The New Competition & Consumer Laws

Trade Practices Out - Competition and Consumer Law In

New laws giving effect to what the Australian Government calls the “biggest reforms to consumer laws in a generation”^[1] are already partly in operation, and more will be in effect from 1 January 2011.

All businesses, whether they provide goods or services, and whether they deal with consumers or other businesses must be aware of these laws and take steps to comply.

The New Competition and Consumer Laws

The changes will see the Trade Practices Act 1974 reborn, or re-badged, as the Competition and Consumer Act 2010. Some of the provisions will also be imported into the Corporations Act 2001.

The name of the Trade Practices Act will change to the Competition and Consumer Act 2010 and the remaining provisions of the Australian Consumer Law (“ACL”) will take effect from 1 January 2011. These will include provisions relating to unconscionable conduct, misleading or deceptive conduct, unfair practices, unsolicited supplies and other forms of unfair practices, as well as consumer guarantees and new provisions relating to safety standards etc.

Some further amendments will be made, particularly relating to unconscionable conduct, and are expected to take effect early in 2011.

This is, however, more than just a change to Commonwealth legislation. All States and Territories will apply the ACL as their law from 1 January 2011.

The new laws to a large extent incorporate existing provisions of the Trade Practices Act and State and Territory Fair Trading Acts, but there are significant additions and differences. In a short article like this, it is impossible to detail all the new or varied provisions, and we will only briefly outline some of the main features.

Laws Already in Effect

Some provisions of the ACL have been in force since 1 July 2010. These include:

• The unfair contract terms provisions;
• The substantial new penalty and enforcement provisions including pecuniary penalties, disqualification orders, substantiation notices, infringement notices etc.

When does the ACL Apply?

Although the ACL is a “Consumer” law, its operation is not always limited to the protection of consumers. In some cases the ACL can apply to business-tobusiness transactions.

It is necessary to look at each specific provision in the ACL to determine when it applies. For example:

• The “general protections”, particularly the prohibitions against misleading or deceptive conduct and unconscionable conduct apply if the conduct is in trade or commerce, whether or not a “consumer” is involved.
• Unfair contract terms will be void if these are in a “consumer contract” that is a ”standard form contract”, and which is only for supply of goods, services or an interest in land to an individual and where this is wholly or predominantly for personal, domestic or household use or consumption.
• Sending an unsolicited credit or debit card to anyone is prohibited, whether or not in trade or commerce, but asserting rights to payment for unsolicited goods or services etc must be in trade or commerce.
• The pricing requirements for lowest price shown to be charged for goods, and a single price including all GST and charges etc. to be shown for goods or services (other than to a corporation), apply in trade or commerce.
• The consumer guarantees and unsolicited consumer agreements and lay-by agreements provisions apply where goods or services are acquired by a “consumer”.

Goods or services are taken to have been acquired by a ”consumer”, which may include a business, if:

• the price or cost does not exceed $40,000.00; or
• they are of a kind ordinarily acquired for personal domestic or household use or consumption; or
• goods which are acquired consist of a vehicle or trailer acquired for use principally in the transport of goods on public roads.

Accordingly, provisions of the ACL that apply to a “consumer”, will apply to many business transactions.

Uniform System and Repeal of Laws

The intent of the new system is “one law for all Australian business”^[2]. The new Consumer Law website (consumerlaw.gov. au) says:

From 1 January 2011, Australian businesses – wherever trading in Australia – will operate under a single, national consumer law: the Australian Consumer Law (ACL).

The ACL will replace different national, state and territory laws that set out consumer rights and business obligations when selling goods and services with a single, national set of rules.

The ACL is a national consumer law which is to apply to all business sectors. It covers general standards of business conduct, prohibits harmful practices, regulates specific types of business-to-consumer transactions, provides basic consumer rights for goods and services and regulates the safety of consumer products and product- related services.

In South Australia, this will result in the amendment of the Fair Trading Act, and the repeal of the Manufacturers Warranties Act and the Trade Standards Act.

The uniform system means also that the ACL will be administered and enforced jointly by the Australian Competition and Consumer Commission ("ACCC") and local authorities. In South Australia the authority is the Office of Consumer and Business Affairs (OCBA).

Misleading and Deceptive Conduct

The simple language of Section 52 of the Trade Practices Act relating to misleading and deceptive conduct has been preserved in Section 18 of the ACL, so the law in relation to this will continue to apply. Section 18(1) reads “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.

Unconscionable Conduct

The unconscionable conduct provisions in Part 2-2 of the ACL will potentially have a substantial impact on businesses, and the scope and effect of these provisions is untested and uncertain.

Unconscionable conduct can occur under the ACL in three areas:

• conduct that would be unconscionable apart from the Act (“the unwritten law”).
• conduct that is in all the circumstances unconscionable, in trade or commerce and in connection with the supply or possible supply of “goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption”.
• Similar conduct in relation to business transactions for supply or acquisition of goods or services (other than to or by a listed public company).

Unconscionable conduct can incur a pecuniary penalty, as well as giving rise to civil rights of action.

Unfair Contract Terms

The unfair contract terms provisions (Part 2–3 of the ACL) have been in operation from 1 July 2010, but the effect of these is still untested. These provisions relate only to terms of a standard form consumer contract, which is for the sale or supply of goods, land or services to an individual where the acquisition is wholly or predominantly for personal, domestic or household use or consumption, but not to a business.

The unfair contract terms provisions of the ACL deem a term in a consumer contract to be void if the term is unfair and the contract is a standard form contract.

The concept of a standard form contract is not specifically defined in the ACL and is therefore to be determined in accordance with the natural meaning of the words. An unfair term is one which:

• would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
• is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
• would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

A Court in determining if a term of a contract is unfair may take into account any matters it thinks relevant, and must also take into account “the extent to which the term is transparent”, that is whether the term is expressed in reasonably plain language, legible, presented clearly and readily available.

The onus is on a party to a contract relying on a term to prove that the term is reasonably necessary to protect the legitimate interests of the party.

The ACL contains a number of examples of unfair terms, including terms that permit a party to avoid or limit performance or liability, to vary the contract unilaterally, and other matters.

An unfair term will be void, but if the consumer contract is capable of operating without the unfair term, it will continue to bind the parties without the term.

Unfair Practices

The list of unfair practices in Part 3-1 is long and includes false or misleading representations, or misleading conduct, in relation to goods and services, sales of land, employment, offering rebates, gifts and prizes, bait advertising, accepting payments without an intention to supply and other matters.

Other unfair practices include unsolicited supplies, including sending unsolicited credit or debit cards, asserting rights to payment for unsolicited goods, and asserting a right to payment for unauthorised entries or advertisements, pyramid schemes, and other practices such as referral selling and harassment and coercion.

Multiple pricing provisions require that the lowest price of any price that is displayed must be charged, and a single price, inclusive of all GST or other charges etc, must be shown for goods or services ordinarily acquired for personal, domestic or household use or consumption.

Consumer Guarantees

The consumer guarantees contained in the ACL, if breached, give rights of action that are enforceable by virtue of the legislation. These are not implied terms of contracts. The guarantees cannot be excluded by contract.

Many of the consumer guarantees are similar to implied conditions or warranties existing under the Trade Practices Act or other acts, but there are differences. The consumer guarantees include guarantees as to title, undisturbed possession and freedom from undisclosed securities, charges or encumbrances (in any supply to a consumer). Other consumer guarantees apply where there is a supply to a consumer which is in trade or commerce, and include guarantees as to acceptable quality, fitness for disclosed purpose, goods supplied by description or sample or demonstration, requirements for availability of repairs and spare parts, express warranties and, in relation to services, due care and skill, fitness and reasonable time for supply.

The guarantees as to title, undisturbed possession and undisclosed securities apply to any contracts for supplies of goods to a consumer. All of the other guarantees, for goods and services, are imposed where the dealings are in trade or commerce.

Acceptable Quality

The consumer guarantee in Section 54 is that goods are of “acceptable quality”, that is:

1. fit for all the purposes for which goods of that kind are commonly supplied; and
2. acceptable in appearance and finish; and
3. free from defects; and
4. safe; and
5. durable,

as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of goods), would regard as acceptable having regard to the matters in subsection (3).

Matters specified in subsection (3) include the nature, price, statements and representations and other relevant circumstances relating to the goods. However, defects which are specifically drawn to a consumer’s attention, including by a written “transparent” notice, will not cause goods to breach the guarantee as to acceptable quality. Nor will goods breach the guarantee as to quality if they are examined by the consumer, and the examination ought reasonably to have revealed that the goods were not of acceptable quality.

Unsolicited Consumer Agreements

Division 2 of Part 3-2 relates to unsolicited consumer agreements where the agreement arises from negotiations other than in a business or trade premises of a supplier of goods or services (including by telephone) and where the price payable by a consumer is either not ascertainable, or is more than $100.00. The ACL stipulates requirements for the negotiation of unsolicited consumer agreements, including the hours during which these may be negotiated, and contains detailed requirements for documents and termination etc.

Safety of Goods and Services

Part 3-3 of the ACL relates to safety standards for consumer goods and product related services. The standards may be declared, and bans may be imposed on consumer goods and product related services which may cause injuries (interim or permanent) and notices may be issued for compulsory recall of goods.

Safety warning notices may be required, and reports of injuries are required.

Part 3.4 relates to information standards which may be required for goods and services.

Actions are provided against manufacturers for goods with safety defects.

Remedies for Breaches of the ACL and Consumer Guarantees

The ACL provides a range of general and specific remedies to consumers and others for contraventions of the ACL or consumer guarantees including rights to damages, injunctions, compensation, repairs or replacement of goods or services. Damages which may be recovered may include consequential losses, such as loss of value or loss of profit, if the losses are reasonably foreseeable, in relation to some contraventions.

Offences and Penalties

The ACL contains a substantial range of enforcement powers, penalties and remedies that can apply for breaches of the ACL, which can be exercised or initiated by the ACCC or other regulators.

Maximum fines for various offences for bodies corporate range from $5,000.00 to $1.1 million, and for individuals, the range is from $1,000.00 to $220,000.00. The same range of penalties as the fines for offences can also be imposed by a Court as a civil pecuniary penalty. A civil pecuniary penalty may be imposed by a Court if it has found that a breach of the ACL has occurred on the civil standard of proof, that is, on the balance of probabilities, not beyond reasonable doubt.

A Court may order a pecuniary penalty for a large range of provisions of the ACL. A pecuniary penalty may also be ordered for an attempt to contravene, or aiding, abetting, counselling, procuring, inducing, attempting to induce, conspiring or being directly or indirectly knowingly concerned in or a party to a contravention of a provision.

Enforcement Powers

The enforcement powers available to the ACCC and other regulators are also extremely wide, and include court-enforceable undertakings, substantiation notices which can be issued to require information to substantiate claims or representations promoting goods or services etc and public warning notices.

On the application of a regulator, a Court may make orders such as:

• an order directing a person to perform service for the benefit of the community;
• an adverse publicity order requiring disclosure of information;
• an order disqualifying a person from acting as a director, or otherwise managing a corporation.

It is also possible for the ACCC (but not other regulators) to issue an infringement notice under Section 87ZE of the Trade Practices Act (as it is now) for an alleged contravention of the ACL. The notice will require payment of a penalty of $6,600.00 for a corporation (for a public listed company this will be $66,000.00) and $1,320.00 for an individual. The penalty must be paid within 28 days (unless extended). If not paid, a prosecution may be commenced.

Enforcement Action

It can be expected that the ACCC and other regulators will actively enforce the ACL, and use the available enforcement powers, including civil pecuniary penalties. ASIC is already using its powers to issue infringement notices.

In relation to anti-competitive conduct under the Trade Practices Act, Grahame Samuel, the Chairman of the ACCC has said:

“Make no mistake, the ACCC will be seeking higher penalties. The courts will be asked to apply penalties in the new legislative context and the ACCC will be advocating for the penalty regime to be used to its maximum effect.”^[3]

It would seem likely that a similar approach will be taken to enforcement of the ACL. The ACCC has recently instituted proceedings against two mobile service providers for alleged misleading and deceptive conduct^[4] and against 5 companies and 4 individuals for alleged false and misleading claims about allergy treatments.^[5]

Regulations

Currently an Exposure Draft of Regulations has been released. The Regulations prescribe matters for the form and content of some documents. By way of example, one proposed Regulation likely to have wide effect is Regulation 89 Requirements for warranties against defects. This Regulation is made pursuant to Section 102 of the ACL and applies where a warranty is given in relation to goods or services in relation to repair, replacement or compensation etc if they are defective. The Regulation sets out specific details that must be included, in a document that is transparent, in specific language. Failure to follow the very prescriptive requirements of the Regulation (if it takes effect in its current form) will result in a breach of Section 102 of the ACL.

What Action Must be Taken by Businesses?

All businesses must urgently review their documentation for consumer and commercial transactions, and ensure that employees are aware of obligations and able, to ensure compliance with the ACL.

Documents, and practices, should not contravene the provisions relating to unfair contract terms, where applicable, or consumer guarantees, or be unconscionable or contain any misleading or deceptive, or false or misleading representations or materials. Apart from these very general requirements, there are numerous specific provisions in the ACL, and more are likely to come in Regulations.

As well as a careful review of consumer and commercial documentation, businesses should consider establishing and implementing appropriate compliance programs to ensure knowledge of and compliance with the requirements of the ACL. A compliance program will not necessarily prevent a breach of the ACL, which can occur without any intention for non-compliance, but, if effectively implemented, it should reduce the risk. Importantly, if a breach of the ACL does occur, and proceedings are instituted, the verifiable presence of a compliance program and culture may assist in mitigating the breach and reducing any penalty.^[6]

The time to act is now.