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Electrix Pty Ltd: Australian Consumer Law Add in library

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Questions:

Question 1

Mary buys an expensive food mixer for $4000 from Electrix Pty Ltd. The mixer worked perfectly well as a domestic appliance, but proved to be useless in the new Coffee and Cake outlet that the customer has recently opened. The customer argues that she paid a lot of money for the mixer and therefore it should be suitable for domestic and commercial use. The manager of Electrix says that his particular mixer is imported from Switzerland and that the customer pays for the name and superior quality and that the customer didn’t specify that she wanted a commercial mixer.

Advise Mary if she has an action against Electrix under the ACL.

Question 2

Jake’s Meats advertises, by way of a letterbox drop, that it has rump steak available for one week selling for only $2 per kilogram. The shop is filled with eager customers. Jake tells them that to purchase the rump steak at that price they need to buy at least 15 kilograms. Some customers are angry about this. Advise Jake Meats if it has breached the ACL.

Hypothetical Question
 

Lauren is the sole owner of 10 health & beauty salons in Brisbane. Demand for health and beauty services has increased dramatically in the last few years and so profits have also increased significantly. As the business has surplus funds Lauren has decided to invest some of the profits.

The following Monday Lauren visits Aaron, a financial planner and investment advisor at his office at Rags to Riches Investments Pty. Ltd (RRI) and discusses possible investment opportunities. Aaron has over 20 years of experience in the investment advice industry and has a very good professional reputation in Australia and China. Aaron receives a salary of $280,000 per year, plus superannuation and commissions.

Aaron tells Lauren about a new casino in Perth named Marco Polo Casino Ltd. (MPC), which has just been listed on the Australian stock exchange. MPC has been offering special ‘Stay and Play’ packages to the South East Asian gambling market. The ‘Stay and Play’ packages have proved enormously popular. Aaron is so impressed with MPC’s marketing success he tells Lauren that MPC is a great investment opportunity and that she should get in quick before the share price increases.  Aaron even tells Lauren that he is about to sell some of his other shares to get in on the MPC boom.

Aaron provides Lauren with a written prospectus of MPC, which sets out its future plans and profit expectations. As MPC is a new company Lauren asks Aaron whether she should perhaps diversify her investment over some more traditional and established shares. Aaron advises Lauren that more established company shares  will be less likely to appreciate as quickly and that MPC’s share price has already increased 30% since the original offering and that he expects the share price to double shortly after the launch of the ‘Stay and Play’ package in China.

Lauren follows Aaron’s investment advice and purchases $1,000,000 in MPC shares. Lauren purchases the shares through Aaron and RRI and does not seek any other financial advice. 

Unfortunately a few days later the media begins reporting news of the ‘Asian Financial Meltdown’ crisis. As a result of the Asian Financial Meltdown crisis the ‘Stay and Play’ package sales cease and the prospective sales in China do not eventuate. The MPC share price falls dramatically. A short time later MPC is declared insolvent and is subsequently wound up. Lauren has now lost all the money she invested in MPC. 

a. Advise Lauren whether she is entitled to claim damages from Aaron for her investment losses in an action in negligent misstatement, including any relevant defences.

 

Answer:

1. The action undertaken by Mary against Electrix under the Australian Consumer Law is not tenable. A person is to be considered as a consumer under this act where he acquires goods or services of value less than $40,000 or acquires such goods or services to be used for personal, household or domestic use or acquires a commercial road transport vehicle for the transportation of goods on roads. In the given case if Mary intends to use the mixer for commercial use then she would not be considered as a consumer under the Australian Consumer Law. The conduct of Electrix Pty Ltd cannot be also considered as misleading or deceptive in any form as the expensive price of the mixer is not conclusive of the fact that it is used in both domestic and commercial use. Hence the action against the company Electrix Pty Ltd is not valid as per the provisions of the law just because of the reason that the appliance was expensive and was not usable for commercial purpose. (Desiatnik, 2013)

2.  The Australian Consumer Law contains consumer protection provisions which does cover the following mentioned areas:

(1)  Section 18 - Misleading or deceptive conduct

(2)  Sections 20 – 22 - Unconscionable conduct

(3)   Section 29 - False Representation of specified goods and services

A person should restrict from engaging in conduct of trade and commerce that turns out to be misleading or deceptive or that has possible likelihood to mislead or deceive”.

Often silence is considered as a misleading or deceptive conduct where due to the silence there is a failure on part of the person to be not be able to disclose or provide incomplete information. This is because of the reason that the Australian Consumer Act defines the conduct of doing something or the not doing of something. The very act of making false or misleading statement is not allowed as per the relevant provisions of the law. A person must not trade in regard to those goods and services which gives false representation regarding the standard, grade, quality, style, model or composition of the history or prior use of that particular good or service. (Steinwall & Griggs, 2013)

 

Hypothetical Question

Issues: 1

Does Aaron owe Lauren a ‘duty of care’

The issue is regarding Lauren a successful entrepreneur of health and beauty salons in Brisbane. Lauren has substantial profits from her business venture which she wishes to invest and has been looking for investment options. Lauren hence decides to take aid of an investment advisor and financial planner. Lauren finally took financial advice from Aaron regarding investment options and opportunities

Application

Damages suffered due to negligent advice had no remedial law other than those instances where the relationship was based on contract. A tort is defined as an act of omission or wrongful doing which generally gives rise to civil action in the court of law against the party who has been charged of committing a wrongful act. The tort of negligent misstatement has been defined as an incorrect statement made not intentionally. It is an advice made with honestly but somewhere carelessly by a party who is in possession of special skill or knowledge to the other party that does not possess such specific skill or knowledge. As per the law of Torts it is concerned with the compensation of the victim rather than focusing on punishing the wrongdoer.

Issue 2: Has Aaron breached his duty of care to Lauren?
 

Aaron is expertise in the financial advising industry since last 20 years. He possesses a good reputation in Australia and China in this particular professional field. Aaron advice Lauren to invest in Marco Polo Casino Ltd which is a newly listed company in the Australian Stock Exchange. ‘Stay and Play’ packages introduced by the company have been widely popular and share prices have high probability to be appreciated in near future..

Application

The convicted party must at the first place owe a legal duty of care to the other party in order to be held responsible and liable for the act of negligence. Duty of care is defined as a primary form of duty to undertake reasonable care during the performance of an act.

Once it was ascertained that a duty of care existed between the parties, then there is a need to address the standard care which was being breached by the wrongdoer through observing the conduct towards the plaintiff. A reasonably appropriate standard of care can be defined which would be followed by a reasonable, ordinary and prudent person would tend to follow.

Issue-3

Did P suffer harm as a result of D’s breach of duty? 

Aaron also provides the written prospectus of the company which outlines the future ventures and profit expectations. Lauren consulted regarding investing in other established blue chip companies with Aaron, but he advised to invest in MCP which made a 30% hike from its original issue price and has high probability to increase soon

Application

The Duty of care generally refers to the given circumstances and relationships which the related law is responsible to recognize it in order to give rise to a legal duty of care. A failure on the part of the defendant can result in bearing the liability of damage payment to the plaintiff who suffered injury or loss on account of the breach of duty of care. Therefore it is absolutely necessary for the plaintiff to establish the very fact that defendant owed them a duty of care. The existence of a duty of care basically depends on the nature and type of loss and various other legal tests applied to different losses.

 

Issue-4

Can the Defendant rely on any defenses? 

Lauren invested $1,000,000 in MCP without seeking any other financial advice. Unfortunately the Asian Financial Meltdown crisis occurred and share price of MCP fell drastically and the company finally became insolvent and Lauren lost all her money due to the debacle in the Asian Financial Meltdown. Now the issue is whether Lauren is entitled to claim damages from Aaron for the investment losses on account of negligent misstatement.

Application

The onus of proof therefore lies with the plaintiff to present that he owes a duty of care by the defendant. In order to prove that the plaintiff need to take into consideration the three state test. These three would aid in proving that the duty of care existed between the defendant and the plaintiff which are –

FORESEEABILITY TEST – determine the question lies that whether it is reasonable to ascertain the foreseeable harm due to the wrongful act or omission of the alleged wrongdoer.

PROXIMITY TEST – determine was there any existence of physical, factual or circumstantial relationship between the parties.

VULNERABILITY TEST – determine whether it is possible in the given circumstance is it possible that the plaintiff was vulnerable to any form of harm due to the defendant’s conduct or subsequent course of action.

In order to make a claim for damages due to negligent misstatement the basic elements of negligence requires to be proved which must be in existence during the tortuous act including the link of special relationship.

 

The special relationship

  • The meaning of the term special relationship has not been explained fully in Hedley byre and therefore it has become an area of judicial policy.
  • It has been further suggested that that any professional or business has the potentiality to be in a special relationship. The related case law is Howard Marine and Dredging Co. LTD V Orden and sons ltd.
  • It is not always possible in social relationships unless there exist circumstances to prove that advice was being genuinely sought. The related case law Chaudhry v Prabhaker 1988
  • Various cases does involve surveyors or valuers. The relationship between surveyors and purchasers of houses are not of contractual nature but it is might be of special nature. The related case law is of Yianni v Edwin Evans and sons 1982
  • The  complex issue is regarding to whom the accountants owe a duty of care
  • It has definitely influenced how the existence of such duty has been determined;
  • Originally it was held to be no duty as any form of duty would be contractual. Related case law is Candler v crane Christmas and co 1951
  • Since in the case law of Hedley bynre the existence of the duty of care has been established. Related case law is  JEB fasteners v marks bloom and co 1983
  • Bidders during take-over deals or lenders or investors cannot rely on the annual audited accounts as by the accountants. Therefore there is no duty for the accountants. Related case law is of Caparo v Dickman 1990.

Issue-5

What damages can P claim? .

Application

It was so held in the case of Derry v Peek, there can be no remedial action against negligent statements other than an instance of fraud. In recent times there have been few amendments and it has been established with the help of certain case laws as mentioned below –

  • Hedley Byrne & Co Ltd. v Heller & Partners Ltd. – the court upheld in this particular case that there exists a duty of care which is implied by law where there is a special relationship between the parties. The Special relationship indicates that there should be existing proximate relationship between the advisor and the client. Special relationship is determined of the following criteria –
  • Whether the plaintiff was relying on the skill and judgement of the respondent
  • Reasonable for the plaintiff as per the existing circumstances to rely on the respondent
  • Respondent must be aware of such reliance.

It has to be an instance where the party acquiring the advice or information was on the basis of trust that a reasonable degree of care has been undertaken by the other person and the circumstance was favorable for him to do that. It also takes into account that the other person must be aware of the fact that the inquirer was relying on him regarding the advisory matters.          

  • Mutual Life & Co Citizen’s Assurance Co. Ltd. v Evatt –
  • Shaddock & Associates Pty Ltd. v Paramatta City Counci
 

Conclusion

In the case of Donoghue vs Stevenson, the House of Lords confirmed the negligence as a tort. As per the law of tort, a plaintiff is liable to take civil action against the respondent where due to the negligence of the respondent, plaintiff ahs to suffer injury or loss. Earlier there was the provision where the plaintiff had to initially prove the existence of contractual arrangement for a negligence to be proven. The case law established that the manufacturers have to bear the duty of care towards their consumers or end users of the product.  The case law of Donoghue vs Stevenson produced the controversial neighbourhood principle. The test of neighbourhood is required to determine the law of duty of care which can be further broken down into two distinct requirements: 

  1. the reasonable foresight of damage or harm
  2. the proximity relationship

 To establish duty of care with respect to reasonable foresight, the related case laws are –

Topp v London Country Bus [1993]

Home Office v Dorset Yacht Co Ltd [1970]  

To establish duty of care with respect to proximity, the related case law - Bourhill v Young [1943]  

 Before the case law of Donoghue v Stevenson, a claimant is required to establish a prior existing duty relationship in order to be successful. The neighborhood test taken in a wider sense can be quite broad allowing occurrence of liability in a wide range of situations. However the range is narrowed when it comes to the situation where the consumer is suing a manufacturer. The Duty of care generally refers to the given circumstances and relationships which the related law is responsible to recognize it in order to give rise to a legal duty of care. A failure on the part of the defendant can result in bearing the liability of damage payment to the plaintiff who suffered injury or loss on account of the breach of duty of care. Therefore it is absolutely necessary for the plaintiff to establish the very fact that defendant owed them a duty of care. The existence of a duty of care basically depends on the nature and type of loss and various other legal tests applied to different losses. The convicted party must at the first place owe a legal duty of care to the other party in order to be held responsible and liable for the act of negligence. Duty of care is defined as a primary form of duty to undertake reasonable care during the performance of an act.

In the given case Lauren consulted regarding investing in other established blue chip companies with Aaron, but he advised to invest in MCP which made a 30% hike from its original issue price and has high probability to increase soon. Lauren invested $1,000,000 in MCP without seeking any other financial advice. Unfortunately the Asian Financial Meltdown crisis occurred and share price of MCP fell drastically and the company finally became insolvent and Lauren lost all her money.  As per section 22 of the Civil Liability Act, a professional is not considered to be guilty of professional does not breach a duty of care if the professional has acted in a way widely accepted by others in the profession provided the practice is not prohibited by law or irrational in any terms. As per the law of tort, a plaintiff is liable to take civil action against the respondent where due to the negligence of the respondent, plaintiff ahs to suffer injury or loss. It was so held in the case of Derry v Peek, there can be no remedial action against negligent statements other than an instance of fraud. In recent times there have been few amendments and it has been established with the help of certain case laws Hedley Byrne & Co Ltd. v Heller & Partners Ltd. being one such case law. The onus of proof therefore lies with the plaintiff to present that he owes a duty of care by the defendant. In order to prove that the plaintiff needs to take into consideration the three state test: foreseeability test, proximity test and vulnerability test. Proximity test is also to be seen and judged to determine negligent misstatement. Hence in the given case of Lauren and Aaron, it cannot be said that there existed a vivid special relationship between them and taking into account the three state tests of foresee ability, proximity and vulnerability to apply the Civil Liability Act. (Steinwall & Griggs, 2013)

 

Bibliography

Desiatnik, R. (2013). Australian Journal of Competition and Consumer Law: Online. legal,tax and accounting australia , 1-1.

Steinwall, R., & Griggs, L. (2013). Competition and Consumer Law Journal. lexis nexis , 1-1.

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