Annette Hurley (SA, Australian Labor Party) Share this | Hansard source

We have all heard examples of where consumers have found themselves on the receiving end of a contract that they believe is completely unfair yet find themselves with no access to redress. A common example is the mobile phone contract with a term allowing the supplier to unilaterally vary the rates or charges imposed at any time without any notice to the consumer. There are many similar examples for consumers where they have not properly scrutinised the very fine print of a contract or find that they misunderstood the terms of a contract. On the other hand, businesses that operate across various state jurisdictions also complain that rights and responsibilities are duplicated across a wide range of legislative instruments and are incompatible across state borders, causing unnecessary complexity and expense. The Trade Practices Amendment (Australian Consumer Law) Bill 2009 aims to address these concerns.

The purpose of the bill is to establish a national consumer law framework and to ban unfair terms in standard form business-to-consumer contacts. The bill has three distinct elements: (1) the creation of a new national consumer law and the implementation of new penalties for breaches of consumer law, (2) the implementation of national unfair contract law terms and (3) increased powers for ASIC and the ACCC to enforce these laws.

This is the first in a series of two bills which will introduce the Australian consumer law—ACL. These are complex bills and they interact with each other. The bill we are considering amends the Trade Practices Act to establish the ACL as a schedule to the act and inserts the unfair contract term provisions. It also inserts corresponding provisions for financial products and services into the Australian Securities and Investments Commission Act. The second bill, to be introduced shortly, will implement COAG reforms in this area, including the transfer of the existing consumer law and related provisions of the act into the ACL.

Standard form contracts are those contracts that are entered into without any individual negotiation taking place. They are essentially take-it-or-leave-it arrangements for the consumer. These types of contracts are used widely for banking, financial services, utility services, internet and telephone contracts and gym memberships. Standard form contracts are not in themselves inherently unfair but in fact facilitate day-to-day transactions between businesses and consumers in an economically efficient manner. However, the take-it-or-leave-it nature of such contracts means that consumers can be left with clearly inequitable arrangements that they would not willingly enter into had they the ability to negotiate terms. It might be argued that, even if the consumer baulks at a contract, they are often in a position, as with gym contracts, where it is very difficult to negotiate exceptions to the contract. There is obviously, therefore, a need for consumers to be able to seek redress over unfair contract terms. Under this bill, a term is considered unfair if a supplier can vary any of the terms without consent or if the supplier can cancel the contract without the consumer having the same right to do so. If a contract term is found to be unfair, the term itself will become void; however, the contract as a whole will remain in effect.

This bill has been the product of a lengthy and exhaustive consultation process. In December 2006, the then Treasurer, Peter Costello, commissioned the Productivity Commission to investigate Australia’s consumer policy framework, including its administration. In April 2008, the Productivity Commission released the findings of its review of Australia’s consumer policy framework and called for an overhaul of the system. They particularly drew attention to the messy duplication and division of responsibilities among the state governments and the federal government, which increase the costs for businesses and lead to variable outcomes and inconsistent redress mechanisms for consumers as well as gaps and inconsistencies in policy enforcement.

The Productivity Commission advocated the introduction of a national consumer law and unfair contract terms. In March 2008, COAG agreed that its Business Regulation and Competition Working Group would develop an enhanced consumer policy framework in consultation with the Ministerial Council on Consumer Affairs. Based on the recommendations of the council, the working group recommended that COAG agree to a single national consumer law.

At a meeting in October 2008, COAG agreed to establish a new single national consumer law including a provision regulating unfair contract terms. ACL will provide consumers with a uniform and higher level of protection and see reduced compliance costs for business and improvements in consumer law enforcement powers. This was part of the broader COAG work towards the creation of a seamless national economy, which is clearly very important for productivity.

In February 2009, the Standing Committee of Officials of Consumer Affairs released an information and consultation paper entitled An Australian consumer law—fair markets, confident consumers which aimed to outline the process for the development of the ACL and encourage submissions seeking views on policy options and alternatives. Treasury received 102 submissions to the consultation paper. A further paper entitled The Australian consumer law: consultation on draft provisions on unfair contract terms was released in May 2009, providing an opportunity for feedback. This attracted a further 96 submissions.

On 24 June 2009, the Trade Practices Amendment (Australian Consumer Law) Bill 2009 was introduced into the House of Representatives and referred to the Senate Economics Legislation Committee, which I chair, for inquiry. The committee received 58 submissions in the course of its inquiry and found that many concerns raised regarding the bill had been addressed through the consultation process which began with the Productivity Commission investigation in 2006. One submission, from the Consumer Action Law Centre, to the Senate inquiry said:

Regardless of one’s views on the content of the bill, it cannot be said that consultation on national UCT—

unfair contract terms—

regulation for Australia has not occurred.

There is broad support for the harmonisation of consumer law. There are currently 13 generic consumer law frameworks operating in Australia. Throughout the consultation process, every inquiry has found that the system is costly for business and inequitable for consumers, that major reform is required and that measures directed against unfair contract terms should be a part of the new regime. The Law Council of Australia Trade Practices Committee, the Association of Building Societies and Credit Unions, the Business Council of Australia, the Consumer Action Law Centre and the Motor Trades Association of Australia all support the concept of a single national uniform consumer law. The coalition have raised some issues with this bill and have foreshadowed some amendments. I have not had an opportunity to look at them in detail, but I reiterate that there has been extensive consultation and extensive agreement between the states on this bill.

I now wish to address the target of some of the opposition’s objections: unfair contract terms. Subsection 3(1) of the bill provides that a term in a consumer contract is unfair if the term would (a) cause a significant imbalance in the party’s rights and obligations under the standard form contract; and (b) is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term. Terms that define the subject matter of the contract establish the up-front price payable under the contract or are required or permitted by the Commonwealth, state or territory are exempt from the unfair provisions. Although no contract terms are currently prohibited, the bill does give provision for the minister to prohibit certain contract terms and also exempt certain terms if necessary.

A number of examples of terms which might be considered unfair are listed in the bill. For example, any term that limits the right of one party and not the other to terminate or vary a contract may be considered unfair. These examples are often referred to as a ‘grey list’ and they only provide an indication of the terms that might be considered unfair. The Consumer Action Law Centre noted that this is consistent with best practice internationally and that a ‘general-plus-specific’ model allows for flexibility through the use of a general definition but also incorporates clarity and certainty in relation to known current problems as well as guidance in the interpretation of the general provision. The suggestion from the opposition that every contract could be submitted to the regulator for approval might enhance flexibility but would make an unwieldy process, although I will look at the specific amendment.

The bill also excludes certain contracts from the unfair contract term provisions. These are certain shipping contracts, which are already subject to a comprehensive legal framework under maritime law, and contracts which are constitutions of companies or managed investment schemes. However, insurance contracts are also currently exempt from the bill’s application, although not through any provision of the bill itself. Currently the Insurance Contracts Act prevents an insurance contract from being the subject of judicial review on the grounds that it is harsh, oppressive, unconscionable, unjust, unfair or inequitable. The effect of this section of the insurance act means that the unfair contract provisions of either the ACL or the ASIC Act do not apply to insurance contracts, as Senator Bushby canvassed.

During the Senate inquiry the committee received considerable evidence that opposed the exclusion of insurance contracts from the unfair contracts provisions. The Senate inquiry into this bill found that, currently, consumers are not provided with adequate protection from unfair terms in insurance contracts. However, since a review of the Insurance Contracts Act in 2004 significant work has been undertaken, including a draft bill released in 2007 to address unfair contract terms in insurance contracts. The minister assures me that that work is still continuing, that there will be some close review of what happens in relation to insurance contracts and that this will be released shortly.

The scope of the bill’s unfair contract term provisions is restricted to business-to-consumer transactions. The bill applies only to consumer contracts in which at least one of the parties is an individual. Contracts between businesses are therefore excluded from the provisions, except in respect of sole traders.

The government is currently reviewing both the unconscionable conduct provisions of the Trade Practices Act and the Franchising Code of Conduct with a view to providing more effective regulation around unfair terms in business-to-business contracts. The franchising arrangements—for example, for newsagents, which Senator Joyce raised—are clearly, in my view, currently better dealt with under those two separate initiatives than under this particular bill.

During the inquiry, the Senate Economics Legislation Committee received some evidence, mainly from the banking and finance sector, that legislation preventing unfair contract terms should not be introduced. The argument was that a lack of a hard and fast definition regarding what constitutes an unfair contract term would lead to business uncertainty and potentially higher costs for the consumer. The claim is that the legislation will force businesses to reconsider all their standard form contracts and operate in an environment where they cannot be sure which terms the courts and the minister would declare ‘unfair’. I think this is Senator Bushby’s argument. This view was challenged by a number of witnesses who claimed that this ‘Chicken Little’ view of the world is taken by the banking and finance sector when any significant reform to the Trade Practices Act is considered. It was also noted that similar reform has been undertaken in the UK with similar claims of economic costs and business uncertainty being foreshadowed that have not eventuated. The requirement for the term to cause a ‘significant imbalance’ in rights and obligations between parties, as well as the opportunity to allow a term where it can be demonstrated to be necessary to protect the legitimate interests of the advantaged party, should provide adequate protection against vexatious litigation.

In conclusion, the introduction of a single national consumer law has been a work in progress since 2006. There is little or no doubt that the Australian Consumer Law will provide substantial benefits to Australian consumers and will result in cost benefits for business operation standard form contracts across jurisdictions. It is a substantial piece of legislation that has involved extremely extensive consultation and has incorporated a number of changes along the way to ensure it will operate as a simple yet effective piece of legislation.

Given the long lead time over which this legislation has been developed and the substantial consultation process that has been undertaken, it is difficult to see merit in any arguments surrounding business uncertainty. Consumers have been faced for many years with far greater uncertainty, given the lack of protection from unfair contract terms, and the negative economic impact on consumer confidence that has arisen as a result should not be discounted.

In summary, the social and economic benefits of this legislation cannot be underestimated. The bill has evolved through a broad, ongoing and rigorous consultation process where stakeholders have been given ample opportunity to be involved in the development of the terms of this legislation. It is part of a broader movement through COAG to a seamless national economy in which business and consumers alike will benefit from a simpler, transparent and more efficient system. It is an enormously positive step for the Australian economy, for Australian consumers and Australian businesses. I commend this bill to the Senate and commend the ministers involved for taking the bill through to this stage. Labor governments have traditionally been very concerned about consumer rights and have been very active in developing consumer rights legislation. I certainly hope this and the forthcoming bill will be accepted by the Senate.