Alert

Who does this affect?

All businesses offering goods or services on standard form contracts (to consumers or other businesses) and all businesses dealing with consumers.

What do you need to do?

Contact us and make your submission on the Federal Government’s consultation paper by 17 March 2009.

Author
Katherine Forrest  
Partner

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Katherine Forrest  
Partner
T +61 3 9643 4129

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Sydney
Sharon Henrick  

Melbourne
Amanda Bodger  
Caroline Coops  
Katherine Forrest  

Perth
Nicholas Creed  

Brisbane
Aaron Bourke  

Canberra
Stephen Jaggers  

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On Tuesday 17 February 2009 the Consumer Affairs Minister, Chris Bowen MP, announced that the Federal Government is fast tracking a new Australian Consumer Law. Key planks of the new law, including unfair contract terms provisions, new civil penalties and new regulator enforcement powers, will be introduced into the Federal Parliament within five months. The Minister also launched an information and consultation paper on the new law (Consultation Paper). Comments in response to the Paper are sought by 17 March 2009.

The new Consumer Law will introduce a number of significant reforms to existing consumer protection laws. (The new law will be enacted through Commonwealth legislation and in each State and Territory by means of an application law scheme).

A new, national prohibition on unfair contract terms in standard-form contracts

The new Consumer Law will include provisions targeting unfair contract terms. Minister Bowen explained that the provisions are intended to make “business think carefully about how they need - not want - to protect themselves”:

• The provisions will apply to standard form, non-negotiated contracts. They will not apply to the upfront price of goods or services.

• A term will be unfair if 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 interests of the supplier.

• Remedies to address an unfair term will be available if the term results in detriment, or a substantial likelihood of detriment, which includes non-financial detriment.

• The new provisions will extend protection to any business which enters into non-negotiated standard form contracts (not just to consumers).

• The new provisions will also allow for the ability to ‘ban’ upfront specific types of standard terms. The Consultation Paper asks whether certain types of terms (such as retention of title and repossession clauses, ‘entire agreement’ and customer acknowledgement clauses, clauses limiting liability for negligence, set off rights and early termination fees) should be banned as soon as the new law comes into effect.

The Consultation Paper lists example terms that may be unfair under the new law including clauses that permit the supplier to unilaterally vary the contract, prevent the customer from cancelling, require payment of fees when the service is not provided, exclude liability or require payment of early termination fees that do not reflect the supplier’s reasonable costs.

New civil penalties for breaches of the Australian Consumer Law, including civil pecuniary penalties and disqualification orders

The new Consumer Law will:

• provide for new civil penalties to complement existing criminal penalties: civil pecuniary penalties of up to 10,000 penalty units (currently $1.1 million) for corporations and 2,000 penalty units (currently $220,000) for individuals will be available for breaches of consumer protection provisions. In contrast to criminal penalties, civil penalties are imposed by courts according to a lower civil standard of proof, and

• allow courts to make disqualification orders: these orders will be available for breaches of consumer protection provisions that attract civil pecuniary penalties or criminal sanctions. While disqualification orders under the Commonwealth implementing legislation will be limited to restricting the management of corporations, or the undertaking of specific activities in connection with the management of corporations, the State and Territory legislation could allow orders to ban specific forms of conduct by individuals and other entities.

New enforcement powers for regulators, including substantiation notices, infringement notices and public warnings

Minister Bowen explained that “[f]or too long State and Territory consumer protection agencies have had a range of enforcement powers at their disposal, which the ACCC has not.” The new Consumer Law will provide for a significant expansion of regulators’ powers, particularly those of the ACCC, including powers to:

• issue substantiation notices: such a notice can require a supplier to provide a regulator with the basis for representations made in advertisements and otherwise in relation to its goods and services (or sales or grants of interest in land)

• name and shame: a new public warning power will be introduced to inform the public of potentially harmful conduct. The Consultation Paper notes that the final form of this power is yet to be determined

• issue infringement notices: there will be nationally consistent powers for all consumer protection regulators to issue infringement notices for breaches of consumer protection provisions. Failure to comply with such a notice may have a range of consequences for the recipient, such as the regulator taking further action for the alleged breach, and

• seek redress (eg damages) for affected consumers: consumer regulators will have powers to seek remedies from the courts on behalf of persons who are not parties to particular court actions (for example, the ACCC could seek damages in court on behalf of all consumers who have been misled by a supplier’s advertisements).

The new Consumer Law will also introduce a new product safety legislative regime to be enforced by the ACCC and State and Territory consumer regulators. This will include provisions for warning notices, interim banning of unsafe goods, mandatory product safety standards and streamlining the existing product recall processes and enforcement functions.

Scope of new Consumer Law - the definition of ‘consumer’

The Consultation Paper asks for comment on a range of issues relating to the definition of ‘consumer’ to be adopted in the new Consumer Law, including whether:

• the scope of the Trade Practices Act’s existing definition of ‘consumer’ should be expanded to cover a wider range of circumstances, such as goods used in business contexts, and

• a new definition of ‘consumer’ should retain the current monetary limit of $40,000, include a different limit or exclude any purchases for business purposes, regardless of any monetary limits.

Unfair practices

The Consultation Paper also seeks specific comments on other areas for potential harmonisation and inclusion in the new Consumer Law such as door-to-door sales and telemarketing, lay-by sales and dual pricing.

Impact on financial services laws

The Government’s intention seems to be that separate consumer (and investor) protection provisions in credit and financial services laws will as far as possible mirror the consumer protection provisions of the Australian Consumer Law. The Consultation Paper explains, for example, that standard form banking and financial services contracts, including credit contracts, would be subject to unfair contract terms provisions.

What next?

Comments in response to the Consultation Paper are sought by Tuesday 17 March 2009. Key elements of the Australian Consumer Law are to be implemented in 2009 and the new law is to be fully implemented by 1 January 2011. We can help with your submissions in response to the Consultation Paper and your participation in further consultations. We have extensive experience in the area and have advised a range of clients on existing unfair terms legislation in Victoria.