Compensation for consequential loss
‘Consequential loss’ is the cost to the consumer of a problem with goods or services. It is usually financial but can include other costs, such as lost time or productivity.
A consumer can claim compensation from a supplier or manufacturer for consequential loss when goods or services fail to meet one or more of the consumer guarantees.
A consumer can apply to you directly for compensation for consequential loss. If you decline or an agreement cannot be negotiated, the consumer can take the matter to formal dispute resolution services or take legal action.
What would I have to pay?
If a consumer is successful in a claim for consequential loss, you may have to pay for losses that:
- ‘could have been expected to result’ from a failure to meet a consumer guarantee; and
- were ‘reasonably foreseeable’.
In other words, a consumer can recover losses that would probably result from the supplier’s failure to meet the guarantee.
You would not have to pay for:
- problems unrelated to your conduct or the goods you supplied; or
- losses caused by something completely independent of your business, after the goods left your control.
A consumer recently bought a car, which leaked oil on her driveway. A neighbour’s dog ran through the oil and into her house, dirtying the carpet. The car dealer would not have to pay for carpet cleaning, as the dealer could not predict that a dog would run through the oil and into the house – the cost was not ‘reasonably foreseeable’.
A consumer’s washing machine breaks down due to a fault. As a result, there is water damage to carpet in part of the house. The supplier will be responsible for the cost of replacing the carpet damaged by flooding from the faulty washing machine.
Putting a value on consequential loss
It can be hard to put a dollar figure on consequential loss.
Compensation should put the consumer in the position they would have been in if the goods or services had met the consumer guarantees.
A consumer used a liquid cleaner according to instructions on the pack to remove a stain on his new curtains. The product badly damaged a curtain in the living room. As the curtain was new, the supplier would probably have to meet the cost of replacement. Compensation would be less for curtains in poorer condition.
Suppliers or manufacturers cannot write a term into their sales contract that says that they will not be responsible for extra loss suffered. In doing so, they would be misleading the consumer about their legal right to compensation for consequential loss.
Misleading conduct is a breach of the Australian Consumer Law. Penalties apply if you break the law.