Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

An historic reform

The Trade Practices Amendment (Australian Consumer Law) Bill will amend the Trade Practices Act 1974 and the Australian Securities and Investments Commission Act 2001 to implement commitments made in 2008 by the Council of Australian Governments to introduce a single, national consumer law—to be called the Australian Consumer Law.

This bill is the first legislative step to give effect to the most far-reaching consumer law reforms in at least a generation.

It will implement key elements of the Australian Consumer Law, namely the new national unfair contract terms law and new penalties, enforcement powers and options for consumer redress in relation to the consumer protection provisions of the Trade Practices Act and the ASIC Act.

Australia’s generic consumer laws are, for the most part, effective. But, as the Productivity Commission found in its review of Australia’s consumer policy framework, they can be much better.

We now have 13 generic consumer laws in force around Australia. Broadly speaking, they look similar, but each of them differs—to the cost of business and consumers. And, there are differences in the way these laws are enforced by Australia’s consumer regulators. There are also numerous industry-specific laws which add yet further complexity.

As we move towards a single, national market—a seamless national economy as called for by the Business Council of Australia and the 2020 Summit—this tangle of consumer laws must be rationalised. We must reduce confusion and complexity for consumers and provide consistency of consumer protection. We must reduce compliance burdens for business.

In undertaking this task, the government has benefited from the work of the Productivity Commission, which identified the solutions that we are now implementing.

The Business Regulation and Competition Working Group of COAG, which I co-chair with the Minister for Finance and Deregulation, has been given the task of advancing a regulatory reform agenda covering 27 areas of regulation. Reform of consumer laws is among the most important of these 27 areas. In September 2008, the Business Regulation and Competition Working Group considered detailed proposals for a national consumer law developed by the Ministerial Council on Consumer Affairs. The working group recommended COAG’s agreement to establish a single national consumer law.

On 2 October 2008, COAG agreed to establish a national consumer law that is based on the existing consumer protections in the Trade Practices Act, drawing on best practice in existing state and territory laws and including a national unfair contract terms law.

The current environment

Amidst the worst global recession in 75 years, Australians are facing serious economic challenges. In confronting those challenges, we have to deal with complex, sophisticated markets. Marketing is becoming cleverer. Consumers can now shop online and through their mobile phones. They have access to money through new and sophisticated payment systems. And, the range of goods and services available today is enormous. We need national laws that can keep pace with these changes.

This bill will introduce changes that will make life easier for all consumers—through clearer, fairer standard-form contracts and more effective enforcement of our consumer laws.

A single national law, supported by better policy development and decision-making processes, is the best means of achieving better results for consumers and business. Rather than relying on nine parliaments to make changes, this new framework will ensure responsive consumer laws with a truly national reach.

Overview of the bill

The bill is the first legislative instalment of the Australian Consumer Law reform process. It will establish the Australian Consumer Law. It will also introduce a national unfair contract terms law, which can be applied in every state and territory from the date of its commencement at the national level. And it will introduce new penalties and enforcement powers for the Australian Competition and Consumer Commission and the Australian Securities and Investment Commission, together with improved options for consumer redress.

The bill includes amendments to the ASIC Act, which maintains a separate legislative framework for the regulation of financial services. The government remains committed to ensuring that there is consistency between generic consumer protections and those that apply to financial services, to the extent that it is practical to do so.

The bill will also make some minor consequential changes to the Administrative Decisions (Judicial Review) Act 1977 and the Telecommunications (Interception and Access) Act 1979.

The government will introduce a second instalment of reforms in 2010 to complete the Australian Consumer Law reform process, which will introduce a new national product safety legislative and regulatory regime, as agreed by COAG in 2008. It will augment and modify the current consumer protection provisions of the Trade Practices Act, based on best practice in existing state and territory consumer laws. It will also amend the Trade Practices Act to change its name to the ‘Competition and Consumer Act’.

The entire Australian Consumer Law will be fully implemented by the end of 2010 by the Australian government and each state and territory in accordance with the National Partnership Agreement to Deliver a Seamless National Economy agreed by COAG in November 2008 and finalised in early 2009.

The process for developing the bill

The last attempt to create a national consumer law was in 1983. Seven years later, the supposedly ‘common’ provisions were finally implemented in all jurisdictions. But, these provisions were not the same for all of Australia’s consumer laws, and jurisdictions soon began to make changes and the laws started to diverge.

The reforms contained in this bill and those in the second bill are the culmination of a long policy review and development process undertaken by the Australian government in close consultation with the states and territories. The Australian government has also drawn on the views of many consumers and businesses, and those bodies which represent their interests.

In 2007 and 2008 the Productivity Commission reviewed Australia’s consumer policy framework. And, in May 2008, my predecessor, the now Minister for Financial Services, Superannuation and Corporate Law and Minister for Human Services, tabled in the parliament the commission’s comprehensive final report and recommendations. These have provided the government with a detailed roadmap for consumer policy reform.

In July 2008, COAG charged the Ministerial Council on Consumer Affairs with the task of developing a package of reforms based on the commission’s recommendations. This resulted in the ministerial council settling recommendations for a national consumer law and new enforcement mechanisms on 15 August 2008. These detailed recommendations were ratified by COAG on 2 October 2008.

Officials at the Australian government, state and territory levels will continue to work together to develop the second reform bill that the parliament will consider in early 2010.

Expressions of gratitude

Before I go on, let me thank my predecessor, the Hon Chris Bowen MP, and my new state and territory colleagues on the Ministerial Council on Consumer Affairs for their efforts over the past year in securing these reforms. Their personal commitment to reform has ensured that these reforms will—at long last—happen.

I also commend my ministerial council colleagues and their officials for the spirit of openness and cooperation that has characterised the development of the reforms to date. Indeed, the shared experience and expertise of consumer policy officials in all Australian governments has proven invaluable to their development. I look forward to working closely with my colleagues and their officials to fully implement this important reform which will nationalise Australia’s consumer laws.

I understand that this spirit of openness and cooperation has also characterised the dealings that my opposition counterpart—the member for Cowper—has had with my predecessor and his office in relation to questions about the content of the bill. I look forward to working with him as we deliberate on this bill.

I also thank those many people who have provided the government with the benefit of their views and expertise in preparing the legislation, including the members of the Commonwealth Consumer Affairs Advisory Council, consumer, business, legal and academic representatives and the many people who have provided their views in the public consultations conducted by the Productivity Commission, the Standing Committee of Officials of Consumer Affairs and the Treasury.

Key amendments in the bill

I turn now to the key provisions of the bill.

Unfair contract terms

Unfair contract terms can impede competition by making contracts difficult to understand. And they can limit a consumer’s choices and ability to seek out alternative options. They are used by some businesses to transfer all of the risk in a transaction away from themselves and onto the consumer.

Some members will be familiar with the similar laws that have been in place in Victoria since 2003. And laws tackling unfair contract terms exist in the United Kingdom, in the rest of the European Union, in Japan and in South Africa. Laws which allow for the examination of the fairness of contracts and contract terms also exist in jurisdictions in Canada and the United States.

The government acknowledges the many benefits that flow from using standard-form contracts in business-to-consumer transactions. They keep costs down and save time. But they can often be used as a means of shielding a business from risk in a way that is not fair.

This reform is about making contracts clear in business-to-consumer transactions so that consumers can make an accurate assessment of the risks of signing a contract. And it is about ensuring that a business assesses its risk properly and does not use its stronger bargaining position to simply push all risk away from itself.

The law is not about the government telling business what to put into contracts. And it is not about undoing bad bargains and letting consumers walk away from poor choices.

Consultation

The unfair contract terms law reforms were agreed by COAG in October 2008 and were based on the extensive consultation undertaken by the Productivity Commission.

These reforms are based on the extensive practical experience of the Victorian government in implementing and enforcing similar laws.

Since then the government has sought views on both the reforms more generally in February and on an exposure draft of the unfair contract terms provisions in May. In response to these consultations the Treasury received just under 200 submissions from many consumers, businesses and other stakeholders.

The government has also had numerous meetings with key stakeholders about these changes. And I understand that the Treasury has met and spoken with a wide range of people about these provisions.

We have consulted, and we have listened. And this is reflected in the provisions set out in this bill, which differ in key respects from those that the government exposed in May, particularly in respect of the exclusion of business-to-business transactions.

In relation to the question of whether business-to-business contracts—and particularly those involving small businesses—should be included under the unfair contract terms provisions, the government is currently reviewing both the unconscionable conduct provisions of the Trade Practices Act and also the Franchising Code of Conduct.

Both of these reviews cover issues relating to the protections afforded to businesses in circumstances where they are dealing with other businesses with greater bargaining power and market power. In responding to these reviews, the government is seeking the views of businesses—large and small—about the effectiveness of our current laws. The government will further consider this issue when these reviews are completed.

The government has also indicated its intention that this bill should be referred to a senate committee, and this issue will—no doubt—be further considered as part of that process.

The provisions

The form of the unfair contract terms provisions represented in this bill reflects—with some refinements—the commission’s approach and the approach adopted in Victoria. It also addresses some practical considerations raised in the consultation process.

The provisions will only apply to consumer contracts in a standard form.

Contracts between businesses are excluded from the scope of the unfair contract terms provisions, except in respect of some ‘sole traders’, who may have common business and personal interests.

The terms are void if they are 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 term will be unfair where there is a significant imbalance in the parties’ rights and obligations and the term is not reasonably necessary to protect the legitimate interests of the supplier.

There will be national guidelines on the enforcement on the unfair contract terms law, which are being developed by the ACCC, ASIC and the state and territory consumer agencies. I expect they will consult widely with industry and consumer stakeholders, and that the guidance will be made publicly available in good time for the commencement of the provisions.

A balance between effective provisions and business concerns

The government has sought to balance two concerns: the need for the law to be effective and the need for business to have certainty.

With this in mind, the provisions contain a number of features designed to ensure that they are effective. Without these features, the government believes that the enforcement of the provisions—whether by individuals or consumer enforcement agencies—would be seriously compromised.

First, it will be for the party advantaged by a term—usually a business—to rebut the presumption that the term is not reasonably necessary in order to protect its legitimate interests.

Second, it will be for a party that asserts that a contract which is the subject of a challenge is not in a standard form—again, usually a business—to rebut the presumption that the contract is in standard form.

In both cases, there are issues that the business will know and it will be able to introduce the evidence it considers most appropriate to the question.

It would be a huge impediment for an individual claimant to prove either of these matters, as they are unlikely to be able to bring evidence before a court without disproportionate effort and expense. A regulator would need to use intrusive and expensive coercive information-gathering powers to obtain the required information to bring a case.

Factors to be taken into account

In determining whether a term is unfair a court may take into account any matters that are relevant. But, the court must take into account some specific issues.

First, it must take account of the extent to which the term would cause, or is substantially likely to cause, detriment. Second, the court must take account of the extent to which the term is transparent. And, third, the court must take account of the contract as a whole.

The question of detriment

The court will need to consider the existence of any detriment, or a substantial likelihood of a detriment, arising from the term. A consideration of detriment is a key matter to be included in any case concerning unfair contract terms.

Reference to a ‘substantial likelihood of a detriment’ makes it clear that, in order to take action, a claimant does not need to prove that he or she has suffered actual detriment, but there is a substantial—that is, more than a hypothetical—likelihood of detriment.

Without ever being enforced a term can still have the effect of causing customers to act in a way that may not be in their own best interests.

If a customer has evidence of actual detriment flowing from the exercise of a term, then this will be useful evidence in the case for relief.

In the case of a substantial likelihood of detriment, then there would likely be limitations on the relief available, generally a declaration that the term is unfair—and therefore void—and an injunction preventing any use of the term.

Detriment includes both financial and non-financial detriment. It has been suggested that the only relevant detriment is financial detriment, which may be so in some cases but other forms of detriment should be taken into account.

Transparency

There is a view that if something is disclosed then it is all right—no matter how unclearly or obscurely that information is presented. This reflects the view that standard form contracts reflect a ‘bargain’ reached by the parties, which is well understood by them and should not be subject to any challenge once made.

In 1973, the then Attorney-General, Senator Murphy, when introducing the trade practices bill into the Senate, noted that the principle of caveat emptor ‘may have been appropriate for village markets’ but it had ceased to be appropriate as a general rule.

In complex markets, the notion that a customer is always perfectly informed and able to act in his or her own best interests represents a view which is simply not sustainable, and does not reflect the reality of modern business or contract law.

A lack of transparency may be a strong indicator of the unfairness of the terms in a consumer contract. And the existence of transparency, on its own account, cannot overcome unfairness.

The contract as a whole

The government recognises that any contract represents a balance of interests and considerations. And, no term can be considered in isolation. Indeed, some terms which, at first blush, might seem outrageously unfair, may be entirely reasonable when considered in context. For this reason, the government has included an express requirement that a court must take into account the contract as a whole when considering a particular term.

Examples of unfair terms

There is a non-exhaustive, indicative list of examples of terms which may be considered unfair. This ‘grey’ list will give statutory guidance on those types of terms that are regarded as being of concern. But it does not prohibit their use.

The use of ‘grey listed’ terms may be reasonable. And any consideration of a ‘grey listed’ term is subject to the unfair terms test.

And, indeed, the consultation paper the government issued on 11 May 2009 acknowledges that businesses may need to do things like assign contracts or vary agreements.

Prohibited terms

The unfair contract terms law will permit the prohibition of types of terms of a consumer contract that is a standard form contract. A prohibited term is a term of a kind prescribed by the regulations.

We have consulted on the question of whether specific terms should be prohibited. We have also canvassed views on specific types of terms that could be prohibited. While there are terms with few justifications for their use, we will not prohibit any term at this time. We will keep this issue under review with the states and territories in the light of the implementation and enforcement of the provisions.

Any future prohibition of terms is subject to the government’s best practice regulation requirements and the voting process for amending the Australian consumer law, which will require the agreement of four other jurisdictions, including three states.

The provisions apply to consumer contracts in a standard form. While the bill does not define a ‘standard-form contract’ it does set out a range of considerations that are to be taken into account when assessing whether a contract is, or is not, in a standard form.

Terms excluded from the provisions

The provisions exclude certain terms and certain contracts from their operation. The key consideration in doing so is that there must be justification for the exception which goes beyond sectoral concerns to avoid the operation of generic regulation.

The provisions will not permit certain types of terms to be challenged under the ‘unfair terms’ test.

The exclusion of terms which ‘concern the main subject matter of a consumer contract’ will exclude the basis for the existence of the contract. A customer has decided to purchase the goods, services or land, and they should not be permitted to renege just because they later decided this was not a good idea.

The exclusion of ‘upfront price’ will exclude from consideration the basic price paid for the goods, services or land supplied under the contract. It would not be desirable to permit a consumer to challenge the basic price paid for the goods, services or land at a later time, when this is an issue about which the consumer has a choice.

In a credit contract ‘consideration’ is both the interest payable and the total amount of principal that is owed.

Upfront price will not include any other consideration which is contingent on the occurrence or non-occurrence of a particular event. In doing this, the government has taken account of the debate in the United Kingdom, where there has been litigation on the question of whether contingent fees are part of the upfront price.

The exclusion of terms ‘required, or expressly permitted, by a law’ will ensure that a court is not required to determine the fairness of terms which must be included in consumer contracts as a matter of public policy. There are many examples of mandated consumer contracts or terms that are required to be used in order to ensure the validity of specific transactions.

Contracts excluded from the provisions

Certain shipping contracts and contracts that are constitutions of companies, managed investment schemes and other kinds of bodies are excluded from the ambit of the provisions.

Shipping contracts include contracts of marine salvage or towage; a charter party of a ship; or a contract for the carriage of goods by ship. They are subject to a comprehensive legal framework (nationally and internationally) that deals with contracts in a maritime law context.

A constitution is defined in section 9 of the Corporations Act 2001. These contracts are carved out because companies, managed investment schemes—which include many superannuation and other investment trusts—and other kinds of bodies have a choice regarding the rules that govern their internal management.

Section 15 of the Insurance Contracts Act 1984 has the effect that these provisions will not apply to insurance contracts as regulated by the comprehensive regulatory scheme set out in that act.

Remedies in relation to the unfair contract terms provisions

Existing Trade Practices Act and ASIC Act remedies and the new enforcement powers, remedies and penalties will apply in relation to prohibited terms and, in some respects, unfair terms that are the subject of a declaration.

A claimant will be able to seek all of the remedies available to the Federal Court under the Federal Court of Australia Act 1976, including all remedies to which they would be entitled under a legal or equitable claim. But as the ACCC and ASIC are not parties to contracts, they will be able to seek a declaration from a court that a term of a standard-form contract is unfair, or is a prohibited term.

If a party then seeks to apply or rely on, or purports to apply or rely on, a term subject to a declaration then the regulator can seek all of the remedies available in respect of a contravention of the Trade Practices Act and the ASIC Act.

A party that uses or tries to use a prohibited term is taken to have engaged in conduct that contravenes the Australian Consumer Law, and will be subject to the full range of powers now in the Trade Practices Act and ASIC Act, as well as those which will be introduced by this bill.

Application

The unfair contract terms provisions will apply to all new consumer contracts made after its commencement. They will also apply to all consumer contracts renewed or varied after that date, but only to the extent that the contract is renewed or varied, and in respect of conduct occurring after the date of renewal or variation.

Commencement

The government has previously said that the unfair contract terms provisions could commence on 1 January 2010, which is in line with the intended commencement of the national consumer credit reforms. However, I am mindful of the need for businesses to comply with the new law and that they may need more time. There is provision in the bill for a later commencement, if needed.

National enforcement powers and penalties

The bill introduces new, enhanced enforcement powers for consumer laws. The ACCC and ASIC have been hampered by a limited range of powers to tackle harmful and exploitative business practices. And, their state and territory counterparts have had a wider range of proportionate powers to enforce consumer laws effectively for many years.

This bill will ensure that our national regulators—the ACCC and ASIC—have a broader range of more effective and proportionate enforcement options to protect and help consumers.

The ACCC and ASIC will be able to seek civil pecuniary penalties and disqualification orders and have the ability to issue infringement notices, substantiation notices and public warning notices. They will also be able to seek redress for consumers not party to enforcement proceedings.

These powers will be part of the Australian Consumer Law—which will introduce a suite of consistent national consumer law enforcement powers for the first time.

Civil pecuniary penalties

Civil pecuniary penalties are not currently available to deal with breaches of the consumer protection provisions of the Trade Practices Act and the ASIC Act.

Civil pecuniary penalties are an effective way to punish misconduct in breach of the consumer protection laws and allow proportionate action to be taken in appropriate cases. Similar powers have existed for many years in relation to breaches of the restrictive trade practices provisions of the Trade Practices Act.

These penalties will apply to breaches that can currently only be punished by criminal sanctions and for breaches of the unconscionable conduct provisions of the Trade Practices Act and the ASIC Act. These penalties will be serious—with maximum penalties of up to $1.1 million for corporations and $220,000 for individuals. No-one will be exposed to a civil pecuniary penalty of a size greater than those available under the existing criminal regime.

Civil pecuniary penalties will not be available for breaches of section 52.

Disqualification orders

Disqualification orders are currently not available in relation to breaches of the consumer protection provisions of the Trade Practices Act and the ASIC Act, but are available in relation to breaches of the restrictive trade practices provisions of the Trade Practices Act and breaches of the Corporations Act 2001.

The ACCC and ASIC will be able to seek a disqualification order from the court to ban people who disregard the consumer protection laws from being a director of a company, where the circumstances warrant it.

Disqualification orders will apply to the civil pecuniary penalty provisions, except in those relating to substantiation notices, and the criminal provisions of the Trade Practices Act and the ASIC Act.

Substantiation notices

A key gap in the powers of the ACCC and ASIC is the lack of an ability to quickly and easily require information to substantiate claims made in representations by businesses.

These notices will serve as a preliminary investigative tool to provide the ACCC and ASIC with an effective means of seeking information to assist in determining whether a contravention of the consumer law has occurred.

The bill will empower the ACCC and ASIC to issue a substantiation notice which requires a person to furnish information or produce documents capable of substantiating claims or representations made by that person.

While a person must respond to a notice, they do not have to prove the claim, just provide information capable of supporting or substantiating the claims or representations they have made. A court will be able to order the payment of refunds and similar forms of redress without the need for all consumers affected to be named as parties to the regulator’s court proceedings.

Redress for non-parties

Redress for non-parties will allow the ACCC and ASIC to act more effectively where, for instance, thousands of consumers suffer small losses on which each of them might not take action individually because of cost and inconvenience. Businesses should not profit from consumer detriment, just because the amount is small or the harm is spread widely.

This is not a general power to award damages, but a power to order redress where that loss or damage is clearly identifiable and there is no need to decide the merits of each case. It could be used to order redress such as an apology, the exchange of goods or a refund.

Infringement notices

The ACCC and ASIC will be able to deal with alleged breaches of the law without the need for costly legal proceedings through the use of infringement notices. These notices will let them deal with minor breaches of the law through the payment of an amount which will let a person avoid legal proceedings.

A person issued with a notice is not obliged to pay the amount specified. But, if the person does pay, the regulator cannot take further action for the alleged breach. Public warning notices are an effective tool to warn the public about actual or likely harm that may result from suspected breaches of the consumer laws and help prevent consumer detriment. Some call this type of power ‘naming and shaming’. It is commonly used by state and territory offices of fair trading, particularly to deal with ‘fly by night’ operators and ‘phoenix companies’.

The power contained in this bill includes a number of important safeguards around the use of this power—designed to provide reassurance that it will be used in an appropriate and proportionate manner. And I note that the ACCC and ASIC will not have immunity from defamation actions in relation to the exercise of this power.

Public warning notices will only be able to be issued where the ACCC or ASIC has reasonable grounds to suspect a breach of consumer laws, believes that consumers have suffered or are likely to suffer detriment and is satisfied that it is in the public interest to issue the notice. I note that the ACCC and ASIC will not have immunity from defamation actions in relation to the exercise of this power.

Conclusion

This bill represents the first part of a generational change in Australia’s consumer laws. It introduces reforms designed to make Australia’s markets wor