As we know, the Australian Consumer Law (ACL) provides consumers with a raft of consumer guarantees. One of those consumer guarantees is that goods are of acceptable quality. However, if you purchase goods from a private seller (for example, from your neighbour), and the goods turn out to be “not of acceptable quality”, you cannot make a claim against your neighbour for a breach of the consumer guarantee that goods be of acceptable quality.
Most consumer guarantees only apply if goods or services are supplied in “trade or commerce”1. Transactions between a private seller and buyer are not ordinarily considered to be supplies made in “trade or commerce” because the transaction is not a business or professional activity2. This is why a person who purchases a home cannot ordinarily make a claim against the vendor for misleading or deceptive conduct or for a breach of consumer guarantee as the transaction will not normally be considered to be “in trade or commerce”. See our previous article on this issue here.
What you may not know is that in certain circumstances a purchaser who purchases goods from a private seller, could have consumer guarantee rights against the manufacturer of defective goods even if the purchaser has no such rights against the private seller.
Let’s take the following example to demonstrate how this principle applies.
Judy purchases a car from “You Bute Cars” an authorised car dealer. After two years she is ready for an upgrade so advertises her car for sale. Peter decides to purchase the car from Judy and after 1 year he notices that the car is failing to accelerate and almost causes him to have an accident on his way home from work. Peter takes the car to his mechanic Alex. Alex tells Peter that this is a common fault with this model of vehicle and that the only fix is to replace the engine, which will set Peter back at least $7,000.
Peter contacts Judy to demand his money back given the amount he’ll need to pay to fix the car but she tells him “buyer beware – I can’t help you”. Peter then contacts You Bute Cars, but they advise him that because he didn’t purchase the car directly from them there is nothing they can do.
Peter thinks he is stuck with a lemon until he is out one night and speaks to his friend Chloe who is a lawyer. Chloe tells Peter that he may have rights to pursue the car manufacturer directly under the Australian Consumer Law for a breach of a consumer guarantee.
Is Chloe right?
Chloe may be right if Peter can establish the following:
- the fault with the vehicle amounts to a breach of a consumer guarantee owed by the manufacturer in relation to the vehicle.
- Peter is an ‘affected person’ (more about that below).
- there are no exceptions that apply to the manufacturer’s liability and Peter has not run out of time to make a claim.
Let’s take each of these elements in turn.
Is the fault a breach of a consumer guarantee owed by the manufacturer?
Under the ACL, there are a number of consumer guarantees that apply to new and used goods. These guarantees are given by suppliers and manufacturers in relation to the supply of goods or services to consumers (some of which are the same guarantees and some of which are specific to either the supplier or the manufacturer which we discussed in a previous article here). One of the consumer guarantees that is given by both suppliers and manufacturers is that goods supplied to a consumer are of acceptable quality under section 54 of the ACL.
Let’s take a closer look at what the legislation says about section 54 of the ACL to see how it may apply to Peter:
S54 Guarantee as to acceptable quality
1. [Guarantee that goods are of acceptable quality]
- a person (the supplier) supplies, in trade or commerce, goods to a consumer: and
- the supply does not occur by way of a sale by auction,
there is a guarantee that the goods are of acceptable quality.
2. [Definition: Acceptable quality]
Goods are of acceptable quality if they are:
- fit for all the purposes for which goods of that kind are commonly supplied;
- acceptable in appearance and finish;
- free from defects;
- safe; and
As we noted at the beginning of this article, Peter is not owed a consumer guarantee as to acceptable quality from Judy (the person from whom he purchased the vehicle) because the sale was a one-off private transaction.
What about You Bute Cars? Does Peter have any rights against the car dealer that originally sold the car to Judy?
Under section 259 of the ACL, a consumer has the right to take action for damages against the supplier of goods to that consumer, if the supplier breaches a relevant consumer guarantee. Given that the supplier of the vehicle (i.e. You Bute Cars) did not supply the vehicle to Peter, Peter does not have the right to take action against You Bute Cars dealership for a breach of the consumer guarantee as to acceptable quality, under section 259 of the ACL.
What about the car manufacturer? Does Peter have any rights against them?
Unlike section 259 of the ACL (which applies in the case of “consumers” taking action against the person who supplied the goods to them, ie the supplier), section 271 of the ACL allows “affected persons” (which is a much broader group of people) to take action for damages against manufacturers for breaches of consumer guarantees. Let’s take a closer look at section 271 of the ACL and the definition of “affected person” in section 3 of the ACL to see whether they may assist Peter.
271 Action for damages against manufacturers of goods
1. [Non-compliance with acceptable quality guarantee]
- the guarantee under section 54 applies to the supply of goods to a consumer; and
- the guarantee is not complied with;
an affected person in relation to the goods may, by actions against the manufacturer of the goods, recover damages from the manufacturer.
Section 3 of the ACL defines an ‘affected person’ as:
- a consumer who acquires goods; or
- a person who acquires the goods from the consumer (other than for the purpose of resupply); or
- a person who derives title to the goods through or under the consumer.
Is Peter an affected person?
According to section 271, an ‘affected person’ can take action against a manufacturer for damages as a result of a breach of a consumer guarantee owed by the manufacturer. The wording of section 271 does not appear to suggest that the affected person needs to be the person to whom the guarantee under section 54 applies. For the purposes of our example, section 271(1) applies simply because Judy purchased the vehicle as a consumer, in trade or commerce.
However, part (b) of the definition of “affected person’ captures persons who acquire goods from a consumer. Given that Peter acquired the vehicle from a consumer (ie from Judy), he appears to well and truly fall within the definition of an “affected person”.
Case law on affected persons
The concept of ‘affected person’ was discussed in a Federal Court of Australia case last year (Toyota Decision).3
The case alleged that the vehicles were defective because a component of the diesel engine did not function properly under certain driving conditions. This resulted in excessive white smoke and a foul smelling odour being omitted from the vehicle.
In the case, it was argued by Williams (the lead applicant):
- the relevant vehicles were not of “acceptable quality” and, therefore, breached the statutory guarantee as to quality under s 54 of the ACL.
- the manufacturer also made misleading representations and omissions regarding the vehicles in contravention of sections 18, 29(1)(a) and (g), and 33 of the ACL.
In alleging the above, two types of damages under s 272 of the ACL were sought by the plaintiffs against the manufacturer of the defective Vehicles:
- under s 272(1)(a), damages for the reduction in value of each relevant vehicle resulting from the failure to comply with s 54 of the ACL; and
- under 272(1)(b), other reasonably foreseeable loss or damage incurred as a result of the defect and failure to comply with s 54 of the ACL, including excess taxes, fuel consumption, financing costs, servicing costs and lost income.
The claims about a breach of section 54 arose out of the supply of vehicles to people who purchased from authorised dealers. Accordingly, each of those vehicles was “supplied”, “in trade or commerce”, “to a consumer”, “other than by way of sale by auction”.4
However, there were also individuals who acquired the vehicles second hand from a person who acquired the vehicle from an authorised dealer (just like Peter!).
The court stated that all purchasers satisfied the definition of ‘affected person’ in one way or another, ie,
- those who acquired their vehicle from an authorised dealer fell within sub-section (a) of the definition (a consumer who acquires goods); and
- those who acquired their vehicle second-hand in a private sale fell within sub-section (b) of the definition (a person who acquires the goods from the consumer, other than for the purpose of resupply).5
So what rights does Peter have?
As noted in the Toyota Decision, Peter has the right to claim damages from the manufacturer of the vehicle, for:
- a reduction in the value of the vehicle which amount is calculated by deducting the value of the defective vehicle from the lower of:
(i) the original purchase price; or
(ii) the average retail price at the time of supply6; and
- any other reasonably foreseeable loss or damage (including the cost of inspecting and returning the vehicle).7
The Toyota Decision further clarified that the right of an affected person to claim damages under paragraph (a) may be excluded if the affected person has had the goods repaired or replaced by the manufacturer under an express warranty given by the manufacturer in relation to the goods.
How long does Peter have before he loses his right to take action against the manufacturer?
The time limit for actions against manufacturers is three years after the date on which Peter first became aware or ought reasonably to have become aware that the relevant consumer guarantee has not been complied with.8
Does the manufacturer have any defences available to it?
While manufacturers have liability for certain consumer guarantees, there are some exemptions for example – the guarantee as to acceptable quality will not apply if it is not complied with only because of:9
- an act, default or omission of, or any representation made by, any person other than the manufacturer or an employee or agent of the manufacturer; or
- a cause independent of human control that occurred after the goods left the control of the manufacturer; or
- the fact that the price charged by the supplier was higher than the manufacturer’s recommended retail price, or the average retail price, for the goods.
In summary, it is important for manufacturers, (including overseas manufacturers that supply goods for the Australian consumer market) to understand their obligations under the Australian Consumer Law. Manufacturers that unknowingly deny people (ie both consumers and affected persons alike) rights that they may be entitled to under the ACL may face harsh penalties, particularly under the recent changes to the penalty regime under the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 that applies for breaches of the ACL etc. See here for more information about the changes to these penalties.
We have a dedicated contracting and consumer law team that can assist you with contract preparation and review and can provide you with advice on your rights and obligations under the ACL, particularly in light of recent reforms. We also routinely present to businesses on the Australian Consumer Law and the unfair contract terms regime. Please contact us if you would like more information about the services we provide.
This article was written by Teresa Torcasio, Partner and Caitlyn White, Senior Associate.
This article does not consider any additional liability that may arise under other applicable laws, including product safety legislation, sale of goods legislation, or motor vehicle legislation that applies in each State and Territory.
1All consumer guarantees apply only if the supply of goods or services are in trade or commerce apart from those consumer guarantees in sections 51-53.
2Competition and Consumer Act 2010 (Cth) Sch 2 (‘Australian Consumer Law’) or (“ACL”), definition of “trade or commerce”, section 2.
3Williams v Toyota Motor Corporation Australia Ltd [2002 FCA 344]
4Ibid para 155.
5Ibid para 268.
6Australian Consumer Law section 272(1)(a).
7Ibid section 272(1)(b). Under s272(2) the cost of returning products to the manufacturer would constitute reasonably foreseeable loss.
8Ibid section 273.
9Ibid section 271(2).