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©MNoonan2009 Supply of Goods and Services Module 4 Winter 2012
©MNoonan2009 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.
©MNoonan2009 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) 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 (if any): --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.
©MNoonan2009 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 Winter 2012 Semester, Consumer Credit will not be covered.
©MNoonan2009 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 considerable differences in power between contracting parties. 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).
©MNoonan2009 Types of transactions considered Conduct in Commercial dealings-Module 4 B2C In module 5, we will concentrate on product and service liability in transactions between business and consumers within Australia. B2B In module 6, we will concentrate on transactions between businesses and typically be concerned with manufacturers, importers/exporters, wholesalers, retailers, and distributors of goods or services. Note that there is some crossover ---small business may also be a “consumer”
©MNoonan2009 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
©MNoonan2009 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 are now 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 ACL but may find judgements or text analysis referring to the TPA useful in reasoning or argument if provisions are the same or similar.
©MNoonan2009 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.
©MNoonan2009 PRODUCT AND SERVICE LIABILITY B2B 2012 FACTS LAW REMEDIES Goods/services Existence Contract? Action in contract Breach contract Statutory Rescission Unsatisfactory Express terms Damages Implied terms-SOGA,custom Equitable Intnl sale? Vienna Conventn Fines ACCC Financial Services? Defendant taken Misleading, Damages advantage of? deceptive conduct Injunction serious inequality? Unconscionable? Orders Small business? Other harsh agreement? Unfair terms in consumer contract? Untruthful representation Tort Damages Change in possession without transfer of titleBailment? Damages
©MNoonan2009 PRODUCT/SERVICE LIABILITY B2C 2012 FACTS LAW REMEDIES Goods/services Consumer sale? Action in contract unsatisfactory Formation of contract -breach Statutory 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
©MNoonan2009 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”, or services, intangibles Is it an agreement to sell in the future? The SOGA only applies to sales of GOODS. A SUPPLY?-but, not a sale? e.g.lease, Hire Purchase The ACL might applies to these. Is it something else? GIFT, BARTER, BAILMENT,FRANCHISE,SECURITY?
©MNoonan2009 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:
©MNoonan2009 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?
©MNoonan2009 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
©MNoonan2009 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
©MNoonan2009 SALE OF GOODS JANSZ V. G M B IMPORTS (1979) VR 581 1. GMB Imports was licensed tobacco wholesaler. 2. Licence expired 31.5.76. 3. On 31.5.76 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? 31.5.76 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 31.5.76….agreement to sell only Sale not until later in 1977
©MNoonan2009 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?
©MNoonan2009 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
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 SALE OF GOODS HEWETT V. COURT (1983) 149 CLR 639 1. Hewett family contracted with Ogilby for construction of transportable house. 2. Cost $34,116 paid to $20,469. 3. 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.
©MNoonan2009 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
©MNoonan2009 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.
©MNoonan2009 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?
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 IS SOFTWARE a “GOOD”? Gammasonics Institute for Medical Research P/L v. Comrad Medical systems P/L  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.
©MNoonan2009 Software again? Courts struggle with characterisation. e.g. Telstra v. Hurstville Council  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  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.
©MNoonan2009 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.
©MNoonan2009 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 email goods?
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 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
©MNoonan2009 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 1988-93 at a price which would provide a reasonable commercial profit to TIA. These base Prices shall apply for calendar year 1988. 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.
©MNoonan2009 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
©MNoonan2009 Australian Consumer Law See section 2 definition. Not identical, but very similar to TPA definition.
©MNoonan2009 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. Telstra’s 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.
©MNoonan2009 Linked Credit Provider ACL definition in section 2, details of liability in Part 5-5 Div 1 sections 278-286. 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
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 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
©MNoonan2009 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
©MNoonan2009 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?
©MNoonan2009 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
©MNoonan2009 OSCAR CHESS V. WILLIAMS (1957) 1 WLR 370 Williams bought Morris second hand. Traded it in on new Hillman from Oscar Chess. Williams told salesman Morris was 1948 model. Registration book showed Morris first registered 1948. £290 pounds allowed for trade in.18 months later OC discovered Morris was 1939 model. No difference in model 39-48. 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
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 IMPLIED TERMS Common law SOGA VIENNA CONVENTION INCOTERMS Custom
©MNoonan2009 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.
©MNoonan2009 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
©MNoonan2009 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)/ACL have taken over now for many types of misleading / deceptive conduct. Also, TPA /ACL 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 relating to pre 2010 law. For the purpose of our course, concentrate on NSW. For purposes of professional life; bear that in mind.
©MNoonan2009 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.
©MNoonan2009 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
©MNoonan2009 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?
©MNoonan2009 Misleading and deceptive conduct ACL Part 2-1s.18. In Winter 2012 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.
©MNoonan2009 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).
©MNoonan2009 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).
©MNoonan2009 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.
©MNoonan2009 Misleading, Deceptive Conduct Not limited to 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.
©MNoonan2009 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
©MNoonan2009 Elements Prove on the balance of probabilities: Conduct engaged in. (Note difficulties with oral conduct without corroboration) Conduct conveyed a certain meaning. May be unambiguous or context may be relevant. The meaning conveyed was misleading and deceptive.
©MNoonan2009 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.
©MNoonan2009 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.
©MNoonan2009 SEELEY INTERNATIONAL PTY LTD V. CINTRO PTY LTD (Newtronics) 2002 ASAL 55-075 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.
©MNoonan2009 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
©MNoonan2009 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 MML’s misleading conduct and Metalcorp had acted in reliance upon it.
©MNoonan2009 A suitable remedy, or the only remedy Often, there are multiple reasons for legal liability. Sometimes, one leads to more appropriate or better remedies. On other occasions and for various reasons, there are no other remedies available.
©MNoonan2009 Larrikin Music Publishing v. EMI (Federal Court- various cases 2010) Men At Work’s Down Under contained flute riff from Kookaburra which infringed Copyright. However, damages awarded were not for breach of copyright but for misrepresentations made to royalty collecting societies APRA and AMCOS falsely claiming that Down Under did not infringe copyright in any other work and Larrikin was entitled to all income from exploitation. Actionable…s.52, 82 TPA…found to be 5% income in hypothetical licensing agreement….enabled suitable remedy.
©MNoonan2009 WARNOCK V. ANZ BANKING GROUP LIMITED G322 of 1987 FC( NSW) (1989) 5 Insurance Cases 60-897 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.
©MNoonan2009 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 $62,132.46 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.
©MNoonan2009 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
©MNoonan2009 Misleading conduct in IT and ecommerce See ACCC v. Google (2012) FCAFC. Full FC on appeal, found Google responsible for the misleading impression conveyed by some “sponsored link” search results published on its search results page. Found Google was involved at a commercial and technical level in selecting and displaying sponsored links via its AdWords program. Contrast this with an “organic” search result.
©MNoonan2009 Other m&d conduct Apple 4G compatibility Marketing. In the US “Siri” availability. Optus mobile phone plan-conveyed impression it was a maximum $49/mth, when in fact that was the minimum. Yellow Page Marketing BV and Yellow Publishing Limited….misleading faxes and invoices to gain subscribers Harvey Norman promoted sale of 3D TVs with the promise viewers could watch 2010 AFL and NRL grand finals in 3D..when 3D broadcasts not available throughout Australia.
©MNoonan2009 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
©MNoonan2009 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 Quite some difference between new and old provisions.
©MNoonan2009 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-separate statutory liability for unconscionable conduct in relation to the supply or possible supply of goods or services to a person other than a public company. Due to the narrow interpretation of unconscionability in the unwritten law, parliament has clarified its view separately. Not limited by s.20. s.22-non exhaustive list of matters that court must have regard to when considering contravention of s. 21.
©MNoonan2009 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).
©MNoonan2009 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.
©MNoonan2009 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.”
©MNoonan2009 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”.
©MNoonan2009 Unconscionable Conduct 21.(1) A person 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.
©MNoonan2009 s.22 Relevant matters Without limiting matters to which a court may have regard: 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. 6.Conduct consistent with other customers 7.A relevant industry code 8.A failure to disclose how intended conduct might affect the interests of the customer and any risks to the customer 9.The extent to which contract terms were negotiable 10.Any power to unilaterally vary a term of a contract 11.Extent to which supplier/acquirer and customer acted in good faith
©MNoonan2009 Unconscionable conduct-enforcement Civil pecuniary penalty Undertakings Substantiation notices Public warning notices Injunctions Damages Compensatory orders Redress for non-parties Non-punitive orders Infringement notices
©MNoonan2009 Representations NEW ACL ss. 29,33,34 Offences in 151, 155,156 OLD TPA s. 53
©MNoonan2009 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.
©MNoonan2009 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
©MNoonan2009 False/Misleading Representations Penalties for contravention CRIMINAL See ss. 151.155,156 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.
©MNoonan2009 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.
©MNoonan2009 Student Question 1 When we are considering “goods”, we have both the SOGA and 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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