Dealing With Faulty Goods Under The Consumer Guarantees Act 1993 In NZ

If you sell products to customers in New Zealand, you’ve probably dealt with at least one “this is faulty” message at the worst possible time - during a busy trading week, a big promotion, or right after a new product launch.

When that happens, it’s not just a customer service issue. It’s also a legal compliance issue, because the Consumer Guarantees Act 1993 (CGA) sets out what you must do when the goods you’ve sold aren’t up to standard.

This guide breaks down your obligations in plain English, with practical steps you can use in your business. We’ll focus on how the CGA deals with faulty goods - what “faulty goods” can mean under the Act, what remedies customers may be entitled to, and how you can handle complaints confidently while protecting your business.

When Does The Consumer Guarantees Act 1993 Apply To Your Business?

The CGA generally applies when:

• you sell goods (in-store, online, at markets, by phone, via social media etc), and
• your customer is a “consumer” (typically someone buying for personal, domestic, or household use), and
• the goods are supplied in trade (i.e. as part of your business).

So if you’re a small retailer, an online store, a local maker selling products, or a service business that supplies products as part of your work, the CGA is likely relevant to you from day one.

What Counts As “Faulty Goods” Under The CGA?

In everyday language, “faulty goods” usually means something is broken, not working, or not as expected. Under the CGA, the idea is broader. The CGA includes guarantees (promises the law implies into your sales) such as:

• Acceptable quality: goods should be safe, durable, free from defects, and acceptable in appearance and finish - taking into account the type of goods, price, and any statements made about them.
• Fit for purpose: if a customer tells you they need the goods for a particular purpose (and relies on your skill/judgment), they should be suitable for that purpose.
• Match description: goods must match how you described them (online listings, packaging claims, product specs, sales discussions).
• Match sample/demonstration model: if you sell based on a sample, the goods should match it.

That means “faulty” can include defects, performance issues, misleading descriptions, or products that don’t last a reasonable amount of time.

Does The CGA Apply To Business-to-Business Sales?

Sometimes. If the buyer is buying for business use, the CGA may not apply in the same way - but you need to be careful here.

The CGA can be contracted out of for business-to-business supplies only if:

• the goods are supplied for business purposes, and
• you and the customer agree in writing to contract out of the CGA, and
• it’s fair and reasonable to do so.

If you sell to both consumers and trade customers, it’s worth setting up your sales documents so you’re not guessing which rules apply during a complaint.

Clear customer-facing terms can help set expectations (while still complying with the CGA), and your contracts with wholesalers/resellers can deal with risk allocation. Many businesses do this through Business Terms that are tailored to how they actually sell.

What Remedies Do You Have To Provide For Faulty Goods?

This is the heart of most CGA faulty goods issues for small businesses: when goods fail to meet the CGA guarantees, what does the customer get - repair, replacement, refund, or something else?

Under the CGA, the remedy depends on whether the failure is:

• Minor (can be remedied), or
• Substantial (can’t be remedied or is serious enough).

If The Fault Is Minor (Can Be Fixed)

If the failure can be remedied, you (the supplier) usually get the first option to:

• repair the goods,
• replace the goods, or
• refund the customer.

But there are two important constraints:

• You must do it within a reasonable time.
• You must do it at your cost. (In many cases this includes reasonable costs of returning, collecting, inspecting, repairing, and re-supplying the goods - including postage/freight where that’s reasonably required in the circumstances.)

If you don’t remedy the issue within a reasonable time, the customer may be entitled to:

• have the goods repaired elsewhere and recover the reasonable cost from you, or
• reject the goods and request a refund/replacement.

If The Fault Is Substantial

If the failure is substantial, the customer can generally choose to:

• reject the goods and get a refund, or
• reject the goods and get a replacement of the same type and similar value, or
• keep the goods and claim compensation for the drop in value.

“Substantial failure” can include situations where:

• the goods are unsafe,
• the problem can’t be fixed,
• the problem is significant and a reasonable consumer wouldn’t have bought it if they’d known, or
• the goods are substantially unfit for purpose and can’t easily be fixed.

In practice, the “substantial vs minor” question is where most disputes happen - so your internal processes (and how you communicate with the customer) matter a lot.

Also keep in mind: in some cases, customers may be entitled to claim for other loss or damage caused by the failure (for example, reasonably foreseeable consequential loss). Whether that applies will depend on the facts.

How To Handle A Faulty Goods Claim (Without Making It Worse)

When a customer complains, it’s easy to go into “policy mode” and fire back a template response. The safer approach is to slow down and run a consistent process.

Here’s a practical workflow you can use.

1) Get The Facts (Quickly And Politely)

Ask for the key details without making the customer feel interrogated:

• proof of purchase (receipt, order number, bank transaction)
• what the issue is and when it started
• photos/videos (especially helpful for online sales)
• how the item has been used (relevant for misuse/accidental damage questions)

Keep your communication calm and neutral. If it ends up with the Disputes Tribunal or a complaint escalation, your messages may be evidence of how you handled it.

2) Assess Whether It’s Likely A CGA Issue

Ask yourself:

• Is this a defect, or normal wear and tear?
• Is it a manufacturing fault, shipping damage, or misuse?
• Did we describe the goods accurately?
• Is the product failing earlier than a reasonable consumer would expect, given the price and type?

Even if you think the customer is wrong, don’t jump straight to refusal. A better approach is to ask for inspection and explain the next steps.

3) Decide The Remedy Path: Repair, Replace, Or Refund

Once you’ve assessed the issue, decide whether it’s likely a minor failure or substantial failure.

If it’s minor and can be fixed, you can usually choose the remedy - but make sure you can actually deliver it within a reasonable time. If you can’t (e.g. parts are unavailable, supplier delays, discontinued stock), it may be smarter to move to a replacement/refund rather than dragging things out.

4) Don’t Rely On A “No Refunds” Policy

A common mistake is trying to enforce blanket returns rules like “no refunds on sale items” or “store credit only.” If the goods are faulty under the CGA, your policy can’t take away the customer’s rights.

You can still have a returns policy for “change of mind” returns - just keep it clearly separate from CGA rights so customers (and your team) don’t confuse the two. This is often done through well-drafted Returns Policy wording that reflects how you actually handle different scenarios.

5) Be Careful With Your Advertising And Product Claims

Faulty goods disputes often start with expectations created by marketing. If your product description promises a feature, benefit, durability level, or compatibility that isn’t accurate, you may be dealing with both CGA and the Fair Trading Act 1986 (FTA).

For example, issues can arise if you advertise an “advertised price” or bundle offer in a way that confuses customers at checkout. It’s worth checking your promotions and pricing practices line up with the rules around advertised price compliance.

Can You Refuse A Remedy? Common Scenarios For Small Businesses

There are situations where a customer may not be entitled to a CGA remedy - but you’ll want to be confident before refusing, because a wrong refusal can escalate quickly (bad reviews, chargebacks, complaints, Tribunal claims).

Misuse Or Accidental Damage

If the product has failed because the customer misused it (or it was accidentally damaged after purchase), the CGA may not require you to provide a remedy.

That said, you should still assess this carefully. If the goods weren’t durable enough for normal use, it may still be a CGA issue even if the customer’s use wasn’t perfectly gentle.

Customer Knew About The Fault Before Buying

If you clearly told the customer about a specific defect before purchase (e.g. seconds stock or a known issue) and they accepted it, the CGA may not apply to that particular disclosed fault.

The key is disclosure: it needs to be clear, specific, and recorded where possible.

Change Of Mind

The CGA doesn’t require you to provide refunds for change-of-mind returns. If the item isn’t faulty and matches its description, your change-of-mind policy applies (as long as it’s not misleading).

If you run promotions or bookings where customers later cancel, make sure you’re also clear on when fees apply. For service-based businesses supplying goods as part of a booking, it can be useful to set rules around cancellation fees upfront.

Time Limits: “Reasonable Time” And “Right To Reject”

The CGA doesn’t set a single “X days” timeframe for faulty goods. Instead, it depends on what’s reasonable given the type of product and how long it should last.

Customers also have a right to reject goods within a reasonable period after purchase, but what’s “reasonable” depends on the facts - which is why your records and your communication matter.

How To Protect Your Business: Systems, Supplier Contracts, And Customer-Facing Terms

Dealing with CGA faulty goods claims is easier when you build a few legal and operational protections into your business from the start.

Train Your Staff On CGA Basics

If you have a team handling customer queries, make sure they understand:

• faulty goods are treated differently from change-of-mind returns
• you can’t “contract out” of consumer rights in standard retail sales
• escalation triggers (safety issues, repeated failures, high-value items)
• how to communicate remedies without admitting unnecessary liability

This is especially important if you scale quickly - inconsistent responses are where disputes start.

Make Sure Your Terms Match How You Actually Operate

Your website and invoices should set expectations about delivery, inspection, returns steps, and timeframes - without trying to override CGA rights.

If you sell online, this is often done through Online Terms that reflect shipping realities, lost parcels processes, and how you manage returns logistics.

Back-To-Back Protection With Suppliers

Here’s a common small business problem: you do the right thing by your customer (refund or replace), but your supplier refuses to reimburse you - leaving you out of pocket.

To reduce that risk, you can put “back-to-back” terms in place with your suppliers, such as:

• warranties about quality and compliance
• timeframes for reporting defects
• who pays for freight/inspection/returns
• replacement/refund procedures
• indemnities where appropriate

If you’re selling goods manufactured by someone else, this is one of the biggest ways to protect your margin and cash flow.

Be Clear About Warranties (And Don’t Confuse Them With CGA Rights)

Many businesses offer a “manufacturer’s warranty” or their own warranty. That’s fine - but customers still have CGA rights regardless, and your warranty wording shouldn’t mislead them into thinking the CGA doesn’t apply.

It can help to understand how warranties work alongside statutory guarantees, particularly if you’re drafting your own warranty statements for packaging or product pages.

Document Your Process (You’ll Thank Yourself Later)

Even if you never end up in a formal dispute, good records make day-to-day complaint handling smoother. Keep:

• proof of purchase and order details
• customer communications
• photos/videos of the issue
• inspection notes
• your remedy decision and why
• supplier communications (if relevant)

If you need to defend your position (for example, if the issue appears to be misuse), documentation is often the difference between an easy resolution and a drawn-out argument.

Key Takeaways

• The Consumer Guarantees Act 1993 applies to most businesses selling goods to consumers in NZ, and it sets minimum standards you can’t contract out of in standard retail sales.
• “Faulty goods” under the CGA can mean more than broken items - it can include goods that aren’t of acceptable quality, don’t match description, or aren’t fit for purpose.
• For minor failures, you can usually choose to repair, replace, or refund - but you must act within a reasonable time and cover reasonable costs associated with providing that remedy.
• For substantial failures, customers can generally reject the goods and choose a refund or replacement (or keep the goods and claim compensation for loss of value).
• A “no refunds” policy doesn’t override CGA rights for faulty goods, and unclear returns messaging can also create risk under the Fair Trading Act 1986.
• You can protect your business by training staff, keeping clear customer-facing terms, maintaining good records, and putting strong supplier agreements in place so you’re not left covering the cost of defects.

If you’d like help setting up your customer-facing terms, reviewing your returns process, or strengthening your supplier contracts so you’re protected from day one, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.