When is a warranty against defects for Goods and Services invalid?

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Table of Contents

• What is a warranty against defects?
• What are the requirements?
• False representations
• What are the consequences?
• Enforcement example
• Conclusion

It is common for businesses to offer consumers warranties for their goods or services. Some businesses even offer warranties or support packages to consumers at an additional price.

Many consumers, however, are unaware that they are already entitled to a range of protections under the Australian Consumer Law (ACL). Similarly, many businesses don’t realise that they can land themselves in trouble by providing a warranty that does not comply with the ACL – or by charging consumers for rights that they already have.

What is a warranty against defects?

A warranty against defects is a representation made to a consumer that, if goods or services are defective, a person will:

• repair or replace the goods;
• provide services again or rectify the services; or
• wholly or partly recompense the consumer.

What are the requirements?

A business must not give a consumer a document that evidences a warranty against defects unless certain information is provided, including:

• what the business must do if goods are faulty or defective;
• what the consumer must do to entitle them to claim the warranty;
• the name, address and telephone number of the business;
• the warranty period;
• what a consumer must do to claim under the warranty; and
• whether the business or the consumer is responsible for expenses associated with a claim and how the consumer can claim expenses.

A warranty against defects must also be in a document that is transparent and state that the benefits to the consumer given by the warranty are in addition to other legal rights and remedies of the consumer.

Finally, a warranty against defects must contain 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 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.

False representations

In addition to these requirements, the ACL prohibits a person from making a false or misleading representation that a consumer is required to pay for a right that the consumer already has under the ACL or any other law.

What are the consequences?

A business may face penalties if it fails to comply with its warranty obligations:

• for providing a non-compliant warranty against defects, the maximum penalty is $50,000 for companies and $10,000 for individuals; and
• for a false or misleading representation about a consumer’s right to a warranty, the maximum penalty is $1.1 million for companies and $220,000 for individuals.

Enforcement example

In May 2015, the Federal Court of Australia ordered the operator of an online electronics store to pay $100,000 in penalties for making false or misleading representations about the availability of refunds and the extent of liability for faulty goods.

This case demonstrates that the Australian Competition and Consumer Commission (ACCC) is willing to take enforcement action against sole traders and small-to-medium businesses for breaching the ACL. All businesses need to be diligent in ensuring compliance with the ACL.

Conclusion

The ACCC has published an advertising and selling guide, which contains some information about the obligation of businesses in relation to warranties against defects.

If you still need assistance understanding your obligations under the ACL, you should speak to an experienced business lawyer. At LegalVision, we can help you make sure your warranties comply with the ACL, so give us a call on 1300 544 755.