Australia: Statutory Guarantees Under the Competition and Consumer Act: A Can of Worms - Part 2

Last Updated: 31 March 2012
Article by Jenny Kojevnikov and Kathryn Edghill

8. What rights does a consumer have when services fail to comply with a consumer guarantee?

Where a supplier supplies services to a consumer in trade or commerce to which a consumer guarantee applies and there is a breach of an applicable consumer guarantee, the following remedies are available.

(a) A failure which is not a major failure

Under section 267 (2) of the ACL, the consumer may require the supplier to remedy the failure within a reasonable time. If the supplier refuses or fails to comply with this requirement within a reasonable time, the consumer may:

  • have the failure remedied by someone else, and, by action against the supplier, recover all reasonable costs incurred by the consumer in having the failure so remedied; or
  • terminate the contract for the supply of the services.

(b) A failure which is a major failure

Under section 267 (3) of the ACL, the consumer may:

  • terminate the contract for the supply of services; or
  • by action against the supplier, recover compensation for any reduction in the value of the services below the price paid or payable by the consumer for the services.

The termination of a contract in the above instances takes effect at the time the termination is made known to the supplier (by either words or by conduct), or, if it is not reasonably practicable to communicate with the supplier, at the time the consumer indicates by reasonable means his or intention to terminate the contract (section 269 (2) of the ACL and section 265 (2) of the ACL in relation to a contract for goods and services).

If a contract is terminated in the above instances, the consumer is also entitled to a refund by action against the supplier for any money paid, or an amount equal to the value of any other consideration provided by the consumer for the services. However, this entitlement is only applicable to the extent that the consumer has not already consumed the services at the time the termination of the contract takes effect (section 269 (3) of the ACL and section 265 (3) of the ACL in relation to a contract for goods and services).

Where a contract has been terminated and the contract is for the supply of services and goods connected to the services, the consumer is also taken to have rejected the goods at the time the termination of the contract takes effect, and the provisions in respect of consumer goods set out above will apply (section 270 (1) of the ACL in relation to services).

9. Actions against suppliers for consequential loss

In addition to the remedies for a major failure or non-major failure described above, a consumer may also, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee:

  • if it was reasonably foreseeable that the consumer would suffer such loss or damage;
  • but not if (in relation to goods only) the failure to comply with the consumer guarantee happened independently of human control after the goods left the control of the supplier (section 259 (4) for goods and section 267(4) for services in the ACL).

10. When can action be taken against manufacturers?

A person affected in relation to consumer goods which do not comply with the following consumer guarantees may take action to recover damages against manufacturers where the 10. manufacturer fails to comply with the guarantee and has refused or failed to remedy the failure (section 271 of the ACL):

  • Goods that are supplied to a consumer (except when they are supplied by auction) will be of acceptable quality (section 54 of the ACL);
  • Goods that are supplied by description will correspond with that description (unless the goods are supplied by auction) (section 56 of the ACL);
  • The manufacturer of the goods (unless the goods were supplied by auction) will take reasonable action to ensure that facilities for the repair of the goods are reasonably available for a reasonable period after the goods are supplied, unless the manufacturer took reasonable action to ensure the consumer would be given written notice that this would not be the case (section 58 of the ACL); and
  • The manufacturer and supplier of the goods will comply with any express warranty given or made by the manufacturer or the supplier in relation to the goods (unless the goods were supplied by auction) (section 59 of the ACL).

The goods do not need to be in their original packaging.

A consumer may not take action for failure of the above consumer guarantees due to a cause independent of human control that occurred after the goods left the control of the manufacturer, or an act, default or omission of any other person other than the manufacturer or the manufacturer's employee or agent.

The manufacturer of goods is also liable to indemnify the supplier if the supplier is liable to pay damages to the consumer for consequential loss in relation to goods, and the manufacturer is also (or would be) liable to pay damages to the consumer for the same loss or damage in relation to the abovementioned statutory guarantees. A supplier may also commence an action against the manufacturer in respect of this indemnity for legal or equitable relief within 3 years of the earliest of the day on which the supplier first made a payment or otherwise discharged its liability to the consumer, or the day on which the consumer commenced action against the supplier(section 274 of the ACL).

11. What damages can be recovered in an action against manufacturers of goods?

Section 272 of the ACL provides that, in an action for damages, an affected person in relation to the goods may recover damages for:

  • any reduction in the value of the goods due to the failure to comply with the statutory guarantee, below the lower of the price paid or payable by the consumer for the goods and the average retail price of the goods at the time of supply, e.g. if goods were bought for $40 and the average retail price was $35, and due to the failure to meet a consumer guarantee, the goods are now worth $20, the manufacturer would pay the consumer $15, being the difference between the lower price (the average retail price of $35) and
  • the current price of the defective goods;
  • any loss or damage suffered by the affected person because of the failure to comply with a statutory guarantee if it was reasonably foreseeable that the affected person would suffer such loss or damage as a result of such a failure.

The consumer may not claim for any reasonably foreseeable loss from the manufacturer in the situation where the supplier charged a higher price than the recommended retail price 11.or average retail price of the goods. Manufacturers will be held to the standard required for goods sold at their recommended retail price or average retail price.

An affected person may commence an action within 3 years after the day on which the affected person first became aware (or ought to have reasonably become aware) of the failure to comply with the statutory guarantee (section 273 of the ACL).

12. When is a manufacturer not liable to the supplier?

A manufacturer has limited liability to a supplier under section 276A of the ACL if the goods are not ordinarily acquired for personal, domestic or household use or consumption, except when the contract between the manufacturer or supplier provides for a greater liability between the parties. The liability is limited to a liability to pay the supplier an amount equal to the lower of:

  • the cost of replacing the goods;
  • the cost of obtaining equivalent goods; or
  • the cost of having the goods repaired.

This limited liability will not apply if the supplier establishes it is not fair or reasonable for the manufacturer's liability to be limited due to:

  • the availability of suitable alternative sources of supply of the goods;
  • the availability of equivalent goods; and
  • whether the goods were manufactured, processed or adapted to the special order of the supplier.

13. Warranties Against Defects and Repair Notices

(a) What is a warranty against defects?

A warranty against defects is defined in section 102 (3) of ACL as a representation, communicated to a consumer (whether in a document or otherwise) in connection with the supply of goods or services at or about the time of supply, that a person will do the following in relation to defective goods or services:

  • repair or replace goods or parts of the goods;
  • re-supply services or rectify parts of the services; or
  • wholly or partly compensate the consumer.

Most, if not all, manufacturers' or suppliers' express warranties will include a warranty as to defects within the meaning of the ACL. As it is the presence of a warranty as to defects in respect of consumer goods or services which triggers the requirement to provide the mandatory content prescribed by the Regulations, any manufacturer or supplier who gives an express warranty should check to ensure whether the requirements apply.

(b) When will the mandatory requirements apply?

From 1 January 2012, it is an offence under section 102 (2) of the ACL for a person, in the connection with the supply of goods and services to a consumer, to:

  • give the consumer a document which evidences a warranty against defects and does not comply with the warranty Regulations, or
  • otherwise represent directly to the consumer that a warranty against defects applies to goods or services which come with such a non-compliant document.

The mandatory requirements will apply to all products which are supplied to consumers from 1 January 2012. In practical terms, this means that goods which have been manufactured before 1 January 2012 but are in stores or otherwise available to consumers from 1 January 2012 need to comply with the warranty Regulations. Transitional arrangements have been put in place by the Australian Competition and Consumer Commission which allow a period of grace until September 2012 for goods already in the retail supply chain as at 1 November 2011.

(c) What is a representation of a warranty against defects?

A representation of a warranty against defects can include the following statements on any of the documents listed below:

  • year warranty
  • for warranty see website
  • guaranteed to last the life of the product
  • life-time warranty

(d) What is a document?

Examples of documents or other means of representation of a warranty against defects include:

  • Product packaging ;
  • Marketing and advertising material including catalogues, websites and point of sale material;
  • Product manuals;
  • Terms of use;
  • Service agreements.

(e) What are the mandatory requirements?

Regulation 90 of the Competition and Consumer Regulations 2010 sets out the mandatory form and content of a warranty against defects.

In relation to the form, the warranty against defects must be in a document that is transparent. Transparent in this sense means one which is clear and easily understood by the consumer.

In relation to the content, the warranty against defects must concisely state:

  • what the person who gives the warranty must do so that the warranty may be honoured;
  • what the consumer must do to entitle the consumer to claim the warranty; and
  • the mandatory wording;

The warranty against defects must prominently state the following information about the person who gives the warranty (whether it be the supplier or the manufacturer):

  • Name
  • Business address
  • Telephone number
  • Email address (if available).

The warranty against defects must state:

  • The period or periods when the defect is to appear in the goods or services in order for the consumer to be entitled to claim the warranty;
  • The procedure for a consumer to claim the warranty, including the address to which a claim may be sent;
  • Who will bear the expense of claiming the warranty- if the consumer can claim the expense then how the consumer can claim expenses;
  • That benefits provided to the consumer in the warranty are in addition to other rights and remedies of the consumer under a law in relation to the goods or services to which the warranty relates.

(f) What is the mandatory wording?

The mandatory wording which is required to be included whenever a warranty as to defects is given is:

"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."

The wording is mandatory and cannot be changed in any way, even, as simply as to replace "Our goods" with "[Name of company] goods"

Although the mandatory wording refers only to "goods" the warranty regulations apply to both goods and services.

(g) Transitional Measures for Compliance with Warranty Requirements

The ACCC has recently provided guidance on transitional measures for compliance until September 2012 with regard to products that have been manufactured and packaged prior to 1 November 2011.

When considering the appropriate enforcement action for a breach of the warranty Regulations in the transitional period, the ACCC will have regard to:

  • whether there are serious practical difficulties in updating warranty documentse.g. if the warranty is in a tamper-proof package; and
  • whether the supplier has taken all reasonable steps to otherwise convey the mandatory text and information required by the ACL to consumers, e.g. by placing a compliant sticker on the outside packaging.

The ACCC is unlikely to take enforcement action where both of the above circumstances exist during the transitional period.

(h) Requirements for Repair Notices

Regulation 91 of the Competition and Consumer Regulations 2010 sets out the requirements for repair notices to be given when a repairer accepts goods for repair.

If it is the practice of a repairer to:

  • supply refurbished goods as an alternative to repairing a consumer's defective goods; or
  • use refurbished parts in the repair of a consumer's defective goods,

the following mandatory wording must be included:

"Goods presented for repair may be replaced by refurbished goods of the same type rather than being repaired. Refurbished parts may be used to repair the goods."

If the goods being repaired are capable of retaining user-generated data, (e.g. computer hard drives, mobile phones, portable media players, games consoles, USB memory sticks), the notice must state that the repair of the goods may result in the loss of the data.

Since 1 July 2011, it has been an offence under section 103 (2) of the ACL for a repairer to:

  • accept goods for the purpose of repairing them, and
  • provide the consumer with a notice that does not comply with the above requirements.

If the supplier or manufacturer accepts goods for repair, including by accepting goods under warranty or consumer guarantee claims, the supplier or manufacturer will be the repairer for the purposes of the section and must give the required notice.

14. Penalties for non-compliance with the Warranty Requirements and Repair Notice Requirements

(a) Civil Pecuniary Penalties

If a court is satisfied that a person has contravened section 102 (2) or section 103 (2) of the ACL, the court may order the person to pay to the Commonwealth, State or Territory (as the case may be), such pecuniary penalty in respect of each act or omission by the person to which this section applies, as the court determines to be appropriate (s 224 (1) of the ACL). The maximum civil pecuniary penalty for a breach of section 102 (2) or section 103 (2) is $50,000 for a body corporate.

Section 224 also extends liability to any person who has aided, abetted, induced or been knowingly concerned in a breach of section 102 (2) or 103 (2). If a person is found liable by the court of aiding, abetting, inducing or being knowingly concerned in such a breach, the maximum civil pecuniary penalty is $10,000 for an individual.

If a court is satisfied that a person has contravened a provision of Part 3-1 of the ACL (being false or misleading in relation to the existence of a consumer guarantee), the maximum civil pecuniary penalty is $1.1 million for a body corporate (s 224(3) of the ACL). If a person is found liable by the court of aiding, abetting, inducing or being knowingly concerned in a breach of a provision of Part 3-1, the maximum civil penalty is $220,000 for an individual.

(b) Other court orders

The court may also make the following orders:

  • disqualification orders in relation to corporate executives (s248 of ACL),
  • publication orders (also known as adverse publicity orders), in which a person is required to publish corrective notices and corrective advertising in accordance with the order (s246 of ACL);
  • injunctions, which can include restraining the person from carrying on a business or supplying goods or services (s232 of ACL).

(c) ACCC statutory actions

The ACCC may issue an infringement notice as an alternative to commencing proceedings under section 224 (s134 of the CCA). The infringement notice may only be issued if the ACCC has "reasonable grounds" to believe that a person has contravened section 102 (2), 103 (2) or a provision of Part 3-1 of the ACL. There is currently no guidance on what may constitute "reasonable grounds".

The current penalty amounts for an infringement notice are:

  • For a breach of subsection 102(2) or 103(2) – 60 penalty units or $6,600;
  • For a breach of a provision of Part 3-1 – 600 penalty units or $66,000 for a listed corporation, and 60 penalty units or $6,600 for a corporation which is not listed.

If an infringement notice is paid in the time specified, no proceedings may be instituted against the person in relation to the subject matter of the notice, and 16. payment is not regarded as an admission of a breach (s134D of the CCA). The ACCC will however publish the fact of the infringement notice and its payment.

15. So You Think That's Straightforward...

The definition of 'consumer' and 'manufacturer' is broad under the ACL and can mean that entities that have previously not been subject to the ACL are now subject to the ACL.

There are a variety of relationships which are regulated by the ACL:

  • Manufacturers are liable to consumers, however in certain instances if consumers re-supply the product to end consumers, the manufacturer may impose indemnities on those consumers that are not subject to the ACL.
  • Manufacturers and deemed manufacturers may each be liable to the other under the ACL, and equally liable to consumers in certain instances.
  • Manufacturers, suppliers, and retailers are each liable to consumers in certain instances.

What happens where...

  • You are the manufacturer of goods normally sold for industrial/business purposes for over $40,000 and have no control over where the goods go?
  • You may be required to comply with the consumer guarantees in the instance where those goods are supplied to end consumers for under $40,000, but not in instances where those goods are subsumed within other goods when supplied to end consumers. If the goods come with a warranty then the warranty must be compliant in the instance where the goods are supplied to end consumers.
  • You manufacture software for software developers and parts of the software can be redistributed to end users?
  • Software is included in the definition of a good in the ACL, and software may be required to comply with the ACL in the instance where it is supplied to the software developer. However, where parts of the software are redistributed to end users as part of another product, the manufacturer may not be liable under the ACL.
  • You have supplied goods that have become obsolete? Goods supplied after 1 January 2011 are subject to the consumer guarantees. If the goods are no longer available, they may still come with consumer guarantees, for example, the guarantee as to acceptable quality. If the manufacturer is unable to repair the goods, notice must be given to those consumers that repair facilities are no longer available, otherwise the manufacturer will be in breach of the consumer guarantee regarding the availability of repair facilities (unless it can be reasonably ascertained that the reasonable period for the availability of repair facilities has passed due to the nature of the goods).
  • You are an importer of overseas products, and the warranty is not in compliance with the Competition and Consumer Act and Regulations?
An importer will be a deemed manufacturer under the ACL, and as such an importer must comply with the consumer guarantees and other provisions of the ACL (such as the warranty requirements and repair notice requirements) if supplying goods to a consumer.


There are many difficulties in applying the ACL and businesses should be aware that their goods or services may fall within the definition of "consumer" under the ACL, therefore subjecting them to the consumer guarantees and mandatory warranty and repair notice requirements. It is important that, wherever those goods or services are consumer goods or services, that the consumer is not misled or deceived as to the existence of those consumer guarantees. The ACCC is currently running a "Repair, Replace, Refund" advertising campaign to make consumers aware of their rights under the ACL and businesses must tread carefully whenever and wherever those rights come into play.

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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