Guarantees, goods and small businesses: What every supplier of goods should be aware of

Date: Nov 01, 2012
Document Type: Newsletter

It’s every small business owners’ worst nightmare when a product sold to a member of the public suffers from a ‘major failure’. All retailers want to stand behind their product and hope that their wares live up to what is guaranteed. However, there may be instances where a good suffers from a ‘major failure’, therefore, it is useful for small business owners to understand what exactly constitutes a ‘major failure’ under the provisions of the Australian Consumer Law (the ACL). 

A broad overview of the remedies available under the ACL

Before exploring the provisions relating to goods which have suffered from a major failure, a brief overview of how the ACL operates in a broad sense in relation to guarantees, along with the available remedies is a good starting off point.

Overall, the remedies which exist under the ACL can be split into four parts, all of which relates to either suppliers or manufacturers.

The remedies available are as follows:

  • remedies which relate to guarantees of suppliers of goods;
  • remedies which relate to guarantees against manufacturers of goods;
  • remedies which relate to guarantees against suppliers of services;
  • remedies which relate to guarantees against suppliers and credit providers.

So when discussion revolves around failure that is ‘major’, for the purposes of this piece, the remedies will relate to guarantees against suppliers of goods, and the provisions can be found in Part 5-4, Sub-division A in the ACL.

When does a good suffer from a ‘major failure’?

In the ACL, the right to rescind and reject any good relies on whether or not the failure is considered ‘major’. It should be noted, that there is no sliding scale of failure in regards to goods. So if the failure is not considered ‘major’, than there are no available remedies.

When determining what constitutes a major failure, we can look to s 260 of the ACL, which states that a major failure is if:

"(a) the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or

(b) the goods depart in one or significant respects:

   (i) if they were supplied by description – from that description;

   (ii) if they were supplied by reference to a sample or demonstration model from that sample or demonstration model; or

(c) the goods are substantially unfit for a purpose for which goods of the same kind are commonly supplied and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose;

(d) the goods are unfit for a disclosed purpose that was made known to:

   (i) the supplier of the goods;

   (ii) or a person by whom any prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made;

and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or

(e) the goods are not of acceptable quality because they are unsafe.”

Would a consumer buy a good if they were aware of the problem?

One of the elements of the s 260 alternative tests relates to s 260(a), regarding matters that a reasonable consumer would take into account. Assistance can be found from the ACL Guide on Consumer Guarantees which states:

“… a reasonable consumer would not have bought the goods if they had known about the problem. For example, no reasonable consumer would buy a washing machine if they knew the motor was going to burn out after three months.”

Goods which are substantially unfit for normal purposes

Section 260(c) of the ACL states, that if a remedy cannot be provided within a reasonable time period, and the failure of the guarantee is major, the goods may be seen to be substantially unfit for their normal purpose.

When deciding whether the failure is major, the following will be considered:

  • the nature and extent of the failure;
  • the compliance with the fitness for purpose;
  • whether a remedy can be provided within a reasonable time, and
  • the seriousness of the failure when assessed with the whole of the contract.

Goods which are unsafe

Goods which are unsafe will obviously be considered as a major failure under the ACL. When assessing the definition of ‘acceptable quality’ – which forms part of s 260(e), we can look to s 54(2) which defines ‘acceptable quality’ as:

  • fit for all the purposes for which goods of that kind are commonly supplied;
  • acceptable in appearance and in finish;
  • free from defects;
  • safe;
  • durable.

Probing deeper into s 260(e), for a good to be considered ‘safe’, is measured against what a reasonable consumer would regard as acceptable, and an assessment will be made in an objective, rather than subjective manner. However, there is no absolute requirement that a good is to be free from risk.

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