Additional comments by Coalition senators
Introduction
While the Coalition broadly supports the Trade Practices
Amendment (Australian Consumer Law) Bill (No. 2) 2010, there are a number of
areas of particular concern to the Coalition, which are outlined below.
Definition of consumer and consumer good
The definition of consumer within section 3 of the Trade
Practices Act (Australian Consumer Law) Bill (No. 2) 2010, as well as the
definition of consumer goods were controversial issues across many submissions.
Of initial concern is that there is no class of consumer
that deals with small business. This is of grave concern, particularly given
that small business is the largest employer of people in Australia.
There has previously been a small business application for
the definition of consumer, as discussed in the hearings:
Traditionally, there has been that small business application
for the definition of ‘consumer’ in existing section 4B for goods purchased
under a particular value, regardless of their nature. That has now been
excluded.[1]
There is also concern about the fact that some consumers
would make small purchases that would not fit within the definition currently
proposed. This was brought up in both submissions and evidence before the
committee.
This is particularly concerning in relation to persons with
special needs which may require them to purchase specialised goods and services
that are not ordinarily acquired for personal, household or domestic use.
Although such persons would not be protected under the Bill, they are arguably
among the most vulnerable groups in society, required to spend relatively
substantial sums on products that meet their unique needs and are thereby most
in need of protection. For example, a mobility impaired person may require a
lift to be installed in their two storey home in order to provide access to the
upper storey. The person would likely not be protected by the proposed consumer
guarantees under the Bill if the lift is not held to be a good ordinarily
acquired for personal, domestic or household use since it would ordinarily only
be installed in commercial buildings. Similarly, a person unable to write or
type may require voice recognition software to be installed on their home
computer in order to study or access the internet without assistance. If the
software was developed for business use and is rarely used by individuals, the
purchaser may be left without remedy if the software is defective.[2]
Further, it would be possible for unscrupulous businesses to
take advantage of this lacuna in the Bill by targeting vulnerable groups with
products developed for uses other than personal, domestic or household use. For
example, if a company were to doorknock sufferers of a particular condition
with equipment ordinarily supplied to hospitals, individuals who purchased the
products would not have the benefit of a termination period under the proposed
unsolicited consumer agreements regime because the products would fall outside
the regime since they are not ordinarily acquired for personal, household or
domestic use.[3]
By removing the financial threshold there is the possibility
that someone may purchase an item which would not ordinarily be acquired for
personal, domestic or household use. Perhaps an example could be someone suffering
from emphysema who has to get oxygen cylinders of some sort, or for medical
equipment that may be supplied normally through the hospital system which would
not ordinarily be acquired for personal, domestic or household use.[4]
It was argued by Treasury that the amendment merely removed
the arbitrary monetary threshold of $40,000 which applied with respect to all
goods.[5]
Given the number of examples given over the course of this inquiry, it is
extraordinary that Treasury decided to take the approach of a case-by-case
basis.
We could go through many examples and attempt to split hairs.
The provision is drafted in general terms so that cases can be dealt with on a
case-by-case basis and the actual situation can be dealt with. I cannot say
whether a particular kind of cement mixer might or might not be a good
ordinarily of a kind et cetera, but the provision is designed to deal with
consumer purchases of those sorts of goods.[6]
The main concern of the Coalition is that small business has
not been accounted for within the definition of consumer.
Recommendation 1:
The Coalition recommends that the definition of consumer should
allow for a class of consumers that would encompass small businesses
Similarly, the Coalition has concerns about the definition
of consumer goods, as some goods purchased by small business would fit within
the definitions of consumer goods and others would not under the current
definitions in section 3 of the bill. Consequently, the Coalition believes that
a consumer good could be defined as follows and makes a recommendation on this
basis.
Recommendation 2:
The Coalition recommends that the definition of a consumer good should
be as such:
consumer goods are goods where:
(a) The goods are of a kind
ordinarily acquired for personal, domestic or household use; or
(b) The goods consisted of a
vehicle or trailer acquired principally in the transport of goods on public
roads; or
(c) The price of the goods did not
exceed the prescribed amount.
This would include the new definitions and allow the status
quo to continue applying to goods under $40,000 (including for business).
Consumer guarantees
The Coalition support Recommendation 2 at paragraph 4.16 in
the Chair's report. The requirement for plain English would ensure that
consumers are better informed about the issues associated with extended
warranties. A number of submissions pointed out that there was confusion over
what rights consumers had under statutory warranties and what they pay for with
additional manufacturers’ warranties or extended warranty schemes.[7]
An additional concern was that consumers did not have enough
information to make an informed decision, hence the Coalition's support for
Recommendation 3 at paragraph 4.19. It was noted that the change in drafting
would be ineffectual without an appropriate information campaign
...warranties continue to raise serious problems. For many consumers,
paying for an extended warranty on a large purchase seems to make good sense
because it offers peace of mind but in many cases that sense of security is an
illusion. It is based on a danger that does not exist because the statutory
implied warranties offer as good or better protection. Nevertheless, under the
old system of contract based remedies, consumers may have seen some value in
paying to avoid the hassle of trying to enforce these warranties. With the move
to consumer guarantees, Choice calls on the Senate to ensure that consumers
receive adequate information about their rights before entering into extended
warranties. This should be done through a compulsory disclosure at the time the
extended warranty is offered so that consumers can judge for themselves whether
the warranty offers any additional protection and, if so, whether it is worth the
price.[8]
It is important to note that there was general support for
the reforms proposed under Part 3-2 of the Bill.[9]
The Coalition supports the increase in education for consumers, particularly
given the New Zealand model discussed by a number of submissions and witnesses.[10]
The Coalition supports Recommendation 4, as it is important
for all parties to a transaction to have a consistent understanding of their
rights and responsibilities under the new Bill.
On a similar note, the Coalition supports Recommendation 5.
Architects and Engineers exemption
from ‘fitness for purpose’ guarantee
There was some concern about the exemption of architects and
engineers from the ‘fitness for purpose’ guarantee.
This amendment was made in 1986 to section 74(2) and reads
as follows:
Where a corporation supplies services (other than services of
a professional nature provided by a qualified architect or engineer) to a consumer
in the course of a business and the consumer, expressly or by implication,
makes known to the corporation any particular purpose for which the services
are required or the result that he or she desires the services to achieve,
there is an implied warranty that the services supplied under the contract for
the supply of the services and any materials supplied in connexion with those services
will be reasonably fit for that purpose or are of such a nature and quality
that they might reasonably be expected to achieve that result, except where the
circumstances show that the consumer does not rely, or that it is unreasonable
for him or her to rely, on the corporation's skill or judgment.[11]
Senator Janine Haines of the Australian Democrats gave a
particular reason
The issue with regard to architects and engineers is we
believe that they fall into a special category as far as their relationship to
their client is concerned; that is that, while they come up with designs,
specifications and so on in accordance with whatever a particular client
wishes, in the implementation of those specifications, designs, contracts and
so on a fairly significant third party intervenes.[12]
The main concern was the application of the ‘fitness for
purpose’ guarantee. Consult Australia put forth an example of how this could
result in unscrupulous conduct by consumers.
...the really big difference here is that most consumers of
engineering and architectural services do not have the skill-set required to
understand fully what they are signing off on. Once again I give the example of
the family home. The drawings that you get from the engineer or architect can
be explained to you. However, your brief could have been, ‘I want a room to be
light and airy,’ for example, and the engineer says, ‘Once you take into
account your council considerations and your total floor space and your budget
in terms of how big this house can be, we have given you this room that is
three by four with this many windows’ or whatever might be the case. In the
engineer’s or architect’s mind that might equate to ‘light and airy’ for that
room. However, your definition of light and airy and my definition of light and
airy may be two completely different things. This is where the ambiguity
arises.[13]
Similarly, the Australian Institute of Architects expressed
concern about the removal of the exemption as well.
The Institute strongly objects to the inclusion of architects
and engineers as service suppliers subject to the proposed statutory guarantee
to consumers of fitness for purpose. The statutory guarantee would then apply
to consumers who engage an architect for their house, but not to those who will
on-sell their home as a developer.[14]
There is no evidence that an additional head of liability is
necessary or that it addresses a systemic failure in the recourse consumers
presently have for loss attributed to architects, through negligence,
misleading and deceptive conduct under s.52 or s.51A of the TPA, and/or contractual
claims.[15]
No substantiated reasons appear to have been advanced for the
removal by s.61 of the Australian Consumer Law Bill No. 2, of the exemption
contained in the existing equivalent Trade Practices Act (TPA) section 74(2).[16]
Concerns were raised by Coalition Senators as to the
possibility of game playing by clients who might seek to avoid final
repayments.
It is incredibly common. As I said, the litigiousness in our
market is incredibly common, unfortunately. Clients will often seek to avoid
making final payments of professional fees by deeming something to be
unacceptable in the end product, and rather than holding up just the fees for
the particular party involved they will hold up all fees. Particularly this is
the case when an engineer or architect also works as a project manager on site
for a home. They will hold up the final architectural or engineering payments
because the cornices on a particular room have not been finished to their
liking or a tile is cracked in the bathroom and has not been replaced or
whatnot. These are, once again, faults of tradespeople. It is not something
that is within the jurisdiction or ambit of the engineer or architect.[17]
It is the position of the Coalition that the exemption for
architects and engineers should remain, as their role as designers rather than
suppliers puts them in a unique position. Despite the comments in the Chair's
Report in paragraphs 4.87 and 4.88, the Coalition Senators believe that given
the litigious nature of the Australian market, there is justification for
maintaining this exemption.
Recommendation 3:
The Coalition recommends that the exemption at section 74(2) of
the current Trade Practices Act 1974 be included in the Trade Practices Act
(Australian Consumer Law) Bill (No. 2) 2010.
Unsolicited Selling
The Coalition believes that there should be more strict
definitions for “unsolicited consumer agreements” to allow for the
circumstances listed in Recommendation 6.
Likewise, Recommendation 7 is supported by the Coalition.
This is an area that requires further work and consultation.
Product Safety Reporting
Firstly, the Coalition supports Recommendation 8 at
paragraph 6.30, as it is important that all the relevant provisions relating to
product safety are reviewed to ensure that there is no unnecessary red tape, an
appropriate level of confidentiality and any amendments to definitions.
Broadness of reporting requirements
There was considerable debate about the form that any
reporting should take. One method of reporting is product hazard reporting
(also known as risk reporting), rather than the incident reporting system that
is currently in place.
The test for association between a product and an injury is
not defined and has not been tested in law. The ATA would prefer the more usual
test of causation, i.e. a product may be associated with an injury but not the
cause of it, e.g. a consumer has a heart attack while riding a bike. Suppliers
should only be required to report goods where it has been established that the
injury was caused by the good. There is sufficient case law surrounding
causation to provide a clear understanding as to whether an injury was caused
by the good.[18]
Hasbro submits the focus of any reporting regime should be products,
not incidents; specifically the focus should be on defects in products
which present risks of serious injury or death.
The proposed "association" test in Part 3-3,
Division 5 would significantly increase the enforcement burden of government to
review a large number of incident-based notifications, of which Hasbro
considers a significant proportion will not relate to genuine health and safety
concerns arising from issues with the product. As Hasbro indicated in its Draft
RIS submission, each year thousands of bicyclists in Australia are treated in
hospital emergency rooms for injuries sustained in cycling accidents.2 Yet, to enhance the safety of bicycles, the
focus should be on those accidents where there is evidence of a product defect
(e.g. faulty brakes or sub-standard design or construction), rather than
accidents caused by a myriad of other factors. Incident-based notifications
would not meaningfully advance efforts to identify products that present an
unreasonable risk and could divert both the supplier’s and government’s
attention and resources away from those issues that merit serious
consideration.[19]
This was reflected in some of the testimony from Hasbro.
Where we are coming from is we wholeheartedly agree with the
objectives of the mandatory reporting requirement, which is to have earlier
access to information about product risks and to get that information from the
place where government has said it can be most reliably obtained, which is from
business, from the suppliers. However, under the current proposal, which is a
proposal that all incidents, all accidents, be reported, the focus of the
information which is being sought is the accident; it is not the risk with the
product. The concern we see is that there is some valuable information which
will be reported and that is the information about the product risk but there
is an enormous amount of extra information which is going to be reported for
these reasons. Firstly, there will be reports about known risks. Products have
risks. We have just heard from the motor vehicles people and we know that there
are going to be accidents associated with motor vehicles, but unless the report
relates to a defect with the product, it is not of assistance, and unless it is
a new defect, it is not of assistance.[20]
The Coalition believes that product hazard reporting is the
best method to take. This means that the incidents are reported quickly and
efficiently, without excessive amounts of red tape.
Recommendation 4a:
The Coalition recommends the following as the text for Section
131:
1. If:
(a)
a person (the supplier), in trade or commerce, supplies consumer
goods; and
(b)
the supplier becomes aware of information which reasonably
supports the conclusion that those consumer goods:
(i) fail to comply with an applicable safety
standard, information standard, interim ban or permanent ban;
(ii) contain a defect which could create a
substantial product hazard; or
(iii) create an unreasonable risk of death or
serious injury or illness to any person,
the supplier
must, within 2 days of becoming aware of that information, give the
Commonwealth Minister a written notice that complies with subsection (4).
Note: A pecuniary penalty may be imposed for a
contravention of this subsection.
2.
Subsection (1) does not apply if the supplier has actual
knowledge that the Commonwealth Minister has been adequately informed of such:
(a)
failure to comply with an applicable safety standard, information
standard, interim ban or permanent ban;
(b) defect which could create a substantial product hazard; or
(c)
unreasonable risk of death or serious injury or illness to any
person.
3.
Without limiting subsection (1), the ways in which the supplier
may become aware of information as mentioned in subsection (1)(b) include
receiving the information from any of the following:
(a) a consumer;
(b)
a person who re-supplies the
consumer goods;
(c) a
repairer or insurer of the goods;
(d) an
industry organisation or consumer organisation.
4.
The notice must:
(a)
identify the consumer goods; and
(b) include
information about the following matters to the extent that it is known by the
supplier at the time the notice is given:
(i) when, and in what quantities, the consumer
goods were manufactured in Australia, supplied in Australia, imported into
Australia or exported from Australia;
(ii) the nature of any failure to comply with an
applicable safety standard, information standard, interim ban or permanent ban;
(iii) the nature of any defect which could create
a substantial product hazard;
(iv) the nature of any unreasonable risk of death
or serious injury or illness to any person;
(v) if the substantial product hazard may have
caused any death or serious injury or illness, the circumstances in which that
death or serious injury or illness
occurred, and, in the case of a serious injury or illness, the nature of that
serious injury or illness;
(vi) any action that the supplier has taken, or
is intending to take, in relation to the consumer goods.
5.
The giving of the notice under subsection (1):
(a) is not to be taken for any purpose to be an admission
by the supplier of any liability in relation to:
(i) the consumer goods; or
(ii) the death or serious injury or illness of
any person; and
(b) may not be
used as the basis for any criminal prosecution.
Recommendation 4b:
The Coalition recommends the following be inserted into
section 3
serious injury or illness means an acute physical injury
or illness that requires medical or surgical treatment by, or under the
supervision of, a medical practitioner or a nurse (whether or not in a
hospital, clinic or similar place), but does not include:
(a) an
ailment, disorder, defect or morbid condition (whether of sudden onset or
gradual development); or
(b) the
recurrence, or aggravation, of such an ailment, disorder, defect or morbid condition.
substantial product hazard means a
product defect which (because of the pattern of defect, the number of defective
products distributed in trade or commerce, the severity of the risk, or
otherwise) creates a substantial risk of injury to the public.
An additional issue was raised about the privacy associated
with the reports being sent to the Minister. There was concern in a number of
submissions about the confidentiality of the report:
The 2006 Productivity Commission Report acknowledged the need
to guarantee that reported information would be kept confidential, at least
until further investigation concluded that the product did in fact pose an
unacceptable safety risk. The Bill makes no provision for this and in fact the
Bill does not deal at all with the disclosure or use of information provided to
government through the mandatory reporting requirement.[21]
Hasbro recognises that governments should be able to make use
of information received in order to protect consumers from unsafe products,
particularly where there is an immediate risk of harm. However much of the
reported information would be confidential business information and, because
reporting is to be required in such a short time frame, much would be
unverified. Information released about unverified incidents may be misinterpreted
by the public or the media, may give rise to false alarms and may cause serious
reputational damage to businesses, even if it is later determined that the
product was not at fault. These are not justifiable consequences of the reform.[22]
This is a valid concern, as the information received in
those reports could include proprietary information and create unnecessary
media problems for the company concerned. There is also the risk that the
competitor products of any consumer good that is reported could receive
negative publicity as well.
Recommendation 4c:
The Coalition recommends the insertion of the following
subsections within Section 131:
- (6) The Minister must keep notices given under Subsection (1),
and any communications with suppliers relating to the information contained in
such notices, confidential and must not disclose any information contained in
such notices to any person other than:
- (a) another responsible Minister
- (b) a regulator
- (7) A responsible Minister or regulator who receives information contained
in a notice given under subsection (1) must keep that information confidential
- (8) Subsections (6) and (7) do not apply in relation to the
disclosure of information if the supplier who gave that information to the
Minister consents to its disclosure.
Products already covered by
comprehensive reporting regulations
It was submitted by the Motor Trade Association of Australia
and the Federal Chamber of Automotive Industries that the duties created under
sections 131 and 132 would duplicate existing provisions within the Act.[23]
The argument was predicated on the justification that they already need to
report under numerous state and territory regulations. They proposed that a
specific industry-specific amendment should be included in the wording of section
131(2) (c) as an accident and its cause needs to be reported under the relevant
state and territory regulations.
The Coalition suggests that an amendment could be made to
section 131(2) to allow for the Minister to determine that a specific industry
could be made exempt of the duties under sections 131 and 132, provided that
those specific industries already have substantial reporting requirements.
Recommendation 5:
The Coalition recommends
- The insertion of a subsection within Section 131(2):
- If the supplier is in a kind of industry that has been exempted
by the Minister
- In determining the kind of industry to be exempted, the Minister
must give regard to any currently existing Federal and State reporting
framework and regulations
Goods supplied ‘of a particular
kind”
There was concern about the requirement to report on goods
supplied ‘of a particular kind'. There is potential for an unintended
consequence, where goods of a particular kind could include goods sold by
competitors. It was put forward in submissions that
...the reporting requirement will not be a “self-reporting”
requirement, it would also be a requirement to report other suppliers’
products. This would have two undesirable consequences:
(a) The volume of
reports required to be made would increase enormously.[24]
Treasury argues that suppliers will not be required to
report on competitor products.
Senator BUSHBY—...So the interpretation, which some of the
submitters have suggested, which actually could apply or require competitors of
a similar good to report is not actually the case?
Mr Writer—That is not my reading of that provision.[25]
It is the Coalition's submission that if it is the intention
of the bill not to require the reporting of competitors' products, then the
bill needs to make this explicit.
Recommendation 6:
The Coalition recommends that a subsection of Section 131 be
included:
- If the supplier is not the supplier of those particular consumer
goods associated with death, serious injury or illness
Two day reporting deadline when
suppliers ‘become aware”
This is a provision that needs to be properly examined under
Recommendation 8 at paragraph 6.30.
Multiple reporting of incidents
There was general concern about the issue of multiple
reporting of incidents. The Coalition believes that this needs to be addressed
in a way that does not unnecessarily increase the amount of red tape already
experienced by businesses. It is important that this area receives further
investigation to ensure that the onus of reporting does not wind up falling
onto one point in the supply chain.
Recommendation 7:
The Coalition recommends that the Department and the Minister seek
further advice as to how to minimise the resource-heavy impact of multiple
reporting, with a view to reducing red tape.
Enforcement and dispute resolution
The reversal of the onus of proof was a major concern in
several submissions.
We believe that this can lead to significant accidental
non-compliance which will be costly and time consuming to rectify. We would
urge the government to slow down the process so that this legislation when it
is put into effect can work more effectively.[26]
...the bill provides that where an agreement is asserted to be
an unsolicited consumer agreement, it is presumed to be an unsolicited consumer
agreement unless proved otherwise. The committee does not consider this
reversal necessary as it should not be unduly difficult for the consumer to
establish that a particular agreement fulfils the elements of an unsolicited
consumer agreement. Even more concerning, the evidential burden regarding
testimonials has been reversed for criminal prosecutions. The committee does
not support the reversal of the evidentiary burden in relation to the proposed
subsection 151(2). Although the imposition of an evidentiary burden stops short
of an actual reversal of onus, the finding of a criminal contravention is a
very serious matter and should require all elements of the offence to be proved
against the accused.[27]
While evidence was given that there are some situations
where the reversal of the onus of proof is appropriate,[28]
it was accepted that when the consumer is prosecuting the matter, the consumer
is in the position of power by having the best evidence and recollection of the
circumstances.[29]
Lack of consultation and Drafting issues
A number of submissions highlighted the lack of consultation
compared to Trade Practices Amendment (Australian Consumer Law) Act (No. 1)
2010 (Cth), also known as ACL 1 Act.
As a preliminary matter we not that, in contrast with the ACL
1 Act, regardless of one’s views on the content of the current Bill, in our
view the provisions have not been subject to appropriate public consultation.[30]
Similarly, some submissions pointed out that the relevant
professional and industry bodies were not consulted.
We were also puzzled as to why there has been no consultation
on this proposal with the relevant professional and industry bodies, other than
through the review of implied terms by the Commonwealth Consumer Affairs
Advisory Council, which did not initially raise the issue of removal of the
exemption. There appears to be no market failure to justify taking such an
approach, and no evidence that it will improve consumer protection.[31]
DSAA makes the point that reference to regulating unsolicited
selling in material released as recently as November 2009 (the draft Regulation
Impact Statement) had not defined the impact of the proposals on business and
that the RIS process would have benefited enormously had business been able to
respond to what is now proposed in the unsolicited selling provisions. DSAA
submits it is grossly unfair that the implications of these proposals for
genuine direct selling activity must be examined and determined by 21 May 2010
and against the broader coverage of the ACL. This submission records our present
analysis but further issues are likely to emerge as its effect is considered by
members.[32]
This was reflected in the evidence given before the
committee in the four hearings held, where a number of witnesses told the
committee about the lack of consultation.
Our concern is that, in the original review paper in March
2009, no indication was made that this exemption was actually going to be
something that was looked at. So our understanding is that, of the 30-odd
submissions that were made at the time, other than the submission by Consult
Australia and the Institute of architects, none made any reference whatsoever
to that particular exemption. So there was no complaint against the exemption
from any other groups in the original submissions. Despite that, a decision had
been taken in the final report to remove the exemption. However, no further
consultation has happened with the parties that may have been affected by that
particular provision. And there are not that many of those parties in Australia.
There are only really four major bodies that represent engineers and architects
in Australia. So it would not have been a difficult task to consult with those
four bodies.[33]
One broader point about that is that because there has not
been an exposure draft consultation process with the bill there has been no
opportunity for Telstra or stakeholders like us to engage in the real details
of the provisions. That is a real shame, which means that you, as senators, are
going to have to grapple with all of those little details that you would not
normally want to.[34]
Under the COAG agreements there was meant to be April to June
exposure draft consultation process, and instead this bill was drafted and
introduced into the parliament in March. It probably would have taken three
months.[35]
In fairness to its members, the DSAA records its
disappointment at the lack of adequate consultation on the unsolicited selling
provisions. Its only opportunity to comment on this threat to the direct
selling industry has been a 10-day turnaround period for submissions on
generalised commentary on proposals in the draft regulation impact statement
last November and, within DSAA constraints, literally days to analyse almost
400 pages of proposed law and 700 pages of explanatory memorandum.[36]
MTAA is also disappointed with the level of consultation
undertaken by the government in relation to these changes. The government
appears to have adopted the report of the Commonwealth Consumer Affairs
Advisory Council without any discussion with business of the impact of the
views contained in that council’s report.[37]
The level of consultation, or lack thereof, particularly
with professional and industry bodies, is of considerable concern to the
Coalition. This has lead to some poorly drafted legislation as pointed out in
the submissions and suggested before Committee hearings.
The Chair's report highlighted a number of potential
drafting errors but expresses concerns at Recommendation 9. This recommendation
leads the Coalition to believe that this is part of the continued legacy of the
Rudd Government of rushing legislation into Parliament without proper drafting
as a result of poor consultation.
Recommendation 8:
The Committee recommends that Treasury investigate the claimed
drafting errors reported in Chapter 8 of this report and the failure of the
Government to consult with stakeholders in the manner prescribed by COAG’s
implementation plan.
Conclusion
The Coalition believes that there is merit in a universal
consumer law bill, and is looking forward to working with the Minister in
discussing the recommendations in this report with a view to dealing with the
concerns raised by both the Chair and the Coalition.
Senator Alan Eggleston Senator
David Bushby
Deputy Chair
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