Kiwi companies often assume that they can take the same approach to business in Australia as they do in New Zealand – but they shouldn't.

There are significant differences in the regulatory environments in New Zealand and across the Tasman that can trip up Kiwi businesses. Before trading in Australia, New Zealand companies need to understand the Australian legal environment. This includes requirements around implied guarantees, warranties against defects, and standard-form consumer contracts.

Mandatory consumer guarantees

The Australian Consumer Law (ACL) in Schedule 2 of the Australian Competition and Consumer Act 2010 provides for mandatory guarantees when goods or services are supplied to a 'consumer'. The guarantees themselves are very similar to those in the New Zealand Consumer Guarantees Act 1993 (CGA). They include guarantees that the:

  • supplier has the right to sell goods
  • goods are of acceptable quality and match samples or descriptions
  • goods and services are fit for purpose
  • services are provided with due care and skill, and within a reasonable time.

The ACL guarantees apply much more generally than equivalent New Zealand laws. For example, because of the broad definition of a 'consumer', the guarantees extend to some transactions between businesses. Generally speaking, the Australian consumer guarantees apply to anyone who acquires goods or services up to the value of A$40,000. But they also apply to goods or services over A$40,000 if they were acquired for personal, domestic or household use/consumption.

Unlike New Zealand's CGA, the ACL does not allow suppliers to contractually exclude the operation of the consumer guarantees in transactions where goods or services are acquired for the purpose of a business. There are, however, more limited exclusions - the definition of a consumer excludes anyone acquiring goods either for the purpose of re-supply or to use or transform the goods in the course of production, manufacture, repair or treatment.

Any contract term that claims to exclude, restrict or modify the ACL consumer guarantees, or the supplier's liability under the guarantees, is void and it is an offence under the ACL to falsely represent that a guarantee is excluded. In a recent case, the Federal Court found that Hewlett-Packard Australia Pty Ltd had made false and misleading representations to consumers regarding a limitation on the period in which warranty issues could be claimed and the remedies available for a breach of warranty.  As a result, the Federal Court ordered Hewlett-Packard to pay a A$3 million civil pecuniary penalty, as well as making orders for corrective advertising, consumer redress, implementing a compliance program and contributing to costs.1

Where goods or services are not of a kind ordinarily acquired for personal, domestic or household use or consumption, suppliers are permitted to limit their liability provided that it is fair and reasonable to do so. In the case of non-domestic goods, suppliers can limit liability to replacement, repair or the cost of replacement or repair. In the case of non-domestic services, they can limit liability to the re-performance of the services or the cost of re-performing the services.

It's important to take advantage of these limitations by including the appropriate clauses in supply terms.

ACL requirements for warranties against defects

In Australia, from 1 January 2012, the Competition and Consumer Regulations 2010 (regulations) require suppliers to provide detailed information when offering any warranty against defects. A 'warranty against defects' is a representation communicated to a consumer, at or about the time of supply of goods/services, that the warrantor will repair or replace goods, re-provide or rectify services or recompense the consumer if the goods/services are defective. This also includes 'any document by which such a representation is evidenced'.

Under section 102 of the ACL, anyone supplying goods or services must not give consumers 'a document that evidences a warranty against defects' that doesn't comply with the prescribed regulations. They also must not represent directly to the consumer that such a warranty against defects relates to particular goods or services.

Suppliers have been obliged to examine all materials and messages they provide with goods or services because under the ACL a very broad range of 'documents' is required to include the detailed information. These documents may include any packaging, brochure, manual, invoice or other materials that refer to the supplier being prepared to repair, replace, exchange, remedy or refund defects in the relevant goods or services. Guidance from the Australian Competition and Consumer Commission provides that ACL Regulators will consider that the warranty against defect requirement has been met if the necessary information and text are included with or attached to a product, even where packaging alone may not meet those requirements.

The regulations require that documents evidencing warranties against defects must include certain information: the details of the person giving the warranty, the process of claiming under the warranty, who will bear expenses in claiming the warranty, the fact that the warranty applies in addition to other rights and remedies of the consumer at law, and certain prescribed text.

Australian suppliers have encountered problems with the prescribed text, which can be misleading and can impose additional liability on suppliers. The mandatory text refers only to goods but is also required to be applied to warranties against defects in services. What's more, the text informs consumers that they are entitled to compensation for reasonably foreseeable loss or damage. This may be inconsistent with the supplier's rights to limit their liability to repair, replacement, resupply or refund of any non-personal goods or services (see above). In order to avoid these issues, some suppliers have stopped offering additional warranties against defects.

Unfair contract terms

Under the ACL, unfair terms in standard form consumer contracts are void and cannot be enforced. Unlike the broad consumer guarantee regime, the unfair contract term provisions apply only to contracts for the sale of goods, services or an interest in land for personal, domestic or household use or consumption. The contract must also be a 'standard form' contract, and this is likely to apply to contracts prepared by the supplier without any negotiation with the consumer. Contracts, such as company constitutions, or those for marine salvage or the carriage of goods by ship, are excluded.

A term will be 'unfair' if it:

  • would cause a significant imbalance between the parties' rights and obligations under the contract
  • is not reasonably necessary in order to protect the legitimate interests of the party advantaged by the term
  • would cause financial or other detriment to a party if relied on.

Terms that set the upfront price, define the subject matter of the contract, or that are expressly permitted by law, are not affected by the unfair contract terms regime.

The ACL gives several examples of terms that 'may be unfair'. Among these, if a term prohibits or penalises the consumer (but not the supplier) from doing something, such as terminating or varying the contract, it may be unfair. Another example is terms that allow only the supplier (but not the consumer) to do something, such as limiting liability under the contract.

In complying with the ACL's unfair contract terms regime, a company must be prepared to prove that a potentially unfair term is reasonably necessary to protect its interests, in order to overcome the statutory presumption in the ACL. Companies with standard form consumer contracts in Australia must also ensure that such contracts are readily available to consumers, and that they are clearly expressed and in plain language. These are factors that may be taken into account by a court in determining whether a term is unfair.

When planning to trade in Australia, it's important for New Zealand businesses to take into account and understand the requirements of the ACL - especially given that our consumer laws are currently under reform and are likely to become closer to those in Australia. The New Zealand Consumer Law Reform Bill includes a similar unfair contract terms regime and proposes to require companies selling extended warranties to provide additional information to consumers.