When entering into any commercial arrangement, a key concern is ensuring you get exactly what you pay for. Warranties are included in commercial contracts to give parties the confidence to enter into an agreement with the other side. Certain warranties may relate to the quality of the goods or the capacity of the other side entering into a contract with you. They are a useful tool to improve your chances of being able to make a warranty claim if things go wrong. Therefore, you should look closely at the warranties clause in any commercial agreement. This article explores market standard warranties that you should include in any contract with a supplier. Though these warranties should not be too much of an issue in negotiations, they are critical to review.
ACL Guarantees
Consumer guarantees (as contained in the Australian Consumer Law (ACL)) are guarantees that suppliers and manufacturers provide to consumers, providing a level of protection when purchasing goods and services. However, when entering into a contract with your supplier, consumer guarantees may not automatically apply, making it essential to seek warranties.
Consumer guarantees apply where consumers purchase goods or services that:
- have a value of less than $100,000;
- are purchased for domestic, household or personal use or consumption; or
- consist of a commercial vehicle or trailer for transporting goods on public roads.
Likewise, consumer guarantees do not apply to insurance or financial services, or services for transporting and storing foods or business purposes.
Minimum Warranties to Seek From Suppliers
At a minimum, you should seek certain market standard warranties from suppliers. If you cannot get any of these warranties from the supplier, you should aim to input them as separate clauses in the agreement.
Suppliers should warrant that goods and services are:
- in accordance with any specifications, instructions and reasonable requirements (as agreed by the supplier);
- provided or performed with due care, skill and diligence and by qualified persons;
- provided or performed with due expedition and without delay (within timeframes agreed between the parties);
- provided or performed per relevant laws and regulations. Be sure to specify any specific legislative frameworks that you require the supplier to comply with (e.g. modern slavery laws, relevant employment legislation, anti-bribery and anti-corruption laws); and
- in relation to goods, the supplier should warrant that any products supplied are free from encumbrances (e.g. security interests) and that the supplier can readily pass title in the goods to you under the title and risk provisions of the contract.
Additionally, ensure that the supplier has an obligation to re-supply any goods or services not supplied in accordance with the specified warranties. Alternatively, you might have a clause that obliges the supplier to refund your business if they cannot re-supply the goods or services.
You may also want to include warranties that the supplier has the relevant licences, professional registrations or authorisations necessary to provide the goods or services. For example, they might require a TGA approval for medical supplies or a builder’s licence for construction services.
Continue reading this article below the formAdditional Warranties to Seek From Suppliers
You may want to request additional warranties if you are providing your own contract or if you are properly negotiating a supplier’s contract. For example, you might want to guarantee the following:
- the supplier has full capacity to enter into the contract;
- the supplier is not insolvent;
- that there is no conflict of interest for the supplier in providing the goods or services;
- the supplier (and the supplier’s personnel, if applicable) are not your employees. This warranty is particularly important when you engage a sole trader or if the supplier’s personnel carry out work from your premises. Such a warranty removes any ambiguity about entitlements to employment benefits;
- the supplier is responsible for all acts by its personnel or subcontractors. This warranty will allow you to enforce your contract directly against the supplier in the situation where one of the supplier’s personnel or subcontractors causes you financial loss, such as by breaching privacy or confidentiality provisions. If you cannot get a warranty to this effect, you should ensure it is at least a term of the contract; and
- that goods and services are of merchantable quality, free from defects and fit for purpose.
Under the ACL and if the consumer guarantees apply to the contract, suppliers warrant that goods or services supplied will be fit for any purposes specified by a customer before purchase and agreed by the supplier (or purposes the supplier represented the goods or services were suitable for).
Other Considerations
In addition to the above warranties, you should keep in mind the below tips:
- check that no obligations seek to limit or exclude the supplier from express obligations under the contract; and
- draft warranties clearly and precisely define any technical terms to improve your contract’s enforceability.
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Key Takeaways
All supplier contracts should contain market-standard warranties so that you rely on the quality of the goods or services supplied. It is important to ensure that you include warranties where your contract is not subject to consumer guarantees in the Australian Consumer Law.
If you need assistance drafting your warranties clause or reviewing your seller’s warranties, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Consumer guarantees are legally mandated protections when purchasing goods and services. Suppliers and manufacturers provide them to consumers, protecting them when purchasing goods and services.
There are some situations where the consumer guarantees in the ACL do not apply, including:
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