Second Reading Speech by Mr Teo Ser Luck Minister of State for Trade and Industry for Consumer Protection (Fair Trading) (A

SECOND READING SPEECH BY MR TEO SER LUCK MINISTER OF STATE FOR TRADE AND INDUSTRY FOR CONSUMER PROTECTION (FAIR TRADING) (AMENDMENT) BILL

Mr Speaker, Sir, I beg to move: “That the Bill be now read a second time.”

Background on Lemon Law Review

“Lemon laws” refer to consumer protection laws that provide remedies against goods with latent defects, also known as “lemons”. These lemons usually fail to meet standards of quality and performance, even after repeated repairs. Such laws can be found in advanced countries such as the UK and EU, and typically obligate the retailers to repair, replace, or refund the price of defective goods. 

In September 2008, MTI & CASE jointly established a taskforce to determine if there was a need for such laws in Singapore and, if so, the appropriate scope and form they should take.  The Taskforce comprised representatives from both consumer and business bodies to ensure a balanced view point.

Introducing Lemon Laws in Singapore will bring us in line with the standard of consumer protection in international jurisdictions and assure both locals and tourists that the products they buy are of good quality. It will encourage good business practices, and favour good retailers, many of whom already have robust return policies.  This will in turn raise the standing of the retail industry in Singapore.

The Taskforce found that the key features of lemon laws, as implemented in developed economies, were already present in Singapore’s laws.  However, there were some areas for improvement.

Gaps in Current Consumer Laws

First, there is a lack of clarity on a consumer’s period for exercising his rights. Currently, the consumer can reject defective goods and seek a refund, but he would lose his right to reject the goods if he does not do so within ‘a reasonable time’. The law does not state explicitly what is considered ‘a reasonable time’, and this is subject to determination by the courts.  The law is also not clear on who has the burden of proof.

Second, our existing laws provide a limited range of recourse. Consumers are only entitled to reject goods that are not of satisfactory quality and obtain a refund. Thus, the Taskforce recommended making express provisions for repair and replacement to allow consumers, retailers and the courts additional options to resolve defects that occur. CASE highlighted that such provisions would address the key problem of some retailers refusing to replace defective goods after multiple failed attempts to repair. Retailers also gave feedback that the inclusion of the options of repair and replacement would allow them more flexibility.

Therefore, the proposed amendments seek to clarify timelines and burden of proof, and to expand and make more explicit the remedies available to both consumers and businesses.

Using the Taskforce’s recommendations as a basis for the proposed amendments, we conducted a series of public consultations and focus group discussions from December 2010 to November 2011. In the process, we met with and heard from large and small retailers, as well as sector-specific retailers such as motor traders. We thank the many who contributed their views and suggestions to the improvement of the Amendment Bill.

We sought to weigh the various considerations from different perspectives, and arrive at a policy position that is in the interest of our country as a whole. We also recognized the need to balance greater consumer protection and impact on business costs.

Key Amendments

Sir, let me now outline the main amendments.

Clearer rules on burden of proof

The new legislation will provide clearer rules on the burden of proof. If a consumer reports that the goods he purchased did not conform to the sale contract within six months of delivery, it is presumed that the non-conformity existed at the time of delivery, unless the retailer can prove otherwise.  Non-conformity with contract is already defined under existing laws such as the Sale of Goods Act, and includes situations where goods are not of satisfactory quality, or fit for the purpose it is purchased for.

This presumption will not apply if it is incompatible with the nature of the goods. For example, perishable goods would not be expected to last longer than their normal shelf life. If the non-conformity is found after six months of delivery, it is for the consumer to prove that the non-conformity existed at the time of delivery. This same provision can also be found in EU and UK’s lemon laws.

Right to demand repair or replacement

The new section 12C of the Consumer Protection (Fair Trading) Act provides that for goods that do not conform to the sale contract at the time of delivery, the consumer may require the retailer to repair or replace the goods. If the cost of the remedy demanded by the consumer is disproportionate in comparison, the retailer may offer one of the alternative remedies provided for in the legislation.

Alternative remedies of reduction in price or refund

And if both the repair and replacement remedies are not possible, or disproportionately costly to the retailer, or cannot be completed within a reasonable time and without significant inconvenience to the consumer, the consumer may ask for a reduction in price or return the product for a refund. As per existing laws, the refunded amount may be reduced to take into account the use that the consumer had of the goods.

Coverage of Lemon Law

In terms of coverage, the Lemon Law will apply to all goods, which can range from general consumer products such as electronics and clothing, to big-ticket items such as motorcycles and cars.

Consumables and perishables are also covered. However, the “rebuttable presumption” that defects discovered within 6 months of delivery existed at the point of delivery, will only apply up to the normal shelf life of the consumable or perishable.

Secondhand goods and vehicles are included in the proposed legislation as protection is likely to be most needed for such goods. This is also in line with Lemon Laws in overseas jurisdictions. However, the definition of “satisfactory quality” would take into account the goods’ age at the time of delivery, and the price paid.  In other words, someone buying a 10-year-old car from a dealer could not reasonably expect it to be like a brand new car.  However, he can expect it to perform in a manner that may be reasonably expected of a car of that mileage and model.  If it does not do so, the consumer can seek remedies from the dealer.

Services are not covered as the remedies under the lemon law regime are tailored for goods, and are generally inappropriate for services.  For example, it is impossible to return the service which has already been rendered.

Some businesses we consulted have asked if discounted products or sale items, with slight defects or limitations can be excluded from the proposed law. Such goods are not specifically excluded, but any defects or limitations of these goods should be pointed out to the consumer before the transaction, and the retailer would not be held liable for these defects or limitations. When it is pointed out, it has to be very specific and to the point of the defect.

Retailers have also asked if goods can be excluded if they are sold “as is” or “as seen”. Even under the existing law, the retailer cannot deny the consumer his rights to remedies by stipulating that the sale is “as is” or “as seen”, except in the case of auctions or a competitive tender. Thus, retailers cannot exclude the transaction from the Lemon Law, by simply displaying a notice saying, “we do not give refunds under any circumstances” or that “an item has been sold as it is”.

Therefore, retailers should be transparent at the point of sale, through appropriate labelling and disclaimers. For clarity, the retailer should document any defects and limitations on the sales contract, invoice or packaging.

Members of public have also asked if properties and building defects are covered under the proposed law. There is already existing legislation governing the sale and purchase of new or uncompleted properties. Under the Housing Developers (Control & Licensing) Act and the Sale of Commercial Properties Act, the standard Sale & Purchase Agreement provides for a 1-year defects liability period during which the developer is required to rectify any defects in the property, at the developer’s own cost. Beyond the 1-year defects liability period, purchasers can still take civil action against the developer for latent defects on grounds of negligence or breach of contract, within 6 years from the date that the damage arose, or 3 years from the date that the damage was discovered, whichever is later.  This covers HDB flats as well. In addition, HDB gives flat buyers an extended warranty for the protection of the flat against building defects (known as Assure 3).

Therefore, as properties and building defects are covered by other existing legislation, the Lemon Law does not cover them. In most jurisdictions, the laws governing properties and goods are also kept separate as they are very different in nature. For example, the broader range of remedies under our proposed ‘Lemon Law’, such as replacement, would not be applicable for property.

Whether the Law should be more specific

We have also received feedback requesting that the law be more specific, for example, by defining precisely what constitutes a defect and specifying the number of repairs before a consumer is entitled to a replacement.  Because we want the law to be more comprehensive in coverage, and given the diverse range of goods in the market, it will not be possible to define specific terms for all goods and all circumstances.  The law, as currently drafted, provides flexibility for both retailer and consumer to work out a mutually acceptable arrangement.

Nevertheless, there are certain guidelines on how the courts will apply the law. The Sale of Goods Act provides guidance on what constitutes non-conformity with a sale contract. Also, as the intent of the law is to cover latent defects in goods, the consumer will not be able to seek recourse for wear and tear due to usage of the goods.

On replacement and refunds, the replacement should conform to contract, that is, be of the quality, make, model, and condition that is expected. The replacement offered to the consumer could take into account wear and tear due to usage by the consumer, and need not always be new. The consumer could weigh the options between accepting for example a relatively new set, versus asking for other remedies, such as a reduction in price, or returning the product for a refund.

Safeguards against Frivolous Claims

With these new provisions in place, consumers will now enjoy more recourse for defective goods. However, reflecting the balanced position, retailers also enjoy safeguards against frivolous claims. First, a retailer may offer an alternative if the remedy requested by the consumer is disproportionately costly, so long as his proposed remedy does not cause significant inconvenience to the consumer.  A consumer must also give the retailer a reasonable time to comply with the requested remedy, such as repair or replacement, before seeking an alternative remedy such as refund or reduction in price.

Second, consumers are not entitled to a remedy if they damaged the item, misused it and caused the fault, tried to repair it themselves, or had someone else try to repair it, resulting in damage to the item. The remedies are also not available if the consumer knew about the fault before they bought the goods, or if they simply changed their mind and no longer want the item.

The new law will also not remove the existing remedies available to both businesses and consumers, such as product guarantees or warranties, retailers’ own return policies, and other remedies available under existing legislation, such as the Sale of Goods Act and the common law.

Sir, I will now move on to the consequential amendments.

Updates to Hire Purchase Act

The new sections 6 to 6G of the Hire Purchase Act, or HPA, will update the implied terms in the HPA to be consistent with those in the Sale of Goods Act and Supply of Goods Act. This will allow consumers who made a hire purchase to rely on a breach of these implied terms, such as the implied term of satisfactory quality, to trigger the new provisions under the Lemon Law.

In addition, the HPA’s existing jurisdiction cap of $20,000 for consumer goods, and $55,000 excluding COE for motor vehicles shall not apply to these updated implied terms. This will allow consumers to utilize the new provisions under the Lemon Law, even if the values of their hire purchase goods or vehicles exceed this cap.

Therefore, a consumer who bought a $30,000 home theatre system on hire purchase will be able to seek remedies under the new Lemon Law if it contained inherent defects or quality issues.

Amendments to Road Traffic Act

As requested during our consultation with the industry, in order to help motor traders defray costs and encourage them to offer replacements for lemon vehicles, MOT and LTA have proposed amendments to the Road Traffic Act. The amendments allow rules to be made for the transfer of the Additional Registration Fee (ARF) and Certificate of Entitlement (COE) from a defective vehicle to a replacement vehicle if the defective vehicle meets two criteria:

 a.             First, the defect occurs within 1 year of the vehicle's first registration in Singapore, or within 20,000 km of the vehicle’s mileage, whichever is earlier; and

b.            Second, at least 3 attempts have been made to repair the defect, or at least 1 attempt if the defect is safety-related, within 1 year from the date the defect is reported.

 This transfer will also be subject to certain conditions, which include the disposal of the defective vehicle within a month of its replacement.

To illustrate, take for example, a 6-month old car that continues to have faulty brakes after a dealer has attempted to repair. The retailer need not pay for an additional set of ARF and COE for the replacement car that he offers to the consumer.

Conclusion

In conclusion, Sir, the proposed amendments in this Bill will make the existing consumer protection framework more robust. In drafting the Bill, we have taken great care to ensure that it is both pro-consumer and business-friendly.

38. To allow industry time to adjust, the amendments are proposed to come into effect only on 1st September 2012, approximately six months from now. My Ministry is already working with CASE and the Trade Associations to develop consumer guides and business advisories to provide greater clarity to both consumers and businesses.  These guides will highlight best practices and various claim scenarios have been issued to several Trade Associations. CASE will also commence a Lemon Law education campaign from April this year to better educate consumers on their rights in such situations.

Sir, I beg to move.