When Are Goods or Services Acquired by a “Consumer”? When Do Guarantees Under the Australian Consumer Law Apply? Can Suppliers and Manufacturers Liability Be Limited?

The Australian Consumer Law (ACL)^[1] contains a number of guarantees (consumer guarantees) which apply to the supply of goods or services to a consumer. These are in Part 3-2, Division 1, Sections 51-68 of the ACL.

Consumer in the context of the ACL has a broader application than might be expected and suppliers need to be aware that business-to-business transactions can also be included.

The consumer guarantees cannot be excluded, restricted or modified by terms of a contract (Section 64).

Suppliers and acquirers of goods and services, and manufacturers of goods, may not realise that these non-excludable guarantees apply to a very wide range of supplies.

When is a supply made to a consumer?

The sections that contain the consumer guarantees apply where goods or services are supplied to a consumer. In some, but not all, cases, the supply must be made in trade or commerce.

Section 3(12) of the ACL provides that:

“…a reference to a supply of goods or services to a consumer is a reference to a supply of goods or services to a person who is taken to have acquired them as a consumer” (emphasis added).

Sections 3(1) and 3(3) specify when a person is “taken to have acquired” particular goods/services as a consumer.

Sections 3(1), for goods, and 3(3), for services, start:

“A person is taken to have acquired particular [goods/services] as a consumer if, and only if:…”

No ordinary concept of consumer/business-to-business

The opening words of subsections 3(1) and 3(3) mean, accordingly, that the conditions which follow dictate when goods or services are acquired “as a consumer” and when the consumer guarantees apply. There is no normal concept of a “consumer”. Goods or services can be taken to be acquired by a consumer, even if it is a business-to-business transaction and even if the acquirer of the goods or services is a large corporation.

There is no limitation in the concept of acquisition of goods by a consumer to a small business or any concept of a “consumer contract” or a “small business contract”. These are terms that are relevant in relation to the unfair contract terms provisions of the ACL in Part 2-3 (Sections 23-28A), but not the consumer guarantees in Part 3-2.

Requirements for acquisition by a consumer

For particular goods or services to be taken to be acquired by a consumer in subsections 3(1) and 3(3), one of the following must apply:

• the amount paid or payable must not exceed a threshold of $100,000.00;
• the goods/services are of a kind ordinarily acquired for personal, domestic or household use or consumption; or
• if goods, these are a vehicle or trailer acquired for use principally in the transport of goods on public roads.

Exceptions

There are some limited exceptions in Section 3(2) for goods acquired for:

• re-supply, or if gift cards, re-supply in trade or commerce; or
• the purpose of using them up or transforming them in trade or commerce in “a process of production or manufacture” or “repairing or treating other goods or fixtures on land”.

The exception for “re-supply” means that the benefit of the consumer guarantees is not available to a distributor, wholesaler or retailer of goods from the manufacturer or other party supplying the goods to the re-supplier. There may, however, be a right of indemnity against a manufacturer under Section 274 (see below).

Presumption that persons are consumers

Section 3(10) of the ACL provides that if it is alleged in any proceeding in relation to the ACL that a person was a consumer in relation to particular goods or services, then “it is presumed, unless the contrary is established, that the person was a consumer in relation to those goods or services”.

This imposes an onus, usually on suppliers of goods or services rather than an acquirer, to prove a relevant exception or the application of the relevant threshold amount so as to exclude the presumption.

Mixed supplies

Questions are frequently asked in relation to contracts for the sale or supply of goods or services which are made for one price or fee but relate to a number of goods or services, or both goods and services, as to whether the up-front single price determines the threshold amount for application of the consumer guarantees, or whether this must be broken down in some way for particular goods or services.

The answer is that the single or total price or fee is not determinative. Section 3(11) contains the concept of a mixed supply and reads:

“A purchase or other acquisition of goods or services is made by a mixed supply if the goods or services are purchased or acquired together with other property or services, or together with both other property and other services.”

Subsections 3(5), 3(6), 3(7) and 3(8) prescribe the way that the amount paid or payable for the goods or services is determined. 

These subsections draw a distinction between goods or services that are purchased and those that are acquired by a person other than by way of purchase. There is no guidance as to ways in which goods or services may be “acquired…other than by way of purchase”.

Amount paid for goods or services

If the supply of goods or services is not a mixed supply, or if a specified price is allocated to goods or services acquired in a mixed supply, the amount paid or payable is taken to be:

• the price paid or payable for the goods or services (Section 3(4)); or
• if goods or services are acquired other than by way of purchase, then the amount is taken to be the price at which the goods or services could have been purchased from the supplier, if these could have been so purchased (Section 3(6)).

Under subsection 3(5), the amount paid or payable for goods or services in a mixed supply will be:

• if the goods or services could have been purchased from the supplier other than by mixed supply – the price at which they could have been purchased (Section 3(5)(a));
• where the goods or services could not have been purchased other than in a mixed supply from the supplier, but could have been purchased from another supplier – the lowest price at which goods or services of that kind could reasonably have been purchased from another supplier (Section 3(5)(b)); or
• if goods or services could not have been purchased from any supplier except by mixed supply – the value of the goods or services.

Acquisitions other than by purchase

Where goods or services are not purchased but are acquired other than by way of purchase and could not have been purchased from the supplier or only in a mixed supply, the amount will be the lowest price at which goods or services of that kind could have reasonably been purchased from another supplier, if available from another supplier other than by mixed supply (Section 3(7)).

Where goods or services acquired other than by way of purchase could not have been purchased from any supplier other than by a mixed supply, the amount paid or payable is taken to be the value of the goods or services (Section 3(8)).

Issues and uncertainties

The rules for determining the amount paid or payable in subsections 3(4)–3(8) may be convoluted and confusing. However, it appears, in summary, that unless there is a separate price or consideration specified for the supply of particular goods or services, the amount will be taken to be:

• the amount the goods or services could have been purchased, other than in a mixed supply, from the supplier;
• the lowest price the goods or services could have been purchased from other suppliers; or
• if not available from any supplier, except in a mixed supply, the value of the goods or services.

There are obviously some potentially vague or uncertain concepts in these rules, particularly the circumstances in which goods or services may be acquired other than by way of purchase, the ascertainment of a “value” for goods, and the application of the rules to suppliers of services. It also appears that the quality of the goods available from another supplier is not taken into account, provided they are goods or services ‘of the kind’ supplied.

What are the consumer guarantees?

The consumer guarantees are not all onerous and reflect terms or warranties that may otherwise appear or be implied in contracts or otherwise by law. However, some may go beyond warranties that a supplier or manufacturer may otherwise be happy to provide.

A description of the consumer guarantees follows, but these descriptions are only brief, and it is necessary to look at the terms of each guarantee in the ACL to ascertain the full meaning and effect. The guarantees are divided into those that apply to goods (Subdivision A) and those that apply to services (Subdivision B).

Guarantees relating to the supply of goods

• Guarantee as to title (Section 51). A guarantee or warranty that a supplier has good title to goods, which will pass to a party acquiring the goods, is normal. There are exceptions relating to a supply of limited title, and also to supplies by way of hire or lease.
• Guarantee as to undisturbed possession (Section 52). It is also normal that if goods are supplied, the party acquiring them should have rights to undisturbed possession. Exceptions apply for disclosed encumbrances and for supplies of limited title, and confirmation that the guarantee only applies during the term of hire or lease.
• Guarantee as to undisclosed securities etc.(Section 53). A guarantee or warranty that goods are free from undisclosed securities is also to be expected. Exceptions apply for a floating charge (unless it becomes fixed and enforceable) and a guarantee for the supply of limited title that securities were disclosed. The section does not apply to a supply by hire or lease.
• Acceptable quality (Section 54). This guarantee only applies to supplies of goods in trade or commerce and not by auction. The guarantee of acceptable quality can go beyond warranties which a supplier may otherwise wish to provide. What is acceptable quality is described in subsections (2) and (3):

(2)       Goods are of acceptable quality if they are:

(a)        fit for all the purposes for which the goods of that kind are commonly supplied;
(b)        acceptable in appearance and finish;
(c)        free from defects;
(d)        safe; and
(e)        durable;
as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the matters in subsection (3).

(3)      The matters for the purposes of subsection (2) are:

(a)        the nature of the goods;
(b)        the price of the goods (if relevant);
(c)        any statements made about the goods on any packaging or label on the goods;
(d)        any representation made about the goods by the supplier or manufacturer of the goods; and
(e)        any other relevant circumstances relating to the supply of the goods.

This guarantee may be the guarantee that is of most concern to a supplier, and which the supplier may be most concerned about limiting, where possible (see below).

There are exceptions where defects are drawn to the attention of a consumer before supply, but even if the consumer examines goods before agreeing to the supply and examination ought reasonably to have revealed a defect, the goods will still fail to be of acceptable quality (Section 54(7)).

• Fitness for disclosed purpose (Section 55). There is a guarantee of fitness for a disclosed purpose, or for any purpose which a supplier represents the goods are reasonably fit for. This only applies where the supply is in trade or commerce and does not occur by way of auction. There is also an exception if it can be shown that the consumer did not rely on, or it was unreasonable to rely on, the skill or judgment of the supplier.
• Supply of goods by description (Section 56). As may be expected, there is a guarantee that goods supplied by description must correspond with the description. This only applies to supplies in trade or commerce and not by way of auction.
• Supply of goods by sample or demonstration model (Section 57). There is a guarantee that goods correspond with a sample or demonstration model in quality, state or condition. Where the supply is by sample, a consumer must have a reasonable opportunity to compare the goods with the sample. There is also a guarantee that the goods are free from any defect of acceptable quality not apparent on reasonable examination. This applies to supplies in trade or commerce and not by way of auction.
• Repairs and spare parts (Section 58). There is a guarantee that the manufacturer of goods “will take reasonable action to ensure” that facilities for repair of goods and parts for goods are “reasonably available for a reasonable period after the goods are supplied”. What is “reasonable” may not be certain.
  
  A manufacturer, however, can give written notice before a consumer agrees to a supply that facilities for repair, or parts for goods, will not be available, or not available after a specified period.
   
• Express warranties (Section 59). If a manufacturer gives an express warranty in relation to goods, there is a guarantee that the manufacturer will comply with the express warranty. Similarly, if a supplier gives an express warranty, there is a guarantee that the supplier will comply with the warranty. These guarantees apply to supplies in trade or commerce and not by way of auction.
  
  Section 102 of the ACL requires that any express warranty against defects must contain a notice in a form prescribed by the Regulations^[2]. Regulation 90 sets out the requirements, including that a warranty against defects must be in a document that is transparent and contains the details required by the Regulation and display mandatory text to the effect that guarantees under the ACL cannot be excluded.

Guarantees relating to the supply of services

• Due care and skill (Section 60). For supplies in trade or commerce, there is a guarantee that services will be rendered with due care and skill. 
• Fitness for a particular purpose (Section 61). Where a consumer, expressly or by implication, makes known to a supplier any particular purpose for which services are being acquired, there is a guarantee that the services, and any product resulting from the services, will be reasonably fit for that purpose.
  
  Where what is made known is a “result that the consumer wishes the services to achieve”, the guarantee is that the services “will be of such a nature, and quality, state or condition that they might reasonably be expected to achieve that result”.
  
  These guarantees only apply in trade or commerce and not if the circumstances show that the consumer did not rely on, or it was unreasonable to rely on, the skill or judgment of the supplier.
   
• Reasonable time for supply (Section 62). If a time for a supply of services is not fixed or cannot be determined by contract or agreement, there is a guarantee that the services will be supplied “within a reasonable time”.
• Exceptions to guarantees for services. Section 63 provides that these guarantees for services do not apply in relation to contracts for transportation or storage of goods for the purpose of a business, trade, profession or occupation or to a contract of insurance.

Importers are manufacturers

Section 7 of the ACL contains an expansive definition of “manufacturer”. This includes an importer of goods into Australia if the person is not the actual manufacturer and, at the time of importation, the manufacturer of the goods does not have a place of business in Australia.

The definition of “manufacturer” means that distributors of products from overseas manufacturers will be liable under the consumer guarantees that apply to a manufacturer (Sections 58 and 59) and other provisions of the ACL that apply to manufacturers.

Exclusion or limitation of guarantees

Guarantees may not be excluded (Section 64).

A term of a contract is void if it purports to exclude, restrict or modify the guarantees or rights conferred by the guarantees or liability for failure to comply with the guarantee.

Limitation of liability (Section 64A).

Importantly, however, for a supplier or manufacturer, it is possible for a contract to limit the liability of the supplier or manufacturer for goods or services (not ordinarily acquired for personal, domestic or household use or consumption) other than guarantees relating to title, possession and securities, to one or more of:

for goods:

• the replacement of the goods or supply of 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,

or for services:

• the supply of the services again; or
• the payment of the cost of having the services supplied again.

A limitation of liability, however, will not be effective if the party to whom the goods or services are supplied establishes that it is not fair or reasonable for the supplier to rely on the limitation (Sections 64A(3) and (4)). Regard is to be had to the circumstances, including the strength of bargaining positions and whether a buyer knew or ought to have known of the term of the contract imposing the limitation, and other matters. Also, in the case of a “major failure” to comply with a guarantee, consumers may have rights which supersede any attempt to limit liability, such as to reject goods or terminate the services (Sections 259(3) and 267(3)). 

The limitations of liability permitted by Section 64A seem to be at odds with Section 276, which provides that terms of a contract may not exclude, restrict or modify any of the provisions of Part 5-4, which provide for rights of action and damages against suppliers and manufacturers. However, to the extent that there may be a conflict, presumably, the provisions of Section 64A, inserted in the ACL after Section 276 will prevail to the extent of any inconsistency.

Suppliers liability for manufacturer

If a supplier is liable to a consumer for damages under Section 259(4) in circumstances where the manufacturer would be liable under Section 271 for failure to comply with the guarantee of acceptable quality under Section 54, the supplier will be entitled to an indemnity against the manufacturer. This indemnity may not be excluded by the term of a contract (Section 276).

However, under Section 276A, the liability of the manufacturer to the supplier may be limited to the lesser of:

• the cost of replacing goods;
• the cost of obtaining equivalent goods; or
• the cost of having goods repaired.

Consequential loss

If guarantees apply in relation to either a supply of goods or a supply of services, and there is a breach of the guarantee without an effective limitation of liability, this may expose a supplier to liability for consequential loss arising from the breach of the guarantee. Compensation for the consumer receiving the supply can go beyond direct costs or expenses and can include compensation for losses such as loss of profit, loss of time or loss of productivity. These claims can be very substantial, particularly if the recipient of the supply is engaged in business.

Section 259 provides that damages that a consumer may recover against a supplier for failure to comply with a guarantee include:

“…damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such failure.”

Similarly, damages for reasonably foreseeable loss or damage may be recovered against a manufacturer (Section 272(1)(b)). 

Terms for limitation of liability

Suppliers of goods and services, and manufacturers, would be well advised to consider very carefully whether terms and conditions for sale or supply of goods or services do adequately limit liability, to the extent permitted by Section 64A.

It may also be prudent for manufacturers, including those deemed to be manufacturers, to ensure that there is an appropriate limitation under Section 58 in relation to the availability of facilities for the repair of goods and spare parts.

DW Fox Tucker can assist with the review or drafting of terms and conditions and limitations of liability, where appropriate or possible.