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Competition, Consumer & Regulatory

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Focus: Clarity on what constitutes a misleading consumer guarantee representation

4 July 2018

In brief: The Full Federal Court has allowed in part the ACCC’s appeal against an earlier decision of the Federal Court by finding that LG Electronics Australia made false representations in two instances. The decision clarifies the obligations on suppliers and manufacturers when engaging with consumers regarding their consumer guarantee entitlements under the Australian Consumer Law. It reiterates the importance of providing staff with clear policies and training regarding consumer guarantees and the ACL. Partners Kon Stellios (view CV) and Robert Walker (view CV), Senior Associate Theodore Souris, and Vacation Clerk Alex Neerhut report.  

How does it affect you?

  • In the context of handling customer complaints about faulty or defective products, the Full Court considered that, in principle, discussing with customers what you are prepared to offer by way of redress under a warranty may not, of itself, mislead or deceive customers as to their legal entitlements under the Australian Consumer Law (ACL).
  • However, there is a fine line between statements that do and do not falsely represent the non-existence or exclusion of the consumer guarantees. In practice, it will be difficult to confine representations to those that concern what the manufacturer is willing to offer, while also avoiding the denial of the existence of, or the exclusion of, the consumer guarantees.
  • Suppliers and manufacturers should, therefore, avoid making unequivocal statements regarding redress available to consumers that ignore potentially applicable ACL rights, particularly where the representations are conveyed as fact rather than clear expressions of what the supplier/manufacturer is prepared to offer.
  • Suppliers and manufacturers should avoid internal policies that encourage staff to refrain from mentioning the ACL unless the consumer has specifically referred to the ACL or their legal rights. As the Full Court acknowledged, '[i]t is a small distance from only mentioning the ACL consumer guarantees if it is expressly raised by a customer to effectively denying the existence of the ACL consumer guarantees altogether'.

The first instance decision

The decision concerned representations made by LG Electronics Australia Pty Ltd (LG) about the redress that LG (as manufacturer) would provide to consumers in relation to televisions in circumstances where the manufacturer’s warranty had expired.

The ACCC alleged that representations made by LG in the course of LG's dealings with certain customers were false or misleading. This included on the basis that LG had falsely represented  the non-existence or exclusion of the consumer's rights or entitlements under the ACL. In particular, the ACCC alleged that LG's statements conveyed the representation that the available remedies were limited to those in the manufacturer's warranty, or misrepresented LG's obligations under the ACL.

The trial judge found that LG had not contravened the ACL. The trial judge held that if a consumer made an enquiry about the LG warranty or requested a specific remedy, a response by LG that was confined to that specific enquiry would not be misleading, 'even if no mention was made of the ACL'. To put it another way, LG's statements were mere ‘offers’, as part of a 'negotiation', and were not considered to be representations as to the consumers' statutory rights. The ACCC appealed the trial judge's decision.

The Full Federal Court Decision

Were the representations misleading?

The Full Federal Court agreed with the trial judge in respect of all but two of the alleged false representations. The two representations the Full Court found to be false (see the table below, emphasis added) were those made by LG, which the Full Court considered went beyond a mere statement of what LG was willing to offer. In such circumstances, these two statements were found to be unequivocal statements about what the consumers had to do and what LG could not do. The statements were false because they were found to convey the representation that 'no rights other than those under LG's manufacturer's warranty existed, operated or had potential effect'.

In contrast, the representations found not to be false were statements made by LG outlining what it was prepared to offer the customer irrespective of any legal duties in circumstances where the manufacturer’s warranty had expired.

Examples of the representations that were not found to contravene the ACL The representations that were found to contravene the ACL
At this point in time, LG have made the decision to cover PARTS only for the customers out of warranty as a goodwill gesture…However the cost of labour will be at the customer's expense. Customer service representative: 'Your television is out of warranty. You will have to pay to have it fixed.'
Customer said: 'The television is faulty. It is not relevant that it is out of warranty. If you purchase a television, it should be repaired or replaced if it fails within a reasonable period after it is purchased.'
Customer service representative: 'We cannot repair the television for you, because it is out of warranty. Here are the details of the technician we would recommend. However you will have to pay for the repairs.'
[Customer recounting conversation]: 'On 23 July 2014, I was called by Alex of LG. He told me words to the effect that he had taken my case to his superiors but that given my television set was so far out of warranty, there was no way that they could accommodate my claim under their manufacturer’s warranty.'
 [Customer recounting conversation]: 'I asked each of Illet, Kim and Alex if LG would repair or replace the television. Each told me words to the effect that because my television was outside of the manufacturer's warranty, there was nothing they could do in respect of the television.'
LG’s policy, practice or system?

The Full Court refused to grant leave to the ACCC to add an additional ground of appeal, namely, that LG's policy of not mentioning the consumer guarantees under the ACL unless raised by a customer contravened the ACL. Leave was refused because the ACCC had not pleaded its case on that basis at first instance.

Importantly, however, the Full Court stated that proving the existence of a policy, practice or system of dealing with consumers does not of itself prove a contravention of the ACL. This is because contraventions arise from actual dealings with consumers.

Having said this, the Full Court warned that such policies 'may support the drawing of various inferences including that a particular dealing or dealings occurred in a particular way or that dealings were likely to mislead or deceive'. The Full Court further warned of the risks inherent in such an approach, noting that it is 'a small distance from only mentioning the ACL consumer guarantees if it is expressly raised by a customer to effectively denying the existence of the ACL consumer guarantees altogether'. 

Lessons Learned

  • Statements made by a manufacturer that are limited to what it is willing to offer a customer, irrespective of a customer's legal entitlements, are less likely to amount to a false or misleading representation that the customer did not have any rights (or different rights) under the ACL, particularly if:
    • the context in which the discussion took place did not give rise to a need to discuss whether the customer may have rights under the ACL; or
    • the manufacturer (or others involved in the discussion, such as a supplier or a repairer) did not know whether the consumer guarantees had been breached and whether the customer was therefore entitled to redress under the ACL.
  • However, there is a fine line between statements that may or may not constitute a false representation as to a consumer's ACL rights. Further, it is difficult as a practical matter to confine representations to those that concern what the manufacturer is willing to offer, while also avoiding the denial of the existence of, or the exclusion of, the consumer guarantees.
  • A representation can be false or misleading even where a consumer is savvy as to their ACL rights and were not in fact misled. Similarly, the fact that a representation is made in the course of negotiation, and/or reflects an opinion, will not necessarily prevent a statement from being false or misleading.

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