A warranty against defects is a promise or representation made by suppliers of goods and services to consumers about the performance of those goods or services.
While these types of warranties have been around for a long time, businesses are often complacent in ensuring they comply with the current legislative requirements. Too often do businesses rely on outdated warranties which have not been updated since the introduction of new legislative requirements. Businesses must be aware that any non-compliant warranties against defects can have series consequences, including significant monetary penalties.
This article outlines the current requirements of warranties against defects to assist you or your businesses to ensure compliance with the relevant legislative requirements.
Who is a “consumer”?
The first step in understanding warranties against defects, is identifying who is the “consumer”. Alternatively, who is the person being given the promise by the supplier that the goods or services will perform as advised.
Previously, the Australian Consumer Law (ACL) provided that a person is taken to have acquired goods as a consumer, if
1. the amount paid for the goods did not exceed $40,000;
2. the goods were of the kind acquired for personal, domestic or household use or
consumption; or
3. the goods consisted of a vehicle or trailer for use in transport of goods on public
roads.
However, as at 1 July 2021, the definition of a “consumer” under the Australian Consumer Law (ACL) has been broadened to include any purchaser of goods and services up to $100,000.
Businesses who regularly deal in these types of supplies must be aware of the new monetary threshold for consumer transactions and the implications it may have for certain products or services that are supplied with warranties against defects.
Requirements for the warranty
A warranty against defects must include specific details which are prescribed in the Competition and Consumer Regulations 2010 (the Regulation). These details include, but are not limited to:
1. mandatory wording for the supply of certain goods;
2. specific details of the person giving the warranty;
3. the period of time when a defect must appear for the warranty to apply;
4. the procedure for a consumer to claim the warranty.
Importantly, warranties against defects are often included within different types of documents such as supply contracts, terms and conditions, product packaging, product manuals and other supply documents. Irrespective of whether the warranty against defects is included as its own warranty document or contained within some other supply document, it must comply with requirements detailed in the Regulation.
Businesses must therefore be cautious in simply adopting old, pro forma templates of documents such as terms and conditions and the like, without considering whether they include warranties which are non-compliant with the current legislation.
Given the requirements of the Regulation vary depending on the types of goods and service supplied, it is crucial that businesses specifically tailor their warranties against defects to ensure they comply with the Regulation. This often requires a review of that business’ applicable supply documents to ensure they haven’t inadvertently given a warranty against defects which does not comply with the Regulation, or which may conflict with a separate warranty given for the same product or service.
What happens if the warranty does not comply with the Regulation?
The ACL provides that a person must not give a warranty against defects to a consumer that does not comply with the requirements prescribed by the Regulation. Any non-compliance may result in a pecuniary penalty, where businesses can face fines of up to $50,000 and $10,000 fines for individuals.
The regulatory body for consumer protection, the Australian Competition and Consumer Commission (ACCC) regularly monitor businesses to ensure they comply with these warranty requirements. The ACCC may also issue an infringement notice for non-compliance of up to $13,320 for businesses and $2,664 for individuals for each alleged contravention.
The warranty against defects which does not comply with ACL may also constitute a false and misleading representation. In those circumstances, there could be a pecuniary penalty of up to the greater amount of:
1. $10,000,000;
2. if a court can determine the benefit received by the company for the breach –
three times the value of the benefit obtained by the company (or any related
company); and
3. if the benefit cannot be determined by the court – 10% of the annual turnover of
the body corporate during the 12-month period ending at the end of the month
in which the breach occurred.
It is essential that businesses and individuals regularly dealing in the supply of goods and services which come with warranties against defects are fully aware of the necessary requirements to avoid any potential breach of the ACL and pecuniary penalties which may follow.
Key takeaways
The ACL is ever changing with constant updates being made to relevant requirements for businesses who supply goods and services.
Conducting regular reviews of your warranties against defects and any other supply related documents is crucial to ensure your current warranties comply with any changes to these specific legislative requirements. While this may seem unnecessary, it is much less arduous than having to deal with potential litigation and financial penalties which may arise from non-compliance.
If you need assistance in reviewing or preparing your warranties against defects or any other supply related documentation, our team at Shand Taylor Lawyers has extensive experience in reviewing, drafting and amending all types of supply related documents.
Kimberley Forman, Director
(07) 3307 4523
Ruby Nielsen, Senior Associate
(07) 3307 4551
Charlie Hodgetts, Associate
(07) 3307 4513
Emma Lewis, Lawyer
(07) 3307 4546