Serious Liabilities You Can’t Exclude

Under the Australian Consumer Law (found in the Competition and Consumer Act (2010) (Cth)) (ACL), certain “reasonably foreseeable” liabilities from providing goods and services cannot be excluded.

The possible liabilities involved in providing goods and services can far outweigh the cost of the goods and services themselves. As a result, a small transaction can carry large risks depending on the nature of the goods and services offered.

Consumer Law

The ACL creates inescapable guarantees for a provider that sells goods and services in the consumer context. We’ve written previously about the guarantees. You can read about them generally here, and in relation to a technology businesses, here.

Even though the ACL is “consumer law” by name, it often applies in commercial transactions. You can read about the ACL’s applicability in “B2B” transactions here. The way that the ACL captures business transactions most often is by applying to any transaction with a value of under $40,000.

Liabilities that Cannot be Excluded for Goods and Services

In the context of the provision of goods, the ACL makes it impossible for a “manufacturer” to exclude certain liabilities. It is important to note that under the ACL, this likely includes a computer programmer providing software.

Under clause 271(1) of the ACL:

If:

(a) the guarantee under section 54 applies to a supply of goods to a consumer; and
(b) the guarantee is not complied with;

an affected person in relation to the goods may, by action against the manufacturer of the goods, recover damages from the manufacturer.

Under clause 272:

In an action for damages under this Division, an affected person in relation to goods is entitled to recover damages for:

[...]

(b) any loss or damage suffered by the affected person because of the failure to comply with the guarantee to which the action relates if it was reasonably foreseeable that the affected person would suffer such loss or damage as a result of such a failure.

Equivalent provisions exist for service providers under the ACL.

The Effect

Here’s an example from the Consumer guarantees: A guide for businesses and legal practitioners publication by the ACCC:

A faulty toaster sets fire to a consumer’s house or burns the consumer’s hand. The consumer is entitled to compensation to make up for that loss and damage, not just to a refund for the faulty toaster.

In the technology context, if you provide Software as a Service to a client, and you lose vital data when you are breaching an ACL guarantee, you may be liable for paying the costs of replacing the data.

Guarding Against Unexcludeable Liabilities

The best way to guard against unexcludeable liabilities under the ACL is to purchase liability insurance. In the case of technology services, such insurance should cover data loss and other liabilities that might occur as a result of an ACL guarantee breach.

 

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