As a business, when selling products to consumers, you must be aware of the consumer law obligation to ensure those products are safe and of good quality. If a product is faulty, you have a responsibility to provide a remedy for your customer. This remedy can be in the form of a repair or refund. However, the obligations you extend to your customers are different when you buy products from your suppliers. For businesses conducting trade with each other, the rules are a bit different. You may not have the same options as your customers if you buy a product that turns out to be faulty. This article will outline what your business’s options are if you purchase defective products from your supplier.

Contractual Rights

If you discover that you have bought faulty products from your supplier, the first step is to check your contract with them. There may be terms in the contract that relate to what happens if there is a fault. Consequently, your supplier may be contractually obliged to remedy that fault. This could be in the form of a:

  • replacement;
  • repair; or
  • refund.

For example, suppose there is a term in your contract where the supplier promises to deliver their products safely to you, and the product becomes damaged in delivery. In that case, you may be able to claim some kind of compensation.

If the product fault is a serious problem that breaches one of your contract terms, you may be able to terminate your contract. Further, you may be able to receive some financial compensation for the fault. If your contract does not have a cancellation clause, still speak to your supplier about it, and you may be able to come to an agreement. Ultimately, your supplier must fulfil their side of the contract with due care and skill.

If your supplier refuses to deal with the fault or negotiate a contract cancellation, then you have the option of taking a claim to the Disputes Tribunal. If you decide to take this path, it is a good idea to seek legal advice. Some possible claims you could argue, include:

  • that the faulty product supplied by your supplier was a consumer product;
  • that certain legal warranties are in place; or
  • your supplier misled you about the quality of the products.

Consumer Products

You may have legal remedies available depending on the kind of faulty products. If they were consumer products, you might be able to rely on the same consumer laws which protect your customers. Consumer products are items that can be bought by the general public for personal or household use. Some products your business purchases could come into this category, such as:

  • stationery;
  • desks;
  • chairs;
  • a domestic microwave or oven; or
  • computers.

You cannot rely on these laws to protect your commercial products, like food ingredients for your café or fabric for your clothing brand. Businesses also have the option to contract out of the Consumer Guarantees Act – the law that protects consumer products. You can contract out when:

  • both you and your supplier agree in writing to do so; and
  • it is fair and reasonable for your businesses.

Warranties

You may also be able to take advantage of some warranties that the law implies when selling goods. You may be entitled to bring legal proceedings against your supplier if the product:

  • does not match the description that the seller gave you;
  • is not fit for the purpose you specified, and this product is part of the seller’s usual trading;
  • is not of reasonable quality, and the seller normally sells this kind of product; or
  • is not legally able to be sold by your supplier, for example, if someone else owns it or the seller still owes someone else money for the product.

However, you should check your agreement with your supplier, because they may have contracted out of these obligations as well. Your contract or the seller’s terms and conditions should specify these details. If there is a term saying that any warranties implied by the law do not apply to certain relevant products, then the seller has contracted out. Hence, you and your business cannot rely on these warranties.

Misleading Statements

If you can prove that your supplier misled you about the quality of the products in any way, then you may be able to bring a claim against them for breaching fair trade practices. A breach could include:

  • making misleading or deceptive statements;
  • making unsubstantiated claims about their products;
  • unfair sales practices; or
  • unfair contract terms.

As with the previous options, businesses can contract out of these obligations as well, so make sure to check your sales contract or your supplier’s terms and conditions.

Key Takeaways

If you find that your business has bought faulty products from your supplier, your first step is to check your contract. You may have potential remedies available to you based on the promises your supplier made at the time of signing. If you cannot negotiate with your supplier, you can take a claim to the Disputes Tribunal. Still, you should ensure that the seller has not contracted out of any applicable laws around commercial relations. If you would like more information or assistance regarding commercial contracts with your suppliers, contact LegalVision’s New Zealand regulatory and compliance lawyers on 0800 447 119 or fill out the form on this page.

FAQs

Does the Consumer Guarantees Act apply to businesses?

The Consumer Guarantees Act legally protects consumers and ensures they do not purchase faulty products without some kind of remedy. In some circumstances, this law can apply to businesses as well. Generally, if a business buys consumer products for personal or household use, then the Consumer Guarantees Act is applicable.

What is a faulty product?

A faulty product can be a variety of things. Generally, a product is faulty if it is broken, or not fit for purpose. This could mean that the product does not work correctly, or the seller led you to believe it would suit the purpose you bought it for, and it does not.

What do I do if I buy a faulty product for my business?

If you purchase faulty products from your supplier, you should first let them know, and check your contract to see if any terms outline what to do in this situation. Your supplier may be contractually obliged to give you a remedy, or you may be able to negotiate a solution.

What do I do if the manufacturer refuses to fix a faulty product for my business?

If the manufacturer refuses to fix a faulty product that they provided, you can attempt mediation to settle the dispute. If this is not successful, you may be able to take a claim to the Disputes Tribunal.

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