Calculating the consumer guarantee threshold

Introduction

Sometimes it is not immediately clear whether a customer is a ‘consumer’ for the purposes of consumer guarantees, particularly in the context of business to business transactions.

In certain situations, it can be difficult to know if the amount payable for a good or service triggers the application of consumer guarantees.

Generally, if the amount paid or payable for goods or services is $40,000 or less, the person who acquires them is a consumer. It does not matter if your business is supplying to Rio Tinto or to your next-door neighbor – if the transaction is under the $40,000 threshold, consumer guarantees usually apply.

Some Difficulties with the Threshold

It’s easy to see how much a customer has paid for a service if it’s a one-off, up front payment, but working out how much is ‘payable’ in other situations can be tricky.

Here are three scenarios with a hypothetical IT support business to illustrate this.

  1. The service is ‘mixed’ with the supply of goods or other services, but payment was for the whole bundle. An IT support business and a software business team up to market a package containing software and support. The pricing really only reflects the value of the software, because the IT support business is using this as promotional opportunity. How much is ‘payable’ for the IT support service?
  2. A customer for services pays in kind, rather than cash. An IT support business does a deal with a software start-up. The IT support business provide IT and tech support to them. In exchange the software start-up gives them free access to their cloud-based word-processing app. How much was ‘payable’ by the software start-up for the IT support services?
  3. The service is supplied on a subscription basis. The IT support business get paid a monthly subscription fee to provide IT support to other businesses. How much is ‘payable’ for the service?

Working out the Threshold

The ACL has a system for working out amounts payable for goods and services if those amounts are not immediately apparent.

  1. See if the supplier, in another context, would have charged an easily understandable price;
  2. If that is not possible, look at prices charged by competitors. If the cheapest competitor would charge $40,000 or less for a comparable service, then the consumer guarantees will apply.
  3. If 1 and 2 don’t work, try to calculate the value of the services.

What about Subscription Services?

The process above will solve scenario 1 and 2 in the majority of cases, but scenario 3 is more difficult.

On the one hand, if there is a fixed term subscription contract, then you can work out the amount payable for your services by looking at the total contract price for the term. On the other hand, if the term is not fixed, or even if it is automatically renewable, then it can be hard to pick a single number as the amount payable for your services. There is not much guidance in the ACL for dealing with this situation.

One answer might be to just focus on the amount paid, as it adds up gradually. Until that amount reaches $40,000 it is probably safe to assume that the consumer guarantees apply.

If

in doubt, though, it is usually better to assume that consumer guarantees apply. In a consumer guarantee lawsuit, it will be up to you to prove that a disgruntled customer is not a consumer. In other words, unless you can be sure that a customer is not a consumer, you are safer if you act as if they are, and comply with the consumer guarantees.

Takeaway points

  • “Consumer” guarantees can apply to B2B transactions
  • It is not always easy to work out when certain B2B transactions come within the price threshold for consumer guarantees
  • The ACL provides some guidance but is not clear about subscription services which are provided indefinitely
  • If in doubt, assume that consumer guarantees apply and act accordingly
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