Fair warning: Federal Government consults on proposed law to ban "unfair trading practices"

Michael Corrigan, Kirsten Webb, Mihkel Wilding and Caroline De Paoli
07 Sep 2023
Time to read: 5 minutes

Businesses should start considering how changes in this area may affect them in order to consider if they wish to make a submission on the unfair trading practices consultation paper by 29 November 2023.

Australian Treasury has progressed the debate on a law against unfair trading practices by inviting submissions on a consultation paper published last week. It has been reported that the Government will consider feedback on this paper before drafting legislation next year.

While the introduction of an unfair trading practices prohibition was forecast as one of the ACCC's priorities for this year, the proposal is not a new one and has been on the ACCC's radar since the 2015 review of Australia's competition policy. The Government has been looking at the need for an unfair trading practices law, the nature of the problem and the extent of consumer harm arising from potential gaps in the current law, since at least 2020.

Potential reforms: what's on the table?

Treasury's consultation paper outlines four options for reform:

  1. Changing the existing "unconscionable conduct" law to include unfair conduct

    This may involve extending the law to conduct that is likely to be unconscionable or adding the concept of unfairness to the unconscionable conduct provision to broaden its reach.

  2. Introducing a general prohibition on unfair trading practices

    The consultation paper does not propose a specific definition of unfair, proposing instead that it be determined through policy development and informed by international experience and stakeholder feedback. Treasury does acknowledge that unfairness is an "inherently subjective concept… highlighting the need for a calibrated policy response".

  3. Introducing a combination of general and specific prohibitions on unfair trading practices

    This is the most comprehensive policy approach outlined by Treasury. In addition to the general ban on unfair trading practices, this approach would involve prohibiting a specific list of types of conduct. Singapore, the EU and the UK have all imposed a set of specific bans as well as a general prohibition.

  4. No change to the current law

Who could enforce a law on unfair trading?

Curiously there is no discussion in the paper of whether under any of these new laws (option 2 or 3 above) would be enforceable only by the ACCC or state Fair Trading agencies (which is the approach adopted for similar laws in other jurisdictions such as the United States and the EU). Those jurisdictions have only authorised regulatory agencies in those jurisdictions to take action in respect of "unfair trading practices" or "unfair competition" but have not opened up the same law to claims by private parties or class actions. Limiting enforcement would control the risk of a floodgates of litigation or class actions.

The Treasury paper appears to assume that any law would be enforceable by private litigation and class actions as well as by the ACCC and State consumer bodies. Permitting private enforcement and class actions over conduct that is merely "unfair", in a general sense, would greatly expand the impact and costs to the economy of any new law and the risk of opening the floodgates for unmeritorious claims.

Are there gaps in our existing law?

Proponents of an unfair trading law have argued that the prohibitions on misleading and deceptive conduct, unconscionable conduct and the law of unfair contract terms are inadequate to protect consumers from poor business behaviour. The consultation paper describes these perceived inadequacies in some detail in terms of subscription traps, dark patterns and other features of online commerce including "click through" terms and conditions.

It seems likely however that many of those issues (albeit not all) may be caught by the law of unfair contract terms which will attract large penalties from later this year.

This overlap is not considered in detail by the Treasury paper, except to note that pre-contractual conduct or conduct which is only referable to a contract, will not be caught by the unfair contract terms regime.

The Treasury paper concedes that there is likely to be significant uncertainty in identifying conduct that is unfair. This uncertainty has been a feature of cases alleging unconscionable conduct - the concept is not clearly defined and the views of courts in various cases have indicated that finely balanced judgment is required, and lengthy and costly litigation is necessary for a court to form a view.

For some, a challenge arises in addressing conduct which may be unfair but which is not necessarily unlawful as misleading or deceptive or which does not reach the higher bar of unconscionability.

Very recently, another example of a failed unconscionable conduct claim occurred with the dismissal of a claim made by 38 vehicle dealers in the Federal Court over changes of their dealer agreements to the agency model. In that case, the Court found that while in moving its dealer model to a fixed-price agency model Mercedes-Benz acted in its own commercial interests and in accordance with the bargain it had struck with franchisees, this did not amount to unconscionable conduct.

Demonstrating the Government's support for reform in this area, Assistant Treasurer Stephen Jones has reportedly said: "What we've seen emerging over the last few years is some harmful practices which fall between the gaps and the cracks in the Australian consumer law."

However as noted above, the consultation paper arguably lacks detail on how wide some of these "cracks" may be and whether the law addressing unfair contract terms covers many of the concerns raised.

Sneaking, nagging and urgency: what does unfair trading look like?

Business models that are arguably oppressive, exploitative or contrary to standards of professional diligence or fair dealing are at risk of being caught by a new unfair practices prohibition. According to the consultation paper, examples of potentially unfair trading practices include:

  • Inducing consumer consent or agreement to data collection through concealed data practices;
  • Exploiting bargaining power imbalances in supply chain arrangements, including by unilaterally varying supply terms at short notice;
  • Omitting or obfuscating material information which distorts consumers’ expectations or understanding of the product or service being offered;
  • Using opaque data-driven targeting or other interface design strategies to undermine consumer autonomy eg. designing a "Yes" button to be red, while a "No" button is green;
  • Exploiting or ignoring the behavioural vulnerabilities of consumers that are present in the "choice architecture" of products or services (digital or otherwise); and
  • Adopting business practices or designing a product or service in a way that dissuades a consumer from exercising their contractual or other legal rights eg., subscription traps.

The paper omits to provide specific examples of these types of conduct. One example of the type of conduct clearly troubling the Government is subscription traps, with consumer groups claiming that more than 75% of Australians have struggled to unsubscribe from a service. Other dark patterns or types of nudging offered in online selling environments to benefit the supplier and push the consumer toward a particular product, service or commitment are becoming more and more prevalent: these techniques are the type of slippery, hard to define or pinpoint behaviour the paper claims may not be adequately captured by existing laws.

Other dark patterns referenced in the consultation paper include:

  • Nagging: repeated requests to consumers to do something, exploiting a consumer's willpower or time eg. requests to turn on notifications or location tracking.
  • Obstruction: aiming to make tasks or interactions more difficult than they need to be eg. making it hard to cancel a service or change privacy settings. This could be challenged as an unfair contract term.
  • Sneaking: seeking to hide or disguise information relevant to a consumer's decision such as costs leading to a situation where a person chooses not to abandon a course of action because they already heavily invested time to it. This may be captured under our existing misleading or deceptive conduct laws.
  • Urgency: real or fake temporal or qualitative limits on deals in order to pressure consumers to make a purchase, for example, phrases such as "low stock", "high demand" or "only 2 left at this price" or countdown timers. If these urgency prompts are not in fact true, this may be misleading or deceptive under current laws.

Key takeaway

Businesses should start considering how changes in this area may affect them in order to consider if they wish to make a submission on the consultation paper. Consultation is open from now until 29 November 2023.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.