You’ve changed… changes to the definition of ‘consumer’ under the Australian Consumer Law have come into effect and your business may now be liable for consumer guarantees, even to business customers

At the end of last year, the Treasury Laws Amendment (Acquisitions as Consumer – Financial Thresholds) Regulations 2020 (Cth) (Regulations) were introduced, which had the effect of expanding the definition of ‘consumer’ under the Australian Consumer Law (ACL)¹ from 1 July 2021.

With these Regulations now firmly in place, many businesses will need to consider (some for the first time) whether their customers are ‘consumers’ under the ACL and if so, how to address this additional exposure in their commercial contracts.

What was the previous position?

The previous definition of ‘consumer’ under the ACL was any of the following:²

1. Category 1: A person who acquires goods or services priced at $40,000 or less;
2. Category 2: A person who acquires goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption; and
3. Category 3: A person who acquires a vehicle or trailer for use principally in the transport of goods on public roads.

However, despite the above, a person was not considered a consumer where they acquired goods for the purposes of re-supply or to transform the goods in the course of production or manufacture or in the course of repairing or treating other goods or fixtures on land.

What’s changed?

The Regulations have raised the price cap for Category 1 consumers to $100,000 or less, with the remainder of the definition unchanged.³

What does this mean?

The result of this change is that many more recipients of goods and services will be considered ‘consumers’ for the purposes of the ACL, meaning that many more providers of goods and services will owe those recipients consumer guarantees.

The ACL provides for the following consumer guarantees where a supplier supplies goods or services to a consumer:

• Goods – will be of acceptable quality, will be fit for purpose, will comply with their description, will correspond with any sample or demonstration (if provided), will comply with any express warranties, will have clear title, will be free from securities and will come with undisturbed possession;⁴  and
• Services – will be provided with due care and skill, will be fit for purpose and will be delivered within the time stated (or if there is no time stated, within a reasonable time).⁵

If a person acquires goods or services as a ‘consumer’, and the supplier of those goods or services breaches any such consumer guarantee, the consumer has a right under the ACL to receive a remedy, which can include a refund, repair, replacement and compensation for damage and loss (including in some cases, consequential loss).

What can I do about it?

Businesses cannot ‘contract out’ of consumer guarantees, as section 64 of the ACL voids any part of a contract which purports to exclude, restrict or modify the application of these provisions.

However, businesses are entitled to limit their liability for a breach of consumer guarantees so long as they do so in accordance with section 64A. This can provide businesses with some control around the remedies they will provide to consumers and can assist in safeguarding against any liability for a consumer’s consequential loss.

So I can limit my liability?

Yes. Where section 64A applies, a business can limit its liability for a breach of consumer guarantees as follows:

• Goods – liability is limited to the cost of replacing the goods or supplying equivalent goods, the repair of the goods, the payment of the cost of replacing the goods or acquiring equivalent goods, or the payment of the cost of having the goods repaired;⁶ and
• Services – liability is limited to the cost of supplying the services again or paying to have the services supplied again.⁷

(Permitted Remedies) 

However, a business cannot rely on section 64A to limit its liability to the Permitted Remedies if the business is supplying goods or services that are of a kind ordinarily acquired for personal, domestic or household use. In those instances, even if the goods or services are priced at less than $100,000, the Permitted Remedies are not allowed.

What happens if I don’t limit my liability?

As alluded to above, a business that fails to properly limit its liability for a breach of consumer guarantees may end up being liable for a consumer’s consequential loss under the ACL. Under section 259(4) of the ACL, a consumer may take action against a supplier to recover damages for any loss or damage suffered as a result of a failure to comply with a consumer guarantee (so long as it was reasonably foreseeable that the consumer would suffer this loss or damage as a result of the failure).

This broad drafting essentially means that a supplier could be liable for all foreseeable incidental costs that a consumer suffers as a result of the supplier’s failure to comply with consumer guarantees, such as replacement goods or services for the period that the supplier’s goods or services were defective or faulty.

For more information on this point, particularly with respect to business customers, see our previous article here: https://hwlebsworth.com.au/you-may-still-be-liable-for-consequential-loss-in-your-b2b-contract-heres-why/

How we can help

We have a dedicated consumer law team that can advise you on whether the customers acquiring your goods or services are considered ‘consumers’ under the ACL, and if so, can review your commercial contracts to ensure that your interests are adequately protected. We can ensure that your limitation of liability clauses are properly drafted to avoid exposure to any liability that could have been avoided. If you would like more information about the services we provide please contact us.

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

¹Competition and Consumer Act 2010 (Cth), Sch 2 (‘Australian Consumer Law’ or ‘ACL’).
²ACL, s3 (prior to 1 July 2021).
³ACL, s3 (post 1 July 2021).
⁴ACL, ss51 – 59.
⁵ACL, ss60 – 62.
⁶ACL, s64A.
⁷ACL, s64A.