Can you stand behind your warranty?

The recent action taken by the Australian Competition and Consumer Commission (ACCC) against AA Machinery Pty Ltd¹ which traded under the name “Agrison” (Agrison) has highlighted the need for businesses to check their warranty and marketing materials to ensure that they can live up to any promises they make in those materials, particularly claims relating to after sales services and the availability of spare parts.

In this article we examine the Agrison decision and provide some guidance to businesses on the laws relating to express warranties and the provision of after-sales services, spare parts and repair facilities.

ACCC decision

• The ACCC took action against Agrison for misleading its customers about:
• what was and was not covered by its tractor warranty; and
• its capacity to provide after sales service and spare parts for its tractors.

Agrison admitted to making the following made false or misleading representations in breach of sections 18 and 29 of the Australian Consumer Law (ACL):

• Agrison’s tractors came with a five-year nationwide warranty, and if a tractor was defective, Agrison would provide a replacement for all defective parts at no cost to the consumer for five years.

In fact, Agrison admitted that not all parts were covered for five years or at all, and the full cost of all parts was not covered.

• Agrison had a national service network and customers requiring after-sales service or repair staff could access them throughout Australia.

In fact, Agrison did not have a national service network to undertake warranty or service repairs for its customers.

• A customer would be able to obtain all necessary spare parts for tractors within a reasonable time, if and when required.

In fact, Agrison had no reasonable grounds to make this representation because:

• it did not keep records of each spare part in stock at any given time;
• it did not keep stock on hand of the spare parts that were frequently required;
• customers waited for long periods of time for necessary parts to repair defects; and
• some customers were unable to obtain required spare parts within a reasonable time-frame, or at all.

Justice Murphy stated that “Agrison’s conduct was deliberate and it was not isolated, having occurred over several years”. The court stated that Agrison failed to:²

• keep a full written or electronic record of the volume of Tractors sold or details of customers to whom Tractors were sold;
• maintain a system for keeping a record of warranty claims, defect claims or repair requests in respect of Tractors or the outcome of those claims or requests (with handwritten records kept of current claims until assessed and addressed, following which they were disposed of);
• keep records of spare parts sent to customers who made warranty or other defect claims in respect of Tractors;
• provide any training to its employees regarding how warranty claims, defect claims, repair requests or parts requests from customers should be handled;
• have any written procedures in place to provide guidance to employees regarding how warranty claims, defect claims, repair requests or parts requests from customers should be handled;
• provide any training to employees in relation to its obligations under the ACL; and
• have an ACL compliance program in place.

These business practices were described by the court as serious because of the number of complaints received and because the behaviour occurred at the senior management level.  According to the court, Agrison did not have a corporate culture of compliance with the requirements of the ACL³ and did not adequately train its employees on ACL compliance. It was reported in the decision that staff at Agrison were not given written procedures or policies to follow about complaints, repairs, defects or warranty claims.

Agrison was ordered to pay a pecuniary penalty of $220,000.00 and pay redress to four consumers totalling $63,947.50. Additionally, Agrison provided the ACCC with a section 87B undertaking that it would:⁴

• set out the limitations that apply, either in time or scope, in respect to any advertised express warranty for tractors or wheel loaders;
• publish limitations of a warranty in advertising in the same font as the reference to the warranty itself;
• include a clear and prominent link to the terms of any warranty that is referenced on a website controlled by Agrison;
• ensure that a full copy of the terms of an applicable warranty is given to a customer before Agrison accepts payment for a new tractor or wheel loader;
• cease and remove all advertising that does not comply with Agrison’s  undertaking;
• require all Agrison employees and representatives involved in advertising, sales or after-sales support to attend practical training on compliance with the ACL on an annual basis and maintain documents relating to the training;
• create a complaint handling system; and
• report in writing to the ACCC on complaints received within 7 months of the system being set up.

What does the ACL say about defect warranties?

Consumer Guarantees

Consumer Guarantees as to express warranties

The ACL sets out a number of requirements about what a warranty around defects must contain and how it must be given.⁵ This includes the requirement for the warranty document to be transparent, to include certain mandatory text and to provide important information for consumers. Additionally, Section 59 of the ACL provides consumers with a consumer guarantee that a manufacturer and a supplier (respectively) will comply with any express warranty that they have given or made to a consumer (such as a defect warranty given on a warranty card). Consumers will be able to assert their rights under this consumer guarantee if the supplier or manufacturer fails to comply with the terms of an express warranty.

Consumer guarantee as to the availability of spare parts and repair facilities

Section 58 of the ACL gives consumers a consumer guarantee that a manufacturer will take reasonable action to ensure that facilities for the repair of goods and spare parts for the goods are reasonably available for a reasonable period after the goods are supplied. This requirement will not apply if the manufacturer has taken reasonable steps to advise consumers before goods are supplied, that spare parts or repair facilities are not available, or may not be available after a specified period.

Prohibition against making false or misleading representations in relation to goods and services

Section 29 of the ACL prohibits suppliers of goods and services from making false or misleading representations about goods and services that they supply in trade or commerce.

False or misleading representations concerning the availability of facilities for the repair of goods or of spare parts for goods

Under section 29(1)(j) of the ACL, a person is prohibited from making false or misleading representations concerning the availability of facilities for the repair of goods or of spare parts for goods.⁶ This is to prevent businesses from influencing decisions to buy products through false representations about the availability of spare parts or repair facilities.

False or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy

Under Section 29(1)(m) of the ACL, a person is prohibited from making a false or misleading representation about the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.⁷ The effect of this is that any business that attempts to exclude legal rights that a consumer may enjoy from a warranty will be in breach of the ACL.

Penalties and other consequences

If a corporation breaches a specific prohibition against false or misleading representations under s29 of the ACL, the maximum penalty that could be imposed is the greater of:⁸

• $10,000,000.00;
• three times the value of the benefit received; or
• 10% of annual turnover in preceding 12 months of the offence, if the court cannot determine the benefit obtained from the offence.

Other consequences contravening these provisions can include the court ordering an injunction,⁹ making a declaration of the contravention,¹⁰ making non-punitive orders (such as community service orders, disclosure orders, probation orders or corrective advertising orders)¹¹, or making an adverse publicity order.¹²

Takeaways for businesses

Businesses that supply goods or services to consumers must ensure that any warranties against defects that they provide with their goods or services:

only contain claims that the business knows that it can stand by particularly when making promises on matters over which they may not have control;

comply with the applicable prescribed requirements in s102(1) of the ACL and Regulation 90 of the Competition and Consumer Regulations 2010 (Cth); and

reference any limitations to the warranty in a transparent and clear manner, using font that is at least the same size and prominence as the remaining parts of the warranty.

How can we help?

If you require assistance in developing your warranty documentation or would like advice in relation to the Australian Consumer Law, please contact us.

This article was written by Teresa Torcasio, Partner, Ruth Trevenen-Williams, Associate and Julia Townley, Law Graduate

¹ Australian Competition and Consumer Commission v AA Machinery Pty Ltd [2021] FCA 1293.

² Australian Competition and Consumer Commission v AA Machinery Pty Ltd [2021] FCA 1293, [37].

³ Australian Competition and Consumer Commission v AA Machinery Pty Ltd [2021] FCA 1293, [58].

⁴ See Australian Competition and Consumer Commission v AA Machinery Pty Ltd [2021] FCA 1293, [6], [40]–[41]; Competition and Consumer Act 2010 (Cth) s87B; ‘AA Machinery Pty Ltd – section 87B undertaking to the Australian Competition and Consumer Commission’ available at <https://www.accc.gov.au/public-registers/undertakings-registers/aa-machinery-pty-ltd>.

⁵ Competition and Consumer Act 2010 (Cth), sch 2, s102(1); Competition and Consumer Regulations 2010 (Cth), r90.

⁶ Competition and Consumer Act 2010 (Cth), sch 2, s29(1)(j).

⁷ Competition and Consumer Act 2010 (Cth), sch 2, s29(1)(m).

⁸ Competition and Consumer Act 2010 (Cth), sch 2, s151.

⁹ Competition and Consumer Act 2010 (Cth), sch 2, s232.

¹⁰ Federal Court of Australia Act 1976 (Cth), s21(1).

¹¹ Competition and Consumer Act 2010 (Cth), sch 2, s246.

¹² Competition and Consumer Act 2010 (Cth), sch 2, s247.