post-supply consumer warranty law a new zealand perspective rae nield marketinglaw.co.nz 25 april...
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Post-supply consumer warranty law
a New Zealand perspective
Rae Nield
Marketinglaw.co.nz
25 April 2006
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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
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Application
End-user approach
Choice of defendantsSupplier
Multiple manufacturers, but
All defendants must have input into quality control
47 “reasonables”
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Manufacturer
Wholesaler
Supplier (retailer)
Consumer
Supply transaction - goods
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Supply of goods
Gift in trade
Sale
Exchange
Lease
Hire
Hire purchase.
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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
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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
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If not all consumers complain,
traders don’t have to bear
the true cost of warranties.
And if they do…
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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
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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.
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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
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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
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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
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Warranties are a feedback mechanism
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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.
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The key mechanisms
Non-contractual warranties
Multiple supply chain defendants
Ease of enforceability
= a free flowing marketplace