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©MNoonan2010 Supply of Goods and Services Module 4 Summer 2010-2011.

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1 ©MNoonan2010 Supply of Goods and Services Module 4 Summer

2 ©MNoonan2010 This presentation and Copyright therein is the property of Maureen Noonan and is prepared for the benefit of students enrolled in the Commercial Transactions course conducted by the Law Extension Committee and is available for their individual study. Any other use or reproduction, including reproduction by those students for sale without consent is prohibited.

3 ©MNoonan2010 Sale/Supply of Goods and Services In modules 4, 5and 6, we discuss The Contract for Sale/Supply of Goods and/or Services Conduct surrounding the supply. Relevant Statutory provisions which impose terms into contracts for supply (SOGA), provide statutory remedies for breach of particular provisions (ACL and TPA) or affect interpretation of those contracts At the end of these 3 modules, we will be able to advise a client on the appropriate legal action to resolve their problem: --in breach of contract where there is dissatisfaction by either party, --actions for breach of specific statutory rights with access to statutory remedies and --whether other legal solutions may be available e.g. negligence. --bearing in mind that there may also be risk management strategies, practical solutions and ADR that are relevant.

4 ©MNoonan2010 Legislation relating to the sale/supply of goods and services What is required knowledge of legislation?: A good understanding of and ability to work with: Most provisions of the Sale of Goods Act (NSW) Various provisions of: Australian Consumer Law (most being the same as, or similar to, those previously contained in Trade Practices Act and State Fair Trading Acts, but note different legal structure and new provisions regarding unfair standard form consumer contracts) Sale of Goods (Vienna Convention) Act (NSW) for international sales Limited other references In Summer Semester, Consumer Credit will not be covered.

5 ©MNoonan2010 OVERVIEW Our law is based on FREEDOM OF CONTRACT and it is up to the parties to negotiate their bargain in most Business to Business (B2B) contracts. The LAW OF CONTRACT applies to all contracts formed within Australia. There can be ABUSE of power differentials. Within Australia, there is a broad regulatory regime to curb certain uncompetitive behaviour, unacceptable practices and marketing abuses (in both B2B and Business to Consumer (B2C) transactions. B2C Contracts can be very one sided with a large differential in bargaining power. There are extensive provisions regulating many aspects of B2C transactions. The latest of these are contained in the Australian Consumer Law. (ACL) There is some crossover between the laws regulating B2B transactions and B2C transactions. E.g. the law of contract applies to all contracts, misleading and deceptive conduct is unlawful in both. The Sale of Goods Act applies to all sales of goods (whether they be B2B or B2C).

6 ©MNoonan2010 Types of transactions considered B2B In module 5, we will concentrate on transactions between businesses and typically be concerned with manufacturers, importers/exporters, wholesalers, retailers, and distributors of goods or services. B2C In module 6, we will concentrate on product and service liability in transactions between business and consumers within Australia. Note that there is some crossover ---small business may also be a consumer

7 ©MNoonan2010 PRODUCT/SERVICE LIABILITY ANALYSIS BREACH OF CONTRACT AGAINST SUPPLIER including EXPRESS conditions and warranties and/or those IMPLIED by common law, Statute (SOGA, Vienna Convention), custom. BREACH OF STATUTE (ACL) UNFAIR PRACTICES Misleading, deceptive, unconscionable conduct (ACL) TORT- MISREPRESENTATION, NEGLIGENCE, BAILMENT

8 ©MNoonan2010 Change in the law 2011 As of 1/1/2011, many statutory provisions formerly contained in the Trade Practices Act or State Fair Trading Acts will be contained in the Australian Consumer Law (ACL) or ASIC Act for financial transactions, in the same or similar terms. There are also some new provisions. Students will be expected to answer examination questions using the new law but may find judgements or text analysis referring to the TPA useful in reasoning or argument if provisions are the same or similar, as there are obviously no decided cases under the new law.

9 ©MNoonan2010 Change in the law 2011 An important conceptual change between the ACL and TPA The TPA mimicked the SOGA implied terms, so that a remedy for breach of these was in contract (not Statute)-as with the SOGA. The ACL makes these guarantees (not implied terms) and subject to Statutory remedies, rather than contract.

10 ©MNoonan2010 PRODUCT AND SERVICE PRODUCT LIABILITY 2010 FACTS LAW REMEDIES Goods/services Consumer sale? Action in contract unsatisfactory Formation of contract -breach Rescission/Damages Express terms Equitable Implied-SOGA, TPA -Div 2,2A TPA Orders TPA s. 52 misleading,deceptive IT general law Intnl sale? Vienna Convention Fines ACCC Tort Financial Services? ASIC Act Goods defective TPA Part VA manufacturer liability TPA remedies causing loss, injury defective goods Defendant taken Unconscionable provisions TPA remedies advantage of 51AA, 51AB, 51AC TPA serious inequality Contracts Review Act harsh agreement Consumer Credit Act Untruthful representationTort/s. 52 TPA Damages/TPA Change in possession without transfer of titleBailment? Damages

11 ©MNoonan2010 PRODUCT AND SERVICE LIABILITY B2B 2011 FACTS LAW REMEDIES Goods/services Existence Contract? Action in contract Breach contract Rescission Unsatisfactory Express terms Damages Implied terms-SOGA,custom Equitable Intnl sale? Vienna Conventn Fines ACCC Financial Services? Defendant taken Misleading, advantage of deceptive conduct serious inequality Small business? harsh agreement Untruthful representation Tort Damages Change in possession without transfer of titleBailment? Damages

12 ©MNoonan2010 PRODUCT/SERVICE LIABILITY B2C 2011 FACTS LAW REMEDIES Goods/services Consumer sale? Action in contract unsatisfactory Formation of contract -breach Rescission/Damages Express terms Equitable Implied-SOGA, Statutory ACL Guarantees,Orders Fines,orders ACCC Intnl sale? Vienna Convention Financial Services? Goods defective ACL Part 3-5 ACL remedies causing loss, injury defective goods Defendant taken ACL misleading,deceptive ACL remedies advantage of Unconscionable provisions inequality Unfair contracts Untruthful representationTort/ACL Damages/ACL remedies Change in possession without transfer of titleBailment? Damages

13 ©MNoonan2010 IDENTIFICATION OF NATURE OF TRANSACTION In order to apply the correct law, we must first know what we have. Is it a SALE?-of goods, services, intangibles Is it an agreement to sell in the future? The SOGA only applies to these. A SUPPLY?-but, not a sale? e.g.lease, Hire Purchase The ACL applies to these. Is it something else? GIFT, BARTER, BAILMENT,FRANCHISE,SECURITY?

14 ©MNoonan2010 DEFINITIONS We must acquaint ourselves with statutory definitions so that we can identify transactions within their scope. We must not assume that the ordinary meaning of a word is the same as the statutory definition. To illustrate, we will look at the following:

15 ©MNoonan2010 Sale TYPICAL QUESTIONS Is it a sale? Is it an agreement to sell? When did sale take place? When did agreement to sell become a sale? Evidence of agreement?

16 ©MNoonan2010 SALE OF GOODS THE CONTRACT DEFINITIONS cont. SALE OF GOODS s. 6 SGA: A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. Where transfer at future time, or condition, contract is agreement to sell. Agreement to sell becomes a sale when time elapses or conditions fulfilled subject to which property is to be transferred. MONEY CONSIDERATION Must be money involved Even if that is only part of consideration Note purchase of car-part trade-in, part money See Loyalty gift…Esso

17 ©MNoonan2010 SALE OF GOODS ESSO PETROLEUM CO. V. CUSTOMS & EXCISE COMMISSIONERS (1976) 1 SLR 1 1. Esso promoted petrol 2. With loyalty gift 3. Coins with Soccer heroes 4. Collect the full set of thirty coins. One coin given when you bury four gallons of fuel 5. Coins sold to public and tax on sales appropriate? Legal relationship. Sale of goods? COURT FOUND Coins not transferred for money consideration Consideration was the making of another contract To buy petrol No tax applicable

18 ©MNoonan2010 SALE OF GOODS JANSZ V. G M B IMPORTS (1979) VR GMB Imports was licensed tobacco wholesaler. 2. Licence expired On contracted to buy $5,000,000 tobacco. 4. And to sell $2,000,000 worth of that tobacco to Permewan. 5. Mid April 77, fulfilled obligation to Permewan. 6. Prosecuted for selling tobacco without licence. When had sale taken place? or April 77? COURT FOUND: Unascertained goods and so s.21 Goods Act (Vic) applied: Where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained. Promise to sell on ….agreement to sell only Sale not until later in 1977

19 ©MNoonan2010 Goods Is it goods? Is it goods within the expanded meaning given in definition of the particular Statute I wish to use? Or, is it work with materials supplied? A service? Supply of information? Two separate contracts? Neither?

20 ©MNoonan2010 SALE OF GOODS THE CONTRACT DEFINITIONS cont. Articles 1 and 2 of Vienna Convention 1. Convention applies to contracts of sale of goods between parties whose place of business are in different States. 2. Does not apply to sales: Of goods bought for personal, family or household use By auction On execution or otherwise by authority of law Of stocks, shares, investment securities, negotiable instruments or money Of ships, vessels, hovercraft or aircraft Of electricity

21 ©MNoonan2010 SALE OF GOODS THE DEFINITIONS GOODS s.5(1) SOGA : Include all chattels personal other than things in action and money.The term INCLUDES Emblements (crops resulting from human labour)and things attached to or forming part of the land which are agreed to be severed prior to sale (e.g. House to be removed Symes). DOES NOT INCLUDE: Money (unless collection rather than currency) Intangibles Choses in action Intellectual property CAN INCLUDE FUTURE GOODS: S. 10: The goods which form the subject of a contract of sale may be either existing goods owned or possessed by the seller or future goods. Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.

22 ©MNoonan2010 SALE OF GOODS SYMES V. LAURIE (1985) 2 QD R 547 Laurie bought house from owner and sold it to Symes. Under Contract to take house to land and set it up. Damaged in transit. Whose risk? Who bears loss? Property of Symes or Laurie at relevant time? Sale of Goods within Sale of Goods Act? If so, risk & passing of title provisions in S of G Act apply. COURT FOUND Previous cases depended on relevant facts. No principle which could be applied. House already in existence. House attached and agreement to sever. QSOGA s.20 transferred at time intention to transfer. QSOGA s.21 rules for ascertaining intention. resulted in property passing at time of contract. RISK WITH SYMES.

23 ©MNoonan2010 SALE OF GOODS HEWETT V. COURT (1983) 149 CLR Hewett family contracted with Ogilby for construction of transportable house. 2. Cost $34,116 paid to $20, Ogilby part finished, money troubles, handed over unfinished house. 4. Ogilby went into liquidation. 5. Preference? 6. Equitable lien? The distinction between a contract for the sale of goods and a contract for the provision of work and materials is frequently a fine one and the tests for distinguishing the one from the other are unsatisfactory and imprecise Contract for work and materials? Contract for sale of goods? COURT FOUND: Contract for work. Equitable lien available nevertheless.

24 ©MNoonan2010 DEFINITIONS Existing old law TRADE PRACTICES ACT S. 4 Goods Goods includes: a) ships, aircraft and other vehicles; b) animals, including fish; c) minerals, trees and crops, whether on, under or attached to land or not; and d) gas and electricity; Compare this definition with those in SOGA and ACL

25 ©MNoonan2010 New law-Australian Consumer Law Section 2 definition Goods includes: (a)ships, aircraft and other vehicles; and (b)Animals, including fish; and (c)Minerals, trees and crops, whether on, under or attached to land or not; and (d)Gas and electricity; and (e)Computer software; and second-hand goods; and (f)Any component part of, or accessory to, goods.

26 ©MNoonan2010 Software Note that definition in ACL overcomes (for the purposes of that Statute) current dilemma (see various cases) of whether software is goods or not If not goods, what is it? What law applies?

27 ©MNoonan2010 IS A COMPUTER SYSTEM "GOODS? TOBY CONSTRUCTIONS PRODUCTS PL V. COMPUTA BAR SALES PL Package consisting of 3 items hardware ($14,390)and 2 items of software (business management and Wordstar ($2,160)) Vendor agreed to install, train staff and provide post sale service. Plaintiff alleged breaches of conditions or warranties implied by SGA and TPA. Only applied if "goods". Work to be done and materials provided and perhaps transfer intellectual property? Rogers J: Sale of this computer system comprising both hardware and software constitutes a sale of goods with both SGA and TPA. Important to him that the total system was off the shelf; not individually crafted.

28 ©MNoonan2010 SALE OF GOODS ACT IS SOFTWARE A GOOD? ST. ALBANS CITY AND DISTRICT COUNCIL V. INTERNATIONAL COMPUTERS LIMITED Court of appeal London 26/7/96 Council invited tenders for provision of computerized rate system. Faulty software led the council to believe that they had more ratepayers than in fact they did. Was the contract subject to any implied term as to quality or fitness for purpose, and if so, what was the nature of that term? Equivalent of Sale of Goods Act? Otherwise? Is software goods? (Software can involved a tangible disc onto which a program is encoded and the intangible program itself.) For purposes of English Sale of Goods Act and Supply of Goods and Services Act the definition of "goods" would include the disc but not the program.

29 ©MNoonan2010 SALE OF GOODS IS SOFTWARE A GOOD? ST. ALBANS CITY AND DISTRICT COUNCIL V. INTERNATIONAL COMPUTERS LIMITED Court of Appeal London 26/7/96 Cont. Considered Toby Construction…sale of whole computer system…sale of Goods within NSW legislation. In this case however, defective program not sold and probably not hired. Employee went to council premises taking with him a disc and he transferred the program into the computer. Such a transfer was not a transfer of goods, but if software inseparable from physical medium (disk) it would be a good. Turned to the common law for situation when a term would be implied…..An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract…it must have been a term that went without saying….Found to be the case in this situation.

30 ©MNoonan2010 IS SOFTWARE a GOOD? Gammasonics Institute for Medical Research P/L v. Comrad Medical systems P/L [2010] NSWSC 267 Comrad provided packaged software to radiologists for management of patient registrations, appointments and referrals. Purchased by Gammasonics via internet download. G alleged it failed to comply with statutory warranties of merchantable quality and fitness for purpose under SOGA. Found not to be a good, but common law assisted again and warranties of fitness for purpose and merchantable quality were implied. Note that downloaded software may not be a service either. Merely a licence to download and use.

31 ©MNoonan2010 Software again? Courts struggle with characterisation. e.g. Telstra v. Hurstville Council [2000] FCA 1887 discussed the issue in relation to whether NSW Council charges for use of public space for cables was a tax on a commodity/goods and therefore unconstitutional. No, not goods in this case. Amlink Technologies and Australian Trade Commission [2005] AATA 359 dealt with an application for an export grant for a disk containing events software. Originally classified as IP and know how, it was more favourable to applicant if classified as goods. It was.

32 ©MNoonan2010 Software and goods Matter now resolved for some purposes (ACL) …in that goods definition in the Australian Consumer Law (commencing 1/1/2011) now includes computer software. See definition of goods in section 2 of Australian Consumer Law.

33 ©MNoonan2010 Electricity & data transmission Electricity is specifically defined as a good in the Trade Practices Act and in the Australian Consumer Law Does that mean that electronic data and signals are goods? If not, what are they? Is an goods?

34 ©MNoonan2010 ASX operations P/L (ASXO) and Australian Stock Exchange Limited (ASX and Pont Data Australia P/L (1991)ATPR Pont supplies electronically disseminated financial information to stockbrokers market analysts etc. ASXO supplies electronic. Proceedings concerned a contract between these two for the supply of information by ASXO to Pont by electronically coded signals and allegations of behaviour contrary to ss. 45, 46 and 49 of TPA requiring Pont to take certain data if it was to take other data. On issue that affected and was discussed in the case was whether the provision of information concerned was services or goods. If services, no contravention of s. 49 and appeal would succeed. If goods, it would be otherwise. Given the TPA definition of goods includes electricity, does electricity include these encoded electrical impulses? While the trial Judge thought so; on appeal, the court thought not.

35 ©MNoonan2010 TPA s. 4 Definition Supply Supply when used as a verb, includes: a)in relation to goods-supply (including re- supply) by way of sale, exchange, lease, hire or hire-purchase; and b) in relation to services-provide, grant or confer; and, when used as a noun, has a corresponding meaning, and supplied and supplier have corresponding meanings. NOTE: Same definition used in ACL.

36 ©MNoonan2010 DEFINITIONS S.13 SOGA ASCERTAINMENT OF PRICE (1) The price in a contract of sale may be fixed by the contract, or may be left to be fixed in a manner thereby agreed, or may be determined by the course of dealing between the parties. (2) Where the price is not determined in accordance with the foregoing provisions, the buyer must pay a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

37 ©MNoonan2010 DEFINITIONS S.14 SOGA AGREEMENT TO SELL AT VALUATION (1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and the third party cannot or does not make the valuation, the agreement is avoided; provided that if the goods or any part thereof have been delivered to and appropriated by the buyer, the buyer must pay a reasonable price therefor. (2) Where the third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain an action for damages against the party in fault.

38 ©MNoonan2010 PRICE Consider the Following: At a price to be agreed by the parties in writing from time to time Price to abc=cost to xyz + percentage profit margin At valuation At a value to be fixed by a member of the Stock and Station Agents Association to be chosen by S, the seller I will take x million litres for y million dollars

39 ©MNoonan2010 PRICE Trawl Industries of Australia P/L v. Effem Foods P/L (T/A Uncle Bens of Australia) UBA had pet food factory and wanted to launch a new product using Jack Mackeral. UBA entered into an agreement with TIA to buy Jack Mackeral under which TIA would incur the expense of acquiring and installing a processing line conditional on UBA purchasing Jack Mackeral for the period at a price which would provide a reasonable commercial profit to TIA. These base Prices shall apply for calendar year In the course of Nov 1988 and each subsequent Nov up to and including Nov 1992, TIA and UBA shall confer and establish applicable prices for the immediately following calendar year using the following formula: Price to UBA = Cost to TIA + percentage profit margin Void for uncertainty? No, capable of being worked out by court. The fact that evidence would be required and might be difficult not a bar. Incomplete? No, formula is sufficient.

40 ©MNoonan2010 Vienna Convention Price Art 53. The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention Art 54. The buyers obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made. Art 55. Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned. Art 56. If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight. See also 9, 19, 57, 58 59

41 ©MNoonan2010 Trade Practices Act s. 4 Services services includes any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce, and without limiting the generality of the foregoing, includes the rights benefits, privileges or facilities that are, or are to be, provided, granted or conferred under; a contract for or in relation to: the performance of work(including work of a professional nature), whether with or without the supply of goods; the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction; or the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; a contract of insurance; a contract between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking; or any contract for or in relation to the lending of moneys; but does not include rights or benefits being the supply of goods or the performance of work under a contract of service;

42 ©MNoonan2010 Australian Consumer Law See section 2 definition. Not identical, but virtually the same as TPA definition.

43 ©MNoonan2010 Problems with Services - SMH 06/03/03 Big Pond Ripples with Angry Users by Sue Lowe Telstra has spent almost $2m compensating customers of its Internet cable service after widespread collapses in January and February….Telstra yesterday acknowledged repeated breakdowns of its high-speed cable network and offered customers a rebate of 25% on their typical $60 to $90 monthly bills. Telstras internet arm, Big Pond, is estimated to have between 70,000 and 80,000 cable internet customers.…. After a threatened class action lawsuit by customers of its broadband internet network ADSL in 2001 Telstra introduced a service guarantee for ADSL but it was not extended to the cable network. Under the ADSL guarantee customers are given a 10% rebate for every 7 hours and 24 minutes their service is unavailable.

44 ©MNoonan2010 Linked Credit Provider ACL definition in section 2, details of liability in Part 5-5 Div 1 sections Linked credit provider in relation to a supplier of goods or services means a credit provider (a)With whom the supplier has a contract, arrangement or understanding relating to: (i) the supply to the supplier of goods in which the supplier deals; or (ii) the business carried on by the supplier of supplying goods or services; or (iii) the provision to persons to whom goods or services are supplied by the supplier of credit in respect of payment for those goods or services; or

45 ©MNoonan2010 Linked credit provider cont.-ACL (b) To whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit; or (c) whose forms of contract, forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier; or (d) With whom the supplier has a contract, arrangement or understanding under which contracts, applications or offers for credit from the credit provider may be signed by persons at premises of the supplier.

46 ©MNoonan2010 ACL-Linked Credit Provider Section 278 (1)If a consumer who is a party to a linked credit contract suffers loss or damage as a result of: (a)a misrepresentation… (b)A breach of the linked credit contract or of a contract for a related supply (c)The failure of consideration… (d)A failure to comply with a guarantee under ss 54,55,56,57,60,61,62 (e)A breach of a warranty implied in linked credit contract by s. 12 ED of ASIC Act 2001 the linked credit provider …and supplier…are jointly and severally liable….. See rest of Part 5-5 Division 1 for details.

47 ©MNoonan2010 TRADE PRACTICES ACT SECT 73 Linked Credit Provider (1) Where: (a) a corporation (in this section referred to as the supplier ) supplies goods, or causes goods to be supplied, to a linked credit provider of the supplier and a consumer enters into a contract with the linked credit provider for the provision of credit in respect of the supply by way of sale, lease, hire or hire-purchase of the goods to the consumer; or (b) a consumer enters into a contract with a linked credit provider of a corporation (in this section also referred to as the supplier ) for the provision of credit in respect of the supply by the supplier of goods or services, or goods and services, to the consumer; and the consumer suffers loss or damage as a result of misrepresentation, breach of contract, or failure of consideration in relation to the contract, or as a result of a breach of a condition that is implied in the contract by virtue of section 70, 71 or 72 or of a warranty that is implied in the contract by virtue of section 74 of this Act or section 12ED of the Australian Securities and Investments Commission Act 2001, the supplier and the linked credit provider are, subject to this section, jointly and severally liable to the consumer for the amount of the loss or damage, and the consumer may recover that amount by action in accordance with this section in a court of competent jurisdiction.

48 ©MNoonan2010 TRADE PRACTICES ACT SECT 74 Warranties in relation to the supply of services ( 1) In every contract for the supply by a corporation in the course of a business of services to a consumer there is an implied warranty that the services will be rendered with due care and skill and that any materials supplied in connection with those services will be reasonably fit for the purpose for which they are supplied. (2) Where a corporation supplies services (other than services of a professional nature provided by a qualified architect or engineer) to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation any particular purpose for which the services are required or the result that he or she desires the services to achieve, there is an implied warranty that the services supplied under the contract for the supply of the services and any materials supplied in connection with those services will be reasonably fit for that purpose or are of such a nature and quality that they might reasonably be expected to achieve that result, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the corporation's skill or judgment. (3) A reference in this section to services does not include a reference to services that are, or are to be, provided, granted or conferred under: (a) a contract for or in relation to the transportation or storage of goods for the purposes of a business, trade, profession or occupation carried on or engaged in by the person for whom the goods are transported or stored; or (b) a contract of insurance.

49 ©MNoonan2010 What is a consumer sale (SOGA) Why do we need to know? Because implied terms in SOGA ss.18,19,20 can be excluded in a contract that is not a consumer sale. i.e. only possible to know if an exclusion clause is effective if one knows whether the contract is for a consumer sale or not.

50 ©MNoonan2010 S. 62 SOGA DEFINITION OF CONSUMER SALE In this Part, consumer sale means a sale of goods (other than a sale by auction) by a seller in the course of a business where the goods: are of a kind commonly bought for private use or consumption; and are sold to a person who does not buy or hold himself or herself out as buying them in the course of a business.

51 ©MNoonan2010 S. 63 SOGA ONUS OF PROOF In any proceedings arising out of a contract for a consumer sale, the onus of proving that the sale is not a consumer sale lies upon the party so contending.

52 ©MNoonan2010 Who is a Consumer (ACL) Why do we need to know? Because some provisions of the ACL only apply to a consumer and in order to work out potential remedies for a person, we need to understand whether they have transacted as a consumer or not. In certain cases, only a defined class of consumer receives the benefit of protection.

53 ©MNoonan2010 Definition of Consumer -ACL Section 3. Acquiring goods as a consumer (1) A person is taken to have acquired particular goods as a consumer if, and only if: (a)The amount paid or payable for the goods, as worked out under subsections (4) to (9) did not exceed: (i) $40,000; or (ii) if a greater amount is prescribed for the purposes of this paragraph-that greater amount; or (b) the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or (c) the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads. (2) However, subjection (1) does not apply if the person acquired the goods, or held himself or herself out as acquiring the goods; (a) for the purpose of re-supply or (b) for the purpose of using them up or transforming them, in trade or commerce: (i) in the course of a process of production or manufacture; or (ii) in the course of repairing or treating other goods or fixtures on land.

54 ©MNoonan2010 Definition of Consumer-ACL Acquiring services as a consumer (3) A person is taken to have acquired particular services as a consumer if, and only if: (a) the amount paid or payable for the services, as worked out under subsections (4) to (9) did not exceed; (i) $40,000; or (ii) if a greater amount is prescribed for the purposes of subsection (1)(a)-that greater amount; or (b) the services were of a kind ordinarily acquired for personal, domestic or household use or consumption. NOTE that these definitions are very similar to but not identical to those previously contained in s. 4B of TPA

55 ©MNoonan2010 consumer - goods-TPA 4B Unless contrary intention appears: a person taken to have acquired goods as a consumer if: Test 1 price does not exceed prescribed amount ($40,000) or where price exceeded prescribed amount, goods were of a kind ordinarily acquire for personal, domestic or household use or consumption or the goods consisted of a commercial road vehicle AND Test 2 Goods not for re-supply, using them up or transforming them in trade or commerce in the course of a process of production, manufacture repairing or treating other goods or fixtures

56 ©MNoonan2010 consumer - services-TPA 4B A person taken to have acquired services as consumer if: the price did not exceed prescribed amount OR where price exceeded prescribed amount- the services were of a kind ordinarily acquired for personal, domestic or household use or consumption

57 ©MNoonan2010 Aspects of Contract We will go over some general matters before examining specific terms of contracts and product/service liability. They are: Express terms of contract Conditions and warranties Implied terms Interaction of statute with the common law

58 ©MNoonan2010 Problems involving Contract When analysing problems involving Contract Understand whether there is a Contract- formed? void? If so, what are the express terms? Written?/oral? Does the law limit these in any way? Void? Are there any terms implied? By common law/custom/statute If there are implied terms, what are they? Is there any inconsistency between express and implied? Which ones prevail? Decide on the terms of the contract. Consider the problem in light of this contract. Is there any action in contract available? What are the remedies available in contract?

59 ©MNoonan2010 TERMS OF THE CONTRACT CONDITIONS AND WARRANTIES DISTINGUISH TERMS OF THE CONTRACT FROM: 1. Puffery 2. Mere representation 3. Leading to but not forming part of contract CONDITION Essential Breach gives right to end contract And/or sue for damages WARRANTY Less important than condition Ancillary to main object of contract Breach gives right to damages

60 ©MNoonan2010 OSCAR CHESS V. WILLIAMS (1957) 1 WLR 370 Williams bought Morris secondhand. Traded it in on new Hillman from Oscar Chess. Williams told salesman Morris was 1948 model. Registration book showed Morris first registered £290 pounds allowed for trade in.18 months later OC discovered Morris was 1939 model. No difference in model OC sued for difference in trade-in price. DENNING J FOUND: Both parties mistakenly assumed Morris was 1948 Fundamental to contract, but a term of contract? If prompt, equity might have set it aside. Now, only remedy damages and must prove warranty. Warranty = binding promise. Binding promise or only innocent misrepresentation? Proper inference from known facts? Only latter. Loss must lie where it falls

61 ©MNoonan2010 SALE OF GOODS DICK BENTLEY PRODUCTIONS V. HAROLD SMITH (MOTORS) (1965) 1 WLR 623 Dealer, Smith sold second hand Bentley to B. Smith told B car had travelled only 20,000 miles since replacement engine and gearbox. Speedometer showed 20,000 miles. Mileage more like 100,000. INNOCENT MISREPRESENTATION? (NO DAMAGES) OR WARRANTY? (DAMAGES) Question depends on conduct of parties, their words and behaviour rather than thoughts. Statement an inducement to act? Smith in a position to know, or at least to find out, history of car. Different to Mr. Williams in Oscar Chess in that respect. Not dishonest, no fraud. Statement as to 20,000 without foundation. Lord Denning found warranty in this case.

62 ©MNoonan2010 INTERMEDIATE OR INNOMINATE TERMS CEHAVE V. BREMER HANDELSGESELLSCHAFT (1976) 1 QB 44 Bremer sold 3,400 tons of citrus pellets to Cehave for £100,000. They were to be used for manufacture of cattle food. A clause in contract read: Shipment to be made in good condition. A small amount was damaged. Cehave rejected the lot and claimed a refund. The people holding the pellets sold them for £30,000 and that buyer sold them to Cehave for same amount. Lord Denning MR Was the clause in the contract a condition so that ANY breach entitled the buyer to reject the goods? No, this was what he called an Intermediate stipulation. No right to reject unless serious One is not entitled to reject something because it is not perfect. Citrus pellets were commonly bought for making cattle food. They were as fit for that as was reasonable; shown by eventual use. Some damaged, but not to such an extent to entitle rejection. Damage such as to entitle buyer to an allowance off price. Apply good commercial sense.

63 ©MNoonan2010 IMPLIED TERMS Common law SOGA VIENNA CONVENTION INCOTERMS Custom

64 ©MNoonan2010 Interaction contract and common law Many statutes expressly preserve the common law, or parts of it. Some codify or displace it. Some provide alternatives to the common law.

65 ©MNoonan2010 LEASON V. PRINCES FARM (1983) 2 NSWLR 382 Leason ran a stud. He wanted a filly sired by Grand Chaudiere. Princes advertised a filly for sale. Said it was sired by Grand Chaudiere. Leason bought the filly. 9 months later, he found out it was not true.Leason sought to return and get refund. Princes refused. Leason sued. COURT FOUND 1. No doubt an innocent misrepresentation. 2. Right in equity for rescission?-Discussion of cases, in theory not available in innocent misrepresentation after contract executed This filly not what it wanted Not what it was led to believe it was getting Not what it paid for

66 ©MNoonan2010 The relevance of Leason- interaction between law of contract (both express terms and as implied by the SOGA, TPA and FTA) and common law (the law of Equity- remedies for innocent misrepresentation).The SOGA expressly preserves common law rules,but, should this be construed in a narrow sense to exclude equitable remedies?. In NSW, Leason was authority for wider interpretation. In equity, innocent representation does not give rise to damages; only rescission. Even then, if contract affirmed, may not be available. Contradictory authorities discussed in Leason, where it was decided rescission was available, despite delivery of horse. However,no affirmation after lack of correct breeding discovered. Debate continued. In 1988, NSW SOGA amended-s. 4(2A)- to make very clear that rules of equity relating to effect of misrepresentation apply to contracts for the sale of goods and permit rescission even where the misrepresentation has become term of contract and/or contract performed. The TPA (&FTA) have taken over now for many types of misleading / deceptive conduct. Also, TPA may provide damages for innocent misrepresentation; whereas equity does not. (damages available in Equity for fraudulent misrepresentation though).If next we turn to law of contract, we must look at express terms….including exclusion clauses to assess situation. If exclusion clause effective, then it may prevent remedy. Some of the implied terms and provisions of the SOGA can be modified in certain contracts and some cannot.See s. 16 (2) and (3) when condition may have to be treated as a warranty where buyer has accepted goods. In Leason, if this applied, returning the horse (breach of condition) may not have been an option and only damages would have been available (breach of warranty).The legislation and case law is not identical in the various Australian jurisdictions. For the purpose of our course, concentrate on NSW. For purposes of professional life; bear that in mind.

67 ©MNoonan2010 NEGLIGENCE 1. EXISTENCE OF DUTY OF CARE recognised by the law requiring conduct of a certain standard to protect others from unreasonable risks. 2. BREACH OF THAT DUTY 3. MATERIAL INJURY RESULTING FROM BREACH 4. LOSS NOT TOO REMOTE 5. THE BREACH BEING THE PROXIMATE CAUSE. Note: Defence of contributory negligence, limitation periods and civil liability limits legislation, other possibilities.

68 ©MNoonan2010 BREACH OF STATUTORY DUTY PLAINTIFF IS PERSON TO WHOM DUTY OWED INJURY type WITHIN RISK STATUTE AIMED AT DEFENDANT IS PERSON CAUGHT BY STATUTE CAUSAL LINK BETWEEN BREACH AND INJURY PROOF OF BREACH OF STATUTORY DUTY MAY BE EVIDENCE OF BREACH OF DUTY IN NEGLIGENCE EXAMPLES TRADE PRACTICES ACT-companies s. 52AUnconscionable conduct s. 52 Misleading or deceptive s.53False representation s.55 Misleading conduct under Industrial Property Convention (Paris Convention for the Protection of Industrial Property as revised at Stockholm in 1967) FAIR TRADING ACT NSW - individuals

69 ©MNoonan2010 Contrast Is the appropriate action one for breach of contract? If so, remedy also in common law-rescission, damages, equity. Or, For breach of Statute with remedy specified in that statute?

70 ©MNoonan2010 Misleading and deceptive conduct ACL Part 2-1s.18. In Summer 2010/11 Semester s. 19 (exceptions for information providers) not covered. Similar to TPA s. 52. This provision and cases decided in relation to it relevant to ACL s.18.

71 ©MNoonan2010 s.18 ACL 18. Misleading or deceptive conduct (1)A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2)Nothing in Part 3-1 (which is about unfair practices) limits by implication subsection (1).

72 ©MNoonan2010 s.52 TPA 52 (1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).

73 ©MNoonan2010 s.18ACL and s.52TPA compared s.52-limited to corporation due to constitutional limits. Mirror provisions for non corporations in State Fair Trading Acts. s.18-uses person. Not limited to corporations because of State and Federal agreement to have single law Must still be in trade or commerce. Not limited to consumer transactions

74 ©MNoonan2010 Approach Taco Co of Australia Inc. v. Taco Bell Pty Ltd (1982) 42 ALR 177 Identify the relevant section of public likely to be misled. Once section established, matter to be considered by reference to all within it, including astute and gullible and intelligent and not so intelligent, the well educated as well as the poorly educated Evidence that some person has formed an erroneous conclusion is admissable Necessary to enquire why proven misconception has arisen.

75 ©MNoonan2010 Considerations Is puffery –superlative or comparative that is a self evident exaggeration, (normally found not to be a misrepresentation or contractual term at common law) excluded?-Not necessarily. Can s.18 liability be excluded by use of an exclusion clause? No, (as with s.52TPA) but a disclaimer (designed not to exclude s. 52, but to prevent liability arising by preventing the relevant conduct being construed as misleading or deceptive…communicating information such that they are not misled at all or did not rely on it)…or an indemnity can achieve a similar effect.

76 ©MNoonan2010 Can silence be misleading? Metalcorp sold 77 tonnes of scrap copper cathode to MML. The companies had been doing business together for 10 years. The copper had been stolen from Western Mining (WMC) by persons unknown but had been acquired in good faith by Metalcorp from a third party with whom it had previously dealt.WMC informed MML about the theft and its suspicion that the copper had been stolen. MML inspected the copper after delivery, noticed that less than promised had been delivered and saw evidence it had been manufactured by WMC. MML passed this info to WMC by fax at 8.51am on Feb 2, 2001.The established arrangements between Metalcorp and MML were that deliveries by Metalcorp were quarantined until inspected and accepted and there was a procedure for disputes as to quality. During a telephone conversation between Metalcorp and MML about 9am on Feb 2, 2001 MML said that it had inspected the copper and asked about the short delivery. Metalcorp advised that it had received all the copper available. MML believed the copper stolen but said nothing about its belief, the theft WMC had advised it about, or the evidence it had found on inspection and had passed on to WMC. Metalcorp believed that, as a result of the 9am conversation, MML had accepted the copper and intended to pay for it. At 11.30am that day, it gave a cheque to the company which supplied it. MML refused to pay. Metalcorp was unable to recover the money it paid the supplier. Metalcorp Recyclers P/L v. Metalmanufacturers 2003 NSWCA 213

77 ©MNoonan2010 Metalcorp sued MML for misleading or deceptive conduct in breach of s. 52 TPA…in failing to inform it during the 9am conversation, after inspection, that it believed the copper was stolen and that it would probably not pay. In the normal course of events, (common law nemo dat rule) Metalcorp could not have expected to recover anything because it could not give good title. CA (Handley JA, Hodgson JA, Gzell J; : A finding of misleading conduct is open where the conduct, word or deed conveys a misleading impression.The misrepresentation was conveyed by silence. Silence is to be assessed as a circumstance…have regard to all relevant circumstances; in particular the commercial relationship between the parties and their procedures. The conduct took place during a critical conversation. The critical conversation took place against the background of the longstanding business relationship…which had generated A substantial degree of mutual trust. The established course of business involved inspection and notification of complaints. In the circumstances, when the only complaint was short delivery, this was a representation that this was the only problem. MML was running no commercial risk, but knew that Metalcorp was about to take delivery of copper which might be stolen without having any idea of the risk it was running. Damages were recoverable because its loss was suffered by MMLs misleading conduct and Metalcorp had acted in reliance upon it.

78 ©MNoonan2010 Enforcement No criminal or civil pecuniary penalties Undertakings Sch 1, item 1,Chapter 5, Part 5-1,Div 1 Substantiation notices Sch 1, item 1, Chapter 5, Part 5-1,Div 2 Public Warning Notices Sch 1, item 11,Chapter 5, Part 5-1,Div 3 Injunctions Sch 1, item 1,Chapter 5, Part 5-2,Div 2 Damages Sch 1, item 11,Chapter 5, Part 5-2,Div 3 Compensatory orders Sch 1, item 11,Chapter 5, Part 5-2,Div 4A Redress for non parties Sch 1, item 11,Chapter 5, Part 5-2,Div 4B Non punitive orders Sch 1, item 11,Chapter 5, Part 5-2,Div 5,s.246

79 ©MNoonan2010 Unconscionable Conduct NEW-ACL Part 2-2. Sections 20,21,22 OLD-TPA Sections 51AA,51AB,51AC and ASIC Act equivalents for financial services 12CA,12CB,12CC

80 ©MNoonan2010 Unconscionable Conduct s.20-conduct that is unconscionable within the unwritten law (common and equitable) from time to time is unconscionable for the purposes of ACL s.21-non exhaustive list of types of conduct which may be unconscionable in the context of business dealings with consumers s.22-non exhaustive list of types of conduct that may be unconscionable in the context of business dealings with other businesses. Note exclusion of listed public companies (big business should look after itself?)

81 ©MNoonan2010 Unconscionable Conduct Courts have tended to construe unconscionable conduct as especially heinous conduct in the common law (s.20)…i.e. narrower than government policy. Hence, the specific provisions to guide courts in particular cases (21),(22) and specific provisions covering standard form consumer contracts (unfair provisions Part 2-3).

82 ©MNoonan2010 Unconscionable Conduct 20.(1) A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time. (2) This section does not apply to conduct that is prohibited by section 21 or 22

83 ©MNoonan2010 ACCC v. Lux Pty Ltd re scope of TPA 51AB An agent of Lux came to the Standings residence to service an old vacuum cleaner. Mrs. S was home alone. The agent examined the vacuum cleaner and told her that it would blow up. He then demonstrated a new vacuum cleaner and Mrs. S agreed to purchase it. The ACCC alleged contravention of s.51AB and undue harassment and coercion in contravention of s.60.Nicholson J. The word unconscionable... bears its ordinary meaning of showing no regard for conscience, irreconcilable with what is right or reasonable. Mrs.. S substantially illiterate and did not understand commercial matters in any depth. Should have been apparent. She had trouble filling out the form. She was not offered the opportunity of independent advice, nor were the terms explained to her. The court granted a declaration that Lux had engaged in unconscionable conduct. ACCC press release: Businesses and sales agents have a responsibility to ensure that they do not take unfair advantage of vulnerable consumers.

84 ©MNoonan2010 CG Berbatis Holdings Pty Ltd v. ACCC (2001) FCA 757 A shopping centre landlord acted unconscionably in refusing to agree to the grant of a lease of a shop to prospective purchasers of a business, unless the vendor release the landlord from litigation in the Commercial Tribunal of WA. A full court reversed the conclusion because it drew a distinction between an opportunistic approach to strike a hard bargain and acting unconscionably. It concluded the fact that the lease was due to expire was not appropriately characterised as a special disadvantage. In upholding the full court, the majority of the High Court gave a narrow interpretation of the term unconscionability. They focused on the difference between the notion of a special disability which they felt would attract protection and a hard bargain which the Court felt was a commercial reality and not the concern of the Court. See decision for discussion of what is unconscionable.

85 ©MNoonan2010 Unconscionable Conduct 21.(1) A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services to another person, engage in conduct that is, in all the circumstances, unconscionable.

86 ©MNoonan2010 s.21(2) Relevant matters Without limiting matters to which a court may have regard in supplier to consumer transactions: 1.Relative bargaining strength 2.Conditions not reasonably necessary for protection supplier 3.Whether consumer understood documents 4.Undue influence, pressure, unfair tactics 5.Cost etc of equivalent goods or services.

87 ©MNoonan2010 Consumer in s. 21 Note that definition in s. 3 is not applied. Limited by (5) to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption. Supply does not include supply or possible supply for re supply or for using them up or transforming them in trade or commerce (6).

88 ©MNoonan2010 s.22 Business transactions (1)A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to another person (other than a listed public company: or (b) the acquisition or possible acquisition of goods or services from another person (other than a listed public company); engage in conduct that is in all the circumstances, unconscionable

89 ©MNoonan2010 s.22 Relevant matters In addition to those mentioned in s. 21 Extent of consistency with other similar transactions Requirements of an applicable or relevant industry code Failure to disclose effects of conduct Ability to negotiate terms and conditions Ability to vary unilaterally terms and conditions Whether parties acted in good faith.

90 ©MNoonan2010 Unconscionable conduct-enforcement Civil pecuniary penalty -$1.1, $220,000 Undertakings Substantiation notices Public warning notices Injunctions Damages Compensatory orders Redress for non-parties Non-punitive orders Infringement notices

91 ©MNoonan2010 Representations NEW ACL ss. 29,33,34 Offences in 151, 155,156 OLD TPA s. 53

92 ©MNoonan2010 ACL s.29 Representations A person must not in trade or commerce in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services make false or misleading representations re standard, quality, grade, composition, style, model, history, testimonial, sponsorship, price, facilities for repair, conditions, warranties, right or remedy.

93 ©MNoonan2010 ACL ss.33,34 representations 33. A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods. 34. Same, re services. Note reference to public in 33,34-a need for conduct to have a public element

94 ©MNoonan2010 False/Misleading Representations Penalties for contravention CRIMINAL See ss ,156 offences, Pecuniary penalties-Corporation $1.1m- Person $220,000. Strict liability, no intent required. Defences in Part 4-6 ss. 206, 207, 208-honest and reasonable mistake, contravention caused by another or accident despite precautions, advertiser had no reason to suspect a contravention.

95 ©MNoonan2010 False/Misleading Representations Penalties for contravention CIVIL See s. 224 for penalties $1.1m,$220,000 Undertakings Sch 1, item 1, Chapter 5 Part 5-1, Div 1 Substantiation notices Sch 1, item 1, Chapter 5,Part 5-1,Div 2 Public warning notices Sch 1, item 1, Chapter 5, Part 5-1, Div 3 Injunctions Sch 1, item 1, Chapter 5, Part 5-2, Div 2 Damages Sch 1, item 1, Chapter 5, Part 5-2, Div 3 Compensatory orders Sch 1, item 1, Chapter 5, Part 5-2, Div 4A Redress for non parties Sch 1, item 1, Chapter 5, Part 5-2, Div 4B Non punitive orders. Sch 1, item 1, Chapter 5, Part 5-2, Div 5, s.246 See also Chapters 14 and 15 for further information Also infringement notices Schedule 2, Item 1, Part XI, Division 5.

96 ©MNoonan2010 TPA provisions Many of the decisions under the TPA are still relevant in view of the similarity of provisions and the following slides cover these provisions and various examples for reference purposes.

97 ©MNoonan2010 Misleading, deceptive conduct S. 52 General….misleading, deceptive S. 53 False representations S. 55A Services

98 ©MNoonan2010 Misleading, Deceptive Conduct - s. 52 TPA A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Not limited to consumer. No need for intent. Endless application. e.g. use of another traders distinctive words, products, features, slogans, similar business names, defamatory comments, misleading conduct in employment, representations in connection with sale of real estate, businesses, goods, services, silence where there is an obligation to disclose. Note also s. 53-representations re false representations as to standard, quality, value or grade of goods and services.

99 ©MNoonan2010 In Taco Bell Inc. v. Taco Bell Pty Ltd (1982) 42 ALR 177, the Australian Federal Court suggested a 4 step approach Identify the relevant section of the public who may be misled or deceived. The relevant section may be the public at large. Whether the conduct is misleading or deceptive must then be judged by the effect of the conduct on all those who fall within the relevant section of the public; the shrewd and ingenuous, the educated and uneducated, the experienced and inexperienced. Conduct will not, however, be misleading or deceptive if it would only mislead incredibly stupid persons and in most cases, the question will be whether a reasonable member of the relevant section of the public would be misled. Evidence that consumers are in fact suffering from a misconception may be persuasive but is not essential. It must be established that the misconception has arisen as a result of the conduct complained of and not some other factor. Note: Intent of defendant not relevant. Not enough to cause mere confusion. The conduct must actually mislead or deceive, or be likely to. That is a point of difference with a passing off action…where it is enough to establish that it is confusing.

100 ©MNoonan2010 s.52 Analysis Corporation? Trade & Commerce? Conduct? Conduct misleading or deceptive or likely to mislead or deceive? IF YES TO ALL s.52 breach Remedies - injunction, damages, orders IF NO to ANY, not a breach of s. 52

101 ©MNoonan2010 Conduct Doing or refusing to do any act and includes: Representations and promises Exaggerated sales talk Silence False warranties or guarantees Objective test Real and not remote chance of misleading/deceiving Confusion not enough Exclusion clauses cannot be relied upon but disclaimers can be effective if they modify the conduct so it is not misleading or deceptive. E.g. disclosing that one is passing on information supplied by another without any knowledge or belief in its truth or falsity…art galleries, real estate agents.

102 ©MNoonan2010 METALCORP RECYCLERS P / L V. METALMANUFACTURERS Ltd 2003 NSWCA 213 Metalcorp sold 77 tonnes of scrap copper cathode to MML. The companies had been doing business together for 10 years. The copper had been stolen from Western Mining (WMC) by persons unknown but had been acquired in good faith by Metalcorp from a third party with whom it had previously dealt. WMC informed MML about the theft and its suspicion that the copper had been stolen. MML inspected the copper after delivery, noticed that less than promised had been delivered and saw evidence it had been manufactured by WMC. MML passed this information on to WMC by fax at 8.51am on Feb 2, The established arrangements between Metalcorp and MML were that deliveries by Metalcorp were quarantined until inspected and accepted and there was a procedure for disputes as to quality. During a telephone conversation between Metalcorp and MML about 9am on Feb 2, 2001 MML said that it had inspected the copper and asked about the short delivery. Metalcorp advised that it had received all the copper available. MML believed the copper stolen but said nothing about its belief, the theft WMC had advised it about, or the evidence it had found on inspection and had passed on to WMC.Metalcorp believed that, as a result of the 9am conversation, MML had accepted the copper and intended to pay for it. At 11.30am that day, it gave a cheque to the company which supplied it. MML refused to pay. Metalcorp was unable to recover the money it paid the supplier.

103 ©MNoonan2010 Metalcorp cont (2) Metalcorp sued MML for misleading or deceptive conduct in breach of s. 52 TPA…in failing to inform it during the 9am conversation, after inspection, that it believed the copper stolen and that it would probably not pay. In the normal course of events, (common law nemo dat rule) Metalcorp could not have expected to recover anything because it could not give good title. Found by CA (Handley JA, Hodgson JA, Gazell J; :A finding of misleading conduct is open where the conduct, word or deed conveys a misleading impression.The misrepresentation was conveyed by silence. Silence is to be assessed as a circumstance…have regard to all relevant circumstances; in particular the commercial relationship between the parties and their procedures. The conduct took place during a critical conversation. The critical conversation took place against the background of the longstanding business relationship…which had generated A substantial degree of mutual trust. The established course of business involved inspection and notification of complaints. In the circumstances, when the only complaint was short delivery, this was a representation that this was the only problem. MML was running no commercial risk, but knew that Metalcorp was about to take delivery of copper which might be stolen without having any idea of the risk it was running. Damages were recoverable because its loss was suffered by MMLs misleading conduct and Metalcorp had acted in reliance upon it.

104 ©MNoonan2010 SEELEY INTERNATIONAL PTY LTD V. CINTRO PTY LTD (Newtronics) 2002 ASAL and text extract Seeley made domestic rooftop evaporative airconditioners and contracted in 1992 with Newtronics to design a radio frequency control unit to safely and satisfactorily control the on off function. In 1994, Seeley contracted with Newtronics to manufacture 3,000. Seeley believed them safe and unaware that overheating and fire were possible if it failed. 3 fires occurred. It was found that Seeley relied on expertise of Newtronics and terms of fitness for purpose and merchantable quality implied into contract by SA SOGA. Also claim that s. 74 applied. Newtronics said it only applied to services. Found that Newtronics was contracted to design and manufacture remote control package to be integrated into the AC….design, not merely supply=services. Note onus of disproving S was a consumer was on N. Also found a breach of duty of care and misleading and deceptive conduct because they did not have the expertise and competence they represented that they had.

105 ©MNoonan2010 E-commerce and s. 52 Trade Practices Act A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive Consider also ancillary liability(s.75B…aids, induces, conspires, directly or indirectly knowingly concerned or a party to it).The conduct must have taken place in Australia. Where were the representations made? Normally where they have effect…e.g. misrepresentations by telephone are heard in Australia….relevant conduct is the misrepresentation not the state of mind of those who made it. No need for an active representation to be conduct. In certain circumstances silence can amount to relevant conduct. For example, where information has been provided but is incomplete, where changes have occurred after information has been given or where there is a reasonable expectation that information will be disclosed. Examples of areas for problems in ecommerce: Advertising website design, logos, product description, Domain names Metatags and cyberstuffing-keywords to attract search engines. Linking and framing Distributing software without permission Contract terms Whether conduct is misleading and deceptive is a question of fact to be considered in light of all the circumstances of the individual case

106 ©MNoonan2010 WARNOCK V. ANZ BANKING GROUP LIMITED G322 of 1987 FC( NSW) (1989) 5 Insurance Cases Mr W borrowed $39,000 from ANZ under a new lending product-insured personal loans-insured against inability to repay loan instalments because of sickness and accident to $50,000. Policy contained declaration: I declare that I am….in good health and unaware of any illness, disease or physical defect which could result in a claim. Mr. W said that he could not sign the declaration because of his rheumatoid arthritis but was told that the declaration pertained only to life cover. The bank did not draw Mr. Ws attention to the exclusion clause. Subject to the provisions of the Credit Act 1984, the company shall not be liable to make any payments for death, disablement or unemployment caused directly or indirectly as a result of illness or unemployment which exists at or commences within 28 days of the commencement of this insurance. After some time Mr. Ws arthritis flared up and he was unable to meet the loan repayments. Found to be misleading (s. 52 TPA) and to involve lack of due care and skill on the part of the bank manager (s. 74TPA), The damages measured as the cover Mr. Warnock would have obtained had the bank manager told him the truth. i.e. Policy limit of $50,000 less an additional premium of $1,000. Plus an order under s. 87 TPA varying personal loan agreement from inception in to avoid the default complained of as the basis of the cross claim by the bank.

107 ©MNoonan2010 Appropriate Remedies An illustration of a case where it was not possible to imply fitness for purpose because there was not reliance on skill and judgement, but another remedy was available pursuant to ss 52 and 82 of TPA Clyde Industries Pty Ltd v. Golden West Refining Corp (text). Golden West refined gold using a process involving hydrochloric acid. It was important that there was not any fluorine in the acid as glass vessels and condensers were used. Daly Laboratories supplied acid to Golden from CSBP, but needed ore than they could supply. So it turned to Ajax, a division of Clyde. When Golden used the Ajax acid, condensers and vessels were damaged and $62, worth of solution containing gold was lost. Trial judge found no reliance for the purpose of implying term of fitness for purpose.Found that Golden did not rely on Daly representation that Ajax acid was same as CSFB acid and did not contain fluorine because executives of Golden knew from their own experience that Ajax acid might contain some fluourine. So, this representation did not cause the damage and so no s.82 damages available for breach of s. 52. However, they did rely on the technical data sheet put out by Clyde that the acid may contain up to but not more than approximately 100ppm fluorine. At that level, it would not cause damage.

108 ©MNoonan2010 False Representations - TPA s.53 FALSE REPRESENTATIONS: That goods or services are a particular standard, quality, grade, composition, style, model That goods are new That a particular person has agreed to acquire the or that goods or services have sponsorship, approval, performance characteristics, benefits they do not have. Need to show conduct was deliberate but with strict liability. FALSE OR MISLEADING REPRESENTATION: As to price As to availability of facilities for repair or spares As to origin As to existence, exclusion or effect of any condition, warranty guarantee, right or remedy.

109 ©MNoonan2010 Conduct Prohibited by Section 53 False Representations that goods were of a particular standard, quality, value, grade, composition, style or model or have had a particular history or a particular previous use. A manufacturer of microwave ovens advertised that its ovens were approved by Standards Association of Australia. This was false. Sharp Corp of Australia Pty Ltd v. Hartnell (1975) ATPR An advertisement described silver rings from teaspoons when the rings contain no silver at all. Thompson v. Magnamail Pty Ltd (2) (1977) ATPR A shop advertised top quality shoes. They were in fact seconds. Macfarlane v. John Martin & Co. Ltd (1977) ATPR Demonstrated photocopiers were sold without disclosing that history. Hollis v. A B E Copiers Pty Ltd (1979) ATPR False odometer readings. Given v. CV Holland (Holdings) P/L (1977) 29FLR 212. False statements about the origin of goods. Barton v. Croner Trading Pty Ltd (1985) ATPR Korczynski v. Wes Lofts (Aust) Pty Ltd (1986) ATPR False statements about the quality of wine. Van Berg v. Trade Practices Commission (1977) ATPR

110 ©MNoonan2010 Section 53 - False Representations that Services are of a Particular Standard, Quality, Value or Grade An example of this is an advertisement for the three day Rio Tennis Tournament in Canberra which said Lendl v. McEnroe nightly at 7.30pm. In fact, these two players were scheduled to meet only once. Kylie v. Lysfar Pty Ltd (1985) ATPR

111 ©MNoonan2010 False Representations that Goods are New The legitimate expectations of a new item are much greater than if it is secondhand. The decision to buy new rather than used goods may involve the consumer in other arrangements such as financing. To be misled in such a matter prevents the consumer from making an informed judgement about value for money. The problem is that new can have several meanings. In Annard & Thompson Pty Ltd v. Trade Practices Commission (1979) 25ALR91, it was explained that: the meaning of the word new particularly in relation to motor vehicles, has been considered several times in the Courts. It seems that there are at least five possible meanings which the word may bear when used to describe a vehicle. They are: 1. That the vehicle has not been previously sold by retail, that is, not secondhand 2. That the vehicle is a current and not superceded model. 3. That the vehicle has not suffered significant deterioration or been used to any significant extent. 4. That the vehicle is of recent origin. 5. That the vehicle is one which has suffered a measure of damage but damage has been quite effectively repaired, any damaged part replaced and the vehicle is otherwise new. A breach would occur where a demonstration model, a superceded model or a reconditioned item were represented as new. A failure to disclose something is also a breach of the Section.

112 ©MNoonan2010 False Representations that a Particular Person has Agreed to Acquire Goods or Services This was apparently added to the Act to counter the practice of asserting that a person, recently deceased, had ordered goods and then demanding payment from relatives.

113 ©MNoonan2010 False Representations that Goods or Services have Sponsorship Approval, Performance Characteristics, Accessories, Uses or Benefits At the time World Series Cricket was introduced the Australian Cricket Board used 53(c) to prevent World Series matches from being promoted as test or super test matches. The use of the term test suggested sponsorship by the official body. Parish v World Series Cricket Pty Ltd (1977) ATPR An advertisement said that a particular type of vehicle was fitted with rear stabiliser bars when some models were not. Ducret v Nissan Motor Company (Australia) Pty Ltd (1979) ATPR A claim that by fitting its car burglar alarm a person would qualify for a reduction of insurance premium when this was not so. Given v Optional Extras (1976) ATPR An advertisement implied that Olympic champion swimmer Keiran Perkins was a member of a swimming team sponsored by Telstra. Perkins was not and successfully challenged the advertisement. Talmax Pty Ltd v Telstra Corporation Limited (1996) ATPR

114 ©MNoonan2010 False Representations that a Corporation has a Sponsorship Approval or Affiliation Where a corporation falsely claimed that it was a member of a body such as the Master Builders Association. This would create an impression it could be trusted when it might not be the case. If a corporation were falsely to advertise in a way that suggested approval of the Royal Family or that it was associated in some way with the Olympic Games. A computer company sold computers which were similar to those of a high profile rival and supplied with them the operating manual of that other companies computer, thus creating an unsubstantiated impression that its computers were associated with a more prominent brand. Apple Computer Inc v. Computer Edge Pty Ltd (1984) ATPR The use of a similar trading name and trademark were found to amount to a breach of 53(c) and (d). Australian Home Loans Limited (trading as Aussie Home Loans) v. Phillips (1998) ATPR

115 ©MNoonan2010 False or Misleading Representations with Respect to the Price of Goods or Services The Trade Practices Act defines price to include a charge of any description. Section 4. It would include delivery charges, installation charges, taxes, finance charges, insurance, on road charges and any other cost added to the basic cost. It follows that a supplier must inform a consumer of the total prices. There is no room for hidden extras. A price that is described as reduced or discounted or special must be just that. It is a breach of 53(e) to claim as a discounted price the regular price or to inflate the regular price and then sell at the normal price and claim it is a discounted price. Price comparison is important and when an advertisement is based on comparing the advertisers price with those of competitors, accuracy is essential. If the price difference were exaggerated, even by mistake, it is a breach of the Act. The safe way to engage in price comparison is to say we will guarantee to beat a competitors price by x dollars and you will notice that this frequently happens. The advertising must leave no wrong impression as to what is available for the price. If an extra is shown in an advertisement, the ad must make it clear that they come at an extra cost.

116 ©MNoonan2010 False or Misleading Representations with Respect to the Price of Goods or Services cont. There was a price tag where the higher price was crossed out and replaced by a lower price written in. Giving the impression that the higher price is what would normally be paid if the retailer had not decided to reduce the price. The goods had not previously been offered at the higher price. TPC v Cue Designs Pty Ltd (1996) ATPR Optus advertised free weekend local calls but failed to mention that the offer did not apply to calls from one mobile to another. TPC v Optus Communications (1996) ATPR. In response to the launch of telephone calls at 20c. Telstra stated that under its pricing plan local calls would be available at 21c. In fact the cost ranged from 21.8c to 25c. Australian Competition & Consumer Commission v Telstra (1997) ATPR

117 ©MNoonan2010 False or Misleading Representations Concerning the Availability of Facilities for the Repair of Goods or Spare Parts for Goods This is all the more important where relatively expensive high technology goods are involved.

118 ©MNoonan2010 False or Misleading Representations Concerning the Place of Origin Product (Produce of Australia) can be used only where the local content is 100% or close to it. To use Made in Australia it is necessary that at least 50% of the cost of producing the product was incurred in Australia. Trade Practices Act, Part V, Division 1AA, Section 65AA to 65AM inacted in 1998.

119 ©MNoonan2010 Making a False or Misleading Representation Concerning the Need for any Goods or Services It was common for pest exterminators to tell old age pensioners that their houses were infested with termites and to panic them into having unnecessary work done. Likewise a mechanic would profitably extend a transaction by telling the customer that in the course of a simple repair job it became apparent that more substantial work was necessary. The need of goods or services can exist when it is only desirable or preferable. It is important to establish that the goods (service) were not needed. A private health insurance fund told patients that if they wished to be able to choose who should treat them they would be well advised to maintain membership of the fund. This was incorrect. Keehn v. Medical Benefits Fund of Australia Limited (1977) ATPR

120 ©MNoonan2010 The Making of a False or Misleading Representation Concerning the Existence, Exclusion or Effect of any Condition, Warranty, Guarantee, Right or Remedy Calculators were sold with a pamphlet stating they carried a one year warranty when in fact it was only 90 days. Ballard v. Sperry Rand Australia Limited (1975) ATPR An insurance agent gave wrong information about the wording of a clause in a disability insurance policy. He said it applied to the consumer being incapable of carrying out his normal occupation when in fact it applied to any occupation. The impression was that the policy operated in a more generous way than the standard disability. Dates v. City Mutual Life Assurance Society (1982) ATPR

121 ©MNoonan2010 Misleading Conduct re Services s. 55A TPA A corporation shall not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services. Note LIABLE TO MISLEAD requires a public element and is narrower than LIKELY TO MISLEAD. In Dawson v. World Travel Headquarters P/L (1981) 53 FLR 455, World Travel took a booking for a 16 day tour when the duration had been changed to 15 days. Brochures, which contained the incorrect information, were displayed by World Travel. It was held to have breached ss. 53(c) 55A and 58 (accepting payment while intending not to supply or unable to supply).

122 ©MNoonan2010 False representation re business activities s.59(1) prohibits a corporation from making false or misleading statements in a material particular concerning the profitability or risk of business activities that can be carried out at home. 59(2) aimed at extravagant claims re franchises e.g. Wilde v. Menville Pty Ltd (1981) used truck dealer as to earnings by purchasers using truck or ACCC v. Murray (2002) FCA 1252 concerning franchises to make Wills..represented it could be lawfully done by non lawyers.

123 ©MNoonan2010 Harassment and Coercion - TPA 60 A corporation shall not use physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services to a consumer or the payment for goods or services by a consumer. ACCC v. Davis (2003) FCA Respondent pinned consumer to ground until their vehicle was removed from consumers premises. ACCC v. McCaskey (2000) 104 FCR 8 French J distinguished between harassment and undue harassment. Repeated unwelcome approaches to buy could easily be undue harassment. Whereas, legitimate demands for payment of moneys owing might be frequently but legitimately made. If calculated to intimidate or demoralise etc rather than convey the demand, they will be undue.

124 ©MNoonan2010 Unconscionable conduct S.51AA S.51AB S.51AC

125 ©MNoonan2010 Unconscionable Conduct S.51AA TPA Adopts General Law of Equity. A corporation must not, in trade or commerce engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories Commonwealth Bank v. Armadio Note need for special disadvantage. 51AB extends meaning re goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption. Extended to small business by way of 51AC-limit of $3m. Large business taking advantage of small business. E.g franchises, landlord and tenant. Circumstances must have been foreseeable.

126 ©MNoonan2010 Unconscionable Conduct analysis 1.Corporation? 2.Trade or commerce? 3.Conduct unconscionable? under common law?, 51AB ? Supply of goods/services to a consumer 51AC?protection to small business against unfair conduct by large business. Note longer checklist and wider remedies from 51AB.

127 ©MNoonan2010 s.51AB s. 51AB -supply of consumer goods or services to a person….of a kind ordinarily acquired for personal, domestic or household use or consumption…note restricted definition of goods. Non exhaustive list of matters Court may have regard to in subs. (2)-bargaining strength, conditions more than required to protect legitimate interests, level of understanding, undue influence, alternatives available.

128 ©MNoonan2010 TRADE PRACTICES ACT SECT 51AC Unconscionable Conduct in Business Transactions (1) A corporation must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a corporation (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a corporation (other than a listed public company); engage in conduct that is, in all the circumstances,unconscionable.

129 ©MNoonan2010 TPA51AC cont. Matters the court may have regard to include: (a) the relative strengths of the bargaining positions; (b) conditions that were not reasonably necessary for protection of legitimate interests; (c) whether the business consumer was able to understand any documents; (d) whether any undue influence or pressure or any unfair tactics were used; (e) the price and circumstances the business consumer could have acquired identical or equivalent goods or services; (f) the extent to which the supplier's conduct towards the business consumer was consistent with the supplier's conduct in similar transactions between the supplier and other like business consumers; (g) the requirements of any applicable industry code; (h) the requirements of any other industry code; (i) the extent to which the supplier unreasonably failed to disclose to the business consumer: (i) any intended conduct of the supplier that might affect the interests of the business consumer; and (ii) any risks to the business consumer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the business consumer); (j) the extent to which the supplier was willing to negotiate the terms and conditions; and (k) the extent to which the supplier and the business consumer acted in good faith.

130 ©MNoonan2010 Pressure to Purchase Property Found to be Unconscionable A Magistrate's Court has found three property companies behaved unconscionably under Victoria's Fair Trading Act.The Ballarat Magistrates Court determined single mother of three Kellie Brown was a victim of misleading, deceptive and unconscionable conduct by Livio Cellante, Perna Pty Ltd and Astvilla Pty Ltd, and awarded her $31,584. Mr Cellante and employees of his companies persuaded Ms Brown to purchase a house in Warracknabeal, initially under a vendor term contract, for $55,000 that they were only in the process of purchasing for $25,600.Vendor term contracts are often a last resort for those on low incomes, frequently exorbitant interest rates and repayment terms. Further, sales pressure was used to conceal the true value of the house from Ms Brown, preventing her from looking around and gathering advice.The companies and their employees represented that she had to pay a deposit immediately to secure the house, which they claimed was in demand, when it actually had been on the market for at least seven years. All 3 defendants found to have contravened section 7 of the Fair Trading Act, by engaging in unconscionable conduct in their dealings with a person who could not match them in terms of knowledge or experience. The magistrate also found breach of s 9 of the Fair Trading Act when they engaged in misleading and deceptive conduct. Magistrate also ordered them to stop making representations that they are the owners of properties when they are not, and that they pay the costs of the case in the public interest despite the fact that the offences had occurred three years ago. 24 June, 2004.

131 ©MNoonan2010 ACCC, Westfield Settle Unconscionable Conduct Matter The ACCC accused Westfield in 2001 of breaching the unconscionable conduct provisions of TPA during settlement of private litigation with former retail tenants of a shop at the Indooroopilly Shopping Centre in Brisbane (managed by Westfield at the time). It was alleged that Westfield acted unconscionably by making it a condition of the settlement that the former tenants would sign a deed of release containing a certain clause releasing liability. Amongst other things, the clause required that the former tenants not commence, recommence or continue any action in connection with the subject matter of their private litigation, including commencing, recommencing or continuing any administrative or governmental investigation against Westfield (or other parties involved in the private litigation). The ACCC considered that the condition might have impeded the tenants from approaching or assisting the ACCC in any investigation into Westfields conduct. Westfield acknowledged that the condition may have had the effect of discouraging the tenants from approaching or assisting the ACCC, but denied that the effect was intended. Condition was not reasonably necessary for the protection of Westfields legitimate interests in ensuring the finality of the private action between Westfield and the former tenants, and arose in circumstances where there was a significant difference in the relative bargaining strengths.

132 ©MNoonan2010 ACCC and Westfield cont (2) As part of the settlement, Westfield paid an agreed amount to the former tenants and has undertaken to the Federal Court of Australia that, in future, it will use a specific release of liability clause when entering into settlement agreements with retail tenants. ACCC Chairman, Mr Graeme Samuel, said that the matter had raised significant public interest issues."The ACCC wanted to ensure it or any other law enforcement agency is not unduly fettered in its investigative functions or inhibited in the performance of its public duties", Mr Samuel said "The resolution of this matter provides some clarification for landlords and shopping centre managers about the ACCC's expectations in dealing with tenants. It also preserves the freedom of citizens to co-operate with enforcement agencies and ensures that the public interest is served," he added. "The ACCC regards as a high priority the prohibitions on unconscionable conduct in Part IVA of the Act. All businesses must be careful not to inappropriately use any power they may have in their dealings with small business. The ACCC is, and will continue to be, a strong enforcer of the law, without fear or favour," Mr Samuel warned. Westfield will contribute to the ACCCs legal costs. 18 June, 2004

133 ©MNoonan2010 Student Question 1 When we are considering goods, we have both the SOGA and TPA/ACL. When is it better to bring an action under one or the other? 1.When there is only one available. E.g. a non consumer may only have the implied terms of the SOGA, if any at all. 2.When a choice provides a better, easier, cheaper or more appropriate remedy.


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