News

Fridges to phones – communicating consumer rights under the ACL

13.11.2018

The ACCC’s spotlight on businesses who make false or misleading representations to consumers about their rights under the Australian Consumer Law (“ACL”) continues with two more recent wins before the Courts. In separate cases against Apple and LG, the ACCC has confirmed its strong stance and willingness to prosecute businesses who fail to comply with the ACL.

Each of these cases are a timely reminder for businesses of the importance in ensuring that staff:

  • understand statutory warranties contained in the ACL which are relevant to their business; and
  • are properly trained in how to communicate consumer rights with customers, including any rights to a refund or replacement of faulty products.

In this issue of the IP Communique, Moulis Legal’s Emily Murphy and Benjamin Duff highlight the important reminders from both the Apple and LG cases about the operation of the ACL in relation to statutory warranties.

Apple’s Error 53 – consumer rights not found?

The ACCC continues its pursuit of digital and new technology retailers following the challenges against Steam1, Red Balloon2, and Viagogo3 and the current investigation into digital platforms.4 The ACCC continues to demonstrate a willingness to regulate the digital world and in doing so has added another notch to its belt.

On 18 June 2018, following an investigation and prosecution by the ACCC, the Federal Court ordered Apple US to pay $9 million in penalties for making false or misleading representations to customers with faulty iPhones and iPads (“devices”) about their rights under the ACL.5

The investigation was in relation to ‘error 53’ which would disable, or “brick”, devices after owners downloaded an update to Apple’s ‘iOS’ operating system. Apple represented to some affected customers that they were not entitled to a refund or replacement because a third party had repaired their device.

Following proceedings issued by the ACCC, Apple struck a deal and agreed to accept its penalty and for declarations to be made by the Court to the effect that:

  • Apple had breached the ACL by making statements or representations that if a third party had repaired a device, then Apple would not be providing a remedy to its customers as required under the ACL; and
  • the mere fact that a device had been repaired by someone other than Apple did not, and could not, result in the consumer guarantees ceasing to apply, or the consumer’s right to a remedy under the ACL being extinguished.

It remains the case that a consumer’s right to a refund or replacement will depend on whether there has been a major or minor failure with the product which triggers the consumer’s rights under the ACL. Briefly, major failure is an issue with a good or service that is so large that it would have prevented the consumer from buying the product in the first place. A minor failure is an issue that, while inconvenient, can usually be dealt with in a relatively quick time frame. In Apple’s case, a disabled or “bricked” device is a clear example of a major failure.

The Apple case re-affirms the position that a consumer who has used a third party to repair a product maintains its right to seek a refund or replacement from the manufacturer or supplier where there has been a major or minor failure. Unless it can be shown that the third party repairer did anything to damage the goods, the consumer’s rights under the ACL cannot be avoided by the manufacturer or supplier by virtue of the involvement of a third party repairer.

LG plays it “cool” on consumer’s rights

In what is considered a controversial decision by the Full Court of the Federal Court, the ACCC’s case against LG was partially upheld after the Court found that LG’s silence on a consumer’s rights under the ACL did not amount to a misleading representation.6

In a decision handed down on 27 June 2018, the Court found that on appeal by the ACCC, LG did mislead consumers about their rights to a refund or replacement under the ACL on some occasions where the manufacturer’s warranty had expired. Where goods are faulty, a consumer’s right to a refund or replacement remains in place even after the expiry of a manufacturer’s warranty. This is because consumer guarantees under the ACL are separate to, and apply in addition to, any warranties provided by the manufacturer.

However, the Court did not find that mere silence on consumer’s rights under the ACL was misleading. The distinction between ‘not mentioning’ rights under the ACL and ‘denying’ the existence of these rights can be a fine line. In LG’s case, the Court determined that in training staff to only mention the ACL if it was specifically raised by the consumer, LG had not crossed that line.

The implication from this decision is that it is up to the consumer to be aware of their rights under the ACL, and that business can sometimes be successful in employing tactics to avoid mentioning the ACL. Although this may seem concerning for some, the Court’s decision does again highlight the willingness of the ACCC to pursue these matters, and the need for businesses to be conscious of the statements being made by staff to consumers about their rights under the ACL.

At first blush this decision appears to go directly counter to the ACCC’s own guidance on the issue.7 However, this is not a “win” for businesses. The court did not deny that silence could be a misrepresentation in some instances. Rather, the Full Federal Court left the idea of silence as a misrepresentation open, deciding in this instance, that the case for silence as a misrepresentation was not found.8

Legal action by ACCC unlikely to slow

With these latest wins from the Courts, the ACCC is unlikely to slow down its prosecution of businesses making representations to consumers about their rights under the ACL. This has been, and will continue to be, a key focus area for the ACCC.

Now is a good time for businesses to review their approach to consumer guarantees under the ACL and ensure that all staff are aware of consumers’ rights, including when these do or do not apply. This could include training staff in addressing issues and providing appropriate responses, and reviewing materials such as written content made available to consumers and scripts used in any helplines or help desks.

Taking time to review, seek advice and update compliance with the ACL now, can avoid the spotlight of the ACCC in the future.

 

For more information, please contact Emily Murphy on +61 7 3367 6900 or emily.murphy@moulislegal.com.

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.

 

[1]  See, Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224

[2]  https://www.accc.gov.au/media-release/red-balloon-pays-penalty-for-excessive-payment-surcharges

[3]  https://www.accc.gov.au/media-release/accc-takes-ticket-reseller-viagogo-to-court

[4]  https://www.accc.gov.au/focus-areas/inquiries/digital-platforms-inquiry

[5]  https://www.accc.gov.au/media-release/iphone-and-ipad-misrepresentations-cost-apple-inc-9-million-in-penalties

[6]  Australian Competition and Consumer Commission v LG Electronics Australia Pty Ltd [2018] FCAFC 96

[7]  https://www.accc.gov.au/publications/advertising-selling/advertising-and-selling-guide/avoid-misleading-or-deceptive-claims-or-conduct/misleading-or-deceptive-conduct

[8]  Australian Competition and Consumer Commission v LG Electronics Australia Pty Ltd [2018] FCAFC 96 a t 62.