Posted by Minna Boyle on 20 December 2018
Selling things is not easy.
Consumers today have a huge choice of products available to them. There are a lot of businesses out there, selling a lot of similar things!
How do you make your products stand out from the others?
When you are trying to make your product sound the most appealing, it can be tempting to make promises to your potential customers. Things like:
“Our product will work perfectly for a least 2 years.”
“It’s completely waterproof!”
“We’ll replace any broken parts over the lifetime of the product.”
Sure, you might get your customers over the line with these statements. But then what?
Can you actually follow through?
Well, you need to be careful because, under Australian law, you might have to stand by these statements. This is because of something called an ‘express warranty’.
What is an Express Warranty?
Whenever you guarantee or promise something about a product to your customers, this could be a legally binding promise.
Under the Australian Consumer Laws (ACL), an express warranty is an extra written or verbal representation you make to consumers about a product you are selling them.
Some examples include making promises about the following:
- The quality, state, condition or performance of the product.
- What the product can do and for how long.
- Whether servicing, supply of any parts or identical products are available to the consumer.
Express Warranty Example
Imagine you have a business selling canvas tote bags.
One day, a potential customer asks you how much weight the bag can carry.
You tell them it holds 20 kilograms.
Now, you have made a representation to the customer that the bag can hold up to 20kg of weight. You’ll need to be confident that this is actually the case.
If the customer purchases the bag and uses it to carry 20kg of stuff, and then the straps break, you will have breached an express warranty.
Are Express Warranties the Same as Consumer Guarantees?
The ‘consumer guarantees’ are automatic guarantees that consumers get when they buy goods and services from Australian businesses. If you want to know more about consumer guarantees, check out our article on: How Your Business Can Comply With Consumer Guarantees.
In short, these consumer guarantees cover certain minimum requirements that your goods or services must meet.
So it’s up to you and your business if you want to provide extra guarantees about a product that go beyond the standard consumer guarantees.
If you do, this is an express warranty.
Maintaining promises made about a product in the sales process is a consumer guarantee, which means that express warranties fall under the consumer guarantees.
Long story short: You can have consumer guarantees without express warranties, but you can’t have express warranties without consumer guarantees.
And it’s all covered under the ACL, so there are legal consequences if you don’t comply.
Which brings us to…
What Happens if You Breach an Express Warranty?
Consumers have the same legal rights under the ACL for a breach of an express warranty as they do for a breach of a consumer guarantee.
The options available depend on whether the consumer seeks action against the supplier or the manufacturer of the product.
Using the canvas tote bag example: you would be the supplier if you are the one selling them in your store.
If a customer comes back to you about a minor fault related to an express warranty you made about the bag, the customer is entitled to remedies such as:
- Replacement of product
If a customer comes back to you about something serious, a major fault, they are entitled to remedies such as:
- Rejection of the bag and either a refund or replacement
If it was the manufacturer of the canvas tote bags who provided the consumers with the express warranty, then the consumers can request compensation from the manufacturer if there is a fault.
A customer may request the following kinds of compensation:
- An amount that is equal to the product.
- An amount that is the difference between the current value of the product, and the lowest average retail price of the goods or actual paid price.
- An amount equal to the foreseeable loss they have incurred as a result of the breach of express warranty.
At the end of the day, you can’t ask the customer to take a certain option over the other.
It is up to them which remedy they decide to go with, and whether they want to take legal action under the ACL.
Can Warranties Be Implied?
It’s easy to see how legal obligations can arise from an express representation made by you about a product.
But what about an implied representation?
It is possible to make implied promises which arise out of the context of the sale. These are part of the consumer guarantees.
They include promises like the following:
- That a product will perform the purpose for which it was made.
- That a product will reasonably perform the specific purpose the consumer purchased it for.
To give you a simple example, if a customer bought a vacuum cleaner that did not create enough suction to clean an average floor, the implied warranty of merchantability would be in breach. The purpose for which it was designed is not being met, which means the manufacturer of the vacuum cleaner may be liable to compensation.
Other Types of Warranties
Manufacturer’s warranty is also called ‘warranty against defects’. This is another ‘extra’ kind of warranty your business can provide to consumers.
A manufacturer’s warranty states that if the goods you have supplied to your consumers are found to have defects, your business will:
- Replace the goods
- Fix the problem by servicing the product, or
- Provide compensation.
As a business, it is good practice to put a time limit on a manufacturer’s warranty.
Be aware – this kind of warranty doesn’t have to be in a formal contract! It could be on the packaging or label of the good or any other document provided to the consumer.
If you provide a warranty against defects and then try to get out of it, you may face action from the Australian Competition and Consumer Commission (ACCC) or find yourself in court for breach of contract.
Extended warranties, often called a ‘product care package’, are offered by the retailer to extend the time of the manufacturer’s warranty.
You’ve probably come across people at the car dealership, or at the Apple store trying to sell you extended warranty. But don’t forget – it is completely optional!
As a consumer, you’re often left wondering if an extended warranty is worth it.
There’s no easy answer to this – it really depends on the product and the circumstances of the purchase. You need to consider what benefit an extended warranty would actually offer you.
The thing is, there is so many consumer safeguards under the ACL that an extended warranty may not give you much, if any, extra protection!
As a business, be careful about misleading your customers with extended warranties. If you’re selling them rights that they already have under the consumer guarantees, you could find yourself in some legal trouble.
What To Take Away…
As a business, it’s always important to be aware of the ACL and how it impacts your business. In particular, be careful of the consumer guarantees.
If you ever give your customers promises that go beyond the basic consumer guarantees, you may be making an express warranty, manufacturer’s warranty or extended warranty.
At the end of the day, the important thing is to be aware of your obligations to your consumers so that you can follow through.
Sometimes it’s confusing to keep track! If you ever need some expert advice about complying with the ACL in your business, feel free to get in touch with us for a chat about your options.