The Australian Consumer Law (‘ACL’) is intended to protect the rights of individual consumers of goods and services – essentially codifying ‘fairness’ in the David vs. Goliath interactions of individuals and corporate entities. Importantly however, businesses may also be protected by the ACL. It is therefore crucial that business-to-business (B2B) contracts also comply with ACL obligations.
When do ‘consumer guarantees’ apply?
Consumer guarantees apply to any goods and services bought (sale, lease or hire) on or after 1 January 2011 by a consumer from a supplier or manufacturer in the course of trade. These include goods and services that are:
- worth less than $40,000;
- worth more than $40,000, but which are normally used for personal, domestic or household purposes; or
- a vehicle or trailer.
As long as the goods or services meet these requisite thresholds, the nature of the ‘consumer’ is irrelevant. Therefore, businesses contracting for goods and services within these parameters are protected by the ACL.
What are ‘consumer guarantees’?
Consumer guarantees impose obligations on the supply of goods and services.
For example, that the goods are fit for any disclosed purpose, and that the goods match the sample of demonstration model; or that the services will be provided with due care and skill, and fit for any specified purpose.
A number of exceptions apply to such guarantees, such as for items bought at auction and insurance contracts.
Can a business limit its liability?
A term that seeks to restrict, modify or exclude the application of the consumer guarantees under the ACL is void. That is, it will be excised from the contract and treated as if it had never been included.
However, liability can be limited for goods or services that are not ordinarily acquired for personal, domestic or household purposes. For example, liability relating to the supply of goods may be limited to replacing or repairing the goods, or reimbursing consumers to have faulty products repaired by third parties. Liability relating to services may be limited to the re-supply of services, or reimbursing consumers to have services re-supplied by third parties.
Ultimately, any limitations on liability must be ‘fair and reasonable’. Such a determination will be made by a court, who will look, among other things at:
- the relative strength of the parties and their bargaining positions;
- whether inducements were given to have consumers agreed to certain terms;
- whether the consumer was able to purchase such goods or services from a source that did not include such a term in their contract; and
- whether the consumer knew of the term limiting the suppliers liability.
An emphasis on fairness
At the end of the day, the ACL seeks to promote fairness in the provision of services and supply of goods. Keeping this in mind, it is important that all contracts, including business-to-individual and business-to-business, are drafted with an emphasis on fairness. Terms that are considered ‘unfair terms’ are prohibited under the ACL.
Important questions to ask when drafting such contracts include:
- will this result in a significant imbalance between my rights and the consumers’ rights?
- is this reasonably necessary to protect my business’ legitimate interests?
- would this cause detriment to the consumer?
- is this a transparent term of the contract?
Currently, the Federal Parliament is considering legislation that may extend the unfair contract terms to standard form contracts with small businesses. If passed, these terms will apply to contracts where one party has fewer than 20 employees and the contract price is under a certain threshold.
- Businesses can be protected by the ACL consumer guarantees.
- Businesses can limit liability, but anything that is not ‘fair and reasonable’ will be void and removed from the contract.
- When drafting contracts, ask yourself those important questions and be honest in your answers.
- Review any contracts to ensure that they comply with the ACL.
If you are unsure about how consumer guarantees apply to your products or whether your contract clauses will be valid under the ACL, contact Gladwin Legal at , or on 1300 033 934 for a free chat.