CONSUMER LAW
MLC101 Business Law
Trimester 1, 2016
Case Study Report
Due date: Friday, 13 May 2016 on or before 11:59pm.
20 marks
1500 words – 10% leeway (excluding citations, quotes, footnotes and bibliography).Bolt Pty Ltd (hereafter referred to as ‘Bolt’) is an Australian technology company that develops and sells consumer electronics and software. Bolt is running a sale campaign for one of their popular mobile phone models – the Bolt Worldly. The sale advertisement that is currently featured on all promotional material contains the following statements and features in large, bold text:
- ‘Was $899 Now $699’
- ‘Emits 20% less radiation than any other mobile phone on the market!’
- ‘Made for Australians, by Australians’
However, at the very bottom of the advertisement the words ‘Produced and manufactured in Thailand’ can be seen in very small fine print. In fact, two days prior to the sale, Bolt had increased the price of the Worldly to $899. At no time, other than the two days prior to the sale, was the Worldly priced at $899. Its everyday regular price is $699. There were also only three Worldly mobiles in stock and available for the price of $699. Further, Bolt had conducted no tests on the radiation and therefore had no basis on which they could make such a claim. Rosie, an environmentally friendly, health conscious student came across the advertisement in the newspaper and visited a Bolt store the very next day with her friend Hannah. At the store Rosie approached a salesman and told him that she wanted to go ahead and purchase the Worldly at the sale price of $699. The salesman informed her that it had sold out. ‘Unfortunately the Worldly has sold out and is no longer available, however our newest model is now available and you can purchase it for only $1099’, said the salesman. Meanwhile, Hannah approached a saleswomen named Lily, who was located in the computer section and told her:
‘I need a laptop to take to my university lectures. I have 8 hours’ worth of lectures every Tuesday so the battery needs to last at least 8 continuous hours because I can’t charge it during the lecture. My current laptop only lasts 3 hours and I am missing out on taking down important notes’.
Lily assured her that the new Bolt BP is perfect for her requirements as not only is it lightweight but the battery is designed to last 12 hours without charging. Hannah purchases the laptop for $2000. The following Tuesday Hannah takes her new BP laptop with her to university. Within 4 hours the battery had died and the computer had turned off. Hannah was infuriated. The next day she returned to the Bolt store and explained to Matthew, the sales manager, what had happened. Unconcerned, he simply pointed to a sign at the front of the counter which read:
Dear Customers, The guarantees under the Australian Consumer Law do not apply to electronics sold and distributed by Bolt. Further, Consumers cannot return or exchange Bolt goods purchased from the Bolt store unless, it was otherwise agreed to by Bolt, and at Bolt’s sole discretion. As the end of financial year was approaching, Bolt wanted to rapidly increase their profit margin. They developed a strategy to increase their earnings by changing the trade agreements that were in place with their external suppliers, specifically Crisco. Crisco is a very small business that has been run by the Crisco family for the last 70 years. Crisco supplies Bolt with the battery devices that are used in all Bolt laptops. This is Crisco’s most valuable contract – it makes up 95% of their total annual profit. Bolt is aware of this. Bolt sent a letter to Crisco which stated: ‘We are in market for a new battery supplier as we believe you are too expensive. However, if you agree to pay a monthly rebate to Bolt we will not only continue our supply relationship with you but we will increase the quantity of our orders by up to 20% annually. This monthly rebate figure will be determined by Bolt solely. Further, should you agree to the above, you also agree that the supply agreement can be terminated at anytime at the sole discretion of Bolt. A decision is required by you within 24 hours’. There was no basis for imposing the rebate as Bolt did not believe Crisco’s prices were too expensive, nor did they intend to terminate their relationship. Crisco contacted Bolt seeking further information and a chance to negotiate the terms set out in the letter. Bolt refused to provide this information and to negotiate the terms. This left Crisco distressed and so they immediately agreed to the terms. In fact, the new terms are likely to see Crisco unable to sustain their business. Hannah and Crisco want to bring an action against Bolt under the Australian Consumer Law. Advise whether:
1. The Bolt Worldly advertisement is in contravention of any provisions under the ACL. (500 words)
2. Bolt is in breach of the guarantee provisions under the ACL. What rights or remedies (if any) are available to Hannah? (500 words)
3. Bolt has engaged in any prohibited conduct under the Australian Consumer Law in relation to their dealings with
CONSUMER LAW APPLICATION
- The Bolt Worldly advertisement is in contravention of any provisions under the ACL
The Australian Consumer Law (ACL) provides guidelines that govern the interaction between consumers and suppliers of products within the business environment, ensuring that the relationship between these entities is fair. If left ungoverned, some of the businesses may take advantage of the consumers in order to maximize their profits. Such is the case with Bolt Pty Ltd, as the company launches and advertisement of their mobile phone, Worldly, which contravenes various provisions of the ACL. One of the areas of the law that is contravened by this company involves the representation of prices. According to section 29 of the ACL, suppliers of products within the business environment are expected not to represent the prices of their products in a manner that may mislead or deceive the consumers (Corones, 2011, p. 213). Nevertheless, Bolt contravenes this section of the ACL by falsifying the price of the Worldly by claiming that is a reduced price. The marked price of the product, $699, is the actual price at which the product is valued and the company increased this price to $899 two days prior to the advertisement in order to portray the product as being discounted and encouraging increased purchases.
Another offense committed by Bolt involves falsifying the origin of the Worldly product. Section 29 of the ACL also requires suppliers in the business environment to ensure that they provide true information concerning the origin of the product, with those who falsify such information exposed to legal consequences (Latimer, 2011, p. 102). Bolt disregards this by highlighting in the Worldly advertisement that the mobile phone has been made by Australian for Australians. This implies that the product was made in Australia. As much as the company could argue that they included information that Thailand is the country of origin for the product, there efforts towards making the message invisible paint a different picture. The company has used a small faint font to indicate that Thailand is the country of origin of the product, while it has used a large bold font to indicate that the product is made by Australians for Australians. Such an approach is misleading to the common consumer and t could be said to be intended at luring patriotic consumers into purchasing the product with the belief that it has been manufactured in their country by their people.
The message on the radiation content of the Bolt Worldly in the advertisement also contravenes section 29 of the Australian Consumer Law, which requires suppliers of goods and services within the market environment not to make any misleading representations of the quality, grade, standard, model, value, composition or style of products or services offered (Malbon & Nottage, 2013, p. 241). Regardless of the fact that Bolt has not carried out any tests that would determine the levels and types of radiation in their mobile phone, Worldly, as compared to other mobile phones in the market, the company has gone ahead to declare its mobile phone as emitting radiations that are lesser by 20 percent as compared in comparison to other phones. This deception has allowed the company to gain an unfair competitive advantage over its competitors.
- Bolt is in breach of the guarantee provisions under the ACL. What rights or remedies (if any) are available to Hannah?
The Australian Consumer law also requires suppliers to provide consumers guarantees for the supplied products under different circumstances. In their dealings with Hannah, Bolt violated various guarantee laws under the ACL. One of the laws that violated by Bolt involves honoring the consumer disclosed purpose. When consumers go to purchase products, they look for products that would meet their needs. As such, it is the responsibility of suppliers to ensure that they provide the consumers with product options that meet their disclosed purpose to allow them to choose those that they prefer (Latimer, 2011, p. 25). In this case, section 55 of the ACL holds Bolt liable for failing to guarantee the consumer a laptop that fits her disclosed purpose. Hannah emphasized that she has eight hours of lectures on Tuesdays and hence needed a laptop that could last that long to allow her to be able to take the lectures. As such, she made clear her product of preference but the saleswoman, Lily, failed to honor this and instead gave her a product that was not fit for Hannah’s disclosed purpose.
Section 56 of the ACL also requires individuals participating in business as suppliers to guarantee consumers that the products that they supply them are of the provided description (Morandin & Smith, 2011, p. 157). This is to mean that the suppliers should provide a description that strictly corresponds to the features of the product that they are supplying or promoting and not any other information. This provision was established to bar suppliers from using false information about the products ion order to attract more consumers. Bolt violated this provision when Lily, their saleswoman, provided Hannah with false information concerning the laptop Bolt BP. Interested in making a sale, Lily convinced Hannah that the computer’s battery could last for as long as twelve hours, which made it ideal for Hannah as she wanted one that could last for eight hours in order to be able to take lectures without disruptions. This information was false as the computer’s battery could only last for four hours.
In addition, section 53 of the ACL establishes that persons who engage in business and suppliers should guarantee their consumers freedom from security, encumbrances, and charges in case where such information was not communicated to the consumers before they purchased the product and where the consumer was not involved in any way or consulted prior to the establishment of such charges, securities, or encumbrances (ACCC, 2016). Bolt violated this by refusing to replace Hannah’s computer or refunding her money based on the claim that the purchase was subject to an encumbrance. It was at the point of return that Hannah was shown a notice in relation to the same encumbrance. The salesperson failed to show Hannah such a notice before he agreed to purchase the product and also failed to consult her before coming up with such an encumbrance. Applying such an encumbrance in Hannah’s case is taking advantage of her, especially considering the fact that the product that was sold to her did not meet her disclosed purpose and neither did it correspond to description by Lily.
- Bolt has engaged in any prohibited conduct under the ACL in relation to their dealings with Crisco?
Section 30 of the ACL establishes various provisions concerning the giving of rebates, gifts, or any other free items to individual in view of commanding favor in terms of supplying of products or buying of land (Pearson & Batten, 2010, p. 48). Crisco was placed between a rock and a hard place by the demands made by Bolt. Crisco had built a long-term relationship with Bolt, one that had elevated bolt to their major source of revenue as a company. As such, upon declaration of the end of their business interaction with Crisco, the company was left in a tight position as the process of reaching out to a new consumer base is highly challenging. Crisco contravened section 30 of the ACL by agreeing to offer Bolt rebates in order to secure their business with the company, an aspect that is deemed illegal under this section. In as much as the company was given two days to decide on the matter, which is not time enough to come up with an informed decision, their agreement to the arrangement contravenes the law. Nevertheless, Bolt contravenes section 50 of the ACL. This section of the ACL provides that no undue harassment or physical force may be used by suppliers in the business environment in order to coerce the other party in the possible supply or supply of services or goods (Malbon & Nottage, 2013, p. 98). It is clear that Bolt has embraced various strategies that will allow it to maximize its profit, one of the being to reduce cost including the cost of acquiring products from its suppliers.
Bolt coerced Crisco into agreeing with their new
terms of business, which include offering a rebate, in order to gain
competitive advantage through effecting a reduction in cost. This is achieved
through the employment of undue harassment in the form of living no time for
Crisco to think about the new terms, as they were only provided with two days
to decide on the issue. In addition, Bolt denied Crisco a chance to negotiate
the terms of the agreement and instead gave them two options, which include
accepting the terms and maintaining their relationship or rejecting them and
completely cutting the relationship, which also meant completely losing a large
part of their business. It is important to note that Bolt did not have an
intention of breaking their relationship with Crisco as they did not have a
problem with Crisco’s prices or their services. As such, their decision to inform
Crisco of termination of their relationship could be based on the need to
change their terms of operation in order to gain an unfair advantage. Case in
point, as much as there was no need for imposing a rebate considering Crisco’s
prices were not high, the company chose to do so in order to take advantage of
Crisco’s vulnerability.
References
ACCC, 2016. Consumer guarantees. [Online]
Available at: https://www.accc.gov.au/consumers/consumer-rights-guarantees/consumer-guarantees
[Accessed 11 May 2016].
Corones, S. G., 2011. The Australian Consumer Law. New South Wales: Thomson Reuters (Professional) Australia.
Latimer, P., 2011. Australian Business Law 2012. 31st ed. Sydney, NSW: Wolters Kluwer.
Malbon, J. & Nottage, L., 2013. Consumer Law and Policy in Australia and New Zealand. Leichhardt NSW: Federation Press.
Morandin, N. & Smith, J. eds., 2011. Australian Competition and Consumer Legislation 2011. Sydney, NSW: Wolters Kluwer.
Pearson, G. & Batten, R., 2010. Understanding Australian Consumer Credit Law. Sydney: Wolters Kluwer.
