New Consumer Protection – suppliers and manufacturers must comply by 1 January 2011 or risk the penalties

As of 1 January 2011, suppliers and manufacturers will need to understand and have implemented new practices and procedures in line with the new and overhauled Australian Consumer Law (ACL). Given these new changes, we consider it necessary for suppliers and manufacturers to ask themselves three questions:

1. Can we guarantee any representations or statements made about the acceptable quality of our goods?
2. Can we guarantee any express warranties made about our goods?
3. Do the terms and conditions of our extended warranty provide extra protection which consumers do not have under the new ACL?

The new ACL will apply in the same way to all Australian consumers and businesses.

The name of the Trade Practices Act 1974 will also change to the Competition and Consumer Act 2010 from 1 January 2010.

1.         Consumer Guarantees: What are the changes?

The new national consumer guarantee provisions replace laws on statutory conditions and warranties, and provides a single national system of statutory consumer guarantees. Some of the guarantees are similar to current provisions under the Trade Practices Act and the Fair Trading Act; however there are some noteworthy changes that will affect the operation of a supplier or manufacturer. Relevantly:

• the consumer guarantee as to acceptable quality;
• the consumer guarantee that any express warranty given by a supplier or manufacturer is honoured; and
• that any failure by a supplier or manufacturer of a statutory consumer guarantee is directly enforceable as a breach of the ACL.

The new guarantees apply to goods bought on or after 1 January 2011 by a consumer from a supplier or manufacturer. They apply, among other things, to goods and services valued less than $40,000, and, to products valued greater than $40,000 that are generally used for personal consumption. It excludes those products acquired for re-supply or for use in trade or commerce.

The wide range of guarantees included in the banner of 'consumer guarantee' is, a guarantee:

• as to acceptable quality;
• of fitness for a disclosed purpose;
• that goods match any description, sample or demonstration model used by the supplier:
• that any express warranty given by a manufacturer or supplier in relation to the goods will be complied with; and
• for manufacturers, as to the availability of repairs and spare parts within a reasonable time after purchase.

You will need to become familiar with these before 1 January 2011. There are harsh penalties for failing to comply.

2.         Can we get out of these guarantees?

Importantly, you cannot avoid this liability by excluding the consumer guarantees from contract, agreeing that the law of another country applies or, pressuring consumers to surrender their rights.

3.         What are the consequences if we fail to comply with these guarantees?

If these consumer guarantees are not complied with, three things can happen:

1. Consumers can seek a remedy from the supplier or manufacturer. Your liability will depend on whether the failure is a 'major' or a ' non-major' failure of the guarantee. If the failure is a 'major' failure, consumers have the right to reject the goods and choose between a refund or a replacement and in some cases also recover reasonable foreseeable loses and compensation for the reduction in the value of the goods.
2. Consumers can claim that the supplier or manufacturer made a false or misleading representation about the consumer guarantee in supplying, offering to supply, or promoting the goods to consumers. Suppliers and manufacturers may be liable for penalties of:

   2.1.1       a fine of $1.1 million for companies;

   2.1.2       a fine of up to $220,000 for individuals who are knowingly concerned in the conduct; and

   2.1.3       in some cases, criminal sanctions.

   We consider this a wider than a claim of misleading and deceptive conduct under section 52 of the Trade Practices Act because it specifically includes any false or misleading representations about the new consumer guarantees (including acceptable quality and express warranties).

3. ACCC, on behalf of consumers, can take action against a supplier or manufacturer that repeatedly breaches the consumer guarantees.

4.         So what are the guarantees that affect us?

Acceptable Quality

Given these changes, we consider that each supplier and manufacturer should ask themselves: Does our product have a statement about the product on any packaging or label? Do we make any representations about our goods? If the answer is yes, you will need to assess whether you can guarantee the statements, or whether they can be seen as false or misleading.

The concept of acceptable quality goes further than the concept of 'merchantable quality' under the Trade Practices Act. Under the ACL, goods are of acceptable quality if they are fit for all the purposes for which goods of that kind are commonly supplied, acceptable in appearance and finish, free from defects and are safe and durable. In determining whether a product is of acceptable quality, a reasonable consumer test will be applied and a number of matters will be taken into account, including, among other things:

• any statements made about the goods on any packaging or label on the goods (for example, the box shows a special function of the product); and
• any representations made about the goods by the supplier or manufacturer of the goods (for example, the product is 'easy to use').

For example, if your product states on the packaging it is 'easy to use' and has a corresponding picture that demonstrates it's effortless - you are likely to have breached the consumer guarantee of acceptable quality if a reasonable consumer would find the product difficult to use . Why? Any statement or representation made about the level of quality of the goods will alter your accountability to the consumer and level of acceptable quality that is required under the ACL.

Express Warranty

In addition to the guarantee of acceptable quality, there is a consumer guarantee that suppliers and manufacturers who make an express warranty as to the quality, state, condition, performance or characteristics of a good – will honour that promise.[1]

If your product states that it has a lifetime guarantee' and it lasts for say, 4 years, the consumers may have a right to a remedy. Consumers may also claim that this representation is false or misleading as to the quality and condition of the product.

Significantly, express warranties are different from a manufacturer's warranty or a 'warranty against defects'. An express warranty focuses on the promise of the supplier to honour that promise – for example the product will 'last for 10 years'. A warranty against defect only applies if the supplier or manufacturer promises to repair or replace goods. For example, 'you will be entitled to a replacement bed if your bed breaks within 2 years of the purchase date'.

Warranty against defects - Changes Effective 1 January 2012

In addition to the current changes, from 1 January 2012, there will be additional requirements for a warranty against defect, which, among other things, requires the following text on any product:

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 for 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.

The new requirements for warranties against defects seek to address the problem that consumers are unaware of their rights and the difficulties they may have in seeking to have suppliers and manufacturers fulfil promises if they lack access to basic details.[2]

5.         Extended Warranties: What else does it affect?

The new changes also affect the operation of extended warranties.

Do your extended warranties terms and conditions say:

"You do not need to pay for X. You are entitled to X under Australian Consumer Laws. This warranty provides for Y, which is an added benefit."

If it does not and the consumer pays for an extended warranty that does not explain what is protected under the new consumer guarantees, you may be misleading consumers under the new ACL.

A supplier or manufacturer must not make false or misleading representations about the requirement to pay for any guarantee, warranty or condition on the goods.  Accordingly, we consider it necessary for suppliers and manufacturer to look at the wording of the terms and conditions and make sure the extended warranty clearly specifies what is already afforded under the new statutory consumer guarantees and what is being provided for over and above the consumer's rights under a consumer guarantee.

6.         What should we do now?

You should ask yourselves the following questions:

• Do we, and our customer service staff, know what the new consumer guarantees are? 
• Can we guarantee any representations or statements made about the acceptable quality of our goods?
• Can we guarantee any express warranties made about our goods?
• Does our staff know the consumer's rights to a remedy if we fail to comply with a consumer guarantee?
• Do the terms and conditions of our extended warranty provide extra protection which consumers do not have under the new ACL?
• Do we understand the new false or misleading penalty provisions, and how they relate to new consumer guarantees?

More Information from Maddocks

For more information, contact Maddocks on 03 9288 0555 and ask for a member of the Maddocks Corporate and Commercial Team.