Further, it is necessary to examine what is meant by “transfer of property”, “goods” and “money consideration”.

2.5.1.1 Transfer of property

While it is clear from s. 4(1) that the application of the SGA is not limited to cases where property in goods is to be transferred immediately, and that agreements to transfer property in the future are also covered, the concept of transfer of property is nevertheless a complicated one.

The first thing to note is that transfer of possession is not necessary. Instead, the focus is placed on the ownership of (i.e., property in) the goods. Second, the SGA contains detailed rules regulating when property passes from seller to buyer, and these rules are obviously of relevance when discussing the passing of the risk from seller to buyer. However, a discussion of those rules falls outside the scope of this book.

2.5.1.2 Goods

The SGA states that: goods “includes all chattels personal other than things in action and money, and also includes emblements and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale” (SGA, s. 3(1)), thus giving the term a rather wide scope.

One context in which difficulties arise in defining whether the contract is for “goods”, is where it could be argued that the consideration contracted for is “work and materials” rather than goods. As noted by the High Court: “The distinction between a contract for the sale of goods and a contract for the provision of work and materials is frequently a fine one and the tests for distinguishing the one from the other are unsatisfactory and imprecise”.^[3] The tests that are most commonly referred to are the “main substance test” of Robinson v Graves,^[4] and the “end product test” of Lee v Griffin.^[5] According to Blackburn J in Lee v Griffin:

If the contract be such that, when carried out, it would result in the sale of a chattel, the party cannot sue for work and labour; but, if the result of the contract is that the party has one work and labour which ends in nothing that can become the subject of a sale, the party cannot sue for goods sold and delivered. … I do not think that the test to apply to these cases is whether the value of the work exceeds that of the materials used in its execution; for, if a sculptor were employed to execute a work of art, greatly as his skill and labour, supposing it to be of the highest description, might exceed the value of the marble on which he worked, the contract would, in my opinion, nevertheless be a contract for the sale of a chattel.^[6]

The Court in Robinson v Graves^[7] departed from this line of reasoning.  In that case, an artist had been commissioned to paint a portrait. It was held that the main substance of the agreement was the artist’s skill and labour. The supply of materials was ancillary. The Court stated that:

If you find, as they did in Lee v Griffin, that the substance of the contract was the production of something to be sold by the dentist to the dentist’s customer, then that is a sale of goods. But if the substance of the contract, on the other hand, is that skill and labour have to be exercised for the production of the article and that it is only ancillary to that that there will pass from the artist to his client or customer some materials in addition to the skill involved in the production of the portrait, that does not make any difference to the result, because the substance of the contract is the skill and experience of the artist in producing the picture.^[8] (internal footnote omitted)

The High Court has not yet provided any clear guidance as to which of these tests is the preferable one in Australia, or if, indeed, a third option is to be applied instead. However, a trend of favouring the “end product test” is noticeable amongst the State courts. In Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd,^[9] the Court had to decide whether the contract was for the sale of goods or for work and labour. Justice Fullagar expressly favoured the “end product test” and pointed to several weaknesses of the “substance test”, describing it as “illogical and unsatisfactory”.^[10] More recently, the Supreme Court of New South Wales also indicated a preference for the “end product test”. Pangallo Estate Pty Ltd v Killara 10 Pty Ltd^[11] relates to a contract for the processing of grapes into wine. The plaintiffs had delivered grapes to a wine maker. The wine maker processed the grapes into wine and was to provide the wine to the plaintiffs. The question before the Court was whether this scenario meant that the plaintiffs had sold the grapes to the wine maker and subsequently bought the wine, or whether it was a contract under which the wine maker was charging a fee for the processing of the grapes into wine. Focusing on the parties’ intention, Brereton J decided in the plaintiffs’ favour.^[12] However, in reaching this conclusion, Brereton J embraced the reasoning of the Court in Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd and that of Blackburn J in Lee v Griffin. Furthermore, Brereton J followed a decision by the Full Court of the Supreme Court of South Australia in Lamkin v RH Binder Pty Ltd,^[13] indicating that in their view also that case was consistent with the “end product test”. The judgments did not analyse whether the contract was one for sale of goods or one for services. However, the differing approaches of the trial Judge and the Full Court made it clear that the trial judge treated the contract as one for the sale and resale of goods, whereas the Full Court treated the contract as one for services.

There have been disputes in several areas as to whether the product in question can properly be classed as goods. One such area is computer software.^[14]

2.5.1.3 Money consideration

Whether or not property in goods is transferred for “a money consideration called the price” is not a complicated matter in most cases. It is clear that, situations where property in goods is transferred purely as a gift, or purely in barter (i.e., good exchanged for another good) fall outside the scope of the Sale of Goods Act. However, difficult distinctions may arise in some cases.

While not a case arising out of the SGA, Esso Petroleum Ltd v Commissioner of Customs & Excise,^[15] provides interesting guidance as to cases involving gifts. In Esso Petroleum Ltd, the Court had to decide whether medals provided to purchasers of petrol were pure gifts or formed part of a contract for sale. The majority of the Court (Lord Fraser of Tullybelton dissenting) expressed the view that, where a “gift” is offered in connection with a purchase of some other goods or service, there is no money consideration in relation to the gift. Rather, the consideration relating to the gift is the entry into the contract for purchase of the other goods or service. Viscount Dilhorne and Lord Russell of Killowen went one step further and took the view that, where the “gift” is of little intrinsic value, it could not be inferred that the parties intended that there be any legally binding contract in relation to the gift. In light of this it seems that, at least “gifts” of little intrinsic value, offered as an incentive to enter into a contract, would fall outside the scope of the SGA. It is, however, unclear whether the reasoning in Esso Petroleum would be applicable if the “gift” was not used as an incentive. For example, if the buyer did not know that the purchase for the main product would entitle her/him to the gift. Similarly, it is not clear whether the reasoning in Esso Petroleum would be applicable in a scenario where the “gift” is similar in value to that of the main product.

Further, several cases have indicated that a situation where products are advertised as “buy one, get one free” are not to be treated according to the Esso Petroleum approach. Instead, “buy one, get one free” is to be treated as a purchase for two products, each of which are reduced to half price.^[16] In Food Supplier and Commissioner of Taxation,^[17] the question was whether Goods and Services Tax (GST) was payable on food products supplied with “free” non-food gifts. The Court noted that, the “free” items were not provided free of charge alone. In other words, the only way to get the “free” item was to purchase the food item. Thus, leaving aside the comparative value of the “free” item, the scenario is very similar to that of the Esso Petroleum case. However, unlike the Court in Esso Petroleum, the Court in this case concluded that: “there was consideration for the supply of the packaged product as a whole, including the promotion item. The consideration for the supply of the two items was the single price paid for the two of them.”^[18] The Court referred to some statements made in recent English cases dealing with similar matters. Most importantly, reference was made to Kimberley-Clark Ltd v Customs and Excise Commissioners,^[19] in which nappies were supplied in a box that could be used as a toy box. In that case, Lloyd J said: “The transaction is in economic reality one single transaction which it is not correct to divide up or dissect”.^[20]

In conclusion, it is possible that the Esso Petroleum approach now is outdated, and that courts are likely to view that type of transaction as whole, rather than identifying the individual elements of the transaction. If this is wrong and the Esso Petroleum approach is still good law, it is, nevertheless, necessary to distinguish between the Esso Petroleum situation and situations of the “buy one, get one free” nature.

The issue of trade-ins was discussed in Dawson (Clapham) Ltd v Dutfield.^[21]  In that case, the plaintiffs sold used motor lorries and were to receive payment in cash and exchange of two other lorries on the condition that the exchange occur within one month.  The exchange never took place. Justice Hilbery held that a contract involving partly barter and partly money consideration, was nevertheless to be treated as a sales contract. While reasonable, such a conclusion must presumably be qualified, and focus be placed on the comparable value of the barter item and the money consideration. For example, it is unsuitable to view a contract under which two persons exchange luxury cars as money consideration simply because one party provided $1 in addition to a very valuable car.