What: Stage 1 of the national consumer protection law reforms come into effect including a national unfair terms regime for consumer contracts and additional enforcement remedies.
Why: Marketing has become more sophisticated with consumers buying online and on the move through mobile devices. In addition, as we move towards a national market, the Government has stated that a single national consumer law is required to rationalise the myriad of generic consumer laws around Australia in order to reduce consumer confusion and reduce compliance burdens for business.
When: The national unfair contract term provisions come into effect on 1 July 2010 while the new penalty and enforcement provisions came into effect on 15 April 2010.
Who's impacted: Any business which supplies goods or services, or the sale or grant of an interest in land to an individual whose acquisition of the goods, services or interest in land is wholly predominantly for personal, domestic or household use or consumption.
What next: Affected businesses should take a proactive approach and review their standard form consumer contracts to ensure they comply with the new laws. Also watch this space for Stage 2 of the consumer law reforms, which are set to re-write the existing consumer protection provisions of the Trade Practices Act 1974 (TPA) relating to misleading and deceptive conduct and unconscionable conduct, together with significant additional changes to provisions such as those relating to product safety.
Stage 1 of Consumer Law Shakeup
The Federal parliament recently passed the Trade Practices Amendment (Australian Consumer Law) Act (No. 1) 2010 (the Consumer Law Act), which represents stage one of the Government's shake up of consumer protection laws. The Consumer Law Act has two key features:
- implementing a new unfair terms regime for standard form consumer contracts; and
- providing additional enforcement remedies.
The Consumer Law Act implements a new unfair terms regime which introduces a prohibition on unfair terms in standard form consumer contracts. Under the new law a term of a consumer contract will be void if:
- the term is unfair; and
- the contract is a standard form contract.
What is Unfair
A term of a consumer contract is "unfair" if:
- it would cause a significant imbalance in the parties' rights and obligations arising under the contract;
- it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
In taking into consideration whether a term is "unfair" the Courts must take into account:
- the extent to which the term is transparent; and
- the contract as a whole.
The Consumer Law Act provides a shopping list of 13 examples of unfair terms. Examples of terms which may be prohibited include:
- a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract; and
- a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract
It is important to note that the 13 examples included on the list are merely examples and are not definitive. Accordingly, just because a consumer contract contains a term which is on the examples list does not mean that term will automatically be void. The Court must consider the question of unfairness by going through the compulsory two stage inquiry (i.e., taking into account the extent to which the term is transparent and the contract as a whole). There may be many circumstances where a term of standard form consumer contract appears on the example list but is not considered unfair when taking into consideration the contract as a whole.
The inclusion of the examples list (as opposed to an exhaustive list of prohibited terms as originally proposed in the Bill) has been criticised by some commentators because of its potential to create confusion.
What is a consumer contract
The new unfair contract regime applies only to a "consumer contract". Under the Consumer Law Act a consumer contract is a contract for:
- a supply of goods or services; or
- a sale or grant of an interest in land,
- to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.
Standard form contracts
The new laws also only apply to standard form contracts. In considering whether a consumer contract is a standard form contract the Court must take into account whether the:
- supplier had all or most of the bargaining power relating to the transaction;
- contract was prepared by the supplier before any discussion relating to the transaction occurred between the parties;
- consumer was, in effect, required either to accept or reject the terms of the contract in the form in which they were presented;
- consumer was given an effective opportunity to negotiate the terms of the contract; and
- terms of the contract take into account the specific characteristics of the consumer or the particular transaction.
Examples of consumer contracts which are likely to be considered standard form contracts for the purposes of the new laws include shrink wrap licence agreements commonly provided with the sale of software and conditions which are required to be accepted by consumers when purchasing goods online.
The prohibition on unfair terms does not apply to certain terms to the extent those terms:
- defines the main subject matter of the contract; or
- sets the upfront price payable under the contract; or
- is a term required, or expressly permitted, by a law of the Commonwealth or a State or Territory.
There are also a number of shipping contracts which are excluded from the regime.
The new unfair terms regime commences on 1 July 2010. The prohibition on unfair terms does not apply to contracts entered into before 1 July 2010, however:
- if a contract is renewed on or after 1 July 2010, the prohibition applies to the contract as renewed, on and from the day on which the renewal takes effect; and
- if a term of a contract is varied on or after 1 July 2010, the prohibition applies to the term as varied (and only the varied term), on and from the day on which the variation takes effect.
In addition to the unfair terms regime the Consumer Law Act introduces a raft of additional enforcement provisions. T The increased enforcement powers include the power to:
- Pecuniary penalties: issue monetary penalties of up to $1.1 million for corporations ($220,000 for individuals) for breaches of certain provisions of the TPA
- Disqualification orders: seek orders to disqualify a person from managing a corporation
- Substantiation notices: issue substantiation notices relating to consumer protection in certain circumstances
- Orders to redress loss or damage suffered by non-party consumers: apply to courts for an order (other than an award of damages) to redress loss or damage suffered by a non-party consumer
- Infringement notices: issue infringement notices for suspected breaches of various provisions of the TPA
- Public warning notices: issue a public warning notice if the ACCC or ASIC have reasonable grounds to suspect that conduct which may constitute a contravention of the TPA or the ASIC Act is occurring.
The Stage 1 reforms introduced by the Consumer Law Act represent a significant shift in Australian consumer protection laws. The Stage 2 reforms are currently being considered by the Senate. As the new changes come into effect the Australian competition watchdog (the Australian Competition and Consumer Commission) will no doubt be ramping up its surveillance and compliance activity. Accordingly, now is the perfect time for consumer facing businesses to take a proactive approach and "get their house in order", review standard consumer contracts and make any necessary changes.
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