Providing remedies for goods
Remedies you must provide if the Consumer Guarantees Act has been breached.
The rights of the customer to a remedy depend on whether the problem is minor or is serious or can't be repaired.
The customer can also claim for damage and loss caused by the problem.
If the fault is minor
If the problem with the goods can be fixed, then the customer can ask you to put it right. You must provide a remedy, but you have the choice of whether you will repair the goods, replace the goods or give a refund.
You must act within a reasonable time and provide the repair or replacement free of charge. The customer must accept either the repair or replacement that you choose to offer.
If you refuse to do something about the faulty goods when it is possible for them to be put right or if you take more than a reasonable time to put it right the customer can choose one of the following:
- their money back
- a replacement
- to take the goods somewhere else to be fixed and claim the cost of the repair from you.
It is now the customer's decision which of these options they choose.
What is a reasonable time for getting a repair done?
A "reasonable time" for a repair is not defined in the Act and will depend on the nature of the goods and other circumstances. Often it will be a short time.
Consider how regularly the consumer needs to use the goods.
Example: one day would be a reasonable time for a repair of a pair of shoes that the customer needs. Most shoe repairers offer same day repairs so this is not unreasonable.
Example: a consumer could not be expected to wait longer than a day for a heater to be repaired. If this is not possible you could offer another heater on loan while the customer's heater is repaired. It is the customer's choice whether they accept the loan.
Example: one week would be a reasonable time for a repair on a lawn mower that is only used once a week.
What if a repair will be expensive?
If it is possible to repair goods but the cost of the repair will be more than the value of the goods you do not have to offer a repair. You can replace the goods or if this is not possible you can give a refund.
Do I have to pay if a customer gets it fixed elsewhere?
The customer must have given you the opportunity to put the problem right first. If you have refused to do anything or have taken longer than a reasonable time to provide a repair or replacement the customer can get the repair done elsewhere.
You must pay for the repair. The customer does not have to get your agreement before taking the goods elsewhere and does not have to provide quotes. But you can only be asked to pay reasonable costs for the repair.
A reasonable cost will include the cost of the repair and any other costs such as parking fees or transport costs. A reasonable cost for the repair itself will be a cost within the normal range charged by repairers of the goods.
Example: the zip on a pair of trousers breaks after one week. The shop tells the customer the repair will take 10 days. The customer needs the trousers for work. He gets the zip replaced by a tailor for $35. The shop says that their dressmaker would have done it for $15. If $35 is a normal price for a tailor to do the job you must pay it. The fact that you have access to a cheaper repair is not relevant because you did not provide a repair within a reasonable time.
If the fault is serious
When the fault is serious, cannot be repaired or causes a safety risk then the consumer has the choice to:
- get their money back
- get a replacement
- keep the goods but get some of their money back in compensation.
What is a serious fault?
Under the Act a serious problem is any case where:
- a reasonable consumer would not have bought the goods if they had known that the fault existed
Example: no-one would buy a washing machine if they knew the motor was going to burn out after three months
- the goods are significantly different to a description given or to a sample or demonstration model
Example: a jersey is described as 100% wool but is 30% acrylic
- the goods are substantially unfit for their normal purpose and they can't easily be made fit for the purpose or this can't be done within a reasonable time
Example: a DVD player will not fast forward or rewind and the fault cannot be found - the goods are substantially unfit for the particular purpose the consumer bought them for and they can't easily be made fit for the purpose or this can't be done within a reasonable time
Example: washable wallpaper that is not really washable at all
- the goods are unsafe - eg, a bicycle has faulty brakes.
What if the problem is serious but can be fixed?
If the problem falls within one of the definitions given above the customer can choose to get their money back rather than have the goods repaired. The fact that the problem could be repaired does not change this.
Example: the faulty bicycle brakes could probably be repaired. However a new bicycle should not have a serious fault like this and a reasonable consumer would not buy a bicycle if they knew it had faulty brakes. So the customer has the right to reject the goods and ask for their money back.
Does the customer have to return the goods?
The customer must return the goods if they want a refund. The exception is where returning the goods will cost a significant amount because the goods are either:
- attached to something
- hard to transport because of the defect.
In these cases you must collect the goods at your expense.
What if it is not possible to return the goods without damaging them?
In this situation the customer cannot insist on returning the goods and getting a refund. They may ask you to replace the faulty goods or to give compensation for the drop in value of the goods.
Example: wallpaper that has been put up cannot be returned without ruining it.
How compensation should be paid?
When the problem is a serious problem or can't be fixed, the customer can choose to keep the goods and claim some of their money back. They are claiming compensation because there is a fault in the goods. The customer is entitled to an amount equal to the drop in the value of the goods.
Example: washable wallpaper that turns out not to be washable will have a significant drop in value. The drop in value may equal the cost of the wallpaper. The drop in value of an appliance with a mark on the side is likely to be less than the cost of the appliance.
Do refunds have to be in cash?
When the customer is entitled to a refund it must be given in cash. The customer does not have to accept a credit note.
If a customer has paid by cheque you can wait until a customer's cheque clears before giving a cash refund. You can reverse the charge on a credit card or store card account instead of giving a cash refund if the customer has not been billed. A cheque may be acceptable for larger refunds.
What if there was a trade-in?
The customer can claim the amount allowed for a trade-in as well as the amount paid for the goods. If the customer agrees, you can return the trade-in goods instead of paying the amount allowed.
Damage and loss (consequential loss)
If the goods have caused damage or other loss when they became faulty the customer can ask you to pay for the damage and the extra loss. This loss is called "consequential loss".
What types of damage and other loss am I responsible for?
You are responsible for any extra loss or damage the customer suffers because of the problem with the goods.
Example: a tape deck develops a fault and ruins the tape it is playing. You must pay for the tape as well as putting right the problem with the tape deck.
You are also responsible for any other costs the customer may face because of the problem with the goods.
Example: if a dryer breaks down and the repair takes a week the customer can claim the cost of drying their washing at the laundromat for a week. As an alternative to paying these costs you may want to offer another dryer on loan.
You can ask the customer to provide receipts or other evidence of the extra costs.
Your responsibility is limited to loss or damage that could have been expected to result from the failure. You are not liable for losses that are not foreseeable.
Responsibilities of retailers, manufacturers and importers
Does the consumer have to claim from the manufacturer or from the retailer?
Consumers can claim from either the retailer or the manufacturer/importer. They are most likely to claim from retailers because retailers are usually more accessible. You will breach the Fair Trading Act if you suggest to a consumer that they have to go to the retailer instead of to you. The Fair Trading Act says you cannot mislead a consumer about their rights. An individual can be fined up to $60,000 and a corporation up to $200,000 for breaching the Fair Trading Act.
A consumer might choose to claim against you if you are running a recall and offer repairs or refunds directly to the consumer. Consumers may also come to you because the retailer who sold them the goods has gone out of business.
It is the consumer's choice who they claim against.
Definition of manufacturer and importer under the Consumer Guarantees Act
All manufacturers of goods normally bought for personal or household use are liable under the Act.
A manufacturer is defined as anyone who either:
- assembles, produces or processes goods
- tells the public that they are the manufacturer of the goods
- attaches their brand or mark to goods, for example, a New Zealand company that labels imported tomatoes with their own company name.
Importers will be liable under the Act when they import or distribute goods normally bought for personal or household use that are manufactured by a foreign manufacturer who does not have a place of business in New Zealand.
You may offer your own warranty or guarantee with the products you manufacture or import. This is called an express guarantee and it is additional to the guarantees given in the Consumer Guarantees Act. It does not replace or override the guarantees given in the Act.
You must honour any express guarantees you give. A consumer can claim compensation from you if you fail to honour an express guarantee. If the goods are sold while still under an express guarantee the new owner will be able to claim. This applies to goods sold by a trader or in a private sale.
Where there is a manufacturer's express guarantee the consumer must give you the chance to repair or replace the goods if your express guarantee promises that the goods will be repaired or replaced when a problem arises. But the consumer can claim compensation from you if you refuse to repair or replace or do not do so within a reasonable time.
A consumer can get compensation from the manufacturer if you breach any of the guarantees in the Consumer Guarantees Act. The consumer can ask you to pay the amount that the goods have dropped in value because of the problem.
Example: Linda buys a new fridge-freezer and discovers that the auto-defrost doesn't work. Linda paid $1700 for the fridge-freezer. Other models that don't have auto-defrost cost $1500. Linda claims $200 from the manufacturer.
Loss in value is worked out using either the average retail price or the price the customer paid, whichever is the lower.
Example: Carl paid $500 for his TV but the average retail price was $400. Carl will only be able to claim the difference between the reduced value and $400.
What if the person making the claim bought the goods second-hand?
A person who buys second hand goods that you have manufactured or imported has the same rights to claim under the Act as any other consumer.
If they have bought the goods in a private sale they will not be able to claim from the seller so are likely to make a claim to you. If they bought the goods from a retailer they will have the choice of claiming from you or the retailer. If they bought the goods in an auction they will not be able to claim from you as goods sold at auction are not covered by the Act.
You will not have to pay compensation to a new owner of the goods if you have compensated the previous owner.
For example: a carpet has a shading problem. The manufacturer pays compensation to the homeowner who bought the carpet. A year later the house is sold and the new owner makes a claim to the carpet manufacturer. The manufacturer does not have to compensate the new owner.
Does compensation have to include the retailer's margin?
Compensation is based on the drop in value below what the consumer paid for the goods or the average retail price, whichever is the lower. It is not based on the wholesale price that you sold the goods for.
What if someone else caused the problems?
The consumer cannot ask for compensation if the goods are not of acceptable quality or do not meet their description because of something someone else has done to them.
Example: the retailer installs a washing machine and scratches the side panel.The retailer will be liable not you.
A natural disaster or other cause independent of human control occurs after the goods have left your control
Example: a stereo is damaged by flood waters while in a retail store.
Common problems with providing remedies
The customer came back after several months or years to complain about the goods.
When claiming cash refunds or replacement goods, the customer must make their claim within a reasonable time. A reasonable time is the time in which you would normally expect the defect to become noticeable.
In deciding what is a reasonable time for a defect to be noticed these points will be considered
- the type of goods
- the use of the goods. If goods are used frequently a defect is likely to be noticed sooner. It will take longer for a defect to appear if goods are not the sort that will be used every day.
Example: a sander attachment for an electric drill may not be used until six months after it is bought.
- the length of time the goods can reasonably be used for
Example: goods such as fridges and washing machines are expected to be used for a long time.
- the amount of use before a defect is likely to become obvious
Example: the dye will run on clothing the first time it is washed but it may take several weeks of wear before a problem with fraying seams is noticed.
Some defects will only become noticeable after several years' normal use. The customer will be able to claim a refund or replacement if it can be shown that the problem is due to a defect in the goods and not normal wear and tear.
The customer loses the right to ask for a refund or a replacement if the claim is not made within a reasonable time. They can still ask you to put the problem right or to give compensation. There is no time limit on this. You can choose to put it right by either repairing, replacing or refunding.
What if the customer has just changed their mind about the goods?
You do not have to give a refund or a replacement if the customer has decided they do not want the goods. The Act only applies when the goods do not meet one of the guarantees. It is your choice whether you offer a refund or any other remedy if a customer has simply changed their mind or decided they can't afford the goods.
However if you told the consumer that they could get a refund or a credit note if they change their mind, then that is part of your contract with them.
When a customer changes their mind about goods they are paying off on layby they have the right to a refund under the Layby Sales Act.
Find out more about the Layby Sales Act.
What if the customer no longer has the goods?
If the customer no longer has the goods they cannot ask you to replace the goods or give a refund.
Can I still use a Romalpa clause in my sales agreements?
If you sell goods with a Romalpa clause (a right to retain title to the goods until paid for in full) in the sale agreement then you must tell the customer, get their acknowledgment in writing and give them a copy of the clause.
Can I display a "No Refund" sign?
A sign that just says “No Refund” breaches the Fair Trading Act. The signs imply that it is not possible to get a refund when the Consumer Guarantees Act gives customers the right to a refund in certain situations. If you display these signs you are misleading a customer about their rights. An individual can be fined up to $60,000, and a corporation up to $200,000, for breaching the Fair Trading Act.
You can have a signs that specifically states “No refunds will be given for goods if you have simply changed your mind” are acceptable. The Ministry has signs you can display in store that set out a refund policy that complies with the Fair Trading Act.
What if the person making a claim received the goods as a gift?
A person who receives goods as a gift has the same rights to claim under the Act as the person who bought the goods.
Does the customer have to produce proof of purchase?
You are entitled to ask for proof of purchase. Proof of purchase may be a receipt, a credit card slip, a bank statement or a witness. It may be unreasonable to expect the customer to have a receipt if the fault has occurred after some time has elapsed.
What if the customer wants a replacement and I don't have any similar goods?
The customer can choose to ask for a replacement if you have refused or delayed putting a problem right. They can also choose a replacement if the problem is serious or can't be fixed.
You must give a replacement if suitable replacement goods are reasonably available to you. This may mean ordering them from another branch or from the supplier. If no similar goods are available to you the customer will have to choose another option.
Can I contract out of the Consumer Guarantees Act?
Manufacturers, importers, retailers and suppliers of goods can contract out of this Act when selling to businesses. You can also contract out of the spare parts and repair facilities guarantee.
A retailer or supplier can choose to contract out of the Act when they sell goods to a business. When they contract out the manufacturer or importer will also not be liable under the Act. The retailer or supplier must contract out in writing.
You can contract out of the spare parts and repair facilities guarantee as long as the consumer is told this before they buy the goods.
What if the consumer thinks they paid too much for the goods?
A consumer cannot claim under the acceptable quality guarantee simply because they have paid a high price for the goods.
Example: Johanna buys a vacuum cleaner from an exclusive department store and pays $700 for it. The manufacturer's recommended retail price and the average retail price are around $400. Johanna cannot claim that the cleaner is not of acceptable quality because it doesn't perform like a $700 vacuum cleaner.
What rights do I have to get my money back from my suppliers?
You are not covered by the Consumer Guarantees Act when you buy materials for use in your manufacturing business or import goods to sell.
Your rights against your suppliers are still covered by the Sale of Goods Act and the agreements in the contracts you make with your suppliers. You may want to check your contracts with suppliers to make sure that you will be able to get a refund if they have sold you faulty goods or materials.