This article was written by Lisa Huett, Melissa Monks, Will Osborn and Joe McQuillen.
In the first major check-up of the Australian Consumer Law (ACL) since its introduction, the finding is one of good health generally, though with some room for improvements.
Consumer Affairs Australia and New Zealand (CAANZ) released its Final Report on 19 April 2017 in relation to its review of the ACL, proposing 22 changes intended to strengthen and clarify the operation of the law, and a program of research and policy development to future-proof it. Unsurprisingly, some of the more significant recommendations are a large increase in the maximum penalties for a breach of the ACL, strengthened rights to consumer guarantee remedies and the introduction of a new general obligation to ensure that products are safe before market entry.
The Final Report comes just one week after the Productivity Commission released its own report on consumer law enforcement and administration. The two reports are largely complementary with CAANZ’s review focused on assessing the effectiveness of the substantive ACL provisions, while the Productivity Commission’s report examined the enforcement and administration of the ACL.
We review some of the more significant aspects of the Final Report below.
The Final Report has found the current maximum penalties for breaches of the ACL to be insufficient to deter future breaches. This is consistent with the Productivity Commission’s findings in its recent report that maximum financial penalties available under the ACL are small relative to the benefits that a business can accrue by breaching the law. It’s a position that will be welcomed by the ACCC who has for some time been calling for an increase in the applicable penalties for a breach of the ACL. Some recent court judgments have also commented on the potential inadequacy of these penalties.
The Final Report also highlighted the inconsistency between the penalties that apply for breaches of the competition provisions of the Competition and Consumer Act 2010 (Cth) (CCA) compared to those under the consumer provisions of the same Act.
Accordingly, the Final Report recommends that maximum financial penalties for breaches of the ACL be brought in line with the penalty regime that applies to the competition provisions of the CCA.
Current max. penalty for breach of the ACL
Proposed max. penalty for breach of the ACL
Corporations - $1.1M
Individuals - $220,000
Corporations - the greater of:
- (i) $10M;
- (ii) three times the benefit; or
- (iii) if benefit can’t be determined, 10% of annual turnover.
Individuals - $500,000
Significantly, the Final Report does not recommend that financial penalties attach to the general prohibition on misleading or deceptive conduct, a suggestion that had been made when the ACL was originally mooted and recently revisited.
The Final Report recommends the introduction of a new general provision that obliges businesses to ensure the safety of a product before it enters the market, with pecuniary penalties for any breach.
The current product safety regime includes safety standards for high risk products, powers to issue interim or permanent bans of unsafe products, some limited powers related to mandatory recalls and provisions which provide consumer redress where goods have a safety defect, including the right to compensation.
However the Final Report observes that Australia’s current product safety regime is outdated because it is focused on post-market controls (requiring consumers and regulators to take action after a safety incident has occurred) rather than pre-market controls (requiring businesses to take more proactive steps related to safety before introducing products into the market). The Final Report noted that the introduction of a general obligation to only supply safe products would place a clear onus on businesses to ensure the safety of products, as they are better placed to control these risks at the design and manufacture stage. Such a change would bring Australia into line with a number of overseas jurisdictions which have had general safety provisions in place for some time, including the UK and Canada.
This proposed change will create stronger incentives for businesses to proactively consider and assess whether their product is safe and/or meets relevant safety standards prior to introducing it into the market. It will also provide a more effective pre-emptive action for regulators without the need for a product to have first caused injury or damage, or for regulators to have to employ more novel ways of addressing potentially unsafe products (seen in recent years by the ACCC’s use of misleading conduct provisions).
Interestingly, the Productivity Commission considered in 2006 that the overall benefit in introducing a general safety provision would be limited at that time. Yet increasing trends over the last 10 years in direct sourcing of less expensive FMCG products from overseas and rising consumer problems with faulty, poor quality or unsafe products (in particular electronics, food and drinks, non-electronical household goods and clothing) were considered by CAANZ as factors that now justify the introduction of such a safety obligation.
It was also recommended that a ‘safe harbour’ defence be introduced to give businesses an automatic defence to a breach of the general safety provision if they have complied with an appropriate product safety standard.
The final element of the suggested product safety reforms is the broadening of the ACCC’s power to obtain information about product safety to apply to any person (including a consumer) likely to have relevant information, rather than only the supplier.
Inter-related to product safety is the regime related to recalls. While CAANZ has not recommended any changes to the substantive obligations to recall, it does seek to strengthen the existing requirements by introducing a statutory definition of ‘voluntary recall’ as supported by increased penalties for a failure or refusal to notify a voluntary recall.
In the Final Report, CAANZ suggests that a new definition of ‘voluntary recall’ could be based on the definition of ‘product recall’ developed by the International Organisation for Standardisation (ISO), such as the following from ISO 10393:2013 “Consumer product recall”:
“A recall is corrective action taken post production to address consumer health or safety issues associated with a product”.
CAANZ believes that such a definition will deter businesses from failing or refusing to notify a voluntary recall by increasing the risks of not notifying and clarifying the distinction between an actual recall and other remedial action.
The Final Report focused on the issues of remedies and disclosure of consumer guarantee rights under the ACL.
The most significant recommendation for reform of the consumer guarantee regime concerns the types of failure that amount to a “major failure”. The review identified that consumer difficulties in trying to assert a major failure were one of the most common and consistent issues raised. As a result, the recommendation made is to:
- make available a refund or replacement to a consumer where goods fail to meet the consumer guarantees within a short period of time after purchase, without the need for the consumer to establish a major failure; and
- amend the law to clarify that multiple non-major failures can collectively amount to a major failure.
Enhancements to disclosures for extended warranties, including providing a comparison of the extended warranty rights on offer with the rights available under the ACL, were also recommended. This recommendation is similar to obligations that the ACCC has already secured from some businesses by way of voluntary court enforceable undertakings (see here and here).
Additionally, the Final Report recommends that businesses allow a cooling-off period of ten business days (or unlimited time if the supplier has not met applicable disclosure requirements) and that this must be notified to the consumer in writing and, where reasonably practicable, verbally by the business.
Finally, some welcome housekeeping has been recommended in terms of clarifying the mandatory wording for warranties against defects by developing text specific to services, as well as services bundled with goods.
Definition of ‘consumer’
The Final Report includes a recommendation to change the definition of ‘consumer’ - which determines when many ACL protections will apply (including the consumer guarantees, unfair terms and unsolicited consumer agreement provisions).
Currently, a person or business is taken to have acquired goods or services as a consumer if:
- the goods or services were of a kind ordinarily acquired for personal, domestic or household use; or
- the amount payable for the goods or services does not exceed $40,000.
The $40,000 threshold has not changed since 1986. CAANZ has recommended a significant increase to the threshold – to $100,000 – as it considers that this broadly reflects the effects of inflation in the last 30 years. This change will increase the range of transactions and parties in relation to which protection under the ACL can be claimed.
In particular, the new threshold will extend the coverage of the consumer guarantees regime to include more transactions involving the purchase of goods and services by businesses.
Other notable reforms
Other reforms to the ACL recommended by CAANZ include:
- extending the ACL unconscionable conduct protections to publicly listed companies;
- applying the unfair contracts terms regime to contracts regulated by the Insurance Contracts Act 1984 (Cth);
- introducing a ‘follow-on’ provision to enable private litigants to rely on admitted facts from earlier proceedings; and
- in an online shopping context, requiring that any additional fees or charges associated with pre-selected options are included in the headline price.
The Final Report also identifies 4 recommended actions to be undertaken by regulators and other consumer policy agencies in an effort to improve transparency and clarify the intent of the law. The most significant of these are:
- regulators and tribunals to collaborate on providing more specific guidance as to the meaning of the terms ‘unsafe’ goods and ‘reasonable durability’ in the context of the consumer guarantees regime; and
- clarifying though regulator guidance the mandatory reporting obligations that apply to businesses, particularly existing reporting requirements, reporting triggers on the meaning of ‘serious injury or illness’ and ‘use or foreseeable misuse’.
No agency or tribunal (including the ACCC) has specifically responded to these proposed actions as yet.
Further review on the cards
The Final Report also identifies 7 “priority areas” for further investigation where CAANZ considers that it is not yet in a position to make specific reform proposals and wants time to determine whether and how the operation of the ACL in these areas could be improved. These include:
- exploring how an unfair trading prohibition could be adopted in Australia to address potentially unfair business practices;
- examining whether the current consumer guarantees are fit-for-purpose for purely digital products, certain market practices and emerging technologies;
- undertaking an economy-wide study to examine the role, nature and impact of unsolicited selling in the Australian economy, to inform future policy development.
On top of this, CAANZ announced that it would commission a third ACL Survey in 2021 to assist in monitoring and reviewing the ACL.
Next steps for legislative reform
The legislative proposals vary in scope and complexity. CAANZ identified that some require further policy development, for example, foreshadowing that careful consideration would be needed in framing the proposal for the right to refund or replacement where goods fail within a short period to balance the compliance costs for businesses with consumer rights. The question of whether the proposed product safety provision should be cast as a positive or negative duty (to supply safe products or not supply unsafe products) will also be the subject of further consideration.
However before any legislative amendments to the ACL can be enacted, they need to be considered and agreed by State and Territory Governments. This is because the ACL is a uniform law which is applied individually by each State and Territory, and underpinned by an intergovernmental agreement signed by the Coalition of Australian Governments. At this stage, State and Territory Consumer Affairs Ministers and Federal Small Business Minister Michael McCormack will meet and vote on the ACL reform proposals in August.
The Labor Opposition has welcomed ACL “reform in the national interest”, and in particular, claimed that increased maximum penalties was one of its election promises and is urgently needed. The Federal Government has said little beyond welcoming the finalisation of CAANZ’s review and confirming that discussions with the states and territories will need to take place before determining what, if any, changes will be rolled out.
Therefore, at this stage, any reforms to the ACL would seem to be at least six months away, with any change to the terms of the ACL being enhancements and some tidying but not a total overhaul.