You work as the head of Legal Compliance for major Australian telecom company Virgo. Virgo offers the latest mobile phones either for outright purchase or on a plan via its network services in competition with major Australian providers like Telstra and Optus. Virgo has decided that it will manufacture its own phone and offer it, together with the usual competitor brands it offers, for either outright purchase or on a contract plan.
At the monthly management meeting, Virgo’s head of Research & Development, Corey Ander, announces that the new phone the company has been working on is now ready for production. The phone is to be called the ‘EyePhone’.
It has a simar look to the latest phones of Virgo’s competitors but, as Corey says, “They all look the same these days”. The EyePhone will be sold at Virgo’s stores throughout Australia and will be displayed next to the latest iPhone and Samsung phones. The price for the EyePhone will be $1,500 outright. This is slightly more expensive than competitor prices despite the EyePhone having much poorer specifications.
The EyePhone costs about $100 each to produce. Virgo’s head of Sales, Bill Moore, states that the high price is intentional. The high outright price might generate an impression that the EyePhone is comparable to the top phones in terms of quality even though Virgo will be careful never to state that the quality is similar. Bill says that Virgo aims to entice customers to take up the EyePhone by offering an unbeatable contract.
Virgo will offer the EyePhone for free on a two-year contract for $30 per month which includes unlimited national calls, text messages and 10GB of data per month. This plan is so cheap that it beats its nearest rivals by far. Customers should literally be falling over themselves to secure this plan. Always worried about money, Virgo’s Accountant Laura Norder asks Bill how Virgo can afford to offer such a cheap plan and a free phone. Bill replies that because of the new terms they want to put into their standard contracts, customers will end up paying a lot more than $30 per month. He explains that Virgo will be updating their standard contracts to include the following terms:
1. Plans can only be paid by monthly direct debit from the customer’s bank or credit card account;
2. Customers cannot cancel their contract before the two-year term has expired. If they do, they agree that Virgo can take from their account the monthly fees for the remainder of the contract and the upfront price of $1,500 for the phone;
3. Customers who exceed their 10GB of data will be charged at a rate twice as high as even the most expensive competitor;
4. The Customer agrees that Virgo can, at its discretion, increase the monthly plan price on individual plans by $5 per month every 3 months without notice.
Bill believes that most customers will simply sign the contract without reading it, as most customers tend to do. However, Bill intends to raise the monthly price by $5 every 3 months for existing customers, i.e. new customers will still sign up at $30 per month and then receive the increases every three months thereafter, like other existing customers. Virgo’s Production manager Jack Hammer then raises an issue with the group. He says that just over a month ago he had signed a contract with a local business Case Management to manufacture 100,000 protective cases for the Eyephone for $1 million. When he had told Virgo’s CEO, Lotta Power about the deal just after signing, Lotta had not been pleased because she had secured a better contract with another manufacturer Just In Case.
Jack had immediately emailed Case Management to tell them that he was cancelling the contract. However, he has today received a package from Case Management with 100,000 cases and a bill for $1 million. Lotta says that she has also had issues with Just In Case. She had requested delivery of 100,000 cases no later than 3pm Friday a week ago and the contract had stated, as does all Virgo’s contracts, that time is “of the essence”. Lotta had also stipulated in the contract that the cases be made out of Elastiform plastic because she has shares in the company that makes this brand of plastic. However, Just in Case had delivered the cases at 4pm on the Friday. Lotta had briefly inspected the delivery and had noticed that the cases were made out of a generic plastic similar in look and function to Elastiform.
Further, one of the boxes of cases had a hole in it and about 5 cases were missing. Lotta wants to reject the delivery because it was late, was less than the ordered amount of cases and Elastiform was not used. The meeting then closes and Lotta asks you to think about everything that was discussed and to provide her with a memo outlining your response to 4 questions that she has. Your task is to write ONE memo/report to CEO Lotta Power outlining your response to the following questions posed by Lotta:
1) Whether or not the use of the name ‘EyePhone’ and the fact that it looks similar to an Apple iPhone may constitute misleading and deceptive conduct; 10 Marks
2) Whether or not the new standard contract terms may be classed as unfair contract terms pursuant to legislation); 10 Marks
3) Whether or not, with reference only to repudiation, Virgo has to accept and pay for the cases from Case Management; and 10 Marks
4) Whether or not, with reference only to performance, Virgo has to accept and pay for the cases from Just in Case. 10 Marks