The Warranty Trap

Goods and services provided to consumers have guarantees under the Australian Competition Law [ACL], which may not be excluded. However, if a product or service also comes with a specific warranty against defects, both the manufacturer and a retailer of the product may be liable for heavy penalties if the warranty does not comply with stringent requirements. Under Regulations effective from 1 January 2012, a person (including a company) must not, in trade or commerce, in connection with the supply of goods or services to a consumer, give the consumer:

• a document that evidences a warranty against defects if it does not comply with the requirements of the ACL, or

• represent directly to the consumer that the goods or services are goods and services to which a warranty against defects relates.

A warranty against defects is defined in the ACL as being:

“a representation communicated to a consumer in connection with the supply of goods or services, at or about the time of supply, to the effect that a person will (conditionally or on specified conditions):

a) repair or replace the goods or part of them; or

b) provide again or rectify the services or part of them; or

c) wholly or partly recompense the consumer; if the goods or services or part of them are defective, and includes any document by which such a representation is evidenced.”

Under the ACL, a “consumer” is a person who:

• acquires goods or services for an amount not exceeding $40,000; or

• acquires goods or services and the goods or services are of a kind ordinarily acquired for personal, domestic or household use or consumption; or

• the goods consist of a vehicle or trailer acquired for use principally in the transport of goods on public roads.

Information that must be contained in a warranty against defects from 1 January 2012 includes:

• what the person who gives the warranty must do to honour the warranty and what the consumer must do to be entitled to claim the warranty;

prominently, the name, business address, telephone number and email address (if any) of the person giving the warranty;

• the warranty period;

• the procedure and address for making a claim under the warranty; and

• who bears the cost of a claim under the warranty, and how expenses are claimed.

A warranty against defects must state that the benefits given to the consumer by the warranty are in addition to any other rights that the consumer may have under law in relation to the goods or services to which the warranty relates and must have a statement exactly in the form set out in Regulation 90(2).

The overarching requirement is that the warranty against defects must be in a document that is transparent, as defined in the ACL.

Most express warranties against defects are provided by manufacturers or products, on or in packaging. However the supplier of the warranty to a consumer will usually be a retailer.

If a supplier gives a warranty against defects that does not comply with the ACL, the supplier will have committed an offence and could be liable for a penalty up to $50,000 for a body corporate, or up to $10,000 for an individual.

This new law poses some immediate practical problems for businesses, particularly, what is to be done with old stock (goods) that have a non-compliant warranty against defects? One way to overcome this problem could be to have a compliant warranty against defects prepared which can be handed out at the time of supply of the old stock.

The ACCC recognises that transitional practical difficulties of this type may arise with the application of the new warranties against defects provisions. Until September 2012, when considering the appropriate enforcement response to any contravention of the warranty against defects requirements for stock in the supply chain manufactured and packaged prior to 1 November 2011, the ACCC will have regard to:

• whether there are serious practical difficulties in updating warranty documents – e.g. the warranty is in a tamper-proof package; and

• whether the supplier has taken all reasonable steps to otherwise convey the mandatory text and information required by the ACL to consumers – e.g. by placing a compliance sticker on the outside packaging, or by erecting prominent, clear, point of sale signs including the mandatory text and information at all cash registers in a prominent position.

Because of the non-excludable guarantees that apply to supplies of goods or services to consumers, there may be no benefit in any further warranty. It may be safest in many cases to simply confirm that the statutory guarantees apply and to exclude any further warranty.

These new requirements are now in force and, in order to avoid committing an offence, all businesses whose activities involve the supply of goods or services to consumers should review their warranty documents, and those that accompany goods they deal in, to ensure compliance, if they have not already done so.

We would be happy to assist you in this review, and in preparing any new warranty documents if these are required.

For more information, please contact:
Sandy Donaldson

Sandy Donaldson
Director
p.  +61 8 8124 1954
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this article, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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