The Trade Practices Amendments (Australian Consumer Law) Bill 2009 (Bill) has been passed by the Senate. The Bill amends the Trade Practices Act 1974 (Cth) and the ASIC Act 2001 (Cth) to introduce new civil penalties for consumer (or investor) protection breaches, new enforcement powers for regulators to pursue alleged consumer protection breaches and a national unfair terms regime.
Civil penalties and enforcement powers take effect from the date after Royal Assent and unfair terms takes effect from the day of proclamation, which will not be sooner than 1 July 2010.
Given the amendments, the Bill is now expected to go back to the House of Representatives for endorsement, but it is very likely to be passed given the support of the Opposition for the Bill. With Phase 1 complete, energy will now shift to Phase 2 of the Australian Consumer Law, with the Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) introduced into the House of Representatives today, which the Government hopes to have passed in the Winter Sittings.
The national unfair contract terms regime will apply to:
terms in “standard form contracts”, with contracts presumed to be standard form unless the party advantaged by the term proves otherwise
entered into by “consumers”, who are “individuals whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption”
across all industries and sectors of the economy (including financial services).
The regime will apply to contracts entered, renewed or varied after the commencement date. Where a contract is varied, the regime will only apply to the varied term (and not to the contract as a whole).
The regime will not apply to:
terms that define the main subject matter of the contract or that are required or expressly permitted by law
terms that set the “upfront price” payable under the contract, which is “consideration that: (a) is provided, or is to be provided, for the supply, sale or grant under the contract; and (b) is disclosed at or before the time the contract is entered into; but does not include any other consideration that is contingent on the occurrence or non-occurrence of a particular event”
insurance - however, Minister Bowen today released a consultative paper on options for dealing with unfair terms in insurance contracts
employment, shipping or marine salvage or towage contracts or the constitutions of companies, managed investment schemes or other bodies.
Under the new unfair terms regime, a term in a “standard form contract” 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 in order to protect the legitimate interests of the party who would be advantaged by the term, and
it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied upon.
The party advantaged by the term will be required to prove that the term is reasonably necessary to protect their legitimate interests. The Court can have regard to any matter it thinks fit, but must have regard to the following factors when determining the question of unfairness:
the extent to which the term is “transparent” (ie expressed in reasonably plain language, legible, presented clearly and readily available), and
the contract as a whole.
The regime includes an indicative list of “examples” of unfair terms, which is not intended to service as a blacklist of prohibited terms. The regime has no mechanism for the Government to ban terms outright (as proposed in earlier iterations of the draft Bill).
A term that is found to be unfair will be void. In addition, the regulator may apply to the Court to have a term declared an unfair term. Where the Court declares a term to be unfair:
a regulator will be able to apply for injunctive relief to prevent a party to the contract from applying or relying (or purporting to apply or rely) on a declared unfair term, and
the Court may make remedial orders where a party to the contract applies or relies on (or purports to apply or rely on) a declared unfair term.
Civil penalties of up to $1.1 million for corporations and up to $220,000 for individuals will apply for breaches of provisions relating to unconscionable conduct and certain consumer (or investor) protection provisions (excluding section 52).
In addition, the Courts will be able to make orders disqualifying a person from managing corporations for a certain period if the Court is satisfied that the person has committed a contravention of certain provisions, including the unconscionable conduct provisions and certain consumer (or investor) protection provisions (excluding section 52).
The tool kits of consumer regulators (eg the ACCC and ASIC) will now include the ability to:
issue substantiation notices to require a person who makes a claim or representation promoting (or apparently intending to promote) the supply of goods or services, a sale or grant (or possible sale or grant) of an interest in land, or employment that is to be or may be offered by a corporation, to give them information and/or produce documents to substantiate or support the claim or representation. There is no threshold trigger for an exercise of this power and failure to properly comply with the notice has consequences (eg civil penalties and infringement notices)
issue public warning (aka name and shame) notices to corporations where the regulator has “reasonable grounds to suspect” that a corporation’s conduct “may” constitute a contravention of the unconscionability and consumer (or investor) protection provisions and is satisfied that a person has suffered (or is likely to suffer) detriment as a result. The regulator must also believe that issuing the notice is in the public interest
issue infringement notices to enable the regulators to issue infringement notices where it has “reasonable grounds to believe” that a person has contravened the unconscionability provisions and certain consumer (or investor) protection provisions, and
take action on behalf of non party consumers for conduct in contravention of the unconscionable conduct and certain consumer (or investor) protection provisions, and obtain redress. The Court may make any such orders “it thinks fit” (except an award for damages) and the Bill states that this redress could include orders directing the other party to refund money or return property to a non-party consumer or to supply services to the non-party consumer at the party’s expense.
These changes mark a significant change in the consumer protection landscape for Australians.
Civil pecuniary penalties and new enforcement powers are destined to change the regulatory environment for Australian businesses, as well as the cost of doing business. Given the strong push by the consumer regulators, such as the ACCC, for a full tool kit of enforcement powers, it can only be expected that regulators will use these new powers vigorously to supervise behaviour in the Australian market place.
How regulators will approach the national unfair terms regime is a great unknown. Prima facie, the unfairness of a term is a matter between the consumer and the supplier, not the regulator and the supplier. However, other regulators (such as Consumer Affairs Victoria) have in the past taken a targeted approach to unfairness with consultation in various industries (such as telecommunications and fitness), with the view to persuading suppliers to change their contract terms. Whether the ACCC and ASIC will follow suit is unknown.
The passing of the Bill sets the scene for another busy year of consumer protection reform, with the Government committed to delivering the completed Australian Consumer Law package by 1 January 2011.
We have extensive experience in the area of consumer protection and dealings with the consumer regulators. In particular, we have vast experience advising on compliance with the Victorian and industry-specific unfair terms regimes, including reviewing and amending contracts for compliance. We would be happy to assist you understand these new laws - please contact us.