Changes to warranty documentation requirements – are you ready?

Warranties against defects

Suppliers or manufacturers of goods or services may wish to provide promises to consumers about what they will do in the event that there is a defect in the relevant good or service, such as repairing or replacing the good, providing the service again or compensating the consumer.

These promises, or representations, are commonly referred to as ‘express warranties’ and more formally known as ‘warranties against defects’ under Part 3-2 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law or ACL).  They are voluntary and, if given, will apply in addition to any consumer guarantees which are mandated under the ACL.

Section 102 of Schedule 2 of the ACL provides that ‘warranties against defects’ must comply with any requirements as to form or content prescribed in the Competition and Consumer Regulations 2010 (Cth) (CC Regulations). Any document that ‘evidences’ a warranty against defects, such as a warranty card, warranty statement or any other document that sets out, or refers to, the terms of an express warranty against defects must comply with the prescribed form and content requirements.

Regulation 90 of the CC Regulations prescribes the form and information which a document which evidences warranties against defects must contain, such as the period within which the warranty relates and certain details of the person providing the warranty.

Recent changes to Regulation 90

On 9 June 2018, the Competition and Consumer Amendment (Australian Consumer Law Review) Regulations 2018 (Cth) (Amending Regulations) commenced. The Amending Regulations made certain amendments to the CC Regulations, including regulation 90, which will take effect from 9 June 2019.

Currently, regulation 90(1)(c) prescribes that warranties against defects must include the text mentioned in regulation 90(2). This text provides as follows:

‘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.’ (Current Prescribed Text).

The Current Prescribed Text only references goods and does not cover services or services bundled with goods. The Amending Regulation will amend regulation 90 to insert two additional sets of prescribed text to be included in a document which evidences a warranty against defect, where services or goods and services are being supplied.

Along with the Current Prescribed Text which will continue to apply in respect of the supply of goods only, the two new prescribed texts are:

• in relation to the supply of services only (regulation 90(3)):

‘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.’

• in relation to the supply of goods and services (regulation 90(4)):

‘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.’

Consequences of non-compliance

Pecuniary penalties of up to $50,000 can be imposed on a company which does not comply with these requirements.¹

In addition, non-compliance with section 102, such as by failing to include the prescribed text or otherwise making representations which do not reflect the representor’s possible obligations under the consumer guarantee provisions, can amount to misleading or deceptive conduct in contravention of section 18(1) of the ACL or a false representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy in contravention of section 29(1)(m) of the ACL.²

Pecuniary penalties up to the greater of the following amounts can be imposed on a company for breaching section 29:

• $10,000,000;
• three times the value of the benefit obtained by the company (including any related body corporate) from the offence that led to the penalty; and
• if the benefit cannot be determined by the court then 10% of the annual turnover of the company in the past 12 months.

These maximum penalties have only recently come into effect and are significantly greater than the previous maximum pecuniary penalty of $1,100,000.³ The increase in the maximum pecuniary penalty reflects an increased focus by the government on seeking significant penalties against companies which breach the Australian Consumer Law.⁴

Conclusion

It is important that all warranty documentation complies with the requirements of section 102 of the ACL.

In particular, in anticipation of the Amending Regulations taking effect, businesses should review their warranty documentation to ensure that any document which evidences a warranty against defects in respect of a service includes the new prescribed text set out in regulation 90.

¹Section 224(3) of the Australian Consumer Law.
²See for example Australian Competition and Consumer Commission v Hewlett-Packard Australia Pty Ltd [2013] FCA 653; Australian Competition and Consumer Commission v Salecomp Pty Ltd [2013] FCA 1316; Australian Competition and Consumer Commission v HP Superstore Pty Ltd [2013] FCA 1317; Australian Competition and Consumer Commission v Chopra [2015] FCA 539.
³Treasury Laws Amendment (2018 Measures No. 3) Act 2018 (Cth).
⁴For example see Australian Competition and Consumer Commission v Ford Motor Company Australia Limited [2018] FCA 703; Australian Competition and Consumer Commission v Telstra Corporation Limited [2018] FCA 571; Australian Competition and Consumer Commission v Apple Pty Ltd [2018] FCA 953.