The relevant provisions of the Consumer Guarantees Act 1993 (NZ) (CGA) and the Australian Consumer Law (ACL) are substantially identical. The “acceptable quality” provisions found in CGA provide:

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The similarities between the CGA and ACL provisions make it reasonable to assume that Australian courts may draw guidance from New Zealand authorities when interpreting and applying the ACL provisions.  

“Acceptable quality”

This guarantee is not one of “absolute perfection”. It is comprised of five main elements and is subject to a “reasonable consumer test”.

The New Zealand cases

The principle authority on the concept of “acceptable quality” is Nesbit v Porter. In that case, the Nesbits purchased a fourwheel drive from a car dealer, of which Mr Porter was the director. Five months after purchase, the Nesbits were advised of certain defects in the vehicle. They approached the dealer and sought either to return the vehicle or to be refunded the cost of repairing the defects. When the dealer refused to do so, the Nesbits approached the Motor Vehicle Disputes Tribunal. In the Court of Appeal, Justice Blanchard referred to the “significant difference” between “merchantable quality” and “acceptable quality”:  

“Goods are of merchantable quality if of use for any purpose for which goods which complied with the description under which they were sold would normally be used; if for any such purpose they are regarded as saleable under that description under which they were sold would normally be used; if fit for any such purpose they are regarded as saleable under that description… In contrast... Goods are of acceptable quality only if fit for all purposes for which goods of the type in question are commonly used and they meet the other standards referred to in s 7(1), including being free of minor defects, with all of these matters being tested against the opinion of a reasonable and fully-acquainted consumer having regard to the matters in paras (f) to (j) of that subsection.”

The above extract illustrates that the difference between “merchantable” and “acceptable” quality is not simply a difference in semantics. The distinction is a pivotal one, namely the requirement that goods be fit “for all purposes”, the first of the five elements that make up “acceptable quality”. Goods may be of “merchantable quality” yet still fall short of being of “acceptable quality”.  

An understanding of the four remaining elements that constitute “acceptable quality” can be garnered from various other decisions such as Norton v Hervey Motors Ltd. In that case, it was recognised that “reasonable consumer must be taken to expect that there may well be some matters which will require remedy” with regard to acceptability in appearance and finish unless they are prepared to pay “very large sums”, for example, very “complicated and complex machinery” like vehicles. This decision also confirmed that the “existence of a minor defect does not necessarily mean the goods” are not of “acceptable quality”  

In Contact Energy Ltd v Jones, it was held that “safe” does not mean “absolutely free from risk” as the “reasonable consumer test” may reveal that an “element of risk” is “acceptable”. Further, New Zealand cases have shown that durability is a “context and product specific concept” that is “linked closely to what is a reasonable time for the product to remain durable.”  

“Failure of a substantial character/ major failure”

The ACL equivalent of New Zealand’s “failure of a substantial character” is a “major failure”. Once a breach of the guarantee of “acceptable quality” has been established, whether the breach constitutes a “major failure” or a failure of a “substantial character” is crucial in determining what remedy is available to the consumer.  

The New Zealand cases

The decision in Stephens v Chevron Motor Court Ltd is oft-cited in respect of the concept of failure of a “substantial character”. In that case, the appellant had purchased a 1983 Mitsubishi Pajero from the respondent and within a matter of days of purchase, the vehicle was found to be out of oil, and without break or clutch fluid. The respondent rectified the defects but shortly afterwards, the vehicle started to “blow smoke”. Despite rectification of these defects, problems continued to occur until the appellant refused to uplift the vehicle and ceased paying hire purchase instalments. Importantly, Justice Macdonald observed, “whether....[a] fault....[is] one of a “substantial character is a matter of degree in any given case.” This statement is frequently cited in cases considering whether a failure is of a “substantial character”. The concept of “degree” is illustrated in the example:

“On a monetary level being required to spend say $1000 on repairs in respect of a vehicle purchased for $5000 might indicate a failure of a ‘substantial character’ but that would not necessarily hold true for the same repairs on a vehicle of significantly greater value.”

Case study – Vehicles

Decisions of the New Zealand Motor Vehicle Disputes Tribunal provide practical and relevant insight into what has, or has not, constituted breaches of the guarantee of “acceptable quality” and failures of a “substantial character” in the New Zealand context.

For example, in Reference No. MVD 211/09 the purchaser bought a new car from a trader. Within six years of purchase and 34,134 kms, the vehicle’s transmission started to malfunction. The Tribunal referred to Stephens v Chevron Motor Court Ltd and found that not only was the vehicle not of “acceptable quality” because its transmission was not durable, but also that this failure was one of “substantial character”, as without a working transmission the vehicle was useless and a reasonable consumer aware of the problem would not have acquired the vehicle. The purchaser was entitled to either reject the goods or obtain damages in compensation for any reduction in value of the goods below the price paid by the consumer for the goods from the trader. The purchaser chose the latter.

In contrast, in Reference No. MVD 224/08, although several durability problems rendered the second-hand vehicle not of “acceptable quality”, the Tribunal was not satisfied that this breach constituted a failure of a “substantial character” because the failure could be remedied for approximately $800.00.

Conclusion

The above decisions provide an indication of how the concepts of “acceptable quality” and failure of a “substantial character” have been interpreted by the New Zealand Courts. Whether Australian Courts will be guided by these New Zealand decisions when interpreting the ACL, and if so, to what extent, will be revealed in due course.