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19 Feb 2009

The times, they are a changin': Australia's new harmonised consumer laws revealed

The proposed changes to consumer laws in Australia are wide-ranging and impose new burdens on manufacturers and suppliers.

On Tuesday, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, Mr Chris Bowen, released a discussion paper entitled "An Australian Consumer Law: Fair markets - Confident Consumers" by the Standing Committee of Officials of Consumer Affairs.

The proposals without doubt contain what would be dramatic changes for manufacturers and suppliers of goods in Australia. Further, the possibility is mooted that New Zealand might also adopt aspects of the law "should it decide to do so". As the Government is seeking comment on the proposals, manufacturers and suppliers have an opportunity to put forward their concerns and influence the law-making process.

The framework of the reform proposals

The reform proposals contain three elements.

First, an Australian Consumer Law would be developed, which would be scheduled to the Trade Practices Act (which would be renamed the Competition and Consumer Act) and apply at the State, Territory and Federal level. The Australian Consumer Law would be based on the existing consumer protection provisions of the Trade Practices Act, with "changes based on best practice in State and Territory laws". The intention is that it would be enacted at a State, Territory and Federal level under an application law model which would require no formal referral of powers to the Commonwealth Government.

Second, as part of the national consumer law, a new national product safety regulatory and enforcement framework would be introduced. In July 2008, the Council of Australian Governments agreed to reforms to Australia’s product safety laws to provide for a single national law and a streamlined enforcement system. The Australian Consumer Law will contain these provisions.

Third, improved enforcement and information sharing between national and State and Territory regulatory agencies and new enforcement powers are proposed.

What is not affected are trade measurement laws (which are in the process of being referred to the Commonwealth and regulated under a single national scheme by the National Measurement Institute) nor industry specific regulation in the energy, food, credit, tobacco, electrical products and therapeutic goods industries.

Extended powers for regulators

The proposed Australian Consumer Law will include extended powers for regulators. The extended penalties are intended to have a greater deterrent effect and include:

  • civil pecuniary penalty notices: these would supplement the current criminal sanctions in the Trade Practices Act and Fair Trading Acts. The standard for proof of a civil penalty is that of the balance of probabilities, meaning that the current high standard of proof of beyond reasonable doubt would be lessened. The pecuniary penalties would not exceed those currently in place, which are $1.1 million for a corporation and $220,000 for individuals;
  • infringement notices in relation to consumer protection breaches including for product safety, false representations or misleading conduct;
  • disqualification orders which would ban or restrict individuals from specific activities in companies for a specific period of time, including managing corporations or undertaking specific business tasks;
  • substantiation notices requiring a supplier to provide a regulator with the basis for representations that are made in respect of goods and services. Clearly significant legal expenses could be involved in responding to a substantiation notice from a regulator;
  • allowing the regulators to obtain redress for non parties to proceedings, meaning courts would be able to make orders when a large number of consumers suffer "similar, identifiable detriment". The redress could take the form of a refund or an undertaking to meet representations that had been made; and
  • public warning notices or a "naming and shaming" power, the final form of which has not been determined, to inform the public of "potentially" harmful conduct. The potential exists for other regulators to adopt the practice of the NSW Food Authority in naming culprits on its website.

Product safety

The Australian Consumer Law would also include a new product safety legislative regime to be enforced by the ACCC and State and Territory regulators.

The main elements proposed are:

  • the Commonwealth will have the power to impose interim and permanent national product bans, to extend interim State and Territory bans, to order compulsory product recalls and to mandate product standards;
  • a new independent review body will be set up by the Australian Government to assume the ACCC's current role of holding conferences in respect of bans and recalls;
  • the relevant Commonwealth Minister would be able to issue warning notices for a product while an investigation is underway into whether a safety or information standard is needed; and
  • the State and Territory enforcement bodies would be able to impose interim product bans within their State or Territory and refer issues to the ACCC seeking mandatory bans and standards.

One positive step is that a company conducting a voluntary recall would only be required to notify the Australian Government Minister, doing away with the multiple notifications which are now necessary. It is also proposed that the Commonwealth will co-ordinate all recalls at a national level, with details being passed to State regulators. Further, at this point in time, there does not appear to be any suggestion that either a general safety duty (based on the EU example) or a positive duty to notify regulators of safety issues (as exists in the US) would be introduced.

Adopting best practice

While one might applaud "consistent national approaches to consumer problems", it is not proposed that the Australian Consumer Law should embody only those provisions which are common between the Trade Practices Act and the State and Territory Fair Trading legislation.

Instead, under the rubric of "best practice", the proposal incorporates provisions which currently only exist in perhaps one or two States. If adopted, the result would be that greater obligations are imposed on manufacturers and suppliers of goods in Australia. The intention is that "where it is generally agreed that the current provisions of the TPA are inadequate", additional provisions should be included to modify and augment the existing provisions.

Proposals under consideration include:

  • revisiting the definition of "consumer" in the Australian Consumer Law, including in relation to the monetary threshold of $40,000 (which, taking into account inflation, would now be more than $54,000);
  • possibly extending the protection of the consumer warranty provisions to businesses;
  • extending section 51A of the Trade Practices Act (which requires a corporation to show it had reasonable grounds for making a representation with respect to a future matter or else the representation is presumed to be misleading under section 52) to cover false and deceptive representations;
  • possibly revisiting other definitions currently used in the Trade Practices Act;
  • including provisions to regulate telemarketing;
  • extending the prohibitions on representations to also prohibit false or misleading representations in relation to the production, manufacture, preparation or supply of goods;
  • provisions in relation to lay-by sales;
  • modifying the present bait advertising provision to require that a gift or prize should be provided within a reasonable time of making the offer;
  • making dual pricing a contravention of the Australian Consumer Law;
  • requiring statements intended or likely to promote the supply of goods or services to include the name and address of the place of business as well; and
  • imposing a requirement that business offer to return replaced parts and must return such parts within a certain period of time if requested (except if the part is replaced at no charge).

Notably, these "best practice" reforms have not yet been agreed to by the Commonwealth Government nor the governments of the States and Territories.

Unfair Contracts

A further significant potential change are the proposals relating to "unfair contract terms". A contract term will be "unfair" where "it causes a significant imbalance in the parties' rights and obligations arising under the contract, and it is not reasonably necessary to protect the legitimate interest of the supplier". Examples of terms that might be considered to be "unfair" under the new regime include clauses that allow the supplier to unilaterally vary the terms of the contract or prevent the consumer from cancelling a contract.

It is proposed that these provisions will only apply to standard form, non-negotiated contracts and that remedies will only be available where the claimant shows detriment to the consumer (or a substantial likelihood of detriment. The provisions will extend to standards form contracts entered into with businesses meaning that these are relevant to standard trading terms governing the supply of goods.

The Report also seeks comment on whether the following types of terms should be banned:

  • terms retaining title for suppliers in goods that cannot be removed from consumers’ premises without damage and terms allowing suppliers to repossess such goods;
  • terms denying the existence or validity of pre- or post-contractual representations made to consumers, ‘entire agreement’ terms and terms deeming something a fact;
  • terms under which consumers acknowledge that they have read or understood the contract;
  • conclusive evidence terms;
  • terms that are void under laws that imply certain terms into contracts and terms that otherwise limit suppliers’ liability for their negligence;
  • flat/fixed early termination fees and those requiring the paying out of the contract;
  • terms requiring consumers to pay more than suppliers’ reasonable enforcement costs reasonably incurred;
  • terms requiring consumers to pay deposits or pre-payments that do not leave a substantial amount of the price to be paid on delivery/installation/performance;
  • terms allowing suppliers to retain, debit or set off disputed amounts; and
  • terms mandating arbitration of disputes or otherwise inhibiting access to courts or tribunals.

Implications for product liability

It is not exactly clear from the Report what is intended product liability, in particular, of Part V Divisions 2 and 2A and Part VA of the Trade Practices Act. The Report proceeds on the assumption that "Most of the key generic consumer protection provisions are found in Part V of the TPA". The sole mention of Part VA is in one table (Table 4.1).

Any change to the definition of a "consumer" is of course relevant to the statutory warranties contained in Part V Divisions 2 and 2A however implied statutory warranties are otherwise not considered by the report, apart from in the Background sections

Elsewhere, however, the intention is stated to base the Australian Consumer Law on the existing consumer protection provisions of the Trade Practices Act.

In our opinion, it would be unfortunate if multiple causes of action are retained. Currently manufacturers face claims based on multiple causes of action: common law negligence, Part V Division 2A claims on a warranty basis; and Part VA claims on a strict liability basis attaching to goods which have a defect. The result is unnecessary and costly complexity, both for manufacturers facing claims and for consumers making them.

Next steps

Submissions about the reforms can be made to the Competition and Consumer Policy Division of the Treasury Department by Tuesday 17 March 2009.

A number of specific questions are posed in the Report in relation to which submissions are sought. Further, as a regulatory impact assessment has not been undertaken, information is requested as to the financial or other implications of the proposals, which would be considered in the preparation of a Regulation Impact Statement. Finally, a number of the reforms are predicated on the basis that there is general agreement that the current provisions of the TPA are inadequate.

While drafting submissions can be a time-consuming process and the deadline to submit them is tight, it is trite to say that unless suppliers and manufacturers voice their concerns, the Government will not be able to take those views into account when deciding how the current law is to be changed.

 

Thanks to Larissa Cook and Madeleine Kearney for their help in preparing this article.

Disclaimer

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.