What is the cost of extended warranties that may not be needed?

The cost of misleading consumers into purchasing extended warranties can be very expensive, up to $1.1 million in pecuniary penalties alone, not to mention also the cost of reputational damage, loss of future sales and legal costs of dealing with the ACCC knocking on your door. 

In the recent case, Australian Competition and Consumer Commission v Fisher & Paykel Customer Services Pty Ltd [2014] FCA 1393 (Fisher & Paykel), the Court found that Fisher & Paykel:

  • engaged in conduct in relation to financial services that was misleading or deceptive, or is likely to mislead or deceive; and

  • in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial service:

    • made false or misleading representations concerning the need for any services; or

    • made false or misleading representation concerning the existence, exclusion or effect or any condition, warranty, guarantee, right or remedy (including an implied warranty under section 12ED). 

Facts of the case

Without going into all the facts in detail, Fisher & Paykel Customer Services, through its agents, Domestic & General, misled approximately 48,214 customers who had bought Fisher & Paykel appliances. 

The conduct involved writing to the consumers after 12 months of buying their appliances and making representations, in unqualified terms, that they will not be protected after two years for a defect in the goods unless they purchased an extended warranty (ie a financial product).  In fact, under the Australian Consumer Law (ACL) a consumer may be protected after 2 years irrespective of whether the consumer buys the extended warranty.

Whilst the representation was about the consumer’s rights under a product already purchased, Fisher & Paykel and Domestic & General were found to infringe the relevant provisions in connection with the sale of another product (extended warranty) because of misleading the consumer about the extent to which the statutory guarantee applies in relation to the original product (appliance).  There was no evidence that either Fisher & Paykel or Domestic & General intended to mislead or deceive, nor evidence from which such an intention could have been inferred.

The Court’s orders

As is common with such infringements, the Court made a number of orders including:

  • declarations as to infringement;

  • injunctions;

  • non-punitive orders relating to compliance programs;

  • imposing a pecuniary penalty of $200,000; and

  • orders that the parties pay a fixed sum contribution to the Commission’s costs of and incidental to the proceedings.

As one would imagine, the actual amount of any pecuniary penalty imposed in connection with a specific contravention will depend on a number of relevant factors.  A summary of those relevant factors was helpfully set out by Wigney J, in Fisher & Paykel.  As His Honour stated, the relevant factors include:

  • the size of the contravening company;

  • the deliberateness of the contravention and the period over which it took place;

  • whether the contravention arose out of the conduct of senior management or at a lower level;

  • whether the company has a corporate culture conducive to compliance with regulatory provisions, as evidence by educational programs and disciplinary or corrective measures in response to an acknowledged contravention;

  • whether the company has shown a disposition to cooperate with the regulator in relation to the contravention;

  • whether the company has engaged in similar conduct in the past;

  • the financial position of the company; and

  • whether the conduct was systematic, deliberate or covert.

Consumer Guarantee

The Fisher & Paykel case is a timely reminder of the operation of the Consumer Guarantee provisions of the Competition and Consumer Act 2010 (Cth) (CCA).  In particular:

  • Section 54 of the ACL creates a statutory guarantee of the acceptable quality of goods. 

  • “the effect of s64 of the ACL is that, amongst other things, the guarantee as to acceptable quality in s54 cannot be excluded, restricted or modified by a term of a contract.”

  •  s259 of the ACL creates a right of action against the supplier in respect of, amongst other things, non-compliance with a guarantee of acceptable quality under s54.

  • The remedy for non-compliance will depend on whether or not the failure is a major failure which cannot be remedied.

  • If the failure to comply with the guarantee can be remedied and is not a major failure:

    • the consumer may require the supplier to remedy the failure within a reasonable time; or

    • if such a requirement is made of the supplier but the supplier refuses to comply with the requirement, or fails to comply with the requirement within a reasonable time – the consumer may:

      • otherwise have the failure remedied and, by action against the supplier, recover all reasonable costs incurred by the consumer in having the failure so remedied; or

      • subject to s 262, notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection.

  • If the failure to comply with the guarantee cannot be remedied or is a major failure, the consumer may:

    • subject to s 262, notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection; or

    • by action against the supplier, recover compensation for any reduction in the value of the goods below the price paid or payable by the consumer for the goods.

      As His Honour said in Fisher & Paykel, “The right of action under section 259 of the ACL contains no time limit.  A consumer can take action under s259 at any time so long as the terms of s259 are satisfied.  The right of action does not cease after two years after purchase, or upon the expiry of any warranty provided by the manufacturer or the supplier.”


At this time of year when there is a lot of attention on consumer spending and the sale of products and services, the Fisher & Paykel case is a timely reminder that:

  • the ACCC and the Courts have a low tolerance for conduct that is or may be misleading or deceptive, even if it occurs through an innocent act or omission;

  • any representation made to a customer, whether through a pre-contractual communication, in the contract itself or made after the contract was into, may result in an infringement of the ACL;

  • you should not fall into the trap of believing that there are fixed time limits on consumer guarantees;

  • you should be very cautious about making any unqualified statements in connection with the sale of any products or service (even if it does not relate to the product or service that you are selling); and

  • you cannot contract out of, modify or avoid your statutory obligations in relation to consumer guarantees (eg by not even referring to them in the contract).

The consumer protection laws are complex and the risk and cost of getting it wrong are high and not worth taking.  The prudent way to avoid such risks and minimise any penalties (even if an innocent infringement occurs), is to have “a corporate culture conducive to compliance with regulatory provisions, as evidence by educational programs and disciplinary or corrective measures in response to an acknowledged contravention.”

Author: Norman Donato