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The “HP” (High Price) of Ignoring Consumer Guarantee Laws

Sep 2, 2013

The Australian arm of Hewlett-Packard (HP) was on 5 July 2013 ordered by the Federal Court of Australia to pay a $3 million civil penalty for breaching key provisions of the Australian Consumer Law (ACL).  

The action involved claims that HP had contravened sections 18 and 29 of the ACL (formerly the consumer protection provisions of the Trade Practices Act) by making misleading representations to customers and to retailers about their guarantee rights and remedies under that law.

Harsh Practices

HP admitted that it had, through internal policies, guidelines and scripts used by telephone help desk staff, represented to customers and retailers that:

  • The remedies available to purchasers of HP products were limited to remedies available at HP’s discretion;
  • Consumers had to have HP products repaired numerous times before they would be entitled to a replacement;
  • The warranty period for HP computer products was limited to a specified express warranty period;
  • Once the express warranty period had expired, HP would only repair computer products if customers paid for the repairs;
  • Products purchased through HP’s online store that were not of acceptable quality could not be returned or exchanged unless HP agreed otherwise, at its sole discretion; and
  • Retailers of HP products were not entitled to be covered (indemnified) for the cost of refunds or replacements given to their customers unless they had obtained HP’s prior authorisation.

These representations contravened the rights of consumers (and some retailers’ rights) under the ACL and were therefore misleading and deceptive.

Honouring Protections

Under the ACL, consumers have certain rights in relation to products irrespective of the obligations under any express written warranty.  For example, goods must be of acceptable quality, be fit for purpose and be reasonably durable.  If there is a “major failure” in this respect, consumers are entitled to a refund or replacement, at their choice.

Further, while manufacturers are free to include express warranty provisions (e.g 12 months from date of purchase), they cannot override the overall obligation that goods must be of merchantable quality, fit for purpose and reasonably durable and in some cases these obligations may extend well beyond any express warranty period.  If an expensive product fails in a major way outside the express warranty period, its supplier and retailer may still be liable for a repair, replacement or refund at the election of the consumer.  The representations to consumers as to their rights that were made by HP were contrary to those obligations.

Hefty Penalty

The Federal Court noted that a maximum penalty of $6.6 million was possible, but that the $3 million penalty was “sufficient to mark the Court’s disapproval.”  In addition to the fine, HP was ordered to pay the ACCC’s legal costs of $200,000, to write to all HP retailers and publish a corrective notice on its website as well as adverse publicity notices in major newspapers with the headline “FALSE AND MISLEADING CONDUCT BY HEWLETT-PACKARD.”  It was also ordered to implement an extensive consumer law compliance program.

Healthy Procedures

The ACCC has indicated that one of its key enforcement priorities is currently the enforcement of the consumer guarantee regime under the ACL.  The HP case comes hot on the heels of a similar action taken against Harvey Norman franchisees in relation to misleading representations made to consumers regarding product repairs and replacement rights.

If you are a manufacturer, distributor or retailer of products, you need to make sure that your practices for dealing with replacements, repairs and refunds comply with your legal obligations.  This requires you to understand the consumer rights regime under the ACL.  You also need to know what warranty documentation can, cannot and must include in order to legally sell a product in Australia.

Helpful Practitioners

At Kliger Partners we have extensive expertise in relation to the requirements of the Australian Consumer Law and can steer you through this complex but critical area of modern business.

For more information please contact Daniel Kovacs, Special Counsel on (03) 8600 8859 or dkovacs@kligers.com.au

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