COVID-19: Am I Obliged to Give Customer Refunds If I Am Unable to Provide Goods And Services?

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Table of Contents

• Providing Goods or Performing Services 
• Complying With the Consumer Guarantees 
• Entering Into New Contracts 
• Key Takeaways

The coronavirus (COVID-19) outbreak is having an immense impact on businesses in Australia. Many are uncertain whether they can perform agreed services, like refunds, especially with government bans and restrictions in place. 

This article will outline businesses obligations in these uncertain times through the lens of the Australian Consumer Law (ACL). We will:

• examine whether you have to provide the goods or perform the services that you agreed to prior to the outbreak;
• discuss your obligations when it comes to consumer guarantees; and
• address what you should consider when preparing to enter into new contracts to provide goods and services. 

Providing Goods or Performing Services 

As a business owner, you may have agreed to provide goods and/or services prior to the COVID-19 outbreak, which you are now unable to perform. 

The ACL does not address what businesses should do if unable to provide goods or services due to circumstances beyond their control. However, further guidance may emerge as the Australian Competition and Consumer Commission (ACCC) attempts to deal with this unprecedented situation. 

The ACCC has provided guidance for consumers on what the circumstances it expects businesses to provide a refund and/or credit note. 

On a practical level, you should look at the clauses in your contracts with your customers. Your contract may specify whether you have to provide a refund or another solution in these circumstances. Your contract may also contain a ‘Force Majeure’ clause. This clause may set out the circumstances in which the parties will not have to comply with their obligations under the contract, such as due to an “event outside our reasonable control” or a “pandemic”. 

Complying With the Consumer Guarantees 

Providers of goods or services have obligations to meet consumer guarantees, which differ depending on whether you are providing goods or services. But what are your responsibilities if you cannot meet the guarantees due to COVID-19? It will likely depend on whether there is a major or minor failure with the goods or services. 

Services

One consumer guarantee in relation to service provision is that the services will be completed within a “reasonable time”. This is where the contract does not specify a length of time. Due to COVID-19, there may be more flexibility around what considered “reasonable”.

Goods

If you supply goods, they need to be of “acceptable quality”. This means they have to be fit for their intended purpose, be free of defects, and are safe and durable. You must still meet this obligation even if you are impacted by COVID-19. If:

• the goods you supply are not of acceptable quality; 
• the goods have a major problem; and 
• the problem cannot be fixed within a reasonable time, 

then your customer can reject the goods and get a refund or replacement. They can also keep the goods and ask you for money to cover the difference in value between the defective product, and the product they originally ordered from you. 

Entering Into New Contracts 

It is also important to consider what to do, in light of COVID-19, if you are entering into new contracts to supply goods or services. 

You should not offer goods or services, nor accept payment, if, at the time of accepting payment, you know that you:

• cannot supply the goods or services; 
• intend to supply significantly different goods or services to what you have advertised; or 
• cannot supply them at the time indicated or within a reasonable time. 

It is also important to check that your Force Majeure clause is drafted properly and gives you adequate protection should you need to rely on it. 

Key Takeaways

Even though COVID-19 has presented circumstances we have never had to deal with before, it is important to remember that as a provider of goods or services, you still have obligations towards your customers under the ACL. 

Make sure that you are complying with the consumer guarantees and that when entering into new contracts, you can actually provide what you have said you will provide. The ACCC is, in many instances, encouraging businesses to provide a refund or credit note to customers when you cannot provide your goods or services at all, or within a reasonable timeframe. 

Maintaining goodwill with your customers should be a priority, and we can assist you to navigate this period of time. Visit our COVID-19 Resource Hub For Business for information on how to manage the impact of COVID-19 on your business, including dealing with employees, or what to do if you cannot pay rent. You can also call 1300 544 755 or fill out the form on this page to speak to an experienced commercial lawyer.