Dick Adams (Lyons, Australian Labor Party) Share this | Hansard source

The purpose of the Trade Practices Amendment (Australian Consumer Law) Bill 2009 is to amend the Trade Practices Act 1974 to establish Australian Consumer Law as a schedule to that act, including provisions to address unfair contract terms; to introduce into the Trade Practices Act new penalties, enforcement powers and consumer redress options; and to introduce into the Australian Securities and Investments Commission Act 2001 corresponding provisions that will apply to financial services in unfair contract terms, penalties, enforcement powers and consumer redress options. The legislation has come about as a result of a request in 2006 to the Productivity Commission to undertake an inquiry into the Australian consumer policy framework. The principal legislative provisions which regulate Australia’s consumer policy framework are contained in the Trade Practices Act and equivalent state and territory fair trading acts. On 17 February 2009, the Treasury issued a consultation paper entitled An Australian Consumer Law: Fair Markets—Confident Consumers which was intended to explain the nature and scope of the proposed reforms and seek views on some aspects of those reforms. The Treasury received 101 submissions, of which 87 were public submissions.

In addition to the consultation process about the broad issues surrounding the introduction of an Australian consumer law, the Treasury also launched a more specific consultation about unfair contract laws on 11 May 2009. The Treasury received 96 submissions, of which 88 were public submissions. The primary concerns expressed in the submissions to Treasury related to unfair contract provisions, particularly the potential effects of the applications of those provisions to business-to-business transactions. The basis of the bill introduces a national unfair contract terms law as the first element of the ACL and it will apply to business-to-consumer contracts. It will also apply as part of the as part of the ASIC Act. The government has taken account of stakeholder views in preparing the bill for introduction and has limited the scope of the unfair contract terms provisions to business-to-consumer transactions. It does not cover purely business-to-business transactions.

The provisions have a number of elements. A term in a consumer contract is void if the term is unfair, the contract is a standard-form contract and, in the context of the ASIC Act, the contract is a financial product or a contract for the supply or possible supply of financial services. A consumer contract is defined as a contract entered into by an individual for a supply of goods or services or a sale or grant in an interest in land in circumstances in which the individual acquires the good, service or interest wholly or predominantly for personal, domestic or household use or consumption.

In the ASIC Act, a consumer contract is defined as a contract at least one of the parties to which is an individual and whose acquisition of what is supplied under the contract is wholly or predominantly an acquisition for personal, domestic or household use or consumption. This would exclude all but sole trader businesses, which may operate on the basis of common personal and business use of goods and services. In relation to the ASIC Act, the provision may not cover certain businesses undertaken on a for-profit basis, such as investment in property, the share market, or borrowing for those purposes. Such activities would be covered, however, to the extent that they have a personal, domestic or household nature.

A term is unfair if it causes a significant imbalance in the parties’ rights and obligations under the contract and it is not reasonably necessary to protect the legitimate interests of the party who is advantaged by the term. A term is presumed to be not reasonably necessary to protect the legitimate interests of a party unless that party can prove otherwise. In applying the test, a court may consider any relevant matter, but must consider: the extent to which the term causes detriment to a party who relies on the term, or a substantial likelihood thereof; the extent to which the term is transparent; and the contract as a whole.

The unfair terms test does not apply to terms dealing with the main subject matter of the contract, the upfront price payable under the contract or a term that is required or expressly permitted by law. The upfront price is the amount paid for the goods, services or land supplied under the contract. It does not include further payments which depend on the occurrence or non-occurrence of a particular event. The bill sets out a non-exhaustive, indicative list of examples of unfair terms, which is a very good thing. The bill also allows for a power to prohibit terms which are considered unfair in all circumstances. No terms will be prohibited from the commencement of the unfair contract terms provisions.

The bill sets out the meaning of a standard-form contract. A contract is presumed to be a standard-form contract if a party to the proceeding alleges that a contract is in a standard form, and the onus is on the other party to rebut this presumption. A court must also have regard to a list of factors in determining whether a contract is in a standard form. The bill excludes certain contracts from the operation of unfair contract terms provisions, including certain shipping contracts and contracts that are the constitution of a company, managed investment scheme or other kind of body.

The exposure draft of the unfair contract terms proposed that these provisions would apply to business-to-business contracts as well as consumer contracts. This was in line with comments by the Productivity Commission that small businesses have a dual role in consumer policy and that, as well as being suppliers of goods and services, they are consumers in their own right. Indeed, in their dealings with larger businesses, small businesses can face many of the same issues as individual consumers, particularly relating to unequal bargaining power and the lack of resources to effectively negotiate contracts. That is so true. That has not happened in this bill, which applies the provisions only to business-to-consumer contracts. The removal of business-to-business contracts from the bill was largely in response to the submissions from business to the Treasury consultation paper. Many of those submissions indicated that applying the proposed unfair contract provisions to business-to-business contracts would create widespread commercial uncertainty and would undermine the efficiencies to big business brought about by the use of standard-form contracts. That is a pretty standard response that one always seems to get when one is dealing with this sort of law.

There may be some difficulties for some small business. However, it may be that they will get some protection from the proposed pecuniary penalties also contained in the bill and which will apply to, amongst other things, the prohibition against unconscionable conduct. It has come to my attention that many franchise and licensed agents have contracts in which it would be hard to run a case of unconscionable conduct as there is no definition clearly stated. So there may be some more attention to be paid to the language in some of the legislation that pertains to these most difficult of contracts.

It would be useful, too, if we could help the many ordinary people who run small business and who have franchise type arrangements to understand more clearly how these contracts work and what to look out for. There are many in my constituency of Lyons who have little knowledge of how to deal with contracts, despite having lawyers look at them and advise. I guess lawyers have to specialise in their own areas of law and there do not seem to be too many that specialise in franchise law or give good advice. That is what I have found in the cases that have come before me in my work as an MP.

There needs to be clearer instructions, advice et cetera—perhaps from consumer affairs offices—to help small business operators look out for the pitfalls of contracts and to help them understand what to look for in get-out clauses and termination payments, because a lot of franchisees seem to get caught at the end of a term. I believe that some franchises—like those for United Petroleum which operate in my electorate—have some very questionable practices and bias in their contracts for their agents. In my electorate I have seen franchise arrangements used to exploit very vulnerable people. I am sure that there are also many franchises that work extremely well, where people have mutually good opportunities and get good business from them.

I believe this bill goes some way in addressing some of the problems raised, but it would certainly be useful to have some plain language interpretation of this type of legislation as it could be circulated as a simple guide to contract signing before they send it off to a lawyer for checking. As the Productivity Commission stated:

There is persuasive evidence that notionally unfair terms are commonplace in Australian contracts.

So even the Productivity Commission is saying that there are a lot of unfair terms within Australian law. The commission continued:

However, the rationale for action principally rests on the unreasonable use of unfair terms, not their existence. This is because, perceptions of their inherent unfairness aside, dormant unfair terms often do not cause detriment to consumers.

But the evidence that the commission had to go through was often anecdotal and of a great variety so it is obvious that those who have been caught have not been able to prove ‘unconscionable conduct’ because of the difficulty in defining it. I think we really have to come to grips with that term and define it in a way which is fair.

So I support the bill and I am very pleased that my colleague from Western Australia has arrived. I look forward to her contribution to the debate. I believe that we should work on some ideas for simplifying the language to make it available for many of the people who operate small businesses, because they wish to operate their businesses but get caught up in some very nasty contracts and cannot achieve what they wish to achieve in business. I support the bill.

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