The Complete Business Guide to Consumer Guarantees

If you run a business in Australia, the Australian Consumer Law (ACL) affects you. Be it business to consumer or business to business, if you provide services or sell goods, consumer law affects your business. Consumer Guarantees is an aspect of your business which must be managed.  

The ACL is a national law to protect consumers. The Australian Competition and Consumer Commission (ACCC) alongside the state and territory consumer protection agencies administer the ACL.

The ACL creates a fundamental set of guarantees for consumers.  The intention of these guarantees is to ensure that you receive the goods or services that you have paid for. When a customer has a problem and one of the guarantees has not been met, the customer is entitled to a remedy. The type of remedy depends on the circumstances and can include a repair, replacement, refund or having the service performed again.

Contractual terms cannot generally exclude, modify or limit these statutory guarantees. Businesses must consider these guarantees.  And let’s not forget that businesses are also consumers.

Goods and services

Section 2 of the ACL defines “goods” and “services”. The ACL does not apply to the supply of financial services or financial products. There are other consumer protections for these services under the Australia Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

Who is a consumer?

A person is a consumer if they:

• acquire goods or services the price of which is $40,000 or less
• acquire goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption
• acquire a vehicle or trailer (at any price) for use principally in the transport of goods on public roads, and

“In trade or commerce”

In trade or commerce means any economic activity involving or relating to any commodity or service. There is no definition of this within the ACL.

Consumer guarantees only apply if the transaction was “in trade or commerce”. “In trade or commerce” involves the conduct being of a commercial, rather than personal, nature; or generally involving profit.

Consumer guarantees – supply of goods

Sections 51 to 59 of the ACL set out nine (9) consumer guarantees that apply to goods sold to a consumer. These guarantees cannot be contracted out of (section 276).

• Guarantee as to title: The supplier of the goods has the right to dispose of the property in the goods when the goods pass to the consumer (section 51).
• Guarantee as to undisturbed possession: The consumer has the right to undisturbed possession of the goods (section 52).
• Guarantee as to undisclosed securities: The goods are free of any undisclosed security, charge or encumbrance (section 53). The goods must not be subject to any security interests unless the security was disclosed before the consumer agreed to the supply or the consumer consented.

• Guarantee as to acceptable quality: The goods are of “acceptable quality” (section 54). Acceptable quality requires that goods are reasonably fit for all purposes for which those are commonly supplied, acceptable in appearance and finish, and free from defects, safe and durable.
• Guarantee as to fitness for any disclosed purpose: The goods are reasonably fit for: (i) a purpose for which the supplier represents they are fit; or (ii) a purpose the consumer makes known to the supplier or manufacturer that they will use the goods for (section 55).
• Guarantee relating to supply by description: If goods are sold by description, they correspond to that description (section 56).
• Guarantee relating to supply by sample or demonstration model: If goods are sold by sample or demonstration model, they correspond to that sample or model (section 57). Goods must also be free from any defect that would cause the goods not to be of acceptable quality that is not apparent on reasonable inspection of the sample or demonstration model.
• Guarantee as to repairs and spare parts: The manufacturer of the goods will ensure that spare parts and facilities for repair of the goods are reasonably available (section 58).
• Guarantee as to express warranties: The manufacturer will comply with any express warranty given by the manufacturer in relation to the goods (section 59(1)) and the supplier will comply with any express warranty given by the supplier (section 59(2)).

Express warranties are undertakings, assertions and representations made about goods that are of a type to induce people to inquire them. Extended warranties are a distinct category of warranty – where a customer pays a warranty fee to a warranty provider.

Extended warranties are financial products and are dealt with under the ASIC Act.

Here, businesses should be careful about misleading consumers about the benefits or as to other remedies that may be available, as this may constitute misleading conduct or a false or misleading representation.

An express warranty is an extra promise made by a supplier or manufacturer above and beyond the guarantees in the ACL, but once made it becomes enforceable as a guarantee under the ACL.

Warranties against defects

A ‘warranty against defects’ (also known as a ‘manufacturer’s warranty’) under section 102 of the ACL is different from an express warranty but can sometimes contain an express warranty. It deals with what the supplier or manufacturer must do when something goes wrong with the good or service. A warranty against defects in respect of goods or services must be in writing and contain the compulsory wording set out in Regulation 90 of the Competition and Consumer Regulations 2010 (Cth).

Consumer guarantees – supply of services

A supplier guarantees that services are provided:

With due care and skill - use an acceptable level of skill or technical knowledge when providing the services; and take all necessary care to avoid loss or damage when providing the services.

Which are fit for any specified purpose - Suppliers guarantee that services will be reasonably fit for any purpose specified by the consumer and any products resulting from the services are also fit for that purpose.

Within a reasonable time (when no time is specified) - A contract or agreement for the supply of services usually states when the services will be provided and the date they will be completed. If not, the supplier guarantees they will supply the service within a reasonable time. What is ‘reasonable’ will depend on the nature of the services.

When do consumer guarantees not apply?

The consumer guarantees do not apply to goods or services costing more than $40,000 that are normally used for business purposes (for example, installing industrial air conditioning to a factory premises).

Additional exceptions apply in some circumstances. These include:

• goods bought from one-off sales by private sellers, such as a private garage sale or school fetes
• goods purchased at a traditional auction
• goods purchased to be resold or transformed into a product that is on-sold
• services for transportation or storage of business goods, or
• fitness for purpose of professional services provided by a qualified architect or engineer.

Excluding, modifying or limiting liability for breaches

Contractual terms will be void and unenforceable to the extent that they exclude, modify or limit a consumer guarantee or liability resulting from breach of a consumer guarantee, unless they fall within an exception.

A supplier attempting to contract out of consumer guarantees may risk misleading the consumer about their legal right to compensation.

Under section 64A, a supplier can limit its liability to one or more of:

• replacement of the goods, or supply of equivalent goods;
• repair of the goods;
• payment of the cost of replacing the goods or of acquiring equivalent goods; or
• Payment of having the goods repaired.

Under section 276A, a manufacturer can limit its liability to the lower of:

• replacement of the goods or supply of equivalent goods; or
• Repair of the goods.

A party may not rely on section 64A to limit its liability if it is not fair and reasonable for it to do so.

Clauses that limit liability “to the extent permitted by law” are common, and are not made void by the ACL.

Contracts for recreation services can exclude restrict or modify the consumer guarantees and liability arising from them in relation to death, physical or mental injury or disease (section 139A, CCA). Contract authors should not over-extend to not over-extend this exception.

Enforcement and remedies for breach

The ACL creates national enforcement powers, to be used by all consumer law regulators, including civil penalties and remedies for breaches of the ACL.

Consumers can seek a refund, replacement or repairs if a supplier fails to satisfy its obligations in relation to consumer guarantees. Under pre-existing laws, consumers were required to pursue any failure by suppliers to comply with implied conditions and warranties as breaches of contract. The remedy available to consumers will depend on which guarantee has been breached and the nature of that breach. A consumer will be able to seek damages from a manufacturer if a manufacturer fails to meet its guarantee obligations.

Part 5.4 of the ACL provides remedies particular to breaches of the ACL consumer guarantees:

sections 259 – 266 of the ACL in relation to the supply of goods;

sections 267 – 270 of the ACL in relation to the supply of services; and

sections 271 – 273 of the ACL in relation to the manufacture of goods.

Consumer guarantees are not implied terms, and therefore do not give rise to contractual remedies. The statutory remedies operate in addition to remedies available at common law and tort.

Consumer guarantee remedies vary depending on whether the breach constitutes a major failure outlined in section 260 (for goods) or section 268 (for services).

Conflict of laws

If a law of a foreign jurisdiction is the proper law of the contract, the ACL and the consumer guarantees do not apply.

An attempt to avoid the consumer guarantees, by stating in the contract that the governing law of the contract is a jurisdiction in which consumer guarantees (or liability arising from their breach) may be excluded, modified or limited, will be ineffective.

Final Note:

It is important that you have a product recall plan in place for your tech startup that complies with the relevant laws. Recalls can be damaging to your brand and profits and having a plan in case you are faced with this, will minimise the effects on your business.

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