Are you legally protected by hobby businesses that sell faulty goods?
Fraser King & Amin Osama | 09/12/2022
Recently, we successfully represented a client in court over a dispute about a horse truck she purchased for about $100,000 (Gold v Johnston  NZDC 11835). The judgment has significant implications, in our view, for the equine industry as well as for the general public when purchasing goods and services – particularly from hobby businesses holding themselves out to be professional retailers.
Turning back to the recent case, our client purchased the horse truck to take her daughters and their horses to events around New Zealand and provide accommodation. However, the horse truck displayed many defects upon delivery, such as leaking, mechanical issues and health and safety issues. The sellers refused to take the truck back, so our clients filed proceedings in the District Court claiming that the horse truck was not fit for purpose nor of acceptable quality.
In our opinion, the most hotly contested issue at trial was whether the sellers were ‘in trade’. The sellers argued that they were Do-It-Yourself (DIY) horse truck enthusiasts who had only built two other horse trucks, and given they were not a full-time professional business, they argued that the Consumer Guarantees Act 1993 (" the CGA") did not apply as they were not ‘in trade’, essentially as a hobby business.
Judge Becroft found that the sellers were in trade; and the consumer guarantees protections of goods being of acceptable quality and fit for purpose were available to the buyer. Accordingly, the court ordered the seller to refund the purchase price together with storage, repair and legal costs.
However, whether someone is ‘in trade’ and caught by the CGA is an increasingly grey area due to the rise of online platforms such as Trade Me, which has created a platform for people to become regular sellers of second-hand goods. Until now, the law has offered little guidance on determining whether a seller is in trade.
Why should I care about Consumer Guarantees?
Whether purchasing your first car from a car dealer or buying another pair of shoes from an online seller to add to your collection, if you’re buying from a business – those goods ought to be of acceptable quality and fit for the purpose you’re buying them for. You may not know much at all about cars. But as a consumer, you are entitled by law to rely on the skill and expertise of a seller who is in the trade of selling cars.
If the seller is not ‘in trade’, then you don’t automatically get this consumer guarantee protection. This can be very important if the goods turn out to be faulty, leaving a buyer without a remedy if it is not agreed at the time of purchase.
There is often an imbalance of power between a seller and a consumer. In most cases, a consumer is significantly (or even entirely) reliant on the skill and expertise of the seller. The CGA is legislation to restore this balance by protecting consumers through "guarantees" that sellers have to comply with.
What guarantees are offered?
Guarantees apply to both "goods" and businesses that provide a "service".
Goods must be for personal use and can range from kettles or pans to boats, planes and horses. For example, you purchase a $30,000.00 van from a second-hand car salesman. There are several guarantees that the CGA gives you. These include that the van needs to be reasonably fit for the purpose you purchased it for, meaning it must be able to provide reliable transport.
Services must also be for personal use and apply to all manner of personal services you can pay for, including for example home and vehicle repairs. The CGA requires service providers to complete their services with reasonable care and skill, and if their service results in a product, that product is reasonably fit for purpose. Also, services must be completed within a reasonable time at a reasonable price (if the price is not agreed beforehand).
Are you protected by the CGA?
To be protected by the CGA, you must be a "consumer", and the seller must be "in-trade". As such, the CGA does not apply to one-off private sales. For example, the sale of a car from one person to another.
While each case turns on its facts, Judge Becroft provided several principles to determine whether someone is in trade:
The assessment must be an objective assessment of the evidence.
The subjective view of the seller, while relevant, is far from determinative. In Gold, just because the sellers thought of themselves as DIY enthusiasts did not make it so.
The activities do not need to be carried out full-time.
The number of goods sold is relevant but not determinative.
A qualitative assessment is necessary, meaning that although only a small number of sophisticated large-scale goods are sold, the seller may still be in trade due to the special expertise required in making them. This is especially so in cases where human and animal safety is concerned.
The seller's conduct is relevant. For example, if their behaviour is demonstrative of a commercial enterprise, such as providing warranties.
The seller’s portrayal of themselves to the public on social media and in communications is relevant.
Charging GST is consistent with a commercial enterprise.
Trying to figure out whether the CGA protects you can be difficult – whether you’re a seller or a consumer. Our team has extensive experience in helping clients with all manners of CGA claims. If you have an issue with a good or service, you can call Fraser King or Amin Osama for a free initial discussion on your rights and remedies.