Commercial and Corporate update: Providing a consumer warranty for services — new laws dictate the terms!

Apr 29, 2019

Does your business supply services, whether with or without accompanying goods? If so, does it provide consumers with any written warranties or guarantees relating to those services?

If you answered yes to these questions, you have until 9 June 2019 to ensure that your business complies with new warranty laws to avoid financial penalties of up to $50,000 for non-compliance.

New changes to the Australian Consumer Law

In August 2018, Parliament passed legislation amending the Competition and Consumer Act 2010 (Cth) which introduced significant changes to the Australian Consumer Law providing consumers the full protection of the consumer warranty or guarantees relating to services.

For businesses, the changes impact on what you must — and must not — include in your warranty documentation, whether the warranty statement is printed on a card, appears in terms and conditions, in product manuals, online or otherwise.

Express written warranties, such as one might see on a warranty card, in a product manual or on a product or service provider website, are commonly provided in connection with goods and services.

The new requirements apply in respect of any services supplied at a value of $40,000 or less, or in respect of any services of a kind that are usually acquired for personal, domestic, or household use or consumption.

What has changed?

While there is in fact no obligation to provide a written warranty with goods or services, if you choose to do so your warranty wording must comply with the new legislation.

Until now, the Australian Consumer Law has prescribed set wording for warranties for defects in goods only. The new legislation now requires the inclusion of specific text in connection with warranties provided to consumers relating to the supply of services and for the supply of goods in combination with services.

Certain guarantees, for example, that goods or services will be fit for their intended purpose, are implied by law into contracts (whether or not their terms include such wording). However, sometimes suppliers will attempt to limit the period in which a product or service warranty will apply (e.g. ‘our repairs are guaranteed for 3 months’). This may not be legal if the stated period is in fact shorter than what the general law would impose, or if the remedy for a breach of warranty is inadequate at law.

The requirement to include mandatory text in warranty documentation is, in part, intended to reduce the risk of suppliers unlawfully purporting to limit the duration of any warranty period, or to limit or exclude the types of remedies that would otherwise be available to consumers of services under the Australian Consumer Law.

The statement prescribed under the regulations must be verbatim and included in any document dealing with warranties/ guarantees for consumer services. The statement advises the consumer that the supplier’s warranty is additional to and does not override or limit the availability of other warranties and remedies under the Australian Consumer Law (including statutory warranties of fitness for purpose etc).

What’s in the required statement?

The required statement notifies consumers that major failures in services entitle the customer to cancel their service contract and to seek a refund for the unused portion or to compensation for reduced value. Major failures in connection with services include where the services are substantially unfit for their purpose, or do not produce the promised result. 

In addition, the consumer must be notified of their right to be compensated for loss that may flow on from the defective services. The text also must advise consumers of their rights in respect of failures that are ‘not major’.

In short, if the prescribed wording is not included in an express warranty document, it will be unlawful to sell the goods (and now) and/or services.

Prescribed wording

The Competition and Consumer Amendment (Australian Consumer Law Review) Regulations 2018 dictate the new and additional mandatory wording.

For the supply of services, the prescribed text for a warranty against defects is:

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.

Similar (but modified) wording is required where services and goods are supplied together.

Penalties

Businesses have until 9 June 2019 to comply with the new warranty laws, otherwise they can be hit with financial penalties of up to $50,000 for non-compliance with the warranty requirements. Additionally, making misrepresentations in respect of warranties against defects may also fall foul of other sections of the Australian Consumer Law, such as the prohibitions against the making of misleading or deceptive representations.

Businesses should be aware that the financial penalties for non-compliance with provisions of the Australian Consumer Law were recently increased and are now quite severe (including financial penalties of up to $10 million, compared with the former maximum penalty of $1.1 million).

What you need to do now

To avoid financial penalties, businesses should immediately review and change any service warranty documentation — remembering to allow lead time involved in preparing, printing and issuing compliant documentation.

More information

For more information or advice on compliance with the new warranty provisions, or the Australian Consumer Law in general, please contact Daniel Kovacs, Principal Lawyer, on (03) 8600 8859 or dkovacs@kcllaw.com.au, or Dana Morrison, Lawyer, on (03) 8600 8809 or dmorrison@kcllaw.com.au.

Authors

Learn more about the authors Daniel Kovacs and Dana Morrison.

Note: This update is a guide only and is not intended to constitute legal advice.

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