Consumer rights Reforming statutory implied conditions and warranties

Clarity in scope

The implied terms in Part V, Division 2 of the TPA — and the rights to action against manufacturers and importers in Part V, Division 2A — are available only to ‘consumers’.

Current definition of ‘consumer’

The term ‘consumer’ is defined in section 4B of the TPA.

4B Consumers (1) For the purposes of this Act, unless the contrary intention appears: (a) a person shall be taken to have acquired particular goods as a consumer if, and only if: (i) the price of the goods did not exceed the prescribed amount; or (ii) where that price exceeded the prescribed amount — the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption or the goods consisted of a commercial road vehicle; and the person did not acquire the goods, or hold himself or herself out as acquiring the goods, for the purpose of re supply or for the purpose of using them up or transforming them, in trade or commerce, in the course of a process of production or manufacture or of repairing or treating other goods or fixtures on land; and (b) a person shall be taken to have acquired particular services as a consumer if, and only if: (i) the price of the services did not exceed the prescribed amount; or (ii) where that price exceeded the prescribed amount  the services were of a kind ordinarily acquired for personal, domestic or household use or consumption.

For the purposes of subsection 4B(1), the ‘prescribed amount’ is $40,000. There is a statutory presumption that a person is the consumer, unless the contrary is established.

This definition of ‘consumer’ can include a business in certain circumstances. A business that purchases goods for less than $40,000, and did not purchase the goods for the purpose of re supply or for the purpose of using them up or transforming them in the course of production, manufacture or repair, qualifies as a consumer under this definition. Notwithstanding that Part V of the TPA is titled ‘Consumer protection’, a business that meets that definition has the benefit of the terms implied by Part V, Division 2 of the TPA, and causes of action provided for in Part V, Division 2A.

The adequacy and appropriateness of this definition was questioned by some submissions. For example, Mr Griggs considered that the definition should be reconceived such that all transactions are considered to involve a consumer:

[C]onsideration [should] be given to making all transactions consumer based (i.e. remove the financial limits, the arguments that centre on personal, domestic or household use as well as the sometime limitation in case of resupply for business use). Given the confusion surrounding how personal, domestic or household should be interpreted (compare Bunnings Group Ltd v Laminex Group Ltd [2006] FCA 682, with Begbie v State Bank of NSW Ltd [1994] ATPR 41 288), the urban centric nature of its interpretation (see Atkinson v Hastings Deering (Qld) Pty Ltd (1985) 6 FCR 331), and the operation of s68A of the Trade Practices Act 1974, little seems served by continuing this artificial construct.⁷⁷

Other submissions note that the definition is rather broad and, given that it includes businesses in many circumstances, does not align with the common understanding of ‘consumer’. Professor Carter considered that:

drafting the definition of ‘consumer’ to include small business contracts may well reflect some of the realities of the market place. But to treat ‘commercial consumers’ as having the same rights as ‘ordinary consumers’ leads to anomalies.⁷⁸

Alternative approaches to defining ‘consumer’ transactions

Unfair contract terms

The Trade Practices Amendment (Australian Consumer Law) Bill 2009, which is before Parliament at the time of writing, would amend the TPA to establish the Australian Consumer Law, and to include in it provisions rendering void unfair terms in standard form consumer contracts.

The provisions include a definition of ‘consumer contract’ (the ‘Unfair Contract Terms (UCT) definition’) for the purposes of the unfair contract terms provisions. A consumer contract is a contract for:

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  a supply of goods or services; or
  
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  a sale or grant of an interest in land,
  

to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.

Clearly, this is a definition of ‘consumer contract’, crafted for the specific purpose of the unfair terms provisions. However, it could be transformed into a definition of ‘consumer’. It is, as Professor Carter noted, ‘logical, simple and easy to apply’.⁷⁹

NZ CGA

For the purposes of the NZ consumer guarantees, ‘consumer’ is defined by section 2 of the CGA.

2 Interpretation … Consumer means a person who— (a) Acquires from a supplier goods or services of a kind ordinarily acquired for personal, domestic, or household use or consumption; and (b) Does not acquire the goods or services, or hold himself or herself out as acquiring the goods or services, for the purpose of— (i) Resupplying them in trade; or (ii) Consuming them in the course of a process of production or manufacture; or (iii) In the case of goods, repairing or treating in trade other goods or fixtures on land.

This definition is very similar in many respects to the definition in section 4B of the TPA. Like that definition, this one encompasses businesses insofar as they are acquiring goods of a kind which would ordinarily be considered consumer goods. However, unlike the TPA definition (but like the UCT definition), there is no monetary threshold separating purchases which must be of a kind ordinarily acquired for personal, domestic or household use, from purchases which may be of any kind. No matter what the value of the goods or services, under the NZ definition they must be in the nature of consumer goods in order for the purchaser to be a ‘consumer’.

Settling a definition of ‘consumer’

CCAAC supports removing the monetary threshold from the definition of ‘consumer’. The threshold is — by necessity — set at an arbitrary level, which is subject to change over time.⁸⁰ In CCAAC’s view, there is no meaningful distinction to be made between a person who pays $40,000 for goods or services and a person who pays $40,001. The focus of the definition should be on the class of person who makes the purchase, or on the kind of goods or services which are purchased.

This is the chief difference between the definition in the NZ CGA (which echoes section 4B of the TPA) and the UCT approach: the former defines consumers by reference to the kind of goods or services bought, while the latter defines consumer contracts by reference to the purposes for which goods or services are bought. Whether or not businesses will benefit from the consumer guarantees depends on which type of definition is adopted.

If applied to consumer guarantees, the UCT approach would effectively deny to businesses the protections offered to consumers. A business that buys, for example, a microwave for the use of staff would very likely meet the NZ CGA definition. However, it could not be said that the microwave was being bought predominantly for personal, domestic or household use. Because the microwave would not be used for personal or domestic purposes, or household use, but would be for use in a staff kitchen, the business buying it would be considered not to be a consumer under the UCT approach.

There is no obvious policy reason for insisting that a microwave sold to a consumer be of acceptable quality, while a microwave sold to a business need not be. A business may not necessarily be in any better position to assess whether a microwave was of acceptable quality, pre sale, than is a consumer. If the UCT approach were applied to consumer guarantees, business purchasers would bear the burden of ensuring products were of an acceptable quality, while consumers would not. If the NZ CGA definition were applied, suppliers and manufacturers would have to ensure that their products were of acceptable quality irrespective of the nature of the buyer.

CCAAC considers that, so far as possible, all classes of consumer should have access to the benefits of implied terms or consumer guarantees. Most implied terms are derived from SGAs, which themselves have their origins in business transactions (and continue to apply to business transactions). However, the consumer guarantees should be a consumer protection measure, and should be targeted as much as possible towards consumer goods.

Whatever definition of ‘consumer’ is settled on, CCAAC believes that consistency is paramount, and agrees with the LCA ‘that the definition of “consumer” should be made consistent wherever possible’.⁸¹ The definition will be relevant to a number of provisions of the TPA and the ACL in addition to the consumer guarantee provisions — for example, the product safety provisions, the UCT provisions, and the prohibition of harassment and coercion — it is important that, in so far as possible, the definition is appropriate for all provisions and is consistent for all provisions. However, it is important to bear in mind that ‘business consumers’ currently have access to the TPA’s implied terms in certain circumstances, and this access should be removed only if a clear policy decision is made to do so.

Goods and services

Statutory warranties in relation to services are provided for in section 74 of the TPA, and are thereby kept distinct from the conditions and warranties attached to the supply of goods. However, the consumer guarantees model would do away with the distinction between conditions and warranties, and this would also remove some of the differentiation between the treatment of goods and services.

For example, subsection 71(2) of the TPA implies a condition that goods will be fit for a particular purpose, while subsection 74(2) of the TPA implies a warranty that services will be fit for a particular purpose. Under the consumer guarantee model, there would be no difference in status between the two rights. Remedies would flow from each guarantee as appropriate. CCAAC believes that consumer guarantees should, so far as possible, apply in the same manner to goods and services.