Section 11 of Doing Business in Australia
Australia has a single, national consumer law known as the Australian Consumer Law (ACL). It applies nationally and in all states and territories. The ACL is incorporated in a Schedule of the CCA. The ACL includes:
- general protections against misleading and deceptive conduct and unconscionable conduct;
- specific protections against unfair practices, including prohibitions against false and misleading representations;
- an unfair contracts regime covering standard form contracts;
- laws relating to consumer guarantees;
- product safety laws and enforcement systems;
- laws regulating unsolicited consumer agreements (i.e. door-to-door sales and other direct marketing); and
- penalties, enforcement powers and consumer redress options.
Misleading and deceptive conduct and unconscionable conduct
The ACL prohibits a person, in trade or commerce, from engaging in misleading or deceptive conduct. This
prohibition is not limited to the supply of goods or services and creates a broad, economy-wide norm of conduct.
The ACL also prohibits:
- conduct which is unconscionable under the general law;
- unconscionable conduct in connection with the supply or possible supply of goods or services in consumer transactions; and
- unconscionable conduct in some business transactions.
The ACL contains specific prohibitions against certain false or misleading representations, such as:
- false or misleading representations about goods and services;
- certain types of false or misleading representations made, in trade or commerce, in connection with the sale or grant of an interest in land;
- false or misleading representations concerning the profitability, risk or any other material aspect of certain business activities;
- conduct that is liable to mislead a person seeking employment as to the availability, nature, terms or conditions of the employment or another matter relating to the employment;
- conduct, in trade or commerce, that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, suitability for purpose or quantity of any goods; and
- false or misleading representations regarding the “country of origin.”
The ACL also prohibits other unfair practices, including:
- offering gifts, prizes or other free items with the intention of not providing them;
- bait advertising – advertising goods or services for supply at a specified price where there are reasonable grounds for believing that the person will not be able to offer reasonable quantities of goods or services at that price for a reasonable period, having regard to the nature of the market and the advertisement; and
- wrongly accepting payment – accepting payment for goods or services if the person does not intend to supply them, is aware they can’t supply them or can’t supply them within a reasonable time.
Unfair contract terms
Under the ACL, a term in a standard form “consumer contract” or a standard form “small business contract” will be void if that term is unfair. However, under changes agreed to in November 2020 by the Federal, State and Territory ministers responsible for fair trading and consumer protection, significant amendments have been proposed to the laws regulating unfair contract terms, including making them illegal and subject to civil penalties, and expanding the range of businesses to whom the regime applies. Timing for the changes has not yet been announced.
A “consumer contract” is defined as a contract for the supply of goods or services (including financial services and financial products as defined in the ASIC Act) or the sale or grant of an interest in land to an individual for predominantly personal, domestic or household use or consumption.
A “small business contract” is currently defined as a contract for the supply of goods, services (including financial services and financial products as defined in the ASIC Act) or a sale or grant of an interest in land where:
- at the time the contract was entered into, at least one party to the contract is a business (including a not for profit business) that employs fewer than 20 persons (“Small Business Threshold”); and
- the “upfront price” payable under the contract is not more than $300,000 (or $1,000,000 if the duration of the contract is more than 12 months).
However, under the planned changes announced in November 2020, the definition of a “small business contract” is proposed to be expanded by:
- increasing the Small Business Threshold to fewer than 100 employees or an annual turnover of not more than $10 million; and
- removing the cap on the “upfront price” payable, so there will not be a monetary limit on the value of the contract for the unfair contract terms provisions to apply.
While the term “standard form contract” is undefined, in broad terms it is a contract that is not subject to negotiation between the parties. Under planned changes, the definition of a standard form contract will be clarified, for example, by refining some of the factors that courts must take into account when determining if a contract is a “standard form” one.
The unfair terms regime does not apply to terms in standard form contracts which define the subject-matter of the contract; establish the upfront price payable; or are required or permitted by law. The unfair contract term regime also does not cover terms in negotiated (as opposed to standard form) contracts, as well as contracts for the carriage of goods by ship, a charter party of a ship and contracts for marine salvage or towage.
Under the unfair contract term provisions, a term of a standard form consumer contract is void if the term is unfair. In simplistic terms, a term will be unfair if it:
- would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
- is not reasonably necessary 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 relied on.
Avoid the pitfalls
The ACL contains some examples of unfair contract terms. However, reviewing contract terms to establish if they are unfair terms is not a straightforward exercise, especially given the general nature of the legislation and lack of any real case law in this area. Persons dealing in standard form consumer contracts or small business contracts (as defined above) should seek advice when developing their contracts.
The ACL also imposes consumer guarantees which provide consumers with a statutory basis for seeking remedies where the guarantees are not met.
A “consumer” means a person who acquires goods or services:
- of a kind ordinarily acquired for personal, domestic or household use or consumption; or
- for $40,000 or less. From 1 July 2021, this monetary threshold will increase from $40,000 to $100,000.
However a “consumer” does not include a person acquiring goods for the purpose of re-supply.
It is important to note that this definition is different from the definition of “consumer contract” which defines when the unfair terms regime applies.
In applying the monetary threshold referred to above, there are “unbundling” provisions which apply. Generally speaking, individual items may be considered separately in determining whether they fall under the monetary threshold, if they are available for sale separately.
The following table summarises the consumer guarantees:
Title: guarantee that the supplier has the right to dispose of the property in the goods.
Undisturbed possession: guarantee that the consumer’s possession of the goods will not be disturbed (except for disclosed securities, charges or encumbrances).
Undisclosed securities: guarantee that the goods are free of undisclosed securities.
Acceptable quality: guarantee that the goods will be of acceptable quality (except where prior disclosure of defects, defects caused by the consumer, or prior examination ought to have revealed the defects).
Fitness for purpose: guarantee that the goods will be fit for any purpose disclosed by the consumer, or represented by the supplier (except where unreasonable or no reliance on the skill or judgment of the supplier).
Match description: guarantee that the goods will match their description.
Match sample: guarantee that the goods will match a sample or demonstration model, the consumer will have a reasonable opportunity to compare the goods with the sample, and the goods are free from any defect that (i) would not be apparent on reasonable examination, and (ii) would cause the goods not to be of acceptable quality.
Repairs and spare parts: (manufacturer only) guarantee that repairs and spare parts will be available for a reasonable time (except where unavailability is disclosed).
Express warranties: guarantee that any express warranty given by a manufacturer or supplier is complied with.
Due care and skill: guarantee that the services will be rendered with due care and skill.
Fitness for purpose: guarantee that the services will be fit for their intended purpose or result (except where unreasonable or no reliance on the skill or judgment of the supplier).
Reasonable time for supply: guarantee that the services will be provided in a reasonable time (except where the time of performance is stated in the contract or to be determined).
The ACL guarantees cannot be excluded, restricted or modified. However, where the goods are less than the monetary threshold and are not goods for domestic use, a supplier may limit its liability under the guarantees to: the replacement of the goods or the supply of equivalent goods; the repair of the goods; or the payment of the costs of doing those things (unless it is not fair or reasonable to do so).
As noted above, the ACL includes a guarantee that a supplier will comply with any “express warranty”. This guarantee is far-reaching and it is worth noting that it:
Rather than a consumer seeking a remedy by bringing an action for breach of condition or warranty under normal contractual principles, the ACL provides specific remedies to consumers depending on the severity of a supplier’s failure to comply with a guarantee. In certain circumstances, this includes the right to reject the goods and request a refund or replacement goods.
The ACL prohibits the making of false or misleading representations concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy that may be available to a consumer under the ACL. This might include exclusions and limitations of liability which do not acknowledge the existence of statutory entitlements such as the ACL.
Most of the consumer guarantees apply to conduct “in trade or commerce”. This is defined as trade or commerce within Australia or trade or commerce between Australia and places outside Australia. The ACCC has interpreted this phrase broadly in recent years and has initiated proceedings against a number of foreign corporations which are domiciled overseas, on the basis that they engaged in “trade of commerce” by supplying goods and services to Australian consumers (usually via internet sales).
Warranties against defects
Many suppliers and manufacturers choose to offer voluntary warranties in relation to their goods or services. The ACL regulates these as “warranties against defects”, and prescribes certain requirements regarding their form and content. For example, any such warranties must be in a document that is transparent, sets out the procedures for the consumer to claim the warranty, includes a prescribed form of words which clarify that the warranty against defect is in addition to (and not a substitute for) the consumer’s statutory rights under the ACL, and includes other specified details. Additionally, because the ACL requires that the document complying with these requirements is provided at the same time as the warranty, it is not sufficient to simply provide details of a website or telephone number that consumers can visit or call to obtain the necessary information.
Unsolicited consumer agreements
The ACL also includes a regime governing unsolicited consumer agreements (i.e. door-to-door and telemarketing sales), imposing various obligations for the benefit of consumers.
An agreement is an unsolicited consumer agreement if:
- it is for the supply, in trade or commerce, of goods or services to a consumer;
- it is made as a result of negotiations between a dealer (not necessarily a supplier) and a consumer either in person (not at the supplier’s premises) or by telephone;
- the consumer did not instigate the negotiations for the supply; and
- the total price is over $100 or cannot be determined at the time of the agreement.
Where the negotiations for the supply of goods or services take place in person, the ACL imposes various conditions with respect to such negotiations, including: the permitted hours when a dealer may call on the consumer; the obligation to notify the consumer of their identity and the purpose of negotiations; the obligation to leave on request and not contact the consumer for at least 30 days; and the obligation to notify the consumer of their right to terminate and how to do so.
The ACL also imposes obligations on the supplier to disclose to the consumer a copy of the agreement and that such agreement must contain the full terms of the supply including consideration, delivery charges, termination rights and the supplier’s details. Also, the agreement must be signed by the consumer (unless negotiated by telephone) and any amendments to it must be signed by both parties.
The ACL provides that consumers may terminate the agreement within a 10-day cooling-off period after it is made, and that during this period the supplier must not supply the goods or services or accept or request any payment for them. Consumers may also terminate the agreement within a specified time period where a supplier breaches one of the above obligations.
The CCA contains the following enforcement powers which are available to the ACCC or the state and territory consumer protection agencies:
- Undertakings – a regulator can accept court-enforceable undertakings in connection with a breach of a matter for which the regulator has a power or function under the ACL.
- Substantiation notices – these are notices issued by the regulator to a business requesting information relevant to substantiating claims made in the marketplace that the regulator considers may contravene the ACL. The power is intended as a preliminary investigative tool where the ACCC suspects a representation may not be able to be substantiated.
- Infringement notices – if the ACCC has reasonable grounds to believe that a person has contravened one of the provisions of the CCA or the Australian Securities and Investments Commission Act 2001 (Cth) that is subject to civil pecuniary penalties (known as “infringement notice provisions”), the ACCC or ASIC may issue an infringement notice for the suspected contravention.
- Public warning notices – these are notices issued by the regulator which inform the public of a suspected breach of certain provisions of the ACL
- Information gathering notices – if the ACCC or ASIC (in respect of financial products or services) suspect an unfair contract term, they can issue information gathering notices and investigate.
- Disclosure notices – the ACCC and the Commonwealth can issue disclosure notices to parties who may possess relevant information, documents or evidence about the safety of goods or services (including relevant third parties).
Chapter 5 of the ACL makes a number of remedies available to a regulator, and/or to private litigants for breaches of the consumer protection provisions.
Remedies available to a regulator and private litigants include:
- injunctions – the ACL clarifies the types of restraining and performance orders that can be made; and
- a declaration in certain circumstances.
Remedies available to private litigants include:
- damages; and
- a compensation order if they have suffered or are likely to suffer loss or damage because of a contravention of Chapter/s 2, 3 or 4 of the ACL.
Remedies available to a regulator include:
- a redress order (other than for damages) in favour of a non-party consumer;
- non-punitive orders, e.g. community service, establish a compliance program, establish a training program, engage in corrective advertising;
- an adverse publicity order; and
- an order disqualifying a person from managing a corporation.
In addition to enforcement powers and remedies, a regulator may apply to the court for civil pecuniary penalties or criminal penalties for contraventions of a number of the provisions of the ACL.
For individuals, the maximum penalty is $500 000 per contravention. For bodies corporate, the maximum penalty is $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 guide is current as of April 2021.