Goldiwood Pty Ltd t/as Margaret Franklin & Associates v ADL (Aust) Pty Ltd t/as Adviser Logic
[2014] QCAT 238
| CITATION: | Goldiwood Pty Ltd t/as Margaret Franklin & Associates v ADL (Aust) Pty Ltd t/as Adviser Logic [2014] QCAT 238 |
| PARTIES: | Goldiwood Pty Ltd t/as Margaret Franklin & Associates (Applicant) |
| V | |
| ADL (Aust) Pty Ltd t/as Adviser Logic (Respondent) |
| APPLICATION NUMBER: | MCDO1771-13 |
| MATTER TYPE: | Other minor civil dispute matters |
| HEARING DATE: | 22 January 2014 |
| HEARD AT: | Brisbane |
| DECISION OF: | Adjudicator Gordon |
| DELIVERED ON: | 27 May 2014 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. The Applicant is entitled to nominal damages. 2. The Respondent shall pay to the Applicant nominal damages in the sum of $10. |
| CATCHWORDS: | Contract for provision of software under licence and for ongoing support – Applicant’s claim for refund of total outlay because of defects - whether a major failure in supply of goods or services under the Australian Consumer Law – whether rescission available under the Australian Consumer law or otherwise Australian Consumer Law ss 29, 51-59, 60-62, 64, 236(1), 237(1), 243, 269(3), 267(4) St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481 |
APPEARANCES and REPRESENTATION (if any):
APPLICANT: Ken Franklin
RESPONDENT: Daniel Gara
REASONS FOR DECISION
In this claim, the Applicant seeks the return of $10,164 which it paid to the Respondent for a 12 month subscription to the Respondent’s Financial Planning Software called Adviser Logic.
Whether or not the Applicant is entitled to this refund depends on whether there was a breach of a guarantee under the Australian Consumer Law, and if so whether there was a major failure, or otherwise whether the Applicant is entitled to rescind the contract for misrepresentation.
The Applicant is Goldiwood Pty Ltd which trades as Margaret Franklin & Associates (“MFA”). MFA are financial planners and investment managers. They therefore advise on and manage investments for their clients. Part of this work involves producing reports for clients called “Statements of Advice” containing detailed information about the current state of the client’s portfolio, together with recommendations and forecasts.
The Respondent is ADL (Aust) Pty Ltd which trades as Adviser Logic. ADL offers financial and accounts software service, called Adviser Logic. This is known as Customer Relationship Management (CRM) software.
The Advisor Logic software is web based, which means that it runs on servers provided by ADL. In order to use the software their clients such as MFA need to access the web-based system through the internet. Once logged in, users can input edit or view data. From this data, users can ask for financial planning documents and reports to be produced, downloaded and/or printed.
Data was also fed to the Adviser Logic system automatically on a regular basis from third parties using data feeds. These third parties were fund managers who managed the investments of MFA’s clients, and also financial data services providing current prices for investments and similar data.
The 12 month subscription to the Advisor Logic software was by a licence commencing 23 May 2013. For this licence, together with migration of data services and training, MFA paid $10,164 including GST.
On 9 July 2013 MFA wrote to ADL saying that they had lost faith in the software because of “one issue after another” and that they were “terminating the contract”.[1] In the letter they asked for a refund of the amount paid. This suggestion was immediately rebutted by ADL.
[1]Item 6.
The Australian Consumer Law
This supply is governed by the Australian Consumer Law which is in Schedule 2 of the Competition and Consumer Act 2010 (the “ACL”).[2] The licence agreement says that it is governed by the laws of New South Wales, but in this instance because the ACL applies, the law is the same throughout Australia.
[2]This is because this is a supply of goods or services where the amount paid did not exceed $40,000.
Is this a supply of goods or is it a supply of services?
The answer to this question is important because it affects the terms of the consumer guarantees which were applicable to this contract. Certain guarantees apply to supplies of goods[3], and different guarantees apply to supplies of services[4].
[3]Guarantees as to title, undisturbed possession, undisclosed securities etc, acceptable quality, fitness for disclosed purpose, correspondence with description, correspondence with sample, as to repairs or spare parts and as to express warranties (in sections 51 to 59).
[4]Guarantees as to due care and skill, fitness for a particular purpose, and reasonable time for supply (in section 60 to 62).
The answer to this also affects the appropriate remedy in the case of a breach.
ADL’s obligations under this contract
Before trying to answer this question it is necessary to recite ADL’s obligations under this contract.
Clause 1.1 of the licence agreement permits MFA:
to access and use the Services for the Allowable Purpose
Clause 8 contains the “Software licence”. It grants:
a non-exclusive, non-transferable License to use the Software for the term of the Agreement solely for the Allowable Purpose
Clause 14 contains some definitions.
“Software” means (where “us” is ADL):
the software developed, owned or provided by us, including any improvements, modifications and related data, but excluding any Client Data.
“Allowable Purpose” means:-
Internal Use for the operation of your business, or as otherwise agreed in the case of particular Users or types of Users.
“Services” means:
all services provided to you by us
(a) those specified in the Initial Service Notice and any invoice;
(b) Support;
(c) the granting of the Software License;
(d) any documentation prepared by us to assist you to use the services, and as varied in accordance with this Agreement.
“Initial Service Notice” means:
the document titled Your Fees agreed between us and you in relation to the Services.
The fees included the provision of the software and migration of data and training to be provided by ADL.
Clause 1.2 of the licence agreement obliged ADL to:-
a) install and maintain the software at the hosted site;
b) install upgrades and releases of the software at the hosted site;
c) to maintain appropriate back-up and disaster recovery procedures and to ensure a minimum of 128-bit encryption for data transfers.
The hosted site referred to here is the server provided by ADL running the Adviser Logic software.
Clause 1.4 of the licence agreement obliged ADL to:-
a) supply upgrades of the software;
b) provide reasonable and timely online telephone and email support for both technical and user questions in relation to the software.
Although not set out in this licence agreement, during the currency of the licence, in the usual case the obligation to maintain the software would include an obligation to:-
a) correct the software to deal with bugs;
b) provide software updates to ensure the software continues to work with other software as that other software is updated.
The common law position[5] is that computer software supplied using one of the hitherto traditional methods on tangible media, for example on diskette, CD, DVD or USB stick can be regarded as a supply of goods because the goods are the media itself, and this contains the software.[6]
[5]Or that under the Sale of Goods Acts enacted in the States and Territories or under the Trade Practices Act 1974 (Cth).
[6]For example St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481 (English Court of Appeal).
This concept is more difficult where there is no media which is supplied at the time of purchase, for example if the software is downloaded from the internet onto a device operated by the purchaser. In such a case it has been held that this is not a supply of goods under the Sale of Goods Act.[7]
[7]for example Gammasonics Institute for Medical Research Pty Ltd v Comrad Medical Sysytems Pty Ltd [2010] NSWSC 267
And in the case of web based software such as provided by ADL, it could well be that no software is downloaded onto the purchaser’s device at all.[8]
[8]usually however, some software will be installed on the user’s machine, such as login facilitation software or help files
However, as can be seen from the statutory provisions below, the ACL has altered the position because the definition of goods now specifically includes computer software.
The statutory provisions
When considering whether these obligations were the supply of goods or the supply of services, I need to recite the definitions in section 2(1) of the ACL:-
goods includes:
(a) ships, aircraft and other vehicles; and
(b) animals, including fish; and
(c) minerals, trees and crops, whether on, under or attached to land or not; and
(d) gas and electricity; and
(e) computer software; and
(f) second‑hand goods; and
(g) any component part of, or accessory to, goods.
services includes:
(a) any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce; and
(b) without limiting paragraph (a), the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under:
(i) a contract for or in relation to the performance of work (including work of a professional nature), whether with or without the supply of goods; or
(ii) a contract for or in relation to the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction; or
(iii) a contract for or in relation to the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; or
(iv) a contract of insurance; or
(v) a contract between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking; or
(vi) any contract for or in relation to the lending of money;
but does not include rights or benefits being the supply of goods or the performance of work under a contract of service.
supply, when used as a verb, includes:
(a) in relation to goods—supply (including re‑supply) by way of sale, exchange, lease, hire or hire‑purchase; and
(b) in relation to services—provide, grant or confer;
and, when used as a noun, has a corresponding meaning, and supplied and supplier have corresponding meanings.
Note: Section 5 deals with when a donation is a supply.
Is there room for mixed contracts for goods and services?
In contracts which are for both a sale of goods and for a supply of services both sets of guarantees can apply to the different parts of the contractual obligations. An example would be a contract for the supply and installation of parts for the repair of a motor vehicle. In such a contract it is easy to see the division between the supply of goods and the supply of services. Under the ACL there is room for such mixed contracts, because services includes “the performance of work (including work of a professional nature), whether with or without the supply of goods”.[9]
[9]See the definition of “services” in section 2(1) of the ACL.
It is noteworthy that under the definition of supply of services, services “does not include rights or benefits being the supply of goods”. This means that the definitions of goods and services are mutually exclusive. So if the thing supplied comes both within the definition for goods and of services, then it will be goods. In other words, it is not possible for the supply of a thing to be of goods and of services at the same time. But a contract to supply different things may be for the supply of goods and also for a supply of services, if some of the things are goods and some of them are services.
In this case ADL were obliged to migrate data, provide training, maintain the software and provide support. Which of these were the supply of goods and which the supply of services?
The distinction between supply of goods and services begins to blur where it is anticipated that the supply of the goods itself entails work to be done to the goods by way of modification, replacement or repair subsequent to their delivery. For example, if a purchaser agreed to purchase a second hand car provided it were to be retro-fitted by the seller with a sun roof, then the work involved to add the sun-roof, whether before or after delivery, might form part of the supply of goods rather than being a supply of services.
This can be contrasted with more clear cut distinctions involving post delivery work. For example a logbook service on a car is probably a supply of services rather than part of the supply of the car itself. Maintenance agreements on hired or purchased photocopiers will probably be for supply of services rather than part of the supply of goods.
Conclusion on question whether it is supply of goods or services
Item (g) of the definition of “goods” in section 2(1) of the ACL includes “any component part of, or accessory to, goods”.
I do not think that the training and migration of data comes within that definition, but rather they were benefits and facilities which arise from a contract for the performance of work. Therefore this was the supply of services.
The Advisor Logic software itself as a finished product was clearly “goods” within the definition of goods in section 2(1) of the ACL because that definition includes computer software.
Like any commercial software, the Advisor Logic software was under continual development and enhancement. It seems to me that new releases of the software which would include bug fixes modifications and enhancements, would also be supplies of “goods”. Such releases would from time to time replace the whole or part of the software which had previously been supplied, and would be so closely connected with the supply of the software as to form part of that supply. This is further indicated by envisaging the situation which arises if there was no right to such enhancements granted at the time of purchase of the software, so that users had subsequently to purchase those new releases: such purchases would themselves be of computer software and therefore goods.
Work on bug fixes and workarounds specific to a particular user and provided pursuant to an obligation to provide support would seem to be of a different nature. To diagnose the cause of problems experienced by a particular user would involve work to identify those problems, to understand what was causing them, to apply a fix and then to test that fix. This would be outside the usual work of the development team when enhancing the software and correcting errors in it generally. So it seems to me that user specific bug-fixes cannot be said to be the supply of computer software or of any component part of, or accessory to that software. It is probably true that upon applying any such fix the software or part of it would be replaced, but that does not make the fix a supply of goods. It is an incident of how such bug fixes need to be applied. In my opinion therefore, work on bug fixes and workarounds specific to a particular user and provided pursuant to an obligation to provide support, would be the supply of services.
Similarly, the obligation to provide reasonable and timely online telephone and email support for both technical and user questions it seems to me would be the provision of services and not goods.
The guarantees
In so far as the obligations of ADL was to supply goods, by section 54 of the ACL there was a guarantee that the goods were of acceptable quality that is to say fit for the purpose for which goods of that kind were commonly supplied and free from defects to the extent that a reasonable consumer fully acquainted with the state of the goods (including any hidden defects) would regard as acceptable having regard to their price, statements and representations and any other circumstances.
By section 55 of the ACL, there was a guarantee that the goods were reasonably fit for any disclosed purpose and any purpose for which the supplier represented they were reasonably fit.
And by section 56 of the ACL there was a guarantee that the goods corresponded with a description given to the consumer.
In so far as the obligations of ADL were to supply services, by section 60 of the ACL there was a guarantee that they would be rendered with due care and skill.
Also by section 61 there was a guarantee that the services and any product resulting from the services would be reasonably fit for any particular purpose for which they were being acquired.
By section 62 there was a guarantee that the services would be supplied within a reasonable time.
The complaints about the software and services
MFA make five complaints about the software:
a) Contrary to representations made prior to the contract, it was unable to note emails from MFA’s Outlook mail client software.
b) Contrary to representations prior to the contract, there was a problem merging multiple templates when producing reports.
c) There was a problem with data feeds.
d) There was a problem with error checking.
Noting Outlook emails
One of the things the software was supposed to do was to provide an add-on to Microsoft Outlook to provide a way to note emails. Apparently this was a way to make them easy to identify and view. As it turned out, at the time of supply, this add-on would only work with Outlook 2007 or 2010. It would not work with Outlook 2003 or Outlook 2013.
At the time of the contract, MFA had Outlook 2003. When MFA tried to load the add-on they realised there was a problem and contacted ADL. They were then told that the add-on would not work with Outlook 2003. ADL claims that in the initial consultations prior to the contract being made it informed MFA of the Outlook versions with which the add-on would work.
Whilst this may have been mentioned, I do not accept that it was sufficient to make it clear to MFA prior to the contract being entered into that the add-on would not work with its existing software arrangement. The person at MFA to whom the software was demonstrated prior to the contract was Ken Franklin, and he was the same person who tried to load the add-on. Had he been aware that it was not compatible with MFA’s system I do not think he would have tried to load the add-on. Further, the email chain of 6 June 2013 demonstrates that it came as a surprise to Mr Franklin that the add-on did not work. Also there is no suggestion in the emails from ADL when this problem was discussed that MFA should have realised that their system would not be compatible with the add-on.
I accept that the function available with this add-on was demonstrated to MFA as a feature of the software, that it was one of the reasons why MFA chose this software and that it would have been useful to MFA had it worked.
Problems merging multiple templates when producing reports
On 28 June 2013 MFA found that the names of the clients were not appearing in the Statements of Advice, and certain parts of the statement were being printed in portrait format instead of landscape format causing material to be missed from the printed report.[10]
[10]The errors appear in a Statement of Advice marked 4C.
This only happened when an attempt was made to print a merged template provided by MFA’s licensed adviser partner together with material from another template. Both sides agree that the problem was probably an incompatibility between the templates. The errors did not occur when the templates were merged separately and then printed.
I accept MFA’s evidence that prior to entering into the licence agreement they were led to believe that the system could merge several templates at the same time to create one final document. In truth, whilst the system as supplied could normally do this, it could not do so with a template provided by MFA’s licensed adviser partner because of a technical issue with this template.
A workaround for this issue was found rapidly by ADL. It was to ensure that the templates were merged separately. I accept the point made by ADL that this was sufficient to solve this problem and did not take much longer than trying to merge more than one template[11].
[11]I accept it would take about 20 seconds extra time for each report.
Problems with data feeds
It appears from the emails provided to me[12] that data feeds were first set up from about 29 May 2013. Only just before that time, MFA had changed its licensed adviser partner. This meant that its adviser number changed. In turn this meant that all the data feeds had to be reset. I can see from the email of 4 June 2013 timed 13.30 that in the case of one fund manager, BT Financial Group, the reset was completed at about that time.
[12]Marked “item 2” and “item 3”.
Then on 17 June 2013 at 14.02 MFA emailed ADL saying there were problems with the data feed. Mainly the problems were that some data was not being mapped to the client.
There is no complaint in the evidence between the two dates. MFA seek to say that there was a lot of correspondence relating to issues with the software and has produced a list of emails with subject lines showing this.[13] In the period between the emails of 4 June 2013 and 17 June 2013 referred to above there were indeed, some 52 emails passing between the two sides. It is not possible to say from merely the subject lines of these emails whether they were about more data feed problems. It seems likely that if they had been about data feed problems they would have been sent to me. There is no evidence therefore, of continuing data feed problems between 4 June 2013 and 17 June 2013.
[13]Marked “item 5”.
Once MFA raised the issues on 17 June 2013, ADL reacted quickly. ADL says that the problem was related to the need to alter the data feed configuration because of the earlier change to the licensed adviser partner. There is support in the emails that this was part of the problem. There were also some other issues but I can see from the emails that they were dealt with quickly.
MFA say that there were still data feed problems up to 28 June 2013, but the only supporting evidence for this proposition is an email sent on that day. One of the problems referred to there is that a client’s account was receiving data from another account owned by the same client. The fix provided by ADL only 85 minutes later demonstrates that the problem was a wrong configuration for that client on ADL’s system. As far as I can tell from the fix, this was something that MFA could and would normally do themselves.
During the currency of this particular contract, I can see from the paperwork that ADL also liaised with third parties who were sending data to MFA’s online database, to help configure the data streams from those third parties. It is unclear whether this assistance was required of ADL under this licence. In the definitions in the licence, there is a list of events excluded from the support offered. The failure of the user to provide appropriately qualified and adequately trained operating and programming staff for the operation of the software was excluded, as was excessive technical support primarily due to the user’s lack of training of its staff. On a strict reading of the contract it would appear that this work was done voluntarily by ADL.
Problem with error checking
Item 4 “E” provided by MFA is a printout of part of a report showing a client’s investments on a certain date. The report shows the proportion of the investments belonging to particular asset classes. The total of the proportions is shown on the report as adding up to 100%, but in fact they only add up to 88.16%.
On the face of it this is a serious error in the software. MFA state however, that ADL informed them that this was caused by an error in the data feed from one of the third party fund managers. In its evidence and submissions MFA do not dispute this explanation. Assuming this explanation is correct, the error appears less serious, but to my mind it is still an error because the received data should have been checked by the receiving system and should not have been applied to a report without being picked up as an error.
MFA say that this problem was fixed the day after it was reported.
Conclusion on the alleged contraventions
It is important to consider the overall effect of problems with the software and with the support. Taken individually, the problems may not amount to a failure to comply with any guarantees but together they might do so. And in a case of a contract to supply goods and also to provide after sales services, the extent of the obligation to supply services will be informed by the quality of the goods as supplied. So goods which were not perfect upon supply, might need better after sales service from the supplier.
I have found that the problem with the data feeds could not be regarded as a defect with the software as supplied, and that the support provided to deal with this problem was not defective either.
There were three defects in the software as supplied: there was a failure to provide the email noting system compatible with MFA’s system, a failure of the software to merge the template from MFA licensed adviser partner when merging other templates as well, and there was an error checking failure on one of the reports.
When considering how serious these defects were, and whether they amounted to a breach of any of the guarantees applied to the supply of goods, it is possible to have regard to whether they were readily capable of remedy and if so, whether this happened. The first two defects were not remedied at all; the third one was remedied rapidly.
Regard can also be had to the effect these defects had on the overall working of the software. I can also see from the evidence that the software was recognised in the industry as one of several similar systems providing such functionality. I can see from the reports which were produced from the software that it was a sophisticated system. I accept that the software was capable of providing substantially the functionality for which it was supplied. The email noting add-on was only a very small part of that functionality. Whilst the merging of templates was essential in order to produce reports, the software achieved this properly provided the templates were merged separately rather than at the same time. This was a fairly easy workaround.
Overall it cannot be said that the software was not of acceptable quality under section 54 of the ACL having regard to the matters set out in that section. In particular, the software was fit for the purpose for which software of that kind was commonly supplied as a reasonable consumer fully acquainted with it would regard as acceptable. It is inevitable that software will have some problems, particularly when it needs to be compatible with software provided by third parties. The reasonable consumer envisaged under section 54 would take this into account when considering the fitness of the software.
The fitness for a particular disclosed purpose under section 55 is rather different from section 54 because it is possible for there to be a breach of section 55 yet not a breach of section 54. This is because section 55 concentrates on particular purposes required of the goods, whereas section 54 concentrates on “all the purposes for which the goods of that kind are commonly supplied”.
In my view, the failure of the software to provided the email noting system and to merge properly with the template from MFA’s licensed adviser partner were breaches of section 55. These were things that MFA explained they needed from the system, yet they were not part of the functionality of the software upon delivery and installation on MFA’s system. This is irrespective of the fairly easy workaround for the merging problem.
These defects were also breaches of section 56 because they were part of the description of the software and because of the defects, the software did not meet that description.
Turning now to whether there was a failure by ADL properly to provide support (which, as found above were supplies of services rather than of goods), I need to consider whether ADL supplied those services with due care and skill and in a reasonable time, and that they were fit for the purpose for which the services were being acquired.[14]
[14]Being the guarantees in section 60, 62 and 61 of the ACL respectively.
I am satisfied that the services provided by ADL to fix the data feed and error checking problem were provided with due care and skill and in a reasonable time.
With respect to the email noting add-on, it might be argued that ADL had no obligation to ensure that this add-on worked because it was not obliged to provide support for an “excluded event”, and the need to provide support because of problems caused by third party software was an excluded event.[15] However this was not a problem cause by third party software. Having promised MFA this functionality, it was up to ADL to ensure that it worked with MFA’s system.
[15]Clause 1.4 and the definition of “Excluded Events” in clause 14.
However, I do not think the failure of ADL to make the software compatible with Outlook 2003 as part of its support was a breach of the guarantee to provide services with due care and skill, or fit for the purpose. My reason for this is that if ADL had corrected this problem it would have been applying resources to correct a problem unique to this customer (because few users would still be running Outlook 2003), where the customer was planning to upgrade anyway, and where the fault was only a very small part of the overall system.
In about June 2013 MFA were organising an upgrade of the server at their premises and this involved moving on to Microsoft Exchange 2013. The add-on from ADL as supplied, would not work with that system either. It was not until mid September 2013 that ADL updated the software to add an email noting system which was compatible with Microsoft Exchange 2013. However, there is nothing to suggest that ADL failed to exercise due care and skill or was in unreasonable delay in producing this update.
As for the failure of the software to merge the template from MFA’s licensed advisor at the same time as another template, whilst there was a fairly easy workaround for this defect, it appears that no attempt was made by ADL to fix this once the workaround was found. ADL makes the point that MFA never complained again about this problem once the workaround was found. In my opinion, ADL did not fall below its legal duty to supply services with due care and skill by relying on the workaround because it was a solution to the problem. Having said that, it probably would have been a good idea to offer to fix this problem, because it appears that MFA’s confidence in the software was seriously undermined by this problem.
Could the goods be rejected under the ACL?
On 9 July 2013 MFA terminated the licence and asked for a refund of the money they had paid. This was a rejection of the goods supplied and a termination of the supply of services.
The guarantee contraventions that I have found are those relating to the part of the contract for the supply of goods. Different remedy provisions apply to supplies of goods and supplies of services. I have not found a failure to comply with a guarantee applying to the supply of services. Therefore I concentrate on whether MFA were legally justified in rejecting the goods supplied.
If the failure to comply with the guarantee cannot be remedied or is a major failure then the goods can be rejected by the purchaser who can then seek a full refund.[16] Otherwise the purchaser is limited to damages[17], unless the purchaser requests the supplier to remedy the failure within a reasonable time and the supplier fails to do so, in which case the right to reject the goods is revived.[18]
[16]Section 259(3) of the ACL; this right can be lost in the circumstances set out in section 262.
[17]Under section 259(4).
[18]This is the route under section 259(2), although the right can be lost in the circumstances set out in section 262.
Software problems of the type experienced here are usually remediable given sufficient time, so they could be remedied. But did these defects amount to a “major failure”? To answer this it is necessary to turn to the provisions in section 260 of the ACL. In the context of a software problem, a major failure is where “the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure”.
The test brings into focus the importance of any finding about acceptable quality in section 54. It is fair to say that no reasonable consumer would ever be willing to acquire goods which were not of acceptable quality and in breach of the guarantee in section 54. It might be said that this is wrong because a reasonable consumer would always be willing to acquire goods which were not of acceptable quality provided they could be obtained at a much lower price than they were being offered. But I do not think that this can be the test intended by section 260 because otherwise no failure could ever be a “major failure”.
Thus it would appear that a breach of section 54 will always be one which is a “major failure” permitting a purchaser to reject the goods, provided the entitlement to do so has not been lost under the provisions of section 262.[19] In this respect, the right to reject under the ACL has close parallels to the similar rights under the Sale of Goods Act enacted in various jurisdictions.
[19]This turns on questions of delay in rejecting the goods, and loss destruction damage or alteration of them.
The position is different with breaches of sections 55 (failure as to fitness for disclosed purpose) and section 56 (failure to correspond with description). As can be seen from the facts in this particular case, such breaches can result from fairly minor infringements which would not affect a reasonable purchaser’s decision to proceed with the purchase in the knowledge of such infringements.
If a breach of section 55 and 56 was a serious one it could amount to a “major failure” under section 260 but it would not always do so as is the position with section 54.
In my opinion a reasonable consumer with advance knowledge of the defects in the Adviser Logic software would still have proceeded with the licence agreement. This is because the defects would have little effect on the overall functionality of the software.
Can the contract be rescinded for misrepresentation?
In equity if a party to a contract has relied on and been induced by a material representation of fact when making the contract, if that representation is false it can give a right to that party to rescind the contract.
Under sections 236(1) and 237(1) of the ACL the court can make various orders if there is conduct which is a contravention Chapter 3 of the ACL (amongst other provisions) which has caused or is likely to cause loss and damage.
Section 243 sets out the kinds of orders which can be made under section 237(1) and they include a declaration that the contract is void from a certain date[20] and an order for the return of money and for damages.
[20]Effectively therefore an order of rescission.
There is no suggestion that QCAT is not a “court” for the purposes of the ACL when determining cases within its jurisdiction which require consideration of the ACL.[21]
[21]This was assumed in Jennison v AW Admin Pty Ltd as agent for Brisbane Taekwondo Centre [2011] QCATA 285; by section 164 of the QCAT Act, QCAT is a court of record – see also Owen v Menzies & Ors [2012] QCA 170 - QCAT is a “court of a State” for the purposes of the Constitution, Li v Medical Board of Australia (No 1) [2013] QCAT 595 - QCAT is a “court” for the purposes of the Service and Execution of Process Act 1992 (Cth), and Capital Options (Aust) Pty Ltd v Batchelor [2013] QCAT 493 - QCAT is a “court” within the meaning of the National Credit Code.
Chapter 3 of the ACL contains section 29 which prohibits a false representation that the “goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use”.
It is notable that missing from this list is any representation that the goods are capable of achieving any particular purpose or that they correspond with a particular description. In some cases, a representation that goods are capable for use for a particular purpose would also be a representation as to standard or quality but not in every case.
In this particular case the representation was that the software had a working email noter system and that it was capable of merging multiple templates at the same time. There was no falsity in these representations because the software was able to do these things. It was not however able to do these things on MFA’s system as set up.
I do not regard the representations about the email noter and as to the merging of templates as being representations that the goods were of a particular standard or quality within section 29 because the absence of this functionality would have little effect on the overall standard or quality of the software as perceived by the reasonable purchaser.
Even if the representations are capable of being within the words particular standard or quality in section 29, I would not regard any such representations as being false, in the particular circumstances. This is because they were generally true and were only false in the case of MFA’s system.
MFA cannot have resort to equity either, because the representations were generally true.
Accordingly MFA cannot rescind this contract because of any actionable misrepresentation.
Exclusion and limitation
Clause 5 of the licence agreement of the licence states under the title “Errors or delays in the services”:
We will use our reasonable endeavours to correct any omission, error, delay in the Services or the transmission of the Services notified to us. However, you acknowledge that the Services are provided on an “as is” basis and we do not warrant that the Services will meet a certain standard, be free from error, delay, omission or failure or be suitable for your purpose, or that any Data will be accurate or complete.
You acknowledge that you must continue to pay the Fees in the event, and for the duration, of any error, delay, omission or failure in the Services or the transmission of the Services regardless of the cause.
Services is widely defined in the contract and is capable of including the supply of the software itself. Is so far as this clause attempts to exclude the guarantees in the ACL it is void. This is by section 64 of the ACL.
Clause 6.2 of the licence agreement of the licence states under the title “Disclaimer, indemnity, limitation of liability and undertakings”:
If our liability to you for breach of a term, condition or warranty implied by law into contracts for the supply of goods or services is capable of exclusion, then it is excluded. If our liability to you for breach of such a term is not capable of exclusion but our liability can be limited and it is fair and reasonable to do so, then it is limited, at our discretion, to:
(a) in the case of goods, repairing or replacing the goods, or paying for their repair or replacement; and
(b) in the case of services, supplying the services again or paying for their resupply
(c) our total liability to you in respect of any and all loss or damage is limited to the total Fees paid by you in the 12 months immediately preceding the event giving rise to liability.
This clause attempts in the first instance to exclude liability completely. Such a term is void by section 64 of the ACL. Then clause 6.2 states that if “liability can be limited and it is fair and reasonable to do so, then it is limited, at our discretion, to (in the case of goods) repairing or replacing the goods or paying for their repair or replacement”. There are three problems with this provision which stop it from acting as an effective limitation clause.
The first is that the limitation only applies if it is fair and reasonable for it to do so. This is a reversal of the usual burden of proof which is upon the purchaser to prove that it is not fair and reasonable to apply such a restriction.[22] By the wording of clause 6.2 ADL has taken on the burden of proving fairness and reasonableness but have offered no evidence nor any submissions to show this.
[22]Section 64A(3) of the ACL.
The second problem with the clause is that it has to be invoked by ADL. By its terms, the clause operates at ADL’s discretion. Unless it is invoked, the clause does not apply. There is no evidence that ADL has invoked the clause.
The third problem is that if the limitation is effective it entitles ADL to repair or replace the software as the limit of its liability. However, this did not happen in respect of the two contraventions of the guarantees which I have found.
The award
It follows from my finding above that MFA’s remedy for the breach of sections 55 and 56 (fitness for particular purpose and failure to correspond with description) is for damages. Under section 259(4) of the ACL:-
The consumer may, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure.
MFA cannot show any actual financial loss because of the failure of the mail noter or the merging with more than one template to work, or because of the error checking problem.
Whilst it seems likely that MFA did waste a lot of managerial time on trying to sort out these problems, there is no quantification of this, and cogent evidence would be required before an award could be made of this sort.[23]
[23]Manwelland Pty Ltd v Dames & Moore Pty Ltd [2001] QCA 436 at [26].
In the circumstances MFA are entitled only to nominal damages. I make an award of $10.
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