1 Chapter 23 Supply of goods and services Copyright © Nelson Australia Pty Ltd 2003

2 Outline A.Sales under the Sale of Goods Acts B.Consumer contracts and consumer protection measures C.Statutory obligations and the manufacturer’s liability to the consumer D.Strict liability of manufacturers and importers for defective goods E.Product safety and information

3 Section A Sale of goods legislation

4 Contracts for the sale of goods The commonest form of contract encountered in everyday life Regulated by: Sale of goods legislation in each State and Territory Part V Division 2 of the Trade Practices Act 1974 (Cth) (the TPA)

5 Contracts for the sale of goods State and Territory sale of goods legislation is based on the Sale of Goods Act 1893 (UK). The Acts build on ordinary principles of contract law and add implied terms and rules regulating such matters as: quality of the goods duties of buyer and seller transfer of risk and passing of property the rights of the parties in the event of a breach.

6 Contracts for the sale of goods A contract for the sale of goods is defined as ‘an agreement whereby the seller transfers or agrees to transfer property in goods to the buyer for a money consideration called the price’.

7 Contracts for the sale of goods Goods are defined to include ‘all chattels personal other than things in action and money’. Goods can be: specific goods – goods identified and agreed upon at the time the contract of sale is made future goods – goods to be manufactured or acquired by the seller after the making of the contract of sale. In deciding whether a particular contract falls within the definition of a sale of goods, it is important to consider the real substance of the transaction.

8 Implied terms Under the sale of goods legislation, terms imposing duties on the seller in relation to: title correspondence with description correspondence with sample are implied into contracts for the sale of goods. Where the seller is acting in the course of a business, additional terms are implied in relation to: merchantable quality reasonable fitness for purpose.

9 Implied terms Parties were originally free to modify or exclude any of the implied terms. Today, most jurisdictions (NSW, Vic, WA, NT, SA) have amended their legislation to prevent the implied terms being excluded in the consumer context. Under the TPA (which applies to consumer transactions where the vendor is a corporation), the terms cannot be excluded.

10 Title In every contract for the sale of goods, there are the following implied terms, unless the contrary intention appears: An implied condition on the part of the seller that: in the case of a sale, the seller has a right to sell the goods, and in the case of an agreement to sell, the seller will have a right to sell the goods at the time when the property is to pass An implied warranty that the buyer shall have and enjoy quiet possession of the goods

11 Title An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time the contract is made CASE: Rowland v Divall (1923) CASE: Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968)

12 Description / sample In any contract where the sale is by description (i.e. where description has played some part in the buyer’s decision to purchase the goods), the goods must correspond with the description. Where the sale is by both sample and description, the bulk of the goods must correspond with both the sample and the description.

13 Description / sample If the sale is by sample, then three further terms are implied: An implied condition that the bulk shall correspond with the sample in quality An implied condition that the buyer shall have a reasonable opportunity of comparing the bulk with the sample An implied condition that the goods are free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample

14 Fitness for purpose An implied condition that goods will be reasonably fit for such purpose is implied into contracts for sales of goods if: the buyer expressly or by implication has made known to the seller the particular purpose for which the goods are required the disclosure of purpose is so as to show that the buyer relies on the seller’s skill or judgement the goods are of a description which it is in the course of the seller’s business to supply.

15 Fitness for purpose Where goods have been sold as specified articles under their patent or trade name, there is no implied condition as to fitness for any particular purpose.

16 Merchantable quality The condition that goods will be of merchantable quality will be implied where: the sale is by description, and the seller is one who deals in goods of that description. If the buyer has examined the goods, the implied condition does not cover defects that the examination ought to have revealed. CASE: Grant v Australian Knitting Mills (1933– 34)

17 Merchantable quality The requirement that goods be of merchantable quality means that they ‘should be in such state that the buyer, fully acquainted with the facts and therefore knowing what hidden defects exist and not being limited to their apparent condition, would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms’.

18 Buyer’s remedies In the event of breach by the seller, the buyer has a right to damages. The buyer will also have a right to repudiate the contract if the seller has breached a condition. The buyer will lose the right to repudiate if they have waived the breach or if they have accepted the goods.

19 Buyer’s remedies Goods are deemed to have been accepted by the buyer: when the buyer intimates to the seller that they have been accepted, or when the buyer does an act inconsistent with the seller’s ownership, e.g. reselling the goods, or when the buyer retains the goods for a reasonable period without intimating to the seller that the goods have been rejected.

20 Seller’s remedies The seller’s personal remedies (remedies against the buyer) include an action for damages for non-acceptance, and an action for the price. The seller’s real remedies (remedies against the goods) include: lien stoppage in transitu right of resale.

21 Section B Consumer contracts and consumer protection measures

22 TPA The TPA implies terms into consumer contracts for sale, supply, exchange, lease, hire or hire-purchase of goods and into consumer contracts to provide, grant or confer services. The terms cannot be excluded or modified. The TPA has a restricted constitutional application but has been supplemented by State and Territory legislation.

23 TPA

24 TPA cont.

25 Consumer contract A consumer contract under the TPA is one in which: the buyer acquires goods or services of any kind where the price does not exceed $40,000, or the buyer acquires goods or services of a kind ordinarily acquired for personal, domestic or household (PDH) use or consumption, or the goods comprise a commercial road vehicle provided the buyer did not acquire the goods for resale or resupply or as raw materials for input into a production process.

26 Implied terms The TPA implies the following terms into contracts for the supply of goods by a corporation to a consumer: Title (s. 69) Correspondence with description / sample (ss. 70, 72) Merchantable quality (s. 71(1)) Fitness for purpose (s. 71(2))

27 Implied terms Section 74 implies into contracts for the supply of services by a corporation to a consumer: a warranty that the services will be rendered with due care and skill a warranty that the services will be reasonably fit for their purpose.

28 Remedies The terms implied by Division 2 cannot be excluded or modified (s. 68). However, s. 68A allows suppliers to limit their liability (in relation to contracts other than for goods or services acquired for PDH use or consumption) to the cost of replacement or repair of goods or the cost of having the services supplied again.

29 Remedies Remedies available to the consumer in the event of breach by the supplier include: damages rescission, but the goods must be returned within a reasonable time repair of goods resupply of goods and services resupply of equivalent goods refund of money paid.

30 Linked credit providers If there is any type of business connection between the supplier and a financier, s. 73(1) provides that the supplier and the financier (‘linked credit provider’) are jointly and severally liable for loss or damage due to misrepresentation, breach of contract, failure of consideration or breach of an implied term.

31 Section C Statutory obligations and the manufacturer’s liability to the consumer

32 Division 2A Part V Division 2A gives consumers rights against manufacturers in relation to: description (s. 74C) unsuitable goods / goods not reasonably fit (s. 74B) merchantable quality (s. 74D) compliance with sample (s. 74E) failure to provide facilities for repair, spare parts etc (s. 74F) non-compliance with express warranties (s. 74G).

33 Division 2A ‘Manufacturer’ includes: corporations that actually manufacture the goods corporations that hold themselves out to the public as the manufacturer corporations that use their own brand name in relation to the goods corporations that import the goods into Australia in cases where the manufacturer has no place of business in Australia. CASE: Glendale Chemical Products Pty Ltd v ACCC (1998)

34 Section D Strict liability of manufacturers and importers for defective goods

35 Part VA Under Part VA ‘Liability of manufacturers and importers of defective goods’, a regime of strict liability is imposed on manufacturers and importers of defective goods, under which manufacturers may be held liable without the plaintiff having to prove fault. Goods have a defect if ‘their safety is not such as persons generally are entitled to expect’ (s. 75AC(1)).

36 Section E Product safety and information

37 Product safety and information Division 1A confers power upon the Attorney-General to: proclaim compulsory product safety and product information standards (ss. 65C, 65D) ban the supply of unsafe goods (s. 65C) order compulsory recall of unsafe goods (s. 65F) publish warning notices in respect of goods under investigation (s. 65B) ban goods that do not comply with a prescribed product safety standard (s. 65C) receive notification of voluntary recalls on safety grounds (s. 65R).