By Andrew Jankovic and Mark Armstrong, Solicitors

25 October 2019

Two of Australia’s largest retailers, Big W (owned by Woolworths Group Limited) and Target (owned by Wesfarmers Limited) have both been found in breach of the Australian Consumer Law (ACL) given their treatment of customers complaining of issues with products purchased at their respective stores. In each case, these well-resourced, massive national retailers breached the statutory consumer guarantees provided under the ACL, by invalidly redirecting customers with faulty electronic goods to manufacturers – essentially the retailers needed to take more responsibility. But how much responsibility is expected in this situation? Ultimately, isn’t a faulty product the problem of the manufacturer at the end of the day?

What happened?

Big W and Target customers purchased Dyson appliances and Sony PlayStations respectively, which turned out for a variety of reasons to be faulty. In each case the relevant customers attempted to return the faulty goods to the respective stores. However, the stores each had returns policies that dictated (invalidly) that if the return was made after a certain number of days (14 days for Big W and 30 days for Target), individuals were to contact the manufacturer directly, as the stores were not responsible after those arbitrary time periods. As outlined below, this is not acceptable under the consumer guarantees provided in the ACL. Interestingly, return policies located on the websites of both stores specifically state that their goods and services “come with guarantees that cannot be excluded under the Australian Consumer Law”, with both also stating that customers who have purchased faulty goods are entitled to a replacement, refund or repair. What the stores essentially tried to do was unreasonably limit how long they had to worry about these pesky guarantees for.

By failing to take responsibility after these time periods and offer proper remedies to their customers for a more reasonable time period, Big W and Target breached the ACL. After the Australian Competition and Consumer Council (ACCC) expressed concerns about these representations, both companies have provided court-enforceable undertakings, specifying that they will publish notices regarding faulty goods on their respective websites, review and improve their ACL compliance programs and either create an ACL webpage for customers or take into account additional considerations to offer customers remedies in line with their ACL obligations.

So what is the actual legal obligation for retailers when selling third party products that turn out to be faulty?

Consumer Guarantees and the ACL

The ACL is found in Schedule 2 of the Competition and Consumer Law Act 2010 (Cth) and contains guarantees that apply in the sale of any consumer goods or services in Australia.  These are commonly known as ‘Consumer Guarantees’. There are nine guarantees that apply specifically to consumer goods and if any of them are not fulfilled, consumers are entitled to a remedy, usually in the form of a replacement, refund or repair. Very importantly, the legislation clearly provides that obligations exist on the part of the supplier (i.e. retailer/service provider) AND the manufacturer. The legislative concern (and that of the regulators) was to ensure that retailers could not ‘wash their hands’ of obligations to sell quality products by pushing the responsibility on to the brands/manufacturers/importers, and similarly that brands/manufacturers/importers could not wash their hands of liability once products reached retailers.

The Consumer Guarantees applicable to goods and services are as follows:

• The supplier (i.e. the retailer/service provider such as Big W and Target) and manufacturer (for instance, Dyson or Sony) guarantee that goods:
  1. Are of acceptable quality;
  2. Will match their description accurately;
  3. Will satisfy any extra promises made about them (known as express warranties – discussed below);
• The supplier also guarantees that goods:
  4. Will be reasonably fit for any purpose specified by the consumer or supplier;
  5. Will match any sample or demonstration model and any description provided;
  6. Will be sold to the consumer with clear title unless they alert the consumer before the sale that the goods will be sold with limited title;
  7. Will not be repossessed or taken back by anyone, nor will anyone prevent the consumer from using the goods;
  8. Are free of any hidden securities or charges and will remain so in the future;

• The supplier guarantees that services:
  9. Will be provided with acceptable care and skill or technical knowledge and taking all necessary steps to avoid loss and damage;
  10. Will be fit for the purpose or give the results that you and the business had agreed to;
  11. Will be delivered within a reasonable time when there is no agreed end date.
• The manufacturer or importer (goods or services) guarantees:
  12. That they will take reasonable steps to provide spare parts and repair facilities for a reasonable time after purchase.

As noted in each store’s return policy, the Consumer Guarantees cannot be excluded, nor can they be restricted or modified. When a product does not meet a Consumer Guarantee, consumers have the right to a remedy, but the entity from whom the consumer must claim that remedy depends on which entity is making that particular guarantee. Faulty products such as in this case are not of acceptable quality (a supplier and manufacturer guarantee), nor are they fit for their disclosed purpose (a supplier guarantee) and therefore, consumers can claim a remedy from the supplier or the manufacturer if they have purchased a faulty product.

In this instance, Big W and Target (both suppliers), have breached these guarantees by failing to ensure that goods are of acceptable quality and providing a remedy for a reasonable period after purchase – their rebuffing of customers attempting to correct the problems clearly shirked their duty to provide a remedy under the Consumer Guarantees. It is not up to the stores to determine how long they would like to comply with the law for.

Manufacturer liabilities

A consumer can take action against both the supplier and the manufacturer, provided the consumer does not seek a remedy twice in respect of the same damage, nor recover more than their actual loss. How a consumer wishes to enforce their rights will be unique in each case and depends on the nature of the guarantee that has been breached and the appropriate remedy which applies.

In comparison to a supplier, the remedies available against a manufacturer under the ACL are limited (excluding any express warranties made by the manufacturer). A consumer will only be entitled to recover costs from the manufacturer, i.e. the cost of the reduced value of the goods (being the difference between the goods’ current value and the original retail value) or compensation for any damages or loss caused by the product. Typically, compensation is usually for any direct monetary loss, however it can also include costs for lost time or productivity. Ultimately, the costs calculated will be the amount that puts the purchaser in the position where they would have been in the event the goods had met the Consumer Guarantees. As can be seen from the above, suppliers have a considerably more detailed suite of obligations than manufacturers – in part, this is because customers should not have to go on a fishing expedition to locate and pin down a manufacturer/importer (who oftentimes has no consumer-facing outlet or staff) when the person that sold them the product is their local department store.

Supplier’s right to indemnity

It is generally the case that a consumer seeking remedy will make a claim against a supplier, due to already having directly engaged with the supplier before, and of course for the reasons flagged above it being considerably more convenient for them. Considering the ACL evidently places numerous responsibilities on the supplier with respect to Consumer Guarantees, the supplier also enjoys a right of indemnity against the manufacturer, in addition to any that may exist under any other contract between the supplier and manufacturer. A supplier will be able recover its losses from complying with the Consumer Guarantees from the manufacturer provided that the breach relates to one of the following guarantees:

• Acceptable quality;
• Matching description accurately; or
• Fitness for any purpose which has been either directly or indirectly communicated by the manufacturer.

It is worth noting that this right is limited to goods which are ordinarily acquired for personal, domestic or household use or consumption – i.e. consumer goods. If the goods fall outside this description, the manufacturer’s liability to the supplier is limited to the lower of having the goods repaired or having the goods replaced. If a supplier wishes to be indemnified, a request for indemnity would need to be made within 3 years.

What does this mean for you?

Suppliers of goods need to ensure that their staff are well-informed about the obligations imposed on their business by the ACL, and be constantly vigilant that store policies match their legal obligations. Especially given the supplier’s right to indemnity from manufacturers for faulty products, there is no real excuse or reason (other than inconvenience) for shifting responsibilities to another entity.