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©MNoonan2009 Supply of Goods and Services B2B transactions Module 6 Winter 15.

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1 ©MNoonan2009 Supply of Goods and Services B2B transactions Module 6 Winter 15

2 ©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.

3 ©MNoonan2009 Modules 4, 5and 6 The Contract for Sale/Supply of Goods and/or Services, both B2B and B2C Conduct surrounding the supply. Relevant Statutory provisions which impose terms into contracts for sale of goods (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 with supplies of goods and/ or services (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….to be discussed in other modules.

4 ©MNoonan2009 Relevant legislation 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 B2B sales Limited other references Consumer Credit will not be covered.

5 ©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

6 ©MNoonan2009 Change in the law 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. Note the important conceptual change from use of implied terms in TPA to Statutory Guarantees in ACL.

7 ©MNoonan2009 B2B transactions In this module we are considering transactions in which all parties are businesses and do not fall within the definition of either “consumer” in the ACL or “consumer sale” within SOGA. Such businesses often do not have the benefit of most protections in the ACL and must look after themselves in contract and the general law.

8 ©MNoonan2009 Product and Service Liability B2B 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 Convention ACCC fines or action? Financial Services? ASIC Act Small business=Consumer? ACL guarantees? Defendant taken Misleading, Damages advantage of? deceptive conduct Injunction serious inequality? Unconscionable? Orders Small business? Other Untruthful representation Tort Damages Change in possession without transfer of titleBailment? Damages

9 ©MNoonan2009 SOGA IMPLIED TERMS SOGA applies to ALL sales of goods (as defined) Term implied by s. 17 can be excluded in all sales Implied terms in sections 18, 19, 20 can be excluded in non-consumer sales…B2B transactions…but not in consumer sales (as defined in SOGA)



12 ©MNoonan2009 Niblett Limited v Confectioners’ Materials Co Ltd (1921) 3KB 387 Confectioners’ sold 3,000 tins of condensed milk to Niblett’s on CIF Contract. Although the documents did not show which brand of condensed milk was the subject of the sale, Confectioners’ argued that under an oral contract, it would be one of three brands - “Freedom”, “Tucson”, “Nissley”. Confectioners’ delivered 2,000 cases of “Freedom” and then 1,000 tins of “Nissley”. In November, Niblett’s received a letter from Nestle, stating that “Nissley” imitated the Nestle trademark and asked Niblett not to sell it. It also threatened to take proceedings against Niblett. Niblett signed an undertaking not to sell, advertise or offer for sale the “Nissley” condensed milk. They then unsuccessfully asked Confectioners’ to take it back and unsuccessfully applied for an export license for it.

13 ©MNoonan2009 Niblett Limited v Confectioners’ Materials Co Ltd cont. Niblett claimed damages for breach of warranty: - 1. that the milk was of merchantable quality; 2. that Confectioners’ had a right to sell it; 3. that Niblett should have enjoyed quiet possession; and 4. there was an implied condition or warranty that the label on the milk would not infringe any trademark. Bankes N J, of the English Court of Appeal, found that there was a clear breach of Section 12 of the English Sale of Goods Act, 1893, (S. 17 SOGA) because Confectioners’ had no right to sell the goods as they were, and Niblett had never enjoyed quiet possession.

14 ©MNoonan2009 Microbeads v Vinhurst Road Markings Ltd (1975) 1 ALLER 529 Prismo held a patent for a machine for making white lines on roads. The complete specification was published in November 1970. It was entitled to institute proceedings for infringement in 1972, when the letters patent were granted. At the beginning of 1970, Vinhurst brought a machine for making white lines from Microbeads.. property in the machine passed before Nov 1970. Vinhurst knew nothing about the patent, it found the machine unsatisfactory and didn’t pay Microbeads. Microbeads sued for the price. Vinhurst alleged breach of the term of fitness for purpose, and claimed that Microbeads did not have the right to sell the machine and Vinhurst did not have quiet possession. Lord Denning found that because the sale had occurred prior to the grant of the patent, there was no breach of the condition that the seller had the right to sell the goods. They were entitled to do whatever they liked with them at the time. However, he found a breach of the implied warranty for quiet possession. He found that the words “to have and enjoy” applied not only at the time of sale but for to future enjoyment.

15 ©MNoonan2009 IMPLIED TERMS - SOGA- TITLE-feeding the title PATTEN V. THOMAS MOTORS (1965) NSWR 1457 Miss P obtained a car on Hire Purchase from CAGA. She sold it to Dealer, Clinton Motors. After various transfers, TM bought it and sold to P in May 61. In August 61, Miss P obtained a loan from D&I purporting to give a Bill Of Sale over the car. She used the money to pay out the Hire Purchase agreement with CAGA On 09/08/61. Miss P did not repay D&I and they repossessed the car. P sued TM for Breach Of Warranty Of Title S. 17(1) SOGA In Sept 63. Breach Warranty rather than condition (Termination No Longer Possible). HAD ORIGINAL DEFECTIVE TITLE BEEN “FED” BY PAYING OUT HIRE PURCHASE CO? IF SO, ANY CAUSE OF ACTION UNDER S. 17(1) EXTINGUISHED. COLLINS J. YES, TITLE COULD BE FED IN THIS WAY. NO CAUSE OF ACTION.


17 ©MNoonan2009 IMPLIED TERMS - DESCRIPTION BEALE V. TAYLOR (1967) 1 WLR 1193 Mr. Taylor believed his car was a 1961 herald. He advertised it for sale as such. Mr. Beale bought it but found it was half of a 1961 herald and half an older one welded together. Mr. Beale sued for a refund. Both parties were innocent Seller said the sale was not by description but the sale of a car as seen, tried and approved. He denied the buyer had suffered loss or damage. SELLERS LJ IN COURT OF APPEAL 1.SALE BY DESCRIPTION 2.WITHIN SALE OF GOODS ACT 3.BUYER ENTITLED TO REFUND LESS SCRAP VALUE

18 ©MNoonan2009 IMPLIED TERMS - DESCRIPTION & SAMPLE NICHOL V. GODTS (1854) 156 ER 410 Nichol showed samples of oil to Godts. He described the oil as: ‘Foreign refined rape oil, warranted only equal to samples’ Godts entered into a written contract to buy 33 tons. The oil corresponded with the sample, but not the description. It was a mixture of rape and hemp oil. Godts refused to accept or pay. Nichol sued 1.ATTEMPT AT EXCLUSION 2.AGREED TO DELIVER FOREIGN REFINED RAPE OIL 3.DID NOT DO SO 4.CONTRACT NOT PERFORMED



21 ©MNoonan2009 National Engineering V. Wellington Orana Foundry P/L (2003) NSWSC 21 Part decision on whether a referee’s report should be accepted. In 1996, National entered into a sub contract with Multiplex for the fabrication and erection of structural steelwork for Stadium Australia. National ordered and purchased the cast forked ends from Wellington. It produced and delivered castings made in accordance with the shape requested by National. Upon testing they were found to contain defects. At this stage Wellington had cast about 600; some of which had been delivered. Wellington proposed that the design be modified and a revised price was agreed. Several castings of the roof needed to be replaced. National claimed a breach of s. 19(1)-not reasonably fit for the purpose. Did the buyer make known the particular purpose “so as to show that the buyer relies on the seller’s skill or judgement”?The National representative had provided drawings and specifications. What skill or judgement was left to the manufacturer? Was there reliance upon the seller as to whether castings could be cast or whether they could be cast to the appropriate standard?



24 ©MNoonan2009 Issues Note the need to prove: Purpose made known-how? Particular purpose? General purpose? Obvious? Reliance on skill and judgement- to what extent? What if specifications given or superior knowledge in buyer?

25 ©MNoonan2009 Ashington Piggeries Ltd v Christopher Hill Ltd; Christopher Hill Ltd v Nirdsirdmel (1972) AC441; (1971) 1ALLER847 Ashington Piggeries (AP) had a mink farm. They used Christopher Hill (CH) to make a compound food to feed the mink. It was an oral contract. The formula for the compound which specified the ingredients was provided by AP, (an expert in the nutritional requirements of mink). CH was in the business of compounding food stuffs for domestic animals but knew nothing about mink and had never compounded food stuffs for minks before. CH entered into a commodity contract with Nirdsirdmel (N) for them to supply a herring meat of “fair average quality of the season” for the compound. The herring meal contained DNMA which had been produced by a chemical reaction because of sodium nitrate used as a preservative. The DNMA was toxic for the mink, which died.

26 ©MNoonan2009 Ashington Piggeries Ltd v Christoper Hill Ltd; Christopher Hill Ltd v Nirdsirdmel (description) cont. CH, seller, sued AP, buyer, for price. AP, in cross action, sued CH - breach of contract alleging “King Size” did not correspond with description; not reasonably fit for purpose; and not of merchantable quality. In X action, CH joined N. CH admitted that sales of King Size were sales by description. Breach of implied condition that the goods supplied would correspond with description? The Court of Appeal had decided the goods complied with the description. HofL analysed: Did the presence of DNMA really affect quality or did it make a difference in kind? If the former, then in accordance with description. The contract said: “Norwegian herring meal fair average quality of the season, expected to analyze not less than 70% protein, not more than 12 % fat and not more than 4% salt”. HofL said: What was sold was Norwegian herring meal, despite the DNMA problem and it matched that description.

27 ©MNoonan2009 Ashington Piggeries Ltd v Christoper Hill Ltd; Christopher Hill Ltd v Nirdsirdmel (fit for purpose) AP had made known to CH the particular purpose for the King Size, but had CH made that purpose known to N? Did the buyers rely on sellers skill & judgement? They made known they were compounding it for foodstuffs and it was common food for mink; but they did not explicitly state that. The majority decision-purpose made known. In dissent, Lord Diplock -purpose not specific enough as it could have been any one of a “range of purposes”.

28 ©MNoonan2009 Rasell v. Garden City Vinyl and Carpet Centre Pty Ltd (1991) ATPR 41-152 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.



31 ©MNoonan2009 W.M.Johnson P/L v. Maxwelton (Oaklands) P/L CASCNSW CA 40136/99 23/10/2000 Maxwelton farmed Tara, running cattle, sheep and fat lambs and growing 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 the oil in the gear boxes greased the machine, adjusted the chains according to the operators manual, replaced a bolt and went to a baling school. Knotting system did not function. After attempts at repairs, 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"…in this case only covered the defects leading to the $1,000 reduction.

32 ©MNoonan2009 DRUMMOND AND SONS V. V AN INGEN AND CO (1887) 12 App Cases 284 1883 Van Ingen bought cloth described as “worsted coatings” and sold it to tailors who made coats. 1884 Van Ingen wanted more for same purpose. Shown samples, bought in accordance with samples. Cloth delivered conformed to samples BUT No good for coats Lord Herschell "When a purchaser states generally the nature of the article he requires, and asks the manufacturer to supply specimens of the mode in which he proposes to carry out the order, he trusts to the skill of the manufacturer just as much as if he asked for no such specimens. And I think he has a right to rely, on the samples supplied representing a manufactured article which will be fit for the purposes for which such an article is ordinarily used, just as much as he has a right to rely, on manufactured goods supplied on an order without samples complying with such a warranty.” Implied warranty will be excluded if due diligence would have disclosed defect. What amounts to due diligence depends on circumstances. Nothing here which could reasonably lead them to anticipate problem.


34 ©MNoonan2009 LIMITS ON EXCLUSION IMPLIED TERMS - SOGA S. 64 (1) Any provision in, or applying to, a contract for a consumer sale and purporting to exclude or restrict the operation of all or any of the provisions of sections 18, 19 and 20 (section 19(4) excepted) or any liability of the seller for a breach of a condition or warranty implied by any provision of those sections is void. (2) express warranty or condition in consumer sale does not negative a condition as to merchantable quality implied by Act (3)…expression “merchantable quality”… (4) No implied condition of merchantable quality for defects brought to buyer’s notice before contract (5) Re merchantable quality….court may add manufacturer as a party….make order that manufacturer pay…remedy


36 ©MNoonan2009 Performance We will cover performance of the contract – including remedies for common non- performance events. e.g. what happens if the buyer does not accept? Seller does not deliver? An instalment is unsatisfactory? Then we will look at remedies when goods or services are unsatisfactory or defective.

37 ©MNoonan2009 PERFORMANCE OF THE CONTRACT SOGA s. 30,31 Duties of seller and buyer 30. It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale. Payment and delivery are concurrent conditions 31. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer must be ready and willing to pay the price in exchange for possession of the goods.

38 ©MNoonan2009 PERFORMANCE OF THE CONTRACT SOGA s. 32-Rules as to delivery 32. (1) Whether it is for the buyer to take possession of the goods, or for the seller to send them to the buyer, is a question depending in each case on the contract express or implied between the parties. Apart from any such contract express or implied, the place of delivery is the seller's place of business if the seller has one, and if not, the seller's residence: Provided that if the contract be for the sale of specific goods which to the knowledge of the parties when the contract is made are in some other place, then that place is the place of delivery. (2) Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time.

39 ©MNoonan2009 Rules as to delivery cont. 32(3) Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that the third person holds the goods on the buyer's behalf. Provided that nothing in this section shall affect the operation of the issue or transfer of any document of title to goods. (4) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact. (5) Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller.

40 ©MNoonan2009 PERFORMANCE OF THE CONTRACT SOGA s. 33- Delivery of wrong quantity or mixed goods 33. (1) Where the seller delivers to the buyer a quantity of goods less than the seller contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered the buyer must pay for them at the contract rate. (2) Where the seller delivers to the buyer a quantity of goods larger than the seller contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or the buyer may reject the whole. If the buyer accepts the whole of the goods so delivered the buyer must pay for them at the contract rate. (3) Where the seller delivers to the buyer the goods the seller contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest, or the buyer may reject the whole. (4) The provisions of this section are subject to any usage of trade, special agreement, or course of dealing between the parties.

41 ©MNoonan2009 PERFORMANCE OF THE CONTRACT SOGA s. 34-Instalment deliveries 34. (1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by instalments. (2) Where there is a contract for the sale of goods to be delivered by stated instalments which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each case depending on the terms of the contract and the circumstances of the case whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated.

42 ©MNoonan2009 HAMMER AND BARROW V. COCA COLA (1962) NZLR 723  Hammer, a yo yo manufacturer contracted to sell 200,000 yo yos for a marketing campaign  85,000 /200,000 sent to bottling company  Payment by regular monthly statement of account  80% yo yos delivered were defective-would not run down string  High probability future deliveries would be defective  Further deliveries refused  Hammer sued for non-acceptance Could CC refuse the remainder of the deliveries? See Maple Flock Co v. Universal Furniture Products (Wembley) Ltd (1934)1 KB 148 for rights of buyer to refuse to accept delivery –Ratio quantitatively which breach bears to contract as a whole –The degree of probability or improbability that breach will be repeated –Whether acts and conduct evince an intention no longer to be bound to be –decided in general in objective way by reference to relation of default to –purpose of contract  Whole history of this matter was unsatisfactory.  Notwithstanding complaints and requests for replacement, nothing done to correct problems  Marketing campaign involved prestige of CC as between itself, its bottling companies, retailers and public  CC justified in rescinding contract

43 ©MNoonan2009 Delivery by instalments How do we decide if the buyer is entitled to treat the contract as repudiated? Apply the factors in Maple Flock Ratio quantitatively of breach to contract as a whole? 80% of 80,000 out of 200,000 Degree of probability breach will be repeated? Early failure to produce yo yos of appearance required, failure to run down string freely, nothing done quickly or eventually at all Whether acts etc evidence an intention not to be bound an objective test to be determined by considering the Relation of default to purpose of whole contract? Usual situation exacerbated by the importance of advertising campaign, work and expense put into it, efforts to fix it, suitable replacements could not be found easily or quickly elsewhere. Coca Cola justified in rescinding rather than risking further unsatisfactory deliveries.

44 ©MNoonan2009 Delivery by instalments What is the situation if the buyer is not entitled to treat the whole contract as repudiated because small percentage of deliveries problematic and likelihood of future deliveries being defective is low? We can treat it as a severable breach using s. 34(2) and claim damages for that breach. Note that s. 34(2) only applies if each instalment is to be separately paid for. If payment is on completion of all of them, still apply terms of contract, the Maple Flock criteria as to right of repudiation, (if not covered in express terms..e.g. no more than 3% problem items) and claim damage for loss without using 34(2) and without terminating whole contract.

45 ©MNoonan2009 PERFORMANCE OF THE CONTRACT SOGA s. 35- Delivery to carrier 35. (1) Where in pursuance of a contract of sale the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, is prima facie deemed to be a delivery of the goods to the buyer. (2) Unless otherwise authorised by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to the buyer, or may hold the seller responsible in damages. (3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable the buyer to insure them during their sea transit, and if the seller fails to do so, the goods shall be deemed to be at the seller's risk during such sea transit.

46 ©MNoonan2009 PERFORMANCE OF THE CONTRACT SOGA s. 36- Risk where goods delivered at distant place 36. Where the seller of goods agrees to deliver them at the seller's own risk at a place other than that where they are when sold, the buyer must nevertheless, unless otherwise agreed, take any risk of deterioration in the goods necessarily incident to the course of transit.

47 ©MNoonan2009 PERFORMANCE OF THE CONTRACT SOGA s. 37-Buyer's right of examining the goods 37. (1) Where goods are delivered to the buyer which the buyer has not previously examined, the buyer is not deemed to have accepted them unless and until the buyer has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract. (2) Unless otherwise agreed, when the seller tenders delivery of the goods to the buyer, the seller is bound on request to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract.

48 ©MNoonan2009 PERFORMANCE OF THE CONTRACT SOGA s. 38-Acceptance 38. (1) The buyer is deemed to have accepted the goods when the buyer intimates to the seller that the buyer has accepted them, or, subject to section 37, when the goods have been delivered to the buyer and the buyer does any act in relation to them which is inconsistent with the ownership of the seller, or when after the lapse of a reasonable time the buyer retains the goods without intimating to the seller that the buyer has rejected them. (2) The buyer's acceptance of the goods as referred to in subsection (1) does not preclude rescission of the contract for an innocent misrepresentation, unless the acts constituting acceptance amount to affirmation of the contract.

49 ©MNoonan2009 HAMMER AND BARROW V. COCA COLA (1962) NZLR 723 See text extract Had CC lost the right to reject because it had “accepted” yo yos? (a)Had it intimated acceptance? No. (b)Done an act inconsistent with ownership seller? (c)Retention without rejection for reasonable time? Hammer argued yes to (b) and (c). Court found that bottlers received yoyos as agent for CC. H not acting as agent for buyer, but as sellers when delivering to that agent. CC still had right to examine and reject.Delay reasonable in present case and circumstances. Some yoyos accepted. In that case, CC entitled to set up in diminution of price, claim for breach of warranty. Note discussion of appropriate damages-price v. unsound value.

50 ©MNoonan2009 PERFORMANCE OF THE CONTRACT SOGA s. 39-Buyers not bound to return rejected goods 39. Unless otherwise agreed, where goods are delivered to the buyer and the buyer refuses to accept them, having the right so to do, the buyer is not bound to return them to the seller, but it is sufficient if the buyer intimates to the seller that the buyer refuses to accept them.

51 ©MNoonan2009 PERFORMANCE OF THE CONTRACT SOGA s. 40- Liability of buyer neglecting/refusing delivery 40. When the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of the goods, the buyer is liable to the seller for any loss occasioned by the buyer's neglect or refusal to take delivery, and also for a reasonable charge for the care and custody of the goods: Provided that nothing in this section shall affect the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract.

52 ©MNoonan2009 REMEDIES OF UNPAID SELLER (2)  MEANING OF “UNPAID SELLER” = S.41 AGAINST THE GOODS LIEN  Ownership passed (no lien over your own goods)  Seller still in possession  Or lawfully recovers possession  No possession, no lien  Ascertained goods only  Right can be lost s.45(1), s.49 WITHHOLDING DELIVERY  Buyer defaults  Ownership has not passed STOP GOODS IN TRANSIT  When are goods in transit? S. 47(1)  Available when buyer becomes “insolvent”  Meaning of “insolvent”  Revests possession and revives lien  Retake actual possession or notice to carrier RIGHT OF RESALE Goods are perishable  Notice to buyer after exercise lien or stoppage  Expressly reserved right  s.50(3) Ward

53 ©MNoonan2009 RIGHTS OF UNPAID SELLER AGAINST GOODS SOGA s. 41-Unpaid seller defined 41. (1) The seller of goods is deemed to be an ``unpaid seller'' within the meaning of this Act: (a)when the whole of the price has not been paid or tendered; (b)when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise. (2) In this Part the term ``seller'' includes any person who is in the position of a seller, as for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has paid or is directly responsible for the price.

54 ©MNoonan2009 RIGHTS OF UNPAID SELLER AGAINST GOODS SOGA s. 42- Unpaid seller's rights 42. (1) Subject to the provisions of this Act and of any statute in that behalf, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods as such has by implication of law: (a)a lien on the goods for the price while the seller is in possession of them; (b)in case of the insolvency of the buyer a right of stopping the goods in transitu after the seller has parted with the possession of them; (c) a right of resale as limited by this Act. (2) Where the property in goods has not passed to the buyer the unpaid seller has in addition to the seller's other remedies a right of withholding delivery similar to and co ‑ extensive with the seller's rights of lien and stoppage in transitu where the property has passed to the buyer.

55 ©MNoonan2009 RIGHTS OF UNPAID SELLER AGAINST GOODS SOGA ss. 43,44-Seller’s lien and part delivery 43. (1) Subject to the provisions of this Act the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely: (a)where the goods have been sold without any stipulation as to credit; (b)where the goods have been sold on credit but the term of credit has expired; (c)where the buyer becomes insolvent. (2) The seller may exercise the seller's right of lien notwithstanding that the seller is in possession of the goods as agent or bailee for the buyer. 44. Where an unpaid seller has made part delivery of the goods, the seller may exercise the seller's right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien.

56 ©MNoonan2009 RIGHTS OF UNPAID SELLER AGAINST GOODS SOGA s. 45-Termination of lien 45. (1) The unpaid seller of goods loses the seller's lien thereon: (a) when the seller delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods; (b) when the buyer or the buyer's agent lawfully obtains possession of the goods; (c) by waiver thereof. (2) The unpaid seller of goods having a lien thereon does not lose the seller's lien by reason only that the seller has obtained judgment for the price of the goods.

57 ©MNoonan2009 RIGHTS OF UNPAID SELLER AGAINST GOODS SOGA s. 46-Right of stoppage in transitu 46. Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu, that is to say, the seller may resume possession of the goods as long as they are in course of transit, and may retain them until payment or tender of the price.

58 ©MNoonan2009 RIGHTS OF UNPAID SELLER AGAINST GOODS SOGA s. 47-Duration of transit 47. (1) Goods are deemed to be in course of transit from the time when they are delivered to a carrier by land or water or other bailee for the purpose of transmission to the buyer until the buyer or the buyer's agent in that behalf takes delivery of them from the carrier or other bailee.(2) If the buyer or the buyer's agent...obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end.(3) If after the arrival of the goods at the appointed destination the carrier or other bailee acknowledges to the buyer or the buyer's agent that the carrier or other bailee holds the goods on the buyer's behalf and continues in possession of them as bailee for the buyer or the buyer's agent, the transit is at an end, and it is immaterial that a further destination for the goods may have been indicated by the buyer.(4) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back.(5) When goods are delivered to a ship chartered by the buyer, it is a question depending on the circumstances of the particular case whether they are in the possession of the master as a carrier or as agent to the buyer.(6) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or the buyer's agent in that behalf, the transit is deemed to be at an end.(7) Where part delivery of the goods has been made to the buyer or the buyer's agent... the remainder of the goods may be stopped in transitu, unless the part delivery has been made under such circumstances as to show an agreement to give up possession of the whole of the goods.

59 ©MNoonan2009 RIGHTS OF UNPAID SELLER AGAINST GOODS SOGA s. 48-How stoppage in transitu effected 48. (1) The unpaid seller may exercise the seller's right of stoppage in transitu either by taking actual possession of the goods or by giving notice of the seller's claim to the carrier or other bailee in whose possession the goods are. The notice may be given either to the person in actual possession of the goods or to the person's principal. In the latter case the notice to be effectual must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may communicate it to the principal's servant or agent in time to prevent a delivery to the buyer. (2) When notice of stoppage in transitu is given by the seller to the carrier or other bailee in possession of the goods, the carrier or other bailee must redeliver the goods to or according to the directions of the seller. The expenses of the redelivery must be borne by the seller.

60 ©MNoonan2009 JOHANN PLISCHKE U. SOHNE V. ALLISON BROS (1936) 2 ALL ER 1009  Plischke agreed to sell linen to Napier  Term of contract “Free house, London”  Shipped from Germany to England  On arrival on 14.1, placed in warehouse  By Allison on instructions Napier  Napier entered arrangement with creditors  Plischke discovered this and  On 18.1, Plischke ordered Allison not to deliver to Napier  Allison refused 1. GOODS STOPPED IN TRANSIT? 2. HAD TRANSIT ENDED? 3. MEANING OF “FREE HOUSE, LONDON” Branson J  Free house means goods to be delivered to them and does not exclude right to indicate goods should be delivered some other place  Allisons acted as agent for Purchaser not Seller  Transit ended when goods collected by Allisons for Napier  Even if wrong, SGA s. 45(2)=NSWSGAs.47(2) determines the matter

61 ©MNoonan2009 RIGHTS OF UNPAID SELLER AGAINST GOODS SOGA s. 49- Effect of sub sale or pledge by buyer 49. Subject to the provisions of this Act, the unpaid seller's right of lien or stoppage in transitu is not affected by any sale or other disposition of the goods which the buyer may have made unless the seller has assented thereto: Provided that where a document of title to goods has been lawfully transferred to any person as buyer or owner of the goods, and that person transfers the document to a person who takes the document in good faith and for valuable consideration, then if such last ‑ mentioned transfer was by way of sale the unpaid seller's right of lien or stoppage in transitu is defeated, and if such last ‑ mentioned transfer was by way of pledge or other disposition for value the unpaid seller's right of lien or stoppage in transitu can only be exercised subject to the rights of the transferee.

62 ©MNoonan2009 RIGHTS OF UNPAID SELLER AGAINST GOODS SOGA s. 50- Sale not generally rescinded by lien or stoppage in transitu 50. (1) Subject to the provisions of this section, a contract of sale is not rescinded by the mere exercise by an unpaid seller of the seller's right of lien or stoppage in transitu. (2) Where an unpaid seller who has exercised the seller's right of lien or stoppage in transitu resells the goods, the buyer acquires a good title thereto as against the original buyer. (3) Where the goods are of a perishable nature, or where the unpaid seller gives notice to the buyer of the seller's intention to resell, and the buyer does not within a reasonable time pay or tender the price, the unpaid seller may resell the goods and recover from the original buyer damages for any loss occasioned by the buyer's breach of contract. (4) Where the seller expressly reserves a right of resale in case the buyer should make default, and on the buyer making default resells the goods, the original contract of sale is thereby rescinded, but without prejudice to any claim the seller may have for damages.

63 ©MNoonan2009 REMEDIES OF UNPAID SELLER (1 )  MEANING OF “UNPAID SELLER” = S.41 AGAINST THE BUYER SUE FOR PRICE 1. Ownership has passed Ordinary debt s. 51(1) 2. Ownership has not passed, but specified payment day s. 51(2) DAMAGES FOR NON-ACCEPTANCE  Ownership has not passed s.52(1) Seller can resell  Measure of damages s.52(2) Loss directly and naturally resulting in ordinary course Charter  Presumption of difference Ward in contract/market prices s.52(3) Inappropriate if no available market (Lazenby)

64 ©MNoonan2009 ACTIONS FOR BREACH OF THE CONTRACT SOGA -s. 51-Action for price 51. (1) Where under a contract of sale the property in the goods has passed to the buyer, and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against the buyer for the price of the goods. (2) Where under a contract of sale the price is payable on a day certain irrespective of delivery, and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed and the goods have not been appropriated to the contract.

65 ©MNoonan2009 CONSOLIDATED RUTILE V. CHINA WEAL (1998) QSC 170 CRL and China Weal contract for sale of 3,000 metric tonnes of zircon sand to be shipped in bulk July-Dec 1997. Agreed price AUD 700/tonne FOB Brisbane converted to USD price Jan 15 1997 using Hedge Settlement rate for day. Title passed on payment. Terms...If the buyer revises the shipping schedule…the Seller may invoice the Buyer for the appropriate tonnage of Zircon Sand not shipped as per the originally agreed schedule….payment becomes due 28 days after the invoice date…….Could CRL sue for price? s. 50(2) Provision in contract enabling CRL to invoice should shipping schedule be revised and, if it does, require payment in 28 days, does not establish a day certain. The day is uncertain, governed by decision of CRL whether and when to invoice. Accordingly, CRL no entitlement under s. 50(2) of the SOGA to sue for price. Is s. 50(2) exhaustive of rights? No, SOGA expressly saves the rules common law. After examination of term….clear that parties intended that all of the zircon was to be shipped by 31/12/9797 and if not, because company had revised shipping schedule, CRL entitled to be paid before loading the zircon. …. “Once the parties agreed that payment was to be made 28 days after invoice….the conclusion seems inevitable that they agreed that CRL could thereby sue for the price”

66 ©MNoonan2009 ACTIONS FOR BREACH OF THE CONTRACT SOGA -s. 52-Damages for non-acceptance 52. (1) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against the buyer for damages for non ‑ acceptance. (2) The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer's breach of contract. (3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or if no time was fixed for acceptance, then at the time of the refusal to accept.

67 ©MNoonan2009 CHARTER V. SULLIVAN (1957) 2 QB 117  Sullivan agreed to buy Hillman  from Charter  Profit 97 pound 17 shillings  Sullivan pulled out  Week later Charter sold  to Wigley for same price TRUE MEASURE OF DAMAGES?  Nominal damages? (difference between contract and market)  Loss of profit + (directly and naturally resulting in ordinary course) Jenkins LJ  Consideration of facts resulting in rejection of PF measure in favour of direct and natural loss.  Plaintiff did not prove loss of profit. He could sell all Hillman’s he could get his hands on  Judge concluded fixed profits same as they would have been if Sullivan carried out his contract.

68 ©MNoonan2009 WARD V. BIGNALL (1967) 1 QB 534  Bignall agreed to buy 2 cars from Ward  Paid 25, went off to get 825  Changed his mind.  Warning that Ward would resell  Ward sold one, not the other  Sued for price Diplock LJ. Measure of damages? 1. Unpaid seller’s lien=price 2. Damages for non –acceptance =difference between contract and market s.50 Sale of one car was election to rescind contract. Damages for non-acceptance appropriate

69 ©MNoonan2009 LAZENBY GARAGES V. WRIGHT (1976) 1 WLR 459  Lazenby bought second hand car for 1,325  Wright agreed to buy it for 1,670  He pulled out  Lazenby resold for 1,770  Lazenby sued Wright for damages  Lost sale of another car to the second purchaser Lord Denning MR  Loss of profit on sale of another car?  No market for second hand cars  Prima facie measure did not apply (difference between contract and market)  Therefore loss directly and naturally in ordinary course  What would parties contemplate as natural consequence  Buyer could not have contemplated that dealer would sell one car less  He would contemplate possible loss on resale  No loss on resale; no damage

70 ©MNoonan2009 LEDGER V. CLEVELAND NOMINEES PTY LTD (2001) WASCA 269 Decision examining 48(2) WASOGA=NSWs51(2) Cleveland entered into an agreement with Ledger to sell a Porsche, but refused delivery. Cleveland claimed the price. Ledger appealed, claiming it was only entitled to damages as the preconditions of 48(2) were not met. Was the price payable on a day certain, irrespective of delivery? Normally, only remedy is damages under SOGA. Statutory exceptions in s.48 only two cases where one can sue for price. The contract contemplated that delivery would take place prior to the payment on or before 1 June 1997 (a date not made of the essence) then payment was not stipulated for “irrespective of delivery”. To construe the time provision as operating irrespective of delivery would be to construe it as creating an exception it does not express from the normal rule that “delivery of the goods and payment of the price are concurrent conditions”(s.28). There is nothing in the agreement to pay a “debt unconditioned by any right of performance by the other party”. Appeal by Ledger was successful and case remitted for new trial as to appropriate damages.

71 ©MNoonan2009 LEDGER V. CLEVELAND NOMINEES PTY LTD - the Letter 6 February 1995 Dear Kim, Re: Porsche 944 Turbo Racing Car Referring to our recent discussions regarding the 944 Turbo Racing Porsche I confirm our understanding as follows:- You will purchase the entire car for the amount of $75,000. The purchase includes the parts set out on the attached list of inventory.The purchase price is payable on or before the 1st June 1997.Until the payment of the purchase price has been completed the vehicle will not be raced in any local or interstate event and you will insure the vehicle with the insurance company noting my interest as unpaid vendor. Title to the vehicle will at all times remain with me until full payment of the purchase price has been received by me. You will transport the vehicle and the inventory from its current location at Wespeed to your Aberdeen Street premises and hold same in safe keeping for me pending the completion of the payment of the purchase price. You will at your expense prepare the vehicle to qualify as a Group A Porsche Cup race car. Yours faithfully,Cleveland Nominees Pty Ltd Clive Hartz I confirm my agreement to purchase the vehicle on the above conditions K.F.Ledger

72 ©MNoonan2009 SHEARSON LEHMAN HUTTON INC V MACLAINE WATSON & Co Ltd(No2) Text & (1990) 3 All ER 723 Correct measure of damages? S. 52(3) or (2)? M agreed to buy tin from S but failed to accept it. Common ground there was a market on date at which damages should be assessed. Was it an available market? What was the correct measure of damages? 52(3) difference between contract prices and market price or 52(2) difference between contract prices and prices at which they sold the tin plus carrying costs (financing, warehousing and insurance) the cost of swapping certain quantities of standard tin for high grade tin, or vice versa and cost of buying new tin, all as part of their selling strategy. Discussion and review of cases as to what is an available market. Situation very common in commodity markets…….where there was a market for tin, but as a practical matter, not possible to sell such a large quantity (7,755 tonnes) on one day. It would have had to have been filtered out over a few days. Decision: There was an available market despite the practical issues and to overcome the problems, assume sale proceeded over a number of days. If 52(3) applies, 52(2) not relevant. To determine actual price, a fairly wide range was decided ($3,000-$4,000/tonne) and then a price within that range chosen ($3,400).

73 ©MNoonan2009 REMEDIES OF THE BUYER 1. DAMAGES FOR NON-DELIVERY S.53 SOGA 2. DAMAGES FOR DELAY IN DELIVERY Note obligation to minimise loss 3. SPECIFIC PERFORMANCE Exceptional remedy Dougan v. Ley Only granted where damages inadequate 4. RETURN OF PRICE Moneys had and received for total failure consideration 5. DAMAGES FOR BREACH OF CONDITION/ WARRANTY  SOGA ss.54,55 Bostock

74 ©MNoonan2009 ACTIONS FOR BREACH OF THE CONTRACT SOGA -s. 53-Damages for non-delivery 53. (1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non ‑ delivery. (2) The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the seller's breach of contract. (3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or if no time was fixed, then at the time of the refusal to deliver.

75 ©MNoonan2009 ACTIONS FOR BREACH OF THE CONTRACT SOGA -s. 54- Remedy for breach of warranty 54. (1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods, but the buyer may: (a) set up against the seller the breach of warranty in diminution or extinction of the price; or (b) maintain an action against the seller for damages for the breach of warranty. (2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty. (3) In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. (4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent the buyer from maintaining an action for the same breach of warranty if the buyer has suffered further damage.

76 ©MNoonan2009 ACTIONS FOR BREACH OF THE CONTRACT SOGA -s. 55-Interest and special damages SOGA-s.56-Saving of proceedings in Equity 55. Nothing in this Act shall affect the right of the buyer or seller to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover money paid where the consideration for the payment of it has failed. 56. Nothing in this Act shall affect any remedy in equity of the buyer or the seller in respect of any breach of a contract of sale or any breach of warranty.

77 ©MNoonan2009 WHERRY V. WATSON (1991) ASC 56-048 1. Watson advertised Bentley for sale 2. Wherry said he wanted to buy 3. Deposit of 3,000 and balance in 2 weeks 4. Wherry gave cheque 5. Mistakenly dishonoured by bank 6. Watson immediately advised deal off 7. Wherry sued for specific performance Priestly JA  Agreement made  Seller within s.51. Unpaid seller within s. 41  Not restricted to rights in s. 42  On facts, deposit a term of contract  Dishonour was breach of an essential term  Watson entitled to rescind  Action taken effectively did so

78 ©MNoonan2009 DOUGAN V. LEY (1946) 71 CLR 42  Dougan agreed to sell taxi  Plus registration and licence  He pulled out  Sued by Ley, the purchaser.  For specific performance Specific performance available? Dixon J  Sale of chattel only?  Valuable privilege - limited number licences  Substantial proportion price for licence not chattel  Not article of unusual beauty, rarity, distinction  Similar to railway shares limited in number and not available on stock exchange  Within the scope of specific performance

79 ©MNoonan2009 BOSTOCK AND CO V. NICHOLSON AND SONS (1904) 1 KB 725 Bostock agreed to buy sulphuric acid commercially free of arsenic. Did not disclose purpose---- to make brewing sugars. Sugars sold to brewers who made beer. People who drank beer became ill or died.Not commercially free from arsenic. Damages recoverable? 1. Price paid for acid 2. Value of material used to make glucose and invert 3. Loss of goodwill as manufacturers 4. Damages brewer entitled to claim against them. Bruce J Contract for the sale of goods within SGA Implied condition goods should correspond with description Goods accepted. Breach of condition = breach of warranty Measure of damages for breach of warranty is estimated loss directly and naturally resulting in the ordinary course of events from breach.  Use of acid in food well-recognised and ordinary. 1 and 2 are damages naturally resulting in ordinary course  Not limited by SGA where interest or special damages available under rest of law  Damages 3 not recoverable because did not flow from act of defendant. Flowed from act of Plaintiff in selling poisonous glucose to brewer  Damages 4 not recoverable because separate and distinct collateral contract with third person uncommunicated to wrong-doer  No special circumstances entitling plaintiff to special damages under s. 55

80 ©MNoonan2009 McWilliam’s Wines P/L v. Liaweena (NSW) P/L [1988] ASC 55-695 SCNSW See text extract Liaweena sold “superior” corks to McWilliams. They were contaminated with TCA. Bottles sealed with these corks unsaleable because of corky smell and taste. Found to be unfit for purpose and of unmerchantable quality. Measure of damages? Liaweena said s. 54 (3)…maximum was purchase price…difference between value of corks and value if they satisfied implied conditions. McWilliams said s. 55…profits it would have made on sale of wine recoverable because within reasonable contemplation of parties at time of contract, as probable result of breach. The court agreed with McWilliams.

81 ©MNoonan2009 Auction sales SOGA s. 60 60. In the case of a sale by auction: (1)where goods are put up for sale by auction in lots, each lot is prima facie deemed to be the subject of a separate contract of sale; (2)a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner: until such announcement is made any bidder may retract his or her bid; (3)where a sale by auction is not notified in the conditions of sale to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid or to employ any person to bid at the sale, or for the auctioneer knowingly to take any bid from the seller or any such person: any sale contravening this rule may be treated as fraudulent by the buyer; (4)a sale by auction may be notified in the conditions of sale to be subject to a reserved price, and a right to bid may also be reserved expressly by or on behalf of the seller; (5)where a right to bid is expressly reserved, but not otherwise, the seller, or any one person on the seller's behalf, may bid at the auction.

82 ©MNoonan2009 Exclusion/Limitation Clauses An express term of the Contract. Is it part of the contract? Was the offending conduct within the terms of the contract, so that it applies? How does it interact with and effect rest of express terms and implied terms? First, work out what the potential liability is and then see how the clause affects that.

83 ©MNoonan2009 Sale of Goods Exclusion Clauses - Non-Consumer Sales Contracting out can be done by a global provision or specifically. Key terms implied by SOGA that parties may wish to negative are: - Stipulations that time of payment not deemed time of the essence…”; - Implied condition that they have the right to sell; - Implied warranty as to quiet possession; - Implied warranty that goods are free from encumbrance; - Implied condition that equipment corresponds with description; - Risk passes when property passes; - Delivery and payment price are concurrent conditions; - Place of delivery; - Implied condition as to quality/fitness; and - Delivery obligations of Buyer.

84 ©MNoonan2009 CONSUMER SALES SOGA s. 62 Definition and s. 63 Onus of proof 62. 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: (a)are of a kind commonly bought for private use or consumption; and (b)are sold to a person who does not buy or hold himself or herself out as buying them in the course of a business. 63. 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.

85 ©MNoonan2009 CONSUMER SALES SOGA s. 64 Conditions, warranties, exclusion void » 64. (1) Any provision in, or applying to, a contract for a consumer sale and purporting to exclude or restrict the operation of all or any of the provisions of sections 18, 19 and 20 (section 19 (4) excepted) or any liability of the seller for a breach of a condition or warranty implied by any provision of those sections is void. »(2) An express warranty or condition in a contract for a consumer sale does not negative a condition as to merchantable quality implied by this Act. »(3) Without limiting the meaning of the expression ``merchantable quality'', goods of any kind which are the subject of a contract for a consumer sale are not of merchantable quality if they are not as fit for the purpose or purposes for which goods of that kind are commonly bought as is reasonable to expect having regard to their price, to any description applied to them by the seller and to all other circumstances. »(4) In a contract for a consumer sale there is no implied condition that the goods are of merchantable quality as regards defects brought to the buyer's notice before the contract was entered into.

86 ©MNoonan2009 SOGA 64 ORDERS AGAINST A MANUFACTURER ( 5) Where, in proceedings arising out of a contract for a consumer sale (not being a consumer sale of second ‑ hand goods), it appears to the court that the goods, at the time of delivery to the buyer, were not…. of merchantable quality, the court may add the manufacturer …. as a party to the proceedings and, if of the opinion that the defect should be remedied by the manufacturer, may make against the manufacturer either: (a)an order requiring the manufacturer to pay to the buyer an amount equal to the estimated cost of remedying the defect; or (b)(b) an order requiring the manufacturer to remedy, within such time as may be specified in the order, the defect and, in default of compliance with that order, require the manufacturer to pay to the buyer an amount equal to the estimated cost of remedying the defect, and may make such other ancillary orders against the manufacturer as to the court seem proper. (6) In subsection (5), ``manufacturer'',... includes a person who resides or carries on business in the Commonwealth and who received those goods from outside the Commonwealth otherwise than from a person who resides or carries on business in the Commonwealth…..

87 ©MNoonan2009 Toll (FCGT) Pty Ltd v.Alphapharm Pty Ltd Signing terms and conditions-evidence of intent to be bound Effect of a signature in determining whether parties had entered into a contract and whether an indemnity and exemption clauses were included in that contract. “In deciding the facts that a party has signed a document which purports to be a contractual or part of a contractual arrangement…is a powerful indication of intention to be bound by it at a later point of achieving finality…because of well known cultural practices about the use of one signature as a token of assent” - especially so in a commercial context. Facts and circumstances may show it was not. These include: - reasonable notice of clause and brought to attention; - Misleading and Deceptive Conduct - where there is a series of documents, which ones or parts are intended to be part of the Agreement. - doctrine of mistake - Unconscionable Conduct

88 ©MNoonan2009 Was there an agreement? Yes Breach of express terms? Yes, not manufactured in accordance with requirements of TGA; nor were a number of tested batches sterile…gross contamination….fact of no customer complaints not relevant. Breach of implied terms? Yes, not fit for the purpose. What were they? Does the Vienna Convention displace the SOGA? Yes, because to extent of inconsistency Convention prevails. See Article 35-seller must deliver goods of quantity, quality and description and goods do not conform if not fit for the purpose ordinarily used or expressly or impliedly made known. Article 45 for remedies (rights in Articles 46-52) and damages Articles 74-77. Article 50, buyer may reduce price in same proportion as value of goods actually delivered had at time of delivery bears to value conforming goods. Article 74 damages is sum equal to loss, including loss of profit as consequence of breach..not to exceed foreseeable loss. Can rely on both. In accordance with Art 50, price reduced to zero. Is liability limited under Vienna as claimed? No, problem so widespread so bad that all goods deemed non-conforming, not just part. What is the correct measure of damages? Same whether measured in contract or tort. Heads of damage claimed by Vista: The invoiced costs of recalled goods. Yes The lost profit margin on resale of goods to retailers Yes, but Kontack rather than Vista. Note discussion of calculation re commission.The direct costs of recalling goods. Yes. Lost reputation, goodwill and future sales. No, because no guarantee of continuity of supply, small market share, depended on personal relationships, other problems which lead to receivership. Lack of evidence. If there is no agreement, is Ginza liable in negligence? Yes, owed duty of care to manufacture in accordance with requirements of TGA and to be sterile. Ginza(2)

89 ©MNoonan2009 Appropriate remedies(see text) Clyde Industries P/ L v. Golden West Refining Corp An illustration of a case where it was not possible to imply fitness for purpose because there was no reliance on skill and judgement, but another remedy was available pursuant to TPA ss 52 and 82. 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.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 fluorine. 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.

90 ©MNoonan2009 Limitation of Liability Parties will always want to attempt to exclude or limit their potential liability, transfer it to someone else or insure against it. How do they do it? Allocation via transaction Exclusion clauses…also called an exemption clause, a disclaimer, a warning. Indemnity clauses in later slides. Insurance. See later module.

91 ©MNoonan2009 Situations where remedy in contract may not be available due to effective exclusion clause. Milford Astor P/L v. Machinery Developments Ltd [2003] NSWSC 301 (See exam question 2008 Bagger/Whabbles inspired by this case) Milford sold 20 printing machines, (print labels on vacuum packed meat as part of bagging process) but only partly paid. They sued for the balance. Machinery cross claimed for breach of implied terms…machines not fit for the purpose… and misleading and deceptive conduct. Exemption clause in contract formed part of contract and wide enough to exclude implied terms. Luckily for Machinery, it was not necessary in case to go into that because s. 52 TPA (now s. 18 ACL) provided a remedy. Machinery had been mislead and would not have entered into the contract had it known the true position.

92 ©MNoonan2009 Indemnity Clauses As well as exclusion and limitation clauses, one often finds Indemnity Clauses in contracts. Under the typical clause, the buyer indemnifies the seller for any loss or liability it incurs. In other words, even if the buyer has a cause of action and succeeds with breach of contract or statute, if the indemnity clause is valid, they have to pay any compensation they receive right back!

93 ©MNoonan2009 Qantas Airways v. Aravco Ltd (1996) HCA 12 Did s.68 of the TPA void a contractual term which required Aravco to indemnify Qantas against all liabilities incurred by Qantas arising out of or in any way connected with the performance of services by Qantas to Aravco? Qantas entered into contract with Aravco to perform services to an aircraft. As a result of Qantas’ negligence the aircraft suffered damage. The owner (BAT Industries Plc) sued Qantas, Qantas admitted liability but sought indemnity under Clause 4 in its contract with Aravco. Clause 4:“The operator agrees regardless on any negligence on the part of Qantas to release, hold harmless and indemnify Qantas from and against all liabilities, claims, damages, losses, costs and expenses of whatever nature howsoever occurring which may accrue against or be suffered by Qantas arising out of or in any way connected with the performance of the said services unless caused by wilful misconduct on the part of Qantas or any of its servants or agents acting within the scope of their employment”. Aravco pleaded s.74 TPA warranty that services be rendered with due care and skill. And that s.68 made void the indemnity clause. Qantas did not dispute that s.74 TPA implied a warranty. Nor did it dispute that it had breached that warranty. But it contends that Aravco did not sue it for breach of warranty nor contend in its cross-claim that it was a defense to the claim under the indemnity. If it did, because of the limits in clause 7 to the cost of the services being supplied again, the damages would be less than $5,000.

94 ©MNoonan2009 Qantas v. Aravco cont 2 Qantas contended that the indemnity did not purport to exclude, restrict or modify the s.74 warranty. Because Aravco could still bring proceedings for breach of the warranty. The High Court supported Qantas. The s.74 warranty was not relevant to the claim that Qantas made against Aravco under the indemnity. But obtaining the indemnity did not affect Qantas’ liability to Aravco for breach of the warranty implied by s.74.

95 ©MNoonan2009 Qantas v. Aravco cont 3 Aravco could have answered the claim for indemnity with a cross-claim based on the s.74 warranty. No doubt Qantas would have pleaded Clause 7 by way of a limit. Clause 7 stated that pursuant to s.68A of the TPA, clause 7 applied in respect of any goods and services not of a kind ordinarily acquired for personal, domestic or household use or consumption to limit liability in the case of services to supplying the services again or the payment of the cost of having the services supplied again. Aravco would then have relied on s.68A (2), and contended that it was not fair or reasonable for Qantas to rely upon it. However Aravco did not cross-claim for damages for breach of the warranty. Would the new unfair terms provisions have assisted Aravco?

96 ©MNoonan2009 Scope of indemnity clauses They can enable a contracting party to: Avoid liability for their own negligence Get around rules concerning remoteness or need to mitigate their loss Transfer liability alltogether to someone else

97 ©MNoonan2009 Samways v. WorkCoverQueensland and Ors [2010] QSC 127 “The Hirer (De Luca)shall fully and completely indemnify the Contractor (Lynsha) in respect of all claims by any person or party whatsoever for injury to any person or persons and/or property caused by or in connection with or arising out of the use of the plant and in respect of all costs and charges in connection therewith whether arising under statute or common law.”

98 ©MNoonan2009 Samways v. WorkCover cont 2 Mr. Samways was injured when he walked into the raised bucket of a stationary bobcat on a building site. The bobcat was owned by Lynsha, which had hired it to De Luca Properties, who were in control of the site. Mr. Samways worked for a subcontractor and sued in negligence and for breach of statutory duty against his employer, De Luca and Lynsha. Court found 10% sub contractor, De Luca 30% and Lynsha 60% to be reduced by 20% for contributory negligence of Samways. Clause found wide enough to cover their own negligence and Lynsha could recover.

99 ©MNoonan2009 Samways v. WorkCover cont 3 See useful summary of principles of construction of indemnity clauses. 1.To be construed strictly 2.Without statutory authority, a court has no mandate to rewrite clause 3.Should be construed in contractual context which allocates risks between parties 4.Give effect to ordinary meaning of language 5.If insurance required, may be taken into account, also absence of such a provision.

100 ©MNoonan2009 International contracts Harmonisation desirable International body of jurisprudence building Express provisions agreed by the parties Treaties-Vienna Convention application Incoterms Dispute resolution Unidroit principles

101 ©MNoonan2009 International Contracts When does SOG (Vienna Convention) Act apply? 1.Direct application by virtue of Article 1 2.Conflict of laws rules-if proper law of an international sales contract is Australian, VC applies as part of that law. 3.By agreement between the parties 4.Deemed appropriate by arbitral tribunal either as law or as evidence of international usage.

102 ©MNoonan2009 Terminology The Vienna Convention as implemented by local legislation is referred to either as the Vienna Convention or the Convention for the International Sale of Goods (CISG). Most foreign references are to the CISG. Either is acceptable when used by students.

103 ©MNoonan2009 Vienna Convention Considerable ignorance amongst lawyers, including courts. Why should Australian lawyers be more familiar with it? 1.Part of our law 2.We are an export/import country 3.Large number of signatories, including main trading partners and other Asia Pacific nations 4.Competitiveness/reputation of legal profession in international disputes and arbitration

104 ©MNoonan2009 Issues in international contracts Mutual understanding and agreement National interests and trade Conceptual differences Cultural differences Choice of law Dispute resolution

105 ©MNoonan2009 Vienna Convention Seller to deliver goods and any documents (Arts 31-34) of the quantity, quality, description, packaging required by contract (Art 35). Partial and excessive delivery (Art 51,52). Goods must conform. If seller does not meet obligations, buyer may compel performance, claim damages or reduce price. Buyer may fix additional time (Art 47) or declare contract avoided (Art 49) Buyer may reduce price for non conformity (Art 50). Buyer obliged to pay price and take delivery (Arts 53,60). Arts 54-59 deal with determining price when not fixed. Seller may compel buyer to pay price or take delivery (Art 62) or fix additional period for performance (Art 63). Seller can avoid contract for fundamental breach (Art 64). Anticipatory breach and instalment contracts dealt with in Arts 71-73. Damages covered by Arts 74- 77. See Ginza Pte v. Vista Corp Pty Ltd

106 ©MNoonan2009 Other references See article:The last Outpost: Automatic CISG opt outs, misapplications and the costs of ignoring the Vienna Sales Convention for Australian Lawyers. Lisa Spagnolo, available on See Pace University database at

107 ©MNoonan2009 International Sale of Goods (Import to Australia) Ginza Pte Ltd v. Vista Corporation Pty Ltd (2003) WASC 11 Ginza, Singaporean Co supplied contact lens solution (goods) to Vista, a wholesaler, in Australia. Part of action concerned a similar transaction with Kontack. Ginza sued for invoiced cost of goods. Or, if liable,Vienna Convention displaces SOGA and liability limited…to reduced price of batches actually tested and found not sterile. Vista claimed breach of warranty in extinction of price plus damages. (Note s.52SOGA and Articles 50 & 74 Vienna) Vista pleaded express term of agreement that goods be manufactured according to requirements of Australian Therapeutic Goods Administration (TGA) and be sterile and claimed breach of implied terms as to merchantable quality and fitness for the purpose, under either SOGA (WA) s.14 or Vienna Convention. Also, in the alternative, negligence.

108 ©MNoonan2009 Ginza See discussion of case pp 184-188 inclusive in Article by Lisa Spagnolo. Although Vienna Convention seen to apply, much confusion about interpretation, use of common law cases instead of VC cases, reference to concepts outside, ignored some provisions.

109 ©MNoonan2009 Sale of Goods (Vienna Convention) Act 1986 Article 35 The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: (a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement; (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods. The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.

110 ©MNoonan2009 UNIDROIT International Institute for the Unification of Private Law

111 ©MNoonan2009 UNIDROIT Principles of International Commercial Contracts Purpose These Principles set forth general rules for international commercial contracts They shall be applied when the parties have agreed that their contract be governed by them They may be applied when the parties have agreed that their contracts be governed by general principles of law, the lex mercatoria or the like They may be applied when the parties have not chosen any law to govern their contract They may be used to interpret or supplement international uniform law instruments They may be used to interparet or supplement domestic law They may serve a s model for national and international legislators.

112 ©MNoonan2009 UNIDROIT Principles 1.Freedom of Contract 2.No form required 3.Binding character of Contract 4.Mandatory rules 5.Exclusion or modification by the parties 6.Interpretation 7.Good faith and fair dealing 8.Inconsistent behaviour 9.Usages and practices 10.Notice See text and for

113 ©MNoonan2009 Exam QA2 March 09 Samar Valley Orchards Pty Ltd Ltd (Samar”) is a large apricot grower in the Riverina. It regularly sells apricots into both the domestic Australian and overseas markets. Farmsales Pty Ltd (“,Farmsales), is an experienced exporter of Australian produce. It offers to find markets, arrange sales, export, and delivery, and to discharge all associated accounting and administrative functions. In January 2008, there was a vague and casual oral agreement between Samar and Farmsales that Farmsales would sell $200,000 worth of Samar apricots "as per sample", at the agreed price, to Freshfood Supermarket in Singapore. No other conditions were specified or discussed. The apricots were picked, stored appropriately, packaged suitably by Samar, and delivered to Farmsales; who shipped them to Freshfood a week later without opening them. Instead of receiving $200,000 as expected, Samar received $120,000. Farmsales explained that Freshfood had deducted $80,000 as a "purchase discount" for a quality deficiency. Samar is unhappy with this situation and has consulted you to see whether they can recover the $80,000. Advise Samar on whether and on what legal bases it may be able to do so in each of the following situations: Farmsales is an agent for sale for Samar Farmsales is a buyer who resells to Freshfood

114 ©MNoonan2009 Exam QA2 March 09 Marking Scheme Understood Q Sale of perishable goods 2 Answered the Q 2 If International Contract-agency, bailment, Vienna Convention(35,45,50) 9 Local C-unpaid seller, title, risk, product liability, ability to offset, SOGA 9 Reasoning 2 Other: e.g. s. 52 TPA, Bailment, ADR possibilities ways problem could have been avoided 1 TOTAL 25

115 ©MNoonan2009 Exam QA2 March 09 Tips for answering this question: Students are expected to undertake some research when this Q was an assignment-in this case, the Vienna convention remedies of a buyer/seller. When an exam question, application and basics of the Convention terms required to answer question. See Examiners comments Students should be aware that their examiner sometimes uses cases (both NSW and elsewhere) for inspiration for facts for examination questions. As the complexity of real situations is sometimes inappropriate for exams and assignments, facts are usually not identical to such cases. Sometimes they are taken from other jurisdictions, so the result in NSW may be different. In other words, students should be cautious when applying any of them. For this question, students may find Hannaford (trading as Torrens Valley Orchards) v. Australian Farmlink Pty Ltd (2008) FCA 1591 useful.

116 ©MNoonan2009 Examiners Comments QA2 March09  Students found this sale of goods question difficult.  Many students ignored the fact that Freshfoods was outside Australia and asserted that Samar or Farmsales could just bring a domestic action rather than refer to the Vienna convention.  A considerable number of students forgot who they were advising and just generally described some law they thought relevant rather than answer the question

117 ©MNoonan2009 Student Question 1 Is it possible to contract out of SOGA Yes, to some extent. SOGA- Yes, everything for non “consumer sale”. Yes, everything other than ss. 18, 19, 20, in the case of a “consumer sale”.

118 ©MNoonan2009 Student Question 3 When we are considering “goods”, we have both the SOGA and TPA/ACA. When is it better to bring an action under one or the other? When there is only one available. E.g. a non consumer may only have the implied terms of the SOGA, if any at all. When a choice provides a better, easier, cheaper action or more appropriate remedy. For a “consumer”, this is usually the ACL.

119 ©MNoonan2009 Assignment Question Bagger Limited (BL) is a NSW company which makes and supplies a machine called a "bagger". It makes plastic bags for vacuum packing meat. In January 2007, Meat Market Limited (MML), a meat processing company in Goulburn NSW informed Richard, the Managing Director of BL, that it would like to place an order for baggers, but would only do so if BL could also supply networkable thermal printers (which would place relevant information directly on the plastic as each piece of meat was bagged) and organise installation during their annual close down in August. Richard went to a trade show in Melbourne to see a demonstration of a new thermal printer known as a Whabble; supplied by a US company via their NSW agent, PTR Limited (PTR). Richard asked T, the PTR representative at the show, whether one control unit could control 6 printers. "No", said T "each is a dedicated unit. But, you can put them in a separate area as they come with 30m cables". "That’s good", said Richard, "because that will suit the configuration of the MML plant perfectly. Can they be networked?" "Definitely", said T, "I have been involved with 2 networked installations in Australia already." ""What is the price?" asked Richard. "$11,000, installed", said T. In April, 2007 BL sent an email quotation to MML for the supply of 18 baggers and 18 Whabbles at a cost of $12,000 per bagger and $11,000 per Whabble, installed. MML accepted the quotation by return email. BL placed an order with PTR for 18 Whabbles the same day. The baggers and Whabbles were delivered by their respective companies on August 2. The baggers were installed in 3 days and T attended for 8 days to install the Whabbles. T did not have the expertise to network the printers as he had never been involved in networking printers. The cables between printer and control unit were 2m; not 30m. MML asked him to leave after 3 days and engaged another consultant at a cost of $124,000, who finally networked the printers after 3 months work. During these 3 months, MML had to divert 50% of meat processing to a competitor. MML has refused to pay BL for the Whabbles; claiming it is offsetting the additional costs incurred. BL has in turn, refused to pay PTR. PTR has brought an action in contract claiming $202,000 from BL and reminding Richard of the following clause contained on the back of their invoice. "The Company shall not be liable for any loss or damage or injury, direct or consequential, whether in contract, tort, by statute or otherwise and whether at law or in equity, and whether caused or arising out of or through the negligence, breach acts or omissions for the Company, its servants or agents or otherwise and of whatsoever nature and to whomsoever or whatsoever caused arising out of the manufacturing and supply or supply only of any goods to the Customer or out of or through the use of any such goods by the Customer." Advise BL.

120 ©MNoonan2009 Assignment /exam marking CT EXAM March 2008 SECTION B QUESTION 1 Bagger and Whabble Understood Q (product liability, s.52 conduct) 2 Answered the Q 2 BL re MML refusal to pay for Whabbles 9 Breach of contract-express terms and implied BL refusal to pay PTR and defence to action in contract 9 Misleading and deceptive conduct s. 52 TPA (s. 18 ACL now) Exclusion clause-would exclude s. 19 SOGA but not 52 because conduct prior to contract Reasoning and other 3 TOTAL 25 Most students correctly identified that fitness for purpose, and false/misleading and deceptive claims were involved. Students were expected to cover s. 19 SOGA and s. 52 TPA as a minimum;. Some students applied s. 71 of TPA or Div 2A despite the fact that no consumer was involved in the transactions. Some students dealt with BL v. PTR only and ignored the MML refusal to pay.

121 ©MNoonan2009 Exam Sept 2006 A3 Understood the Q (contract, product liability) 2 Answered the Q 2 Contract- when formed, terms, to sell or sale, outcome 6 SOGA application 6 TPA application 6 Reasoning 2 Other e.g. negligence, contributory, instalment contract 1 TOTAL 25

122 ©MNoonan2009 Sept 2006 Q A3 cont The steps to successfully answering this question were: Ascertaining whether there was a contract between Huntley and Glassworks and if so, what was the nature of it and what were the terms? At the time of the quotation, was it an agreement to search for a manufacturer as specified (service, or agreement to sell)? When did it become a sale of goods? Who made the offer? Did Huntley accept offer from Huntley or vice versa? Counter offer? Could all the terms coexist? Exploration of traditional offer/acceptance in commercial context, and whether last shot, global more appropriate? Depending on the answer, students would have then gone on to analyse whether Huntley would have been able to make a claim in contract using the express terms. Or any terms implied by SOGA or TPA. Were any implied? If so, what and how did they apply? If not, why not? Because of the consumer limitations in the TPA, the SOGA was more relevant. Students should also have explored other potential claims. E.g. s. 52 (which would open up access to TPA remedies), negligence Students should then have dealt with remedies appropriate to their conclusions, and given a view as to likely outcome. Many students who answered this question as an assignment the following semester had worked out that Goodman Fielder v. Cospak (2004) NSWSC had been my inspiration for the facts of this Q.

123 ©MNoonan2009 Sept 2006 QA3 cont. Weaknesses noted in answers: A very superficial knowledge of the implied terms of the SOGA and TPA, leading to incorrect conclusions and applications. An example would be that a student believed there was a general condition that goods be fit for a purpose, without covering that this purpose had to be made known and the purchaser had to rely on the sellers skill and judgement. The buyer had to be a consumer for s. 71 to apply (TPA). The term might have been excluded. A student might jump straight to the implied terms without drawing a conclusion on what the express terms were (e.g. whether the exclusion clause applied, and if so, to what extent?). An incorrect view- as to the application of the SOGA and TPA. E.g. thinking that if corporations were involved, the TPA (and not the SOGA) applied and if individuals were involved, the SOGA (and not the TPA) applied. Some students discussed possible application of the TPA but not SOGA, or vice versa, rather than both. A few students were creative in deciding that the contract was one for services and not goods… procure someone else to make the bottles, not to supply them. The correct action if there is a breach of an implied term is an action in contract and not for breach of statute. For this reason, if one is implying a term via s. 71 TPA, the remedies of ss. 80, 82 and 87 are not available. Post 2011, ACL uses different concept-guarantees and does not imply terms into the contract.

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