“Free Repair If Faulty” Is No Longer Enough Under New Laws – Make Sure Your Business Is Doing It Right

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Posted by Regie Anne Gardoce on 2 July 2019

The Australian Consumer Law (ACL) now has a new provision affecting businesses all across Australia.

This law took force on 9 June 2019 and requires businesses to include mandatory wording for warranties against defects.

What does this mean exactly? Who does it apply to? And how will it affect your business?

This article will break it down for you: we’ll explain what these warranties are, the new laws and what impact it could have on you.

What Is A “Warranty Against Defect”?

A number of warranties already exist under the ACL. Some of these are implied by law and cannot be excluded and some are voluntary that businesses can make in addition to the implied warranties (more about the different warranty types here!). 

Often businesses promise to repair, replace, fix or resupply goods and services if they are defective. 

This is what we call ‘warranty against defects’: a voluntary promise by a business that the goods or services it provides come with remedies, if faulty. Voluntary in the sense that they’re not required to give those warranties under the ACL.

Generally, such warranties are provided with a simple statement which could be along the lines of “Replacement guarantee if the machine breaks down in the next five years”.”.

Whenever such wording is used by a business – whether on signage in store, Terms and Conditions, receipts or website – it is likely that this is a ‘warranty against defects’, for the purposes of the ACL.

The Australian Competition and Consumer Commission (ACCC) provides some examples of the different types of warranties against defects here

What Are The New Laws?

The change to the ACL introduces mandatory wording for these warranties for businesses who offer services, or services and goods together (there is already mandatory wording for businesses who only sell goods).

This means that a simple statement is no longer enough – the ACL has introduced specific wording that every service business must include in their warranties against defects.

If your business offers services to consumers and makes warranties against defects, you will need to use the following wording in your warranty documents:

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.

If your business offers goods AND services together, you will need to include the following wording in your warranty against defects:

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:

  • 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 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’.

Who Does It Apply To?

This new mandatory wording specifically only applies to businesses who offer services, or goods and services, to consumers.

The ACL draws out the specific definition of who is seen as a “consumer”.

But, there are exceptions.

The new laws do not apply to services if they are not supplied directly to a consumer.

For example, if you have a contract to transport or store goods for another business to reuse, develop or resell; you do not have to use this wording.

This wording is only mandatory for businesses who offer services that will not be carried on or engaged further by another trade or profession.

Further, this mandatory wording does not apply to service or supply contracts with insurance, gas, electricity or telecommunications services.

What Does This Mean For My Business?

If your business offers goods or services (or both!) to customers directly, then it is most likely that you will need to comply with this new law.

This means that, before 9 June 2019, you will need to update your warranty documentation to reflect the exact wording provided above.

If you don’t, then you may be in breach of the ACL and will have committed an offence.

The ACCC outlines the fines and penalties for breaches of the ACL here.

Related Requirements

It is also important to understand other requirements around warranties for defects.

The ACL requires you to include particular information in your warranty documentation and present that information in a specific way. 

In addition, any warranty against defects must be provided with the actual good or service you are selling and not just referred to in an external document. 

If you’re still confused, more information on warranties and the new laws can be found here.

Want a consultation with a lawyer to advise you on what to do next? Or need help redrafting your Terms and Conditions to suit the new laws?

We’re here to help! Feel free to call us on 1800 730 617 or drop a line at team@sprintlaw.com.au.

Need help with customer contracts for your business?

We can help! Just get in touch and we can walk you through your options.

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Regie Anne Gardoce

Regie is a legal consultant at Sprintlaw. She has experience across law and tech start-ups, while still completing her Bachelor of Laws and Bachelor of Commerce at UNSW.
Regie Anne Gardoce

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