New laws affecting retailers, manufacturers and wholesalers of consumer goods are set to commence on January 1, 2011. Middletons Lawyers’ Jo Daniels and Lauren Traugott investigate.
The changes to the Trade Practices Act 1974 (TPA), known as the new Australian Consumer Law, will have implications for suppliers – particularly those in the fashion industry supply chain – in their dealings with consumers. Businesses in the fashion industry will need to be prepared for the changes.
The Australian Consumer Law will consolidate and reform the general consumer protection provisions in relation to misleading and deceptive conduct and unconscionable conduct set out in the TPA and state and territory fair trading legislation.
It will also introduce a national scheme for consumer guarantees and product liability. The most significant changes for the fashion industry include:
• new multiple pricing provisions;
• more stringent regulation of lay-by agreements;
• the introduction of consumer guarantees to replace the implied warranties currently found in the TPA and various state and territory legislation; and
• additional requirements relating to product liability.
Who is a consumer?
A person will be deemed in any sale to be a consumer if the goods are less than $40,000 or are of a kind ordinarily acquired for personal, domestic or household use or consumption, unless the purchase has been made for the purposes of resale.
It is therefore likely that the majority of sales by retailers in the fashion industry, whether by way of sale of fashion garments or accessories, will be to a consumer within the meaning of the TPA.
However, sales by a manufacturer to a wholesaler will not be caught because even if the transaction is for less than $40,000 the purchaser of goods for resale is excluded from the definition of consumer.
Multiple pricing: what to avoid and pricing “mistakes”
The Australian Consumer Law will introduce into the TPA provisions regulating multiple pricing of products. While the ACT and NSW currently have prohibitions on multiple pricing, the new provisions will apply nationally.
The multiple pricing provisions require that where goods have more than one displayed price, the supplier must supply those goods at the lower, or lowest, of the displayed prices.
A “displayed price” includes any statement that could be reasonably inferred to be a price for the goods. This may include a price that is attached to the product, printed on the product or label, or published in catalogues.
This means that if a product is shown in a catalogue at $89 and its point of sale (POS) ticket is $109, then the retailer must sell the product for $89.
The prohibition excludes prices or representations that have been entirely obscured by another price, those expressed in foreign currencies, and amounts expressed as unit price per quantity. This means that if an original POS ticket was $49 and a new ticket is placed completely over the top of the old ticket for $59 then the product can be sold at $59.
However, if the original ticket is only partially obscured, then the retailer must sell the product for $49. Similarly, if a retailer is required by the Trade Practices (Industry Code – Unit Pricing) Regulations 2009 (Cth), to show a unit price, products that show a unit price do not need to be sold at the unit price. For example, if a 500g box of frozen fruit shows a price of $5 and a unit price of $1 for 100g then there is no obligation to sell for $1.
However, it is clear that genuine pricing mistakes are not intended to be caught by the provision. The legislation provides that a displayed price may be retracted where the retraction is published in a manner that has at least a similar circulation to the original representation.
The explanatory memorandum for the Australian Consumer Law states that the multiple pricing provisions are not intended to exclude the right to withdraw an item from sale, correct the price, and then offer it for sale again, where a supplier has made a genuine pricing mistake.
This means that if a product is mis-ticketed at POS then the retailer may withdraw the product from sale and re-ticket the product. However, if the mistake is made in a catalogue then the withdrawal should be made in the same publication, in the same manner.
Lay-by agreements
The Australian Consumer Law will introduce into the TPA provisions regulating of lay-by agreements, which will replace the multiple regimes in state and territory legislation.
Under the provisions of the TPA, retailers of consumer goods will have an obligation to ensure that lay-by agreements are in writing and a copy of the agreement is given to the consumer to whom the goods are, or are to be, supplied. There will also be a requirement that lay-by agreements must be transparent.
A supplier can cancel a lay-by agreement if the consumer has breached a term of the agreement; the supplier ceases to engage in trade or commerce; or the goods are no longer available.
However, in the event of cancellation by either party, the consumer will be entitled to a full refund, although a supplier can charge a termination fee for cancellation of a lay-by agreement where the agreement is terminated by the consumer; and the supplier has not breached the agreement.
The amount of the termination charge must not be more than the reasonable costs incurred by the supplier in relation to the agreement and may include charges such as reasonable storage costs or administration fees.
The supplier may withhold the termination charge from money repaid to, or recovered from, a consumer if the total amount paid by the consumer under the lay-by agreement is not enough to cover it.
Consumer guarantees
Retailers supplying clothing or other fashion items to consumers will be deemed to provide consumer guarantees that the retailer has the right to sell the product; the product is free from any undisclosed security (although this will not be breached if the manufacturer has a floating charge over its assets); the consumer will have undisturbed possession of the product; the product is of “acceptable quality”; the product is fit for any purpose that the consumer makes known to the retailer; the product matches its description or a sample (in quality, state and condition); facilities for the repair of the product is reasonably available for a reasonable period by the manufacturer; and any express warranty is complied with.
The appropriate remedy will depend on the nature of the failure to comply with a guarantee but generally includes refunds, repairs and replacements.
What is “acceptable quality”?
The guarantee that fashion items are of “acceptable quality” replaces the current implied warranty that goods are of “merchantable quality”. Although the concepts are likely to be very similar, the TPA now sets out that “acceptable quality” requires the goods to be fit for all purposes for which goods of that kind are commonly supplied and must be acceptable in appearance and finish, free from defects, safe and durable.
Whether a garment is of acceptable quality will depend on the nature of the goods, the price, any statements made on the packaging or label, representations made about the goods by the retailer/supplier and any other relevant circumstances. For example, this means that the concept of “acceptable quality” may depend upon whether the price of the dress is $45 or $450.
The legislation also provides that the guarantee of “acceptable quality” does not operate if the reason the goods are not acceptable was specifically drawn to the consumer’s attention or, where the goods are displayed, the reasons that they are not acceptable could have been found through an examination of the goods.
Guarantee that retailer has title
The statutory guarantees operate so that retailers will be deemed under the TPA to have provided such guarantees to consumers regardless of any actual intention to do so. This may raise a potential issue for retailers in a situation where a deemed guarantee as to title is provided by a retailer to the consumer but the retailer has a supply agreement with a manufacturer that contains a retention of title clause.
Under a “retention of title clause” the retailer does not own the goods until it pays the manufacturer for the goods. It is not uncommon in the fashion industry that the manufacturer supplies the product to the retailer with a retention of title clause, the retailer pays at the end of the month but sells the product before the end of the month.
If the manufacturer were to become insolvent, it is technically possible that the retailer would be giving a guarantee to a consumer without actually having title, in breach of the consumer guarantee. Although in most cases payment for the goods at the end of the month will mean that the risk to the retailer is very low, it may be important if there is a dispute between the parties.
Retailers’ right of action against manufacturers
The provisions of the new Australian Consumer Law will provide for an indemnity in favour of the retailer where the reason that the retailer is in breach of a consumer guarantee is the fault of the manufacturer. For example, a retailer can recover the costs incurred from a manufacturer where goods are not of acceptable quality because of a fault which occurred during the manufacturing process.
Product liability: playing it safe
The Australian Consumer Law has broadened the product liability provisions.
Product liability provisions must take into account foreseeable “uses” and “misuses” of consumer goods that appear as if they may cause injury to a person. That is, a supplier that supplies fashion garments or accessories to a consumer may be issued a mandatory recall notice where those goods pose a risk of injury, both from the usual way the goods are to be used, and now, any foreseeable misuses.
This means that suppliers should now also have regard to the potential misuses of the product by a consumer. For example, a supplier of children’s nightwear may need to assume that the product will be placed by a fire or on a heater to dry and, if the product is made from flammable material, the supplier may need to take into account the foreseeable misuse.
Additions to the TPA require a supplier who becomes aware that it has sold consumer goods which have been associated with a serious illness, imminent death or serious injury of a person, to notify the Federal Government. This notice will be required unless it is very likely that the serious illness, imminent death or serious injury was not associated with the product.
This means that if it is possible that the serious illness, imminent death or serious injury is associated with the good, then the supplier must report the incident. This obligation falls on the manufacturer, wholesaler and retailer of the product.
“Serious illness or injury” means an acute physical injury or illness that requires medical or surgical treatment by a medical practitioner or a nurse. If a retailer suspects it has supplied a fashion garment or accessory that may be connected to a serious illness or injury, it may need to seek legal advice as to whether it is required to notify the Federal Government of the issue.
The consequences of non-compliance
Contraventions of lay-by sales rules mean penalties of up to $30,000 for a body corporate and $6000 for an individual, and up to $50,000 for a body corporate and $10,000 for an individual that fails to display a notice in relation to a consumer guarantee where required to do so by written notice from a minister.
Civil penalties with a maximum of up to $1.1 million for a body corporate and $220,000 for a person other than a body corporate, may apply to a business that contravenes the prohibition on unconscionable conduct or certain provisions of the product safety regime, including a failure to comply with mandatory safety standards or the mandatory product recall provisions.
In addition, injunctions, damages, compensatory orders, disqualification orders, non-punitive orders, adverse publicity orders and public warning notices, may be available in certain circumstances where a supplier has contravened a provision of the TPA.
Retailers should be aware that the Australian Consumer Law, to commence on 1 January 2011, changes the nature and extent of their legal obligations. In particular, retailers should review their lay-by agreements and ensure that their contractual arrangements with suppliers cover off their liability to consumers for breach of the consumer guarantees and product liability issues.
Manufacturers will need to review their product liability position, particularly in light of the extension of any product liability obligations to reasonable foreseeable misuse of their products.