Changes to law regarding supplier warranties

Businesses who provide warranties in relation to either products or services have until the end of the week to bring those warranties into line with changes to the Australian Consumer Law (ACL), or face substantial penalties and fines – potentially up to 10% of annual turnover. The changes take effect this Sunday, 9 June 2019.

Promises provided by suppliers (or manufacturers) to consumers about what they will do if goods have a fault are commonly known as ‘warranties against defects’. Those warranties are voluntary and, if given, will apply in addition to any consumer guarantees under the ACL.

Warranties against defects must also comply with prescribed requirements and include standard text from 9 June 2019. The warranties which are required to be given are divided into three categories and are different for each of:

  • Defects for goods only
  • Defects for services only
  • Defects for goods and services

Consequences of non-compliance

Penalties of up to $50,000 can be imposed for failing to include the prescribed text. Additional penalties can also be imposed if the text used is misleading about consumers’ rights, entitlements under warranty or guarantee provisions up to $10,000,000, or 10% of the annual turnover of the supplier in the past 12 months.

Businesses should review any document which contains a warranty against defects (such as terms and conditions, packaging, website, etc.) to ensure that it includes the new prescribed text. Warranty documents provided by sellers and manufacturers should:

  • Be transparent.
  • Concisely state what the business must do (for example, repair or replace the goods); and what the consumer must do to entitle the consumer to claim the warranty, for example, cease using the goods when a fault arises or contact the supplier or manufacturer and point to the defect.
  • Prominently state the following information about the person who gives the warranty: the person’s name, the person’s business address, the person’s telephone number, and the person’s email address (if any).
  • State the period or periods within which a defect in the goods or services to which the warranty relates must appear if the consumer is to be entitled to claim the warranty.
  • Set out the procedure for the consumer to claim the warranty including the address to which a claim may be sent.
  • State who will bear the expense of claiming the warranty and if the expense is to be borne by the person who gives the warranty—how the consumer can claim expenses incurred in making the claim.
  • State the benefits to the consumer given by the warranty are in addition to other rights and remedies of the consumer under a law in relation to the goods or services to which the warranty relates.

Additional obligations under consumer guarantees

Any warranties should also be consistent with consumer guarantees, which automatically apply to goods and services purchased by consumers under the ACL. Manufacturers and importers must also comply with certain consumer guarantees and they cannot be excluded by agreement or under any terms of sale.

The guarantees include that those goods must:

  • be of acceptable quality.
  • be fit for purpose.
  • satisfy any express warranty (such as warranties against defects).
  • have spare parts and repair facilities available for a reasonable period of time, unless otherwise advised.

Where guarantees are not met

Consumers are entitled to a remedy, which could be either a repair, replacement or refund and compensation for any consequential loss, depending on the circumstances. For minor problems, the seller can choose whether to take a replacement, repair or refund the goods. For major problems the consumer can choose to reject the goods and obtain a full refund or replacement, or keep the goods and seek compensation for the reduction in value.

Approaching the manufacturer directly

Consumers are entitled to approach manufacturers directly for a remedy and may take action against manufacturers to recover costs, which include an amount for reduction in the product’s value and in some cases compensation for damages or loss.

If the problem is the manufacturer’s fault, the consumer is still entitled to ask the seller to provide a remedy, and the seller must oblige. The manufacturer must then reimburse the seller, including for any compensation paid to the consumer for reasonably foreseeable consequential losses.

Consumer guarantees won’t apply where a consumer simply changes their mind. However, as suppliers must comply with consumer guarantees, signs which provide blanket statements such as ‘No refunds’ are unlawful because there may be instances where the consumer is still entitled to a remedy.

Misleading statements

Finally, it is important not to mislead consumers about their rights.

Within the last week, Jetstar was ordered to pay almost two million dollars in penalties for misleading passengers about their right to refunds on cheap fares, by indicating that only more expensive fares were refundable. That is misleading as, under the ACL, customers whose flights were cancelled or significantly delayed due to reasons within Jetstar’s control are entitled to refunds.

Sellers must not tell customers they should approach the manufacturer or importer of the goods for assistance. Customers are entitled to deal with the seller, and sellers must deal with the problem when approached.

Sellers also must not suggest that their consumer guarantees are limited to any warranty period. The consumer guarantees apply regardless of any warranties which have been given and may apply for a longer period than an express warranty, depending on the quality of the goods, sale price and consumer expectations.

“The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.”
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