Warranties Against Defects – A Problem for Everyone in the Supply Chain

Manufacturers, retailers and service providers commonly make promises about the quality or fitness for purpose of their goods or services. These assurances are referred to as warranties and serve to enhance the attractiveness of products or services over those offered by a competitor. They have become a significant selling point for goods and services and it is not unusual these days to find products being offered with promises of "lifetime warranty" or "satisfaction guaranteed or your money back". 

The Australian Consumer Law (ACL) defines these types of promises as "warranties against defects".

Effective 1 January 2012, anyone who, in the course of trade or commerce, supplies goods or services to a consumer containing a document which "evidences a warranty against defects" must include in the document mandatory content and text. The pecuniary penalties for failing to do so are, for each offence, $50,000 for a corporation and $10,000 for an individual. Additionally, proceedings for misleading representations may result in penalties of up to $1.1 million for corporations and $220,000 for individuals.

By any measure, this is serious business!

The legislation is likely to cause difficulties for participants in the supply chain, particularly retailers. Although the manufacturer usually prepares and packages the written warranty, the legislation is directed to anyone who "gives" a non-complying warranty to a consumer. Inevitably, the retailer as the last link in the supply chain, will "give" the warranty as much as the manufacturer who prepared it.

Although the legislation takes effect from 1 January 2012, the problem for manufacturers and retailers is that goods will have been manufactured and packaged with warranty cards and enter the supply chain many months before they are offered to the consumer. As a transitional measure, the Australian Consumer and Competition Commission (ACCC) has indicated that non-complying warranties against defects which enter the supply chain before 1 November 2011 will have until September 2012 to be corrected or replaced. However, this means that goods entering the supply chain after 1 November 2011 and sold to consumers after 1 January 2012 with non-complying warranties will potentially involve a breach of the ACL and a risk of significant penalties to retailers/manufacturers.

The new law has been legislated since 2010. The ACCC has undertaken a broad information campaign to alert manufacturers and retailers of their obligations effective 1 January 2012. In those circumstances, little quarter is likely to be given for non-compliance.

If your organisation is not presently compliant, prompt action should be taken to review trading terms, policies and voluntary warranties.

Hugh & Associates has the experience and resources to assist clients with their obligations under the ACL and the Competition and Consumer Act. For more information or assistance, please do not hesitate to contact Robert Hugh on Tel +61 2 9299 8220 Fax +61 2 9299 6530 or email: rdh@hughlaw.com.

Further information is available from our website: www.hughlaw.com or by email acl@hughlaw.com