as


the “ratio decidendi” and this is the view of the majority of judges. On the other


hand “obiter dicta” are observations made by the judges and are not necessarily


relevant to the decision but form part of the judge’s reasoning. Obiter dicta


made in a higher court has persuasive powers in lower courts. The opinions of


the judges who disagree with the majority view are known as the “dissenting


judgements”.


Judges are known by their surname and then their title. For example, Smith J.


A Chief Justice would be known as Smith CJ.


An example of the way a case is reported is in Waltons Stores (Interstate) Ltd v


Maher (1988) 76 ALR 513. To find this case you would look at the book number


76 titled with the year 1988 of the Australian Law Reports (ALR) at page 513.


Now, most cases are reported on-line and I have set out a number of instructorrecommended


web addresses on the OLT site where cases can be located.



 


18 GSN412: Business Law 1


Parties


The parties involved in court cases have different names according to the level


of the court where the case is being heard. Cases are first heard in lower courts


– such as the Magistrates Court or the District Court and if the magistrate’s or


judge’s findings are challenged, then they go on appeal to higher courts such as


the Supreme Court or the highest court of appeal in Australia, the High Court.


In the court where the original claim is made the person who brings the action


is known as the “plaintiff” and the person who responds is known as the


“defendant”.


If the decision is appealed, the person who brings the action is the “appellant”


(who can be either the plaintiff or the defendant from the original case) and the


person who responds is the “respondent”.


Case Summaries


Case summaries in the area of contract law are available on the OLT site


including the essential principles. They are divided into the following areas:


‘Facts’ – the events surrounding the case


‘Issues’ – the main points in dispute


‘Held’ – the court’s decision


Please read these summaries in conjunction with the Study Guide and


textbook.


You may also access summarised versions of contract cases in casebooks found


in the library, such as “Carter, J.W. and Harland, D.J. (2003) Cases and


Materials on Contract Law in Australia. Sydney: Butterworths.


1.4.3.3. The meaning of the term ‘common law’


(a) Common law as opposed to equity


Here common law means that body of case law developed by the courts


exercising a common law jurisdiction as opposed to that body of case law


developed by the courts exercising an equitable jurisdiction.


(b) Common law as opposed to statute law


Here common law means that body of law developed by the courts


exercising common law or equitable jurisdiction (that is, precedent or case


law) as opposed to that body of law that has legislative action by


parliament as its source.


(c) Common law as opposed to civil law


Here common law means the legal system of England (case law and


statute law) that was also introduced in various countries for example,


Australia, United States, as opposed to the civil law system of Europe and


various other places. This latter system was based on Roman law.



 


Module 1: What is law and the Australian Legal Framework 19


1.5: Classification of law — public international


law and domestic law


Refer to the diagram in Appendix A(ix) for an overview of classifying law.


(a) International law — regulates the relationships between nations.


(b) Domestic law — refers to the national legal system of each country (the


law operating within a nation).


1.5.1 Public domestic law


Concerned with the nation as an entity:


(a) Constitutional law


This body of law sets up the machinery by which private law can be made,


that is, it provides for the arrangement of the legal system itself and the


powers of its various organs.


(b) Administrative law


One of the most important groups of rules included here is that which


concerns the law-making powers of the Executive. Included in this


classification are such things as prerogative orders.


(c) Industrial law


This classification of public law includes such activities as workers


compensation, the relationships between employers and employees, and


employment conditions.


(d) Revenue law


This area of law deals with all pieces of legislation involving the raising of


revenue for the nation. This includes all direct and indirect taxes.


(e) Criminal law


This classification is concerned with punishment for breaking a code of


behaviour and deterrence of similar conduct.


1.5.2 Private domestic law


Concerned with the relationships between individuals within the nation, that is,


it deals with those matters that do not concern the nation as an entity:


(a) Law of torts


A tort is a civil wrong other than a breach of contract providing a private


right to the victim of the tort to sue the wrongdoer for compensation. That


is, the law of torts deals with rules prohibiting certain kinds of behaviour.


(b) Contract law


This classification deals with legal rules about enforceable agreements


between two or more legal persons.


(c) Property law


This area of law focuses on the acquisition, disposition and use of


property (real property and personal property).



 


20 GSN412: Business Law 1


(d) Family law


This classification of law concerns relationships arising out of marriage


and civil dissolution (divorce) as well as the maintenance of children


before and after divorce, custody of such children, property


distribution etc.


(e) Succession law


This classification of law is concerned with the distribution of a persons


estate after their death.


(f) Conflict of laws


This classification of law also has the name of ‘private international law’.


This classification determines which body of law governs a matter


involving parties from different jurisdictions, and also which court will


hear the matter.


(g) Procedure law


The law of procedure comprises those rules dealing with ways of initiating


litigation, controlling the process before trial, regulating the mode of trial,


and stipulating the attacks on the results of the trial that may be made by


appeals.


1.5.3 Distinction between criminal and civil law


The major distinction of law made by lawyers is between civil law and criminal


law. A basic distinction that could be drawn is that ‘anything that is not


criminal is civil’. Private law is regarded as civil law. Criminal law is concerned


with punishment for breaching a code of behaviour whereas civil law is


generally concerned with actions initiated to recover damages.


1.5.4 Distinction between tortious, contractual and criminal


liabilities


1.5.4.1. Nature of liability


Contractual rights and duties are created by agreement between the parties.


Tortious liability arises through the relationships that exist between people in


society and the interaction of people within society. Criminal liability involves


the imposition of penalties (i.e. fines and imprisonment) and the concept of


punishment.


1.5.4.2. Damages


Damages awarded for breach of both tortious duties and contractual duties are


compensatory in nature (i.e. money is required to be paid). Criminal


proceedings do not confer on the victim a right to sue for damages. Punishment


is the aim of criminal proceedings not compensation. Note, however, that in


Queensland the victim of a crime can apply for compensation under the


Criminal Offence Victims Act 1995 (Qld) after the criminal wrongdoer has been


convicted of an offence.



 


Module 1: What is law and the Australian Legal Framework 21


1.5.4.3. Nature of action


The action is one of person v person for both contractual and tortious liability


(private law). Criminal action is the state v the person (public law). ‘Person’


refers to either a natural person or an artificial person for example, a company.


1.5.4.4. Election to sue


A party injured by breach of a tortious or contractual duty may elect not to sue


for damages. The victim of a crime has no such option where the prosecution of


the criminal is concerned. The State will decide if a prosecution should proceed.


1.5.4.5. Who imposes obligations?


Law of torts and criminal law both involve codes of behaviour and the


obligation to observe those codes is imposed by the general law. In the law of


contract, however, the obligations that the parties to the contract must observe


are imposed by the voluntary agreement between them.


1.5.4.6. Standard of proof


Tort and contract: Civil standard — balance of probabilities.


Crime: Criminal standard — guilt of accused must be proved


beyond all reasonable doubt.


1.5.4.7. Source of law


The source of criminal law in Queensland is contained only in Acts of


Parliament whereas the source of law in contract and tort law is in case law.


(This varies from State to State, however).



 


22 GSN412: Business Law 1


1.6: Alternatives to Legal Proceedings


From your reading of chapter 2 [G & F (2005) pp.29-54] you will have an


understanding of the origins of the court system in Australia and the court


hierarchy. You will also be aware that the courts system in Australia is an


adversarial system. What this means is that there are opposing sides to a legal


dispute who each argue their case before an independent judicial or


administrative officer who makes a decision on the evidence presented by the


parties. Subject to the rules of evidence, the parties have the responsibilities for


calling the witnesses and evidence that they wish to present in support of their


case. The truth of the evidence is tested by the parties asking questions of the


other side.


The party taking action has the burden of proof. In the civil jurisdiction, this


burden requires the plaintiff or applicant to prove that their case is more


believable “on the balance of probabilities”. In a criminal case, the burden is on


the prosecution to prove their case that the accused committed the crime


beyond reasonable doubt.


In business, whether to take legal proceedings (or the extent to which criminal


proceedings should be defended) are often subject to a cost benefit analysis.


The factors which are taken into account include:


The probability of winning or losing;


The money involved (including costs);


The cost of downtime in being involved in a legal dispute both in terms of


any impact on business efficiency and management time;


The effect on business reputation in not taking action or in taking action


which is unsuccessful;


The impact on the business relationship concerning the other party who


is involved in the legal action; and


Whether the decision will lead to an appeal and the cost of any appeal.


Recently, there has been an increase in alternative methods of dispute


resolution instead of using adversarial court proceedings. This resulted from


criticisms of the traditional court system including:


lack of accessibility to the courts;


delays in having litigation heard;


the costs of litigation;


the ability to use specialists to decide matters in alternative dispute


resolution; and


the less confrontational approach from some alternative systems of


dispute resolutions.


The alternative means of resolving disputes include:


negotiation;


mediation; and


commercial arbitration;


alternative dispute resolution (ADR).


Negotiation between the parties can result in a settlement. For this to be


binding, the parties must sign a legally binding document that the dispute has


been resolved for it to be effective.



 


Module 1: What is law and the Australian Legal Framework 23


Mediation is a voluntary negotiation process where a trained mediator who acts


as a neutral third party, assists the parties in coming to a resolution of their


problem as part of a formal process. It is often a preliminary step to commercial


arbitration or further legal proceedings.


Commercial arbitration is a long standing means of resolving commercial


disputes. It is used internationally and also, within Australia. It involves the


hearing of a dispute by an independent third party (an arbitrator or panel of


arbitrators) which the parties select or alternatively, the parties select the


means by which the arbitrator or panel of arbitrators can be nominated. The


arbitrator will hear the matter and make a decision which is usually binding on


the parties (although there are appeals on matters of law).


Alternative dispute resolution is similar to mediation and involves the parties


coming to an agreement themselves through being assisted by a third party


who may use a variety of techniques to achieve a resolution of dispute,


including negotiation, mediation and the use of independent experts.


The rise of alternative dispute resolution has produced a number of reforms in


the court system. There is now more stringent and better case management in


how courts require the parties to litigate their claims. This leads to greater


efficiency and reduces costs. It is by no means the case now that commercial


arbitration is cheaper than a traditional legal action. Also, the courts do set up


specialist court divisions to deal with particular commercial litigation (eg.


building claims, planning and environmental law etc). This means that judges


are able to specialise in these jurisdictions and become recognised experts in


those areas. It is not surprising that a number of retired judges have become


sought after specialist arbitrators or consultants after leaving the bench.


As well, the court system allows for preliminary mediation in a number of areas


preliminary to trial. This is especially common in small claims and also, as part


of the case management process for personal injury, family law and, industrial


disputes.


 



 



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