12. Consumer Guarantees

Effective consumer laws help to create an environment in which consumers can transact with confidence. Transacting with confidence includes that consumers' reasonable expectations of transactions will be met and when a transaction goes wrong that consumers have ready access to appropriate redress.

The main consumer law dealing with redress is the Consumer Guarantees Act. The Act applies generally to all consumer transactions with suppliers in trade and sets out guarantees that goods and services must meet. A “consumer” under the Act is anyone who acquires goods or services ordinarily acquired for personal, domestic or household use or consumption, and not for resupply or use in production or manufacture by a business⁶⁹.

The broad approach under the Act has proved to be an effective means of providing consumers with confidence in the multitude of consumer transactions that occur.
The Act is self-enforcing. This means consumers must seek redress from a supplier or manufacturer directly to resolve their disputes. Where agreement cannot be reached between a consumer and supplier or manufacturer, the Disputes Tribunal may hear a claim from a consumer under the Act or if the dispute is about a motor vehicle, it may be taken to the Motor Vehicle Disputes Tribunal. A claim under the Act includes any time the supplier may have misled the consumer as to their rights under the Act.

As well, disputes about rights under the Consumer Guarantees Act may be taken to a trade association to which the supplier belongs, or any specific complaints body that might exist (for example, the Electricity and Gas Complaints Commission or the Banking Ombudsman). Consumers can also take matters to the District Court but because of the costs involved it is unusual for consumers to do this.

If a supplier attempts to contract out of the obligations imposed by the Act, they may be committing an offence under section 13(i) of the Fair Trading Act. For example, it is unlawful to have a sign in a shop that states that refunds are not available. An offending supplier can be prosecuted by the Commerce Commission under the Fair Trading Act.

History of the Consumer Guarantees Act

The Consumer Guarantees Act introduced into New Zealand a new regime of rights and remedies for consumers with respect to transactions involving the provision of goods and services to consumers. Prior to the Consumer Guarantees Act any rights of domestic consumers concerning the sale of goods came under the Sale of Goods Act and common law rules for services were contained in case law.

In the introductory speech made in Parliament on the Consumer Guarantees Bill, the then Minister of Consumer Affairs noted that the current law of implied conditions as to merchantable quality in the Sale of Goods Act was badly out of date, was drafted with commercial transactions in mind and was not understood and was inappropriate for modern consumer transactions. She noted also the common law rules for services were contained in case law which was inaccessible to both suppliers and consumers. The purpose of the new consumer guarantees law was clearly stated as promoting a fair and efficient market place, to enhance the ability of consumers to participate effectively in the market place and to promote fair and effective competition in the market place.

The Consumer Guarantees Act was passed as complementary legislation to the Fair Trading Act. The Fair Trading Act was described as providing for pre-sale representations and the Consumer Guarantees Act would provide for post-sale redress.

Ongoing relevance of the Consumer Guarantees Act

There is fairly good understanding of the Consumer Guarantees Act by consumers and suppliers. Many retailers display in their stores a sign produced by the Ministry of Consumer Affairs (and designed in association with the New Zealand Retailers Association and the Commerce Commission) about Consumer Guarantees Act rights and obligations.

The Ministry of Consumer Affairs provides training to Citizens Advice Bureaux, Community Law Centres and budget advice centres on the Consumer Guarantees Act. The Ministry also produces pamphlets for consumers and Word of Advice articles for publication in community newspapers on the Act. Consumer NZ regularly advises consumers about their rights under the Act as do consumer awareness television programmes such as Fair Go and Target. The Disputes Tribunal does not keep statistics of the cases it hears but advice from the Principal Referee and Community Law Centres and Consumer NZ reports indicate that cases involving the Consumer Guarantees Act are regularly taken to the Disputes Tribunal.

Many New Zealanders are very confident in enforcing their rights under the Consumer Guarantees Act. The National Consumer Survey 2009⁷⁰ found that when asked to name any of the legislation that sets out the rights of consumers, nearly 50% responded by naming the Consumer Guarantees Act. This is a very high recognition for a piece of legislation. Not only can it be named but the National Consumer Survey 2009 and the preceding National Consumer Survey 2005⁷¹ specifically tested consumers understanding of the Act. In response to a question regarding an item bought at sale price then found to be faulty, in 2009 84% of consumers correctly answered that the shopkeeper has to replace, refund or repair the item, and in 2005, 83% answered correctly. In response to a question about whether you have to pay for extra work done by a car mechanic who did not first obtain your agreement, in 2009 77% answered correctly that you did not have to pay (80% in 2005).

Less well understood was that if you buy goods and change your mind you do not have a right to return the goods with 45% answering this correctly in 2009 and 40% in 2005. The surveys also both show there is poor understanding of the warranties provisions in the Act with only 22% in 2009 (18% in 2005) of consumers correctly responding that if a fridge breaks down a month after a manufacturer’s warranty has run out, the retailer still has to repair the fridge free of charge.

Since the Consumer Guarantees Act came into effect in 1994, there have been considerable telecommunications technological advances, for example, mobile phones and the internet, which have allowed for new means of transactions. The Consumer Guarantees Act was developed at a time when sales were conducted face to face or by some form of mail order. The advent of sales methods now commonly used such as email arrangements, website interfaces which allow for online “shopping baskets” and confirmation of bids and sales by mobile phone were not contemplated.

Consumers are also advertised to quite differently than they were 15 years ago, and they can also pay for goods and services differently (including by instant funds transfers by banking facility and credit card).

Whilst the Act has proven remarkably robust as a consequence of strong underpinning principles, there are some areas of strain. One area of uncertainty is purchase by internet bidding or online auction (as conducted by Trade Me and similar providers) and whether the Consumer Guarantees Act should apply to such sales. A second area of concern is the sale of extended warranties, especially when such warranties provide no additional protections to consumers than the Consumer Guarantees Act.

Possible changes to the law to address these concerns are discussed below.

The overall robustness of the principles and underlying policy of the Consumer Guarantees Act is also demonstrated by Australia deciding to include in the Australian Consumer Law stage 2 proposals consumer guarantees provisions modelled on the Consumer Guarantees Act. This is an example of Australia looking to amend its law to harmonise with very effective consumer law in New Zealand. Its inclusion of consumer guarantees provisions in the Australian Consumer Law is supported by a detailed Regulatory Impact Assessment that recognises the success of New Zealand’s Consumer Guarantee Act. In particular the success is evident by New Zealand consumers’ awareness of their rights to have faulty goods repaired, replaced or a refund provided compared to very low knowledge of implied statutory warranties by Australian consumers⁷².

Consumer guarantees in standalone law or as part of the Fair Trading Act

It would be possible to include as a separate part of the Fair Trading Act provisions on consumer guarantees rather than having a separate Consumer Guarantees Act. This would be consistent with the Australian Consumer Law stage 2 proposals that provide for broadly equivalent provisions to the Consumer Guarantees Act in the new national consumer law. The Fair Trading Act, however, provides for public enforcement of its provisions by the Commerce Commission whereas the Consumer Guarantees Act establishes rights for consumers to take self-enforcement action. Including in the Fair Trading Act self-enforcing consumer guarantee provisions may introduce an unnecessary complexity.

The Consumer Guarantees Act has always been a complement to the Fair Trading Act. The Fair Trading Act provides for pre-sale and point of sale representations. The Consumer Guarantees Act concerns post-sale redress if a transaction does not meet reasonable expectations. The different enforcement approaches of the Fair Trading Act and the Consumer Guarantees Act alongside the very good recognition and understanding of the Consumer Guarantees Act supports the continuation of the Consumer Guarantees Act as standalone legislation and is the preferred option.

In summary:

The Consumer Guarantees Act is an important part of New Zealand’s consumer law providing consumers with tools to take enforcement action when a transaction does not meet expectations and promoting consumer confidence. It is very well recognised law and there is a fairly good understanding of its provisions.

The strong recognition of the Act and its provisions and its “brand awareness” are supportive of the Act continuing as standalone legislation. As well, the Fair Trading Act provides for public enforcement of its provisions by the Commerce Commission whereas the Consumer Guarantees Act establishes rights for consumers to take self-enforcement action.

The Consumer Guarantees Act is a type of principles-based law, although, as discussed at section 5 of this paper, it does not include a purpose statement. As a general observation, it is law that meets many of the objectives of this Consumer Law Review, although given technological changes that have changed the face of sales transactions, it is appropriate to consider some amendments to the Act to ensure it remains relevant and effective now and into the future.

Given the Australian Consumer Law stage 2 proposals to include consumer guarantees provisions modelled on the Consumer Guarantees Act, the Act also meets the objective of this Consumer Law Reform to achieve harmonisation with Australian law, as appropriate.

Footnotes

69 Businesses can be deemed “consumers” under the Consumer Guarantees Act when they buy goods or services “ordinarily acquired for personal, domestic or household use”, although suppliers can contract out of the guarantees in favour of business customers (section 43(2)). Suppliers cannot contract out of the guarantees to non-business consumers.

70 National Consumer Survey 2009

71 National Consumer Survey on Awareness and Experience of Consumer Legislation

72 The Australian Consumer Law, A national consumer guarantees law, Regulation Impact Statement, December 2009, OBPR Reference No. 10953, 30 November 2009