Who should be aware of this?

If your business supplies goods or services (or both goods and services) to consumers and gives a warranty against defects for those goods/services, then it’s crucial that you’re aware of some changes to the law that took effect on 9 June 2019.

What are “warranties against defects”?

Under the Australian Consumer Law (ACL), if a supplier or manufacturer of goods or services chooses to provide a “warranty against defects” to “consumers”, then that warranty must be in a document (Warranty Document), and that Warranty Document must comply with specific requirements.  The ACL is part of the Competition and Consumer Act 2010 (Cth) (Act).

A “warranty against defects” is a representation (e.g. a promise) given to a consumer that, if the goods or services (or part of them) are defective, then the supplier or manufacturer will:

• repair or replace goods (or part of them); or
• resupply or fix a problem with services (or part of them); or
• provide compensation to the consumer.

Such a representation will only be a warranty against defects if it is made at or around the time that the goods or services are supplied.

An example of a “warranty against defects” for the supply of services could be a statement by a bicycle shop that an old bike they have repaired for a consumer will not have any mechanical issues for a period of 12 months after the repair was completed.

“Who is a consumer”?

Under the Act, a person will be considered a “consumer” if they purchase:

• goods or services that cost less than $40,000; or
• goods or services that cost more than $40,000, but are of a kind ordinarily acquired for domestic, household or personal use or consumption; or
• a vehicle or trailer primarily used to transport goods on public roads.

A purchaser will not be considered a consumer if the relevant goods are purchased to be resold or to be transformed into a product that is then sold.

What are the requirements for warranties against defects?

The Competition and Consumer Law Regulations 2010 (Cth) (Regulations) specify requirements relating to the “form and content” of warranties against defects.  One of these requirements is that the Warranty Document must specify the period within which the relevant warranty against defects relates, as well as certain details of the person providing the warranty.

The Regulations also require that a Warranty Document relating to the supply of goods must contain the following mandatory text:

Mandatory text for the supply of goods:

“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.”

Following changes to the Regulations which came into effect on 9 June 2019, the Regulations now also require that a Warranty Document relating to the supply of services, or to the supply of goods and services, must contain the following mandatory text:

Mandatory text for the supply of services:

“Our services come with guarantees that cannot be excluded under the Australian Consumer Law.  For major failures with the service, you are entitled:

• to cancel your service contract with us; and
• to a refund for the unused portion, or to compensation for its reduced value.

You are also entitled to be compensated for any other reasonably foreseeable loss or damage.

If the failure does not amount to a major failure, you are entitled to have problems with the service rectified in a reasonable time and, if this is not done, to cancel your contract and obtain a refund for the unused portion of the contract.”

Mandatory text for the supply of goods and services:

“Our goods and services come with guarantees that cannot be excluded under the Australian Consumer Law.  For major failures with the service, you are entitled:

• to cancel your service contract with us; and
• to a refund for the unused portion, or to compensation for its reduced value.

You are also entitled to choose a refund or replacement for major failures with goods.  If a failure with the goods or a service does not amount to a major failure, you are entitled to have the failure rectified in a reasonable time.  If this is not done you are entitled to a refund for the goods and to cancel the contract for the service and obtain a refund of any unused portion. You are also entitled to be compensated for any other reasonably foreseeable loss or damage from a failure in the goods or service.”

Can suppliers and manufacturers include additional information in Warranty Documents?

Suppliers and manufacturers are free to include extra information in Warranty Documents to explain how the consumer rights in the ACL apply.  However, they must ensure that such extra information does not limit or negate the mandatory text.

What are the consequences for failing to comply with the requirements for warranties against defects?

Fines of up to $50,000 (or $10,000 for individuals) can be imposed for failing to comply with the requirements in the ACL and the Regulations relating to warranties against defects.

In addition, a failure to comply with these requirements can lead to breaches of other parts of the ACL, which can have much harsher penalties.  As an example, if such a failure to comply is found to involve a false or misleading representation concerning the existence, exclusion or effect of a condition, warranty, guarantee, right or remedy, then the applicable penalties could include:

• for an individual – a fine of up to $500,000; or
• for a company, the greater of:
• $10,000,000; or
• 3 times the value of the benefit obtained from the contravention; or
• if the value of the benefit cannot be determined, 10% of the annual turnover of the company.

Click here for further details on warranties against defects as published by the Australian Competition and Consumer Commission.

For more information on the requirements for warranties against defects, and for general advice on compliance with the Australian Consumer Law, please contact:

• Ken Gitahi, Senior Associate, on +61 (0)401 450 220 or at kgitahi@sierralegal.com.au
• Mike Jeffery, Director, on +61 (0)402 745 054 or at mjeffery@sierralegal.com.au
• Craig Sanford, Director, on +61 (0)416 052 115 or at csanford@sierralegal.com.au