Business Law and Ethics: ACL and Consumer Guarantees

This article discusses the Australian Consumer Law and consumer guarantees in relation to three different scenarios. It covers the issues, rules, and applications of the law, as well as the available remedies for the breach of consumer guarantees. The article also examines the effectiveness of exclusion clauses in limiting the liability of the seller.

Running head: BUSINESS LAW AND ETHICS
BUSINESS LAW AND ETHICS
Name of the Student
Name of the University
Author Note

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Factual Background
Sangita entered into transactions with one “Myers Stores” through their online portal
which she had been browsing. Once the ordered products were delivered various latent defects
were found in the products. By virtue of Australian Commercial Law the transactions should
ideally be protected and Sangita should have remedies available for the same (Corones 2014).
Scenario (a)
Issue
The issue here is to determine if:
 ACL applies to Sangita’s transaction relating to the rice cooker she purchased from
“Myers Stores”
 What implied guarantee has been breached by the seller.
 Remedies available to Sangita.
 Effect that the statement in the receipt.
Rule
Schedule 2 to the Competition and Consumer Act, 2010 (cth) defines and regulates
Australian consumer law (ACL) (Howells and Weatherill 2017). According to Section 3 of the
ACL a transaction that is below $40,000 and is entered into for a household/domestic purpose
would fall under the ambit of ACL as long as they are made in the capacity of the ultimate
consumer (Hunt 2015).

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Section 56 of the ACL embodies various consumer guarantees which cannot be amended,
modified or avoided by a person who is acting in the capacity of a seller in a consumer
transaction (Dietrich 2015). Section 259 of the act provides for remedies in case the seller in a
consumer transaction breaches one or more of the consumer guarantees (Knake 2013). This
section provides that in case Section 56 is breached and the breach is a major failure to observe
implied consumer guarantees then the buyer would have the right to reject the delivery of goods
and demand compensation for any form of reduction in value [Section 259 (3)] and claim
damages for any foreseeable loss or damage [Section 259 (4)] (Howell 2015).
Section 23 (1) of the ACL provides that any unfair term incorporated into a standard
contract would be deemed void. Section 24 (c) of the ACL states that any contractual term that
causes detriment to the rights of any party to the contract would be declared as an unfair term
and thus in effect would be void (McKendrick and Liu 2015).
Application
This was a transaction that was entered into for the purchase of a rice cooker. A rice
cooker was bought as a household/domestic good and thus would fall within the ambit of Section
3 of the ACL.
The product delivered by “Myers Stores” does not fit the purpose it was purchased for
and thus is a breach of the implied consumer guarantees embodied in Section 56 of the act. Since
this is a major failure to observe consumer guarantees Sangita would be entitled to reject the
goods and claim compensation for any reduction in value as prescribed in Section 259 (3) and/or
claim damages for the same as prescribed in Section 259 (4) of the act.

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The statement in the receipt causes a detriment to the rights of Sangita and thus under the
provisions of Section 24 (c) it would be deemed an unfair contractual term. Thus following the
provisions of Section 23 (1) of the ACL the term contained in the receipt would be deemed void.
Conclusion
 Sangita’s transaction is covered by the ACL.
 Myers Stores breached the consumer guarantees embodied in Section 56 of the ACL.
 Sangita would have the remedies prescribed in Section 259 (3) and (4) of the ACL.
 The term contained in the receipt would be deemed void.
Scenario (b)
Issue
The issue here is to determine:
 If the transaction is covered by the ACL.
 What implied guarantee has been breached by the seller.
 Remedies available to Sangita.
 Effect that the statement in the receipt.
Rule
As provided for in Section 3 of the ACL a transaction that is under $40,000 and if it is
purchased in the capacity of the ultimate consumer it would fall within the ambit of the ACL
(Pearson 2017). Section 54 (1) of the ACL states that in consumer transactions the goods
delivered must be of acceptable quality this is an implied consumer guarantee (Barratt, Seear and
Lancaster 2017). Thus the goods delivered to the buyer must adhere to a particular standard of

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durability and acceptability. In the judgment in E v Australian Red Cross Society (1992) 31 FCR
299 the court held that “acceptable quality” would be construed as safe and durable (Corones
2014).
Section 260 of the ACL states that when a person acting in the capacity of a seller in a
consumer transaction fails to observe consumer guarantees and the same is a major failure to
observe them the consumer would be entitled to reject the goods and demand compensation for
any reduction in value (Fatma and Rahman 2015). Thus this section of the ACL provides an
optimum safeguard for the rights of the buyer. This provides the buyer with a remedy that would
entitle him to reject the goods sold to him which do not meet the purpose or are otherwise
unacceptable and also provides him with an option to claim compensation for the breach
(Thampapillai 2015).
Application
It has been provided in the given case study that Sangita had purchased an electric drill
for her Uncle for household consumption. Sangeeta had paid $69.95 for the electric drill.
Therefore, it can be stated that Sangita is a consumer as per the provisions of section 3 of the
ACL which has been provided in Schedule 2 of the Competition and Consumer Act 2010.
Section 3 of the ACL states that any person who purchases any good or services worth less than
40, 000 for personal and household use can be termed a consumer. Thus in this case Sangita can
seek to enforce her consumer rights against Myers Pty. Ltd.
It can be stated in accordance with the facts of the case, that the electric drill purchased
by Sangita emitted smoke after it was used for the first time. The consumer guarantee which has
been provided in section 54(1) of the ACL states that goods supplied by any person who is

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engaged in trade or commerce must be of acceptable quality unless such goods had been
purchased by the consumer from an action. It was further provided in the aforementioned section
that goods provided by any person who engages in trade and commerce must not deliver any
goods which contain safety defects. Thus in this scenario, it is evident that the consumer
guarantee of Sangita which has been provided in section 54(1) of the ACL had been breached.
In this given scenario it is evident that the electric drill was not of acceptable quality and
therefore Sangita wil have the right to reject the electric drill as per the provision of section 260
of the ACL. It can be stated that section 260 provides the consumers the right to reject the goods
in case of a major breach of consumer guarantee.
In this case it has been provided that the store had a written term in the contract of sale of
goods which stated “Myers Stores offer no refund, exchange or replacement for items purchased
online”. However, such clause to exclude the liability of Myers Stores in this given situation
would not be effective as the section 64 of the ACL implies that an attempt to restrict, exclude or
modify the consumer guarantees would not be effective. Section 29 further states that any
person who tries to exclude, restrict or modify the consumer guarantees could be held liable for
prosecution for indulging in the actions.
Conclusion
Thus, to conclude it can be stated that Sangita has the right to reject the electric drill as it
is in breach of her consumer guarantee and the exclusion clause would be in effective.

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Scenario C
Issues
 Whether the transaction falls within the purview of the Australian Consumer Law
 What implied guarantees of Sangita had been violated in this scenario
 What remedies are available to Sangita for breach of her consumer guarantees
 Whether the exclusion clause would be effective in limiting the liability of the Myers Pty.
Ltd.
Rule
Section 3 of the ACL which has been provided in schedule 2 of the Competition and
Consumer Act 2010 states that any person who purchases any goods or services worth less than
40, 000 for personal and household consumption can be termed a consumer (Tynan 2015).
In sections 51-59 of the ACL provides the consumer guarantees to consumers in relation
to title, undisclosed securities, undistributed possessions, fitness for purpose and of acceptable
quality (Stewart 2015).
The consumer guarantee which is relevant in the given scenario is guarantee in relation to
fitness for particular purpose which has been provided in section 55.
It has been provided in section 55(1) of the ACL that goods which are supplied by any
person in trade and commerce must be fit for the particular purpose. In section 55(2) a disclosed
purpose has been defined as a purpose for which the consumer has acquired the goods and when
he has expressly notified the supplier the same to the supplier.

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It can be stated that section 260 provides the consumers the right to reject the goods in
case of a major breach of consumer guarantee. However, the aforementioned section is only
applicable if there has been a major breach of consumer guarantee which are in relation to breach
of the provisions of sections 54, 55 and 56 (Lewins 2016).
Further it has been provided in section 64 of the ACL, that any attempt to exclude,
restrict or limit the consumer guarantees provided to consumers would be ineffective (Cockburn
2013). In section 29 of the ACL, it has been provided that any person who engages in the attempt
to restrict, exclude or modify the consumer guarantees could be liable for prosecution.
Application
It has been provided in the given case study that Sangita had purchased the electric drill
for her Uncle for household consumption. Sangeeta had paid $49.95 for the electric drill.
Therefore, it can be stated that Sangita is a consumer as per the provisions of section 3 of the
ACL which has been provided in Schedule 2 of the Competition and Consumer Act 2010.
Section 3 of the ACL states that any person who purchases any goods or services worth less than
40, 000 for personal and household consumption, can be termed a consumer. Thus, in this case
Sangita can seek to enforce her consumer rights against Myers Pty. Ltd.
In this given scenario, it has been provided that the electric tooth brush failed to operate
with batteries. However, it has been provided that Sangita had asked whether the toothbrush
would operate with batteries, to which the online sales person assured her that the toothbrush
would operate with batteries. Therefore, in this case it is evident that the goods failed to comply
with the consumer guarantee in relation to fitness for particular purpose. Therefore, it can be
inferred that the provisions of section 55 had been breached.

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Sangita in relation to the breach of consumer guarantee has the right to reject the goods
which in accordance with the provisions of section 260 of the ACL. This is because there was a
major breach of her consumer guarantees.
Myers Stores Pty Ltd cannot rely on the exclusion clause as per the provisions of section
64 of the ACL. It is evident that giving effect to the exclusion clause would result in breach of
consumer guarantee.
Conclusion
Thus, to conclude Sangita can reject the good as it was not fit for th particular purpose
why she bought it and that the exclusion clause would have no effect.

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