25 JANUARY 2011
On 1 January 2011, the Australian Consumer Law (“ACL”) commenced and the Trade Practices Act 1974 (“TPA”) was renamed the Competition and Consumer Act 2010.
The ACL gives Australia a single, national consumer law and covers general standards of business conduct, prohibits harmful practices, regulates certain business-to-consumer transactions, provides basic consumer rights for goods and services and regulates the safety of consumer products and product-related services.
Unfair Contract Terms
The first step in the national regime was the introduction of the unfair contracts provisions which commenced on 1 July 2010.
Certain terms in consumer contracts are void if the contract is a standard form contract and the term is ‘unfair’.
A consumer contract is one for the supply of goods or services or the sale or grant of an interest in land to an individual whose acquisition of goods or services is wholly or predominantly for personal, domestic or household use or consumption.
A term in a consumer contract will be unfair where:
- It would cause a significant inbalance in the parties’ rights and obligations arising under the contract; and
- The term is not reasonably necessary to protect the legitimate interests of the business party (who would be advantaged by the term); and
- It would cause detriment to a party if it were relied upon.
By way of example, a term may be unfair term if it permits one party (but not the other) to exclude or limit performance of the contract, unilaterally vary the contract, terminate the contract or assign the contract to the detriment of the other party without the first party’s consent.
It is for the business to demonstrate on the balance of probabilities that its legitimate interest is sufficiently compelling to overcome any detriment that may be caused to a consumer.
A Court will have regard to the contract as a whole and the extent to which the term is transparent (ie. expressed in reasonably plain language, legible, presented clearly and readily available to any party affected by the term) in determining if it is unfair.
There was no equivalent to these terms in the TPA. For businesses that enter or renew consumer contracts, this means particular attention must be paid to whether the terms included are unfair and the implications for your business if that term is held by a court to be unfair.
Consumer Guarantees Replace Implied Terms
As of 1 January 2011, the terms formerly implied into consumer contracts by the TPA, have now been replaced with a suite of consumer guarantees, including:
- Supplier’s guarantee they have a right to dispose of the property in the goods, the consumer has the right to undisturbed possession of the goods and the goods are free from any undisclosed security at the time when property passes;
- Supplier’s and manufacturer’s guarantee that goods are of acceptable quality;
- Supplier’s guarantee that goods are reasonably fit for any purpose made known to the supplier or manufacturer or represented by the supplier;
- Supplier’s guarantee that goods correspond to their description or to the sample or demonstration model;
- Manufacturer’s guarantee that they will take reasonable action to ensure that facilities for repair of the goods are available;
- Supplier’s and manufacturer’s guarantee that goods will comply with any express warranty given or made by them;
- Supplier’s guarantee that services be rendered with due care and skill;
- Supplier’s guarantee that services, and any product resulting from the services, be reasonably fit for a purpose that the consumer made known to the supplier; and
- Supplier’s guarantee that services are supplied within a reasonable time where there is no fixed time in the contract.
The guarantees apply to:
- Any type of goods or services costing up to $40,000;
- Goods or services costing more than $40,000 which are normally used for personal, domestic or household purposes;
- A vehicle or trailer regardless of the cost.
Certain signs and statements that seek to limit a consumer’s rights are now unlawful and a supplier must not tell a consumer that they are required to pay for any rights equivalent to a consumer guarantee.
The content of the consumer guarantees generally reflects the terms formerly implied by the TPA. The significant change is the new guarantee that provides for an express warranty to take effect as a consumer guarantee. An express warranty will include all pre-contractual statements about the nature of the goods.
The consumer guarantees cannot be excluded by contract. Suppliers and manufacturers can however limit their liability under the consumer guarantees where the goods or services are not used for personal, domestic or household purposes and it is fair or reasonable to do so.
Various statutory remedies are available for failing to comply with a consumer guarantee, with the right to terminate a contract depending on whether the failure to comply is a ‘major’ failure or not. A consumer may also seek compensation from a supplier or manufacturer for any consequential or associated loss or damage. This is a significant point of difference from the TPA, where the consumer was only left with a claim in contract for damages for breach of an implied term.
Sales Practices
The ACL has provisions dealing with unsolicited supplies, unsolicited consumer agreements, pyramid schemes, pricing, lay-by agreements, referral selling, harassment and coercion and proof of transaction and itemised bills.
In summary those provisions include:
- It is unlawful to request payment for unsolicited goods or services, request payment for unauthorised entries or advertisements and send unsolicited credit cards or debit cards.
- Restrictions in relation to unsolicited consumer agreements (agreements made by telephone or at a place other than the business or trade premises of the supplier where the total price paid is over $100 or cannot be ascertained).
- A prohibition on participating in or persuading others to participate in a pyramid scheme.
- A requirement to sell the goods for the lowest displayed price or withdraw the goods from sale until the price is corrected where a supplier displays multiple prices for the same goods.
- Lay-by agreements must be in writing, expressed in plain language, legible and clearly presented and.
- It is unlawful in certain circumstances to promise future commissions or rebates that depend on other events (for example, subsequent sales) or persuade a consumer to buy goods or services by promising benefits for assisting the supply of goods or services to other customers.
- It is unlawful to use physical force, coerce or unduly harass someone about the supply of, or payment for goods or services.
Suppliers must provide proof of transaction to consumers for goods or services valued at $75 or more (a GST tax invoice is sufficient).
The ACL expands upon the provisions that were previously in the TPA concerning specific types of unfair trading practices and it is necessary for businesses to assess whether current business practices now comply with the ACL.
National Product Safety Laws
The ACL includes national product safety laws and outlines the responsibilities of suppliers in relation to matters such as what to do when a Minister bans a product, imposes a safety standard or issues a compulsory recall notice and when and how to recall consumer goods.
Consumers who suffer loss or damage because of a defect in a manufacturer’s goods have a right to take action in a court themselves or complain to a consumer protection agency who may take the action on their behalf. A manufacturer includes someone who makes or puts the goods together, has their name on the goods or imports goods where the maker does not have an office in Australia.
There is also an obligation on suppliers to notify a Minister within 48 hour of becoming aware that a person has suffered serious injury, illness or death associated with a consumer good or product related service they supplied even in the case of misuse.
Unfair Practices
Prohibitions against specific types of conduct, similar to those in the former Trade Practices Act and State and Territory equivalents – such as provisions against false or misleading misrepresentations, unconscionable conduct, country of origin representations, referral selling and bait advertising are now included in the ACL.
There are some new provisions, including:
- Two new provisions dealing with false or misleading representations relating to testimonials; and
- A new prohibition against false or misleading representations as to a requirement to pay for a contractual right that is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy that a person has under a law.
There are specific penalty provisions for breaching those prohibitions, including penalties of up to $220,000 for individuals and $1.1 million for companies.
Summary
The ACL has widespread application to commercial transactions and disputes. As a manufacturer or supplier of goods and services it will be necessary to familiarise yourself and your staff with your businesses rights and obligations under the ACL and assess the risks of non-compliance with the provisions of the ACL. In many cases your business practices and contracts may need to be reviewed in light of the changes.
In particular it may be necessary to review any standard form contracts and identify the risk that an important term may be declared unfair based on the unfair terms provisions You should also consider the extent to which the consumer guarantees apply to your goods or services, whether express warranties should still be offered, whether any extended warranties you offer overlap with the statutory consumer guarantees and in certain cases removal of exclusion clauses, limitation of liability clauses and entire agreement clauses from your contracts.