Tuesday, 22 May 2012

Are consumers’ rights really protected by the Lemon Laws?

When things turn sour: The introduction of the Lemon Laws may lead to a rise in disputes being filed at the Small Claims Tribunal


Guanyu 道 said...

Are consumers’ rights really protected by the Lemon Laws?

By K Anparasan
17 May 2012

When things turn sour: The introduction of the Lemon Laws may lead to a rise in disputes being filed at the Small Claims Tribunal

The new amendments to the Consumer Protection (Fair Trading) Act (CPFTA) and Hire Purchase Act (HPA) - more colloquially known as the Lemon Laws - have sparked off a significant amount of debate since their debut in Parliament. On the one hand, consumers have expressed concern that the Lemon Laws are too vague in its definitions (such as what constitutes a defective product) to proffer any real protection for consumers. On the other hand, retailers are worried about the potential increase in frivolous complaints by consumers and in operating costs.

The key concerns that have arisen from the debates highlight the complex balancing act that Parliament had to undertake in implementing the Lemon Laws. Suffice to say, I believe that the right balance has been struck.

The concept of “non-conformity with the contract”, which is used to define defectiveness, is not new. Article 35 of the 1980 United Nations Convention on the Uniform Law for International Sales uses the concept of non-conformity as the basis for a seller’s liability for the goods he sells: “The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.” This concept can also be found in the consumer protection laws in other jurisdictions, such as the United Kingdom and the United States.

Surely, the widespread usage of the concept of non-conformity carries great significance. It is necessarily vague because it must be broad enough to cover defectiveness in all types of goods. The concept is similar to the legal concept of reasonableness: it is a one-size-fits-all approach that is capable of taking into account the peculiarities of each case while ensuring that a consistent standard is applied across the board. The same can be said for the lack of precise definition of what constitutes a replacement, or what a reasonable time is for the retailer to repair or replace the goods.

It is important that the Lemon Laws are not too rigid as it runs the risk of stifling competition and innovation. At the end of the day, the customers will still be the ones who suffer as an increase in retailers’ operating costs can be easily passed on to them. As astutely noted by the UK Department of Business Innovation and Skills, “excessive regulation may limit consumer choice and, even if intended to protect consumers, can end up costing them more than the benefit it brings”.

One peculiarity of Singapore’s Lemon Laws is that the CPFTA now contains two different definitions of “goods”. The Lemon Laws - found in the newly added Part III of the CPFTA - define goods in the same manner as the Sale of Goods Act, but this definition only applies to the provisions in Part III. Other provisions in the CPFTA still follow the original definition of goods as stated in Part I of the CPFTA, which is arguably wider in scope as it includes intangible personal property.

The more contentious type of good is the voucher. Strictly speaking, vouchers are not covered by the new Lemon Laws, as vouchers only give consumers the right to obtain goods. Websites like Groupon and Big Deal are intensely popular nowadays, and the recent spate of consumer complaints about consumers not being able to redeem the vouchers bought through the websites underscores the need for greater consumer protection. Nevertheless, such consumers are still protected by the general provisions of the CPFTA, as vouchers fall within the scope of “goods” in Part I of the CPFTA. Such consumers may take Groupon to task for engaging in an unfair practice, namely representing in relation to a voucher that another supplier will provide goods or services at a discounted or reduced price if Groupon knew or ought to know that the other supplier will not do so.

Guanyu 道 said...

Protecting the retailers

Contrary to popular belief, the Lemon Laws actually provide greater protection to retailers. Previously, the only remedy available for defective goods was for retailers to provide a full refund on the goods. Now, retailers have the additional options of repairing or replacing the goods first, and if they are unable to do so within a reasonable time or without significant convenience to the consumer, only then are they required to reduce the purchase price or provide a refund. These additional remedies are usually less costly and are further qualified for the retailer’s benefit: retailers will not be required to repair or replace the goods if doing so will be disproportionately costly. The Lemon Laws define disproportionate cost to mean a remedy that imposes costs on the retailers which, in comparison to other remedies, are unreasonable, taking into consideration the value of the goods and the significance of the lack of conformity to the applicable contract.

In any case, under the CPFTA, the court has the discretion to decide that another remedy is more appropriate than the one sought by the customer. The Small Claims Tribunal is also empowered to dismiss, at any stage, a claim by a consumer which is frivolous or vexatious on such terms as to costs as it thinks fit.

The introduction of the Lemon Laws ensures that consumers have recourse for their grievances, but it is also important to consider whether there is access to these remedies so that they do not remain only as rights on paper. Commencing a lawsuit in court is not appropriate for most consumer claims as the legal costs will overwhelm the value of the claim itself.

Currently, the Small Claims Tribunal is the only inexpensive forum for hearing such claims, but the values of the disputes must be below $10,000, or up to $20,000 with parties’ agreement. The introduction of the Lemon Laws may lead to an increase in disputes being filed at the Small Claims Tribunal. It may be necessary to constitute Small Claims Tribunals which are industry-specific or intended to deal only with matters concerning physical goods under the Lemon Laws, so as to manage the greater number of cases. However, the experience of jurisdictions with similar Lemon Laws, like the UK, indicates that the number of lawsuits do not increase significantly, for the reason that most disputes continue to be settled by negotiation with the retailer.

This leads me nicely to my last point: at the end of the day, we must not lose sight of the bigger picture that the Lemon Laws are meant to encourage best practices among retailers, not to punish them. As Michael LeBoeuf once said: “A satisfied customer is the best business strategy of all.”

K Anparasan is Partner, Litigation & Dispute Resolution Department of KhattarWong LLP