The Australian Consumer Law (ACL) initiative has now been enacted by two amendments to the Trade Practices Act 1974 (Cth) (TPA).
One of the key areas under reform is the introduction of the new statutory consumer guarantees, which will come into force on 1 January 2011. These guarantees will replace the existing implied conditions and warranties under the TPA and State and Territory fair trading laws.
The new consumer guarantees
The change in the law
The TPA implies certain protection terms into consumer contracts for the supply of goods and services and these implied warranties are relevant in relation to goods and services provided before 1 January 2011.
The second stage of the ACL contains statutory consumer guarantees that replace the implied warranty regime in the TPA. The consumer guarantees apply any time that consumer goods or services are supplied and are, for the most part, similar to the implied warranties, although there are important differences.
Consumer guarantees for goods
The guarantees that automatically apply to goods are that:
- the supplier has the right to sell the goods;
- the goods are free from any undisclosed security;
- the consumer will have undisturbed possession of the goods;
- the goods are of 'acceptable quality'. This means that the goods must be fit for 'all' purposes for which goods of that kind are commonly supplied and must be acceptable in 'appearance and finish', 'free from defects', 'safe' and 'durable';
- the goods are fit for a purpose that the consumer makes known to the supplier;
- the goods will match their description or a sample;
- spare parts and facilities for the repair of goods are reasonably available for a reasonable period; and
- any express warranty will be honoured.
In relation to goods, the key changes are that the 'acceptable quality' guarantee replaces and extends the current implied warranty of 'merchantable quality'. If you supply goods that:
- are not fit for 'all' purposes for which goods of that kind are commonly supplied;
- are not acceptable in appearance and finish;
- have defects;
- are unsafe; or
- are not durable,
you may be in breach of the consumer guarantee that the goods are of acceptable quality.
There is also a new guarantee that a supplier or manufacturer will comply with any express warranty they have offered. An express warranty includes any precontractual representations made about the quality, state, condition, performance or characteristic of the good, that is made in connection with the supply of the goods, or in connection with promotion of the supply or use of the good and the natural tendency of which is to induce persons to acquire the good. If a supplier fails to comply with an express warranty, it will be in breach of consumer law.
What you need to do
- Consider what consumer guarantees apply to your products. Consider whether the obligation now differs from the implied warranties in the TPA.
- Take care with pre-contractual representations (including representations made on packaging and your website).
- Specify normal uses and causes of detrimental effects. You should specify in documentation the normal uses for the goods and causes of detrimental effects.
- Keep product descriptions up to date. It is important that you update materials describing goods to correspond with product updates.
- Ensure repair facilities are reasonably available and disclose if not. What is reasonable depends on the nature and cost of the goods.
- Be upfront about disturbances to possession. If you know about a possible disturbance (eg software lock or disabling device), you need to tell the consumer up front, in which case the guarantee does not apply.
- Identify and point out any flaws in title. If you supply limited title or you do not know the extent of your title, you must make this clear in the contract. That means that your contract needs to say that you only transfer that title that you have.
Consumer guarantees for services
If you supply a service, the guarantees that automatically apply to the service are that:
- the services are carried out with due care and skill;
- the services are fit for the purpose that the consumer makes known to the supplier; and
- the services will be provided within a reasonable time (unless the time is fixed by contract or otherwise agreed).
When the consumer guarantees apply
The consumer guarantees apply to goods, services and mixed supplies of goods and services where:
- the cost is $40,000 or less; or
- the goods/services are of a kind ordinarily acquired for personal, domestic or household use; this would cover, for example, carpet or insulation products but not a prime mover or office furniture.
Note: The definition of goods will extend to include software and as well as any component part of, or accessory to, goods.
When the consumer guarantees do not apply
Similarly to the exclusion of implied warranties under the TPA, the consumer guarantees do not apply to:
- goods or services acquired for the purpose of resupply; or
- goods or services used up in the manufacturing process.
Can suppliers or manufacturers limit their liability?
As under the TPA, a manufacturer or supplier cannot avoid, exclude, restrict or modify:
- the application of the consumer guarantees;
- the rights conferred in relation to the guarantees; or
- liability for a failure to comply with a guarantee,
except for goods/services that are not of a kind ordinarily acquired for personal, domestic or household use or consumption. Any term of a contract attempting to do so, will be void.
If a manufacturer or supplier excludes or limits liability where it is not permitted to do so there is a maximum penalty of $1,100,000 for corporations and $220,000 for individuals. The ACCC may also seek a civil pecuniary penalty (same maximum amounts) or issue an infringement notice.
Manufacturers and suppliers can limit their liability in relation to goods or services not of a kind ordinarily acquired for personal, domestic or household use or consumption. For those goods or services liability can be limited to:
- replacement or repair; or
- the cost of replacement or repair.
What you need to do
- Check your standard terms. Manufacturers and suppliers should check their standard terms for any clauses that may attempt to avoid, exclude, restrict or modify the consumer guarantees. Clauses that limit liability as well as 'entire agreements' clauses may need to be re-drafted to avoid breach of the ACL.
The consequences of breach
If goods or services fail to meet the consumer guarantees, the remedies available to consumers include refunds, repairs and replacements. Damages are also available against suppliers and manufacturers in certain circumstances.
The main difference between the TPA and the ACL is that the consumer guarantees have statutory remedies under the ACL, unlike the implied warranties under the TPA where a breach simply constituted a breach of contract and the consumer had to rely on contractual remedies.
The remedies vary depending on whether the failure is 'major' or not.
Previous articles relating to Australian Consumer Law have been published over the recent months, please see the links below:
http://www.dlaphillipsfox.com/article/762/How-the-new- Australian-Consumer-Law-will-affect-your-dealingswith- consumers
More of the consumer law reforms will be discussed in a separate update in the near future.
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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.