A consumer, by definition, is one who uses goods and services provided by others; in order to obtain food and shelter, denizens of modern communities are thoroughly immersed in consumerism and we expect the goods or services purchased to meet certain standards of functionality. It bears note that these expectations have only recently been recognised by governments worldwide, as consumerism is also a relatively new phenomenon. In centuries past, communities were much more insular - due to agrarian (subsistence) lifestyles, less efficient transportation and minimal specialisation (prior to the evolution of industry and the complexities of modern trade), bartering systems were sufficient and individuals could be held to be personally accountable for goods they produced or services they offered. Obviously, this is no longer the case.

Under monarchical systems, the state was only concerned with the flow of wealth as far as taxation was concerned. This system, predominant in the 18th century AD, is now known as the laissez-faire philosophy. It essentially proposed that the state did not have a responsibility to offer any kind of regulation as market forces would favour good traders and abandon the unqualified or negligent - although it was fair in the sense that it regarded everyone as being equal, the notion of caveat emptor (‘let the buyer beware’) meant that no legal remedies were available for those who had purchased faulty goods or inadequate services, save where the seller actually made a false statement about the nature of the goods. Additionally, the system favoured the wealthy as few disenfranchised people could afford to undertake legal processes, which is the fundamental reason why protection of direct consumers and those otherwise affected by a defective product is necessary.

So, here we are in the modern world. Trade is becoming increasingly globalised and consumers lack the ability to personally hold the seller of a particular item responsible for their actions - hence, the Australian government incorporated certain principles from common law and British statutes into legislation which offered protection for consumers. Examples of this include the Sale of Goods Act 1923 (NSW) (which is a collection of common law principles relating to the rules which apply when ownership of goods is transferred), the Motor Dealers Act 1974 (NSW) (which provides statutory warranties for motor vehicle defects and regulates dealers), the Trade Practices Act 1974 (Cth) (which collects yet more common law principles and regulates dealers) and the Fair Trading Act 1987 (NSW) (which was intended to overcome certain constitutional limitations within the Trade Practices Act 1974 (Cth), providing consumer protection fully throughout New South Wales and accommodating for interstate trade).

The state places specific requirements upon producers and sellers - the presence of nutritional information on food products is evidence of this, as well as denotations of testing and quality control (eg motor vehicles), if such there be. It is worthy of note that enforcement of these requirements reduces the freedom of expression given to producers, but the intent is to prevent deceptive marketing practices. These are set out in the Trade Practices Act 1974 (Cth); I call them the Ten Commandments:

  • Section 52: “A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive.”
  • Section 53: “A corporation shall not make false representations in connection with the supply or promotion of services” (as far as quality, past use, benefits, price, origin and warranties are concerned). The case of Gardam v. George Wills and Co. Ltd. (1987) reprimanded the seller for mislabelling children’s bedtime garments as “styled to reduce fire danger” when in fact the opposite was true.
  • Section 53B: “A corporation shall not engage in conduct which would mislead a person about the availability and conditions of employment.”
  • Section 56: “A corporation shall not engage in bait advertising” (the suggestion that certain goods are available for a certain price, when in fact few or no goods of that ilk are available and the promise was merely made as an enticement).
  • Section 57: “A corporation shall not offer discounts or other benefits to a consumer if it has offered the discount in exchange for the names of other potential customers.”
  • Section 58: “A corporation shall not accept payment for goods or services unless it intends or is able to supply as ordered.”
  • Section 60: “A corporation shall not use physical force or undue harassment in connection with the supply or payment of goods and services.”
  • Section 61: “A corporation shall not promote pyramid selling” (a practice in which a person pays an initial fee in order to sell the scheme to others. The promise is then made - but rarely fulfilled - that the person will receive a percentage of the profits at a later date. This scheme relies on an unlimited supply of consumers and wealth and is therefore absurd). The case of the Trade Practices Commission v. Parker (1990) reprimanded the latter for his selling scheme (‘pay $125, receive $1000’).
  • Section 63A - “A corporation shall not send an unsolicited credit card to a person.” Section 64: “A corporation shall not send goods to a person and then assert a right to payment.” These rules form the basis of the checks and balances placed upon producers, although the case of Taco Co. of Australia Inc. v. Taco Bell Pty Ltd 1982 is of note as it also prevented companies operating under names which could disadvantage the gullible or less intelligent.

    There are several other statutory standards - set by the Trade Practices Act 1974 (Cth), the Sale of Goods Act 1923 (Cth) and the Fair Trading Act 1987 (NSW) - which are:

  • The seller has the right to sell a good and the purchaser has the right to use of that good without fear than another person will claim ownership.
  • Goods which have been sold by a description will be identical to that description.
  • If a buyer makes known to the seller that they desire a good for a particular purpose and are relying on the seller’s judgement, the goods provided must be fit for that purpose.
  • In a sale by description, where a seller commonly deals with particular goods, those goods must be of merchantable quality.
  • In a sale by sample, the bulk of goods must correspond with the sample.
  • The laissez-faire philosophy would suggest that these protective measures are unnecessary, but the simple fact is that a consumer may not be able to determine the quality of a service or good before it is purchased; in the case of a service such as dentistry or medical care, this lack of knowledge can cause great damage. The case of The Moorcock 1889 denoted the fact that service providers must have reasonable knowledge about the service they offer and be accountable for any shortcomings.

    The terms of a sale:
    A contract is the formal acknowledgement of a trade. The elements which must exist for a contract to be valid are intention (discounting domestic or purely social matters, which are too informal to be considered contracts), agreement (a set of terms which dictate the nature of the contract and statements of acceptance) and consideration (payment/compensation); each party must provide something to the contract. The signing of a contract indicates that both parties are bound by its terms (determined by L’Estrange v. Graucob Ltd. 1934), although oral contracts may also be recognised if there is sufficient evidence of their existence. Contracts are, therefore, recognised as a consensus between two or more parties in which the obligations in that agreement are legally binding and enforceable against each of the parties.

    Included in contracts are such things as conditions (the terms of the contract which, if breached, may permit the rescission of the contract and/or litigation), warranties (less fundamental obligations) and exclusion clauses (attempts to maintain the stability of the contract via notification of hypothetical problems); the case of Balmain New Ferry Co. Ltd. v. Robertson established that if reasonable notification is given, an exclusion clause is as binding as any other element of the contract. Obviously, the myriad technicalities of a contract are impossible to fully accommodate expressly and so there are a number of implied terms within contract formation. Courts may construe that terms were implied in a contract if those terms are reasonable and equitable, patently obvious, likely to cure an obvious omission and consistent with the expressed terms of the contract. One such breach of implied terms was the case of Grant v. Australian Knitting Mills 1936, wherein a set of woollen undergarments were described as being safe to wear without washing. Dr. Grant contracted a life-threatening form of dermatitis as a result of wearing them (due to chemical residues which could have been removed by washing) and the Privy Council decided that the goods were therefore obviously unfit for wearing next to the skin (the only discernible purpose for such items).

    Some individuals are legally prohibited from entering into contracts, including minors (under the Minors (Property and Contracts) Act 1970 (NSW) - if the contract is clearly to the minor’s benefit, there is some leniency), those with a severe mental disability (under the Contracts Review Act 1980 (NSW) - this is true regardless of whether the disability is temporary or permanent), the bankrupt (the Bankruptcy Act 1966 (Cth) places restrictions on their contractual capacities) and unincorporated clubs or associations (which have no substance before the law, irrespective of claims to represent particular groups of people). As a safeguard against deceptive contracts, cooling-off periods (of varying duration, depending on the nature of the contract) allow a purchaser to rescind a contract if they find it to be disadvantageous. For instance, a cooling-off period of ten days is available under the auspices of the Door to Door Sales Act 1967 (NSW), five days under the Conveyancing Act 1919 (NSW) (relating to the sale of land) and fourteen days under the Insurance Contracts Act 1984 (Cth) (allowing deliberation over whether to continue with a life insurance contract).

    Protection and rescission:
    Another safeguard is the use of occupational licensing, designed to provide the seller with credentials (and a correspondingly greater degree of esteem) and the consumer with protection against poor services. The theory is that licensed traders will develop a stronghold over the market and those less devoted or skilled traders will be forced out (with the added bonus of fees taken by the government). In some cases, industries employ self-regulation, meaning that there is very little outside interference. While this would ideally mean that the standards of work are set by professionals who are likely to know more about their respective crafts than the government, it also means that the self-regulating body has absolute power over the industry and may have abysmal work standards and many opportunities for corruption are opened. Conversely, state regulation may be unwieldy and inefficient, although there is no inherent self-interest and decisions are more easily traceable. Licenses may be refused if the licensing body doubts the skill or moral character of the applicant. The motor industry is infamous for devious dealing and so is bound by both the Motor Dealers Act 1974 (NSW) and Motor Vehicles Repair Act 1980 (NSW). Disputes may be settled by the Commissioner for Consumer Affairs or other bodies applicable to particular industries.

    Remedies are available for instances where a contract has been breached. These include damages (monetary sums intended to restore the parties to their initial condition, more or less; Hadley v. Baxendale (1854) established that damages incurred outside the offending party’s knowledge - i.e. under special circumstances - were invalid), an injunction (a court order designed to restrict one party from undertaking a particular action which is contrary to the agreement), a specific performance (according to contractual obligations - examples could include a concert or stage play), restitution (repayment for the unjust enrichment of the defendant), rectification (the modification of the contract in order to acquiesce to the wishes of all parties) or rescission (where the contract is officially brought to an end; terminated; nullified). Applications for assistance in unjust contracts can be made to the Commonwealth Department of Consumer Affairs and the State Department of Fair Trading, although it is usually best to negotiate more favourable terms with the seller/other party to the contract.

    A contract may be rescinded if it was made under duress (an illegitimate threat used as a coercive measure by one party - the case of Barton v. Armstrong 1976 established that a contract made under duress may be declared invalid even if both parties benefit), undue influence (where someone in authority, such as a doctor to a patient or a lawyer to a client, unfairly dominates the other party in order to obtain favourable terms), unconscionability (disadvantaging one party by virtue of mental disability, gullibility or linguistic barriers - such as the case of Commercial Bank of Australia Ltd. v. Amadio 1983. These cases are dealt with by the Contracts Review Act 1980 (NSW)). If the court determines that a contract is unreasonable (by virtue of economic circumstances, inequality in bargaining power, linguistic intelligibility, past conduct of the parties or unreasonable contractual expectations) then it is able to rescind a contract according to section IVA of the Trade Practices Act 1976 (Cth).

    And now we’re on to financing purchases - with credit, that is. Section 5 of the Credit Act 1984 (NSW) describes credit as “any form of financial accommodation in which a person is able to borrow money or credit in return for a promise to repay with interest.” This is usually done when a person does not have sufficient savings to immediately purchase an item (and desires to) or when that person does not desire to draw upon their savings. This has always been a risky proposition - the creditor may lose their money and the debtor may find themselves in financial turmoil, especially if they do not understand the nature of the transaction or the creditor unilaterally increased the interest rate. Occasionally, a debtor will give the creditor ‘security’ (the right to seize a particular piece of property in the event of a default). The Credit Act 1984 (NSW) is therefore designed to:

  • Provide detailed regulation of a contract (including formulation, content and rights of both parties) for the supply of non-commercial consumer credit up to $20,000.
  • Restrict the financier’s rights in the event of a default.
  • Increase the amount of information finance companies are required to provide in order to make the debtor clearly aware of their responsibilities and rights.
  • Preserve the Contracts Review Act 1980 (NSW) and the court’s ability to scrutinise and modify consumer contracts.
  • There are three kinds of (regulated) contract under the Credit Act 1984 (NSW):

  • A credit sale contract, wherein goods and services are sold by the company which provides the finances. Interest is charged on sums less than $20,000 for use of the credit and must pay the credit back in either four months or five instalments.
  • A loan contract, wherein the debtor obtains a sum of money less than $20,000 and must pay that sum back in either a set period of time (eg 3-4 years) in equal instalments at an interest rate greater than 8%.
  • A continuing credit contract, wherein the company provides credit up to $20,000 to the debtor over a continuing period so as to allow the debtor to purchase various goods and services with the credit (at an annual interest rate greater than 8%). A credit card is a prime example of this type of contract.
  • The Uniform Consumer Credit Code, introduced in 1996 to all states and territories save Tasmania, was an attempt to introduce consistent credit laws throughout the entire country - applicable to almost all businesses which provide credit, not just financial institutions - and was agreed to by the signatory states and territories under the Uniform Credit Laws Agreement 1993. The NSW parliament enacted this agreement with the Consumer Credit (New South Wales) Act 1995 (NSW) (alongside other states, which have introduced very similar legislation). The few exemptions to the Code include instalment payments for insurance premiums and credit provision of sixty-two days or less. Furthermore to these countermeasures, credit providers pursuant to the Credit Act 1984 (NSW) must be licensed (see above) and registered (under the Credit (Administration) Act 1984 (NSW); debtors have no obligations to unlicensed creditors and the latter may be fined). These licenses are issued by the Commercial Tribunal. Pawnbrokers and similar dealers have their own legislative obligations apart from these.

    Finally, there are some fundamental rights and available remedies for both borrowers and lenders: Borrowers:

  • The borrower must be told complete details about the contract (including the date, a description of the service offered and its price, the dollar amount of repayments, the credit charge, the total price including interest, the annual interest rate and the period of time involved in paying the credit back to the company). The debtor may not be required to repay the sum if any of these conditions are breached.
  • Misleading and deceptive advertising (see above) is prohibited.
  • Credit hawking (i.e. approaching potential borrowers, rather than the reverse, is prohibited).
  • The contract must be documented and signed by the debtor.
  • The borrower must receive a complete copy of the contract.
  • The borrower must be aware of whether any security is attached to the contract.
  • The Contracts Review Act 1980 (NSW) is available to remedy an unjust contract.
  • There is a maximum interest rate which can be set.
  • The borrower is entitled to a written statement of account at any point while the contract stands.
  • The borrower and guarantor must receive at least one month’s notice in the event of repossession.
  • Repossession of an item which has been repaid 75% or more must be approved by the Commercial Tribunal.
  • The borrower has the right to vary the contract in the event of hardship (so they may be better able to repay the outstanding sum).
  • The Contracts Review Act 1980 (NSW) gives the borrower the right to have the contract varied.
  • The borrower has some limited rights as far as selling the security item is concerned (in order that the open market may offer a better price and allow the debtor to pay off a larger portion of the debt).
  • Lenders:
  • Borrowers must tell the complete truth about relevant financial details.
  • Lenders must be paid according to the contract’s terms.
  • Lenders may repossess goods after due process in the event of a default.
  • Lenders may vary the terms of a continuing credit contract if they provide twenty-eight days notice.
  • Take legal action against borrowers if the contract is breached.
  • Complicated; very, very complicated. Personally, I’d suggest that it’s advisable to adhere to the adageneither a borrower nor a lender be’ wherever possible...

    Information derived from Heinemann Legal Studies textbook, written by Michael Brogan, Wayne Gleeson, Tony Foley, Veronica Siow and Therese Ejsak for the NSW HSC syllabus.

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