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Avoid a $50,000 fine every time you sell a product or service for less than $40k with a warranty!

Monday, March 19, 2012

Many people still do not know about the new Regulation 90 (issued under the Australian Consumer Law), and its impact on suppliers' pricing of warranty services, contracts, websites and warranty cards.

It applies to all goods and services, not just ICT goods and services.

Regulation 90 came into force on 1 Jan 2012 and prescribes the form and content of a “warranty against defects”.  A failure to meet the requirements of Regulation 90 can be either a criminal offence or a civil contravention and can result in fines of up to $50,000 for a corporation and $10,000 for an individual per contravention.   In addition, providing incorrect statements about the existence or scope of warranties can result in penalties of up to $1,100,000 for corporations and $220,000 for individuals under other sections in the Australian Consumer Law (also known as the Competition and Consumer Act 2010).

This Regulation applies to all consumer contracts in Australia, which essentially is any contract for the supply of goods or services where the price is less than $40,000, or the goods or services are for domestic, household or personal use, irrespective of whether the buyer is an individual, a company or even a government body.

So what is a "warranty against defects"?

A 'warranty against defects' is any statement given at or about the time of supply of the goods or services to the effect that a person (not necessarily the supplier) will repair or replace the goods or part of them, rectify services or provide them again, or wholly or partly recompense the buyer for defective goods or services. 

The statement which comprises the warranty against defects could be oral (in which case it needs to be documented) or could be:

• in your terms and conditions (this includes your standard licence agreement or services contract).
• if the goods/services are purchased on a website, any statement made on the website.
• on any ‘warranty card’ that is included with your products.
• on product packaging, if you provide a warranty against defects on that packaging.
• at the point of sale, if you provide a statement about warranties at the point of sale.

What is required?

Where a ‘warranty against defects’ is given, Regulation 90 must be complied with.  Importantly, the warranty must be in a complying document which includes the exact text highlighted in bold below. 

'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'.

Presumably due to oversight, this text applies EVEN if you are only selling services despite the wording in Regulation 90 only referring to “goods”.   In addition to providing this text, there are a number of other requirements relating to providing certain pieces of information relating to the identity of the provider of the warranty services, the process of obtaining warranty services, what the service is and what costs are involved.

Based on our experience in amending IT suppliers contracts to comply with Regulation 90, there are usually at least a dozen specific amendments to be made to any 'standard' contract, and in some cases a significant review of business practices and pricing may also be required.

The Regulation 90 requirements also apply to both retailers and manufacturers. So if you resell other peoples’ goods and services, and the manufacturer’s terms and conditions, warranty card, packaging or similar have not been updated to comply with the regulation, you may be liable, as well as the manufacturer.

 

Need Help?

We would be pleased to assist you to review your current business practices, amend your contracts and/or provide advice in relation to how to become compliant with Regulation 90 and other aspects of the Australian Consumer Law.  For help, please call us on 02 9251 9664. 

Author: Mike Pym, Director, Pym’s Technology Lawyers.  A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

Disclaimer: This is general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Pym’s Technology Lawyers Pty Ltd is a specialist IT and commercial law firm. It has liability limited by a scheme approved under Professional Standards Legislation.

 


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