Debating Warranty Arbitration

debate

Robert J. Cloburn, CAIB, of Vancouver and Gregory Smith of Dark Room Perfection shared their views on a recent post, Arbitration wins another court battle. Here, I offer a few follow up thoughts.

First, thanks to Robert and Gregory for commenting.

Here’s what Robert wrote:

I love the idea, but it has to work favourably for both parties to the dispute.

On the fairness issue Robert raises, my experience shows that arbitration works for both the consumer and the business. Unlike B2B arbitration, which can become as complicated, time consuming and costly as litigation, C2B proceedings are straightforward, streamlined, and far less expensive than litigation. In the C2B context, the questions to be answered are: did the product fail during the warranty period, did a defect in material or workmanship cause the failure, and, if so, did the warrantor stand by its promise to repair or replace the product. Generally, the customer receives the benefit of the doubt in close cases. Of course, the same is true in litigation – virtually every judge or juror who hears a breach of warranty case has had a bad experience with a product and product warranty. So the business is at a disadvantage in both settings. The difference is that in the arbitration setting, the business spends far less to resolve the matter than had it gone to court.

So not only do the parties benefit, but the rest of us benefit because the business does not have to raise prices to account for the higher costs associated with litigation.

Gregory also raises excellent points:

Although my experience is within the EU and Middle East. We go back to the management of customer expectations. Warranty can be and is used, as a valuable tool for OEM’s and Value-added reseller’s alike. Still before litigation or any means of arguing the interpretation of the warranty statement for the product, it is imperative that the seller ensures that the customer understands what and what is not covered. This, I feel, falls directly into the vista of these legal eagles, whom cloud any document with legal jargon and clauses which ties the end user up in knots.

In a perfect world we would have a globally accepted warranty statement for all products irrespective of the country of origin, so that there can be no grey area’s, language blocks etc etc. A definitive push towards global standardisation, and globally recognised warranty statements should be high on the agenda for all OEM’s. The cost savings alone in “leaning” the warranty processes would offset any major claim or claims.

Why then, if all was laid out in black and white with all the work done previously prior to product release would we need litigation or even ADR?

We have a need for lawyers, but in my humble opinion. These companies should spend the money at the start ensuring the warranty statement for their product/s is Ironclad, and that the manufacturer or end user understands their rights in any given situation.

I have long shared these views that a company’s warranty offereing should function as a brand-building tool, and that a warranty or any other legal document chock full of legalese and open to interpretation tends to frustrate the parties’ expectations and produce disputes. (See here and here). A product warranty’s text should be readily understandable, devoid of legalese and require – indeed, be so clear as to permit – no interpretation. Parties to an agreement should not require an arbitrator, judge or jury to tell them what they agreed to, or to discern their respective rights and obligations.

I part ways with Gregory on his call for global standardization of warranty text across product lines. Because of differences in laws, customs and usage a one-size-fits-all approach is not possible, nor even desirable. A company must tailor its warranty to the product, its business philosophy and objectives and the marketplace. And the tailoring should be done with an eye towards creating a warranty document that leaves no room for misunderstanding.

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4 Comments

Filed under Best Practices, Court Decisions, Customer Experience, PR & Branding, Resolving Disputes, Risk Management, Statutes & Regulations, Warranty

4 responses to “Debating Warranty Arbitration

  1. Pingback: A “high-five” for arbitration (sans the lawyers) | Driving Value

  2. Steve Kucinski

    C2B arbitration is already in place. Business has an excellent opportunity to resolve customer complaints at the managerial level. I have no sympathy when business incurs additional expense because they wouldn’t do the right thing. The customer survey climate probably forces business to give away much more than customers are often due so that organizations can “save the score”. Nonetheless, the tools already exist to settle customer concerns, if an organization finds rising legal costs associated with disputes a foundation for raising prices to cover said costs then they are not addressing the root problem thus allowing competitors that manage their people side of the business at the people level a clear advantage (natural selection).
    “If You Don’t Take Care Of Your Customers Someone Else Will”

    • Steve:
      Sometimes, no matter what a business does to try to satisfy a customer, and no matter how well it does it, the customer just won’t be satisfied. And sometimes a company must say “no” in response to an unfounded customer complaint or unreasonable demand.
      So every once in a while, a company is going to have to put its fate in the hands of a third-party. I’m arguing that when this happens, mediation before a neutral party, arbitration, or a program combining the two is in the vast majority of cases preferable to litigation. For the reasons mentioned in the posts on the topic, the disappointed consumer, the business, and to a lesser extent, the general public, all benefit when mediation or arbitration is used an alternative to litigation.
      Yet, while several reputable providers offer C2B arbitration programs, companies have not been quick embrace them, and some that have (see http://wp.me/p2I8Kv-3E) have been attacked for it. Maybe those who oppose binding arbitration of C2B disputes should take another look as well.

      • Steve Kucinski

        Paul,
        The gist of what I’m saying is the percentage of clients that are in that select group that reject reason and being addressed respectfully should be virtually nonexistent if business is truly focused on doing the right thing. Those rare animals that cannot be satisfied via reason and respect should not have the power to re-write / create policy. But, I must also say that I am thinking of my world, that which being a retail point wherein customers are dealt with one-on-one, almost always face-to-face. If I were to view your take on C2B in the context of something like a class action then maybe I reassess my point of view.

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