If you had a dollar for every time you heard the phrase ‘but the customer is always right!’ You’d probably be retired somewhere sunny, right?
Many businesses have built strong brands by treating customers well. But it is also important to ensure that no single customer can put your business at risk. You need to draw the line somewhere. This is where your terms of supply come in. You’ll want to include provisions that seek to limit your liability to a sensible level. A disclaimer is often a good place to start. This is a legal term where you set out limitations on your responsibility (liability) if things go wrong.
However, you need to be careful about how far you try to distance yourself from trouble. You need to keep in mind that there are some automatic protections for consumers provided under the Australian Consumer Law.
If you are curious as to how far is too far, read on…
Misleading or deceptive conduct
A business cannot rely on a disclaimer against misleading or deceptive conduct. If you mislead or deceive, you will be liable.
Misleading or deceptive conduct occurs when a person, in trade or commerce, engages in conduct that is misleading or deceptive, or is likely to mislead or deceive. Misleading or deceptive conduct is something that create a misleading overall impression about price, quality or value of the goods or services being supplied. This sort of conduct may occur in:
- statements; or
- representations made by a person.
To the extent you can disclaim liability, you need to make your disclaimer very clear and precise. You need to clearly state how far your limitations of liability extend, and should not be buried in small print.
For example, in the case of ACCC v Target Australia Pty Ltd FCA 1326, Target was found to have engaged in misleading conduct when it advertised ‘25% off all clothing’ and ’15-40% off housewares’ but excluded certain clothing and manchester in the small print. The repercussions were embarrassing – Target had to air a television advertisement during a prime viewing segment apologising to consumers around the country for this breach.
Consumers are provided with certain guarantees under the ACL about the nature of your goods and services. This is irrespective of whether you include these in your terms of supply, i.e. they are ‘implied’ into your dealings with your customer.
For goods these include guarantees that your product will be:
- of acceptable quality;
- fit for a specified purpose (that the business said it would be fit for); and
- accurately described.
If these guarantees are not met, a consumer is entitled to a remedy, being repair, replacement, refund, or compensation for loss.
For services the guarantees are that your services will be:
- provided with due care and skill;
- fit for the specified purpose; and
- provided within a reasonable time.
Remedies are available to consumers if your services don’t comply with these guarantees. These remedies include a refund, further service to rectify the problem, or compensation for loss that comes from a failure to meet a guarantee.
You need to keep these consumer guarantees in mind when preparing your disclaimer. A disclaimer that attempts to contract you out of these guarantees is unlikely to hold up if an angry consumer takes you to court – and penalties can apply.
A breach of the law in relation to consumer guarantees will probably hurt your hip pocket… in ACCC v Hewlett-Packard FCA 653, Hewlett-Packard, a manufacturer and retailer of computer hardware, was ordered to pay a $3 million penalty for making false or misleading representations to consumers and retailers regarding consumer guarantee rights. Ouch!
It’s not all bad news for suppliers of goods and services. Consumers do have their own obligations, and a remedy may not be required if one of the following exceptions to consumer guarantees applies and the customer:
- changes their mind on a product;
- has found the product cheaper elsewhere, decided they did not like the product or has no use for it;
- has damaged the goods by using them in a way that was unreasonable;
- knew or were made aware of faults before the product was purchased; or
- asked for a service to be done in a certain way against the advice of the business or was unclear about what they wanted.
Consumers are entitled to go direct to the manufacturer for a remedy, even if they bought the product through a third party retailer.
The consumer can go direct to the manufacturer if the product has a manufacturing defect or there is something wrong that is attributable to manufacturing.
A supplier has 3 years to ask a manufacturer for reimbursement, running from the earliest of:
- the day they fixed the problem with the consumer’s goods; or
- the day the consumer took action against the supplier.
If you are a supplier that has been asked by a consumer to fix something that was the manufacturer’s fault, you are required by law to fix the goods. However, you can claim a reimbursement from the manufacturer for the repair.
Warranties against defects
‘Warranties against defects’ are representations communicated to a consumer that if the goods or services provided to them are defective, the business will voluntarily:
- repair or replace goods (or part of them);
- resupply or fix a problem with services (or part of them); or
- provide compensation to the consumer.
Warranties against defects are made at the time goods and services are supplied and must set out the terms of the warranty.
You are not obligated to provide a warranty against defects, but if you do, there is mandatory text that must be included relating to a consumer’s rights under the ACL. You should ensure that your warranty against defects is compliant with the requirements under the ACL before it is provided to consumers.
It would also be worth your time to consider whether you need or want to provide a warranty against defects. You might choose to provide a warranty against defects because it makes customers trust you and your products. Or, you may decide that the ACL provides enough consumer guarantees and you aren’t going to provide anything more than what you are required to by statute.
Unfair contract terms
A term of a consumer contract is void if the term is unfair and the contract is a standard form contract. If all consumers are offered the same or similar contract by a business, the contract is likely a ‘standard form contract’.
A term is unfair if it:
- Significantly imbalances the parties’ rights and obligations arising under the contract;
- Is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- Would cause detriment (financial or other) to a party if it were applied or relied on.
Examples of terms that may be unfair include a term that:
- Permits or has the effect of permitting one party to determine unilaterally if the contract has been breached, or to interpret its meaning;
- Limits, or has the effect of limiting, one party’s right to sue another party; and
- Permits or has the effect of permitting one party (but not another party) to renew or not renew the contract.
If you are providing the same or similar contract to multiple consumers, it’s likely you’re using a standard form contract. If that is the case, you should be careful to ensure that your contract does not contain any unfair terms.
Get your terms right
We strongly recommend that you regularly review your terms of supply to ensure they remain compliant with the Australian Consumer Law and consistent with your own internal policies.
The Australian Consumer Law can be a tricky piece of legislation to navigate. There is also a lot of misinformation about where the line between the interests of suppliers and consumers lies.
At Andreyev Lawyers, we can assist you with preparing various documents, including:
- Terms of trade;
- Terms and conditions;
- Supply and service agreements;
- Disclaimers; and
We can also advise you on all aspects of consumer law and provide you with guidance as you navigate the stormy waters of consumer rights and guarantees.