Your trading terms & conditions may no longer work

Two new Federal Acts (Personal Property Securities Act, “PPSA” and the Australian Consumer Law, “ACL”) make it important for any business that supplies goods to review and update its terms of trade to obtain greater protection and avoid losing rights it may previously have had.

 PPSA

If your business sells goods either to other businesses or to consumers, you can obtain rights/protection you did not previously have and retain rights you may otherwise unknowingly lose by updating your terms of trade.

  •  PPSA allows you to obtain protection against claims by a liquidator to recover preference payments made to your business by a company that goes into liquidation (to achieve this requires amendments to the retention of title clause in your trading terms, getting agreement to your new terms and for you to register the interest).
  • If you provide goods on loan, lease or consignment (including where an asset holding company within a group leases or consigns goods to the trading company within the same group; e.g. under an inter-entity service agreement) and if the lessee or consignee company becomes insolvent, you could lose ownership of those goods if you do not take advantage of the new PPSA registration scheme.

The introduction of the PPSA registration system shall commence on 30 January 2012.

 ACL

Likewise the new ACL (which replaced much of the consumer protection provisions of the Trade Practices Act) has made changes that mean your terms of trade may no longer provide the protections they previously did, or may soon be in breach of new warranty against defects provisions.

  • Your existing terms of trade are likely to limit your liability for goods that are defective.  The most common limitation takes the form of an obligation to replace, repair or refund.  However, those existing terms of trade which previously limited liability may no longer be effective; e.g. if they limit liability by reference to the Trade Practices Act, or use the terminology of the Trade Practices Act, they are unlikely to work as the Trade Practices Act no longer exists.  It may mean that your liability is no longer limited at all, and without knowing it, your exposure under the terms of trade has greatly increased.  These provisions are already law.
  • If your current terms of trade include a warranty against defects (i.e. if you give a warranty to repair, replace or recompense customers for defective goods) it is almost certain that this existing warranty against defects will be in breach of the new ACL if not amended before 1 January 2012.  If so, you will be liable to penalties.  This new provision applies to goods sold to consumers, but the definition of consumer is broad and includes goods sold to another business (e.g. wholesale) where the price of the goods is up to $40,000.00 (and also motor vehicles regardless of the price).

As noted, much of the ACL is already law, and the new warranty against defects provisions become operative from 1 January 2012.

If you may be affected by the new PPSA or ACL, you should have your terms of trade reviewed to determine whether they need updating, and you should also obtain advice about whether your business may benefit from registration under the new PPSA.

If you wish to receive more detailed information on these changes or advice on whether they may affect your business and, if so, how to take advantage of them, contact Paul Hesse.