The Trade Practices Act and the Australian Consumer Law

Where are they now and what’s changed?

Claire Latham

Barrister

Nine Wentworth180 Phillip Street

Sydney, NSW 2000Ph: (02) 8815 9292

E-mail: claire.latham@ninewentworth.com.au

THE TRADE PRACTICES ACT AND THE AUSTRALIAN CONSUMER LAW

WHERE ARE THEY NOW AND WHAT’S CHANGED?

1. The purpose of this seminar is to:

(a) broadly review the application of the Australian Consumer Law; and

(b) identify where a few well-used sections of the Trade Practices Act 1974 (Cth) (“TPA”) can now be found; and

(c) to review some new concepts introduced by the Australian Consumer Law, being unfair contract terms and consumer guarantees.

The application of the Australian Consumer Law

2. The Australian Consumer Law (“ACL”) is contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (“CCA”) and replaces the main consumer protection provisions of the TPA. It has been in force since 1 January 2011.

3. One of the central purposes of the ACL is to implement a single, comprehensive, uniform national consumer protection law to replace the main consumer protection provisions in the TPA, including s52 (prohibiting misleading and deceptive conduct) and its various iterations in the states and territories.

4. Section 1 of the ACL provides:

This Schedule [namely, Schedule 2 to the CCA] applies to the extent provided by:

(a) Part XI of the Competition and Consumer Act; or(b) an application law.

5. Part XI of the CCA provides, in effect, that the ACL applies as a law of the Commonwealth. Part XIAA of the CCA contemplates that the ACL may also be applied, by virtue of laws passed in participating jurisdictions, as a law of a state or territory. Pursuant to s140 of the CCA, “application law” is defined to mean:

(a) a law of a participating jurisdiction that applies the applied Australian Consumer Law, either with or without modifications, as a law of the participating jurisdiction; or

(b) any regulations or other legislative instrument made under a law described in paragraph (a); or

(c) the applied Australian Consumer Law, applying as a law of the participating jurisdiction, either with or without modifications.

6. The relevant “application law” in NSW is the Fair Trading Act 1987 (NSW) (“FTA”) which now provides in s28 that the ACL applies as a law of this state. Similar legislation has been passed in the other states and territories.

7. Section 131C of the CCA is directed at ensuring that the ACL operates concurrently with applicable State and Territory consumer law. To the extent any provisions of State consumer legislation are inconsistent with the CCA, s109 of the Constitution will apply to render the State legislation invalid – Re Credit Tribunal (SA); Ex parte General Motors Acceptance Corp [1977] HCA 34.

8. Accordingly, in NSW, to the extent it is consistent with the ACL, the Sale of Goods Act 1923 (NSW) continues to apply and operates concurrently with consumer protection provisions in the ACL (as discussed below).

What does the ACL cover?

9. The ACL includes:

Chapter 1 – Introduction: definitions and interpretative provisions about consumer law concepts.

Chapter 2 – General protections: general protections to create standards of business conduct in the market. These protections include:

(a) a general ban on misleading and deceptive conduct in trade or commerce;

(b) a general ban on unconscionable conduct in trade or commerce and specific bans on unconscionable conduct in consumer and some business transactions; and

(c) a provision that makes unfair contract terms in consumer contracts void.

Chapter 3 – Specific protections: specific protections which address identified forms of business conduct. Specifically, Chapter 3 includes provisions on:

(a) banning specific unfair practices in trade or commerce;

(b) provisions dealing with consumer transactions, including consumer guarantees;

(c) the safety of consumer goods and product-related services;

(d) the making and enforcement of information standards; and

(e) the liability of manufacturers for goods with safety defects.

Chapter 4 – Offences: criminal offences relating to certain matters covered in Chapter 3.

Chapter 5 – Enforcement and remedies: national enforcement powers and remedies relating to consumer law.

What are the principal changes that are introduced by the ACL?

10. The main changes implemented in the ACL are:

(a) a single set of definitions and interpretative provisions, some of which differ from those used in the TPA (Chapter 1);

(b) a new national law on unfair contract terms (Chapter 2, Part 2-3);

(c) a single set of provisions about unfair practices and fair trading, including amendments and additions which reflect provisions previously contained in State and Territory consumer laws (Chapter 3, Part 3-1);

(d) new national consumer guarantees provisions, which replace laws on statutory conditions and warranties (Chapter 3, Part 3-2, Division 1);

(e) a new national regime for unsolicited consumer agreements, which replaces previous provisions in State and Territory laws on door-to-door sales and other direct marketing (Chapter 3, Part 3-2, Division 2);

(f) national rules for lay-by agreements (Chapter 3, Part 3-2, Division 3);

(g) a new national product safety legislative regime (Chapter 3, Part 3-3); and

(h) new national provisions on information standards, which apply to services as well as goods (Chapter 3, Part 3-4).

11. In this seminar, I will focus on the new provisions regarding unfair contract terms and consumer guarantees, as well as providing a brief overview of where commonly used sections of the TPA can now be located.

A preliminary note of caution!

12. The term “consumer” in the ACL needs to be treated with caution. A definition of “consumer” appears at s3, however this definition is not applicable every time the word “consumer” is used in the ACL. For example, somewhat confusingly, a “consumer contract” is not a contract entered into by a person falling within the definition of “consumer” at s3.

13. The term appears in three contexts in the ACL and a person may be a “consumer” for the purposes of some sections but not others. Care needs to be taken in ensuring the correct definition is being considered.

14. In considering “consumer guarantees”, “consumer” is defined by reference to the kinds of goods or services purchased. The relevant definition of “consumer” is that set out at s3 of the ACL (set out below). An objective approach is taken.

15. In considering unfair terms in “consumer contracts”, “consumer” is defined by reference to the purposes for which the goods or services are purchased (see s23(3)). As discussed below, a subjective approach is taken and the definition of “consumer” as set out at s3 is not adopted.

16. In considering “consumer goods” for the purpose of the product safety, recall, and reporting provisions in the ACL, “consumer” is defined by reference to the intentions of the supplier and the kinds of goods supplied (see the definition of “consumer goods” at s2). A hybrid approach is therefore involved which requires both objective and subjective matters to be considered. Again, the definition of “consumer” at s3 is not adopted.

Help! Where has that section gone?

17. I will not attempt to review all of the sections of the TPA and identify their new location within the ACL, but will focus on a few key sections most frequently used. A useful schedule of where terms in the TPA can be found in the ACL is set out in the latest edition of Miller’s Australian Competition and Consumer Law (the 33rd edition).

Section 51A TPA – future matters

18. Section 4 of the ACL is in similar terms to s51A of the TPA. It provides that if a person makes a representation with respect to any future matter and does not have reasonable ground for making that representation, the representation is taken to be misleading for the purposes of the ACL.

19. Prior to the introduction of s4 of the ACL there had been some debate as to whether, under s51A of the TPA:

(a) a representor needed only to adduce “evidence to the contrary” to displace the effect of the deeming provision; and

(c) whether the deeming provision operated to place the onus of proof on the representor (see, for example, North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60 at [29]-[35]).

20. Section 4 of the ACL seeks to clarify these issues. Section 4(3) of the ACL provides:

To avoid doubt, sub-section (2) does not:

(a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or

(b) have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.

Section 51AA TPA – unconscionable conduct

21. The prohibition on unconscionable conduct previously contained at s51AA of the TPA can be found at s20 of the ACL.

22. This section is substantially similar to the old s51AA of the TPA. Accordingly, case law regarding s51AA of the TPA will remain relevant.

Section 52 TPA – misleading and deceptive conduct

23. The prohibition on misleading and deceptive conduct previously contained at s52 of the TPA can be found at s18 of the ACL. Section 18 of the ACL provides:

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

24. The section is substantially similar to the old s52 of the TPA. The only change is that the word “shall” in s52 has been replaced by the word “must”. It is, therefore, likely that s18 of the ACL will be interpreted in the same way as s52 of the TPA and case law regarding s52 of the TPA will remain relevant.

25. Because the ACL may operate in effect as either a Commonwealth or a State law, it will apply equally to conduct engaged in by individuals and corporations.

26. The ACL prescribes a number of remedies for contravention of s18.

Section 82 TPA - Damages

27. Section 236 of the ACL giving rise to the right to recover damages is substantially similar to s82 of the TPA, and authorities relevant to that section will also be relevant to s236 of the ACL.

28. Any action under s236 of the ACL must be commenced within six years after the date on which the cause of action accrued (s236(2)).

New concepts in the ACL – Unfair Contract Terms

29. Part 2-3 of the ACL introduces new provisions to govern unfair contract terms as part of the general protections in relation to business conduct in the market. These provisions of the

ACL came into effect on 1 July 2010 and do not apply to contracts entered into prior to that date unless the contract is renewed or varied after that date.

30. Section 23 of the ACL provides that a term of a “consumer contract” is void if:

(a) the term is unfair; and(b) the contract is a “standard form contract”.

31. If a term of a consumer contract is “unfair”, and that contract is a “standard form contract”, the term is void pursuant to s23(1) of the ACL. If such a term is determined to be void, pursuant to s23(2), the contract will continue to bind the parties if it is capable of operating without the unfair term.

32. Section 23 requires consideration of three concepts, as follows:

(a) is the contract in question a “consumer contract”?(b) is the contract term “unfair”?(c) is the contract a “standard form contract”?

“Consumer contract”

33. As discussed above, a “consumer contract” is not necessarily a contract entered into by a person who falls within the definition of a “consumer” at s3 of the Act. One must turn to s23(3) for a definition of the term.

34. Section 23(3) provides:

A consumer contract is a contract for:

(a) a supply of goods or services; or(b) a sale or grant of an interest in land;

to an individual whose acquisition of the goods, services or interests is wholly or predominantly for personal, domestic or household use or consumption.

35. The first limb of this definition calls for an objective finding of fact, but the second limb contains a subjective element. Whether or not a contract is a consumer contract is determined by reference to the subjective purpose of the individual making the acquisition.

36. The section is limited in its operation to acquisitions by “individuals”. Accordingly, acquisitions by corporations are excluded from s23, even if the goods, services or interest in land is acquired for personal, domestic or household use or consumption.

“Unfair”

37. Section 24(1) defines “unfair” as follows:

A term of a consumer contract is unfair if:

(a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and

(b) it is not reasonably necessary in order to protect legitimate interests of the party who would be advantaged by the term; and

(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

38. For the purposes of s24(1)(b), a term of a consumer contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by it, unless the party proves otherwise (s24(4) of the ACL).

39. The elements of s24(1) of the ACL are conjunctive. Accordingly, a person seeking to demonstrate that a term of a consumer contract is unfair must prove each of the matters at subparagraphs (a), (b) and (c).

40. Section 24(2) provides that, in determining whether a term of a consumer contract is unfair, a court may take into account such matters as it thinks relevant but must take into account the extent to which the term is transparent and the contract as a whole.

41. Section 24(3) provides:

A term is transparent if the term is:

(a) expressed in reasonably plain language; and(b) legible; and(c) presented clearly; and(d) readily available to any party affected by the term.

42. Section 25 of the ACL sets out examples of terms that may be unfair, but the question of whether a term is unfair is to be determined on the facts of each case.

43. Victoria introduced an unfair contract terms provision in its Fair Trading Act 1999 (Vic) in 2003. Cases regarding the interpretation of this provision may have some relevance in relation to the new ACL provision. These cases include:

Director of Consumer Affairs Victoria v Backloads.com Pty Limited [2009] VCAT 754 – the Tribunal declared a number of clauses in a removalist’s contract to be unfair under the Victorian Act, including a clause that penalised a consumer for varying, postponing, or cancelling the contract, a clause that allowed the removalist to assign rights to collect charges to an unidentified third party, a clause that imposed a lien on goods even though the right to collect payment had been assigned, and a clause that deemed the contract to be made in a jurisdiction that did not have an unfair contract terms law.

Director of Consumer Affairs Victoria v Trainstation Health Clubs Pty Limited [2008] VCAT 2092 – the Tribunal declared a number of clauses in a contract for gym membership to be unfair under the Victorian Act, including clauses dealing with unilateral variation and termination by the gym, and a no refund clause.

Director of Consumer Affairs Victoria v AAPT Limited [2006] VCAT 1493 – the Tribunal considered terms of a standard form contract for mobile phone services. It found that a unilateral variation clause and a clause providing for the customer to pay a reconnection fee if the service was disconnected for any reason to be unfair under the Victorian Act, but declined to make any orders as the respondent had amended its contract terms.

“Standard form contract”

44. The ACL does not include an express definition of the term “standard form contract”. However, s27(1) provides that if a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be such unless the other party proves otherwise.

45. Section 27(2) further provides that, in determining whether a contract is a “standard form contract”, a court may take into account such matters as it thinks relevant, but must take into account the following:

(a) whether one of the parties has all or most of the bargaining power relating to the transaction;

(b) whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;

(c) whether another party was, in effect, required either to accept or reject the terms of the contract (other than the terms referred to in s26(1)) in the form in which they were presented;

(d) whether another party was given an effective opportunity to negotiate the terms of the contract that were not the terms referred to in s26(1);

(e) whether the terms of the contract (other than the terms referred to in s26(1)) take into account the specific characteristics of another party or the particular transaction;

(f) any other matter prescribed by the regulations.

46. No other matters have yet been prescribed by the regulations.

Exceptions

47. There are a number of exceptions to the application of s23 of the ACL in ss26(1) and 28(1). The section does not apply to terms that:

define the main subject matter of the contract;

set the upfront price payable under the contract;

are required, or expressly permitted, by Commonwealth, State or Territory law;

are in a contract of marine salvage or towage, a charter party of a ship;

are in a contract for the carriage of goods by ship; or

are in the constitution of a company, managed investment scheme or other kind of body.

48. The section also does not apply to financial services or to contracts that are, or are for, financial products. However, there are equivalent provisions applicable to financial services in the Australian Securities and Investments Commission Act 2001 (Cth) (s131A of the CCA).

Unfair contract terms and land transactions

49. Section 23(3) provides that a “consumer contract” includes a contract for a sale or a grant of an interest in land. The definition of “interest” is broadly defined at s2 and includes any legal or equitable interest in land or a right, power or privilege over or in connection with the land. This includes sales of both completed and “off the plan” developments. The definition also includes occupancy rights in a company title scheme involving the ownership of land.

50. As the definition of “consumer contract” requires that the contract is “wholly or predominantly for personal, domestic or household use or consumption”, a purchase of land for investment purposes would likely not fall within the definition. Likewise a lease of commercial premises to an individual for business purposes would not meet the criteria for a “consumer contract”.

51. As a general rule, a “consumer contract” is more likely to arise where the purchaser is an individual acquiring premises for the purposes of residing in them.

52. Terms accompanying a contract for the sale of land or a lease may comprise a “standard form contract” for the purposes of s23. As set out above, a key indicator of a standard form contract is the relative bargaining power of the parties and the extent to which the contract is negotiated between them.

53. Whether or not a particular contract is a “standard form contract” will depend on the facts of each case. For example, a contract to buy a lot in a development (such as a subdivision of many lots, or a large apartment complex) under a specifically drafted contract prepared by the vendor’s solicitors, which is subject to no negotiation or modification, or is presented on a “take it or leave it” basis, is more likely to be a standard form contract.

54. On the other hand, a contract negotiated at arm’s length between parties that have comparable bargaining power is less likely to be a standard form contract.

55. Pro-forma contracts in relation to the sale or lease of land are common. The fact that such contracts are pro-forma does not necessarily make the contract a standard form contract under the ACL. The position of the parties to the contract and the extent of any negotiation between them are the more important factors.

56. The final consideration is whether any terms of the contract are “unfair”.

57. A number of terms often included in contracts for the sale of land “off the plan” may be at risk of being declared unfair under s23. For example:

Exclusion of warranty clauses – the developer makes no representation or warranty that documents attached to the contract are accurate or reliable.

Extension of completion – the developer has the right to unilaterally extend the completion date under certain (typically very broad) circumstances.

No re-sale clauses - purchasers are prohibited from on-selling their lot before completion.

Amending clauses – the developer can unilaterally change or replace documents attached to the contract such as car parking allocation and lot boundaries.

Time frames and waiver of rights – purchasers have strict and short periods of time to respond to major changes to development documents.

Defects liability clauses – the purchaser is entitled to lodge only one defect notice within a specified period and the developer has an extended (or even uncapped) time within which to remedy defects.

Designated matter clauses – the developer has the power to drive through changes to by-laws without any input from purchasers.

No objection clauses – limitations on, or blanket prohibitions against, a purchaser’s right to object or claim compensation under the contract.

58. Developers would need to establish that such provisions are required to protect their legitimate commercial interests. To minimise the risk of such clauses being unfair, developers should consider amending them, for example, limiting the changes that may be made or allowing purchasers a right to terminate or receive compensation where the property being sold changes.

59. It is less likely that the standard Law Society terms annexed to a contract for the sale of land will be successfully challenged. Those terms tend to strike a fairly even balance between the

legitimate interests of the vendor and the purchaser, although slightly skewed in favour of the vendor in relation to provisions for the forfeiture of deposits by purchasers.

Conclusion

60. Currently it is not known how the courts will apply s23. The extent of the application of the ACL will become clearer over time. In the interim, suppliers of goods and services and sellers of real property under standard form contracts should:

be aware or and alert to the potential of the ACL;

review any contracts which may be regarded as “standard form contracts” to identify terms which may be at risk; and

if possible, identify alternative drafting (and evaluate the commercial impact of such drafting) or confirm the commercial requirement to retain the term.

61. As set out above, the ACL allows a contract to continue to bind the parties if it is capable of operating without the unfair contract term. Accordingly, effective severance clauses should be incorporated into contracts which may fall within s23. Clauses should be drafted, so far as possible, to allow potentially offensive provisions to be easily severed from the contract.

62. It may also be prudent for suppliers of goods and services and property developers to keep detailed notes as to why particular terms were included in the contract and the commercial interests that are protected by those terms.

New concepts in the ACL – Consumer Guarantees

63. One of the most significant changes effected by the ACL is the introduction of consumer guarantees, which replace the implied warranties previously provided for in the TPA. The guarantees under the ACL apply to goods and services acquired on or after 1 January 2011.

Consumer guarantees generally

64. Under the TPA, warranties were implied into the contract for the supply of goods. As a result, in the event of a breach of such an implied term, the person affected was required to point to a valid contract into which the term could be implied. The person would also be limited to his or her remedies in contract.

65. As the guarantees provided for by the ACL are statutory, contravention of those guarantees will result in the consumer having access to the range of statutory remedies set out in the ACL.

66. The guarantees in Part 3-2 of the ACL arise in circumstances in which there has been a supply to a “consumer” within the meaning of s3 of the ACL (as discussed below).

67. The guarantees cannot be excluded, modified or limited by contract (s64 of the ACL).

68. The guarantees do not apply to:

contracts of insurance (s63 of the ACL);

contracts for the transportation or storage of goods for the business, trade, profession or occupation of the person for whom the goods are transported or stored (s63 of the ACL);

supply of gas, electricity or telecommunications service specified in the Regulations (s65 of the ACL). There are currently no such regulations.

69. Section 64 of the ACL provides that consumer guarantees cannot be excluded by contract and that it is not possible for a contract to displace consumer guarantees by specifying that some other law, such as the law of the country where the supplier resides, applies to the contract.

70. Section 64A allows contracts for the purchase by consumers of non-domestic goods to include a limitation of liability provision which limits a person’s liability for failure to comply with a guarantee to one or more of the following:

(a) the replacement of the goods or the supply of equivalent goods;(b) the repair of goods;(c) the payment of the cost of replacing the goods or of acquiring equivalent goods; or(d) the payment of the cost of having the goods repaired.

However such limitations of liability cannot apply to domestic goods.

71. Under the new regime, there is no need to prove negligence, and there is no need to prove who in the supply chain was responsible for the “failure”. The consumer is entitled to seek the remedies against the supplier or the manufacturer. “Innocent” suppliers who are obliged to provide consumer with remedies will be able to recover the costs incurred from manufacturers.

The definition of “consumer” for the purposes of consumer guarantees

72. The reference to “consumer” in Part 3-2 of the ACL is defined at s3. An objective approach is taken.

73. As to goods, a person is taken to have acquired goods as a “consumer” if, and only if:

the amount paid or payable for the goods did not exceed $40,000 (or such greater amount as has been prescribed); or

the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or

the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public road;

and the goods have not been acquired for either:

resupply; or

using them up or transforming them in trade or commerce in the course of a process for production or manufacture or in the course of repairing or treating other goods or fixtures on land.

74. As to services, a person is taken to have acquired services as a “consumer” if, and only if:

the amount paid or payable for the services did not exceed $40,000 (or such greater amount as has been prescribed); or

the services were of a kind ordinarily acquired for personal, domestic or household use or consumption.

75. For the purpose of s3 of the ACL, a “person” who is a consumer may be a corporation, provided that the above criteria are satisfied.

Guarantees as to title

76. The first guarantees relate to title. Section 51 of the ACL provides that if a person supplies goods to a consumer, there is a guarantee that the supplier will have a right to dispose of the property and the goods when that property is to pass to the consumer. Similarly, s52 of the ACL provides that there is a guarantee that the consumer has the right to undisturbed possession of the goods and s53 of the ACL provides that there is a guarantee that the goods are free from any security charge or encumbrance that was not disclosed to the consumer in writing before the consumer agreed to the supply.

77. These provisions of the ACL replace and modify the previous s69 of the TPA and similar provisions in the Sale of Goods legislation in the various states (being, in NSW, s17 of the Sale of Goods Act 1923 (NSW)). Furthermore, the guarantees apply regardless of whether the goods are sold “in trade or commerce”.

“Acceptable quality”

78. Section 54(1) of the ACL provides that, if a person supplies in “trade or commerce” goods to a consumer, there is a guarantee that the goods are of acceptable quality.

79. The expression “acceptable quality” replaces the more traditional common law term of “merchantable quality” which was contained in s71 of the TPA. The definition of merchantability relates to saleability and is appropriate for commercial transactions where goods are purchased by merchants for re-sale, and where they are suitable for at least one

of the purposes for which goods of that kind or description are purchased. The definition of acceptable quality adopts as its test the reasonable expectations of consumers, and is more stringent than the test of merchantability.

80. Section 54(1) imposes strict liability in the sense that the supplier of goods will be liable if they are not of acceptable quality even though the supplier was in no way to blame for the faults in the goods.

81. Section 54(2) of the ACL provides, if effect, that goods are of acceptable quality if they are:

(a) fit for all the purposes for which goods of that kind are commonly supplied; and(b) acceptable in appearance and finish; and(c) free from defects; and(d) safe; and(e) durable,

as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defect of the goods), would regard as acceptable having regard to the nature and price of the goods, the packaging of, and any representation about, the goods by the supplier or manufacturer.

82. Section 54(3) of the ACL contains a list of factors that are to be considered in determining whether goods are of acceptable quality.

83. The guarantee as to acceptable quality does not arise if the supply occurs by way of sale of goods by auction (s54(1)(b) of the ACL). A “sale by auction” requires the auction to be conducted by an agent of the person, so it does not include online auction sales directly by the seller (e.g. Ebay).

84. The time at which the determination of whether or not goods are of acceptable quality is when the goods are supplied to the consumer. However, this does not mean that information about the goods not known at the time they were supplied is irrelevant. The determination of what it was objectively reasonable for the consumer to expect is to be made taking into account all relevant information available at the time of the trial (Medtel Pty Limited v Courtney [2003] FCAFC 151.

85. Where the supplier claims that the failure arose after the goods were supplied, the supplier bears the onus of proving that to be the case – Effem Foods Limited v Nicolls [2004] NSWCA 332.

86. If goods are not of acceptable quality, but either:

(a) the consumer was informed of the issue before agreeing to acquire the goods (s54(4) of the ACL); or

(b) the consumer examined the goods before accepting them and that examination ought reasonably have revealed the position (s54(7) of the ACL)

then the guarantee does not apply.

87. The guarantee will also not apply in relation to goods damaged by abnormal use (s54(6) of the ACL).

Further guarantees

88. There are further guarantees in relation to fitness for any disclosed purpose (s55 ACL), the supply of goods by description (s56 ACL), the supply of goods by sample or demonstration (s57 ACL), the taking of reasonable action to ensure that facilities for the repair of the goods, and parts for the goods, are reasonably available (s58 ACL), the rendering of services with due care and skill (s60 ACL), the supply of services for a particular purpose that are reasonably fit for that purpose (s61 ACL), and the supply of services within a reasonable time (s62 ACL).

Remedies available for failure to comply with consumer guarantees

89. Part 5-4 of the ACL sets out the remedies that are available when the consumer guarantees are not complied with. In general terms, consumers are entitled to have a supplier offer a refund, replacement or repair if the standards required by the guarantee are not met. These remedies are in addition to the other rights and remedies the consumer may have, including claims for consequential damages.

90. The remedies available to consumers depend on the severity of the failure to comply with a guarantee. The ACL classifies failures into those that are major and those that are not major. Sections 260 (in relation to goods) and 268 (in relation to services) define a “major failure” as occurring if:

(a) a reasonable consumer would not have acquired the goods or services if he or she knew about the nature and extent of the problem;

(b) in the case of goods:

(i) the goods depart significantly from their description or a sample or demonstration model that was used when selling the goods;

(ii) the goods cannot be remedied to make them fit for purpose within a reasonable time; or

(iii) the goods are not of acceptable quality because they are unsafe;

(c) in the case of services:

(i) the services (and any product resulting from the services):

a. are substantially unfit for a purpose for which services of the same kind are commonly supplied; or

b. are substantially unfit for a purpose for which services were acquired by the consumer that was made known to the supplier of the services; or

c. are not of such a nature, or quality, state or condition, that they might reasonably be expected to achieve a result desired by the consumer that was made known to the consumer,

and they cannot easily, and within a reasonable time, be remedied to make them fit for such a purpose or to achieve such a result; or

(ii) the supply of the services creates an unsafe situation.

Remedies when a failure is not major

91. If a failure is not major, the usual remedy will be for a consumer to require the supplier to address the problem within a reasonable time (s259(2); s267(2) of the ACL). What is “reasonable time” will depend in part on the nature of the goods. For example, a problem with essential goods such as hot water systems would be much shorter than discretionary goods such as a games console.

92. In the case of the supply of goods, if a consumer asks a supplier to provide a remedy, the supplier may choose between providing a refund, a replacement or a repair. If a failure relates to the title to goods, the supplier may remedy the failure by addressing the problem with the title (s261 of the ACL).

93. If a supplier fails to provide a remedy within a reasonable time, a consumer may:

(a) have the goods repaired or the failure remedied and have the supplier pay for the repair/remedy (including all reasonable costs incurred by the consumer);

(b) in the case of goods, reject the goods (as discussed below); or

(c) in the case of services, terminate the contract for services (s259(2)(b); s267(2) of the ACL).

Remedies when a failure is major

94. If a failure to comply with a guarantee is a major failure, a consumer may:

(a) in the case of goods, reject the goods by notice to the supplier and choose between a refund and replacement goods (s259(3)); or

(b) in the case of services, terminate the contract for the supply of services (s267(3)).

95. If a consumer rejects goods, he or she must return the goods to the supplier, unless the goods cannot be returned, removed or transported “without significant cost to the consumer”, in which case the supplier must collect the goods at their own expense and within a reasonable time. The supplier must then provide the remedy that the consumer has chosen. There is no provision in the ACL for the supplier to be compensated for any depreciation in value of the rejected goods.

96. If the consumer chooses a refund after rejecting the goods, the supplier is specifically precluded from providing replacement goods to satisfy the requirement for a refund (s263 of the ACL).

97. If a consumer terminates a contract for services, the consumer is entitled to recover a refund of any money paid or value or other consideration for the remaining unused services (s269 of the ACL).

Damages for consequential loss

98. If a consumer suffers losses as a result of a failure of a supplier to comply with guarantees, the consumer can recover those losses from the supplier. The losses that are recoverable are limited to those that are “reasonably foreseeable” to result from the failure (s259(4); s267(4)). This is a wider concept than normal losses under Hadley v Baxendale which applied to the breach of an implied contractual term under the TPA.

Actions against manufacturers for breaches of consumer guarantees

99. Section 271 of the ACL provides that a consumer may recover damages from manufacturers of goods in respect of consumer guarantee failures that relate to:

(a) acceptable quality;

(b) correspondence with description (if a description was applied by or on behalf of the manufacturer);

(c) availability of repairs and spare parts; and

(d) compliance with express warranties.

100. A manufacturer is not required to pay damages to a consumer if:

(a) an act, default or omission or representation made by some other person (not being an employee or agent of the manufacturer) resulted in goods to be of less than acceptable quality or not comply with their description;

(b) a failure to comply with the guarantee as to acceptable quality or compliance with description results from a cause independent of human control that occurs after the goods left the control of the manufacturer;

(c) in the case of a failure to comply with the acceptable quality guarantee, the price charged by the supplier is higher than the recommended retail price or the average retail price of the goods (i.e. resulting in a higher standard of quality applying);

(d) the consumer has required the manufacturer to provide a repair or replacement under an express warranty, unless the manufacturer has refused to provide a repair or replacement, or has failed to do so within a reasonable time.

Indemnification of supplier by manufacturer

101. If goods are not of acceptable quality, do not match a description applied by their manufacturer or are not fit for a purpose made known to their manufacturer, and a supplier provides a remedy in respect of those failures, the supplier can recover the costs incurred from the manufacturer. The indemnity also extends to consequential loss if the manufacturer would otherwise be liable if the action were brought by a consumer against the manufacturer under s271 and the supplier is similarly liable (s274).

102. The indemnity is not capable of being excluded or modified by contract, except to the same extent for non-domestic goods as permitted for suppliers (as set out above) (s276; s276A of the ACL).