THE CHANGE IN THE LAW
The Australian Consumer Law (ACL) will make it more difficult to promote and market manufacturers' warranties, extended warranties and service plans. This will be of particular importance to manufacturers and suppliers that supply businesses with consumer goods and it will also apply to goods and services that can be acquired for $40,000 or less.
Manufacturers and suppliers need to be careful about what manufacturers' warranties they offer from 1 January 2011. If a manufacturer's warranty provides less protection less than, or overlaps with, the terms of the ACL's acceptable quality consumer guarantee, the manufacturer (and suppliers of its goods) will need to be careful about the representations made by it about their rights under the acceptable quality consumer guarantee. The manufacturer and its suppliers cannot mislead consumers about their rights under the acceptable quality guarantee when providing a manufacturer's warranty or considering if they can require payment for a warranty or guarantee.
There are some onerous penalties for making such misleading representations including, among others:
- a fine of $1.1 million for bodies corporate;
- a fine of $220,000 for individuals involved in the contravention; and
- infringement notices issued by the Australian Competition and Consumer Commission.
If a manufacturer offers a warranty against defects (which is essentially what a manufacturers' warranty is), the ACL Regulations require that from 1 January 2012 the document must contain, among other things, the following text:
The ACL Regulations contain further requirements for warranties against defects.
Manufacturers and suppliers also need to exercise caution about:
- representations that they make about their goods, because those representations will be taken into account when determining the extent of the ACL's acceptable quality guarantee (meaning that the more you represent goods as 'long-lasting' or 'built to last' the more onerous that guarantee is likely to be in terms of freedom from defects and durability); and
- manufacturers' warranties for component parts of goods, where that component warranty is different in duration to that offered for the overall product. For example, manufacturers need to be careful about only listing component warranties that have long durations, since if the product also contains more fragile components that may be more susceptible to defects in a shorter time frame. The component's express warranty may influence the acceptable quality guarantee and potentially make the freedom from defects and durability guarantees longer in respect of the product as a whole.
What manufacturers should do
- Make sure that your warranties comply with the ACL.
- Ensure that any warranty that you provide contains the wording required by the ACL Regulations.
- Ensure that your personnel understand consumers' rights.
Staff training needs to be conducted in time for the 1 January 2011
commencement of the ACL. Staff in your claims and marketing
departments should understand:
- When the acceptable quality guarantee won't be breached (for example, the customer causes them to be of unacceptable quality);
- The impact of representations that, by their nature, tend to induce customer to buy the goods; and
- What constitutes a 'major' failure of your goods and what the customer's rights are for a 'major' failure (compared to the customer's rights for a 'minor' failure).
EXTENDED WARRANTIES AND SERIVCE PLANS
From 1 January 2011, the ACL will also raise significant issues for:
- extended warranties, where a person pays for the 'extended' period during which the manufacturer (or a third party) will repair defects in the goods; or
- service plans that take effect after the 'manufacturer's warranty' ends (typically at an arbitrary point in time, such as 1 year after delivery).
Essentially, the ACL contains a prohibition against misleading representations that a person must pay for a contractual right that is equivalent to a condition, warranty, guarantee, right or remedy that the person already enjoys at law. This means that manufacturers and suppliers who 'sell' extended warranties will need to have a clear understanding of where their liability under the ACL stops, in order to ascertain where an extended warranty or service plan can start.
If a manufacturer or supplier represents that payment for an extended warranty will secure protection for the consumer and that protection is, in fact, no more than what would be covered under existing laws, that representation will almost certainly be misleading or false, and the manufacturer or supplier will therefore contravene the ACL. As mentioned above, the penalties for making such a misleading representation includes a fine of $1.1 million for bodies corporate.
What manufacturers should do
- Understand the reasonable limits of consumer guarantee obligations. You should understand what the consumer guarantees require of your goods. Specifically, you should understand what the acceptable quality guarantee requires in relation to durability and freedom from defects of your goods.
- Review your extended warranties and service plans to ensure that they offer rights above and beyond those under the consumer guarantees. You should ensure that your extended warranty provides more protection than the consumer guarantees and that representations about the extent of the protection they provide, over the consumer guarantee are accurate.
© DLA Phillips Fox
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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.