Phase 1 of the Australian Consumer Law reform process begins!
By Laura Hartley, Partner and Jamie Nettleton, Partner
16 April 2010
Key points:
- New civil penalties and enforcement powers for the ACCC and ASIC significantly change the regulatory environment for Australian businesses as phase 1 of the Australian Consumer Law (ACL) reform process began 15 April 2010.
- Unfair consumer contract provisions to take effect from 1 July 2010.
- Phase 2 of the Australian Consumer Law reform process is expected to commence on 1 January 2011.
Consumer protection provisions have been significantly expanded with the Senate passing the Trade Practices Amendment (Australian Consumer Law) Bill (Cth) (2009) (ACL Phase 1) on 17 March 2010. ACL Phase 1 amends the Trade Practices Act 1974 (Cth) (TPA) and the ASIC Act 2001 (Cth) by introducing new investigative and enforcement powers, new civil penalties and a national unfair terms regime. The civil penalties and enforcement powers take effect from 15 April 2010 and represent the first instalment of the ACL reform process. The unfair contract provisions will apply from 1 July 2010 with the remainder of the ACL reforms expected to be in place by 1 January 2011.
The new enforcement powers and civil penalties change the regulatory environment for Australian businesses significantly. The passing of ACL Phase 1 is the first step in giving effect to what Craig Emerson MP describes as "the most far-reaching consumer law reforms in at least a generation".
Addisons has previously released a FocusPaper titlted "Australian Consumer Law Reform - The introduction of unfair contract terms legislation - Important Amendments to the Trade Practices Act and the ASIC Act" commenting on the unfair contracts terms legislation, which has provided, amongst other things, that unfair terms in standard-form contracts may be declared void and unenforceable.
Enforcement Powers
Of significant interest are the enhanced enforcement powers for consumer laws vested in the national regulators. The Australian Competition and Consumer Commission (ACCC) and the Australian Securities & Investments Commission (ASIC) have a broader range of more effective and proportionate enforcement options in relation to the consumer protection laws, including the ability to:
- Issue an infringement notice containing a financial penalty, where the regulator has reasonable grounds to believe that a person has contravened the unconscionability provisions and specific consumer protection provisions of the TPA and the ASIC Act. This power provides the regulators with greater flexibility to respond to less serious contraventions. The financial penalties are relatively small (up to $6,600 for a body corporate and $1,320 for individuals). Practically, this notice reverses the onus of proof and enables the ACCC to issue on-the-spot fines to traders for specific conduct without taking the matter to court.
- Issue a substantiation notice to require a person who makes a claim or representation promoting the supply of goods or services, a sale or grant of an interest in land, or employment that is to be or may be offered by a corporation, to provide information or documents in support of their claim or representation. The period for compliance is 21 days and failure to comply may attract civil penalties and infringement notices. The regulators may exercise this power where it is thought reasonable to seek information that may assist in determining whether to take action for a suspected breach of consumer protection provisions. This evidentiary threshold is significantly lower than that previously, thereby allowing the ACCC to respond more quickly.
- Apply to the court seeking an order disqualifying a person from managing corporations, in relation to a contravention of an unconscionable conduct provision or consumer protection provision relating to unfair practices.
- Seek orders that would redress, in whole or in part, loss or damage to non-party consumers arising out of a contravention of the unconscionable conduct and certain consumer (or investor) protection provisions, or who are disadvantaged by a term in a consumer contract which has been declared an unfair or a prohibited term.
- Issue public warning (‘name and shame') notices where the regulator has reasonable grounds to believe that a corporation's conduct may contravene the unconscionability and consumer (or investor) protection provisions, or where a person refuses or fails to respond to a substantiation notice. The regulator must also be satisfied that a person has, or is likely to suffer detriment as a result of that conduct, and that it is in the public interest to release a written warning notice. This notice may prevent consumers from dealing with that business and therefore detrimentally effect the financial position of the business.
- Seek a declaration from a court that a term of a consumer contract is an unfair or a prohibited term. Enforcing such a term will be a contravention of the Trade Practices Act.
There is concern that these additional investigative and enforcement powers will tip the balance of power too far in favour of the ACCC in its dealings with business. The ACCC's ability to apply to the Court for an order for pecuniary penalties together with a range of orders will provide it with more force in settlement negotiations with business.
Civil Penalties
The new section 76E establishes civil pecuniary penalties for unconscionable conduct, pyramid selling, sections of the law dealing with false and misleading conduct and product safety breaches. The introduction of civil penalties of up to $1.1 million for corporations and $220,000 for individuals will enhance the significance of these provisions.
These penalties apply to breaches that were previously only dealt with by civil remedies, such as injunctions, declarations and non-punitive orders, and, in certain circumstances, criminal sanctions. Accordingly, an ability by the ACCC to seek civil pecuniary penalties will have a significant impact on its enforcement activities. The availability of the penalties may enable a more targeted and proportionate regulatory response, in addition to increasing the deterrent effect of the TPA provisions. However, the large maximum penalties also suggest that the ACCC will be in a stronger position to offer to negotiate out-of-court settlements, in return for a business agreeing to other remedies, such as paying compensation to consumers and making donations to charities.
Phase 2 Update
The second instalment of the ACL reforms, the Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) 2010 (Cth) (ACL Phase 2), was introduced into the House of Representatives on 17 March 2010. Minister Emerson intends to have the Bill passed during the May-June 2010 Winter Sittings. Importantly, it proposes to:
- Implement a national consumer product safety regulatory regime. Key changes include:
- extending the scope of product safety regulation to cover services related to the supply, installation or maintenance of consumer goods;
- requiring that permanent product bans and mandatory safety standards can only be made to apply nationally by the Commonwealth Minister; and
- allowing product safety standards, bans and recalls to be put in place where a "reasonably foreseeable use or misuse" may render an otherwise safe product dangerous. This may impose additional compliance burdens on suppliers.
- Implement a national sales regime dealing with direct selling, door-to-door selling and telesales marketing.
- Change the name of the TPA to the Competition and Consumer Act 2010.
- Introduce a new system of statutory consumer guarantees to replace the current implied terms regime. These guarantees would provide consumers with a basis for seeking redress when goods or services do not meet standards they are entitled to expect.
- Enhance the ACCC's enforcement powers in relation to compliance with consumer goods and product related services. Some of these include non-punitive orders, such as community service, compensatory orders and new market surveillance and enforcement powers.
More detailed commentary on ACL Phase 2 will be provided once the Senate Economics Committee releases its report on the Bill (expected by 21 May 2010).
The assistance of Kristy Dixon, Senior Associate, and Leah Hecht, Clerk of Addisons in the preparation of this article is noted and greatly appreciated.