NSW Fair Trading is warning consumers to steer clear of fash-tech startup, Her Fashion Box. What started out as a Shark Tank success story now serves as a reminder to businesses to deliver on promises or face the wrath of consumer complaints and government warnings. Regardless of your business’ size or success, you must abide by your obligations under the Australian Consumer Law (ACL). Below, we revisit the consumer guarantees, consequences for accepting payment without supply and how businesses should reply to dissatisfied customers.

The Life of Her Fashion Box

Kath Purkis founded ‘Her Fashion Box’ – an online subscription service that sends new fashion products and accessories to customers every season for $59.95. Less than one year after she received $200,000 from Shark Tank investors, Janine Allis and Andre Banks, A Current Affair aired an expose about Her Fashion Box resulting from NSW Fair Trading receiving customer complaints. The majority of the complaints relate to Her Fashion Box accepting payment for goods that were not supplied, failing to process requests to cancel subscriptions and not responding to consumers’ enquiries about undelivered goods.

Consumer Guarantees

Purkis’ conduct may also raise issues relating to consumer guarantees. The ACL requires businesses, irrespective of size, to comply with their obligations under consumer law. Consumer guarantees attach automatically to goods or services that a business supplies to their customers. Therefore, by failing to provide the fashion boxes, it is possible Purkis breached some of these guarantees.

Accepting Payments Before Supply

Section 36 of the ACL sets out circumstances in which a business will commit an offence for wrongly accepting payment:

  • Not intending to supply the goods or services at the time of accepting payment;
  • Intending to supply goods or services that are materially different from what was described;
  • Being reckless as to whether the business would be able to supply the goods or services within the period specified; and
  • Failing to supply the goods or services within the specified time or a reasonable time.

Section 158 of the ACL provides that accepting payment without the intention to supply the goods or services is an offence and can result in a fine of over one million dollars for a company. 

This part of the law is not designed to target businesses who genuinely intend to supply customers. For this reason, a business may be exempt from liability if:

  1. The failure to supply was due to circumstances beyond its control; and
  2. It took reasonable and necessary precautions to meet the supply agreement.

What is the Customer Entitled to?

Where your service fails to meet an agreement to supply, the customer may be entitled to one of the following:

  •     A refund, repair or replacement;
  •     An additional or similar service; or
  •     Compensation for any loss suffered as a result of the breach.

The available remedy depends on whether the problem with the service is considered minor or major. Minor problems, which the business can easily address, usually result in a refund or replacement if necessary. Major problems, however, like in the case of Her Fashion Box, can attract heavier penalties for the business, such as providing the customer with compensation.

Consequences for Wrongfully Accepting Payment

Just last month, Queensland business owner, Nathan Kerrins, was found guilty of wrongly accepting payment for goods and services. The Magistrates Court fined Mr Kerrins $17,000 for failing to provide services to help two different companies in their advertising campaigns, for which he had already accepted payment. He not only failed to comply with the agreement, but he also neglected to give either business a refund for not providing the agreed services. This case should serve as a reminder to businesses of the potential penalties for breaching section 36 of the ACL.

Importantly, situations are not always so clear when identifying a failure to supply. In Kerrins’ case, agreeing to provide services, accepting the payment and then failing to deliver, is a clear breach of section 36. However, delivering promised goods or services below the customer’s expectations or standards grazes unclear territory. So, merely delivering the service may not satisfy the requirements of the ACL.

How to Respond to an Unhappy Customer

If you operate a business, you will inevitably encounter dissatisfied or disgruntled customers. While you may feel some complaints are unreasonable, businesses may have legal obligations to respond and provide the appropriate remedy for a complaint. If you choose not to respond or respond inadequately, a customer can: 

  • Report the problem to the ACCC;
  • Initiate a claim against you in a tribunal or court; or
  • Turn to the media, resulting in negative publicity for your business (as is the case of Her Fashion Box).

If an unhappy customer posts on social media, you may consider responding by first apologising for their experience and addressing their concerns. However, if you believe the complaint is out of line and possibly defamatory, you might want to seek some advice on your options. 

Key Takeaways

  • A happy customer makes a happy business – understand how the ACL protects consumers and how it applies to your business, so your customers stay satisfied.
  • Don’t jump the gun – make sure that you have the time, resources and ability to deliver your services before accepting payment, especially if you are just starting out.
  • It’s never too late to say sorry – an apology to a customer with a genuine complaint can go a long way and prevent negative attention on social media.

If you have any questions about your obligations under the ACL or need advice on addressing customer complaints, get in touch with our specialist consumer lawyers on 1300 544 755.

Alexandra Shaw

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