Bills Digest no. 19 2009–10
Trade Practices Amendment (Australian Consumer Law) Bill
2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status.
Other sources should be consulted to determine the subsequent
official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Trade Practices Amendment (Australian
Consumer Law) Bill 2009
Date introduced: 24 June 2009
House: House of
Representatives
Portfolio: Treasury
Commencement: There are various commencing dates as set out in the
table in clause 2.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The purpose of the Bill is
to:
- amend the Trade Practices Act 1974 (TPA) to establish
the Australian Consumer Law (ACL)[1] as a schedule to that Act, including
provisions to address unfair contract terms
- introduce into the TPA new penalties, enforcement powers and
consumer redress options, and
- amend the Australian Securities and Investments Commission
Act 2001 (ASIC Act) to introduce corresponding provisions that
will apply in respect of financial services, in relation to unfair
contract terms, penalties, enforcement powers and consumer redress
options.
On 11 December 2006, the then Treasurer, the Hon. Peter Costello
requested that the Productivity Commission undertake an inquiry
into Australia s consumer policy framework. The principal
legislative provisions which regulate Australia s consumer policy
framework are contained in the TPA and equivalent provisions in
state and territory Fair Trading Acts.
According to the terms of reference , the Productivity
Commission was to consider, amongst other things:
- the need to ensure that consumers and businesses, including
small businesses, are not burdened by unnecessary regulation or
complexity
- the shared responsibility of the Australian Government and the
State and Territory governments for consumer policy, and
- the importance of promoting certainty and consistency for
businesses and consumers in the operation of Australia s consumer
protection laws.[2]
In March 2008 the Business Council of Australia published its
paper Towards a Seamless Economy: modernising the regulation of
Australian business , in which it declared:
Despite the unified image we present to the
world, doing business across Australia is made unnecessarily
confusing, complex and costly by the inability of governments to
make adequate progress in harmonising and rationalising existing
regulation. [3]
Anyone can think of companies that operate in
every state and territory. Our largest retailers, banks, airlines
and telecommunications companies operate around the nation But the
exposure to multi-jurisdictional regulation is much broader than
just Australia s largest companies. It goes to a small family
business in a regional town alongside a state border, or a
single-person operation selling services over the internet to
customers in other states.
All of which begs the question: is Australia s
regulatory environment keeping up with the changing face of
Australian business?[4]
In practice, a seamless economy is one where
the regulatory requirements placed on a business are not determined
by geographical location but are consistent across the
country.[5]
The Business Council of Australia called on government leaders,
via the Council of Australian Governments (COAG), to speed up
reform to harmonise regulations across the country, so that by the
end of 2010 businesses would face a consistent environment wherever
they operated.[6]
The final report of the Productivity Commission, published on 30
April 2008 recommended the introduction of a single national
generic consumer law.[7] In addition, the Productivity Commission stated that the
new law should include a provision voiding unfair contract terms
that have caused consumer detriment .[8] COAG gave its broad agreement to those
recommendations on 2 October 2008.[9]
On 17 February 2009, the Treasury issued a consultation paper
entitled, An Australian Consumer Law: Fair Markets Confident
Consumers , which was intended to explain the nature and scope
of the proposed reforms and seek views on some aspects of those
reforms.[10] The
Treasury received 101 submissions, of which 87 were public
submissions.[11]
In addition to the consultative process about the broad issues
surrounding the introduction of an Australian Consumer Law, the
Treasury also launched a more specific consultation about unfair
contract laws on 11 May 2009.[12] The Treasury received 96 submissions, of which 88
were public submissions.[13]
The primary concerns expressed in submissions to Treasury
related to the unfair contracts provisions particularly the
potential effects of the application of those provisions to
business-to-business transactions.
Unfair contract terms are those that disadvantage one party but
that are not reasonably necessary to protect the legitimate
interests of the other. [14]
In 2006 the Standing Committee on Law and Justice of the
Legislative Council of the New South Wales Parliament (the NSW
Standing Committee) conducted an inquiry into unfair terms in
consumer contracts. The NSW Standing Committee was informed that
accurate data collection in relation to unfair contractual terms as
a particular consumer issue was not available. Nevertheless
the anecdotal evidence presented by witnesses
and submission makers working in the area of consumer complaints,
the law and various industries clearly indicates that this is a
very real and significant ongoing problem for a large number of
consumers in NSW as it is elsewhere.[15]
The Productivity Commission stated:
There is persuasive evidence that notionally
unfair terms are commonplace in Australian contracts However, the
rationale for action principally rests on the unreasonable
use of unfair terms, not their existence. This is
because, perceptions of their inherent unfairness aside, dormant
unfair terms often do not cause detriment to consumers.
The evidence about the detrimental use of
unfair terms is of variable quality. Much of the cited evidence is
anecdotal Nevertheless, there is quantitative evidence from
Victoria[16] and
from various other countries that suggests that somewhere between
about 5 and 15 per cent of consumers might be detrimentally
affected by unfair terms.[17]
Based on that evidence, the Law Council of Australia did not
support the inclusion of unfair contracts provisions at all,
stating that the existing laws on unconscionable conduct in both
the TPA[18] and
ASIC Act[19] were
sufficient.[20]
In addition other submissions, for example from Master Builders
Australia, argued that the unfair contracts provisions should not
apply to specific industries which are already more than adequately
covered by state legislation, such as that which exists in respect
of domestic building contracts.[21]
In comparison, Choice supported the introduction of the proposed
provisions, particularly in respect of essential or near essential
services such as energy and telecommunications.[22]
The exposure draft of the unfair contract terms proposed that
these provisions would apply to business-to-business contracts as
well as consumer contracts. This was in line with comments by the
Productivity Commission that:
Small businesses have a dual role in consumer
policy: as well as being suppliers of goods and services, they are
consumers in their own right. Indeed, in their dealings with larger
businesses, small businesses can face many of the same issues as
individual consumers, particularly relating to unequal bargaining
power and the lack of resources to effectively negotiate
contracts.[23]
That has not happened in this Bill, which applies the provisions
only to business-to-consumer contracts. The removal of
business-to-business contracts from the Bill was largely in
response to the submissions from business to the Treasury
consultation paper. Many of those submissions indicated that
applying the proposed unfair contract provisions to
business-to-business contracts would create widespread commercial
uncertainty and would undermine the efficiencies to big business
brought about by the use of standard form contracts.[24]
The biggest loser in terms of that decision is small
business.[25]
However, it may be that the proposed pecuniary penalties also
contained in the Bill and which will apply to, amongst other
things, the prohibition against unconscionable conduct, will
provide some consolation.
The Productivity Commission recommended that the unfair contract
provisions should be in the following terms:
- a term is established as unfair when, contrary to the
requirements of good faith, it causes a significant imbalance in
the parties' rights and obligations arising under the contract
- there would need to be material detriment to consumers
(individually or as a class)
- it would relate only to standard-form, non-negotiated
contracts
- it would exclude the upfront price of the good or service,
and
- it would require all of the circumstances of the contract to be
considered, taking into account the broader interests of consumers,
as well as the particular consumers affected.[26]
The unfair contracts provisions in the Bill are similar but not
the same as those recommended by the Productivity Commission.
Contrary to the Productivity Commission s recommendation, the
reference to good faith was removed from the Bill on the grounds
that there is, as yet, no universally accepted meaning in Australia
of this term.[27]
It has been said that
In Australia, some courts have accepted, to
some degree, the implication of obligations of good faith in
contractual dealings. For instance, it has been suggested that good
faith embraces three notions: an obligation on the parties to
cooperate in achieving their contractual objects, compliance with
honest standards of conduct and compliance with standards of
conduct which are reasonable having regard to the interests of the
parties. However, uniform acceptance and understanding of concepts,
content and implications of good faith obligations has not emerged
in the Australian jurisdictions.[28]
The Productivity Commission recommended the unfair contract
provisions contain a reference to material
detriment to consumers to allow regulators or consumers to
take action where detriment has been suffered as a result of the
use of an unfair term .[29]
However, the Bill contains a much broader provision which allows
that a term in a consumer contract will be unfair if there is a
substantial likelihood that it would cause
detriment, whether financial or otherwise, if it
was applied or relied on. According to the relevant consultation
paper this is designed to allow the court to consider situations
where there may be other forms of detriment, such as inconvenience,
delay or emotional distress .[30]
In relation to the requirement that the detriment be material
George Raitt of Piper Alderman suggested that:
this ought to be retained if a term in a
standard form contracts [sic] operates unfairly for vulnerable or
disadvantaged consumers, and that class accordingly receive a
benefit, the impact on all the other business transactions of the
supplier needs to be considered and adverse implications of
compensating a minority of consumers needs to [be] managed to avoid
opening the floodgates.[31]
GE Capital submitted that:
without suffering actual detriment, a mere
change in personal circumstance or change of heart could lead to
claims of likelihood of detriment, and in long term contracts, the
risk of those claims is significantly greater.[32]
Master Builders Australia posed the question:
will it include the potential for damages for
emotional distress, a matter normally excluded at common
law?[33]
The requirement that the contract be considered, taking into
account the broader interests of consumers has been removed. This
means that a Court, in determining whether a contract term is
unfair may take into account broader public policy
considerations, but will not be required to do
so.
In accordance with the COAG agreement,[34] the Australian Consumer Law will be
enacted both nationally and in each of the States and Territories
by means of an application law scheme. In this case the law will be
legislated by the Australian Parliament, and each State and
Territory will apply the nationally agreed law. Amendments to the
national law would then require agreement by jurisdictions
according to an Inter-Governmental Agreement.[35]
However it has been reported that:
Cracks are emerging in the move towards a
national consumer law after West Australian Treasurer Troy Buswell
accused the federal government of ignoring the states and making
unilateral changes that disadvantage small business. [36]
Importantly it should be noted that the Australian
Consumer Law is to be introduced by two separate
Bills.
This Bill is the first one and sets the ground work. Amongst
other things, it amends the TPA to establish the Australian
Consumer Law as a schedule to the TPA, sets out the rules for
applying and amending the Australian Consumer Law and inserts the
provisions about unfair contract terms. This means that when this
Bill is passed the Australian Consumer Law will only contain the
provisions about unfair contract terms. The States and Territories
will then be able to implement the Australian Consumer Law by way
of mirror legislation.
The second Bill, which has not yet been introduced, will
implement the bulk of COAG s agreed reforms as part of the
Australian Consumer Law. This will entail:
- transferring the existing consumer protection and related
provisions of the TPA into the Australian Consumer Law
- amending those provisions to reflect best practice in existing
State and Territory consumer laws
- introducing a new national product safety regulatory framework,
and
- amending the ASIC Act to ensure its consistency with the
Australian Consumer Law.[37]
On 25 June 2009 the Senate referred the Trade Practices
Amendment (Australian Consumer Law) Bill 2009 to the Economics
Committee for report by 7 September 2009. The closing date for
submissions was 31 July 2009.[38] The Economics Committee received 47
submissions.
According to the Explanatory Memorandum, the Bill has no
significant financial impact on Commonwealth expenditure or
revenue.[39]
However, it is noted that the Bill requires both the Australian
Competition and Consumer Commission (ACCC) and the Australian
Securities and Investments Commission (ASIC) to play a greater
regulatory role without, apparently, either having received an
increase in funding in the 2009 10 budget.[40]
It would appear that the main cost arising from the Bill will be
the transitional cost to business which may have to review and
alter its existing standard form contracts for business-to-consumer
transactions.
The ACCC administers the TPA. In broad terms, the
TPA covers unfair market practices, industry codes, mergers
and acquisitions of companies, product safety, product labelling,
price monitoring, and the regulation of industries such as
telecommunications, gas, electricity and airports[41] but does not
apply to financial services.
The ASIC is established by section 8 of the ASIC Act as
Australia s corporate, markets and financial services regulator. In
the context of this Bill, the role of ASIC as a financial services
regulator is primarily one of consumer protection.
The Bill gives the ACCC and the ASIC a broader range of
enforcement options, than those which currently exist by empowering
them to send substantiation notices and infringement notices as
well as imposing pecuniary penalties and issuing public warning
notices in relation to particularly recalcitrant conduct.
The Bill proposes to empower the ACCC and the ASIC to issue
notices to seek information relevant to the substantiation of
claims or representations, or in relation to the ability of a
person to supply goods and services. There has been widespread
publicity about the application of substantiation notices to, for
example, the real estate industry. It was reported that real estate
agencies involved in under-quoting and dummy bidding will be hit
with fines of up to $1.1 million from January 1 [42] and that the changes will allow
unsuccessful bidders who feel they have been duped by artificially
low reserve prices to recoup pre-purchase costs from vendors and
real-estate agents.[43]
The Australian Bankers Association (ABA) opined that such a
broad power could lead to fishing exercises by the relevant
regulators and therefore significantly increase the administrative
burden of businesses without corresponding benefits. In any event,
the ABA took the view that the power should be qualified so that a
substantiation notice should not be given except where the relevant
regulator had objectively verifiable and reasonable
grounds.[44]
In the same vein, Brambles considered that the new power given
to regulators to issue substantiation notices is one of the most
potentially damaging for businesses in the Bill.[45] Of particular concern to
Brambles was the fact that businesses which have been issued with
substantiation notices may have their reputations damaged when
there are no reasonable grounds for believing that they have
engaged in unlawful conduct.
However, it should be noted that the Bill is silent about
whether the ACCC will publish any information about the recipients
of those notices.
The Bill contains amendments to the TPA and the ASIC Act to
allow the ACCC and the ASIC to seek certain orders for the benefit
of persons that are not parties to proceedings. The need for such
amendments arises from the Cassidy case[46] by the Full Court of the Federal
Court. In that case the ACCC alleged that Medibank Private had made
a number of representations, including about the length of the
waiting period before benefits could be claimed, and the cost of
private health insurance, which were false and misleading.
In bringing the case to the Court, the regulator requested
orders be made that:
- Medibank Private identify and write to each of the persons who,
in reliance on the false and misleading claims, had entered into a
contract of private health insurance with Medibank Private during
the relevant period, and
- Medibank Private offer those persons appropriate
compensation.
The issues for the Court were whether it was empowered under the
relevant legislation to make orders in favour of persons who were
not actually formal parties to the proceedings and whether it could
require Medibank Private to offer compensation to those third
parties. It decided that it could not. This limited the power of
the regulator to represent those persons who had suffered damage
due to a false or misleading statement by a business. Part 4 of
Schedule 2 and Part 5 of Schedule 3 will address this
situation.[47]
The Law Council of Australia acknowledged that this is a
significant amendment to the existing law and expressed the view
that it is vital that the provisions set out clearly how the
process, particularly with reference to determining who falls
within the affected class, will operate.[48]
At present the TPA does not give the ACCC the power to issue
infringement notices. However the Corporations Act 2001
does empower the ASIC to issue infringement notices for breaches of
the continuous disclosure provisions. The power was inserted by the
Corporate Law Economic Reform Program (Audit Reform and
Corporate Disclosure) Act 2004.[49]
Prior to [this amendment], the only method of
enforcement available to the ASIC in respect of a breach of the
continuous disclosure obligations was taking action against an
entity through the courts or negotiating enforceable undertakings.
The ASIC contended that the available remedies were time consuming
and placed excessive demands on limited resources [so that] many
minor breaches were not prosecuted. The ASIC claimed that it needed
a quicker and more immediate response for less serious
violations.[50]
Those amendments were very contentious. The key criticisms
related to the absence of sufficient checks and balances on the
ASIC s power.[51]
There is also an argument that the exercise of the power by the
ASIC is unconstitutional.[52]
Although the Explanatory Memorandum indicates that infringement
notices will facilitate the payment of relatively small financial
penalties in relation to relatively minor contraventions that may
not otherwise be pursued through the Courts [53] there is no provision in the Bill
stating that infringement notices are to be issued exclusively in
respect of minor contraventions, nor is there a definition of what
constitutes a minor contravention .
The Bill also contains amendments which will allow the ACCC or
the ASIC to issue a warning notice in respect of a suspected breach
of certain provisions within the TPA or the ASIC Act or a failure
to respond to a substantiation notice, provided certain conditions
are satisfied.
The Motor Trades Association of Australia recognised that the
power to name and shame can be quite effective in securing
behaviour change. However, it stressed that reputation is extremely
important to business. On that basis, it suggested that if the
regulator is ultimately shown to be incorrect, then it should be
liable for damages to that business.[54]
Unfair contract terms
Item 1 of Schedule 1 of the
Bill inserts the Australian Consumer Law into the TPA as Schedule 2
to that Act. The Schedule will contain eight new sections which
relate to unfair and prohibited contract terms.
Part 1 of Schedule 3 of the
Bill inserts new subdivision BA into Division 2 of
Part 2 of the ASIC Act. The new subdivision contains eight new
sections which relate to unfair and prohibited contract terms.
Those provisions are in essentially the same terms as those which
are proposed for the TPA except that they are directed at financial
products or contracts for the supply, or possible supply of
services that are financial services.[55] The comments below, although couched
in terms of the proposed amendments to the TPA are also relevant to
the ASIC Act. The equivalent amendment to the ASIC Act is noted in
the footnotes.
Proposed subsection 2(1) provides that a term
of a consumer contract is void if the
term is unfair and the contract is a
standard form contract . If a term is
void , it is legally non-existent and cannot be enforced or relied
on .[56] The
contract itself will continue to bind the parties in respect of all
its other terms if it is capable of operating without the unfair
term: proposed subsection 2(2).[57]
The term consumer contract is defined
in proposed subsection 2(3)[58] as a contract for either the 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.[59]
Under the terms of this definition, the unfair contract provisions
will only apply to contracts between individual consumers, or
contracts between a business and a consumer. Interestingly, there
has been no attempt to base the new definition of
consumer contract on the existing
definition of consumer in section 4B of
the TPA or section 12C of the ASIC Act.
Proposed section 3 provides that 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, and the term is not reasonably
necessary to protect the legitimate interests of the party who
would be advantaged by the term. There is an automatic presumption
that a term of a consumer contract is not reasonably necessary to
protect the legitimate interests of the party who would be
advantaged by the term. The onus is on the advantaged party to
prove otherwise: proposed subsection 3(4).[60]
In cases where a court is to decide about whether a term is
unfair, proposed subsection 3(2)[61] provides that the court:
- may take into account such matters as it
thinks relevant
- must take into account the following:
- the extent to which the term would cause, or there is a
substantial likelihood that it would cause, detriment (whether
financial or otherwise) to a party if it were to be applied or
relied on
- the extent to which the term is transparent[62]
- the contract as a whole.
Proposed section 4 lists the kinds of terms of
a consumer contract that may be unfair
.[63] The kinds of
terms can be broadly grouped as follows:
- proposed paragraphs 4(a), (b), (d), (e), (f),
(g) and (h) are examples of types of
terms that allow a party to make changes to key elements of a
contract, including terminating it, on a unilateral basis
- proposed paragraphs 4(i), (k), (l) and
(m) are examples of types of terms that have the
effect of limiting the rights of the party to whom the
standard-form contract is presented
- proposed paragraph 4(c) refers to terms that
penalise, or have the effect of penalising, one party but not the
other, for a breach or termination of the contract
- proposed paragraph 4(j) refers to terms that
allow for a party to assign the contract to the detriment of the
other party, without the other party s consent, and
- proposed paragraph 4(n) provides that
additional terms may be added to this list of examples by way of
regulations. This is to permit the expansion of the list in
response to changes in markets and the way in which standard-form
contracts are constructed and used.
According to proposed subsection
5(1),[64] a term of a contract cannot be voided under proposed
subsection 2(1) if the relevant term:
- defines the main subject matter of the contract
- 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.
The upfront price payable under a
consumer contract is the consideration that is provided, or is to
be provided, for the supply, sale or grant under the contract; and
is disclosed at or before the time the contract is entered into. It
does not include any other consideration that is contingent on the
happening (or otherwise) of a particular event.
The Treasury consultation paper about unfair contract terms sets
out the rationale for ensuring that the term in a contract which
relates to the upfront price of the goods or services will not be
an unfair term as follows:
The exclusion of upfront price is intended to
exclude from consideration the basic price paid for the goods,
services or land supplied under the contract. This exclusion is
based on the premise that it would not be desirable to permit a
consumer to challenge the basic price paid for the goods, services
or land at a later time, when this is an issue about which the
consumer has a choice (that is, if the price is too high, the
consumer can decide not to enter into the contract).[65]
The equivalent amendments to the ASIC
Act contain an additional clarification. Proposed
subsection 12BI(3) provides that in the context of credit
agreements, the upfront price includes the total amount of
principal that is owed under the credit agreement provided that
amount is disclosed at or before the time the contract is entered
into by the parties. According to the Explanatory Memorandum this
means that consideration in the context of a credit contract
includes both the principal repayable and the interest payable
under that contract .[66]
In addition to the unfair contract term provisions, the Bill
contains provisions in similar terms in relation to prohibited
contract terms: proposed section 6.[67] Those terms are to be
prescribed by regulation: proposed subsection
6(4). The Explanatory Memorandum states that no
regulations are proposed to be made at the present time and so
there are no prohibited terms .[68] Essentially, a term of a consumer contract which
is a standard form contract will be void if the contract contains a
prohibited term. In addition, a pecuniary penalty may be imposed
where a person contravenes proposed subsection
6(2) which states that a person must not include a
prohibited term in a consumer contract.[69]
The issue of whether a contract is a standard form
contract will not arise unless there is a dispute
about the contract. Where a party to a proceeding alleges that a
contract is a standard form contract ,
proposed subsection 7(1)[70] contains a presumption that it is.
The onus is on the other party to the proceeding to prove
otherwise.
In cases where a court is to decide about whether a contract is
a standard form contract proposed subsection
7(2)[71]
provides that the court:
- may take into account such matters as it
thinks relevant
- must take into account the following:
- whether one of the parties has all or most of the bargaining
power relating to the transaction
- whether the contract was prepared by one party before any
discussion relating to the transaction occurred between the
parties
- whether another party was, in effect, required either to accept
or reject the terms of the contract in the form in which they were
presented
- whether another party was given an effective opportunity to
negotiate the terms of the contract
- whether the terms of the contract take into account the
specific characteristics of another party or the particular
transaction and
- any other matter prescribed by the regulations.
The purpose of items 9 and 10
is to amend the TPA to specify the constitutional basis and reach
of the Australian Consumer Law.
Item 9 inserts proposed paragraph
6(2)(ca) into the TPA so that the Australian Consumer Law
will apply to a contract in relation to trade or commerce which is
made:
- between Australia and places outside Australia
- among the States
- within a Territory, between a State and a Territory or between
two Territories.
Item 10 inserts proposed subsection
6(3A) which will extend the operation of the Australian
Consumer Law, including the unfair contract provisions to conduct
involving the use of postal, telegraphic or telephonic services
based on the power in section 51(v) of the Constitution. This means
that, for example, the Australian Consumer Law will apply to
contracts between mobile telephone service providers and their
customers.
Item 11 inserts new Part XI, the Australian
Consumer Law into the TPA. Proposed section 130
confirms that the unfair and prohibited contract term provisions
apply to consumer contracts to which a corporation is a party. This
means that the provisions extend to business-to-consumer
transactions. Provisions which apply to contracts for the supply of
financial services are not contained in the TPA. They are located
in the ASIC Act.
Proposed sections 133 143 facilitate the
application of the Australian Consumer Law by the participating
jurisdictions, that is, the States and Territories which are
parties to the Intergovernmental Agreement for the Australian
Consumer Law.[72]
Item 1 of Schedule 2 of the
Bill proposes to insert new section 76E into the
TPA. Proposed subsection 76E(1) introduces
pecuniary penalties in respect of contraventions of the
following:
- a provision of Part IVA which relates to unconscionable
conduct
- a provision of Division 1 of Part V which contains a
prohibition against misleading or deceptive conduct (other than
section 52)[73], or
Division 1AAA of Part V which prohibits participation in a
pyramid selling scheme
- subsection 65C(1) or (3), 65D(1) or 65F(8), section 65G or
subsection 65Q(9), (9C) or (10) or 65R(1) which relate to product
safety and product information, and
- proposed sections 87ZN or 87ZO which are inserted by item
12 of this Bill in relation to compliance with substantiation
notices.
In addition proposed subsection 76E(1) is
directed at those persons who have attempted to contravene the
provisions, have aided or abetted another to do so, have induced
another person to contravene the provisions, have been directly or
indirectly a party to the contravention or have conspired with
another person in the contravention. If a Court is satisfied on the
balance of probabilities that any of the above has
occurred,[74] then
the Court may order the person to pay the Commonwealth a
penalty.
In deciding the appropriate penalty, proposed subsection
76E(2) requires the Court to consider all
of the following:
- the nature and extent of the act or omission and of any loss or
damage suffered as a result
- the circumstances in which it took place, and
- whether the person has previously been found by the Court to
have engaged in similar conduct.
Proposed subsection
76E(3) sets out the maximum number of penalty units to
apply in each case.[75] The maximum penalty prescribed is $1.1 million for a
corporation and for a person who is not a body corporate the
maximum penalty prescribed is $220 000.
Proceedings for an order that a
person pay the Commonwealth a penalty under section 76E (referred
to as a consumer protection breach ) will
be stayed where criminal proceedings are started against a person
for an offence, and the offence is constituted by conduct which is
substantially the same as the conduct giving rise to the consumer
protection breach: proposed subsection 76F(2).
However the proceedings may be resumed if the person is not
convicted of the offence.
Item 5 inserts proposed subsection
85(7). The effect of this is that a person other than a
body corporate who has been ordered to pay a pecuniary penalty for
a consumer protection breach will have a
defence. Where the court finds that the person has acted honestly
and reasonably, it may relieve the person of the liability to pay
the pecuniary penalty wholly or partially. The terms of the
proposed defence are consistent with the other defences detailed in
section 85 of the TPA.
Part 2 of Schedule 3 of the
Bill similarly empowers the Court to impose pecuniary penalties for
certain breaches of the ASIC Act. Proposed subsection
12GB(1) provides that there is a consumer
protection breach if a person who has contravened,
attempted to contravene, aided or abetted the contravention,
induced or attempted to induce a person to contravene or who has
been directly or indirectly knowingly concerned in or a party to a
contravention of the following:
- Subdivision C about unconscionable conduct
- Subdivision D (other than section 12DA) about consumer
protection
- Subdivision GC (inserted by this Bill) about substantiation
notices.
The maximum penalties are listed in proposed subsection
12GBA(3) with the highest penalty being 10 000 units ($1.1
million) payable by a person who is a body corporate in respect of
a contravention of a provision of Subdivision C or D.
A Court must not order that a pecuniary penalty be paid by a
person in respect of certain conduct if the person has already been
convicted of an offence constituted by conduct which is
substantially the same: proposed subsection
12GBB(1). Conversely, criminal proceedings may be started
against a person for conduct that is substantially the same as a
consumer protection breach even if a
pecuniary penalty order has been made in respect of that conduct:
proposed subsection 12GBB(3).[76]
The evidence provided by a person in respect of proceedings for
a pecuniary penalty order based on conduct which is a
consumer protection breach is not
admissible in criminal proceedings against the person if the
conduct is substantially the same: proposed subsection
12GBB(4).
Proposed section 12GBD provides that a body
corporate must not indemnify a person against either a liability to
pay a pecuniary penalty or legal costs incurred in defending or
resisting proceedings in which the person is found to have that
liability. This provision mirrors existing provisions in sections
77A, 77B and 77C of the TPA which were inserted in response to the
recommendations of the Dawson Review[77] that corporations be prohibited from
indemnifying, directly or indirectly, officers, employees or agents
against the imposition of a pecuniary penalty upon an officer,
employee or agent.[78]
Item 12 inserts proposed subsection
12GI(5). The effect of this is that a person other than a
body corporate who has been ordered to pay a pecuniary penalty for
a consumer protection breach will have a
defence. Where the court finds that the person has acted honestly
and reasonably, it may relieve the person of the liability to pay
the pecuniary penalty wholly or partially.
Item 7 of Schedule 2 of the
Bill inserts proposed subsection 86E(1B) into
existing section 86E of the TPA. The effect of the proposed
amendment is that the ACCC may apply to the Court for an order
disqualifying a person from managing a corporation where the Court
is satisfied that the person has committed a consumer
protection breach or has breached a provision of Part
VC of the TPA. The Court may make the order where it considers that
disqualification is appropriate and justified. In that case, the
ACCC must provide a copy of the order to ASIC. Whilst the ACCC
already has this power in relation to contraventions of the
restrictive trade practices provisions in Part IV of the TPA, the
proposed provision significantly extends the power.
Item 14 of Schedule 3 of the
Bill inserts proposed section 12GLD into the ASIC
Act so that ASIC can apply to the Court for an order disqualifying
a person from managing corporations where the person has committed
a consumer protection breach and the
Court is satisfied that disqualification is appropriate and
justified.
Item 15 inserts proposed section
206EB into the Corporations Act 2001
(Corporations Act) which confirms that a person is disqualified
from managing corporations if a court order to that effect is in
force under proposed section 12GLD.
Item 12 of Schedule 2 of the
Bill inserts Part VID containing proposed sections 87ZL
87ZO into the TPA. Proposed section 87ZL
provides that where a person has made a claim or representation
promoting, or intending to promote:
- a supply of goods or services by a corporation
- a sale or grant of an interest in land by a corporation
- employment that is to be, or may be, offered by a
corporation
then the ACCC may give the person a written notice that requires
the person to give information and/or produce documents that could
be capable of substantiating the claim or representation.
The notice must be in the form set out in proposed
subsection 87ZL(4). The person must provide the requested
information or documents within 21 days after the notice is given:
proposed subsection 87ZL(2). The ACCC may extend
the period for complying with the notice if the person applies in
writing for the extension of time within the 21 day period:
proposed section 87ZM.[79]
A failure to comply with a substantiation notice within the
approved time limit will be a contravention of proposed section 76E
and will therefore be subject to a pecuniary penalty.[80] However, an individual
may refuse to give the information or produce the documents
specified in a substantiation notice on the ground that the
information or documents might tend to incriminate them or expose
them to a penalty: proposed subsection
87ZN(3).
A person must not provide false of misleading information in
response to a substantiation notice: proposed section
87ZO. The maximum penalty if a person is a body corporate
is 250 units ($27 500). The maximum penalty if a person is not a
body corporate is 50 units ($5 500): proposed subsection
76E(3).
Item 20 of Schedule 3 of the
Bill inserts proposed sections 12GY 12GYC
empowering ASIC to give a person who has made a claim or
representation, a written notice requiring the person to provide
information or produce documents which are capable of
substantiating the claim or representation. The proposed sections
are in similar terms as proposed sections 87ZL
87ZO which are to be inserted into the TPA by this Bill so
that a failure to comply with a substantiation notice will give
rise to pecuniary penalties under proposed subsection
12GBA(3).[81] The
major differences are that it is ASIC (rather that the ACCC) which
is authorised to issue the substantiation notice and the subject of
the claim or representation is about the supply of financial
services by the person.
Item 18 of Schedule 2 of the
Bill inserts proposed sections 87AAA and
87AAB into the TPA. Essentially this is about
class actions where there are legal proceedings allowing the claims
of many individuals against the same defendant, arising from the
same or similar circumstances, to be conducted by a single
representative, namely the ACCC. The proposed amendments operate as
follows:
- the ACCC may apply to the Court for an order against a person
engaged in contravening conduct :
proposed subsection 87AAA(1)
- contravening conduct is a
contravention of any of the following:
- a provision of Part IVA which relates to unconscionable
conduct
- a provision of Division 1 of Part V which contains a
general prohibition against misleading or deceptive conduct
- Division 1AAA of Part V which prohibits participation in a
pyramid selling scheme
- Part VC which contains the offences relating to unfair
practices and the offences relating to product safety and product
information or
- the Australian Consumer Law (which, on the passing of this
Bill, will contain the unfair contract provisions)[82]
- the Court must only make an order if it will redress loss or
damage, or prevent likely loss or damage, suffered by non-party
consumers: proposed subsection 87AAA(3).
Under proposed section 87AAB the Court has wide
ranging power about the nature of the orders it may make:
- declaring the whole or part of a contract made between the
person responsible for, or involved in, the contravening conduct
(referred to as the respondent ) and the
non-party consumer void, void ab initio[83] or void at all times: proposed
paragraph 87AAB(a)
- varying a contract
- refusing to enforce any or all of the provisions of such a
contract or arrangement
- directing the respondent
- to refund money or return property to a non‑party
consumer referred to in that subsection
- to repair, or provide parts for, goods that have been supplied
under the contract or arrangement to a non‑party consumer
referred to in that subsection or to supply specified services to a
non‑party consumer referred to in that subsection at their
own expense
- in relation to an instrument creating or transferring an
interest in land, directing the respondent to execute an instrument
that varies or terminates the instrument.
Item 26 of Schedule 3 of the
Bill inserts proposed sections 12GNB and
12GNC into the ASIC Act which are in the same
terms as proposed sections 87AAA and 87AAB.[84]
Proposed section 12GNB will allow the ASIC to
apply to the Court for an order against a person engaged in
contravening conduct being a
contravention of any of the following:
- Part 2, Division 2, Subdivision C which is about unconscionable
conduct in the supply of financial services, and
- Part 2, Division 2, Subdivision D which is about misleading and
deceptive conduct in the supply of financial services.
Part 5 of Schedule 2 of the Bill introduces a
new concept to the TPA infringement notices. In particular
item 23 inserts a definition of the term
infringement notice provision into
existing section 4(1) which means:
- a provision of Part IVA which relates to unconscionable
conduct
- a provision of Division 1of Part V which contains a
general prohibition against misleading or deceptive conduct and a
provision of Division 1AAA of Part V which prohibits
participation in a pyramid selling scheme with some exceptions
- subsection 65C(1) or (3) which relate to product safety
standards
- section 65D(1) which relates to product information standards,
or
- section 65G which relates compliance with product recall
orders, and
- section 87ZN or 87ZO which are inserted by this Bill and
relate to compliance with substantiation notices.
Item 24 of Schedule 2 of the
Bill inserts new part VIC containing proposed sections 87ZD
87ZK into the TPA. According to proposed
subsection 87ZD(1) the purpose of new Part VIC is to
provide for an infringement notice to be sent to a person where
there has been an alleged contravention of an
infringement notice provision. This will
provide an alternative to proceedings that may result in the
imposition of a pecuniary penalty under proposed section 76E.
Importantly there is no requirement to issue an infringement notice
under this Part: proposed paragraph 87ZD(2)(a).
This means that it is up to the ACCC to decide whether the use of
this power is warranted in the circumstances.
The ACCC is empowered to issue infringement notices under the
following conditions:
- the ACCC has reasonable grounds to believe that a person has
contravened an infringement notice provision: proposed
subsection 87ZE(1)
- no more than one may be issued in respect of the same
contravention: proposed subsection 87ZE(2)
- the infringement notice must be issued within 12 months of the
actual contravention in order for it to have effect:
proposed subsection 87ZE(3)
- the notice must be in the prescribed form including a statement
about the penalty payable in respect of the notice and the period
within which it must be paid (called the infringement
notice compliance period ):[85] proposed section
87ZF
- must state the amount of the penalty in accordance with the
penalties set out in proposed section 87ZG
compared to the penalty which could otherwise be payable under
section 76E.
The maximum penalty payable under proposed section
87ZG is $6 600 if the person is a body corporate and $1
320 if the person is not a body corporate.
Where a person receives an infringement notice and pays the
stated penalty within the required time, it acts as a bar to
further proceedings, whether criminal or civil, in respect of the
conduct which led to the alleged contravention: proposed
section 87ZH. Conversely, where a person does not pay the
penalty specified in an infringement notice within the required
time, proceedings may be taken against the person under Parts VC or
VI of the TPA: proposed section 87ZI.
Proposed section 87ZK empowers the ACCC to
withdraw an infringement notice. In that case a formal withdrawal
notice will be issued which must be in the prescribed form. Where
the person has already paid the relevant infringement penalty, the
amount will be refunded.
Unlike the ACCC, the ASIC is already empowered to issue
infringement notices under the Corporations Act 2001. The
proposed amendments will extend that power to certain matters
covered by the ASIC Act.
Item 30 of Schedule 3 of the
Bill inserts the definition of infringement notice
provision as being a provision of:
- [Part 2, Division 2] subdivision C about unconscionable
conduct
- [Part 2, Division 2] subdivision D about consumer protection
but excluding section 12DA (misleading or
deceptive conduct), subsection 12DC(2) (false representations in
relation to financial products that involve interests in land),
section 12DE (offering gifts and prizes), subsection 12DG(1) (bait
advertising), section 12DI (accepting payment without intending to
supply) or 12DM (asserting a right of payment for unsolicited
financial services)
- [Part 2, Division 2] subdivision GC inserted by this Bill,
about substantiation notices.
Item 31 inserts proposed sections 12GX
12GXG into the ASIC Act to provide for the issue of an
infringement notice by ASIC where there has been a contravention of
an infringement notice provision, as an alternative to proceedings
for a pecuniary penalty order. The provisions in relation to
infringement notices are set out in the same terms as
proposed sections 87ZD 87ZK which are to be
inserted into the TPA.
The ASIC is empowered to issue infringement notices under the
following conditions:
- the ASIC has reasonable grounds to believe that a person has
contravened an infringement notice provision: proposed
subsection 12GXA(1)
- no more than one may be issued in respect of the same
contravention: proposed subsection 12GXA(2)
- the infringement notice must be issued within 12 months of the
actual contravention in order for it to have effect:
proposed subsection 12GXA(3)
- the notice must be in the prescribed form including a statement
about the penalty payable in respect of the notice and the period
within which it must be paid (called the infringement
notice compliance period ):[86] proposed section
12GXG
- must state the amount of the penalty in accordance with the
penalties set out in proposed section 12GXC
compared to the penalty which could otherwise be payable under
section 12GBA.
Notably proposed section 12GXC contains the
relevant pecuniary penalties which range from 30 60 penalty units
($3 300 $6 600) for a body corporate and 6 12 penalty units ($660
$1 320) for a person who is not a body corporate.
Item 26 of Schedule 2 of the
Bill provides for the insertion of proposed section
86DA which provides that the ACCC may issue to the public,
a written notice containing a warning about the conduct of a
corporation. Under proposed subsection 86DA(1)
such a public notice can be issued only if the
ACCC:
- has reasonable grounds to suspect a contravention of a
provision of Part IVA (about unconscionable conduct), Part V (about
consumer protection, specifically from unfair practices) or Part VC
(offences provisions) of the TPA
- is satisfied that a person has suffered, or is likely to suffer
a detriment because of the conduct, and
- is satisfied that doing so is in the public interest.
Importantly the ACCC can issue a public warning that a person
has refused or failed to respond to a substantiation notice where
it considers that this is in the public interest: proposed
subsection 86DA(3).
Item 32 of Schedule 3 of the
Bill inserts proposed section 12GLC into the ASIC
Act to empower the ASIC to issue to the public a written notice
containing a warning about the conduct of a corporation in similar
terms as those in the TPA which are outlined above. The relevant
grounds for such a notice are a contravention of a provision of
Subdivision C (about unconscionable conduct) or Subdivision D
(about consumer protection) of the ASIC Act.
As with the proposed amendments to the TPA, the ASIC is
empowered to issue a public warning in relation to a refusal or
failure to respond to a substantiation notice where it considers
that this is in the public interest: proposed subsection
12GLC(2).
The commencement date for the provisions which are located in
Part 7 of Schedule 2 of the Bill
is later than the commencement date for the provisions in Parts 1 6
which are outlined above. This is the reason that some of the items
in Part 7 seem to double up on matters already included in the
Bill. For example item 14 inserts the definition of
non-party consumer into existing
subsection 4(1) of the TPA. Item 29 repeals that
definition and inserts a replacement definition. The reason is that
the latter definition will support the terms of the Australian
Consumer Law when it commences. Similarly items 35
37, 53 55, 60 69 and
75 are amendments to provisions inserted by Parts
1 6 of the Bill which will update those provisions to include a
reference to the Australian Consumer Law.
Importantly item 37 inserts a new item into the
table in proposed subsection 76E(3) which sets out
the amount of pecuniary penalties so that the penalty for a breach
of a provision of the Australian Consumer Law (which includes the
unfair contract terms) is 250 units ($27 500) for a body corporate
and 50 units ($5 500) for a person who is not a body corporate.
As with the amendments to the TPA, the amendments to the ASIC
Act have different commencement dates. The commencement date for
the provisions which are located in Part 8 of Schedule 3 of the
Bill is later than the commencement date for the provisions in
Parts 2 7. This is the reason that some of the items in Part 8 seem
to double up on matters already included in the Bill. For example
item 22 of Schedule 3 inserts the definition of
non-party consumer into existing
subsection 12BA(1) of the ASIC Act. Item 34
repeals that definition and inserts a replacement definition.
Similarly items 35 37, 53 55,
60 69 and 75 are amendments to
provisions inserted by Parts 2 7 of Schedule 3 of the Bill which
will come into effect when the unfair contract provisions
commence.
Importantly item 36 inserts a new item into the
table in proposed subsection 12GBA(3) which sets
out the amount of pecuniary penalties, so that the penalty for a
breach of the unfair and prohibited contract terms will be the same
as the penalty in the TPA.
There is no doubt that the insertion of unfair contract
provisions in the TPA and the ASIC Act is the most contentious part
of this Bill. According to the Productivity Commission:
Whatever their immediate benefits, barring
unfair contract terms is likely to have some adverse knock-on
impacts for consumers through higher prices (or lower quality goods
and services). These impacts arise through three pathways.
First, an unfair contracts provision would
entail enforcement costs for regulators and impose compliance
burdens on businesses through re-writing contracts and dealing with
the regulator. Businesses will usually pass these on to consumers.
However, these costs appear unlikely to be large, especially given
the learning that has taken place in the UK and Victoria, and the
fact that compliance costs would be avoided on those national
contracts already changed due to the Victorian legislation.
Second, barring specific terms alters the
complex balance of the contractual bargain , thus affecting profits
and placing upward pressure on prices. For instance, a reduced
capacity for businesses to impose some contingent charges on
consumers, such as certain termination fees, would lead to recovery
through higher upfront charges.
Third, a prohibition could sometimes have
unintended impacts by reducing (reputable) suppliers discretion to
act against consumers behaving in bad faith. As well as adding to
the above cost and price effects, this might affect the
availability or nature of products and services.[87]
Nevertheless, the widespread reach of the proposed amendments,
providing as they do the right for consumers to challenge terms
about exit, default and penalty fees charged by banks[88] gyms, telcos and car
rental companies,[89] for example, in commonly used consumer contracts will
no doubt find strong support in the community.
Paula Pyburne
18 August 2009
Bills Digest Service
Parliamentary Library
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