Why business owners must supply goods of acceptable quality and fit for a disclosed purpose

Date: Dec 01, 2011
Document Type: Newsletter

Small businesses should be aware, that with the introduction of the Australian Consumer Law (the ACL) affords the public a broader range of protections, as well as requiring both corporations and “persons” to provide goods and services which are of a requisite standard. The ACL has replaced the Trade Practices Act 1974 (the TPA),and although the new Act mirrors many of the provisions under the TPA, the ACL has also included implied conditions of quality and fitness in relation to consumer transactions and now enjoy statutory guarantees under the ACL. However, the most notable change with the introduction of the ACL, is the universal application of a single consumer legislative regime. 

What are goods of acceptable quality?

The statutory provisos to the guarantee of acceptable quality, are split into three provisions under the ACL and are as follows:
  • defects which are specifically drawn to the attention of the consumer;
  • abnormal use of a good; and
  • examination of goods.

Defects specifically drawn to the attention of the consumer: s 54(4) of the ACL, provides suppliers some protections if they make full disclosures to the risk of defects of goods which are supplied. Businesses should provide consumers with sufficient information so they are able to make an informed decision on whether they should agree to the supply of the goods, while being able to evaluate the precautions that need to be taken to avoid the risk of damage.

Generally speaking, goods with defects are usually labelled as ‘seconds’ and are sold at a lower price. However, labelling a defective good as ‘seconds’ may not be enough, and businesses may further inform consumers directly of the defect, or alternatively, provide a written notice which is displayed with the goods using legible, plain language, as well as being clearly presented. If a consumer is fully informed of the defect before the sale of the good and agrees to its supply, they will generally not be able to seek a remedy if the defect later becomes a problem.

Abnormal use of a good: s 54(6) provides that the guarantee of acceptable quality does not extend to abnormal use. The example used in the Second Explanatory Memorandum (the Memorandum) is “…where a mobile telephone is dropped into a bathtub full of water or a television is broken by an object hitting the screen” are just two examples of abnormal use of a good.

Examination of goods: s 54(7) of the ACL, relates to the examination of goods prior to supply. The section provides that goods will not fail to be of acceptable quality if:

  • the consumer acquiring the goods examines them before they agree to its supply; and
  • the examination ought reasonably to have revealed that the goods were not of acceptable quality.

However, if the goods are new, very limited or no examination would be expected.

What are goods that are fit for disclosed purposes?

If a person supplies goods to a consumer, the guarantees imposed in s 55(1) requires that the goods supplied are ‘reasonably fit’ for purpose, rather than the goods must be absolutely fit. However, looking to the Memorandum, the s 55 guarantees will ordinarily require a higher standard of quality when compared to the guarantee of acceptable quality. To illustrate the higher threshold of supplying goods which are ‘reasonably fit’ for purpose, the following example was provided by the Memorandum:

“A lawnmower that is sold to a consumer who does not mention the purpose for which it is to be used might be expected to mow the lawn of an ordinary suburban house once per week for several years without any significant problems to satisfy the guarantee of acceptable quality. If a consumer indicates to a supplier that he or she wants a lawnmower to mow a 4 hectare block of land each week, the standard that the lawnmower would need to meet to be fit for that disclosed purpose would be higher than that required by the guarantee of acceptable quality for a domestic lawnmower.”

This article is a brief introduction to one part of the ACL. For small business owners who wish to gain a wider understanding of the laws, should seek the assistance of a legal practitioner who will be able to inform them of their obligations under the ACL. 

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