Australian Consumer Law
Instructions:-
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:
- The Bolt Worldly advertisement is in contravention of any provisions under the ACL.
(500 words) - Bolt is in breach of the guarantee provisions under the ACL. What rights or remedies (if any) are available to Hannah?
(500 words) - Bolt has engaged in any prohibited conduct under the ACL in relation to their dealings with Crisco?
(500 words)
Solution
Australian Consumer Law
The Bolt Worldly advertisement is in contravention of any provisions under the ACL.
Chapter 2, Part 2-1, Subsection 1 of the Australian consumer law provides that no person should engage in commerce or trade or any conduct that is considered to be deceptive or misleading to the public (Corones, 2011). As such, organizations and people engaging in business are required to provide consumers with information that is correct concerning their products. Such information should include information that is labelled on the products together with any information that is used to advertise the products. The Worldly advertisement by bolt contravenes this provision as it offers individuals with false information concerning the mobile phone. It is clear from the case that in as much as the advertisement mentions that the mobile phone was made by Australians for Australians, a less clear statement has been included at the bottom of the advertisement indicating that the phone was manufactured in Thailand. This is a clear indication that Bolt did not want the consumers or readers of the advertisement to see the country of origin of the product and to believe that it was manufactured in Australia. As such, the placing of the first statement about the phone being made by Australians in bold and the deliberate writing of the second statement about the true origin of the phone in faint and small print is likely to deceive or mislead consumers.
In addition, Bolt deliberately increased the prices for two days prior to the advertisement in order to reduce them to their initial price and indicate that the prices had fallen. This is meant to deceive the consumers and to draw in more customers who are likely to demand the product based on the discount, when the price offered is the actual and initial normal price of the product (Malbon & Nottage, 2013). Lastly, in as much as the advertisement insists on the mobile phones low radiation rating, it is clear that the company has never done any radiation tests on the phone and hence has no grounds for establishing this finding. As such, the company also intended to deceive the consumers on this aspect in order to draw more consumers towards the product and to increase sales as this would allow it to achieve an increase in terms of its profit margin. Part 3-1, Subsection 1 of chapter 2 of the Australian Consumer Law further explains the various actions that may be considered as misrepresentations or misleading under the law. Part (a) of subsection 1 considers it a contravention of law if any person is to offer misleading representation with regards to the quality, standard, value, composition, grade, model, or style of a product (Malbon & Nottage, 2013). The information concerning the Worldly’s 20% radiation levels contravenes this provision. Part (i) of subsection 1 also prohibits individuals from making misleading representations with regards to the prices of products or services. The price changes and proclamations made by Bolt with regards to the Worldly mobile phones is a contravention of this provision. Part (k) of Subsection 1 also provides that persons should not make misleading or false representation with regards to the place of origin of certain goods. Bolt contravenes this provision when they place and emphasis on the place of origin of the Worldly mobile phone as being Australia, when it is actually Thailand. As such, bolt are liable for providing consumers with information that is misleading and deceiving under the Australian Consumer Law.
Bolt is in breach of the guarantee provisions under the ACL. What rights or remedies (if any) are available to Hannah?
Bolt is in breach of the guarantee as to the fitness of the computer offered to Hannah for the purpose that she had disclosed to the salesperson prior to purchase, under the Australian Consumer Law. Under Section 55 of the ACL, it is clear that if any supplier supplies certain goods to a consumer in a commerce or trade, there is a guarantee that such goods are fit in a reasonable way to a disclosed purpose to the supplier, provided the supply is not carried out by manner of auction (Pearson & Batten, 2010). When Hannah and her friend visited Bolt’s shop and inquired about a laptop disclosing the purpose to which she wanted one as being so as to record her lecture notes which would require a battery that lasts more than eight hours, it was the responsibility of Lily, the saleswoman to provide her with the correct information concerning the laptops and to suggest one that befits Hannah’s descriptions. Any purchase that Hannah was to make was based on her trust that the information provided by Lily was in congruence with her requirements as Lily was in a better position to understand the products.
In addition, Section 56 subsection 1 provides consumers with the guarantee of supply by description. In this case, it is expected that any goods supplied by a person to a consumer in commerce or trade should correspond with the provided description (Morandin & Smith, 2011). Lily, Bolt’s saleswoman contravened this provision through the description she provided Hannah concerning the new Bolt BP. Lily informed Hannah that the Bolt BP had a battery that lasted up to twelve hours without the need to charge, when the laptop only lasted four hours after being purchased by Hannah. As such, it is clear that Lily only said that to Hannah to make a sale. It was expected of Lily as a representative of Bolt to offer information that corresponds to the actual state and nature of the products on display in order to help Hannah make an informed decision on whether to purchase any of the products or not. Considering the fact that the offered product was not according to the purpose disclosed by Hannah to Lily, it was important for Bolt to either offer Hannah a replacement that meets the initial description, or refund her the money. However, Bolt failed to do this and instead showed Hannah a notice that described an encumbrance that comes with the product. It is important to note that through this move, Bolt contravened the provision under section 54 of the ACL, which involves the guarantee with regards to undisclosed securities. In this case, the law provides that if an individual supplies goods or products to a consumer, the latter’s good are guaranteed freedom from any security in the case where no encumbrance security, or charge is disclosed in writing to the consumer prior to the agreement to the supply or without the consumer’s consent (Morandin & Smith, 2011). This was the case in Hannah’s case as Lily did not inform her of the encumbrance underlying the purchase of the Bolt BP.
Bolt has engaged in any prohibited conduct under the ACL in relation to their dealings with Crisco?
According to section 154 subsection 1 of the Australian Consumer Law, it an offense for a person to offer a gift, rebate, prize, or any other item in commerce or trade, if such an offer is aimed at obtaining favors in relation to the possible supply or supply of services or goods, or, by any means, the promotion of the use or supply of services or good (Latimer, 2012). Bolt contravened this provision in their dealings with Crisco by asking for a rebate that would allow them to commit to their relationship with Crisco. In as much as they had made arrangements that saw Crisco supply them with goods that were important for their business, Bolt chose to engage in unfair practices that would threaten the safety of the business conducted by Crisco. As such, it was clear from the company that they were ready to let go the long-term relationship that they had established with Crisco in order to be able to seek similar services elsewhere. Nevertheless, the grounds upon which they were willing to reconsider their relationship were fixative and dependent on Crisco’s ability to grant them a rebate in order to retain their business with Bolt.
Crisco were pushed against the wall and had no
alternative than to agree to the terms considering the little time they had be
granted top consider the matter and the denied chances for negotiation. Supply
arrangements are expected to be organized on fair grounds, whereby the selected
supplier qualifies, more than any other bidders on the deal, to be granted the
supply deal and that there are no practices of corruption and favoritism that
are involved in the process of establishing a supply arrangement (Morrison,
Abraham, & Sheargold, 2010). As such, it is
clear that Bolt is liable under the ACL for asking Crisco to offer them a
rebate in order to secure a supply deal as much as it is liable for ending its
arrangement with Crisco unfairly. On the other hand, under the same law, Crisco
is also liable for accepting to provide Bolt with a rebate in order to secure
their deal with them as it is important for their business. Under the ACL,
unfair businesses practices such as rebuttal of established contracts among other
legal arrangements on grounds that arte substantiated by law may lead to legal
penalties among other consequences. Subsection 2 of section 154 of the ACL
provides for penalties for individuals who contravene subsection one of the
same section of the law as earlier explained. In cases where the party that
contravenes this law is an organization, a penalty of $1,100,000 is imposed,
whereas for individuals a penalty of $220,000. Being an organization, if Crisco
proceeds to place charges against bolt for asking them to pay a rebate on
unfair terms in order to secure the supply deal, the court may find Bolt liable
under section 154 subsection 1 of the ACL and impose on them a penalty of
$1,100,000.
References
Corones, S. G. (2011). The Australian Consumer Law. New York: Thomson Reuters.
Latimer, P. (2012). Australian Business Law 2012. Sydney: CCH Australia, Limited.
Malbon, J., & Nottage, L. (2013). Consumer Law and Policy in Australia and New Zealand. New South Wales: Federation Press.
Morandin, N., & Smith, J. (Eds.). (2011). Australian Competition and Consumer Legislation 2011. Sydney, NSW: CCH Australia, Limited.
Morrison, A., Abraham, R., & Sheargold, M. (2010). Antipodean Alignment: Impact of the Proposed Australian Consumer Law. Defense Counsel Journal, 77(3), 353-365.
Pearson, G., & Batten, R. (2010). Understanding Australian Consumer Credit Law. Sydney: CCH Australia, Limited.
