On 1 January 2011, the Australian Consumer Law (Cth) (ACL) replaced the implied conditions and warranties that existed under the Trade Practices Act 1974 (Cth). The ACL now sets out the consumer guarantee provisions (the Guarantees). The Guarantees are a set of automatic rights provided to consumers and in some cases businesses, of any goods or services they purchase in Australia. The Guarantees also cover imported goods and services. Below, we set out the guarantees a business automatically provides to consumers and the penalties for breach.
Who is a Consumer?
The Guarantees apply to all “consumers”. A consumer is a person, or business, that purchases:
- Goods or services for less than $40,000;
- Goods or services for more than $40,000, but which are of a kind ordinarily acquired for domestic, household or personal use or consumption; or
- A commercial road vehicle or trailer that is purchased principally to transport goods on public roads.
Of note, a consumer is not a person that purchased goods for the purpose of re-supply or for “using them up or transforming them”, in trade or commerce.
Who are the Guarantees Imposed On?
The Guarantees are imposed on businesses that sell, lease or hire out “goods” or provide “services”. The Guarantees are also imposed on manufacturers and on importers where there is no manufacturer presence in Australia. Except for the guarantees as to title, the Guarantees don’t generally apply to sales of goods by auction.
The Guarantees That Apply to Goods
- Acceptable Quality: Section 54 of the ACL provides that goods sold in trade or commerce must be of “acceptable quality”. Acceptable quality is defined to mean the goods are:
- Fit for all the purposes the goods are usually commonly supplied;
- Satisfactory in appearance and finish;
- Free from defects;
- Safe; and
The above indicia are measured on what the reasonable consumer fully acquainted with the state and condition of the goods would regard as acceptable. The ACL describes that the matters to consider are:
- The nature of the goods;
- The price paid;
- Statements on the packaging;
- Any representations; and
- Any other relevant circumstances.
By way of example, a reasonable consumer who is aware that goods are second hand would not have the same expectations of quality as they would have of new goods.
- Fit for specific purpose: Section 55 of the ACL provides that goods supplied in trade or commerce must be reasonably fit for any purpose disclosed by the consumer or represented by the supplier. A “disclosed purpose” is a purpose the purchaser discloses as to why they are buying the goods. So, in general, if the consumer makes known to the business that they are buying a product for a particular purpose, or the customer relied on a representation made by the business as to the purpose of the goods, the goods must be fit for that purpose.
- Express warranties must be honoured: Section 59 of the ACL provides that express warranties by the business must be respected. Express warranties are those voluntarily offered to consumers on matters such as the condition, quality, state, performance or characteristics of the goods. Note that express warranties are in addition to, not in substitution for, the Guarantees. Accordingly, consumers may be entitled to refund, repair or replacement after any voluntary warranty period has expired.
- Match description: Section 56 of the ACL provides that a business’ description of goods must be accurate. So, if a consumer buys a pair of shoes online and the description says they are red, the customer will be entitled to a remedy if they are pink.
- Title to goods: Section 51 of the ACL provides that a business must have the right to sell the goods (i.e. clear title) unless the consumer is alerted before the sale that the business only has a “limited title”. Limited title can arise when goods are sold from a deceased estate. While alive, the deceased person may have pledged the assets as security. Individuals who are then owed money by the deceased may try to recover the goods. In short, if limited title exists a consumer must be clear on this before the sale. This section does not apply to hire or leased goods.
- Undisturbed possession: Section 52 of the ACL provides that a business must not try to repossess or take back the goods they sold to a consumer. There are exceptions to this, for example, when the customer has not met their obligations (as directed under the sale, hire or lease contract) or when the business told the consumer it had limited title.
- No undisclosed securities: Section 53 of the ACL provides that the goods purchased are free of hidden securities or charges unless otherwise disclosed in writing or agreed to by the consumer.
- Repairs and spare parts: Section 58 of the ACL provides that a business will take reasonable action to ensure that facilities for the repair of the goods are available for a reasonable period after the goods are supplied.
- Goods correspond with a sample or demonstration: Section 57 of the ACL provides that businesses who supply goods by reference to a sample or demonstration model must ensure that the goods correspond with it.
Guarantees that Apply to Services
- Due care and skill: Section 60 of the ACL provides that a business must exercise due care and skill when providing services to consumers. For example, consumers can expect that there will be an acceptable level of skill or technical knowledge used in the provision of the services.
- Fit for particular purpose: Section 61 of the ACL provides that the services will be reasonably fit for purpose. In cases where the consumer discloses they want services for a specified purpose, or to achieve a particular result, the business guarantees the services will be fit for the specified purpose. This does not extend to professional services provided by an architect or by an engineer.
By way of example, say a consumer tells a travel agency they are afraid of flying and have come to the agency as they are experts in booking train travel. If the travel agency goes ahead and includes flights in the itinerary where train sectors were available, the agency may be liable to the consumer for a breach of this guarantee.
- Reasonable time for supply: Section 62 of the ACL provides that services must be provided within a reasonable time. What is reasonable is determined on a case by case basis and depends on the nature of the service. Mitigating circumstances can include, for example, weather conditions or other conditions outside the supplier’s control hindering the construction of a building.
If a business fails to meet one or more of the Guarantees, the consumer is entitled to a remedy. These remedies can include such things as a repair, replacement or refund and compensation for the loss. The remedies available will depend on the circumstances. If the Guarantee isn’t met and there is a “major failure”, the consumer can choose whether they want a refund, repair or replacement. The ACL defines a “major failure” whereby:
- The consumer would not have acquired the goods or services if they had known the extent of the failure beforehand;
- The goods or services are substantially unfit for purpose and cannot be made fit for purpose;
- The goods significantly do not meet their description or correspond with the demonstration model or sample; or
- The goods or services are unsafe.
Severe penalties exist when a business represents that a Guarantee is not available in their shop. Signs such as “No refunds” and “No refunds on sale items” must be qualified. A company may incur a penalty of up to $1.1 million, and an individual may incur a penalty of up to $220,000.
Under the ACL, a business automatically provides customers with a core set of consumer guarantees when they purchase goods or services. These are statutory rights that cannot be overridden and will exist regardless of any additional warranty that may be provided by a business. It is important consumers are not misled about their rights when purchasing. The consumer guarantees are essentially about quality and durability of products, on top of safety. Product safety is regulated under another area of the ACL.
If you have any questions, get in touch with our consumer lawyers on 1300 544 755.