11 June 2014 Consumer guarantees: Don't get caught out and find yourself past the point of "NO RETURNS"


In Brief

The ACCC's recent successful prosecutions of a number of Harvey Norman franchisees is a timely reminder to B2C businesses that it's not enough to have a complaint returns or refunds policy – your staff must know it in detail, as well as your legal obligations, and apply them.

It also doesn't matter if your staff didn't mean to mislead your customers.  Your business can still be liable for a failure to deal with a "consumer" statutory guarantee issue, resulting in significant penalties (in addition to loss of corporate reputation).

The cost of breach

The Australian Competition and Consumer Commission (ACCC) has succeeded in Court action against nine Harvey Norman franchisees for misleading or deceptive conduct and false representations in relation to consumer guarantees that every "consumer" has under the Australian Consumer Law (ACL), and obtained Court ordered penalties totalling $234,000.

What the Harvey Norman franchisees did wrong

Simply put, in a variety of situations, each Harvey Norman franchisee made misrepresentations (mostly verbally, but some in writing) to customers about their consumer guarantee rights.  For example, a franchisee, through its sales staff, represented that:

  • The store had no obligation to provide the customer a choice of return, replacement or repair of faulty or unsuitable goods if they were supplied over three months ago;
  • The store didn't have to provide a remedy where the goods were still under a manufacturer's warranty;
  • The customer was obliged to pay postage and handling to have goods already sent for repair returned to the customer.

None of these representations are accurate and are false, misleading and deceptive.

Consumer Guarantees: What you need to know

Under the ACL, a "consumer" has the right to expect that any goods purchased after 1 January 2011 (other than by way of auction) meet a number of minimum guarantees.  These guarantees include that the goods:

  • are of acceptable quality,
  • reasonably fit for any disclosed purpose;
  • will match the description under which they are sold;
  • will have spare parts and a repair facility by the manufacturer available for a reasonable time from the date of sale.

Suppliers who supply consumer goods that breach any obligation in a major way must (at the option of the consumer) replace the goods or refund the price paid.  Where the failure is minor the supplier must (at its option) repair the goods, refund the price or pay the costs of repair.

These obligations apply to any goods where the price paid is less than $40,000, all goods that are of a kind ordinarily acquired for personal, domestic or household use or consumption, irrespective of price, and motor vehicles or trailers for transporting goods on public roads, again irrespective of price.  It's critical that businesses understand that whilst they may not consider that they are in the B2C space (for example because they sell office furniture to SMEs or lease office equipment to businesses) if amount paid for the "supply" is less than $40,000, the retailer must comply with the guarantees, and, just as importantly, the retailer must ensure that it doesn’t mislead any of its customers about their rights, or the retailers obligations, in those circumstances.

Key points

It doesn't matter if you don't mean to mislead your customers, so:

  • Training and regular refreshers are needed for all staff
  • Update your terms and conditions to ensure they comply
  • Ensure your compliance manual and return and refund policies are up to date (or get a set in place if you don't have them)
  • Review all POS material for compliance
  • Have a process for complaints handling, and ensure all matters are escalated to the most appropriate level when needed

For more information on how you can better protect your business, contact our Commercial and IP & Technology Team on +61 2 9233 5544.

Co-authored by M Hall.

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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