In brief

The Australian Consumer Law (ACL) has changed the consumer contract landscape as we knew it. The ACL amends many aspects of the existing consumer protection regime and introduces new concepts as well.

The ACL applies, in whole or in part, to:

  • the supply of goods or services
  • the sale or grant of interests in land, and
  • the supply of financial products or services.

Despite its name, the impact of the ACL extends beyond transactions with those commonly regarded as ‘consumers’. For example, all contracts for the supply of goods (to end users) and all contracts for the supply of services, in both cases not exceeding $40,000 (including business-to-business contracts), will be subject to the new consumer guarantee regime with the effect that:

  • all such contracts will have to include (implied) non-excludable consumer guarantees
  • in the case of goods, express warranties and pre-contractual statements made in relation to the goods will be non-excludable consumer guarantees (this is new and significant), and
  • a provision which purports to exclude an implied consumer guarantee is invalid and may be illegal.

In other words, a supplier will not only be restricted in its ability to exclude or limit liability for matters which were previously covered by the implied terms under the Trade Practices Act 1974 (Cth) (TPA). It will also now be restricted in its ability to exclude or limit liability for any additional express warranties which it may otherwise make (or be deemed to have made) in relation to goods being supplied.

In addition, if the goods or services being supplied are of a kind ordinarily acquired for personal, domestic or household use or consumption (which judging by existing case law is very hard to determine one way or the other), then, whatever the price, the consumer guarantees cannot be excluded or limited.

On a more practical note, the ACL will result in the TPA being renamed as the Competition and Consumer Act 2010 (Cth) (CCA) from 1 January 2011. Further, the ACL renumbers many provisions of the TPA which relate to consumer protection, including unfair practices – for example section 52 (misleading or deceptive conduct) will become section 18 ACL. (The ACL will be a schedule to the CCA.)

Businesses need to:

  • assess which areas of their operations may be affected by the ACL
  • understand and assess the risks of non-compliance, and
  • review whether their business practices / contracts need to be amended.

What is the ACL?
The ACL is a new national law designed to protect consumers when they acquire goods, services, interests in land, financial products and financial services.

Except for proposed amendments to the unconscionable conduct provisions of the ACL,1 the remainder of the ACL has been enacted but is not yet all in force.2

What does the ACL cover?
The most relevant parts of the ACL relate to:

  • unfair terms in standard form consumer contracts
  • enforcement powers for the courts, the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC)
  • specific types of marketing practices (such as making false or misleading representations)
  • ‘consumer guarantees’ (to replace the existing implied terms in the TPA)
  • statutory remedies for breach of the consumer guarantees (as opposed to contractual claims for breach of the implied terms)
  • unsolicited consumer agreements (such as door-to-door selling)
  • lay-by agreements
  • linked credit contracts
  • unconscionable conduct provisions, and
  • product safety.

The ACL will apply at both Commonwealth and state and territory level. Existing state and territory laws dealing with consumer protection will be repealed.

To see an overview of the topics covered by the ACL and the manner in which the ACL takes effect, please see:

Who is a ‘consumer’ under the ACL?
One of the biggest criticisms of the new regime is that it is complex to understand because no universal definition of ‘consumer’ is used and the application of the regime is not appropriately tailored to ‘true’ consumers (for example see ‘Category 2 Consumers’ and ‘Category 3 Consumers’ below).

We have set out the various types of ‘consumers’ in a table (which demonstrates the complexity and difficulty of who is a ‘consumer’ under the ACL). Please click here to view table.

Note that a business may be a ‘consumer’ in each category other than a ‘Category 1 Consumer’. The ACL will therefore have a significant (and, in our view, mistaken (both from a commercial and a philosophical perspective)) impact on many business to business contracts for the supply of goods. Please see further ‘Consumer Guarantees’ below for more information.

When does the ACL commence?
The ACL comes into effect as follows:

  • the enhanced ASIC and ACCC enforcement powers and the unfair terms provisions have already commenced, and
  • all other provisions take effect on 1 January 2011.

Understanding the impact of the ACL…
The following high-level summary makes some observations about what businesses should keep in mind when considering if and how the ACL affects their current operating practices.

 
Unfair terms (already in force)
 
Enforcement powers (already in force)
To see a table showing the application of the new enforcement powers please see diagram.
 
Specific types of unfair practices (from 1 January 2011)
 
Consumer guarantees (from 1 January 2011)
 
The Explanatory Memoranda to the ACL legislation states that the consumer guarantee regime was drafted with reference to the New Zealand Consumer Guarantees Act 1993 (NZ Act). Whilst this does hold true in some respects, the NZ Act operates much more effectively than the ACL as a consumer protection law without affecting business-to-business contracts as follows:
  • under the NZ Act, the consumer guarantee in relation to express warranties only applies to warranties made by a manufacturer in a written document. This is much more restricted than the equivalent ACL consumer guarantee which applies to suppliers of goods as well as manufacturers – and which does not limit express warranties to warranties contained in the supply contract, and
  • the NZ Act contains a specific carve out for transactions where a ‘consumer’ acquires or holds himself or herself out as acquiring goods for the purposes of a business. The qualification in section 3(2)(b) ACL—which was the subject of comment by the Senate Committee—is much narrower. It is really only applicable to the supply of raw materials used to manufacture goods and goods which are used to repair goods.
Unsolicited selling (from 1 January 2011)
 
Lay-by agreements (from 1 January 2011)
 
Linked credit contracts (from 1 January 2011)
 
Product safety (from 1 January 2011)
 
The original bill for the second tranche of the ACL proposed that the new mandatory reporting requirement would apply where goods or product related services ‘have been associated with’ a death or serious injury or illness.

In a submission to the Federal Government, Freehills made the point that this would be too onerous for suppliers as it would require a notice to be given where the goods or services were in some way involved or connected with a death or serious injury or illness, but where there was no suggestion or possibility that the goods or services were the cause of the death or serious injury or illness. Freehills proposed that the reporting requirement should only apply where the goods or services may have been the cause. This proposal was adopted in the final form of the legislation.