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Damages and rescission

If a consumer buys goods and on delivery of the goods discovers them to be defective in some way (for example, they do not correspond with their description, are not saleable, or are not reasonably fit for their purpose), there will arguably be a breach of implied guarantee (see Implied guarantees). Consumers generally have two options. Firstly, not to accept the goods and to recover any amount paid under the contract for the supply of the goods – this is called rescinding the contract. The effect of a rescission is that the parties are restored to the position in which they were before the contract was entered into. The other option is to retain the goods but to seek damages from the supplier in respect of the defect.

The Australian Consumer Law

The remedies available to consumers under the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010 (Cth)) vary depending on whether the breach of guarantee is a major or non-major failure to comply.

Under the Australian Consumer Law a consumer may reject goods by notice in writing (or alternatively by returning the goods to the company together with notice) as to the breach of the guarantee. This remedy is available only in those cases where the failure to comply to a guarantee is a major failure.

Where the failure to comply with a guarantee is a non-major failure the consumer is limited to requiring the supplier to remedy the failure within a reasonable time [s 259(2)(a)].

If the supplier refuses or fails to comply with this requirement, or fails to comply within a reasonable time, the consumer may then have the failure otherwise repaired and seek all reasonable costs incurred from the supplier[s 259(2)(b)]. Alternatively they may notify the supply that they reject the goods [s 259(2)(b)].

Whilst the legislation defines a major failure it does not define a non-major failure. Determining whether a failure is major or non-major will require reference to the definition of major failure at s 260 (see below).

A major failureto comply with a guarantee occurs where:

  • the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or
  • the goods depart in one or more significant respects from description or sample if supplied by description or sample; or
  • the goods are substantially unfit for a purpose for which goods of the same kind are commonly supplied and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or
  • the goods are unfit for a disclosed purpose that was made known to the supplier or a person who made any prior negotiations before the purchase was made and the cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or
  • the goods are not of acceptable quality because they are unsafe.

[s 260]

In the case of a major failure or where the breach of guarantee cannot be remedied, the consumer can either notify the supplier that they reject the goods or recover compensation for any reduction in the value of the goods below the price paid or payable by the consumer for the goods [s 259{3)].

The consumer may also take action against the supplier to recover damages for any loss or damage suffered because of failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of the failure [s 259(4)].

The right of a consumer to reject goods does not arise in the following instances:

  • the rejection period for the goods has ended; or
  • the goods have been lost, destroyed or disposed of by the consumer; or
  • the goods were damaged after being delivered to the consumer for reasons not related to their state or condition at the time of supply; or
  • the goods have been attached to, or incorporated in, any real or personal property and they cannot be detached or isolated without damaging them.

[s 262]

There is no specified amount of time for a rejection period. The legislation describes it as being the period from the time of the supply of goods to the consumer within which it would be reasonable to expect the relevant failure to become apparent [s 262(2)].

Sale of Goods Act 1985 (SA)

Under the Sale of Goods Act 1895 (SA) the consumer will be entitled to rescind the contract up to the time that she or he is deemed to have accepted the goods [s.34(1)]. After acceptance of the goods the consumer's only remedy will be that of damages. The consumer will not be deemed to have accepted goods delivered, which she or he has not previously examined until she or he has had a reasonable opportunity of examining them for the purpose of working out whether they conform with the contract. There is no fixed maximum period allowed for the examination of the goods. What is a reasonable time will vary according to the facts of each case. A seller is obliged to allow the consumer a reasonable opportunity to examine the goods for the purpose of working out whether they are in fact what she or he meant to buy.

Under the Sale of Goods 1895 (SA) the consumer will be deemed to have accepted the goods when she or he lets the seller know that the goods have been accepted or, if after goods are delivered to the consumer she or he does anything to them which is inconsistent with the fact that the seller is the legal owner, (for example, selling the goods or sending them off for repair, or altering the goods), or if after the lapse of a reasonable time she or he retains the goods without telling the seller that she or he has rejected them. It will not be necessary for the consumer to return the goods to the seller, it is sufficient if she or he lets the seller know that she or he does not wish to accept the goods. It is then up to the seller to collect the goods.

Damages and rescission  :  Last Revised: Thu Mar 17th 2011
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