Supply of Goods and Services
Conduct in Commercial Dealings
Module 4(a)
Winter 2013
©MNoonan2009
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.
©MNoonan2009
Types of transactions considered
Conduct in Commercial dealings
•
•
•
Some conduct is proscribed for all commercial
dealings whether B2B or B2C. E.g. misleading and
deceptive s. 18 ACL
Some with respect to B2C only. E.g. unfair terms in
standard form consumer contracts (ACL), or ability
to exclude terms implied by 18,19,20 SOGA
Some is in between-restricts some, but not all B2B
arrangements and B2C transactions e.g.
unconscionable (ACL)
©MNoonan2009
Topics
5(a) Misleading & deceptive conduct
5(b) Unconscionable conduct
5(c) Unfair contract terms in consumer
standard form contracts
©MNoonan2009
Misleading and deceptive conduct
• ACL Part 2-1s.18.
• In Winter13 Semester, s. 19 (exceptions for
information providers) not covered.
• Similar to TPA s. 52. This provision and cases
decided in relation to it relevant to ACL s.18.
©MNoonan2009
s.18 ACL
18. Misleading or deceptive conduct
(1) A person must not, in trade or commerce,
engage in conduct that is misleading or
deceptive or is likely to mislead or
deceive.
(2) Nothing in Part 3-1 (which is about unfair
practices) limits by implication subsection
(1).
©MNoonan2009
s.52 TPA
52 (1) A corporation shall not, in trade or
commerce, engage in conduct that is
misleading or deceptive or is likely to
mislead or deceive.
(2) Nothing in the succeeding provisions of
this Division shall be taken as limiting by
implication the generality of subsection (1).
©MNoonan2009
Conduct
Doing or refusing to do any act and includes:
• Representations and promises
• Exaggerated sales talk
• Silence
• False warranties or guarantees
Objective test
Real and not remote chance of misleading/deceiving
Confusion not enough
Exclusion 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.
©MNoonan2009
Misleading, Deceptive Conduct
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.
©MNoonan2009
s.18ACL and s.52TPA compared
s.52-limited to corporation due to
constitutional limits. Mirror provisions for
non corporations in State Fair Trading Acts.
s.18-uses person. Not limited to corporations
because of State and Federal agreement to
have single law
Must still be in trade or commerce.
Not limited to consumer transactions
©MNoonan2009
Elements
Prove on the balance of probabilities:
• Conduct engaged in. (Note difficulties with
oral conduct without corroboration)
• Conduct conveyed a certain meaning. May
be unambiguous or context may be relevant.
• The meaning conveyed was misleading and
deceptive.
©MNoonan2009
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.
©MNoonan2009
Considerations
Is puffery –superlative or comparative that is a self evident
exaggeration, (normally found not to be a
misrepresentation or contractual term at common law)
excluded?-Not necessarily.
Can s.18 liability be excluded by use of an exclusion clause?
No, (as with s.52TPA) but a disclaimer (designed not to
exclude s. 52, but to prevent liability arising by preventing
the relevant conduct being construed as misleading or
deceptive…communicating information such that they are
not misled at all or did not rely on it)…or an indemnity can
achieve a similar effect.
©MNoonan2009
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.
©MNoonan2009
Can silence be misleading?
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 info 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 Recyclers P/L v. Metalmanufacturers 2003 NSWCA 213
©MNoonan2009
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 was 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.
CA (Handley JA, Hodgson JA, Gzell 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.
©MNoonan2009
A suitable remedy, or the only
remedy
Often, there are multiple reasons for legal
liability. Sometimes, one leads to more
appropriate or better remedies.
On other occasions and for various reasons,
there are no other remedies available.
©MNoonan2009
Larrikin Music Publishing v. EMI
(Federal Court- various cases 2010)
Men At Work’s Down Under contained flute riff
from Kookaburra which infringed Copyright.
However, damages awarded were not for breach
of copyright but for misrepresentations made to
royalty collecting societies APRA and AMCOS
falsely claiming that Down Under did not infringe
copyright in any other work and Larrikin was
entitled to all income from exploitation.
Actionable…s.52, 82 TPA…found to be 5%
income in hypothetical licensing
agreement….enabled suitable remedy.
©MNoonan2009
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.
©MNoonan2009
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.
©MNoonan2009
E-commerce and s. 18 ACL / s. 52 Trade Practices Act
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 names
Metatags and cyberstuffing-keywords to attract search engines.
Linking and framing
Distributing software without permission
Contract terms
Whether conduct is misleading and deceptive is a question of fact to be
considered in light of all the circumstances of the individual case
©MNoonan2009
Misleading conduct in IT and
ecommerce
See ACCC v. Google (2012) FCAFC.
Full FC on appeal, found Google responsible for the
misleading impression conveyed by some
“sponsored link” search results published on its
search results page.
Found Google was involved at a commercial and
technical level in selecting and displaying
sponsored links via its AdWords program.
Contrast this with an “organic” search result.
©MNoonan2009
Other m&d conduct
Apple 4G compatibility Marketing. In the US “Siri”
availability.
Optus mobile phone plan-conveyed impression it was a
maximum $49/mth, when in fact that was the minimum.
Yellow Page Marketing BV and Yellow Publishing
Limited….misleading faxes and invoices to gain
subscribers
Harvey Norman promoted sale of 3D TVs with the promise
viewers could watch 2010 AFL and NRL grand finals in
3D..when 3D broadcasts not available throughout
Australia.
©MNoonan2009
Enforcement
•
•
•
•
•
•
•
•
•
No criminal or civil pecuniary penalties
Undertakings
Sch 1, item 1,Chapter 5, Part 5-1,Div 1
Substantiation notices Sch 1, item 1, Chapter 5, Part 5-1,Div 2
Public Warning Notices Sch 1, item 11,Chapter 5, Part 5-1,Div 3
Injunctions
Sch 1, item 1,Chapter 5, Part 5-2,Div 2
Damages
Sch 1, item 11,Chapter 5, Part 5-2,Div 3
Compensatory orders
Sch 1, item 11,Chapter 5, Part 5-2,Div 4A
Redress for non parties Sch 1, item 11,Chapter 5, Part 5-2,Div 4B
Non punitive orders
Sch 1, item 11,Chapter 5, Part 5-2,Div 5,s.246
©MNoonan2009
Unconscionable Conduct
• NEW-ACL Part 2-2. Sections 20,21,22
• OLD-TPA Sections 51AA,51AB,51AC and
ASIC Act equivalents for financial services
12CA,12CB,12CC
Quite some difference between new and old
provisions.
©MNoonan2009
Unconscionable Conduct
s.20-conduct that is unconscionable within the
unwritten law (common and equitable) from time to
time is unconscionable for the purposes of ACL.
s.21-separate statutory liability for unconscionable
conduct in relation to the supply or possible supply of
goods or services to a person other than a public
company. Due to the narrow interpretation of
unconscionability in the unwritten law, parliament has
clarified its view separately. Not limited by s.20.
s.22-non exhaustive list of matters that court must have
regard to when considering contravention of s. 21.
©MNoonan2009
Unconscionable Conduct
Courts have tended to construe
unconscionable conduct as especially heinous
conduct in the common law (s.20)…i.e.
narrower than government policy. Hence, the
specific provisions to guide courts in
particular cases (21),(22) and specific
provisions covering standard form consumer
contracts (unfair provisions Part 2-3).
©MNoonan2009
Unconscionable Conduct
20.(1) A person must not, in trade or
commerce, engage in conduct that is
unconscionable, within the meaning of the
unwritten law from time to time.
(2) This section does not apply to conduct that
is prohibited by section 21.
©MNoonan2009
ACCC v. Lux Pty Ltd
re scope of TPA 51AB
An agent of Lux came to the Standings residence to service an old vacuum
cleaner. Mrs. S was home alone. The agent examined the vacuum cleaner and
told her that it would “blow up”. He then demonstrated a new vacuum cleaner
and Mrs. S agreed to purchase it.
The ACCC alleged contravention of s.51AB and undue harassment and coercion
in contravention of s.60.Nicholson J. “The word unconscionable . . . bears its
ordinary meaning of showing no regard for conscience, irreconcilable with what
is right or reasonable.” Mrs.. S substantially illiterate and did not understand
commercial matters in any depth. Should have been apparent. She had trouble
filling out the form. She was not offered the opportunity of independent advice,
nor were the terms explained to her.
The court granted a declaration that Lux had engaged in unconscionable
conduct.
ACCC press release: “Businesses and sales agents have a responsibility to
ensure that they do not take unfair advantage of vulnerable consumers.”
©MNoonan2009
CG Berbatis Holdings Pty Ltd v.
ACCC (2001) FCA 757
A shopping centre landlord acted unconscionably in refusing to agree to
the grant of a lease of a shop to prospective purchasers of a business,
unless the vendor release the landlord from litigation in the
Commercial Tribunal of WA.
A full court reversed the conclusion because it drew a distinction between
an opportunistic approach to strike a hard bargain and acting
unconscionably. It concluded the fact that the lease was due to expire
was not appropriately characterised as a special disadvantage.
In upholding the full court, the majority of the High Court gave a narrow
interpretation of the term ‘unconscionability’. They focused on the
difference between the notion of a special disability which they felt
would attract protection and a hard bargain which the Court felt was a
commercial reality and not the concern of the Court. See decision for
discussion of what is “unconscionable”.
©MNoonan2009
Unconscionable Conduct
21.(1) A person 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.
©MNoonan2009
s.22 Relevant matters
Without limiting matters to which a court may have regard:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Relative bargaining strength
Conditions not reasonably necessary for protection supplier
Whether consumer understood documents
Undue influence, pressure, unfair tactics
Cost etc of equivalent goods or services.
Conduct consistent with other customers
A relevant industry code
A failure to disclose how intended conduct might affect the interests of
the customer and any risks to the customer
The extent to which contract terms were negotiable
Any power to unilaterally vary a term of a contract
Extent to which supplier/acquirer and customer acted in good faith
©MNoonan2009
Unconscionable conduct-enforcement
Civil pecuniary penalty
Undertakings
Substantiation notices
Public warning notices
Injunctions
Damages
Compensatory orders
Redress for non-parties
Non-punitive orders
Infringement notices
©MNoonan2009
Representations
NEW
ACL ss. 29,33,34 Offences in 151, 155,156
OLD
TPA s. 53
©MNoonan2009
ACL s.29 Representations
A person must not in trade or commerce in
connection with the supply or possible
supply of goods or services or in connection
with the promotion by any means of the
supply or use of goods or services make
false or misleading representations re
standard , quality, grade, composition, style,
model, history, testimonial, sponsorship,
price, facilities for repair, conditions,
warranties, right or remedy.
©MNoonan2009
ACL ss.33,34 representations
33. A person must not, in trade or commerce,
engage in conduct that is liable to mislead
the public as to the nature, the
manufacturing process, the characteristics,
the suitability for their purpose or the
quantity of any goods.
34. Same, re services.
Note reference to “public” in 33,34-a need for
conduct to have a public element
©MNoonan2009
False/Misleading Representations
Penalties for contravention
CRIMINAL See ss. 151.155,156 offences,
Pecuniary penalties-Corporation $1.1mPerson $220,000. Strict liability, no intent
required. Defences in Part 4-6 ss. 206, 207,
208-honest and reasonable mistake,
contravention caused by another or accident
despite precautions, advertiser had no
reason to suspect a contravention.
©MNoonan2009
False/Misleading Representations
Penalties for contravention
CIVIL See s. 224 for penalties $1.1m,$220,000
Undertakings
Sch 1, item 1, Chapter 5 Part 5-1, Div 1
Substantiation notices
Sch 1, item 1, Chapter 5,Part 5-1,Div 2
Public warning notices
Sch 1, item 1, Chapter 5, Part 5-1, Div 3
Injunctions
Sch 1, item 1, Chapter 5, Part 5-2, Div 2
Damages
Sch 1, item 1, Chapter 5, Part 5-2, Div 3
Compensatory orders
Sch 1, item 1, Chapter 5, Part 5-2, Div 4A
Redress for non parties
Sch 1, item 1, Chapter 5, Part 5-2, Div 4B
Non punitive orders.
Sch 1, item 1, Chapter 5, Part 5-2, Div 5, s.246
See also Chapters 14 and 15 for further information
Also infringement notices Schedule 2, Item 1, Part XI, Division 5.
©MNoonan2009
Student Question 1
When we are considering “goods”, we have
both the SOGA and ACL. When is it better
to bring an action under one or the other?
1. When there is only one available. E.g. a
non consumer may only have the implied
terms of the SOGA, if any at all.
2. When a choice provides a better, easier,
cheaper or more appropriate remedy.
©MNoonan2009