Reference no: EM133200336

CONSUMER PROTECTION

Problem 1

Empress Furniture Pty Ltd sells a range of furniture, and is especially famous for its couches. Empress Furniture promotes its newest range of couches in catalogues and in television advertisements, using the following statements, which are in large, bold letters:
• "The most stylish couches in the world"
• "Experience the luxury leather feel"
• "Now you can enjoy the luxury of leather for less"
• "$3,500 this week only*"

An asterisk (*) appears after "$3,500 this week only", and at the bottom of each advertisement there is a statement in very small print stating "plus $200 delivery charge". Empress Furniture does not allow customers to collect the couches - delivery by the store (at the customer's expense) is mandatory.

The small print in the advertisement also states that: "Furniture can only be returned if covered by Empress Furniture's 60 day warranty period". A sign with the same statement also appears in its showroom.

The couches sold by Empress Furniture are not covered in leather. Instead they are covered in a synthetic material that has the appearance and feel of leather. It is not as durable as leather and will peel over time.

Advise Empress Furniture whether it has breached sections 18 and 29 of the Australian Consumer Law, including references to any relevant legal cases to support your arguments.

Problem 2

Wei Peng is the owner of a successful graphic design business. Wei visits Shazaam Office Equipment to purchase a new, high powered multi-function device that is able to print, scan and photocopy to meet all of the needs of the business. Wei explains to Sam, the senior sales representative at Shazaam, that she needs a device that can print at least 30 colour pages per minute, whilst retaining very crisp quality text and images, as well as having a double-sided printing function. Sam discusses three suitable alternatives with Wei, and Wei decides to purchase one of the devices recommended by Sam. The device costs $5,999.

When Wei sets up the device, she discovers that it can only print 30 pages per minute in black and white - colour printing is a lot slower at 15 pages per minute - and there is no double-sided printing function. Wei is devastated. Wei has an urgent job that needs printing,

so she sends it to the device. All of a sudden while printing there is a spark from the device, that causes a small fire to start. Wei quickly extinguishes the fire, but there is damage to the office wall that will need repairing and painting. The device no longer works and Wei would like her money back, as well as compensation for the damage to her wall. Sam tells Wei that is not possible and shows Wei their policy which states:

"Shazaam limits its liability to the cost of repairing or replacing any faulty goods."

Advise Wei of her rights, and any relevant remedies, under the consumer guarantee provisions of the Australian Consumer Law. Do not discuss other parts of the Australian Consumer Law such as misleading or deceptive conduct. Please ensure that you use relevant authority in support of your answer (ie: cases and/or legislation).

Problem 3

Heartz Kids produces a range of meals and snacks for babies and toddlers (aged 1-3 years). They have introduced a new line of snacks called "Chewy Fruit and Veg Cubes". The packaging for the Cubes has the following statements on the front of the box, in large, bold letters:
• "healthy and nutritious*"
• "developed by nutritionists"
• "essential for normal brain development and growth"
• "Heartz Kids are the happiest in the world"

An asterisk (*) appears after "healthy and nutritious", and on the back of the box there is a statement in very small print stating "*Eat in moderation due to the high sugar content". A list of ingredients and nutritional values is also on the back of the box in small print. It states that the product has 68% sugar content, as it is made from mostly fruit juice concentrate and pastes. This level of sugar is much higher than what is recommended for toddlers according to World Health Guidelines.

The front and back of the box have lots of pictures of fruit and vegetables, as well as toddlers playing happily.

Advise Heartz Kids whether they have breached sections 18 and 29 of the Australian Consumer Law, including references to any relevant legal cases to support your arguments.

Problem 4

Alice has just moved to Australia and is interested in getting broadband access. She goes into Better Computer Store, and asks Carl, a recently hired salesperson, if there is a wireless router that he recommends. Alice states that the modem absolutely must have 5n-wireless, a new broadcasting standard that her computer is capable of using. Carl, worried that he will seem inexperienced, states that he has a large amount of experience in this area and recommends the Dove wireless router, a bargain at only $300. Alice buys the Dove but is disappointed that the device does not use 5n wireless, but only an older 4n technology. Alice is upset, as 4n is significantly slower than 5n.

When Alice attempts to return the device to Better Computer Store for a refund, the manager, Erik, points to a sign which reads "In all cases except a malfunctioning device, all returns will be for store credit only." As the router is working properly, Erik refuses to give Alice a refund.

Advise Alice as to whether she may utilise Consumer Guarantees to secure a refund. DO NOT discuss any potential claims that may be made under section 18 or 29 of the Australian Consumer Law.

Problem 5

Alpha Dog Ltd sells a range of pet food. Alpha wants to expand its line of products to include premium pet food brands, which will be more expensive to buy than its current range. Alpha promotes its latest pet food offerings in advertisements and on the packaging of its products.

These advertisements and packaging feature the following FIVE statements or representations:
I. Large pictures of gourmet foods, including a cooked chicken breast, T-bone steaks, and lamb cutlets, in a dog food dish
II. "Your dog never had it so good -- The most luxurious dog food in the world!"
III. "Ethically sourced ingredients -- Made from free-range chickens"
IV. "Made in Australia"
V. "With the riboflavin that dogs need for shiny coats!"

The products do contain chicken, beef, and lamb, but not of the premium cuts pictured on the advertisements. The chickens used to make the products were raised and slaughtered in Papua New Guinea. The chickens were allowed to freely range for a portion of their lives, but not when they were fully grown. The chicken was cooked and prepared in Australian factories.
There is no scientific evidence that riboflavin is necessary for dogs to develop shiny coats.

Advise Alpha whether they have breached sections 18 AND 29 of the Australian Consumer Law for EACH OF THE FIVE STATEMENTS OR REPRESENTATIONS, including references to any relevant legal cases to support your arguments.

THE LAW OF TORTS

Problem 6

Crystal Cruises operates a business specialising in sailing cruises around Phillip Island. The cruise stops at various places to allow passengers to go swimming and snorkelling. In January 2020, Ted is a passenger on a cruise. Unfortunately, while snorkelling, Ted is stung by a poisonous bluebottle jellyfish on his upper back, neck, and face, and suffers a severe reaction. He incurs medical expenses, including the cost of an emergency ambulance, totalling $1,800, and a loss of income of $900. He also lost his underwater camera worth $1,100 as he dropped it due to the pain of being stung by the jellyfish.

An investigation into the matter reveals that during the summer months, hundreds of these jellyfish are known to be present in the waters around Phillip Island. There are usually around 10,000 cases of bluebottle stings each year on the east coast of Australia, but most of these stings, while painful, do not need emergency medical treatment. The number of stings per year around Phillip Island is estimated to be 500.

Crystal Cruises has never had a passenger get stung before, in more than 10 years of operating. Crystal Cruises conducts a safety briefing at the start of the cruise, and recommends that passengers wear a wetsuit to protect themselves when swimming and snorkelling during the summer months. However, Crystal Cruises allows passengers to swim and snorkel without wearing a wetsuit. The wetsuits that are provided by Crystal Cruises do not cover the neck, face, hands or feet. Wetsuits providing greater protection, and which cover the neck, hands, feet and most of the face are available, but they are five times the price of a normal wetsuit. Ted was not wearing a wetsuit when he was snorkelling.

Advise Ted about his prospects of success in an action against Crystal Cruises in the tort of negligence. Please discuss all elements of a negligence action, and any defences that might apply. Please ensure that you use relevant legal principles and authority in support of your answer (ie: cases and/or legislation).

Problem 7

Romeo Constructions is a property developer. Before acquiring a substantial property in the city for the purposes of redevelopment into new apartments, Romeo Constructions contacts the local council to obtain copies of zoning restrictions. The council provides Romeo Constructions with details of the zoning restrictions for the wrong property by mistake.
Romeo Constructions purchases the block, but later discovers that it will not be able to develop the property as planned due to heritage restrictions that prevent the existing building from being demolished. There are also strict requirements that must be met for any changes to the building. Romeo Constructions would not have purchased the block if it had known of the heritage restrictions, and the amount that it paid for the property was $900,000 over the property's true value as a result of the council's mistake.

Advise Romeo Constructions whether the local council owes Romeo Constructions a duty of care in the tort of negligence. Do not discuss other elements of the tort of negligence when answering this question. Please ensure that you use relevant legal principles and authority in support of your answer (ie. cases and/or legislation).

Problem 8

Aussie Barracuda specialises in designing and making handcrafted surfboards. The surfboards are all individually made by hand, with unparalleled attention to detail and the highest quality craftsmanship. Aussie Barracuda employs a small team of board makers who each have several years' experience in handcrafting surfboards. While making the surfboards, there is a small risk that hot fibreglass resin may splash during the shaping and moulding process, as well as small particles flying in the air during the sanding process.

Aussie Barracuda has issued safety glasses to all of its board makers, with strict instructions that the glasses must be worn at all times within the factory. They have also placed a sign in the factory work area which states: "Safety equipment must be worn at all times." The factory supervisor, Gary, rarely checks to see whether the board makers are wearing their safety glasses.

One of the board makers, Jessie, is splashed in the face and eye with hot fibreglass resin. He jumped up screaming, and then collapsed in the work area, in the process knocking his brand new smart phone to the floor, where it was smashed to pieces. The phone was valued at
$1,200. Jessie required hospitalisation, incurred medical expenses, and a loss of income, as he was unable to work for two months.

An investigation into the matter discovers that Jessie was not wearing the safety glasses, and, while working, Jessie was also sending text messages and listening to music on his new smart phone. It is also discovered that instead of safety glasses, protective face masks could have been issued by Aussie Barracuda, which would have protected the whole face, not just the eye area, but these would have been 5 times the cost of the safety glasses. The investigation also shows that this type of accident has never happened before at Aussie Barracuda in more than 25 years of operations, but on average occurs in the industry approximately once every 10 years.

Advise Jessie about his prospects of success in an action against Aussie Barracuda in the tort of negligence. Please discuss all elements of a negligence action and any defences that might apply. Please ensure that you use relevant legal principles and authority in support of your answer (ie. cases and/or legislation).

Problem 9

Epic Consultants are looking to buy commercial premises for a new office. They consult with Sunshine Real Estate, who assists Epic Consultants to find suitable premises in the suburb of their choice. Before making an offer, Sunshine Real Estate prepares a report for Epic Consultants setting out comparable sales in the area. Epic Consultants uses this report to decide how much to offer to buy their preferred premises. The offer is accepted straight away by the vendor of the premises, without any negotiation. Later Epic Consultants discovers that Sunshine Real Estate typed in the wrong postcode when retrieving the comparable sales data for the report, which resulted in Epic Consultants paying too much for the new premises.
They paid more than $50,000 above the current market rate.

Advise Epic Consultants whether Sunshine Real Estate owes Epic Consultants a duty of care in the tort of negligence. Do not discuss other elements of the tort of negligence when answering this question. Please ensure that you use relevant authority in support of your answer (ie. cases and/or legislation).

Problem 10

Amazo Ltd makes the highest quality blown glass figurines. The figurines are all individually made by hand. Amazo has a dedicated team of experienced glass blowers. However, as with all glass blowing, there is small risk that the glass bubble will pop and send glass shards in the air. Glass blowers need to cool equipment using water, and sometimes this water spills on the ground.

Amazo has a strict policy that safety goggles must be warn at all times when on the glass blowing floor of the factory. The factory safety supervisor, Bernard, checks once every morning to see that the glass blowers are wearing their safety glasses. However, there are no signs in the workplace about safety equipment. Bernard also patrols once every 3 hours to check for spilled water. Spills are mopped up on these patrols, but not at other times.

One afternoon, Caj, an experienced glass blower working for Amazo, slips on a puddle of water that had spilled earlier. This causes Caj's arm to rapidly move and causes the glass bubble Caj is working on to shatter, sending a glass shard into Caj's eye. Caj required eye surgery in hospital, incurred medical expenses, and suffered a loss of income, as Caj was unable to work for 6 weeks.

An investigation into the matter discovers that David, another glass blower, accidentally spilled water on the floor about 2 hours before Caj's accident. Moreover, Caj was not wearing the safety glasses at the time of the accident. The investigation reveals that several workers have complained that the safety glasses fog up in the afternoon and make it difficult to see as the factory floor heats up. There are non-fog safety glasses. However, the cost of non-fog safety glasses is 15 times the cost of regular safety glasses.

The investigation also shows that reports of workers slipping on spilled water are fairly common, occurring about three to five times a year, but that most of these have been minor injuries, not requiring any medical treatment.

Advise Amazo about their prospects of success in defending an action brought against them by Caj in the tort of negligence. Please discuss all elements of a negligence action and any defences that might apply. Please ensure that you use relevant legal principles and authority in support of your answer (ie: relevant cases and legislation).

Problem 11

Axe Land would like to expand its business selling musical instruments. Axe has approached Big Bank to ask for a $500,000 loan to support this expansion. Big Bank requires numerous business planning and financial statement documents from Axe. The documents Axe provides indicate that Axe is in a sound financial position. These documents were prepared by Cento Accounting firm. Axe did not tell Cento that the documents would be used as part of a loan application to Big Bank. Cento routinely prepares documents that are used in loan

applications, but did not know of Axe's specific intention to seek a loan. Big Bank relies on the documents and decides to give Axe the requested loan.

Later, Big Bank discovers that Cento had failed to take into account a large judgment against Axe arising from a labour dispute. The result was that the financial documents prepared by Cento overstated Axe's worth by $10 million. This meant Axe was in fact in a poor financial position and the business expansion made the situation worse. Axe is unable to make its repayments for the $500,000 loan and defaults. As a result, Big Bank has suffered a significant loss.

Advise Big Bank whether Cento Accounting owes Big Bank a duty of care in the tort of negligence. DO NOT discuss other elements of the tort of negligence when answering this question. Please ensure that you use relevant authority in support of your answer (ie: cases and/or legislation).

THE LAW OF BUSINESS ORGANISATIONS

Problem 12

Matt and Tim operate a shop selling LED lights, bulbs and tubes, called "Bright Light LED Lighting" ("Bright Light"). Their business is structured as a partnership. They agree that Tim is responsible for retail sales and customer service, and that Matt is responsible for purchasing, packing and storing.

Chu bought an LED light from Bright Light, which she installed in her garage. She was injured when the light exploded in the garage, leaving her unable to work for several weeks. The explosion also damaged her car. Matt packed the light for Chu's order. He mistakenly packed it with the wrong transformer. Chu seeks damages to cover medical expenses, lost wages and pain and suffering. She is also seeking compensation for the damage caused to her car. Tim argues that the damage is solely the responsibility of Matt.

Advise whether Tim can also be held liable to Chu under the law of partnerships. Refer to relevant legislation and appropriate cases to support your argument. (Do not discuss what Chu would need to establish to succeed in an action for the tort of negligence.)

Problem 13

Chris, Mitchell and Lachlan operate a herb farm in the Yarra Valley. Their business is structured as a partnership. They are equal partners in the partnership and have agreed that each may make purchases for the business up to the value of $5,000. Any purchase above
$5,000 for the business must be agreed to by all partners in advance. One day, Chris decides on his own initiative to buy a second hand tractor in order to increase productivity. The tractor cost $25,000. He did not consult the others about the purchase and bought the tractor on credit with finance provided by the seller at a rate of interest five times the normal
rate. When the others found out, they were furious.

Advise Mitchell and Lachlan whether they can be held liable for the purchase of the tractor under the law of partnerships. Please ensure that you use relevant authority in support of your answer (ie: cases and/or legislation).

Problem 14

Yellow Leaf Pty Ltd is a commercial landscaping business. The directors of the company are Summer, Adam and Jackson. The market it operates in is highly competitive and Yellow Leaf Pty Ltd has been unsuccessful in securing the last 5 jobs that it has bid for and is experiencing trading losses. It has several unpaid invoices that are due for items such as pavers and water features, for which it has received final demand notices. It has fallen behind in repayments
for its major bank loan. In an effort to save money, the directors buy a huge quantity of bluestone pavers on sale at 50% off their normal price, as well as discounted trees, from a new supplier. When payment is due 30 days' later, Yellow Leaf Pty Ltd is unable to pay and has fallen further behind in its bank loan. The bank forces the company into liquidation.
Summer has been unable to attend the most recent board meetings as she is receiving treatment for cancer. Adam and Jackson have attended all recent board meetings.

While a director of Yellow Leaf Pty Ltd, Jackson set up his own landscaping company, Green Fields Pty Ltd, without informing Yellow Leaf Pty Ltd. Jackson is the sole director and shareholder of Green Fields Pty Ltd. It turns out that Jackson has been submitting tenders in competition with Yellow Leaf Pty Ltd, after seeing Yellow Leaf Pty Ltd's tenders, and has been undercutting Yellow Leaf Pty Ltd's prices to successfully win the tenders for Green Fields Pty Ltd. Jackson has also been using customer lists belonging to Yellow Leaf Pty Ltd to directly approach customers of Yellow Leaf Pty Ltd and has been offering them discounted rates for future work, resulting in many customers dealing with Green Fields Pty Ltd instead of Yellow Leaf Pty Ltd. Jackson thought he was engaging in fair competition and was acting honestly. He did not have any intention to deceive Yellow Leaf Pty Ltd.

(a) Advise Summer, Adam and Jackson whether they can be held liable for the debts of Yellow Leaf Pty Ltd under the Corporations Act 2001 (Cth). Please ensure that you refer to relevant sections of the legislation and any relevant cases to support your answer.

(b) Advise Jackson whether he has breached any of his obligations under the Corporations Act 2001 (Cth) in connection with the establishment and operation of Green Fields Pty Ltd, even if he was acting honestly. Please ensure that you refer to relevant sections of the legislation and any relevant cases to support your answer.

Problem 15

Adam, Beatrice, and Cina are partners in a bakery business, Edible Everything. All are equal partners and have agreed that each may make purchases for the business up to the value of $5,000. In order to make a purchase above that amount, all partners must agree. Adam is in a shop when he sees a special deal for the Donut5000, an expensive donut press that usually retails at $10,000. The machine costs $7,000 while on sale. Adam, sure that the other partners would approve of the purchase, went ahead and bought the Donut5000 without consulting the other partners first. The purchase was on credit, with finance provided by the seller at a rate of interest 10 times the normal rate. When the other partners found out, they were furious that Adam entered into such a bad financing arrangement.

Advise Beatrice and Cina whether they can be held liable for the purchase of the Donut5000 under the law of partnerships. Please ensure that you use relevant authority in support of your answer (ie. legislation and cases).

Problem 16

Apex Ltd runs a series of high-priced hotels and casinos. The directors of the company are Bianca, Carlos, and Dezi. Recently the directors decided to build a new luxury hotel, the Elam. At the time when the directors decided to build the Elam, Apex had fallen behind in repayments for its major bank loan. There had been a general downturn in casino attendance and the company had several unpaid bills, for which it had received final demand notices.

However, before deciding whether to build the Elam, the directors arranged for a report from Fiona, the company's accountant. Fiona's report stated that the company was in a sound financial position.

Bianca arranged for the building of the Elam and sought three construction quotes. However, she awarded the contract to a company called Great Spire Pty Ltd, and ignored the other two quotes she received. Bianca holds many shares of Great Spire, but she did not tell Carlos or Dezi this. Bianca is present for the meeting where the directors decide to award the contract to Great Spire. Bianca ensures that Great Spire's prices are competitive, so she does not believe that she needed to disclose her connections with Great Spire. In light of the large expense of building a luxury hotel, the contract was very profitable for Great Spire.

Unfortunately, Apex is unable to pay the loan it took out to construct the Elam. The bank forces the company into liquidation.

(a) Advise Bianca, Carlos, and Dezi whether they can be held liable for the debts of Apex under the Corporations Act 2001(Cth). Please ensure that you refer to relevant sections of the legislation and any relevant cases to support your answer.

(b) Advise Bianca whether she has breached any of her obligations under the Corporations Act 2001 (Cth) in connection with awarding the building contract to Great Spire. Please ensure that you refer to relevant sections of the legislation and any relevant cases to support your answer.