Introduction
Recall of consumer goods
Reporting obligations
Consumer guarantees that apply to goods
Remedies relating to consumer guarantees
Overlap between guarantees
Recommendations
The Australian Consumer Law, which is contained in the Competition and Consumer Act 2010 (Cth), provides for a wide range of consumer protections. The law contains provisions relating to the safety of consumer goods (and product-related services) and the liability of suppliers and manufacturers for goods containing safety defects. It also introduces a new system of statutory consumer guarantees.
However, certain action taken by suppliers - including recalling consumer goods and providing notice to the relevant commonwealth minister in order to comply with the law's new mandatory reporting requirements - may inadvertently trigger the consumer guarantee provisions.
For suppliers, compliance with the consumer guarantee provisions alongside the recall provisions and the mandatory reporting requirements will likely prove challenging and will require them to take particular care when identifying a defect, or potential defect, in goods. The simultaneous operation of the different provisions may also create confusion in the law.
Provisions relating to compulsory and voluntary recalls of consumer goods are set out in Part 3(3) of the law, which covers safety of consumer goods and product-related services. Recalls may be voluntarily conducted by suppliers or may be mandated by the relevant minister in circumstances where it appears that consumer goods will or may cause injury to any person (or that a reasonably foreseeable use, including a misuse, of the consumer goods will or may cause injury to any person).(1) 'Consumer goods' are defined as:
"goods that are intended to be used, or are of a kind likely to be used, for personal, domestic or household use or consumption, and includes any such goods that have become fixtures since the time they were supplied if: (a) a recall notice for the goods has been issued; or (b) a person has voluntarily taken action to recall the goods."(2)
During a compulsory recall, the minister may inform the public that the supplier undertakes to do whichever of the following the supplier of the recalled goods thinks is 'appropriate' (although the law gives no definition of what is appropriate):
- repair the goods;
- replace the goods; or
- provide the consumer with a refund.(3)
If a supplier chooses to repair recalled consumer goods, the supplier must repair the goods so that any identified defect is remedied.(4) However, if a supplier chooses to provide a replacement, the supplier must replace the goods with similar goods that do not contain the defect or dangerous characteristic that was identified in the recalled goods.(5) A supplier is also expected to pay for costs associated with repairing or replacing recalled consumer goods (including transportation costs).(6) The minister may reduce the amount of the refund if more than 12 months have elapsed since a person acquired the consumer good from the supplier, in order to take into account the use to which the goods were put prior to their recall.(7)
The law does not prescribe the remedy that a supplier must provide to a consumer during a voluntary recall. However, it is common practice in Australia for suppliers to repair recalled consumer goods rather than replace them or provide a refund, as this is often the cheapest option.
Suppliers are required under the law to give the minister notice within two days of becoming aware of the death, serious injury or serious illness of any person, where they:
- consider that the death, injury or illness was caused, or may have been caused, by the use or foreseeable misuse of the consumer goods; or
- become aware that a person other than the supplier considers that the death, injury or illness was caused, or may have been caused, by the use or foreseeable misuse of the consumer goods.(8)
According to the law, 'serious injury or illness' is defined as an acute physical injury or illness that requires medical or surgical treatment by, or under the supervision of, a medical practitioner or a nurse (whether or not in a hospital, clinic or similar place).(9) The Australian Competition and Consumer Commission considers that a serious injury or illness includes an external physical injury, an internal injury, an acute illness (eg, poisoning) and choking on food packaging.(10)
Section 132A of the law requires that notices be treated as confidential unless the reporting supplier consents. However, confidentiality of notices is not guaranteed.(11)
Consumer guarantees that apply to goods
The consumer guarantee provisions are contained in Part 3(2) of the law, under which companies are required to ensure that they "give consumers clearer and more effective laws regarding their rights when buying goods".(12) Goods (rather than consumer goods) are covered by the consumer guarantees provided that they are purchased on or after January 1 2011, sold in trade or commerce and bought by a consumer. 'Goods' are defined as:
"(a) ships, aircraft and other vehicles;
(b) animals, including fish;
(c) minerals, trees and crops, whether on, under or attached to land or not;
(d) gas and electricity;
(e) computer software;
(f) second-hand goods;
(g) any component part of, or accessory to, goods."(13)
Under the law, a person is considered to have acquired particular goods as a consumer if:(14)
- the amount paid or payable for the goods does not exceed A$40,000;
- 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 used principally to transport goods.
Consumer guarantees relating to the supply of goods generally include guarantees related to:
- title;
- undisturbed possession;
- undisclosed securities;
- fitness for any disclosed purpose;
- the supply of goods by description;
- the supply of goods by sample or demonstration model;
- repairs and spare parts;
- express warranties; and
- acceptable quality.(15)
Guarantee as to acceptable quality
Suppliers guarantee that goods are of acceptable quality when sold to consumers. Goods are of 'acceptable quality' if they are:(16)
- fit for all purposes for which goods of that type are commonly supplied;
- acceptable in appearance and finish;
- free from defects;
- safe; and
- durable.
The definition of 'acceptable quality' is subject to the reasonable consumer test. Goods are considered to meet those standards if a reasonable consumer that is fully acquainted with the state and condition of the goods (including any hidden defects) would consider them as acceptable, with regard to:
- the nature of the goods;
- the price of the goods;
- any statements made about the goods on any packaging or label on the goods;
- any representation made about the goods by the supplier or manufacturer of the goods; and
- any other relevant circumstances relating to the supply of the goods.(17)
Remedies relating to consumer guarantees
In stark contrast to the recall provisions, it is the consumer, not the supplier, who nominates whether goods that do not meet the standards required by the consumer guarantees should be repaired, replaced or refunded by suppliers. The applicable remedy depends on which consumer guarantee has not been complied with, as well as the severity of the failure to comply with a guarantee.
Major failure to comply with a consumer guarantee
Section 260 of the law specifies when failure to comply with a consumer guarantee constitutes a major failure. It includes goods that are unsafe.(18) The terms 'unsafe' or 'safe' are not defined by the law. However, the law prescribes that goods have a 'safety defect' if their safety is not such as persons generally are entitled to expect.(19)
Where failure to comply with a consumer guarantee is a major failure (or cannot be remedied), the consumer, rather than the supplier, can choose a remedy after he or she rejects the goods.(20) If the consumer chooses to receive a replacement, the supplier must replace the rejected goods with goods of the same type and of similar value (if such goods are reasonably available to the supplier).(21) If instead the consumer chooses to receive a refund, the supplier must provide the consumer with any money paid by the consumer for the goods and an amount that is equal to the value of any other consideration provided by the consumer for the goods.(22) Alternatively, a consumer may keep the good and seek to recover compensation for any reduction in the value of the goods below the price he or she paid for them.(23)
Non-major failures can be remedied
Due to the fact that non-major failures can be remedied, the law provides that a supplier can choose to repair or replace goods (with goods of an identical type) or provide a refund.(24)
However, the supplier's right to elect to replace, repair or refund reverts back to the consumer if the supplier does not repair the goods, provide a refund or replace it with goods of the same type and of similar value (if such goods are reasonably available to the supplier).(25) The consumer can also choose the remedy if the supplier fails to repair or replace the good, or provide a refund, within a reasonable time.(26) What constitutes 'reasonable time' will vary according to the circumstance. The Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (2/2010) provides that in some circumstances it may be appropriate for the consumer to purchase a replacement and have the supplier pay for the replacement. A supplier may also be required to cover costs associated with the consumer having the goods remedied elsewhere, including transpiration costs and costs of having an alternative repairer inspect the goods.(27)
Right to recover damages
In addition, the law contains provisions enabling a consumer to seek compensation for any loss or damage he or she has suffered due to the supplier having failed to comply with a consumer guarantee, regardless of the severity of the failure.(28) The right to recover damages is subject to the reasonably foreseeable test - that is, it must have been reasonably foreseeable that the consumer would suffer loss or damage as a result of the supplier's failure to comply with a consumer guarantee.(29)
A supplier may unintentionally and inadvertently trigger the consumer guarantee provisions when recalling consumer goods, especially if the recalled goods are described as containing a safety defect that will or may cause injury to consumers. The consumer guarantee provisions may therefore apply in addition to the recall provisions. If this is the case, a supplier's ability to choose the remedy to provide to a consumer may be removed or at least challenged.
For example, a supplier decides to recall voluntarily a car it sold for A$100,000 to a consumer because it contains a potential safety defect. The supplier can choose the remedy it will provide to the consumer if only the recall provisions were to apply (and will most likely choose to repair the defect). However, if the consumer guarantee provisions also apply, the supplier's choice to repair the car may be overridden by the consumer's choice to receive a replacement or a refund.(30) Under the law, the supplier must refund A$100,000 to the consumer if the consumer chooses to receive a refund. Additionally, the consumer may seek to recover damages from the supplier.
Suppliers should take particular care when identifying the reason why a consumer good is being recalled. A supplier should not admit that its good is unsafe when this is not necessarily the case, as it may unintentionally be admitting that the good is not of acceptable quality. Such an admission may inadvertently trigger the consumer guarantee provisions, thereby removing (or at least challenging) the supplier's ability to choose the remedy it will provide to the consumer.
A supplier should also avoid making admissions of fact in notices that it provides to the minister in order to comply with the new reporting requirements in the law. There is no statutory reason why a notice's contents could not be taken as an admission of fact. Suppliers therefore should avoid prematurely describing consumer goods as 'unsafe'.
For further information on this topic please contact Moira Saville or Mandi Jacobson at Mallesons Stephen Jaques by telephone (+61 2 9296 2000), fax (+61 2 9296 3999) or email ([email protected] or [email protected]).
Endnotes
(1) Competition and Consumer Act 2010 (Cth), Sections 122(1) and 128(1).
(4) Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (2) 2010, p 261.
(7) Competition and Consumer Act 2010 (Cth), Section 123(4)(b).
(9) Id, Section 2. A 'serious illness or injury' does not include:
"(a) an ailment, disorder, defect or morbid condition (whether of sudden onset or gradual development); or (b) the recurrence, or aggravation, of such an ailment, disorder, defect or morbid condition."
(10) Australian Competition and Consumer Commission, "A guide to the mandatory reporting law in relation to consumer goods", December 2010, pp 6 and 9.
(11) Competition and Consumer Act 2010 (Cth), Section 132A(2).
(12) Trade Practices Amendment (Australian Consumer Law) Bill (2) 2010, Second Reading Speech, delivered by Senator Joe Ludwig on June 24 2010, p 4284.
(13) Competition and Consumer Act 2010 (Cth), Section 2.
(14) Id, Sections 3(1) and (2).
(17) Id, Section 54(3). However, the law makes clear that the guarantee of acceptable quality is not intended to impose a requirement that goods sold to consumers are indestructible; see Sections 54(6)(a) and (b).
(22) Id, Section 263(4)(a). A supplier is specifically precluded from providing replacement goods to satisfy the requirement for a refund; see Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (2) 2010, p 200.
(24) Id, Section 259(2). See the Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (2) 2010, p 199.
(25) Id, Sections 259(2)(b) and 263(4).
(27) Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (2) 2010, p 199.
(28) Id, Sections 259(4) and (6).
(30) A supplier can limit its liability to either repairing a good or replacing it with an equivalent good if the consumer purchased the good for up to A$40,000. However, a supplier cannot limit its liability in relation to goods that are of a type ordinarily acquired for personal, domestic or household use or consumption; see Competition and Consumer Act 2010 (Cth), Section 64A(1).