Franchisees need to beware of consumer rights

This article appears in the Mar/Apr 2016 issue of Business Franchise Australia & New Zealand

The Federal Court held that the Harvey Norman franchisee had breached the ACL when dealing with two consumers who each purchased a computer at the Bunavit  store. Employees of the Harvey Norman franchisee made numerous incorrect statements in relation to the consumer’s rights prescribed by ACL. In this instance, the consumers returned to Harvey Norman to have their defective computers repaired. They were, however, advised that Harvey Norman could not assist them and that they should contact the relevant computer manufacturers to have the defects repaired. The Federal Court held that such statements were false or misleading and  resulted in a breach of the ACL guarantee provisions. The Harvey Norman franchisee should have offered to repair the computers free of charge. Importantly, the  Federal Court found that the conduct was so unlawful that it ordered the franchisee to pay a $52,000 penalty to the Australian Competition and Consumer Commission (”ACCC”).

In light of this important judgment, franchisees and their employees need to be aware of the extensive consumer rights under the ACL and the significant ramifications a breach of those rights may have for them. The most common and important consumer rights and obligations under the ACL are: Businesses may be consumers The ACL does not only apply to business to consumer transactions. Confusingly, given the name of the Australian Consumer Act, the ACL also applies to business to business transactions with a value of less than $40,000. In those circumstances, it does not matter whether the products or services were supplied to the business for business purposes only.

Guarantees on products and services

There are various consumer guarantees which automatically apply to transactions relating to the sale of products or the provision of services. These guarantees must be provided regardless of any additional and/ or voluntary warranties you give to your customers. In the sale of products to customers, there is an automatic guarantee that these products are of ‘acceptable quality’. Products are of acceptable quality if they are, for instance, fit for the purpose for which the products were purchased, free from defects, safe and durable. The nature and price of the products may be taken into account when determining whether products are of acceptable quality. This means that a customer may not expect the same durability for cheaper second hand products than brand new products which are sold at the regular retail price. When providing services to customers, you automatically guarantee to your customer that they are supplied with due care and skill, are fit for the purpose for which the services were supplied and will be delivered within a reasonable time in the event no time period has been agreed with the customer. Failure to provide guarantees If you fail to provide any of the mandatory product or service guarantees, your customer may:

(a) request that you repair or replace the products free of charge;

(b) request a refund for monies paid;

(c) cancel the services which you were to supply to them; or in some instances,

(d) make a claim for compensation for loss and damage incurred by the customer.

Be aware that you cannot refuse to provide your customers these options by simply referring them to the manufacturer or importer of the products or to your franchisor. The ACL clearly states that it is your obligation as a supplier to offer your customers these options. Customers may have additional options which they can exercise against the manufacturer or importer. As the decision of the Harvey Norman franchisee shows, the Federal Court may find that you have breached the customer’s rights or your obligations under the ACL and, in circumstances where incorrect statements are made about consumer guarantees, even penalise you for those incorrect statements.

Exceptions

You are not always required to provide the automatic guarantees. These guarantees do not apply if, for instance:

(a) the products have been damaged by the customer and the products do not operate correctly any longer due to the damage caused;

(b) you made express statements prior to the sale that the products or service are unsuitable for a particular purpose and the customer later complains that the products or services are unsuitable for that purpose;

(c) the customer changed his/her mind about the products or services and wants a refund of the purchase price; or

(d) the products or services are worth more than $40,000 and were supplied for business use only.

In these circumstances, you are not required to provide the customer with the right to a repair, replacement, refund, cancellation or compensation.

Warranties

In addition to the mandatory consumer guarantees, you may wish to provide additional warranties about the products or services. Warranties are voluntary promises to your customers about the products sold or services provided. These promises can be enforced under the ACL and you must therefore ensure the accuracy of those warranties before providing them to
customers. You may, for instance, make additional warranties about extended service or repair time frames for customers or other particular statements about the characteristics, performance or state of the products.

Misleading or Deceptive Conduct

You are not permitted to make any representations or statements about your products or services which are false or incorrect. The ACL provides clear examples of areas in which you are not permitted to make such false or incorrect statements. For instance:

(a) false advertisements;

(b) engaging in bait advertising to lure customers into buying the products orservices;

(c) incorrect labelling or packaging of the products; or

(d) false statements about the standard, quality, value, grade, composition, style or model of the products or services, the country of origin, consumer rights or remedies under the ACL or the price of the products or services.

It is important to note that if your business makes any false or misleading statements that this could result in enforcement proceedings from the ACCC where you could be ordered to pay heavy fines up to $1.1 million.

Consumer rights and your obligations must be taken seriously

Consumer rights and your obligations are important aspects of doing business in Australia. They are automatic, complex and may be difficult to understand. It is, however, important that you have a basic understanding of those rights and obligations. Failure to adhere to the consumer guarantees or making incorrect statements to your customers about their consumer rights could result in damage to your reputation, the franchise network’s reputation and unhappy customers. Importantly, it could even result in lengthy proceedings with those customers or the ACCC resulting in significant claims for compensation or fines.

Bianca Sevastos is Partner at Baybridge Lawyers where she specialises in franchising and licensing. Bianca advises on all aspects of franchising industry compliance with the Code, day-today management of franchise systems and relationships with suppliers and franchisees. Bianca has extensive experience and advises on a range of national and international transactions, industry master and area development rights and advises both franchisors and franchisees in dispute, obligations under the Franchising Code of Conduct and the Competition and Consumer Act.

T: 02 9232 3511
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