- with Senior Company Executives, HR and Inhouse Counsel
- with readers working within the Business & Consumer Services, Consumer Industries and Insurance industries
In Short
- Consumer complaints under the Consumer Guarantees Act (CGA) require businesses to remedy defects, cancel contracts, or offer compensation.
- Commercial terms govern business-to-business contracts, but businesses still have implied duties to act with reasonable skill and care.
- A prompt and professional response can prevent escalation and preserve business relationships.
Tips for Businesses
To handle complaints effectively, respond promptly (ideally within 24-48 hours) and document all relevant details. Investigate thoroughly, acknowledge defects when found, and offer reasonable remedies. Consider non-monetary solutions, such as warranties or priority service, to resolve issues amicably while limiting costs.
Receiving a complaint about defective work can be a stressful and challenging experience for any business. How you respond to these disputes can impact your reputation, legal liability, and future commercial relationships. This article will discuss the legal framework in New Zealand, your obligations, and the available resolution options available to customers. It will also discuss strategies for dealing with complaints as they arise.
Understanding Your Legal Obligations
Consumer Guarantees Act 1993 (CGA)
When providing services to consumers, the CGA creates automatic guarantees that you cannot exclude from your contracts. These guarantees require that your services are:
- performed with reasonable care and skill;
- fit for the purpose intended;
- completed within a reasonable time; and
- provided at a reasonable price, where no specific terms are agreed.
"Reasonable care and skill" is the standard that a competent service provider in your industry would meet. This is an objective test based on industry standards and accepted practices, not just your personal capabilities or intentions.
Commercial Contract Obligations
In business-to-business relationships, your obligations are primarily determined by your contract terms and general contract law principles. Your contract will determine whether theCGAapplies, as commercial parties can contract out of this. However, you still have implied duties to perform work with reasonable skill and care, even when dealing with commercial clients.
Risks and Potential Remedies
Consumer Guarantee Obligations
Where a customer complains that you have failed to meet a guarantee under the CGA, they may:
- require you to remedy the issue within a reasonable timeframe, if it can be remedied;
- cancel the contract and recover the costs from you if you fail to remedy the issue, refuse to do so, or do not meet the reasonable timeframe;
- cancel the contract and seek compensation for any reduction in value if the failure cannot be remedied; and
- seek compensation for any loss or damage resulting from the failure.
Commercial Contract Breaches
In commercial relationships, remedies depend on your contract terms and may include damages for breach, costs of remedial work, consequential losses, or termination rights. A well-drafted limitation of liability clause can help manage your exposure, provided it is reasonable and clearly expressed.
Responding to Complaints
Response
Upon receiving a complaint, conduct an immediate and thorough assessment of the situation. Review your original contract to understand exactly what was promised, examine the work performed against those specifications, and determine whether industry standards have been met. Respond promptly to all complaints, ideally within 24-48 hours of receiving them. Acknowledge the customer's concerns without immediately admitting fault, and explain your process for investigating and addressing the issues raised.
Document
Document everything from your perspective, including photographs of the completed work, records of materials used, and any communications with the client during the project. This documentation will be essential for defending your position or negotiating a fair resolution.
Tone
Avoid defensive responses or dismissing complaints outright, even when you believe they are unfounded. Customers who feel heard and respected are more likely to accept reasonable explanations or compromise solutions.
Investigation
Conduct a thorough investigation involving site visits where necessary, consultation with relevant team members, and review of all project documentation. Consider engaging independent experts for technical assessments, particularly for complex issues where liability may be disputed.
Be honest in your assessment. If defects exist, acknowledging them early and proposing fair solutions often costs less than defending untenable positions through formal dispute processes.
Resolution Considerations
Many disputes can be resolved through direct negotiation with customers. Consider what remedial work you can perform, whether partial refunds are appropriate, or if other compensation might address their concerns. Sometimes, non-monetary solutions like extended warranties or priority future service can satisfy customers while limiting your costs.
When negotiating, focus on finding mutually acceptable solutions rather than arguing about fault. Customers often care more about having their problems fixed than establishing blame.
Other Considerations
Maintain appropriate professional indemnity and public liability insurance to cover potential claims. Notify your insurers promptly of any complaints that might result in claims, as late notification can affect coverage. Review your insurance regularly to ensure coverage limits match your business risks and that policy terms align with your service offerings.
Use clear, detailed contracts that specify performance standards, completion timeframes, and variation procedures. Include reasonable limitation of liability clauses and ensure dispute resolution procedures are clearly outlined.
Regular contract reviews help ensure your terms remain enforceable and comply with current legal requirements, particularly consumer protection laws.
Regular staff training on quality standards and customer service helps prevent complaints while ensuring your team understands how to handle concerns when they arise.
Key Takeaways
When facing customer disputes over defective work, understanding your legal options can significantly impact the resolution outcome, costs, and your business reputation. It is important to consider some key factors when determining your approach, such as:
- Whether you are dealing with consumer or commercial law obligations. This determines your mandatory duties and potential remedies customers can pursue;
- the severity of the alleged defects. Serious failures may entitle customers to immediate refunds or contract cancellation, while minor issues typically require remedial work.
- Which resolution pathway offers the best outcome.
A structured approach to dispute resolution is often better for your business because it provides clarity about potential outcomes and helps manage legal costs; however, customers may still choose to pursue multiple avenues, including regulatory complaints or court proceedings. When you face a dispute, it is essential to assess your legal position honestly, considering both your contractual obligations and statutory duties under consumer protection legislation.
If you need assistance structuring a dispute resolution approach, ourexperienced disputes lawyers can help as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 447 119 or visit our membership page.
Frequently Asked Questions
Can I exclude the Consumer Guarantees Act from my contracts?
No, you cannot exclude CGA guarantees when dealing with consumers. However, in business-to-business transactions, commercial parties can agree to exclude the CGA protections, though you still have implied duties to perform work with reasonable skill and care under general contract law.
How quickly must I respond to customer complaints?
While there is no legal requirement for specific response timeframes, responding within 24-48 hours demonstrates professionalism and may prevent escalation. Under the CGA, if a customer requires you to remedy a failure, you must do so within a "reasonable time." What is reasonable depends on the nature of the defect, available resources, and impact on the customer. Failing to respond promptly or remedy within reasonable timeframes can strengthen the customer's position for seeking alternative remedies at your expense.
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.
