Australia: Just the facts for manufacturers, distributors and retailers: Consumer guarantees

Franchising Focus Newsletter 2011
Last Updated: 11 August 2011
Article by Greg Hipwell and Jessica Rowe


The guarantees implied into contracts for the supply of goods and services to consumers were "revamped" on 1 January 2011 as part of the suite of amendments made to the Competition and Consumer Act 2010 (Cth) (CCA) (formerly, the Trade Practices Act (TPA)).

Manufacturers, distributors and persons selling goods at a retail level are deemed to provide a collection of guarantees to consumers about the goods or services that they are providing. Previously these guarantees were found in the TPA as well as the Fair Trading Legislation applicable in each State and Territory.

On 1 January 2011:

  • these laws were consolidated, and replaced by the consumer guarantee provisions of "The Australian Consumer Law" (ACL) (being a schedule to the CCA); and
  • new consumer guarantees (not previously included in the TPA) were introduced into the ACL.

This article provides Australian based manufacturers, distributors and retailers with a high level summary of the "key things to know" about the revised consumer guarantee provisions.

Key practical points

The key practical points regarding the consumer guarantee provisions are as follows:

  • The ACL gives consumers extensive rights against retailers, which are often greater than the rights afforded by manufacturers' warranties.
  • Where a good does not meet a statutory warranty, consumers can seek remedies directly from the retailer irrespective of whether or not the defect is a manufacturing one.
  • The ACL statutory guarantees have "raised the bar" on the level of guarantees a retailer must provide to consumers. Retailers must be aware of this, and take appropriate steps to limit their liability (including by seeking appropriate indemnities from manufacturers in their supply contracts).
  • Any sale of goods or services valued at $40,000 or less will fall within the ambit of the ACL. Where the value of goods sold or service is more than $40,000, the sale will also be caught if the goods or services are classified as "household".
  • Where there is a "major failure" to meet a statutory guarantee, consumers have the statutory right to seek damages for consequential loss or damage that they suffer (in addition to the right to seek a refund or the repair of the product).
  • The consumer (not the seller) is entitled to elect whether a replacement or refund is provided, or the goods are repaired, where there is a "major failure". This puts increased pressure on retailers to resolve complaints at the point of sale.

When did the new guarantees commence?

The consumer guarantee provisions of the ACL apply to all goods and services supplied from 1 January 2011.

What goods and services do the guarantees apply to?

The guarantees are implied into all contracts for the supply of goods or services (with a few exceptions) to "Consumers", who can be individuals or companies.

A person or a company will be a "Consumer" where the relevant:

  • goods or services cost $40,000 or less; or
  • goods or services were of a kind ordinary acquired for personal, domestic or household use or consumption (irrespective of their price); or
  • good was a vehicle or trailer acquired for the principal purpose of transporting goods on public roads.

However, the following goods and services are not covered by the consumer guarantee provisions:

  • goods and services bought for over $40,000 that are for commercial use (e.g. commercial farming equipment, installation services for factory equipment);
  • goods bought by a person for the purpose of re-supply; or
  • goods bought at an auction (whether in person or on line), where the auction is conducted by an agent of the Seller. This exemption will not cover an on line auction where the website operator does not sell the item as agent for the Seller.

What are the guarantees?

In relation to goods, there are 9 implied guarantees which, together with a brief comment and/or explanation, are set out below.

Goods Guarantees Comment
Goods will be of an acceptable quality*.

This replaces the previous guarantee in the TPA that goods would be of a "merchantable quality" when sold to a consumer.

The new "acceptable quality" requirement is higher than the merchantable quality requirement, as it will only be met if:

- the goods are fit for all of the purposes for which goods of that kind were commonly supplied;

- the goods are acceptable in appearance and finish and free from defects, and safe and durable, when sold to the consumer; and

- a reasonable consumer who was fully acquainted with the state and condition of the goods would regard them as acceptable.

The guarantee will not apply where the Consumer is:

- able to inspect the good prior to purchase, and the defect should have been apparent to them; or

- specifically alerted to a hidden defect prior to the sale. However, it is not sufficient to describe a good as a "second" if the particular hidden defect is not pointed out to the Consumer.

Goods will be reasonably fit for any purpose the Consumer specified. This means that the good must be fit for the purpose for which it was designed or ordinarily put, as well as any purpose made known by the Consumer (which is different to the ordinary use) prior to the sale.

Description of the goods (e.g. in an advertisement) will be accurate*.

Goods will match any sample or demonstration model and any description provided.

Goods will satisfy any extra promises (i.e. express warranties) made about them*.

These guarantees are quite similar and all relate to promises or representations made a by supplier.

If a good does not live up to a promise made, the consumer is likely to have a right against the supplier for misleading and deceptive conduct, as well as a breach of the consumer guarantee provisions.

Consumer will enjoy clear title to the goods (i.e. the supplier has the right to sell the goods).

Consumer will enjoy undisturbed possession of the goods (i.e. no one will try to repossess or take back goods, or prevent the Consumer from using the goods).

Goods are free of any hidden securities or charges and will remain so.

These guarantees all address the same primary issue, being that Consumers will receive clear and unencumbered title to the goods purchased, and that no party will attempt to take back or limit their rights to use the goods.

However, these guarantees do not apply where:

- the supplier made known to the Consumer that it only had limited title to the goods, or would be supplying the goods subject to certain encumbrances (as applicable); or

- goods are repossessed because the Consumer has not met its obligations under a hire purchase arrangement.

Supplier will take reasonable steps to provide spare parts and repair facilities for a reasonable time after purchase*.

What period is a "reasonable" period will depend on the type of good (such as its price and intended life span).

For example, it is reasonable to expect that parts for a car will be available for a significant time after purchase, however it may not be reasonable to expect that replacement parts for an inexpensive children's' toy will be available at all.

* Refer to paragraph, "Who can a Consumer pursue for breach of a guarantee", below.

In relation to services, there are 3 implied guarantees as set out below:

Services guarantees Comment
Services will be provided with due care and skill. This means that the supplier must have the appropriate skills to provide the services, and take due care to avoid damage when providing the services.
Services will be fit for any specified purpose. This guarantee also applies to any products resulting from the provision of the services.
Services will be provided within a reasonable time (when no time is set).

A contract will usually state when the services must be completed by. It if does not, the law deems that the services must be provided within a reasonable time.

What is 'reasonable' will depend on the nature of the services. E.g. more involved services (such as painting a house) will be provided with a longer time for delivery than simpler, discrete services such as cleaning carpets.

Who can a Consumer pursue for breach of a guarantee relating to goods?

In relation to goods, a Consumer can take action against the person that sold it the goods. The only exception to this is the guarantee as to the availability of parts, which only applies to manufacturers and importers of goods.

Consumers can also take action against manufacturers (in addition to, or instead of, the party that supplied the goods to the consumer) in relation to those guarantees marked with an asterisk in the above table. A party will be a "Manufacturer" if it:

  • imports good into Australia, where the maker does not have a place of business in Australia;
  • puts the goods together (i.e. manufactures the goods in the traditional meaning of the word);
  • holds itself out as being the manufacturer; or
  • puts its name on the goods.

What happens when a guarantee is breached?

There are no pecuniary penalties for breach of a consumer guarantee provision. However, the extensive range of penalties available under the TPA continue to apply under the CCA, including obtaining an injunction and rights to compensation.

The ACL also clarifies when Consumers are entitled to refunds or repairs or replacements. The remedy available will depend upon whether the relevant failure was "major" or not. A failure will be major if:

  • in relation to goods or services:

    - a reasonable consumer would not have acquired the goods/services if they knew about the nature and extent of the problem; or

    - the goods/services cannot be remedied to make them fit for purpose within a "reasonable time"; or

  • in relation to goods, the goods depart significantly from their description or are unsafe.

If the goods are subject to a "major failure" the Consumer can elect whether it wants a refund, replacement or repair. Where the failure is minor, the supplier can chose between these options.

Also, if a Consumer is entitled to a refund, and the purchase of the good was linked to a contract for services or goods (as applicable) (such the purchase of a modem and an internet access contract), the Consumer is also entitled to terminate the relevant contract.

Importantly, a Consumer can claim compensation for "consequential less" for breach of a consumer guarantee. That is, the Consumer can claim damages for all loss that was reasonably foreseeable and expected to flow from a breach (e.g. the cost of replacing carpet caused by using the incorrect chemicals when providing cleaning services).

Can a manufacturer, distributor or retail seller "contract out" of the guarantees?

A party cannot "contract out" of the application of the statutory guarantees.

However, where the contract is for the supply of goods that are not ordinarily acquired for personal, domestic or household use, a suppler can limit its liability to replacing or repairing the good or resupplying the services, or paying the costs of this occurring.

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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Greg Hipwell
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