The legal obligation for Australian businesses to provide refunds

In Australia, the main piece of legislation governing the supply of goods and services is the Competition and Consumer Act 2010 (Cth) (CCA), which incorporates the Australian Consumer Law (ACL) in Schedule 2.  These obligations apply in addition to the terms and conditions by which a business trades.  The CCA regulates the interaction between businesses and consumers and also between businesses.  How the CCA applies to any particular transaction will depend on whether goods or services are supplied to a consumer.^[1]  The effect of a transaction being classed as a consumer transaction is that the consumer guarantee provisions in the CCA will apply.

When does a consumer acquire goods or services?

A person acquires goods as a consumer if:

• the amount paid does not exceed $40,000^[2] or an amount prescribed for that purpose^[3]; or
• the goods were of a kind usually supplied for personal, domestic or household consumption.^[4]

Whether the goods or services are characterised as being ordinarily used for personal, domestic or household is a question of fact and will depend on the circumstances.  However, the $40,000 threshold does not apply if the person held themselves out as acquiring the goods for the purpose of resupply,^[5] or for the purpose of using them in trade or commerce.^[6]

Breach of consumer guarantees

The CCA provides a list of consumer guarantees for goods^[7] and services^[8] which mainly focus on the quality of the product or service and whether the product matches the representations made about the product or service prior to purchase (such as a demonstration model or promotional advertising).  These include:

• that the goods are of acceptable quality and fit for all the purposes for which goods of that kind are commonly supplied;^[9]
• that goods sold by description to a consumer correspond with the description;^[10]
• that the manufacturer of the goods will take reasonable action to ensure that facilities and parts for the repair of the goods are reasonably available for a reasonable time;^[11]
• that services provided to a consumer are rendered with due care and skill;^[12]
• that services will be provided within a reasonable time.^[13]

Can a breach of the guarantees entitle a consumer to a refund?

The CCA provides that where the goods provided by a supplier^[14] have a major failure^[15], the consumer may reject the goods.  If a consumer elects to reject the goods, the consumer can elect to:

• receive a refund for the money paid by the consumer for the goods, or an amount of equal value for any other consideration provided by the consumer for the goods;^[16] or
• receive a replacement of the goods of the same type and similar value, if such goods are reasonably available to the supplier.^[17]

What constitutes a ‘major failure’?

The CCA sets out a number of circumstances that constitute a ‘major failure’.^[18]  These include circumstances where the goods are:

• unsafe;^[19]
• substantially unfit for the purpose they were purchased;^[20]
• significantly depart from the supplier’s description or demonstration model.^[21]

How far do the goods have to depart significantly from the supplier’s description?

How far the goods have to depart from the description to be in breach of the consumer guarantee is a matter of interpretation for the courts based on the facts of a matter.  A recent case of a consumer obtaining a refund for breach of this guarantee is Ferraro v DBN Holdings Aust Pty Ltd T/As Sports Auto Group [2015] FCA 1127 (Ferraro).

In Ferraro, the Federal Court of Australia considered whether the purchaser of a sports car was entitled to reject the car and request a refund under the CCA.  The purchaser located the car online and over a three week period, communicated with the seller via telephone and email.  During the communications, the purchaser was informed that the car was in immaculate condition, with perfect paintwork and had never been involved in an accident.  When the purchaser took delivery of the car, he found that the paintwork was peeling and cracked in certain areas, some of the body panels did not align properly and condensation was forming in the rear tail light.  The Court found that the purchaser was entitled to a refund as the car significantly departed from the description provided.^[22]

When is a consumer unable to reject the goods and seek a refund?

The CCA provides a number of circumstances where a consumer is not entitled to reject the goods.^[23] These include if:

• the rejection period has expired;^[24]
• the goods have been lost, destroyed or disposed of by the consumer;^[25]
• the goods have been attached to or incorporated in any real or personal property and they cannot be detached or isolated without damaging the goods.^[26]

The rejection period is the period of time from the supply of goods to the consumer within which it would be reasonable to expect the relevant failure of the goods to become apparent.^[27]

Businesses need to recognise whether the goods and services they are providing are covered by the CCA.  Understanding whether the CCA applies will allow a business to understand their rights and obligations when determining whether or not they are required to provide a refund.

Links and further references

Legislation

Competition and Consumer Act 2010 (Cth) – Schedule 2

Competition and Consumer Act 2010 (Cth)

Competition and Consumer Regulations 2010 (Cth)

Further information about the legal obligation for Australian businesses to provide refunds

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Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Competition and Consumer Act 2010 (Cth) Sch 2 s 3.

[2] Ibid s3(1)(a)(1).

[3] Ibid Sch 2 s 3(1)(a)(1).

[4] Ibid Sch 2 s 3(1)(b).

[5] Ibid Sch 2 s 3(2)(a).

[6] Ibid Sch 2 s 3(2)(b).

[7] Ibid Sch 2 ss 54 – 57.

[8] Ibid Sch 2 ss 60 – 62.

[9] Ibid Sch 2 s 54.

[10] Ibid Sch 2 s 56.

[11] Ibid Sch 2 s 58.

[12] Ibid Sch 2 s 60.

[13] Ibid Sch 2 s 62.

[14] Ibid Sch 2 s 259.

[15] Ibid Sch 2 s 260.

[16] Ibid Sch 2 s 263(4)(a).

[17] Ibid Sch 2 s 263(4)(b).

[18] Ibid Sch 2 s 260.

[19] Ibid Sch 2 s 260(e).

[20] Ibid Sch 2 s 260(c) – (d).

[21] Ibid Sch 2 s 260(b).

[22] Ferraro v DBN Holdings Aust Pty Ltd T/As Sports Auto Group [2015] FCA 1127, [21].

[23] Competition and Consumer Act 2010 (Cth) Sch 2 s 262.

[24] Ibid Sch 2 s 262(1)(a).

[25] Ibid Sch 2 s 262(1)(b).

[26] Ibid Sch 2 s 262(1)(d).

[27] Ibid Sch 2 s 262(2).

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