Role of a Revised Sale of Goods Act 2000


(a) Introduction

Australian legislatures have been active in sale of goods law reform over the past few decades, but their efforts have been directed mainly to consumer transactions. There has been no attempt at comprehensive reform of sales law at large. The New South Wales Law Reform Commission released a report on the sale of goods in 1987 which recommended a modest package of reforms in relation to: (1) innocent misrepresentation; (2) intermediate stipulations; (3) the statute of frauds requirements; (4) the passing of property as a bar to the buyer’s right of rejection; and (5) the relationship between the rules governing acceptance and the buyer’ statutory right of examination. New South Wales amended its sale of goods legislation in 1988 to give effect to these recommendations. Some of these reforms have also been made in other States. The Law Reform Commission of Western Australia began work on a sale of goods reference in 1995. It produced two Discussion Papers, one dealing with implied terms and the other with equitable rules applicable to sales contracts. However, work on the reference was suspended after that and so far it has not been resumed.

Reforms in the consumer sales area cover the following ground: (1) implied terms and the buyer’s right of rejection; (2) manufacturers’ liability; (3) misrepresentation and misleading conduct; (4) unconscionable transactions; and (5) car sales.

The following is a short summary of the reforms in each of these areas.

(b) Implied terms

  • (i) Commonwealth legislation. Trade Practices Act 1974 (Cth), Part V, Div.2 contains a set of statutory implied terms limited to consumer transactions. The provisions are based on the United Kingdom Supply of Goods (Implied Terms) Act 1973. The main features are as follows.

(1) The provisions are not limited to sales. They apply to contracts for the “supply” of goods or services. “Supply” is defined in relation to goods as including supply by way of sale, exchange, lease, hire or hire-purchase.

(2) A person acquires goods a s a consumer if:

  • the contract price is $40,000 or less and the goods are not acquired for resupply or other trade-related purposes; or

    the contract price is more than $40,000 and the goods are not acquired for resupply or other trade-related purposes and the goods are of a kind ordinarily acquired for personal, domestic or household use or consumption or the goods are a commercial road vehicle.

    A person acquires services as a consumer if the contract price is $40,000 or less or the contract price is more than $40,000 and the services are of a kind ordinarily acquired for personal, domestic or household use or consumption.

(1) There is a definition of merchantable quality that follows the statutory purpose test in the 1973 United Kingdom statute. It has been held in Australia that the reference in the definition to purposes is not limited to functional considerations, but may also include the appearance of the goods: Rasell v. Cavalier Marketing (Aust) Pty Ltd [1991] 2 Qd R 323. This means that aesthetic considerations can be taken into account in judging whether or not goods are of merchantable quality.

(1) In a contract for the supply of services to a consumer there is an implied warranty that the services will be rendered with due care and skill, and that any materials supplied in connection with the services will be reasonably fit for the purpose for which they are supplied. If the consumer makes known any particular purpose for which the services are required, or the desired result, there is an implied warranty that the services and any materials supplied will be reasonably fit for that purpose, or are of such a nature and quality that they might reasonably be expected to achieve that result.

(1) The consumer’s right to reject goods for breach of implied condition is lost if:

(a) the goods are disposed of by the consumer, or are lost or destroyed other than by reason of the defect;

(a) the consumer caused the goods to become unmerchantable;

(a) the goods were damaged by abnormal use; or

(a) the consumer failed to exercise the right of rejection (“rescission”) within a reasonable time after the consumer has had a reasonable opportunity to inspect the goods.

(6) As a general rule, the implied terms are mandatory. However, in certain cases, the supplier can exclude liability for consequential losses. Subject to this qualification, exclusion and limitation clauses are void, and if the supplier has an exclusion or limitation clause in its contract it commits an offence for which there is a substantial monetary penalty.

For constitutional reasons, the Trade Practices Act is mostly limited to cases where the supplier is a corporation. This means that as a general rule, the implied terms provisions do not apply if the supplier is a sole trader, a partnership or an unincorporated association. State legislatures have moved in to fill the gap, but their efforts have been mostly uncoordinated and the results are not uniform. The main features of the Victorian and New South Wales laws are summarized below in so far as they are different from the Trade Practices Act implied term provisions. Other states have enacted consumer sales legislation that is not materially different from the Trade Practices Act implied term provisions. These do not warrant separate comment.

  • (ii) Victoria. The Victorian sale of goods legislation was amended in 1981 to include a new Part IV. Part IV governs consumer transactions. It is in substance similar to the Trade Practices Act implied term provisions but there are significant differences in drafting style and also a few substantive differences. The main substantive differences are as follows.

(1) Where in a sale of goods the seller is in breach of the implied condition as to title, the Victorian Act says that the buyer may not discharge the sale without giving notice to the seller and providing the seller with a reasonable opportunity to cure the defect in title. The purpose is to overcome the effect of the decision in Butterworth v. Kingsway Motors Ltd [1954] 2 All ER 694.

(1) Where a buyer discharges the contract of sale for breach of condition, the Victorian Act says the court may require the buyer to pay the seller compensation for the buyer’s use of the goods in the period before discharge. One consequence is to overcome the windfall effect of the decision in Rowland v. Divall [1923] 2 KB 500 in cases involving breach of the implied condition as to title. However, the provision is not limited to title cases.

(1) The Victorian Act takes an expansive approach to what constitutes a sale by sample. For the purpose of the relevant implied terms, a sale by sample is not limited to the case where there is a term in the contract, express or implied, to the effect that the sale is a sale by sample. It also applies where the buyer is induced by the showing of a sample to make the purchase.

(1) The Victorian Act designates as “conditions” the terms implied in a sale of services. The implication is that the buyer may discharge the contract if the seller is in breach. However, the Act is silent on the limits of this right. It is presumably subject to the common law doctrine of affirmation and possibly also to the doctrine of substantial performance.

(1) The Act implies terms in a contract for services where the buyer is induced by a demonstration of the services or a result achieved by the services to make the purchase. The requirements are that the services must correspond in nature and quality with the services shown in the demonstration or must correspond in quality with the services that achieved the demonstrated result, and that the services will be free from any defect rendering them unfit for their normal purposes.

(1) In the case of a sale, the buyer’s right to reject goods for breach of condition is limited by reference to acceptance. Passing of property is not a bar to rejection. “Acceptance” has the same meaning as in the earlier part of the Act, subject to the qualification that the following conduct of the buyer is deemed not itself to constitute acceptance: (1) retention or use of the goods within a reasonable period after it becomes apparent that they are defective; (2) failure to inform the seller of the rejection within that period; and (3) delivery of the goods to the seller for repair or replacement. As mentioned above, the Act is silent on loss of the right of discharge in the case of a sale of services and a goods lease. This means the common law rules apply.

To repeat, these measures are all limited to consumer transactions. In the case of measures (1), (2) and (6), in particular, it is hard to see the reason for the limitation.

  • (iii) New South Wales. The implied conditions and warranties set out in the New South Wales Sale of Goods Act 1923 apply to both commercial and consumer transactions. However, Part VIII of the Act incorporates special provisions relating to consumer sales. The distinctive features are as follows:

(1) The implied terms are made mandatory for consumer sales, except that the implied condition of merchantable quality can be excluded if the goods are second-hand.

(1) An express warranty in a consumer sale does not negative the statutory implied condition of merchantable quality.

(1) Where in any proceedings arising out of a consumer sale (except if the goods are second-hand), the court concludes the goods are not of merchantable quality, the manufacturer may be joined in the proceedings and ordered to remedy the defect.

(c) Manufacturer’s liability

  • (i) State laws. South Australia was the first Australian jurisdiction to enact comprehensive manufacturers’ liability legislation: Manufacturers Warranties Act 1974. The Australian Capital Territory followed suit soon afterwards with the Manufacturers Warranties Act 1975. The South Australian Act applies when goods are sold by retail in that State. It creates a notional contract between the manufacturer of the goods and the consumer and it implies in this contract warranties of merchantable quality and, where the goods are of a kind likely to require repair or maintenance, that spare parts will be available for a reasonable period following the date of manufacture. The manufacturer is also liable for breach of express warranty made in relation to the goods. The ACT legislation is similar except that it also includes implied warranties governing correspondence with description, fitness for purpose and correspondence with sample.

Part III, Div 5 of the Queensland Fair Trading Act 1989 contains provisions that deal specifically with consumer warranties. The requirements are as follows: (1) the warranty must be evidenced by a document that is given to the consumer; (2) it must be so worded as to express, as tersely as possible, clearly and accurately, every act required to be performed to honour the warranty, and every act required to be performed by the consumer in order to be entitled to claim on the warranty; (3) it must clearly and accurately specify the name and place of business of the person by whom it is issued; (4) the duration of the warranty must be clearly specified; (5) the procedure for making a claim on the warranty must be clearly specified, including the designation of an address in Australia to which claims may be sent; (6) it must clearly specify how expenses incurred in honouring the warranty are to be borne; and (7) it must clearly state that the benefits conferred on the consumer are additional to all other applicable rights and remedies. Failure to comply is an offence. The word “warranty” or “guarantee” may not be used in a document unless the document incorporates a warranty that applies to every major component of the goods. It is an offence to communicate a warranty without a reasonable belief that the warranty will be honoured.

(ii) Trade Practices Act 1974 (Cth), Part V, Div.2A. The Trade Practices Act was amended in 1977 to incorporate manufacturers’ liability provisions based on the text of the ACT statute. The provisions make a manufacturer statutorily liable to consumers for loss caused by product defects. Liability does not extend to third parties such as bystanders or non-owners who happen to be using the goods, and the legislation is limited to consumer goods (goods of a kind that are ordinarily acquired for personal, domestic or household use or consumption). As in the case of the ACT law, the basic scheme is to make the manufacturer liable to the consumer on the same footing that the immediate supplier is liable. Accordingly, a manufacturer may be required to pay damages if, for example, the product is not of merchantable quality or fit for its purpose, or if it does not correspond with a description the manufacturer has applied to it. There are also requirements governing reasonable availability of spare parts and repair facilities and manufacturers’ express warranties. There has been only a handful of reported cases decided under the provisions in the more than 20 years since their enactment.

  • (iii) Trade Practices Act 1974 (Cth), Part VA. The Trade Practices Act was amended again in 1992 to incorporate a new Part VA, dealing with manufacturers’ liability. The new provisions were meant to give effect to recommendations made by the Australian Law Reform Commission and the Victorian Law Reform Commission in their joint report on product liability. The text of Part VA is based on the European Community Product Liability Directive. Part V, Div.2A is still in place. The two sets of manufacturers’ liability provisions overlap and to some extent are inconsistent. The main differences are as follows:

(1) the 1977 provisions are an extension of contract law, whereas the 1992 provisions are an extension of tort law; (2) the 1977 provisions apply to goods that are defective in the sale of goods sense, namely goods that are not of merchantable quality, fit for their purpose, and so on, whereas the 1992 provisions define defect by reference to a standard of safety that “persons generally are entitled to expect”; (3) the 1977 provisions cover all kinds of loss recoverable in contract, including any amount by which the defect makes the goods themselves less valuable, whereas the 1992 provisions are limited to personal injury, loss relating to other goods and loss relating to buildings; (4) the 1992 provisions are not limited to consumer goods, though they do not apply to losses that are recoverable under workers’ compensation laws; (5) the 1992 provisions include a contributory negligence defence and a state of the art defence; and (6) the 1977 provisions benefit the immediate consumer and any person who derives title to the goods through or under the consumer, while the 1992 provisions extend to other third parties as well.

(d) Misrepresentation

(i) State misrepresentation laws. The Australian Capital Territory and South Australia have enacted misrepresentation statutes based substantially on the Misrepresentation Act 1967 (U.K.). The main reforms the legislation makes are to: (1) abolish the doctrine of merger and the rule in Seddon v. North East Salt Co [1905] 1 Ch.326; (2) introduce a statutory damages remedy for non-fraudulent misrepresentation; (3) invest courts with a discretion to disallow rescission and award damages instead; and (4) prevent reliance on exclusion clauses except to the extent that the court considers fair and reasonable. The significance of the legislation has been diminished by the enactment of the misleading conduct provisions of the Trade Practices Act 1974 (Cth) and the state fair trading laws (see below). Nevertheless it continues to have a role to play in non-business transactions because the misleading conduct provisions are limited to conduct that is engaged in “in trade or commerce”.

(ii) Sale of goods legislation. Amendments to the Sale of Goods Act 1923 (NSW) in 1988 reformed the law by: (1) avoiding the decision in Watt v. Westhoven [1933] VLR 458 (a Victorian Supreme Court case which held that a contract for the sale of goods could not be rescinded in equity for innocent misrepresentation); and (2) abolishing the doctrine of merger and the rule in Seddon v. North East Salt Co. in relation to contracts for the sale of goods. Amendments to the Victorian Goods Act 1958, made in 1981, introduced a statutory right of rescission for non-fraudulent misrepresentation in the case of consumer sales and leases.

(iii) Trade practices and fair trading legislation. Trade Practices Act 1974 (Cth), s.52 (1) provides as follows:

“A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.

There are corresponding provisions in the various state and territory fair trading laws. Section 52 is relevant to contracts for the sale of goods, but it is by no means exclusively a sales measure. Nor, despite the fact that it appears in the Consumer Protection part of the statute, is it an exclusively consumer protection measure. It is a commercial law reform measure of general application. Section 52 is probably the single most heavily litigated statutory provision in Australia and it is certainly one of the most significant reforms to have been made to Australian commercial law. Case law on s.52 has radically transformed the law of misrepresentation, and it has affected many other areas of law as well including the law of passing off, unfair competition and defamation. Section 52 is routinely pleaded in these areas, with the common law causes of action either pleaded in the alternative or not pleaded at all. See further Duggan, “Misrepresentation” in Patrick Parkinson (ed), The Principles of Equity (LBC Information Services Ltd Sydney Aust., 1996), 158 at 181-200.

(e) Unconscionable transactions

Unconscionability legislation has been high on the Australian legislator’s agenda for the past decade or so. The main initiatives are as follows:

  • Contracts Review Act 1980 (N.S.W.)

    Consumer Credit Code, sections 70-72

    Trade Practices Act 1974 (Cth), Part IVA

    Fair Trading Act 1985 (Vic), section 11A and corresponding provisions in other States and Territories.

These measures were all substantially influenced by UCC section 2-302. They are not limited to sales contracts. The Contracts Review Act 1980 (N.S.W.) provides for the reopening of a contract if it is found by a court to be unjust. "Unjust" is defined to include "harsh, unconscionable or oppressive”. The Act includes a list of factors the court must take into account in judging a contract. The court can refuse to enforce a contract or any part of it, avoid the contract or any provision or vary the contract. The Consumer Credit Code reopening provisions are similar to the Contracts Review Act 1980 (NSW), but they are limited to credit contracts, mortgages and guarantees. Trade Practices Act 1974 (Cth), Part IVA prohibits unconscionable conduct in trade or commerce in connection with the supply of goods or services to consumers. It also contains a section aimed at protecting small business purchasers and suppliers in their dealings with large corporations. The section prohibits unconscionable conduct in trade or commerce in connection with the supply to a small business purchaser (“business consumer”) or the acquisition from a small business supplier of goods or services. It does not apply if the business consumer or small business supplier is a public listed company, and it is limited to transactions where the price is $1 million or less. Remedies for contravention include statutory damages awards, injunctions and rescission and related orders.

(f) Car sales

All states and territories have enacted legislation governing motor vehicle dealers. The laws are not uniform but they deal with most, and in some cases all, of the following matters: (1) licensing of dealers; (2) disclosures before sale; (3) form and content of sale contracts; (4) dealer’s obligation to repair; (5) misleading and deceptive practices; (6) dispute resolution; and (7) the establishment of statutory compensation funds. The dealer’s obligation to repair is additional to the dealer’s obligations deriving from the sale of goods and trade practices legislation implied terms. In some states, the obligation is limited to used vehicles, but in others it extends to new cars as well. The dealer’s obligation is to repair any defect that appears in the vehicle within the statutory period. The relevant period is defined in terms of both time and the distance the vehicle has traveled since purchase. The length of the period varies depending, in most states, on the price the buyer paid for the vehicle. If the price falls below a certain figure, there is no repair obligation at all. The dealer can exclude the obligation, but only in relation to specified defects and only if, in the case of a used vehicle, a statutory notice disclosing the defect and other information is displayed on the vehicle at the time of sale. The obligation to repair does not apply to specified parts and accessories nor does it apply in specified cases, for example where the defect is attributable to misuse by the buyer.

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