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The Australian Consumer Law (ACL) covers what certainties a consumer of goods and services can rely on when they make a purchase. For the ACL, a consumer is a person or business that purchases, hires or leases a product or service that is valued under $100,000. Likewise, a person is also considered a consumer if they purchase a product or service, valued at over $100,000 for personal or household use. Prior to July 2021, the definition of consumer was narrower.
Historically, it only applied to purchases under $40,000 (or over $40,000 if for personal or household use). Notably, a consumer can be an individual person or business. As such, this change will likely result in more business-to-business (B2B) transactions, will be covered by the consumer guarantee provisions. There are two main areas where the change in the definition of ‘consumer’ is likely to impact your business. These are in relation to consumer guarantees and express warranties. This article will discuss the changes to the fair trading legislation and what it means for your B2B transactions.
What is a Consumer Guarantee?
A consumer guarantee is an assurance that when you buy a good or service, it will work and do what you requested. It assures consumers of their rights when purchasing a good or service. When considering the guarantees in detail, it is important to distinguish between goods and services.
What Are Goods?
The ACL contains the following guarantees that your business is required to give to consumers who purchase your goods:
- the seller has the right to sell the goods, meaning they can pass clear title in the goods to the consumer;
- your customer will have undisturbed possession of the goods;
- the goods are free from any undisclosed security, for example, you, the seller, have not used the goods sold as security for a loan;
- the goods are of acceptable quality;
- the goods are reasonably fit for the purpose that you told your B2B customer they would be fit for;
- if your goods are advertised or come with a particular description, the goods must comply with that description;
- the goods match a model or a sample that your purchaser requested;
- that it is possible to secure spare parts and obtain repairs for a reasonable period after purchase, unless your business advised the consumer otherwise; and
- your supplier or manufacturer can meet any additional promises made about the goods, such as promises concerning performance, quality, or condition.
Decisions concerning whether a good is of acceptable quality will take account of what a person can expect from goods of that type and cost.
What Are Services?
The ACL contains guarantees that your business is required to give to consumers of your services:
- the services will be provided with due care and skill;
- the services are fit for a particular purpose or desired result; and
- you provide the service within a reasonable time if time is not otherwise specified or determined.
As services can often come with a service contract, your business could potentially exclude liability for the service. However, the guarantees in the ACL exist independently of contract law. ACL guarantees cannot be restricted, limited, excluded or modified in a service contract.
Your business must provide and honour these guarantees to consumers of goods and services automatically. If your business gives consumers any other warranty, those warranties do not affect the guarantees accorded in the ACL.
If your business does not fulfil any of the guarantees, your B2B consumers have a right to:
- a repair, replacement or refund;
- cancel the service; or
- compensation for damages and loss.
What is a Warranty Against Defects?
If you supply goods and services, you may provide a warranty against defects. This means that if your goods or services are defective, you will then:
- repair or replace the goods;
- resupply or fix a problem with the services; or
- provide compensation to your client.
If your business provides a warranty against defects to your consumers, then that warranty must comply with the ACL requirements. These apply if your business provides goods or services that cost less than $100,000. As such, you need to be aware of the following requirements for that warranty:
- it must be expressed in reasonably plain language, be legible and presented clearly; and
- the warranty must be presented to the consumer either when the supply of the goods or services takes place. For example, when you sell the goods or services or supply the goods and services to your consumers. These requirements apply even if your consumer bought the goods or services sometime earlier.
Specifically, a document which evidences a warranty against defects must state the following:
- what your business giving the warranty will do if the goods are defective (for example, repair the goods);
- what your consumer must do to be able to claim the warranty;
- the name, business address, telephone number and email address of your business which has given the warranty;
- how long the warranty lasts for; and
- whether your consumer is responsible for any expenses in relation to the warranty claim.
In addition, the following mandatory language must be included.
For the Supply of Goods:
Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure.
For the Supply of Services:
Our services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with the service, you are entitled:
- to cancel your service contract with us; and
- to a refund for the unused portion, or to compensation for its reduced value
You are also entitled to be compensated for any other reasonably foreseeable loss or damage.
If the failure does not amount to a major failure, you are entitled to have problems with the service rectified in a reasonable time and, if this is not done, to cancel your contract and obtain a refund for the unused portion of the contract.
For the Supply of Goods and Services:
Our goods and services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with the service, you are entitled:
- to cancel your service contract with us; and
- to a refund for the unused portion, or to compensation for its reduced value.
You are also entitled to choose a refund or replacement for major failures with goods. If a failure with the goods or a service does not amount to a major failure, you are entitled to have the failure rectified in a reasonable time. If this is not done you are entitled to a refund for the goods and to cancel the contract for the service and obtain a refund of any unused portion. You are also entitled to be compensated for any other reasonably foreseeable loss or damage from a failure in the goods or service.
This guide will help you to understand your corporate governance responsibilities, including the decision-making processes.
Key Takeaways
The change in the definition of ‘consumer’ means that more B2B transactions will be subject to the requirements of the ACL. Whether your business sells goods or provides services, it is likely that the definition change will affect your business.
If you would like to know more about how the changes to the Fair Trading legislation will affect your business specifically, contact our experienced consumer lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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