Coalition Senators' Additional Comments
Introduction
Coalition senators welcome this new national consumer law
stemming, as it has, from the vision and action of the former Coalition
government to whom due acknowledgement should be accorded.
We strongly support the aims of the legislation to enhance
and harmonise consumer protection laws and protect consumers’ interests by
creating a more equitable legal framework.
Coalition senators support the broad principles-based
approach to the regulation of contract terms, and recognise that the bill seeks
a major shift in business mindset to transacting with consumers.
In making the following additional comments, we are mindful
of the extensive consultations that have delivered the national framework of
consumer law. We are also conscious that the Australian Consumer Law (ACL)
provisions draw heavily from the UK and Victorian approaches to unfair terms in
consumer contracts and that this bill draws likewise on the collective
experience of similar consumer protection measures in those jurisdictions.
Design of the Australian Consumer Law
Like the Unfair Terms in Consumer Contracts Regulations 1999
in the UK, Schedule 2 of the bill aims to regulate unfair terms rather
than unfair contracts. This is an important feature of the ACL.
United Kingdom legislation
The UK Regulations were initially instituted in 1994 in
response to an EU directive; they were repealed and replaced in 1999. The other
major legislation in the area in the UK is the Unfair Contract Terms Act
1977. Given the provenance of the laws it is not surprising that there is
some overlap between the two, although, the Act applies to business-to-business
contracts whereas the Regulations are confined to natural persons.
Core terms and grey list
Like in the proposed ACL, the core terms—the main subject
matter and price—of a UK standard contract do not come within the UK
Regulations. There is also a common “non-exhaustive, indicative” “grey list”
in the UK Regulations.
Matters to which a court must have regard
In relation to questions of “detriment” and whether a term
is “transparent” in the context of matters to which a court must have regard in
deciding whether a term is unfair, Coalition senators are attracted to the
arguments of the Consumer Action Law Centre and Professor Frank Zumbo that the
“transparent” element is superfluous in this clause and should be removed.
We note that the concept of detriment to the consumer is
also relevant in the UK Regulations.
Coalition senators recognise that difficulty and unease
these concepts have caused from the evidence of a number of witnesses. We are
however satisfied, based on the UK and Victorian experience and Treasury and
other evidence, that these elements, in their context of “matters to which a
court must have regard,” are not impassable.
Coalition senators note with satisfaction that the
experience in the UK is that the key role in enforcement of the UK Regulations
has been with the regulator and not the courts.
Presumptions
Coalition senators have considered the two key presumptions
in the ACL: that a contract is a standard form contract where alleged by a
party, with the burden on the other party to rebut that presumption; and that a
term is not reasonably necessary to protect the legitimate interests of the
party who would be advantaged by the term, with the burden on the party
advantaged to prove otherwise.
We recognise the policy reasoning behind these
presumptions.
Consumer definition
Insofar as the design of the ACL is concerned, coalition
senators are attracted to the argument of the Trade Practices Committee of the
Law Council of Australia in relation to the definition of “consumer contracts”
in the ACL.
The Law Council gave evidence that consumer contracts
“should be defined using the existing [consumer] definition in section 4B of
the Trade Practices Act 1974 (TPA). This will enable the regime to provide
protection to small businesses, where those businesses are purchasing goods and
services under standard form “consumer type” contracts, while preserving
consistency and certainty for the overall business community.”
The Law Council also reasoned that, contrary to the
definition of consumer contract in the ACL which has the element of
subjectivity about the intent of the consumer entering into a contract, which
the suppler or seller cannot know, the TPA definition on the other hand “has
been around a long time, businesses are used to it and it will then be
consistent.”
Furthermore, coalition senators argue that the definition of
consumer contracts under section 4B of should be amended to include all
contracts up to an amount of $1million, an increase from the current limit of
$40,000.
Coalition senators are also alert to the potential for
further harmonisation that the Law Council’s suggestion presents, by paving the
way for a unified regime applying to unfair contract terms in business -to-
consumer and business-to-business transactions.
Business-to-business contracts
The proposed definition of “consumer contract” in the ACL,
however, contemplates a transaction of supplying or selling to an individual
and does not have application beyond the sole trader business activity.
Coalition senators have noted the Minister’s stated
intention that regulation in the business-to-business sphere should await the
outcome of reviews into the Franchising Code of Conduct and the Unconscionable
Conduct Provisions of the TPA.
Under the current regime for business-to-business, the
threshold test applicable under both sections 51AB and 51AC delivers a clear
nexus to the ability to deliver a fair outcome, however, the statement of
offending "the conscience" is nebulous and could be one of the
reasons for the inability to pursue a case. This threshold test should be
amended to a more definitive term. The malady which must be addressed is the
clear and apparent utilisation of bargaining power to exert onerous terms that
would not be accepted or considered if bargaining power was comparable.
Coalition senators are divided on the question of the
application of the ACL to business-to-business contracts, whether they should
be covered by this bill without delay, or pending the outcome of the reviews
above, or not at all.
Senator Eggleston observes that Western Australia voiced its
opposition to the Minister’s decision to remove business-to-business contracts
without consulting with the states which would appear to suggest that the
government may not have engaged in adequate consultation with the states
through the COAG process.
Business’ concerns
Coalition senators have considered the concerns of business
in relation to uncertainty and compliance costs and the short time frame
remaining until the proposed start date of this legislation.
We are of the opinion that costs to business in moving to
the new regime will be balanced by the gains from harmonisation of consumer
laws to a single national regime.
Safe harbours
Coalition senators are divided on the merits of introducing
arrangements into the ACL for safe harbours for business as a means to get the
security of regulator sign-off on a contract term.
There is the view that safe harbours will give business the
certainty that they are seeking.
On the other hand, there is support for the view expressed
by the Consumer Action Law Centre that, because a court must consider the whole
contract in deciding whether a term is unfair, it would not be sound for a
regulator to give business a safe harbour in relation to a particular term.
Coalition senators recognise the principles-based approach
of the consumer law aims to encourage compliance. We note with satisfaction
the suggestion that the decision by banks to withdraw penalty fees on retail
accounts may have been an anticipatory response to the ACL’s focus on unfair
contract terms.
An alternative course would be for the regulator to assist
business sectors to develop industry specific standard form contracts. One
witness to the inquiry observed that new standards had been the outcome in the
Victorian experience of unfair terms legislation in telecommunications
contracts.
In our view, no contract should contain terms that go beyond
the legitimate business interest of the parties if there is a clear and
apparent difference in bargaining strength as noted by size or financial
strength.
Insurance
Coalition senators are divided on the question whether the
ACL should cover unfair terms in insurance contracts.
We note that a number of consumer groups who gave evidence
to the inquiry were surprised and disappointed to discover from the bill’s EM
that insurance contracts would be effectively excluded by section 15 in the
Insurance Contracts Act 1984.
The Insurance Council of Australia argued in evidence to the
committee that insurance contracts are separately regulated. However, consumer
groups expressed despair with the present situation, in relation to both the
frequency of consumer disputes in the insurance area and the difficulties
consumer advocates encounter in disputing decisions that insurers make on claims.
They argued that the absence of access to a suitable low-cost tribunal or
dispute resolution service with jurisdiction to hear insureds’ claims is a
significant hurdle.
In that regard, coalition senators are reminded of the
stated intent of the consumer legislation:
The new policy framework will improve consumer law
enforcement powers, reduce compliance costs for business and increase access to
information regarding dispute resolution and consumer issues.
The benefit to consumers in the ACL missing from the ICA is
the capacity for the regulators to review a term across a class of consumers.
Although divided on the issue of whether the ACL should be
the means to address unfair contract terms in insurance, or whether the ICA
should be reviewed to deliver the same result, coalition senators are agreed
that unfair terms in insurance contracts exist and the problem should be
addressed in the public interest.
It is apparent from the evidence of Minter Ellison to the
committee that the issue of the ACL and insurance contracts will remain alive
where there is the possibility that insurance contracts may be caught by the
ACL in any case.
Coalition senators note with interest the recent media
reports that Australia Post and Coles plan to enter the general insurance
market. It is open to conclude that with two new potentially mass market
entrants at this time, the insurance sector industry should be reviewed for
some additional protection of consumer interests.
Financial services
Coalition senators are divided on the application of the ACL
to financial services contracts as provided for in Schedule 3 of the bill.
The financial services industry presented cogent arguments
to the inquiry that the AFS licensing regime under which they are regulated is
more than adequate protection for the interests of the consumer.
There is also the view held among coalition senators that
the consumer law framework which includes financial products and services which
the committee has before it in this bill, is the considered view of extensive
consultation, including sign-off by the states.
Enforcement
The bill contains amendments to the TPA to give enhanced
powers to the regulator to compel businesses to provide information and to
penalise businesses for unconscionable conduct and other breaches. There are
sound public policy reasons for strengthening the capacity of the regulators to
investigate possible breaches of the ACL and the TPA and to deal with
contraventions expeditiously.
The proposed capacity for the regulators to issue public
warning notices relating to consumer protection in certain circumstances is a
powerful message to business in a language business understands. The incentive
to business to manage this reputation risk will be a potent legislative driver
to usher in a new era of consumer best practice.
With reference to the example on bank fees earlier, we
reiterate that the community may already be reaping the rewards of that
consumer fairness focus.
Conclusion
Coalition senators recognise that this bill represents the
first phase of reforms to the consumer regime and that the measures represent
in large part a catch up with consumer regimes that have existed in the EU for
more than a decade.
We acknowledge the evidence and the disappointment from some
presenters and submitters to this inquiry that the bill does not go far enough
– particular mention is made of the cases put to us for the ACL to apply to
business-to-business, insurance and body corporate unfair contract terms.
Coalition senators record their view that concerns relating to these areas
should be reviewed with a view to addressing these concerns in an appropriate
manner.
Coalition senators record our broad support for the bill.
Senator Alan Eggleston
Deputy Chair
Senator Barnaby Joyce
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