01 Dec 2010

Express and extended warranties, and the new ACL

Warranties are a pretty standard part of buying and selling in this country, whether they're required by law or given by responsible traders. The new Australian Consumer Law is going to make some important changes to the way that warranties operate, including what's in them.

Express and extended warranties, and the new ACL 
Kirsten Webb, Partner, Competition Law

Warranties are a pretty standard part of buying and selling in this country, whether they're required by law or given by responsible traders. The new Australian Consumer Law is going to make some important changes to the way that warranties operate, including what's in them. What seems simple will actually be a bit more complicated in practice and we think could put you more at risk of making a false or misleading representation to your customers, which could be an expensive mistake.

To understand the problem, you need a bit of background. Retailers and manufacturers are already prohibited from making false or misleading representations about the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.

The Australian Consumer Law changes this in two ways:

  • first, it makes it clear that this also applies to the consumer guarantees set out in the Australian Consumer Law
  • secondly, it adds a new prohibition - you can't make a false or misleading representation about any requirement to pay for a contractual right to which a consumer is already entitled by law. That includes a statutory consumer guarantee). That includes a statutory consumer guarantee.

It then specifies the sorts of things that should be in your express warranty against defects, including that the warranty's benefits are in addition to a consumer's other rights and remedies. It also sets out some standard text that must be included.

Seems simple, right?

There are two important issues for retailers and manufacturers.

The first one is this: are your express or extended warranties, or the way in which they are marketed, likely to mislead consumers about the rights and remedies to which they may otherwise be entitled under the Australian Consumer Law?

This is a fairly obvious risk.

The second one is a bit less obvious, and arises when you're selling an express or extended warranty.

The risk is that the warranty you're selling might not actually give a consumer any rights and remedies that they don't already get under the Australian Consumer Law.

If it doesn't, you might be making a false or misleading representation to the consumer that they need to pay for something they already have. That could be so even if you put in a statement preserving consumers' rights under the ACL and expressly outlining those rights, if the warranty you sell doesn't actually give them anything beyond that.

There are a few things that retailers and manufacturers should be looking at now.

First, you need to make sure that your frontline staff understands what rights and remedies a consumer has under the Australian Consumer Law. For example: when can a customer reject goods? Who determines whether the customer is entitled to repair or replacement or a refund? What is a major failure?

Secondly, you'll need to look at the warranty products that you sell. Do they go beyond the protections in the Australian Consumer Law? If they overlap, but your warranty is more limited, you'll need to make it clear that consumers still have the broader rights under the Australian Consumer Law, and that the payment for the extended warranty is only for the benefits that go beyond those in the ACL. What are the benefits that you are selling?

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.