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Do consumer guarantees apply to business-to-business dealings?

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It is not always an easy task trying to figure out to whom the Australian Consumer Law (“ACL”) consumer guarantees apply to, especially in terms of business-to-business commercial dealings.

It is sometimes unclear whether the cost of a good or service will enliven the applicability of the consumer guarantees

Typically, if the cost was under $40k, the purchaser is regarded as a consumer. It won’t matter who the recipient is, business or individual, provided the purchase was less than this amount.

What problems can arise?

When a consumer pays an upfront and one-off payment, it is easy to work out what has been paid. However, when a consumer pays ongoing payments to a business with no fixed term, it is more difficult to work out what is paid or ‘payable’, and whether or not the consumer guarantees will apply.

To give you a better idea of when the amount paid or ‘payable’ might be difficult to work out, the following examples are based on a company that provides IT support services:

  1. Imagine the consumer runs a software company, and approaches the IT support business to make a deal. Instead of paying for the IT support service, the consumer offers use of their software as payment. In this scenario, how much would be ‘payable’ by the consumer?
  2. Or, alternatively, imagine that the IT support business receives payment on a monthly basis to subscribers of the service. If this is the case, how much is ‘payable’?

How to work out the amounts ‘payable

The ACL has put in place a system that can assist in determining the amount that is payable when this is not very clear from the outset. Follow the following system:

  1. How might the supplier, in an alternative situation, have priced the service? Is this ascertainable?
  2. If not, what are the competitors charging? If the most affordable of all the competitors would not charge more than $40k for a similar service, then the consumer guarantees apply;
  3. And, if the first two steps fail, try to work out the cost of the service.
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Is this different when you subscribe to a service?

This can be a grey area when trying to calculate the value of the service provided. While it is possible to calculate the total value of the service by looking at the regular payments and multiplying this by the term, this doesn’t take into account ongoing subscriptions (i.e. those that automatically renew or are not fixed).

Unfortunately, there is not a huge deal of legislative/case law guidance on this uncertain area of law.

It may be the case that working out what has already been paid is the best way of assessing whether or not the consumer guarantees will apply. In other words, until the threshold has been reached, the consumer guarantees may apply.

When you are unsure about whether consumer guarantees will apply to your provision of services, it is better practice to assume the answer is yes. The onus of proof will fall on you, if you’re the provider of a service, to show that the consumer was not a consumer. Instead of taking this risk, assume the customer is a consumer under the ACL and maintain compliance with these guarantees.

Conclusion

Although the consumer guarantees do apply to business-to-business transaction, it is sometimes not an easy task determining whether these transactions come within the $40k threshold. While the ACL is helpful in certain respects, it is largely silent on other, such as subscription payments. Better business practice would be to assume they apply and provide the services accordingly.

To speak with a business lawyer, contact LegalVision on 1300 544 755.

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Lachlan McKnight

Lachlan McKnight

CEO

Lachlan is the CEO of LegalVision. He co-founded LegalVision in 2012 with the goal of providing high quality, cost effective legal services at scale to both SMEs and large corporates.

Qualifications: Lachlan has an MBA from INSEAD and is admitted to the Supreme Court of England and Wales and the Supreme Court of New South Wales.

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About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

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