Week 6 - Consumer protection (ACL)

Question 1

explain misleading conduct

Answer 1

(section 18) A person in trade or commerce must not engage in conduct that is misleading or deceptive

in trade or commerce = any business related activity

‘misleading or deceptive = conduct that is likely to lead a person into error or was inconsistent with the truth

Question 2

explain section 18 and pre contractual negotiations:

Answer 2

• also applies to pre-contractual negotiations:
• statements of opinion
• silence (non contractual disclosure may constitute as misleading conduct)

Question 3

explain Unconscionable conduct:

Answer 3

Section 20
A person must not, in trade or commerce engage in conduct that in unconscionable, within the meaning of the written law from time to time

ACL does not define “unconscionable” but provides matters which may provide guidance as to whether conduct may meet that description (s 22(1)
both parties have relative bargaining positions
supplier + consumer acted in good faith
whether undue influence or pressure was exerted upon the customer or any unfair tactics used

Question 4

Explain Unfair contract terms

Answer 4

A term is unfair if it would cause a significant imbalance in the parties’ rights and
obligations.

In determining unfairness, the court must take into consideration the transparency of the term and the contract as a whole. “Transparency” generally means easy to understand and clearly presented.

standard form = take it or leave it contract between 2 or more parties

Question 5

Explain false representations:

Answer 5

A person must not, in trade or commerce in connection with the supply or possible supply of goods or services make false or misleading statements
e.g.
goods of a particular standards, quality, value or grade
country of origin
condition
availability of repairs or spare parts

Section 37(1) prohibits false representations about the “profitability of a business”, including one that can be carried on at home. Such section includes franchise profitability: see Ducret v Colourshot Pty Ltd (1981) 35 ALR 503. e.g. can’t say a business was worth $2M if it is not

Question 6

remedies for unfair practices

Answer 6

criminal penalties (ss 151-168);
• pecuniary penalties (s 224(1));
• an injunction (s 232);
• damages (s 236); and
• other orders (eg rescission or variation of contracts - see ss 237, 243).

Question 7

Explain consumer guarantees

Answer 7

The ACL provides statutory guarantees for the supply of goods and services to consumers. They include guarantees as to:
• title;
• correspondence with description;
• acceptable quality; and
• fitness for purpose which is disclosed to the
trader. See Pt 3-2, ss 51-56 of the ACL.

Question 8

what is a “consumer”

Answer 8

anyone who purchases goods/services under $40,0000; or
• the goods are of a kind ordinarily acquired for personal, domestic or
household use or consumption; or
• the goods consisted of a vehicle or trailer acquired for use principally
in the transport of goods on public roads. See s 3(1).

CANNOT, Re-supply or use in production or repair of goods or fixtures on land are expressly excluded from the definition of “consumer” (s 3(2)).

Question 9

explain consumer guarantees for the supply of goods

Answer 9

Acceptable quality:
>fit all the purposes for which goods of that kind are commonly supplied
>free from defect
>safe, durable

Fitness for disclosed purpose:
>there is a guarantee that the foods are reasonably fit for any disclosed purpose and for any purpose for which the supplier deems reasonably fit

Correspondence with description

Supply of goods by sample or demonstration model
>correspond with description
>consumer has opportunity to compare goods with sample
>free from defects

Repairs + spare parts
>Guarantee that the manufacturer will take reasonable action to ensure repair facilities and parts are reasonably available for A REASONABLE period after the goods have been supplied

Express warranties:
sales other than auctions there is a guarantee that the manufacturer will comply with any express warranty made in relation to the goods

Question 10

explain consumer guarantees regarding supply of services

Answer 10

61 - if a person in trade or commerce expresses purpose of service there is a guarantee it will be reasonably fit to that purpose

61 (2) - guarantee that services will be of such nature, quality, state or condition that they might reasonably be expected to achieve that result

62 - must be supplied within a reasonable time

Question 11

remedies for non-compliance of consumer guarantees

Answer 11

The ACL distinguishes between MAJOR and non-major failure to comply with the guarantees.
Non-major failure gives the supplier options (s 259(1)-(2)). These include remedying the failure within a reasonable time or if the supplier does not remedy, the consumer can reject the goods or recover all reasonable costs in remedying the failure.

Major failures are defined in s 260 and the consumer’s remedies are addressed in s 259(1)-(4).
Limitations in terms of the consumer’s right to reject the goods are addressed at

s 262(1)-(2). Rejection of goods also places an obligation on the consumer to return them to the supplier unless doing so would incur a significant cost, in which case the supplier should collect them (s 263(2)-(4)).

Question 12

enforcement against unfair remedies

Answer 12

criminal penalty
pecuniary penalty
injunction
damages
other orders

Question 13

explain manufacturers warranty

Answer 13

liability upon manufacturers for defective goods
• liability for goods with safety defects (Pt 3-5, ss 138-50);
• liability for non-compliance with statutory guarantees (s 271); and
• liability of manufacturer to seller of defective goods

Question 14

explain “safety defects” in terms of manufacturer guarantees

Answer 14

the manner in which, and the purposes for which, they have been marketed;
b) their packaging;
c) the use of any mark in relation to them;
d) any instructions for, or warnings with respect to, doing, or refraining from
doing, anything with or in relation to the goods;
e) what might reasonably be expected to be done with or in relation to them; and
f) the time when they were supplied by their manufacturer (s 9(2

Question 15

Trinco manufactures and sells outdoor furniture. Included in their range of outdoor furniture are sun lounges and deck chairs, which belong to Trinco’s “Comfi” range and are sold under Trinco’s name.
Another manufacturer, Contour, also sells outdoor furniture, including sun lounges and deck chairs as part of its “Funtimes” range. The sun lounges and deck chairs in Trinco’s “Comfi” range and Contour’s “Funtimes” range are almost identical in shape, design and general appearance, although on close inspection, differences can be observed. Has the manufacturer of the “Funtimes” range contravened s 18(1) of the ACL?

Answer 15

Issue: Has the manufacturer of the “Funtimes” range contravened s.18(1) ACL?

Rule:

s.18 provides:

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

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd.

Apply: It does appear that Contour are in trade and commerce, but the question is whether the manufacture of their furniture range is ‘misleading or deceptive or likely to mislead or deceive’ consumers , specifically in relation to Trinco’s range. Another way to phrase this is, whether Contour’s range would likely ‘lead a person into error’ to believe they are Trinco manufactured furniture.

The facts appear very similar to the above case. It was held that the defendant had not contravened s.18(1). The D always labeled its furniture stating that it was the manufacturer. On the facts, we are not told whether Contour label their furniture.

Conclude: There will be no liability provided Contour has labeled their products stating Contour as the manufacturer.

Question 16

Lucy Jordan intends to go bushwalking in the Grampians (rugged bushland of western Victoria) but does not have the appropriate boots. She goes to Catmandoo and, after explaining her situation to Nathan, the shop’s manager and most experienced bushwalker, she buys a pair of Evergrips, the boots he recommends. The boots are industrial strength steel-tipped boots. However they prove to be unsuitable. They do not grip well and the stitching begins to fall apart after a couple of days walking. When she returns to Melbourne she takes the boots to Catmandoo and demands a refund. Nathan points to the clause above the front door: “the Consumer Guarantees do not apply in this store.” And, he says, “these are industrial boots, used by tradies – you’re not even a consumer under the law”. Advise Lucy of her rights under the consumer guarantee provisions of the ACL.

Answer 16

ssue: Is Lucy protected by the consumer guarantee laws under the ACL?

Rule: The ACL provides for statutory guarantees in contracts for the supply of goods and services to consumers.

s. 2(1) provides “supply” means contract not only for sale, but also for exchange, lease, hire or hire-purpose.
s. 3(1) Defines a consumer contract under the consumer guarantee provisions.

A person acquires goods as a ‘consumer’ only if:

the amount payable for the goods does not exceed $40,000; or

the goods are of a kind ordinarily acquired for personal, domestic or household use or consumption; or

the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads.

A person does not acquire goods as a consumer if they acquired them for the purposes of resupply, or for using them in the course of production, or in the repair of other goods or fixtures to land (s.3(2)).

The consumer guarantee provisions require that goods are of acceptable quality (s.54); fit for disclosed purpose (s.55); and correspond with any description applied to them or any sample or demonstration model (among others).

Consumer guarantees generally cannot be excluded (s.64(1)) in a contract unless they are goods not for domestic purposes and a term attempts to limit liability. (S.64A)

Remedies for the breach of consumer guarantees can be found in s.259 and s.260. Remedies include the supplier remedying a minor failure of the goods within a reasonable time, and if not the consumer can reject the goods or recover all reasonable costs incurred in remedying the failure. (s.259(1)) Major failures are defined as:

the goods would not have been acquired by a reasonable consumer who was fully acquainted with the nature and extent of the failure.

goods are substantially unfit for the purpose for which goods of the same kind are commonly supplied and they cannot be easily and within a reasonable time remedied to make them fit for such purpose.

Goods are unfit for their disclosed purpose and cannot be easily remedied

Goods not of acceptable quality because they are unsafe (among others).

A major failure will allow the consumer to reject the goods or recover compensation for any reduction in value of goods below the price paid (s.259(3)) Rejection will not be allowed if the goods have been lost or destroyed by the consumer, or an unreasonable time has passed. (s.262)

Apply: This does appear to be a contract that will be caught by the consumer guarantee provisions. It is a sale (s.2(1)) and further the boots can be assumed to be less than $40,000 (s.3(1)). In any case it is a contract for the sale of goods for personal purposes (ie not for business – s.3(1)). Despite Nathan’s attempt to claim that the boots are only for ‘tradies’, Lucy bought them for personal use, and Nathan cannot exclude liability for consumer guarantees. These are implied by law under the ACL. (s.64(1))

There appears to be a breach of acceptable quality (s.54(1)) here, because they are defective (do not grip and falling apart), not fit for purpose for which boots are commonly supplied (ie gripping and holding together), and not durable. Further, as they are coming apart in dangerous terrain, they may also be unsafe (although this would be an unusual application in this case). Nathan’s response to Lucy’s request for a boot for ‘rugged’ bushwalking and Nathan’s expertise (most experienced bushwalker and manager) are all relevant factors that can be taken into account. Any reasonable consumer acquainted with the state and condition of the goods (no grip and falling apart within days) would regard them as not acceptable in the context of these circumstances. (s.54(3))

Should Lucy have inspected the boot before buying them? S.54(5) does not appear to be relevant in this context, it is reasonable for her to rely on Nathan, she is obviously not an experienced bushwalker.

s.55(1) applies to goods that have been supplied for a disclosed purpose. A disclosed purpose may be express or implied. When Lucy tells Nathan the purpose for the boots (rugged bushwalking) there is an express purpose disclosed, that the boots will be fit for that purpose. (s.55(2)). Lucy relied on Nathan’s expertise and it was reasonable for her to rely on Nathan. (s.55(3))

There have been two clear breaches of the consumer guarantee provisions, and this is a major faiure, ie

the goods would not have been acquired by a reasonable consumer who was fully acquainted with the nature and extent of the failure

goods are substantially unfit for the purpose for which goods of the same kind are commonly supplied and they cannot be easily and within a reasonable time remedied to make them fit for such purpose.

Goods are unfit for their disclosed purpose and cannot be easily remedied

Goods not of acceptable quality because they are unsafe

Conclude:

Lucy can reject the boots and claim her payment back. (s.259(3)).

An alternate approach to this type of more complex problem may be to break the ‘issues’ down and tackle them one by one. This is the usual ‘legal’ way:

In order for Lucy to be successful she will need to show the following:

(a)The Consumer guarantee issues:

Her contract is governed by the ACL. (s.2(1))

She is a consumer under (s.3(1))

The consumer guarantees that have been breached (s.54-s.55).

Remedies (minor/major failures) s.259-s.260.

(b)The exclusion clause issues:

Can you exclude? (s.64(1)

To what extent can you limit liability? (s.64A)

Question 17

Tenzin and Lobtse are Mongolian students studying at an Australian university in Melbourne. Under the terms of a student visa they are allowed to work for 40 hours a fortnight. They both sign a contract with Kleen Cleaners and begin work cleaning toilets in a 10 story office block in the CBD. Two months go by. They have not been paid at all. They speak to the manager who informs them that under the contract they signed, they agreed that the first three months was a “training period” for which there was no payment. Tenzin and Lobtse consult you. It is true that the contract does in fact contain this term but (a) they did not read it (b) they received no training during that period. Please advise them.

Answer 17

Students are asked to consider action under ss 18, 20–22 and 29 of the ACL in relation to the contract.

Section 18 - Is this misleading conduct as per the definition above? Is it likely to ‘lead a person to error’?

Sections 20–22 – unconscionability problem – students should consider the recently amended ACL – which preserves the common law (ie Amadio – “special disability” plus “knowledge of it by D” and a “taking advantage” that amounts to unconscionable conduct)

Is there a situation here of a ‘special disability’ and knowledge by Kleen (ie overseas students - think 7/11)? Do they ‘take advantage’?

ACL s 21 – which now applies to both domestic and commercial transactions, with the non-exclusive list of factors that a court might consider at s 22(1).

Strength of bargaining power? Would they have understood the contract? Is 3 months a reasonable period for ‘training’? Would other workers have been treated the same? Does this accord with the industry practise? Did Kleen act in good faith?

The conduct is likely to be misleading and unconscionable (for which there are broad remedies including damages (s 236), rescission etc (ss 237, 243) and, for civil penalties: s 224(1) ($1.1m or $220,000 for individuals “involved in the conduct”: s 2(1)). (see p.115)

NB. S.31 ACL (not in your textbook) deals specifically with misleading conduct in employment.

Subsection 31 (1) states:

A person must not, in relation to employment that is to be, or may be, offered by the person or by another person, engage in conduct that is liable to mislead persons seeking the employment as to …the availability, nature, terms or conditions of the employment… or any other matter relating to the employment.