The Federal Government has recently passed a legislative change to the Australian Consumer Law, which will broaden the definition of a ‘consumer’. Paul Kirton and Greta Walters examine the potential implications for your business.

The recent change to the Australian Consumer Law (ACL) directly impacts manufacturers and sellers of goods that are not generally used for domestic or household purposes. A buyer of an $80,000 industrial motor may now be a “consumer”.

Currently, a person or business is considered a “consumer” for the purposes of the ACL if they purchase goods or services for their own use that:

  • Are of a kind ordinarily acquired for domestic, household or personal use or consumption; OR
  • Cost up to $40,000, irrespective of their kind or purpose.

A person who on-sells goods or uses them up in the course of manufacturing other goods is not a consumer. But their customer may be a consumer for those on-sold goods or new goods.

This definition has been amended by the Treasury Laws Amendment (Acquisition as Consumer – Financial Thresholds) Regulations 2020. From July 2021, the monetary threshold will increase from $40,000 to $100,000. This will, undoubtedly, shake up the traditional ‘business to business’ (B2B) liability landscape for high-value industrial and commercial goods.

For example, the buyer of an industrial laser or robot, for use in their factory, will be a consumer.  The buyer will gain all the usual consumer law rights and consumer guarantees, if that laser or robot costs less than $100,000 and is defective or does not perform as promised or required.

The role of consumer guarantees

Under the ACL, businesses making or supplying goods or services to consumers are bound by consumer guarantees that are imposed by the ACL. These are a set of automatic guarantees that apply to goods and services purchased by consumers, regardless of any voluntary or extended warranty offered. The guarantees require goods to be of acceptable quality (safe, durable, without faults), fit for disclosed purpose, match any description or samples provided, meet promises of performance or quality and have spare parts available.

The rights under the ACL cannot be waived or contracted out by limitation of liability clauses in terms and conditions of sale. Failure to comply with the ACL’s consumer guarantee provisions may result in a maximum infringement notice of $13,320 (or $133,200 for listed companies), or prosecution at court with penalties ranging from $10m.

Impact on businesses who make or sell goods

Businesses that manufacture or supply (by selling, leasing or hiring) goods or services that cost up to $100,000 will become subject to the strict provisions of the ACL relating to refunds, warranties and liability for damages.

Depending on whether the problem with the goods is major or minor, the seller must repair, replace or refund a good or service if it fails to meet a consumer guarantee. The seller is also liable for any reasonably foreseeable loss or damage suffered by the consumer arising from the defect.

The manufacturer of goods with a major or minor defect can be liable directly to the consumer (for compensation), or must indemnify the seller if the seller is required to provide a remedy or payment to the consumer.

Impact on businesses who buy goods

If your business is a buyer of commercial or industrial-type equipment in the $40,000 to $100,000 range, you will now benefit from their newfound protection under the consumer guarantees.  While you may not have realised you already had these rights for industrial goods below $40,000.

This is a significant win for businesses who are ‘purchasers’ of such goods or services. Any claims against suppliers or manufacturers of these goods are easier to prosecute, and claims for damages flowing from the defect (eg. production line shutdown) may well exist.

As the ACL provides a solid foundation of non-excludable consumer protection rights, this also simplifies the always contentious negotiation of guarantee and warranty provisions.

Voluntary warranty requirements

Manufacturers or sellers who offer their own warranties against defects are required to comply with the strict provisions of the ACL. For example, warranty documents must be presented in a certain way and include mandated statements and specific information that is easily understood by consumers.

Businesses who will be newly subject to the ACL’s obligations should update their warranty statements as soon as possible.  Those which are found to have a non-complying warranty face a fine of up to $50,000.

Get on top of your obligations

Businesses that haven’t traditionally made or supplied ‘consumers’ should review their product ranges, business practices and trading documents to ensure they are meeting their ACL obligations. Come 1 July 2021, the ACL will invalidate any businesses’ contractual terms which are inconsistent with their consumer protections requirements.

Given the enhanced liability that comes with making or selling these higher value goods, businesses should also review their product insurance policies, to ensure they cover “consumer” type claims.

Businesses who will be regarded as consumers should not forget that they can take advantage of this legislative change if the equipment they buy after 21 July 2021 is defective or does not perform as expected.

Paul Kirton is a principal at the commercial law firm Macpherson Kelley. Greta Walters is a lawyer at Macpherson Kelley.