As of 1 January 2012, manufacturers, suppliers, retailers and service providers are required to comply with the new Regulation 90 in the Australia Consumer Law (ACL) relating to the provision of a warranty against defects.
This will affect business in that existing terms and conditions, product documentation and promotional and marketing material will need to be reviewed to ensure compliance with these new stringent requirements.
What is a warranty against defects?
A warranty against a defect is what we as consumers know as a manufacturer’s warranty.
It is a representation communicated to a consumer that a business will replace or repair goods (or part of them) or resupply or fix the problem with services (or part of them) if the goods or services or part of them are defective (e.g. a motor vehicle that comes with a 4 year manufacturer’s warranty).
A statement about what a product will look like or what they are capable of doing is not a warranty against defect but an express warranty dealt with under different provisions of the ACL.
Application to consumers
It is important to note that the new regulation applies to consumers only. However, under the new Australia Consumer Law, the definition of ‘consumer’ has expanded to cover transactions not usually thought to be ’consumer’ transactions. A party who acquires goods and services to the value of $40,000 or less is a consumer as well as where the goods and services are of the kind ordinarily acquired for personal, domestic or household use or consumption. Consequently, the new regulations will impact on many business to business contracts for the supply of goods and services.
What requirements do the new regulations impose?
Any warranty against defects must comply with the requirements of Regulation 90 as follows:
a) Be in a document that is transparent:
- legible;
clear; in plain language.
b) Concisely state:
c) Prominently state:
the name, business address, telephone number and email address
of the person or entity giving the warranty.
d) State the period or periods within which a defect must appear if the warranty is to apply;
e) Set out the procedure for claiming under the warranty (including address detail where the claim may be sent);
f) State who will bear the expense of claiming under the warranty and how any such expense can be claimed (if relevant);
g) State that the benefits to the consumer under the warranty are in addition to other rights and remedies of the consumer under the law in relation to the goods and services to which the warranty relates (see below);
h) Any warranty must include the following mandatory text:
"Our goods come with guarantees that cannot be excluded under the ACL. You are entitled to a replacement or refund for a major failure and for compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure".
What does it mean?
The current consumer law is such that the existing consumer guarantees (fitness for purpose, merchantable quality etc) contained in the ACL apply in addition to these new requirements for warranties against defects.In some cases a warranty against defects will provide a consumer with remedies that exceed those provided by the consumer guarantees. In other cases, consumers may be entitled to a remedy under the consumer guarantees after a warranty against defects period has expired.
By way of example:
A consumer purchases a computer with a written warranty against defects that states that the manufacturer will replace or repair the computer if any fault arises within 12 months of purchase. If the computer breaks down after 18 months, the manufacturer cannot automatically advise the consumer that he or she has no entitlement to a remedy as the warranty has expired. The consumer may still be entitled to a remedy under the consumer guarantees imposed under the ACL (the guarantee as to acceptable quality). The area of extended warranties is also impacted by the new ACL as suppliers and manufacturers must not pressure a consumer to buy extended warranties and must tell a consumer of their rights under the ACL which may be equivalent to the rights under the extended warranty.
The impact for business
The implications for business are as follows:
The regulations will apply to consumers and some business to business contracts. Documentation has to be drafted carefully to ensure that both instances are covered. Manufacturers and suppliers will have to review and amend any printed warranty, cards or other documents such as manuals, terms and conditions or labels in which warranty against defects. Retailers are in a difficult position as they often do not have control of this process and will need to ensure compliance by their manufacturers/suppliers. Businesses may have issues with the long lead times associated with many consumer products (in terms of packaging and printed material) and consequently compliance. The ACL regulators have advised that they will recognise the practical difficulties in compliance and until September 2012 and will take certain matters into consideration before taking enforcement action. Some businesses are removing any warranties given from packaging and documentation to avoid the need for compliance.
Offences against these requirements are punishable by fines of up to $50,000 per offence for bodies corporate and $10,000 for individuals. Other remedies such as injunctions and damages may also be awarded for breach.
There are a number of guides that assist with these new areas that can be found at www.accc.gov.au. Alternatively, please call if your business is impacted and you would like to discuss further.
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