Australia: Client update: The Australian Consumer Law and consumer guarantees

Last Updated: 1 February 2014
Article by Philip Vickery

Most Read Contributor in Australia, September 2016

Do you or your franchisees mislead consumers about their rights?

The Australian Consumer Law (ACL) provides consumers with a set of rights called consumer guarantees in relation to goods and services which businesses sell, hire or lease for:

  • under $40,000;
  • over $40,000 that are normally bought for personal or household use.

In relation to goods, these include guarantees that:

  • the goods are of acceptable quality;
  • the goods are fit for any disclosed purpose;
  • the goods will match any description under which they are sold;
  • the goods will have spare parts available for a reasonable time; and
  • all express warranties offered will be honoured.

Misleading a consumer about their rights in relation to these consumer guarantees can have serious consequences. This has significant implications for retail businesses and franchisees of businesses selling goods to consumers which are subject to the consumer guarantees. While businesses can offer voluntary or express warranties to their customers in addition to the consumer guarantee rights of the ACL, they cannot replace or remove those ACL guarantee rights.

To take an example, where goods are sold to a consumer and they develop a major fault, the consumer has a right under the ACL to a replacement or refund from the supplier of the goods. Further, a consumer may have a right to compensation for damages and loss in some cases. Consumers also have certain rights of redress from manufacturers and importers.

Businesses should note that there are some exceptions from the consumer guarantees which apply and different laws apply to insurance or financial services and for products or services bought before 2011.

Recent action taken by the ACCC

In December last year, the ACCC accepted a court enforceable undertaking from Apple following an investigation into Apple's consumer guarantees policies and practices and representations made about consumer rights. Products affected by Apple's policies and practices included iPads, iPhones, iPods, MacBooks, iMacs and products and software on iTunes and App stores. It also related to non-Apple manufactured products sold by Apple such as printers and headphones.

The ACCC was concerned about Apple's 14 day returns policy and its 12 month limited manufacturer's warranty. It was also concerned about Apple directing certain customers who had bought non-Apple products from Apple to the manufacturer of those products for redress for faulty products.

The ACCC announced that Apple agreed to provide its own remedies equivalent to those remedies in the consumer guarantee provisions of the ACL at any time within 24 months of the date of purchase. Apple has also acknowledged that the ACL may provide for remedies beyond 24 months for a number of its products.

This highlights the ACCC's view that the consumer guarantees have no set expiry date and that the guarantees apply for the amount of time that it is reasonable to expect given the cost and quality of the item or any representations made about the item.

In addition, the ACCC also announced in December that several franchisees of retail giant Harvey Norman had been ordered to pay a total of $116,000 in civil pecuniary penalties regarding a number of false or misleading representations made to consumers about their rights.

Examples of the misrepresentations alleged by the ACCC included representations that:

  • the franchisee had no obligation to provide remedies for damaged goods unless notified within a short specified period, such as 14 days;
  • the franchisee had no obligation to provide an exchange or refund for faulty goods supplied; and
  • the franchisee had no obligation to provide a remedy independently of the relevant product manufacturer.

The comments in question were made by members of staff inside the franchise stores.

The ACCC is awaiting judgment against a further six Harvey Norman franchisees for similar conduct, demonstrating the severity of the implications of non-compliance under the ACL.

What this means for your business

ACCC chairman Rod Sims has said that: "these penalties send a strong message to all businesses, including franchisees, that they must not mislead consumers about their rights to repair, replacement or refund for faulty goods under the Australian Consumer Law."

While misleading conduct in relation to consumer guarantees remains an enforcement priority for the ACCC, it is important for businesses selling retail goods to take the time to ensure they are complying with the consumer guarantee provisions under the ACL. Otherwise, businesses face the risk of court orders including penalties, declarations, injunctions, corrective notices and compliance training.

Justice Middleton noted in one of the cases involved that: "Retailers may need to incur costs to maintain a culture of compliance with the ACL, including by supervision of staff." The court exercised its power in that case to make orders requiring each of the franchisees to display in-store corrective notices, as well as implement a consumer law compliance program.

In light of the ACCC's recent enforcement activity, we recommend that all businesses strongly consider:

  • re-examining whether the consumer guarantees apply to any goods or services supplied by them;
  • reviewing and amending terms and conditions which might mislead consumers about their rights under the ACL. For example, by:
    • imposing an arbitrary short time period for making a claim for breach of warranty;
    • excluding liability for claims which cannot be excluded by law; and/or
    • creating an impression that a voluntary or express warranty excludes or replaces the consumer's rights under the ACL;
  • carrying out staff training and refreshing policies and procedures to ensure that consumers are not misled about their rights; and
  • seeking further advice where appropriate.

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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