If your business is carrying out B2B (business to business) transactions, then the consumer guarantee provisions of the Australian Consumer Law (ACL) may still apply. Australian Consumer Law that applies to all States and Territories is found Schedule 2 of the Competition and Consumer Act 2010 (Cth).
You cannot “contract out” of the consumer guarantees as per section 64(1) of the ACL, which provides that ‘a term of a contract is void to the extent that the term purports to, or has the effect of, excluding, restricting or modifying the consumer guarantees’.
If your business uses a standard template contract, you must have it reviewed and amended to comply with the ACL if used in a “consumer” B2B transaction.
Editor: Millicent Nhepera, LLB Graduate.
What is meant by Consumer Guarantees?
Under the Australian Consumer Law (ACL), consumer guarantees can be defined as a set of rules that apply when consumers purchase goods and services. These rules essentially set out the conditions under which a business is required to provide a remedy to its consumers. These guarantees apply automatically, irrespective of whether the seller or manufacturer is giving any voluntary or extended warranty for the goods and services, or whether such a warranty has expired.
In the case of B2B transactions, if your business acquires goods or services from another business as a ‘consumer’, then the statutory consumer guarantees apply to your transactions.
These consumer guarantees require that:
- The goods sold are not only of acceptable quality but also correspond with the given description, fit to be used for any specified purpose, and match the sample model used for demonstration.
- The manufacturer must take reasonable action to ensure that spare parts and repairs for the goods are available.
- The suppliers/manufacturers must comply with the express warranties made about the goods sold, like the state, condition, quality, performance, or other goods’ characteristics.
- Services provided must be performed with proper care and skill and should be fit for a particular purpose.
- Services must be provided within a reasonable timeframe (when no period is specified).
How does the Australian Consumer Law apply to your B2B business transactions?
More often than not, it is assumed that the Australian Consumer Law does not apply to B2B transactions.
However, as per ACL, such transactions can fall within the purview of consumer laws depending on certain conditions like the type of goods or services involved and the amount of money paid. This can affect legal liability for various provisions, like product liability, consumer guarantees, and deceptive and misleading conduct.
Under ACL, consumer guarantees will apply to your business-to-business transactions when your business acquires goods or services as a ‘consumer’, and your business will be considered a consumer only when:
- You purchase goods or services that cost less than $100,000.
- The goods or services cost more than $100,000, but they are of a kind ordinarily acquired for domestic, household or personal use or consumption.
- The goods are commercial road vehicles or trailers used primarily to transport goods on public roads.
This amount was changed recently under the Treasury Laws Amendment (Acquisition as Consumer – Financial Thresholds) Regulations 2020, which came into effect on 1 July 2021. Paragraph 3 (1) (a) of the Australian Consumer Law had $40,000 as the maximum cost of goods or services that were considered “consumer”. After the amendment, that amount was increased to $100,000, where it currently stands.
Few exceptions are there to this definition. For instance, a purchaser is not considered a consumer if the goods they acquire are for re-supply. The condition elucidating the threshold of $100,000 is easy to interpret. The last limb is also pretty much understandable.
However, the second condition is rather complicated. The concept of goods or services that are ‘ordinarily acquired for personal, domestic or household use’ has received broad interpretations by the courts. It can include transactions between individuals or businesses and involve goods or services that are usually acquired by households.
The test generally takes into consideration the purpose for which the goods are ordinarily used, rather than the actual purpose in which the purchaser will use them. At times, applying this test is easier, like in the case of kitchen appliances used in an office. However, the treatment of some types of goods can be more complicated.
How the Courts have applied Australian Consumer Law in B2B contracts.
What the courts consider “personal, domestic and household use”
The courts have, through case law, defined the parameters of what is meant by “consumer” in B2B transactions.
In the case of Carpet Call Pty Ltd v Chan, there was a B2B transaction in which a nightclub business bought a carpet from Carpet Call Pty Ltd. The court concluded that this was a consumer good because carpets are ordinarily acquired for domestic use.
The court decided that carpets do not lose that description of being for domestic consumption because it is being used for a commercial purpose. It also does not lose its description because it was made to last longer than carpets normally supplied for use in households.
In the same way, in Jillawarra Grazing Co v John Shearer, while an air seeder was acquired for personal use, it is normally used for a commercial purpose, so the “commercial use” description that was attached to it. In Four Square Stores (QLD) Ltd v ABECopiers, the court also found that a reduction photocopier was, on the face of it, not a good ordinarily purchased for personal or domestic use. So its description would be for commercial use, regardless of the fact it was being used domestically.
From these examples, it is clear that when the court is considering what is meant by “domestic or household use”, they will look at ordinary and general use of the product, rather than what it is being used for in each circumstance.
What are the consequences for failing to comply with the Australian Consumer Law?
Ignoring the requirements of consumer guarantees, as mentioned in the ACL, can have serious consequences. If you fail to recognise the application of consumer guarantees in the terms of a contract, it can amount to deceptive and misleading conduct. This carries dire penalties and can cause you high reputational risks.
If the Australian Consumer Law applies to your transaction, provisions that exclude statutory guarantees and warranties will be void and unenforceable. Section 64A of the ACL prohibits businesses from limiting liability for only goods that are not ordinarily acquired for personal, domestic or household use or consumption.
How can you make sure that your B2B transaction contracts are in compliance with the Australian Consumer Law?
You must ensure that your contracts are following the Australian Consumer Law.
It is easy to unintentionally breach the consumer law provisions, especially if you are using the standard form or master contracts.
You should review all the existing contracts to determine if all of them expressly acknowledge the application of the Australian Consumer Law and if provisions excluding warranties are in compliance with the Australian Consumer Law. You should also check if clauses excluding or limiting liability acknowledge that their operation is subject to the application of the Australian Consumer Law.
You must also find out if the consumer guarantees are applicable to your transactions. It can be easy to apply the ‘price’ and ‘use’ tests, but that is not always the scenario when pricing structures are complex, or it is unclear whether goods or services are ordinarily purchased for household or domestic use. In case you feel unsure whether your transaction is in the ambit of the ACL, you can seek advice from experienced commercial lawyers in Australia
While B2B transactions are not beyond the purview of the Australian Consumer Law, you need to keep in mind a few things to ensure that your B2B transaction contracts are in compliance with the ACL. Reading this guide here can help you understand better how the ACL applies to B2B transactions, so that you know your rights and ask for the same if a problem arises.
How can Prosper Law Help
If you need a lawyer to help your business with a B2B business deal, contact us today.
Farrah Motley | Director
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