Overview of the Australian consumer law reforms: how will the law change from 1 January 2011?

Practical Law UK Legal Update 4-503-6577 (Approx. 6 pages)

Overview of the Australian consumer law reforms: how will the law change from 1 January 2011?

by Richard Murphy and Sarah Barker, Minter Ellison

Overview of the Australian Consumer Law

Following on from the enactment of the first tranche of Australian Consumer Law reforms in mid-2010 (including in relation to unfair terms in standard-form consumer contracts, and expanded enforcement powers of the ACCC), the ACL No. 2 Act will:

Establish a national scheme for statutory consumer guarantees, which will replace the existing Australian Commonwealth, state and territory laws governing implied conditions and warranties in consumer transactions.
Establish a national scheme for consumer product safety, which will replace the existing Australian Commonwealth, state and territory regulatory schemes.
Move and re-order the fair trading and consumer protection provisions of the Trade Practices Act 1974 (TPA) and the Australian Securities and Investments Commission Act 2001 into the Australian Consumer Law.
Expand the consumer protection provisions to incorporate 'best practice' provisions of existing Australian state and territory laws.

The reforms, which come into effect on 1 January 2011, will also change the title of the TPA to the Competition and Consumer Act 2010. Whilst promoted by the government as "the biggest changes to the TPA in 35 years", these reforms do not radically alter the consumer protection and fair trading landscape within which suppliers must operate. However, they will require Australian businesses, particularly in the retail and manufacturing sector, to review and update their compliance systems and procedures and give renewed emphasis to their warranty policies, consumer complaints handling systems and reporting procedures.

Consumer guarantees

"Consumer guarantees" are statutory rights conferred by the Australian Consumer Law in relation to every acquisition of consumer goods or services. They apply regardless of whether or not they are expressly stated in any contract for sale, and cannot be waived or excluded from transactions with consumers. What stays largely the same?

Following a late amendment, the guarantees will apply the same definition of "consumer" that prevails under the TPA implied warranties regime, namely:

Goods or services of any kind valued at less than AUS$40,000.
Goods or services valued in excess of AUS$40,000, but that are of a kind ordinarily acquired for person, domestic or household use or consumption.
A commercial vehicle acquired primarily for use in the transportation of goods (of any value).

The consumer guarantees applicable to goods include as to:

Title.
Undisturbed possession.
Acceptable quality.
Fitness for a disclosed purpose.
Correspondence with any description or sample.
Reasonable availability of spare parts and facilities for a reasonable period (this applies to manufacturers only).
Compliance by a supplier or manufacturer with any express warranty they have offered.

Other elements of the consumer guarantee regime that impose substantially similar obligations to the current TPA implied warranties regime include:

The consumer guarantees do not apply to goods or services acquired for the purpose of re-supply, or for the use in trade or commerce, or contracts of insurance.
Any term that purports to restrict, exclude or modify the consumer guarantees will be void. However, suppliers may continue to limit their liability where goods or services are not of a kind ordinarily acquired for personal, domestic or household use or consumption to:
- (in the case of goods) replacement or repair, or payment of the cost of replacing or repairing the goods;
- in the case of services: to re-supply of the services, or payment of the cost of having the services re-supplied.
Suppliers may seek indemnity from the manufacturer for any damages and costs incurred, albeit in slightly modified circumstances (including the removal of the right to indemnity where goods fail to correspond with a sample). Where goods are not of a kind ordinarily acquired for personal, domestic or household use or consumption, manufacturers' liability to indemnify suppliers will continue to be limited to the lower of the cost of:
- replacing the goods;
- repairing the goods;
- obtaining equivalent goods.

What is different?

The ACL No.2 Act contains significant reforms to the remedies available to consumers when goods or services fail to comply with the consumer guarantees. Unlike the current TPA implied warranties regime, which affords consumers contractual rights against suppliers, the new consumer guarantees regime prescribes the remedies available to consumers, from refunds and replacements to compensation and costs. The appropriate remedy as against a supplier varies depending on whether or not the failure is 'major' and whether it can be remedied. Consumers also have a direct right of action for damages against the manufacturer where the goods are not of acceptable quality, do not match their description, the manufacturer has failed to comply with an express warranty it provided, or does not have repairs or parts available within a reasonable period after the sale of the goods.

Finally, unlike the current TPA implied warranties regime, the Australian Consumer Law makes provision for:

The regulations to exempt the supply of gas, electricity and telecommunications services from compliance with the consumer guarantees (although it should be noted that the Consultation Draft of the ACL Regulations released on 24 September 2010 did not do so).
The ACCC to take representative action on behalf of consumers against suppliers or manufacturers.
The Minister to require suppliers to display a notice concerning the consumer guarantees.
Regulations to prescribe the form and content of any 'express' warranties against defects (potentially including extended warranties) that suppliers may represent to consumers (with the Consultation Draft of the ACL Regulations, prescribing requirements in relation to document clarity, the warrantor's contact details, the term of the warranty, procedures for claiming, the allocation of expenses and a prescribed form of words that must be used to notify consumers that the express warranties do not limit the consumer's rights under the consumer guarantees).
Regulations requiring repairers of goods to provide consumers with a notice in a 'prescribed form' before accepting the goods for repair. Under the Consultation Draft of the ACL Regulations, these repairers include:
- repairers of goods capable of retaining user-generated data (for example, files on a hard drive or on a portable media player);
- repairers who intend to provide refurbished goods to a consumer.

Product safety

The ACL No.2 Act creates a national consumer product safety regime to replace product safety laws under the TPA, and state and territory fair trading legislation. The product safety reforms under the Australian Consumer Law implement a number of recommendations made by the Productivity Commission in its Review of the Australian Consumer Product Safety System, including:

Expanding the application of product safety law beyond goods to cover services related to the supply, installation or maintenance of consumer goods in all jurisdictions.
Expanding the scope of product safety standards, bans and recalls from circumstances where the risk of injury arises from a primary, normal or intended use of the product to include reasonably foreseeable use or misuse.
Allowing regulators to undertake product recalls directly where no supplier can be found.
Mandatory reporting requirements which oblige suppliers (including manufacturers, retailers, distributors and importers) to notify the Australian Commonwealth Minister and the ACCC within 2 days where they consider that death, illness or serious injury may have been caused by the use or foreseeable misuse of the supplier's goods or product related services.

Such reports are to be kept confidential, with limited exceptions. Business is likely to welcome the narrowing of this reporting requirement from that initially presented before parliament, which proposed a broad obligation to notify the regulators of consumer goods of any kind that may have been associated with a serious injury, whether or not the suppliers own products implicated in an incident.

The Consultation Draft of the ACL Regulations also exempts from the Australian Consumer Law reporting requirements suppliers who are otherwise required to notify instances of death, serious injury or illness under specified legislation in the automotive, pharmaceutical and food industries. However, there remains the potential for the creation of dual reporting requirements where the product-specific regime applies to different incidents, particularly where the industry-specific regulations are narrower than the mandatory reporting requirements of the Australian Consumer Law. For example, under section 29A(2)(b) of the Therapeutic Goods Act 1989, health providers are obliged to provide information that indicates that the use of the goods in accordance with the recommendations for their use (as opposed to use or foreseeable misuse under the Australian Consumer Law regime) may have an unintended harmful effect (as opposed to death, serious injury or illness).

Under the Australian Consumer Law, permanent product bans and mandatory safety standards will apply nationally. This is intended to ensure that product safety concerns that are identified in one state or territory can be addressed consistently on a national basis. Individual state and territory Ministers retain the ability to issue interim bans and conduct recalls.

Consumer protection: misrepresentations

In addition to moving and re-ordering the existing consumer protection provisions under Part V and VC of the TPA, the Australian Consumer Law adds a number of prohibitions against specific misrepresentations, drawn from existing state and territory laws. Notably, these include prohibitions against false or misleading representations:

That purport to be a testimonial.
Concern a requirement to pay for a contractual right that is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy. The latter may have significant implications for the marketing of 'extended warranty' products.

Unsolicited consumer agreements

The ACL No.2 Act expands the current provisions of the TPA that prohibit asserting rights to payment for unsolicited goods or services to regulate unsolicited sales approaches to consumers (such as door-to-door sales and telephone 'cold calls') and the formation of unsolicited consumer agreements. Such practices are currently regulated under state and territory laws. The laws impose obligations on suppliers about the way in which consumers are approached, disclosure obligations, and express consumer rights and termination obligations. The Consultation Draft of the ACL Regulations also proposes (amongst other things) exemptions for publishers, large corporations and in relation to emergency repair contracts (and flags potential exemptions for charities and energy suppliers). It also clarifies which agreements are not to be taken as unsolicited consumer agreements (including party plans, business contracts, renewals of contracts of the same kind (such as telecommunications, electricity and other essential services), and agreements reached after the consumer voluntarily re-contacts the supplier).

Lay-by sales

Fundamental principles regarding lay-by sales transactions have been included in the ACL No.2 Act, which will apply in addition to existing state and territory legislation. A 'lay-by agreement' is an agreement between a supplier and a consumer for the supply of goods by payment made in three or more installations. The ACL No.2 Act refers to five key requirements for lay-by agreements, including:

Lay-by agreements must be transparent and in writing.
The consumer has the right to terminate the lay-by agreement at any time prior to delivery of the goods.
The supplier may only terminate the lay-by agreement in certain circumstances and prior to receiving final payment.
Cancellation by either party entitles the consumer to a full refund of payment made.
Cancellation by the consumer may entitle the supplier to a cancellation charge for the business' reasonable costs.

These requirements largely draw on the provisions existing in state and territory laws.

Industry codes

The ACL No.2 Act will also amend the TPA to provide additional enforcement powers if contraventions of industry codes occur. The enhanced powers will enable the ACCC to issue public warning notices, conduct random audits and seek orders for non-party redress in proceedings for contraventions of an industry code.

The Australian Treasury seeks comment on the Consultation Draft of the ACL Regulations by 13 October 2010.

Click here for an article on the particular implications of the mandatory reporting regime for suppliers.

Overview of the Australian consumer law reforms: how will the law change from 1 January 2011? | Practical Law