Australia: The Development Of "An Australian Consumer Law" – The Possible Unintended Consequences For Business

In October 2008, the Council of Australian Governments (COAG) agreed to introduce a "national consumer law", with the aim of overcoming the inconsistent outcomes, inefficiencies and costs that have apparently resulted from the current state based schemes. However, the scope of the reforms under consideration is far more extensive than many expected and, if implemented in the broadest form, will stretch laws currently directed at consumer protection into the realm of business to business transactions.

The background

In May 2008, the Productivity Commission published its "Review of Australia's Consumer Policy Framework", which analysed the current structure of Australia's consumer protection laws and provided recommendations for reform.

Five months later, the COAG agreed to implement these recommendations in the form of a "national consumer law". On 17 February 2009, the COAG released a consultation paper titled "An Australian Consumer Law" (Paper) which sets out the details of the proposed reforms. The Paper also sets the parameters of the Federal Government review of the existing consumer laws and seeks views on what changes ought to be made. Submissions on the Paper closed on 17 March 2009.

The fundamental philosophy of implementing nationally consistent consumer laws is sound, and will be broadly welcomed by all. However, the Paper discusses initiatives beyond harmonisation. In particular, some of the possible reforms could impact upon the permissible content of a range of business to business agreements, including standard form contracts, distribution agreements, joint venture agreements, franchise agreements, dealership agreements, sub-contracting agreements, leases and licence agreements.

Some of the most pertinent reforms, being restrictions on the use of standard form contracts, prohibitions on "unfair terms", and extension of the definition of "consumer", are discussed below.

Restrictions on "standard form" contracts and "unfair" terms

Similar to the restrictions that currently exist in Victoria, the COAG has agreed to a legislative model that prohibits "unfair" contract terms in consumer contracts, being any term that causes "...a significant imbalance in the parties' rights and obligations...and is not reasonably necessary to protect the legitimate interests of the supplier".

A list of the types of terms that may be classified as "unfair" include those that:

  • permit "the supplier" to unilaterally vary the terms of the contract
  • let only "the supplier" decide whether or not to renew the contract
  • permit "the supplier" to change the price of goods without providing the consumer with a right to terminate the contract, and
  • prevent the consumer from cancelling the contract.

Although generally only relevant to contracts with household consumers, the Paper states that the scope of the provision will include standard form contracts entered into by businesses. The reasoning provided is that small businesses are required to use standard form agreements in the same way as individual consumers, and often have no or a limited ability to meaningfully negotiate the agreement's terms.

The extension of principles of fairness into business contracts has long been resisted. Indeed, in the recent report by the Senate Standing Committee on Economics on the need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act, the Committee specifically declined to recommend the insertion of a definition of good faith into the Act, commenting that the introduction of a definition of good faith "would only add uncertainty".

Extending the definition of "consumer" and the reach of the regulations

The definition of "consumer" used in the new Australian Consumer Law will determine its application and scope. Broadly speaking, the Trade Practices Act and its State equivalents define a "consumer" as an entity that acquires goods or services valued at less than $40,000, or which are otherwise acquired for personal, domestic or household consumption (ie not for resale).

The Paper poses the following questions and comments in relation to this definition (pages 65 and 66):

  • Should the scope of the TPA's existing definition of "consumer" be expanded to cover a wider range of circumstances, such as goods used in business contexts?
  • Should a new definition of "consumer" specifically deal with small businesses and farming undertakings?
  • Should a new definition of "consumer" retain the monetary limit of $40,000 or should the limit be increased? If it were increased, what would be an appropriate amount?
  • Consideration could be given to whether the definition of 'consumer' should be widened to include:
  • the purchase of business goods or services for business purposes, other than where the goods are resupplied; and/or
  • business consumers or corporations purchasing consumer goods for business purposes.

If the definition of "consumer" is extended as contemplated above, this change may capture a wide range of business to business transactions not currently caught by consumer protection laws.

The definition of consumer will set the parameters for the application of the new law. The invitation for submissions and the Paper indicate that the Government is open to relatively wide reaching reforms to the current consumer law. As the content of the national consumer law will impact upon a wide range of businesses, those at risk of being adversely impacted should closely monitor all future developments.

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.

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