Insights

26/10/18

Australia’s consumer law gets a makeover

Snapshot

Federal Parliament has passed a range of reforms aimed at improving the operation of the Australian Consumer Law (ACL) and its ability to respond to new and emerging issues.

The first phase of reforms, passed in August 2018, significantly increased the maximum penalty for breaches of the ACL, and brought them into line with the maximum penalty for breaches under the competition provisions in the Competition and Consumer Act 2010 (Cth) (CCA).

The second phase of reforms was passed by Parliament on 18 October 2018 and came into effect today. These changes amend the CCA and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) by, for example:

  • Allowing admissions of fact to be relied upon in subsequent proceedings – This reflects a similar amendment made to Australia’s competition laws last year.

    We anticipate there will be increased pressure on defendants to limit the scope of admissions in settlements with the Australian Competition and Consumer Commission (ACCC) given the increased likelihood of follow on class actions.

  • Requiring that pre-selected extras be included in the advertising of a minimum headline price.

    Businesses that trade online will need to review their purchasing platforms to ensure compliance.

  • Extending consumer guarantees to the service of transporting and storing of goods where the consignee is an individual not engaged in business, trade, profession or occupation in relation to the goods.

    Businesses that offer delivery will need to ensure that they have procedures in place to ensure that goods are delivered within a reasonable amount of time and with due care and skill.

  • Providing more powers to the ACCC and Australian Securities and Investments Commission (ASIC) to investigate unfair contract terms and issue disclosure notices to third parties in product safety cases.

We look at each of these in detail below.

Background

In June 2015, the Commonwealth, State and Territory Consumer Affairs Ministers agreed that Consumer Affairs Australia and New Zealand (CAANZ) would conduct a review of the ACL. After a broad reaching review that spanned almost two years, CAANZ published its findings in the Australian Consumer Law Review – Final Report (CAANZ Report) in March 2017.

In August 2017, the Commonwealth, State and Territory Consumer Affairs Ministers agreed to 15 recommendations from the CAANZ Report. The first and second phase of reforms reflects most of these recommendations.

The Ministers also agreed to conduct public Regulatory Impact Statements for seven other recommendations made in the CAANZ Report and report back to the Legislative and Governance Forum on Consumer Affairs in August 2018. We anticipate that the ACL will undergo further significant changes in the coming months and years.

The first phase of ACL reforms

Maximum penalties

The maximum penalties for breaches of the ACL significantly increased as part of the first phase of ACL reforms. The maximum civil and criminal penalties increased:

  • for individuals – from $220,000 to $500,000 per contravention; and
  • for bodies corporate – from $1.1 million to $10 million, three times the value of the benefit obtained or 10% of the annual turnover in the previous 12 months (whichever is greater) per contravention.

This has brought the maximum penalties for breaches of the ACL in line with the maximum penalties for breaches of the competition provisions in the CCA. This reform came into effect on 1 September 2018 and applies to conduct on or after this date. For conduct before 1 September 2018, the previous penalties still apply.

Traders should ensure their ACL compliance programs are up to date and staff are adequately trained to minimise the risk of a large financial penalty.

The second phase of ACL reforms

Admissions of fact – prima facie evidence in subsequent proceedings

Currently, only findings of fact made by a court can be relied upon by private litigants as prima facie evidence in subsequent proceedings.

The second phase of reforms expands this by allowing admissions of fact to be relied upon in subsequent proceedings, easing the evidentiary burden for consumers and small businesses in private proceedings. A similar “follow on” provision was introduced into Australia’s competition laws in November 2017. Together, these amendments are likely to increase the pressure on defendants to limit the scope of agreed facts in negotiated settlements.

We anticipate there will be increased pressure on defendants to limit the scope of agreed facts when negotiating settlements with the ACCC given the increased likelihood of follow on class action.

ACL

Headline prices – pre-selected extras

As part of the second phase of reforms, fees or charges that are associated with pre-selected extras for a customer must now be included in the minimum headline price advertised. Traders will have 12 months after the bill comes into force to become compliant.

This reform is aimed at improving price transparency during online shopping. An example has been included in the bill about an airline advertising a flight for sale – If the carbon offset is pre-selected on the airline’s online booking system, the single price for the flight must include the carbon offset charge. This is because the person has not, at the time or before the time of the representation, deselected the carbon offset charge on the site.

Businesses that trade online will need to review their pricing on any purchasing/booking platforms where any operational extras are pre-selected for the customer.

Consumer guarantees – do not apply to transportation and storage of goods

Section 63 of the ACL lists services to which the consumer guarantees do not apply. The second phase of reforms clarifies the operation of one of these exceptions, making it clear that the consumer guarantees:

  • do not apply to the service of transporting and storing goods where the consignee acquired the goods in relation to their business, trade, profession or occupation; but
  • still apply where the consignee is transporting or storing goods for their own personal use.

Online shopping platforms and other traders transporting goods will need to ensure that delivery is provided with due care and skill and goods are supplied to individuals within a reasonable timeframe.

Expanded information gathering powers for ACCC and ASIC

(a) Unfair contract terms

Currently, the ACCC and ASIC can only use their information gathering powers in relation to contraventions or possible contraventions of their relevant legislation. However, they do not have the power to investigate unfair contract terms.

Under the ACL, the inclusion or reliance on an unfair contract term is not a contravention of the CCA. Rather, the ACL only provides that a court can declare that a term in a standard form consumer or small business contract is unfair, and therefore void.

The second phase of reforms give the ACCC the power to issue information gathering notices in suspected unfair contract term cases. Similarly, ASIC will have the power to investigate suspected unfair contract terms in consumer or small business contracts regarding financial products or financial services.

The ACCC has been very vocal about the need to pass this reform. Rod Sims, Chairman of the ACCC stated that the ACCC needs this reform to “more efficiently enforce unfair contract term protections”. Given these comments, we anticipate that information gathering notices will be imminent now this provision has come into effect.

(b) Product safety

The second phase of reforms extends the ambit of people who can be issued with a disclosure notice to those parties who may possess relevant information, documents or evidence about the safety of goods or services.

Previously, disclosure notices could only be issued by the Commonwealth Minister or the ACCC to a supplier of an unsafe product or service. Failure to comply is an offence with a penalty of $420,000 for a body corporate and $8,400 for an individual.

The second phase of reforms provides the Commonwealth and the ACCC with the power to issue disclosure notices to a wider range of parties. Disclosure notices can now be issued to relevant third parties including other traders, test laboratories, safety consultants, as well as consumers/persons who have purchased or been injured by a hazardous product.

These reforms increase the scope of persons subject to the regulatory burden of complying with a disclosure notice.

New mandatory wording – warranties for supply of services

Regulations were also created in June 2018 as part of the second phase of reforms. The Competition and Consumer Regulations 2010 (Cth) now require mandatory wording where a warranty against defects is provided in connection with the supply of services or the supply of goods or services together. Where a warranty is provided for a service, the following mandatory text must be provided:

Our services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with the service, you are entitled:

  • to cancel your service contract with us; and
  • to a refund for the unused portion, or to compensation for its reduced value.

You are also entitled to be compensated for any other reasonably foreseeable loss or damage. If the failure does not amount to a major failure you are entitled to have problems with the service rectified in a reasonable time and, if this is not done, to cancel your contract and obtain a refund for the unused portion of the contract.

Previously, the mandatory text was only required where a warranty was provided in connection with the supply of goods. Traders have until 8 June 2019 to be compliant with these changes.

Other reforms

The second phase of reforms also:

  • extends the unconscionable conduct protections to publicly listed companies because “public listing is not necessarily a reflection of a trader’s size, level of resourcing or its ability to withstand unconscionable conduct”;
  • allows the ACCC to apply for a court order that a third party perform community service at the expense of the defendant;
  • amends the definition of “unsolicited services” to include unrequested services that have not been provided but have been billed (so that the provisions operate as intended);
  • amends the definition of “unsolicited consumer agreements” to clarify that they can be entered into in a public place;
  • that terminology in the consumer protection provisions in the ASIC Act relating to land are consistent with similar provisions in the ACL; and
  • clarifies that ACL related consumer protections in the ASIC Act that apply to financial services also apply to financial products.

Watch this space

The first and second phases of reform to the ACL make significant progress in clarifying and strengthening Australia’s consumer protection and product safety regime. However, there are still a number of outstanding proposals recommended by CAANZ and agreed to by the Ministers that have not yet been passed by Parliament.

The exposure draft of the bill proposed a statutory definition of “recall” and increased penalties for failing to notify the Commonwealth Minister of a voluntary recall. Neither the Second Reading Speech nor the Explanatory Memorandum comment on these omissions. However, during the consultation process, industry raised concerns with the Government’s proposal and its impact on businesses. As a result, the Government decided to withdraw the amendment from the bill and conduct further consultation.

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