What “faulty” can mean, plus when to provide a remedy in the form of a refund, repair or replacement —and when not to.

The Consumer Guarantees Act (CGA) says products sold, made or imported for household use must meet these requirements — also known as guarantees:

Acceptable quality

The legal definition of “acceptable quality” means a product must be:

  • acceptable in appearance and finish
  • free of small faults
  • fit for all the purposes it’s normally used for
  • safe to use
  • durable.

For example, the following products are not of acceptable quality:

  • New shirt with a mark on the back
  • Faulty on/off light on a new TV
  • New toaster that only toasts on one side
  • Crack in the carbon frame of a six-month-old mountain bike
  • Washing machine that fails after a year of normal household use
  • Washable wallpaper that bubbles after being wiped clean.

In these situations, the seller must give a remedy if a customer complains.

Understanding when to resolve an issue

This means a product will do what the customer tells you, or implies, they want or need it for. This guarantee must be true even when the purpose is an unusual one. Any advertising, packaging or labeling must give accurate details too.

Examples include:

  • If a customer says he wants a heater to warm his hall and two bedrooms, the heater sold to him must do so.
  • A retailer who sells house paint is asked about paint for a car. As they don’t sell paint suitable for this purpose, they must be honest and say so.
  • If a display sign says "work socks", the socks should be hardwearing and suitable for use by a labourer wearing boots.

This guarantee does not apply if a customer doesn’t rely on your skill or judgment, because either:

  • They didn’t ask for advice.
  • They went against your advice.
  • They asked for your opinion, eg “Will my boyfriend like these boots?” 

Reducing risk of complaints(external link) — business.govt.nz

Case study: Customer ignores advice(external link) — business.govt.nz

Products must match any description given, including on packaging and labels.

Common examples include:

  • 100% cotton
  • free-range eggs
  • recycled paper
  • toughened steel

If you show a customer a sample or a demonstration model, the product they buy must be the same.

For example, a customer looks at a food processor on display in a shop and takes a box off the stack to the counter. When she gets home, she finds it’s a different model to the one on display. She can return the food processor to the shop.

If you have not agreed on a price with a customer before purchase, the price you charge must be reasonable. This means within the range of prices offered by other local suppliers.

This applies when a product is delivered to a customer. If no timeframe is agreed, you must make sure it’s delivered within a reasonable time. What is reasonable will depend on:

  • the location of the seller and buyer
  • the type of product involved
  • whether it has to be ordered in from elsewhere.

For example, a customer would expect a TV bought from a local store to arrive within a few days. But when ordering a kitchen from a catalogue, they might expect to wait a few weeks.

If you send products to customers, it’s your responsibility to:

  • carefully package products for delivery
  • choose a reliable delivery service
  • have adequate insurance to cover any breakages
  • negotiate an appropriate contract with the delivery service
  • make sure customers know to tell you of any faults within a reasonable time.

If a customer complains about delayed or damaged deliveries, it’s up to you to put it right. You must not tell them to complain to the delivery company. If you delay or avoid your obligations under the CGA, this may also breach the Fair Trading Act.

Consumer problems caused by suppliers

Reducing the risk of complaints: Deliveries(external link) — business.govt.nz

You must have spare parts and repair facilities available for new products — and products newly imported into New Zealand.

If you can’t source spares, or a reliable repairer isn’t available, you may be able to claim a remedy from the manufacturer, importer or distributor. This means sending them the faulty product to be checked first.

You must have the right to sell a product. This is also called having title to it.

Tell customers about any security interests — money owing — on the product. If the debt isn’t cleared after they buy it, the person owed money can take the product back, even though it’s not the customer who owes money on it.

If your products fail to meet any of these requirements, the customer can seek a remedy from you. Whether this is a refund, repair or replacement depends on how bad the problem is, and whether a fault can be repaired.


Read more about Obligations under the Consumer Guarantees Act


When customers can’t claim a remedy

You do not have to give a refund, repair or replacement if the customer:

  • changes their mind
  • causes the problem either by accident or on purpose
  • doesn’t follow your advice about a product’s use or care, eg washing instructions
  • goes against your advice, eg they insist on cheaper materials for a roofing job
  • goes to someone else for repairs before coming to you.

In certain situations, you may decide to fix the problem for your customer anyway under your business’s returns or complaints policies.

Fair returns and complaints(external link) — business.govt.nz


Remedies for minor problems

If the problem with a product is minor and can be fixed, you have three choices:

  1. Repair it free of charge.
  2. Replace it with an identical product at no extra cost.
  3. Give a full refund.

The customer must accept the remedy you choose. Think carefully before offering repairs. If these are likely to be expensive or labour intensive, perhaps it’s better to offer a replacement or full refund instead.

If you refuse, fail or take too long to address the problem, the customer can:

  • ask for their money back
  • ask you for a replacement
  • take it elsewhere to be fixed and claim repair costs back from you.

For repairs, how quickly these must be done depends on the type of product and how regularly the customer needs to use it. For example, most shoe repairers offer same-day repairs for shoes. If a heater breaks down during winter, it’s unreasonable to expect a customer to wait longer than a day.

Discuss with your customer when they’ll get the repaired product back. If being without it will be difficult for them, think about loaning a replacement in the meantime.


Remedies for serious problems

A problem or fault with a product is considered serious if:

  • A reasonable customer who knows the nature and extent of the fault would not buy the product.
    • For example, a customer is unlikely to buy a new washing machine if they know the motor will burn out after three months.
  • The product is significantly different to its description, sample or demonstration model, eg a jersey described as 100% wool that’s 30% acrylic.
  • The product is unfit for its normal purpose and can't easily be made fit for purpose within a reasonable time, eg washable wallpaper that bubbles after being wiped clean.
  • It’s unsafe, eg a bicycle with faulty brakes.

If you sell vehicles or other expensive items, eg high-end computers, faults might be considered serious when:

  • Repair costs are high compared with the price paid, eg repairs of $1,000 on a car bought for $5,000.
  • There are a number of small faults, which on their own are minor but together make a big difference to its performance.

Customer chooses remedy

If the fault is serious, can’t be repaired or causes a safety risk, then the customer has three choices:

  1. Get a full refund.
  2. Get a replacement of similar type and value, if available, at no extra cost.
  3. Keep the faulty product but get compensation for the difference in value compared with one in good condition.

Even if you think you can repair a serious fault, the customer can still choose to get their money back instead.

If the customer chooses repairs, make sure they know it’s a serious fault before repair work begins. If you don’t make this clear, and the fault can’t be fixed, the courts have decided the customer can then reject the product. You’ll have to give them a refund or replacement — as well as having tried to repair it.

Refunds must be in cash or credited back to their credit card or store card account. You cannot offer a store credit or exchange note.

If you don’t think it’s a serious fault

Give your customer enough information about the nature of the fault so they can make an informed decision to either:

  • continue asking for their choice of remedy
  • accept your offer to repair, replace or refund their money.

Disagreeing with customers

You may decide to reject a complaint if you and your customer cannot agree about whether it’s a serious fault — or if you find it’s not a valid complaint.

Make sure you investigate fully before rejecting any complaints. You or your customer may want to get an independent assessment of the faulty product to support your views.

If you can’t resolve the problem with your customer, they may make a claim against you at the Disputes Tribunal, District Court, the Motor Vehicles Disputes Tribunal or another formal process to resolve their complaint.


Read more about Dealing with formal complaints


Remedies for damage or other loss

Sometimes a faulty product will cause damage or loss to your customer’s other belongings or property — known as consequential loss. If this happens, you need to compensate the customer for the damage.

For example, if a faulty dishwasher floods the kitchen, the business that sold the dishwasher must pay to fix any water damage to the flooring — and give a remedy for the faulty dishwasher.

You can ask for receipts or other evidence of extra costs before you reimburse your customer.

Examples of extra costs(external link) — business.govt.nz

 

If you sell products on credit

If you help arrange finance for a customer, you may be responsible for dealing with the finance company or paying off the loan if the product turns out to be faulty.

 

If you sell vehicles

If you give a refund for a faulty vehicle, it must be for the full purchase price — you can’t use depreciation as a reason to pay less.

If the customer traded in their old vehicle as part of the sale, you can offer the traded-in vehicle back to the customer, but only if it’s in the same condition — and hasn’t yet been sold to someone else. Otherwise the customer can claim the original value of their trade-in and any cash they paid.