Defining consumer transactions and how you can reduce your liability
Businesses involved in business to business (B2B) transactions are often confused as to whether or not their transactions fall within the ambit of the Australian Consumer Law (ACL) and if so, what that implies.
The purpose of this article is to provide clarity around what constitutes a consumer transaction and a timely reminder as to how a business might legitimately seek to limit its liability in relation to certain B2B transactions.
When are you a consumer?
The Competition and Consumer Act 2010 defines a person (whether an individual or an entity) as having acquired particular goods as a ‘consumer’ if, and only if:
- The amount payable for the goods or services did not exceed $40,000; or
- The goods or services were ordinarily acquired for personal, domestic or household use or consumption; or
- The goods consist of a vehicle or trailer acquired for use principally in the transport of goods on public roads.
When are you NOT a consumer?
The ACL carves out from the above definition, transactions that are B2B transactions by stating that a person doesn’t obtain particular goods as a ‘consumer’ where they are acquired:
- For the purpose of re-supply;
- For the purpose of using them up or transforming them in trade or commerce
- In the course of a process of production or manufacture; or
- In the course of repairing or treating other goods or fixtures on land.
This leaves businesses faced with the fact that B2B transactions that don’t fall within the above ‘carve out’ may still fall within the definition of a ‘consumer’ transaction.
Applicability of consumer guarantees
If the transaction is a ‘consumer’ transaction, and the goods are being acquired for personal domestic or household use (rather than for re-supply or transformation), the B2B purchaser will be entitled to rely on the consumer guarantees specified under the ACL. The supplier will be prevented from limiting its liability for breach of any of these consumer guarantees. Of particular importance, is that in the event of a failure of the goods supplied, where that failure can be characterised as a ‘major’ failure (in that the buyer wouldn’t have purchased the goods had it known of the defect), the supplier’s liability can extend to consequential loss.
On the other hand, if the B2B transaction is for the purchase of goods that aren’t being acquired for personal domestic or household use and are being acquired for re-supply or transformation, the supplier is entitled to limit its liability (subject always to an overriding test of fairness) to the cost of repair or replacement of the faulty goods, and in doing so, to exclude liability for consequential loss.
Any limitation of liability should be expressly stated in the contractual arrangement between the buyer and the seller – either in a supply agreement or in the supplier’s terms and conditions of trade.
What are the consumer guarantees?
Products must be of acceptable quality; that is:
- Safe, durable and have no faults;
- Appear acceptable; and
- Do all the things someone would normally expect them to do.
Products must also:
• Match descriptions made by the salesperson, (including on packaging and labels, promotions or advertising);
• Be fit for the purpose the consumer purchased the product for; and
• Offer spare parts and/or repair facilities available to the consumer for a reasonable time after purchase.
Services must be:
• Provided with care and skill or technical knowledge and in doing do, take all necessary steps to avoid damages or loss;
• Fit for the purpose or give the results that the business and consumer agreed upon; and
• Performed within a reasonable timeframe in the event there is no agreed end date.
If you are unsure if your transactions are considered “consumer transactions” or you require assistance in reducing your liability in commercial transactions, please contact our Commercial Advice experts:
Peter Stewart, Principal
Phone: +61 2 9895 9258