Question 1

In April 2016, the Federal Court of Australia found that the maker of Nurofen, Reckitt
Benckiser, breached section 18 of the Australian Consumer Law “and another section of the
ACL”. The Federal Court found Nurofen's "specific pain” range misled consumers because
they all contained the same active ingredient — ibuprofen lysine 342mg — and did the same
thing. Nevertheless the “specific pain” range costs twice as much as the “non-specific”
general Nurofen product. The products promised to relieve back pain, period pain, tension
headache or migraine, even though it is not possible to specifically target pain relief in such a
manner. It was admitted by the ACCC that if a consumer looked carefully he or she would
have noticed small print on the packets that said that the active ingredient in each of the
products was the same.  

The ACCC is responsible for prosecuting the manufacturer in the Federal Court. What
arguments do you believe the ACCC would have presented to the Court in relation to the
breach of s18? Refer to relevant cases and statutes.

(10 marks)

Answer Guide

Main issue concerns ACL sections 18 and s29(1)(a)

The arguments that the ACCC would make in relation to s18 would be similar to those used
in cases such as ACCC v TPG [pg 291], ACCC v Coles pg 293], ACCC v Turi Students should
indicate:
(a) what misleading conduct means – lead into error; and
(b) discuss how misleading conduct is established – use TPG/Coles case – determine
what the target audience is (reasonable and ordinary consumers – not necessary to have a
pharmaceutical background) and then ask what is the “dominant message” to that
audience (as in Coles and TPG). Small print won’t save RB if the dominant message is that it
is better to pay a higher price for the specific kind of nurofen, bearing in mind we are talking
about an item that normally is a quick purchase (like bread in ACCC v Coles or chips in Apand
v Kettle Chips), one that the consumer would not examine carefully (unlike the lounge suite
in Parkdale v Puxu)

Question 2

Ashraf Ghani completed a diploma in Cooking and Baking at William Anguish College.
Immediately after graduating he set up his own bakery in Dandenong that he called “Kabul
Breads”. A few months later as things were going well, Ashraf decided to expand his
business. Around that time he met an old Afghani friend, Shah Masood, who was an
accountant and financial adviser. They discussed Ashraf’s expansion plans and Shah quickly
offered to review his financial situation and prepare a business plan. As Ashraf was
financially ignorant and needed expert guidance, he accepted Shah’s offer and gave him his
financial records.

Shah prepared a financial report and advised Ashraf that he was in a sound financial position
and could expand his business. He recommended that Ashraf borrow money in order to set
up a new bakery on fashionable Lygon Street in Carlton. Ashraf trusted his friend and
decided to act on the advice. He borrowed $500,000 from “For You Only”, a small credit
union located in Springvale that provided loan and overdraft facilities. “For You Only” used
the financial report prepared by Shah to offer a loan to Ashraf. Ashraf signed a five-year
lease.

Soon after opening his new shop, Ashraf realised that people who visit the Lygon Street area
generally only buy traditional Italian food and bread – there was no market for Afghani
bread. Ashraf soon came under financial stress and blamed Shah for his situation. Shah
admitted that he had not adequately factored in Ashraf’s pre-existing debts and had
underestimated the significant costs associated with setting up the new business. Shah
advised Ashraf to terminate the lease and inform “For You Only” that he would be unable to
repay the loan. “For You Only” is faced with significant losses.

Advise Ashraf and “For You Only” about their prospects of success in an action against Shah
in the tort of negligence. Refer to relevant cases and statutes

(15 marks)

Answer Guide

Students should examine the duty of care question vis-à-vis

(A) Ashraf

(i) Special Relationship

Students are expected to distinguish the two-party situation (Hedley Byrne [pg 380] /MLC v
Evatt/Shaddock[pg 382]) that affects the relationship between Shah- Ashraf
– the“special relationship”and the criteria outlined by Barwick in MLC v
Evatt & Shaddock’s case.
Better students may discuss the indeterminancy issue (Ultramares) for the reason why D v S
neighbour principle is not applicable
Here we look for a “special relationship"
 Serious matter
 Speaker realizes that he/she is trusted
 Reasonable reliance.

In this question it would most likely satisfy the above test. Duty of care likely.

(ii) Breach

Having decided there was a duty of care, discuss whether the duty has been breached.
Under common law or statute the question is whether the defendant has done what a
reasonable person, equipped with the same skills and expertise expected of a person
exercising a particular trade or profession, would do?: Rogers v Whitaker

Statutory defence – a brief discussion of the defence for professionals providing advice (ss
59-60) - defendant can have a defence (once breach has been established) that he or she
acted in a manner widely accepted by peer professional opinion. It is unlikely that Shah
would have satisfied the common law test or be able to plead the s 59 defence.

(ii) Causation and Remoteness

(a) Causation – obvious - Ashraf borrowed the money and leased the shop and set
up the web page on the strength of the advice given by Shah.

(b) Remoteness - common law and the statute require that the loss not be too
remote from the breach: Wagon Mound. The critical question that must be
raised is whether the damage was “reasonably foreseeable” on Wagon Mound
principles. It is likely that Ashraf’s losses referred to above satisfy the
remoteness test.

(iii) Defences

(a) Contributory negligence – it is possible that Shah may argue that Ashraf contributed
to his loss by failing to take reasonable precautions against a foreseeable risk. The
statute provides that the same principles that apply to determine a breach of duty
apply to determine whether there has been a failure to take reasonable care for
one’s own safety. On the facts given there is not sufficient evidence to suggest
Ashraf should have sought a second opinion.

(B) “For You Only”

Shah is not directly aware of the plaintiff “For You Only” and there is no “antecedent
relationship” (San Sebastian[pg 383]). Focus on the principles of Esanda v PMH[pg 385] – D
knew or ought to reasonably have known that the advice would be communicated to P (or a
class to which P belongs) for a purpose that would be very likely to lead P to enter into a
transaction of the kind that P does enter into, would act on it and suffer loss if the advice was
careless
 No intention to induce action/reliance
 Mere knowledge is not enough.

On these facts, it is unlikely that a duty of care would arise.

Question 3

George and Jacob are partners in a superannuation advice practice known as “Super Men’.
Bronwyn, an enthusiastic supporter of the alternative technology, sought advice about the
financial benefits of investing some of her super funds in a wind farm project that was
looking for investors. George advised that in his view the project was secure and she would
receive a 20% per annum return. Bronwyn invested a significant amount of her super money
in the project. It never returned 20% and eventually she lost most of it when the founders
went missing. George should have known that the returns would not exceed 5% and he
under-estimated the risk. Bronwyn seeks your advice about whether she should sue Jacob
and George.

Is Jacob liable under the Partnership Act for George’s negligent advice to Bronwyn? Refer to
relevant cases and statutes
(10 marks)

Issues: s14 all partners liable for wrongful act and omission committed by any partner- in
the ordinary course of the business of the firm- being a financial planning practice then this
could include structuring advice for B’s investment; or is done with the authority of the
partners- this probably the case but no evidence of this in problem.

S16 Partnership Act - liability under s14 is joint and several meaning that B can sue J
individually or together or pick one of them to sue. J cannot avoid liability.

Question 4

Ace Cleaning Ltd (AC) was established in 2010. It specialises in office cleaning in the CBDs of
several states. It has two directors (Ellie and Abdul) and Ang Lee is the CEO. The company
secretary is Renae. The company was very profitable for the first few years of operations
and in February 2015 entered into a contract with Cleaning Systems Ltd (CS) to purchase a
new vacuum and washing equipment system for $5 million payable over three years.

In April 2016 AC was facing financial difficulties – indeed, it had the appearance of
insolvency: it couldn’t pay its cleaning suppliers and the bank was dishonouring its cheques.
Nevertheless, Ellie and Ang Lee committed to a $300,000 advertising campaign, genuinely
believing that it would help boost sales. Abdul was not involved in this decision as he
decided to visit his dying father back in Malaysia. Unfortunately, the campaign did not
produce the required results and AC has been put into liquidation.

Advise Ellie, Abdul and Ang Lee whether they can be made personally liable for the money
owed for the advertising campaign. Refer to relevant cases and statutes.

(10 marks)

Personal liability of directors is rare. One instance is where the directors have breached the
insolvent trading provisions of the CA: s.588G. Students to discuss all relevant provisions.
Company appeared to be insolvent (couldn’t pay suppliers, bank dishonouring its cheques
etc). In regard to Ang Lee’liability and whether he can rely on the defences, need to ask
whether his absence is a ‘good reason’ for the purposes of s.588H(4). If insolvent trading
proved and defences not available, the liquidator of the company may, inter alia, seek
compensation from the directors as a debt to the company.

Question 5

Nancy is in her final year at university. In order to graduate in November, she must submit
her final folio of work to her supervisor by October. Nancy takes her work to Casey to be
professionally bound. She explains to Casey the importance of having the work completed
by 1 October, and Casey assures her that this can be done. The binding process is delayed
due to technical issues and the bound folio is not delivered to Nancy until late October. As a
result, she is unable to graduate until February. Her parents then have to cancel their flight
from Perth to Melbourne and lose a deposit of $500. Nancy telephones Casey and tells him
that he has ruined her life and that he owes her parents $500 for their lost deposit. Advise
Casey of his liabilities. Refer to relevant cases.
(10 marks)
Students to discuss the right to seek damages for breach of contract – particularly in relation
to the issue of remoteness (and the need of the court to limit the extent to which the
defendant is responsible for what happens post-breach). The general principle underlying
an award of damages is that damages for breach of contract are awarded to place the
innocent party, as far as money can do so, in the same position as they would be in if the
contract had been performed.
The party who is in breach of contract is liable in damages to the other contracting party
for:
(a) loss arising naturally from the breach, that is, loss occurring in the usual or normal
course of things from the breach of contract; or
(b) loss which is actually contemplated as a probable result of the breach, that is, loss
occurring as a result of special or exceptional circumstances where such were made known
to the party in breach so that they could have reasonably contemplated the likelihood of
exceptional loss if the contract was broken: Hadley v Baxendale
Performance is not exact. The time term as written may suggest a time is of the essence
contract. If so, then the breach justifies full termination and damages. The probable
consequences of breach are known since Nancy informed Casey of the importance of the
due date for completion. Damages that flow naturally from this breach are recoverable by
Nancy. Damages caused to her parents indirectly are likely too remote (applying Hadley v
Baxendale[pg 226] and Victoria Laundry (Windsor) [pg 267] Ltd v Newman Industries Ltd).

Question 6

Olga migrated to Australia with her husband and two children from Russia one year ago. Her
command of English is poor and she has little understanding of everyday business matters.

While home alone a sales representative of “Feel Good Gymnasium” knocked on her door
with an offer for a two-year family deal at the gymnasium for $5,000. The salesman
explained that it was necessary in Australia for her children to be fit and in good shape at
school, or else they were likely to be bullied. Olga, hearing this from the salesman signed the
gymnasium membership contract immediately. She also made an initial advance payment of
$1,000.

Olga’s husband Peter returned home that evening and learned about the gymnasium
expenditure and was very upset and angry. As the couple have recently migrated they have
little money and Peter believes that the salesman made up the story about bullying at
school.

Olga now wishes to get her money back and get out of the contract.

Advise Olga of any statutory rights she has under Australian Consumer Law against “Feel
Good Gymnasium”. Use appropriate sections and cases to support your argument.

(5 marks)
Olga has potential rights under the Australian Consumer Law. In particular the
unconscionability provisions. Discuss s20 (under the general law – Amadio/Louth) and s21
(goods and services)

Section 20(1) makes it clear that a person, in trade or commerce, must not engage in
unconscionable conduct under the ‘unwritten law’ (common law – Amadio/Louth). Olga
needs to prove an Amadio situation – special disadvantage, that D knew or should have
known about but proceeded to enter the contract anyway. Olga appears to be under a
‘special disadvantage’ by virtue of her poor English, recent arrival, and lack of knowledge of
everyday business matters. Her lack of English expertise and command of everyday matters
must have been obvious to the salesman. Whether the salesman took advantage of her
position is unclear; there is no evidence on whether he explained the arrangements or was
offering a reasonable deal or whether he suggested she discuss the matter with her
husband. There is a real possibility that the requirements of CBA v Amadio are made out
here.

Alternatively, under s 21, Olga may be better served by bringing her action under s21(1). This
section prohibits unconscionable conduct in relation to the provision of goods or services in
trade or commerce in relation to consumers. Under 21(2), Olga may point to factors (c) and
(d) as being highly relevant. She was unable to understand the documents she signed (given
her poor English), and arguably making assertions about the gymnasium protecting her
children from bullying might be characterized as ‘unfair tactics’.

The facts of this case appear to offer close parallels with ACCC v Lux, where a door-to-door
salesman took advantage of an illiterate and naïve woman at home alone to ‘press’ her into
a terms contract for the purchase of an encyclopedia. Again, in that case, part of the unfair
tactics used was to emphasise the unlikely need of the encyclopedia for her children’s
success at school. In Lux, the plaintiff was able to successfully avoid the contract and recover
her money. If successful here, the ACL offers Olga remedies sufficient to set aside the
contract and recover her $1,000.

Students mau also argue that an action under s18 is possible

Question 7

Sally Bowles owns and operates a very successful song and dance club called the Kit Kat
Klub. One evening, her sophisticated sound system breaks down. She contracts with a
sound technician, Cliff Bradshaw, to repair it. The faulty parts of the system have to be
taken to his workshop but he promises that he will return the next day and have the system
up and running so she will not have to close the club. Unfortunately, because of Cliff’s
carelessness, and lack of respect for punctuality, the sound system is not returned for three
days. Sally looks but is unable to find a substitute system so she has no choice but to close
the club for those three nights. She now seeks compensation for the lost profits
(approximately $6500) for the first two nights she had to close the club. On the third night
she had contracted with Cosmo Brown, a famous American tap dancer, to perform and
expected to earn an additional $15,000 profit from his appearance. Cliff was not aware that
Cosmo was appearing at the Kit Kat Klub. Sally is also seeking damages to compensate her
for the embarrassment she has suffered as a result of having to cancel the contract with
Cosmo and disappoint his many fans.
Please advise Sally whether you believe she would succeed in her claims for damages against
Cliff

(15 marks)

Answer guide

The issue in this question concerns whether Sally is entitled to claim damages from Cliff.

1. First explain the objective of an award of damages for breach of contract -

compensation for victim of breach not punishment for the guilty one. P should be put in
position he or she would have been in if the contract had been performed as promised:
Robinson v Harman.

2. What must Sally prove?

a. There is a causal link between the breach and the loss - “but for” the breach the loss
would not have occurred.
b. The loss is not too remote from the breach – that is, the loss is a reasonably foreseeable
result of the breach - two limbs of Hadley v Baxendale
i. first limb concerns losses that are reasonably foreseeable because they are losses
that “arise naturally” or “in the ordinary course of things”: see Victoria Laundry and
Parsons. The $6500 loss of profit would come under this limb.
ii. The claim for $15,000 (regarding losses arising from Cosmo not appearing) is not a
“first limb” claim (a reasonable person would not expect such a famous person to be
appearing on that night), so it would only be recoverable if it comes within the
second limb that requires “actual notice” to be given. As Sally did not give Cliff
notice, it is unlikely she would be able to recover the $15000.
iii. Are the damages for her embarrassment/disappointment too remote? Damages
are not usually recoverable for disappointment or embarrassment. The exception is
when the contract itself is for entertainment or enjoyment (such as a cruise (Dillon)
or a ski holiday (Jarvis) is the law likely to compensate a plaintiff in such
circumstances. The contract between Cosmo and Sally was a strictly commercial
deal (one that gave pleasure or enjoyment to others.)

3. A plaintiff must try to reduce or mitigate loss or the damages will be reduced: Payzu[pg
269]. Only need to do what is reasonable. Here, we are told that Sally did looks for a
substitute system. In this sense, she probably did enough. Her damages would not be
reduced.

Question 8

Joanna’s boyfriend is into rock-climbing and he asks Joanna to come with him on a rock-
climbing expedition run by Rock and Roll Safaris to the Arapiles in the Grampians in the West
of Victoria. The cost is $500 for 5 nights. As Joanna does not have appropriate shoes, she
goes to Boots 4 U. After explaining her intention to climb in the Arapiles, the sales assistant
recommends a pair of “Matterhorn” boots for the expedition. Joanna takes note of the
advice, examines the boots, sees that on the box they are called the “Matterhorn – the best
Swiss rock-grippers”, and buys a pair for $300. However, unfortunately for Joanna, the
boots do not grip well on the granite rocks of the Arapiles and she is forced to abandon the
rock climbing. She spends her time on the ground reading a book. Advise Joanna of any
remedies she may have against Boots 4 U under Part 3-2 of the Australian Consumer Law
(15 marks)

Answer guide

The issue is whether remedies under Part 3-2 (consumer guarantees) of the ACL are
available to Joanna.

This involves a discussion of the relevant criteria (as there is no “issue” that the boots are
“goods”, that have been “supplied” in “trade or commerce” and that Joanna is a “consumer”
under s3(1) students are not expected to discuss these definitions).

1. Under the ACL, if a person supplies goods to a consumer in trade or commerce the
goods must satisfy a number of consumer guarantees. Three of these guarantees are of
most relevance:
a. the goods be of “acceptable quality” (s54(1)). Discuss meaning of “acceptable
quality”: s54(2). On the facts, it is unlikely that the boots are “fit for all the purposes
for which goods of that kind are commonly supplied” (first criteria) - the goods are
not of acceptable quality particularly having regard to the statements made about
the goods on any packaging or label (s54(3))

b. the goods must be “reasonably fit” for (i) a purpose which the supplier represents
they are for; or (ii) a purpose the consumer makes known to the supplier that they
will use the goods (s 55(1)). The meaning of a disclosed purpose is discussed in s55(2)
but it is clear that there has been a breach of this consumer guarantee in respect of
(i) and (ii) above: the boots are not fit for the purpose represented by the supplier
and for the purpose disclosed by Joanna.

2. Having established that one or more of the guarantees have been breached consider any
remedies that may be available to Joanna. The remedies depend on whether the breach
is considered to be a major or minor failure.
a. A major failure is defined in s260 as a situation where the goods would not have been
acquired by a reasonable consumer who was fully acquainted with the nature and
extent of the failure, or where the goods differ in significant respects from their
description or are substantially unfit for a common purpose and cannot easily be
remedied or where goods are not fit for a disclosed purpose. Joanna would
successfully argue that there has been a major failure on each of these counts.
Therefore, she may reject the goods or recover compensation for any reduction in
the value of the goods below the price paid: s 259(3).

3. Joanna may also recover damages for any reasonably foreseeable loss or damage caused
by the failure to comply with the guarantee: s 259(4). It is likely she could claim (from
Boots 4 U) at least part of the $500 cost of the expedition as compensation for her
inability to climb.
Question 9

Giorgio experiences a heart murmur, so he consults with his GP, Dr Kee. Dr Kee tells Giorgio
not to worry and decides not to send Giorgio for further tests. Shortly thereafter, Giorgio
suffers a cardiac arrest and as a result is brain damaged. Giorgio now intends to claim
damages for negligence, arguing that Dr Kee should have taken a possible cardiac problem
into account when the heart murmur was detected and arranged an ECG and referral to a
cardiologist. Dr Kee admits he owes Georgio a duty of care. Please advise Giorgio whether
his claim is likely to succeed.

(5 marks)

Answer guide

The issue whether there has been a breach of a duty of care (you have been told that a duty
of care exists).

1. Breach of duty depends on whether the defendant met the standard of care required by
the law of negligence. The standard expected is that of the “reasonable person”. The
reasonable person is equipped with the same skills and expertise expected of a person
exercising a particular trade or profession. For example, in an action against a doctor for
professional negligence, the relevant standard is that of an ordinary, competent doctor
exercising ordinary professional skill: Rogers v Whitaker[pg 375]

2. Where the plaintiff proves that the defendant professional has not exercised reasonable
care in the discharge of their professional duties, the defendant is liable unless it can be
shown by way of defence that the defendant acted in a manner that satisfies the test in
s 59 of the Wrongs Act – this depends on D providing evidence in court (from his peers)
that he acted in a manner that was ‘widely accepted in Australia by a significant number
of respected practitioners in the field as competent professional practice in the
circumstances’. This is not easy to establish and, even where peers do provide that
evidence a court may disregard it if it believes the opinion is ‘irrational’: s59(2) and
Mules v Ferguson. Thus, the question is whether Dr Kee acted in a reasonable way. If
the heart condition would have been revealed had Dr Kee referred Giorgio for an ECG or
to a cardiologist, Dr Kee may be found to have breached the duty of care and may then
attempt to rely on s59 defence

Question 10

Jacob Farook’s company, JF Solar Panels Pty Ltd., has been running a solar panel business for
many years. Jacob is the sole director and the sole shareholder. In July 2016, Jacob ordered
glass panels to the value of $1m from Glass Makers Pty Ltd, a glass wholesaler, as he had
done on many occasions. At around the time the order was placed, the company was
experiencing serious cash-flow problems and was unable to pay its debts. Jacob, who was so
immersed in the research and development side of the business, did not pay sufficient
attention to the company’s accounts and only realised it was in serious trouble a month
later. When the glass was delivered in September, the company could not pay the account
and it has remained unpaid. The manufacturer is now suing both the company and Jacob.
Advise Jacob of the extent (if any) of his liability.
(10 marks)

Answer guide

The issue here is whether Jacob is liable for the debts of the company.

1. The first question concerns Jacob’s possible liability as a director of the company –
this involves an understanding of the nature of a corporation as a separate legal
entity, the concept of the “corporate veil” and the circumstances when it may be
lifted. Since the company was registered as a company, it exists as a separate legal
entity capable of entering into contracts does and it can sue or be sued on those
contracts: Salomon v Salomon & Co Ltd[pg 493] and recognised by s124(1)
Corporations Act, which gives every registered company the full legal capacity of
natural person. For Jacob, this means that the company had the legal capacity to
form the contract with the manufacturer, and it is the company that is legally
responsible to perform the contract or pay damages for breach. Jacob may be the
sole director and sole owner of the shares in the company, but, in the eyes if the
law, the company is a separate legal person and Jacob is not responsible for its
debts.

2. As a director of the company, Jacob is also not personally liable for the debts of the
company. An exception under the Corporations Act is where the corporation has
been trading whilst insolvent. Section 588G prohibits company directors from
allowing the company to incur new debts at a time when the company is unable to
pay existing debts as they fall due (this is the statutory definition of insolvency: see
s95A), or if incurring such new debt(s) would make the company insolvent. On the
facts, we are told that the company was experiencing difficulty paying its debts
when it placed the order. It is, therefore, likely that it was insolvent according to the
definition in s95A. If so, Jacob would be personally liable for the debt under s588J, K
and M and ASIC v Plymin, Elliott & Harrison unless his ignorance is an excuse.

3. Is ignorance of the cash-flow position a defence to the offence in s588G? Jacob

would have to establish that he had reasonable grounds to expect, and did expect,
that the company was solvent. The defences to s588G are set out in s588H. As
Jacob appears to be running the business himself and not relying on a “competent
and reliable person” (s588H(3), the only relevant defence is s588H(2). Under this
sub-section it is a defence if it is proved that the defendant had reasonable grounds
to expect, and did expect, that the company was solvent and would remain solvent
even if it incurred that debt. In ASIC v Plyman, the Court said that in order to escape
liability using 588(2), directors must show they made sufficient enquiries and sought
external advice to allow them to reasonably conclude the company was not
insolvent. On the facts, it is unlikely that this would be the case. Jacob was simply
unaware of the state of the company. Ignorance is not enough, so it is likely that he
would be liable for a breach of s588G.