- Who the fit-for-purpose obligation applies to
- The goods guarantee: fit for any disclosed purpose
- The services guarantee: due care and skill, and the stated result
- What you cannot do: contracting out, and the B2B exception
- What a customer can claim: major and minor failures
- The consequences of getting it wrong
- A practical compliance checklist
- Where a lawyer can help
- The obligation suppliers most often miss
Every time your business sells goods or supplies services in Australia, a set of automatic guarantees attaches to the deal. You cannot switch them off, contract out of them, or charge the customer extra to get them. The one that causes the most confusion is the guarantee that goods and services will be fit for purpose.
The fit-for-purpose guarantee in the Australian Consumer Law (the ACL) works like this: if a customer tells you what they need the product or service to do, and they rely on your skill and judgment, what you supply must reasonably do that job. If it does not, the customer has rights to a repair, replacement, refund or compensation, and a sign that says "no refunds" will not protect you. This guide sets out who the guarantee covers, what the law actually requires of you, the remedies a customer can claim when you miss the mark, and the practical steps you can take to reduce your exposure.
Who the fit-for-purpose obligation applies to
The guarantee applies to you if you supply goods or services in trade or commerce to a person who counts as a consumer under s 3 of the ACL, which is Schedule 2 of the Competition and Consumer Act 2010 (Cth). A one-off private sale between individuals is not covered, but almost everything a business sells is.
A customer is a consumer if any one of the following applies:
- Price of $100,000 or less: The amount paid or payable for the goods or services, including GST, is less than $100,000.
- Ordinary household kind: The goods or services are of a kind ordinarily acquired for personal, domestic or household use or consumption, regardless of price.
- Transport vehicles: The goods are a vehicle or trailer acquired for use principally in transporting goods on public roads.
Two exclusions matter for business sellers. Goods are not acquired as a consumer if they are bought for re-supply, or for using them up or transforming them in the course of production or manufacture, or in the course of repairing or treating other goods. So a café buying milk to resell in coffees is not buying as a consumer, but the same café buying a $2,000 commercial blender to use in the kitchen is.
Business-to-business sellers should not assume the ACL does not apply. A business customer that meets any of the tests above is a consumer for the purposes of the guarantees, and most B2B purchases under $100,000 are covered. The price threshold is the figure that catches suppliers by surprise, because it applies whether the buyer is a family or a company.
There are also two activity-based carve-outs from the fit-for-purpose guarantee itself. Under s 55 of the ACL, the goods guarantee does not apply to goods sold by auction. And under s 61(4), the services guarantee does not apply to professional services supplied by a qualified architect or engineer, although those providers still owe the separate duty of due care and skill.
The goods guarantee: fit for any disclosed purpose
Under s 55 of the ACL, when you supply goods to a consumer, there is a guarantee that the goods are reasonably fit for any disclosed purpose, and for any purpose for which you represent that they are reasonably fit.
A disclosed purpose is a particular purpose for which the consumer is acquiring the goods, whether or not it is a common purpose, that the consumer makes known to you expressly or by implication. The purpose can be made known to you directly, to a person conducting prior negotiations with the customer, or to the manufacturer. In practice this means the purpose can be revealed in a sales conversation, a quote, an email, or simply by the customer's circumstances.
The guarantee is engaged by reliance. Under s 55(3), the guarantee does not apply if the circumstances show the consumer did not rely on, or it was unreasonable for them to rely on, your skill or judgment. That is why the classic fit-for-purpose case is a recommendation: the customer explains the job, you recommend the product, and the product then fails to do the job.
A café owner tells a supplier they need a blender that can handle frozen fruit all day. The supplier recommends a light-duty domestic model. It burns out in a month. The blender was supplied for a disclosed purpose the customer relied on the supplier to match, and it was not reasonably fit for that purpose.
The guarantee also covers the purposes a reasonable customer would expect without saying anything. The separate guarantee of acceptable quality in s 54 of the ACL requires goods to do everything that similar products are commonly used for. A rain jacket should keep someone dry in ordinary rain, whether or not the customer said so at the counter.
The services guarantee: due care and skill, and the stated result
Services attract two linked guarantees. Under s 60 of the ACL, services must be rendered with due care and skill. Under s 61, the services, and any product resulting from them, must be reasonably fit for any particular purpose the consumer makes known, expressly or by implication.
Section 61(2) adds a second limb directed at outcomes. If the consumer makes known the result they want the services to achieve, the services must be of such a nature and quality that they might reasonably be expected to achieve that result. The same reliance condition applies: the guarantee is not engaged if the consumer did not rely, or it was unreasonable for them to rely, on your skill or judgment.
A client asks a web developer to configure their site to accept credit card payments. The developer agrees, delivers the site, and the payment gateway fails on the first transaction. The service was supplied for a particular purpose made known to the developer, and it did not achieve the stated result.
Because s 61 extends to products resulting from the services, a service provider can be liable under the services guarantee even though they never sold a physical good. A carpenter who builds a cabinet to fit a specified television and gets the dimensions wrong has breached the services guarantee even though the cabinet itself was never sold.
What you cannot do: contracting out, and the B2B exception
The ACL guarantees cannot be excluded, restricted or modified by contract. Under s 64, any term that purports to exclude, restrict or modify the application of the guarantees, the exercise of a right conferred by them, or any liability for failing to comply with them is void. This includes terms buried in a contract by reference to another document.
The same logic applies to what you say in the shop. It is against the law to mislead consumers about their rights. A "no refunds" sign, a "no refunds after 30 days" policy applied to faulty goods, or a statement that you are not responsible for problems with a product can each amount to a false or misleading representation about the existence, exclusion or effect of a guarantee under s 29(1)(m) of the ACL, and contraventions attract pecuniary penalties.
You can still have a genuine change-of-mind returns policy. That is a commercial choice about refunds for customers who simply changed their mind, and it sits alongside, not instead of, the ACL rights that apply when goods or services fail to do the job.
There is one important B2B exception. Under s 64A of the ACL, for a supply of goods or services other than goods or services of a kind ordinarily acquired for personal, domestic or household use, a term that limits your liability for a failure to comply with the guarantees to repair, replacement or the payment of those costs (or, for services, supplying them again) is not void under s 64, provided it is fair and reasonable in the circumstances. In other words, in a genuine commercial supply where the buyer is a business and the goods are not household goods, you can cap your exposure to repair or replace, but only with a properly drafted clause.
What a customer can claim: major and minor failures
When goods fail to comply with a guarantee, the customer's remedies depend on whether the failure is major or minor. Under s 259 of the ACL:
- Minor failure: The customer can require you to remedy the failure within a reasonable time. Under s 261, you can comply by repairing the goods, replacing them with goods of an identical type, or refunding the price and the value of any other consideration. If you refuse or take too long, the customer can have the failure remedied elsewhere and recover the reasonable costs from you, or reject the goods.
- Major failure: The customer can reject the goods and choose a refund or replacement, or recover compensation for the reduction in value of the goods below the price paid.
Under s 260, a failure is major if the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure, if the goods are substantially unfit for a purpose for which goods of that kind are commonly supplied and cannot easily and within a reasonable time be remedied, if the goods are unfit for a disclosed purpose and cannot be remedied in that way, or if the goods are unsafe. A blender that burns out on the first heavy use is a clear major failure.
Rejection is not unlimited. Under s 262, a consumer cannot reject goods once the rejection period has ended, if the goods have been lost, destroyed or disposed of, if the goods were damaged after delivery for reasons unrelated to their state at supply, or if they have been attached to property and cannot be detached without damage. The rejection period is the time within which it would be reasonable to expect the failure to become apparent, having regard to the type of goods and the use the consumer is likely to put them to.
Services work on a parallel track under ss 267 to 269 of the ACL. For a failure that can be remedied and is not major, the customer can require you to remedy it within a reasonable time, and you can comply by supplying the services again or refunding the unused portion. If the failure is major under s 268, the customer can terminate the contract and recover a refund of money paid, to the extent the services have not already been consumed. Significantly, under s 267(1)(c) you are not liable for a services failure that occurred only because of the consumer's own act, default or omission, or a cause independent of human control that occurred after the services were supplied.
The consequences of getting it wrong
The direct consequence of a breach is the remedy the customer can enforce: repair, replacement, refund or compensation, depending on the seriousness of the failure. Beyond that, a dispute that is mishandled can escalate into an enforcement matter. The ACCC and state and territory fair trading regulators investigate consumer guarantee complaints, and they can take court action against businesses that mislead consumers about their rights or make false or misleading claims about their products. Because s 29 of the ACL is a civil penalty provision, a finding of misleading conduct about guarantees or product performance can result in pecuniary penalties, injunctions and corrective orders, on top of the cost of refunds and compensation to affected customers.
A practical compliance checklist
You cannot contract out of the fit-for-purpose guarantee, but you can design your sales process so that disputes are rare and resolvable:
- Ask purpose questions upfront: Train staff to ask about usage volume, environment, compatibility and the specific result the customer needs, and to confirm critical purposes back in writing.
- Document assumptions and limits: Record the purpose, any recommended accessories, and any limits such as "indoor use only" in quotes, invoices and job notes.
- Make accurate, substantiated claims: Product descriptions, ads and website copy should match what the product can actually do. Avoid absolute claims such as "waterproof" if the product is only water-resistant to a stated standard.
- Give clear instructions and warnings: Installation, maintenance and operating limits set the boundaries of reasonable use and are your strongest defence against misuse claims.
- Run a fast, fair remedy process: A simple complaints channel, a standard evidence request and quick responses reduce escalation to regulators or chargebacks.
- Audit what staff say: Sales scripts, call notes and follow-up emails should not promise results the product cannot deliver.
Where a lawyer can help
A consumer law lawyer can help you in three places. First, drafting: the B2B limitation clause under s 64A, terms of trade and sale of goods terms, warranty policies and return processes all need to sit comfortably with the guarantees rather than against them. Second, review: checking whether marketing claims, product descriptions and staff scripts create promises you cannot keep. Third, disputes: assessing whether a customer's claim is a major or minor failure, whether the rejection period has passed, and how to respond to a regulator's inquiry.
The obligation suppliers most often miss
The fit-for-purpose guarantee most often bites through conversations, not contracts. A customer tells a salesperson what they need, the salesperson nods, and nobody records it. Later the product does not do the job, and the supplier discovers the oral exchange was a disclosed purpose the customer relied on, with no written record to limit it. The threshold that catches suppliers by surprise is the same story in B2B form: most business customers buying under $100,000 are consumers with the full set of guarantees.
The first action to take this week is to audit one sales conversation end to end. Look at what your team asks, what they promise, and what gets written down before the deal closes. If a customer's stated purpose and your recommendation are not on the record, you are one failed product away from a dispute you could have designed out of the business.