This article is relevant to companies involved in the sale of goods in Malaysia. It provides an overview of the concept of “Lemon Law”, the current legal position under the Consumer Protection Act 1999 and highlights the potential legal implications for businesses dealing in second-hand goods.
What is “Lemon Law”?
The Budget 2026 announcement confirmed that the Malaysian Government intends to amend the Consumer Protection Act 1999 (“CPA”) to incorporate elements of “Lemon Law” in order to enhance consumer protection against defective goods. While the proposed amendments have yet to be tabled, the policy direction signals a strengthening of consumer remedies and potentially higher compliance expectations for businesses operating in Malaysia.¹
The concept of Lemon Law originates from economist George Akerlof’s seminal work, “The Market for Lemons”, which describes how information asymmetry affects market efficiency. In this context:
- “Lemon” is a colloquialism for defective products, commonly associated with used vehicles.
- Sellers typically possess more information about product quality than buyers.
- Where consumers cannot accurately assess quality at the point of purchase, they may discount the price offered.
- Over time, high-quality goods exit the market, leaving predominantly defective goods, a phenomenon known as adverse selection.
Lemon Law seeks to correct this imbalance by imposing statutory protections, particularly in situations where repeated defects substantially impair the value, safety, or usability of goods.
Current Legal Position in Malaysia
1. Implied Guarantee of Acceptable Quality
Under Section 32(1) of the CPA, goods supplied to consumers carry an implied guarantee that they are of acceptable quality. Section 32(2) of the CPA further provides that goods are deemed to be of acceptable quality if they are:
- Fit for all purposes for which goods of that type are commonly supplied;
- Acceptable in appearance and finish;
- Free from minor defects;
- Safe;
- Durable; and
- Considered acceptable by a reasonable consumer fully aware of the goods’ condition including any hidden defects having regard to the surrounding circumstances.
This statutory guarantee applies automatically and cannot be excluded by contract.
2. Remedies for Breach
If goods fail to meet the acceptable quality standard:
(a) Repair (Where Possible)
Under Section 41(1)(a) of the CPA, consumers may require the seller to repair the goods if repair is possible.
(b) Rejection, Refund or Replacement
If repair is impossible, consumers may:
- Reject the goods and elect a refund;
- Reject the goods and request replacement goods of the same type and similar value; or
- Claim damages reflecting the reduction in value of the goods.
(Sections 41(1)(b), 43 and 46 of the CPA)
(c) Additional Consequential Damages
Under Section 41(2) of the CPA, consumers may also recover damages for loss or damage suffered as a consequence of the breach (damages other than the reduction in value of the goods), provided such loss is proven.
Judicial Guidance: Application to Second-Hand Goods
The Court of Appeal’s decision of Matang Plastik & Metal Work Industries Sdn Bhd & Ors v Daimler Chrysler Malaysia Sdn Bhd & Ors [2014] 8 CLJ 998 which concerned a defective second-hand vehicle further confirmed that the implied guarantee applies not only to new goods, but also to second-hand goods. This demonstrates that Malaysian courts already interpret the CPA robustly in favour of consumers.
Although the Budget speech did not provide detailed drafting proposals, it has been reported that the amendments may:
- Introduce clear statutory definitions of what constitutes a “lemon”;
- Set limits on the number of repair attempts; and
- Establish specific timeframes within which defects must arise.
If implemented, these changes would likely formalise and streamline what is currently assessed on a case-by-case basis.²
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¹ https://belanjawan.mof.gov.my/pdf/belanjawan2026/ucapan/bs26.pdf
² https://www.malaymail.com/news/malaysia/2025/10/17/lemon-law-vs-warranty-what-malaysian-car-buyers-need-to-know/194801
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This article was written by Low Rui Thong (Associate) from Donovan & Ho’s corporate practice.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. Feel free to contact us if you have any queries.
