Article series

Businesses that manage transport and logistics activities, whether as their core service or to support their primary operations, face a complex web of compliance obligations in Australia. These include requirements around heavy vehicle transport, dangerous goods, chain of responsibility, and work health and safety.

With so many compliance obligations, these businesses may be forgiven for overlooking the impact of the Australian Consumer Law (ACL) which can in fact significantly impact contracts and business dealings – both by imposing mandatory obligations on suppliers and potentially offering valuable statutory protections and remedies to acquirers.

To shed light on these often overlooked obligations and rights, we have launched our new article series titled ‘Offloading the ACL’. Across the series, we’ll explore key ACL provisions through a transport and logistics lens, highlighting what businesses need to know, and where suppliers to the industry fit in from a regulatory perspective.

In this first article, we consider the ACL in relation to the sale and hire of semi-trailers using a common practical scenario involving a retailer with its own delivery trailer fleet and a financier leasing trailers to that retailer. Our focus in this article is on how the consumer guarantees apply to such arrangements, and what businesses can do to manage their risk/capitalise on their rights under the ACL.

What are consumer guarantees?

Under the ACL, consumer guarantees are statutory rights provided to consumers that ensure goods and services meet minimum standards. These guarantees apply regardless of contract terms and provide remedies such as repair, replacement, or refund if breached. For goods, the guarantees include that they must:

1. be of acceptable quality;
2. be fit for purpose;
3. match their description;
4. correspond with any sample or demonstration;
5. comply with express warranties; and
6. provide clear title and undisturbed possession (with exceptions for leased goods).

Businesses buying and selling or hiring trailers might assume that their B2B arrangements fall outside the scope of the consumer guarantee regime because the high value or commercial nature of the trailers mean that they aren’t dealing with “consumers” in a traditional ACL sense. This assumption is often misguided and can result in significant exposure and potential cost for suppliers of trailers. It can also leave businesses that acquire trailers unaware of the important protections available to them under the ACL – protections that can provide powerful remedies if the supply of trailers fails to meet the consumer guarantees.

Who is a “consumer”?

The ACL defines a consumer as someone who acquires goods or services:

1. priced under $100,000; or
2. that are ordinarily acquired for personal, domestic, or household use (regardless of price); or
3. (for goods only) that are vehicles or trailers acquired principally to transport goods on public roads.

Consumer guarantees do not apply, however, if goods are acquired for resupply or to be used up or transformed in the course of manufacture or production.

It is important to keep in mind that for the purposes of determining whether someone is an ACL ‘consumer’, the $100,000 price threshold refers to the price for the goods or services in isolation – in other words, we are only looking at the price for the goods or services which are allegedly defective, not the overall contract value or any other contractual metric (e.g. the value of a purchase order). This means that even if we are dealing with a multi-million dollar contract, a purchaser could still be a ‘consumer’ for ACL purposes if one of the goods procured is defective and the price of that good is under $100,000.

Importantly, in the case of trailers acquired principally to transport goods on public roads, there is no monetary threshold.

Let’s work through a practical scenario.

Practical scenario

You Bute Financing buys a fleet of semi-trailers from Superior Semis and leases them to Liquor Super Stores, a major liquor chain who intends to use the semi-trailers to deliver goods from its warehouse to each its retail stores. Each semi-trailer costs $260,000 over the lease term.

Question: Do consumer guarantees under the ACL apply to Liquor Super Stores?

Answer: Yes. The semi-trailers are trailers acquired principally to transport goods on public roads. 

What does this entitle Liquor Super Stores to do?

If there was a defect with a semi-trailer, Liquor Super Stores could take action against You Bute Financing, alleging a failure to comply with the consumer guarantees relating to acceptable quality. The ACL would permit Liquor Super Stores to claim a remedy for the failure (such as a replacement or refund), as well as compensation for any other reasonably foreseeable loss or damage arising from the consumer guarantee failure. Depending on the nature and extent of the relevant failure, this additional right to access compensation could create significant liability for You Bute Financing, essentially opening the flood gates to liability for losses traditionally referred to as ‘consequential’.

Does the position change because You Bute Financing is just a financier / lessor?

No, it is immaterial that You Bute Financing does not manufacture and/or sell (rather than lease) the semi-trailers. Under section 2 of the ACL, “supply” includes sale, exchange, lease, hire, or hire purchase. Leasing semi-trailers still brings You Bute within the category of an ACL ‘supplier’ that owes consumer guarantees to the consumers to whom it supplies.

So, the important follow up question is… what can suppliers like You Bute do (if anything) to manage their ACL exposure?

The answer can be found in section 64A of the ACL. 

Limiting liability under section 64A

Section 64A of the ACL permits ACL suppliers to limit their liability for breaches of the consumer guarantees regime to certain remedies, but only where the goods or services in question are not “of a kind ordinarily acquired for personal, domestic or household use”. This would cover goods that are priced at less than $100,000 or relevantly for Liquor Super Stores, vehicles or trailers acquired principally to transport goods on public roads (regardless of the price).

Section 64A allows liability to be limited to:

• Replacement of goods or supply of equivalent goods;
• Repair of goods;
• Payment of the cost of replacement or equivalent goods; or
• Payment of the cost of repairs.

This has the effect of reducing the potential exposure that can arise for an ACL supplier by excluding potential liability for those additional ‘consequential’ forms of loss or damage that may arise from a consumer guarantee failure – ie reasonably foreseeable loss or damage.

Won’t my general limitation of liability clauses do the trick?

No, probably not from an ACL liability perspective. The ACL states under section 64 that a contract term which has the effect of excluding, restricting or modifying the application of the consumer guarantee provisions is void. Section 64A provides for a limited exception to this general rule, but in order to rely on it, suppliers must include drafting in their contracts that corresponds with the specific limitation of liability permitted under section 64A (ie limiting liability for consumer guarantee failures to one or more of the specified remedies).

A generic limitation clause (eg a clause excluding liability for consequential loss generally or imposing a general cap on liability) will not be enough to clearly fall within the section 64A category and thus would most likely be found void to the extent it sought to exclude, restrict or modify a person’s consumer guarantee rights.

Key takeaways

1. Consumer guarantee obligations can apply in a much broader set of circumstances than businesses might imagine – extending, critically, to anyone who acquires vehicles and trailers primarily for transporting goods on public roads, regardless of value.
2. The potential exposure for ACL suppliers includes not just the provision of a remedy, but potentially also liability for ‘consequential’ loss or damage – ie reasonably foreseeable loss or damage arising out of the consumer guarantee failure.
3. ACL suppliers can in certain instances limit their liability for consumer guarantee failures, however this must be done to reflect the drafting of section 64A of the ACL. General limitation of liability clauses (e.g. broad exclusions of consequential loss or maximum caps) will not be sufficient to limit a supplier’s liability as the ACL deems void any term that excludes, modifies or restricts consumer guarantee rights.
4. Businesses (both suppliers and acquirers) should have their contracts reviewed to ensure they are protected as much as possible in the context of rights and obligations arising under the ACL.

Need help?

We have a dedicated contracting and consumer law team that can assist you with contract preparation and review and can provide you with tailored advice on your rights and obligations under the ACL as business operating in the transport and logistics space. Please contact us if you would like more information about the services we provide.

This article was written by Teresa Torcasio, Partner and Zoe Vise, Senior Associate.