New laws set traps for unwary retailers, manufacturers and importers

The new ACL applies both federally and across all states and territories as a uniform national consumer protection regime.

One of the consumer protections introduced by the ACL is a strict scheme governing the content of warranties against defects given to consumers. Whilst this change has received very little attention, it will be vital for all businesses including manufacturers, importers and retailers to understand and comply with its requirements.

Warranties against defects

It’s common for goods and services sold to consumers to contain express warranties under which the manufacturer and/or the retailer promises to repair or replace defective goods (or provide the services again in the case of defective services) or to compensate the consumer if the goods or services are defective. Under the ACL, such warranties are known as “warranties against defects” and will be subject to a stringent regime.

In the case of goods, warranties of this type are often in the form of certificates or other documents packaged with the goods or are detailed in the terms and conditions of trade.  However, it is important to note that the warranties covered by the ACL are not restricted to formal written warranties, but also cover informal and verbal representations.

The new law will apply to warranties against defects given by all businesses, not just manufacturers and retailers.  However our information brief will focus on the position of manufacturers (by which we include importers) and retailers as being the businesses most affected.

Penalties

With the introduction of the ACL, it will be an offence for a business to provide a warranty against defects to a consumer (or to represent that such a warranty applies) that does not comply with the statutory requirements.

The penalties for breaching these provisions include fines of up to $50,000 for companies and up to $10,000 for individuals.  Businesses breaching these provisions can also be sued for damages and face other legal action.

Statutory requirements

Whilst it’s beyond the scope of this information brief to set out all of the statutory requirements for warranties against defects, they include:

  • The warranty has to be in plain language and set out precisely who is giving the warranty;
  • The warranty must state what the business giving the warranty is promising to do if the goods or services are defective and what the consumer must do in order to claim on the warranty (and the timeframe in which they must do it).

Importantly, one of the requirements is that a warranty against defects must contain the following specific wording:

Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to replacement or refund for a major failure and 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.

This mandatory wording is intended to inform consumers that regardless of any warranty against defects given by a business, the statutory consumer guarantees given by the ACL cannot be excluded or watered down.

In what is clearly a flaw in the statutory scheme, the required wording refers only to “goods” even though the regime governing warranties against defects quite clearly covers “service” warranties also. Unless and until the regulations are rectified to overcome this potential confusion, it would appear that the only safe course for service providers is to include the mandatory wording, despite it making little sense in the circumstances.

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