A single, national consumer law has been passed by parliament to provide stronger protection to Australian consumers. The Trade Practices Amendment (Australian Consumer Law) Act 2010 (ACL ACT) will replace 17 Commonwealth, state and territory laws and address unfair contract terms in consumer contracts, enhance powers of the ACCC and ASIC and introduce stronger penalties for misconduct.

Business should review all standard form contracts to determine whether they might be 'consumer contracts' and whether any terms of those contracts may be viewed as 'unfair' under the new unfair terms regime.  

Equivalent changes have been passed for financial services under the same ACL Act by way of amendments to the Australian Securities and Investments Commission Act 2001 (ASIC Act). 

The Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010 (ACL Bill) has also been introduced into parliament to provide a range of measures, including a new product safety regime and a new statutory consumer guarantees regime. The reforms will also see the title of the Trade Practices Act 1974 (TPA) changed to the Competition and Consumer Act.

Unfair contract terms
The new unfair terms regime will commence on a day to be fixed by proclamation, which cannot be before 1 July 2010.

From that commencement date, a term in a consumer contract will be void where:

• the term is unfair, and
• the contract is a standard form contract.

Under the ASIC Act amendments, such a term will be void where the standard form consumer contract is for:

• a financial product, or
• for supply (or possible supply) of financial services.

Consumer Contracts
Consumer contracts are contracts for the supply of goods or services, or a sale or grant of an interest in land to an individual (ie a natural person) whose acquisition of the goods or services or interest is wholly or predominantly for personal, domestic or household use or consumption.

To determine whether a particular contract is a consumer contract, the courts will be concerned with the acquirer's subjective purpose for the acquisition. That is, the test looks to the individual's subjective intention, not the nature of the good or service or the purpose for which it is ordinarily used. This is a different test to that which defines a 'consumer contract' in the context of the existing implied terms regime under the TPA. 

Standard Form Contracts
All contracts will be presumed to be standard form contracts unless otherwise established.  In determining whether the presumption is rebutted in a particular case, the courts will consider:

• the bargaining power of the parties
• whether the contract was prepared by one party before any discussion relating to the transaction occurred
• whether another party is required to either accept or reject the terms of the contract in the form in which they were presented
• whether another party was given an effective opportunity to negotiate the terms of the contract, or
• whether the terms of the contract take into account the specific characteristics of another party or the particular transaction.

What is 'unfair'?
A term will be unfair if it:

• causes a significant imbalance in the parties' rights and obligations,
• is not reasonably necessary to protect the legitimate interests of the party who would be advantaged, and
• causes detriment (financial or non-financial). 

To determine whether a term is unfair, the courts need to take into account:

• the transparency of the term (that is, whether or not it is expressed in reasonably plain language, legible, clear and readily available to any party affected by it), and
• the contract as a whole. 

An unfair term may include terms that permit one party (but not the other) to:

• avoid or limit performance of the contract
• terminate the contract
• vary the terms of the contract
• renew or not renew the contract
• unilaterally vary the characteristics of goods or services to be supplied, or the interest in the land to be sold or granted, under the contract, or
• unilaterally determine whether the contract has been breached or to interpret its meaning. 

Terms which penalise one party for breach or termination or limit one party's rights (eg rights to sue or rights to adduce evidence) may also be unfair.

What happens if a term is unfair?
A term in a consumer contract which is unfair will be void.  However, the relevant contract will continue, if it is capable of operating without the unfair term. The regulator or any other party (including, for example, affected consumers) may apply to the court to have a term declared an unfair term. 

The court may make remedial orders (e.g. injunctive relief, damages, etc) where a party seeks to apply or rely on a declared unfair term.

When do the provisions apply?
The unfair contract term provisions of the Australian Consumer Law apply to new consumer contracts entered into on or after commencement (ie not before 1 July 2010). The provisions do not apply to contracts entered into before the date on which the provisions commence, unless the contract is renewed or varied, in which case the unfair contract term provisions will apply to those terms as renewed or varied. 

Exceptions
The unfair contract term provisions will not apply to certain shipping contracts; the constitution of a company, managed investment scheme or other kind of body; terms that define the main subject matter of the contract; terms that set the upfront price payable under the contract; or terms that are required or expressly permitted by a law of the Commonwealth, state or territory.

Financial services
Many concerns raised during the consultation process of the application of the unfair terms regime to financial products and services have not been addressed in the ACL Act. The managed investment scheme exemption remains potentially defective and has not been extended to, for example, superannuation. 

The Government has released an Options Paper: 'Unfair terms in insurance contracts' which deals with the application of an unfair terms regime to insurance contracts. Submissions are due by 30 April 2010 and the Options Paper can be accessed here.  

The Options Paper:

• seeks information about the extent to which unfair terms in insurance contracts are causing consumers actual or potential harm
• considers the effectiveness of the duty of utmost good faith and notes proposals to amend the Insurance Contracts Act to give ASIC the power to take action on behalf of consumers in relation to this obligation, and
• considers the alternatives of not making any amendments, applying the new unfair terms regime to insurance either under the ASIC Act or by amending the Insurance Contracts Act, modifying the duty of utmost good faith by reversing the onus of proof for consumers and self-regulation.

What to do?
Business should review all standard form contracts to determine whether they might be 'consumer contracts' and whether any terms of those contracts may be viewed as 'unfair' under the new unfair terms regime.  

Guidelines on unfair terms in consumer contracts in the context of the Victorian regime published by Consumer Affairs Victoria provide guidance relating to unfair terms, including examples of unfair terms. Businesses should also look to the specific guidelines being developed by the ACCC and ASIC in connection with the introduction of the regime. These should be released shortly.

New civil pecuniary penalties
The ACL Act introduces new civil pecuniary penalties for particular consumer protection provisions of the TPA.  These include the unconscionable conduct provisions, the consumer protection provisions relating to unfair practices (excluding for section 52), pyramid selling, product safety and product information provisions and failure to respond to substantiation notices or providing false or misleading information in response to a substantiation notice.

The penalty for contravention of these provisions can be up to $1.1 million for bodies corporate and up to $220,000 for persons other than bodies corporate.

Increased powers for the ACCC and ASIC

The ACCC and ASIC will have under the ACL greater enforcement and consumer redress options available.  For example, the ACCC and ASIC will have powers to:

• seek an order disqualifying a person from managing a corporation as a consequence of any breach of specified consumer protection and unconscionable conduct provisions
• issue substantiation notices to seek information relevant to the substantiation of claims or representations, or in relation to the ability of a person to supply goods and services.  The notices can require persons to do certain things including producing and providing information or documents to the ACCC or ASIC
• seek orders for the benefit of persons that are not parties to proceedings
• issue infringement notices containing financial penalties (between $3,300-$6,600 for bodies corporate and $660-$1,320 for persons other than bodies corporate) for suspected contraventions of the civil pecuniary penalty provisions of the TPA and the ASIC Act, as an alternative to proceedings.  Infringement notices may be issued where the ACCC or ASIC have reasonable grounds to believe the person has contravened an infringement notice provision, and
• issue public warning notices relating to consumer protection.

Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010
The measures contained in the ACL Bill are intended to complete the initial tranche of the ACL, as introduced by the ACL Act, through:

• establishing a national scheme for consumer product safety, which will replace the existing Commonwealth, state and territory regulatory schemes
• establishing a national scheme for statutory consumer guarantees, which will replace the existing Commonwealth and state and territory laws governing implied conditions and warranties in consumer transactions
• moving the fair trading and consumer protection provisions of the TPA and the ASIC Act into the ACL (including the new unfair contract terms regime) as well augmenting those provisions with best practice provisions drawn from existing provisions of the consumer laws of the states and territories
• amending the consumer protection provisions of the ASIC Act and Corporations Act, where relevant, to maintain consistency with the ACL, and
• introducing a range of other miscellaneous amendments relating to the administration and enforcement of the ACL.

The ACL Bill 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.