Commercial Law Issues - Case Study Example

Commercial Law Assignment Issues Raised by the Facts It is evident that Nathan is a refugee, with a refugee visa, residing in Australia. Given that Nathan arrived in Australia recently, he is not acquainted with majority of issues in Australia, especially commercial dealings and contracts. Though Nathan wanted to get a mobile phone, which could be useful in helping him to be connected with his family back home, he had neither owned a phone nor entered into a telephone contract before. This renders Nathan uninformed about telephone contracts. Therefore, Nathan knew nothing about telephone contracts. Also, Nathan does not know much English. In fact, he speaks very little English. This means that Nathan may not be able to make an informed bargain or decision, if he engages in a contract where the other party speaks English due to the limitation in language. On the other hand, John works as a sales representative with a telephone company known as Dubious Connections Pty Ltd. He sells telephone contracts. John was aware that Nathan knew nothing about telephone contracts and that he did not understand most of the matters that are discussed in English. Nathan was influenced to enter into a contract by John, as the latter told the former that there was a special promotion just for that day and that if the former signed that day, he was entitled to a free iOS7.1 telephone. Therefore, Nathan was under undue influence to enter into this contract, given that he did not understand much English to have the capacity of making an informed decision. In addition, John explained the main features of the contract, but he knew that Nathan did not understand most of the details. John did not offer to get an interpreter to explain the terms and conditions of the contract to Nathan, who thought he could terminate the contract any time and simply return the phone. Nathan was not aware that the contract was to run for three years, and terminating the contract at any time during this period, Nathan would have to pay the full contract price of $3,120, plus $ 800, which is the price of the iOS7.1 telephone. However, after two months into the contract, Nathan found out that the additional expense of the monthly phone bill was difficult to manage, given that he received a meager allowance from Red Cross. Nathan now wants to terminate the contract and return the phone. From the aforementioned issues, a determination whether there was a valid contract between Nathan and Dubious Connections Pty Ltd is made. Also, the remedies available to Nathan are outlined and discussed. Relevant Legal Principles Unconscionable conduct and deceptive or misleading conduct are the main legal principles in this case. As can be seen from the aforementioned issues and facts, John engaged in both unconscionable and deceptive or misleading conduct while seeking to close a sale of telephone contract to Nathan. First, John understood very well that Nathan was not well versed in English and that he could not rely on his little English in understanding the terms of the telephone contract that John wanted him to enter into. Therefore, Nathan did not have the capacity to bargain equitably as John, as far as the telephone contract was concerned. John took advantage of Nathan’s commercial disadvantage and influenced him to enter into a telephone contract. Though, John understood that Nathan did not understand most of the terms of the contract, he did not make any efforts to get an interpreter for Nathan. As a result, Nathan entered into the telephone contract, without understanding what the contract entailed. Secondly, the fact that John told Nathan that there was a special promotion just for that day and that if Nathan signed that day, he was entitled to a free iOS7.1 telephone shows that John engaged in unconscionable conduct. This claim was not genuine, but a mere trick that was meant to influence Nathan to sign the telephone contract. John’s conduct was also deceptive and misleading. For instance, the telephone contract was a three year contract, which could not be terminated by Nathan without paying the full price of the contract plus the price of the iOS7.1 telephone and John knew this. Instead of informing Nathan about the terms of the contract, John let Nathan believe that the contract could be terminated at anytime and the iOS7.1 telephone could be returned at that time. Nathan relied on the John’s behavior or conduct to make his decision of signing the telephone contract. It can also be noted that John engages in unconscionable conduct by capitalizing on his superior bargaining power and exploiting Nathan because Nathan lacked sufficient knowledge. Unconscionable conduct is a deliberate and serious misconduct that is unfair and unreasonable. It arises when there is a significant difference in the relative bargaining strengths of the parties to a contract and the stronger party decides to take advantage over the weaker party.1 Secondly, as can be seen in this case, the weaker party may lack the capacity to understand the documentation used. In addition, one of the two parties to a contract may fail to act in good faith. For instance, John did not act in good faith, in this case. Application The Australian Consumer Law prohibits both unconscionable and misleading or deceptive conduct. Specifically, the Australian Consumer Law (s 18) prohibits misleading or deceptive conduct.2 On the other hand, unconscionable conduct is prohibited by section 22 of the ACL.3 Therefore, it should be noted that ACL affects every contract, from intention to restitution. In ACCC v Lux Distributors Pty Ltd [2013] FCA 47, the Federal Court had dismissed ACCC’s allegations against Lux Distributors Pty Ltd. ACCC filed an appeal against this decision, claiming that the trial judge had made a mistake in findings of fact and law by finding that the conduct of Lux agents to three elderly consumers was not unconscionable conduct.4 The door to door salesmen of Lux sold vacuum cleaners to five elderly men between 2009 and 2011. The conduct of these salesmen was unconscionable, which is in contravention of section 21 of the ACL.5 These Lux representatives had visited householders offering to carry out maintenance checks on the existing vacuum cleaners free. Given that these Lux representatives were sales agents who earned on commission per sale and paid for every expense that they incurred, they examined the vacuum cleaners in the households that they visited and compared such vacuum cleaners with Lux branded machines in demonstration. The sales representatives then attempted to sell a Lux model machine to the household. According to the Australian Competition and Consumer Commission, this conduct was unconscionable because the primary motive of securing these appointments was to sell a new Lux vacuum cleaner and not to offer a free maintenance check. Also, the consumers were in a subordinate bargaining positions, hence there were unfair and pressure sales tactics.6 The court stated that a mere fact that a customer purchases a product from sales people and regrets having purchased that product, does not, in itself, establish unconscionable conduct. In another case, Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682, Australian Competition and Consumer Commission found out that the Landlord (Dukemaster), through its General Manager, engaged in unconscionable and deceptive and misleading conduct while negotiating a new lease and four renewals of leases of premises at the paramount Centre in Melbourne.7 All the Dukemaster’s tenants had a limited command of English and in each case, Dukemaster made written representations to the tenants, claiming that the rent that it sought was very reasonable and below that market value. In addition, Dukemaster did not provide any information about how the rent was determined, but it claimed that the rent was based on the rent that other tenants in the area surrounding the Centre paid. The area surrounding the Centre was not identified by Dukemaster and no explanation was provided to the tenants about the process of comparison with other tenancies. In fact, it is Dukemaster that wanted those amounts of rents and there was no basis for seeking the amounts.8 In addition, Dukemaster did not provide a reasonable time frame for the tenants to respond to the notices of proposed rent and did not address the tenants’ complaints, pertaining to the excessive nature of the rents. Dukemaster had lied to the tenants that a specialist valuer had determined the rent and that the proposed rent was actually a discount on the specialist valuer’s determination. In addition, Dukemaster changed some of the provisions in the leases for renewed terms without informing the tenants. It was found by the Federal Court that Dukemaster had engaged in unconscionable and deceptive and misleading conduct as claimed by the Australian Competition and Consumer Commission. From the Dukemaster case, it is evident that ACL prohibits conduct that is unconscionable within the meaning of unwritten law and in connection with goods and services. As a matter of fact, conduct during contract negotiations which do not result in a contract may still result in the transfer of property rights and yield liability in tort.9 Therefore, as people engage in business, they should ensure that their actions are fair to other parties. There must be fair dealing in contract performance and enforcement. All negotiations should be in good faith.10 In any circumstance, where a contract is created, there has to be equal bargaining powers among the parties. Inequality of bargaining power and lack of good faith, as well as, undue influence, all indicate unconscionable conduct; especially where one party takes advantage of another’s commercial disadvantages.11 Also, if the innocent party actually relied upon the information that the other deceiving party provided, in the sense that it affected his or her behavior, this amounts to misleading or deceptive behavior. Therefore, the misleading act or deceptive conduct must have had an inducing effect. This means that the misleading conduct must have caused the innocent party to enter into a contract. It should also be noted that even if a disclaimer or an exclusion clause is present, this does not negate the existence of breach of section 22 of the ACL.12 Therefore, if the action of entering into a contract was a matter that was induced by misleading or deceptive conducts, the whole contract will be treated as one that was induced by misleading or deceptive contract. Similarly the misleading conduct does not need to be the sole cause of entering into the transaction, but as long as it had some part to play, it is regarded as if it contributed to the formation of the contract.13 Finally, it is imperative to take into account the amount of negotiation that took place. If one of the parties was not given sufficient time to negotiate the contract and get to know the facts, then the other party must have engaged in unconscionable conduct. Conclusion From the facts of this case, it is evident that John engaged in unconscionable and deceptive and misleading conduct while seeking to close a sale of a telephone contract to Nathan. John did not offer to get an interpreter to help Nathan understand the documents of the telephone contract, in spite of the fact that John was aware that Nathan had a limited command in English. He also made tricked Nathan into signing the contract on the very day that they met by lying that there was a special offer on that day, which could guarantee Nathan a free iOS7.1 telephone, if he signed that day. This did not allow Nathan reasonable time to make an informed decision about the contract. A legally enforceable contract should have six prerequisites including the intention of creating legal relations, agreement, which represents an offer that has been accepted and consideration in terms of payment. Also, the parties making the contract must have legal capacity to make a contract in that they should not be under age or under the influence of alcohol or commercially disadvantaged in terms of knowledge. The objects of the contract ought to be legal, while there has to be a genuine consent.14 There is no valid contract between Nathan and Dubious Connections Pty Ltd because John, the sales representative engaged in unconscionable and deceptive and misleading behavior. Therefore, the contract between Nathan and Dubious Connections Pty Ltd was an unconscionable contract. Though the court did not find unconscionable behavior in the Lux case, it should be noted that the sales representatives of Lux Distributors Pty Ltd lied to the consumers that they wanted to offer free maintenance checks, while their main aim was to secure a sale of a vacuum cleaner. They also lied to the consumers that there was a discount. In this case, who did not have a good command in English and knowledge about telephone contracts, was rushed to sign a contract, whose terms and conditions were not properly specified to him. Given that the contract is unconscionable, Nathan can decide to seek some of the remedies that are available for him. He can go to court to seek invalidation of the whole contract. Nathan can also rescind the contract or sue John and Dubious Connections Pty Ltd for damages in tort law because the telephone bill expense has caused him losses, which he did not anticipate. Works Cited Abell, Mark. The Law and Regulation of Franchising in the EU. Cheltenham: Edward Elgar Press, 2013. Print. Ashurst Australia. "Ashurst Australia." 22 March 2013. Web. 19 May 2014. Australian Competition & Consumer Commission. "Unconscionable Conduct." 2014. Web. 19 May 2014. Australian Government. "What is Unconscionable Conduct?" 2014. Web. 12 May 2014. Bailey, Julian. Construction Law. Abingdon: CRC Press, 2014. Print. Chen-Wishart, Mindy. Contract Law. Oxford: Oxford University Press, 2012. Print. Hiscock, Mary E and William van Caenegem. The Internationalisation of Law: Legislating, Decision Making, Practice and Education. Cheltenham: Edward Elgar Press, 2010. Print. Latimer, Paul. Australian Business Law 2012. North Ryde: CCH Australia Press, 2010. Print. Lavan Legal. "At Last – Some Guidance on Unconscionable Conduct in Respect of Retail Tenancies?" April 2010. Web. 19 May 2014. Morandin, Nicole and Joshua Smith. Australian Competition and Consumer Legislation 2011. Sydney: CCH Australia Press, 2011. Print. Read More