Minimum Standards for Retail Sales of Goods or Services

The Australian Consumer Law (ACL) contains consumer guarantees which are automatically incorporated into consumer contracts in addition to any other warranty a purchaser may have. These consumer guarantees are adaptations of what is found in the Sale of Goods Act 1896 (Tas) (SGA). If for one reason or another the ACL does not apply, then the same conditions and warranties will probably apply under the SGA. Important differences between the implied terms under the ACL and the SGA are:

  • the terms implied under the SGA apply to any goods purchases not just to consumer purchases;
  • the terms implied under the SGA can be excluded by express provision in the contract whereas this is not possible under the ACL (subject to one exception); and
  • the ACL covers services as well as goods.

The Sale of Goods Act is not covered here.

The first question to ask is: does a contract exist? Most transactions that consumers complete will amount to a contract, whether they are for a good (for example, a toaster) or a service (for example, dry-cleaning). If no contract exists no terms will be implied.

Second, only a party to the contract may rely on the implied terms for protection. Someone who receives something as a gift from the person who purchased the goods is usually not covered by the legislation. However, there is an important exception to this under the manufacturers' warranties provisions of the ACL which enables a consumer to sue a manufacturer directly (see Who is a consumer?).

The ACL implies these protections into contracts covered by the legislation. The ACL then provides very extensive remedy provisions which give the customer the right to replacement, repair or possibly rejection of the goods or services and recovery of the price.

In any consumer purchase it is very important to keep a record of the purchase. The sales docket is more important than the so-called 12-month warranty. The fact that a particular retailer supplied goods or services triggers the various protections under the ACL. It is therefore important to be able to prove where the goods or services were purchased.

The ACL provides that the supplier must provide proof of purchase where the price is $75 or more or, where the price is less than $75, must provide proof of purchase if requested to do so by the consumer (s100). Proof of purchase will usually be satisfied by:

  • a tax invoice;
  • a cash register receipt so long as it identifies the goods or services purchased;
  • a credit card or debit card statement;
  • a handwritten receipt;
  • a lay-by agreement;
  • a confirmation or receipt number provided for a telephone or internet transaction.

A consumer also has the right to demand an itemised bill for services (s101).

The 12-month warranty

It is important to note that these statutory, non-excludable guarantees override any ‘warranty’ provided by a retailer or manufacturer. The ubiquitous 12-month warranty provided with new goods gives the impression that a defect that appears more than 12 months after purchase cannot be the subject of a consumer’s complaint (it is ‘out of warranty’). This is not correct. The implied terms discussed below say nothing about the time that the terms last for. If, for example, a DVD player breaks down 15 months after purchase (assuming that it has been used normally), it is not fit for purpose or of merchantable quality. The consumer therefore has rights and the ‘12-month warranty’ is irrelevant. What is important in order to invoke the various protections provided by the ACL is to be able to prove who supplied the goods or services.

Some retailers will try to resist a consumer’s complaint about unsatisfactory goods by claiming that the consumer is out of warranty. The retailer should be told politely, but firmly, about the ACL. It is also misleading conduct for the retailer to use the 12-month warranty to resist a consumer complaint. The maximum penalty for this is $1.1 million (s151(1)(m)). The ACCC has responsibility to prosecute this kind of behaviour.

Extended Warranties

Extended warranties usually involve the customer being persuaded to purchase a longer warranty. These should be treated with caution because they may only provide the same protection as is already provided under the legislation. Further, they are usually outsourced, that is, the retailer does not take responsibility for the extended warranty and the customer finds he or she is dealing with a completely different company. The extended warranty terms should be examined closely. The fine print may provide the company with excuses not to meet any claim under the extended warranty.

The ACL section 29(1)(n) provides that a supplier of goods or services must not make a false or misleading representation concerning a requirement to pay for a contractual right that is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy, including the consumer guarantees discussed here. This section is clearly aimed at extended warranties.

The ACL provides for the possibility of regulations being passed to prescribe the requirements for warranties against defects (that is, 12-month or extended warranties) (s102). If and when such regulations are passed, suppliers must comply with them (s103).

What Sorts of Contracts do the ACL Consumer Guarantees Apply to?

The ACL applies to contracts for the sale of goods (including a lease of goods) or for the supply of services by a supplier in the course of its business to a consumer. In short, this legislation applies to all retail consumer purchases. It also covers some business purchases.

What are the limitations of the ACL?

The ACL guarantees do not apply to the supply of gas, electricity and telecommunications services (s65(1)(b)).

The most important guarantees from the consumer’s perspective (acceptable quality and fitness for purpose) do not apply to auction sales.

What suppliers are bound?

The ACL applies to ‘persons’ which includes companies and unincorporated sole traders. The supply must be ‘in trade or commerce’ and so private sales are not covered.

Governments are bound by the ACL only in so far as they carry on a business. If a government body is selling either goods or services then it is almost certainly carrying on a business and so would be bound by the consumer guarantees.

Who is a consumer?

The ACL section 3 defines a consumer of goods or services as:

  • a person who purchases goods or services costing less than $40,000; or
  • in the case of goods or services costing more than $40,000, a person who purchases goods or services which are of a kind ordinarily acquired for personal, domestic or household use or consumption (for example, a car, a painting, a kit home; but not factory machinery, or elaborate electronic equipment for a business); or
  • a purchaser of a commercial road vehicle
  • so long as the person did not acquire goods, or hold himself or herself out as acquiring goods, for the purpose of re-supply or for the purpose of using them up or transforming them, in trade or commerce, in the course of a process of production or manufacture or of repairing or treating other goods or fixtures on land.

A commercial road vehicle means a vehicle or trailer acquired for use principally in the transport of goods on public roads.

The effect of this is that anyone or any business who acquires goods or services costing less than $40,000 will be a consumer provided that they did not acquire them for the purpose of reselling them (for example, a milk bar owner purchasing stock) or using them up in production or manufacture or repair (for example, a shoemaker purchasing leather for shoes). This means that business transactions under $40,000 are covered, for example, the purchase by a business of a computer for $25,000. If the price is less than $40,000 the goods or services do not have to be used for personal, domestic or household use of consumption to be covered by this legislation.

Although not free from doubt, the $40,000 limit applies to each item. If a business bought 5 computers for a total of $125,000 but each computer cost $25,000, then this would be a consumer purchase.

Section 3 deals with circumstances where goods or services are bought as part of a mixed supply (that is, along with other goods or services) and the particular price is not stated for the individual item in which case a deemed price is attributed to the item.

If the goods or services cost more than $40,000, then they must be of a kind that are bought for personal, domestic or household use or consumption for the implied guarantees to apply. A person who bought a large industrial lathe for personal use probably would not come within the definition of ‘consumer’ because the goods were not of a kind ordinarily acquired for personal, domestic or household use or consumption. On the other hand, a business that purchased very expensive furniture (over $40,000) probably would be protected.

The consumer includes a person who received goods as a gift from the purchaser of the goods (s266). This means that the remedies can be used by the gift recipient against the retailer.

Can the protection afforded by the ACL be excluded?

The protection provided by the ACL is dependent upon whether the sale is of:

  • goods or services ordinarily acquired for personal, domestic or household use; or
  • goods or services ordinarily acquired for other purposes (usually this will be in the course of business).

In the first situation, where the ACL implies terms into a contract, any term of the contract which attempts to exclude, restrict or modify the protections offered by the ACL is void and of no effect (s64). This covers nearly all situations where the consumer is a person buying goods for personal use.

Remember that the definition of ‘consumer’ includes goods or services which may be used for business purposes so long as the price is $40,000 or below. It is legitimate in a business sale of goods or services covered by the ACL for the seller to limit its liability to the cost of replacement or repair of goods or the re-supply of services (s64A). This must be done by express provision in the contract. Further, it must be fair and reasonable in the circumstances of the case for the supplier to rely on the express provision. The onus is on the purchaser to establish that it is not fair and reasonable. Some guidance on the factors to take into account in determining whether reliance on the limitation of liability clause is reasonable are set out in section 64A(4).

Under section 139A of the Competition and Consumer Act 2010 (Cth) it is possible for recreational service providers to exclude liability for death or personal injury except where death or injury was caused by reckless conduct. This section was added as an ill-considered response to the so-called ‘insurance crisis’. Recreational services means a sporting activity or a similar leisure-time pursuit; or any other activity that involves a significant degree of physical exertion or physical risk which is undertaken for the purposes of recreation, enjoyment or leisure.

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