Consumer rights Reforming statutory implied conditions and warranties

Structure of the report

CCAAC has conducted this review to assess the current statutory implied terms framework and identify where and why the framework is inadequate. In its examination, CCAAC has reviewed how Part V, Divisions 2 and 2A of the TPA can work in a more efficient and effective manner to increase consumer confidence, knowledge and wellbeing. The review also considered relevant international research and models for implied conditions and warranties adopted in other countries.

In order to address the issues CCAAC has been asked to canvass in its review, the report is set out in three parts. Each part highlights particular aspects of the review in response to the terms of reference, and they may be read individually or as a whole depending on the specific interests of the reader.

Part I outlines the current Australian law on implied terms, at both Commonwealth and state and territory level. Part I also considers international models for post sale consumer protection, illustrating similarities with and divergences from the Australian law on implied terms.

Part II of the report highlights aspects of current Australian arrangements that give rise to concern about their efficacy as consumer protection arrangements. In particular, Part II looks at issues surrounding clarity in the law, awareness of the law (for both consumers and businesses) and enforcement of the law. Drawing on some of the analysis of current Australian and international models for post sale consumer protection in Part I of the report, Part II makes a number of proposals for improvements to Australia’s implied terms regime.

Finally, Part III addresses specific areas of concern about implied terms that have been raised with CCAAC, either through the terms of reference for this review or in the course of consultation. Specifically, Part III discusses issues associated with extended warranties, ‘lemon laws’, online transactions, and exclusions from or limitations of liability for implied terms.

Part I — Current law

2 Commonwealth legislation

All Australian jurisdictions have laws which provide consumers with basic protections in relation to the goods and services they acquire. The statutory implied terms regimes in both the TPA¹⁴ and state and territory fair trading¹⁵ and sale of goods legislation¹⁶ derive from the United Kingdom Sale of Goods Act 1893 which codified the traditional UK rights and remedies for sale of goods.

There is a separate regime that implies terms into contracts for the supply of financial services in the Australian Securities and Investments Commission Act 2001 (ASIC Act), which is based on the TPA.¹⁷

There are 15 laws establishing generic regimes providing a range of different levels of coverage.¹⁸ In particular, the terms implied by the sale of goods legislation in the States and Territories can be effectively modified or excluded by the supplier in some jurisdictions, which denies consumers access to redress. The TPA introduced non excludable warranties and conditions. Only NSW, Victoria, WA, SA and the NT have introduced non excludable warranties and conditions in their respective FTAs.

In addition, there are industry specific regimes that imply terms into consumer contracts, for example, used motor vehicles.¹⁹

The current statutory regime is a regulatory maze that imposes compliance costs on businesses that trade across more than one jurisdiction.

This Chapter examines the content of the current Commonwealth statutory implied terms regime. Chapter 3 then focuses on the state and territory statutory implied terms regimes and Chapter 4 summarises the law in other jurisdictions, namely New Zealand, the United Kingdom, the European Union, the United States and Canada.

Application of Divisions 2 and 2A

Division 2 (Conditions and warranties in consumer transactions) of Part V of the TPA implies terms into consumer transactions. Division 2A (Actions against manufacturers and importers of goods) creates separate causes of action which consumers may enforce against manufacturers and importers where consumer goods fail to comply with certain standards.

Consumers

Division 2 (and parts of Division 2A) apply only in relation to the supply of goods or services by a corporation in the course of business to a ‘consumer’.

A consumer is defined in section 4B of the TPA by reference to the type or value of goods or services purchased. Specifically, a person is taken to have acquired particular goods or services as a consumer if either:

• 
  the price²⁰ of the goods or services is not greater than $40,000; or
  
• 
  the price of the goods or services is greater than $40,000 but the goods or services are of a kind ordinarily acquired for personal, domestic or household use or consumption (or, in the case of vehicles, the vehicle (or trailer) is acquired for use principally in the transport of goods on public roads);
  

and, in the case of goods, they are not purchased either for 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.²¹

Acquiring or supplying goods

Under the definitions in section 4, acquiring and supplying both include by way of purchase/sale, exchange, lease, hire or hire purchase.

Extraterritorial operation

Section 6 of the TPA extends the operation of Part V, Divisions 2 and 2A to trade or commerce between Australia and places outside Australia, or trade or commerce among the States, within a Territory, between a State and a Territory or between two Territories.

Financial services

Section 52AF of the TPA provides that Part V (including Divisions 2 and 2A) does not apply to the supply or possible supply of ‘financial services’.²² Mirror provisions in Part 2, Division 2 of the ASIC Act apply the consumer protection provisions to financial services. ASIC can delegate to the ACCC the exercise of authority in relation to breaches of the equivalent consumer protection provisions of the ASIC Act.

Credit

Section 73 has the effect of making the supplier and the financier both liable (jointly and severally) in certain circumstances where a consumer suffers loss or damage in relation to goods or services they have acquired from the supplier on the basis of finance provided by the financier.

Auctions

Apart from section 69 (Implied undertakings as to title, encumbrances and quiet possession), the conditions and warranties implied by Part V, Division 2 and rights of action given by Division 2A expressly do not apply to auction sales.²³