True Lies – Will a Warranty Help Me?

True Lies – Will a Warranty Help Me?

An issue with the Australian Consumer Law (“the ACL”) and warranties is that it may catch out some Companies that could be deemed to be selling to “Consumers” even though they only supply on a business to business basis.

Here’s how it works.

Section 102 of the ACL and Regulation 90 of the Competition and Consumer Regulations 2010 are the relevant sections of the legislation.  Section 102 essentially says:

A person (which includes a corporation) must not:

  1. Give a consumer any document that “evidences a warranty against defects” that does not comply with all of the requirements prescribed by that section; or
  2. Represent directly to a “consumer” that goods or services are “goods or services to which such a warranty against defects relates”.

This is a strict liability offence and provides penalties up to $50,000.00 per offence for companies and $10,000.00 per offence for individuals.

Regulation 90 sets out the requirements to comply with Section 102. Regulation 90 provides that all warranties against defects must contain information such as:

  1. Name and contact details of the person providing the warranty;
  2. The scope of the warranty;
  3. The procedure for claiming under the warranty;
  4. Who must pay freight costs for claims under the warranty;
  5. Regulation 90 also requires a prescribed block of text to be included in all documents evidencing a warranty against defects (“the prescribed text”).
Clearly Section 102 and Regulation 90 create a number of practical difficulties including the fact that the prescribed text can be misleading or inappropriate or in some cases simply incorrect when one considers the wide range of documents that must comply with Regulation 90. Section 102 is also ambiguous and potentially extremely wide. The combination requires every document to comply with Regulation 90 if it “evidences” a warranty against defects. In other words, any document that can tend to establish the existence of a warranty will be captured by the section and the regulation. This will include:
  • Product Brochures – Every mention of a warranty within the brochure may constitute a separate “representation” for the purposes of Section 102 and therefore would require the prescribed text in Regulation 90 to be set out each and every time a product warranty is described.
  • Point of Sale Material – Any promotional stickers that might be placed on packages and/or products at the point of manufacture could mean that the stickers would constitute a “document” which again would be subject to Regulation 90. This means either that there is a separate warranty provided in writing at that time or alternatively if goods are imported then they may need to be unpacked and such stickers removed before the product could legally be sold in Australian.
  • Terms and Conditions of Sale – It is not uncommon that the Terms of Sale are printed on the back of invoices which are then attached to products when they are dispatched to customers. Again, Regulation 90 would mean that any mention of a warranty in the Terms of Sale would require a full copy of the warranty to be included in the company’s terms.

Since the introduction of these provisions in 2012 a number of companies have taken the view they should remove any reference to warranty from any sales material. This is because that whenever the operation of Regulation 90 comes into play it goes hand in hand with a requirement for the prescribed text to be included in a document together with information such as who stands behind the warranty, how a claim should be made etc. This has also led to many companies including the prescribed text on documents without complying with any of the other Regulation 90 requirements.

What does this all mean for your Business?

If a business was to strictly comply with Section 102 and Regulation 90, it would be required to have the prescribed text included verbatim in every document given to a “consumer” that evidences a warranty against defects. The prescribed text is:

Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a 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.”

In addition, a business would then have to provide, in writing, all of the terms of its Warranty.

Under the ACL, if a business sells certain products or services then the Customer is protected by certain consumer guarantees. To be classified as a consumer, a Customer must buy:

  1. Products or services that cost up to $40,000.00; or
  2. Products or services that cost more than $40,000.00 and are of a kind ordinarily acquired for domestic household or personal use or consumption.

Consumer guarantees will not apply if a Customer buys products to resell or transform into a product to sell. In other words, if the business does not deal with consumers then there is no need to comply with Section 102 or Regulation 90. In order to ensure that this was the case a business would be required to make clear to its Customers that it does not sell to consumers as provided for in the ACL.

A strategy that a business could consider would be as follows:

  1. Make clear in various pieces of marking materials that the business does NOT conduct business with the retail public, it only conducts business with holders of an Australian Business Number (“ABN”).
  2. The business would confirm that there are warranties under Australian legislation that cannot be excluded and that the warranties given to its business customers irrespective of the product sold can be found at its website.
  3. The business could look at putting a further provision in its Account Application where a potential customer confirms that it proposes buying products to either re-sell them or transform them into a product for re-sale (or words to that effect).
  4. That as far as possible all marketing materials that mention the word warranty are also provided with a statement that customers acknowledge that they are buying and using the products for business purposes.

Our view is that if a business was to do those things, then it would overcome the difficult practical aspects of the legislation in regard to the notification of warranties to its customers. Further and before embarking on this course of action we would recommend that contact be made with the ACCC (the Regulator pursuant to the ACL) and confirm with them that this course of action will be appropriate.

It is our understanding that at this time the ACCC would take a favorable view given that the thrust of the legislation is directed towards “the consumer”, being generally referred to as the man in the street (as distinct from a commercial animal who can look after itself).

 

For more information, contact Terry Ledlin, Special Counsel

E-mail:                tledlin@ledlinlawyers.com.au

Direct Line:        02-8488-3388

 

Disclaimer
Ledlin Lawyers articles are intended as general information and commentary and should not be used or relied on in place of legal advice. Please seek formal advice on particular transactions, circumstances and matters related to any articles, blog posts or case studies posted on this website.
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