Product warranties - do they really protect?

The value of warranties can be well described by a famous speech by US Senator George Graham Vest in an address to a jury about the fidelity of dogs: “He guards the sleep of his pauper master as if he were a prince ... if fortune drives the master forth, an outcast in the world, friendless and homeless, the faithful dog asks no higher privilege than that of accompanying him, to guard him against danger, to fight against enemies.”

The warranty is seen as our loyal dog. It stands by us when products fail and it promises to protect us. But does it really protect us? It’s common for installers of electrical wiring and data cabling to take great comfort from the written warranties provided by manufacturers of cabling products. Most installers assume that if something goes wrong with the product after it’s installed, they can call upon the manufacturer’s warranty to cover the costs and expenses associated with rectification. While that comfort has some justification, it is also important to remember that manufacturers’ warranties do not provide complete protection for installers of other people’s products. As with people and dogs - there are warranties and then there are warranties.

What is a warranty?

A warranty is a guarantee that a product will be free from defects and comes in two forms:

1. Voluntary warranties (otherwise known as ‘express warranties’). A voluntary warranty is a written promise by a manufacturer or retailer to fix specified problems with a product if the problems arise during a set period of time; and
2. Statutory warranties (otherwise known as ‘implied warranties’). These are statutory guarantees which are set out in legislation, but which become terms of the contract of sale.

The statutory warranties allow a purchaser to sue for breach of contract, where:

• Goods are not of merchantable quality (which means fit for their ordinary purpose, taking into account the price of the goods and any description that is provided with the goods);
• Goods are not fit for a special purpose which has been made known to the seller;
• Goods do not match any description or sample given to the consumer, whether in promotional material, over the phone, in person, on a website, or on labelling or packaging; or
• In a contract to provide services, the services were not carried out with due skill and care. A person who provides services must also make sure that any materials provided as part of this service are fit for the purpose.

Where the installer has a contract with the end user, the end user can sue the installer for breach of implied warranty if, for example, the goods installed turn out to be defective. While the end user can sue the manufacturer directly, it is more common for them to sue the person they have a contract with.

If sued by an end user, can installers claim against manufacturers?

Generally, yes, an installer can bring an action against the manufacturer if the installer is sued in respect of defective cabling. However, there are some pitfalls to watch out for:

1. The manufacturer may have given a voluntary warranty which provides protection for a limited number of years, but the defect may have arisen after that time. In the case of statutory warranties, there is no time limit within which the defect must arise. It all depends on how long a product of that sort should operate without defects (bearing in mind the price and ordinary purposes of the product). In some cases, the statutory warranty relied on by the end user will be longer than the voluntary warranty offered by the manufacturer.
2. The manufacturer may have covered itself with a general exemption clause which makes it clear that they are only liable under their voluntary warranty (which may only last for a limited number of years). A manufacturer will generally be able to exclude liability for statutory warranties in its contract with the installer, as such contract is not a ‘consumer’ contract (see below).
3. The manufacturer may be able to avoid liability under its voluntary warranty by arguing that the product has not been installed correctly, or that it has been used incorrectly by the end user.
4. If the installer made claims about the product which go beyond the promises made by the manufacturer, and the installer’s promises have been breached, the installer may be held liable for breach of contract, or for misleading and deceptive conduct.
5. The manufacturer’s voluntary warranty may be limited in its scope. Common limits or conditions of voluntary warranties are:

• The product must have been installed by an installer trained by the manufacturer;
• The manufacturer will repair or replace the components but will not provide a refund;
• The warranty is not transferable and applies only to the original end user;
• The party claiming under the warranty must follow a specified procedure (eg, the installer must attempt to diagnose and rectify the fault first); and
• The manufacturer will not be liable for associated or consequential losses (eg, lost profits due to down time).

Therefore, installers need to be aware that a manufacturer’s warranty will not necessarily provide complete protection if an end user brings legal action against them in respect of defective goods.

Can installers exclude implied terms in their contract with end users?

Statutory warranties cannot be excluded from contacts which are classed as ‘consumer’ contracts. These are contracts where:

• The goods or services are worth less than $40,000; or
• The goods or services are worth more than that, but the goods or services are of a kind ordinarily acquired for personal, domestic or household use.

In addition, a contract is not a consumer contract if the purchaser is on-supplying the product to someone else in the course of business.

Therefore, if the contract is worth more than $40,000 and the goods are designed for business use (or are acquired to be sold on to someone else), the statutory warranties can be excluded. Installers should consider including exemption clauses in their contracts with end users.

Manufacturers’ warranties are not bullet-proof

It is important to remember that manufacturers’ warranties only cover defects in the products supplied. However, the installer’s liability is not confined to the supply of defective goods. Installers can be liable in respect of services provided and additional representations that they make. In addition, manufacturers’ warranties are often limited in scope. Cable installers should be aware of these limitations and should do what they can to minimise their own liability to end users. This can be done through carefully worded contractual documentation and prudent negotiating.

The key steps to remember for installers are:

1. Create reasonable expectations with your clients;
2. Only sell what you can deliver;
3. Ensure accurate transactional documentation; and
4. Be aware of the limitations of the warranties and act accordingly.

Conclusion

Senator George Graham Vest continued in his address to the jury: “And when death takes his master in its embrace and his body is laid away in the cold ground, no matter if all other friends pursue their way, there by the graveside will the noble dog be found, his head between his paws, his eyes sad but open in alert watchfulness, faithful and true, even in death.”

Manufacturer warranties are not the dog that Vent spoke of! They are a sales device designed to provide comfort, while limiting the liability of the manufacturer. For the installer seeking the security of a ‘loyal dog’ during difficult times - a warranty is not the answer!