Alert

Who does this affect?

All businesses that supply goods or services to consumers, including those who carry out auctions or online auctions.

What do you need to do?

Make your submission on the Commonwealth Consumer Affairs Advisory Council’s Issues Paper by 24 August 2009. We can help with this.

Author
Yanson Ching  
Senior Associate

---

Caroline Coops  
Partner
T +61 3 9643 4097

---

Sydney
Sharon Henrick  

Melbourne
Amanda Bodger  
Lisa Huett  

---

The Minister for Competition Policy and Consumer Affairs has released an Issues Paper on behalf of the Commonwealth Consumer Affairs Advisory Council (CCAAC), examining existing laws on implied conditions and warranties (implied terms). Issues being considered include the potential introduction of “lemon laws” in Australia; allowing a regulator to take action for breach of an implied term; the offering of extended warranties by retailers; and whether statutory implied terms should be extended, for example, to apply to sales by auction.

Comments in response to the Issues Paper are sought by 24 August 2009.

Review of current laws on implied terms

Consumers who purchase goods or services are currently provided with basic statutory protections under various Australian laws, including the Trade Practices Act 1974 (Cth) (TPA), the Australian Securities and Investments Commission Act 2001 (ASIC Act), and State and Territory laws. For example, Division 2 of Part V of the TPA implies into all consumer contracts certain non-excludable conditions and warranties, such as a condition that goods are of merchantable quality, and that services will be rendered with due care and skill.

As part of the development process of the new national Australian Consumer Law, and following a recommendation in the Productivity Commission’s Review of Australia’s Consumer Policy Framework, the Australian Government announced a review of statutory implied conditions and warranties by the CCAAC earlier this year.

The Issues Paper, entitled “Consumer rights: Statutory implied conditions and warranties”, is part of this review process. Amongst other things, the Issues Paper examines:

• The adequacy of the current laws on implied terms and the need for any amendments, including potential regulator enforcement mechanisms

• The need for “lemon laws” in Australia to protect consumers who purchase goods that repeatedly fail to meet expected standards of performance and quality, and

• The existence of extended warranties in the market place and their interaction with laws on implied terms.

Enforcement issues

Statutory implied terms are terms which are implied into contracts by law. Consumers are therefore required to understand those rights and to seek remedies for contractual breach. The Issues Paper notes that jurisdictions such as New Zealand establish a stand-alone statutory regime where the regulator can also bring action on behalf of the consumer for breach of a statutory implied term.

Comments sought by the Government include whether there may be institutional, structural or economic barriers (such as litigation costs and being time poor) that prevent consumers from enforcing their statutory rights, and whether regulator action will be desirable.

Extended warranties

One of the key components of the review relates to the practice of offering consumers extended warranties at the time of purchase, which is usually a separate contract providing for cover against product faults for a specified period of time. Some potential issues raised in the Issues Paper include:

• Consumer awareness: The existence of manufacturers’ “voluntary” warranties and extended warranties can potentially confuse consumers concerning their statutory entitlements. In particular, in offering an extended warranty, a retailer is essentially implying the consumer is getting something of value over and above the protection afforded by statutory warranties where this is not necessarily the case.

• Information being provided: The lack of information disclosure requirements can result in salespersons not adequately disclosing important aspects of the extended warranty product, including exclusions and additional charges involved in making a claim.

• Consumers pressured into purchasing extended warranties: Consumers can feel pressured to purchase extended warranty products based on comments made by a salesperson about the product or cost of repair.

The Issues Paper seeks comments concerning the effectiveness of current laws in relation to the prevalence of extended warranties.

Lemon laws

The CCAAC has also been asked to consider whether “lemon laws” should be introduced in Australia, particularly in relation to motor vehicles. Lemon laws are common in overseas jurisdictions (such as the United States) and are usually designed to provide consumers with recourse when goods purchased repeatedly fail to meet expected standards of performance or quality.

While no view has yet been reached concerning what a “lemon law” would govern or do, it is expected to be a departure from existing laws relating to faulty or defective goods (as faulty goods are not necessarily “lemons”). Views sought include the types of goods which are often seen as “lemons”, whether such laws are required, and the form such laws should take.

Other matters under consideration

Other matters discussed in the Issues Paper include:

• Whether the current ability for suppliers to limit liability for breach of an implied term in certain circumstances is still appropriate

• Whether sale by auction (including various forms of online auction) should continue to be excluded from the implied terms regime under the TPA, and

• Whether goods or services purchased online or through mail order require special protection as the goods cannot be examined prior to purchase.

What next?

Comments in response to the Issues Paper are sought by Monday 24 August 2009. We can help with your submissions and your participation in further consultations. We have extensive experience in the area and have advised a range of clients on implied terms issues.