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NEW CONSUMER PROTECTION LEGISLATION

This firm supports any initiative that allows our clients to conduct their businesses with greater clarity, certainty and expediency.  That is why we support the passage of the Trade Practice Amendment (Australian Consumer Law) Bill 2009 (Cth) (the “Amendment”) through the federal parliament.  The Amendment will create uniform consumer protection legislation, replacing the various state based regimes.  The Amendment is now awaiting Royal Assent, and will come into effect in the second half of this year.

However, it is not all good news for businesses.  The Amendment imposes fresh regulation of certain contracts, gives the Australian Competition and Consumer Commission (the “ACCC”) and the Australian Securities and Investments Commission (”ASIC”) greater powers and allows the courts to impose heftier fines.

The Australian Consumer Law

Each Australian jurisdiction has consumer protection legislation that regulates the sale of goods and services to consumers.  In May 2008, the Council of Australian Governments agreed to improve the consumer protection framework by drastically overhauling the legislative regime.  The Amendment is the first of a two-stage process to amend the Trade Practices Act 1974 (Cth) (the “TPA”) in order to create a universal consumer law (the “Australian Consumer Law”) that will apply to all consumer transactions throughout all of Australia’s jurisdictions.

Unfair Consumer Contracts

Like all consumer protection legislation, the Amendment acknowledges the power imbalance that often exists between sellers and consumers.  In particular, the Amendment recognises the propensity for businesses to transfer risk, sometimes unfairly and unnecessarily, to consumers.  The Amendment will introduce a new regime voiding “unfair” terms of particular contracts.

A term will be void if:

1.  the term is unfair;
2. it is contained in a consumer contract; and
3. it is contained in a standard form contract.

A term of a consumer contract will be unfair if:

1. it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
2. it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term.

There is a presumption that a term is not necessary to protect the legitimate interests of a business, unless that business is able to demonstrate that, on the balance of probabilities, it has legitimate interests protected by the term that outweigh the detriment caused to consumers.

The following are some of the examples of the kinds of terms that may be considered unfair:

1. a term that permits the business (but not the consumer) to avoid or limit performance of the contract;
2. a term that permits the business (but not the consumer) to terminate the contract;
3. a term that penalises the consumer (but not the business) for a breach or termination of the contract;
4. a term that permits the business (but not the consumer) to vary the terms of the contract;
5. a term that permits the business (but not the consumer) to renew or not renew the contract; and
6. a term that permits the business to vary the upfront price payable under the contract without the right of the consumer to terminate the contract.

A contract will be a consumer contract if it is for the supply of goods or service or the sale of an interest in land to an individual for predominately personal, domestic or household use.

A contract will usually be a standard form contract if it is one that has been prepared by one party alone before any discussion relating to the transaction has occurred and where that party has all or most of the bargaining power relating to the transaction.

Similar provisions will be inserted into the Australian Securities and Investments Commission Act 2001 (Cth) and the Corporations Act 2001 (Cth) for financial product and service providers.

Enforcing the Australian Consumer Law: the ACCC

The Amendment introduces new penalties for corporations and individuals who breach the TPA.  For breaching certain provisions within the Australian Consumer Law (like false or misleading representations), the court may levy individuals with a $200,000 pecuniary penalty and corporations with a $1,100,000 pecuniary penalty payable to the federal government.

This new civil penalty will drastically alter the government’s ability to enforce the Australian Consumer Law.  Previously, only the Commonwealth Director of Public Prosecutions could pursue breaches of the TPA, which the Director had to prove “beyond a reasonable doubt”, and then only for criminal fines.  The new civil penalty regime will lower the onus of proof to “balance of probabilities” and will allow the ACCC to commence court actions.

Businesses can expect to see a significant increase in enforcement actions brought by the ACCC, particularly for misleading or deceptive conduct.

The ACCC, and ASIC, will also enjoy new enforcement powers.  The regulators will be able to:

1. obtain a court order banning a person for certain breach of the Australian Consumer Law;
2. obtain a court order forcing a transgressor of the Australian Consumer Law to redress loss or damage to consumers by its conduct;
3. issue a “substantiation notice” requiring a person or entity making a representation to consumers to provide information and/or documents which substantiate those representations;
4. issue a “infringement notice” allowing alleged transgressors of the Australian Consumer Law to voluntarily pay a financial penalty, in order to avoid the regulator commencing court proceedings; and
5. issue a “warning notice” to the public regarding Australian Consumer Law issues in certain circumstances.

What’s Next: The Second Amendment

The Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010 (Cth) has already been introduced into parliament.  This second stage of the consumer law reform process will allow the Australian Consumer Law to deal with:

1. statutory consumer guarantees;
2. unsolicited sales practices;
3. lay-by agreements;
4. product safety; and
5. manufacturer liability.

If passed, the bill will change the name of the TPA to the Competition and Consumer Act 2010 (Cth).

The Way Forward

The reform of the consumer protection regime is vitally important to businesses.  All businesses should review their agreements in light of the Amendment and the proposed second stage of reform.  A business’s consumer agreements, standard form terms, and document retention policies and procedures all may be being used in breach of the TPA.

Businesses must consider all of the potential uses for their goods and services, not just the primary one.  Businesses will be captured by the unfair term provisions if a consumer uses their good or service principally for domestic use, even where the primary purpose of the good or service is industrial or non-domestic use.

Further, given the increased powers given to the ACCC, businesses must be certain they are not inadvertently in breach of the TPA.  The consequences of such breaches can be dire. 

If you have any questions about the Australian Consumer Law, please contact Gavin Barnes or Christopher Perkins on 07 3852 5055, gavin@redchip.com.au or chris@redchip.com.au.