Consumer rights Reforming statutory implied conditions and warranties

Part II — Problems with current arrangements

5 Clarity in legislation

Key points There is a lack of clarity in the law relating to implied terms, particularly with respect to: the nature and content of rights and obligations; the scope of persons to whom the rights and obligations apply; and the remedies available when rights are breached or obligations are not carried out. This lack of clarity would be best remedied by the introduction of a statutory guarantee scheme, in place of the current implied terms, which provides consumers with statutory rights to redress against both retailers and manufacturers. The term ‘consumer’ — to whom the statutory guarantees would be available — should be defined so as to be consistent across the Australian Consumer Law.

Studies over the past two decades have identified three key problems with the current implied terms regime, which collectively result in a system that can fail to provide consumers with the intended rights and remedies. Lack of clarity in the legislation, lack of awareness of the law on the part of consumers, retailers and manufacturers, and difficulty for consumers in enforcing their rights — which all combine to provide little incentive for retailers and manufacturers to comply with the law — can lead to frustration and unnecessary expenditure for consumers. Evidence from the recent National Education and Information Advisory Taskforce (NEIAT) study supports this conclusion, and it has been further highlighted in numerous submissions to the review.

This and the following two chapters will address each of these three areas and discuss options for improvement as well as outline CCAAC’s findings.

Problem of lack of clarity in legislation

A key issue with the current regime — which can be particularly difficult for retailers and manufacturers when dealing with customers — is ambiguity in the legislation. The legislation attempts to allow for flexibility by recognising that what may be of merchantable quality or fit for purpose is likely to vary between products, depending on the type of product, what is reasonable to expect considering its price and the manner in which it was described.⁴² However, with flexibility comes uncertainty. The difficulty is finding the appropriate balance between a system that can provide enough flexibility to cover all goods and services, and one which provides sufficient clarity for consumers and businesses to be able to carry out their obligations and enforce their rights.

The research conducted recently for NEIAT indicates significant — but not overwhelming — uncertainty about how the law operates. While most traders are familiar with the existence of the rights consumers possess under the implied terms provisions, there is some confusion about the effect of these rights. For example, the NEIAT study found that 20 per cent of retailers and 22 per cent of manufacturers and importers did not consider that consumers had a statutory right to a refund for faulty products.⁴³

Further, the NEIAT study found that a significant proportion of traders misconceive the nature of some consumer rights and the conditions attached to them. For example, the study found that 48 per cent of retailers mistakenly believe that consumers are required to return items in their original packaging if they were faulty when purchased.⁴⁴ This view is particularly prevalent among mobile phone retailers (57 per cent), large electrical goods retailers (56 per cent) and retail franchisees (59 per cent).⁴⁵

Part of this uncertainty may be explained by a lack of awareness of consumer rights, and this is discussed in detail in the next chapter. However, even in cases where it appears traders are aware of consumer rights, they are often unaware of the remedies available for those rights, and of what their responsibilities are in terms of providing that redress. This may well be due to a lack of clarity in consumer rights, since implied terms legislation very seldom spells out with sufficient clarity what obligations arise in the event of a breach of a term, or indeed what constitutes a breach of a term.

Many submissions to this review supported the view that the law in this area is unnecessarily ambiguous and unduly complex.⁴⁶ The Trade Practices Committee of the Business Law Section of the Law Council of Australia (LCA), for example, argued that ‘[t]here needs to be a greater focus on clearer legislative drafting’.⁴⁷

Some of the ambiguity and complexity associated with the current provisions has resulted from the way the law has developed over time. As mentioned in Chapter 2, the origins of the implied terms lies in the English common law (mercantile law), which was codified in the SGA 1893 (UK) and then picked up by the Australian States in the late 19 and early 20^thth centuries. The implied terms were never intended to act as a broader consumer protection regime. The adoption and subsequent amendment of the 19^th century UK model in each Australian jurisdiction has also resulted in the presence of 15 separate and relevant pieces of legislation across the country (in FTAs or SGAs, or both), leading to significant compliance costs for businesses attempting to operate in the national marketplace.

Therefore, many, if not most, of the submissions to this review supported the adoption of a harmonised national approach to consumer law and protection. CCAAC, too, believes that harmonisation is imperative to clarifying the law and raising consumer and business awareness.

There are a number of factors which contribute to uncertainty under the current law. In its May 2009 research paper on warranties and refunds, Consumer Affairs Victoria (CAV) identified some of these (in the context of the Victorian FTA):⁴⁸

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  Since the legislation relies on the common law of contract, it assumes that all consumer sales are of a contractual nature, which CAV contrasts with an understanding of consumer purchases as simple ‘exchanges of money for a product that do not involve an offer, acceptance, consideration, express terms etc’.⁴⁹ The existing consumer legislation is based on the law of contract. It does not explicitly set out all the rights and remedies that flow from a breach of an implied term.
  
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  The definition of the goods and services covered by the implied terms regime is complex (varying across jurisdictions) and often depends both on the nature of the goods or services supplied and on a monetary threshold.
  
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  There is uncertainty around the application of the implied term of fitness for purpose. The effect of the term will depend on what level of fitness is ‘reasonable’ to expect, which will depend on the circumstances of each case. Further, it is unclear to what extent the fitness for purpose term is limited in time, and whether and to what extent there is a durability requirement.⁵⁰
  
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  It is unclear whether the merchantability term extends to cosmetic or minor defects, or whether it is confined to simple workability.⁵¹
  
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  The issue of who pays for any costs of return or pick up of defective (or allegedly defective) goods is not addressed in the legislation, nor is the question of the seller’s costs incurred in dismantling and examining goods, where the fault is determined not to be the result of a breach of an implied term.
  

A number of submissions to the CCAAC review echo the importance attached to these issues, and stress the inconsistencies and ambiguities in the application, definitions and terms used in the current law. For example, Mr Lynden Griggs of the University of Tasmania argued that:

[c]urrently, consumer law in Australia is a mess. The differences between jurisdictions as to applicability, the definition of consumer and the application of, and interaction between, sale of goods legislation, fair trading legislation and the Trade Practices Act 1974 does nothing to advance the protections offered to the consumer and only leads to unnecessary complexity and confusion.⁵²

The Australian Finance Conference noted that:

variations in the definition of “consumer” adopted within the consumer protection laws, including the implied terms, add to compliance complexity and necessitate a multi layered approach to ensure appropriate compliance within a particular jurisdiction and more broadly.⁵³

Mr Spier argued that ‘[v]ague concepts such as “merchantable quality” add to confusion’⁵⁴, while Mr Stephens of Yarram Retravision considered that:

[t]he current consumer laws with implied conditions and statements such as “fit for purpose” and “merchantable quality” are unsatisfactory and lead to uncertainty for the parties involved in retail sales.⁵⁵