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Liability for Goods and Services to consumers-ACL

Module 5

Summer Semester 2013-14

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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.

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Sale of Goods Act

Students should remember that:

SOGA applies to ALL Sales of Goods whether B2B or B2C.

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.

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Australian Consumer Law

Cooperative scheme replaces Cth and State provisions, previously in TPA and Fair Trading Acts.

Single regime operates as law of Commonwealth (part XI) and as an “applied law” of States and Territories (Part XIAAA).

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.

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Australian Consumer Law

Unfair Contract provisions commenced 1/7/2010. Remainder of ACL commenced 1/1/2011. ACL is

Schedule 2 to CCA. See www.consumerlaw.gov.au for relevant

information and guides to new law. For examination purposes, students should

assume ACL always been in place, when answering problem questions. Some understanding of differences required for short questions.

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Australian Consumer Law

Studied in this course:

CONDUCTMisleading, deceptive, unconscionable conduct, specific representationsUnfair contracts

PRODUCT LIABILITY Consumer guaranteesDefective goods

Remedies in relation to the above

.

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Product Liability

Nine consumer guaranteesConsumer may have recourse against supplier or

manufacturer, depending on breachFor 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

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Consumer Guarantees

Similar in effect to previous TPA provisions

(See ss.68,69,70,71,72,74 TPA) BUT Different legal character

-----Statutory guarantees

-----Not implied terms into contract Remedy therefore different-statute rather than

common law breach of contract.

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Consumer GuaranteesRelating 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))

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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.

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Consumer guaranteesRelating to services

Due care and skill (s.60) Fit for particular purpose (s.61) 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)

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Consumer GuaranteesLiability-goods

Guarantee Supplier S with I Manufacturer

1. Title √2. Undisturbed possession √3. No undisclosed securities √4. Acceptable quality √ √ √5. Fit for specified purpose √ √*6. Match description √ √ √7. Match sample or demo model √8. Repair facilities/spare parts available √9. Express warranties √ √

10. NOTE: Some limitations. For example, in * manufacturer only liable to give indemnity to supplier if purpose disclosed to manufacturer.

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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.

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Consumer GuaranteesLiability-services

Guarantee Supplier

Due care and skill √

Fit for particular purpose √

Supplied within reasonable time √

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Supply, supplied, supplierACL 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

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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

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Trade or commerce

Means:(a) Trade or commerce within Australia; or(b) Trade or commerce between Australia and places

outside AustraliaAnd includes any business or professional activity (whether

or not carried on for profit)Note inclusion of professional activitiesNote 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

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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

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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.

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Consumer Guarantees-Goods51. 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.

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Consumer Guarantees-Goods52.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

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Consumer Guarantees-Goods53.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 fixedIf 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.

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Consumer Guarantees-Goods54.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).

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Consumer Guarantees-GoodsWhat are the matters in 54(3)?

The nature of the goodsThe price of the goods (if relevant);Any statements made about the goods on packaging, label Any representation made by supplier or manufacturerAny other relevant circumstances relating to the supply

In (4) if lack of acceptable quality drawn to attention of consumer, ok.

In (6) abnormal use excludedIn (7) if examination ought to have revealed lack of

acceptable quality

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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.

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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.

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Consumer Guarantees-Goods55. 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.

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Consumer Guarantees-GoodsWhat 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 to the supplier, to a person with whom any prior negotiations or arrangements in relation to acquisition were made, to the manufacturer (directly or through one of the others).

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Consumer Guarantees-GoodsFitness for purpose

Contrast new provision

with

SOGA 19

TPA 71.

No need any more to rely on skill and judgement?

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Consumer Guarantees-Goods56. 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.

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Consumer Guarantees-Goods57. 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.

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Consumer Guarantees-Goods58. 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.

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Consumer Guarantees-Goods59. 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

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Consumer Guarantees-Services60. 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

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What are “Services”?

IncludesAny 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 insuranceA contract between banker and customerA contract for lending of moneyBut does not include a contract of service (i.e. employment)

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Consumer Guarantees-Services61. 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.

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Consumer Guarantees-Services62. 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.

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Consumer Guarantees-ServicesNo 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

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Consumer GuaranteesCan they be excluded?

No.

See section 64

But, they can be limited

See 64A

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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.

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s. 64A

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.

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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 $5m 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.

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Consumer GuaranteesRemedies

Distinguish

Major failure

from

minor failures

See examples in Guide available at www.consumerlaw.gov.au

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Consumer GuaranteesRemedies-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

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What is a major failure?-goods

s.260Goods would not have been acquired by reasonable

consumer fully acquainted with failureGoods depart in one or more significant respects from

description, sample or demoGoods are substantially unfit for a purpose commonly

supplied and cannot be remedied to make them fitGoods 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.

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What is a major failure?-services

s.268If a reasonable consumer would not have acquired the services if they

knew the nature and extent of failureThe services are substantially unfit for normal purpose and cannot be

remedied to make them fit within a reasonable timeThe services unfit for particular disclosed purpose and cannot be made

fit within a reasonable timeThe 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.

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Consumer GuaranteesRemedies-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.

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Consumer GuaranteesRemedies-other

Gift recipients entitled to same remedies as consumer who bought goods

Consequential loss also claimable if foreseeable and reasonable.

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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:

Must be in document that is transparent-i.e. expressed in reasonably plain language legible and clear

Concisely states what person giving warranty is obliged to do Concisely states what consumer must do to entitle them to claim Includes prescribed statement in sub regulation 90(2) Prominently states name, address, telephone number and email of person

giving warranty States period of warranty Sets out procedure for claiming warranty including address States who bears cost of claiming warranty Must state that benefits are in addition to other rights and remedies available to

the consumer

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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.”

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Product Safety-consumer goods and services

The overall regime

General information standards Safety warning notices Banning products Mandatory safety standards Compulsory recall Voluntary recalls and notification Compensation

See also www.productsafety.gov.au and www.recalls.gov.au and Part 3-5 ACL

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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

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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.

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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

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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.

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See Defences-TPA Part VAReference 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.

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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.

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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.

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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.

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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.