I. BACKGROUND
A. Sale of Goods Law
1.1 This Issues Paper has been prepared as part of the Commission’s work on a reference relating to reform of the law of sale of goods. The Commission regards this reference as of considerable importance. Every member of the community is affected in some way by the law regulating sale of goods. Reform of sale of goods law also tends to influence developments in the law of contract generally.
1.2 Contracts for the sale of goods are regulated by enactments of both the State and Federal Parliaments. The principal source of law is the Sale of Goods Act 1923 (NSW) which, according to its preamble, was passed to codify and amend the law relating to the sale of goods. The Sale of Goods Act preserves the common law so far as it is not inconsistent with the Act 1 with the result that a substantial body of general contract law may be relevant to the determination of a sale of goods dispute. What remains uncertain, however, is the extent to which equitable principles (for example, in relation to the transfer of equitable interests in goods) apply to sale of goods contracts.2 Despite the fact that the preamble to the present Act describes it as a codification, the description is neither accurate nor appropriate given the variety of sources of sale of goods law in New South Wales. Since the passage of the Sale of Goods Act, other enactments of the New South Wales Parliament have also affected the law. Among the more important statutes are the Motor Dealers Act 1974 and the Credit Act 1984 (which apply to specific types of sale contracts), and the Fair Trading Act 1987.
1.3 Apart from the common law and New South Wales statutes, the Trade Practices Act 1974 (Cth) is also relevant. While the Commonwealth legislation is discussed where appropriate throughout this Paper, the proposals for reform tentatively advanced are limited to matters of New South Wales law.
B. Contracts for the Sale of Goods
1.4 The Sale of Goods Act contains a definition of a contract of sale of goods. As defined in the Act,3 if one person (“the seller”) transfers (or agrees to transfer) ownership in goods to another person (“the buyer”) for a money consideration (“the price”), the contract is a sale of goods contract. The Act applies no matter how significant or insignificant the particular transaction might be. Accordingly, examples of sale of goods contracts range from the purchase of a jar of coffee to the purchase of 100,000 tonnes of wheat. Individual consumers and businesses daily enter into sale of goods contracts which are regulated by the Act.
1.5 The requirement that the contract relate to “goods” excludes service contracts and contracts which have a predominant element of service (for example, the repair of a watch). The requirement of a money consideration excludes an exchange or trade of goods. The requirement of transfer or agreement to transfer imports a requirement that the buyer agree to purchase, so that contracts of hire and lease are not (except as provided by the Credit Act 1984)4 contracts for the sale of goods. Finally a mortgage of goods is not a “sale” because s4(4) of the Sale of Goods Act states that the Act does not apply to any transaction in the form of a contract of sale which is intended to operate by way of security.
C. General Assessment
1.6 The Sale of Goods Act 1923 (NSW) is, apart from Part Vl, virtually identical to the Sale of Goods Act 1893 (UK). While it must be said at the outset that the New South Wales Act has worked remarkably well, it is, like the United Kingdom Act, outdated. Since it was passed, the general law of contract has developed considerably. Other important legislation, such as the Trade Practices Act 1974 (Cth), has been enacted. Again, very many changes have occurred in society, such as the increased sophistication of consumer and commercial contracts, and there has developed an awareness of the need for consumer protection. These factors combine to make it obvious that the Act is in need of a thorough overhaul.
1.7 Apart from the need to review the provisions of the Sale of Goods Act itself, the Commission also sees a need to consider the scope of the Act’s application. In particular, the Commission must consider whether it is appropriate to exclude all service contracts from legislation dealing with the sale of goods.5 It is also important that the relevance of equitable principles be ascertained, and for relevant equitable principles to be dealt with by the sale of goods legislation.
1.8 One very significant shortcoming of the Act is that it is based on a philosophy of contract law which is no longer widely held, namely, that the principles caveat emptor (“let the buyer beware”) and freedom of contract apply equally to commercial and consumer sales. Thus, s57 allows the exclusion of rights, duties and liabilities which would otherwise arise under a contract by implication of law. While amendments made by the Commercial Transactions (Miscellaneous Provisions) Act 1974 now severely restrict the use of exclusionary provisions in consumer sales (as defined by s62), the Commission is concerned that these amendments might not go far enough.6
1.9 There are also problems in the way the Act is drafted. The Act is drafted primarily from the point of view of the commercial contract for the sale of goods, without regard to the particular problems of consumers. This is most evident in the implied term provisions.7 For example, the concept of “merchantable quality”, which is the only implied term of quality provided for by the Act,8 is a commercial person’s concept not understood by the lay consumer. Indeed, it is arguably a nineteenth century concept, the significance of which is lost even on commercial buyers today.
II. THE REFERENCE
A. Earlier Reviews
1.10 Considerable work has already been done on this reference, which was given to the Commission by Attorney General McCaw in 1966. Initially, work was delayed to see whether Australia would accede to the 1964 Hague Convention regulating international sales of goods. Research was resumed when it became apparent that any accession would be subject to reservations that would make the International Code apply only when the parties so provided in the contract. In 1972 the Commission published its First Report on the Sale of Goods.9 That report set out reasons for delaying further work pending expected developments in England in the light of work then being done by the Law Commission.
1.11 Professor K C T Sutton, a distinguished scholar in the field of contract law, was appointed as a full-time member of the Commission in 1973. A very substantial Working Paper was prepared by Professor Sutton and published in 1975.10 Unfortunately, Professor Sutton’s departure from the Commission in 1975, and the pressure of other major references, meant that the project again lapsed. Work resumed in early 1986 when Dr John Carter of the University of Sydney was appointed as a specialist consultant to the Commission. In 1968 Dr Carter was appointed a part-time member of the Commission.
B. 1987 Report
1.12 In 1987 the Commission completed Sale of Goods: Second Report.11 That report set out the Commission’s final recommendations on a number of unrelated and relatively non-controversial issues, most of which were canvassed in the 1975 Working Paper. The following recommendations were made in the 1987 report:
Innocent Misrepresentation
1. The rules of equity relating to rescission for misrepresentation should be expressly preserved for sale of goods contracts.12
2. Rescission of a sale of goods contract for misrepresentation should not necessarily be precluded by the fact that the contract has been performed.13
3. Rescission of a sale of goods contract for misrepresentation should not necessarily be precluded by the fact that the misrepresentation has become a term of the contract.14
4. Acceptance should not bar rescission for misrepresentation unless there are words or conduct which would amount to affirmation under the general law of contract.15
Intermediate Stipulation
5. The Sale of Goods Act 1923 should be amended to make it clear that it does not exclude the right to treat a contract of sale as repudiated for a sufficiently serious breach of an intermediate stipulation.16
Requirement of Writing
6. Section 9 of the Act should be repealed.17
Passing of Property in Specific Goods
7. The passing of property in specific goods should no longer of itself bar rejection of the goods.18
Acceptance and Examination of Goods
8. The description of acceptance in s38 of the Act should be subject to s37 in the case of acceptance by an act of the buyer inconsistent with the ownership of the seller.19
III. THIS PAPER
1.13 This Issues Paper differs in scope and in its tentative proposals from the Working Paper on Sale of Goods prepared by the Commission in 1975. The tentative recommendations in that 1975. Paper attracted very little comment. Since that time, there have been significant developments (noted above) which lead the Commission to the conclusion thdt it is time for fresh consideration to be given to the matters discussed and the tentative recommendations made in that Paper. Again, the Commission does not intend in this present Paper to canvass the reforms recommended in the 1987 Report. Rather, this Paper builds on the views expressed in the 1987 Report, and contains a statement of the main problems confronting parties to sale of goods contracts in 1988.
1.14 While the Commission was preparing the 1987 Report, it became apparent that it would be inappropriate to undertake a general review of the Sale of Goods Act without first seeking the views of the community at large, commercial lawyers, commercial enterprises and consumer groups on the wide range of issues which needed attention. The Commission would welcome comments and suggestions from interested individuals and organisations on the issues canvassed in this Paper.
1.15 In order to distinguish commercial issues from consumer issues, this Paper deals separately with commercial and consumer contracts. Moreover, the Commission has tentatively formed the view that there should be separate reforming legislation. The Commission is, of course, aware that any amendments to the Act, particularly those which might have the effect of increasing the liability of sellers, could have an economic impact. It is therefore important that the Commission be made aware of the economic impact of the types of reforms mooted in this Paper, as well as of the substantive merits of the proposals themselves.
1.16 At various points in this Paper an indication is given of the views of the Commission on particular issues. These views are tentative and should not be regarded as in any way inhibiting those who wish to make suggestions which indicate disagreement. No firm views have been reached within the Commission on any issue other than the general proposition that reform is needed. When the Commission has had the opportunity to consider comments and submissions on the issues raised in this Paper, final recommendations will be presented to Parliament in the form of one or more reports.
FOOTNOTES
1. Section 4(2).
2. See para 2.5.
3. Section 6(1).
4. See para 4.10.
5. See Chapter 4.
6. See para 3.20.
7. Sections 17-20.
8. Section 19(2).
9. New South Wales Law Reform Commission, First Report on the Sale of Goods (LRC I5, 1972).
10. New South Wales Law Reform Commission, Working Paper on The Sale of Goods: Warranties, Remedies, Frustration and Other Matters (WP 13, 1975).
11. New South Wales Law Reform Commission, Sale of Goods: Second Report (LRC 51, 1987).
12. Id para 2.16.
13. Id para 2.21.
14. Id para 2.24.
15. Id para 2.26.
16. Id para 3.12.
17. Id para 4.22.
18. Id para 5.27.
19. Id para 6.19.
