In a historic day for consumer protection, the first tranche of Australian consumer law reform, the Trade Practices Amendment (Australian Consumer Law) Bill 2009 (Bill), was passed earlier this week by the Senate. The new legislation amends the Trade Practices Act (TPA) and the Australian Securities Investments Commission Act 2001 (ASIC Act). The Bill:

  • introduces national unfair contract terms prohibitions which means that unfair terms found in standard form contracts between business and consumers will be prohibited
  • makes companies that engage in unconscionable conduct or make false or misleading representations liable for fines of up to A$1.1 million
  • inserts a new Part IX into the TPA to facilitate the application of the Australian Consumer Law (ACL) across the Commonwealth, facilitate its application as a law in each State and Territory, and make provision for its administration, enforcement and amendment.

These laws are likely to come into force on 1 July 2010. The national unfair contract terms provisions will apply to consumer contract terms entered into after the commencement date, and those renewed or varied on or after commencement.

Unfair contract terms

Under the new legislation, a term in standard form consumer contracts will be prohibited where:

  • the term causes a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect the legitimate interests of the party advantaged by that term, and would cause detriment (whether financial or otherwise) if it was relied upon or applied
  • the term is part of a standard form, non-negotiated consumer contract
  • the term is part of a contract entered into after the commencement date, or renewed or varied on or after commencement.

The unfair contract terms prohibition will not apply to business-to-business contracts.

The unfair contract terms provisions of the TPA will also not apply to the supply of financial services and financial products. However, the same unfair contract terms prohibitions will now be incorporated into the ASIC Act, which will apply to the supply of financial services and financial products.

In passing the legislation, the Senate introduced a number of amendments to the legislation, including:

  • amendments to the unfairness test which will align it more with the approach under the Victoria Fair Trading Act 1999. A third limb has been introduced to the unfairness test whereby the Court is to also consider whether the term would cause financial or non-financial detriment to a party if that term were to be applied or relied upon
  • before prescribing any future additional examples of unfair terms, the Minister must consider three factors: the detriment that a term of that kind would cause to consumers, the impact on business generally of prescribing that kind of term, and the public interest
  • the Minister's powers to prescribe prohibited terms by regulation has been removed
  • individual parties to a consumer contract will be able to seek a declaration that a term is unfair in Court and Tribunal proceedings.

The ACL Bill

The Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010 (ACL Bill) was also this week introduced into Parliament as part of the second tranche of the consumer law reform.

The ACL Bill aims to complete the agreements of the Council of Australian Government (COAG) made in July and October 2008. The effect of the new proposed legislation includes:

  • creating a national legislative scheme for consumer product safety
  • creating a national legislative scheme for statutory consumer guarantees
  • incorporating fair trading and consumer protection provisions of the TPA into the ACL regime creating an infringement notice regime to apply to certain provisions of the ACL as a law of the Commonwealth
  • changing the name of the TPA to the Competition and Consumer Act 2010
  • increasing enforcement powers, penalties and redress options for regulators and the Court.

Recommended action

Businesses should:

  • immediately review their standard form consumer contracts to ensure the terms comply with the new legislation
  • immediately review their staff's business practices and dealings to ensure behaviours do not offend the unconscionable conduct provisions
  • be mindful of the new proposed national laws under the ACL Bill relating to consumer guarantees, unsolicited selling, product safety, and enforcement powers of the regulators.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.