PRACTICAL CONSUMER AND COMPETITION LAW

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PRACTICAL CONSUMER AND COMPETITION LAW 205 ASSIGNMENT 2 – SEMESTER 2 OF 2014
Instructions to Students
• There are three hypothetical scenarios in this assignment. You have to choose two scenarios to write your responses.
• You will use the memo-style format to write your responses (the same as in Assignment 1). You will address BLT manager Marc in giving advice to BLT.
• This assignment will assess you on the materials covered from Week 1 to Week 8.
• You have to identify the relevant legal issues, identify and apply relevant principles of the Australian Consumer Law (ACL) to the facts. Your answer should analyse relevant principles of the ACL and case-law.
• The prescribed word count for the assignment is between 2,000 and 2,500 words. Footnotes and references are excluded from the word count.
• This assignment is due on Wednesday 12 November 2014 by 1 PM.
• Marks allocated for the whole assignment is 30. Each question worth 15 marks.
• You need to work on two separate memos.
Question 1 (15 Marks)
The directors of BLT Health and Fitness (BLT) are considering closing a few of its centres as the directors deem them unprofitable. They decide to sell the gym equipment in these centres, as the other BLT gyms cannot accommodate any additional equipment. The directors hire an external business consultant, Homer Griffin, to handle the closing of its centres. Homer decides to advertise BLT’s gym equipment in the classifieds sections of the newspaper.
Bart, Lisa and Milhouse are recent Curtin graduates and young entrepreneurs. They observe that 24-hour gyms are in high demand and decide to open one, naming it AllTime Fitness (ATF). They see BLT’s advertisement and contact Homer.
Bart, Lisa and Milhouse enquire about the condition of the equipment and specify that it must be in very good condition if they are to use it for their first gym. Homer tells the young entrepreneurs that the gym equipment is “as good as new”. Additionally, Homer says that BLT staff follows a strict procedure of wiping down gym equipment with a special mixture to prevent rusting and ageing of the equipment (BLT had told Homer this when he was engaged as BLT’s consultant).
The young entrepreneurs are very interested, but Lisa (being the more cautious one) would rather inspect the equipment before committing to a purchase. Homer tells them that he has had a lot of interest in the equipment and they will need to make their mind up quickly. Homer also says “cowards are never successful in business”. The young entrepreneurs eventually sign the contract of purchase and pay a deposit.
The contract contains a clause stating that the purchaser has not relied on any statement, representation or warranty given by the vendor.
When the equipment is finally delivered to ATF’s first store, the young entrepreneurs realise that the equipment is rusty and very worn down. The treadmills can only extend to a maximum speed that equates to walking speed. Shockingly, none of the stationary bicycles have pedals. The young entrepreneurs contact BLT manager Marc about all these problems.
With reference to the ACL and relevant cases, advise BLT on the possible legal risks in their actions.
Question 2 (15 marks)
BLT’s directors are thinking of installing outdoor heaters for use in their outdoor exercise area. BLT approaches Trevor’s Outdoor Gear and explains that they require an outdoor heater for use in their outdoor exercise area. Trevor recommends Hottie Heaters commercial grade outdoor heater. Trevor tells BLT that he can take $200 off the price of the heater as it is excess floor stock and is being “sold as is”. BLT notices that there is a label on the heater with the Hottie Heaters logo and the words “Manufactured in China for Hottie Heaters Pty Ltd Aus”.
BLT purchases the heater, and is given the ‘User Guide’ and a guarantee card for the heater. The guarantee card states:
“This product is guaranteed for 12 months from the date of purchase. Trevor’s Outdoor Gear regrets it cannot guarantee the availability of service or spare parts after 12 months from the date of purchase.”
Hottie Heaters had produced display signs drawing attention to the limitations on availability of service facilities and spare parts. Hottie Heaters had requested all retailers to display the sign in conjunction with the heaters but Trevor had never done so because he considered it might deter customers from purchasing the heaters.
Unfortunately, BLT’s outdoor heaters stop working after 13 months. As Perth has been experiencing unusually cold weather, the heaters have been used very often. BLT staff also notice there are a number of large rust marks developing on the base of the heater.
BLT contacts Trevor, who says “I’m just the retailer, we can’t do anything for you. Anyway, the heater is out of warranty – you should have purchased one of our extended warranties”.
Advise BLT on their possible causes of action and remedies under the Australian Consumer Law.
Question 3 (15 marks)
BLT’s directors are concerned about membership sales and boosting revenue. They devise a number of strategies they think will drive and grow the business.
In a bid to boost membership, BLT’s directors decide on a campaign to reward new members with magazine subscriptions to Muscle Maximus (which BLT publishes). The advertisement is communicated through various mediums, such as print, radio, online and social media.
Usually, a 12-month gym membership at BLT costs up to the value of $600. BLT’s advertisement states:
“Free 6-month magazine subscription to Men’s Muscle or Fit Female when you subscribe to a BLT gym membership! $680 only! WHILE STOCKS LAST!”
BLT’s directors also decide to charge a $50 registration fee when customers subscribe to a gym membership. However, this fact was left out of the advertisement for fear of deterring prospective customers.
Due to a desire to cut costs and boost revenue, BLT’s directors only planned to print an additional 10 magazines (per month) in anticipation of new subscriptions resulting from the campaign. This is despite the fact that BLT’s directors anticipate their campaign will fetch an additional 100+ subscriptions across the state. Furthermore, on average, BLT usually sells anywhere between 50-80 magazines per month. BLT’s employees were instructed to tell new customers who did not receive a magazine subscription upon signing up to review the advertisement carefully (as the advertisement said “WHILE STOCKS LAST!”).
As part of this new campaign, BLT’s directors also decide to send its existing members monthly issues of Muscle Maximus, stating that they must subscribe to the magazine in addition to their gym membership, for a cost of $15 per month. When a customer asked about whether it was legal to do so under the law, BLT’s staff simply said “It’s only $15 per month, stop crying over it”.
BLT’s directors also think it is a good idea to promote new gym subscriptions by encouraging members to refer their friends, family and colleagues. The directors require each new member to provide new names and numbers for BLT to contact. The new member will receive a 5% discount on their gym membership for each name provided that eventually the referred person(s) signs up with BLT.
With reference to the ACL and relevant cases, advise BLT on the possible legal risks in their actions.
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