Nathans Dubious Pty LTD Issue - Assignment Example

Commercial Law Assignment Introduction Nathan, arrived in Australia by boat, and he was provided with a refugee visa. He was very poor in English and was surviving on the meagre allowance provided to him by the Red Cross. John, a sales representative of the Dubious Connections Pty Ltd, which was engaged in selling telephone contracts, accosted Nathan and convinced the latter to buy a telephone contract. John was aware that Nathan was unable to understand most of what he was describing to him regarding the offer of his company. In fact, Nathan believed that he could terminate the contract at any time, and that he would merely have to surrender the iOS7.1 telephone, which was being provided free of cost, with that contract. The reality was otherwise, and the contract required Nathan to pay $800 for the phone, if he were to terminate the contract. After, a couple of months, Nathan found it impossible to continue with the contractual payments, due to the paltry allowance provided to him by the Red Cross. In this situation, he was desirous of terminating the contract and returning the telephone. It is required to advise Nathan, if there is a valid contract between him and the Dubious Connections Pty Ltd, and whether there are any remedies available to him. For advising Nathan, with respect to his rights against John, the following issues need to be discussed. Issues Whether Nathan is a consumer according to Australian Consumer law. Whether Nathan has executed any valid contract with John Whether the conduct of John amounts to deceptive and misleading conduct. Whether Nathan has got any remedies against John for the losses suffered by him due to the latter’s dubious behaviour. Rule of Law Section 3 of the Australian Consumer Law defines Consumer as a person who avails services or goods worth below $40000. In addition, a person is deemed to be a consumer, if the limit crosses $40000, but the goods are acquired for domestic, house hold or personal consumption. In Australian law, promises acquire a legally binding nature, when there is an agreement consisting of an offer and its acceptance, consideration, intent to create a legal relationship, compliance with legal formalities, and the possession of the necessary legal capacity to contract by the concerned parties.1 Section 18 of the Australian Consumer Law declares that an individual in trade or commerce should not engage in conduct that is deceiving or misleading, or conduct that has the likelihood of being deceiving or misleading. Application The term consumer is defined under Section 3 of the Australian Consumer Law. It describes a consumer as an individual who acquires services or goods, whose cost is less than $40,000. Moreover, a person is a consumer if the cost is more than $40,000, if these are of a kind that are usually acquired for domestic, household, or personal use or consumption. In addition, a person who acquires a vehicle, with the intention of employing it for transporting goods on public thoroughfares is also deemed to be a consumer, for the purposes of the Australian Consumer Law.2 Since, the transaction value in the contract entered by Nathan and John is below $40,000, Nathan is a consumer under the provisions of the Australian Consumer law. A legally binding promise or group of promises constitutes a contract. From this perspective, a promise denotes an undertaking by one individual to do something or to desist from doing something when another individual makes a promise, does something or abstains from doing something. Upon the satisfaction of certain criteria, promises are rendered legally binding. 3 In addition, an individual who offers free items, such as gifts, prizes or rebates, to customers has to honour such offers. Section 32 of the Australian Consumer Law disallows a person from offering gifts, prizes, rebates or other free items with regard to the supply, possible supply or promotion of goods or services, under the following conditions. First, when the intention is not to provide such free items. Second, when these free items are not made available within the time stipulated in the offer, when no time is specified, or within reasonable time. 4 However, in our present problem, John revealed his true intention of not providing a free telephone to Nathan, only at the time when Nathan, wanted to return the telephone and rescind the contract. John made false representations to Nathan, with regard to the sale of the telephone contract, by offering a new free phone iOS7.1 with the purchase of the telephone contract. As such, contractual remedies could be resorted to for pre – contractual misrepresentations under the common law or statutory remedies, in accordance with the provisions of the Competition and Consumer Act (Cth) 2010. Section 18 of the Australian Consumer Law, which is to be found under Schedule 2 of the Competition and Consumer Act (Cth) 2010, provides statutory prohibition of conduct that is deceptive and misleading. 5 In our problem, John made a false representation to Nathan with respect to providing a free phone iOS7.1, with the purchase of telephone contract. As such, on occasion, a contract will be deemed annulled, on the grounds that it is devoid of the genuine consent of one or more parties to the contract. In general, an individual has to fulfil his contractual obligations, even if there has been a mistake. Nevertheless, when an individual commits a mistake of fact of a specific kind, the contract could be rendered void or voidable.6 In our present problem, it is to be examined whether, Nathan committed a mistake under the provisions of Australian commercial law while entering in to the contract with John. Mistakes are of several types, and these are discussed in the sequel. A common mistake transpires, when both the parties to the contract are under the same misconception. In mutual mistakes, the parties to the contract will be at cross – purposes regarding the subject matter of the transaction. Moreover, in a unilateral mistake, one of the parties to the contract will be mistaken regarding the contractual terms of the identity of the other party. At the same time, the other party will be aware of this situation or should be aware of it. 7 In our problem, Nathan could not understand the contract made by him with John, due to his poor understanding of English. In addition, a person could be at a special disadvantage or under a special disability, due to age, illness, inexperience, ignorance, impaired faculties, illiteracy or drunkenness, other circumstances, or a combination of these circumstances. Such disadvantage has to be special and not merely a disadvantage regarding unequal bargaining power. The disadvantage should have a significant and severe influence upon the affected individual’s capacity to safeguard his interests. 8 As such, a person can be deemed to be at a special disadvantage when he is illiterate and incapable of understanding the terms of the contract. In our problem, Nathan could not understand the real nature of the contract due to his poor grasp of English, which could definitely have an adverse effect upon his interests. With regard to unconscionable dealing, the emphasis tends to be upon whether the circumstances of the negotiations had been unconscionable and not whether the contractual terms had been unconscionable. All the same, unreasonable or harsh contractual terms, form the perspective of the weaker party, may indicate the presence of unconscionable dealing. 9 In Derry v Peek, the defendant had declared in a company prospectus that the company was entitled to employ steam powered trams, instead of horse powered trams. All the same, during that epoch, the Board of Trade had to grant its approval for utilising steam powered trams. Subsequently, the permission was refused. In the meantime, the claimant had invested in the shares of this company, relying upon the defendant’s statement.10 The denial of permission caused the claimant to bring in a claim of fraudulent misrepresentation against the defendant. The House of Lords held that honest belief had to be absent for establishing the presence of fraud. As long as a representor was honestly convinced about the veracity of his statement, he would not be held liable in deceit. Herschell LJ, described fraud as a false statement that had been made deliberately, without belief in its truth, or without any concern for whether it was true or false.11 However, in our problem, John had made the false representation deliberately, which makes him liable under the provisions of ACL. For example, Commercials Bank of Australia v Amadio,12 related to the execution of a guarantee by the elderly Amadios with a bank on behalf of their son. This couple was under the impression that their son was conducting a prosperous business, whereas the reality was that his business was experiencing severe financial difficulties. The bank perpetuated the charade of solvency, by selectively honouring the cheques issued by the son. The latter’s account was soon overdrawn, and with the failure of the business, the bank proceeded to invoke the guarantee furnished by the Amadios. The court cancelled the guarantee, as being unconscionable. 13 It was crystal clear that the guarantee was of disadvantage to the Amadios and that the bank had failed to provide proper advice to them, regarding the transaction. As such, in the instance of consumer protection legislation, legislation is in place, which prohibits unjust contracts and unconscionable conduct. In general, the innocent party is entitled to compensation for the losses undergone, on account of breach of contract. At this juncture it is indispensable to recognise the fact that compensation will not be granted by the courts, in every instance of loss caused by breach.14 Compensation has to be paid, when it can be established that the party in breach should have realised at the time of formation of the contract that the loss could be reasonably expected to ensue form the breach. With regard to losses that do not take place in the usual course, compensation is awarded only when it had been clear at the time of forming the contract that a special loss could transpire under the circumstances of the case. 15 The idea behind the award of damages for breach of contract is to ensure that the innocent party is placed in a position that it would have occupied if the contract has been performed properly. In addition, Section 52 of the Trade Practices Act 1974 (Cth) specified, for the first time, prohibition against deceptive or misleading conduct. At present, this prohibition is to be found under Section 18 of the Australian Consumer Law. Section 2(2)(a) of the Australian Consumer Law declares that a reference to engaging in conduct shall be regarded as a reference to either perform some act or to refuse from doing so. In the majority of the instances, the act, in question, will be comprised of an oral or written statement, or representation.16 This was the ruling in Henjo Investment Pty Ltd v Collins Marrickville Pty Ltd.17 Moreover, Section 2(2)c) of the Australian Consumer Law states that silence or refusal to perform some act, includes intentionally refraining from performing the act; or declaring that the act will not be carried out. An instance of misleading conduct takes place when the situation produces a reasonable expectation that there will be disclosure. In our problem, John did not provide sufficient information regarding the terms of the contract, despite knowing that Nathan was not in a position to understand the terms of contract. In Demagogue Pty Ltd v Ramensky,18 Gummow J opined that upon perusing the natural meaning of the content of Section 18 of the Australian Consumer Law, the question arises whether the conduct had been deceptive or misleading, or likely to be misleading or deceptive. For example, in Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd,19 the landlord’s agent did not inform a prospective tenant that the premises to be leased out were in danger of contamination. The court deemed this to be conduct that was misleading or deceptive. There is a possibility of availability of remedies, if it can be established that the deceptive or misleading conduct had taken place; and the aggrieved party had depended upon such conduct, or had been induced by this conduct to engage in some act, which had resulted in a loss to him. Some of the remedies available are the award of damages and injunctions. 20 The terms deceptive and misleading have not been explicitly defined in the Statute. Moreover, the courts have failed to provide an exact delineation for these terms. The usual practice is to analyse the overall impression generated by the conduct, in question, and to ascertain whether it could misguide a substantial number of individuals into error, or whether it has the possibility of deceiving such people. Misleading an individual, in general, entails conduct that deceives them, makes false or inaccurate claims, or creates a false impression. This leads to their arriving at a wrong conclusion.21 In order to determine whether conduct is deceptive or misleading, an objective test has been prescribed. In this test, the tribunal or court will assess whether the conduct has the likelihood of deceiving or misleading members of the group or class of individuals against whom the conduct has been directed.22 Conclusion Nathan can be deemed as a consumer under the provisions of the Australian Consumer Law. Since John has made false statements at the negotiations stage with Nathan, he is liable for misrepresentation under the law. In addition, Nathan is under a special disadvantage, as he is not familiar with the local language. John’s conduct is prohibited under section 18 of the Australian Consumer Law. Moreover, John has breached the provisions under Section 2(2)(c) by maintaining silence with respect to important terms. He has not offered to provide an interpreter to Nathan, despite being aware that that Nathan is unfamiliar with English. This depicts John’s deceptive conduct towards Nathan. Depending upon the circumstances of the case, silence could be deemed to be misleading or deceptive conduct. For instance, courts have ruled that failure to disclose information does not constitute misleading conduct, as long as such information has not been suppressed intentionally. As per the above discussion and case law, it can be concluded that there was no valid contract between Nathan and John, since there was absence of genuine consent by the former. Nathan can rescind the contract, upon coming to know about the deceit and fraud committed by John. He can make a claim for compensation for breach of contract and damages for the losses suffered by him, due to the unconscionable conduct of John, while forming the contract. Bibliography ‘Australian consumer law’, (The Law Handbook, 30 June 2013) accessed 23 May 2014. Clarke J, ‘Misleading or Deceptive Conduct’, (Australian contract law, 2013) accessed 23 May 2014. Furmston M.P, Chevalier G, Cheshire C and Fifoot H.S, 2012. Cheshire, Fifoot and Furmston's Law of Contract. 15 ed. Oxford, UK: Oxford University Press. ‘Misleading or Deceptive Conduct’, (Australian Government Department of Industry) accessed 23 May 2014. Penfold C, 2012. Contracts. In: Bassam S & Gardiner D, eds. The law handbook. Sydney, Commonwealth of Australia: Thomson Reuters, pp. 360 – 371. ‘The Australian Consumer Law - A guide to provisions’, (Australian Government, 2010) accessed 23 May 2014. ‘The Law Handbook’, (Fitzroy Legal Service Inc, 30 June 2013) accessed 23 May 2014. Read More