Legal Guide for NFPs & Charities Managing Consumer Guarantee Disputes

Introduction

Not-for-profit organisations and charities in Australia that supply goods and services must meet basic standards under the Australian Consumer Law (‘ACL’). These automatic protections, known as Consumer Guarantees, apply whenever an organisation’s activities are conducted in ‘trade or commerce’, which can include many common fundraising efforts.

Understanding these obligations is essential for any not-for-profit or charity to correctly manage NFP and charity disputes and maintain public trust. This article provides information on when the law applies to your organisation, the specific guarantees for goods and services, and the process for providing remedies when these standards are not met.

Interactive Tool: Check Your Charity’s Consumer Guarantee Rights & Obligations

When the ACL Applies to Your Charity or NFP

Engaging in Trade or Commerce Through Fundraising

The ACL (ACL) applies to the activities of a charity or not-for-profit organisation if those activities are conducted in ‘trade or commerce’. This is a broad concept that includes business or professional activities and is not limited to those carried on for profit. Furthermore, a fundraising activity is likely to be considered in trade or commerce if it is performed in an organised, continuous, and repetitive way, which is why understanding how to conduct charitable fundraising without breaking the law is so important.

Several factors indicate that fundraising activities are being carried out in a business-like manner and are therefore in trade or commerce, including:

• The activities are continuous and repetitive, rather than just a one-off event.
• The fundraising is organised and managed with strategies, goals, and established processes.
• The organisation uses resources such as assets and employees to conduct the fundraising.
• The fundraising activities are promoted or marketed to the public.
• Financial or other records of the fundraising activities are kept.

For example, an incorporated association that provides volunteer emergency services and runs regular, coordinated fundraising drives to meet its financial goals is likely to be operating in trade or commerce. In contrast, a parent seeking one-off donations on social media to help their child attend a sporting event would likely not be.

The Supply of Goods or Services by a NFP

If your not-for-profit organisation regularly supplies goods or services in return for payment or other forms of consideration, that activity is likely to be in trade or commerce. When this occurs, the ACL will probably apply. Ultimately, this holds true even if your organisation does not operate for profit or if the services are subsidised, which relates to the core principles of what operating as a not for profit organisation means.

Consider the following scenarios where an organisation is engaging in trade or commerce:

• An environmental charity sells toy animals and books, with a portion of the purchase price supporting its preservation work. This sale of goods is a fundraising activity that falls under the definition of trade or commerce.
• A not-for-profit provides subsidised cleaning services to people with disabilities in exchange for payment. In this situation, it is engaging in trade or commerce, and the ACL is likely to apply to that service.

Consumer Guarantees When Supplying Goods & Services

Guarantees Relating to the Supply of Goods

When a not-for-profit organisation supplies goods to consumers, the ACL requires that these goods meet several automatic guarantees. These standards ensure consumers receive products that are fit for purpose and as described.

The guarantees for the supply of goods include that they:

• Are of acceptable quality: This means goods must be safe, durable, free from defects, and acceptable in appearance and finish. They should be fit for all the purposes for which goods of that kind are commonly supplied.
• Match descriptions: Goods must match any description provided by a salesperson, on packaging, in advertising, or on labels.
• Match samples or demonstration models: If a consumer is shown a sample or demonstration model, the goods supplied must correspond with it.
• Are fit for a disclosed purpose: The goods must be reasonably fit for any specific purpose the consumer made known to the supplier before the purchase.
• Come with clear title: The supplier must guarantee they have the right to sell the goods, and the consumer’s ownership will not be disturbed unless otherwise disclosed.
• Are free from undisclosed securities: Goods must not be subject to any hidden securities or charges.
• Have spare parts and repairs reasonably available: Manufacturers are required to ensure that spare parts and repair facilities are reasonably available for a reasonable period after the goods are supplied.

These guarantees also apply to second-hand goods, though their age, price, and condition are taken into account. Furthermore, for imperfect goods or ‘seconds’, any defects must be clearly pointed out to the consumer before the sale.

Guarantees Relating to the Supply of Services

Similar to goods, when a not-for-profit organisation provides services to a consumer, there are automatic guarantees under the ACL. These guarantees ensure that services are delivered to a professional standard, and if an organisation fails to meet these standards, the consumer is entitled to a remedy.

The key guarantees for services are that they will be:

• Provided with due care and skill: This means the service must be carried out with an acceptable level of skill and technical knowledge, and the provider must take reasonable care to avoid loss or damage.
• Reasonably fit for any disclosed purpose: If a consumer specifies a particular purpose or result they want to achieve, the service must be fit for that purpose.
• Provided within a reasonable time: When no specific time is agreed upon for the service to be completed, it must be supplied within a reasonable timeframe.

How the Law Applies to Gifts & Donated Goods

The ACL generally does not apply to the supply of donations from a not-for-profit organisation. However, there is an important exception when donated goods are supplied for promotional purposes. For example, if a charity gives out branded merchandise at a fundraising event, it is considered a ‘supplier’, and the consumer guarantees will apply to those goods.

Recipients of gifts have the same rights as if they had purchased the goods or services themselves. In addition, if a not-for-profit organisation receives donated goods and then passes them on, that organisation can enforce the consumer guarantees against the original supplier or manufacturer, rather than the person who made the donation.

How the ACL Protects NFP Organisation

Purchasing Goods & Services as a Consumer

The ACL provides protections for not-for-profit organisations when they purchase goods and services. Your organisation is considered a ‘consumer’ and is covered by consumer guarantees when it acquires certain items for its operations.

A not-for-profit organisation qualifies as a consumer when it purchases:

• goods or services that cost up to $100,000;
• goods or services costing more than $100,000 that are of a kind ordinarily acquired for personal, domestic or household use; or
• a vehicle or trailer, regardless of its cost, provided it is used mainly to transport goods on public roads.

Enforcing Rights Against Suppliers & Manufacturers

When your not-for-profit organisation buys goods or services as a consumer, it has access to rights and remedies under the consumer guarantees. If a product or service fails to meet a guarantee, your organisation can take action against the supplier or manufacturer. Ultimately, the type of remedy available will depend on whether the issue is a minor or major failure.

Furthermore, these protections also extend to goods your organisation receives as donations. If a donated item is faulty, your not-for-profit can enforce the consumer guarantees against the original supplier or the manufacturer of the goods. However, the person who donated the item is not responsible for providing a remedy. Depending on the circumstances, your organisation may be entitled to a repair, replacement, or refund for the faulty goods.

Managing Consumer Guarantee Disputes & Failures for NFPs

Identifying Minor Failures & Major Failures

When a good or service supplied by a not-for-profit organisation does not meet a consumer guarantee, the ACL classifies the issue as either a minor or major failure. A minor failure is a problem that can be fixed within a reasonable amount of time.

A failure with goods is considered major if:

• A reasonable consumer would not have bought the goods if they had known about the problem.
• The goods are significantly different from a description, sample, or demonstration model.
• The product is substantially unfit for its usual purpose and cannot be easily fixed.
• The goods are substantially unfit for a specific purpose that the consumer told the supplier about.
• The goods are unsafe.

For services, a failure is major when:

• A reasonable consumer would not have acquired the services if they were fully aware of the issue.
• The service is substantially unfit for its normal purpose and cannot be easily made suitable.
• The service, and any resulting product, is substantially unfit for a specific purpose the consumer disclosed.
• The supply of the service creates an unsafe situation.

Providing Remedies for Goods Including Repair, Replacement or Refund

The type of remedy a consumer is entitled to for faulty goods depends on whether the failure is minor or major. For a minor failure, the not-for-profit organisation can choose to offer a repair, a replacement, or a refund. Furthermore, this must be done within a reasonable time.

If the organisation refuses or fails to fix the problem, the consumer can have the goods repaired elsewhere and recover the reasonable costs from the supplier. Alternatively, the consumer can reject the goods and request a refund or replacement.

In the case of a major failure, the consumer has the right to choose the remedy. They can reject the goods and ask for a full refund or an identical replacement. In addition, the consumer may choose to keep the goods and receive compensation for the drop in value caused by the problem.

Providing Remedies for Services & Cancelling Contracts

Remedies for services that fail to meet a consumer guarantee also differ based on the severity of the failure. If a problem is minor, the consumer must first give the not-for-profit organisation an opportunity to fix it free of charge and within a reasonable time.

If the supplier does not rectify the minor issue, the consumer can hire someone else to correct it and recover the costs. The consumer can also choose to terminate the contract and request a refund for any part of the service that has not been consumed.

When a major failure occurs with a service, the consumer has more options. They can choose to terminate the contract and get a refund for the unused portion. They can also keep the contract but negotiate a reduced price to compensate for the drop in the service’s value.

Case Study on Misleading Representations About Consumer Guarantees

The Federal Court Decision in ACCC v Bunavit Pty Ltd

A 2016 Federal Court case, ACCC v Bunavit Pty Ltd [2016] FCA 6, highlights the serious consequences of misinforming consumers about their rights. As a result, the court ordered Bunavit Pty Ltd, a Harvey Norman franchisee, to pay $52,000 in penalties for making false or misleading representations regarding consumer guarantees.

Sales representatives for the organisation misled consumers about their rights under the ACL. The specific misrepresentations included telling consumers that:

• The business had no obligation to provide a remedy for faulty goods;
• Consumers were required to pursue the manufacturer’s warranty directly with the manufacturer; and
• Consumers had to pay for some or all of the repair costs if they pursued the warranty through the franchisee.

Lessons for Charities & NFPs on Legal Compliance

The outcome in Bunavit provides important lessons for any not-for-profit organisation that supplies goods as part of its fundraising activities. Specifically, a charity or NFP cannot avoid its obligations by directing consumers to the manufacturer of a faulty product.

Furthermore, your organisation is responsible for providing a remedy when goods fail to meet a consumer guarantee. Therefore, it is essential that staff and volunteers understand these obligations and communicate them accurately to consumers, as proper NFP governance and ACNC compliance is key to avoiding penalties. Misleading a consumer about their right to a repair, replacement, or refund can lead to significant penalties under the ACL.

Conclusion

Not-for-profit organisations and charities operating in trade or commerce must adhere to the ACL, which includes automatic consumer guarantees for the supply of goods and services. Understanding these obligations, from identifying failures to providing the correct remedies, is essential for legal compliance and maintaining public trust.

If your not-for-profit or charity requires legal advice on its reporting obligations or managing consumer disputes, contact our experienced not-for-profit lawyers at LawBridge. Our LawBridge Legal Team provides essential legal support to help ensure your organisation’s fundraising and other activities comply with the ACL.

Frequently Asked Questions