1. The Australian Consumer Law Paul Burton Senior Associate 10 October 2013 © Clayton Utz

2. Overview Overview of the Australian Consumer Law Misleading/deceptive conduct and other unfair practices Consumer warranties Unfair contract terms Unconscionable conduct

3. History of the TPA/CCA Trade Practices Act 1974 ( TPA ) - commenced on 1 October 1974 Consumer Provisions contained in Part V - applied to the conduct of corporations State Fair Trading Acts - applied to the conduct of individuals Competition and Consumer Act 2010 (Cth) ( CCA ) - commenced 1 January 2011 Australian Consumer Law - Schedule 2 to the CCA

4. The Australian Consumer Law In December 2006, then Treasurer Costello directed the Productivity Commission to undertake an inquiry into Australia's consumer policy framework PC's Report released in April 2008 PC's Report formed the basis for the new ACL What did the PC recommend?

5. Productivity Commission Recommendations The key recommendations of the PC were: 1.Australian governments should implement a new national generic consumer law - based on the consumer protections provisions in the Trade Practices Act ( TPA ): 1. to apply in all jurisdictions; and 2. to apply to all consumer transactions, including financial services. 2.General responsibility for enforcement of the ACL to be with the ACCC and State regulators - but a State should have the option to refer their powers to the ACCC. 3.ACL should address unfair contract terms. 4.ACL should incorporate a mechanism that permits the ACCC (or State regulator) to take representative proceedings on behalf of consumers - irrespective of whether they are parties to the proceedings. 5.The ACCC (and State regulators) should be given enhanced enforcement powers.

6. Government's response July 2009 - COAG signed the Intergovernmental Agreement for the Australian Consumer Law Legislative Reform: Round 1 - Trade Practices Amendment (Australian Consumer Law) Act (No. 1) 2010 - commenced 15 April and 1 July 2010; and Round 2 - Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) 2010 - commenced 1 January 2011.

7. ACL - Round 1 ACL Act (No. 1) 2010: implemented the new Unfair Contract Terms provisions expanded the availability of pecuniary penalties beyond Part IV conduct (restrictive trade practices) expanded the availability of disqualification orders introduced new powers for the ACCC: substantiation notices infringement notices warning notices

8. ACL - Round 2 ACL Bill (No. 2) 2010: Codified into one Schedule to the new CCA all of the pre-existing provisions of Part V and IVA: misleading/deceptive conduct false representations and unfair practices consumer warranties product safety standards/defective goods unconscionable conduct All of the various conduct provisions proscribe the conduct of "persons", and not just corporations Included in Schedule 2 were specific consumer remedy provisions

9. Nature of the ACL The Commonwealth does not have the power to legislate generally with respect to fair trading and consumer protection matters TPA enacted on the basis of the "corporations power" (s.51(xx) of the Constitution) Commonwealth and States/Territories agreed to adopt an application law scheme with the Commonwealth taking the lead ACL applies as a law of the Commonwealth to the conduct of corporations ACL applies to all other persons by virtue of the operation of the "applied ACL" as a law of the States and Territories - Fair Trading Acts Note: financial products and services are dealt with under the ASIC Act

10. Orders for non-party consumers Section 239 The ACCC may apply for an order to redress the loss or damage suffered, or likely to be suffered, by non-party consumers as a result of the conduct of a person that contravenes the ACL's conduct provisions and affects a class of persons. New provision addresses the inability the ACCC previously had to obtaining redress for non-party consumers under s.80 of the TPA (see Medibank Private Ltd v Cassidy (2002) FCAFC 290).

11. New Penalties (from 15 April 2010) Section 224 of Schedule 2 - the Court may order a person to pay a pecuniary penalty to the Commonwealth for: a breach of a consumer protection provision (but not s.18 m/d conduct) a breach of an unconscionable conduct provision $1.1M for body corporate; $220,000 for individuals. Section 248 of Schedule 2 - on application by the ACCC, the Court may make an order disqualifying a person from managing corporations for a specified period of time. Disqualification orders were previously only available in cases of Part IV breaches (competition provisions).

12. New ACCC Enforcement Powers Substantiation notices The ACCC may give a person a written notice requiring the person to substantiate any claim or representation the person has made in promoting: a supply, or possible supply, of goods or services by the person a sale or grant, or possible sale or grant, of an interest in land by the person employment that is to be, or may be, offered by the person The notice may require that the person provide the ACCC with information and/or documents that substantiate the claims or representations. Infringement notices Public warning notices

13. Misleading and deceptive conduct Section 18(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Section 4 - representations with respect to future matters

14. Other unfair practices Part 3-1 Section 29 - False or misleading representations Section 31 - Misleading conduct relating to employment Section 35 - Bait advertising Section 36 - Wrongly accepting payment Sections 44 - 46 - Pyramid selling Section 49 - Referral selling Section 50 - Harassment and coercion

15. Consumer warranties A person acquires goods or services as a "consumer" only if: The amount paid for the goods or services does not exceed $40,000; or The goods or services were of a kind ordinarily acquired for personal, domestic or household use or consumption.

16. Consumer warranties - goods Products must be of acceptable quality: Be safe, lasting, with no faults Look acceptable Do all the things someone would normally expect them to do Products must also: Match the description made about them Match any demonstration model or sample requested

17. Consumer warranties - goods Be fit for the purpose the business said it would be fit for Come with full title and ownership Not carry any hidden debts or extra charges Come with undisturbed possession Meet any extra promises made about performance, condition and quality Have spare parts and repair facilities available for a reasonable time after purchase unless told otherwise

18. Consumer warranties - goods Any attempt by a supplier to exclude, restrict or modify the warranties by contract will be void A supplier may seek to limit their liability for failing to comply by: Replacing or repairing the goods Providing payment for the cost of replacing/acquiring equivalent goods Providing payment of the cost of having the goods repaired

19. Consumer warranties - services Services must meet certain standards: The services will be rendered with due care and skill The services will be fit for purpose The services will be supplied within a reasonable time, if no time for performance is specified in the contract Any attempt by a supplier to exclude, restrict or modify the warranties by contract will be void.

20. Consumer warranties - services A supplier may seek to limit their liability for failing to comply by: Supplying the services again Providing payment to have services supplied again When a breach is not rectified, the consumer must commence any legal proceedings as the ACCC is not empowered to enforce a supplier's breach of a consumer warranty.

21. Unfair contract terms - Part 2-3 Section 23 A term of a consumer contract is void if: the term is unfair; and the contract is a standard form contract. A "consumer contract" is a contract for: a supply of goods or services; or a sale or grant of an interest in land, to an individual whose acquisition of the goods, services or interest is wholly or predominantly for a personal, domestic or household use or consumption.

22. Unfair contract terms Section 24 - a term is unfair if: it would cause 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 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. Onus is on the party asserting the term is reasonably necessary to protect its interests. "Unfairness" - court can consider any relevant matter but must consider: the extent to which the term is transparent (readily available, clearly presented, legible, in reasonably plain English); and contract as a whole

23. Unfair contract terms - examples Section 25 One party (but not another) may avoid or limit performance of the contract, terminate the contract, vary the terms of the contract or renew the contract. Terms penalising one party (but not another) for a breach or termination. Permitting one party to vary upfront price without the other party being able to terminate contract. Permitting one party to unilaterally vary the characteristics of goods or services to be supplied or the interest in land to be sold. Assign contract to detriment of another party without consent. Limits vicarious liability for agents. Limit one party's right to sue another party.

24. Unfair contract terms A term will not be void to the extent the term: defines the main subject matter of contract; sets the upfront price; or is required or expressly permitted by a law of Commonwealth, State or Territory.

25. Unfair contract terms Term is void (and acts in reliance on term may be unsupported by contract). Contract continues to bind the parties if it can operate without the term. Inclusion of, or reliance on, unfair term (if not a prohibited term) is not a contravention of ACL. ACCC or ASIC can seek a declaration that a term is unfair and, if so declared it is a contravention of ACL to apply or rely on the term.

26. Unconscionable conduct Section 20 - Unconscionable conduct within the meaning of the unwritten law (1) A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time. Codification of common law on unconscionability CBA v Amadio (1983) 151 CLR 447 ACCC v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51

27. Unconscionable conduct in connection with goods or services Section 21 A person must not, in trade or commerce, in connection with: the supply or possible supply of goods or services to a person; or the acquisition or possible acquisition of goods or services from a person, engage in conduct that is, in all the circumstances, unconscionable. An amalgamation of the previous ss. 51AB and 51AC of the TPA.

28. Unconscionable conduct in connection with goods or services Section 22 Lists the matters which the Court may have regard for the purposes of determining whether a supplier of acquirer has engaged in unconscionable conduct.

29. ACCC v Lux Distributors Pty Ltd [2013] FCAFC (15 August 2013) Door-to-door sales of vacuum cleaners. Initial contact by telephone - invitation to undertake a free maintenance check on existing vacuum cleaner. Salesperson would spend up to 90 minutes in person's home. Salesperson wouldn't simply undertake a "check" of a person's existing vacuum cleaner but would also show the person a new model vacuum cleaner and seek to sell a new model to them.

30. ACCC v Lux Distributors Pty Ltd Three elderly women aged between 82-93; each were widows and lived alone. Each woman received a direct marketing call from Lux and accepted an offer for a free maintenance check on their existing vacuum. Each woman agrees to purchase a new model vacuum for prices between $1,999 and $2,300.

31. ACCC v Lux Distributors Pty Ltd Each woman felt pressured to purchase: Salesperson had gone to a lot of trouble Didn't want to be impolite Felt as though they had no choice but to purchase Post-sale regret: Cooling-off period Each woman able to obtain a refund

32. ACCC v Lux Distributors Pty Ltd Full Federal Court held that Lux had acted unconscionably. Lux had clearly deceived consumers to allow them into their home for the sole purpose of selling a new vacuum cleaner - "a deceptive ruse". In two cases Lux failed to comply with statutory provisions regulating door-to-door sales conduct. Lux leveraged its superior bargaining position - time spent with customer - ability to prevail upon customer and "push them over the edge". As a result, the customer felt pressured to buy.