Businesses often assume that they cannot avail themselves of the consumer guarantees under the Australian Consumer Law (ACL) either because they don’t consider themselves consumers or because their purchases exceed the monetary limits under the ACL.
Often businesses don’t realise that they are in fact consumers under the ACL and that the monetary thresholds may not apply to the goods or services they have purchased.
Let’s take the following scenario. Hotels Galore owns a chain of budget and luxury hotels. It enters into a contract with Tiles R Us to purchase a bulk supply of marble tiles totalling $500,000 for its hotels. Hotels Galore approved a sample colour of the tiles provided to it by Tiles R Us. The requested shade of tile was vital to Hotels Galore’s branding and image. After the tiles are laid by Tiles R Us, Hotels Galore discovers that the colour of the tiles is quite different to the sample. Tiles R Us concedes that the colour is different but refuses to replace the tiles, or compensate Hotels Galore, on the basis that its terms and conditions release it from any liability for any colours not matching those given in its samples.
Hotels Galore also buys vending machines for its budget hotels from We Vend. Each vending machine costs $15,000. Three of the vending machines keep malfunctioning. Hotels Galore has sought a refund on those three machines. We Vend has a limitation of liability clause which excludes all liability in respect of the machines and is refusing to refund Hotels Galore’s payment. It keeps sending out repairers and the vending machines just keep breaking down.
For Hotels Galore to be able to make claim against the suppliers for breaches of the consumer guarantees it would need to establish two key elements.
- Do one or more of the consumer guarantees apply to the goods in question and have those guarantees been breached?
- Is Hotels Galore a consumer?
Let’s consider these elements in turn.
Does a consumer guarantee apply and has it been breached?
Under the ACL1, goods come with consumer guarantees that they must:2
- Be of acceptable quality;
- Be fit for purpose;
- Comply with their description;
- Correspond with the sample or demonstration (if given);
- Comply with any express warranties; and
- Have clear title; be free from securities and come with undisturbed possession.
For the sake of completeness (although not relevant to our case study), services come with consumer guarantees that they must:3
- Be provided with due care and skill;
- Be fit for purpose; and
- Be delivered within a reasonable time.
In our case scenario, the vending machines fall short of the consumer guarantee as to acceptable quality (and potentially some of the other consumer guarantees) and the tiles do not correspond with the sample given by Tiles R Us (and again potentially breach some of the other consumer guarantees). It is therefore likely that the consumer guarantees have been breached in respect of both the tiles and the vending machines. However, the consumer guarantees only apply to goods which Hotels Galore acquires as a consumer.
Is Hotels Galore a consumer?
For Hotels Galore to be a consumer in relation to a transaction, the goods purchased by Hotels Galore must fall within one of the following three categories:
- (Category 1) be priced $40,000 or less;
- (Category 2) be of a kind ordinarily acquired for personal, domestic or household use; or
- (Category 3) consist of a vehicle or trailer acquired for use principally in the transport of goods on public roads.
Consumer guarantees will not apply if the goods are purchased by Hotels Galore for the purposes of resupply or used up or transformed in the course of production or manufacture.
In the case of the vending machines, each machine would fall within Category 1 and Hotels Galore would be considered a consumer in respect of those purchases. This is the case even though the machines collectively exceed the $40,000 threshold.
What about the tiles? The supply of tiles exceeds $40,000 in price, but could it fall within Category 2? Are the tiles goods that are of a kind ordinarily acquired for personal, domestic or household use?
This will require some further analysis into what the words in Category 2 actually mean.
When are goods of a kind ordinarily acquired for personal, domestic or household use or consumption?
This question should not be misunderstood to be inquiring about whether the goods have been acquired by people for their household, personal or domestic purposes. As the cases below show, goods that have been acquired by businesses purely for business purposes can also fall within this category if the goods in question are goods of the type that ordinarily would be acquired for personal, domestic or household use.
For example, in the Supreme Court of Queensland decision, Carpet Call v Chan,4 (Carpet Call case) the use of a heavy duty carpet in a nightclub was classified as ‘goods of a kind ordinarily acquired for personal, domestic or household use or consumption.’
The Court found in the Carpet Call case that when an item can be used in a domestic setting, it does not lose its domestic description when used commercially. Accordingly, the business in that case was protected by the consumer guarantees, as carpet (even industrial strength carpet) was seen as being goods of the kind ordinarily acquired for personal, domestic or household use.5
A similar approach was taken in Safi v Heartland Motors Pty Ltd6 where a Jeep was acquired with the intention to use it in the course of business. However, because the particular model of Jeep was commonly used in a personal capacity, it was seen as being of a kind ordinarily acquired for personal use.
In the Federal Court of Australia decision, Bunnings Group Ltd v Laminex Group Ltd7, the Court gave some helpful hints on determining whether goods fall within Category 2. In that case the Court had to determine whether reflective foil insulation products (foil laminates) used in the construction of buildings were goods of a kind ordinarily acquired for personal, domestic or household use (Category 2).
The Court identified four principles to determine whether the goods satisfied the Category 2 test:
- The phrase ‘goods of a kind ordinarily acquired for personal, domestic or household use or consumption’, should be given a broad but uniform meaning;8
- The word ‘ordinarily’ means ‘commonly’ or ‘regularly’, not ‘principally’, ‘exclusively’ or ‘predominantly’;9
- Rather than looking at the category of goods and asking about how that category of goods is ordinarily used, you should look at the goods themselves and ask how the goods in question are ordinarily used;10 and
- The classification of the essential character of the goods is relevant, but not a determinative consideration.11
An example was given by the court to illustrate the 3rd test (citing Lindgren J in the case of Clean Investments Pty Ltd v Commissioner of Taxation (2001) FCA 80):
“an architect’s stool, an office chair and a kitchen stool or chair may be described as “stools” or “chairs” and their purpose as being “to provide seating”. Yet it would be wrong to conclude that the architect’s stool or the office chair is of a kind ordinarily used for household purposes for no other reason than that, like the kitchen chair, it is ordinarily used for the purpose of providing seating”
In Bunnings, the Court stated that one should pose the question as follows – Are foil laminates goods ordinarily acquired for personal domestic or household use or consumption?12
In the Court’s view, the goods were commonly used commercially and marketed as products for commercial buildings. However, the products were also suitable for residential buildings.13
The Court concluded that products were not principally, exclusively or predominantly used in one way or another. As such, they could be said to be commonly used for residential use and therefore were held to be a kind ordinarily acquired for personal, domestic or household use.
In our case scenario, Hotels Galore would likely be able to establish it is a consumer pursuant to the Category 2 test.
What about the exclusion clause?
Under the ACL, Tiles R Us (the supplier of the tiles) cannot contract out of the consumer guarantees for goods that fall within Category 2 and therefore its exclusion clause would not apply. We Vend on the other hand can contractually limit its liability under section 64A of the ACL to the repair or replacement of the vending machine because the goods fall under Category 1. Unfortunately for We Vend, it has used a broad exclusion clause, rather than applying the limitations permitted in Section 64A and therefore its exclusion clause would not be enforceable in defending a consumer guarantee claim by Hotels Galore.
Suppliers should consider whether their goods or services could fall within Category 2 (i.e. goods of a kind ordinarily acquired for personal, domestic or household use or consumption) and assess this risk accordingly. If a supplier supplies Category 2 goods or services and its contract contains broad exclusion clauses, these may fall foul of the ACL, if they are not made subject to any non-excludable rights under the ACL.14
Suppliers that supply goods or services falling within Category 1 (i.e. goods priced at less than $40,000 that are not of a kind ordinarily acquired for personal, domestic or household use or consumption) should have appropriate limitation of lability clauses to take advantage of the permissible restrictions under section 64A of the ACL, otherwise they may lose their rights to limit their liability for breaches of the consumer guarantees applicable to goods and services falling within this category.
Business customers should not assume that the ACL does not apply to them and instead consider whether the goods or services acquired by them fall within any of the categories discussed above.
This article has examined the ACL position in the context of examples relating to goods. A similar regime applies to services and suppliers and customers will need to consider their rights and obligations in relation to services in a similar way in connection with consumer guarantees applicable to services.
This article was written by Teresa Torcasio, Partner, Marian Ngo, Senior Associate and Courtney Donelly, Law Graduate.
P: +61 3 8644 3623
1 Schedule 2 of the Competition and Consumer Act 2010 (Cth).
2 Pt 3-2, Div 1, Subdiv A of the Australian Consumer Law.
4Carpet Call Pty Ltd v Chan (1987) ATPR 46 -065 at 53.
6Safi v Heartland Motors Pty Ltd (2016) NSWCATAP 80.
7Bunnings Group Ltd v Laminex Group Ltd (2006) 230 ALR 269.
8 Ibid [at 76]
9 Ibid [at 81].
10 Ibid [at 82].
11 Ibid [at 83].
12 Ibid [at 82].
13Bunnings Group Ltd v Laminex Group Ltd (2006) 230 ALR 269 [at 111].
14 Section 29(m) of the Australian Consumer Law.