This article is written by Jessica Waters and Carmen Gawthorpe
Suppliers of higher value goods and services will be subject to consumer laws from 1 July 2021; more businesses to benefit from increased protections.
From 1 July 2021, suppliers who provide goods or services valued between $40,000 to $100,000 to any person (including large businesses, and regardless of intended use) will now be subject to certain aspects of Australian Consumer Law (ACL), in particular the statutory consumer guarantees.
The changes mean more business-to-business transactions (B2B) (above the previous $40,000 cap) will now come within the scope of "consumer" purchases under the ACL. Small (and larger) businesses who acquire higher value goods such as hardware, equipment, high-value electronics and professional services are likely to be the main beneficiaries receiving protection under the ACL.
Equivalent changes apply to the ASIC Act, meaning a wider range of financial services will also be covered by key aspects of the consumer protection laws.
If you haven't already, suppliers should review their current offerings to see what might now be captured, and assess their terms, conditions and warranty policies (internal and public) to ensure they don't mislead consumers about their rights and remedies, and mitigate their exposure.
Refresher employee training and updated compliance programs should also be rolled out to ensure employees understand the consumer guarantees and do not inadvertently make misrepresentations to customers, to mitigate potential further exposure to claims and complaints from a wider range of customers.
We expect regulators to take an active approach to the enforcement, given that the proposed changes have been passed since July 2020. Businesses caught unaware are unlikely to be viewed favourably.
"Consumer" under the ACL
The ACL gives "consumers" certain protections and statutory rights against suppliers of goods and services. For example, suppliers provide automatic consumer guarantees (such as goods being of acceptable quality, fit for purpose, services provided with due care and skill) and must comply with rules around unsolicited consumer agreements, gift cards and lay-by sales agreements.
Prior to 1 July 2021, a consumer was a person or business who acquires goods or services:
- for $40,000 or less; or
- which are ordinarily acquired for personal, domestic or household use or consumption; or
- consisting of a vehicle or trailer acquired principally for the transport of goods on public roads.
A person or business is not a consumer where they acquire goods for the purpose of resupply or to use up or transform in the process of production or manufacture, or in the course of repairing or treating other goods or fixtures on land. This remains unchanged.
What's changing and why?
The monetary threshold to determine whether a purchaser is a "consumer" under the ACL (and ASIC Act) will increase from $40,000 to $100,000 from 1 July 2021, regardless of the intended use.
This means that goods and services between the value of $40,000 to $100,000 will be covered by consumer protection laws where they previously were not.
This change does not affect goods or services ordinary acquired for personal, domestic or household use or a vehicle or trailer acquired principally for the transport of goods on public roads.
The increased threshold has been anticipated since 2017 following the recommendations in the Australian Consumer Law Review by Consumer Affairs Australia and New Zealand.[1] In 2018, the Australian Government conducted a consultation,[2] passing legislation in July 2020 to reflect the threshold increase.[3]
The large increase in the price cap, unchanged since 1986, seeks to address concerns that the protections intended for "consumers" have eroded due to legislation failing to keep pace with inflation.
What does this mean for customers?
From 1 July 2021, more consumers and businesses will likely benefit from the protections provided in the ACL when making higher value purchases, including financial services. This is particularly relevant for buyers of hardware (such as water tanks, industrial air-conditioning), high-value equipment such as electronics, software or agricultural equipment, commercial vehicles (for uses other than transporting goods) and financial services such as business loans.
For these customers, it will be important to know the right and remedies available to you under the consumer guarantees and when to push back on suppliers who may not have appropriately updated their terms and conditions or trained their staff who could (inadvertently) mispresent your rights.
What does this mean for suppliers?
Many businesses that were previously not subject to key provisions of the ACL due to the $40,000 cap will find their transactions falling within the $100,000 cap, particularly B2B dealings.
A key part of the ACL includes the consumer guarantees which mandate suppliers must provide consumers with certain guarantees such as the goods are fit for purpose, of acceptable quality, comply with any express warranties and comply with their descriptions. Services must be fit for purpose, provided with due care and skill, and delivered within the stated, or a reasonable, time. If breached, the ACL provides an extensive range of remedies, which include entitlement to a repair, refund, replacement, and/or compensation, depending on the type and severity of the failure. Consumers can sue for damages (s236), which can extend to consequential loss. Courts may also order injunctions (s232), compensation (s237), and other orders as thought appropriate such as specific performance, or amending or voiding a contract or term (s243), and adverse publicity orders (s247).
Suppliers cannot contract out of these statutory guarantees. However, suppliers should consider how they can limit liability appropriately where the goods or services are not of a kind ordinarily acquired for person, domestic or household use. For example, suppliers may limit their liability for a breach of consumer guarantee to the repair or replacement of the goods, or the cost thereof (such as under s64A of the ACL) and avoid the risk of being liable for loss or damage to a potential claimant. If that limitation is not included, the more general limitations such as liability caps and consequential loss exclusions may not be effective to limit liability for breaches of statutory guarantees.
Other key provisions suppliers may be subject to include regulations focused on unsolicited consumer agreements, gift cards and lay-by sales agreements.
These changes were passed in July 2020, giving businesses a year to prepare before they took effect, so regulators will expect businesses to have already considered the value of their offerings, their trading terms, training of staff and any other implications from the monetary threshold increase.
From 1 July 2021, we expect there will start to be an increase in claims against suppliers and manufacturers and that the ACCC will take an active approach to enforcement with little tolerance for businesses caught unaware.
What should suppliers do?
If your business has not done so already, it is important to consider the impact of these changes to the ACL. This includes understanding your business's obligations from a compliance perspective and mitigating any additional risks that arise from being subject to the ACL. We recommend:
- reviewing all products and services which may now be covered by the ACL or ASIC Act;
- updating relevant contracts, warranty policies and terms and conditions to ensure compliance and manage your liability risks where possible;
- reviewing packaging and marketing materials / product descriptions;
- considering whether any limitations on liability may trigger additional disclosure obligations to consumers under s47A of the Fair Trading Act (NSW), and ensuring they are sufficiently disclosed (see our Insights [4] for more details);
- updating their compliance programs; and
- educating staff about consumer protections including consumer guarantees.
KWM can help to identify key risks, review and amend terms, conditions and warranties and provide training to help reduce the risk of claims from customers.
Please contact our experts if you require more detailed information or advice regarding the upcoming changes.
[1] https://consumerlaw.gov.au/consultations-and-reviews/australian-consumer-law-review/final-report
[2] https://consult.treasury.gov.au/market-and-competition-policy-division/c2018 t271629/supporting_documents/20180322Chapter_1_increasing_monetary_thres.pdf
[3] https://www.legislation.gov.au/Details/F2020L00907
[4] New NSW Fair Trading disclosure obligations will start to bite
