Australia: Three tips to prevent the Australian Consumer Law rendering your supply contract terms unenforceable

With a name like 'Australian Consumer Law', you could be forgiven for thinking the ACL applies only to supplies of 'consumer goods' to individuals. However, the ACL can also impact your business-to-business contracts.

If you are in the business of supplying goods or services to other businesses, it's important to know if the ACL applies to the supplies you make. Otherwise, you might find some of your contract terms are void and unenforceable.

Our three quick tips will help you assess your compliance.

TIP 1: CHECK IF SUPPLIES YOU MAKE ARE SUBJECT TO THE ACL GUARANTEES

A range of statutory guarantees under the Australian Consumer Law can apply to the supply of business goods or services.

Generally, the ACL guarantees will apply to the supply of business goods or services where the price paid or payable does not exceed $40,000. This $40,000 threshold is a key point to remember.

In addition, while it may be uncommon, if the goods or services that you supply exceed $40,000, the ACL guarantees will still apply if those goods are of a kind ordinarily acquired for personal, domestic or household use or consumption (non-business purposes), even if your customer is actually acquiring them for business purposes.

In short, if you supply goods to a business customer for $40,000 or less or they are of a kind ordinarily acquired for non-business purposes, the ACL 'goods' guarantees will apply. An exception to this is where your customer is acquiring the goods for the purpose of resupply or consuming or transforming the goods in manufacturing processes or in the repair or treatment of other goods.

Similarly, if you supply services, such as consulting services, to a customer for $40,000 or less or they are services of a kind ordinarily acquired for non-business purposes, the supply of those services will also be subject to the ACL 'service' guarantees.

But what about multiple sales to the same customer that exceed the $40,000 threshold? This won't necessarily get you off the hook if each transaction is less than $40,000 or if the goods or services are of a kind ordinarily acquired for non-business purposes.

The ACL guarantees impose all sorts of obligations on the supply of goods (including as to defects, appearance and finish, safety, durability, matching sample or demonstration model and fitness for purpose) and on the supply of services (including due care and skill, timeliness and fitness of purpose).

If the ACL guarantees apply, you cannot exclude or 'contract out of' them. Any term in your supply contracts that attempts to do so is void and not enforceable.

A common example is supply contract terms that exclude 'warranties' with respect to the goods or services supplied. Such terms are void if they are inconsistent with the guarantees imposed by the ACL.

TIP 2: KNOW HOW TO SAFELY LIMIT YOUR LIABILITY

It is tempting to heavily limit or exclude liability in supply contracts, but doing so might be a mistake.

Where the ACL applies, a limitation of liability clause that is not drafted on terms permitted by the ACL is not enforceable. This could result in serious consequences because liability under your supply contract may then be uncapped.

Fortunately, the ACL permits a supplier of business goods or services to limit its liability in particular ways. However, you must understand when a permitted limitation of liability is appropriate and reasonable to use. The right to limit liability does not always apply.

TIP 3: KEEP AN EYE OUT FOR UNFAIR CONTRACT TERMS

Legislation to prohibit the use of unfair contract terms is on the rise.

Prohibitions on unfair contract terms were initially introduced under the ACL but limited to contracts with individuals.

Now the Commonwealth government has proposed legislation to extend the current unfair contract terms provisions to 'small business contracts'.

If passed in their current form, supply contracts where at least one party has fewer than 20 employees, and the upfront price payable does not exceed certain monetary thresholds, may become subject to the unfair contract terms regime in the ACL.

The practical consequence of this is that each and every term of these supply contracts would need to be reviewed to assess the risk of them being rendered void as unfair contract terms.

Corrs will be providing regular updates on the development of these proposed new laws.

WRAP-UP

• The ACL can apply to supplies you make to your business customers.
• When it applies, the ACL will render terms that are inconsistent with its provisions void and unenforceable.
• Prohibitions against the use of unfair contract terms are on the rise.
• Review your supply contracts to determine compliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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