Critical Analysis of A ‘Real World’ Commercial Law Problem
NSTRUCTIONS TO STUDENTS:
For the following hypothetical problems, you are required to identify legal issues, state relevant legal principles and apply the relevant law in order to reach a conclusion for the client. You are asked to advise parties, including possible remedies available based on the facts of the hypothetical scenario. The assignment questions will test your ability to examine a factual situation, understand the legal issues that might arise, research the case law and legislation and present a thorough analysis and a logical, coherent argument that applies relevant law to reach your conclusions. The Hypothetical Questions will cover specific questions relating to content from Modules 2 and 4 (Australian Consumer Law and Business Structures respectively).
In your response to BOTH Questions 1 and 2, you are required to use the full ILAC method. The maximum word limit for Question 1 is 1,500 words, and the maximum word limit for Question 2 is also 1,500 words.
Ulysses wants to buy a new motorcycle. Ulysses visits Fagan’s Motorcycles Pty Ltd on the ‘Magic Mile’ and takes a demonstration model 2018 Triumphant Bonneville motorcycle for a ride to the Gold Coast and back.
Impressed with this bike but not with its high price, Ulysses then takes a second-hand naked (ie. without fairings) red and white 2010 Triumphant Bonneville, sporting a fuel-injected 865cc engine, a sissy bar for a passenger or to support luggage, and new white wall tyres once around the block.
The very enthusiastic salesman, Roger tells Ulysses that this 2010 motorcycle is in excellent condition, has had (so far as he recalls) only one owner, has genuinely low kilometres (3.900km); that it comes with a full 12-month registration; and has been fully maintained. Roger adds, “This could all be yours, Ulysses, for a ‘drive away’ price (including stamp duty and transfer fees) of only $11,000. That includes our special rebate of $500 for all purchasers over 60 years of age, which you obviously are. Alternatively, we have finance available on the best terms you’ll ever get in Australia, even from the banks. If you decide on that option, you can save some money – not that this baby will burn a hole in your budget anyway. We give you special low-cost servicing on all the bikes we sell, and we guarantee that we have every spare part that you could ever want here in-store. And if you do decide to change your mind (you’d be crazy to, of course), there’s a ‘cooling off’ period of 24 hours after you’ve signed the purchase contract.”
Ulysses tells Roger that he just wants a good reliable motorcycle for daily commuting as well as long distance country driving, and that the two bikes seem to him to be essentially the same. Roger smiles and nods but does not contradict him and, based on this response, Ulysses decides to purchase the 2010 Triumphant Bonneville and pays a deposit of $500.
An ever-smiling Roger presents Ulysses with a number of documents, all of which Ulysses, who is neither commercially savvy nor financially literate, signs. The first is a Notice, which states:
the motorcycle’s make (Triumphant), model (Bonneville), year of manufacture (2010);
the amount of Ulysses’ non-refundable deposit of $500;
that the motorcycle had two owners previously, and that neither the odometer nor the engine has been replaced; and
that the ‘class B’ statutory warranty (which protects Ulysses from financial loss if the motorcycle is faulty and has a built date of more than 10 years before the day of its sale) expires after 1 month or the first 1,000km, whichever occurs first.
The second document is a Sale Agreement, which includes:
a description of the motorcycle – naked (ie. without fairings) red and white 2010 Triumphant Bonneville (VIN FATTJ9109G9999007), with a fuel-injected 865cc engine;
a notice about the 24-hour cooling off period;
a statement confirming that Ulysses has clear title to the vehicle;
a safety certificate (previously called a roadworthy certificate); and
a clause limiting the liability of Fagan’s Motorcycles Pty Ltd’s to ‘the supply of equivalent goods.’
The third document is a Finance Agreement, which states that Ulysses must pay $370 per month over the next five years. It makes no mention of an annual equivalent interest rate for the finance.
A proud Ulysses mounts his newly acquired Triumphant Bonneville and rides it around to his friend Jenny’s place to show it off. Jenny lives only about 2 kilometres from the Fagan’s dealership.
Jenny is very impressed and, being a motorcycle enthusiast herself, wants a ride. She becomes concerned when the electronic ignition does not fire, so that the motorcycle cannot start. After about 15 minutes, however, the two of them get the engine going, and Jenny sets off to ride around the block. As she is riding from her driveway onto the road, both she and Ulysses hear a loud clunk. She brakes, bringing the motorcycle to a stop, and looks behind her. The sissy bar and one of the rear-view mirrors have fallen off the motorcycle and are lying in the gutter. Another loud clunk comes from the engine, and the motorcycle snuffs. Neither Jenny nor Ulysses can start it again.
Neither Jenny nor Ulysses owns a phone. An hour later, a hot and sweaty Ulysses arrives at the Fagan’s dealership, pushing his newly acquired motorcycle. Unfortunately, the dealership has closed, and Roger has apparently gone home for the weekend. Ulysses is incensed, because he is working shift work at nights for the next three days, and will not be able to come back to the Fagan dealership until four days’ time.
On the fourth day, Ulysses returns to the Fagan’s dealership, only to be told by Bruce, the mechanic in the adjacent workshop, that the motorcycle has probably not been ridden since 2010, and that the rubber seals inside the engine may well have corroded. Bruce adds that the bike may even have been flood damaged, although it is impossible to tell at this point in time. He advises Ulysses that motorcycle could be repaired, but the cost would probably exceed $21,000, and that Ulysses may well be better off spending that money on a new bike.
Ulysses confronts Roger, who smiles benignly and says to Ulysses, “That’s the luck of the draw with a second-hand bike, mate! ‘Buyer beware’ and all that! Oh – I’ve only just found out
that there’s an outstanding charge over your bike, and that MegaBank wants to repossess it because the previous owner failed to pay off his loan on your bike.”
Now Ulysses is very worried, since not only is he unable to afford the $21,000 to repair the bike, but he thinks that MegaBank might repossess his bike anyway, leaving him with nothing.
Advise Ulysses as to his rights, and Fagan’s Motorcycles Pty Ltd’s and/or Roger’s obligations, under the Australian Consumer Law.
Gone With the Win Financial Planning (GWW) is a firm of financial planners and advisors who promoted their services as having provided “exclusive, specialized financial advice to high net wealth individuals, professionals and small business for fifty years. Principals with Principles, GWW today deserves its reputation as a market leader in financial advisory services, future-proofing your life-balance through exceptional service, exceptional people, integrity, professionalism and outstanding competence.” The firm’s letterhead showed that GWW is authorised to operate under PMTED Financial Pty Ltd’s Australian Financial Services Licence (No. 987654), issued by the Australian Securities and Investment Commission (ASIC) in 1998.
Wilma Fudge, a principal with GWW, is concerned about her liability in providing advice, and wants to ensure that she has adequate asset protection so that none of her key assets are at risk.
Wilma comes to you for advice, wanting you to propose a structure for GWW’s and her own business affairs to achieve this, and addressing any potential issues of vicarious, joint or several liability that could arise. Advise Wilma, making explicit any assumptions you may need to make.
This Law Assignment
Ulysses purchased a second-hand motorcycle from Fagan’s Motorcycles Pty Ltd. The sale agreement includes a number of documents, including a Notice, Sale Agreement and Finance Agreement. The motorcycle is faulty, having a broken electronic ignition and a faulty sissy bar, which falls off causing an accident. The seller made representations about the quality and condition of the motorcycle, which may be misleading or deceptive conduct under the Australian Consumer Law (ACL). The issue is whether Ulysses has any legal remedies against the seller.
The ACL applies to consumer transactions, including the sale of goods, and protects consumers from misleading or deceptive conduct by traders. Section 18 of the ACL prohibits misleading or deceptive conduct in trade or commerce. Section 29 of the ACL prohibits false or misleading representations about goods or services. A representation may be express or implied, and can be made by words, conduct or silence. A breach of these provisions may give rise to a right to damages or other remedies, including rescission or termination of the contract, under section 236 of the ACL.
The Sale of Goods Act 1896 (Qld) governs the sale of goods in Queensland and provides implied warranties of title, fitness for purpose and merchantable quality. A seller must ensure that goods are of merchantable quality, meaning that they are fit for their intended purpose and free from defects, and comply with any description or sample provided. A breach of these warranties may give rise to a right to damages or other remedies, including rescission or termination of the contract, under section 54 of the Act.
Application of Law:
Fagan’s Motorcycles Pty Ltd made representations about the quality and condition of the motorcycle, including that it was in excellent condition, had genuinely low kilometres, and had been fully maintained. These representations may be misleading or deceptive conduct under section 18 of the ACL, and false or misleading representations under section 29 of the ACL. The fact that the motorcycle was faulty, having a broken electronic ignition and a faulty sissy bar that fell off causing an accident, may indicate that the motorcycle was not of merchantable quality under section 54 of the Sale of Goods Act 1896 (Qld). Ulysses may be entitled to a right to damages or other remedies, including rescission or termination of the contract, under section 236 of the ACL or section 54 of the Sale of Goods Act 1896 (Qld).
The Notice provided by Fagan’s Motorcycles Pty Ltd may also be misleading or deceptive conduct under the ACL. The Notice stated that the motorcycle had two owners previously, but Roger had told Ulysses that it had only one owner. The Notice also stated that the ‘class B’ statutory warranty expires after 1 month or the first 1,000km, whichever occurs first, but did not explain what this warranty covered. These misrepresentations may give rise to a right to damages or other remedies under the ACL.
The Sale Agreement includes a clause limiting the liability of Fagan’s Motorcycles Pty Ltd to ‘the supply of equivalent goods.’ This clause may be unfair contract terms under the ACL, which prohibits terms that are unfair or one-sided in consumer contracts. Ulysses may have a right to seek a court order to have the clause declared void or unenforceable.
The Finance Agreement provided by Fagan’s Motorcycles Pty Ltd does not mention an annual equivalent interest rate for the finance. This may be a breach of the National Consumer Credit Protection Act 2009 (Cth), which requires lenders to disclose the annual percentage rate (APR) and other fees and charges in consumer credit contracts. Ulysses may have a right to rescind or terminate the Finance Agreement, or seek compensation for any loss or