Overview of the Australian Consumer Law reforms - how will the law change from 1 January 2011?

4 November 2010

Since the passage of the Trade Practices Amendment (Australian Consumer Law) Act (No.2) 2010 (ACL No. 2 Act) in June, business has been on notice that the current Trade Practices Act landscape for regulating consumer protection and unfair business practices will be overhauled from 1 January 2011, under the Australian Consumer Law. Now, with Treasury's release of a Consultation Draft of the Competition and Consumer (Australian Consumer Law) Amendment Regulations 2010 (ACL Regulations) on 24 September 2010, businesses and their advisors have a more complete picture of the obligations that will apply. A copy of the Draft Regulations is available here.

This article provides an overview of where business' obligations will change from 1 January 2011, and where they will remain substantially the same.

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 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 Commonwealth, state and territory regulatory schemes
  • move and reorder the fair trading and consumer protection provisions of the Trade Practices Act 1974 (TPA) into the Australian Consumer Law, and
  • expand the consumer protection provisions to incorporate ‘best practice’ provisions of existing 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 Commonwealth 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 businesses 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, viz:

  • goods or services of any kind valued at less than AUD40,000
  • goods or services valued in excess of AUD40,000, but that are of a kind ordinarily acquired for person, domestic or household use or consumption, or
  • 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, that spare parts and facilities for repair are reasonably available for a reasonable period (manufacturers only), and that a supplier or manufacturer will comply with any express warranty they have offered.

The consumer guarantees in relation to services include: due care and skill, fitness for disclosed purpose (with an exception for professional services provided by architects and engineers) and that services will be supplied within a reasonable time. The consumer guarantees are similar, although not identical, to those prevailing under the TPA implied warranty regime. New guarantees include in relation to acceptable quality (which expands upon the current implied warranty of ‘merchantable quality’), that a supplier or manufacturer will comply with any express warranty they have offered on goods and, perhaps of greatest practical import, that services will be supplied within a reasonable time.

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

  • that 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: to replacement or repair of the goods, or payment of the cost of replacing or repairing the goods, and
    • in the case of services: to resupply of the services, or payment of the cost of having the services resupplied.
  • 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, or
    • 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. The Consultation Draft of the ACL Regulations prescribes requirements relating to document clarity, the warrantor's contact details, the term of the warranty, claiming procedures, 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 rights under the consumer guarantees, and
  • 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) and repairers who intend to provide refurbished goods to a consumer.

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, or
  • 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 (see our article 'The new Australian Consumer Law–the end for extended warranties?' here).

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).

How will the higher education sector be affected?

As many activities of higher education institutions are governed by the TPA, it is important that board members and staff are up to date with the recent changes. The most relevant developments in the ACL No. 2 Act for the higher education sector are:

  • the overhaul of the consumer guarantees regime, as in most cases students will be 'consumers' under the TPA. Accordingly, where the institution is a 'supplier', the goods and services provided will be accompanied with the relevant guarantees, and
  • the new prohibition against specific misrepresentations that purport to be a testimonial (for example, in relation to the quality of a course or facilities).

Given the extensive changes to the TPA since 1 July 2010 (with the introduction of the ACL No.1 Act, including the Commonwealth unfair terms regime) and the upcoming changes on 1 January 2011, we strongly recommend that the higher education sector review and update their TPA compliance systems and procedures to ensure it reflects the current law.

This article is from our November 2010 edition of Higher Education Focus.

Author(s) Jacqui Mortensen, Joanna Green