On 16 December 2015, the Australian Retailers Association predicted that Australians would spend around $2.5 billion at the Annual Boxing Day Sales. As with all sales, consumers often return some or all of the items that they purchased.  And many business owners wonder whether they can refuse a refund on sale items.  This article considers whether a business can deny a consumer a refund on sale items and in what circumstances.

Consumer Law and Refunds

The Australian Consumer Law (ACL) governs refunds. It is located in Schedule 2 of the Competition and Consumer Act 2010 (Cth).  The ACL prescribes when a supplier must give a refund. In this context, whether the consumer purchased the item in a sale is not in issue. The issue is whether the product has a problem described in, and recognised by, the ACL. If so, a business has likely breached a Consumer Guarantee. They are then legally required to offer a refund at different points in time, depending on whether the problem is ‘major’ or ‘minor’.

Major Failure

If an item has a ‘major failure’, a customer can request a refund at the outset. Alternatively, they can ask for an exchange.

For the ACL, a major failure occurs when an item:

  1. Has a problem that would have prevented the consumer purchasing the item if they were aware of it;
  2. Is unsafe;
  3. Significantly differs from the sample or description; or
  4. Doesn’t do what the supplier said it would, or what the consumer asked for and the problem is not fixable.

If a product has a major failure, a customer can also choose to keep the item. In that instance, the supplier is required to compensate the consumer for any drop in value.

In these cases, customers should keep their receipt.

Minor Failure

If a product has a ‘minor’ problem, a business might have to provide a refund. A problem is minor if the supplier has breached the Consumer Guarantees but the failure is not major. In other words, it is not one of the faults listed above.  

In these circumstances, the supplier can select to repair the item, provided repair is possible. A consumer is not entitled to reject the product and request a refund. If a business chooses to repair, they must do so within a reasonable amount of time. ‘Reasonable’ depends on the circumstances. For example, an appropriate length of time for the repair of an essential household item like a water heater differs from that to repair an antique clock.  

However, if repair is impossible or if a supplier has taken an unreasonable amount of time to complete the repairs, the consumer is entitled to reject the product and request a refund or a replacement.

A consumer may also have the good fixed elsewhere and claim reasonable costs from the supplier.

When a Supplier can Refuse a Refund on a Sale Item

There are circumstances when a supplier has the right to deny a refund on a sale item. These are divisible into:

  • When a supplier has not breached a Consumer Guarantee; and
  • When a Consumer Guarantee is at issue but the ACL denies consumers any remedy, including a refund.

Non-Breach of a Consumer Guarantee

If a consumer has changed their mind about a product, a business need not provide a refund. However, a supplier must abide by any particular store policy for such cases (for example, offer a credit note).

ACL denies any Remedy

In certain circumstances, a consumer has no remedy even though the supplier has breached their Consumer Guarantee. A consumer has no remedy if a supplier has failed to meet a guarantee due to:

  • Something someone else did or said (excluding the business’ agents and employees); or
  • An event beyond human control. This must occur after supply.

Evidently, these situations happen less frequently.

A Final Word on Signs

All business owners must be aware that signs on their premises reading:

  • ‘No Refunds’;
  • ‘No refunds on sale items’; or
  • ‘Only exchange or credit note only for the return of sale items’.

are illegal and prohibited under the ACL. They mislead consumers about their rights if they have a problem with a product. As outlined above, the key question is always whether a Consumer Guarantee is at issue. The fact that a consumer purchased an item in a sale (or not) is not a factor in determining their rights.

If you would like further information about consumer guarantees and refunds, the website for the Australian Competition and Consumer Commission is an excellent resource. Contact LegalVision’s business lawyers to assist you. Questions? Call us on 1300 544 755.

Carole Hemingway

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