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Retailers and Manufacturers Beware!

From 1 January 2012, new rules will govern the wording of warranties given by suppliers to consumers who purchase goods and services.

Who is affected?

The new rules will apply to any business that sells goods or services to consumers in trade or commerce. Clearly, the rules will cover retail businesses.

What should affected businesses do?

Every affected business should review its warranty documents in advance of 1 January 2012 to ensure warranty documents satisfy the requirements new rules.

Background

There are two types of warranties given to consumers when they purchase goods or services. They are:

  • 1. the consumer guarantees created by the Australian Consumer Law (“ACL”) and which are implied into every consumer contract. These cannot be excluded by businesses; and
  • 2. warranties that goods or services will be defect free for a specified period of time.

Under the new rules, the warranties in category 2 above will be defined as ‘warranties against defects’.

  • There is no legal obligation for a business to give a ‘warranty against defects’ to consumers but if the business does so, it must comply with the new rules.
New Rules

Under the new rules, a “warranty against defects” is “a representation communicated to a consumer in connection with the supply of goods or services at or about the time of supply to the effect that a person will (unconditionally or on specified conditions):

  •   (a) repair or replace the goods or part of them; or
  •   (b) provide again or rectify the services or part of them; or
  •   (c) wholly or partly recompense the consumer;

if the goods or services or part of them are defective, and includes any document by which such a representation is evidenced.”

In the above definition, it is important to note that:

  •   (i) a warranty need not be in writing. It merely needs to be a ‘representation’. The risk is that retail staff could make inadvertent statements to customers during discussions about a product which could be relied upon as a warranty;
  •   (ii) a warranty need not be given to a consumer on the date of sale of a good or service. It can be constituted by a representation communicated at or about the time of supply; and
  •   (iii) a warranty no longer needs to be contained in a formal warranty document. Any written material could be a warranty. This could include wording on packaging or on a label on an item.

New Warranty Wording

Under the new rules, all warranties against defects must:

  •   (a) be contained in a document that is easy to read, clear and legible;
  •   (b) concisely state:   (i) what the business giving the warranty will do so that the warranty is honoured; and
  •   (ii) what the consumer must do to in order to claim the warranty.   (c) prominently state the supplier’s name, address, telephone number and email address (if any);
  •   (d) state the period in which a defect must appear if the consumer is entitled to claim the warranty;   (e) clearly set out the procedure for a warranty claim, including the address to which a claim should be sent;
  •   (f) state who will pay the cost of claiming the warranty and, if it is the business, the procedure under which the consumer can claim the cost;
  •   (g) state that the benefits to the consumer under the warranty against defects are in addition to other rights of the consumer; and
  •   (h) include word for word the following mandatory text:

"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 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"

Relationship between Warranties and Consumer Guarantees

Warranties against defects are additional to the implied consumer guarantees under the ACL. In some cases, the consumer guarantees may provide a remedy after the claim period for a warranty against defects period has expired.

Penalties for failure to comply

Failure to comply with the new warranty rules can result in a fine of up to $50,000 for a corporation and $10,000 for an individual. A breach of the consumer guarantees can result in a fine of up to $1.1million for a corporation and $220,000 for an individual.

What you should do:

Warranty Documents: Retail businesses and manufacturers should review their warranty terms and conditions prior to 1 January 2012 to ensure that all warranty documentation complies with the requirements of the new rules.


Staff Training: Retail staff will need to be educated about the new rules to ensure compliance with the rules and to avoid making inadvertent warranty representations to consumers.
The Commercial Team at Diamond Conway can review your warranty documentation and advise you on what changes
need to be made to ensure that your business is compliant with the new rules. Please contact Phillip Meisner or Michael Tzirtzilakis of the Commercial Team.

Michael Tzirtzilakis | Senior Associate

Download (PDF) For more information, contact us:
Level 7, 9 Hunter Street Sydney NSW 2000
T: 02 9222 8000 F: 02 9222 8008 DX: 707 SYDNEY


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