Post-supply consumer warranty law a New Zealand perspective

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” culture Easy law reform input Consultative policies Parliamentary select committees Accessibility “e-government” `

Post-supply warranty environment Freedom from product liability litigation No-fault accident compensation scheme Acknowledged need for: non-contractual warranties Clear warranties for services Clear set of remedies Not reinventing the wheel Learn from other jurisdictions Saskatchewan

Application End-user approach Choice of defendants Supplier Multiple manufacturers, but All defendants must have input into quality control 47 “reasonables”

Supply transaction - goods Manufacturer Wholesaler Supplier (retailer) Consumer

Supply of goods Gift in trade Sale Exchange Lease Hire purchase.

Clear remedies Minor and fixable defects Repair, replace, refund (supplier choice) Major defects Reject 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! Perceived problems Resolved between parties Resolved using third party agent Never resolved Un-perceived problems Total consumer problems

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 chain Manufacturers, wholesalers Blame the competitors Look to externalities Government policy, economic conditions Examine their own activities Particularly response to complaints

Consumers and traders need Clear rights Clear remedies Clear signals Minimisation of moral hazard Information about rights and remedies Sanctions 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 goods Probably a characteristic of the goods An incentive to traders to make better goods The 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