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consumer

Does the CGA apply to goods bought for a business?

Key Takeaway

The Consumer Guarantees Act (CGA) generally applies to goods bought for personal use, but can also apply to goods bought by a business if they are not for resale, production, or repair of other goods. Businesses can sometimes contract out of the CGA. The Fair Trading Act (FTA), which prohibits misleading conduct, always applies to business transactions and cannot be contracted out of.

Does the Consumer Guarantees Act Apply to Goods Bought for a Business in New Zealand?

In New Zealand, consumer protection is primarily governed by the Consumer Guarantees Act 1993 (CGA) and the Fair Trading Act 1986 (FTA). Understanding how these Acts apply when goods are purchased for business use is crucial for both suppliers and purchasers.

Application of the Consumer Guarantees Act 1993 (CGA)

The Consumer Guarantees Act 1993 (CGA) provides a set of automatic guarantees for goods and services purchased by 'consumers'. A consumer is defined as a person who acquires goods or services of a kind ordinarily acquired for personal, domestic, or household use or consumption [Source: Consumer Guarantees Act 1993, s 2].

When the CGA Generally Does Not Apply to Business Purchases:

The CGA generally does not apply to goods or services acquired for the purpose of trade if they are:

  • supplied in trade for the purpose of resupplying them in trade; or
  • consumed in the course of a process of production or manufacture; or
  • used in repairing or treating other goods or fixtures on land [Source: Consumer Guarantees Act 1993, s 2(1)(a)-(c)].

In trade refers to any trade, business, industry, profession, occupation, or activity of commerce, or any undertaking relating to the supply or acquisition of goods or services [Source: Fair Trading Act 1986, s 2].

When the CGA Does Apply to Business Purchases:

If goods are purchased by a business and do not fall into any of the above categories (i.e., not for resupply, production/manufacture, or repairing other goods), then the CGA can apply. For example, a business buying office furniture, a computer for staff use, or cleaning supplies for its premises may still be considered a 'consumer' under the CGA because these goods are of a kind ordinarily acquired for personal, domestic, or household use or consumption and are not for the purposes explicitly excluded by section 2 of the CGA [Source: Consumer Guarantees Act 1993, s 2].

Contracting Out of the CGA for Business Transactions:

Even when the CGA would ordinarily apply to a business purchase, the parties involved may be able to contract out of its provisions. This is permitted only if:

  • The goods or services are supplied in trade.
  • Both the supplier and the recipient are in trade.
  • The agreement to contract out is in writing.
  • It is fair and reasonable that the parties are bound by the contracting out provision [Source: Consumer Guarantees Act 1993, s 43(1)].

Rights and Obligations Under the CGA (When Applicable)

When the CGA applies, businesses are entitled to the same guarantees as individual consumers. These include:

  • Guarantee as to acceptable quality: Goods must be fit for all the purposes for which goods of that type are commonly supplied, acceptable in appearance and finish, free from minor defects, safe, and durable [Source: Consumer Guarantees Act 1993, s 6].
  • Guarantee as to fitness for a particular purpose: If the consumer makes known a particular purpose for which the goods are being acquired, the goods must be reasonably fit for that purpose [Source: Consumer Guarantees Act 1993, s 7].
  • Guarantee that goods comply with description: Goods must correspond with any description given by the supplier [Source: Consumer Guarantees Act 1993, s 8].
  • Guarantee that goods comply with sample: If goods are supplied by reference to a sample or demonstration model, they must correspond with that sample or model [Source: Consumer Guarantees Act 1993, s 9].

If goods fail to meet these guarantees, the business, as a consumer, may be entitled to remedies such as repair, replacement, or a refund, depending on whether the failure is minor or substantial [Source: Consumer Guarantees Act 1993, ss 18, 23].

Application of the Fair Trading Act 1986 (FTA)

The Fair Trading Act 1986 (FTA) applies much more broadly than the CGA and is relevant to almost all commercial transactions in New Zealand, including those between businesses. The FTA prohibits misleading and deceptive conduct in trade [Source: Fair Trading Act 1986, s 9]. This means that regardless of whether a business is considered a 'consumer' under the CGA, it is protected from unfair trading practices by other businesses.

Key prohibitions under the FTA include:

  • Misleading or deceptive conduct: No person in trade shall engage in conduct that is misleading or deceptive or is likely to mislead or deceive [Source: Fair Trading Act 1986, s 9].
  • False or misleading representations: This covers specific false or misleading representations about goods, services, or prices [Source: Fair Trading Act 1986, s 13].
  • Unsubstantiated representations: A person in trade must not make a representation about a good or service without reasonable grounds for the representation [Source: Fair Trading Act 1986, s 12A].

Unlike the CGA, the FTA generally cannot be contracted out of for misleading or deceptive conduct. Any term in a contract that attempts to exclude liability for misleading or deceptive conduct under section 9 of the FTA is unlikely to be effective [Source: Fair Trading Act 1986, s 5C].

Conclusion

In summary, whether the CGA applies to goods bought for a business depends on the nature of the goods and their intended use. If the goods are not for resale, consumption in production, or repair of other goods, the CGA may still apply. Parties in trade can sometimes agree in writing to contract out of the CGA. The Fair Trading Act, however, applies to all conduct in trade, providing protection against misleading and deceptive conduct regardless of whether the purchaser is considered a 'consumer' and generally cannot be contracted out of.

When to Seek Independent Legal Advice

Persons needing clarification on specific situations involving consumer law, contractual agreements, or disputes are advised to seek independent legal advice. Information on legal assistance is available through reputable sources, including Community Law Centres which provide free legal advice.

Key Resources