Commercial Transactions

A business which supplies or manufactures goods must ensure that those goods are of an acceptable quality. As a provision under the Consumer Guarantee Provisions of Australian Consumer Law (ACL), the guarantee of acceptable quality is automatic and any breach will incur liability on the part of businesses that provide the good, such as where the product is unsafe. This article will examine acceptable quality guarantee to provide you with some clarity on how it can apply to your business as a supplier or manufacturer, using the case example of an unsafe smartphone.

The guarantee of acceptable quality can be found in section 54 of the ACL, which is found in Schedule 2 of the Competition and Consumer Act 2010 (Cth). This section states that if a person supplies goods, in trade or commerce, to a consumer (outside the circumstances of sale by auction) there is a guarantee that the goods will be of acceptable quality. A good will be deemed to be of acceptable quality where it is fit for all the purposes for which a good of that kind is commonly supplied, where it is acceptable in appearance and finish, is free from defects, is safe and is durable. This is determined on the basis of a‘reasonable consumer’ test, assuming the consumer is fully acquainted with the state and condition of the goods, including any hidden defects of the goods.

Case example

An example of good that would not be of acceptable quality would be a smartphone which spontaneously combusts. That is, if there is a real risk of a smartphone catching alight, it would not meet the objective test of the acceptable safety standards of a reasonable consumer. This is because a reasonable consumer would consider the degree of risk attributable to spontaneous combustion to be high, both to the safety of the person and property, as the phone constitutes a fire and burn hazard. (see eg Contact Energy Ltd v Jones [2009] 2 NZLR 830 [103]) It cannot, suitability, be used as a phone for this reason. (see eg Harwood, Howard v Rich and Mor Diamonds Pty Ltd [2013] NSWCTTT 502) Notably, if the appearance of the defect came about within a short period of time following purchase, this would be further indicative of a lack of acceptable quality.

In this example, the suppliers of the smartphone would be liable to consumers under the guarantee, who in turn would be indemnified by the manufacturer. (see ACL sections 274(1), (2)(c))Only consumers can bring an action against a supplier. (see ACL section 259) For major failure, as elucidated in ACL section 260, consumers can reject the phone or be compensated for any reduction in value whilst retaining it. (see ACL section 259(3)) Following notification and return of the good to the supplier, the consumer would beentitled to a replacement or refund. (see ACL section 263(4))Importantly, the consumer guarantees will apply to any replacement good provided. (see ACL section 264) Alternatively, consumers could recover the price paid and any loss or damage that, on a reasonable foreseeability test, would be sustained by spontaneous combustion. (see ACL section 259(4)) Note a supplier could be criminally liable if they failed to display a notice providing consumers, at the point of sale, information as to their rights under the regime.(see ACL sections 66, 169)

The guarantee of acceptable quality works to protect the interests of consumers by ensuring goods meet standards of safety and quality. It is important to understand your rights and obligations as a supplier or manufacturer under the law as liability differs between these providers.

To find out more about Commercial Transactions check out our Resources Centre. If you need any further advice about a prospective breach of consumer guarantees, please get in touch today!

This article was authorised by Warwick Heeson.

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