TradePractices Act and other matters

Module 4

Winter Session 2008

More on Product / Service Liability

Having looked at terms that may be implied into a contract for sale/supply, we move on in this module to review

•Potential actions against manufacturers/importers for unsatisfactory and defective items.

•Misleading and deceptive conduct

•Unconscionable conduct

Manufacturers, Importers

Usually no direct contract with consumer. So, specific statutory remedies provided

Unsatisfactory goods Part V Division 2A

Defective goods and services Part VA

Liability Manufacturers, Importers-TPA

Division 2A TPA (ss. 74A-74L) provides direct statutory rights of action (not implied terms into a contract) to consumers (or someone who acquired or derived title from a consumer-gift,second hand) against manufacturers and, where the manufacturer has no place of business in Australia; against importers.

The rights are similar to those implied in Contract with suppliers in Div 2-non-correspondence to description or sample, fitness for purpose, merchantability, non compliance with express warranties. It applies to “goods” ordinarily acquired for “personal, domestic or household use”.

Action must be commenced within 3 years of date consumer became aware or ought reasonably to have become aware of the fault occurring. (ss. 74J) with absolute limit of 10 years from first supply.

Attempts to exclude, restrict or modify are void (74K). Where a supplier is also liable to consumer via a breach of term implied by Div 2, manufacturer is liable to indemnify supplier (74H).

Part V Division 2A

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

Conditions to satisfy PtV Div2A

Kind of goods -ordinarily acquired for personal, domestic or household use or consumption

Manufacturer - manufactured the goods or held itself out as the manufacturer or allowed its brand name to be applied or imported the goods –deemed manufacturerSupply (sale, exchange, lease, hire, HP and goods affixed to land or

premises at time of supply) occurred, but not by auction

Consumer within s. 4B

Liability Manufacturers, Importers-SOGA

As well as the provisions in the TPA, see also SOGA ss. 62-64.

Where goods not of merchantable quality, court may add manufacturer as a party and if of opinion that defect should be remedied by manufacturer, make orders requiring manufacturer to pay buyer an amount equal to an estimate of cost of remedying defect or requiring manufacturer to remedy defect plus any other ancillary orders as seem proper.

TRADE PRACTICES ACT 1974- SECT 74DActions re goods-unmerchantable quality

(1) Where:

(a) a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply;

(b) a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer;

(c) the goods are not of merchantable quality; and

(d) the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not of merchantable quality;

the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction.

TPA s. 74D continued (2)

(2) Subsection (1) does not apply: (a) if the goods are not of merchantable quality by reason of:

(i) an act or default of any person (not being the corporation or a servant or agent of the corporation); or (ii) a cause independent of human control; occurring after the goods have left the control of the corporation;

(b) as regards defects specifically drawn to the consumer's attention before the making of the contract for the supply of the goods to the consumer; or (c) if the consumer examines the goods before that contract is made, as regards defects that the examination ought to reveal.

(3) Goods of any kind are of merchantable quality within the meaning of this section if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to:

(a) any description applied to the goods by the corporation; (b) the price received by the corporation for the goods (if relevant); and (c) all the other relevant circumstances.

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

W.M.Johnson P/L v. Maxwelton (Oaklands) P/L CASCNSW CA 40136/99 23/10/2000

Medtel Pty Limitee v. Courtney (2003) FCAFC 151

The full Federal Court considered whether a pacemaker from a batch of pacemakers imported and distributed by Medtel that was still functioning could, nevertheless, be not of merchantable quality under TPA74D on basis there was a superadded risk of failure-even though it was subsequently proven that the pacemaker had not actually failed prematurely. Some of the batch of pacemakers found to be at greater risk of early battery depletion due to the type of solder used in manufacture. Not possible to determine whether a particular pacemaker was actually defective without taking it out of the patient and testing it. Mr. Courtney brought representative proceedings on behalf of himself and others fitted with the pacemaker. Judge at first instance found pacemakers not of merchantable quality, nor fit for the purpose because of superadded risk. Medtel appealed. The full FC dismissed the appeal.

Compare definition of “merchantable quality”-court needs to have regard to what a consumer is reasonably entitled to expect at the time of supply in terms of description and price…with common law..Australian Knitting Mills Limited v. Grant required that the goods be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of price obtainable for such goods if in reasonably sound order and condition and without special terms.

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.

Liability Manufacturers, Importers -Defective goods causing injury loss.Div 2 Part VA TPA

Part VA (ss.75AA-75AS) creates a statutory right of action against manufacturer of defective goods where those goods cause injury or damage to any person.

Not limited to consumers.

Strict liability

Where defect causes personal injury, manufacturer liable for losses suffered by injured party (75AD) plus consequent losses of dependents (75AE)

In addition to any common law or other statutory remedies, not a substitute.

Meaning of Defective- Pt.VA

“DEFECTIVE” 75AC-safety is not such as persons generally are entitled to expect.

Court looks at all relevant circumstances including: Marketing Packaging Use of any mark Instructions or warnings What might be reasonably expected to be done with or in

relation to goods and Time when manufacturer supplied the goods (s.75AC(2))

Liability Manufacturers, Importers -Defective goods causing injury loss.

Div 2 Part VA TPA

NOTE THRESHOLD ISSUES-

•Corporation,

•in trade or commerce,

•supplies,

•goods manufactured by it,

•goods are defective,

•injury suffered,

AND defences available.

Does not compensate for defects themselves; but for injury arising from interaction of defects with people and property. (74AE individuals, 74AF goods, 74AG real property).May also be failure of statutory duty elsewhere in TPA (Part V Division 1A) re safety standards, recalls etc.

Pt VA cont.

“Goods” -not limited to goods of a kind ordinarily acquired for domestic or household use or consumption. Contrast Pt V Div 2A.

Liability not restricted to buyer or hirer of goods but applies to anyone injured by them.

If more than one party responsible, liability is joint and several.

Limitation period - 3 years after person becomes aware of loss, defect and identity of manufacturer and -10 years from supply.

Hardchrome Engineering P/L v. Kambrook Distributing P/L (2000)VSC 359 (13/9/2000)

Hardchrome installed a titanium nitrate coating process machine. Decision made to apply a wax coating to the hardened articles to protect them against damage during transport. It had to be heated to 160-180. Article was then dipped into the wax. Hardchrome purchase a Kambrook KD53 deep fryer usually used to deep fry food and was powered by electricity. Turned on at 5.45 am and turned off at 3.15 then turned on at 5pm and off at 7pm. Electrical cord to fryer attached to extension cord attached to timer, attached to double adaptor which was inserted into a double electrical plug on side of an electrical power cabinet. Fire.

Court concluded fryer defective and not of merchantable quality. The defect, an inadequate gap in thermostat probe caused arcing which ultimately led to the contact points being welded and a continuous supply of electricity to the fryer…which overheated and caused the fire. Lots of expert evidence.

Kambrook negligent in selling defective item. Court refused to imply conditions (from instructions) that appliance only to be used in domestic setting because instructions not part of contract…came later…and not necessary to carry out contract.

GLENDALE CHEMICAL PRODUCTS P/L V. ACCC(1998) 1571 FCA

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

Defences-Part VA

DEFENCES available 75 AK-

• defect did not exist at time supply,

• in accordance with mandatory standard,

• state of scientific knowledge,

• only a component in finished goods and

• defect due to aspect of finished goods rather than component.

Graham Barclay Oysters Pty Ltd v. Ryan See text

Barclay grows and distributes oysters grown on Wallis Lake. It tested its oysters satisfactorily in December and January 1997. In Jan, Ryan bought oysters and contracted hepatitis A. Problem with discharge of effluent into lake.

Found

There was no contravention of s. 52 TPA by silence

No privity of contract, so no implied terms possible

Contravention of Div 2A 74B(fitness) and 74D (merchantability)

Although Part VA 75 AD satisfied, defence of state of scientific knowledge successful. Confirmed on appeal, extracted in text.

Negligence successful, but was lost on appeal.

Misleading, deceptive conduct

S. 52 General….misleading, deceptive

S. 53 False representations

S. 55A Services

Misleading, Deceptive Conduct - s. 52 TPA

A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Not limited to consumer.

No need for intent.

Endless application.

e.g. use of another trader’s distinctive words, products, features, slogans, similar business names, defamatory comments, misleading conduct in employment, representations in connection with sale of real estate, businesses, goods, services, silence where there is an obligation to disclose.

Note also s. 53-representations re false representations as to standard, quality, value or grade of goods and services.

In Taco Bell Inc. v. Taco Bell Pty Ltd (1982) 42 ALR 177,

the Australian Federal Court suggested a 4 step approach

• Identify the relevant section of the public who may be misled or deceived. The relevant section may be the public at large.

• Whether the conduct is misleading or deceptive must then be judged by the effect of the conduct on all those who fall within the relevant section of the public; the shrewd and ingenuous, the educated and uneducated, the experienced and inexperienced. Conduct will not, however, be misleading or deceptive if it would only mislead incredibly stupid persons and in most cases, the question will be whether a reasonable member of the relevant section of the public would be misled.

• Evidence that consumers are in fact suffering from a misconception may be persuasive but is not essential.

• It must be established that the misconception has arisen as a result of the conduct complained of and not some other factor.

Note: Intent of defendant not relevant. Not enough to cause mere confusion. The conduct must actually mislead or deceive, or be likely to. That is a point of difference with a passing off action…where it is enough to establish that it is confusing.

s.52 Analysis

•Corporation?

•Trade & Commerce?

•Conduct?

•Conduct misleading or deceptive or likely to mislead or deceive?

IF YES TO ALL

s.52 breach

Remedies - injunction, damages, orders

IF NO to ANY, not a breach of s. 52

Conduct

Doing or refusing to do any act and includes: Representations and promises Exaggerated sales talk Silence False warranties or guarantees

Objective testReal and not remote chance of misleading/deceivingConfusion not enoughExclusion clauses cannot be relied upon but disclaimers can be

effective if they modify the “conduct” so it is not misleading or deceptive. E.g. disclosing that one is passing on information supplied by another without any knowledge or belief in its truth or falsity…art galleries, real estate agents.

METALCORP RECYCLERS P / L V. METALMANUFACTURERS Ltd 2003 NSWCA 213

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

Metalcorp cont (2)

Metalcorp sued MML for misleading or deceptive conduct in breach of s. 52 TPA…in failing to inform it during the 9am conversation, after inspection, that it believed the copper stolen and that it would probably not pay. In the normal course of events, (common law nemo dat rule) Metalcorp could not have expected to recover anything because it could not give good title.

Found by CA (Handley JA, Hodgson JA, Gazell J; :A finding of misleading conduct is open where the conduct, word or deed conveys a misleading impression.The misrepresentation was conveyed by silence. Silence is to be assessed as a circumstance…have regard to all relevant circumstances; in particular the commercial relationship between the parties and their procedures. The conduct took place during a critical conversation. The critical conversation took place against the background of the longstanding business relationship…which had generated A substantial degree of mutual trust. The established course of business involved inspection and notification of complaints. In the circumstances, when the only complaint was short delivery, this was a representation that this was the only problem. MML was running no commercial risk, but knew that Metalcorp was about to take delivery of copper which might be stolen without having any idea of the risk it was running. Damages were recoverable because its loss was suffered by MML’s misleading conduct and Metalcorp had acted in reliance upon it.

SEELEY INTERNATIONAL PTY LTD V. CINTRO PTY LTD (Newtronics) 2002 ASAL 55-075 and text extract

Seeley made domestic rooftop evaporative airconditioners and contracted in 1992 with Newtronics to design a radio frequency control unit to safely and satisfactorily control the on off function. In 1994, Seeley contracted with Newtronics to manufacture 3,000. Seeley believed them safe and unaware that overheating and fire were possible if it failed. 3 fires occurred.

It was found that Seeley relied on expertise of Newtronics and terms of fitness for purpose and merchantable quality implied into contract by SA SOGA.

Also claim that s. 74 applied. Newtronics said it only applied to “services”. Found that Newtronics was contracted to design and manufacture remote control package to be integrated into the AC….design, not merely supply=services. Note onus of disproving S was a consumer was on N.

Also found a breach of duty of care and misleading and deceptive conduct because they did not have the expertise and competence they represented that they had.

E-commerce and s. 52 Trade Practices ActA corporation shall not, in trade or commerce, engage in conduct

that is misleading or deceptive or is likely to mislead or deceive

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

WARNOCK V. ANZ BANKING GROUP LIMITED G322 of 1987 FC( NSW)

(1989) 5 Insurance Cases 60-897

Mr W borrowed $39,000 from ANZ under a new lending product-insured personal loans-insured against inability to repay loan instalments because of sickness and accident to $50,000. Policy contained declaration: I declare that I am….in good health and unaware of any illness, disease or physical defect which could result in a claim. Mr. W said that he could not sign the declaration because of his rheumatoid arthritis but was told that the declaration pertained only to life cover. The bank did not draw Mr. W’s attention to the exclusion clause. Subject to the provisions of the Credit Act 1984, the company shall not be liable to make any payments for death, disablement or unemployment caused directly or indirectly as a result of illness or unemployment which exists at or commences within 28 days of the commencement of this insurance. After some time Mr. W’s arthritis flared up and he was unable to meet the loan repayments.

Found to be misleading (s. 52 TPA) and to involve lack of due care and skill on the part of the bank manager (s. 74TPA), The damages measured as the cover Mr. Warnock would have obtained had the bank manager told him the truth. i.e. Policy limit of $50,000 less an additional premium of $1,000. Plus an order under s. 87 TPA varying personal loan agreement from inception in to avoid the default complained of as the basis of the cross claim by the bank.

Appropriate Remedies

An illustration of a case where it was not possible to imply fitness for purpose because there was not reliance on skill and judgement, but another remedy was available pursuant to ss 52 and 82 of TPA Clyde Industries Pty Ltd v. Golden West Refining Corp (text).

Golden West refined gold using a process involving hydrochloric acid. It was important that there was not any fluorine in the acid as glass vessels and condensers were used. Daly Laboratories supplied acid to Golden from CSBP, but needed ore than they could supply. So it turned to Ajax, a division of Clyde. When Golden used the Ajax acid, condensers and vessels were damaged and $62,132.46 worth of solution containing gold was lost.

Trial judge found no reliance for the purpose of implying term of fitness for purpose.Found that Golden did not rely on Daly representation that Ajax acid was same as CSFB acid and did not contain fluorine because executives of Golden knew from their own experience that Ajax acid might contain some fluourine. So, this representation did not cause the damage and so no s.82 damages available for breach of s. 52. However, they did rely on the technical data sheet put out by Clyde that the acid may contain up to but not more than approximately 100ppm fluorine. At that level, it would not cause damage.

False Representations - TPA s.53

FALSE REPRESENTATIONS:•That goods or services are a particular standard, quality, grade, composition, style, model•That goods are new•That a particular person has agreed to acquire the or that goods or services have sponsorship, approval, performance characteristics, benefits they do not have.•Need to show conduct was deliberate but with strict liability.

FALSE OR MISLEADING REPRESENTATION:•As to price•As to availability of facilities for repair or spares•As to origin•As to existence, exclusion or effect of any condition, warranty guarantee, right or remedy.

Conduct Prohibited by Section 53

False Representations that goods were of a particular standard, quality, value, grade, composition, style or model or have had a particular history or a particular previous use.

A manufacturer of microwave ovens advertised that its ovens were approved by Standards Association of Australia. This was false. Sharp Corp of Australia Pty Ltd v. Hartnell (1975) ATPR 40-003.

An advertisement described “silver rings from teaspoons” when the rings contain no silver at all. Thompson v. Magnamail Pty Ltd (2) (1977) ATPR 40-033.

A shop advertised “top quality” shoes. They were in fact seconds. Macfarlane v. John Martin & Co. Ltd (1977) ATPR 40-034.

Demonstrated photocopiers were sold without disclosing that history. Hollis v. A B E Copiers Pty Ltd (1979) ATPR 40-115.

False odometer readings. Given v. CV Holland (Holdings) P/L (1977) 29FLR 212. False statements about the origin of goods. Barton v. Croner Trading Pty Ltd (1985)

ATPR 40-525. Korczynski v. Wes Lofts (Aust) Pty Ltd (1986) ATPR 40-707. False statements about the quality of wine. Van Berg v. Trade Practices

Commission (1977) ATPR 41-545.

Section 53 - False Representations that Services are of a Particular Standard,

Quality, Value or Grade

An example of this is an advertisement for the three day Rio Tennis Tournament in Canberra which said “Lendl v. McEnroe nightly at 7.30pm”. In fact, these two players were scheduled to meet only once.

Kylie v. Lysfar Pty Ltd (1985) ATPR 40-614.

False Representations that Goods are New

The legitimate expectations of a new item are much greater than if it is secondhand. The decision to buy new rather than used goods may involve the consumer in other arrangements such as financing. To be misled in such a matter prevents the consumer from making an informed judgement about value for money. The problem is that “new” can have several meanings. In Annard & Thompson Pty Ltd v. Trade Practices Commission (1979) 25ALR91, it was explained that: the meaning of the word “new” particularly in relation to motor vehicles, has been considered several times in the Courts. It seems that there are at least five possible meanings which the word may bear when used to describe a vehicle. They are:1. That the vehicle has not been previously sold by retail, that is, that it is not a secondhand vehicle.2. That the vehicle is a current and not superceded model.

3. That the vehicle has not suffered significant deterioration or been used to any significant extent.

4. That the vehicle is of recent origin.

5. That the vehicle is one which has suffered a measure of damage but this damage has been quite effectively repaired or any damage part replaced and the vehicle is otherwise new in every respect.

A breach would occur where a demonstration model, a superceded model or a reconditioned item were represented as new. A failure to disclose something is also a breach of the Section.

False Representations that a Particular Person has Agreed to Acquire Goods or Services

This was apparently added to the Act to counter the practice of asserting that a person, recently deceased, had ordered goods and then demanding payment from relatives.

False Representations that Goods or Services have Sponsorship Approval, Performance

Characteristics, Accessories, Uses or Benefits they do not have

At the time World Series Cricket was introduced the Australian Cricket Board used 53(c) to prevent World Series matches from being promoted as “test or super test matches”. The use of the term “test” suggested sponsorship by the official body. Parish v World Series Cricket Pty Ltd (1977) ATPR 40-040.

An advertisement said that a particular type of vehicle was fitted with rear stabiliser bars when some models were not. Ducret v Nissan Motor Company (Australia) Pty Ltd (1979) ATPR 40-111.

A claim that by fitting its car burglar alarm a person would quality for a reduction of insurance premium when this was not so. Given v Optional Extras (1976) ATPR 40-051.

An advertisement implied that Olympic champion swimmer Keiran Perkins was a member of a swimming team sponsored by Telstra. Perkins was not and successfully challenged the advertisement. Talmax Pty Ltd v Telstra Corporation Limited (1996) ATPR 41-535.

False Representations that a Corporation has a Sponsorship Approval or Affiliation

it does not have Where a corporation falsely claimed that it was a member of a body

such as the Master Builders Association. This would create an impression it could be trusted when it might not be the case.

If a corporation were falsely to advertise in a way that suggested approval of the Royal Family or that it was associated in some way with the Olympic Games.

A computer company sell computers which were similar to those of a high profile rival and supplied with them the operating manual of that other companies computer, thus creating an unsubstantiated impression that its computers were associated with a more prominent brand. Apple Computer Inc v. Computer Edge Pty Ltd (1984) ATPR 40-453.

The use of a similar trading name and trademark were found to amount to a breach of 53(c) and (d). Australian Home Loans Limited (trading as Aussie Home Loans) v. Phillips (1998) ATPR 41-626.

False or Misleading Representations with Respect to the Price of Goods or Services

The Trade Practices Act defines price to include a charge of any description. Section 4. It would include delivery charges, installation charges, taxes, finance charges, insurance, onroad charges and any other cost added to the basic cost. It follows that a supplier must inform a consumer of the total prices, there is no room for hidden extras.

A price that is described as reduced or discounted or special must be just that. It is a breach of 53(e) to claim as a discounted price the regular price or to inflate the regular price and then sell at the normal price and claim that it is a discounted price.

Price comparison is important and when an advertisement is based on comparing the advertisers price with those of competitors accuracy is essential. If the price difference were exaggerated, even by mistake, it is a breach of the Act. The safe way to engage in price comparison is to say “we will guarantee to beat a competitors price by ‘x’ dollars” and you will notice that this frequently happens.

The advertising must leave no wrong impression as to what is available for the price. If an extra is shown in an advertisement, the ad must make it clear that they come at an extra cost.

False or Misleading Representations with Respect to the Price of Goods or Services

cont.

There was a price tag where the higher price was crossed out and replaced by a lower price written in. Giving the impression that the higher price is what would normally be paid if the retailer had not decided to reduce the price. The goods had not previously been offered at the higher price. TPC v Cue Designs Pty Ltd (1996) ATPR 41-475.

Optus advertised free weekend local calls but failed to mention that the offer did not apply to calls from one mobile to another. TPC v Optus Communications (1996) ATPR.

In response to the launch of telephone calls at 20c. Telstra stated that under its pricing plan local calls would be available at 21c. In fact the cost ranged from 21.8c to 25c. Australian Competition & Consumer Commission v Telstra (1997) ATPR 41-540.

False or Misleading Representations Concerning the Availability of Facilities for the

Repair of Goods or Spare Parts for Goods

This is all the more important where relatively expensive high technology goods are involved.

False or Misleading Representations Concerning the Place of Origin

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

Making a False or Misleading Representation Concerning the Need

for any Goods or Services

It was common for pest exterminators to tell old age pensioners that their houses were infested with termites and to panic them into having unnecessary work done. Likewise a mechanic would profitably extend a transaction by telling the customer that in the course of a simple repair job it became apparent that more substantial work was necessary.

The need of goods or services can exist when it is only desirable or preferable. It is important to establish that the goods (service) were not needed.

A private health insurance fund told patients that if they wished to be able to choose who should treat them they would be well advised to maintain membership of the fund. This was incorrect. Keehn v. Medical Benefits Fund of Australia Limited (1977) ATPR 40-047.

The Making of a False or Misleading Representation Concerning the Existence,

Exclusion or Effect of any Condition, Warranty, Guarantee, Right or Remedy

Calculators were sold with a pamphlet stating they carried a one year warranty when in fact it was only 90 days. Ballard v. Sperry Rand Australia Limited (1975) ATPR 40-006.

An insurance agent gave wrong information about the wording of a clause in a disability insurance policy. He said it applied to the consumer being incapable of carrying out his normal occupation when in fact it applied to any occupation. The impression was that the policy operated in a more generous way than the standard disability. Dates v. City Mutual Life Assurance Society (1982) ATPR 40-311.

Misleading Conduct re Servicess. 55A TPA

A corporation shall not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services.

Note LIABLE TO MISLEAD requires a public element and is narrower than LIKELY TO MISLEAD.

In Dawson v. World Travel Headquarters P/L (1981) 53 FLR 455, World Travel took a booking for a 16 day tour when the duration had been changed to 15 days. Brochures, which contained the incorrect information, were displayed by World Travel. It was held to have breached ss. 53(c) 55A and 58 (accepting payment while intending not to supply or unable to supply).

False representation re business activities

s.59(1) prohibits a corporation from making false or misleading statements in a material particular concerning the profitability or risk of business activities that can be carried out at home.

59(2) aimed at extravagant claims re franchises e.g. Wilde v. Menville Pty Ltd (1981) used truck dealer as to earnings by purchasers using truck or ACCC v. Murray (2002) FCA 1252 concerning franchises to make Wills..represented it could be lawfully done by non lawyers.

Harassment and Coercion - TPA 60

A corporation shall not use physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services to a consumer or the payment for goods or services by a consumer.

ACCC v. Davis (2003) FCA 1227. Respondent pinned consumer to ground until their vehicle was removed from consumer’s premises.

ACCC v. McCaskey (2000) 104 FCR 8 French J distinguished between harassment and “undue harassment”. Repeated unwelcome approaches to buy could easily be undue harassment. Whereas, legitimate demands for payment of moneys owing might be frequently but legitimately made. If calculated to intimidate or demoralise etc rather than convey the demand, they will be undue.

Unconscionable conduct

S.51AA

S.51AB

S.51AC

Unconscionable Conduct

S.51AA TPA Adopts General Law of Equity. A corporation must not, in trade or commerce engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories Commonwealth Bank v. Armadio Note need for special disadvantage.

51AB extends meaning re goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.

Extended to small business by way of 51AC-limit of $3m. Large business taking advantage of small business. E.g franchises, landlord and tenant.

Circumstances must have been forseeable.

Unconscionable Conduct analysis

1. Corporation?

2. Trade or commerce?

3. Conduct unconscionable? under common law?, 51AB ? Supply of goods/services to a

consumer 51AC?protection to small business against

unfair conduct by large business. Note longer checklist and wider remedies from 51AB.

s.51AB

s. 51AB -supply of consumer goods or services to a person….of a kind ordinarily acquired for personal, domestic or household use or consumption…note restricted definition of “goods”.

Non exhaustive list of matters Court may have regard to in subs. (2)-bargaining strength, conditions more than required to protect legitimate interests, level of understanding, undue influence, alternatives available.

TRADE PRACTICES ACT 1974- SECT 51AC Unconscionable Conduct in Business Transactions

(1) A corporation must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a corporation (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a corporation (other than a listed public company); engage in conduct that is, in all the circumstances,unconscionable.

TPA51AC cont.

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

Pressure to Purchase PropertyFound to be Unconscionable

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

ACCC, Westfield Settle Unconscionable Conduct Matter

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

ACCC and Westfield cont (2)

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

Westfield will contribute to the ACCC’s legal costs. 18 June, 2004

Unfair contracts

See NSW Legislative Council Standing Committee on Law and Justice Report November 2006- Unfair terms in consumer contracts

Discussion of unconscionable and adequacy of current regulatory framework-Contracts Review Act 1980 (NSW), TPA, Fair Trading Act.

Focus of report-unfair terms

Supplier can unilaterally vary the goods or services Penalties against consumer but not supplier for breach of

contract Supplier allowed to suspend services but continue to

charge Supplier can terminate contract, but not consumer Standard form contracts with onerous terms and no

alternative Excessive length of contracts, difficult language

Student Question 1

Mr. Mendel said that one could get the ACCC to take action under s. 53 TPA but not s. 52. Please explain.

See s. 75AZC in Part VC

Criminal Offence provisions to line up with Commonwealth Criminal Code. Mens rea required.

s. 75AZC is a -Mirror provision of s. 53. Can be offence with fine.

No equivalent criminal Part VC provision for s. 52.

Student Question 2

Exam March 2006 QA1

The marking scheme for this Q was-

Understood the Q 2Answered the Q 2(a) Breaches-such as basics….contract, TPA 4B, 74, 52, 53 9(b) Remedies-Online and ZZZ-in contract, under TPA (80,82,87) 8Reasoning 2Other items-e.g. negligence, financial services, ASIC act 2TOTAL 25

To achieve a mark out of 100%, the result was multiplied by 4.

Outline plan for answer

The nature of the transaction-one or more contracts for services Who were the contracting parties-Simon and Online, ZZZ? What were the express terms of the contract? What were the implied terms -at general law and implied by statute? Conditions or warranties? Are there any preconditions? E.g. Was Simon a consumer for s. 74TPA? If so, were they met? Action to bring-breach of contract Damages-type and method of calculation of amount Statutory provisions relevant? Coverage of ss. 52 and 74; ideally also s. 53 an s. 12DA of ASIC Act Criteria for application? Were they met in this case? Remedies…ss.80,82,87…what they could achieve in this situation…. Damages, orders, types, amounts Development of arguments rather than pure description for both contract action and Statute Use of Cases to illustrate argument e.g. Seeley, Arms or others as applicable (not just quotes

from text with footnote of name of case)

March 2006 Q A1

In an answer, students were expected to identify the situation as being one of a contract for services. A number of students spent a couple of pages on this, which is too much in the context of this assignment. A surprising number of students equated the design and delivery of a retail website as a sale of software and discussed Toby and St. Albans before concluding that the nature of the contract involved mostly skill and was therefore services. While they came up with the correct conclusion, and could have referred to this by analogy or developed argument in support of such an interpretation, most did not use this in that way. It is a concern that they saw the transaction as a sale of software, rather than design and programming to produce the website; (the end result item of personal property). It is difficult to give good legal advice if one does not have a clear understanding of the underlying transaction.

A couple of people treated the transaction as being one of a sale of goods instead of services….leading to incorrect analysis and application of wrong TPA sections.

March 2006 Q A1 cont.

A couple of people assumed incorrectly that Simon needed to be a consumer to have access to any section of TPA. While this is true of s. 74, it is not true of s. 52 et al. For the s. 74 purposes, students should have analysed whether Simon was a consumer. Most did.

A number of students revealed a superficial or incorrect understanding of the terms and application of ss 52, 74 TPA; usually combined with what appeared to be parts of the text borrowed into their answer, rather than original argument. This results in a descriptive answer, and poor preparation for handling problem questions

March 2006 QA1 cont

A considerable number of students incorrectly assumed that the result of a breach of an implied warranty under s. 74 would result in an action for damages pursuant to s. 82 of the TPA. As it is the contract that is breached (with the term implied into it), the correct action is one for breach of contract at common law. The TPA remedies in 80, 82, 87are available for breaches of statutory provisions e.g. 52,53.

A good number of students did have an excellent understanding of the application of ss. 82, 87 for damages, noting that s. 82 only applied to present damages suffered (which could include a present value calculation for lost Christmas sales) whereas an order for likely damage could be awarded under s. 87 if the court discretion was exercised.

March 2006 QA1

Students should have examined where there were possibilities for an action in breach of contract for express terms as well as s. 74 and in the process discussed the difference between conditions and warranties. A good number of students did so.

A lot of answers were descriptive rather than analysis, application and argument and such answers cannot result in good marks. Students always find it easier to describe what a court should find in a very general way, rather than argue for what a court should find in a specific way. The latter requires a better knowledge of sections and familiarity with argument in the cases. It is necessary to spend a lot more time in study of actual sections and cases to do this, rather than read summaries in the text. For example, with remedies and damages, it is necessary to work through the type and amounts of damages that should be granted, supported by good argument and case and statute references; not just state that the person could bring an action for damages, without more.