The need for a national consumer
This chapter examines the rationale for introducing national unfair
contract terms provisions and submitters' views on the need for, and likely
impact of, the legislation.
Rationale for the bill
In the Second Reading Speech, the Minister for Competition Policy and
Consumer Affairs, the Hon. Dr Craig Emerson MP, explained the bill's purpose in
the following terms:
Australians are facing serious economic challenges. In
confronting those challenges, we have to deal with complex, sophisticated
markets. Marketing is becoming cleverer. Consumers can now shop online and
through their mobile phones. They have access to money through new and
sophisticated payment systems. And, the range of goods and services available today
is enormous. We need national laws that can keep pace with these changes.
This bill will introduce changes that will make life easier
for all consumers—through clearer, fairer standard-form contracts and more
effective enforcement of our consumer laws. A single national law, supported by
better policy development and decision-making processes, is the best means of
achieving better results for consumers and business. Rather than relying on
nine parliaments to make changes, this new framework will ensure responsive
consumer laws with a truly national reach.
The Minister explained the need to rationalise the 13 generic consumer
laws currently operating in Australia in the following terms:
As we move towards a single, national market—a seamless
national economy as called for by the Business Council of Australia and the
2020 Summit—this tangle of consumer laws must be rationalised. We must reduce
confusion and complexity for consumers and provide consistency of consumer
protection. We must reduce compliance burdens for business.
In its submission to this inquiry, the Consumer Action Law Centre
explained the rationale for national unfair contract terms laws by reciting the
2004 views of the Standing Committee of Officials of Consumer Affairs:
Standard form contracts can have advantages to both supplier
and purchaser provided that a fair balance is achieved between both parties to
the contract. They reduce transaction costs for the supplier which would
otherwise be passed on to the purchaser. They allow for lengthy and detailed
contracts to be finalised with the minimum of time and by lay persons who only
need to negotiate the specifics such as price, description of goods and
services and delivery times. Over a period of time, people become familiar with
the contracts because they are standard and may encourage a general
understanding of trading practice.
However, standard form contracts do pose problems. These
types of contracts will usually have been drafted by professionals on behalf of
the supplier. Generally, the purchaser has no time or opportunity to read the
contract before signing, let alone obtain the same standard of advice as the
supplier. If there is time to read it, it is doubtful whether the purchaser
will understand the meaning and impact of each term in the light of the whole
It has become increasingly clear that many such standard form
contracts contain clauses which are unfair or unnecessarily one-sided to the
detriment of the purchaser. One reason that these have become so prevalent is
that there is little, if any, competition in this regard. Purchasers do not
usually "shop around" on the basis of the best contract terms: it
would be too impractical an exercise for the vast majority of people to decide,
for example, which hire-car company to use based on the best contract terms.
Purchasers predominantly focus on price and the quality or characteristics of
the product. They may not appreciate that a "good" price has been
achieved through the imposition of onerous terms. As a result, terms may well
be standard across an industry and even if the purchaser went elsewhere, they
would be faced with a similar situation.
In its April 2008 report into Australia's consumer policy framework, the
Productivity Commission argued that there is no need for variation in either
the content or enforcement intensity of generic consumer law. It noted that
variations between jurisdictions can:
...lead to divergent requirements for businesses (and variable
outcomes for consumers)...[T]he cumulative costs of even individually small differences
can be material. And because many of them are seemingly needless, they can also
be a source of significant frustration for businesses. More importantly, a
continuation of the recent regulatory ‘break-outs’ will see the compliance
burden increase in the future. It will also (inimically) increase as unnecessary
specific consumer regulation is repealed (see below) and the generic law
becomes the sole means of protecting consumers in a wider range of areas.
[T]here is little reason for any variation in the content of
the generic consumer law. The generic law reflects broad notions of efficiency,
fairness and equity, which the vast majority of consumers and businesses would
regard as appropriate and reasonable irrespective of where they live or trade. The
broad, principles-based, nature of the generic law allows for its application to
a wide variety of particular circumstances. This largely removes any case for variations
in the law itself to account for specific local requirements.
Broad views on the bill
Support for harmonised consumer
Several submitters to this inquiry have expressed their support for the
government's intention to protect consumers through the introduction of a
national unfair contract terms regime.
The Chair of the Law Council of Australia's Trade Practices Committee
told the committee that it is:
...supportive of the government’s desire to nationally reform
Australia’s consumer protection laws to ensure that laws across all states and
territories are harmonised and to ensure businesses are not burdened by
unnecessary regulation and inconsistent laws.
The Association of Building Societies and Credit Unions (ABACUS)
emphasised that it is 'strongly supportive' of a single, national approach to
regulation in this area.
It told the committee: 'I guess we have to provide some kudos to this approach;
a single consumer law across all jurisdictions is a really fantastic idea'.
The Business Council of Australia (BCA) stated in its submission to this
inquiry, and in correspondence to the Minister on the exposure draft of the
bill, that it 'supports the proposed reform of consumer protection laws in
Australia, and in particular the development of a nationally consistent
approach in this area'.
The law firm, Minter Ellison, has highlighted the likely compliance and
commercial benefits of the legislation:
...we welcome the Government's proposal to implement uniform
and consistent consumer protection laws in Australia. Any measure which
simplifies the compliance regime for business will produce significant benefits
for Australia both in terms of reducing the costs of doing business here and
therefore increasing Australia's attractiveness for local and foreign
investment, but also for reducing the likelihood of non-compliance which will
benefit consumers and businesses alike.
The Consumer Action Law Centre has noted that national unfair contract
terms laws will not only benefit individual consumers but have the potential to
provide wider competition benefits by 'increasing consumer confidence in market
transactions'. It noted in its submission that:
Consumer Action has advocated for effective regulation of the
use of unfair terms in consumer contracts to be introduced nationally for a
number of years and we therefore strongly support the Bill's introduction of
national UCT laws. Australia currently lags behind world's best practice in
consumer policy, and the lack of national UCT laws is one of the principal
reasons that this is the case.
The Motor Trades Association of Australia told the committee:
We are great supporters of the COAG agenda and harmonisation.
If you sell as much as we do across as wide a sample of goods in a national
multiplicity of consumer laws, it is really difficult. We think having a single
harmonised law is very attractive. We support it and believe there would likely
be savings for the economy, consumers and business. It will be good to have
circumstances where we will be able to address compliance by our businesses in
a single unified law. I think it is a welcome advance, and it is not one that
we are frightened of. We do not think it extends the jurisdiction in a way that
is injurious to business at all.
Associate Professor Frank Zumbo told the committee:
I welcome the unfair contract term proposals and, having been
involved in the area—I have researched it for almost 15 years, I have seen it
work firsthand in the UK, I have visited the UK Office of Fair Trading, I have
had discussions with Consumer Affairs Victoria—and having looked at the
practice in the United Kingdom, in Victoria and in Europe, there is no doubt in
my mind that we do need an unfair contract term regime.
Too much regulation and uncertainty
On the other hand, a key theme of many witnesses' evidence to this
inquiry is the uncertainty that the bill's provisions would cause in commercial
contracts and, therefore, in commercial transactions. The claim is that the
legislation will force businesses to reconsider all their standard form
contracts and operate in an environment where they cannot be sure what terms
the courts, and the Minister, will declare 'unfair'.
The Australian Institute of Company Directors (AICD) highlighted the
uncertainty that the bill would create:
We note the explanatory memorandum aims to provide clarity
and certainty in relation to consumer law to protect consumers and to reduce
prices for goods and services. Respectfully, we anticipate the bill may in some
cases have the opposite effect. We anticipate the bill may cause uncertainty
with question marks to be placed over the enforceability of standard form
contracts, and that consumers—the people it is designed to protect—may be
burdened by possibly higher prices for goods and services.
If there is a risk that terms in a contract could be unenforceable
for unfairness or for any other reason, the flow-on effects could be
significant. Companies may be required to reconsider product structuring, risk
allocation, insurance, prices and even the actual supply of some goods and
services. It is the uncertainty that is the issue here, perhaps, rather than
the general concepts. We anticipate that the lack of clarity in the bill’s
drafting and the subjective nature of unfairness will also lead to an increase
in litigation and costs for companies.
Colonial First State Property Management argued that the retail leasing
industry already has rigorous legislation covering all aspects of retail lease
transactions, ensuring that tenants are protected from 'unfair' contracts. It
added that imposing further regulation on the industry is 'unnecessary,
counter-productive and not conducive to effective business practice'.
The banking sector has also criticised the bill's impact on business
certainty and business costs. The Australian Bankers' Association told the committee:
Central to our concerns is that the regime will create
uncertainty for banks...In practice the operation of this legislation is likely
to see customers agreeing on the terms and conditions for their banking
services before the customer accepts a financial product, only to later seek to
avoid their obligations by claiming a particular term is unfair.
Not everyone was convinced by this argument that the banks will be hurt
by the 'uncertainty' created by the bill's provisions. The Motor Trades Association
of Australia, notably, dismissed these fears in the following terms:
I am familiar, having been in my position for a long time,
with the fact that every amendment to the Trade Practices Act in the way of
addressing issues for small business that has been proposed during my long
service has involved a Chicken Little recitation from big business that the sky
will fall in, that we will suddenly be overwhelmed by a tsunami of lack of
confidence, that no bank will lend to anyone—and, strangely, the sun keeps
coming up, the money keeps being lent, and business and life go on. So even in
the wake, one hopes, of a global financial crisis, I am not convinced that much
was going to happen to uncertainty. The fact of the matter is that every banker
lives with the uncertainty on every loan always.
The Insurance Law Service was also dismissive of the 'uncertainty'
argument. Ms Katherine Lane, a principal solicitor with the service, told the
This uncertainty thing again is a furphy. First of all, the
legislation has been brought in in the UK. The whole world did not collapse.
The UK did not go into receivership...It has been brought in in Victoria and
again it did not fall apart. It has made some really useful changes to certain
contracts with telecommunication companies that were completely unfair...Regarding
this uncertainty thing, I have uncertainty from a consumer movement point of
view, too. I do not know whether this is going to achieve its outcomes, and how
can we know? We do not have crystal balls. But what we do is put in the best
effort we can to make sure that the legislation makes sense. If there is a
precedent overseas, that helps; that is great. We want to achieve a certain
goal, which is making sure standard form contracts are fair. What is the uncertainty
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