16 February 2018

Consumer law no longer the poor cousin

This article was written by Peta Stevenson,Trish Henry and Melissa Monks. 

Yesterday, while the attention of the media was elsewhere, an important piece of legislation was introduced to Parliament which will if passed increase penalties for many breaches of the Australian Consumer Law to be in line with those for competition law breaches.

Introduced by the Assistant Minister to the Treasurer, Michael Sukkar, the Treasury Laws Amendment (2018 Measures No. 3) Bill 2018 (Cth) increases the maximum civil pecuniary penalties and penalties for criminal offences from $1.1M for corporations to the greater of:

  • $10,000,000; 

  • if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the commission of the offence—3 times the value of that benefit; 

  • if the court cannot determine the value of that benefit—10% of the annual turnover of the body corporate during the 12-month period ending at the end of the month in which the body corporate committed, or began committing, the offence.

The maximum penalty for individuals would also increase from $220,000 to $500,000.

While there remains no pecuniary penalty for engaging in misleading and deceptive conduct, the increases will apply to most of the existing ACL civil penalty and offence provisions including those relating to unconscionable conduct, unfair practices (such as false or misleading representations, unsolicited supplies, pyramid schemes and single pricing), breaches of safety standards, supplying goods covered by a ban and failures to comply with recall notices or information standards.

The Bill gives effect to the commitment made by the Federal Government in last year’s budget to strengthen penalties for breaches of the ACL, which was subsequently recommended by the various Commonwealth, State, Territory and New Zealand consumer affairs Ministers last September as part of their response to the ACL Review.

Debate will be resumed on the next day of sitting, which is 26 February 2018, with the possibility that the Bill may be referred to Committee for review.  

As drafted, it is intended to take effect on the later of 1 July 2018 and Royal Assent, and to apply to acts or omissions after that date.

A number of other changes proposed in the ACL Review and agreed to by the Ministers have been included in a separate bill which is currently subject to consultation by Treasury in relation to the form of the exposure draft legislation. Submissions are due on 28 February 2018.  

The changes proposed in the draft Treasury Laws Amendment (Australian Consumer Law Review) Bill 2018 include:

  1. Unfair contract terms – enhancements to the ACCC and ASIC’s information gathering powers enhanced to enable them to investigate possible unfair contract terms.  Currently, the trigger for the exercise of such power is a suspected breach of the ACL/ASIC Act.  Given that the existence of an unfair term doesn’t amount to any contravention of the law, the regulators have been somewhat limited in such investigations.  This reform will enable them to better assess whether to seek a court declaration that a term is unfair and void. We anticipate that the ACCC will be quick to use this power once available given that unfair terms have been a particular focus for the regulator recently.  In particular, the power will help the ACCC to understand the motivation for a term, the interests sought to be protected, other options that may be available for protecting those interests and therefore whether the term under scrutiny is reasonably necessary in the circumstances.

  2. Product safety - The Minister and ACCC’s powers to obtain information about the safety of goods and services by issuing disclosure notices will be expanded so that not just suppliers, but also other third parties like test laboratories, safety consultants, other businesses and consumers must provide information or documents about potential safety matters.  Given product safety is an enduring enforcement priority for the ACCC, this expanded power will be a valuable addition to the ACCC’s existing toolkit.  

  3. Recalls – definition - For the first time, a definition of ‘recall’ will be included in the ACL to make explicit the trigger for the obligation to report a voluntary recall.  Under the new definition, a voluntary recall is corrective action taken by a person engaged in trade or commerce to mitigate a consumer safety risk.  

  4. Recall – penalties - The ACL will also be amended to increase the existing penalties for failing to notify a voluntary recall.  The ACL Review Final Report had identified the current penalties as being too low to provide a sufficient incentive on businesses to notify a recall.  The maximum penalty for a breach for failure to notify a voluntary recall will be the greater of $165,000 or 3 times the value of the benefit obtained or attributable to the business and any related bodies corporate as a result of the act or omission.  For individuals, the new maximum civil pecuniary penalty is $33,000.

  5. Follow on actions - Private litigants and regulators taking action in relation to a breach of the ACL may benefit in some circumstances by being able to rely on admitted facts (not just findings of facts) from earlier proceedings.  Companies will therefore need to carefully consider their strategy in defending any ACCC proceedings to minimise the risk of potential class actions.  

  6. Single price - Price transparency is to be enhanced by requiring that fees or charges associated with pre-selected options be included in the single ‘headline’ price.  It is the preselecting and not the offer of such options, that would fall foul of this reform.  The reform is somewhat of a surprising addition as it was not part of the original ACL Review or the resulting recommendations, but is consistent with the ACCC’s focus on drip pricing.  Because the ACL does not require that optional charges be included in the headline price, the headline may not have always represented the total price of the good or service where the seller has pre-selected options.  This will change the way in which online pricing is presented, particularly that of airlines which have commonly presented pre-ticked luggage, food, carbon offsets, insurance and donation options.  It is the preselecting and not the offer of such options, that would fall foul of this reform.

  7. Unsolicited services - The definition of ‘unsolicited services’, will be amended to include services which were not requested nor provided, or where payment is sought before the unsolicited service is provided, in order to allow for “better enforcement” of these provisions.  

  8. Unsolicited consumer agreements - The existing definition of an unsolicited consumer agreement (UCA) will be clarified to make clear that such an agreement can be entered into in a public place, even where a dealer could have entered the place without the consumer’s invitation.  This may include city squares, public streets and open spaces in shopping centres (rather than physical stores within such a complex).  The change is intended to merely clarify, and not expand, the existing definition.

  9. Consumer guarantees - The current exemption to the guarantee of due care and skill in relation to the transportation or storage of goods “for business purposes” has been broadly interpreted by the courts as applying to where either of the buyer or seller act with this purpose.  The proposed reform will clarify the operation of the exemption so that it only applies where the buyer is purchasing for a business purpose, which ensures that consumers have remedies against the transporter.  The standard for due care and skill is relatively high, nonetheless transporters should ensure that their practices and procedures meet the due care and skill guarantee.  

  10. Unconscionable conduct - The unconscionable conduct provisions in the ACL will be extended so that publicly listed companies can seek to utilise these protections.  Accordingly, all classes of consumers and business will be able to rely on these provisions.

  11. Warranties against defects - The anomaly in the mandatory text for warranties against defects (aka “Reg 90 wording”) will finally be rectified to account for the supply of services and the supply of goods and services, in addition to the existing wording relating to the supply of goods.  

  12. Financial products - The definition of ‘financial services’ in the ASIC Act will be amended to include ‘financial products’.

  13. Remedies - The remedies available to a court will be expanded to give the court the power to require the person in contravention of the ACL to engage a third party to perform the required community service.  A court may consider this remedy when the person in breach is not qualified or trusted to give effect to an order.

Contact us if you would like assistance to prepare a submission.

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