SALE OF GOODS AND INTERNATIONAL

 

68 GSN412: Business Law 1

• explain the meaning of the implied conditions as to title, description,

fitness for purpose, merchantable quality and sale by sample

• explain the statutory initiatives to prevent exclusion of the sellers liability

• distinguish between specific and ascertained goods

• understand the rules as to when ownership passes and why these rules

are important

• understand the principle features of the Vienna Sales Convention

concerning international sale of goods contracts

Required Reading

G&F [2005] chapters 19 & 206

Additional Reading

Latimer (23rd edn) Ch 7, pp437-475

Turner (24th edn) Ch 14 and 15

Cases

Allied Mills Ltd v Gwydir Valley Oil Seeds Pty Ltd (1978) 2 NSWLR 26

Ashington Piggeries Ltd v Christopher Hill Ltd (1972) AC 441

Associated Midland Corporation v Sandson Motors Pty Ltd (1983) 3 NSWLR 395

Beale v Taylor (1967) 3 ALLER 253

Cammell Laird & Co Ltd v Manganese Bronze & Brass Co Ltd (1934) AC 402

Carpet Call Pty Ltd v Chan (1987) ATPRP 46-025

Crago v Multiquip Pty Ltd (1998) ATPRP 41-620

David Jones Ltd v Willis (1934) 52 CLR 110

Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd

(1987) 163 CLR 236

Gibbett v Forwood Products Pty Ltd (2001) FCA 290

Grant v Australian Knitting Mills (1936) AC 85

Griffiths v Peter Conway Ltd (1939) 1 ALLER 685

Folkes v King (1923) 1 KB 282

Hammer & Barrow v Coca-Cola (1962) NZLR 723

Healy v Howlett & Sons (1917) 1 KB 337

Henry Kendall & Sons v William Lillico & Sons Ltd (1968) 2 ALLER 444

Leonard v Ielasi (1987) 46 SASR 495

McWilliams Wines Ltd v Liaweena (NSW) Pty Ltd (1988) ASCP 55-695

Niblett Ltd v Confectioners’ Materials Co Ltd (1921) 3 KB 387

Pacific Motor Auctions Pty Ltd v Motor Credits (Higher Finance) Ltd (1965) 112

CLR 192

Pignataro v Gilroy (1919) 1 KB 459

6 G & F [2003] Ch 18 & 19

 

Module 5: Sale of Goods and International Sale of Goods 69

Qantas Airways Ltd v Aravco Ltd (1996) 70 ALJR 590

Rasell v Garden City Vinyl and Carpet Centre Pty Ltd (1991) 2 QRDR 323

Reynolds v Turner (1989) ASCP 55-922

Robinson v Graves (1935) 1 KB 579

Rowland v Divall (1923) 2 KB 500

Shipton, Anderson v Weill Bros & Co (1912) 1 KB 574

Steike v Edwards (1935) 8 ALJ 368

Tarling v Baxter (1927) 6 B&C 360

Toby Construction Products Pty Ltd v Computer Bar Sales Pty Ltd (1983) 2

NSWRL 48

Varley v Whipp (1900) 1 QB 513

Wardar’s (Import and Export) Co Ltd v W Norwood & Sons Ltd (1968) 2 KB 663

Wren v Holt (1903) 1 KB 610

Wallis v Downard-Pickford (North Qld) Pty Ltd (1994) 179 CLR 388

Appendices

Appendix (xii] Fitzgerald, G. “The Risk Issue in Sale” (1996) 9 JCL 206

Appendix (xiii] Shum, C. “Chinese Contract Law” (1998) 13 JCL 214

 

70 GSN412: Business Law 1

5.1 Sale of Goods (Summary of G & F [2005],

Chs 19 & 20)

5.1.1 Introduction

Sale of Goods Legislation only applies to contracts involving the sale of goods.

There is only limited statutory protection (and not in Queensland) for a

consumer in a contract for the supply of services. Legislation governing the sale

of goods is virtually identical in all the States and is also governed by Part V of

the Trade Practices Act 1974 (Cth). [The legislation of the States and Territories

and Commonwealth dealing with the sale of goods is set out in G&F].

The Trade Practices Act 1974 (which is Commonwealth legislation) is designed

to operate concurrently with state laws. (In the event of any inconsistency,

Commonwealth law would prevail under s.109 of the Constitution).

5.1.2 Formation of a Contract

A contract for the sale of goods is defined in Sale of Goods Legislation as being

a contract where the seller transfers, or agrees to transfer, the property and

goods to the buyer for monetary consideration (the price). So there must be:

• goods

• a price; and

• a transfer of property (transfer of ownership).

5.1.3 What are Goods?

Goods are defined to mean all physical and moveable things but not:

• land and fixtures

• choses in action or rights eg. debts, negotiable instruments, IOU’s, shares

or patents; or

• services, such as work and labour done or repairs.

5.1.4 The Price Paid for the Goods

This is the money paid for the goods. If there is no money, then there cannot be

a sale of goods contract. The Sale of Goods legislation does not capture either

barter or exchange. Where a car is traded in, however, it is considered as

money as it is the value of the car which is being traded in and not just the car

itself.

If the parties have not agreed on a price at the time of the contract, the price

can be fixed by some other means eg. a third party valuation or by how the

parties have agreed in the past to fix a price. If a price cannot be fixed by this

method, then the buyer is held to have agreed to pay a reasonable price.

 

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5.1.5 Transfer of Ownership

There must be a transfer of ownership and these rules are important because

under Australian law, the risk of loss of the goods goes with the person who

has ownership (or property) in the goods.

The passing of risk in the goods under a sale of goods contract could be viewed,

however, as either passing with the property (eg. Australia and other common

Law systems where if you own it – it’s your risk) or passing with possession (eg

USA and Germany where if you have it – it’s your risk). See Fitzgerald, The Risk

Issue in Sale [Appendix (xii)] for an account of the benefits of each system and

the increasing trend for risk to pass with possession (rather than ownership).

5.1.6 Trade Practices Act

This will be dealt with in Module 6 but the Trade Practices Act defines both

goods and services (which are not caught under the sale of goods legislation

except in Victoria). The Trade Practices Act also defines who is a consumer

(s.4B).

5.1.7 When is it a Contract for Sale of Goods?

This depends on the main purpose of the contract. If the main purpose is the

transfer of title (ownership) to goods, then it is a contract for the sale of goods.

If the main part of the agreement is to retain the skill and experience of one of

the parties (and the transfer of goods is an ancillary or secondary part of the

contract), then it will not be a contract under sale of goods legislation.

This can create problems because many contracts involve both a transfer of

goods and also, services in respect of those goods. For example, if you buy a

washing machine, it may also be delivered and installed. See Toby Construction

Products Pty Ltd v Computer Bar Sales Pty Ltd (1983) 2 NSWRL 48 where the

sale of a computer system was held to be a sale of goods even though the

system included software application and continuing supply, maintenance and

training. See also Robinson v Graves (1935) 1 KB 579 where a contract to paint

the defendant’s portrait was held to be a contract concerning the skills of the

artist and not a contract involving the sale of goods.

5.1.8 Sale or Agreement to Sell

A contract for the sale of goods includes two types of contract:

• a sale of goods where ownership transfers from the seller to the buyer at

the time of the contract (it is an executed contract); and

• an agreement to sell where property and the goods are to be transferred at

some later date, or where the contract has a condition that needs to be

fulfilled eg. payment of the price. An agreement to sell is an executory

contract and will only become effective when the time comes for the goods

to be transferred or the conditions are fulfilled. The agreement to sell then

becomes a sale.

 

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To illustrate, if a person goes into a shop and buys goods then that is a sale

and ownership and risk pass immediately to the buyer. If, however, a person

orders goods to be brought in for them, that is an agreement to sell and

ownership and risk remain with the seller until the sale is concluded.

The difference between a sale and an agreement to sell is important as it affects

the rights of both the buyer and the seller.

5.1.9 Condition or Warranty

A condition is a term that is vital to the contract. It is so important that its nonperformance

can be considered as amounting to a substantial failure to honour

the contract enabling the injured party to set the contract aside and/or sue for

damages.

A warranty is a term of the contract that is of lesser importance to the main

purpose of the contract. If it is breached, then the injured party must still

perform their part of the contract but they have the right to sue for damages for

any loss which they suffer as a result of the breach of warranty.

It is not always easy to distinguish a condition and a warranty. It is determined

by an objective test looking at the contract as a whole and considering the

importance of the breach and whether the term breach was essential to the

contract. This can be looked at in either of two ways, whether the term was

serious enough to induce the plaintiff to enter into the contract or alternatively,

the affect that the breach has on the contract. If it is a serious breach, then the

term breach will be treated as a condition. If the term breach does not have a

serious effect on the contract, then it will be treated as a warranty.

The distinction between conditions and warranties is kept under sale of goods

legislation.

5.1.10 Where Property Has Passed

Generally, a buyer can treat a breach of condition as a breach of warranty and

sue for damages rather than ending the contract. This is the buyer’s choice.

However, under sale of goods legislation, if the buyer has accepted the goods

then the buyer must treat any breach of a condition as a breach of warranty.

This entitles the buyer to sue for damages only. [However, the Commonwealth

and some States do allow buyers a reasonable opportunity to rescind.]

5.1.11 Exclusion of Implied Conditions and Warranties

The implied conditions and warranties under sale of goods legislation can be

excluded. However, there are statutory modifications under the Trade Practices

Act and Fair Trading Legislation which prevents these terms being excluded.

The terms implied into every contract for the sale of goods are:

• the right to sell the goods (that is, the right to title)

• quiet possession (that is, once the buyer has the goods no third party will

be able to claim any ownership in them)

• goods are free from encumbrances (that is, they have not been pledged to

a third party and a third party does not have the right to claim the goods

because of a debt or other liability of the seller)

 

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• where goods are sold by description then the goods will correspond with

that description

• where goods are sold by sample, then all the goods must correspond with

that sample

• the goods must be fit for their purpose

• the goods must be of merchantable quality.

5.1.12 Sale by Description and Sample

Where goods are sold by description there are implied conditions that the goods

shall correspond with the description. This applies where the buyer has not

seen the goods and is relying on the seller’s description.

This also applies where the buyer has actually seen and examined the goods

but the goods have been bought as corresponding to a description.

If a sale is by sample as well as description, then all of the goods must

correspond with both the sample and the description.

There is a sale by description where the consumer selects goods on the basis of

the description of the goods or the consumer agrees to buy goods made to their

specification.

All sales of unascertained goods are sales by description as are many sales of

specific goods particularly where the buyer has not seen the goods.

The implied term is concerned with descriptions that relate to the identity of

the goods rather than their quality. This means that if the goods are not of the

expected quality but still conform to the contract description, then there is no

breach of the implied conditions.

If goods are sold by reference both to a sample as well as description, then the

goods must correspond with both of these implied conditions.

5.1.13 Fitness for a Particular Purpose

Where the buyer expressly or by implication makes known to the seller the

particular purpose for which the goods are required, and relies upon the

judgement and the skill of the seller, then the goods must be reasonably fit for

that purpose.

The following conditions need to be met:

• the buyer must make known to the seller the particular purpose for which

the goods are required (where the goods have only one purpose, then the

description of the goods is enough to indicate their purpose);

• if the goods are required for a special purpose, then that special purpose

must be made clear to the seller (if the consumer suffers from any

particular condition that the seller should be made aware of, then that

condition must be disclosed or the right to recovery is lost);

• the buyer must show some reliance upon the judgement and skill of the

seller. This need only be a partial reliance but it must be clear to the

seller, either expressly or impliedly, at or before the contract is made, that

the buyer is relying on the sellers skill and judgement;

 

74 GSN412: Business Law 1

• if the buyer has goods made to their own specifications, then the seller

will not be liable if the goods meet those specifications but are still not fit

for the buyer’s particular purpose. However, if the seller has some choice

as to how products are to be manufactured and the goods fail to meet the

purpose (because of what the seller has chosen to do), and then the seller

can be liable;

• the goods must be of a description which the seller normally sells; and

• the buyer must not specifically request the goods under their patent or

trade name (if the buyer did, then he would not be relying on the sellers

skill and judgement).

So for the implied condition of fitness for purpose to apply there must be:

• the buyer making known either expressed or impliedly the particular

purpose for which the goods are required

• the buyer relying upon the sellers skill and judgement (even if only

partially)

• the goods being of a description which it is in the course of the sellers

business to supply

• the buyer not ordering goods under their patent or trade name

5.1.14 Merchantable Quality

Where goods are bought by description, there is an implied condition that the

goods must be of merchantable quality unless the buyer has had the

opportunity to examine the goods. This implied condition applies only where

there is a sale by description from a seller who deals in goods of that

description. So the rules in relation to sale by description apply as well.

Providing the buyer has bought the goods as corresponding to a description,

then there will be a sale by description even where the goods have been seen

and examined.

See David Jones Ltd v Willis (1934) 52 CLR 110 where shoes had been bought

by description and there was a breach of the implied condition of merchantable

quality.

Merchantable quality means that the goods must be reasonable for the purpose

described. This applies even where the goods are sold under their trade or

patent name. As to what is reasonable, depends on the following factors:

• the price you pay

• the description applied to the goods

• whether the purpose of the goods have been made known to the seller;

and

• any other relevant circumstances

The nature and purpose of the goods determines how long they must remain of

merchantable quality. It must be for a reasonable time after sale taking into

account the above factors, especially the price.

If the goods are fit for several purposes and only unfit for one, then there is no

breach of merchantable quality. The goods would be of merchantable quality if

they are fit for any one of the purposes for which the goods can be used. See

Henry Kendall & Sons v William Lillico & Sons Ltd (1968) 2 All ER 444 where a

nut extract was suitable for cattle and older poultry but not for younger

 

Module 5: Sale of Goods and International Sale of Goods 75

poultry. As it had several purposes and was suitable for those, there was no

breach of an implied condition of merchantable quality merely because it was

not suitable for younger poultry.

However, if the goods sold under the contract can only be used for one purpose,

then there will be a breach of the implied condition of merchantable quality if

the goods cannot be used for that purpose. See Wren v Holt (1983) 1 KB 610

where beer containing arsenic was held not to be of merchantable quality

because there was only one purpose for beer namely, drinking it.

It is possible to breach both the implied conditions of fitness for purpose and

merchantable quality in the same transaction. See McWilliams Wines Ltd v

Liaweena (NSW) Pty Ltd (1988) ASCP 55-695 where faulty corks breached both

fitness for purpose in that McWilliams relied on the seller to deliver corks for

the purpose of sealing wine (so they were not fit for their purpose) and further,

the corks were not of merchantable quality as their only purpose was to seal

bottles of wine and prevent spoilage.

There are four conditions which must be satisfied in order to take action for a

breach of the implied condition of merchantable quality:

• sale by description;

• buying goods from a seller who deals in goods of that description;

• the buyer not examining the goods so that the defects are not revealable

on reasonable examination; and

• do the goods have one purpose or several purposes. (If the goods have

more than one purpose and are only unfit for one, then the goods are of

merchantable quality).

5.1.15 Sale by Sample

There are three implied conditions in contracts of sale by sample:

• the bulk shall correspond with the sampling quality. [Minor differences

not affecting the quality of the goods, does not breach the condition];

• the buyer shall have a reasonable opportunity of comparing the bulk of

the goods with the sample. [Once there has been a reasonable

opportunity, if the buyer has not rejected the goods, then the buyer is

deemed to have accepted them. This means that the buyer’s remedy, if the

goods do not correspond, is to sue for damages for breach of warranty];

and

• the goods must be free from any defect which would not be revealable on

reasonable examination.

Not only must goods correspond with the sample, but they must still be of

merchantable quality. The three conditions are independent and the breach of

any one of them will enable the buyer to reject the goods and treat the contract

as ended. (See Drummond v Vaningen (1987) 12 AC 284 where the sale of cloth

corresponded to the sample in terms of quality. However, the cloth was

unsuitable in that clothing made from it, split at the seams on wearing. It was

held that the seller could reject the goods.

 

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5.1.16 Exclusion of Seller’s Liability

Sale of goods legislation enables the buyer and seller to exclude the operation of

the implied conditions. Effectively, this means they are excluded by the seller

because it is the seller who drafts the standard term contract for the

transaction. This was based on the idea that under freedom of contract, the

seller and the buyer could each negotiate a freely entered into bargain.

However, there is an inequality of bargaining position in relation to consumer

transaction. The seller’s terms and conditions (often printed on the back of

invoices) mean that the buyer does not have any real opportunity of negotiating

a separate agreement. This has led to both the Commonwealth and the States

and Territories enacting legislation to protect consumers by prohibiting the

exclusion of the implied condition. There are differences between the

Commonwealth and State and Territory legislation and these are detailed in

Gibson and Fraser (2005) pp.389-391.

5.1.17 Sale of Goods: Transfer of Property

It is important to know the difference between property and goods and

possession of goods because:

• risk in the goods (that is, who is to bear the loss if the goods are damaged

or destroyed) passes with the property in the goods; and

• for the sale of goods legislation to apply, property or ownership of the

goods must pass to the buyer. (This means in the absence of any further

agreement between the parties, that the risk in the goods passes on the

transfer of ownership of those goods under sale of goods legislation).

It is a general rule that a seller can only sell what he has the right to sell (that

is, what he owns) but there are exceptions to this.

5.1.18 Property and Possession

Although people assume that someone in possession of the goods may own

them, this can be dangerous. There is a difference between owning property

(that is, the goods belongs to you) and being in possession of the property (that

is, you have control or custody of the goods).

It is important, therefore, to know when property passes under a sales contract

because:

• risk of loss of damage rests with the owner (although the owner may have

the legal right to take action against the person who has damaged or lost

the goods);

• if the ownership of property is passed to the buyer, then the buyer may no

longer be able to reject the goods for breach of a contract condition (but

will have the right to take action for a breach of warranty);

• once property has passed to the buyer, then the buyer can on sell that

property even if he has not paid for the goods. (This applies when the

seller has transferred ownership before payment but the buyer still has

the obligation to make the payment);

 

Module 5: Sale of Goods and International Sale of Goods 77

• if a seller or buyer goes bankrupt, it is necessary to establish if ownership

has passed in the goods to see who owns the goods for the purpose of

seeing whether the goods will form part of the bankruptcy administration;

• whether ownership has passed will determine the right of a seller if he

longer wishes to deliver the goods or alternatively, the right of a buyer to

reject goods by refusing delivery; and

• it affects who has the right to sue a carrier if the goods are lost or

damaged in transit.

5.1.19 When Does Property Pass

The general rule is that any damage or loss to the goods before property passes

to the buyer, is the responsibility of the seller. Once property and the goods are

transferred to the buyer, then the risk in those goods passes to the buyer.

The problem arises when delivery is to take place later and the goods are

damaged or lost before delivery. Under sale of goods legislation, this depends on

when ownership of the goods is meant to pass. If it is on the entering into the

contract (before delivery), then the ownership of the goods will pass to the

buyer at the time of the contract. If ownership is meant to pass on delivery,

then the risk in those goods will be borne by the buyer only on delivery.

The simplest way of avoiding this problem is to make sure that the

contract of sale specifies when ownership is to pass and further, who is to

bear the risk and who has the responsibility to arrange insurance for that

risk.

5.1.20 Passing of Ownership for Particular Type of Goods

The type of goods determines when property and risk pass. Goods are classified

into:

• existing goods

• future goods

• specific goods

• unascertained goods; and

• ascertained goods.

What are Existing Goods?

These are goods owned or possessed by the seller at the time of the contract.

What are Future Goods?

These are goods to be manufactured or acquired by the seller after the making

of the contract.

What are Specific Goods?

These are goods identified and agreed upon at the time of the contract of sale.

[These can also be existing goods.]

What are Unascertained Goods?

These are goods which are described only. They are not identified when the

contract is made and so they may or may not be future goods. Because the

goods have not been ascertained, any contract is only an agreement to sell. It

cannot become a contract to sell until the goods are ascertained.

 

78 GSN412: Business Law 1

What are Ascertained Goods?

These are unascertained goods which have later become identified or agreed

upon by the parties.

5.1.21 General Rules Concerning the Passing of Property

For specific, existing and ascertained goods, property passes at the time agreed

to by the party. For unascertained goods and future goods, property passes

when the goods are ascertained (that is, identified).

5.1.22 The Difference Between Unascertained and

Ascertained Goods

No property in unascertained or future goods passes until the goods are

ascertained (identified). If the identification of goods requires them to be

weighed or tested, or measured or counted, or certified or inspected, then they

are treated as unascertained goods until the requirement is met. See Healy v

Howlett & Sons (1917) 1 KB 337 where part of a consignment of fish (20 boxes

out of 190 boxes) were to go to the buyer. Before the 20 boxes had been

identified, the consignment was spoiled. It was held that the 20 boxes for the

buyer had not been identified and so, the goods were unascertained goods.

Accordingly, ownership in the 20 boxes remained with the seller (because they

were part of the general consignment) and so property and risk remained with

the seller.

Goods are ascertained when they are identified as the goods agreed on after the

contract has been made. This is different from specific goods, which are goods

identified at the time the contract is made. Where there is a contract for the

sale of specific goods, the property and the goods is transferred to the buyer at

the time agreed to between the parties.

5.1.23 Rules for Determining the Passing of Property

Where there is an unconditional contract for specific goods which are in a

deliverable state, property passes at the time of making the contract.

Where there is a conditional contract for the specific goods to be put in a

deliverable state, then property passes when the goods are put in that

deliverable state by the seller.

When there is a contract for specific goods that requires something to be done

to determine the price, the property passes when the seller has completed that

action required to obtain the price for the goods.

Where there is a contract for goods on approval, then property passes once the

buyer gives that approval or alternatively, where their actions show that they

have impliedly approved the goods such as keeping them.

Where there is a contract for unascertained goods or future goods, then

property passes when the goods are ascertained and in a deliverable state and

unconditionally given over to the contract as agreed by the parties.

In the absence of any other conditions or agreement between the parties,

property passes when goods are delivered to the buyer or a carrier for delivery

to the buyer.

 

Module 5: Sale of Goods and International Sale of Goods 79

5.1.24 Intention as to When Property is to Pass

The parties are able to agree as to when property will pass. This can be shown

by:

• the terms of the contract

• the conduct of the parties; and

• all the circumstances relating to the sale including trade usage.

If the intention of the parties is unclear, however, there are a number of rules

which are used.

5.1.25 Specific Goods

Rule 1: Unconditional contract for specific goods

The buyer will own the goods if:

• there is an unconditional contract

• the contract is for the sale of specific goods; and

• the goods are in a deliverable state.

The time of delivery or payment does not matter. [See Tarling v Baxter (1827) 6

B&C 360 where the buyer bought a haystack and it remained on the seller’s

land until the buyer could remove it. The haystack was destroyed by fire and it

was held that property had passed at the time of the contract and not on

delivery. Accordingly, the buyer was responsible for the loss.]

What this means is that if there is an unconditional contract for the sale of

specific goods in a deliverable state, the buyer should take out insurance to

protect the goods against damage while they are in the seller’s possession.

Although it is possible to provide in the contract that the goods remain at the

seller’s risk until delivery, a seller is unlikely to agree to it.

Rule 2: Conditional contract for specific goods

If the seller is required to do something to put the goods into a deliverable

state, then property on the goods does not pass until that act is done and the

buyer is given notice that the act has been done.

Rule 3: Contract for specific goods that require pricing

If the seller has to do something to determine the price of the goods, then

property does not pass until that act is done. For instance, if a sale of dry bulk

goods such as wheat, requires them to be weighed in order to set the price,

then property does not pass until the seller has weighed the goods and

determined the price.

Rule 4: Contract for goods on approval

Property only passes to the buyer where the approval is given. This can be done

by:

• the buyer giving their approval through words or conduct eg. using the

goods

 

80 GSN412: Business Law 1

• when the buyer does an act showing that they are acting as the owner of

the goods eg. lending them to another; or

• if the buyer keeps the goods beyond a reasonable time so that the

possession of the goods is deemed to be acceptance.

Rule 5(1): Contract of unascertained or future goods sold by

description

Where there is a contract for the sale of unascertained goods or future goods by

description, and goods of that description in a deliverable state are

unconditionally given over to the contract by agreement, then the property

passes to the buyer. [See Pignataro v Gilroy (1918) 1 KB 459 where the buyer

purchased 140 bags of rice from a large consignment in a warehouse. As soon

as the seller received the buyer’s cheque, he sent him a delivery order telling

him where the rice was located and could be collected. The buyer did not ask

for the rice until four weeks later when it was discovered it had been stolen. As

the buyer had taken too long to collect the rice, it was held that the goods had

been ascertained and delivered over to the buyer at the warehouse.]

What this means is that once the seller notifies the buyer that the goods have

been identified as part of the contract, then the goods will be deemed to have

passed to the buyer if the buyer does not object within a reasonable time.

Rule 5(2): Delivery to the buyer or carrier without a right of

disposal

If the seller delivers goods to the buyer or a carrier to deliver to the buyer, and

the seller does not reserve the right of disposal of the goods, then the delivery is

an unconditional appropriation of the goods to the contract. [See Wardar’s

(Import and Export) Co Ltd v W Norwood & Sons Ltd (1968) 2 KB 663 where the

buyer sent a carrier to pick up 600 cartons of kidneys from cold storage. When

the carrier arrived, the 600 cartons were stacked outside the warehouse ready

for loading by the carrier who gave a delivery note and started loading. The

loading took four hours and the cartons had spoiled in the meantime. The issue

was who would bear the loss, the seller or the buyer? This depended on when

the goods were ascertained as once they were ascertained, then risk passed to

the buyer. It was held that the goods were ascertained once the carrier handed

over the delivery order to load the cartons. Accordingly, as deterioration

occurred during the loading process, it was the buyer’s risk.

5.1.26 Reservation of Right and Disposal

In business, you may come across Romalpa clauses which reserve title or legal

ownership until the buyer has fully paid for the goods. This clause is used in

case the buyer goes into liquidation or insolvency so that the seller does not

lose the right to reclaim the goods if they have not been paid for.

Sale of goods legislation allows for reservation of title clauses because the

parties can agree when ownership is to pass. The parties agree that ownership

does not pass until final payment. However, this will not be effective where

goods are sold which are incorporated in a production process. A seller cannot

reserve the title to goods which are mixed with other goods. For instance, a

supplier of cloth might reserve title until the buyer fully pays for the rolls of

material. However, if the rolls of material are used to make suits or clothing,

then the goods have been mixed or transformed and so, the seller would not

have the right to claim back the suits or the clothing as the original goods.

 

Module 5: Sale of Goods and International Sale of Goods 81

Romalpa clauses are no longer as effective as they once were because the High

Court in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) HTA 25

has determined that they cannot be used to defeat the normal priorities which

apply in the case of corporate insolvency under the Corporations Law.

5.1.27 Passing of Risk

If there is a sale of specific goods and those goods have been destroyed before

or at the time the parties enter the agreement (and this is not known by the

seller), then the loss falls upon the seller and the contract is void. It is a

contract which could not be fulfilled. Similarly, if there is a sale of specific

goods and the goods are subsequently lost (without the fault of either party)

and this is before risk is passed to the buyer, then the contract is void and the

seller bears the risk.

In the case of unascertained goods, this is different as the seller has the

opportunity to find other goods which will satisfy the contract and which can

be subsequently identified and given over the contract.

Remember the general rule is (unless the parties have agreed otherwise) that if

goods are lost, damaged, destroyed or deteriorate then risk passes with the

property. What this means is that:

• if the property is not passed, the goods are at the seller’s risk; but

• once property is transferred, the goods are at the buyer’s risk, even if

delivery has not yet been made.

This is subject to two limitations:

• where delivery has been delayed by the fault of one of the parties, then

the goods are at the risk of that defaulting party; and

• where the goods are in the possession of the other party but at the risk of

the other, that is they are held by one party on behalf of the other, then

the party holding those goods must exercise reasonable care.

5.1.28 Transfer of Title by Non-owner

You will recall that a person cannot sell what they do not have. This means that

generally a buyer can get no more that what the seller is able to give. If the

seller has no right to sell the goods, then the buyer does not generally get good

title. This is the rule nemo dat quod non habet (one cannot give what one does

not possess).

If the buyer does not get good title, then the true owner can recover those

goods. For instance, if a thief steals my computer and sells it to a third party, I

can (if I can establish that it is my computer) recover it from the third party.

The third party cannot get good title to the computer because the thief never

had it.

This rule is subject to a number of exceptions where title can be given by

people who are not the true owners. The exceptions are set out in G&F (2005)

pp.404-407.

 

82 GSN412: Business Law 1

5.1.29 Performance of the Contract

To complete a contract for the sale of goods:

• the seller must be ready to deliver or give possession of the goods; and

• the buyer must be ready to accept and pay for them in accordance with

the terms of the contract.

What constitutes delivery? It can be an actual physical delivery of the goods or

giving something which shows that the buyer is entitled to get the goods such

as handing over a title certificate or bill of waiting.

5.1.30 Seller’s Duties in Respect of Delivery

In the absence of agreement between the parties, there are a number of duties

imposed on the seller in respect of delivery. These are:

• any expenses for getting the goods into deliverable state rests with the

seller

• the place of delivery is usually the sellers business unless the parties

know the goods are stored somewhere else in which case it is that other

place;

• if at the time of sale, the goods are with a third party, then there will not

be effective delivery until the third party acknowledges that the goods are

held for the buyer;

• if no time is fixed for delivery, then the goods must be delivered within a

reasonable time;

• if a certain quantity of goods is required to be delivered, the seller must

deliver that quantity. [Note that a trifling shortfall will not give the buyer

the right to rescind];

• a buyer must agree to accept delivery by instalments; and

• if the seller arranges a carrier to deliver to the buyer, then the seller must

make a contract with the carrier that is in the buyer’s interest. If the

carrier is the agent of the seller, delivery occurs when the goods are

delivered to the buyer. If the carrier is the agent of the buyer, then the

goods are delivered to the buyer once delivered to the carriers.

5.1.31 Duties of the Buyer

The duty of the buyer is to accept and pay for the goods in accordance with the

terms of the contract. The buyer is not bound to return goods which they did

not accept but if the buyer accepts part of the goods, then they cannot refuse to

accept further deliveries which conform with the contract. If they do, then the

buyer is liable to the seller for any losses that result.

5.1.32 Remedies of the Parties for Breach of Contract

The seller’s remedies against the buyer are damages and to sue for the price.

An unpaid seller can also withhold the goods or stop them in transit.

 

Module 5: Sale of Goods and International Sale of Goods 83

The rights of an unpaid seller depend on whether property or possession of the

goods have passed to the buyer.

If the goods are yet to be delivered to the buyer that is, they are still being held

by the seller or they are still in the process of being delivered to the buyer (in

transit), then the seller can hold the goods (retain possession) until the goods

are paid for. Alternatively, the seller can stop the goods in transit and refuse to

deliver them to the buyer and either have them held for the seller at the place

where they are stopped or have them returned. The seller has the right to resell

the goods to recover the price.

If the buyer owns the goods and has possession, then the unpaid seller only

has rights against the buyer and will need to sue the buyer for the price.

If the buyer wrongfully refuses to accept the goods, the seller can sue the buyer

for damages.

5.1.33 Buyer’s Remedies

The buyer’s remedies depend on whether the goods have been delivered or not.

If the goods have not been delivered, then the buyer can sue for specific

performance that is, compel the seller to supply the goods. Alternatively, the

buyer can sue the seller for damages for nondelivery.

If the goods have been delivered and are defective, then if it is a breach of

condition, the buyer can rescind the contract. But the buyer will lose this right

where:

• the buyer elects to treat the breach of condition as a breach of warranty,

or waives the breach;

• where the sale is part of a wider contract and the contract of sale is not

severable from the other parts of the contract;

• if the breach of condition is under s.75 of the Trade Practices Act 1974;

and

• in Queensland, if the contract is for specific goods, where the property

has passed to the buyer already.

Where the buyer is entitled to rescind the contract and reject the goods due to a

breach of a condition, then the buyer may recover the full purchase price. The

buyer, however, may elect to treat the breach of condition as a breach of

warranty and can then reduce the price or claim damages.

The damages are the difference between the value of the goods at the time of

delivery and the value that the goods would have been had there not been a

breach of warranty.

 

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5.2 The Vienna Sales Convention [Summary of

Turner 24th edn ch 15]

Sale of goods legislation is a good example of laws that will be applied when the

parties do not agree differently. This becomes more complicated in international

trade as it may not be clear which laws govern the contract of sale, if the

parties have not considered that issue. Also, it will be time consuming and

inefficient if the parties need to negotiate individual transactions for every

contract. To overcome these types of difficulties and to provide a model for

trade usage, the United Nations established the Vienna Convention on the

International Sale of Goods (Vienna Sales Convention). The convention applies

to contracts for the sale of goods between parties in those countries adopting

the convention unless the parties agree that it does not apply.

5.2.1 When does the Vienna Sales Convention Apply?

It applies between those countries signing the convention concerning a sale of

goods internationally. Major countries which have signed the convention

include the United States, China, Russia, Germany, France, Italy, Canada and

Australia. Major trading nations that have not signed the convention are the

UK, Japan, South Korea, India, Indonesia, the Philippines, Malaysia, Vietnam

and South Africa.

Although the convention does not apply if the parties exclude it from their

contract, it may not be sufficient merely to say that the convention is not

applicable. It is probably necessary (and therefore, essential to avoid

uncertainty) for the contract to expressly state not only that the convention

does not apply but also to specify what law does apply. Often in international

trading agreements, this will be the laws of England or the laws of the State of

New York as these are centres of international finance and trade. Alternatively,

the contract may specify that the law of a contracting party is to apply.

The convention applies to contracts for the sale of goods between individuals or

corporations whose places of business are in different signatory countries. It is

also possible for the convention to be applied by contractual agreements. For

instance, a contract between a business in Australia and a business in Japan

could contractually apply the convention even though Japan is not a signatory

country.

5.2.2 What is not covered by the Convention?

The convention does not regulate all matters relating to the international sales

contract. It does not apply to:

• goods that are bought for personal, family or household use;

• auction sales;

• sales authorised by law;

• sales of stocks, shares, investments securities, negotiable instruments or

money;

 

Module 5: Sale of Goods and International Sale of Goods 85

• sales of ships, vessels etc or aircraft; and

• sales of electricity.

You might wonder why the convention deals with electricity. Although Australia

does not supply electricity internationally, this does occur between landlocked

countries in Europe and North America particularly.

The convention does not apply to contracts for the supply of goods which are to

be manufactured or produced where the buyer undertakes to supply a

substantial part of the necessary material. Nor does the convention apply to

contracts where the main part of the contract is the supply of services or

labour. The convention is limited solely to the sale of goods and does not apply

to other areas which might impact on the sale of goods such as agency,

franchise or distributor agreements, product liability or tort claims.

5.2.3 Interpretation of the Convention

Because it is an international agreement, the convention is to be interpreted

taking into account its international character and its need to promote

uniformity in international trade. This means that court decisions in signatory

countries will be treated as persuasive authority in other countries.

More importantly, the convention also takes into account the requirement to

observe good faith in international trade.

Like a number of international conventions, the drafting is a result of

compromise to accommodate the needs of a variety of countries which are

signatories. For this reason, the convention states that if matters it deals with

are not expressly settled (that is, there may be some room for interpretation)

then regard is to be had to the general principles on which the convention is

based. These principles are the UNIDROIT Principles for International

Commercial Contracts. If this does not resolve the issue, then the matters are

to be settled under the law applicable to the contract which depends on what

the parties intended and where the contract is made.

5.2.4 Formation of the contract

The convention is different from common law and Australian contract law. For

instance, consideration is not a necessary element to form a contract under the

Convention. However, offer an acceptance and intention to be legally bound are

necessary elements.

5.2.5 Offer

Similar to Australian contract law, an offer must be sufficiently definite and

indicate an intention to be bound. This means that the price must be

determined or capable of being determined. A proposal not addressed to

specific persons is only an invitation to make offers (and is therefore not an

offer) unless the maker of the proposal clearly indicates that it is to be regarded

as an offer.

An offer is effective when it reaches the offeree and it can be withdrawn if the

withdrawal reaches the offeree before or at the same time as the offer. Even an

irrevocable offer can be withdrawn.

 

86 GSN412: Business Law 1

Until a contract is concluded, an offer may be revoked if the revocation reaches

the offeree before they have accepted. If the offeree has received an irrevocable

offer, then the offer cannot then be revoked. It needs to be rejected.

5.2.6 Acceptance

Acceptance can be made by the offeree indicating consent to an offer either by a

statement or by conduct. Silence or inactivity does not constitute acceptance

although this can depend on the prior dealings between the parties. If an

offeree has a duty to make a timely objection to an offer, it may be held that the

offeree has accepted the offer if it does not make that timely objection.

An acceptance is effective once it reaches the offeror and if no time is fixed for

acceptance, then it must be within a reasonable time. If there is a time limit for

acceptance, then it is not valid acceptance if the time limit is missed.

A purported acceptance which puts other terms or attempts to modify an offer

is a counter offer and constitutes rejection of the offer. This is the same as

Australian contract law. However, an acceptance which contains additional or

different terms which do not materially alter the terms of the offer, constitutes

an acceptance. This will be valid unless the offeror objects to the additional

terms without undue delay. If the offeror does not make any objection, then the

terms of the contract include those additions. It will be a material alteration if

the additional terms relate to price, payment, quality and quantity of the goods,

place and time of delivery or the means of settling disputes.

5.2.7 Use of other Evidence

Under Australian contract law, the parties are bound by the terms of the

contract. This is known as the “four corners” rule. That is, the parties can only

rely on what is within the terms of the contract. The convention, however,

allows an inquiry into what the parties intended and the statements and

conduct of a party can be given in evidence to show that intention. This means

that the terms of the negotiations (and what has happened in prior

negotiations) is likely to be admissible as evidence in determining what the

parties intended.

5.2.8 Form of the Contract

Contracts for the international sale of goods do not need to be in writing or

evidenced in writing under the convention. This is the same as Australian

contact law.

5.2.9 Modification or Termination of the Contract

The parties can agree to modify or terminate their agreements. Any

modification of a contract does not require further consideration.

 

Module 5: Sale of Goods and International Sale of Goods 87

5.2.10 Trade Usage

The parties are bound by any practices which they have established among

themselves. Also, the parties are bound by any international trade usage which

they know, or ought to have known, applies to their contracts. The parties are

however, able to exclude trade usage if they both agree.

5.2.11 Conformity of the Goods

The seller is required to deliver goods which are of the quantity, quality and

description required by the contract. If the contract requires particular

containers or packaging, then the seller must use these.

In the absence of contrary agreement, goods do not conform to a contract

unless they:

• are fit for the purpose which goods of the same description would

ordinarily be used;

• are fit for any particular purpose expressly or impliedly made known to

the seller at the time of the contract (except where the buyer did not rely

on, or if was unreasonable for the buyer to rely on, the seller’s skill and

judgment);

• conform with sample; and

• are packaged in the usual manner for such goods or if there is no usual

packaging, in a manner that will protect and preserve the goods.

Under the convention, the law relating to fitness for purpose is the law of the

seller’s jurisdiction unless the seller was informed of the buyer’s foreign

standards or alternatively, the parties agree otherwise.

If the goods are nonconforming:

• the seller is not liable if the buyer knows, or ought to have known, the

goods were nonconforming at the time of the contract;

• the seller is liable after risk has passed to the buyer if the nonconformity

is due to a breach of the seller’s obligations; and

• the seller is liable for any nonconformity existing at the time when risk

passes to the buyer even though it may only become apparent later that

there was a nonconformity.

If the seller has delivered goods early and there is a nonconformity, the seller is

entitled to remedy that nonconformity up until the actual time that the goods

were to be delivered. The seller is, however, liable for any damages caused to

the buyer by delivering the goods in that nonconforming state even though the

goods were delivered earlier than expected.

If the goods are nonconforming, then the buyer may reduce the price to reflect

the difference in value.

5.2.12 Examination of the Goods

The onus is on the buyer to examine the goods for nonconformity within the

shortest period practicable in all the circumstances. The relevant factors in

determining this period are:

 

88 GSN412: Business Law 1

• the size of the buyer’s company;

• the type of goods to be examined;

• their complexity or character; and

• the efforts needed to examine them.

In assessing what is reasonable, if the buyer has found nonconformity in

previous shipments, then it is reasonable to expect that the buyer will take

greater care in inspecting later deliveries.

If the buyer does not notify the seller of any nonconformity within a reasonable

time, the buyer loses its rights to a remedy unless there is a reasonable excuse

for that non-notification. [There is a limitation period of two years on notifying

the seller unless the contract between the parties specifies a different time.]

In notifying the seller, the buyer must give sufficient particulars to describe the

nonconformity so that the seller is made aware of the defect. It is not necessary

for the buyer to notify the seller of the suspected cause of the nonconformity.

5.2.13 Performance of the Contract

The buyer must pay the price for the goods and must take the necessary steps

to make that payment. [See Downs Investment Pty Ltd v Perwaja Steel Stn Bhd

(2000) QSC 421 where the contract provided that the buyer would pay for the

goods by letter of credit. The buyer did not obtain the letter of credit and it was

held that the failure to obtain those letters of credit constituted a breach of the

Convention since the obligation to pay for the goods included taking necessary

steps to enable payment to be made.

If the contract does not fix the price or make provision for determining the

price, then the parties will be considered to have agreed to the price generally

charged for those goods under comparable circumstances in the particular

trade at the time the contract was made.

5.2.14 Delivery

The seller is obliged to deliver the goods and transfer property in the goods. It

would be usual for the place of delivery to be specified in the contract but if it is

not, the obligation to deliver is:

• handing the goods to the first carrier for dispatch to the buyer (if carriage

is involved);

• if there is no carriage, and the parties know the goods are at a particular

place, then when the goods are placed at the buyers disposal at that

place; or

• in other cases, the goods are placed at the buyer’s disposal at the seller’s

place of business.

The goods must be delivered as agreed or alternatively, within a reasonable

time if no time has been agreed.

 

Module 5: Sale of Goods and International Sale of Goods 89

5.2.15 Passing of Risk

Loss or damage to the goods after the risk has passed to the buyer does not

discharge the buyer’s obligation to pay for the goods unless the loss or damage

is caused by the seller’s act or omission. The risk passes to the buyer when the

goods are handed to a carrier although if the buyer specifies a carrier, the risk

will only pass if the goods are delivered to that carrier. Where goods are sold in

transit, the risk passes to the buyer at the time the contract is made.

5.2.16 Preservation of the Goods

If the buyer delays taking delivery, then the seller must take reasonable steps

to preserve the goods but the seller is entitled to reclaim reasonable expenses

from the buyer.

Similarly, if the buyer has accepted the goods and intends to reject them, then

they must take reasonable steps to preserve them and is entitled to be

reimbursed for those reasonable expenses by the seller. The goods can be

stored at a third party warehouse providing it is not an unreasonable expense.

Where a party is preserving goods and the other party unreasonably delays in

reclaiming them, then the goods can be sold to reclaim the reasonable expenses

of preservation and the balance must be accounted for to the other party. If the

goods are:

• perishable;

• subject to unreasonable deterioration; and

• are unreasonably expensive to preserve, then the party holding them can

sell them.

Any sale must be subject to prior notice to the other party.

5.2.17 Additional Time

Under the Convention, a buyer or seller is given a further period for performing

their contractual obligations after the contract has expired. Where a party gives

the other reasonable time to perform their obligations, they are entitled to claim

damages for the delay. Where a notice of additional time is given, the party is

stopped from exercising any contractual remedies for breach of contract until

that further period has expired.

5.2.18 Exemption from Performance

A party is not liable for matters beyond its reasonable control which have

prevented it from performing its obligations under the contract. The exemption

applies only for the period of the intervening circumstance. It is also subject to

reasonable notice being given to the other side about what has happened.

 

90 GSN412: Business Law 1

5.2.19 Anticipatory Breach

If a party becomes aware that the other party is not going to perform a

substantial part of its obligations arising from its inability to perform or its

creditworthiness, then the party can suspend performance immediately.

However, the party must give notice to the other that is suspending its

performance and will be required to reinstate its contractual performance if it

receives adequate assurances that the other party will perform its side of the

bargain.

5.2.20 Fundamental Breach

The convention defines fundamental breach as resulting in such detriment to

the other party as to substantially deprive that party of what they are entitled

to expect under the contract. This is providing that the effects of the breach

were foreseeable. The most common form of fundamental breach is nonpayment.

5.2.21 Buyer’s Remedies for Breach by the Seller

Where the seller fails to perform an obligation, the buyer can:

• require performance;

• give the seller extra time to inform;

• require ready nonconformity in the goods to be remedied;

• avoid the contract; or

• reduce the price.

and claim damages.

If the goods do not conform, the buyer may require the delivery of substitute

goods where the nonconformity constitutes a fundamental breach.

Alternatively, the buyer may require the seller to repair or make good any

nonconformity except where that would be unreasonable in the circumstances.

5.2.22 Sellers Remedies for Breach by the Buyer

If the buyer fails to perform an obligation, the seller can:

• require performance;

• give additional time for the buyer to perform;

• avoid the contract;

and claim damages.

5.2.23 Avoidance of the Contract

The contract will remain in force until a party declares it has been avoided.

This then releases both parties from their contractual obligations but it does

not deprive a party of the right to claim damages or to engage in dispute

resolution nor does it change any obligations which a party may have on

avoidance of the contract. A declaration of avoidance is simply a party telling

the other that it no longer considers itself bound by the contract.

 

Module 5: Sale of Goods and International Sale of Goods 91

5.2.24 Avoidance by Buyer or Seller

If it becomes apparent that one party is going to fundamentally breach the

contract, then the other party may declare that the contract is avoided. This is

subject to reasonable notice if time permits. A declaration of avoidance is only

effective if notified to the other party.

5.2.25 Avoidance by the Seller

The seller can declare the contract avoided, if the buyers failure constitutes a

fundamental breach of the contract. Similarly, if the buyer has been given

additional time to perform its obligation, then the seller can declare the

contract avoided if the buyer fails to pay the price or take delivery (or fails to

tell the seller what they are going to do) within that additional time.

If the buyer has, however, paid the price, then the seller loses the right to

declare the contract avoided except where:

• if the buyer has been late in performing its obligations, the declaration

takes place before the seller becomes aware that performance has been

made; or

• in respect of any other breach, within reasonable time after the seller

knew or ought to have known of the breach or after the end of any further

time that has been granted to the buyer.

5.2.26 Avoidance by the Buyer

The buyer can declare the contract avoided if the seller’s failure constitutes a

fundamental breach of contract or alternatively, if the seller has been given

additional time to perform its obligations and fails to perform them within that

additional time.

Where the seller has delivered the goods, then the buyer has a reasonable time

to declare the contract avoided in relation to the breach.

In instalment contracts, a failure to deliver an instalment (or delivering a

nonconforming instalment) may constitute a fundamental breach which will

entitle a party to declare the contract avoided.

5.2.27 Recovery of Damages

Under the Convention, damages are supposed to provide the equivalent of the

benefit of the contract. They are assessed as the amount of the loss suffered

arising from the breach including loss of profits, providing the damages are

foreseeable. That is, the damages were within the contemplation of the party.

If there is a breach, and the buyer has had to source goods from elsewhere

because of the breach, then the buyer can claim any higher price and expenses

in getting those other goods. Similarly, if the buyer defaults and the seller has

had to sell goods at a loss, the seller can claim the difference in price.

Like common law, a party must mitigate its loss.

 

92 GSN412: Business Law 1

5.2.28 Recovery of Interest

If a party owes money to the other and fails to pay it, then interest is

chargeable. The Convention does not, however, specify the interest rate to be

charged. This is a matter for the domestic law applicable to the contract.

Similarly, the right to require specific performance of the contract is a matter

for domestic law. The Convention specifically allows for this.

5.2.29 Private International Law (Domestic Law): Contracts

with a Foreign Element

It should not be difficult to determine which domestic law applies to a contract

in relation to international sales. This is matter which should be specified

exactly and precisely in the contract. Nevertheless, even if the parties have been

specific, it may not prevent courts in another country hearing a legal claim if

there is sufficient nexus (connection) between the contract and that

jurisdiction. This can create conflict of laws issues and it may be difficult to

determine what the proper law of the contract is. The tests set out in Bonython

v Commonwealth (1951) AC 201 is that in determining the proper law, it is the

system of law by reference to which the contract was made or that with which

the transaction has its closest and most real connection. So if the parties have

expressed the law that is to apply to the contract, then that law is regarded as

the “proper law”. [However, there may be foreign jurisdictions where this does

not apply.] If the parties have not expressly chosen the law to apply to the

contract, then the law infers that they intended that the proper law should be

the system of law which is most closely connected to the contract.

Generally, this is the law of the place where the contract was made but there

can be other circumstances taken into account such as:

• place of performance;

• place of payment;

• place of manufacture; and

• place of receipt.

This has to be gathered from the circumstances of the case.

Some jurisdictions, including Australia, have made certain laws mandatory so

that they cannot be excluded and must always apply. For instance, the

Carriage of Goods by Sea Act 1991 (Cth) is made compulsory by Australian Law

in relation the shipment of goods from Australia overseas. The parties are held

to have contracted according to the laws of Australia and this cannot be

modified or limited.

5.2.30 Issues for Managers

For some of the difficulties which you may encounter in dealing with a contract

in a foreign legal system (without using internationally agreed rules or a

commonly agreed ‘proper law’), see the article by Shun, Chinese Contract Law

[Appendix (xiii)].

He outlines some major differences between Chinese and Australian contract

law, for instance:

 

Module 5: Sale of Goods and International Sale of Goods 93

1. There is no statute or codification setting out the principles of

Chinese Contract Law;

2. There is no common law doctrine of binding precedent in

China;

3. China distinguishes between ‘economic contracts’ and

‘individual Contracts’;

4. There are differences between domestic ‘Economic Contracts’

and international ‘Economic Contracts’ in China;

5. There can be inconsistent regulations/enactments in China

concerning contracts;

6. The Chinese have used a variety of legal systems in making

their regulations;

7. The Chinese can, and do, use international trade principles in

negotiating contracts;

8. There are regional variations; and

9. There are many administrative practices (which are complex)

in China.

What this means is that Chinese contract law is complex and different from

common law systems. It makes it imperative in international trade to find

out the basis of the competing legal systems so as to choose an agreed

model

 

 

Module 6: Consumer law under the Trade Practices Act 95

MODULE 6: CONSUMER LAW UNDER THE TRADE

PRACTICES ACT

Introduction

This module is a fundamental topic as it is important for business managers to

understand their legal rights and duties, when purchasing or supplying goods

or services, that arise other than by contractual principles at common law.

We have studied common law and equitable rules of contract applying to

general arrangements but what are the additional obligations of certain

business entities in dealing with consumers on an everyday basis? How are

consumers protected against misrepresentations, fraud, or faulty goods or

services under the Trade Practices Act 1974 (Cth) (‘TPA’)?

Because of the failure of many common law principles of contract when applied

to mass consumerism, and the lack of equal bargaining power that these types

of transactions entail, the consumer protection provisions of the TPA were

enacted to protect consumers, and provide remedies to them in certain

circumstances.

Preview

In this module, there is an examination of the law relating to consumer

protection. The source of this law is primarily found in the TPA. This Act was

passed by the Commonwealth Parliament in 1974 and was a comprehensive

attempt to give protection to consumers in contracts for the supply of goods or

services and to prevent unfair practices in relation to consumer transactions.

Learning objectives

At the conclusion of this module you should be able:

1. To understand when the Sale of Goods Acts and Fair Trading Acts enacted

by the states, operate in lieu of the Trade Practices Act.

2. To understand the provisions of the Trade Practices Act 1974 (Cth) in

relation to consumer transactions.

3. To have an understanding of the unfair practices prohibited under the

Trade Practices Act

4. To be aware of the remedies available to consumers and others under the

consumer provisions of the Trade Practices Act.

5. To understand the implied conditions and warranties in consumer

transactions for goods or services.

 

96 GSN412: Business Law 1

Topic 6

Required Readings

G & F [2005] Ch 21 (pp 416- 444)7

6.1 Constitutional Limitations on Consumer provisions of TPA

See Appendix A (vii) – diagram of operation of TPA.

Additional readings

Latimer (23rd edn), ch. 7, pp492-494,

Turner 24th edn pp 344-346

6.2 Misleading and Deceptive Conduct & Other Unfair Practices

Additional readings

Griggs & Ors, (2nd edn) Ch 5 (pp 171-173)

Latimer (23rd edn), ch. 7, pp 494-537,

Turner 24th edn pp 346-366

Vermeesch & Lindgren (10th edn), ch. 22, paras 22.69, 22.70, 22.72, 22.84,

22.85, 22.87, 22.89, 22.93–22.98.

6.3 Implied Conditions and Warranties

Additional readings

Griggs & Ors, (2nd edn) Ch 5 (pp 169-190)

Latimer (23rd edn), ch. 7, pp 437-475.

Turner 24th edn pp 376-383

Vermeesch & Lindgren (10th edn), ch. 22, paras 22.69, 22.70, 22.72, 22.84,

22.85, 22.87, 22.89, 22.93–22.98.

6.4 Other Provisions

Additional readings

Latimer (23rd edn), ch. 7, pp 544-551.

Turner 24th edn pp 366-376

7 G & F [2003] Ch 18 (pp346-369), Ch 20 (396-415)