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10 Mar 2009

Fair markets and confident consumers - The new Australian Consumer Law

by Michael Corrigan, Adam Foreman

Businesses face expanded regulation of standard form consumer contracts and product safety, and a wider range of available remedies for consumer law breaches of the Trade Practices Act. The Government has also called for comment on whether various other forms of undesirable business conduct should be more tightly regulated.

National consumer law reforms are now one step closer to reality with the Commonwealth Government's release, on 17 February 2009, of an information and consultation paper on the reforms, "An Australian Consumer Law, Fair markets - Confident consumers".

The reforms are wide-ranging in scope

The reforms will introduce a new consumer policy framework comprising a single national consumer law to apply across all Australian jurisdictions, known as the Australian Consumer Law, by:

  • incorporating additional protections found in some State and Territory legislation but not in the Trade Practices Act 1974 (Cth) (the TPA), including provisions regulating unfair terms in standard form consumer contracts;
  • enhancing the enforcement powers and consumer remedies for consumer-related breaches of the TPA; and
  • implementing a new national product safety regulatory system.

Additionally, to reflect the new emphasis on consumer law in the TPA, the paper suggests that the TPA be renamed the Competition and Consumer Act.

To the extent that existing provisions of State and Territory laws are superseded, they will be repealed (except for sector-specific regulation).

The reforms will have a major impact on business dealings with consumers

The proposed reforms will have a wide impact on businesses dealing with consumers, particularly those operating over a number of Australian jurisdictions. The attempt to standardise consumer protections on a national basis will mean that many jurisdictions will be subject to additional protections, such as those regulating unfair contract terms, for the first time.

Standard form contracts, which will be regulated by the unfair contract term provisions, are currently used in a variety of contexts including in the provision of utility services, banking and financial services, software licences, transport services (such as airline tickets), building services, media subscription services, leisure services, car hire, tenancy agreements, and a wide range of e-commerce transactions.

Additionally, the proposed changes to standardise the definition of "consumer" across all Australian jurisdictions will mean that the scope of consumer laws in many jurisdictions may become materially wider than is currently the case.

This means that businesses will need to undertake a national review of all State/Territory-based contracts, in order to ensure compliance with the new Australian Consumer Law. On the other hand, the standardisation of consumer laws will also reduce compliance costs for businesses operating across different jurisdictions.

The Government's paper provides an opportunity for those businesses to identify inconsistent regulations applying across different States or Territories not yet included in the proposed reforms and seek to have those regulations standardised within the framework of the new Australian Consumer Law.

The Government is committed, and the timeline is tight

The Government's paper is both an information paper and consultation paper. It provides information on the specific reforms already agreed by the Council of Australian Governments (COAG) in March 2008, and seeks only limited comments on specific issues arising out of those, but separately seeks more detailed comments on other proposals and suggested reforms.

Comments on the issues raised by the Government's paper are due by 17 March 2009.

Further formal and informal consultation will be undertaken in relation to the draft provisions of the Australian Consumer Law as they become available.

The Government's paper anticipates that legislation implementing the new consumer policy framework will be passed by all Australian governments and have commenced by 31 December 2010. More recently, however, the Commonwealth Government has indicated that it is working towards an earlier commencement date of no later than 31 December 2009.

Definition of "consumer"

The definition of "consumer" will be critical in determining the application and scope of much of the Australian Consumer Law.

Presently, there are significant differences in the definition of "consumer" used in the various State and Territory consumer protection laws. The variations mainly depend upon whether the goods or services are acquired for personal and domestic or business use, and the monetary value of the goods or services purchased (with most jurisdictions setting $40,000 as an upper threshold). The means of excluding goods or services acquired for the purpose of resupply also differs between jurisdictions.

COAG did not specifically reach agreement on the appropriate definition of "consumer" and rather than proposing a particular definition be adopted, the Government's paper seeks comment on various issues arising in deciding on such a definition. In particular, the paper asks whether:

  • the definition should be expanded to include a wider range of circumstances where goods or services are used in business contexts;
  • a monetary limit of $40,000 is appropriate, or should be increased; and
  • there are any other appropriate approaches to defining "consumer" that the Government may wish to consider adopting.

Unfair contract terms

Legislation regulating unfair contract terms already exists in the United Kingdom and Victoria, and the inclusion of such provisions in the Australian Consumer Law is partly designed to avoid the emergence of divergent regulatory regimes on this issue.

The legislative model agreed by COAG includes the following key features:

  • A term will be is "unfair" when it causes significant imbalance in the parties' rights and obligations arising under the contract, and it is not reasonably necessary to protect the legitimate interests of the supplier.
  • Remedies will be available only where the claimant (an individual or a class) shows detriment to the consumer (individually or as a class), or a substantial likelihood of detriment, not limited to financial detriment.
  • The provision will relate only to standard form, non-negotiated contracts. If a supplier alleges that the contract at issue is not a standard form contract, then the onus will be on the supplier to prove that it is not.
  • The provision will exclude the upfront price of the good or service.
  • The provision will require all of the circumstances of the contract to be considered, taking into account the broader interests of consumers, as well as the particular consumer affected.

What is a standard form contract?

One of the key questions arising from the proposed reforms is: what, exactly, is a "standard form contract"?

The Government's discussion paper does not explore this issue in any detail, but simply refers to terms that are presented to consumers as a "take it or leave it" offer.

While there will be some cases where a contract may readily be described as being "standard form", there are also likely to be a number of "negotiation" situations where, by virtue of the commercial positions of the parties, one party will be able to "negotiate" terms on a take it or leave it basis.

In those circumstances, the parties may clearly have attempted to "negotiate" but one party was still able to insist on the inclusion of certain terms.

It is not yet clear whether these situations will be regulated solely by reference to the unconscionable conduct provisions of the TPA, or whether they will be subject to the new unfair contract provisions.

Types of unfair terms

The types of terms which might be covered by the unfair contract terms provisions, and which have considered under the Victorian regime, include, amongst others:

  • clauses that permit the supplier to unilaterally vary the terms of the contract, including price
  • clauses that require the payment of charges even where the goods or services are not provided
  • clauses that prevent a consumer from cancelling a contract
  • clauses that remove liability for harm resulting from the supplier's actions; and
  • clauses that purport to limit the consumer's right to take legal action against the supplier, or to make it harder for the consumer to do so.

The Government's paper also notes that the unfair contract term provisions will ban certain terms outright on the basis that they are considered, in all circumstances, to be unfair. The Government seeks stakeholder comment on whether a number of terms should be banned outright, including:

  • terms retaining title (Romalpa clauses) for supplier in goods that cannot be removed from consumers' premises without damage
  • terms denying the existence of validity of pre- or post-contractual representations made to consumers, "entire agreement" terms, or terms deeming something a fact
  • terms under which consumers acknowledge that they have read or understood the contract
  • conclusive evidence terms
  • flat/fixed early termination fees and those requiring the paying out of the contract
  • 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.

Many of these terms are currently included in standard contracts as a matter of course.

Enhanced enforcement powers

Whereas current consumer protection provisions provide for only criminal sanctions and limited civil remedies including injunctions and compensation orders, the proposed reforms include powers to impose civil pecuniary penalties and make disqualification orders in relation to breaches of the Australian Consumer Law.

It is proposed that regulators will be given new powers to issue "substantiation notices", which would require a supplier to provide a basis for representations it makes regarding the supply of goods or services.

Regulators would also be given a "public warning" power (often referred to as a "naming and shaming" power). The Government's paper specifically seeks public comment on how the interests of businesses can be safeguarded in setting the formal requirements for a national public warning power.

It is also proposed that a specific power be introduced which would allow regulators to seek orders that the redress be provided to persons who are not parties to the particular action.

Product safety protections

The Australian Consumer Law will also include a new national product safety regime. This regime will simplify and streamline the existing system of overlapping national and state-territory regulations.

Under the new regime, both Federal and State/Territory Ministers will have the power to impose interim product bans (of no more than 60 days). Only the Federal Minister may extend an interim period for a period of 30 days, impose a permanent ban, or declare mandatory safety standards. In assessing the need for a permanent ban or standard, the Minister will act on the advice of the ACCC.

Other areas for future reform

The Government's paper outlines some suggestions for other reforms which would otherwise modify the consumer protection provisions of the Act based on the best practice in State and Territory laws.

These suggested reforms have not been agreed by COAG and are set out only to obtain the preliminary views of stakeholders. The paper also invites stakeholders to propose other potential reforms in addition to those suggested in the paper.

Some of the areas for further reform suggested in the paper include:

  • door-to-door trading and telemarketing
  • false billing
  • mock auctions
  • lay-by sales
  • failure to deliver gifts or prizes
  • pyramid selling
  • accepting payment without intending to supply
  • mandatory information disclosure; and
  • the liability of recipients for unsolicited services.

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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.