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Businesses should explain warranties better says expert

Businesses that do not set out clear information about the statutory rights of consumers to return goods under warranty may find themselves subject to an increasing number of legal challenges, an expert has said.23 Oct 2012

Although it is currently "common market practice" for companies to refer almost exclusively to consumers' contractual warranty rights in the terms of consumer contracts, businesses may have to do more to explain about the statutory rights that also apply, commercial law specialist Clare Francis of Pinsent Masons, the law firm behind Out-Law.com, said.

Francis was commenting after a report by technology news website ZDNet flagged up apparent inconsistencies between the duration of time Microsoft offers consumers the right to return its Surface tablet under warranty and the statutory rights of those consumers to return goods under warranty under EU law.

Microsoft's consumer contract sets out that consumers have a one-year 'hardware warranty' for the Surface tablet, but ZDNet said that EU law gives consumers an implied warranty of two years. Microsoft's terms state that consumers' right to implied warranty under their country's law is "limited to the warranty period".

Francis said that Microsoft had not engaged in "unusual market practice" in the way it set out its terms but that the company's contractual warranty terms do not affect individuals' statutory rights.

"The two year warranty that ZDNet refer to is a European directive on the sale of consumer goods and associated guarantees," Francis said. "The law of warranties in relation to consumer products is extremely complex and often results in tiers of potential applicable warranties being available to a consumer, all with their own slight nuances."

"For example, in the UK we have the Sale of Goods Act which implies some protections for consumers. However, companies still frequently provide a contractual guarantee in addition to this, such as a guarantee or warranty you might get with a new TV. This does not erode your rights under the Sale of Goods Act but supplements them. This is why you often see the wording 'this does not affect your statutory rights' used in contracts," she said.

"Microsoft’s warranty would be one that applies in addition to any warranty protection you have at law. The wording provides for this.  It would be extremely difficult and impractical for Microsoft to set out all the different potential local law provisions which may provide a consumer with protection which is likely to be why it has taken this approach," Francis said.

However, the expert said that regulators are increasingly taking a "harder line" against "key manufacturers" and stressing the need to "explicitly set out what statutory rights a consumer may have". She said that reforms to the UK's consumer protection laws regime may yet impose more stringent legal demands along those lines.

"This would be complex as each statutory warranty offers consumers a different level of protection and there are often a number of caveats or hoops that the consumer must jump through," Francis said. "For example, with this two year warranty referred to in the Microsoft Surface case, the complaint must be made within two months of the consumer becoming aware. The UK is currently consulting on a reform of consumer laws in order to make them more transparent and easier for consumers to understand.  It is not clear at this stage whether this will extend to how EU laws are incorporated and interpreted, but it’s certainly something for businesses to look out for down the line as consumer’s become more aware of their rights."

Francis said that contractual warranty rights often provide consumers with additional "protection" that statutory rights will not always provide for.

"The statutory warranties are in effect fairly limited in their application and have a number of carve outs so for example, may only apply if you can prove the product was defective when it was sold to you etc," she said. "Therefore, it’s not just the length of the warranty but what is covered that is also important. The terms of contractual warranties do not exclude a consumer’s rights. Therefore, the consumer still has those rights and is not in any worse position from a strict legal perspective – you could say they are in a better position as they also have the benefit of the contractual warranty on top of statutory rights."

Whether Microsoft lands in trouble with regulators over the way it sets out the terms of warranty for the Surface tablet may depend on whether the terms are heavily complained about, Francis said. 

"The question is all about whether the business ought to be explicit in pointing these rights out to consumers," Francis said. "In the UK the type of approach Microsoft is taking is common market practice and is not likely to cause an issue with regulators unless consumers particularly raise complaints or concerns. However, consumers are becoming more aware of their legal rights so businesses should expect to see greater challenge in these areas in the future. It would be good business practice for organisations to be clearer in setting out consumer’s rights."

"In the UK if businesses are not compliant with relevant legislation then they can face an investigation from the OFT or a similar regulator. This has a time and cost impact and can lead to adverse publicity within the market place. The regulators will work with any offending business to try and resolve the issue. However, repeat offenders can expect potentially more serious consequences and more detailed investigations into their other business practices," she added.