Liability for Goods and Services to consumers-ACL Module 5 Winter 2016 ©MNoonan 2009
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. ©MNoonan 2009
Sale of Goods Act Students should remember that: SOGA applies to ALL Sales of Goods whether B 2 B or B 2 C. Conditions implied by ss. 18, 19, 20 of SOGA cannot be excluded in a “consumer sale” ACL does not displace SOGA if both apply, but because of scope and availability of more appropriate remedies, ACL often preferred where it provides a remedy. ©MNoonan 2009
Australian Consumer Law o Cooperative scheme replaces Cth and State provisions, previously in TPA and Fair Trading Acts. o Single regime operates as law of Commonwealth (part XI) and as an “applied law” of States and Territories (Part XIAAA). o Many provisions same as, or similar to, those previously in Trade Practices Act. Many TPA cases therefore still relevant. Some new provisions, with no previous case law. ©MNoonan 2009
Australian Consumer Law o Unfair Contract provisions commenced 1/7/2010. o Remainder of ACL commenced 1/1/2011. ACL is Schedule 2 to CCA. o See www. consumerlaw. gov. au for relevant information and guides to new law. o For examination purposes, students should assume ACL always been in place, when answering problem questions. Some understanding of differences from previous law (TPA) required for short questions. ©MNoonan 2009
Australian Consumer Law Studied in this course: CONDUCT Misleading, deceptive, unconscionable conduct, specific representations Unfair contracts PRODUCT LIABILITY Consumer guarantees Defective goods Remedies in relation to the above. ©MNoonan 2009
Product Liability Nine consumer guarantees Consumer may have recourse against supplier or manufacturer, depending on breach For purposes of ACL, manufacturer has expanded definition and includes person who placed their name or brand on the goods or held themselves out as manufacturer. In addition to ACL, remember common law…e. g. contract, tort… and SOGA ©MNoonan 2009
Consumer Guarantees o Similar in effect to previous TPA provisions (See ss. 68, 69, 70, 71, 72, 74 TPA) o BUT Different legal character -----Statutory guarantees -----Not implied terms into contract o Remedy therefore different-statute rather than common law breach of contract. ©MNoonan 2009
Consumer Guarantees Relating to goods 1. Title (s. 51) 2. Undisturbed possession (s. 52) 3. No undisclosed securities (s. 53) 4. Acceptable quality (s. 54) 5. Fit for disclosed purpose (s. 55) 6. Match description (s. 56) 7. Match sample or demonstration model (s. 57) 8. Repair facilities, spare parts reasonably available (s. 58) 9. Comply with express warranties (s. 59(2)) ©MNoonan 2009
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. ©MNoonan 2009
Consumer guarantees Relating to services o Due care and skill (s. 60) o Fit for particular purpose (s. 61) o Supplied within reasonable time (s. 62) Note exceptions: Guarantees do not apply to contracts for transportation or storage of goods for a business, trade, profession or contract of insurance. (s. 63) ©MNoonan 2009
Consumer Guarantees Liability-goods Guarantee Supplier S with I Manufacturer √ √* √ √ 1. 2. 3. 4. 5. 6. 7. 8. 9. Title Undisturbed possession No undisclosed securities Acceptable quality Fit for specified purpose Match description Match sample or demo model Repair facilities/spare parts available Express warranties 10. NOTE: Some limitations. For example, in * manufacturer only liable to give indemnity to supplier if purpose disclosed to manufacturer. √ √ √ ©MNoonan 2009
Action by consumer Consumer may take action against supplier for breach of a consumer guarantee even where the breach was caused by the manufacturer. The ACL provides a right of indemnity to the supplier against the manufacturer if they are, or would be, liable under the ACL. ©MNoonan 2009
Consumer Guarantees Liability-services Guarantee o Due care and skill Supplier √ o Fit for particular purpose √ o Supplied within reasonable time √ ©MNoonan 2009
Supply, supplied, supplier ACL s. 2 definitions Supply, when used as a verb, includes: (a) In relation to goods-supply (including re-supply) by way of sale, exchange, lease, hire or hire-purchase, and (b) in relation to services-provide, grant or confer; and, when used as a noun, has a corresponding meaning, and supplied and supplier have corresponding meanings See s. 5 for when a donation can be a supply-e. g. if for promotional purposes ©MNoonan 2009
Manufacturer s. 7 ACL A manufacturer includes the following: (a) A person who grows, extracts, produces, processes or assembles goods; (b) A person who holds themselves out to the public as the manufacturer (c) A person who causes or permits the name of the person, a brand or mark to be applied to the goods (d) A person who permits another to hold the first person out as the manufacturer (e) An importer if the manufacturer does not have a place of business in Australia at the time of importation. See s. 7 for details ©MNoonan 2009
Trade or commerce Means: (a) Trade or commerce within Australia; or (b) Trade or commerce between Australia and places outside Australia And includes any business or professional activity (whether or not carried on for profit) Note inclusion of professional activities Note that while most guarantees only apply to sales in T&C, some consumer guarantees apply regardless of whether sold in T&C-i. e. title, undisturbed possession and undisclosed securities ©MNoonan 2009
Meaning of Consumer- ACL s. 5 A person is taken to have acquired particular goods as a consumer if, and only if, (a)The amount paid or payable, as worked out under subsections (4) to (9) did not exceed $40, 000 (or as prescribed) or (b)The goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or (c)The goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads BUT, not if acquired for resupply or using them up or transforming them in trade or commerce in the course of production or manufacture or in the course of repairing or treating other goods or fixtures on land. Not exact wording of section ©MNoonan 2009
Meaning of Consumer- ACL s. 5 A person is taken to have acquired particular services as a consumer if, and only if: The amount paid or payable for the services, as worked out under subsections (4) to (9) did not exceed $40, 000 or as prescribed The services were of a kind ordinarily acquired for personal, domestic or household use or consumption. ©MNoonan 2009
Consumer Guarantees-Goods 51. Guarantee as to title (1) If a person (the supplier) supplies goods to a consumer, there is a guarantee that the supplier will have a right to dispose of the property in the goods when that property is to pass to the consumer (2)Subsection (1) does not apply to a supply (a supply of limited title) if an intention that the supplier of the goods should transfer only such title as the supplier, or another person may have: (a) appears from the contract for the supply; or (b) is to be inferred from the circumstances of that contract (3)This section does not apply if the supply is a supply by way of hire or lease. ©MNoonan 2009
Consumer Guarantees-Goods 52. Undisturbed possession If a person (the supplier) supplies goods to a consumer and the supply is not a supply of limited title, , there is a guarantee that the consumer has the right to undisturbed possession of the goods. This does not apply to the extent that such possession may be lawfully disturbed by a person entitled to the benefit of any security, charge or encumbrance disclosed before the consumer agreed to the supply. See section for further details ©MNoonan 2009
Consumer Guarantees-Goods 53. No undisclosed securities If a person supplies goods to a consumer and the supply is not of limited title, there is a guarantee that the goods are free from any security, charge or encumbrance not disclosed or created with express consent of consumer and goods will remain free from same until property passes to the consumer. Floating charge ok unless /until it becomes fixed If limited title, there is a guarantee that all securities etc known to the supplier and not known to the consumer were disclosed. Does not apply to hire or lease. ©MNoonan 2009
Consumer Guarantees-Goods 54. Acceptable quality If a person supplies in Trade or Commerce, goods to a consumer (not by auction), there is a guarantee that the goods will be of acceptable quality-which means fit for all the purposes goods of that kind are commonly supplied and acceptable in appearance and finish and free from defects and safe and durable…as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects) would regard as acceptable having regard to the matters in (3). ©MNoonan 2009
Consumer Guarantees-Goods What are the matters in 54(3)? The nature of the goods The price of the goods (if relevant); Any statements made about the goods on packaging, label Any representation made by supplier or manufacturer Any other relevant circumstances relating to the supply In (4) if lack of acceptable quality drawn to attention of consumer, ok. In (6) abnormal use excluded In (7) if examination ought to have revealed lack of acceptable quality ©MNoonan 2009
Acceptable v. merchantable Compare new expression with “merchantable” (used in SOGA s. 19 and TPA s. 71) Why the change? “Archaic” terminology? Is there any difference? Common law meaning is focused on saleability of goods and not on objective expectation of a consumer. ©MNoonan 2009
TPA s. 66(2) Goods of any kind are of merchantable quality within the meaning of this Division 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 any description applied to them, the price (if relevant) and all the other relevant circumstances. ©MNoonan 2009
Consumer Guarantees-Goods 55. Fitness for purpose If a person supplies in Trade or Commerce goods to a consumer (not by auction) there is a guarantee that the goods are reasonably fit for any disclosed purpose and for any purpose for which the supplier represents that they are reasonably fit. ©MNoonan 2009
Consumer Guarantees-Goods What is a disclosed purpose? A particular purpose (whether or not a purpose for which the goods are commonly supplied) that the consumer makes known expressly or by implication oto the supplier, oto a person with whom any prior negotiations or arrangements in relation to acquisition were made, oto the manufacturer (directly or through one of the others). ©MNoonan 2009
Consumer Guarantees-Goods Fitness for purpose Contrast new provision with SOGA 19 TPA 71. No need any more to rely on skill and judgement? ©MNoonan 2009
Consumer Guarantees-Goods 56. Match description If a person supplies, in trade or commerce, goods by description to a consumer and not by auction there is a guarantee that the goods correspond with the description. A supply is not prevented from being a supply by description only because having been exposed for sale or hire, they are selected by the consumer. If also sample, must match both. ©MNoonan 2009
Consumer Guarantees-Goods 57. Match sample or demo If a person supplies in trade or commerce, goods to a consumer by reference to a sample or demonstration model and not by auction, there is a guarantee that the goods correspond with the sample or demo in quality, state or condition, that the consumer will have a reasonable opportunity to compare the goods with the sample; and the goods are free from any defect not apparent on reasonable examination of sample or demo and would cause the goods not to be of acceptable quality. If both description and sample/demo, must match both. ©MNoonan 2009
Consumer Guarantees-Goods 58. Repairs and spare parts If a person supplies in trade or commerce, goods to a consumer and not by auction, there is a guarantee that the manufacturer will take reasonable action to ensure that facilities for repair and parts are reasonably available for a reasonable period after supply. Does not apply if written notice given to consumer at or before agreement that they would not be available or would not be available after a specified period. ©MNoonan 2009
Consumer Guarantees-Goods 59. Express warranties There is a guarantee that manufacturer will comply with any express warranty given by manufacturer There is a separate guarantee that supplier will comply with any express warranty given by supplier ©MNoonan 2009
Consumer Guarantees-Services 60. due care and skill If a person supplies in trade or commerce services to a consumer, there is a guarantee that the services will be rendered with due care and skill ©MNoonan 2009
What are “Services”? Includes Any rights (including rights in relation to, and interests in, real or personal property) benefits privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce and Without limiting (a) the rights benefits, privileges or facilities that are or are to be provided granted or conferred under A contract for or in relation to the performance of work (including of a professional nature) whether with or without the supply of goods A contract for the provision of or use or enjoyment of facilities for amusement entertainment recreation or instruction or A contract for which royalties tributes levies or similar A contract of insurance A contract between banker and customer A contract for lending of money But does not include a contract of service (i. e. employment) ©MNoonan 2009
Consumer Guarantees-Services 61. Fitness for particular purpose If a person (the supplier) supplies in trade or commerce, services to a consumer and the consumer expressly or by implication makes known any particular purpose there is a guarantee that the services and any product resulting from the services will be reasonably fit for that purpose. If consumer has made known to supplier or a person with whom prior negotiations or arrangements were conducted a particular result, there is a guarantee that the services and any product resulting will be of such a nature and quality, state or condition that they might reasonably be expected to achieve that result. Does not apply if consumer did not rely or it was unreasonable for consumer to rely on skill or judgement of supplier and does not apply to services of a professional nature by architect or engineer. ©MNoonan 2009
Consumer Guarantees-Services 62. Reasonable time for supply If a person supplies in trade or commerce, services to a consumer and the time within which the services are to be supplied is not fixed by the contract or is not to be determined in a manner agreed, there is a guarantee that the services will be supplied within a reasonable time. ©MNoonan 2009
Consumer Guarantees-Services No guarantees for some services Section 63 Transportation or storage of goods for the purposes of a business trade profession or occupation A contract of insurance ©MNoonan 2009
Consumer Guarantees Can they be excluded? No. See section 64 But, they can be limited See 64 A ©MNoonan 2009
s. 64 A term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) is void to the extent that the term purports to exclude, restrict or modify…. the application…the exercise of a right…any liability of a person for failure to comply with a guarantee. ©MNoonan 2009
s. 64 A A term of a contract for the supply…. of goods other than of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under s. 64 merely because the term limits…to the replacement or supply of equivalent, repair, payment of cost of replacement repair…. or in the case of services, to the supply of services again or payment of cost of resupply. ©MNoonan 2009
Sample other limitations See professional contract limitations: Owners Strata Plan 62930 v. Kell & Rigby Pty Ltd (2009) NSWSC 1342 Maximum liability “whether under the law of contract, tort or otherwise” limited to $5 m and 2 years. Also a clause which specifically stated that provisons of statute not restricted or modified as a result of retainer. Lane Cove Council v. Michael Davies & Assoc. Pty Ltd & Ors (2012) NSWSC 727 Architects limited liability to $300, 000 and one year. Courts in both cases found clauses did not amount to “contracting out” of TPA. Very relevant to professional firms (on the terms of their retainer agreements)… and their insurers…cases decided on their own specific terms. No general rule. ©MNoonan 2009
Consumer Guarantees Remedies Distinguish Major failure from minor failures See examples in Guide available at www. consumerlaw. gov. au ©MNoonan 2009
Consumer Guarantees Remedies-major failure Consumer can choose to Reject the goods and choose refund or replacement Cancel service contract and choose refund Ask for compensation for drop in value This is a choice for the consumer and not the supplier or manufacturer ©MNoonan 2009
What is a major failure? -goods s. 260 Goods would not have been acquired by reasonable consumer fully acquainted with failure Goods depart in one or more significant respects from description, sample or demo Goods are substantially unfit for a purpose commonly supplied and cannot be remedied to make them fit Goods are unfit for disclosed purpose made known to supplier or person with whom prior negotiations or arrangements made and cannot be remedied Goods are not of acceptable quality because unsafe. ©MNoonan 2009
What is a major failure? services s. 268 If a reasonable consumer would not have acquired the services if they knew the nature and extent of failure The services are substantially unfit for normal purpose and cannot be remedied to make them fit within a reasonable time The services unfit for particular disclosed purpose and cannot be made fit within a reasonable time The services are not of such a nature quality state or condition that they might reasonably be expected to achieve a result desired by consumer and made known to supplier and cannot be remedied The supply creates an unsafe situation. ©MNoonan 2009
Consumer Guarantees Remedies-minor failure s. 267 consumer may require supplier to remedy failure within a reasonable time. Consumer must give supplier opportunity to fix the problem at no cost If supplier refuses or fails to remedy the failure within a reasonable time, consumer can have the failure remedied and recover costs from supplier or terminate contract and refuse to pay. See s. 269. ©MNoonan 2009
Consumer Guarantees Remedies-other o Gift recipients entitled to same remedies as consumer who bought goods o Consequential loss also claimable if foreseeable and reasonable. ©MNoonan 2009
Competition and Consumer Regulations 2010 s. 102(1) ACL provides for regulations prescribing form and content of warranties against defects. Regulation 90. A warranty against defects: o Must be in document that is transparent-i. e. expressed in reasonably plain language legible and clear o Concisely states what person giving warranty is obliged to do o Concisely states what consumer must do to entitle them to claim o Includes prescribed statement in sub regulation 90(2) o Prominently states name, address, telephone number and email of person giving warranty o States period of warranty o Sets out procedure for claiming warranty including address o States who bears cost of claiming warranty o Must state that benefits are in addition to other rights and remedies available to the consumer ©MNoonan 2009
Competition and Consumer Regulations 2010 Statement prescribed in Reg 90(2) re guarantees: “Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and for compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure. ” ©MNoonan 2009
Product Safety-consumer goods and services The overall regime o General information standards o Safety warning notices o Banning products o Mandatory safety standards o Compulsory recall o Voluntary recalls and notification o Compensation See also www. productsafety. gov. au and www. recalls. gov. au and Part 3 -5 ACL ©MNoonan 2009
Product Safety-goods What goods do Product Safety provisions relate to? Goods intended or likely to be used for personal domestic or household use or consumption ©MNoonan 2009
PRODUCT SAFETY ACL Part 3 -5 -compensation 138 (1) A manufacturer of goods is liable to compensate an individual if (a) The manufacturer supplies the goods in trade or commerce and (b) The goods have a safety defect and (c) The individual suffers injuries because of the safety defect (2) The individual may recover, by action against the manufacturer, the amount of the loss or damage suffered by the individual. ©MNoonan 2009
Product Safety-compensation 139 Liability for loss or damage suffered by a person other than an injured individual. 140 Liability for damaging other goods that are of a kind ordinarily acquired for personal domestic or household use. 141 Liability if land buildings or fixtures destroyed or damaged ©MNoonan 2009
Product Safety-defences 142. In a defective goods action, it is a defence The safety defect did not exist at the time electricity was generated or at the time of supply by the actual manufacturer. The goods had the safety defect only because of compliance with a mandatory standard The state of scientific or technical knowledge If part of other goods, the defect is attributable only to design of other goods, markings or instructions. ©MNoonan 2009
See Defences-TPA Part VA Reference as similar 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. ©MNoonan 2009
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 2 A 74 B(fitness) and 74 D (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. ©MNoonan 2009
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 TPA 74 D 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. ©MNoonan 2009
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 KD 53 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 5 pm and off at 7 pm. 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. ©MNoonan 2009
GLENDALE CHEMICAL PRODUCTS P/L V. ACCC (1998) 1571 FCA Mr Barnes had a blocked drain and purchased 500 g Caustic Soda at supermarket. A friend had advised him to pour hot water down the drain and tip the whole 500 G 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 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”? (75 AC) s. 75 AC(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 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. 75 AN(1) for reducing Glendale’s liability under 75 AD? No, Glendale submissions dismissed in case and this was confirmed on appeal. ©MNoonan 2009
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