Services

HG Alert: How the Australian Consumer Law will affect your business’ transactions - 16 Dec 2010

From 1 January 2011, all Australian businesses will operate under a unified national consumer law, called the Australian Consumer Law (ACL). The new law will apply to consumer transactions in all Australian States and Territories, whether conducted face-to-face or online.

It is crucial that all Australian businesses understand how the ACL will affect their current operating practices, and prepare themselves for a likely increase in enforcement by regulatory bodies.

What you need to do now

  • Assess whether your current business practices comply with the ACL.
  • Review the contracts you offer consumers for the supply of goods or services, paying particular attention to:
    - extended warranty protection clauses;
    - exclusion clauses;
    - limitation of liability clauses; and
    - so-called "entire agreement" clauses.
  • Consider amending your marketing practices to avoid making "express warranties" when marketing your goods or services.
  • Consider whether any of your business practices amount to "direct selling" and ensure that any such practices (and resulting agreements) comply with the new laws.
  • Understand the enhanced enforcement powers now available to the regulatory bodies, and implement procedures to deal with responses to consumer complaints and approaches from regulatory bodies.

What does the Australian Consumer Law cover?

The ACL introduces wide ranging and comprehensive reforms to the Trade Practices Act 1974 (Cth). The following amendments have been introduced:

  • New unfair terms have been introduced in standard form contracts with consumers.
  • New statutory consumer guarantees will replace the current system of implied conditions and warranties in the Trade Practices Act and State laws.
  • A new national law dealing with unsolicited consumer agreements will replace existing State laws on door-to-door sales, telephone sales and other forms of direct marketing.
  • Some new rules for lay-by agreements have been introduced.
  • The existing product safety provisions in the Trade Practices Act and State laws will be replaced with a new national product safety law for consumer goods and product-related services.
  • New enforcement powers will be granted to the courts, the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC).

Who does the Australian Consumer Law apply to?

Businesses must understand that, despite its name, the ACL will extend beyond transactions with "consumers" as that term is commonly understood. The ACL will apply to all contracts for the supply of goods to end users, and all contracts for the supply of services, where the contract price does not exceed $40,000. This includes business-to-business contracts.

As a result:

  • all such contracts will have express or implied non-excludable consumer guarantees;
  • where the contract involves the supply of goods, express warranties and pre-contractual statements made in relation to those goods will be treated as non-excludable consumer guarantees; and
  • any term which seeks to exclude an implied consumer guarantee will be invalid and of no effect.

These are significant changes. Although under the current Trade Practices Act regime there are already restrictions on a supplier's ability to exclude or limit liability, the ACL will expand this by also restricting the supplier's ability to exclude or limit liability for any additional express warranties it otherwise gives (or is deemed to have given) for the goods in question.

Because a business will itself be a "consumer" (if the purchase price it has agreed to pay does not exceed $40,000), the ACL will have a significant impact on many business-to-business contracts for the supply of goods.

Consumer guarantees

The ACL introduces a new set of protections (known as "consumer guarantees") for consumers who buy goods and services from suppliers, manufacturers and importers.

The consumer guarantees replace the conditions and warranties currently implied in consumer contracts under the Trade Practices Act and State legislation (for example, the implied warranties of fitness for purpose and merchantable quality). The new guarantees comprise a comprehensive set of rights and remedies that apply to defective goods and services. The consumer has these rights regardless of any other warranty provided by the supplier or manufacturer.

Consumer guarantees for goods

The guarantees that automatically apply to goods are that:

  • the supplier has the right to sell the goods;
  • the goods are free and unencumbered;
  • the consumer will have undisturbed use and enjoyment of the goods;
  • the goods are of "acceptable quality";
  • the goods are fit for a purpose the consumer makes known to the supplier;
  • the goods will match their description or a sample;
  • spare parts and repair facilities will be available for a reasonable period; and
  • any express warranty will be honoured.

The Australian Government claims that these new laws are simpler and clearer than the current laws they are replacing, mainly because complex legal terms have been replaced with terms that consumers and businesses can easily understand. In our view, this is an optimistic claim, and the Government might find it has sacrificed certainty on the altar of simplicity.

Where goods are concerned, the key change is that an "acceptable quality" guarantee has replaced the current implied warranty of "merchantable quality". A business will breach the acceptable quality guarantee if it supplies goods that:

  • are not fit for all purposes for which goods of that kind are commonly supplied;
  • are not acceptable in appearance and finish;
  • have defects;
  • are unsafe; or
  • are not durable.

It is unclear how the courts will interpret the new guarantee of acceptable quality. Given the difference in terminology, it seems that the Government intends the new guarantee to have a different, extended meaning from the meaning given by the courts over the years to the term "merchantable quality".

Another new guarantee is that a supplier or manufacturer will comply with any express warranty offered with the goods, including any pre-contractual representations made about the quality, state, condition, performance or characteristics of the goods.

Consumer guarantees for services

The following consumer guarantees will apply to any transaction involving the supply of services by a business to a consumer:

  • The services are carried out with due care and skill.
  • The services are fit for the purpose that the consumer has made known to the supplier.
  • Unless a specific time has been agreed, the services will be provided within a reasonable time.

Exclusions

The consumer guarantees do not apply to:

  • private sales by individuals to other individuals or businesses;
  • auction sales;
  • goods or services acquired for resale purposes; or
  • goods or services used up in the process of manufacturing other goods or services.

However, the new consumer guarantees will apply to business sales by way of online "auction" websites, and the sale of second-hand goods.

Remedies available to consumers

Under the ACL, consumers can seek a refund, replacement or repairs if a supplier breaches any of the consumer guarantees. However, the precise remedy available will depend on which guarantee has been breached and the nature of that breach.

The ACL draws a distinction (which does not currently appear in the Trade Practices Act) between a major failure and a non-major failure in relation to a consumer guarantee. Although the ACL lays down guidelines to be used in determining whether a major failure has occurred, the guidelines are very general in nature. As a result, the application of those guidelines is uncertain and will remain so until some principles emerge from cases decided by the courts.

Product safety

The ACL will introduce a national consumer product safety law. Businesses familiar with the existing product safety regimes under the Trade Practices Act and operating at State level will need to consider the following:

  • The new product safety requirements will apply to "consumer goods" and "consumer-related services" relating to the supply, installation, maintenance, cleaning, assembly or delivery of consumer goods.
  • The ACL will allow for product bans and recalls to occur where a reasonably foreseeable use or foreseeable misuse makes an otherwise safe product dangerous.
  • The ACL gives greater surveillance and enforcement powers to the ACCC. Inspectors will be allowed to enter retail premises to inspect, photograph or purchase goods or product-related services which the ACCC suspects breach a product safety standard. These new powers also give the ACCC the right to compel anyone to provide information, documents or evidence as part of its investigation and, in some cases, to enter premises under a search warrant.

Unsolicited sales practices

The ACL will also regulate certain sales practices which take place outside the traditional retail environment. The new laws will regulate:

  • unsolicited supplies;
  • unsolicited consumer agreements;
  • pyramid schemes;
  • lay-by agreements;
  • referral selling;
  • harassment and coercion; and
  • the provision of a proof of transaction to a consumer for the supply of goods or services valued at or above $75, and an itemised bill for services supplied.

A "cooling off" period (during which the consumer has a unilateral right to terminate the transaction) for certain direct selling practices has been created.

It is important to note that companies will be vicariously liable for any breach of these laws by their employees or agents.

Enforcement and remedies

The ACL introduces a single set of national enforcement powers, penalties and remedies, which will apply to suspected or actual breaches of the ACL. These powers, penalties and remedies apply to most of the consumer protection provisions in the ACL discussed above.

The enforcement of these laws will be carried out by the ACCC, ASIC and State regulatory bodies, such as the Office of Fair Trading in Queensland.

Depending on the breach in question, the regulator may:

  • accept a court-enforceable undertaking;
  • issue a substantiation notice (a request that a business substantiates claims it is making in the market place);
  • issue a public warning notice to inform the public about detrimental conduct;
  • issue an infringement notice for alleged breaches of the ACL;
  • seek penalties and redress for consumers;
  • seek injunctions, damages and compensation orders;
  • seek redress for non-party consumers;
  • seek both non-punitive and punitive (for example, adverse publicity) orders; and
  • seek an order disqualifying a person from being involved in managing a company which has breached the ACL.

The new laws under the ACL are complex and wide-reaching.