The final report into the Australian Consumer Law says … tougher penalties!

By Peter Sise

11 May 2017

Higher penalties and expanded protections could be on the way, if the recommendations of Consumer Affairs Australia New Zealand are implemented.

The Australian Consumer Law (ACL) has benefitted consumers and traders and is “generally ‘fit for purpose’”, but it needs some amendments to increase penalties and consumer rights.  That's the verdict of Consumer Affairs Australia New Zealand (CAANZ), which for the last year has conducted a review of the ACL, coinciding with approximately its fifth anniversary. 

On 19 April 2017, CAANZ published its final report, which was preceded by over 260 submissions, over 130 meetings between CAANZ and stakeholders and an interim report published on 14 October 2016. 

CAANZ has proposed 19 amendments to the ACL, 11 of which it says are "well-developed" and should be implemented without any formal regulatory impact assessment, provided consumer affairs ministers agree to their implementation.  If the recent review of competition law and policy is any guide, the ministers are likely to agree to their implementation.

Higher penalties

CAANZ proposed that the maximum financial penalties for breaches of the ACL be increased for both contraventions by companies and individuals. 

For companies, it proposed that the maximum penalty be increased to the greater of $10 million or three times the benefit arising from the contravention.  If the benefit cannot be determined, CAANZ proposed that it be 10% of the annual turnover of the company in the 12 months preceding the contravention. 

For individuals, CAANZ proposed that the maximum penalty be lifted to $500,000. 

These penalties are consistent with those for the competition provisions in the Competition and Consumer Act, except that an individual may be imprisoned for involvement in cartel conduct while no prison terms are available for contraventions of the ACL (although community service orders and disqualification from managing a corporation are options).  CAANZ did not propose imprisonment as a punishment for breach of the ACL but said it will “continue to monitor the effects of enforcement activities … [and] consider if there are circumstances where a penalty of imprisonment is justified”.

CAANZ did not propose that penalties be made available for a contravention of the general prohibition on misleading or deceptive conduct in section 18 of the ACL.  Currently, penalties are available for certain false or misleading representations but not misleading or deceptive conduct in general. 

Wider definition of a consumer

The definition of a “consumer” is central to various provisions in the ACL, and includes where a person pays an amount for goods or services that does not exceed $40,000, a cap introduced in 1986.

CAANZ proposed that the definition be expanded by raising the cap to $100,000 to allow for inflation. 

Consumer guarantees, major failures, and the right to a repair, refund or replacement

Currently, a consumer only has a choice between a repair, refund or replacement of a good that fails to comply with a “consumer guarantee” if there is a “major failure”; otherwise the supplier chooses whether to offer a refund, replacement or repair. 

CAANZ proposed that a consumer be given a choice if the good fails to comply with a consumer guarantee within a “short specified period of time” after purchase or delivery.  CAANZ suggested a period of 30 days, but said that further analysis will be required to determine the precise period and how to exclude perishable goods (such as food) and goods that would ordinarily be consumed within that period (such as make-up). 

A major failure may arise in various circumstances including where “the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure”.  CAANZ reasoned that if a good fails to comply with a consumer guarantee within a short period of being purchased or delivered, it is unlikely to have been purchased by a reasonable consumer and hence there is likely to be a major failure.  By effectively deeming this to be a major failure, consumers and suppliers are given greater certainty of what may amount to a major failure in certain circumstances. 

CAANZ also proposed that the ACL specify that a series of minor failures can amount to a major failure even if the failures do not occur in a similar period of time.

The exemption for the transport and storage industries

CAANZ proposed that the ACL be amended to clarify the exemption for the transport and storage of goods where those goods are damaged or lost in transit. 

Currently, section 63(a) of the ACL states that certain consumer guarantees regarding the provision of services do not apply to services that are supplied under “a contract for … the transportation or storage of goods for the purposes of a business … carried on … by the person for whom the goods are transported or stored”.  These “consumer guarantees” include a guarantee that the services are supplied with due care and skill.  

CAANZ noted that this exemption has been interpreted as applying where either the buyer or seller of the goods is a business.  This means that a consumer who purchases goods from a business cannot rely on the consumer guarantees in relation to the transportation of those goods.  CAANZ said this was contrary to the intention of the ACL and proposed that the exemption only apply if a business is the purchaser of the goods. 

Introduction of a “general safety provision”

CAANZ proposed that the ACL be amended to include a “general safety provision … that required traders to ensure the safety of a product before it enters the market.”  CAANZ proposed that a breach of the provision be punishable by penalties but be subject to a “safe harbour” defence which would give traders “an automatic defence … if they complied with an appropriate product safety standard.” 

An appropriate standard would include a mandatory standard but in the absence of such a standard, “traders could choose to rely on a voluntary standard or another comparable means of compliance.”

Online selling

CAANZ proposed two key changes that will affect all online sellers.

First, it proposed that if goods or services are purchased online, any additional fees associated with pre-selected options be included in the headline price.  CAANZ observed that pre-selected options have become increasingly common in online payment systems and that these amendments were necessary to “enhance price transparency”.

Secondly, it proposed to expand the application of consumer guarantees in relation to online auctions.  Currently, certain consumer guarantees do not apply if goods are supplied through a “sale by auction”.  This is defined as an auction that is conducted by an agent of the supplier “whether the agent acts in person or by electronic means”. 

CAANZ said there was “uncertainty and unnecessary complexity” in determining whether an online auction website was acting as an agent of a supplier.  It proposed that the exemption for a “sale by auction” be “modernised” to ensure the consumer guarantees apply to all online auctions where a consumer is the purchaser.  CAANZ noted that auctions conducted on most online auction websites are unlikely to be exempt from the consumer guarantees, under the current law, because the supplier is conducting the auction themselves instead of the operator of the website conducting the auction as their agent. 

Publicly-listed companies to be able to argue unconscionable conduct

CAANZ proposed that the prohibition on unconscionable conduct in the ACL be extended so that publicly-listed companies can avail themselves of it.  It said this extension was desirable because excluding publicly-listed companies was contrary to the generic and economy-wide application of the ACL.  Also, a public listing is “not necessarily a reflection of a trader’s ability to withstand unconscionable conduct.”

CAANZ did not propose the introduction of a general prohibition on “unfair trading”, despite significant interest from stakeholders.  However, CAANZ said it was committed to investigating the need for such a prohibition and would do so in 2018-2019.

Unfair contract terms

CAANZ proposed that the “unfair contract term” provisions in the ACL be extended to contracts regulated by the Insurance Contracts Act 1984 (Cth).  This would bring the ACL into line with regimes in the UK and New Zealand.  In 2013, a Bill was introduced into Parliament extending the “unfair contract term” provisions in this way but it lapsed as a result of the 2013 election.

CAANZ also proposed that the investigative powers of regulators be amended so that they can be used to investigate “unfair contract terms”.  Some powers are limited to the investigations of contraventions or possible contraventions of the ACL.  The ACL does not prohibit an “unfair contract term” but instead allows for them to be declared void.  This means that the use of such a term is not a contravention of the ACL and hence investigative powers may not apply. 

What next?

It is important to note that none of CAANZ’s proposals have been passed into law yet and they may never be.  The next step is for consumer affairs ministers to consider the proposals, and then meet in late 2017 to determine a consolidated package of reforms for implementation.

Peter Sise made a submission to the review of the ACL in response to the issues paper and the interim report of CAANZ.  He also met with the secretariat of the review.  

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