Student number: 94073457

Lecturer: Christopher Brien

The assignment was graded 13/15. Comments from the lecturer were brief:

GC advertised in several newspapers that it had carpets to sell being of "the finest Persian quality".

Tina (T) purchased from Geni Carpets (GC) a carpet, we assume for use in her home.

The carpet purchased by T was in fact stamped "made in Taiwan", which was not known to her when she purchased the carpet.

The stamp was barely visible and was not discovered by T on her inspection of the carpet prior to purchase.

After only a few weeks, the carpet was fraying and coming apart. After close inspection of the carpet, T noticed the "made in Taiwan" stamp.

The legal issues are

1) are there grounds for remedies due to misrepresentation

2) are there grounds for remedies due to fraudulent misrepresentation

3) are there grounds for remedies due to breach of contract

In Australia this transaction, being a consumer transaction, falls under Commonwealth and State statutory law, and there is also a large body of relevant case law dealing with contracts and torts of fraudulent misrepresentation.

For her best advantage in seeking remedy, T needs to establish

1. misrepresentation on the grounds of quality and origin, which gives her the option of voiding the contract

2. she should also try to show a breach of contract on the grounds of fitness for purpose, allowing her to sue for damages.

She can attempt to do this under the common law of contracts, and also under statutory law.

A simple contract has been established and completed: we have agreement, a legal relationship and consideration.

It is a consumer transaction for the purposes of the Trade Practices Act (1974), both by value of the purchase (less than $40,000), the nature of the purchase (household goods not for resale) and the nature of the parties involved.

The statement by GC that the carpet was "The finest Persian quality" was made in an advertisement. Under common law, comments made in the process of encouraging a sale and made without the intent of any legal effect ("puffery") are not generally regarded as terms of the contract. In Hopkins v Tanqueray (1854) 15 CB 130, the owner described a horse as "perfectly sound in every respect"; in fact the horse was not sound. The court found that the statement did not form part of a contract; it was merely a statement of inducement. Such comments made during negotiation are known as representations. If misleading representations meet certain criteria, they are classified as misrepresentations, giving the plaintiff (T) grounds for legal redress. This is important, because since the court does not regard representations as forming terms of the contract, a misrepresented plaintiff has no grounds for breech of contract. Below, we will consider case law showing that in this situation the claims in the advertisement may form terms in the contract, but first we will assume that T can not establish this, and must rely on misrepresentation.

Not all misleading representations are legal misrepresentations. The court must regard the misrepresentation as factual, not a statement of opinion. Further, a plaintiff must show at least partial inducement to enter the contract due to the misrepresentation.

To claim remedies under misrepresentation, fraudulent or innocent, the plaintiff must show inducement to enter the contract due to the misrepresentation. In Attwood v Small (1838) 7 ER 684, the House of Lords held that the purchasers’ application to rescind the contract on the grounds of misrepresentation must fail because the plaintiffs had not acted upon the vendor’s misleading statement, but on their own inquiries.

In Sanrod PTY LTD; Henry John Jago and Beatric Eleanor Jago and: DAINFORD LTD No. QLD G10 of 1984 Fitzgerald J. wrote at p. 37:

Following from that, T must show that representations were at least partial inducement to buy the carpet.

GC’s advertisement makes two representations: the carpet is of "the finest quality" and that it is "Persian".

The claim that the carpet was of the finest quality is vague, and the court would probably not consider that this statement would cause inducement, since buyers are nearly always looking for "the finest quality"; it would hardly cause T to single out GC since every seller would promise this.

While we need more information, it is reasonable to assume that T was at least partially induced to buy the carpet because of the representation that it was Persian. T should then try to show misrepresentation of place of origin. If, however, it was shown that T did not care about the origin of the carpet, she could not show misrepresentation on the matter of origin because she was not induced by the false representation.

In addition to finding inducement, the court needs to regard the representation as one of fact not opinion. Case law is strict about the definition of fact. In Bissett v Wilkinson [1927] AC 177 the seller incorrectly made a judgement about the capacity of the land being sold to run a certain number of sheep (2000), but this representation, even mentioning a precise number of sheep, was held to be opinion only, and therefore not a misrepresentation. It is clear that GC’s first representation, "of the finest quality", is opinion only, not fact. T would not be able to show misrepresentation.

The second claim, that the carpets sold were of "Persian" origin, may perhaps be difficult for the court to regard as fact since there has been no country or place officially known as "Persia" for more than fifty years. In Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674, the court defined the reasonableness test with regard to representations as to whether "a reasonable man could put one interpretation only on the words". The reasonable-person test would probably convince a court that GC’s representation at least has the factual content that the carpet was from the Middle East, certainly excluding Taiwan as the place of origin. I would make an argument to the court that articles advertised as "American" are generally held to come from the United States of America, and that during the era of the Soviet Union, "Russian" vodka would factually mean vodka produced in the USSR.

Therefore, I would advise T that there is a good case for convincing a court that GC misrepresented the origin of the carpet, and that she was induced to buy the carpet due to this misrepresentation. There remains the question of innocent or fraudulent misrepresentation, which affects the remedies available to T under common law. If T can show fraudulent misrepresentation, she can sue for damages. After showing misrepresentation, T needs to show that the statement was knowingly false (see Dickson v Reuter’s Telgram Co (1877) 3 CPD 1 where an incorrect message caused a loss to be incurred, but the message was believed to be true by the sender, so fraudulent misrepresentation was not shown), and that she was actually deceived. These issues are not considered any further here.

Without knowing what state the transaction took part in, I will consider only Commonwealth law.

Part V Div 1 of the Commonwealth Trade Practices Act 1974, designed to protect consumers, is relevant to T’s contract with GC.

Section 53 of the Trade Practices Act 1974 provides:

Importantly, under this law T is relieved of the burden of showing that claims in the advertisement form terms of the contract as opposed to mere representations, since this legislation explicitly includes advertisements and other promotions (emphasised text above).

T can argue that both paragraphs (a) and (eb) have been infringed by GC, similar to Hartnell v Sharp Corp of Australia Pty Ltd (1975) 5 ALR 493 where factual claims made in a newspaper advertisement were found to be false or misleading.

As discussed above, it is difficult to argue that the claim "finest quality" is a factual claim as opposed to "puffery", so the court is unlikely to find this claim a misrepresentation under the Act. T is on stronger ground with paragraph (eb). If the court accepts that a reasonable person regards "Persian" as a factual statement meaning at least a Middle Eastern origin, if not an Iranian origin, T can easily show a breach of this part of the law.

Note that Section 53 of Trade Practices Act makes no distinction between innocent and fraudulent misrepresentation; it is concerned only with misrepresentation.

If it was established that Tina suffered a misrepresentation due to comments made during negotiation, innocent or fraudulent, under precedent set many times she has the option to rescind the contract. Recission means returning the parties substantially to the status quo before the contract (eg Vadasz v Pioneer Concrete (SA) Pty Ltd (1995), or many other cases). However, the defendant is likely to cite Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326, where recision is not an option if the misrepresentation is innocent and the contract has been completed, which the court may find to be the situation here. The rule in Seddon’s case has been much criticised, and is not binding on Australian courts. I would advise T that the option of recision, meaning getting her money returned, is available to her once any form of misrepresentation is found by the court.

T could also consider damages under the law of tort on the grounds that the representation was fraudulent, if she could establish that GC knew that the carpet was sourced from Taiwan (a knowing misrepresentation), and that T was partially induced to buy the carpet due to the misrepresentation (assumed). Given that the "Made in Taiwan" marking was difficult to find, and that the company was established with the object of importing carpets from the Middle East, the court would probably need to see more evidence before it could establish fraudulent as opposed to innocent misrepresentation, since GC is likely to plead that it is an innocent victim of another’s fraud.

The court has a wide range of options available to remedy a misrepresentation found under the Trade Practices Act, drawing from both the history of common law remedies and equitable remedies.

The court can, inter alia, enforce a specific action such as repayment or replacement, void a contract or award damages. The court can also fine the offending corporation.

T could expect to have the court find misrepresentation, and to have the court order her money refunded under the authority of the Trade Practices Act (similar to recision of the contract which is her option under common law), or the court could require GC to provide her with a genuine Persian carpet (the equitable remedy of specific performance).

In addition to misrepresentation, we should consider the possibility of breach of contract. Before we can consider possible breach of contract, we must establish the terms of the contract. This is a simple contract, with no written terms. Under common law, the possibility of breach of contract rests upon the contents of the contract. A most important issue is whether the claims in the advertisement form part of the contract.

One argument is that the statement in the advertisement would probably not be considered a term of the contract (see again Hopkins v Tanqueray ) since it was not intended to have any legal effect. However, in Lockhart v Osman [1981] VR 57 a statement made in a newspaper seven days before an auction was considered recent enough to form a term of the contract. Also, in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, Carbolic’s offer of a guarantee was made by advertisement to the whole world, and was regarded by the court as a term of the contract of sale, not requiring formal notification of acceptance. It seems that common law regards claims made to the world by advertisement as more likely to form contractual terms than statements made between individuals before a contract is formed, so on balance the court should find GC’s advertisement a source of contractual terms. Before the advent of statutory law such as the Trade Practices Act, this was an important issue, because if the statement in GC’s advertisement is found to be a representation, not a term, common law does not allow for remedies under breach of contract; see Oscar Chess Ltd v Williams [1957] 1 All ER 235 where W innocently mis-stated the age of a second-hand car he sold to O, the court considering that this was not a term but a representation, causing no liability for breach of contract.

What clauses could the court read from the advertised claim? Once again, "finest quality" it not factual, so it won’t be regarded as a clause. However, there is factual content in the claim of origin, mentioned above.

Even if the advertisement does not form a term of the contract, common law holds that there are implied terms to some contracts. In general, case law does not allow much in the way of implied terms for quality or fitness of purpose where the buyer can inspect the goods prior to purchase, an opportunity available to T. This is the traditional protection of "freedom to contract" found in common law. However, there are exceptions relevant to T. Most significantly, if the buyer makes it clear they are relying on the seller’s expert opinion as to whether the item being purchased is fit for a certain purpose, or if the goods are purchased from a seller whose normal business it is to sell such items, there is an implied clause that the goods are fit for the purpose sold. This clearly applies to T’s contract, similar to Wallis v Russell [1902] 2 IR 585 where W bought two crabs from R, a fishmonger, the crabs being spoiled, causing W to fall ill. R was found liable of breaching an implied contractual term of providing goods fit for the purpose of goods normally sold by a fishmonger. A similar case was David Jones Ltd v Willis (1914) 52 CLR 110, where W bought a pair of shoes that broke on the third wearing, injuring W. W was successful in suing DJ for selling goods not fit for the intended purpose because the court found that a retailer normally sells such items.

In T’s case, the carpet began fraying and breaking soon after she bought it. However, before showing breach of contract under common law because the goods were not fit for the purpose sold, T needs to show that she used the carpet in a normal manner (we need more information) and that the defect was not one she could reasonably have been expected to find in her inspection of the goods prior to purchase.

If the court is satisfied that there was an implied term as to fitness of purpose and that this term has been breached, the remedy will depend on whether the implied term is a warranty or condition term.

Looking at Bettini v Gye (1876) 1 QBD 183, it is clear that the term of fitness for purpose is at the heart of the contract, and is therefore a condition. However, any term about the origin of the carpet is less clearly a condition, and may be found a warranty term only.

I would advise T that she has a good case for arguing under common law that the contract included a warranty term as to the origin of the carpet, and that it certainly included a conditional term for fitness of purpose, and that both terms were breached by GC. Therefore, T is likely to succeed in an action for breach of contract, and is entitled to expect damages to compensate her; the court would most likely award her the purchase price of the carpet and costs.

Paula and Alan are next door neighbours.

P left her residence for several weeks, travelling in central Australia.

P asked A to "keep an eye on the place", to water her indoor plants.

P gave A a key to her house.

A severe storm badly cracked a large glass panel that was in a sliding door (assumed external). With more storms forecast, A contracted with a glazier to replace the bill, but the glazier has not yet replaced the glass.

P has been killed, and A does not realise this.

Is A liable for the glazier’s bill? Is A liable to P if he cancels the contract with TP?

We consider first A’s liability if the contract with TP proceeds.

This is an issue of agency.

Relevant law is the case law about agency and agency of necessity.

A is not liable if we can show that he contracted with the glazier (TP) as agent for P, and that his scope as agent authorised him to make such contracts which bind P and TP, not A and TP. If this is shown, that P (or her estate) is liable for the bill with TP.

We must first look to see if agency is established between P and A. In this case, the strongest sign of agreement is that P gave A a key to her house. We also know that P gave verbal instructions to A, to "keep an eye on things" and to water the indoor plants, and we assume that A agreed to these instructions. This is an example of actual authority. As an agent, A is indemnified by P against all losses and expenses lawfully incurred in the reasonable performance of the contract of agency.

The next question is the scope of the agency, and whether it authorises A to enter into contracts such as the one with the glazier.

There are three considerations: the scope of the agency as expressed by P and interpreted by A, extensions to scope allowed by the doctrine of agency of necessity, and apparent agency.

The key issue is the authority contained in the instruction "keep an eye on things". If A is found to have exceeded the authority of the agency when entering into certain contracts, then according to Black v. Smallwood (1966) 117 CLR 52 where Barwick C.J. reviews a great deal of case history, TP is still likely to be bound to P, with P then seeking remedy from A. To decide if A acted within the authority of his agency, the court would need to examine the ambiguous statement from P that A should "keep an eye on things". The court would note that A at all times acted in the belief that he was acting in the best interests of A, and P in no way acted in his own interest. The court would then apply the reasonableness test, considering what actions would be taken by a reasonable person knowing all the circumstances, and also considering if Alan’s interpretation of Paula’s statement was a reasonable one. I would advise Alan that a court applying this test would find that he acted appropriately.

The scope of A’s authority as agent can be expanded in this case under the doctrine of "agency of necessity". Burns Philp and Co. LTD. v Gillespie Brothers PTY. LTD. (1947) 74 CLR 148 examines the actions of a ship’s master who was caught up in the Japanese invasion of Indonesia in WWII. Faced with increasing bombing raids in the port of Jakarta (then Batavia) from Japanese aircraft, and advised by the Royal Navy to abandon efforts to reach Singapore, he decided to return to an Australian port without delivering his cargo of flour, belonging to the plaintiff. The question was whether the actions of the ship’s master in saving his ship and cargo allowed certain costs to be charged to the cargo’s owners. The case was decided upon interpretation of the written contract, which attempted to provide for such circumstances. In his minority judgement Latham CJ describes the doctrine of agency of necessity. Firstly, where A " can communicate and does communicate and receives instructions which he obeys, no question of agency of necessity arises." Alan could not communicate with Paula. Latham CJ continues, "Agency of necessity arises from action in circumstances of necessity and not from any real or resumed agreement between the person who becomes an ‘agent of necessity’ and the person in whose interest he has acted."

Alan was faced with an emergency, and to act in Paula’s best interests, he had to replace the glass. Inaction would have caused further damage to P’s property. Considering the doctrine of agency of necessity, I would confidently advise Alan that a court would find that he acted within the authority of his agency, and that the contract with the glazier is actually between Paula and the glazier. In fact, the likelihood of a court finding this is so strong the P would probably be liable if he took no action (see below).

If the court makes the unlikely decision that the scope of actual agency does not permit A to contract with TP, a court may technically consider this is a situation of apparent agency. As an example of apparent agency, some of the facts resemble Soanes v London & SW Rly Co (1919) 88 LJ KB 524 where S entrusted luggage to a porter (the apparent agent) wearing the uniform supplied by SW. The luggage was stolen but the porter was off duty, so the defendant argued that the porter was not at the time an agent of the company. The court found that the company held out the porter as being authorised to receive luggage because the porter was wearing SW’s uniform, and was therefore liable for the porter’s actions. In Tooth v Laws (1888) 9 LR (NSW) 154, Laws gave the appearance that certain people were acting as his agent because his name was still displayed as the owner of a business he in fact no longer had any interest in, and he had not informed his suppliers of the change in ownership. Contracts entered into by his alleged agents were found to be binding on Laws.

In the case of Alan and Paula, the glazier may have noticed that Alan had a key to access the house, which would have led him to believe that A was acting as P’s agent, and Alan, not knowing of Paula’s death, would probably have made known to the glazier that he was acting on Paula’s behalf.

It is also likely that A would have advised the glazier (TP) of the name of P, giving rise to circumstances similar to Wakefield v Duckworth [1915] 1 KB 218, where TP contracted with A knowing full well the identity of P. TP later sued A to collect money for goods provided, but had no action against A since the contract was with P. Apparent authority does not change this situation, if TP believes A to be the agent for P.

A finding of apparent agency leaves the alleged agent liable to civil and criminal actions from the alleged principal. In both Soanes v London & SW Rly Co and Tooth v Laws, the court finds apparent agency in order to protect the interests of the third party. Both apparent agents, the porter in Soanes and the hotel owners in Tooth, acted in their own interests and broke the law. Alan has acted only in Paula’s interest, so it is difficult to see any action being brought upon him by Paula’s estate.

If a court finds actual or apparent authority, contracts made between A and TP are binding on P and TP. However, if A acts in excess of actual and apparent authority, TP has no action against P, and must resort to the action for breech of warranty of authority against A. This needs to be mentioned, because Paula’s death opens the possibility that a court may decide that Alan had neither actual or apparent authority as agent. This would leave Alan liable for the contract with the glazier. However, it would be a gross affront to natural justice if this was the finding, as Alan has acted only in the interest of Paula. In contract law, if an offeree accepts an offer after the death of the offerer but before the offeree is notified of the death, it does not automatically mean the contract is invalid [Vermeesch & Lindgren, p 159].

Now we consider A’s liability with respect to P if he cancels the contract with the glazier. All things considered, this is the worst legal position Alan could find himself in. An agent has a duty of care to act in the principal’s interest, within the scope of authority, and it is clear to me that a reasonable person would regard repairing the glass to be explicitly within the scope of the Paula’s granted authority.

In Stuart Earle (Real Estate) Pty Ltd v Baines (Samuels AP, McHugh and Clarke JJA, CA 602/86, 25 March 1988), the judgement held that "it was implied in every agency agreement that the agent would exercise care, skill and diligence". Because A is a gratuitous agent, the burden of care, skill and diligence required is generally lower. According to Vermeesch & Lindgren, a gratuitous agent may not be liable for failure to act.

In general, the court decides the duties of an agent according the reasonableness test mentioned above. I would advise Alan that the court would probably decide he was an authorised agent of Paula. In deciding the scope of this authority, the court takes into account all the circumstances, which I would advise Alan includes agency of necessity. A reasonable person would decide that repairing the broken door is necessary to protect the interests of P, and to not do so may be a lapse of care and diligence, leaving A liable for a breach of duty of care owed.

Vermeesch and Lindgren, Business Law of Australia, 9th edition, 1998, Butterworths, Sydney.