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©MNoonan2008 Trade Practices Module 4 Summer Session 2007-08.

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1 ©MNoonan2008 Trade Practices Module 4 Summer Session

2 ©MNoonan2008 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 ©MNoonan2008 More on Product / Service Liability Having looked at terms that may be implied into a contract for sale/supply, we move on in this module to review Potential actions against manufacturers/importers for unsatisfactory and defective items. Misleading and deceptive conduct Unconscionable conduct

4 ©MNoonan2008 Manufacturers, Importers Usually no direct contract with consumer. So, specific statutory remedies provided  Unsatisfactory goods Part V Division 2A  Defective goods and services Part VA

5 ©MNoonan2008 Part V Division 2A  74A Interpretation  74B Fitness for particular purpose  74C False description  74D Unmerchantable quality  74E Non-correspondence with samples  74F Failure to provide repair facilities, parts  74G Non compliance with express warranty  74H-L Right to recover, time, seller indemnity

6 ©MNoonan2008 Liability Manufacturers, Importers-TPA Division 2A TPA (ss. 74A-74L) provides direct rights (not implied terms in a contract) to consumers (or someone who acquired or derived title from a consumer-gift,second hand) against manufacturers and, where the manufacturer has no place of business in Australia; against importers. The rights are similar to those implied in Contract with suppliers in Div 2- non-correspondence to description or sample, fitness for purpose, merchantability, non compliance with express warranties. It applies to “goods” that are ordinarily acquired for “personal, domestic or household use”. Action must be commenced within 3 years of date consumer became aware or ought reasonably to have become aware of the fault occurring. (ss. 74J) with absolute limit of 10 years from first supply. Attempts to exclude, restrict or modify void (74K). Where supplier also liable to consumer via a breach of term implied by Div 2, manufacturer is liable to indemnify supplier (74H).

7 ©MNoonan2008 Liability Manufacturers, Importers-SOGA As well as the provisions in the TPA, see also SOGA ss Where goods not of merchantable quality, court may add manufacturer as a party and if of opinion that defect should be remedied by manufacturer, make orders requiring manufacturer to pay buyer an amount equal to an estimate of cost of remedying defect or requiring manufacturer to remedy defect plus any other ancillary orders as seem proper.

8 ©MNoonan2008 TRADE PRACTICES ACT SECT 74D Actions re goods-unmerchantable quality (1) Where: (a) a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re- supply; (b) a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer; (c) the goods are not of merchantable quality; and (d) the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not of merchantable quality; the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction.

9 ©MNoonan2008 TPA s. 74D continued (2) (2) Subsection (1) does not apply: (a) if the goods are not of merchantable quality by reason of: (i) an act or default of any person (not being the corporation or a servant or agent of the corporation); or (ii) a cause independent of human control; occurring after the goods have left the control of the corporation; (b) as regards defects specifically drawn to the consumer's attention before the making of the contract for the supply of the goods to the consumer; or (c) if the consumer examines the goods before that contract is made, as regards defects that the examination ought to reveal. (3) Goods of any kind are of merchantable quality within the meaning of this section if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to: (a) any description applied to the goods by the corporation; (b) the price received by the corporation for the goods (if relevant); and (c) all the other relevant circumstances.

10 ©MNoonan2008 Maxwelton farmed Tara-cattle, sheep, fat lambs,cereal. Dixon (Manager) decided to acquire a hay baler. Hay is mown and raked into windrows. Then it is picked up by the baler, compressed into bales, and tied with twine…last is knotting system. He bought a used Heston 4800 baler "as is" for $35,000. Saw 3 faults. Seller reduced price by $1,000. Seller indicated that the baler was a good and reliable baler and had been in operational use in the previous season. Dixon picked it up, cleaned off chaff, changed oil in the gear boxes, greased machine, adjusted chains according to manual, replaced a bolt and went to a baling school. Knotting system did not function. Attempted repair, then abandoned use of it. s. 71(1) TPA "merchantability" Consumer for purposes of Act…Baler supplied in the course of a business. Not possible to see problem when not operating and so inspection could not reveal. s. 66(2)… goods are of merchantable quality if they are as fit for the purpose for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price and all the other relevant circumstances.Calculation of price did not reflect a known inoperable essential component. ""as is" could not of itself exclude implied condition …still less "as per inspection”. Only covered defects leading to $1,000 reduction. W.M.Johnson P/L v. Maxwelton (Oaklands) P/L CASCNSW CA 40136/99 23/10/2000

11 ©MNoonan2008 Medtel Pty Limitee v. Courtney (2003) FCAFC 151 The full Federal Court considered whether a pacemaker from a batch of pacemakers imported and distributed by Medtel that was still functioning could, nevertheless, be not of merchantable quality under TPA74D on basis there was a superadded risk of failure-even though it was subsequently proven that the pacemaker had not actually failed prematurely. Some of the batch of pacemakers found to be at greater risk of early battery depletion due to the type of solder used in manufacture. Not possible to determine whether a particular pacemaker was actually defective without taking it out of the patient and testing it. Mr. Courtney brought representative proceedings on behalf of himself and others fitted with the pacemaker. Judge at first instance found pacemakers not of merchantable quality, nor fit for the purpose because of superadded risk. Medtel appealed. The full FC dismissed the appeal. Compare definition of “merchantable quality”-court needs to have regard to what a consumer is reasonably entitled to expect at the time of supply in terms of description and price…with common law..Australian Knitting Mills Limited v. Grant required that the goods be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of price obtainable for such goods if in reasonably sound order and condition and without special terms.

12 ©MNoonan2008 Rasell v. Garden City Vinyl and Carpet Centre Pty Ltd (1991) ATPR Mr. and Mrs. Rasell ordered carpet for their home from a carpet manufacturer. They specified that the carpet was to be a particular colour to match the interior décor of the house and the internal walls which were exposed brick. The carpet was supplied and there was no complaint as to its quality as carpet, but the colour of the carpet was different in patches and different from the colour specified. This was due to "pile reversal" or "watermarking"; a result of the manufacturing process. Did the customer have to accept the carpet? It was held that the carpet was not reasonably fit for the purpose of blending in with or matching the existing décor; a particular purpose made known at the time of purchase…. a breach of s. 71 (2) TPA. Further, since it was also not fit for one of the usual purposes for which carpet is purchased (matching existing décor) it was not of merchantable quality. Note also that it was new, high quality and expensive carpet.

13 ©MNoonan2008 Liability Manufacturers, Importers - Defective goods causing injury loss. Div 2 Part VA TPA STRICT LIABILILTY THRESHOLD ISSUES-Corporation, in trade or commerce, supplies, goods manufactured by it, goods are defective, injury suffered, defences available. Does not compensate for defects themselves; but for injury arising from interaction of defects with people and property. (74AE individuals, 74AF goods, 74AG real property). Note: May also be failure of statutory duty elsewhere in TPA (Part V Division 1A) re safety standards, recalls etc. Meaning of “DEFECTIVE” 75AC-safety is not such as persons generally are entitled to expect.-usually manifests in manufacturing, design, warning. DEFENCES available 75 AK-defect did not exist at time supply, in accordance with mandatory standard, state of scientific knowledge, only a component in finished goods and defect due to aspect of that rather than component.

14 ©MNoonan2008 Hardchrome Engineering P/L v. Kambrook Distributing P/L (2000)VSC 359 (13/9/2000) Hardchrome installed a titanium nitrate coating process machine. Decision made to apply a wax coating to the hardened articles to protect them against damage during transport. It had to be heated to Article was then dipped into the wax. Hardchrome purchase a Kambrook KD53 deep fryer usually used to deep fry food and was powered by electricity. Turned on at 5.45 am and turned off at 3.15 then turned on at 5pm and off at 7pm. Electrical cord to fryer attached to extension cord attached to timer, attached to double adaptor which was inserted into a double electrical plug on side of an electrical power cabinet. Fire. Court concluded fryer defective and not of merchantable quality. The defect, an inadequate gap in thermostat probe caused arcing which ultimately led to the contact points being welded and a continuous supply of electricity to the fryer…which overheated and caused the fire. Lots of expert evidence. Kambrook negligent in selling defective item. Court refused to imply conditions (from instructions) that appliance only to be used in domestic setting because instructions not part of contract…came later…and not necessary to carry out contract.

15 ©MNoonan2008 GLENDALE CHEMICAL PRODUCTS P/L V. ACCC (1998) 1571 FCA Mr Barnes had a blocked drain and purchased 500g Caustic Soda at supermarket. A friend had advised him to pour hot water down the drain and tip the whole 500G in. He followed advice, kneeling down while doing it. A column of hot water emerged from the pipe causing burns to his face and eyes. Was Glendale a “manufacturer” for purposes of Part VA? Glendale purchased bulk from Redox Chemicals and repackaged it. The trial judge said if a corporation causes or permits the name of the corporation or a brand or mark of the corporation to be applied to goods supplied by the corporation the corporation is to be deemed for the purposes of Part VA to have manufactured the goods. The FC agreed. Did the caustic soda have a “defect”? (75AC) s. 75AC(2) applies even if no inherent defect in the goods. A substance which is marketed as being suitable for a particular purpose without warnings as to the particular way in which that purpose should be achieved may have a defect because use in some ways would not be safe. Warnings inadequate in that nothing about use with hot water when that is clearly very dangerous. Avoid Contact with Eyes and Skin…plus a warning that the product is corrosive. Always wear rubber gloves and safety glasses when handling caustic soda. Aluminium or zinc covered (galvanised) utensils must not be used Did Mr. Barnes contribute to his injuries such that there would be a basis under s. 75AN(1) for reducing Glendale’s liability under 75AD? No, Glendale submissions dismissed in case and this was confirmed on appeal.

16 ©MNoonan2008 Graham Barclay Oysters Pty Ltd v. Ryan See text Barclay grows and distributes oysters grown on Wallis Lake. It tested its oysters satisfactorily in December and January In Jan, Ryan bought oysters and contracted hepatitis A. Problem with discharge of effluent into lake. Found There was no contravention of s. 52 TPA by silence No privity of contract, so no implied terms possible Contravention of Div 2A 74B(fitness) and 74D (merchantability) Although Part VA 75 AD satisfied, defence of state of scientific knowledge successful. Confirmed on appeal, extracted in text. Negligence successful, but was lost on appeal.

17 ©MNoonan2008 Misleading, deceptive conduct  S. 52 General….misleading, deceptive  S. 53 False representations  S. 55A Services

18 ©MNoonan2008 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. Note that there is no mention of consumer. No need for intent. Endless application. e.g. use of another trader’s 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.

19 ©MNoonan2008 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.

20 ©MNoonan2008 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.

21 ©MNoonan2008 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 MML’s misleading conduct and Metalcorp had acted in reliance upon it.

22 ©MNoonan2008 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.

23 ©MNoonan2008 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

24 ©MNoonan2008 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. W’s 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. W’s 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.

25 ©MNoonan2008 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.

26 ©MNoonan2008 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. 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.

27 ©MNoonan2008 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

28 ©MNoonan2008 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

29 ©MNoonan2008 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, that it is not a secondhand vehicle. 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 this damage has been quite effectively repaired or any damage part replaced and the vehicle is otherwise new in every respect. 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.

30 ©MNoonan2008 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.

31 ©MNoonan2008 False Representations that Goods or Services have Sponsorship Approval, Performance Characteristics, Accessories, Uses or Benefits they do not have  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 quality 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

32 ©MNoonan2008 False Representations that a Corporation has a Sponsorship Approval or Affiliation it does not have  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 sell 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

33 ©MNoonan2008 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, onroad 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 that 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.

34 ©MNoonan2008 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

35 ©MNoonan2008 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.

36 ©MNoonan2008 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.

37 ©MNoonan2008 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

38 ©MNoonan2008 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

39 ©MNoonan2008 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).

40 ©MNoonan2008 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 consumer’s 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.

41 ©MNoonan2008 Unconscionable conduct  S.51AA  S.51AB  S.51AC

42 ©MNoonan2008 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. s. 51AB -supply of consumer goods or services….of a kind ordinarily acquired for personal, domestic or household use or consumption…note restricted definition. Non exhaustive list of matters Court may have regard to in ss (2)- bargaining strength, required to protect legitimate interests, level of understanding, unue influence, alternatives available. Extended to small business by way of 51AC-limit of $3m price. Circumstances must have been forseeable-defence of forseeability.

43 ©MNoonan2008 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.

44 ©MNoonan2008 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.

45 ©MNoonan2008 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.

46 ©MNoonan2008 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 Westfield’s 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 Westfield’s 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.

47 ©MNoonan2008 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 ACCC’s legal costs. 18 June, 2004

48 ©MNoonan2008 Unfair contracts See NSW Legislative Council Standing Committee on Law and Justice Report November Unfair terms in consumer contracts Discussion of unconscionable and adequacy of current regulatory framework-Contracts Review Act 1980 (NSW), TPA, Fair Trading Act.

49 ©MNoonan2008 Focus of report-unfair terms  Supplier can unilaterally vary the goods or services  Penalties against consumer but not supplier for breach of contract  Supplier allowed to suspend services but continue to charge  Supplier can terminate contract, but not consumer  Standard form contracts with onerous terms and no alternative  Excessive length of contracts, difficult language


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