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Focus: Australian Consumer Law Bill

26 June 2009

In brief: The first step in the establishment of a uniform national consumer law was taken on 24 June 2009 with the introduction into Parliament of the Trade Practices Amendment (Australian Consumer Law) Bill 2009. The Bill will introduce a single national consumer law (to be known as the Australian Consumer Law), which includes provisions regulating unfair contract terms. Partner Jacqueline Downes (view CV) and Lawyer Alexander Gelis report. 

How does it affect you?

  • There will be a single unified Australian consumer law, the first part of which is scheduled to take effect from 1 January 2010. This will eventually reduce the number of differing regulatory regimes governing consumer transactions in Australia
  • Businesses will need to review standard form business-to-consumer contracts to ensure that they comply with the new provisions against unfair contract terms
  • The law will not (at this stage) regulate terms in business-to-business contracts
  •  The law introduces new civil penalties, new enforcement powers for regulators and a new power for courts to order redress for consumers affected by breaches of the national consumer law
  • The second stage of legislation to complete the Australian Consumer Law is scheduled to be introduced in early 2010

Australian Consumer Law

The Council of Australian Governments (COAG) had previously agreed to the introduction of a unified national consumer law regime in Australia. Following discussion papers on the proposal issued earlier this year, the Government has now introduced into Parliament the first stage, the Trade Practices Amendment (Australian Consumer Law) Bill 2009.

The Bill introduces the first phase of a single national consumer law, which is based on the consumer protection provisions of the Trade Practices Act 1974 (Cth) (the TPA) and known as the Australian Consumer Law. The Bill also amends the Australian Securities and Investments Commission Act 2001 (Cth) to introduce corresponding provisions that will apply to financial services.

The Bill is still subject to debate in the House of Representatives and Senate and as a result the provisions may be amended.

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Key provisions of the Bill

The key provisions of the Bill reform unfair contract terms and consumer law remedies and enforcement powers. These are discussed below.

Provisions regulating unfair contract terms

The Bill includes provisions which make the inclusion of unfair terms in standard form, non-negotiated contracts with consumers void.

Who does it apply to?

A consumer contract is a contract for:

  • the supply of goods or services; or
  • a sale or grant of an interest in land

to an individual wholly or predominantly for personal, domestic or household use. This includes contracts with consumers for utility services, banking and financial services, residential tenancies and telecommunications services.

Following a negative response to the Government's initial proposal to apply the new law to business-to-business contracts, the Government has now removed non-consumer contracts from the scope of the Bill pending a review of the unconscionable conduct provisions of the TPA and the Franchising Code of Conduct.

What is a standard form contract?

There is a presumption that a contract is a standard form contract, which must be rebutted by the supplier. In determining whether a contract is standard form, a court may consider whether the contract was negotiated or negotiable by the consumer, as well as the balance of bargaining power in the transaction.

When is a term unfair?

A term is unfair if it causes a significant imbalance in the parties' rights and obligations and is not reasonably necessary to protect the supplier's legitimate interests. All of the circumstances of the contract must be considered including whether the term is expressed clearly and in plain language. The Bill lists contract terms which may be unfair, including terms permitting the supplier to unilaterally:

  • avoid or limit performance of the contract;
  • terminate the contract;
  • vary the terms of the contract;
  • vary the upfront price payable under the contract without the consumer being able to terminate it;
  • renew or not renew the contract; and
  • vary the characteristics of the goods or services supplied under the contract.

Terms that define the main subject matter of the contract or the upfront price of goods or services are not subject to the new unfair contract terms provisions. However, terms that require further payments (such as exit, default or penalty fees) are not exempt.

The Bill provides for specific contract terms to be prohibited under the Australian Consumer Law by proscription in the regulations, although none have been proscribed at this stage.

What are the consequences?

An unfair contract term will be void, but the contract will continue if it is capable of operating without the unfair term. A business which is found to have included an unfair term in a consumer contract may also be liable for the enhanced remedies included in the Bill for a breach of the Australian Consumer Law (see below).

The unfair contract term provisions of the Australian Consumer Law are scheduled to apply to standard form consumer contracts entered into after 1 January 2010. Contracts entered into before that date will not be subject to the new provisions, unless such a contract is renewed or varied on or after that date.

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Reforms to consumer law enforcement powers and remedies

The Bill introduces a number of new enforcement powers and remedies which will be available under the Australian Consumer Law.

  • Civil pecuniary penalties will be available for conduct which does not warrant a criminal penalty and will now include the unconscionable conduct provisions of the TPA and certain product safety and product information provisions. These penalties vary. The maximum penalties are the same as currently ($1.1 million for corporations and $220,000 for individuals).
  • Disqualification orders will be available for breaches of certain provisions of the Australian Consumer Law (including for unconscionable conduct, unfair practices, pyramid selling, certain product safety and product information provisions and prohibited unfair contract terms). This will prohibit individuals from managing corporations or engaging in particular activities in connection with the management of corporations.
  • The Australian Competition and Consumer Commission (ACCC) and Australian Securities and Investments Commission (ASIC) will have the power to issue substantiation noticesrequiring a supplier to provide information or documents to substantiate a representation.
  • The ACCC and ASIC may issue infringement notices for breaches of the Australian Consumer Law, with penalties of up to $6,600. These are designed to supplement more serious penalties by facilitating the payment of relatively small financial penalties for minor contraventions without requiring court proceedings.
  • Public warning notices may be issued by the ACCC and ASIC to inform the public of potentially harmful conduct without the need for a court order.
  • The ACCC and ASIC will also be able to seek court orders requiring a supplier to provide redress to consumers who are not parties to a particular enforcement proceeding. This power is designed to be used where a large number of consumers suffer similar identifiable damage. The redress can take a number of forms, including refunds, repairs, the variation of a contract or orders to honour representations.

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Timeline

The provisions relating to unfair contract terms and the introduction of the Australian Consumer Law are scheduled to take effect from 1 January 2010. The states and territories will be able to implement the Australian Consumer Law from that date. However, the remaining provisions concerning new penalties, enforcement powers and consumer redress will commence on the day after royal assent is given. A second Bill, which the Government intends to introduce into Parliament in early 2010, will amend the Australian Consumer Law to include the remainder of the reforms agreed by COAG, including:

  • transfer of the existing consumer protection provisions of the TPA to the Australian Consumer Law;
  • amendments to modify the existing TPA consumer protection provisions to reflect 'best practice' in existing state and territory consumer legislation; and
  • the introduction of a new unified national product safety regulatory framework.

The proposed changes may be significant and those affected should begin making assessments as to the impact of these changes on their businesses. If you need any advice on this or any other competition law matter please contact us.

Published 26 June 2009

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