Repair, replace or refund? The costly consequences of getting it wrong: the HP case

It is standard practice for a company to have clearly articulated policies about consumer refunds including the circumstances in which the company may seek to repair or replace defective products as an alternative to offering a refund. If, however, those policies do not comply with the strict requirements of the Australian Consumer Law (ACL), the recent decision in ACCC v Hewlett-Packard makes it abundantly clear that companies will face serious consequences.

In the HP case, HP was found to be in breach of the ACL for making false and misleading representations about statutory consumer guarantees and remedies including the right of repair, replacement or refund.

The result? A $3 million pecuniary penalty, payment of the ACCC's legal costs ($200,000), the imposition of ACCC approved compliance programs and processes and a raft of other remedial orders that are likely to result in ongoing increased costs for HP.

The facts of the HP case

Between January 2011 and September 2012, HP made certain representations to consumers in accordance with internal policies and scripts about HP branded desktop computers, notebook computers, laptops and printers. In particular, HP call centre staff represented to consumers that:

• remedies for faulty HP computer products were limited to those available from HP at its discretion;
• faulty HP computer products had to be repaired multiple times by HP before consumers were entitled to a replacement;
• the warranty period for HP computer products was limited to a specified express warranty period;
• after expiry of the express warranty period, HP would only repair HP computer products if consumers paid for such repairs; and
• consumers could not return or exchange products purchased online unless HP agreed.
• HP also represented:
• to consumers that returns and exchanges for products purchased online were not available unless HP agreed; and
• to retail suppliers that it would not indemnify suppliers if they had provided consumers with a refund or replacement without HP's prior authorisation.

Why was HP's conduct in breach of the ACL?

The ACL provides that a number of statutory consumer guarantees (i.e. that goods are of acceptable quality and fit for a disclosed purpose) are to be implied in the supply of goods or services to consumers. The ACL establishes a prescriptive regime for the remedies to which a consumer will be entitled if a supplier fails to meet these guarantees. The nature of the remedy, such as replacement, repair or refund, will depend upon the nature of the failure with the relevant guarantee.

In addition to the above provisions, the ACL prohibits a supplier from limiting, excluding or modifying the remedies available to a consumer for a breach of a statutory consumer guarantees or making false representations in relation to the existence, exclusion or effect of any guarantee or remedy. HP's representations about the rights and remedies available to consumers for faulty HP products were held to be in breach of the ACL.

The costly consequences of non-compliance

In addition to ordering HP pay a pecuniary penalty of $3 million (the second highest penalty imposed for a breach of the ACL), the Federal Court made a number of other orders that are likely to have significant ongoing cost and reputational ramifications for the company.

These orders included:

• the payment of the ACCC's legal costs of $200,000;
• the disclosure to all retail suppliers and prominently on HP's website of a notice stating that consumers can request a refund or replacement for defective HP products;
• the publication of corrective advertising notices on HP's website and various newspapers detailing the "false and misleading conduct by Hewlett-Packard";
• the establishment of a consumer redress process to assess and resolve consumer complaints arising from the corrective advertising and consumer rights notice and an independent review of this process, including providing the ACCC with a report;
• the implementation of a comprehensive ACCC compliance program for 3 years and the provision of any documents requested by the ACCC; and
• injunctive relief restraining HP from making similar false or misleading representations for 3 years.

While a $3.2 million liability is unlikely to be trivial for many companies, the orders regarding compliance and consumer redress are likely to be equally aggravating because the company will be required to implement comprehensive gold-plated programs determined by the ACCC which may be unnecessarily costly from an operational perspective. For instance, the font size, typeface, background colour, layout and specific wording of the corrective advertising and notices to consumers and retailers were all the subject of Federal Court orders.

Similarly, the ongoing reporting and provision of documents (on request) to the ACCC will be ongoing, time consuming and costly.

What you need to do now

You should ensure that all of your consumer and refund policies strictly comply with the ACL.

If your policy is "No refunds", "No refunds after 30 days" or "Exchange or credit note only for return of sale items", this is likely to be in breach of the ACL. You can however not offer a refund for a change of mind.

If you are an Australian subsidiary of a multi-national that generally adopts global or head office precedents and policies, you should check that any consumer or refund policies comply with the ACL. If not, you will need to have an Australian specific policy that complies with the ACL.

You should review (and if required undertake) compliance training for all customer facing staff (both front end sales and back end complaints and call-centre personnel) to ensure that all employees understand their legal obligations and the remedies to which a consumer may be entitled under the ACL.

You should review (and if required improve) your consumer law compliance program including checking call centre scripts, manuals, guidelines and product warranty materials and ensure there is a feedback mechanism such that complaints are addressed through operational changes.