Consumer warranty claims – the truth about non-disclosure agreements

12 April 2016

Recent press commentary has caused concern about the legality of confidentiality or non-disclosure agreements (“NDA”) between car manufacturers, distributors or dealers and their customers with respect to settlements of claims made by customers.

It is alleged that customers are being gagged by the use of these NDA’s as a condition of obtaining remedies they are entitled to under the consumer guarantee provisions of the Australian Consumer Law (“ACL”) and that these actions may be illegal at worst or the NDA’s void.

The point being missed is that consumers still need to prove breach of the consumer guarantees under the ACL before they are entitled to the remedies. Similarly with warranty claims it must be determined whether a claim is one which is covered by the relevant warranty terms.

In the absence of a determination by the relevant tribunal or a court that a consumer guarantee has been breached, the manufacturer, distributor or dealer (“supplier”) may upon a claim being made by a customer alleging such a breach and upon investigating the matter decide to accept the claim and repair or replace the vehicle or offer the customer a refund as may be appropriate. In certain circumstances it may also be decided to accept a warranty claim where the legitimacy of such a claim falling under the warranty terms is not clear cut.

In those circumstances a properly drafted NDA can be used. The supplier is offering to the consumer a remedy without the need for the consumer to be put to proof or obtain a determination by a court or tribunal. The supplier has therefore given something to the customer in addition to just complying with its statutory obligations. Such compensation and settlement by the supplier would be good consideration for non-disclosure to be agreed to by the customer.

NDAs can also be entered into when a manufacturer, distributor or dealer is proven to be in breach of a consumer guarantee or warranty. However when a breach has been proven, the customer must be given something in consideration for entering an NDA beyond what they are entitled to as relief for the breach.

It is not uncommon for confidentiality provisions to be included in terms of settlement in court proceedings. In fact many court proceedings are settled because one or more of the parties wishes to avoid disclosure of information for a number of reasons. Typically also a release is obtained from the party making the claim and sometimes there are mutual releases so that parties cannot bring further claims against the other for the same cause of action which founded the original claim.

NDA’s and releases or even terms of settlement cannot be used to exclude or limit customers’ statutory rights or remedies stipulated by the ACL or other legislation, so it is important that these are drafted correctly. For example if there is an agreement to repair a vehicle as a result of a claim by a customer, the NDA or release which may be entered into cannot restrain the customer from bringing a further claim if those repairs are not properly undertaken or do not rectify the problem leading to the original claim.

Suppliers should be careful to ensure that in negotiating an NDA or release, they do not misrepresent the situation or exert undue influence on the customer. The effectiveness of the release and NDA will depend on whether its terms and its limits have clearly been explained to the customer and where there is any doubt as to the customer’s ability to understand what he or she is being asked to sign, it is advised that the customer be given the opportunity to obtain his/her own independent legal advice and that a provision to this effect be included in the document.

If you need any assistance as to whether the use of an NDA or a release is advisable in particular circumstances where a claim is made by a customer under a warranty or under the ACL please contact one of our Automotive experts.

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