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National consumer law reforms introduced into Commonwealth Parliament: New statutory consumer guarantee scheme for goods

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As discussed in a recent newsletter, Australian consumer laws took a step closer to national uniformity when the Commonwealth Parliament passed the Trade Practices Amendment (Australian Consumer Law) Bill 2009 (Cth).  This week’s newsletter focuses on the new national statutory consumer guarantee scheme that may apply to consumer goods from 1 January 2011 (Statutory Goods Scheme).  The proposed Statutory Goods Scheme is contained in the Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010 (ACL Bill), which was recently introduced into the Commonwealth Parliament.  Suppliers should note that the ACL Bill, if passed, will replace the existing Commonwealth, State and Territory legislation concerning implied conditions and warranties in consumer contracts for goods.  Importantly, the ACL Bill provides that the new consumer guarantees cannot be excluded by contract.  Suppliers should be aware that the ACL Bill contains a number of remedies that are available to consumers when the consumer guarantees are not complied with.

Guarantees relating to the supply of goods

The ACL Bill contains a basic set of protections for consumers who acquire goods from Australian suppliers, importers or manufacturers.

In summary, the ACL Bill provides consumers with a statutory basis for seeking remedies when:

  • goods are not of acceptable quality
  • goods are not fit for a purpose that the consumer made known to the supplier or manufacturer
  • goods are not fit for a purpose that the supplier told the consumer they will meet
  • goods do not match their description
  • goods sold by reference to a sample or demonstration model do not correspond to the sample or demonstration model
  • the consumer does not acquire proper title to the goods
  • other people claim to have a right to the goods, eg under a charge or a security agreement
  • spare parts and facilities for repair of the goods are not available for a reasonable period; or
  • a person does not comply with an express warranty in relation to the goods.

When do the guarantees relating to goods apply?

In brief, for the purposes of the ACL Bill, a person is taken to have acquired goods as a consumer if, and only if:

  • 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 roads.

The current draft of the ACL Bill provides that the consumer guarantees relating to goods will apply if goods are supplied in trade or commerce.  Accordingly, they have broad application in Australia.  However, the ACL Bill does provide that, with the exception of the guarantees as to title, undisturbed possession and undisclosed securities, the consumer guarantees relating to goods will not apply to sales by individuals outside the business context.  The ACL Bill also provides that they will not apply to sales made by traditional auction where an auctioneer acts as an agent for a person to sell the goods.  However, it is important to note that the consumer guarantees relating to goods will apply to sales made by businesses on the internet by way of online auction websites, when the website operator does not act as an agent for the seller.

We briefly discuss below two of the proposed new consumer guarantees relating to goods, namely the guarantee as to:

  • acceptable quality; and
  • title.

Guarantee as to acceptable quality

The ACL Bill provides that a good is of acceptable quality if it is:  fit for all the purposes for which goods of that kind are commonly supplied; acceptable in appearance and finish; free from defects; safe; and durable.  Importantly, the proposed definition will be subject to a “reasonable consumer test”, ie a good will be considered to meet those requirements if a reasonable consumer, fully acquainted with the state and condition of the good (including any hidden defects), would regard the good as acceptable having regard to:  the nature of the good; if relevant, the price of the good; any statements made about the good on any packaging or label on the good; any representation made about the good by the supplier or manufacturer; and any other relevant circumstances relating to the supply of the good.

The ACL Bill does contain some exemptions from the guarantee as to acceptable quality.  For example, a good is taken to be of acceptable quality in circumstances where:

  • even though the good itself is not of acceptable quality, the consumer’s attention was nonetheless drawn to that fact before acquiring the good.  Accordingly, the practice of selling goods as “seconds” will not fall foul of the ACL Bill provided the defects are brought to the attention of the consumer before a sale; and
  • the consumer acquiring the good examines it before a sale, and the examination ought reasonably to have revealed that the good was not of acceptable quality.  Transactions that are likely to fall within this exemption include the sale of a second-hand good, and the sale of an antique.  It is important to note that the actual amount of effort that a consumer should expend in undertaking an examination will depend on the nature of the good.

Guarantee as to title

The ACL Bill provides that if a person supplies goods to a consumer, there is a guarantee that the supplier will have the right to dispose of the property in the goods when that property passes to the consumer.

The purpose of the guarantee is to ensure that consumers are not disadvantaged by claims that might be made against goods when the seller has no right to sell the goods, eg if a third party seeks to repossess the goods subsequent to the sale.

However, the consumer guarantee as to title will not apply to a “supply of limited title”.  That is, a supply where it is the supplier’s intention that the sale of goods will only result in the transfer of such title as the supplier, or another person, may have:

  • as appearing from the contract for the supply; or
  • as inferred from the circumstances of the contract.

For example, a supply of limited title would occur when a supplier informs a prospective purchaser of a good that the supplier does not know whether there are any claims over the good and that, in the event of a sale, the supplier will transfer only the title that the supplier has in the good.

Finally, the ACL Bill provides that the consumer guarantee as to title will not apply to a hire or lease of goods.

Updating of contracts and procurement policies

The intervening period between now and the proposed commencement date of the ACL Bill will provide a window in which a business can review its contracts and procurement practices to ensure compliance by 1 January 2011.   If you require assistance, please contact a member of our Corporate Advisory team.

Authors: Paul Dawson & Susie Reece Jones