Certain guarantees under the Australian Consumer Law (ACL) apply not only to the supply of goods and services to individual consumers but may also apply to supplies to business consumers.
Here are some tips to help ensure your contracts comply with the ACL.
Know when the consumer guarantees apply
The consumer guarantees apply where your business supplies goods (whether by way of sale, lease or hire) or services and the goods or services are:
- worth more than $40,000 and are of a kind ordinarily acquired for domestic, household or personal use;
- worth less than $40,000, regardless of the purpose for which they are acquired; or
- commercial road vehicles or trailers.
The consumer guarantees impose obligations on the supply of goods and services. Some of these guarantees are that the goods are safe, free from defects, fit for purpose and match any sample or demonstration model and that services are provided with due care and skill, fit for any specified purpose and provided within a reasonable time.
There are some exceptions to the consumer guarantees, such as for some goods bought at auction or bought for the purpose of on-selling and contracts for insurance or financial services.
Limit liability appropriately
A term of a contract which excludes, restricts or modifies the consumer guarantees is void, meaning that it will be treated as if it was never a part of the contract. For example, any clause which attempts to limit liability for the consumer guarantees more than permitted under the ACL will have no effect.
However, you can limit liability to an extent where goods or services are not of a kind ordinarily acquired for personal, domestic or household purposes. In these circumstances, you may limit liability in respect of goods to replacing or repairing the goods or reimbursing the customer for the cost of having a third party replace or repair the goods. For services, liability can be limited to re-supplying the services or reimbursing the customer for the cost of having a third party re-supply the services.
However even where liability for consumer guarantees may be limited, you cannot rely on a limitation of liability clause if it is not ‘fair and reasonable’ in the circumstances. A court determines whether it is ‘fair and reasonable’ by looking at factors such as:
- the strength of the bargaining positions of the parties;
- whether the buyer received an inducement to agree to the term;
- whether the buyer had an opportunity to acquire the goods or services or equivalent goods or services from any source of supply under a contract that did not include that term; and
- whether the buyer knew about the term.
Draft fair contracts
Although there may be a temptation to draft consumer contracts which favour your business as much as possible, any ‘standard form’ consumer contracts used by your business should be drafted fairly.
The ACL prohibits standard form consumer contracts with individuals including ‘unfair' terms. Factors which indicate that a term of your contract may be unfair are if the term:
- results in a significant imbalance between the parties’ rights and obligations;
- is not reasonably necessary to protect your business’ legitimate interests;
- would cause detriment (financial or non-financial) to the customer if you enforced it; or
- is not transparent.
Legislation is currently before the Federal Parliament to extend these unfair contract provisions to standard form contracts with small businesses. If passed, the unfair contract provisions will apply to contracts where one party has fewer than 20 employees and the contract price is less than a specified threshold.
- Consumer guarantees can apply to contracts with business customers
- Contract terms which are inconsistent with the ACL will be void
- Review your supply contracts to ensure they comply with the ACL and make sure they will continue to be compliant if the unfair contract provisions are extended to small businesses