Did you know that as a supplier or manufacturer of goods and/or services that you automatically provide certain guarantees to consumers? On 1 January 2011, changes to the law affecting the obligations of manufacturers/suppliers of goods and services and the rights of consumers came into effect. The relevant legislation is the Competition and Consumer Act 2010. Schedule 2 of the Act deals with Australian Consumer Law (“ACL”) which covers ‘Consumer Guarantees’.
The Consumer Guarantees replace the implied warranties and conditions that previously existed in state and territory fair trading laws and the Commonwealth Trade Practices Act 1974. If you are the operator of a business that provides goods and/or services to the public, then it is important that you understand what your obligations are with respect to the Consumer Guarantees under the ACL.
What is covered?
If you operate a business that supplies goods and/or services – you automatically provide certain guarantees to customers that purchase your products or engage your services. These are called Consumer Guarantees. These guarantees exist regardless of any warranty provided by you as the supplier and/or the manufacturer.
The Consumer Guarantee rules apply to you if you:
- Supply goods or services that cost $40,000 or less;
- Supply goods or services that cost more than $40,000 which are normally used for personal, domestic or household purposes; or
- Supply a vehicle or trailer. The cost of the vehicle or trailer is irrelevant.
What is not covered?
Goods that are not covered by the Consumer Guarantees include:
- Those that were purchased before 1 January 2011 (these are instead covered by statutory conditions and warranties under the Trade Practices Act 1974);
- Goods that have been purchased from one off sales from private sellers;
- Goods that have been purchased at an auction;
- Goods that cost more than $40,000 that a person would normally purchase for their business;
- Goods where a person has purchased for the purposes of on-selling or re-supply.
Services that are not covered by the Consumer Guarantees include:
- Services purchased before 1 January 2011 (these are instead covered by statutory conditions and warranties under the Trade Practices Act 1974);
- Services costing more than $40,000 which are for commercial use;
- Insurance contracts; and
- Services that relate to transportation or storage of goods for a consumer’s business, trade, profession or occupation.
Consumer Guarantees in more detail
If you are in the business of supplying goods or services, it is implied that certain guarantees are provided to the consumer of your goods and/or services. These guarantees are specified in more detail as follows:
The Goods that you supply:
- are of acceptable quality when sold, that is, they are acceptable in appearance and finish, free from defects are safe and durable;
- will be reasonably fit for specified purposes;
- match their description, sample or demonstration model;
- satisfy any extra promises made about them (express warranties);
- have clear title, that is, the supplier has the right to sell the goods to the consumer;
- are not subject to repossession;
- are free from hidden securities/third party interests (e.g. mortgages); and
- are subject to manufacturers and/or importers providing a guarantee that spare parts and repair facilities are available for a reasonable time after purchase.
The Services which you provide:
- are provided with due care and skill;
- are fit for their specified purpose; and
- are supplied within a reasonable time (where no specific time frame has been set)
What happens when Goods or Services do not meet Consumer Guarantees?
When the goods or services that you supply fail to meet any one or more of the Consumer Guarantees, your customers will generally have a number of remedies against you as the supplier and/or the manufacturer. The type of remedy will depend on the problem (as it relates to the particular Consumer Guarantee).
Minor and Major Failure of Goods
For minor failures with respect to goods, you as the supplier must offer to do any one of the following:
1. Repair the goods;
2. Offer the consumer replacement goods; or
3. Provide a full refund (to the consumer).
For major failures with respect to goods, it is the consumer that has the right to choose which remedy and not the supplier and/or manufacturer. These remedies include the right to:
1. Reject the goods and obtain a refund;
2. Reject the goods and get an identical replacement; or
3. Keep the goods and get compensation (for the drop in value caused by the failure).
Minor and Major Failure of Services
If a consumer has a minor problem with the service provided the supplier can choose to either provide a correction/repair (where possible) or offer a refund. For a major problem with respect to the services supplied to a consumer, the consumer has a choice of cancelling the service (i.e. cancelling a contract it has signed) and obtain a refund or keeping the contact on foot (for the provision of the services) and obtain compensation for the difference in the service that is delivered and what the consumer paid for.
When is a Consumer is not entitled to a remedy?
There are a number of situations where a consumer is not entitled to a remedy. These include but are not limited to the following situations:
- If a consumer has been alerted by the supplier of the goods that there was a particular defect (before the goods were sold to the consumer), then the consumer will not have a right to a remedy if those defects later caused problems with the goods.
- If the consumer had the opportunity to inspect the goods prior to purchasing but failed to find obvious defects that ought to have been detected.
- If the consumer uses the goods in a manner that is deemed ‘abnormal’. Examples of this include damage to the screen of a laptop or television due to an object hitting the screen.
- If the consumer simply changes their mind about the goods (unless the supplier’s policy offers a refund or exchange).
- If a supplier does not meet one of the Consumer Guarantees due to something (that occurred after the goods or services was supplied) which was beyond the control of the supplier or as a result of something that was said or done by someone else who is not an agent or employee of the supplier; or
- Where a consumer claims that goods are not fit for their purpose but:
- the consumer did not rely on the supplier’s skill or judgement when purchasing the goods – and instead relied on his or her own skill or judgement; or
- in the circumstances it was unreasonable for the consumer to have relied on the supplier’s skill or judgement.
Compensation for Consequential Loss
If as a supplier of goods or services, you fail to meet a Consumer Guarantee, a consumer may have the right to claim compensation for consequential loss. The compensation is intended to place the consumer in the position they would have been in if the goods or services had met the Consumer Guarantee.
The loss that a supplier is obligated to cover include losses that could have been expected to result from a failure to meet a Consumer Guarantee and are reasonably foreseeable.
Consumer claims against the Manufacturer
If goods fail to meet a Consumer Guarantee, the manufacturer of those goods is required to provide damages to the consumer. In most cases, consumers deal with suppliers, but in some instances consumers may ask the manufacturer to resolve the problem. The amount of compensation that a consumer is entitled to ask for is limited to damages for loss or damage suffered 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.
If a supplier is faced with a claim from a consumer where the failure of the goods it has supplied relates to a manufacturing defect, the supplier has 3 years to seek a reimbursement or indemnity from the manufacturer.
Consequences of not complying with the Australian Consumer Law
For false and misleading representations, such as advising your consumers that they are not entitled to Consumer Guarantees (when in fact they are), there are penalties as high as $1.1 million for a body corporate and $220,000 for individuals.
As a supplier of goods or services, if you fail to comply with the Consumer Guarantee laws, you may be subject to court orders and/or penalties.
A court may:
- Grant an injunction with respect to contraventions or attempted contraventions of the ACL to either restrain a person from doing an act or require a person to do a certain act. An example of this includes restricting a supplier from carrying on business or supplying goods or services.
- Require the refund of money or the destruction or disposal of property;
- Make an adverse publicity order – requiring a person to publish an advertisement in terms to be specified by the court;
- Disqualify a person from managing a corporation;
- Make an order to compensate the consumer; or
- Make an order directing a person to attend community services or establish a compliance program or educate its employees.
Can you exclude the Consumer Guarantees?
The law does not allow a supplier and/or manufacturer to limit, restrict or exclude the Consumer Guarantees nor does it allow the avoidance of certain obligations by getting consumers to agree to contract out of them.
Warranties and Consumer Guarantees
From 1 January 2012, if you are a supplier who supplies goods to your customers and you choose to provide a warranty against defects, then the under the ACL, the warranty against defects is in addition to the Consumer Guarantees. According to the ACL a “warranty against defects” includes a representation communicated to a consumer in connection with the supply of goods or services (at the time of supply) to the effect that a person will (unconditionally or on specified conditions):
- repair or replace the goods or part of them; or
- provide again or rectify the services or part of them; or
- wholly or partly compensate the consumer;
if the goods or services or part of them are defective.
If providing a warranty against defects, you need to ensure that the document that evidences this contains:
- terms that are expressed in plain English and presented clearly;
- the warranty period, the procedure for claiming the warranty, who bears the cost of claiming the warranty and that the benefits of the warranty;
- what the business will do if goods are faulty or defective;
- state the name, business address, telephone number and email address (if any) of the corporation or person who is providing the warranty; and
- include the statement “Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and for compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure.”
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This article is posted in Adelaide, South Australia by Tri-meridian Corporate & Commercial Law and is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser.