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
TIP 1: CHECK IF SUPPLIES YOU MAKE ARE SUBJECT TO THE ACL
A range of statutory guarantees under the Australian Consumer
Law can apply to the supply of business goods or
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
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
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
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.
The ACL can apply to supplies you make to your business
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
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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