On 1 January, 2011 the consumer laws of the Commonwealth and the States and Territories were consolidated into a single national consumer law (“the australian Consumer Law”). This law is now embodied in the Competition and Consumer act 2010 (“the act”). The act was formerly known as the Trade Practices act 19 4.

The Australian Consumer Law is part of an application law scheme with the Australian Government as the lead legislator and the States and Territories applying the national law as part of their own laws.

  1. The significant changes brought about by the commencement of the Act and which are covered in detail in this paper are: a new national law dealing with unfair contract terms in standard form contracts;
  2. a national law guaranteeing consumer rights which replaces the previously existing laws implying conditions and warranties into the supply of goods or services; and
  3. new penalties and enforcement powers.  

The new law also adds, among other things, new prohibitions against false or misleading representations that purport to be testimonials or concern a requirement to pay for a contractual right equivalent to any condition, warranty, guarantee, right or remedy provided by law.  

The regulations made under the law also give further content to the prohibitions. For instance, in relation to the prohibition against asserting a right to payment for unsolicited goods or services, it is now required that a warning statement must be included which reads “This is not a bill. You are not required to pay any money”. The text must also be the most prominent text in the document. Furthermore, there are now a large number of prescribed requirements in relation to the negotiation of an “unsolicited consumer agreement”.  

Thus, the ambit of the various changes made by the Act is extremely broad.

The Act continues to be administered by the Australian Competition & Consumer Commission (“the ACCC”).

Unfair Contract Terms in Consumer Contracts

The Act has introduced a series of provisions which make void “unfair” terms in standard form consumer contracts. These provisions are new to Australian law.

A “consumer contract” is a contract for the supply to an individual (not a company) of:

  • goods or services; or
  • an interest in land, financial products or services;

who acquires that subject matter wholly or predominantly for personal, domestic or household use or consumption.  

It is worth noting here that within the Act there are a number of different definitions of a “consumer” depending upon the particular regime under consideration. This will become more apparent later in this paper, however, suffice to say for present purposes that the unfair contract terms provisions do not apply in favour of companies and do not apply to standard form contracts between one business and another.  

The Act does not contain a definition of a “standard form contract” but does direct the Court to take certain matters into account when making that determination. These are:

  • whether one of the parties has all or most of the bargaining power in the transaction;
  • whether the contract was prepared by one party before any discussion occurred between the parties about the transaction;
  • whether the subordinate party was, in effect, required to either accept or reject the terms of the contract in the form in which it was presented;
  • whether the subordinate party was given any real opportunity to negotiate the terms of the contract; and
  • whether the terms of the contract take into account the specific characteristics of the subordinate party or the particular transaction.  

Given the fact that the provisions only apply to contracts under which individuals wholly or predominantly acquire something for personal, domestic or household use or consumption, the provisions will potentially apply to a high proportion of those contracts. Furthermore, the Act contains a rebuttable presumption that a consumer contract is presumed to be a standard form contract unless the business relying on the allegedly unfair term proves otherwise.  

A term of a consumer standard form contract will be unfair if it is not transparent and in the context of the contract as a whole:

  • it causes a significant imbalance in the parties’ rights and obligations arising under the contract; and
  • it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.  

These elements are cumulative and all must be proven before the term is declared unfair and therefore void.  

The concept of transparency is new to Australian law. A term is to be regarded as transparent if it is expressed in reasonably plain language and is legible, presented clearly and readily available to any party affected by it.

The legislation also provides examples of the terms of a consumer contract which might be unfair. These include terms allowing one party only to avoid or limit performance of the contract, terminate the contract, vary the terms of the contract or renew or not renew the contract.

As a consequence of the commencement of these new provisions, businesses which supply goods or services which are wholly or predominantly acquired for personal, domestic or household use or consumption should check the terms of any standard form contracts (including the standard terms of trading endorsed on sales documentation) for compliance with the law.

Consumer guarantees

The Act also replaces the State, Territory and Federal laws which previously implied certain conditions and warranties into contracts with consumers for the supply of goods or services with a series of consumer guarantees. As with the old regime, the definition of a “consumer” is someone who purchases goods or services of any kind for a value of $A40,000.00 or less or goods or services in excess of that value but which are of a kind ordinarily acquired for personal, domestic or household use or consumption or which comprise a commercial vehicle acquired primarily for use in the transportation of goods provided that those goods are not acquired for the purpose of use in a process of manufacture or resale. Whilst there are strong similarities between the old and the new provisions, consumers now have a statutory right of action rather than a contractual right of action. In all, there are 12 guarantees and these are as follows in relation to goods:

  1. A guarantee as to title;
  2. A guarantee as to undisturbed possession;
  3. A guarantee that there are no undisclosed security interests;
  4. A guarantee as to acceptable quality;
  5. A guarantee as to fitness for purpose;
  6. A guarantee as to correspondence with discretion;
  7. A guarantee as to correspondence with sample;
  8. A guarantee as to the availability of spare parts and facilities for repair; and
  9. A guarantee as to compliance with an express warranty.  

In relation to services, the guarantees are:

  1. A guarantee as to the exercise of due care and skill;
  2. A guarantee as to fitness for purpose; and
  3. A guarantee as to the time for performance.  

All of these guarantees are to some extent qualified and these qualifications, by and large, mirror those which applied in respect of the old regime of implied conditions and warranties.

As with the old regime, these guarantees cannot be excluded, modified or limited by a contract although, as was the position previously, liability in respect of the sale of goods can be limited to replacement, repair, the payment of the cost of replacement or the payment of the cost of repair where the goods are not of a kind ordinarily acquired for personal, domestic or household use or consumption but otherwise have a purchase price of less than A$40,000.00. The ability to limit liability in respect of these goods is also subject to a fairness test and does not apply to the guarantees of title, undisturbed possession or undisclosed security.

The Act also introduces the concept of a “major failure” in relation to the remedies which are available. A major failure is one where a reasonable consumer if fully acquainted with the nature and extent of the failure would not have acquired the goods, or where the goods depart in significant respects from their description or from the sample, the goods are substantially unfit for a purpose for which they are commonly supplied and cannot easily and within a reasonable time be remedied or are unfit for a purpose that was made known to the supplier and cannot easily and within a reasonable time be remedied to make them fit or where the goods are unsafe.

New remedies

The Australian Consumer Law has also provided the ACCC with new remedies to deal with breaches or suspected breaches of the law. Of particular interest are infringement notices, substantiation notices, and the extension of civil pecuniary penalties to certain conduct.

An infringement notice is a notice issued by the ACCC when it has reasonable grounds to believe that there has been a breach of a relevant provision of the law. The relevant provisions include the prohibitions on unconscionable conduct and the making of false or misleading representations. Where an infringement notice has been issued, the person to whom it has been issued can pay the amount of the penalty set out in the notice or have the matter taken further. The payment of the penalty pursuant to a notice is not an admission of liability or of a breach of the law. Currently, the maximum infringement notice penalties are $66,000.00 for listed companies, $6,600.00 for unlisted companies and $1,320.00 for individuals.  

A substantiation notice is another notice which may be issued by the ACCC. In this case, it requires persons to give information or produce documents about claims made in promoting goods or services. This notice must be complied with within 21 days and there are protections against self incrimination.  

Civil pecuniary penalties of up to $1.1 million for corporations and $220,000.00 for individuals can now be imposed by a Court following action by the ACCC in respect of unconscionable conduct and false or misleading representations among other unfair practices.

CONCLUSION

The introduction of the Australian Consumer Law is the single most important development in the area of consumer protection since the Trade Practices Act was introduced in 1974. Whilst many of the provisions remain the same or substantially the same as they were under the previous State, Territory and Commonwealth provisions, the consolidation of the laws in these jurisdictions into one homogeneous set of laws with added powers being given to the Commission heralds a more efficient and therefore effective system for protecting consumers’ rights.