SUPPLIERS CLAIMING COSTS FROM MANUFACTURERS

What happens when a consumer makes a defective part claim against a supplier?

Who is responsible for assisting the consumer with the defective part claim? Further, if the supplier provides a remedy to the consumer, who is ultimately responsible for the cost (for example, refund or repair costs, including labour costs) of assisting the consumer, the supplier or the manufacturer?

Who must assist the customer?
If a consumer approaches the supplier or manufacturer of a defective part with a consumer guarantee claim, then under the Australian Consumer Law (ACL) it is the responsibility of the person who is approached to assist the consumer with the claim and, if applicable, to provide a remedy.
However, if the supplier provides a remedy to a consumer, they may be able to seek an indemnity against the manufacturer in accordance with section 274 of the ACL.

What is the right of indemnity in favour of the supplier?
A manufacturer is liable to indemnify a supplier who is liable for loss or damage suffered by a consumer for the failure to meet a consumer guarantee, where both the supplier and the manufacturer would be liable under the ACL to provide a remedy for the particular failure to meet the consumer guarantee.
Without limiting this right of indemnity under the ACL, the ACL also provides that the manufacturer is liable to indemnify the supplier who supplies goods to a consumer, if the supplier incurs costs, in relation to the failure to meet the following consumer guarantees:
• the consumer guarantee as to acceptable quality (ACL section 54);
• the consumer guarantee as to fitness for a disclosed purpose, which is made known by the consumer to the manufacturer either directly, or through the supplier or a person through whom prior arrangements or negotiations were made (ACL section 55);
• the consumer guarantee in relation to the description applied to the product by or on behalf of the manufacturer (or with the express or implied consent of the manufacturer) (ACL section 56).
There are some limitations on this. For example, the manufacturer will not be liable if the failure to meet the consumer guarantee arose due to a representation, act or omission made by a person who is not the manufacturer (or their employee or agent), or due to a cause independent of human control after the goods left the control of the manufacturer.
The indemnity in relation to goods that are not of a kind ordinarily acquired for personal, domestic or household use or consumption is limited under the ACL to a repair, replacement or refund (unless it is not fair and reasonable for the manufacturer to do so or greater liability is imposed on the manufacturer by contract). 
Please note this limitation applies to the good itself not ordinarily being for personal, domestic or household use or consumption, not the fact that the good may be, or has been, re-supplied by the supplier.
If the supplier seeks to enforce the right of indemnity against the manufacturer the supplier must do so within three years of the earlier of the first day of the discharge of the liability (in whole or in part), or the day on which the consumer commenced proceedings against the supplier.

What may be claimed?
Broadly, the supplier is entitled to be indemnified for costs incurred in providing a remedy to a consumer pursuant to a relevant consumer guarantee.
Depending on the circumstances this may include the full price of the good (for example if the good is rejected and returned by the consumer), the reduction in value of the good, the consumer’s reasonably foreseeable loss or damage, which may include, the cost of an expert to diagnose the issue, towing costs and the installation costs of a good.
A supplier may provide a remedy of installing a new good or repairing the good, and this is likely to be encompassed within the indemnity provided under the ACL as a reasonably foreseeable loss to the consumer or as a cost incurred by the supplier in providing the remedy.
Arguably, such costs can be claimed at the supplier’s usual labour charge and although there may be converse positions, the amount of the labour charge would ultimately be the decision of the court or tribunal determining the matter.

What if there is a warranty or other contract between the manufacturer and the supplier?
A manufacturer and supplier may operate pursuant to a warranty or contract in respect of a consumer claim, however, such documents do not displace the consumer guarantees or the indemnity. 

Key takeaways
The key takeaways relating to the indemnity under the ACL in favour of the supplier include:
• if both the supplier and the manufacturer are liable to a consumer for damages for the failure to meet a particular consumer guarantee under the ACL, then, where the supplier provides a remedy to the consumer, there is an indemnity in favour of the supplier against the manufacturer, including for costs incurred by the supplier;
• the amount that may be recovered by the supplier will depend on the circumstances and is ultimately a decision for a court or tribunal; and
• a warranty or contract will not displace the indemnity in favour of the supplier and may only modify the indemnity to the extent permitted under the ACL.

This document is intended for general information purposes only and should not be regarded as legal advice. Please contact Industry Legal Group if you require legal advice

AAAA Member Benefits Industry Legal Group provides advice to members on commercial law matters. If you have any questions relating to the above information, please contact Industry Legal Group on 1300 369 703 or aaaa@industrylegalgroup.com.au