Whether you are selling goods, providing services or negotiating a complex commercial deal, warranties sit at the heart of contractual risk allocation in Australia. They determine which party wears the cost when things go wrong and heavily influence pricing, insurance and dispute strategy.
This article, written by our contract lawyers, explains what a warranty is under Australian contract law, how statutory and contractual warranties interact, and how to structure warranty clauses that withstand scrutiny from courts, regulators and counterparties.
Key Takeaways
- A warranty is a contractual promise about the quality, condition or future performance of goods, services or facts
- Warranties differ from conditions and representations in terms of available remedies and burden of proof
- The Australian Consumer Law (ACL) implies non-excludable consumer guarantees that operate as statutory warranties
- Contract drafters should use clear language, define limits to liability and align warranties with insurance coverage
- Breach of warranty typically gives rise to damages, not contract termination, unless expressly stated otherwise
What is a Warranty in Australian Contract Law?
A warranty is a secondary contractual promise that, if breached, entitles the innocent party to claim damages but usually not to rescind or terminate the agreement. Unlike conditions (fundamental terms), warranties are not essential to the contract’s core purpose.
Key features of a warranty are that it:
- Must be an express term or implied by statute or custom
- Gives rise to a claim in damages for loss flowing naturally from the breach (Hadley v Baxendale principles)
- Does not affect the continued existence of the contract unless parties agree otherwise
Statutory Source v Common Law
Under the Sale of Goods Acts (state and territory legislation) and the ACL (Schedule 2 to the Competition and Consumer Act 2010 (Cth)), certain warranties are implied automatically and cannot be excluded in consumer transactions. By contrast, common-law warranties arise purely from the contract wording or business efficacy.
Statutory Warranties vs Contractual Warranties
Aspect | Statutory warranties (ACL) | Contractual warranties |
Source | Legislation (s 54–59 ACL) | Agreement between parties |
Ability to exclude | Generally not excludable for consumers or small businesses | Can usually be excluded or limited, subject to unfair contract terms regime |
Remedies | Repair, replacement, refund or damages under ss 259–267 ACL | Damages (or termination if expressly provided) |
Enforcer | ACCC, state/territory fair-trading agencies, or private litigants | Private litigants only |
Common Statutory Warranties
- Acceptable quality
- Fitness for purpose
- Goods match description or sample
- Reasonable care and skill (services)
Implied Warranties under the Australian Consumer Law
Section 64 of the ACL renders void any term that purports to exclude, restrict or modify the consumer guarantees. For goods under $100,000 (or ordinarily acquired for personal, domestic or household use), businesses must ensure their written terms do not infringe s 64 or attract penalties for misleading statements about rights and remedies (s 29 ACL).
To ensure compliance with the ACL, you must:
- Use the prescribed wording in any limitation clause (Competition and Consumer Regulations 2010, reg 90)
- Train sales teams to avoid statements that contradict statutory guarantees
- Maintain quality-control systems to minimise breach risk
How to Draft Clear Warranty Clauses
Define Scope and Subject Matter
- Specify the product or service covered
- State measurable quality criteria (e.g. ISO standards, uptime percentages)
Timeframes
- Insert a warranty period or survival clause
- Align with statutory limitation periods (six years for simple contracts; 12 years for deeds in most jurisdictions)
Limitations and Exclusions
- Exclude indirect or consequential loss where permissible
- Cap liability at a multiple of the contract price or insurance cover through a limitation of liability clause
Notification and Claim Procedure
- Require written notice within a defined period after discovery
- Prescribe investigation and remediation steps
Interaction with Indemnities and Conditions
- Clarify that indemnities operate independently of warranties
- State whether breach of warranty also triggers a right to terminate
Remedies for Breach of Warranty
Under Australian common law, damages aim to place the innocent party in the position they would have occupied had the warranty been true.
Types of loss that are recoverable include:
- Direct costs of repair or replacement
- Diminution in value of goods or services supplied
- Loss of profits reasonably contemplated by both parties at contract formation
- Parties may agree to liquidated damages for specific breaches, provided the amount is a genuine pre-estimate and not a penalty (see Andrews v ANZ (2012) 247 CLR 205).
Case Study: Software Supply Agreement
Background
- A Queensland fintech procured a bespoke software platform under a $2 million contract
- The supplier warranted that the platform would process 10,000 transactions per minute and comply with ISO 27001
- Within three months, throughput averaged only 6,500 transactions and security certification lapsed
Outcome
- The purchaser claimed $750,000 in damages covering lost revenue and remedial coding costs
- The supplier attempted to rely on a liability cap of $500,000 but the clause was struck down as unfair under s 24 ACL (small-business contract, standard form, imbalance not reasonably necessary)
- Parties settled for $600,000 plus two years of extended maintenance
Caps and exclusions must be carefully engineered to avoid the ACL unfair contract terms regime, especially in B2B contracts with small businesses.
Practical Tips for Businesses
- Audit all standard-form contracts for compliance with s 64 and unfair contract term rules
- Align warranties with product testing and quality-assurance reports
- Keep evidence of customer specifications and usage scenarios to defend fitness-for-purpose claims
- Coordinate with insurers to ensure professional indemnity and product liability cover matches contractual exposure
- Maintain a central register of warranty periods and claims to identify systemic issues
Ensuring your contracts include robust yet compliant warranty provisions protects revenue, reputation and customer trust. If your organisation needs assistance drafting, negotiating or enforcing warranty clauses, contact our team to discuss how we can safeguard your interests under Australian contract law
Frequently Asked Questions
Is a warranty the same as a guarantee?
No. In Australian law a warranty is a contractual promise that generally provides a damages remedy, whereas a guarantee (under the ACL) is a statutory right to repair, replacement or refund
Can I exclude all warranties in a B2B contract?
You can limit or exclude contractual warranties if the term is not unfair, but you cannot exclude non-excludable consumer guarantees where the buyer is a consumer or small business under $100,000 value
What is the limitation period for a breach of warranty claim?
Six years from the date of breach for a simple contract or 12 years for a deed, subject to any shorter contractual limitation period that is valid under state limitation statutes
Does a breach of warranty allow me to terminate the contract?
Not unless the contract expressly elevates the warranty to a condition or includes a termination right for breach of that warranty
Are consequential losses recoverable for breach of warranty?
Only if they were within the reasonable contemplation of both parties at the time of contracting and are not excluded by the contract
How do I make a warranty claim under the ACL?
Notify the supplier describing the defect, provide proof of purchase and request a remedy (repair, replacement or refund). If unresolved, lodge a complaint with the ACCC or your state fair-trading agency or commence proceedings in the appropriate court or tribunal
