contract & consumer law



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Questions 1, 5 and 11

Question 1: Carter is a sole trader. His gardening business is not doing well and has recorded very little profit. Unfortunately, he did not install a water fountain correctly and it caused a great deal of damage to his client’s garden. His client knows that the profits from the business will not cover the damage and is insisting Carter dig into his personal savings to pay for the damage. Does the client have the right to demand this?

Answer: A sole proprietorship is run and owned by a single person. A lone proprietor may hire people. Although the single proprietor is ultimately responsible for the firm, you may hire contractors. The business as well as the seller of goods are to be considered as same in each and every aspect; they do not exist as distinct entities. The company owner is solely liable under the law. They may keep all corporate gains as personal income and are individually responsible for the company's obligations. Depending on their effective tax rate, the sole proprietor is responsible for paying tax. Hence in the above case Carter has not done his job properly under sole trader business he is personally liable for the damages to his client because business and Carter are same in each aspect and does not have separate identity from his business.

Question 5: Nai-Xun and Dorian want to start a non-profit organisation to raise money for medical research. All money raised will go into funding medical research and sustaining the organisation. Further, they want to buy some property in the organisation’s name, to build their headquarters. What type of business structure do you recommend?

Answer: I make a recommendation to have “Incorporated Association”. An incorporated association's goal is. First, Members' legal obligations are restricted to unpaid dues. Second, it may be sued and sue. Third, it is permitted to hold real estate in the name of an organization. Fourth, it is able to sign contracts using its recognized legal name.

Question 11: Nick and Michael agree to put on a Golf Tournament. They call their business ‘The Mick N Nick Golf Event’. Nick is in charge of the administration and catering arrangements while Michael undertakes duties relating to the golf. Profit/losses are to be shared according to each separate activity. Each puts up their own capital to complete each of their tasks. The event is a success with the catering making $4,000 profit and the golf earns $3,000.

Answer the following questions.

(a) Is this a partnership or joint venture?

Answer: It is Joint Venture. The rights and obligations of the parties are outlined in a written agreement that is often used to establish joint ventures. A joint venture may or may not be incorporated. Here it is unincorporated Joint Venture.

(b) How will the profits be shared?

Answer: They will share there profits as per activity undertaken by each of them, such as on the basis of catering and golf services provided by them.

(c)  Would the profits be shared differently if the catering made a loss?

Answer: No. They would share the profit or loss as per their activities of catering and golf.

(d) The food suppliers have not been paid and are suing for $5,000. Who should they sue?

Answer: They should sue to “Nick” because he was responsible for the administration and catering activities.

(e) Michael’s equipment worth $2,000 is stolen and he asks Nick to contribute half of the loss. Would he succeed?

Answer:  No. Because as per the agreement, profit and loss is to be distributed as per separate activity, rather the loss of equipment should be recovered from the profits earned from golf.

Chapter 9 – Managing Risk: Negligence

Questions 11, 17, and 19

Question 11: What risk management practices would you advise a client to put in place in their business to minimise the likelihood of negligence occurring? Include in your answer they type of information you would need from the client to ensure your recommendations were relevant and commercially useful.

Answer: The following points are to be considered:

  • Together with the client, identify and evaluate any possible hazards to the client's company.
  • Determine whether particular departments or activities inside the company are most prone to negligence.
  • Develop a thorough risk management strategy in collaboration with the customer based on the risk assessment.
  • Stress the importance of educating personnel about risk awareness, safe procedures, and relevant laws.
  • Assist the customer in putting in place controls to ensure that agreed procedures and guidelines are followed.

Question 17: Bao is interested in owning and operating a furniture business and seeks the advice of ‘Dependable Business Advisors’. Meng is appointed as her advisor and after some discussion and research Meng recommends Bao purchase ‘Fabo Furniture’ which already has two successful outlets and is poised for expansion and a very successful future. The purchase price is $800,000 and Bao excitedly proceeds. Sadly, after 6 months, Fabo Furniture is losing money and Bao has lost the purchase price and more. A new branch of Ikea has opened across the road to one of the shops and that is why the original owners were selling. Bao discovers that this was common knowledge in the furniture business market and that Meng should have known this at the time, and that further, he gave his advice relying on financial information which was incorrect and out of date. Bao is furious. Advise Bao of any action she may take, against whom she may take it, why she may take it and the consequences of that action.

Answer: Bao might sue Meng for the breach of duty of care. Bao would have to prove that Meng's counsel was false or deceptive and that he violated his duty of care by failing to deliver correct and current information. If it can be shown that Meng was aware of or ought to have been aware of Ikea's imminent competition and nonetheless advocated the acquisition without revealing this knowledge, Bao's case may be strengthened. Meng might be the target of a lawsuit from Bao for malpractice or breach of contract. Bao may also have a claim against the former owners of Fabo Furniture if it can be shown that they were aware of the upcoming competition but chose not to disclose it.

Question 19: Using examples, explain contributory negligence and how a defendant may use it as a defence.

Answer:  Contributory negligence is a circumstance in which the plaintiff (the person who files the action) bears some of the blame for their own injuries or losses as a result of their own carelessness or negligence.

Example: Manufacturer will not be liable for the negligence of the customer or retailer while handling the product with due care but manufacturer should provide the suitable packing for the product so that it could reach at the consumer or retailer destination safely and securely. 

Chapter 10 – Consumer Protection Law

Questions 11, 19, and 21

Question 11: Marc is considering entering into a mobile phone contract with GreedyGuts Phones. He is upset to find out that within the contract, there is a term stating that if Marc defaults on payment of his monthly statement, there is a default fee that increases by 10% every day of default. Marc considers this extreme, but the salesperson informs him that this contract is standard form, and its terms are non-negotiable. What argument could Marc make? Do you think he would be successful?

Answer: Marc could present a defense that the provision regarding default fees exhibits characteristics of unconscionability. Unconscionability pertains to contractual provisions that exhibit such a significant imbalance or oppressive nature that they elicit a strong moral objection from the judiciary. The phenomenon under consideration pertains to a situation characterized by an inequitable distribution of power among the involved parties, wherein one party possesses a considerably greater degree of bargaining power compared to the other. In this particular scenario, Marc may contend that the provision regarding default fees is characterized by oppressive and inequitable qualities. The stipulation permits a daily fee escalation of 10%, resulting in a rapid accumulation of a substantial sum. The aforementioned scenario may be perceived as capitalizing on the customer's financial hardships and imposing an inequitable consequence for failure to fulfill payment obligations. Moreover, the assertion made by the salesperson regarding the non-negotiability of the contract terms serves to bolster the contention that an asymmetry of power exists.

Question 19: Rachel goes to the toy shop, Playstuff, to purchase a toy for her niece’s birthday. Rachel explains to the shop assistant that her niece is only five, but that she enjoys artistic activities. The shop assistant recommends a kit to make and paint plaster animals from moulds and reassures Rachel that such a toy is suitable for a five-year-old. Unhappily when the child attempts to paint the animal figures, she receives chemical burns from the paint. Rachel is horrified and seeks your advice as to what action she may take, against whom and the likely consequences.

Answer: She could take an action against the Company who made or manufactured such toy and get remedial action. Minister could Ban such product which are unsafe for the children’s and could recall for the rest of the  product from the market. 

Question 21: Which section of the Australian Consumer Law has been breached in the following examples?

(a) Goods are supplied which do not match the description of the product.

Answer: ACL Section 56.

(b) A service is not provided with care and skill.

Answer: ACL Section 60.

(c)  A seller recommends a product which will be able to do the job. In fact, it is unable to do so.

Answer; ACL Section 55.

(d) A seller claims the product was made in Australia, but it was in fact made in Ireland.

Answer: ACL Section 51

(e) A business proposes to pay you a commission for every person you recruit and then they will get a commission for those they recruit.

Answer: ACL Section 60.

Chapter 11 – Restrictive Trade Practices

Questions 11, and 15

Question 11: The Australian Competition Tribunal

(a) Is the first-place parties should go if they have any issue under the CCA.

Answer: No. The first-place parties should go is “Australian Competition and Consumer Commission (ACCC). 

(b) Is a review body available when a party wishes to challenge a decision of the ACCC.

Answer: True. ACT is the reviewing body if anybody wishes to challenge a decision of ACCC.

(c)  Is only available to retail businesses.

Answer: False. The scope of this phenomenon extends beyond retail enterprises. The specialized judicial body in question is accessible to a diverse array of entities, encompassing both corporate entities and individuals, who seek to contest specific determinations rendered by the ACCC or different regulatory entities.

(d) Has substantially more powers than the ACCC.

False. The ACCC is a regulatory body with a wide range of duties. Its main responsibilities include investigating violations of consumer and competition laws, bringing legal action, and punishing offenders. The ACT, in contrast, is an impartial, quasi-judicial body that examines the ACCC's along with other regulatory authorities' rulings.

Question 15: Debra is a director of the innovative company Eternal Healing Pty Ltd which specialises in the production and promotion of alternative healing remedies. Their latest product line includes a highly popular range of crystals and healing guides called ‘Crystal Comfort’. The company is recognised as the market leader in this area and has grown rapidly to be a dominant participant in the alternative healing market nationally. Debra has asked you to prepare a report concerning the following commercial proposals having particular regard to the provisions and policies of the Competition and Consumer Protection Act 2010 (Cth):

(a) The main competitor to Eternal Healing Pty Ltd is Healthy Spirit Pty Ltd. Both companies presently obtain their crystals from the same supplier, Crystals R us Pty Ltd. Eternal Healing holds 62% of the market and Healthy Spirit 23%. Eternal Healing wishes to protect and increase their market share and the first proposal is that Eternal Healing approach Crystals R us and inform them that if they wish to keep Eternal Healing’s business, they must no longer supply crystals to Healthy Spirit.

Answer: The above proposal is not viable and falls under Section 45 CCA: It is related to anti competition and 47 CCA:  It is related with exclusive dealings: Where one party prohibits other party freedom to deal with other trading person. 

(b) Eternal Healing have been approached by two sellers in a very successful retail district to stock and sell Crystal Comfort products. Eternal Healing are keen to enter a distribution agreement, but they will only do so if the new sellers agree to sell the products for no less than $40 per item and agree that they will stock the Eternal Healing products exclusively, refusing to sell Healthy Spirit products.

Answer:  The above proposal could not be done under section 45 and as per the case law: ACCC v Flight Centre Travel Group Ltd. Where they have fixed the price of the airlines and conducted guilt under section 45 CCA for fixing the price as anti-competition. 

(c) Crystal Comfort product is currently distributed by ten main retail outlets, representatives of which have all met at an enlightenment day held by Eternal Healing. The ten representatives decide to lunch together and during that time the various prices at which the Crystal Comfort product is sold in their outlets is discussed. All the representatives are pleased at how well the product is selling and two representatives believe that demand will support a price increase to $50 per item if the product cannot be obtained at a lower price elsewhere. One of the representatives, Marie, is not convinced and leaves the discussion. Two weeks later, nine of the representatives have increased the price of the Crystal Comfort product to $50 per item. Three weeks later, Marie’s product and public liability insurance is increased substantially, and she is advised by her accountant to increase the retail price of her stock by 10%, with the result that she too is offering the Crystal Comfort product for sale at $50 per item.

Answer: This proposal is related to the secondary Boycotts under section 45D CCA. Because the first and second parties lack the authority to directly influence the fourth party's business, secondary boycotts often occur. They chose to exert pressure on the third party that does possess that authority for this reason. 

As per the case law: ACCC v The Construction, Forestry, Mining and Energy Union (2006) FCA 1730: Secondary boycotts are acceptable as long as their primary objective has to do with consumer, environmental, or Labour issues. However, outside-of-business planned industrial activities will probably be forbidden.

The above proposal will be not be effective under the above section and case law.

Chapter 12 – Financial Services Consumer Protection

Questions 3, and 9

Question 3: Jacob is a stockbroker who, over the course of a year, sold 1 .5million shares in a company, ChemTex to people and other companies that he was affiliated with. He did this so that the ChemTex looked like a success and encouraged others to trade. Has Jacob done anything unlawful?

Answer: Yes, it is unlawful act done by Jacob. It seems that Jacob sold 1.5 million ChemTex shares to people and businesses he knew in order to project a sense of success and entice additional investors to trade. This move could raise questions about possible market manipulation, insider trading, or fiduciary obligation violations that might violate the ASIC Act of 2001 or other relevant laws. Market manipulation, in general, refers to acts that unnaturally affect a security's price or market activity. Market manipulation may apply if Jacob sold the shares in an effort to misrepresent ChemTex's performance and push other investors to trade.

Question 9: Boris seeks personal investment advice from Rory, a financial advisor and AFS licence holder. Boris, a 60-year-old client with an income of $60,000 per year, is considering investing his life savings of $300,000 in a new technology company. Rory uses accurate data to calculate that the company has a 50% chance of tripling his money and a 50% chance of going broke. Rory advises Boris to make the $300,000 investment. Has Rory fulfilled all his obligations as an AFS licensee?

Answer: Rory has not fulfilled his obligations as an AFS licensee. AFS license holders are obligated to prioritize the best interests of their clients. This necessitates Rory's prioritization of Boris's interests and careful consideration of his financial circumstances, investment objectives, risk tolerance, and other pertinent variables when offering guidance. It is imperative that Rory possesses a rational foundation for the counsel he dispenses. This entails undertaking comprehensive research and analysis to guarantee that the investment recommendation is founded on precise and current information. It is imperative for Rory to ascertain that the guidance offered is suitable for Boris's financial situation and goals. This entails taking into account various factors, including Boris's income, age, risk tolerance, as well as investment expertise, among others