Australian Common Law | Free Company Law Essay

SYNOPSIS

The law seeks to protect consumers in many ways. In addition to giving them civil law rights in tort and contract, it also regulates the conduct of business to ensure that consumers are not taken advantage of. But because of today's continuous increasing number of businesses, the complexity arises. More business means more competition, and this usually results in practices involving misleading and deceptive conduct, such as price fixing, unconscionable conduct, boycotts, and misuse of market power. But individual consumers might not have any clue concerning this issue. They might not have the confidence to pursue their rights, or may not even be aware of their rights. This also goes the same for small businesses. They might be pressured by larger firms and might not be aware of their rights. Hence, this is where the Commonwealth Trade Practices Act 1974 comes in.

The Trade Practices Act 1974 sets out guidelines as to how corporations may conduct their businesses, eliminating monopolistic business practices, and providing rights for consumers. And amongst its many sections, section 52 of the Trade Practices Act 1974 directs specifically towards misleading and deceptive conduct. The section aims to protect the public by prohibiting any conduct in commerce or trade that is misleading or deceptive, or is likely going to mislead or deceive. The section has become one of the most critical and powerful sections, and has resulted in many positive effects on the way Australian corporations conduct their business.

The many benefits and overall importance of section 52 of the TPA has made the Act an essential component to achieve efficiency and fairness in the market place.

INTRODUCTION

The concept of law derived thousands of years ago from many sources with the intention to bring order into society and the world. Each country has its own unique legal system and its own set of laws which originated from different legal codes and legal writings. Yet, however, the main purposes of each country's law are by and large comparable. Law was primarily created to protect the public, and express or enforce morality. Likewise, even though Australian law has its own history of where and how it originated from, the main purpose of law is still the same. Consequently, for the purpose of this research assignment, let us examine Australian law.

Australia uses a legal system known as a "common law" system. In simple words, common law is law that is based on judicial decisions developed based on past legal decisions. The case of Donoghue v Stevenson illustrates how common law (judge-made law) sets a legal standard on how judges will examine and access the outcome of future cases that also involve negligent acts of manufacturers. So as we can see, common law is law that is common to all people. But in addition to common law, in law, there is also an important element known as "statutes" which were introduced to prohibit, command, or establish policy for all common people to follow and abide by. A statute is defined as "a law established by an act of the legislature". Australian law can be classified into different branches and sections, such as traffic law, criminal law, constitutional law, contract law, tort law, and consumer law.

Consumer law is one of the broad categories of law that falls under private law. A simple definition of consumer law is law that protects consumers concerning the products or services they buy to ensure that they are protected from unfair or misleading practices conducted by different companies. Misleading is also known as misrepresentation which we will discuss later. Thus, in light of the enormous importance of consumer protection and the rapid increasing number of the many different businesses, there was an essential need to control business practices in order to prevent undesirable activities such as supplying defective products or services, promoting products through counterfeit or misleading advertising, and engaging in unfair means of trading. Moreover, it was also significant to control what is known as unconscionable conduct. This happens when a stronger party uses an oppressive approach to deal with a disadvantaged party. For example, a stronger party imposes unreasonable contractual terms on a weaker client. All of this brings about the starting point of the Commonwealth Trade Practices Act which was enacted in 1974.

DISCUSSION

The Commonwealth Trade Practices Act 1974

The Commonwealth Trade Practices Act 1974 is an Act of the Australian Parliament which aims to regulate corporations' activities in the marketplace. An Act is "a written ordinance of Parliament". The Trade Practices Act 1974 is generally concerned with the following objectives:

  • Protecting consumers from misleading representations, unreasonable conduct, and unjust practices carried out by corporations, and providing remedies when consumers are being affected by defective goods or services.
  • Protecting the market from total domination by monopolies and regulating anti-competitive activities among businesses.

Section 52: Misleading and Deceptive Conduct

The Commonwealth Trade Practices Act 1974 is very large in scope and contains many important sections, and one of the most significant and effective sections is section 52 which prohibits misleading and deceptive conducts of corporations.

Section 52 states:

"(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1)."

Section 52 does not impose or create liability, but it does set a standard of conduct. Failure to comply with the standard of conduct can establish liability under the Act. But before any person can bring action against a corporation engaging in the misleading and deceptive conduct, there are some requirements which need to be fulfilled. A consumer must make sure the price of the goods is below $40,000; but in the case that the goods exceed the prescribed amount, there is an exception only if the goods purchased are for personal, domestic or household usage. For example, in the case of Carpet Call Pty Ltd v Chan, the court held that Chan was misled by the carpet company because although the carpet's price was over $40,000, it was for personal usage. In addition to the condition above,there are another three essential elements that must be present in order for a section 52 action to be successful:

"(a) the section must apply to the party that engaged in the allegedly misleading or deceptive conduct;

(b) the conduct complained of must have occurred 'in trade or commerce'; and

(c) it must be 'misleading or deceptive' or 'likely to mislead or deceive' ".

  • The section must apply to the party involved

Section 52 does not only apply to corporations. It applies to any misleading or deceptive conduct in the instances such as overseas trade or commerce, involving the use of the post, or the television or telephone or radio broadcast, a transaction between or within territories, or is covered by an international treaty. Hence, it does not matter whether the misleading party is a corporation or not because section 52 will apply in the above instances at any rate.

(b) The conduct must be "in trade or commerce"

Specific types of conduct that take place "in trade or commerce" are prohibited by the Trade Practices Act. That, however, does not mean that in the course of a corporation's overall business, section 52 of the Act would encompass all of its conduct. Section 52 is only concerned with the way corporations conduct dealings with other persons; meaning that section 52 only applies to transactions or activities of a corporation that contain a trading or commercial character in nature (case: Concrete Constructions (NSW) Pty Ltd v Nelson).

(c) The conduct must be "misleading or deceptive"

Section 52 is concerned with any conduct in trade or commerce that is deceptive or misleading to consumers of goods or services. But importantly, it is for the court to examine objectively whether a conduct is likely to mislead members of the public. Furthermore, the court also has to determine based on evidence whether the public have actually been mislead by the conduct. Thus, this section applies both to conduct that is misleading in nature and also to conduct that is likely to mislead the public at large (case: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd).

Significance of Section 52

Section 52 of the Trade Practices Act 1974 is primarily focusing on consumer protection and is especially important because with this section enacted, it improves the general welfare of Australians as a whole by emphasizing on the significance of market competition. Not only that this section puts a restraining order on the way corporations conduct and present their businesses so that they comply with fair practices and competitions amongst themselves, but this section also ensures that corporations do not carry out business activities that lead or could lead members of the public into error. This is known as misrepresentation.

A misrepresentation is "a false statement made to another party to induce the other party into the contract". There are three types of misrepresentation.

Fraudulent Misrepresentation

This occurs when a party intentionally tells a lie to another party to get that party to enter into the contract. Importantly, in order for a misrepresentation to be categorized as a fraudulent misrepresentation, there are two aspects that must be proven to exist. These are actus reus (the physical element of a crime which means the guilty act or the deed of crime), and mens rea (the mental component of a crime which means the guilty knowledge and wilfullness).

Negligent Misrepresentation

This occurs when a party is making a false statement innocently. The party should have checked on the accuracy of the statement, but the party was negligent or careless and failed to do so. In the case of negligent misrepresentation, the parties involved usually have some kind of relationship between them. Moreover, negligent misrepresentation can occur only when there is a duty of care owed by the misrepresentor to the misrepresentee. This can be seen in the case of L.Shaddock & Associates Pty Ltd v Parramatta City Council where the council owed a duty to properly research the matter enquired by the plaintiff. And this was reaffirmed again in the case of Esso Petroleum Company Ltd v Mardon.

Innocent Misrepresentation

This occurs when the representor gives a false statement, but had no intention to mislead the representee because he or she believed the statement given to be true. Innocent misrepresentation can be seen in the case of Oscar Chess v Williams where the court held that Williams had innocently misrepresented the age of the vehicle.

Summary of significance of s. 52

Taken as a whole, section 52 provides protection to corporations and consumers concerning any business conduct which is commercial in nature. It is important because it promotes fair trade and competition. Remarkably, what makes section 52 one of the most exceptionally powerful sections of the TPA is the fact that liability under section 52 cannot be avoided by using an exclusion clause. Moreover, the party who suffers loss as a result of a breach of section 52 is provided with remedies. The common remedies are rescission and damages.

Effect of s.52 on the way Australian corporations conduct businesses

Section 52 has had a positive impact on how Australian corporations conduct businesses. There may still be cases brought to court concerning misleading and deceptive conduct, but ever since the Trade Practices Act 1974 has been enacted, corporations have been more careful and considerate on how they ought to conduct their businesses. For example, in the case of Bevanere Pty Ltd v Lubidineuse, the court held that the TPA applies to a company selling its business and any false statement made is liable under misrepresentation. Another example to illustrate the effects of section 52 is the case of Money v Westpac Banking Corporation, where the court held that the bank's action was misleadingor deceptive conduct under the TPA and was liable under section 52 for misrepresentation. Violation of section 52 was again seen in the case of Ward v Premier Ice Skating Rink Pty Ltd because of misleading advertisement by the defendant. Misleading and deceptive conduct was also seen in cases such as MIPS Computer Systems Inc v MIPS Computer Resources Pty Ltd (misrepresentation of similar business names); Thorp v CA Imports Pty Ltd (misrepresentation under false labeling of goods); Brown v The Jam Factory (misrepresentation for making a false statement to a prospective tenant about the number of tenants in a shopping centre); Eaglesfield v Marquis of Londonderry where a statement of misrepresentation occurred when it was advertised that Number 3 Preference Stock was Number 1; Smith v Land and House Property Corporation where the hotel's statement was misleading and the plaintiff could terminate the contract.

There were many more cases involving misrepresentation under section 52 of the TPA. The few cases described above are only to illustrate how section 52 comes into play and find justice for the parties who were deceived or misled. Furthermore, these cases set examples on how present and future corporations should conduct their businesses in order to avoid being taken to court. For example, a new corporation should not have a similar business name like an already existing corporation. In essence, this law binds corporations in Australia to be fair in the market place since 1974. If not, they would face consequences for their behaviors. So as we can see, section 52 has been very effective on the way Australian corporations conduct businesses because the section enforces fair business conduct, which would then result in better outcomes for all parties involved in any business transaction. In addition, according to the Trade Practices Act Review by the Department of the Treasury Langton Crescent of the Australian Government, it is stated that since 1974, the Trade Practices Act 1974, section 52 specifically, has provided fair market competition and helped shaping economic activity in Australia. It has had strong positive effects on increasing productivity and efficiency by corporations in the Australian economy because of competitive markets. And due to competitive markets, the overall welfare of Australians has improved, as well as resulted in strong economic performance over the past decade.

CONCLUSION

Section 52 of the Commonwealth Trade Practices Act 1974 has many benefits and is very important to control business activities to maintain efficiency in the market place as well as serve as a protection for the general public (consumers). The section provides guidelines as to how companies may conduct business, and the rights of consumers. Additionally, the section urges corporations to think twice before conducting any business that could be misleading or deceptive. It prompts parties involved in trade or commerce to give correct and current information, provide all relevant facts to each other, not guess the facts or leave out relevant information, not make predictions without having reasonable proof, and not deliver false advertisements. Moreover, it triggers corporations to ask themselves questions such as:

  • Are any of my sales staff and advertising materials deceptive or misleading?
  • How would I know if a representation is misleading or deceptive?
  • How should I conduct my business in order to avoid liability for misleading and deceptive conduct?

Importantly, for not complying with the Act, it would result in severe consequences for corporations. Thus, it is extremely crucial that corporations understand their roles and responsibilities under the Act, and not misuse their market power. Small businesses in particular should be aware of their rights in order to protect themselves from unfair trading (unconscionable conduct), anticompetitive behaviors or monopolistic dominations from bigger firms. Hence, it is evident that section 52 of the TPA is a very important section which promotes fair trade and provides numerous advantages to Australia as a whole.

Interestingly and wonderfully, if there was such a law with the same principles as the Commonwealth Trade Practices Act 1974 in a country such as Cambodia, then the Cambodian market would have been much more efficient. Currently, what Cambodia really needs is a solid law which promotes fair trade and governs the way corporations conduct their businesses. Consumers are not protected when it comes to an issue like misleading or deceptive conduct by a corporation. Large firms still misuse their market power to oppress smaller firms. Investors do not have the confidence to start business in Cambodia because there have been several cases in which investors were misled and deceived and then went bankrupt. Thus, if a law such as the TPA was enacted by the Cambodian Parliament, it would definitely see a rise in the government's concern for consumer protection as well as protecting different businesses. And as a consequence, it would result in fair trade for everybody and hopefully better economic performance because investors know that they are being protected, so they are willing to invest more, and more businesses would therefore arise which would also mean more competition in the market, and eventually, would improve the welfare of Cambodians as a whole.

Overall, we can see that the TPA could help any country perform better because it is an important law which governs fair trade as well as protects consumers at the same time. Hence, I submit that the TPA (section 52) is a good and important law that protects consumers.

Reference List

  • Blair, E., Elliott, KR., Manning, B. & Mossuto, M. 2004, International Law, Oxford University Press, Oxford.
  • Department of the Treasury Langton Crescent of the Australian Government 2007, Trade Practices Act Review, viewed 3 April 2007, <http://tpareview.treasury.gov.au/content/report/html/Summary.asp>.
  • Latimer, P. 1996, Australian Business Law, CCH Australia Limited, North Ryde.
  • Parker, D. & Box, G. 2004, Business Law For Business Students, Custom Publishing, Melbourne.
  • Pentony, B., Graw, S. & Lennard, J. 1999, Understanding Business Law, Butterworths, Melbourne.
  • Turner, C. 2005, Australian Commercial Law, Lawbook Co., Sydney.
  • Vermeesch, RB. & Lindgren, KE. 2000, Business Law of Australia, 7th edn, Globe Press, Queensland.

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