Australia: Consumer guarantees for the supply of goods: the manufacturer's or supplier's problem?

Last Updated: 28 October 2012
Article by Peter Sise

Key Points:

How responsibility for the breach of a consumer guarantee is allocated between a supplier and a manufacturer depends on the consumer guarantee which is breached.

The Australian Consumer Law (ACL) is a national set of laws providing rights and obligations when engaging in consumer transactions. Although all provisions of the ACL are significant, manufacturers and suppliers should be particularly aware of the nine "consumer guarantees" provided under the ACL and whether a manufacturer or supplier has the ultimate responsibility for a breach of a particular consumer guarantee.

Key points to remember about the Australian Consumer Law's consumer guarantees

  • In relation to the supply of goods to consumers, there are nine consumer guarantees covering matters such as the quality of the goods, title to the goods and sale by description.
  • Depending on the particular consumer guarantee which is breached, the consumer may have recourse against the supplier or manufacturer.
  • For the purposes of the ACL, a manufacturer is not only the person who made the goods but includes the person who placed their name, branding or mark upon the goods, or held themselves out as the manufacturer.
  • The ACL is not the only source of rights and obligations in relation to the supply of goods. For instance, the common law and sale of goods acts may apply.1

The nine consumer guarantees

Sections 51 to 59 of the ACL set out nine consumer guarantees that apply to goods sold to a consumer. These guarantees cannot be contracted out of (section 276).

  • Guarantee as to title: The supplier of the goods has the right to dispose of the property in the goods when the goods pass to the consumer (section 51).
  • Guarantee as to undisturbed possession: The consumer has the right to undisturbed possession of the goods (section 52).
  • Guarantee as to undisclosed securities: The goods are free of any undisclosed security, charge or encumbrance (section 53).
  • Guarantee as to acceptable quality: The goods are of "acceptable quality" (section 54).
  • Guarantee as to fitness for any disclosed purpose: The goods are reasonably fit for: (i) a purpose for which the supplier represents they are fit; or (ii) a purpose the consumer makes known to the supplier or manufacturer that they will use the goods for (section 55).
  • Guarantee relating to supply by description: If goods are sold by description, they correspond to that description (section 56).
  • Guarantee relating to supply by sample or demonstration model: If goods are sold by sample or demonstration model, they correspond to that sample or model (section 57).
  • Guarantee as to repairs and spare parts: The manufacturer of the goods will ensure that spare parts and facilities for repair of the goods are reasonably available (section 58).
  • Guarantee as to express warranties: The manufacturer will comply with any express warranty given by the manufacturer in relation to the goods (section 59(1)) and the supplier will comply with any express warranty given by the supplier (section 59(2)).

The full details of the consumer guarantees are set out in the ACL, but the above summary is sufficient for discussing how responsibility is allocated to the supplier and the manufacturer.

Who is a consumer, supplier and manufacturer?

The definition of consumer, supplier and manufacturer are clearly important. A "consumer" is someone who acquired:

  • goods for the amount of $40,000 or less (this amount may be altered by regulations);
  • goods of a kind ordinarily acquired for personal, domestic or household use or consumption; or
  • a vehicle or trailer acquired for use principally in the transport of goods on public roads,

unless that person acquired goods for the purpose of re-supply, manufacture, or repairing or treating other goods or fixtures on land, in which case he or she is not regarded as a "consumer".

A "manufacturer" is not only the person who produced or assembled the goods but also someone who:

  • holds themselves out as the manufacturer;
  • causes or permits their name, brand or mark to be applied to the goods; or
  • imports goods into Australia if at the time of importation the actual manufacturer does not have a place of business in Australia.

For the purposes of a consumer bringing an action against a supplier, "supplier" is defined as the person who supplied the goods to the consumer.

Liability of the supplier

A consumer may take action against a supplier of goods for a breach of any consumer guarantee apart from: (i) the guarantee that a manufacturer will have spare parts and facilities for repair of the goods reasonably available (section 58); and (ii) the guarantee that a manufacturer will comply with an express warranty given by the manufacturer (section 59(1)).

If the breach is classified as "major" , the supplier may be required to replace the goods or refund the consumer, at the consumer's choosing, while if the breach is not "major", the supplier may repair or replace the goods or refund the consumer, at the supplier's choosing. In addition to the rights of the consumer to seek a refund, replacement or repair, the consumer may recover any reasonably foreseeable loss or damage caused by the failure to comply with the guarantee.

The end result of this is that a consumer may seek redress from a retailer for a breach of a consumer guarantee even where the breach was caused by the manufacturer. For example, if a manufacturer produces a good which is not of "acceptable quality" and hence fails to comply with that particular consumer guarantee, the consumer need look no further than the retailer.

This is beneficial to the consumer as the consumer is not required to pursue a manufacturer with whom they have had no direct dealing and who may be located in a different state or country. However, it would clearly be unfair to the retailer if they were not provided with recourse to the manufacturer. For this reason, the ACL provides a right of indemnity to the supplier against the manufacturer if the manufacturer is or would be liable under the ACL for the breach of the consumer guarantee.

In the case of goods that are not ordinarily acquired for personal, domestic or household use or consumption, the manufacturer's liability under this indemnity is limited to the cost of replacing, repairing or obtaining equivalent goods; provided the supplier does not establish that it is unfair for the manufacturer's liability to be limited in this way.

Liability of the manufacturer

A manufacturer may be liable under the ACL if:

  • the goods are not of "acceptable quality";
  • the goods do not comply with a description applied to them by the manufacturer;
  • spare parts and facilities for repair are not reasonably available; or
  • an express warranty given by the manufacturer is not complied with.

The manufacturer is liable to compensate an "affected person", but this is not defined in the ACL. Its plain meaning has a potentially wide import. On the basis of a supplier being an "affected person", it appears that a supplier could pursue a manufacturer if a consumer brings a claim against a supplier for a breach of a consumer guarantee brought about by the manufacturer. This means of recourse to the manufacturer could be in addition to the indemnity granted to the supplier by the manufacturer.

Conclusion

How responsibility for the breach of a consumer guarantee is allocated between a supplier and a manufacturer depends on the consumer guarantee which is breached. Except for two guarantees, the consumer is always given recourse against the supplier with the supplier then having to seek recourse against the manufacturer, if the manufacturer is ultimately responsible. The below diagram sets out this allocation of responsibility.

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Footnotes

1 Sale of Goods Act 1923 (NSW), Sale of Goods Act 1896 (Qld), Sale of Goods Act 1895 (SA), Sale of Goods Act 1896 (Tas), Goods Act 1958 (Vic), Sale of Goods Act 1895 (WA), Sale of Goods Act 1954 (ACT) and Sale of Goods Act 1972 (NT). [back]

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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