Are your warranties compliant?

Since 9 June 2019, businesses supplying consumers with services (or goods and services together) that have a warranty against defects are required to include mandatory text in the warranty alerting consumers to their rights under the Australian Consumer Law (ACL). 

Warranties against defects

A warranty against defects is any representation communicated to a consumer in connection with the supply of goods or services, at or about the time of the supply, that a person will repair or replace goods (or part of them), or resupply or rectify services (or part of them), or wholly or partly recompense the consumer, if the goods or services are defective.

Under the ACL, a “consumer” is an individual or a corporation that:

• acquires goods or services for $40,000 or less
• acquires goods or services that are of a kind ordinarily acquired for personal, domestic or household use or consumption, or
• acquires a vehicle or trailer primarily for use in the transport of goods on public roads

but not where goods are acquired for the purpose of resupply or to be used up or transformed in a production or manufacture process or in repairing or treating other goods or fixtures on land.

Businesses often mistakenly presume that business-to-business transactions fall outside the ACL. As a result, they can be taken by surprise when a customer or client asserts a right under the ACL or they can fail to appreciate their own rights as a “consumer” when they have acquired defective goods or services.

Mandatory information requirements for supplies with a warranty against defects

Where a business supplies goods or services to a consumer and provides a warranty against defects, that warranty must:

• be in a document that is transparent
• concisely state what the warrantor and the consumer must do to give effect to the warranty
• prominently state the warrantor’s name and contact details
• state the period or periods within which a defect must appear for the warranty to apply
• set out the procedure for the consumer to claim under the warranty
• specify who is to bear any expenses of claiming under the warranty, and
• state that the warranty is in addition to the consumers’ other rights and remedies at law.

Since 2012, the regulations have required that warranties include the following prescribed text in relation to supplies 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.”

This text is designed to counter the confusion often arising in the minds of consumers (and some suppliers) about the effect of an express warranty and its interrelationship with a consumer’s statutory rights. 

Extension of the mandatory text requirement to services

From 9 June 2019, the regulations have extended the mandatory text requirement to warranties against defects in the supply of services or in mixed supplies of goods and services. 

The mandatory text for supplies of services is currently:

“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.”

The mandatory text for supplies of goods and services is currently:

“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.”

In its guidance on the mandatory text requirements, the Australian Competition and Consumer Commission (ACCC) gives the example of the supply and installation of an air conditioning unit in a home, where the unit is sold with a written warranty that the manufacturer will replace the unit if anything goes wrong with it within two years after purchase. In that case, the manufacturer must ensure that the information requirements above have been complied with, including the mandatory text. 

The requirements would apply equally to a service contract between two businesses involving a purchase price of $40,000 or less, which includes a warranty to resupply or rectify defective services.  It is also worth remembering that an Australian consumer is able to enforce rights under the ACL notwithstanding that the supplier is located overseas or the supply is under a contract covered by foreign law. 

Currently, the mandatory text is not required where services are supplied under a contract of insurance, for gas, electricity or telecommunications services, or in relation to the transport or storage of goods for the business purposes of the person for whom the goods are transported or stored.

Key points

Non-compliance with the mandatory information requirements—including the new mandatory text required for supplies of services or mixed supplies—puts businesses at risk of pecuniary penalties under the ACL. In September 2018, the maximum pecuniary penalty for a corporation was increased to the greater of $10 million, three times the value of the benefit obtained from the offence, or 10% of annual turnover, and for an individual to $500,000.

With the new regulation now in effect, it is important for all businesses involved in the supply of services or mixed goods and services under a warranty against defects—including in business-to-business “consumer” transactions—to ensure that warranty documentation is compliant.