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Class Notes

Contract and Consumer Protection Law

This chapter explores the Australian Consumer Law, including consumer guarantees, product safety, unfair business practices, and legal remedies. It explains how these laws protect individuals and apply across all Australian jurisdictions.

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    CHAPTER 10 - Consumer Protection Law Performance Criteria 1.1 Identify client's circumstances that require advice on contract or consumer law matters 1.2 Research contract and consumer law and related legislation, regulation and practice 1.3 Identify different types of relevant contract and consumer transactions, and clearly outline their legal context, establishment procedures and purpose 1 A Identify legal principles applying to contract and consumer matters that are relevant to client circumstances 2.1 Identify areas of risk in application of law in contract and consumer matters 2.2 Analyse how legal issues impact on different types of business structures and legal entities 2.3 Evaluate relevance to client circumstances and implication of risks for structure, operation and performance of different legal entities 3.1 Collect and collate client's available information for analysis 3.2 Interpret, analyse and process available information to obtain required knowledge applicable to client's circumstances 3.3 Seek advice and guidance of specialist, if required, to interpret, analyse and synthesise client and legal information 3.4 Provide advice to clients based on their circumstances and relevant law 4.1 Review client's circumstances and apply any changes in relevant aspects of contract or consumer law 4.2 Review relevant legal sources regularly and apply any changes in daily work 4.3 Access and use systems for keeping up with changes and maintaining up to date knowledge about relevant legal aspects of contract or consumer law What you will learn in this Chapter In this Chapter, we outline how consumers purchasing goods or services are protected by the 'Australian Consumer Law.' This includes an exploration of the guarantees that come with all transactions between sellers and consumers; product safety requirements; and the unfair business practices that must be avoided. Finally, we examine how the 'Australian Consumer Law' is enforced and the remedies available if it is breached.

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    Chapter Structure 10.1 Introduction to Consumer Protection Law 10.2 Consumer Guarantees □ Guarantees Applying to Goods. □ Guarantees Applying to Services. □ Remedies. 10.3 Product Safety □ Mandatory Safety Standards. 10.4 Business Practices □ Misleading or Deceptive Conduct. □ False or Misleading Representations. □ Pyramid Schemes. □ Pricing. I Unsolicited Transactions. □ Referral Selling. □ Lay-by Agreement. □ Harassment and Coercion. □ Proof of Transaction. I Unconscionable Conduct. □ Enforcement and Compliance. □ Remedies and Penalties. 10.1 Introduction to Consumer Protection Law The development of modern consumer law in Australia has partly been in response to the changes and demands of its social and economic environment. These include; □ mass consumption - commencing in the 1970's and 80's, this social and economic behaviour continues to accelerate and grow exponentially; □ modem marketing techniques; □ constantly evolving technologies; □ readily available consumer credit; □ development of new and complex products. In response to the changing nature of consumerism, during the 1970's and 1980's many acts were passed by the state and federal governments to provide legislative consumer protection, including the state fair trading acts and the very powerful federal Trade Practices Act 1974, (TPA).

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    By 2008 this resulted in an extremely complicated consumer law system spread across the country, involving much duplication and some inconsistency, including 17 state and territory acts in addition to the TPA. Consequently, following the "National Partnership Agreement to Deliver a Seamless National Economy" by COAG, and the Australian Productivity Commission's Review of Australia's Consumer Policy Framework, the federal, state and territory governments agreed to implement a single national consumer law for Australia, which came fully into force on January 1, 2011. The Australian Consumer Law (ACL) is based on the consumer protection provisions of the TPA and supplemented by best practice reforms from the states and territories. The 9 consumer protection regions which already existed have been united into one consistent and cohesive set of rules that now apply across Australia. In consolidating the consumer law framework, the ACL is an "application law". Enacted as a law of the Commonwealth, the states and territories apply the ACL as a law of their jurisdiction, making such a state or territory a "participating jurisdiction". The ACL is drafted to apply to 'persons' so is applicable to any form of business enterprise, including a sole trader, partnership, or corporation. The ACL, found under Schedule 2 of the Competition and Consumer Act 2010 (Cth) (CCA) provides consumers with significant protections when dealing with suppliers and manufacturers. The consumer protection and unfair trading provisions of the CCA have a greater impact on business operators and consumers than any other common law or legislative area. The CCA sets out clear codes of conduct for the Australian business community and contains provisions intended to: □ Limit the growth of monopolies. □ Create a competitive and efficient economy. n Regulate business and trade practices. In this chapter we will examine: □ The guarantees entrenched in all consumer transactions by the ACL as to the quality and durability of goods and the provision of services. □ Product safety. □ Business practices which require compliance. □ Prohibited unfair business practices. I How the ACL is regulated and enforced. The TPA law required consumers to rely on implied terms in the contract for sale of goods and services between a business and a consumer to enforce their rights. The ACL has instead established a series of consumer guarantees, clearly expressed and requiring statutory compliance. (A side effect of which is the elimination of the distinction between conditions and warranties as implied terms in the contracts for sale of goods and services to consumers.) For the guarantees to apply the purchase

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    must be made by a person who falls under the definition of "consumer 'set out in the ACL. Who is a 'Consumer'? Under the ACL, a consumer is a person who acquires: □ Any goods or services up to $40,000; U Any goods or services for personal, domestic or household purposes; or □ A vehicle or trailer for use on public roads. A person will not be a consumer if the person acquired the goods: □ For the purpose of re-supply; or I For the purpose of using them, in trade or commerce; □ In the course of production or manufacture; or □ In the course of repairing or treating other goods or fixtures on land, As can be seen, the focus of the ACL is to protect members of the general public when they make purchases in their day-to-day lives, rather than offering protections for large businesses making commercial purchases. Example Q. Ihab buys a musicbox for the purpose of selling it to Jacqueline in the course of his business. Will the ACL offer him protection? A. No, because the ACL does not apply to goods acquired for the purpose of re- supply. Self-testing Exercise 1 ___ Do the following count as 'consumers' for the purposes of gaining ACL protection? □ Gina buys a car for $52,000. □ Yes, the purchase of a vehicle for use on public roads makes someone a customer (regardless of how much it costs). H AllGoods Pty Ltd is a store that bought bolts to help put together a range of office chairs it is selling. □ No, because a consumer cannot be someone who uses the goods in the course of trade and commerce, to manufacture other goods. H AllGoods buys $700 worth of paper clips and staplers for its staff to use. □ Yes, AllGoods is a consumer (even though they are being used for the purposes of trade and commerce, it is not to repair, treat, produce or manufacture other goods).

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    10.2 Consumer Guarantees Consumer guarantees are imposed by the ACL in all consumer transactions. This means that there are several specific guarantees that must be met by businesses when they sell goods and services to buyers who fall within the definition of a 'consumer' under the ACL. Under s64 ACL it is illegal for contracts to include terms that attempt to remove these guarantees Online Tip: The ACCC has a video online that helpfully outlines the consumer guarantees enshrined in the ACL. Watch it here: http://www.accc.gov.au/content/index.phtml/itemld/957871 Guarantees Applying to Goods Acceptable quality of goods - s54 ACL ACL s54 specifies that if a person supplies, in trade or commerce, goods to a consumer, (not by auction) there is a guarantee that the goods are of acceptable quality. Acceptable quality is defined as: □ Fit for all the purposes for which goods of that kind are commonly supplied; and □ Acceptable in appearance and finish; and I Free from defects; and □ Safe; and □ Durable as a reasonable consumer, with knowledge of the condition of the goods would accept. Durability therefore concerns the life of the goods and will change depending on: □ The nature of the goods. I The price of the goods (if relevant). □ Any statements made about the goods on any packaging or label on the goods. □ Any representation made about the goods by the supplier or manufacturer of the goods; and I Any other relevant circumstances to the supply of the goods. Breach of the guarantee of acceptable quality will not occur where. □ Issues that would otherwise mean that goods would not be of acceptable quality are drawn to a consumer's attention prior to supply. □ The consumer examines the goods prior to agreeing to purchase and that examination ought reasonably to have revealed that the goods were not of acceptable quality. This provision, while intended to clarify what is required is still subject to context and circumstances. What one person may consider reasonably durable for the money, another may not. One must still take into account factors such as the price paid, whether the goods are second-hand and the nature of the goods to determine what

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    can realistically be expected. For example, a used couch that only cost $200 cannot be expected to be of the same quality as a new couch that cost $2,500. Example Barry purchases a toaster from a retailer. The first time he plugs it in and uses it, the taster sparks and triggers his electrical safety switch. The toaster is clearly faulty and does not meet the consumer guarantee of acceptable quality. Helpful Hint: The duration of acceptability depends upon the nature and purpose of the goods - it is clear that goods must remain acceptable for a reasonable time after sale but what is reasonable to some extent relies on how much a buyer pays for the goods, and the nature of the goods. Breach of the guarantee of acceptable quality cannot occur when the consumer knows or should have known of any defects before purchase. Fit for purpose - ACL s55 Tf a person supplies goods to a consumer there is a guarantee that they are reasonably fit for any disclosed purpose and fit for any purposes they are expected to fulfil. Four conditions must be satisfied for this guarantee to apply: □ Has the buyer made known either expressly or impliedly the particular purpose for which the goods are required? □ Has the buyer relied on the seller's skill and judgement? □ Are the goods of a description that it is in the course of the seller's business to supply? I Has the buyer ordered goods under their patent or trade name so that it is clear there is no reliance on the skill and judgement of the seller? So, in determining whether there has been a breach, the court will examine what information the supplier gave to the consumer. That is, a consumer has the right to rely on the skills of the supplier and how they describe the goods. Helpful Hint: This consumer guarantee applies when specific advice is sought from a seller, but it also applies so that goods designed to do a particular job or fulfil a particular purpose do so. For example, if you purchase a printer you do not have to specifically ask whether it can print. That's its purpose. Example Veronica goes to her local hardware shop and asks the hardware assistant for glue that sticks carpet to wood. He advises her that PetGlue will do the job, but she discovers that it does not work, even though she follows the instructions. As the glue is not fit for the purposes that the supplier stated, she is entitled to a refund. However, if Veronica goes to the store and asks for PetGlue by name she will not be able to bring an action against the supplier. This is because she did not rely on the supplier's skills and he did not give her false information about the product.

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    Example Margaret has recently taken up netball and knows she must have shoes with extremely good grip and ankle support. Margaret goes to the speciality sports shop 'Body and Sole' and tells the assistant she specifically wants shoes for netball, but requires advice as she does not know the best kind or brand to buy. The assistant says not to worry; she knows exactly what Margaret needs. Margaret buys the recommended shoes but while wearing the shoes at the very next game, the shoes lose grip on the court and Margaret sprains her ankle badly. It turns out the shoes were simple walking shoes with little grip and ankle support and not netball shoes. Consequently, the shoes and the assistant's actions do not meet the consumer guarantee of fitness for purpose. Case Lavrick v Lease Auto Pty Ltd (2002) FCA 599 The applicant was injured when a wheel of a hired motor vehicle which he was driving came off. He recovered damages for breach of the undertaking as to fitness implied into his hire contract. Correspondence with description - ACL s56 If a person supplies goods to a consumer by description, there is a guarantee that the goods the consumer receives will correspond or match that description. This guarantee commonly applies where the consumer has not actually seen the goods when they decide to buy them, but makes their decision to purchase relying on the seller's description of the goods. Examples include ordering goods from a catalogue or relying on packaging. This guarantee is also particularly important when considering its application to online shopping from Australian sites. Example H Eddie goes to the supermarket to buy cornflakes, his favourite breakfast cereal. He goes to the cereal aisle and finds a box which displays a picture of a bowl of cornflakes and words which describe the contents of the box as a certain volume of cornflakes made with certain ingredients. Without physically seeing or touching the crispy golden flakes, Eddie makes his decision to buy the cornflakes based upon the description of the goods on the packaging.When Eddie returns home and opens the box, he is entitled to expect it is cornflakes as described in the box and not muesli. The goods must match the description. □ Patsy feels the need for some retail therapy and logs on to the Australian website 'Bags Galore'. There she finds a picture of a handbag with many pockets which is described as red leather with silk lining. Patsy purchases the bag, but when it arrives it does not have as many pockets as the picture and is made of plastic, not leather. This is a major failure of the guarantee that the goods should correspond with their description and would entitle Patsy to return the goods and receive a refund. If goods are supplied by description as well as by reference to a sample or demonstration model both guarantees apply.

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    Correspondence with sample or demonstration model - ACL S57 If a person supplies goods to a consumer by reference to a sample or demonstration model there is a guarantee that the goods will correspond or match that sample or model. Basically this means that if a consumer first sees a sample of a good when making their decision to purchase, the goods the consumer receives must be the same in quality, state and condition as the sample and be free from any defect. If goods are supplied in reliance on a sample, the consumer must have a reasonable opportunity to compare the goods received with the sample to ensure they match before acceptance takes place. Example □ Patsy also visited the furniture shop 'Fabo Furniture', where she found a beautiful red couch on display which was exactly what she wanted - the right size, shape, colour and price.When she went to buy it she was told that it was only a display model, and that she would have to order the couch she required. Patsy did so, but when it was delivered it was much smaller and a horrible shade of browny red. Patsy would not have to accept the delivered couch as the seller has not met the guarantee that goods must correspond with description. □ Paul attended an outdoor furniture shop and found the perfect natural wicker table and chair setting for his veranda for $1,500. When he tried to purchase the setting the shop assistant said it was only a display model, and that an actual setting would have to be ordered in and delivered to him. Paul agreed and paid the $1,500 for the setting he had chosen. Paul was very upset when the setting delivered to him was plastic instead of natural wicker, a completely different colour and material to that which he had ordered. Consequently, the furniture shop has not met the consumer guarantee for correspondence with sample. Express warranties - ACL s59 An 'express warranty' is where suppliers or manufacturers make promises about the quality of their goods (e.g. a knife will be able to cut through leather). A 'warranty against defects' ('manufacturer's warranty') promises that certain action will be taken if something goes wrong with the goods (e.g. repair the goods for free, replace the goods). These warranties are treated as consumer guarantees meaning that suppliers and manufacturers are obliged to live up to these promises if they make them. It is important to understand that these manufacturer-made 'express warranties' do not replace the other statutory consumer guarantees provided under the ACL, they are an addition to them. Helpful Hint: An express warranty in relation to goods under s2 ACL means an undertaking, assertion or representation: (a) That relates to: (i) The quality, state, condition, performance or characteristics of the goods; or (ii) The provision of services that are or may at any time be required for the goods; or (iii) The supply of parts that are or may at any time be required for the goods; or

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    (iv) The future availability of identical goods, or of goods constituting or forming part of a set of which the goods, in relation to which the undertaking, assertion or representation is given or made, form part; and (b) That is given or made in connection with the supply of the goods, or in connection with the promotion by any means of the supply or use of the goods; and (c) The natural tendency of which is to induce persons to acquire the goods. Repairs - ACL s58 Consumers are guaranteed an opportunity to have their goods repaired. That is, manufacturers or importers must take reasonable action to ensure repair of goods is available for a reasonable time after purchase. This may include taking such steps as setting up a place for consumers to take items for repair, or ensuring spare parts are available. For example, Jake purchases a table from a manufacturer, Table TopCo. If the leg of the table breaks off soon after purchase, Table TopCo is obligated to provide a way of repairing the table. This does not necessarily mean Table Top Co have to pay for the repairs (it will depend on why the leg broke off, and if there are any warranties in place and so forth) but they have to provide a way for repairs to be accomplished. Online Tip: One of the most common areas of consumer complaint concerns faulty electrical or whitegoods, and how to return them for refund, replacement or repair. You may like to go to the following sites to look firstly at what Choice, the Australian Consumer Associated discovered, and the industry code prepared by the ACCC. https://www.choice.com.au/shopping/consumer-rights-and-advice/your-rights/ articles/ consumer-law-and-extended-warranties http://www.accc.gov.au/publications/electrical-whitegoods-an-industry-guide-to-the- australian-consumer-law Right to title - ACL s51 A seller must have the right to sell the goods. That is, they must have full title (ownership) of the goods, in order to hand them over to the consumer. If they only have limited title, they must make the consumer aware of this. Undisturbed possession and freedom from undisclosed securities - ACL ss52-53 'Undisturbed possession' means that a third party will not claim to be the true owner of the goods or have a right in the goods after the sale has taken place. Further, a consumer has the right to assume when they pay for goods that the goods have not been used as security by anyone else. That is, the goods have not been promised to another as security for a loan. This would mean that another person may be entitled to these goods if the loan is not repaid. If these complications exist, the consumer must be informed of them beforehand for the transaction to be valid. Example

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    Q. Darla sells Alfonso an oven but does not tell him that, she has used the oven as a personal property security to support a loan. Has Darla done anything unlawful under the ACL? A. Yes, she must live up to the guarantee of a Right to Title. This means that if they do not have full title to the goods, they must make the consumer (Alfonso) aware of this. Guarantees Applying to Services - ACL s60 Any services provided to the consumer in the course of trade and commerce must be provided with care and skill. Unless the consumer and service provider have already agreed to a certain time frame for the service to be provided, the consumer is entitled to assume that it will be done within a reasonable time (s62). Self-testing Exercise 2___ □ Katherine buys a camera for $250 and it falls apart after 18 months. Her friend's camera is of a similar make and is still working after 18 months. Her friend paid $170. Does the cost have any relevance in determining whether the camera was of acceptable quality'? H Yes, one can take the cost into account. A consumer is entitled to expect that a more expensive item will last at least as well as a less expensive item. I Ann bought a lamp from Margaret. The lampshade fell apart after a week. Ann wanted a new lampshade for the lamp, but Margaret refused. Has Margaret done anything unlawful? Explain your answer. □ Under s58 of the ACL, the opportunity for repairing broken goods has to be made available by Margaret. Margaret should, therefore, have spare parts available for Ann. □ Bindy agreed to mow Ally's lawn as part of her business. Bindy showed up 4 months after their agreement to do the job. Has Bindy done anything unlawful? Explain your answer. □ Bindy has acted unlawfully. Services should be provided within a reasonable time (unless Ally and Bindy came to some other arrangement of when the lawn should be mowed) (s62 of the ACL). Remedies When consumer guarantees are breached, there are several remedies available. The remedy will depend on which guarantee was not met, and the surrounding circumstances. Remedies Relating to Goods If there are 'major failures' (i.e. defects) with goods, the consumer can choose to: □ Obtain a refund. □ Obtain an identical replacement. □ Detain the goods and get compensation for the problem.

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    □ Have the goods repaired (ss260-261, ACL). 'Major failures' may be found in situations where the goods are unsafe, unfit for use, significantly different from the description, or where the reasonable consumer simply would not have bought the goods if they knew about the problem. A consumer will not have the right to a refund or replacement where the rejected goods cannot be returned (e.g. they have been thrown away or lost) or where too much time has passed (this will depend on several factors including how long the goods could reasonably be expected to be useable). If a consumer wants the goods repaired, the supplier must fix the goods within a reasonable time. If they refuse or take too long to fix the goods, the consumer may take the goods elsewhere to be fixed, and request that the supplier pay the costs. Where the failures are minor, the consumer cannot automatically demand a refund if the goods can be repaired within a reasonable time. In this situation, the choice is up to the supplier, whether they will go ahead with the repairs or offer some other remedy such as a remedy or replacement. Example According to the ACCC Electrical/ Whitegoods Guide to Industry Code the following would amount to major failures with a product: H When a reasonable consumer would not have bought the product if they had known about the problem - e.g. no reasonable consumer would buy a washing machine if they knew the motor was going to bum out after 3 months. □ The product is significantly different from the description, sample or demonstration model shown to the consumer - e.g. a consumer orders a red food mixer from a catalogue, but the mixer delivered is green, □ The product is substantially unfit for its normal purpose and cannot be made fit within a reasonable time - e.g. an underwater camera turns out not to be waterproof because it is made from the wrong material. □ The product is substantially unfit for a purpose that the consumer told the supplier about, and cannot be made fit within a reasonable time -e.g. a video card is unsuitable for a consumer's computer, despite the consumer telling the supplier the computer specifications. □ The product is unsafe - e.g. an electric blanket has faulty wiring. U Where there is a minor failure that can be fixed but is not actually fixed within a reasonable time. Determining what constitutes a reasonable time will vary depending on the circumstances of each case such as; o Whether the product is new or second-hand. o How many times repair of the fault has been attempted. o The nature of the fault and whether it can be identified. If several attempts have been made at repair, this indicates the original assessment may have been wrong and the fault was not one that could be fixed within a reasonable time. The consumer would therefore be entitled to the remedies for a major failure.

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    Remedies Relating to Services When there is a 'major failure' with services, the consumer can: H Obtain a refund; or □ Seek compensation for what went wrong with the service provided (s267, AL). A 'major failure' with services may be found in situations where the services have created an unsafe situation (e.g. a tradesperson has not properly secured a fence), are substantially unfit for the purposes for which they were sought (e.g, a caterer did not have the proper facilities to provide food for the number of people at an event) or the reasonable consumer would never have sought these services if they knew about the problems involved. The amount refunded for poor services provided, will depend on whether all or part of the services were deficient. For example, a plumber who fixes the toilet properly but the sink improperly will only have to refund money for the sink repairs. They can keep the amount paid for the toilet repairs. Consequential Loss If loss occurs as a consequence of a consumer guarantee not being satisfied, the consumer can claim for compensation. For example, if the colour on a raincoat runs onto clothes someone is wearing underneath, the supplier is liable, not only to refund the money for the raincoat (or another remedy for faulty goods as discussed above), but also for the consequential loss of what happened to the person's clothes. Manufacturer's and Importers' Liability When consumer guarantees are not satisfied, one normally takes it up with the supplier. There are a few instances, however, when it will be more appropriate to take action against the manufacturer. Specifically, remedies can be sought against manufacturers when: □ The goods are not of 'acceptable quality; □ The goods do not match their descriptions; I There was no acceptable opportunity for repairs available; or □ They did not live up to an express warranty (if one was provided). The manufacturer is only liable if they were the ones responsible for these guarantees not being met. For example, if the goods were damaged in the store, then it is not the manufacturer's responsibility if they are now not of "acceptable quality'. The effect of ss271 and 272 ACL is to make manufacturers concurrently liable with the immediate supplier of the goods where the required conditions are met. The manufacturer must also indemnify any supplier who may be required to pay damages to a consumer as a result of a liability of a manufacturer under a consumer guarantee. These terms cannot be excluded.

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    To be the manufacturer of the goods, a person must either: □ Manufacture the goods. □ Hold themselves out to the public as the manufacturer of the goods. □ Cause or permit its business or brand name to be applied to the goods. Fl Cause or permit another to hold it out to the public as the manufacturer of the goods; or □ Import the goods from a manufacturer who doesn't have a place of business in Australia - the importer is then liable as if they were the actual manufacturer of the goods. Product Liability of Defective Goods SI 38 of the ACL imposes strict liability on manufacturers and importers of defective goods that cause personal injury or property damage so there is no need to prove negligence. If the goods have a defect and an individual or their property (including goods and land, buildings or fixtures) is injured or damaged because of the defect, the manufacturer is liable to compensate the person suffering the loss. In determining the extent of safety of the goods, the court must take into account all the relevant circumstances, including: □ The manner in and purposes for which the goods have been marketed: □ The packaging of the goods. □ The use of any mark in relation to them. □ Any relevant instractions or warnings. □ What could reasonably be expected to be done with the goods; and The time when the manufacturer supplied the goods. The manufacturer may be liable to compensate: I An individual who is injured (si 38). □ An injured third party, such as a bystander (si 39). □ A person for damage to personal, domestic or household goods (si 40); and □ A person for damage to land, buildings or fixtures (s141). The duration of a manufacturer's liability is such that the consumer has a right to bring an action at any time within three years after the day on which the cause accrued, with an absolute limit of 10 years from the date of the first supply of the goods. Defences of Manufacturers and Suppliers (si 42) □ The defect didn't exist at the time the goods left the manufacturer, but occurred elsewhere in the distribution chain; □ The goods had the defect only because they complied with a mandatory standard. □ The defect couldn't have been discovered at the time of supply because the state of scientific or technical knowledge wasn't capable of detecting that type of defect; and □ The goods formed part of other goods and the defect is attributable only to the design of the finished goods. If a defective part is incorporated into finished

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    goods, making the finished goods defective, both the component and the finished goods manufacturer will be liable to pay any compensation for any loss that may occur. Commercial Tip: Among the ACL reforms therefore is the right to insist that a supplier (including an importer) resolve a problem with a product, rather than referring the customer to the manufacturer. If a customer does take the issue up with the supplier (e.g. demand a refund) that supplier may be entitled to then seek a remedy from the manufacturer (e.g. demand reimbursement for the refund). Case Glendale Chemical Products Pty Ltd v ACCC (1998) FCA 1571 Mr Barnes purchased an acidic cleaning soda, 'Drano', to clear out a blocked drain. The instructions on the product advised users to dissolve the soda in water but did not specify whether hot or cold water should be used. Barnes combined the soda with hot water in the drain resulting in the mixture shooting up from the narrow pipe burning his face and eyes. The court held that the manufacturers of 'Drano' were liable for the bums suffered by Bames because of the inadequate labelling. He was entitled to know the dangers associated with use of this product. Case Effem Foods Ltd v Nicholls (2004) NSWCA 332 The manufacturer of a chocolate bar was found liable for failing to make goods of merchantable quality when a consumer was injured by a safety pin in the chocolate bar she consumed. Limits on Compensation Suppliers and manufacturers are entitled to claim that only certain remedies will be available where guarantees are breached with respect to non-domestic goods (e.g. goods that are used for business purposes). That is, for goods not used for personal or household purposes, suppliers and manufacturers can claim that only refunds are available, or only replacement is available, and so forth. Suppliers and manufacturers must ensure, however, that these limitations are 'fair and reasonable' (s64A). Example Q. Penny purchases a new football scarf which carries the AFL endorsed label. It turns out the label is a fake so she is now demanding a refund. Should Penny claim against the supplier or the manufacturer? A. Penny can demand a refund from either. It would probably be easier to go to the supplier from whom she purchased the scarf than to try to track down the manufacturer. Self-testing Exercise 3

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