May 8, 2015
In a recent commercial litigation matter we handled, a considerable dispute arose when our client – a large construction contractor – was provided with the wrong trade materials by their supplier (special paints and sealants with specific attributes), causing all sorts of problems for them, and ultimately, the loss of a great deal of money from their job at the time. They naturally refused to pay and the seller approached the Court to enforce the sale agreement, relying on the seller’s terms and conditions, which included an exclusion clause they claimed barred our client from either refusing to pay or cross-claiming for damages for breach of contract for providing the wrong, or faulty, goods. The outcome would have been unjust, so of course, we fought back.
As you might now, there is consumer law in Australia that protects us from the dodgy practices of sellers, or even some of their innocent mistakes. For example, a seller can’t be misleading or deceptive, or unconscionable, in relation to the sale of its goods or services, their goods or services must be of an acceptable quality and fit for their stated purpose, and so on. Further, these laws aren’t capable of being contracted-out, meaning the seller’s terms and conditions can’t displace them or shift the burden of liability back onto the consumer. It sounds great, but it doesn’t apply to everyone…
Those laws are designed to protect consumers with little bargaining power only, and not really those who are considered sophisticated enough to fend for themselves. The legal rationale is that people should be free to strike their own bargains, but in the case of the vulnerable, some intervention is required to protect against the unscrupulous. So, the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth) (“the ACL”), which superseded the former Trade Practices Act 1974 (Cth) and most of the Fair Trading Act 1987 (NSW), as far as relevant in this context) generally only applies if:
1. The price is under $40,000; or
2. Where the goods or services are for personal, domestic or household use or consumption; and
3. Where the goods or services are not for the purpose of re-supply or for use or transformation in the course of trade or commerce.
For example’s sake, someone who buys a car for $50,000 would not be protected, even if the car was only for personal use. More relevantly, any business, from a solo tradie to the local milk bar, is excluded, even if the cost of the goods or services are much lower and the ultimate use of their customers purchasing the goods is household or domestic in nature. It seems highly unfair…
A lot of people forget about the Sale of Goods Act 1923 (NSW) (“the SOGA”), which can help where the consumer law isn’t an option. While it doesn’t contain the entire spectrum of protections and cover all the situations that the ACL does, it will still generally extend to cover our two examples in the preceding paragraph, and other similar situations.
Similarly, a lot of people don’t understand that verbal agreements are still enforceable, irrespective of the SOGA, and the SOGA relates not only to written contracts, but also verbal agreements. In fact, it goes a step further by implying conditions or warranties even into verbal agreements. The effect of this is that those warranties become central, enforceable terms between the parties. For example, where there is a sale of goods by description, such as in our case where we ordered “the same paint we’ve been ordering for years with the same consistency and property that doesn’t wreck our work or our machines”, there is an implied condition that the goods will correspond with the description. Further, where the buyer tells the supplier, or at least implies, that they are relying on the skill and judgment of the supplier in selecting and purchasing their products, and it is a sale of goods by description, there is an implied condition that the good will be fit for their purpose and that they will be of merchantable quality. The latter condition can also be implied from the course of trade over a period of time.
As with most things, there are exceptions, but generally speaking, if the goods are not as described, or not of sufficient quality to achieve their purpose, the buyer will be entitled to refuse to accept delivery and / or reject the goods. Further, even if the buyer wasn’t in a position to reject the goods, for example because they couldn’t have possibly known of their shortcomings until they used them up in trade, they will still be entitled bring an action against the seller to negate their obligation to pay and also to claim any damages that ensued from the use of the goods or the buyer’s failure to deliver the correct goods. Of course, sellers also have rights against buyers where the goods are as described and otherwise conform, and where the seller hasn’t paid, including the claiming of a lien (holding them as security) or a right of resale.
However, unlike the ACL, the SOGA can be contracted-out of, meaning the seller’s terms and conditions can exclude all of these rights and obligations, even for sales by description. The only way this can be done though is by express agreement between the parties, meaning often, there are loopholes to be exploited, as we found in our case.
So, the moral of the story is, as a purchaser looking to team up with a long term or substantial supplier, you will save yourself a world of trouble by having the seller’s terms and conditions reviewed. If they really value your business, they will accept agreed amendments, such as the removal of any clause that excludes the SOGA. After all, the fall-back position is that the SOGA applies, and if a seller stands by their product, there should be no risk to them in allowing the law to take its course. On the other hand, if you’re a seller, make sure your lawyer has a keen attention to detail and heightened drafting skills, or you’ll feel the pain down the track.
As always, we welcome any contact regarding this or similar issues.