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If your business sells goods and services to consumers, you need to be aware of your obligations under consumer law. This applies to two acts – the Consumer Guarantees Act (CGA) and the Fair Trading Act (FTA). If you do not comply with the rules set out in these two pieces of consumer law, then you could face serious legal consequences. However, in some cases, you may be able to absolve your business from these requirements, also known as ‘contracting out.’ This article will go explain what contracting out means and whether you can contract out of the Consumer Guarantees Act.

What Does Contracting Out Mean?

Contracting out usually refers to a written agreement (typically with another business) where you and the other party agree that a particular piece of law does not apply to you. This means that if something goes wrong, you cannot bring legal action against the other party under the act that you specify. You can do this with some acts, like the CGA, but not others. 

Be careful not to confuse this with a ‘contracting out agreement’, which applies to the splitting of relationship property (also known as a prenup).

Note that if you contract out of a specific act with another party, they do not have access to legal remedies under that act. However, this does not stop them from pursuing a solution to a problem through other legal avenues or relying on contractual remedies.

For example, if you sell the other contracted party a faulty product, then they cannot rely on the CGA if you have contracted out. However, they may be able to cancel the contract because they can claim that you did not fulfil your end of the bargain.

Your CGA Obligations

If your business sells goods or services to a consumer for personal or domestic use, you must maintain certain guarantees about the goods or services you provide. Anyone can be a consumer, including other businesses, as long as they use those products for personal use.

As such a provider, you need to ensure that you meet the following requirements.

Your goods must be:

Your services must be:

  • fit for purpose;
  • the same as you describe;
  • of acceptable quality;
  • priced reasonably where there is no agreed-upon value;
  • delivered on time and in good condition; and
  • sold legally.
  • done with reasonable care and skill;
  • completed within a reasonable time;
  • fit for purpose; and
  • priced reasonably where no predetermined price.

If you fail to fulfil any of these promises on the goods or services you sell, you need to provide a customer with a remedy.

You do have the right to contract out of your obligations under the CGA, but only in certain circumstances with certain parties.

Contracting Out With the Public

You cannot contract out of your CGA obligations with general consumers or members of the public. Consumer guarantees exist to protect consumer rights, as they may not have the commercial experience to recognise whether they are getting a fair deal. 

If you attempt to mislead customers about contracting out of the CGA, you will face severe legal penalties. 

For example, if you put a sign up in your store saying “no refunds”, this is an attempt to contract out of the CGA, and you will be liable.

Under the Fair Trading Act, if you mislead your customers in this way, for each offence, you could face fines up to $200,000 for an individual or $600,000 for a company or other body corporate.

Contracting Out With Other Businesses

However, the situation is different when it comes to transactions with other businesses. If you sell a consumer product to another business that buys it for business purposes, you have the right to contract out of the CGA.

For example, if you sell an air conditioner to another business for use in their offices, this would be a situation where you could legally contract out of the CGA.

Note that other businesses are not automatically excluded from being owed consumer guarantees in this way. If you want to contract out of the CGA with another business, that agreement needs to be:

  • in writing; and
  • fair and reasonable.

A verbal agreement is not valid for contracting out, and you need both sides to agree.

Should I Contract Out?

Whether contracting out of the CGA is a good idea will depend on the circumstances surrounding the sale and your business’ nature. Think carefully about any agreement to contract out, and make sure you are aware of other legal remedies available if something goes wrong. Do your research on the other party, and carefully read through the contract document.

You can only contract out where it is fair and reasonable for you to do so. This will depend on:

  • the context of the agreement;
  • the value of the goods or services you are exchanging;
  • evenness of bargaining power;
  • the negotiations; and
  • any legal advice sought by both parties.

Key Takeaways

If you are selling consumer products or services to another business, you can contract out of your obligations under the Consumer Guarantees Act. However, make sure you carefully consider the agreement and make sure you have options available if something goes wrong. If you would like more information or help with contracting out of the CGA, contact LegalVision’s regulatory and compliance lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is the Consumer Guarantees Act?

The Consumer Guarantees Act is a piece of law that sets out mandatory guarantees that all businesses providing consumer goods or services must uphold. This includes maintaining product quality and providing a remedy when there is something wrong with a good or service that you provided.

Can you contract out of the Consumer Guarantees Act?

You can only contract out of the Consumer Guarantees Act if the other party is also in trade, the agreement is in writing and it is fair and reasonable to do so. You cannot contract out of the Consumer Guarantees Act with a member of the public.

What is the Fair Trading Act?

The Fair Trading Act is a piece of law that protects honest and fair trade by prohibiting certain sales practices. This includes misleading your customers or making claims that you cannot back up with evidence or engaging in unfair sales tactics.

When does my business need to maintain consumer guarantees?

If your business sells products intended for personal or domestic use to consumers, then you must maintain the consumer guarantees attached to those products. This includes making sure they are safe and fit for their purpose.

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