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

Prior to question time I was making a few comments regarding the Trade Practices Amendment (Australian Consumer Law) Bill 2009 and I will continue those comments. Where no industry specific regulation exists, consideration of general protection such as that contained in this proposed legislation should be considered. However the potential costs, uncertainty and other consequences highlighted by the submission to the inquiry should be addressed. Consideration should be given to the introduction of safe harbour provisions along the lines suggested by Professor Zumbo. Sitting above issues surrounding the specific application of the proposed unfair contract provisions is the benefit that will flow from other aspects of the introduction of the Australian Consumer Law, notably including the greater access to remedies that can flow from low-cost, state based dispute resolution forums that will be able to hear cases based on remedies previously only able to be used in expensive court based actions. To some extent, this may offset the need for specific action on unfair contracts, as remedies previously not utilised for this purpose may become available through greater use and judicial development.

The coalition will move a number of amendments, foreshadowed by my colleague Senator Joyce, that will go a long way towards addressing many of the concerns I hold in respect of this bill. In particular, I welcome the move to delete the provisions providing for the reversal of the onus of proof and the strengthening of the threshold from ‘likely to cause detriment’ to ‘likely to cause significant disadvantage’. I commend the amendments to the Senate and look forward to the passage of an amendment bill that will deliver all the benefits of the proposed Australian Consumer Law regime without many of the costs and problems that can rightly be avoided. (Quorum formed)

Annette Hurley (SA, Australian Labor Party) Share this | Link to 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.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

May I begin by saying that I applaud the government for its intent in introducing the Trade Practices Amendment (Australian Consumer Law) Bill 2009. There is no question that reform is needed in the area of consumer law and that a national approach is needed, as Senator Hurley has outlined in her very thoughtful contribution. But I believe that this bill should go further. I believe that this is an opportunity lost.

Whether it is a mobile phone contract, a washing machine purchased under a 12-month interest free loan, a subscription program or a gym membership, standard form consumer contracts—that is, contracts that are not individually negotiated—are often complicated, confusing and in many cases give greater power to the business or the larger party, the more powerful party, than to the individual consumer. In addition, consumer laws currently vary between states and territories, making it confusing not only for consumers but also for businesses.

This bill will create uniform consumer law legislation, and that is a good thing. However, I am concerned that there has been a significant weakening, a watering down, of existing state consumer protections primarily in the area of unfair contract terms. Victoria has been at the forefront of effective laws against unfair contract terms, so it beggars belief that the Victorian laws will be watered down under this bill. That is not a good thing for consumers, because I think the Victorian law was a template of good law in protecting consumers.

While this bill is designed to address unfair contract terms and includes penalties, enforcement powers and consumer redress options, I believe this bill in its current form does not truly meet its intent. Accordingly, I will be introducing a number of amendments which I believe will strengthen this legislation so that it is truly in the best interests of Australian consumers and provides assurances to business.

There is no doubt that questionable consumer contracts exist and all too often consumers are either left with no option for recourse or find that the process to seek reimbursement for losses is too costly to be worth while. It is too costly and time consuming because of the hassles involved in trying to seek redress where clearly the wrong thing has been done to the consumer. It is a messy process. Some of the unfair contract terms which exist, whether intentional or unintentional, are often mind-boggling loopholes that most consumers never see coming. For example, in July last year, Telstra announced that it would be introducing a range of fees that would, it said, ‘reduce face-to-face customer service and drive more customers towards online bill payments’. From September, a $2.20 charge was applied to anyone who opted to pay their bill in person, with cash. That is something that many constituents have approached me about. They thought it was inherently unfair, particularly senior citizens, those that do not have online access and those that like the idea of the human contact of going to their local post office to pay the bill in cash because they do not have a credit card, they do not have online access or they just want to deal in cash. They were prejudiced.

I raised this matter with Telstra’s CEO, David Thodey. I passed on those consumer complaints directly to him in the course of discussions about another piece of legislation. Can I say that Mr Thodey was quite receptive. Whatever views one may have of what is before the parliament in terms of Telstra, I think Mr Thodey has been a breath of fresh air in terms of accessibility compared to the previous regime in Telstra. I am very pleased that, as a result of the public outcry, Telstra scrapped this fee. I think it was the right thing to do for consumers and the smart thing for Telstra to do from a public relations point of view as well. But I do know that similar charges continue to exist with other companies and I think that is inherently unfair. To charge a person for choosing to pay their bill in person with legal tender is not fair. When I raised this issue, and I am sure others of my colleagues have, there were many calls to my office and I received a lot of correspondence expressing concern about that. These are the sorts of unfair contract terms that should never have been allowed to creep into contracts. I will be moving an amendment to address this during the committee stage.

Also concerning are the number of contracts that allow the larger party, the business, to modify or cancel contracts without notice; yet the same flexibility is not afforded to the consumer, resulting in an imbalance of power between the two parties, which is fundamentally unfair. Here we have an opportunity to have a national approach, one that is not only good for consumers but good for businesses. It removes that uncertainty and provides uniformity. There are unnecessary costs for businesses, big and small. This national approach is long overdue. Internationally, the European Union adopted its directive on unfair terms in consumer contracts in 1993 and was followed by the United Kingdom the following year. These overseas laws are tried and tested and have been positive for consumers and could be similarly positive for Australian consumers. I do not think we have gone as far as the United Kingdom and Europe have in terms of unfair contract terms.

I think a way forward in making it easier for consumers, better for consumers, but also fairer for companies, is to have a ‘safe harbour’ approach. If that was adopted for consumer contracts, we would find these sorts of unfair terms could be avoided from the beginning. Under the safe harbour approach, which I acknowledge is an idea that comes from Associate Professor Frank Zumbo from the Australian School of Business at the University of New South Wales and who is a tireless advocate for consumers in the trade practices field, businesses would be able to approach the ACCC to seek approval or authorisation of particular contracts or contract terms. In doing so they would be ensuring that their contract is fair and reasonably necessary to protect the interests of the larger party and the consumer. Further, it could lead to industry-wide contract terms so that all relevant businesses could adopt these clearly defined and approved contract provisions. It would be similar to a template—a template of good practice which can be ticked off once it has been signed off by the ACCC. It is not unreasonable for the ACCC to take that approach. While some may suggest that this would be too onerous for the ACCC, I would argue that this would prevent unfair contract terms at the outset rather than having to address the issue once a possibly unfair contract is in place across the country. It is preventative in its approach. The ACCC has considerable experience in reviewing contractual arrangements and could readily use that experience to review contract terms under a safe harbour process for the benefit of both businesses and consumers. Furthermore, it would be a voluntary option for businesses, which would be seeking approval of their contract to ensure best practice. I believe that many businesses would appreciate this opportunity.

This bill, in its current form, also fails to include amongst its protections small businesses, which are just as vulnerable to unfair contract terms as individuals. A sole trader or a family business is as vulnerable in many cases as an individual when dealing with large businesses. My understanding is that business-to-business contracts under $2 million were originally included in the first draft of this legislation, when Minister Bowen was the responsible minister. However, it was subsequently removed. I would be grateful if the minister could advise, when we get to the committee stage, the basis of that change in policy. There were changes from when Minister Bowen had this portfolio to now when Minister Emerson has the portfolio, and it seems to me that there has been an appreciable weakening of the consumer protection provisions. I believe that small businesses are subjected to many of the same unfair contract terms as individual consumers and should be entitled to the same protections under this legislation.

I have a number of concerns with this bill and will outline them in more detail when I introduce my amendments. While this bill is intended to protect consumers and give them greater opportunities for redress in instances where they have been unfairly treated, there are significant gaps in the bill. While it is intended to ensure the balance between the two parties to a contract is fair and does not favour one over the other, there are ways in which this bill can be improved. I applaud the government for  recognising that reform is needed in the area of consumer law, which organisations and entities such as the Consumer Action Law Centre and Choice have been calling for for many years—as has Associate Professor Zumbo. But for this bill to meet its intent it needs to be strengthened; otherwise, we have laudable intentions without the follow-through to give it more substance, to give it more teeth. That is why I will move amendments during the committee stage. I will not delay the second reading stage unnecessarily by outlining those amendments.

I will give an example: it is crucial that consumers—both individuals and small businesses with contracts less than $2 million—are able to fairly and easily seek injunctions and damages wherever and whenever unfair terms of contract with larger parties exist against them. Not only will this cause larger parties who issue unfair contract terms to think twice before doing so but also it will serve as a deterrent and, I believe, will add a level of protection to individual consumers. Furthermore, the current inclusion of the terms ‘detriment’ and ‘transparency’ which courts must consider add unnecessary tests upon the consumer and the ACCC when the courts already have a discretion to make these determinations. Those additional hurdles for consumers are a real weakening of the legislation. They go against the intent of the bill, which is to make it easier for the consumer to seek redress. After all, this legislation aims to make it fairer for consumers—not harder. My concern is that the bill in its current form is an opportunity lost to do the right thing by consumers and small businesses in this country. I support the second reading motion, but I do believe that there is scope to improve this legislation so that we can give the protections that individuals and small businesses deserve.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

I take this opportunity to thank senators who have participated in the debate today on theTrade Practices Amendment (Australian Consumer Law) Bill 2009. On 2 October 2008, the Council of Australian Governments reached a historic agreement to create a single national generic consumer protection law to be called the Australian Consumer Law. This bill is the first legislative step to give effect to COAG’s agreement. It will implement key elements of the Australian Consumer Law, including a new national unfair contract terms law and new penalties, enforcement powers and options for consumer redress for the ACCC and ASIC. Attempts to create a single consumer law have been made in the past. Notably, in the early 1980s the Australian, state and territory governments agreed to create harmonised consumer protection laws. This initiative succeeded in creating harmonised laws for a time, but consistency was all too soon lost as individual jurisdictions amended and augmented their laws over time. COAG’s decision of 2008 differs from previous attempts at harmonisation in that it established an applications legislation regime. Amendments to the Commonwealth’s consumer protection law will automatically apply in all states and territories. In addition, all jurisdictions have agreed to be bound by the Intergovernmental Agreement for the Australian Consumer Law, which sets out the manner in which changes to the consumer law will be made in the future. COAG made this intergovernmental agreement at its meeting on 2 July 2009.

Consideration of this legislation is significant because we are asking not only that the Australian parliament legislate its content but, ultimately, that all states and territory parliaments adopt this legislation.

On 25 June 2009 this bill was referred to the Senate Standing Committee on Economics for inquiry and report. In the course of its inquiry the committee received 58 public submissions and held public hearings in Canberra and Sydney reflecting a wide range of interests in this legislation from business and consumers. This follows an extensive consultation process undertaken by the Productivity Commission in 2008 as well as by the government in February and May of 2009. The committee tabled its report on the provisions of the bill on 7 September 2009. The committee expressed its strong support for the bill and recommended that the bill be passed. I note that the coalition members of the committee have also recorded their broad support for the bill. I thank senators for their participation in the committee’s inquiry as well as the wider debate on this legislation.

This bill represents a significant milestone in achieving a lasting national consumer protection law. That said, the creation of a national unfair contract terms law, and the strengthening of the enforcement regime for the consumer protection provisions of the Trade Practices Act, are also worthy objectives in their own right. I am aware of the concerns that the proposed amendments to the unfair test and the unfair contract terms law could effectively turn the detrimental requirements into a separate test, and in a manner that negatively impacts on the consumer, by requiring that actual detriment must be proved. Contrary to these concerns the proposed amendment requires the court to consider whether application of or reliance on the terms would cause detriment to the parties disadvantaged by the term. This would involve a determination of whether such detriment does exist or would exist if the term was relied upon.

The ACL reforms will be completed via a second bill to be introduced in early 2010. The second bill will include a national consumer product and safety regulatory regime as well as enhancement to the existing consumer protection regime based on the best practice amongst state and territory laws.

We are about to have another minister take on the detailed consideration of these amendments, which I trust will be canvassed in great detail. I look forward to that occurring. I commend the bill to the chamber.

Question agreed to.

Bill read a second time.