I. LIMITATIONS ON THE SCOPE OF THE SALE OF GOODS ACT 1923

4.1 “Sale”. The first limitation on the scope of the Act is that it applies only to contracts of sale (s6(1)). Although this includes a promise to buy and sell where the transfer of ownership is postponed (for example until payment), as well as an outright sale and purchase, it does not include a lease, hire or hire-purchase of goods because there is in such transactions neither a purchase nor a promise to buy.

4.2 “Goods”. The definition of “goods” in s5(1) of the Act is narrow. It excludes service contracts, such as one for the dry cleaning of a garment. However, it also excludes some “mixed” contracts involving the supply of goods and a service element where the service element predominates. A contract to paint a person’s portrait is usually said not to be sale of goods, but perhaps a more relevant example is a contract for the repair of a watch.¹

4.3 “Money consideration”. The third limitation on the scope of the Act is the need for a price in the form of a “money consideration” (s6(1)). Thus, if two people agree to exchange their motor cars with each other, the contract is not one of sale because the consideration is not in monetary form.²

II. ARE THE LIMITATIONS SATISFACTORY?

4.4 Exchange of goods. We deal first with the exclusion of contracts of exchange from the Act. The Sale of Goods Act may be contrasted with the UCC where the “price” of goods may be payable wholly or in part in goods (s2-304). Whether the requirement of “money consideration” is satisfied by payment in part in money and in part in goods or kind has never been authoritatively decided in Australia. There is no reason in principle why the Act should not extend to a pure exchange and no logical reason why the fact that the price consists of money and goods should exclude the Act. An amendment to the definition in s6(1) should be made to include both types of contract.

4.5 Lease, hire and hire-purchase. These contracts are dealt with in detail below. At this stage it is sufficient to point out that the hire-purchase contract was invented to avoid the provisions of the Sale of Goods Act 1923 (in particular the nemo dat exception in s28(2)), and the requirements of the bills of sale and money lending legislation. In substance, but not in form, the contract is one of sale as the intention of the parties is for the hire-purchaser to obtain title to the goods. Therein lies the reason why the distinction between the two transactions is unsatisfactory.

4.6 Service contracts. Service contracts are also dealt with in detail below. An important preliminary point to make is that the distinction between a sale of goods contract and one for work, and materials was drawn to avoid the Statute of Frauds requirement in s9 of the Sale of Goods Act. Adoption of the reform suggested in our earlier Report³ would remove the difficulty which the distinction was designed to overcome. it should also be borne in mind that the distinction has been criticised for its artificiality,⁴ and is for that reason at least unsatisfactory.

4.7 Issues. In this Chapter the Commission is not so much concerned with whether the Sale of Goods Act should extend to the types of contracts refereed to above as with whether there should be legislative provisions regulating the scope of the parties’ rights and obligations under such contracts. That is the major issue. Three subsidiary issues arise:

• the extent to which State reforms should be influenced by the Trade Practices Act 1974 (Cth);
• how comprehensive the legislation should be; and
• whether commercial and consumer contracts should be dealt with separately, as we propose in relation to sale.

4.8 Computer software contracts. These contracts raise special problems which are dealt with separately, later in the Paper.⁵

III. LEASE, HIRE AND HIRE-PURCHASE

A. The Current Law

4.9 Federal legislation. The Trade Practices Act 1974 (Cth) applies to the supply of goods to a consumer by a corporation. Since “supply” includes, apart from sale, contracts of lease, hire and hire-purchase many such contracts⁶ are the subject of statutory regulation.

4.10 The Credit Act. The Credit Act 1984 (NSW) converts consumer hire-purchase contracts into credit sale contracts.⁷ Consequently, apart from commercial hire-purchase contracts, the hire-purchase transaction has ceased to have any relevance in New South Wales. Although some lease and hire contracts are also converted, most of these transactions are unregulated by State legislation because the Hire-Purchase Act 1960 (NSW) has been repealed.⁸

4.11 Contracts governed by the common law. It is clear that lease, hire and hire-purchase contracts which do not come within either the Credit Act 1984 (NSW) or the Trade Practices Act 1974 (Cth) are regulated by the common law. The position with regard to lease, hire and hire-purchase contracts converted by the Credit Act 1.984 is not so clear. It would seem to have been the intention of Parliament that converted contracts would be regulated by the Sale of Goods Act. However, for two reasons it is arguable that this has not been achieved. First, there may be no “contract of sale” as defined by s6(i), because there is no promise to buy in the contract. Secondly, it may be that s4(3) or (4) of the Sale of Goods Act would apply to exclude these contracts from the Act. Section 4(3) states that nothing in the Act affects enactments relating to bills of sale and s4(4) states that the Act does not apply to a contract of sale intended to operate by way of mortgage, pledge, charge, or other security. It may be that both these arguments would fail if tested judicially but in our view there is a need for legislative clarification.

4.12 Defects in the common law. The two principal defects in the common law applicable to contracts for the lease, hire and hire-purchase of goods are:

• the obligations of the parties are, to some extent at least, uncertain. For example, it is not clear when there will be an implied condition that the supplier must supply goods fit for the other party’s purpose; and
• there are no restrictions on the use of exclusionary provisions, except under the Contracts Review Act 1980 (NSW).

B. Proposals for Reform

4.13 There would be little point in bringing contracts for lease, hire or hire-purchase within the Sale of Goods Act. Many of its provisions, such as those relating to the transfer of ownership, are entirely inappropriate. There is, probably, a need for separate legislation.⁹

4.14 In relation to lease, hire and hire-purchase contacts where the lessee, hirer or hire-purchaser does not acquire for the purpose of re-supply, the Commission considers that legislation modelled on the consumer sale Act discussed in Chapter 3 should be enacted with appropriate modifications.

4.15 A number of important questions arise if the view is taken that State legislation should be enacted which complements the Trade Practices Act 1974 (.Cth). It must be decided whether the legislation should deal only with consumer transactions or extend to “commercial” transactions as well. The Commission seeks advice on the scope of such legislation. Specifically, the Commission would welcome comment on whether aspects of the contracts be regulated or only particular aspects, such as the obligations of the supplier.

4.16 There is a great deal to be said for expressing as much of the law as possible in as few enactments as possible. appear to us to be four main possibilities:

• The consumer sale legislation could be expressed generally to deal with all contracts for the supply of goods to consumers. That would leave the (commercial) Sale of Goods Act 1923 to be supplemented by a supply of goods Act covering commercial lease, hire and hire-purchase contracts.
• A general supply of goods Act could be enacted to supplement both the Sale of Goods Act and the consumer sales Act.
• The Sale of Goods Act could be re-enacted as a supply of goods Act together with a separate supply of goods to consumers Act.
• A single supply of goods Act could be enacted. This is the most ambitious suggestion. The Act could be divided into three parts: the first being a general part applicable to all contracts, the second dealing with “commercial” supply, and the third dealing with supply to consumers.
• A fifth possibility, which would allow for commercial lease, hire and hire-purchase contracts to be regulated by the common law, does not appeal to us as a satisfactory solution because the Trade Practices Act 1974 (Cth) already applies to some of these contracts.

4.17 The obligations of the supplier in relation to the quality, fitness, durability and suitability of the goods are amongst the most important aspects of the contracts to be considered. In addition, there should be some statement on conformity with description and title. These matters constitute, in our view, the minimum content of the legislation. What else is dealt with will depend to a large extent on the view taken on the relationship with the Sale of Goods Act and the consumer sales legislation. However, it would be logical to deal also with damages, liquidated damages and penalties, termination of the performance of the contract (and restrictions thereon) as well as exclusion clauses. In our view express contractual terms should be regulated. The legislation should not deal only with implied terms. Interaction with the Contracts Review Act 1980 is obviously an important consideration with respect to restrictions on freedom of contract.

IV. SERVICES

A. The Current Law

4.18 “Pure” service contracts. Where no goods are supplied in conjunction with services, the contract is governed by the common law unless the Trade Practices Act 1974 (Cth) applies. For that Act to apply the definition of services must be satisfied¹⁰ and the services must have been supplied by a corporation to a consumer as defined by s4B.

4.19 “Mixed” contracts. Where the supply of services is in conjunction with the supply of goods it may be difficult to determine whether the contract is governed by statute or the common law. For example, if a builder agrees to build and supply a book-case the contract is governed by the Sale of Goods Act 1923 (NSW) if the supply element predominates over the service element. If the builder is not a corporation the Trade Practices Act 1974 (Cth) will not apply, but if it is a corporation the Commonwealth Act will apply if the contract is interpreted as one for the supply of goods (or the supply of goods and services) to a consumer.

4.20 Defects in the law. One obvious defect in the law is the uncertainty, illustrated above, of the applicable law. A second defect is that the Trade Practices Act 1974 (Cth) will not apply if the services definition is not met or the supplier is not a corporation. At least in regard to the latter requirement, there is an element of artificiality. Thirdly, in cases where the common law applies, the law is defective because the contract is likely to be informal and the recipient of the services unable to ascertain the obligations of the parties without a detailed knowledge of the law of contract. Moreover, in so far as the contract creates express or implied obligations, the supplier of the services is free, subject to the Contracts Review Act 1980, to insert exclusionary provisions in the contract. The law reports are full of illustrations of service contracts, for example with dry cleaners, containing very severe exclusionary provisions.

B. Proposals for Reform

4.21 We envisage these legislative reforms as complementing those proposed in relation to contracts of lease, hire and hire-purchase. The enactment of the Supply of Goods and Services Act in England in 1982 demonstrates that it is possible to draft a single Act dealing with lease, hire, hire-purchase and services. There is, however, no question of re-supply in “pure” service contracts, and for that reason it may not be easy to distinguish consumer and commercial service contracts. The Commission would not wish these reforms to be limited to contracts with people who do not receive services in the course of a business.

4.22 The scope of the definition of service contracts can no doubt be regarded as a controversial issue. One possibility is simply to reproduce the definition in the Trade Practices Act 1974 (Cth). The definition in s4 of that Act is a particularly wide one, although qualified somewhat in relation to s74 of the Act (the provision most relevant to the present discussion). Section 74(2) does not apply to services of a professional nature offered by a qualified architect or engineer. Contracts of insurance and some contracts for the transportation or storage of goods for business purposes are excepted. The Commission sees the point in excluding insurance contracts generally, but is concerned at the possible exclusion of the activities of insurance brokers. it is not at all clear why architects and engineers are excepted from s74(2), while surveyors, plumbers, builders and others engaged in the building trade are included. The Commission would welcome views on the definition of services and in particular whether the definition should be expressed in terms of the services themselves, or instead in terms of the activities of particular professions, trades and industries.¹¹

4.23 The Commission is conscious of the need to consider the possible impact of s109 of the Constitution (Cth) when framing legislative proposals on matters, such as service contracts, already governed by Federal legislation.

V. COMPUTER SOFTWARE

4.24 The next issue concerns the extent of the obligations to be imposed on suppliers of computer software. Computer software contracts vary considerably from the “purchase” of a word processing program or computer game to the ordering and acquisition of a specialised program by a large corporation to run accounts or keep track of sales and stocks. The rights and liabilities of those who acquire or supply these items are by no means clear. In Toby Constructions Product Pty Ltd v Corputa Bar (Sales) Pty Ltd¹² Rogers J decided that a contract for the supply of a computer system is governed by the Sale of Goods Act 1923 (NSW). However, his Honour said it was uncertain whether the Act would apply to a “sale” of computer software.

4.25 If we take first the purchase of a computer game from a corporate retailer such as one of the larger department stores, the contract is, in one sense, a simple sale of goods governed by the Sale of Goods Act 1923 or the Trade Practices Act 1974 (Cth). If the retailer has stated that the game is compatible with the purchaser’s system there seems little doubt that liability will attach either for breach of an express term or for breach of the fitness for purpose condition implied by the legislation. However, from another point of view the purchase is quite unlike most sales since the retailer does not purport to confer title to anything except the physical medium in which the program is housed.

4.26 The inapplicability of the Sale of Goods Act is clearer in relation to a contract under which A agrees to write a program for B which will allow B to run accounts. Even if the program is sold to B there is no sale of goods. It may be that the contract can be regarded as one for services within the Trade Practices Act 1974 (Cth), but the terms implied by s74 might not be sufficient. The question is whether the requirement of due care and skill should be expressed in a term classified as a warranty.

4.27 There are decisions in the United States which suggest that contracts in relation to computer programs are sales of goods within the Uniform Commercial Code and sales tax legislation. However, even if the same conclusion were reached in New South Wales (which is uncertain)¹³ it seems clear to us that the implied term provisions are not particularly appropriate, except perhaps that dealing with fitness for purpose. It may be that these contracts could be brought within the legislation proposed above for service contracts. However, we take the view that, given the unusual features of these contracts, and the growing importance of the computer industry, there should be specific legislation dealing with contracts for computer software.

4.28 Clearly, this is an area in which the Commission would benefit greatly from the advice of those with expertise in the field. So far as the legal issues are concerned the Commission sees two particularly important areas.

• The manner of creation and the scope of the obligations which should be imposed on the supplier of the software.
• The relationship between such terms and copyright under the Copyright Act 1968 (Cth).

It is possible that there will soon be legislative models in the United States, drafted specially to deal with computer software warranties.

1. See para 1.5 Cf Fair Trading Act 1987 (NSW), s4(l), which contains definitions of both goods and services.

2. Doubts have been raised as to whether a credit card transaction is a sale for a “money” consideration. In re Charge Card Services Ltd [1987] Ch 150 at 164 treats it as such.

3. See para 1.12 of this Paper.

4. See New South Wales Law Reform Commission Sale of Goods: Second Report (LRC 51, 1987) para 4.6.

5. See paras 4.24-4.28.

6. See para 3.4 and s4B of the Trade Practices Pct 1974 (Cth) as amended by the Trade Practices Revision Act 1986 (Cth).

7. Sections 5, 13.

8. See Hire Purchase (Repeal) Act 1981 (NSW) as amended by Miscellaneous Acts (Credit) Repeal and Amendment Act 1984 (NSW). Cf Goods (Sales and Leases) Act 1981 (Vic).

9. See further on this point para 4.21.

10. See para 4.22.

11. Cf Fair Trading Act 1987 (NSW), s4(1).

12. [1983] 2 NSWLR 48.

13. See para 4.24.