Australia: New Australian Consumer Law guarantees - what do they mean for your business?

Last Updated: 20 February 2011
Article by Matthew Hall

In brief – Expansion of consumer rights

On 1 January 2011, the Competition and Consumer Act 2011 replaced the Trade Practices Act (TPA). The consumer protection provisions are now part of the new Australian Consumer Law (ACL), a schedule to the Act. This new law now encompasses the consumer protection provisions that were in the TPA and the Fair Trading Acts of each of the states and territories.

In addition, the ACL significantly expands a number of consumer rights. It gives consumers a number of "consumer guarantees" (replacing the implied warranties under the TPA) and increases the potential liability of suppliers of goods and services. These changes will affect terms and conditions of sale. They also determine what sales and other staff can and cannot say to consumers and what they can and cannot do if faced with a claim of a failure of a guarantee.

Specific consumer guarantees for the supply of goods

There are several guarantees related to the supply of goods which replace implied warranties under the TPA:

  • The buyer will obtain clear title unless otherwise stated
  • There are no undisclosed securities
  • The goods are of acceptable quality
  • The goods are fit for any disclosed purpose
  • The owner has a right to undisturbed possession
  • The goods match sample or demonstration model

New guarantees for supply of goods under Australian Consumer Law

The ACL has also introduced three new guarantees:

  • The goods will satisfy any express warranties that are given in relation to the goods
  • The manufacturer of the goods will take reasonable action to ensure that facilities for the repair of the goods, and parts for the goods, are reasonably available for a reasonable period after the goods are supplied (unless the goods are sold by auction)
  • The manufacturer of the goods will comply with any express warranty given or made by the manufacturer in relation to the goods (unless the goods are sold by auction)

Consumer guarantees and provision of services

The guarantees that accompany the provision of all consumer services are, firstly, that the services are provided with due care and skill and secondly, that the services are fit for any specified purpose. A third new guarantee for the provision of services has been introduced under the ACL – that when no time is set in the contract for the services, the services must be supplied within a reasonable time.

Definition of consumer goods and services

Consumer goods and services are defined as:

  • Any type of goods or services costing up to $40,000 (note they do not have to be goods which are normally used for personal, domestic or household purposes)
  • Goods or services costing more than $40,000, that are of a kind that are ordinarily acquired for personal, domestic or household purposes
  • A vehicle or trailer used to transport goods, the cost of which is irrelevant

Things not covered by the consumer guarantees

Certain types of goods and services are not covered by the consumer guarantees. These include goods bought before 1 January 2011, goods sold at auction (where the auctioneer is the seller's agent) and goods bought to be onsold. Transportation or storage of goods as part of a consumer's business or occupation and insurance contracts are also not covered.

All suppliers, not just corporations

Any supplier must ensure that all consumer goods or services they supply comply with these guarantees. Previously, the TPA implied terms only applied to "corporations" (with some very limited exceptions), with other suppliers governed by the various Sale of Goods legislation in each state or territory. Those suppliers who were not incorporated could totally exclude any implied terms in any consumer contract. Now, this cannot happen. A supplier will be liable for all damage suffered as a result of the failure to meet the guarantee, including consequential loss that is reasonably foreseeable.

However, it is still important for non-consumer sales to exclude or limit any liability under the relevant Sale of Goods Act.

Exclusion or modification of guarantees under the ACL

Any attempt to exclude or modify the guarantees under the ACL is void. However, suppliers of consumer goods or services that are not of a kind ordinarily acquired for personal, household or domestic use can limit their liability for any failure to comply with the guarantees in respect of those goods or services. This now means that any supplier can limit liability for consumer sales that involve goods or services of a kind that are not ordinarily acquired for personal, domestic or household use.

Remedies available to consumers

The remedies that are available to consumers if a guarantee is not met have also changed, depending on whether the failure is "minor" or "major".

Where the problem is minor, the supplier can choose between repair, replacement or refund. This is the same as the ways in which liability can be limited for goods or services of a kind that are not ordinarily acquired for personal, domestic or household use.

Where the problem is major, the consumer can either reject the goods or services and choose between obtaining a refund or a replacement, or ask for compensation for any drop in value of the goods or services.

Warranty period

One of the most significant ways in which the consumer guarantees have been broadened is in relation to the removal of a supplier's ability to limit the warranty period, for example, to 12 months from purchase. A consumer can rely on the statutory guarantee as to acceptable quality for as long as the goods or services are reasonably expected to last.

For example, a washing machine can be expected to last in a domestic environment anywhere between 5-10 years, depending on the machine type and maker. Provided the consumer retains the receipt of purchase, he or she is entitled to rely on the statutory guarantee of acceptable quality to get the machine repaired (or be reimbursed for the cost of repair) at no charge to the consumer for the reasonable life expectancy of that machine.

Further, if the retailer was informed that the consumer was going to install the washing machine in a busy hostel, and the retailer did not make a statement to the consumer that the washing machine was not appropriate for that heavy use environment and that the consumer should purchase an industrial washer, the retailer will be required to meet the statutory warranty for the 5-10 year period. This obligation will fall on the retailer irrespective of the manufacturer's warranty.

Any suppliers that supply goods which are covered by a limited manufacturer's warranty need to ensure that after the end of that limited period, they are not held responsible for the condition of goods that are reasonably expected to have a longer acceptable life than that of the manufacturer's warranty.

Express warranties

Many suppliers often make extra promises about the qualities or performance characteristics of their goods or services. If so, those suppliers guarantee that the goods will satisfy those promises. This type of warranty must be distinguished from a manufacturer's warranty against defects. A warranty against defects sets out what the manufacturer or supplier will do if something is wrong with the goods. An express warranty focuses on what the goods will do or how they will operate and for how long.

In addition to ensuring that these conditions exist, these types of express warranties can also affect the length of time during which the guarantees in relation to acceptable quality or fitness for purpose may be enforced. Any express warranties that you give need to be carefully reviewed.

Extended warranties

The changes also will have an effect on extended warranties against defects that many suppliers offer for additional fees. Any extended warranties are unlikely to be valid unless they go above and beyond the statutory guarantees. Any extended warranties need to be very carefully reviewed, to ensure that they clearly offer rights that are beyond what the guarantees set. From 1 January 2012, extra rules must be met in relation to any defects warranty that is offered over and above the statutory guarantees.

What you need to do about the new consumer guarantees

If you haven't already done so, we are recommending to all our clients that they:

  • Review the terms and conditions under which you supply consumer goods or services, to ensure that any risks or potential exposure under these new provisions are dealt with properly
  • Review any manufacturers' warranties and any gap between those warranties and your obligations as a supplier under a consumer sale
  • Review any extended warranties to ensure that they offer rights beyond the guarantees and that they will comply with the further requirements from 1 January 2012
  • Review staff knowledge and training

Swaab is holding seminars on this important topic.

If you'd like to join the discussion and learn more, or you'd like some staff training on the changes, please contact Matthew Hall or your main Swaab contact.

Swaab Attorneys was the highest ranking law firm and the 13th best place to work in Australia in the 2010 Business Review Weekly Best Places to Work Awards. The firm was a finalist in the 2010 BRW Client Choice Awards for client service and was named the winner in the 2009 Australasian Legal Business Employer of Choice Awards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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