Tutorial Solutions Topic 9 Australian Consumer Law General Protections PDF

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Commercial Law Topic 9 Dealing with Consumers: General Protections Answers to Selected Tutorial Problems

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Why do consumers deserve extra legal protection?  Consumers are at a disadvantage when dealing with a business  Business knows more about their products than the consumer  Business has more business experience and greater access to resources  Traditional rules of contract law are generally based on ‘caveat emptor’ and therefore offer little assistance to consumers.  There is no real equality of bargaining power between business and consumer  So, legislation seeks to protect consumers

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How is a ‘consumer’ defined in the Australian Consumer Law (‘ACL’)? A person is a consumer under ACL s 3, when the goods/services they bought cost: < $40,000; or if > $40,000, the goods/services are of a kind ordinarily acquired for personal, domestic or household use or consumption But, the goods must NOT be for re-supply or to be used up or transformed in trade or commerce.

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What needs to be proved in an action for breach of ACL s 18 (prohibiting misleading and deceptive conduct)?  Business has ‘engaged in conduct’: this includes acts, statements, promises, the failure to do or say something. It also includes silence (Henjo Investments v Collins Marrickville)  The conduct was ‘in trade or commerce’. The conduct must therefore be in a commercial context, and does not cover political or academic statements  The conduct was ‘misleading or deceptive or likely to mislead or deceive’. For this it is necessary to use the objective test which is done by reference to the target audience. Statements that are literally true may be misleading. Exaggerations may or may not be misleading or deceptive depending on the context

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Can ACL s 18 be enforced by persons other than consumers?

Apart from consumers, interested members of the public and other businesses, including competitors, may seek to enforce ACL s 18

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What are the consequences of contravening ACL s 18?

 There are no criminal penalties  However, the ACCC may issue notices or warnings  Consumers or persons harmed can take legal action and seek remedies, including: - injunction: ss 232-235 - damages: s 236 - compensation order for injured persons: ss 237-241 - declaration that contract is void, order to refund, repair, compensate, etc.

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What is prohibited by ss 20 and 21 of the ACL? According to s 22 of the ACL what types of matters may a court consider in deciding whether or not a business has contravened s 21?  Section 20 of the ACL prohibits unconscionable conduct generally in trade or commerce.  Section 21 of the ACL prohibits unconscionable conduct in trade or commerce, in connection with the supply or acquisition of goods or services. Section 21 does not provide a definition of unconscionable conduct and therefore it is helpful to refer to section 22.  Section 22 of the ACL assists in determining whether a person has breached section 21 by providing a list of matters a court may take into account in deciding whether a person has behaved unconscionably. The matters a court can take into account include the following: (a) the relative strengths of the bargaining positions of the supplier and customer; (b) whether the customer was required to comply with conditions that were not reasonably for the protection of the supplier; (c) whether the customer was able to understand any documents in relation to the goods or services; (d) whether any undue influence or pressure was exerted, or unfair tactics used, against the customer by the supplier; (e) the amount for which the customer could have acquired identical goods; (f) the extent to which the supplier’s conduct was consistent with the supplier’s conduct to other customers in similar transactions; (g) the requirements of any applicable industry code;

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(h) the requirements of any other industry code; (i) the extent to which the supplier failed to disclose to the customer (i) any conduct that might affect the interests of the customer; (ii) and any risks to the customer arising from the supplier’s conduct (j) if a contract was existence, (i) the extent that the supplier was willing to negotiate (ii) the terms and conditions in the contract (iii) the conduct of the supplier and customer in complying with the contract (iv) any conduct the supplier or customer engaged in after they entered the contract. (k) Whether the supplier has a contractual right to unilaterally vary the contract (l) The extent to which the supplier and the customer acted in good faith.

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In what circumstances will a term of a contract be unfair and therefore void under ACL s 23?  It is a ‘consumer contract’: defined in s 23(2) as one for the supply of goods, services or an interest in land to an individual whose acquisition is wholly or predominantly for personal, household or domestic use  It is a ‘standard form contract’: the terms are not negotiated and presented on a ‘take- itor-leave-it’ basis. See s 27(2) for factors a court is to take into account: eg, where one party has all or most of the bargaining power, where the other party was required to accept or reject the terms of the contract  Term is ‘unfair’ under s 24(1) if (a) it causes significant imbalance in parties’ rights/obligations, (b) not needed to protect the legitimate interests of the business, (c) would cause detriment to consumer. See s 25 for examples.

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Your grandmother lives alone in the countryside and you visit her once a month. She speaks limited English and has poor hearing. She supports her simple living costs through receipt of a low pension. One Friday afternoon a travelling salesperson knocks on your grandmother’s door and is very persuasive in his sales pitch relating to a $1100 ‘deluxe’ vacuum cleaner. Your grandmother is often lonely in between visits from you and invites the salesperson in for some tea and biscuits. The salesperson can clearly tell that your grandmother understands little of what he is saying to her and also cannot hear him very well. He can see from her house that she has wooden floorboards but still continues talking about the wonders of the deluxe vacuum cleaner. Your grandmother is persuaded to purchase the vacuum cleaner and gives the salesperson her savings of $1100 which she keeps in the biscuit tin. Your grandmother believes the salesperson will be back each week to talk with her and to do the vacuuming.

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It has been one month since your last visit and three weeks since the salesperson sold the vacuum cleaner to your grandmother. When you visit her she is upset and tells you she cannot afford to eat or pay her bills because she seems to have purchased an expensive vacuum cleaner that she does not know what to do with. You are a conscientious Commercial Law student and know your grandmother may be able to take action against the salesperson under the Australian Consumer Law. Identify and apply the relevant sections of the ACL to conclude whether or not your grandmother would be successful in legal action taken against the salesperson? ISSUE The legal issue in this matter is whether your grandmother would be successful in having the contract for the vacuum cleaner set aside on the grounds of unconscionable conduct. RULE Section 21 of the ACL prohibits unconscionable conduct in trade or commerce, in connection with the supply or acquisition of goods or services. Section 22 of the ACL assists in determining whether a person has breached section 21 by providing a list of matters a court may take into account in deciding whether a person has behaved unconscionably. APPLY A business will have contravened section 21 if the following requirements are met: 1.

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The business has ‘engaged in conduct’. On the facts the travelling salesperson has engaged in conduct towards the grandmother. The conduct was ‘in trade or commerce’. The salesperson was selling vacuum cleaners and therefore the conduct was ‘in trade or commerce’. The conduct was in connection with the supply of goods or services to, or acquisition of goods or services from, another person. The conduct was in relation to the supply of a vacuum which is a good. The other person was not a listed public company. We would need to check if the company was publicly listed, however it is more likely that the travelling salesperson was part of a smaller business. The conduct was unconscionable. Your grandmother has a strong argument that the salesperson behaved unconscionably in his dealings with her. Here, the salesperson was in a stronger bargaining position compared to your grandmother, given she did not speak English very well: s 22(1)(a) ACL. The salesperson used unfair sales tactics, by convincing your grandmother to buy a vacuum cleaner even though she did not need it and that he would be back each

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week to clean the floors: s 22(1)(d) ACL. It is also arguable your grandmother could have acquired a vacuum cleaner for far less than $1,100: s 22(1)(e) ACL. The facts of this scenario are very similar to ACCC v Lux Distributors Pty Ltd [2013] where vacuum salespeople called upon the homes of elderly people under the premise of conducting a free vacuum cleaner maintenance check, but once inside the homes engaged in unfair and pressure sales techniques to induce them to purchase a new vacuum cleaner. The court found that the conduct was unconscionable, and that consumers must be dealt with honestly, fairly and without deception and unfair pressure. CONCLUSION Based on the preceding analysis, it is likely that your grandmother will be successful in having her contract for the purchase of the vacuum set aside.

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Telster, a new start up Australian telecommunications and technology business, are keen to make lots of money. They employ a number of enthusiastic sales staff who travel from door to door selling Telster smart phone handsets. Telster have employed a Commercial Law graduate, Huang, to draft their standard form contracts. The contracts are designed so that customers ‘lease’ the hand set for $150 a month for 24 months. Huang is instructed to include a term (term 10) in the standard form contract which provides: “if a monthly payment is not made within 5 days of its due date, the customer will incur a $700 late administration fee which fee will accrue by $20 a day for each day the monthly payment and the late administration fee remain unpaid”. You have signed a contract to lease a new Telster hand set. After 8 months of making timely payments you lose your job and cannot pay the July monthly $150 payment. After two weeks the Telster ‘Debt Recovery’ Team start phoning you insisting you owe them $1130 which amount is increasing each day it remains unpaid. Considering ACL s 23, how might you argue you should not have to pay this amount? ISSUE The legal issue in this matter concerns unfair contract terms under the Australian Consumer Law. RULE Section 23(1) of the ACL provides that a term of a consumer contract is void if: (a) The term is unfair; and (b) The contract is a standard form contract. This means that you have to satisfy three requirements:

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1. The contract is a consumer contract. 2. The contract is a standard form contract. 3. The term is unfair. APPLY The first requirement that must be satisfied is that the contract is a consumer contract. Section 23(3) ACL defines that as a contract for the supply of goods or services used wholly or predominantly for personal, domestic or household use or consumption. Here the contract is for a smart phone (a good) used predominantly for personal use and therefore element one is satisfied. The second requirement that must be satisfied is that the contract is a standard form contract. Section 27(2) ACL outlines five factors that must be taken into account in determining whether a contract is a standard form contract: the bargaining power of the parties, whether the contract was prepared by one party, whether one party was required to accept or reject the contract as it was presented, whether another party was given an opportunity to negotiate and whether the contract took into account specific characteristics of another party to the transaction. Here, it appears the contract was presented as drafted by Telster, with no room for the customers to negotiate or alter terms. Therefore the contract is a standard form contract. The third requirement that must be satisfied is that the term was unfair. Here you would argue that term 10 is an unfair term. To succeed you must refer to three requirements pursuant to s 24(1) ACL:  the term causes a significant imbalance in the consumer’s rights as compared to the

business’s rights  the term is not reasonably necessary to protect the business’s interests  the term causes any detriment to the consumer Term 10 would appear to cause a significant imbalance of power because it imposes severe and onerous financial penalties on the customer for paying late (which the business does not itself face): Director of Consumer Affairs Victoria v AAPT Limited [2006]. Term 10 is not reasonably necessary to protect Telster; a smaller fine for paying late would be appropriate. Term 10 does cause a financial detriment to the consumer because of the onerous financial penalty. CONCLUSION Accordingly, you may argue that term 10 is an unfair term and that it is void.

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Telster have been now trading for a number of years and are now incorporated as a company. Telster, advertises its new smart phone as “having coverage all over the world”.

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It in fact only has coverage in locations with adequate mobile network. On what basis (if any) has Telster breached the Australian Consumer Law?

ISSUE The legal issue in this matter concerns misleading and deceptive conduct under the Australian Consumer Law. RULE Section 18(1) of the ACL provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. A business will have contravened s 18 if all of the following requirements have been satisfied: 1. The business has ‘engaged in conduct’. 2. The conduct was ‘in trade or commerce’. 3. The conduct was ‘misleading or deceptive or … likely to mislead or deceive’. APPLY The first requirement that must be satisfied is that Telster has ‘engaged in conduct’. Telster has published an advertisement that makes a false claim, which constitutes ‘engaging in conduct’. The second requirement that must be satisfied is that the conduct was ‘in trade or commerce’. Telster is an incorporated company publishing an advertisement, therefore the conduct is occurring ‘in trade or commerce’. Section 2 ACL defines trade or commerce as meaning trade or commerce within Australia or between Australia and places outside of Australia. It includes any business or professional activity The third requirement that must be satisfied is that the conduct was ‘misleading or deceptive or … likely to mislead or deceive’. Given the advertisement claims Telster provides coverage all over the world, when in fact it only provides coverage in locations with adequate mobile network, is misleading or likely to mislead the public. Telster may argue the advertisement is simply ‘sales puff’ and that viewers would not take the claim seriously. However, in Given v Pryor (1980) the court held an exaggeration constituted misleading and deceptive conduct. If this case was followed, a court would likely find Telster’s advertisement contravened s 18 of the ACL. CONCLUSION Based on the preceding analysis, it is likely Telster has contravened s 18 of the ACL....