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If your business sells faulty goods to a client or customer, you will generally be responsible. In New Zealand, consumer law implies certain standards for the products you sell and mandates a response if you sell a faulty product. What these standards are and whether they apply to you depend on:

  • what you are selling;
  • who you are selling to; and
  • who caused the fault.

Not only does the law require that you make up for your mistakes if you supply faulty goods, but it is also a good commercial practice to provide remedies when you do fall short. If your business sells faulty goods and does not deal with them accordingly, you will likely face reputational damage and legal penalties. This article will explain when your business is responsible for faulty goods and what you need to do when you sell a faulty product.

Responsibility for Consumer Products

If your business sells consumer products, then you must uphold the legal guarantees attached to those products. ‘Consumer’ refers to products that an ordinary member of the public would buy for personal or household use. They need to be:

  • fit for purpose;
  • of reasonable quality;
  • the same as any description you provide;
  • reasonably priced if you did not predetermine a price;
  • delivered on time; and
  • sold legally.

“Reasonable quality” depends on the nature of the product and what the customer is buying it for. This generally means that the product is:

  • suitable for its intended purpose;
  • acceptable in appearance and finish;
  • free from minor faults;
  • safe to use; and
  • durable.

Selling a faulty product that does not meet these standards will break one of your consumer guarantees, so you are responsible for fixing your mistake by providing a remedy. This is especially true if the type of product you are selling has extra safety standards, such as children’s toys and prams.

For example, say your business sells toasters. If that toaster burned all of the bread it toasted from its first use, it is clearly faulty and not fit for purpose. Therefore, under the law, a customer can expect you to remedy the faulty product.

Providing a Remedy for Consumer Goods

If you sell a customer faulty goods, then they are entitled to a remedy. This would usually be a:

  • replacement;
  • repair; or
  • refund.

If the fault is minor and easily fixable, you may decide what kind of a remedy to give. 

For example, if you just need to swap out a faulty wheel on a suitcase you sold, this would be a minor fault.

However, if the fault was significant, the customer gets to decide what kind of remedy they get. A fault is significant when the product is:

  • unsafe;
  • significantly different from its description or sample model; or
  • substantially not fit for purpose and cannot be easily made to be.

If a reasonable customer would not have bought the product if they had known about the defect, this classifies it as a substantial fault.

Who Caused the Fault?

If the fault came to be because of mistakes on your end, you generally have to provide a remedy. However, your circumstances may change if a customer caused a fault in the product. A customer cannot demand a remedy for a faulty product if they:

  • damaged the product, by accident or on purpose; 
  • disregarded instructions and broke the product through misuse;
  • went to an independent repairer first for repairs; or
  • bought the product while knowing about the fault.

In these instances, you do not have to give a customer a remedy under consumer law. You may decide to give them one anyway as per your returns policy, but this is up to you.

Responsibility for Commercial Products

These guarantees do not apply to products that an ordinary member of the public would not buy, known as commercial products. These are goods that a business would buy for:

  • resupply in trade;
  • manufacturing new products; or
  • repairing other goods for sale.

Examples of commercial products include:

  • your office’s photocopier; or 
  • ingredients for your restaurant.

However, if another business buys goods from you, you should still make sure that these goods are fit for purpose and of reasonable quality. Otherwise, they may be able to make a claim that you did not fulfil your contractual obligations or your commercial warranties.

Contracting Out

When you sell to another business, you have the option of contracting out of both your consumer guarantees and commercial warranties. This means that these implied legal requirements do not apply to your contractual relationship. 

You cannot contract out of your obligations to the general public. However, the law recognises that there may be some instances where businesses can rely on their commercial experience to determine the fairness of a deal without needing consumer guarantees. 

Key Takeaways

In most cases, if your business sells faulty goods to a customer or a client, then you are responsible for providing a remedy for your mistake. However, this may not apply in some instances, like when the customer damages a product, or you have contracted out with another commercial party. If you would like more information or help with faulty goods at your business, contact LegalVision’s regulatory and compliance lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

When are goods faulty?

‘Faulty’ can cover a broad range of potential issues with your products. In most cases, a product is faulty if it breaks or is not able to complete the purpose a customer bought it for.

What are consumer products?

Consumer goods are products that a member of the public would buy for their personal or household use. This includes things like personal electronics or household furniture.

What is the difference between consumer and commercial products?

Commercial products are goods that a consumer would not buy for their household use. These are products that your business would buy for the purpose of trade, such as coffee beans for your cafe.

Is my business responsible for faulty goods?

In most cases, your business will be responsible for supplying a remedy if you sold faulty goods. This is to protect consumer rights. However, you may not be if a customer caused the fault, or you contracted out of the Consumer Guarantees Act (or another law) with another commercial party.

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