Hewlett-Packard (HP) recently agreed to pay $3 million in civil penalties for making false and misleading representations about consumer guarantee rights following legal action by the Australian Competition and Consumer Commission (ACCC).

HP admitted that it had breached the Australian Consumer Law (ACL) by representing that:

  • remedies available to consumers for HP products were limited to remedies available at HP’s discretion;
  • consumers had to have HP products repaired multiple times before they were entitled to receive a replacement;
  • the warranty period for HP products was limited to the express warranty period of the particular HP product;
  • after the expiry of the express warranty period, HP would only repair HP products on condition that consumers paid for such repairs;
  • consumers could not return or exchange HP products purchased through the Australian HP online store; and
  • HP was not liable to indemnify retail suppliers if retailers provided consumers with a refund or replacement without HP’s prior authorisation.

The Federal Court noted that the maximum penalty for the above contraventions was $6.6 million, but it was satisfied that a $3 million penalty was “sufficient to mark the Court’s disapproval” of HP’s conduct and to satisfy the requirements of general and specific deterrence.1  

The Court did not stop there though. It also required HP:

  • to pay the ACCC’s legal costs of $200,000;
  • to write to all authorised HP retailers and prominently publish a corrective notice on its website advising that consumers have a legal right to reject HP products not of acceptable quality and to request a refund or replacement;
  • to publish on its website and in major metropolitan newspapers adverse publicity notices admitting the breaches and with the headline “FALSE AND MISLEADING CONDUCT BY HEWLETT-PACKARD”;
  • to publish contact details for HP (including a 1800 number, email address, and post office box address) for consumers who believe they have been denied their rights or a remedy because of HP’s false representations;
  • to implement an extensive consumer law compliance program including a comprehensive complaints handling system, a whistleblower protection program, regular independent audits of its compliance program, as well as reporting to the ACCC; and
  • to provide regular training to its directors, officers, employees and agents of HP (including overseas call centre staff that service Australian customers), whose duties could result in them being concerned with conduct that may result in misleading or deceptive conduct.

Why the ACCC Decided to Pursue HP

One of the ACCC’s key enforcement priorities for 2013 relates to the consumer guarantees regime under the ACL.2 In February 2013, the ACCC Chairman publicly confirmed that the ACCC will maintain its focus on consumer guarantees to ensure that consumers and businesses alike have an awareness of consumer rights. The ACCC believes that taking enforcement action where consumers are misled about their rights is a key part of driving awareness and adjusting business behaviour.  

In addition to this action against HP, in June 2013, the ACCC re-commenced legal action against nine Harvey Norman franchisees. The ACCC is alleging that these franchisees made misrepresentations that they had no obligation to provide remedies for goods still covered by the manufacturer’s warranty, and that consumers must pay a fee for the repair and return of faulty products.4 In announcing this legal action, the ACCC’s Chairman affirmed that the ACCC will not shy away from taking on manufacturers or retailers in the courts where it believes they have misled consumers about their consumer guarantee rights. In particular he said:

The ACCC will continue to take enforcement action where it believes that retailers or manufacturers have misled consumers about their rights under the consumer guarantee provisions of the Australian Consumer Law.

The ACCC is likely to maintain its focus on consumer guarantees for the foreseeable future as it appears that there is still a low awareness of consumer guarantee rights among consumers and businesses.

Consumer Guarantee Obligations under the ACL

Consumer guarantees under the ACL grant consumers certain rights in respect of goods or services they acquire that cannot be excluded by manufacturers and retailers.

In respect of goods, they include guarantees that:

  • goods will be of acceptable quality;
  • goods will be fit for any disclosed purpose;
  • goods will match any description under which they are sold;
  • goods will have spare parts available for a reasonable time; and
  • express warranties offered when supplying goods will be honoured.

A supplier’s obligations depend on whether or not the failure to comply with the consumer guarantee is a “major failure”. A major failure occurs when a reasonable consumer, fully acquainted with the nature and extent of the failure would not have acquired the goods; when the goods are substantially unfit for a purpose for which goods of the same kind are commonly supplied; or when the goods are not of acceptable quality because they are unsafe.

In the case of a major failure, consumers may reject the goods and the supplier must replace the goods or provide a refund to the consumer, at the election of the consumer.

Where a failure to comply with a consumer guarantee is not a major failure, the supplier may elect to remedy the failure by repairing or replacing the goods, or providing a refund to the consumer for the goods.

How to Ensure You Comply with the Consumer Guarantees Regime under the ACL

Given the ACCC’s focus on consumer guarantee rights, consumer facing businesses should give priority to making sure they comply with their obligations under the consumer guarantees regime. There are a number of pro-active steps manufacturers, service providers and retailers can take to ensure they comply with their obligations.

Make Sure Your Returns Policy Complies with Your Obligations under the ACL

Even though the ACL has been in force since January 2011, some businesses have not updated their returns policies. For example, a returns policy that only allows consumers to return a product that is faulty within 14 days of receipt will fall foul of the consumer guarantee as to acceptable quality. You need to update your returns policies now!

Review the Appropriateness of Your Consumer Law Compliance Program

You should implement a consumer law compliance program that is consistent with the Australian Standard for Compliance Programs (AS 3806-2006) and includes a complaints handling program. You may also want to consider implementing a whistleblower protection program to encourage the reporting of possible breaches of the ACL, or systemic deficiencies in addressing your obligations under the ACL.Where you have already implemented a compliance program, ensure that you regularly review it so that it continues to meet the continuing changes to your business and the law.

Train all Your Representatives Who Need to Understand Your Consumer Guarantee ObligationsThe HP case has clearly demonstrated that all consumer facing representatives must properly understand consumer guarantee rights, as well as obligations of businesses under the ACL more generally.

Make sure all your consumer facing representatives are properly trained. This includes directors, full-time employees, part-time employees, as well as contractors and agents.

Overseas call centre staff (whether they are your staff or engaged by third parties) should not be forgotten either. In the HP case, the Federal Court’s orders specifically mentioned that call centre staff located overseas but servicing Australian customers had to be regularly trained in relation to HP’s obligations under the consumer guarantees regime.

The key take-out from the HP case is that ignoring your obligations under the ACL increases your risk of being subject to significant penalties and reputational damage. A pro-active approach to consumer law compliance will reduce your risk of breaching the ACL, is likely to yield better customer service, save you money in the long-run and simply makes business sense.

 Fadi Metanios