Issues of Contract Formation
The issue is whether, based on the email correspondences between Mary and Lianne, there was a contract that was formed.
For there to be a valid contract, there must be certain elements that must be fulfilled. The major elements to be satisfied include intention to enter into a legal relationship, capacity to contract, the agreement (which includes the offer and acceptance), the consideration and the certainty of terms.
Courts undertake an objective perspective in understanding the parties’ intention and hence, look at their words and actions to determine their intent. Parties to a contract must demonstrate their intention to enter into a legally binding contract and this is usually inferred from their conduct. There is a rebuttable presumption in commercial dealings that the parties had the intention of entering into a legally binding contract (Rose & Frank Co v JR Crompton & Bros Ltd 1924).
The general position is that any legal person may contract. The exception to this general rule has to do with minors, children and persons under the influence of intoxication.
An offer is one party’s promise to another of giving a specific performance in exchange of that other person’s specific performance or promise. Accordingly, to demonstrate that an offer exists, an express or implied promise of performance of a specified thing for another must be identified. An offer can be made in writing, by words or by conduct. Without a promise, there is no offer. In the case of Carlill (1893), an advertisement made in a newspaper promising 100 pound in exchange for purchasing a smoke ball was held by the Court to be an offer. As was held in the case of Ramsgate Victoria v Montefiore (1866), an offer may lapse after lapse of time that was set by the parties or after a reasonable time. Also, if an offer was subject to the fulfilment of a condition precedent, if that condition is not met, then the offer lapses. Furthermore, an offer can be revoked before it is accepted (Routledge v Grant 1828). However, the revocation must be communicated to the offeree. A counter offer acts as a rejection of the offer (Hyde v Wrench 1840). The general argument with regard to internet advertisements is that they amount to offers as opposed to invitations to treat (Hance, 1996).
This is the unqualified acceptance of the offeror’s terms. An acceptance to an offer is achieved when the specific counter-promise is made by the offeree or when the specified act is performed in case it is a bilateral contract. Unless there is an intention by the parties to effect an exchange, there can be no offer or acceptance. The acceptance must be communicated to the offeree who is the only one that can accept the offer. Furthermore, the method of communicating the acceptance must correspond with the requirements of the offeror. The offeror’s requirements must also be met with respect to timing of the acceptance. Until the communication of the acceptance by the offeree, there will be no contract in existence. In the case of bilateral contracts, that is, where an acceptance is reached by an exchange of promises, communication of the same is necessary unless the parties dispensed with that option. Acceptance of an offer through email correspondence is effected upon receipt of the email (Christensen, 2001). For there to be a binding contract as a result of acceptance of an offer, the acceptance must rely on the offer (R v Clarke 1927). Once an acceptance is communicated to the offeror, a contract is made (Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957).
The Elements of a Valid Contract
This is one of the key elements for contract creation. A promise must be given by one party in consideration for the performance of a counter-promise by the other party. The rule is that even though the consideration is objectively inadequate, it must be for value. In other words, it must be sufficient (Bret v JS 1600).
The general requirement of the Courts is certainty as to price, subject matter and parties. Hence, agreeing to negotiate or agreeing to agree will not be binding. Statements and representations are considered as terms of the contract. This was the position in the case of Oscar Chess Ltd v Williams (1957). Under the doctrine of privity of contract, contracts are only enforceable by parties against each other. In simple terms, a party must be privy to a contract for liability to arise or for them to enforce the same (Price v Easton 1833).
The advertisement on Mary’s website constituted the offer. However, it is arguable that the advertisement on the website may amount to an invitation to treat. In considering the conduct of Mary and Lianne, the question is whether they intended to be bound. The answer is yes. There was an intention to create legally binding agreement from the conduct of the parties in the present scenario. The email by Lianne to Mary setting out her preference for the trip as well as Mary’s email suggesting the place of the trip may be considered as valid acceptance to the offer or invitation to treat respectively. The counter offer made by Lianne constitutes rejection of the original offer of $10000. The new offer became the $9500. However, because this offer was conditioned and timed, failure by Lianne to satisfy the offer amounted to lapse of the offer.
A new offer was made by Mary of $10000 which was accepted by Lianne. This is because an offer and acceptance by email is deemed communicated upon receipt. The email by Lianne accepting the offer by Mary will be the acceptance. The other email purporting to cancel the deal is not repudiation of the offer.
Conclusion
There is a valid contract between Mary and Lianne.
Assuming that there was a contract between the parties but whatever was guaranteed in the contract is not what was delivered. What rights therefore does Lianne have against Mary?
Under the Australian Consumer Law, consumer guarantees are attached to all goods and services automatically (ACCC 2014). By virtue of the consumer guarantees, consumers are guaranteed certain levels of protections for the goods and services purchased. While some businesses have the liberty to provide additional services – also known as extended warranties – the consumer guarantees apply to all businesses regardless of the said warranties being offered by the businesses.
Regulation of Advertisements
With regard to goods, consumers have the below guarantees. It is a consumer guarantee that the goods offered are of a good quality that is acceptable, defects-free, durable, safe and fit for the purpose they were meant for (ACL section 54). Evermore, under section 55 of the ACL, the goods must fit the purpose that the supplier or consumer specifies. Section 56 requires that the goods will fit the description of either verbal, labeling or packaging representations. With respect to services consumers have statutory guarantees that the same will be done with due skill and care and that fit for the particular purpose that the consumer specified. Section 34 of the ACL provides that businesses must not deal in conduct that misleads the public as regards the quantity or suitability of their services.
Non-compliance with the guarantees entitles the consumer a right of action against the supplier for remedies. The question for determination is whether the failure to comply with the guarantee was major or not. Section 260 of the ACL provides a definition of major failure. If the failure is minor, then the law requires the supplier to remedy the failure within a reasonable time. In case the failure is major, the law requires notification that the goods are rejected, then suing for compensation and damages. Section 271 (1) provides that where the goods are of a quality not acceptable, the consumer can sue the supplier and section 271 (3) provides for a suit where the goods do not correspond with the description.
Mary had earlier represented to Lianne that she would host her party with Malaysian cuisine. However, she provided Russian cuisine. This was a breach of the representation of the goods’ description contained in section 56. Furthermore, the boat was so cramped that there was no room for the musicians to be on board. This was a breach of sections 55 and 54, that is, they were not fit for the purpose represented and they were not free of defects or safe. Also, Mary breached the provisions of section 34 in that she misled Lianne as regards the quantity and suitability of the services she could render.
Conclusion
Lianne has rights known as statutory guarantees under the ACL. Lianne’s rights were breached by Mary. Lianne has remedies against Mary for breach of the statutory guarantees.
Business advertisers must be careful concerning the statements that they make in advertisements since the same are subject to the law as established by Parliament through legislation and Courts through case law. This section discusses the above statement in light of both statutory and case law.
From 1st January 2011, the Government of Australia introduced a law that protects consumers and businesses in the country as relates to selling and advertising practices (ACCC 2007). The Competition and Consumer Act (2010) contains the Australian Consumer Law (ACL), which is a schedule thereto that lays down the legal protections mentioned above. The law is nationally applied and aims at ensuring that fair trade with consumers. Fair business practices are one of the key pillars of successful markets and it is requisite for all businesses to adhere to the consumer protection laws and regulations contained in the ACL. The following paragraphs present a general discourse on the various issues that arise under advertisement laws.
There is a wide range of prohibitions that the ACL imposes on particular types of conduct including conduct that is deceptive or misleading (or is likely to deceive or mislead), making representations that are misleading or false and other types of conduct. Therefore, the application of the ACL pertains to advertising in the form of face to face, telephone marketing, multimedia and print (Justice Connect 2016).
Media and advertising operators – online, radio, television and newspapers – must particularly be careful of the services and products they advertise to their customers (ACCC 2014). They must be aware of their customers’ businesses and know the requirements of the ACL for minimization of the risk of breaking the law. If a media house is merely a channel for the misleading information, they may not be liable under the ACL. However, if the media operator actually endorses or adopts the misleading message, it may be held liable (Australian Competition and Consumer Commission v Channel Seven Brisbane Pty Limited 2009). In the Channel Seven case, a media firm endorsed the misleading information of an investment firm. The court decided that both of them were in breach of the provisions of the Trade Practices Act 1974, which are now in the ACL.
There are two fundamental advertising rules. The first rule is not to engage in conduct that may likely mislead or deceive, and secondly is not to make misleading of false statements. There is an overlap between the two rules in practice and a statement may be found to be in breach of both. Accordingly, a business that engages in conduct that is deceptive or misleading or that is likely to do that commits an illegality. Whether a business did not intend to mislead or deceive or whether no person has suffered damage as a result of the conduct, the ACL is still applicable (ACCC 2014). Section 18 of the ACL is the applicable law to deceptive and misleading conduct.
How a business’ behaviour affects the impression of the audience as a good service is important. When deciding whether conduct is deceptive or misleading, the most relevant question to ask is whether the conduct in question creates an overall impression of falsehood. Although a business is not required to disclose all information, it may sometimes be required to provide more information to explain conduct that was previously misleading. In the case of Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012), an internet company advertised that it has ‘unlimited’ internet. However, the users experienced data cuts and the court held that failure by the company to reveal the shortfalls in the internet amounted to misleading and deceptive conduct.
Businesses must further take particular heed to using the term ‘free’. For instance, stating that a product or service is free as consumers are reasonably expected to take such words literally. In other words, advertisers must be careful to reveal the whole truth about their products since failure to do so may get them in trouble (ACCC 2014). In the determination of whether conduct is deceptive or misleading, consideration will be made of the circumstances surrounding the case and the audience. Advertisers must therefore, consider the product labels, advertisements, product labels and their audiences. The audience that a business is targeting may not be the one that gets the message.
Puffery is terminology used to refer to vague, fanciful or widely exaggerated claims concerning a good service that no one could possibly believe they are true or misleading. Under the ACL such conduct is not considered to be misleading.
Other forms of conduct that are considered as misleading or deceptive include the following. Firstly, statements that are confusing and uncertain are sometimes considered misleading. Secondly, disclaimers can be interpreted as misleading or deceptive conduct. Thirdly, comparative advertising may be considered as deceptive or misleading. This is a scenario where a business makes comparison between two businesses and lowers the brand, price or reputation of one over the other (Justice Connect 2016). Lastly, passing off is conduct that is considered as misleading. This is the situation where a business adopts another company’s style to a level where they seem as almost alike or that there is a link between the two companies.
In making predictions concerning future events, businesses must possess reasonable grounds. They must adequately put into consideration the range of variables and uncertainties (Section 4). Moreover, businesses must not engage in commercial conduct that is deceptive or misleading or that is likely to deceive or mislead (Section 18). Misleading or false representation of the attributes of goods and services is the other type of commercial conduct that businesses must not engage in (Section 29). Furthermore, where a seller partially represents the prices of goods or services, such seller is required to reveal the cash price of those goods and services (Section 48).
Persons who are found to have contravened the provisions of the laws on misleading and deceptive conduct can be subjected to compensatory orders (Division 4), damages (236) and injunctions (232).
References
Australian Competition and Consumer Commission v Channel Seven Brisbane Pty Limited [2009] HCA 19
Australian Competition and Consumer Commission. (2007). Advertising and Selling. Canberra, Australia: Author
Australian Competition and Consumer Commission. (2014). Advertising and Selling Guide. Canberra, Australia: Author
Bret v JS (1600) Cro Eliz 756
Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256
Christensen, S. (2001). Formation of contracts by email-is it just the same as the post. Queensland U. Tech. L. & Just. J., 1, 22
Competition and Consumer Act 2010 (Cth)
Hance, O. (1996). Business and Law on the Internet, McGraw Hill: Best of Editions
Hyde v Wrench [1840] EWHC Ch J90
Justice Connect. (2016). The Laws of Advertising and your Community Organisation. Retrieved from https://www.nfplaw.org.au/sites/default/files/media/The_laws_of_advertising_and_your_community_organisation.pdf
Oscar Chess Ltd v Williams (1957) 1 WLR 370
Price v Easton (1833) 4 B & Ad 433
R v Clarke (1927) 40 CLR 227
Ramsgate Victoria v Montefiore (1866) LR 1 Ex 109
Rose & Frank Co v JR Crompton & Bros Ltd [1924] UKHL 2
Routledge v Grant (1828) 4 Bing 653
Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20
Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93
Trade Practices Act 1974, Australia (Cth)
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