Compulsory changes to Warranty Clauses

By Roger Mendelson*

I’ve been reviewing the recent changes to legislation which are applicable to the credit professional in their day to day roles and I’ve noticed that there have been significant changes to the warranty laws under which we operate. Here are my selection of the most relevant points you need to be across.

The new laws came into effect from June 9, 2019 and they are imposed pursuant to Australian Consumer Law (ACL).

The impact of the ACL is that it applies to all Australian Jurisdictions, and is administered and enforced jointly by the Australian Competition Consumer Commission (ACCC) and State and Territory consumer protection agencies, with the Australian Securities and Investment Commission assisting with various financial services matters.

For example, in Victoria, the ACL is administered by Consumer Affairs Victoria (CAV).

From our experience of reviewing our client’s business trading terms when they submit debts to us, our impression is that the ACL changes are not well understood by businesses and that the compliance rate is low.

The impact of non-compliance is significant and may result in the imposition of fines of up to $50,000 for companies as well as potential civil and criminal penalties.

The first step you need to take is to review whether or not you provide “goods” and or “services” to “consumers”. For purposes of the ACL, consumers are where: l The sale or contract price is less than $40,000 or l The goods or services cost more for than $40,000 but are of a kind ordinarily acquired for domestic, household or personal use or consumption or l A vehicle or trailer primarily used to transport goods on public roads. The simple test you should apply is:

Is my customer going to use the products or services for personal consumption or are they to be on-sold to another party.

Unless your business is clearly B2B and you do not deal with consumers, then the safe option is to assume that as you deal in both the B2B and also the consumer space, you should comply with the ACL changes.

Express warranties

There are requirements in relation to express warranties. This may be done verbally or in writing and for example, may refer to: l The quality, state, condition, performance or characteristics of the product l What the product can do and for how long l The availability of servicing, supply of parts or identical products

The rule of thumb is to provide as much information as is practicable to your customer, without confusing him.

Although the warranties may be provided verbally, it makes far greater sense to incorporate them in written documents.

From our experience of reviewing our client’s business trading terms when they submit debts to us, our impression is that the ACL changes are not well understood by businesses and that the compliance rate is low.

Warranties against defects

At or before the time you provide goods and or services, you must provide your customer with details of the warranty you provide against defects. This should cover: l Repair or replacement of the products (or components) l Resupply or fix the problem with services l Provide compensation to the customer

Your warranty should include the following: l Details of what your business must do if the goods are faulty or defective l Actions required by your customer to entitle them to claim the warranty l The business name, the business address, telephone number and email address of your business l The warranty period l Actions required by the customer to make a claim under the warranty l Detail whether or not your business or the customer is responsible for the expenses associated with a warranty claim and how the customer can claim back any expenses incurred l A statement that the benefits provided by your business to the customer by way of warranty are an addition to other rights and remedies available to the customer

Compulsory clauses

Unless an exception applies, the major changes relate to the requirement to incorporate certain mandatory clauses.

Clause for the supply of goods only

“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”.

Clause for the supply of services only

“Our services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with service, you are entitled: l to cancel your service contract with us; and l 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”.

Clause for the supply of goods and services

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: l to cancel your service contract with us; and l 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.

As businesses are more likely in certain cases to supply goods and services, my suggestion is that you adopt the third clause, which covers both the supply of goods and services.

Summary

The changes introduced are somewhat clunky and difficult to understand. However, as a business, you have no choice but to comply with the new ACL requirements.

We suggest that you use this as an opportunity to review your business trading terms, as the changes will result in a requirement to make significant changes anyhow.

*Roger Mendelson CEO, Prushka Fast Debt Recovery Pty Ltd and is principal of Mendelsons National Debt Collection Lawyers Pty Ltd. Ph: 1800 641 617 www.prushka.com.au