Consumer Guarantees: When is a Business-to-Business transaction covered by consumer laws?

It is often mistakenly assumed that business-to-business transactions are not covered by the Australian Consumer Law. Business-to-business transactions can fall within the ambit of consumer laws depending on the type of goods or services, and the amount paid. This can affect legal liability in regards to a wide range of provisions, including consumer guarantees, product liability, and misleading and deceptive conduct. This article will focus on the potential application of consumer guarantees to business-to-business transactions.

What are consumer guarantees?

If an individual or business acquires goods or services as a ‘consumer’, then statutory consumer guarantees will apply to the transaction. These guarantees require that:

  • goods are of acceptable quality, correspond with their description, are fit for any specified purpose, and match the sample or demonstration model;
  • the manufacturer will take reasonable action to ensure that repairs and parts for goods are reasonably available;
  • manufacturers or suppliers will comply with any express warranties made about the goods (such as relating to quality, state, condition, performance, or characteristics of goods);
  • services are performed with due care and skill, and are fit for a particular purpose; and
  • services must be supplied within a reasonable time (if no time period is specified).

When do consumer guarantees apply to business-to-business transactions?

Consumer guarantees will apply to business-to-business transactions when the purchaser acquires goods or services as a ‘consumer.’ So who is a consumer? A purchaser is a consumer if the transaction meets one of the following requirements:

  1. the amount paid or payable for the goods or services was less than $40,000; or
  2. the goods or services are of a kind ordinarily acquired for personal, domestic or household use or consumption; or
  3. the goods consist of a vehicle or trailer acquired for use principally in the transport of goods on public roads.

There are a few exceptions to this definition. For example, a purchaser is not a consumer if they acquire goods which are acquired for re-supply.

The $40,000 threshold seems relatively straightforward, but the second limb is a bit more complicated. This limb has received broad treatment from courts, and includes transactions between businesses or individuals which involve goods or services which households usually acquire. The test considers what the goods are ordinarily used for rather than what the purchaser actually uses them for. Sometimes the application of this test is obvious, such as in the case of kitchen appliances in an office. However, the treatment of some types of goods is more complicated. In Carpet Call v Chan (1987), the sale of domestic grade carpet was considered to be a good which was ordinarily acquired for household and domestic use. It did not matter that the carpet was actually being used in a nightclub. On he other hand, a large tractor used for domestic purposes was not covered by consumer law in Akinson v Hastings Deering (Qld) Pty Ltd

[1985]. The application of this test is complicated, and does not always provide clear results.

What are the consequences for failing to comply with consumer guarantees?

Ignoring the requirements of consumer guarantees can have dire consequences. Failing to recognise the application of consumer guarantees in the terms of a contract can amount to misleading and deceptive conduct, which carries serious penalties and high reputational risks. If consumer law applies, provisions which exclude statutory warranties and guarantees will be void and unenforceable. Section 64A of the Australian Consumer Law does allow businesses to limit liability, but only for goods which are not ordinarily acquired for personal, domestic or household use or consumption.

How can you ensure that your contracts comply with the Australian Consumer Law?

  • Ensure that contracts are drafted in accordance with the Australian Consumer Law. It is easy to unintentionally breach consumer law provisions, especially when using standard form or master contracts. Many businesses use standard form contracts for transactions which vary widely in terms of price and nature of goods or services supplied. Some businesses also used ‘master contracts’, where the original contract may be for goods or services which exceed the $40,000 threshold, but additional purchases are below this amount. If there is any possibility that consumer laws will apply to a transaction, contracts must be drafted prudently.
  • Review existing contracts. Do your contracts expressly acknowledge the application of Australian Consumer Law? Do provisions excluding warranties comply with the Australian Consumer Law? Do clauses limiting or excluding liability acknowledge that their operation is subject to the application of the Australian Consumer Law?
  • Find out whether the consumer guarantees apply to the transaction. Sometimes it is easy to apply the ‘price’ and ‘use’ tests. However, this is not always the case when pricing structures are complex or it is unclear whether goods or services are ordinarily purchased for household or domestic use. If you are unsure whether the consumer guarantees apply to a transaction, you need to seek advice from experienced commercial lawyers.

Our expert commercial lawyers are experienced in drafting and reviewing contracts which comply with the Australian Consumer Law. We can help you draft or review contracts in order to mitigate your risks under the Australian Consumer Law, or assist you in enforcing your rights under this legislation. If you wish to discuss how consumer contracts affect your Newcastle or Sydney based business, please contact us on (02) 4929 7002 or fill out an enquiry form on our website.