Post-supply consumer warranty law

a New Zealand perspective

Rae Nield

Marketinglaw.co.nz

25 April 2006

New Zealand consumer law reform issues

Unitary state, single house legislature“Fixit” cultureEasy law reform input

Consultative policiesParliamentary select committeesAccessibility “e-government”

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Post-supply warranty environment

Freedom from product liability litigationNo-fault accident compensation scheme

Acknowledged need for:non-contractual warranties

Clear warranties for services

Clear set of remedies

Not reinventing the wheelLearn from other jurisdictions

Saskatchewan

Application

End-user approach

Choice of defendantsSupplier

Multiple manufacturers, but

All defendants must have input into quality control

47 “reasonables”

Manufacturer

Wholesaler

Supplier (retailer)

Consumer

Supply transaction - goods

Supply of goods

Gift in trade

Sale

Exchange

Lease

Hire

Hire purchase.

Clear remedies

Minor and fixable defectsRepair, replace, refund (supplier choice)

Major defectsReject and refund, or damages for reduction in value (consumer choice)

Always – damages for reasonably foreseeable consequential loss

The consumer/trader problem

Consumers don’t complain!

Total consumer problems

Perceived problems

Un-perceived problems

Resolved between parties

Resolved using third party agent

Never resolved

If not all consumers complain,

traders don’t have to bear

the true cost of warranties.

And if they do…

Traders’ potential responses

Blame others in the chainManufacturers, wholesalers

Blame the competitors

Look to externalitiesGovernment policy, economic conditions

Examine their own activitiesParticularly response to complaints

Consumers and traders need

Clear rightsClear remedies

Clear signalsMinimisation of moral hazard

Information about rights and remediesSanctions on traders who fail or refuse to give remedies

Penalties for misleading conduct Financial disincentives for delayed remedies.

Roles of warranties

Shift risk of imperfect information about quality of goods and services from consumer to trader

Give consumers information about traders’ future response

Bridge the timing gap between supply and failure

Give feedback to suppliers and manufacturers

What is a warranty anyway

A device to exploit consumers?Consumers can’t bargain over warranty conditions

A signal of the attributes of goodsProbably a characteristic of the goods

An incentive to traders to make better goodsThe consumer’s insurance against the cost of defects

And the manufacturer’s insurance against the costs of manufacturing perfect goods

So why should enforceable warranties work?

Give manufacturers incentives to optimise quality of goods

But only if manufacturers bear the cost of the warranty

Give suppliers incentives to buy from good manufacturers

Warranties are a feedback mechanism

But…

Only if they operate effectively at all quality control levels in the supply chain

And they won’t do that if:They are based on a contract, or

Consumers cannot easily enforce them.

The key mechanisms

Non-contractual warranties

Multiple supply chain defendants

Ease of enforceability

= a free flowing marketplace