Minority Report by Senator Xenophon
The Trade Practices Amendment (Australian Consumer Law) Bill 2009 amends
the Trade Practices Act 1974 to implement a national consumer law regime (the
Australian Consumer Law) which will address unfair contract terms and include
penalties, enforcement powers and consumer redress options.
The intent of the Bill is positive in that it will give consumers
greater opportunity to challenge unfair contract terms, and in that regard I
broadly support the Bill. However, in order to strengthen the unfair contract
terms framework and give greater certainty to businesses and to consumers
alike, there are a number of matters which should be considered and the Bill
The introduction of a national law to deal with unfair contract terms is
long overdue. Internationally, the European Union adopted its Directive on
unfair terms in consumer contracts in 1993, and was followed by the United
Kingdom the following year. These overseas laws are tried and tested and have
been positive for consumers and could be similarly positive for Australian
Victoria is currently the only state to have unfair contract laws, which
were introduced in 2003 and have been the impetus behind the current national
proposals to deal with unfair contract terms.
There are currently 13 generic consumer laws operating around the
country and this national legislation will reduce confusion and complexity for
consumers and give greater certainty to businesses and reduce compliance costs.
However, the Bill does not include business-to-business contracts and
therefore small businesses cannot access the laws in circumstances where they
may be similarly affected by unfair contract terms. Until as recently as June
2009, the draft legislation included an upfront price cap of $2 million on the
size of transactions that would be subject to the unfair contract terms.
However, this was removed in late June 2009 to standard form
business-to-consumer contracts only.
Standard form contracts are generic contracts that have been drawn up
for use in a particular industry, such as mobile phone providers, fitness
centres, franchising and shopping centres. Essentially, they are template
contracts where there is no negotiation on the part of the consumer or small
However, the unfair contract laws in this Bill do not apply to all
contracts. For example, insurance contracts will be exempt pursuant to section
15 of the Insurance Contracts Act.
Provision of 'Safe Harbours' and the removal of exemption for insurance
To give greater business certainty, provisions for 'safe harbours'
should be considered, whereby businesses and business associations can choose
to approach the ACCC to seek approval or authorisation of particular contracts
or contract terms.
In his submission to the Committee, Associate Professor Frank Zumbo from
the University of New South Wales proposed this mechanism that would create
`model contracts’ or 'model contract terms' and, as a result, facilitate the development
of fairer contracts or contract terms which can apply to whole industries and
It would be in the public interest to allow contracts to be reviewed
under the safe harbour mechanism before an exemption is granted to the contract
under the laws. Accordingly, by including 'safe harbours', there would be no
need for outright exemptions in the Bill.
In this way, the unfair contract laws in the Bill would apply to
insurance contracts which are currently exempt from this Bill pursuant to
section 15 of the Insurance Contracts Act. Under that Act, insurance contracts
are excluded from the operation of any Act (Commonwealth, State or Territory)
that provides relief in the form of judicial review of harsh or unfair
The Consumer Action Law Centre states in its submission:
"...there are no reasons why any particular industry need
be exempt from coverage under unfair contract terms regulation. The policy
reasons for introducing unfair contract term laws apply top consumer contracts
generally, regardless of the specific product or service provided."
To leave insurance contracts exempt from this Bill would undermine its
intent, which is to provide safeguards for consumers against unfair contract
terms. Insurance contracts can be incredibly confusing, lengthy and
jargon-filled and in most cases is not clearly understood by consumers.
While the Insurance Contracts Act includes provisions against unfair or
unconscionable conduct, National Legal Aid provides a number of case examples
of breaches of the Insurance Contracts Act with regard to unfair terms. In its
submission to the Committee, it stated:
There has been considerable public reporting over the last
two decades on what might be described, in one form or another, as examples of
systemic unfairness in the drafting of terms in insurance policies.
The Insurance Council of Australia as recently as this year
has acknowledged the existence of unfair terms in insurance contracts,
referring to two particular examples of unfair terms that are specifically
permitted by the Insurance Contracts Act...
Given this, insurance contracts should not be exempt. Alternatively, to
maintain its exemption, insurance contracts should be subject to independent
rigorous review against legislative criteria to assess whether it should remain
exempt from this new national legislation. The proposed safe harbour mechanism
allows for such independent rigorous review.
Courts' consideration of 'detriment' and 'transparency'
The inclusion of 'detriment' and 'transparency' was a key issue among
the majority of submissions to the Committee inquiry.
As it stands, courts have the discretion to consider all aspects of
cases before them, and should not be constrained to focus on 'transparency' and
'detriment' specifically when it comes to determining whether or not a contract
is unfair. The mandatory requirement for the Court to focus on transparency and
detriment will require the court to address these specific questions and will
effectively turn these mandatory requirements into tests in themselves and in a
manner that negatively impacts on the consumer.
National Legal Aid argues that the concept of 'transparency' implies
that consumers are able to make informed choices about contract terms, however
it stated in its submission that their case work would suggest the opposite.
... because most consumers do not read contracts – most rely on
a notion that traders will act in a fair and reasonable way when it comes to
enforcing their rights. Even when they read contracts, consumers do not often
understand how a particular clause will operate in practice. And, even when a
contract is read and understood, standard clause contracts are non-negotiable –
it is a falsity to think that consumers can somehow bargain their way through
amending or deleting a clause in a contract that is unfair but transparent.
Associate Professor Frank Zumbo also argued in his submission that a
term can be considered 'transparent' but may still be 'unfair'.
...on the simple, but objective basis that the larger party's bargaining
power allows the larger party to draft and impose a contract term in such a way
as to (i) represent a significant imbalance in the contractual rights and
obligations in the larger party's favour; and (ii) in a manner that goes beyond
what is reasonably necessary in order to protect the legitimate interest of the
One example of an unfair term is the charging of fees to customers
paying bills by cash.
In July 2009, Telstra announced that it would be introducing a range of
fees that would reduce face-to-face customer service and drive more customers
towards online bill payments. It follows similar moves by its competitors,
Optus, Vodafone and 3.
Under this policy, customers will be charged a $2.20 administration fee
for bills paid by mail, in person or at an Australia Post retail outlet.
It is understood the move will cost as much as 2 percent of every bill
and is set to save the company "several hundred million dollars'' a year
in administration costs.
While it is understood that customers who are able to demonstrate
financial hardship will not be penalised (eg. Telstra will exempt those with a
pensioner or disability card from paying the new fees and other additional
credit card charges) , it is still an unfair term as it is penalising those who
choose not to use or do not have access to the internet to pay their bills.
Exclusion of small businesses
The exclusion of small businesses from the Bill is arbitrary, given
there are sufficient safeguards in the proposed framework to maintain business
certainty for big business.
Further, the inclusion of 'safe harbours' would also justify the
reinstatement of small businesses, as the 'safe harbours' would also be
available to provide for complete certainty in relation to the business-to-business
contracts involving small businesses.
In its submission, the Pharmacy Guild of Australia called for
business-to-business contracts to be included under the legislation to protect
small businesses. It notes occasions when "large pharmaceutical companies
can impose strenuous terms of supply on pharmacists that may be regarded as
One example the Pharmacy Guild of Australia provided to the Committee
For example, some drug companies may not supply product to
pharmacists at a particular price unless they commit to a particular sales
growth target and a requirement to hold particular levels of stock. On
occasion, this can be objectively unfair because it is an exercise of
inequality of bargaining power.
This view is echoed by the Motor Trades Association of Australia, which
stated in its submission to the Committee:
In many of their business relationships, retail motor traders
have fewer rights of redress against larger stakeholders (such as franchisors,
acquirers, other suppliers and so on) for harsh and unfair behaviour than do
consumers against retailers and manufacturers. That is, contracts are presented
as 'take it or leave it' standard form agreements, there is little and often no
negotiation on the terms of the contract (without which the business can often
not operate) and many contain terms which are detrimental to the small business
and are in excess of what is required to protect the normal commercial rights
of the larger party.
This argument was also supported by Associate Professor Frank Zumbo who
provided this case example to the Committee:
... for example, a mobile phone contract that relates to
consumers and then you have a mobile phone contract that relates to small
businesses. The small business mobile phone contract would not be included in
these proposals. But a mobile phone for a small business person could have
equally unfair contract terms in the same way that a mobile phone contract for
As such, Associate Professor Zumbo calls for the definition of
"consumer contract" to be reverted back to the original drafting of
the legislation, where "small business would have been included in the
unfair contracts proposals if the standard form contract was for $2 million or
The introduction of a national consumer law is a positive measure for
upholding consumer rights and will consolidate the numerous and varying
legislations around the country. It will also reduce time and costs for
businesses and provide greater certainty to consumers and business. However,
these positives should not be confined to just business-to-consumer contracts,
but should be extended to business-to-business contracts involving small
On the whole, I support the Bill's intent, however, I believe it can go
further to protect not only consumers, but big and small business.
That the Bill not be passed in its current form.
That the Bill include provisions for 'safe harbours'.
That insurance contracts not be exempt from the legislation.
That the Bill be amended so that the terms 'detriment' and
'transparency' may be used as guides-only for courts, not as mandatory
That the Bill be amended to deal with the unfair contract term of
customer fees for paying bills with cash.
That the Bill be amended to include business-to-business contracts
involving small businesses where the upfront price payable for the services,
goods or land supplied under the contract is below $2 million.
Independent Senator for South Australia
7 September 2009
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