The new Australian Consumer Law – what areas of law does it affect and who is impacted?

Unfair terms in contracts with Category 1 Consumers can be declared void and attempts to rely on unfair terms can result in enforcement action.

To understand what constitutes an unfair term, please see our diagram.

These provisions are new and there were no equivalent provisions in the TPA. Victoria is the only state which had previously introduced unfair terms legislation.

The unfair terms provisions apply to supplies of goods, services, interests in land, financial products and financial services.

Conduct a structural review:

• to what extent is a contract necessary? 
• which of your contracts are with Category 1 Consumers?

Review whether any terms in such contracts are at risk of being declared unfair. Note that a term may be unfair in substance or because it is unclear. The ACL has regard to whether a term is ‘transparent’.

Pay particular attention to:

• unilateral termination clauses 
• terms which exclude or limit liability, and
• unilateral rights of variation.

Is the effect of the clauses in the contract limited to protecting the legitimate interests of your business or do the clauses contain any element of unjust compensation (such as where the amount payable by a consumer in consideration for the ability to terminate a contract early exceeds the actual cost to the business of dealing with the termination)?

Consider what the implications for your business are, if you are unable to enforce a potentially unfair term.

Financial institutions should read the guidance released by ASIC (CP 135) asking for comments on unfair contract terms in the context of mortgage early exit fees.

For contracts already in existence, ensure that:

• if a contract is renewed, the renewed version does not contain unfair terms, or
• if a contract is varied, both the varied terms and the manner in which the variation takes place are not unfair.

• public warning notices
• substantiation notices
• infringement notices
• financial penalties
• disqualification orders, and
• consumer redress orders.

These enhanced powers are a significant expansion of the previous powers to deal with contraventions of consumer protection legislation. Previously, enforcement was largely the domain of the courts.

Whilst this article has focused on the role of the national regulators, state and territory regulators will also play a role in enforcing the ACL and will retain many of their existing powers to deal with contraventions.

The enforcement provisions apply, where applicable, to supplies of goods, services, interests in land, financial products and financial services.

To see a table showing the application of the new enforcement powers please see our diagram.

• some of the new powers can be used in cases where a regulator has reason to suspect a contravention – ie there is no need for an actual contravention
• the new situations where pecuniary penalties may be issued (which may be significant for listed companies with continuous disclosure obligations), and 
• the new ability of a regulator to apply for an order on behalf of a class of affected people.

Put in place procedures, and appoint and train appropriate business teams, to deal with responses to consumer complaints – including in relation to:

• misleading or deceptive conduct, and
• unconscionable conduct.

The ACL will expand the existing TPA provisions concerning specific types of unfair trading practices.

In summary, if your business conducts any of the following activities you need to ensure that the business will comply with the ACL:

• offer extended warranties in connection with supplies of goods which overlap with the protection offered by the consumer guarantees
• use exclusion or limitation of liability clauses in contracts for the supply of goods
• offer gifts or prizes
• use testimonials as part of your marketing strategy
• accept payment in some instances before goods or services are supplied, or
• encounter situations in the business where multiple prices for goods are displayed at the same time (such as in a restaurant where prices may vary at the weekend).

As with the previous provisions in the TPA, failure to comply with the new unfair practices provisions will be a criminal offence.

Except where the unfair practices provisions refer to the consumer guarantee regime in the ACL, the scope of these provisions is not limited to a particular type of consumer. Instead the provisions apply generally to any person supplying goods, services, financial products and financial services and in some cases interests in land, in trade and commerce (ie in a professional capacity).

Understand the way in which the ACL expands the existing TPA provisions which protect against specific types of unfair practices. 

Assess whether current business practices comply with the ACL.

Review the terms of any ‘extended warranty protection’ offered with contracts for the supply of goods to Category 2 Consumers and Category 3 Consumers*. Extended warranty protection could include, for example, a situation where a consumer would pay for rights such as:

• any express obligation to repair goods, or
• an express defects liability period.

Ensure that all contracts for the supply of goods to Category 2 Consumers* and Category 3 Consumers* do not contain:

• exclusion clauses
• limitation of liability provisions, or
• entire agreement clauses.

Ensure that all contracts for the supply of goods to Category 4 Consumers do not contain exclusion clauses or entire agreement clauses and that they only contain limitation of liability clauses which comply with the terms of the ACL.

*Don’t forget that under these classes of ‘consumer’, business consumers are also in many instances eligible for protection depending on the type of goods being supplied or the price of the goods.

The ACL will introduce a new regime of ‘consumer guarantees’. The consumer guarantees will replace the TPA method of implying consumer protection terms into contracts with consumers for the supply of goods and services and then requiring consumers to claim in contract when there is a breach of the implied terms.

The new provisions can be summarised as follows:

• the consumer guarantees will apply to contracts for the supply of goods or services to consumers in Categories 2 to 4 (ie including ‘business to business’ contracts)
• the purpose of the consumer guarantees is to ensure that every consumer has the benefit of the consumer guarantees and it is not possible for a supplier to exclude liability in respect of the consumer guarantees
• in contracts for the supply of goods and services with Category 4 Consumers, it will be possible to limit liability in certain ways as set out in the ACL
• the content of the consumer guarantees in the ACL will reflect the content of the terms formerly implied by the TPA. But there is a significant new guarantee in the ACL which will apply to contracts for the supply of goods. The new guarantee states that ‘express warranties’ take effect as consumer guarantees. This will have the following important consequences:
  • the term ‘express warranty’ is defined to include all pre-contractual statements about the nature of the goods—a significant development
  • it will not be possible to exclude liability in respect of express warranties when supplying goods to Categories 2, 3 and 4 Consumers, and
  • the ability to limit liability will only be possible for Category 4 Consumers. 
• the consumer guarantees will not apply to supplies of interests in land. Further supplies of financial products and financial services will still be regulated by the two implied conditions and warranties in the ASIC Act
• if the consumer guarantees are breached, various statutory remedies will be available (this is different from the TPA where breach of an implied term gives rise to a claim in contract and contractual remedies)
• the right to terminate for breach of a consumer guarantee will depend on whether the failure to comply is a ‘major failure’ or not (this is different from the TPA where the right to reject depends on the implied term being a condition)
• if a consumer claims damages, these are awarded on the basis of reasonable foreseeability—this is a much wider concept than normal losses under Hadley v Baxendale which apply to a breach of a TPA implied term
• manufacturers will have increased liability under the consumer guarantees. A manufacturer must ensure reasonable repair facilities are available and will also be unable to exclude or limit liability in respect of the consumer guarantees (including express warranties), and
• because the definition of ‘goods’ in the ACL will include computer software, manufacturers and suppliers of computer software will have to comply with the more onerous consumer guarantees in respect of goods as opposed to the consumer guarantees which apply to services.

Don’t be misled into thinking that the consumer guarantees only apply in situations where you are dealing with ‘true’ consumers. 

Amend contracts for the supply of goods to Category 2 Consumers and Category 3 Consumers to:

• remove exclusion clauses
• remove limitation of liability clauses
• remove entire agreement clauses
• remove express warranties (unless you are prepared to accept unlimited liability in respect of such warranties)
• remove choice of law clauses which nominate another jurisdiction in a situation where Australia would otherwise by the proper law of the contract, and
• consider how you can safeguard your marketing practices in respect of goods to avoid making ‘express warranties’ in connection with marketing your goods or services (because pre-contractual statements fall within the definition of express warranties).

If you supply goods to Category 4 Consumers, be aware of the significance of the ACL provision which allows certain rights to suppliers of such goods to limit their liability in respect of the application of the consumer guarantees. This provision existed in the TPA but it takes on a new importance because of the new consumer guarantee relating to express warranties in contracts for the supply of goods. In essence, suppliers of goods to Category 4 Consumers can still include express warranties in their contracts because it will still be possible to limit liability.

• the times of day between which an unsolicited call can be made
• the ability of the consumer to terminate the agreement, and
• the timeframe within which the consumer must be provided with a written copy of the agreement.

These provisions do not apply to the supply of financial services or financial products or conduct regulated by the Corporations Act 2001 (Cth).

The provisions will replace existing state legislation in Victoria, NSW and SA, to the extent that such legislation is inconsistent with the ACL.

The provisions are intended to operate in conjunction with the Telemarketing Industry Standard, the Do Not Call Register Act 2006 (Cth) and the National Energy Customer Framework.

Ensure that any affected business practices and resultant unsolicited agreements will comply with the new provisions.

A lay-by agreement is an agreement between a supplier and a Category 5 Consumer for the supply of consumer goods where payment is made in three or more instalments.

Pursuant to the ACL:

• a lay-by agreement must be in writing
• a consumer has the right to terminate a lay-by agreement at any time, and
• a supplier only has limited termination rights.

The ACL provisions concerning lay-by agreements are new and will replace existing state legislation in force in Victoria, NSW and the ACT.

If you use lay-by agreements in your business, you should ensure that they will comply with the ACL provisions regulating lay-by agreements.

The supply of finance in connection with the purchase of a car is an example of a ‘linked credit contract’.

The existing TPA provisions will be expanded by the ACL so that:

• if a Category 1 Consumer or a Category 2 Consumer³ is entitled to terminate a linked credit contract under the National Credit Code, he or she is entitled to recover the same amount in the proceedings under the ACL that he or she would have been entitled to recover under the National Credit Code. This new provision is meant to align the different applicable regimes, and
• new provisions will be introduced to regulate the liability appropriately as between the supplier and the linked credit provider.

If you are a linked credit provider or a supplier which offers linked credit contracts to Category 1 Consumers or Category 2 Consumers⁴ in the course of your business, you should be aware of the way in which the ACL will expand existing law. 

Because of the situations in which the ACL provisions seek to hold both the supplier and a linked credit provider jointly liable to a consumer, both the linked credit provider and the supplier should take steps to ensure each other’s compliance with the law. It may be necessary to enter into contractual indemnities to apportion risk appropriately.

Suppliers and linked credit providers should measure the value of linked credit contracts to their operations versus the risk of being liable to a consumer for damage or loss caused by the other party.

A linked credit provider should conduct appropriate due diligence before and during its relationship with a supplier to take advantage of the ACL provisions which state that a linked credit provider is not jointly liable where appropriate due diligence is conducted.

The ACL will introduce a national consumer product safety regime.

The principal differences between the existing law and the ACL are as follows:

• under the ACL, only the Commonwealth Minister may impose permanent bans and prescribe safety standards 
• under the ACL, a person undertaking a voluntary recall of consumer goods (being goods which are intended to be used or of a kind likely to be used for personal, domestic or household use or consumption) must notify the Commonwealth Minister 
• the scope of product safety regulation is expanded under the ACL to cover services related to the installation, maintenance, repair, cleaning, assembly or delivery of consumer goods (‘product related services’) in all jurisdictions, and
• there is a new mandatory reporting requirement that a supplier must notify the Commonwealth Minister if goods or product related services caused or may have caused a death or a serious injury or illness.

Under the ACL, state and territory ministers will retain the ability to issue interim bans and to conduct recalls.

If you supply consumer goods (being goods which are intended to be used or of a kind likely to be used for personal, domestic or household use or consumption) or ‘product related services’, you should understand:

• what safety standards apply to the goods or services that you supply
• whether there are any relevant bans or safety warning notices, and
• the requirements for notifying the Commonwealth Minister if any goods or services that you supply have caused or may have caused a death or serious injury or illness.

If you supply consumer goods, you should also understand the requirements for notifying the Commonwealth Minister if you undertake a voluntary recall of any goods that you supply.