THE UNIVERSITY OF SYDNEY

FACULTY OF LAW

EXAMINATION FOR THE DEGREE OF DOCTOR OF JURIDICAL STUDIES,
MASTER OF LAWS AND DIPLOMA OF POSTGRADUATE LAW

CONSUMER PROTECTION LAW - REGULATION OF UNFAIR MARKETING PRACTICES

NOVEMBER 1997 TIME ALLOWED: 2 HOURS

READING TIME: 15 MINUTES

CANDIDATES MUST ATTEMPT TWO (2) QUESTIONS.

ALL QUESTIONS ARE OF EQUAL VALUE. EACH QUESTION MUST BE WRITTEN IN A SEPARATE BOOK.

THIS IS AN OPEN BOOK EXAMINATION.

Question 1

XYZ Ltd owned a delicatessen in a suburban shopping centre. XYZ is controlled by Anne, who established the business and for many years ran it herself. Anne wished to retire and engaged Herb, a business broker, to sell the business. Bert, a bank officer who had recently been made redundant, wished to use his redundancy money to invest in his own business. He had lengthy discussions with Anne, who told him that the business was "a little goldmine" which had provided her with a "terrific income" over the years.

Herb told Bert that based on an accountant's financial analysis which Anne had shown him and his own experience with businesses in the local area, he considered that the takings could increase by up to 20% in the next year. Anne later gave Bert a copy of her accountant's financial analysis, saying that her accountant was generally regarded as one of the best in the area. The document showed an average profit of $1,000 per week.

Anne did not tell Bert that after she commenced discussions with him she discovered that it was proposed to build a new supermarket opposite the delicatessen. Bert was not aware of this fact, though he could easily have discovered it had he made inquiries. Many of the smaller shopkeepers in the area were apprehensive that the opening of the supermarket would seriously erode their takings, though others (including Anne) were more optimistic.

Bert ultimately signed a contract to purchase the business for $250,000.

The contract for the sale of the business, which was prepared after considerable negotiation between Anne's solicitor and Bert's solicitor, contained the following clause:

1. The Purchaser acknowledges, represents and warrants that this contract is the entire record of the parties' agreement and that no warranties or representations relating to the takings, profitability or any other aspect of the business have been made by or on behalf of the Vendor or relied upon by the Purchaser."

Bert paid the purchase price and the business was transferred to him. After operating the business for 6 months he has never operated at a profit of more than $500 per week. Anne insists that this is because Bert was hopelessly incompetent in running the business, an assertion which Bert vigorously denies. The supermarket has just opened and, in common with many other small shopkeepers in the vicinity, Bert finds that his takings have declined even further as many customers now prefer to shop at the supermarket.

It now appears that Anne's accountant's analysis contained some errors, as a result of which the past takings of the business were overstated. Had the business been as described in the accountant's report it would have been worth about $300,000, but when it was taken over by Bert it was in fact worth $220,000.

Bert asserts that, before he commenced discussions with Anne and Herb, he had been about to buy a restaurant business which would have been far more profitable than the delicatessen has ever been.

Bert seeks your advice as to what statutory remedies if any may be available to him against XYZ Ltd, Anne and Herb. If he is likely to recover damages, he wishes your advice to include a discussion of the basis on which those damages will be assessed.

[examination continues next page]

Question 2 (Answer two of the following three parts)

1. Dorothy runs a small suburban store selling automotive accessories. She has imported 200 Ajax fuel saving devices. As they have been slow in selling, she placed a small advertisement in a motoring magazine which circulated in most Australian states. The advertisement said:

Limited quantity of Ajax fuel saving devices - an amazing new invention - save up to 30% on your fuel bills.

It transpires that the Ajax device has been on sale in the United States for the past 10 years, and that a specialist US motoring magazine, after scientifically testing the performance of similar devices, found that most people using the Ajax device achieved less than 15% fuel saving, though some living in areas with very low humidity did achieve more than 30%. An Australian expert has said that in his opinion the device would probably achieve similar results in Australian conditions, but that no one could be certain until extensive tests were undertaken. Moreover, it transpires that in Tasmania the driving of a vehicle with the Ajax device attached is an offence, because it has not been approved by the relevant government authorities. (Such regulatory approval is not required in the other states.)

George distributes a competing device and is outraged at Dorothy's advertising. He wishes to complain to the Australian Competition and Consumer Commission and seeks your advice as to what action might be available to it.

1. ABC Supermarkets Ltd each week sells through its many branches Big John's frozen family size beef pies. The packaging of the pies states that they are "A product of Australia". The pies are prominently displayed in all ABC Supermarkets.

Helen, who is the manager of one of the supermarkets and very well known in her local area, advertised in a local newspaper Big John's pies as follows:

"Big John's all beef family pies - Manager's favourite - superb value
this week at $6.00".

It transpires:

1. Although the pies are baked in Australia by Big John's Ltd using Australian-made pastry, the meat used is all imported from New Zealand.
2. In the pies dold during the week of Helen's advertisement, due to a temporary shortage of beef, the supplier of meat to Big Johns used 10% of sheep meat in the meat supplied, even though its contract with Big Johns guaranteed it would supply only 100% beef meat.
3. Helen, being a vegetarian, has never eaten any of the pies.
4. Of the 2 supermarkets which complete directly with the supermarket managed by Helen, one regularly sells Big John's pies at $5.50 and the other sells an equally popular competing brand of pie at $5.00. Helen's branch normally sells the Big John's pies at $6.00.

The Australian Competition and Consumer Commission is considering instituting criminal proceedings against ABC and Helen, and seeks your advice.

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c) Superior Furniture Ltd manufactures and extensively advertises the popular Jungle model leather lounge suite. It normally is sold only in the more expensive furniture stores and retails at about $5,000. Each piece in the suite is clearly labelled "Jungle furniture manufactured by Superior Furniture Ltd".

Copycat Ltd produces a suite which is to outward appearances identical to the Jungle suite, but it is made of poorer quality leather which deteriorates much more quickly than that used by Superior. The Copycat suite bears no labelling carrying a brand name or identifying the manufacturer. However, on a few occasions buyers acquiring stock for more upmarket stores have, while in a hurry, mistaken the Copycat product for the Jungle suite, and some retail purchasers have complained of poor quality to Superior, only to discover that they had in fact purchased the inferior product.

Superior has complained vigorously to Copycat, which however maintains that it is perfectly entitled to act as it has.

Advise Superior.

Question 3 EITHER

"[Section 52 of the Trade Practices Act] has an actual or a potential impact on virtually every commercial activity and operates in effect to make massive changes to a range of substantive law by providing an alternative action unrestrained by the accumulation of centuries of judicial gloss or providing a right of legal action which did not previously exist"
(Healey and Terry, Misleading or Deceptive Conduct (1991) at 19.)

In light of this comment, assess the impact of s 52 on commercial transactions. Your answer should include an assessment of whether s 52 results in unacceptable uncertainty and curtailing of freedom of contract in commercial transactions.

OR

"[T]he law does not cover a wide variety of practices which are the essence of advertising techniques. Some believe that the law controls only the more blatant forms of mis-statement whilst allowing large advertisers to continue to 'mislead' with impunity. Even if one believes this should remain the case as a philosophical matter, there remains the difficult task of setting the boundaries of desirable and effective legal control. … Whether the law should become further involved in advertising regulation and, if so, how the conceptual difficulties in the legal processes should be overcome are difficult questions".

(Pengilley and Ransom, Federal Deceptive Practices and Misleading Advertising Law (1987), pp 896-7.)

In light of this comment discuss whether the law which you have studied in this course adequately regulates advertising. Your answer should include a discussion of whether the law should regulate "unfair" advertising.

[end of examination]