Australian Consumer Law Issues - Case Study Example

Name: Instructor: Course: Date: Issue Bob Wheelie is seeking advice on dealing with a legal issue, which entails a business transaction with Mr. Spoke. Bob purchased a bicycle store from Mr. Spoke, who was retiring and needed to sell the store. For Bob this was a perfect business opportunity, as it would enable him to do what he loved most-biking business opportunity. As a result, he purchased the store and later discovered that the historical figures presented by Mr. Spoke on the past and future profitability were false and inflated by 55%. Mr. Spoke had designed the figures to induce Bob to purchase the store so that he could retire and travel overseas. The shop was not in a good financial position and would cost Bob for the store to be successful. As a result, Bob is seeking legal redress for the misleading commercial sale from Mr. Spoke. Rules The Australian Consumer Law1 prohibits unfair practices in commerce or trade. The law came into effect on 1st January 2011 as the countrywide consumer law that is used in all territories and states. It replaced various customer protection provisions in more than twenty different territory, state and commonwealth laws. Division 1 of part 3-1 of the law proscribe misleading or false representations regarding goods, services, land and employment and also disallow various conducts on the offering prizes or gifts, rebates, bait advertising, wrongly accepting payment and also other forms of conduct (Latimer 562). Section 18 of the Australian Consumer Law (ACL) proscribes a party, in commerce or trade, from engaging in conduct that deceive or mislead another party or likely to deceive or mislead. Such conducts can take place by express representation or statements; conduct-behaving in a particular way; implied representations; omission (failure to act in a particular way); and silence (when there is need to disclose an issue (Edghill, Hoyle, Cowper, par. 7). Section 37 prevents false or misleading representations on the risk, profitability and other important aspects of various business activities2. The statute on deceptive or misleading conduct dissuades business from taking part in practices, which may misrepresent the true nature of their business of product. The law proscription of deceptive or misleading conduct aims to stop disingenuous measures that some businesses take that cause consumers to reach decisions that they would not otherwise make. False or misleading representation that that the ACL prohibits include representation that products are of a certain quality, worth, standard, style or model, grade, or have had a certain previous use or a certain history; and services are of a particular quality, standard, grade or value among others. The law seeks to develop a standard of market or business conduct. It combats deceitful conduct, misrepresentations’, negligent acts and passing off among others. Silence may also be taken as misrepresentation at common law and may equate to deceptive or misleading conduct in case there exist reasonable expectation of disclosure of important facts (Latimer 557). In addition, ACL also prohibits a party from taking an unconscionable advantage of another. Section 20-22 of the ACL prohibits unconscionable act against parties at a special shortcoming arising from the lack of equality of bargaining power between individuals (Latimer 562). This entails premeditated misrepresentation of facts about goods or services in order to deprive some of an important possession. Section 22 of ACL states “a person must not, in trade or commerce, in connection with…(b) acquisition or possible acquisition of goods or services from another person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable.” Unconscionability is established if the person alleged to have acted unconscionably knew about the susceptibility of the other party and this took advantage of the susceptibility by proceeding with business dealing. The court establishes whether a party had the opportunity to appropriately evaluate what was best in their own interests. Some business persons take advantage of the fact that consumers do not have sufficient understanding or knowledge of the contract or they are not capable of making an autonomous decision. They therefore take advantage of the consumer failure to understand for their own benefit. A person involved in the contravention must have a certain degree of awareness of the elements or facts that constitute a contravention of the section. A remedy can be obtained against a person who has contravened this law and any person that is involved in the contravention. Contravening the subsection on misleading representation attracts pecuniary penalty. The common remedies sought for misleading conduct in relation to the sale of a business are damages and contractual variation or avoidance. Application Mr. Spoke will likely be found guilty of false and misleading business conduct and unconscionable dealing and hence the contract may be set aside. Mr. Spoke presented Bob with false historical figures about the profitability of the bicycle store; the figures were inflated by 55% in order to induce Bob to buy the store. The business conduct by Mr. Spoke constituted misleading business conduct and unconscionable dealing sine he knowingly inflated the company profitability in order to induce Bob to buy the store. He contravened section 37 of ACL on misleading representation regarding various business activities and Section 20 on unconscionable conduct. Mr. Spoke took advantage of Bob lack of awareness on how to run a business. Bob made the decision to purchase the store after consulting Mr. Spoke regarding the sale and after viewing the presented past and future profitability presentations. Mr. Spoke was aware that the shop was not in a good financial position when Bob purchased it and the evidence or proof can be the old register tapes, tax document, and cash receipts. Section 37 of ACL prohibits false or misleading representations on the risk, profitability and other important aspects of various business activities. Mr. Spoke presented Bob with false and misleading representations on profits and hence this was a contravention of the statute. Engaging in conduct in breach of section 37 was an offence. Misleading representation by Mr. Spoke constituted statements, acts, and silence. The silence about the poor financial state of the business misled Bob into purchasing the store. The silence was misleading and deceptive as Mr. Spoke failed to alert Bob about business profitability facts that were only known to him and the facts were important to the decision making process. Silence is considered to be deceptive or misleading when key particulars a party should be aware of are not communicated to them3. The contract can also be set aside due to unconscionable dealing by Mr. Spoke. A good case in point of rescission of contract due to unconscionable conduct is the Commercial Bank of Australia Ltd v Amadio (Thampapillai, Tan and Bozzi 436). The case highlighted the legal issue of unconscionable business conduct owing to lack of education or knowhow and the importance of bargaining power between powers. The Amadios, an elderly Italian couple, guaranteed the business debts of their builder son to the Commercial Bank. During the execution of the mortgage, the bank manager knew about the unstable financial position of the son and was also aware that the couple was not well informed, did not speak English well, and had a “special disability”. Nonetheless, the bank manager did not make any effort to explain the situation to them or suggest they get independent advice to ensure that they understood the nature of the bank transaction. In addition, the manager also did not inform the couple that there was no limit on their liability under the guarantee; they believed the limit was $50,0004. Once the Amadio’s son business filed, they had the contract set aside as a result of unconscionable dealing by the bank. In the same way, the court can set aside the contract Bob signed with Mr. Spoke as a result of unconscionable conduct-Bob lacked business acumen (special disability) and Mr. Spoke took advantage of this. The resulting transaction was oppressive to Bob as he would need to invest more money for the store to be successful. Bob was the weaker party in the transaction and hence the court may rule that he avoids the transaction. There was no equality in the bargaining power of the two individuals. The task of the court would be to determine whether during the entire course of dealing between the defendant and plaintiff was such that the responsibility of loss of the plaintiff should be blamed on the unconscientious conduct on the defendant s’ part5. The equitable intervention to disposed a business or individual of its bargain given that it was obtained through unfair exploitation of the weakness of the bargaining party calls for a predatory emotional or mental state. A court of equity would consider the unfair advantage of Bob and not allow the contract to stand6. Mr. Spoke conduct was unconscionable; it was meant to persuade and actually induced an improvident dealing that conferred benefit upon him.7 Conclusion Mr. Spoke can be found guilty of contravening section 18, 22 and 37 of ACL and hence charged with false and misleading business conduct and unconscionable dealing. As a result, the court may offer Bob the option to rescind the contract with Mr. Spoke. Bibliography Blomley v Ryan [1954] 99 CLR 362 Commercial Bank of Australia Ltd v Amadio [1983] 151 CLR 447 Edghill, Kathryn, Hoyle, Truman and Cowper, Amy. False, Misleading and Deceptive Conduct. [2015].< http://lexisweb.lexisnexis.com.au/Practical-Guidance-Topic.aspx?tid=2310> Hardy v You Tabs Pty Ltd (in Liq) [2000] NSW CA 150 Kakavas v Crown Melbourne Ltd [2013] HCA 25 Latimer, Paul, Australian Business Law 2012, (CCH Australia Limited, 31ed, 2012) Louth v Diprose [1992] 175 CLR 621 Thampapillai, Dilan, Tan, Vivi, Bozzi, Claudio and Matthew, Ann, Australia Commercial Law, (Cambridge University Press, 2015) The Australia Consumer Law: Competition and Consumer Act [No 2] 2010 (Cth). Read More