Australia: The importance of not misrepresenting consumer rights: Hewlett-Packard fined $3 million

Are you aware of your customers' rights? Do you know when you must refund or replace a defective product? When is a customer entitled to return or exchange a product? Do you understand the distinction between a manufacturer's warranty and a consumer's statutory rights?

If you cannot answer "yes" to each of these questions, the $3 million fine and other penalties recently imposed by the Federal Court on Hewlett-Packard Australia Pty Ltd¹ regarding the sale of its computer products should grab your attention.

Consumer rights

It is a breach of the Australian Consumer Law (the ACL) to:

• engage in conduct that is misleading or deceptive or likely to mislead or deceive; or
• make false or misleading representations concerning the existence, exclusion or effect of a condition, warranty, guarantee, right or remedy.

Where goods are acquired by a 'consumer' (as defined under the ACL), there are a number of statutory guarantees that apply, including that those goods will be of 'acceptable quality'. Goods are acquired as a 'consumer' where those goods:

• cost $40,000 or less; or
• where they cost more than $40,000, they are of a kind ordinarily acquired for personal, domestic or household use; and
• they are not acquired for the purposes of re-supply, or for the purposes of using them up or transforming them in the course of a process of production or manufacture, or to repair or treat other goods.

There are similar provisions relating to the supply of services to 'consumers'.

These statutory rights cannot be excluded, restricted or modified by contract, and can apply to business-to-business sales. The ACL provides a 'consumer' with certain rights in the event that there is a failure to comply with any of these guarantees.

In some circumstances, where a supplier is liable to pay damages to a consumer as a result of a failure to comply with any of these statutory guarantees, the manufacturer can be required to indemnify the supplier for that loss under the ACL.

How did Hewlett-Packard breach the ACL?

Essentially, Hewlett-Packard breached the ACL by representing to consumers that:

• the remedies that were available to them where the products were not of acceptable quality were limited to remedies at Hewlett-Packard's discretion
• they had to have their products repaired multiple times by Hewlett-Packard before they were entitled to a replacement
• the relevant warranty period for the product they bought was limited to the specified express warranty period
• after the expiry of the specified express warranty period, Hewlett-Packard would only repair a product if the consumer paid for the repair
• they could only return defective products bought through Hewlett-Packard's online store if Hewlett-Packard agreed.

Hewlett-Packard also breached the ACL by representing to retailers of Hewlett-Packard products that Hewlett-Packard would not indemnify them if the retailer provided the consumer with a refund or replacement product without Hewlett-Packard's authorisation.

How was Hewlett-Packard penalised?

Having admitted to contraventions of the ACL, Hewlett-Packard reached an agreement with the ACCC as to the orders that would be sought from the Court. Under these orders, Hewlett-Packard:

• was restrained from engaging in the prohibited conduct for 3 years
• must pay a fine of $3 million, plus $200,000 to cover the ACCC's costs
• must write to all of its authorised retailers explaining Hewlett-Packard's false, misleading or deceptive representations and reminding them of a consumer's rights
• must publish a link to a "Consumer Rights Notice" in a prominent place on the home page of its website
• must publish a link in a prominent place on its home page to a notice detailing its false and misleading conduct for at least 90 days
• must publish adverse publicity notices in a number of national and regional newspapers
• must establish a consumer redress process, including an independent audit of that process
• must establish a compliance program for employees to minimise the risk of future contraventions of the ACL.

The extent of these penalties demonstrates the breadth of penalties that the ACCC may seek, and the serious treatment of such behaviour by both the Courts and the ACCC.

Take away

Many businesses struggle to fully understand 'consumer' rights under the ACL.

The penalties imposed on Hewlett-Packard should serve as a stark warning to all manufacturers, retailers and suppliers of services to 'consumers' that they must ensure that they have a clear understanding of the extent of 'consumer' statutory rights under the ACL, and have in place processes to ensure that they do not misrepresent those rights.

These statutory rights cannot be excluded, restricted or modified, whether through a manufacturer's warranty or otherwise. Businesses must appreciate that these statutory rights will exist regardless of the scope of the manufacturer's warranty.

Cracking down on the misrepresentation of 'consumer' rights is a priority area for the ACCC. Proceedings have also been commenced against a number of Harvey Norman franchises alleging a misrepresentation of 'consumer' rights. Don't be next. If you have not already done so, now is the time to address how this issue applies to your business processes and ensure that employees at all levels clearly understand the scope of your business' obligations.

Footnote

¹Australian Competition and Consumer Commission v Hewlett-Packard Australia Pty Ltd [2013] FCA 653.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.