The unprecedented health and economic issues arising from the pandemic are putting intense pressure on dealings between businesses and consumers and other businesses. Supply disruptions and social distancing obligations are affecting the delivery of goods and services and accurate consumer information is particularly important.
Regulators such as the Australian Competition and Consumer Commission (ACCC) will be particularly concerned to protect consumers and small businesses from misleading or deceptive conduct, unfair contract terms and unconscionable conduct in this challenging time.
The ACCC is refocusing its enforcement priorities this year to those most relevant to competition and consumer law issues arising out of the impact of COVID-19. It has established an internal COVID-19 Taskforce which is communicating directly with businesses to educate them about their obligations in relation to issues such as cancellations, refunds and suspension of services as a result of COVID-19.
The frequently asked questions (FAQs) below will help you respond to key consumer law issues that may be relevant for your business in these difficult times.
- Our customers have paid for events and services scheduled over the next few months. If we have to cancel due to COVID-19 concerns, do we need to provide refunds to customers?
Consumer Law Frequently Asked Questions
Q: Our customers have paid for events and services scheduled over the next few months. If we have to cancel due to COVID-19 concerns, do we need to provide refunds to customers?
A: The consumer guarantees in the Australian Consumer Law provide consumers with a basic set of rights when they acquire goods and services. The consumer guarantees apply automatically and cannot be excluded, restricted or modified by contract, except in very limited circumstances set out in the Australian Consumer Law.
The consumer guarantees that apply to services include that the services are to be fit for purpose, and both provided with due care and skill, and within a reasonable time frame (when no time is otherwise set). If a business fails to meet these guarantees, consumers may be entitled to certain remedies depending on the circumstances and extent of the failure (i.e. if it is a “major” failure). However, a consumer does not have the same rights if they decide to cancel a product or service, including because their individual circumstances change, or they do not wish to proceed with the purchase (i.e. for “change of mind”).
Where there is a major failure, consumers are entitled to choose between terminating the contract and obtaining a refund, or seeking compensation for the difference in the reduction in value of the services below the price paid for them, unless either the failure was due to either the actions of a third party or “a cause independent of human control after the services were supplied”.
A “major failure” in respect of a service includes where it is substantially unfit for its purpose or creates an unsafe situation.
Proceeding with an event may create an “unsafe situation” resulting in a major failure of the consumer guarantees, whereas cancelling the event may also result in a major failure of the consumer guarantee as the ticket purchased is no longer fit for its purpose.
On 17 March 2020, the Prime Minister declared a national ‘Human Biosecurity Emergency Period’ under the Biosecurity Act 2015. The Commonwealth Government has used its powers under the legislation to ban international cruise ships from entering Australian ports and the entry of non-citizens and non-permanent residents.
In coordination with the Federal Government, the State Governments have also imposed restrictions under their respective health acts. Various national responses have been coordinated by the “National Cabinet” of Federal and State Governments.
The State Governments have also used emergency powers under their respective health acts to implement varying orders to prevent the spread of COVID-19, such as the closure of non-essential businesses where people gather, and border restrictions in some states.
Failure to comply with these bans and orders are an offence.
In addition, both the Federal and State Governments have issued a number of instructions to consumers during this time of uncertainty.
If an event is cancelled solely as a result of a government ban or other government-imposed restrictions, suppliers may not be required to provide customers with a remedy under the Australian Consumer Law, although suppliers will also need to consider their obligations under the terms of their agreement with consumers.
However, every situation is different and the law is technical. You should seek legal advice as to whether your particular circumstances fall within the exceptions in the Australian Consumer Law relating to actions of third parties and / or causes independent of human control that occurred after the services were supplied. Each case will be different.
Where there has been a failure of consumer guarantees, a customer is also entitled to bring an action for damages for any loss or damage suffered where reasonably foreseeable. For example, this may extend to flights or accommodation associated with the customer’s tickets. Again, you should seek legal advice as to whether the loss or damage is reasonably foreseeable.
The ACCC has issued guidance titled “COVID-19 (coronavirus) information for consumers” to assist consumers who might be experiencing travel and event cancellations due to COVID-19. The guide is available here. Notably, irrespective of businesses’ legal obligations, the ACCC is “encourag[ing] all businesses to treat consumers fairly”.
The ACCC has also issued separate small business guidance about refunds and cancellations due to COVID-19, recognising that small businesses may be affected in relation to their own customers and also as customers themselves. The guidance recommends that businesses:
- contact customers wherever possible to advise them of how they are handling various circumstances; and
- continue to be mindful of their obligations under the Australian Consumer Law, including obligations to not mislead customers, to not act unconscionably when dealing with their customers, and to not seek to rely on unfair terms in standard form contracts.
Some State and Territory regulators have also issued their own guidance – see here the guidance issued by NSW Fair Trading, which states that consumers “may not be entitled to a refund under the consumer guarantees if the event if cancelled due to matters outside [a supplier’s] control”, but also “suppliers are required to take reasonable precautions and exercise due diligence to ensure that supply will not be affected by a ban before they agree to supply”.
The ACCC’s COVID-19 Taskforce has already dealt with a number of issues in relation to cancellations and refunds:
- the ACCC contacted a travel service provider after its customers complained that it was charging “change fees” where flights were cancelled. The provider agreed not to charge fees for existing bookings and agreed to offer a fee-free travel credit to affected customers. It is continuing to resolve another unnamed issue with the ACCC and fair trading offices;
- the ACCC is investigating several package tour businesses who are alleged to have recently changed their terms and conditions, assessing customer claims for refunds and credit vouchers under the new terms rather than the terms that applied at the time of booking;
- the ACCC is working with another travel service provider following customer complaints that it is not providing refunds in line with its terms and conditions;
- the ACCC has spoken to an airline following reports of incorrect advice being given about refunds resulting from issues impacting overseas call centres, increased demand and new team members;
- the ACCC intervened after reports that a major gym chain was charging customers a weekly “freeze” fee for the period their gyms would be closed. The gym ceased this practice and the ACCC is contacting other gyms believed to be charging similar fees.
Q: We have customers who have purchased tickets for an event in the future but are now wanting to cancel due to COVID-19 concerns. Do we have to give them a refund if they cancel?
A: The consumer guarantees only require a remedy if one of the guarantees are not met. If the customer cancels their attendance/booking, you may not be required to provide a remedy because a “change of mind” is not covered by the consumer guarantees. Whether a customer’s cancellation is due to a change of mind will depend on the circumstances.
Where customers do have the right to cancel an order or discontinue a service, you should make sure they are practically able to do so. For example, the ACCC has reportedly received complaints from customers who have had difficulty contacting Foxtel to cancel or suspend their subscriptions, whether due to their changed financial circumstances or the impact of the COVID-19 pandemic on live sports programming, after overseas call centres were shut down.
Q: We are having problems with supplying orders to customers within our normal periods due to COVID-19. Will we be in breach of the consumer guarantees?
A: The consumer guarantees require you to provide goods of acceptable quality, fit for their disclosed purpose and where a time period for supply has not been provided, “within a reasonable time”. Your consumer guarantee obligations also apply to the transportation of goods where the customer has purchased the goods for their own personal use, but do not apply where the goods have been acquired for business, trade, profession or occupation purposes.
This is particularly important for online shopping platforms and other businesses who trade online whether or not there are representations about delivery times. To avoid false or misleading statements about delivery times, you should communicate any delay to customers as soon as possible. If you are aware that your supply chain will or may be affected by delays, you should make this clear upfront before consumers decide to purchase a product.
The ACCC’s COVID-19 Taskforce has recently contacted a subscription meals provider which had been unable to source supply to meet its order and contractual obligations. In response to this contact, the business undertook to provide full refunds to impacted customers.
Q: Am I allowed to take orders for products if I don’t know when they will arrive?
A: COVID-19 has meant that many businesses are operating in times of uncertainty. You need to carefully consider if your business will accept orders and payment for products you are not sure when you can supply, as the consumer guarantees provide that goods must be supplied within a reasonable time. What is reasonable will depend on the product and circumstances. As every situation is different, you should seek legal advice regarding your specific business. However, generally you should be as upfront as possible with consumers regarding potential supply chain issues or delays.
If you make any express representations about the future delivery of goods including your ability to supply goods, you need to have a reasonable basis for making such representations. If you do not have a reasonable basis, your representation is deemed to be misleading under the Australian Consumer Law.
Separately, the Australian Consumer Law also provides that where you accept payment for goods, you must supply the goods within the period specified or within a reasonable time (where no period is specified). An exception exists where the failure was due to the act or omission of another person or some other cause beyond the person’s control. Failure comply will attract civil penalties. As every situation is different, you should seek legal advice regarding your specific circumstances.
Q: Can I change my prices to respond to supply and demand, maintain margins and help sustain the supply chain in my industry?
A: The COVID-19 pandemic is already causing extreme volatility in supply and demand, which may have significant impacts on pricing and margins across the supply chain in many industries. Pricing is a key area of concern in all forms of economic regulation and it will be important to be aware of your obligations as the situation continues to evolve.
Cartel conduct and concerted practices
As always, you must make all your pricing decisions independently, without agreeing, coordinating or discussing your prices with your competitors, unless you have first considered competition law risk.
If you supply through distributors, you have only limited influence over the prices at which they sell or advertise your products to their end-customers.
You can stop them from raising their prices by setting a maximum resale price. For example, if you are a supplier of products experiencing greater than usual demand, you can require your distributors to price below a particular price to avoid exploitative pricing.
You can’t stop distributors from lowering their prices by setting a minimum resale price: this is resale price maintenance and is prohibited in most circumstances. For example, if your distributors are heavily discounting your products due to a slump in demand, this is generally considered a benefit to consumers and cannot be prevented without authorisation from the ACCC, even if the purpose is to protect your distribution network or maintain the premium value of your products or brand.
Of course, if your distributors or sales outlets are wholly owned within your corporate group, the group can set the prices at which those outlets will sell the group’s products. The same applies where your products are distributed through your genuine agents, though you should seek legal advice on the likely characterisation of your distribution arrangements as this will depend on all the circumstances and not only whether the distributor is described as an agent.
You are always free to provide a recommended retail price to your distributors, as long as this is a genuine recommendation and the distributors will not suffer, or expect to suffer, any adverse consequences if they depart from the recommended price.
In limited circumstances you can withhold supply to a distributor who has recently sold your products below cost as a “loss leader” to attract customers likely to purchase other goods or otherwise promoting their business.
Generally, you are free determine the prices at which you are willing to supply your products or acquire products from others in response to changing supply and demand conditions. In Australia, even if you have a substantial degree of market power, raising your prices above competitive levels will not by itself be considered an abuse of that power.
If your input costs increase due to COVID-19, for example if you have to secure additional or alternative supply, you can generally raise your prices to maintain your margins.
It is important not to mislead or deceive customers about the reasons for any price increase. For example, if you justify a price increase on the basis that the COVID-19 pandemic has increased your input costs, you should make sure that the whole of your price increase is attributable to those increased costs. In some circumstances an excessive price increase may also be considered unconscionable conduct, for example where your product is a necessity for your customers and they have a particular vulnerability or disadvantage. The ACCC has said that it is possible that extreme price gouging for essential products may amount to unconscionable conduct.
Even where price increases are not prohibited under the current law, excessive and unjustified price increases are likely to attract consumer complaints and media attention and may lead to additional regulatory intervention. The ACCC has reportedly created a new team to look out for profiteering, scamming and other consumer issues. At present the ACCC’s intervention may be focused on drawing attention to instances of overcharging and encouraging customers to avoid these businesses, but it may pursue additional avenues in the future.
The ACCC has said that price gouging for essential products is a significant public concern at this time and that the ACCC will prioritise its activities in relation to this conduct.
Following its recommendation in the Digital Platforms Inquiry, this year the ACCC is likely to call for a prohibition against unfair business conduct, which would be broader than the prohibition against unconscionable conduct. Any such prohibition may affect pricing decisions during the COVID-19 pandemic or in its aftermath.
On 30 March 2020 the Minister for Health issued a determination under the Biosecurity Act 2015 prohibiting any person from price-gouging in relation to essential goods, namely disposable face masks, gloves and gowns; goggles, glasses or eye visors; alcohol wipes and hand sanitizer. Price-gouging occurs when a person has purchased the essential goods in a retail transaction on or after 30 January 2020 and supplies, or offers to supply, the goods at a margin of more than 20%. Goods purchased at the wholesale level of the supply chain are not subject to this particular restriction.
The ACCC has engaged with online platforms such as Amazon, Facebook, eBay and Gumtree to discuss the measures and mechanisms they have in place to prevent the sale of essential products at excessive prices and will continue to monitor these sales. It has also investigated concerns about higher prices or reduced discounts for fresh produce in supermarkets, but so far it has attributed higher prices to external factors such as the drought and recent bushfires.