Barnaby Joyce (Queensland, National Party, Shadow Minister for Finance and Debt Reduction) Share this | Link to this | Hansard source

I rise to speak on the Trade Practices Amendment (Australian Consumer Law) Bill 2009. This bill implements changes to create a national consumer law, provide protection against unfair terms in standard form contracts and increase the range of powers of the Australian Competition and Consumer Commission, the ACCC, and the Australian Securities and Investments Commission, ASIC, in enforcing the Consumer Law. The Trade Practices Act will be amended to establish a new schedule called the Australian Consumer Law. The states and territories will then implement the Australian Consumer Law by way of mirror legislation.

These changes are the result of a process started in 2006. In that year the then Treasurer, Peter Costello, asked the Productivity Commission to undertake a broad-ranging review of Australia’s consumer policy framework. The changes in this bill reflect the recommendations of that report and the subsequent discussions between the current government and state and territory governments. At the outset, I would like to recognise the contribution made by Minister Emerson—and you would rarely hear me say that—in progressing these changes and the open and cooperative way in which he and his team have dealt with the coalition’s views and concerns—and he should treasure those comments as well.

The coalition broadly supports this bill but it retains concerns in some specific areas. I will go through the amendments that the coalition proposes. Australia’s consumer laws are generally sound and the vast majority of consumer transactions in this country are concluded satisfactorily, but significant changes in consumer markets over the past two decades necessitate the broad changes proposed in this bill. Foremost among these is the increasingly national nature of consumer markets. Around 50 per cent of consumer needs are now met by suppliers operating in multiple jurisdictions. Even small suppliers can now sell over the internet to people miles away. It therefore makes no sense to persist with differences between states in our consumer laws.

Secondly, the range of products that consumers now choose from have become increasingly complex. Standard form contracts now proliferate for mobile phones, credit cards, computer software and electricity and telecommunications services. Most of these products are recent inventions or, as in the case of utility services, until recently consumers could not choose between suppliers. The other marked characteristic of these types of products is their inherent complexity. The average consumer no doubt struggles to understand all of the clauses in these types of contracts, let alone has the wherewithal to negotiate for a better deal. It is likely that these changes to consumer markets will only accelerate over time as consumer markets become increasingly global in nature and the variety of products available grows. Accordingly, Australia can no longer afford a fragmented consumer policy framework divided along state boundaries. For this reason the coalition supports the creation of a national consumer law. This bill replaces the differing regimes currently operating in each state and territory across the country. Businesses and consumers bear the costs of these differing regimes; they create unnecessary compliance burdens for business, they can add to the costs or they restrict growth. Consumers are the ultimate losers in the resulting higher prices or reduced amount of choice. A national consumer law will bring benefits by reducing complexities, confusion and costs and providing more clarity about rights and obligations wherever goods and services are bought or sold.

As noted earlier, consumers are increasingly being offered non-negotiable, take-it-or-leave-it standard form contracts. At times these contracts include clauses that allow the supplier to unilaterally vary terms and conditions without the option for the consumer to subsequently rescind the contract. Another example is clauses that allow the supplier to cancel the contract before its term, which the consumer may find unreasonable. In any case, standard form contracts are increasingly lengthy and complex. No doubt consumers often enter such contracts without a full understanding of all the conditions. Standard form contracts would be more often signed than read.

Though it is clear that standard form contracts are widespread, it is less clear that they actually cause substantial amounts of consumer detriment. Clearly, standard form contracts can be beneficial to consumers. I certainly would not want to negotiate the terms and conditions of a contract every time I went out to buy a new mobile phone or hire a car. The reason we can generally be confident of entering standard form contracts is that there will always be a minority of consumers who take a ‘buyer beware’ approach and shop around for a better deal or a less onerous contract.

In principle, we would instinctively wish to strengthen the hand of consumers to discipline those businesses which provide inferior terms and conditions. In practice, though, there is not always the ability for consumers to shop around. Many standard form contracts are the same across an industry. There is little point in the buyer being aware and shopping around if the consumer has no alternative. In this context, laws that provide protection against clearly unfair terms and conditions have the potential to increase consumer confidence in entering these contracts. Equally, though, a too onerous imposition of constraints on standard form contracts may increase costs and prices. Under this bill, a term will be unfair where there is significant imbalance between the parties’ rights and obligations and the term is not reasonably necessary to protect the legitimate interests of the supplier.

I will point out three crucial aspects of the detail of the law. First, this bill allows particular terms to be prohibited by regulation, though no prohibited terms have been declared at this time. This would seem to run counter to other elements of the bill, which require courts to take into account the transparency of a specific term and the context of the term in the contract as a whole.

Second, this bill reverses the normal onus of proof that would apply. It will be for the party advantaged by a term, usually a business, to rebut the presumption that the term is not reasonably necessary to protect its legitimate interests. The business must also rebut the presumption that the contract is in the standard form. The coalition is concerned that these provisions subject businesses to the possibility of frivolous and vexatious claims.

Third, some have expressed concerns that there is no requirement in this bill for a consumer to show that actual detriment would occur. The coalition is sympathetic to industry views that the bill’s reference to ‘a substantial likelihood of detriment’ creates an unacceptable degree of risk and uncertainty for businesses and consumers. As the bill is currently drafted, there is no requirement that the term actually create detriment for it to be unfair. It will be unclear to those entering a contract which terms may be judged to be likely to cause detriment. The coalition has proposed amendments in response to these issues, which I will go through later.

The original proposal for this bill extended the application of the unfair terms law to business-to-business contracts. This had been agreed to by cabinet and was in accord with the recommendations of the Productivity Commission, but then Minister Emerson gained responsibility for the portfolio and within days he exempted business-to-business contracts. The minister’s reason for this was that, in his view, including business-to-business contracts would create uncertainty in business dealings, would potentially increase costs and would possibly jeopardise small business funding. All of these arguments could equally apply to business-to-consumer contracts, so there is a paradox in his change of position. The minister’s reasons are unconvincing and he has referred the matter to reviews of the Trade Practices Act and the Franchising Code of Conduct. The minister has now delivered an initial response to the Franchising Code of Conduct review and there is no mention of unfair terms provisions.

A broad section of the small business community was dismayed by the government’s change in direction. For example, the Australian Newsagents Federation has some 2,100 members, nearly all of whom employ fewer than 20 staff and most of whom employ five or fewer. They are subject to standard form contracts in their dealings with major companies such as News Limited, Fairfax and Hallmark Cards. In these contracts, the majority of key contractual terms are presented on a take-it-or-leave-it basis. For major items of their stock they can go to no other suppliers. In addition, they may be subject to a standard form contract covering the lease of their premises in a shopping centre. This example demonstrates that, in their dealings with larger businesses, small businesses face the same issues as individual consumers. Like individual consumers, they lack the resources to engage the legal and other expertise required to negotiate contracts. Even if they did, they lack the bargaining power to enforce their views. It is self-evident that there is an immense power discrepancy between small businesses and large businesses, which is similar to the discrepancy between consumers and businesses.

In summary, there is a compelling case for regarding small businesses in the same light as consumers when they are buying goods or services to consume themselves or to offer for resale. Small businesses have a dual role in consumer policy: not only do they supply goods and services, they are also consumers in their own right. Small businesses will be the losers in the government’s reversal. The coalition will therefore be taking an active interest in the outcomes of the reviews of the Trade Practices Act and the Franchising Code of Conduct and will wait for the government’s response to those reviews.

The bill will give the ACCC and ASIC broader powers to enforce the consumer law. Under this bill, the ACCC and ASIC will be able to seek civil pecuniary penalties for unconscionable conduct and participation in pyramid selling, and for breaches of product safety, product information and substantiation notices, as defined by the relevant provisions of the Trade Practices Act. The maximum penalty will be $1.1 million for corporations and $220,000 for individuals. The explanatory memorandum to this bill states that this will fill a significant gap in the range of enforcement options available to the ACCC and ASIC. Current consumer protection provisions are enforced through civil remedies such as injunctions and other orders and, in certain circumstances, criminal sanctions. Civil pecuniary penalties currently apply for breaches of the restrictive trade practices provisions of the Trade Practices Act.

The ACCC and ASIC will also be able to seek disqualification orders or issue substantiation, infringement and public warning notices. Where circumstances warrant it, disqualification orders will ban people who disregard the consumer protection laws from being a director of a company. When issued, substantiation notices will require a person to provide the relevant information and documents capable of substantiating claims or representations made by that person. Infringement notices will allow the ACCC and ASIC to deal with minor breaches of the law through the payment of an amount that avoids costly legal proceedings. Public warning notices will allow the ACCC and ASIC to warn the public about actual or likely harm that my result from suspected breaches of the consumer laws. The ACCC and ASIC will not have immunity from defamation actions in relation to these notices.

Finally, under this bill, 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. The enforcement provisions of this bill greatly increase the powers of the ACCC and ASIC to act not just as a cop on the beat but also as a judge and jury. The coalition has concerns about the way the ACCC may apply these powers in a quasi-judicial role. Its application last year of anti-cartel measures continues to cause some concern.

I note that, despite giving the ACCC and ASIC significant additional powers, the government has not trusted individual consumers with similar extensions. Under this bill, consumers will not be able to take action on unfair terms directly to the courts. Instead, they must first complain to the ACCC or ASIC, who will then decide whether to take the matters further. So they are once more precluded from taking a direct path to progress their case. This is a strange decision to disenfranchise individual consumers. Consumers and small businesses can already take action directly under the unconscionable conduct provisions and other parts of the Trade Practices Act. It is unclear why they have not been trusted with a similar scope in this instance. Further, in their submissions to the Productivity Commission’s inquiry, the ACCC was sceptical of introducing unfair terms legislation. How committed will they be then to taking further action under these provisions? The coalition favours measures that result in appropriate and timely redress, but will watch very carefully the operation of these new enforcement powers. We will also closely examine the appetites of the ACCC and ASIC for taking appropriate action against unfair terms in standard form contracts.

I turn now to the specific amendments that the coalition proposes. The coalition wants three amendments. Two of these have been agreed with Minister Emerson, working with my colleagues in the lower house, and we thank him for the open and cooperative manner in which he approached the negotiations. First, we propose to delete clause 6, which relates to the prohibition of prescribed terms. Second, we propose to change the wording of clause 6(2)(a), which asks the court to consider the detriment that a contract would cause.

However, we also asked for one amendment not agreed to by Minister Emerson and we will be moving this amendment to the legislation. We propose to delete clauses 3(4) and 7(1), which reverse the onus of proof in establishing that the term is in the legitimate interests of the supplier and that the contract is in standard form. As I mentioned earlier, the coalition is concerned about the reversal of the onus of proof. We consider that reversing the onus will allow litigation from consumers in circumstances where they merely do not like the terms of the contract and no longer wish to be bound by them. Forcing a party to prove the fairness of a contract against frivolous claims will open Australian businesses up to costly litigation. The costs of this litigation might flow on to the costs of goods and services. As such, the coalition thinks that reversing the onus will have unintended consequences on the Australian economy. Our amendments will improve the legislation to get a better outcome for consumers and business across Australia.

As I stated at the beginning of my speech, in general we support the bill, both in its general aim of creating a national Australian consumer law and its specific aim of strengthening the hand of the consumer, where the ability to choose is limited by the use of standard form contracts. With the coalition’s amendments, this bill promises to increase protection for consumers without jeopardising the lower compliance costs for businesses that will result from establishing a national consumer law.

In closing, I would like to also acknowledge the assistance given by those members in the other place and the continued support of the Senate Economics Committee—no doubt the most powerful and substantial committee in the Senate.

David Bushby (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I rise to also speak to the Trade Practices Amendment (Australian Consumer Law) Bill 2009 and note that I have been waiting to do so since at least November—it has been in the red every week since November. It is good to see that the government has finally got its priorities in order to enable a bill to be debated which may have some chance of being passed.

There are clearly circumstances where two parties to a standard form contract have unequal bargaining power and the party with the greater bargaining power includes terms which may prove to be unfair to the party holding less power. There is no doubt that at times this imbalance of bargaining power has been employed, and it continues to be employed, by unscrupulous businesses to the unfair detriment of consumers and, at times, small businesses. In my view, the consequences of such action by an unscrupulous party justify intervention by legislators to protect the unfairly impacted party from the consequences of having to comply with unfair terms.

In an overall sense, I am persuaded by the arguments of the Law Council of Tasmania and others at the Senate Economics Committee inquiry into this bill that the circumstances as to what constitutes ‘unequal bargaining power’ and ‘unfair’ will vary depending on the circumstances relating to each of the parties, their reasons for entering the contract and their level of understanding and ability to consider and accept the consequences of the terms to which they are agreeing. As such, I am of the view that the principles-based approach to addressing the very real mischief that needs to be addressed may prove to be unsophisticated in practice, may lead to the creation of unnecessary uncertainty for both business and consumers, may actually preclude many terms in contracts that are, in the circumstances, fair, and may even allow the inclusion as fair of some terms that, were the particular circumstances to be examined, could be considered unfair.

I welcome the move to nationalise the approach to consumer protection in the area of consumer trade law and recognise that the rationalisation of jurisdictions dealing with this issue will result in some savings for businesses that operate across state borders. However, I am also of the opinion that the problems in compliance and certainty introduced as part of this legislation will add to the costs of many of the goods and services provided under the standard form contracts affected. Ultimately, this cost will be passed on to all consumers of such goods and services as a cost of addressing actual detriment to a subset of such consumers, and, more pointedly in the context of the legislation as written, as a cost of addressing the possibility of detriment arising from the mere presence of an unfair term in such a contract.

A number of specific matters were put forward by submitters to the economics inquiry that raise issues in my mind with respect to the effect of the proposed legislation. The primary issue raised by all business submitters was that of uncertainty. On the basis of the evidence received, it is arguable that anyone who signs up to a standard form contract—as alluded to by Senator Joyce—will be able to allege that its terms were unfair if they find later that they do not like the contract, they do not like the product, a new product comes out and they want to get that, their circumstances have changed, or for any other reason they no longer wish to remain a party to that contract. Under this bill, once they have alleged that such a contract contains unfair terms, the onus of proof shifts entirely to the business to prove otherwise. This is clearly a recipe for anyone not wanting to meet their obligations under a standard term contract to make an unfair allegation and thereby shift the onus of proving the contract is fair onto the other party. The clear impact of this will be the removal of any degree of certainty a business might assume would apply upon such a contract being entered. Let’s face it: that is the reason parties enter standard form contracts, or any contract really—to set out, for certainty’s sake, the basis on which two or more parties will conduct a transaction. If that degree of certainty is removed, it will render many, if not all, forms of standard form contracts unenforceable.

If the legislation turns out to have this impact, the primary advantage of standard form contracts—that being the removal of the costs and the time involved in negotiating the respective rights of parties for common goods and services, which coincidentally reduces transaction costs and, hence, prices—would evaporate. The only possible outcome then would be a revision of the manner and terms on which parties to such transactions contract or higher prices for those goods and services.

Uncertainty resulting from this legislation is exacerbated by the lack of a clear definition for the terms ‘standard form contract’ and ‘company’s legitimate interests’. This lack of certainty also increases the personal risk to directors of companies, who will no longer be able to rely on the enforceability or even legality of standard form contracts drafted by their employees.

Issues were also raised during the inquiry regarding the start dates of the obligations under the proposed legislation. If business as a whole is to ensure that its standard form contracts are fully reviewed and brought into line with what they understand to be required, longer lead times will be required than have been provided—particularly given the uncertainty surrounding definitions and what needs to be included to ensure that such contracts comply with the legislation. It seems to me that a longer transition period, maybe 12 months, would be more workable. In this regard it is worth noting evidence that it took some 12 months for the disruption caused by the introduction of equivalent provisions in both the UK and Victorian legislation to work through the consequent confusion caused by the lack of clarity in the definition of what constituted an unfair term. It is also worth noting that, as also noted by Senator Joyce, the government’s reasoning for removal of business-to-business contracts from the effect of this legislation was that it was too vague and likely to lead to uncertainty. Surely, if this is the case between businesses, it could be said to also apply to standard form contracts between businesses and consumers.

Many industry sectors are already very heavily regulated, including, but not limited to, the insurance industry, which has long been regulated in reflection of the potential for insureds to be treated unfairly as a consequence of differing levels of bargaining power, and more recently the financial services sector has also come under heavy regulation. In recognition of the specific protections already built into the insurance legislation, the insurance sector has been exempted from the effect of this legislation. This is a controversial decision but in my opinion the correct one. Although I acknowledge there remain many issues of unfairness in the way some insurance contracts are applied, I do not consider this proposed legislation to be the best way of addressing those issues. In many cases it is the application of insurance terms that is unfair, not necessarily the terms themselves, and it is this that needs to be better addressed in the context of the regulation of the insurance industry. In that context it is worth noting evidence from the Insurance Council of Australia that over 98 per cent of insurance claims are paid out without question and only 0.065 per cent of claims go to the Insurance Ombudsman. In terms of the financial services industry, it seems to me that there is a strong case that their current and very recent regulation requires them already, through their fiduciary and common law obligations, to treat their clients fairly and, indeed, to prefer the rights of investors over those of their shareholders. It may be that extending this legislation to cover their industry will not add to existing consumer protection but will add to the cost of the services they provide to consumers, costs that will again ultimately have to be paid by consumers.

These two examples highlight my preferred approach to addressing the issue of unscrupulous exploitation of unequal bargaining power in standard form contracts. That is, in those industries that are already regulated, I am persuaded that it would be preferable to use that regulation to ensure that consumers are treated fairly. If the current legislation is not up to scratch then tweak it so that it is. Where industries are not regulated, it would be appropriate to apply such a law as proposed as a ‘catch-all’ to ensure all remaining consumers are protected from unfair provisions, subject, of course, to fixing the issues highlighted by Senator Joyce and me today.

Professor Zumbo at the hearing suggested that one way to improve certainty is to provide what he described as ‘safe harbours’. As the legislation currently stands, there is scope for grey lists to be compiled with terms that may or may not be unfair. This fails to provide any certainty, and in fact the identification of terms that might be considered unfair will probably add to uncertainty. As I understand it, Professor Zumbo suggests that if a business were able to get their standard form contract signed off as compliant with the Australian Consumer Law by an appropriate regulator, with such a sign-off providing them with protection against an unfair term allegation, it would vastly improve business certainty. Despite my view that what is actually unfair depends on the specific circumstances of a case, I am attracted to Professor Zumbo’s suggestion as it would significantly improve certainty of the enforceability of contracts if a general test of unfairness could be applied to standard form contracts prior to their being entered into.

Evidence was also received at the inquiry that there is a need for the Australian Consumer Law to cover business to business transactions. It is clear to me that there are also situations where small businesses lack bargaining power, are effectively ‘consumers’, and are just as subject as individuals to unscrupulous activities when entering into standard form contracts. Indeed, in many circumstances, busy small business operators can be easier prey for the unscrupulous than well-informed consumers. As such, there is clearly a need for a legislative framework that provides equivalent relief for small business from inappropriate and unfair contract terms in situations where there is clearly unequal bargaining power. The Australian Consumer Law as proposed, however, may not deliver that relief in a way that will be of net benefit to either of the parties involved, for the reasons already discussed, whether in respect of individual consumers or business, and in that sense the removal of business-to-business contracts from the scope of the proposed legislation was probably, in my view, the correct decision.

At the hearings Treasury was asked about the extent to which existing remedies contained in the Trade Practices Act already provided protection against unscrupulous conduct of the sort the proposed legislation is intended to curb, such as that provided under section 51AB. Treasury’s view was that the proposed unfair contracts aspect of the Australian Consumer Law would provide additional avenues of redress for consumers. Other witnesses stated that the section 51AB remedies were rarely used, in part because of cost, and also because they possibly are not fully tested in terms of their ability to offer remedies for matters such as unscrupulous behaviour by a party with unequal bargaining power in a standard form contract. Of interest is the evidence by Treasury that all remedies available to be pursued under the Australian Consumer Law can be pursued in state based forums. As such, one of the major benefits that I see in this legislation is that it has the potential to reduce to a significant extent one of the major barriers to justice, that being the cost and ease of access to it. Because those with unscrupulous intentions often fail to pay the degree of attention to legal requirements than those of more pure intentions, I consider that in many ways this is a more important development, as it would vitally improve the ability of consumers, individuals and small businesses, who are the victims of unscrupulous dealings to have access to remedies. If state jurisdictions ensure there are appropriate low-cost dispute resolution forums in place that offer consumers access to all remedies available under the Australian Consumer Law, it may well be the case that remedies such as those already contained in section 51AB may prove far more effective than they have so far proven to be.

The proposed Australian Consumer Law is in itself a significant step forward in terms of consumer protection. However, with respect to the unfair contracts section of the proposed Australian Consumer Law, it is my view that the specifics of that proposal do not provide the best way to address the very real and serious issues that do occur between parties of unequal bargaining power, as the uncertainty and other consequences appear likely to be to the benefit of neither party. Many industry sectors are already regulated. To the extent that the regulation fails to fully address unfair contract issues within each of those sectors, consideration should be given to amendments to those regulations to provide a fair balance.

Debate interrupted.