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Consumer law: Who foots the bill for faulty products or services?

Who is responsible for fixing a product if it breaks after the warranty expires? If you say “the customer”, you should read on – the good reputation of your business may depend on it. 

If your business sells, hires or leases products — or supplies services for household or personal use — here’s what the Consumer Guarantees Act says you must do if something goes wrong.

Products your business sells must meet certain quality guarantees under the Consumer Guarantees Act (CGA).

If any of these guarantees are not met, a customer can come back to you and ask for a solution. If the problem is minor and can be easily fixed, it’s your choice whether to offer repairs, a replacement or a refund.

If you fail to do so within a reasonable time, or refuse, then the customer can either:

  • get someone else to fix it and claim reasonable costs from you or
  • return the item and ask for a refund.

If the problem is serious or can’t be easily fixed, then it’s the customer’s choice to either:

  1. return the product and get a refund or replacement 
  2. keep the product and claim compensation for the drop in value. 

The customer can also claim compensation for any loss or damage as a result of the faulty product that your business could have anticipated. 

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Case study

Christine buys a new and expensive oven from H Berry Appliances, perfect for baking the sweet treats that her family loves. After three years of occasional use, the oven stops working and an appliance repairer quotes more than $1,000 to fix it. Christine contacts Harry Berry, who sold her the oven, who tells her it was only guaranteed for two years and therefore “not my problem”. 

Christine is not impressed. After getting advice, she sends Harry a letter asking for free repairs under the Consumer Guarantees Act (CGA).

Since the oven must be fit for purpose under the guarantee of acceptable quality, it should be able to heat and cook food easily.

In this case, as it’s a lightly used oven that cost a lot but doesn’t do what an oven should, it’s reasonable for the retailer to fix the problem. Harry agrees to repair Christine’s oven under the CGA.

Although Christine can once again bake her sweet treats, she is left with a sour taste in her mouth over Harry’s initial refusal to comply with the law. She tells her friends about it, damaging H Berry Appliances’s reputation.

If Harry had just offered to fix the problem straight away, he might have turned this bad news story into a good customer experience. 

Your business must meet certain quality guarantees under the Consumer Guarantees Act (CGA).

If the problem with a service is minor, the customer must give you a chance to fix the problem free of charge within a reasonable time.

If you refuse, or fail to do so within a reasonable time, the customer can either

  1. get someone else to fix it and claim reasonable costs from you
  2. cancel the contract and refuse to pay for work done.

If the problem is serious or can’t be fixed easily, a customer can either:

  1. cancel the contract and ask for all or some of their money back
  2. claim compensation for any drop in value of the service. 

The customer can also claim compensation for any damage your business could have anticipated. 

Guarantees won’t apply when you sell to another business — also known as contracting out of the Consumer Guarantees Act.

Guarantees won’t apply when you sell to another business — also known as contracting out of the Consumer Guarantees Act.

Contracting out of the Act

This applies if you sell goods or services to another business, and you have both agreed to contract out of the CGA in writing. It must also be fair and reasonable for both you and the other business to do so.

Aside from contracting out you can’t tell customers that the guarantees under the CGA won’t apply. To do so can breach the Fair Trading Act. 

This is the first in a series of articles about different aspects of the CGA.

This is a guide only. Only the courts can make an authoritative ruling on breaches of the Consumer Guarantees Act. The guide is not intended to be definitive, and should not be used instead of legal advice.

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