3 Pages in 8 hrs #5247

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2105AFE INTRODUCTION TO BUSINESS LAW

Lecture 8

Module 2 – Consumer Protection

Covers: Australian Consumer Law

Objectives

On completion of this lecture, you should be able to understand, recognise and discuss a general overview of the Australian Consumer Law (ACL):

Key sections in regard to definitions and those sections that apply to:

parties involved

new statutory consumer guarantees

manufacturers liability

specific false representation provisions

country of origin claims

misleading and deceptive conduct

unconscionable conduct

unfair contract terms

regulators (and ministers) new prohibition, investigation and enforcement powers

Note that the ACL also provides for:

unsolicited supplies and selling practices

lay-by agreements

linked credit contracts

other prohibited business conduct

Part 1: overview of acl

Introduction and Purpose of the ACL

The Competition and Consumer Act 2010 (Cth) (CCA) was introduced on 1 January 2011. It provided new national uniform laws offering consumer protection.

Act of the Australian Federal (Commonwealth) Parliament applying to all jurisdictions (Federal, State & Territory level).

Replaced provisions across 20 State and Territory (Fair Trading related) Acts, plus amended and renamed the Trade Practices Act 1974 (Cth) (TPA) as the CCA.

Australian courts and tribunals (including those of the states and territories) can enforce the ACL, including the Australian Competition Tribunal (ACT) or QCAT.

The consumer protection provisions of the former Trade Practices Act 1974 (Cth) (TPA) were generally directed towards conduct engaged in by corporations, but the ACL has a much broader application to conduct engaged in by persons.

Much of the case law discussed in this chapter was decided under the corresponding provisions of the former TPA.

Specifically, the Australian Consumer Law (ACL) covers consumer protection and its provisions are located in (Volume 3) Schedule 2 of the CCA

Protecting consumers from the unfair practices of businesses.

In effect it is a response to the recognised need for new systems and procedures to protect consumers under one national law, rather than many different but similar laws across the Nation.

Who regulates the CCA?

We are discussing legislation so what do you think are the main issues you need to consider in answering any consumer law question?

Australian Competition and Consumer Commission (ACCC)

The ACCC promotes competition and fair trade in the market place to benefit consumers, businesses and the community. It also regulates national infrastructure services. Its primary responsibility is to ensure that individuals and businesses comply with the Commonwealth competition, fair trading and consumer protection laws.

www.accc.gov.au

For consumers

(can often include a business)

The ACCC is provides information about consumer rights & how to make a complaint and prosecutes companies engaging in the misconduct. http://www.accc.gov.au/consumers

For businesses

The ACCC provides business with support in regard to franchising, mergers, authorisations, obligations, professions and industry codes of conduct.

http://www.accc.gov.au/business

Part 2: provisions of acl

Statutory Guarantees

Who is a “Consumer”?

Guarantees apply to the activities of corporations and individuals dealing with consumers in certain circumstances

Contracts for the supply of goods:

s3(1): “Consumer” is defined as a person who acquired particular goods if:

the amount payable for the goods did not exceed $40,000; or

the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or

the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads.

s3(2): A person is not a consumer if they purchase the goods for re-supply, or to use them in the course of production

Who is a “Consumer”?

Contracts for the supply of services:

s3(3): “Consumer” is defined as a person who acquired particular services if:

the amount payable for the services did not exceed $40,000; or

the services were of a kind ordinarily acquired for personal, domestic or household use or consumption.

Statutory Guarantees Relating to Goods

s51: Title to goods

s52: Undisturbed possession

s53: Undisclosed securities

s54: Acceptable quality

s55: Fitness for any disclosed purpose

s56: Supply by description

s57: Supply by sample or demonstration model

s58: Repairs and spare parts

s59: Express warranties

Under s64, guarantees cannot be excluded by contract

(eg. exclusion clauses)

Statutory Guarantees Relating to Services

s60: Due care and skill

s61: Fitness for particular use

s62: Reasonable time for supply

Under s64, guarantees cannot be excluded by contract

(eg. exclusion clauses)

https://www.youtube.com/watch?v=uE8BB-ioNRw

https://www.youtube.com/watch?v=yL2y5rNfUMM

Useful (and entertaining) videos

Guarantees relating to goods:

Guarantees relating to services:

Remedies

s259(1) and (2): If failure to comply is not a major failure, supplier will need to remedy the failure within a reasonable time. If they refuse, the consumer can reject the goods and recover the costs they have incurred

If failure to comply is a major failure the consumer can:

s259(3): Reject the goods or recover compensation for any reduction in the value of the goods below the price paid; and

s259(4): Recover damages for their loss

Part 2: provisions of acl

Manufacturers’ Liability

Manufacturers

Consumers can recover from the manufacturer for breach of the following consumer guarantees:

s54: Goods not of acceptable quality

s56 and s271(3) and (4): Goods that do not correspond with a description

s58 and s271(5): Goods without repair services or spare parts available

s59 and s271(5): Express warranty

Manufacturers’ Liability for Defective Goods

A manufacturer (defined in s7) is liable if:

Goods were supplied in trade or commerce; and

The goods have a safety defect (s9); and

In determining whether there is a safety defect, consider:

Manner and purpose of goods

Packaging

Use of mark

Instructions/Warnings

Reasonable use

Time of supply

Which caused loss or damage.

Types of loss or damage:

s138: to person

s139: to third persons

s140: to consumer’s other goods

s141: to consumer’s land, buildings etc.

Defences Available to a Manufacturer (s142)

Defect did not exist at time

Technical knowledge not available

Compliance with mandatory standards

Government may be liable (s148)

Outside time limitation

Part 2: provisions of acl

False or Misleading Representations

False or Misleading Representations (s29)

Section 29:

“A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services, make a false or misleading representation:

that goods are of a particular standard, quality, value, composition, style or model or have had a particular history or particular previous use;

that services are of a particular standard, quality, value or grade;

that goods are new;

that a particular person has agreed to acquire goods or services;

that purports to be a testimonial by any person relating to goods or services;

concerning:

a testimonial by any person; or

a representation that purports to be such a testimonial; relating to goods or testimonials.

that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits”

False or Misleading Representations (s29)

Section 29:

that the person making the representation had sponsorship, approval or affiliation;

with respect to the price of goods or services;

concerning the availability of facilities for the repair of goods or of spare parts for goods;

concerning the place of origin of goods;

concerning the need for any goods or services;

concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy;

concerning a requirement to pay for a contractual right that:

is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy; and

a person has under a law of the Commonwealth, a State, or a Territory (other than an unwritten law).

False or Misleading Representations (s29)

Goods and services:

A statement or representation about “price” in relation to goods and/or services may give rise to a misleading impression (misrepresentation) of the price and therefore be actionable.

ACCC v Dell Computer Pty Ltd (2002): Price of computer did not include delivery which was compulsory

National News Pty Ltd v Australian Competition and Consumer Commission (1996): Free mobile phone - “conditions apply” - must be spelled out

Ascot Four Pty Ltd v ACCC (2009): Strike through price (was $X Now $Y) was not what a customer would have paid prior to the sale

ACCC v Australian Superstore Pty Ltd (2014): Defective refrigerator – told not entitled to a refund

False or Misleading Representations (s151)

Section 151:

If a person makes a false representation about goods or services under s29, that person commits an offence

Penalty:

If the person is a body corporate - $1,100,000; or

If the person is not a body corporate - $220,000

Part 2: provisions of acl

Other prohibited business conduct in relation to the supply of goods or services

Representations

False or misleading representations in connection with land (s30)

Given v Pryor (1979) - misleading representation about how land could be used

Profitability or risk of certain business activities (s37)

Ducret v Colourshot Pty Ltd (1981) - false statement about processing and developing film franchise

Conduct

Misleading conduct relating to employment (s31)

Offering rebates, gifts, prizes, or other free items with the intention of not providing them as offered (s32)

Misleading conduct about the nature of or manufacturing process of goods (s33)

Misleading conduct as to the nature of services (s34)

Dawson v World Travel Headquarters Pty Ltd (1981) - 15 day tour not 16

Bait advertising is where goods/services are advertised at a specified price and they cannot be supplied at that price for a reasonable period of time (s35)

Reardon v Morley Ford Pty Ltd [1980] – only one car available at advertised price

Part 2: provisions of acl

Country of origin claims

Country of Origin (ss255 & 258)

Goods labelled “Made in Australia”:

s255(1): Only if the goods were “last substantially transformed” in Australia

s255(2): Goods are “substantially transformed” if as a result of one or more processes undertaken in that country, the goods are fundamentally different in identity, nature or essential character from all of the ingredients or components that were imported into that country

Same applies for country of origin (imported) goods, but does not apply to a representation as to a particular region of origin (eg. California)

As such, ss18 and 29(1)(a) or (k) apply to regions or when conditions are not satisfied

Country of Origin (ss255 & 258)

Goods labelled “Product or Produce of Australia”:

s255(1):

All the significant ingredients or components of the goods come from Australia; and

Virtually all of the production or manufacturing processes associated with the goods occur within Australia

ss18 & 29(1)(a) or (k) or s151(a) or (k) apply when conditions 1 and 2 do not occur.

Country of Origin (ss255 & 258)

Part 2: provisions of acl

Misleading and Deceptive Conduct

Misleading and Deceptive Conduct (ss18 and 19)

To catch what might loosely be termed “unfair business practices” which may not strictly fall within the scope of the other specific prohibitions, s18(1) provides in general terms that:

“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive” (s18)

Section 18 of the Australian Consumer Law (‘ACL’) largely replicates s52 of the former Trade Practices Act 1974 (‘TPA’); many of the cases decided under s52 TPA will be relevant in interpreting s18 ACL

Elements of Section 18:

Mention that statements that are literally true may be misleading

Person

Includes natural persons and others (ie. corporations, partnerships, etc.)

In trade or commerce

Conduct

Can be doing something or not doing something (eg. silence = conduct);

The conduct must have a trading or commercial element

Concrete Constructions (NSW) Pty Ltd v Nelson (1990

Mislead: “to lead astray in action or conduct; to lead into error, to cause to err.”

Deceptive: to deceive - “to cause to believe what is false.”

Likely: more probable than not.

McWilliam’s Wines Pty Ltd v McDonald’s Pty Ltd (1980) c/f Apand Pty Ltd v The Kettle Chip Co Pty Ltd (1994)

Misleading or Deceptive or Likely to Mislead or Deceive

Can be a representation about a future matter (eg. prediction or opinion)

If there are no reasonable grounds for making the representation, law presumes it to be misleading (s4)

Repeated, not a “one off”

O’Brien v Smolnogov (1983)

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988)

Objective test is applied (see next slide) (Taco Bell)

Misleading or Deceptive?

An objective test is applied:

Identify the sections of the public targeted by the conduct (eg. public at large, particular consumers such as teenagers, professionals etc.)

Would a reasonable person from that section of the community be misled or deceived? You can use actual members of the public who are misled and deceived to assist you with the objective test here, assuming that they are reasonable persons.

Taco Company of Australia Inc v Taco Bell Pty Ltd [1982] – same name used (not in text)

Note:

An exemption clause cannot be successfully relied upon as a defence to an action for contravention of s18. However it might be one factor that the court takes into account in deciding whether the misleading conduct was relied upon by the applicant

Butcher v Lachlan Elder Realty Pty Ltd (2004) – disclaimer stated: cannot guarantee accuracy – make own enquires

ACL exempts certain “information providers” (including the news media), from the general prohibition of misleading or deceptive conduct (s19).

Part 2: provisions of acl

Unconscionable Conduct

Unconscionable Conduct (ss20-22)

Section 20(1):

“A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time”

“Within the meaning of the unwritten law”:

Preserves unconscionability under the common law (including equity)

Weaker party is at a “special disadvantage” (ie. a condition which seriously affects their ability to judge for their own best interests); and

Stronger party knew or should have known (objective test) of the special disadvantage; and

Stronger party took advantage of the weaker party’s “special disadvantage’; and

The act of the defendant (stronger party) was unconscionable (unfair/unjust)

Commercial Bank of Australia v Amadio (1983)

Unconscionable Conduct (ss20-22)

Section 21(1):

“A person must not, in trade or commerce, in connection with the supply or possible supply, acquisition or possible acquisition of goods or services to/from another person (other than a publicly listed company), engage in conduct that is, in all circumstances, unconscionable”

ACCC v Lux Distributors Pty Ltd (2013) – vacuum cleaner sales

Section 22(1) and (2):

Factors to consider when deciding whether the conduct is unconscionable:

Bargaining strengths of supplier and consumer

Whether consumer required to comply with unnecessary conditions

Whether consumer was able to understand any documents relating to the supply of goods & services

Whether undue influence or pressure exerted or unfair tactics used against the consumer

The amount for which the consumer could have acquired identical or equivalent goods & services from a person other than the supplier

Compliance with industry codes (if any)

Non-disclosure of any conduct that may affect the business consumer or add to its risks

Part 2: provisions of acl

Unfair Contract Terms

Unfair Contract Terms (ss23-25)

Section 23(1):

A term of a consumer contract is void if:

The term is unfair (s24); and

The contract is a standard form contract

Section 23(2):

The contract continues to bind the parties if it is capable of operating without the unfair term

Section 23(3):

A “consumer contract” is a contract for:

The supply of goods or services; or

A sale or grant of an interest in land; or

An individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.

Unfair Contract Terms (ss23-25)

Section 24:

A term of a consumer contract is unfair if:

It would cause a significant imbalance in the parties rights and obligations under the contract; and

It is not reasonably necessary in order to protect the legitimate interests of the advantaged party; and

The term would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Section 25:

A term permitting one party (but not the other):

to avoid or limit performance, or terminate the contract

to penalise the other party for a breach or termination of the contract

to vary the terms of the contract

Examples of unfair contract terms:

Extracted from ASIC Report 565 “Unfair contract terms and small business loans”

http://download.asic.gov.au/media/4676255/rep565-published-15-march-2018.pdf

Entire agreement clauses:

Clauses that prevent banks being held accountable for conduct, statements or representations made to the borrower outside the written contract.

Broad indemnification clauses:

Clauses which require borrowers cover losses, costs and expenses incurred due to fraud, negligence or wilful misconduct of the bank.

Event of default clauses:

Clauses which give lenders very broad discretion to decide which types of changes will result in them treating a loan as being in default. This has been limited to non-payment.

Financial indicator covenants:

These are used to trigger a default and debt recovery even if loan payments are made.

Unilateral variation clauses:

These clauses gave the lender the ability to vary anything in the contract without agreement, the scope of allowable changes now needs to be established in the contract.

Quick Question

Bambi Restaurants’ is a chain of Steakhouses in the Valley, Brisbane, that specialises in selling exotic flame-grilled meats. During their “Winter Warmers” sale, the company advertised a dinner time special that showed the original price of a particular the meal as costing $49, and that it had now been reduced to $25. The meal had never been offered for sale at $49. Which of the following is the most correct?

‘Bambi Restaurants’ are entitled to advertise the meal at $25 if that was the actual price paid for the meat

‘Bambi Restaurants’ would likely be in breach of section s18(1)(i) of the Competition and Consumer Act 2010

‘Bambi Restaurants’ would likely be in breach of section s29(1)(i) of the Competition and Consumer Act 2010

‘Bambi Restaurants’ would be guilty of unconscionable conduct at both common law and under statute

Quick Question:

Waverley Woollen Mills Pty Ltd (“WWM”) sells jumpers under the “Work Wear” brand. WWM labelled jumpers as a “Product of Australia”. Fibres for the jumpers were spun in Australia, but the jumpers were woven in Vietnam and imported into Australia.

Advise the ACCC what sections of the ACL would need to be considered for action can be taken against WWM under that Act.

Quick Question

The Rasell family ordered carpet for their house from a carpet manufacturer (GCV). They specified that the carpet was to be a particular colour to match the interior décor of their house and internal walls which were exposed brick. The woollen carpet was supplied and there was no complaint as to its quality as carpet, but the colour of the carpet was different in patches and different from the colour as described by GCV. This was due to "pile reversal" or "watermarking"; a result of the manufacturing process. Which of the following is most correct?

‘Caveat Emptor’ applies – ‘buyer beware’ and no remedies apply

‘GCV’ would likely be in breach of s20 of the Australian Consumer Law which is a schedule to the Competition and Consumer Act 2010 (Cth)

‘GCV’ would likely be in breach of s56 of the Australian Consumer Law which is a schedule to the Competition and Consumer Act 2010 (Cth)

‘GCV’ would be guilty of unconscionable conduct at both common law and under statute

Part 2: provisions of acl

Enforcement and Remedies

Regulator’s (ACCC) Investigation and Enforcement Powers

Substantiation notices (ss219-222)

May be issued where suspected contravention

Information/documents must be provided within 21 days of the notice being issued

Infringement notices (Regs)

May be issued where there has been reasonable grounds to believe that a person has contravened consumer protection laws

Public warning notices (s223)

May be issued where reasonable grounds to suspect there has been a contravention

ACCC can also apply to the Court for:

Pecuniary fines - maximum penalties per contravention up to:

$1.1 million for corporations

$220,000 for individuals

Adverse Publicity Order (s247)

Disqualification orders (s248)

Regulator’s (ACCC) Investigation and Enforcement Powers

Undertakings

Can be enforced by the court if breached (s218)

ACCC v Apple demonstrates the importance of local adaptation of global marketing slogans

ACCC launched an action against Apple in the Federal Court on 28 March 2012, arguing that Apple’s recent promotion of the new iPad 3 as” “iPad with WiFi + 4G” is misleading and contravenes the Australian Competition and Consumer Law. The ACCC claims that Apple’s advertising slogan suggests that, with a sim card, a customer can use the iPad to connect to a 4G mobile network. In fact, while the iPad 3 can connect to 4G networks overseas, it is not able to connect to any 4G network in Australia. Apple provided an undertaking to the Court that it would display a statement on its website and distribute signage to sellers stating:

"This product supports very fast cellular networks. It is not compatible with current Australian 4G LTE networks and WiMAX Networks";

email customers to inform them that the device was not compatible with the Telstra 4G network; and

refund customers who believe they were misled by claims that the iPad 3 can connect to the 4G network…..”

CCA Enforcement and Remedies

In addition to the Regulator’s (ACCC), and Minister’s new investigation and enforcement powers, the ACL provides for other enforcement measures:

Criminal penalties: ss151-168

Pecuniary penalties: s224

Injunctions: s232

Damages: s236

Other orders (for example, rescission or variation of contracts) (s237, s243)

Minister’s Recall

https://www.youtube.com/watch?v=igeP5kbUmqM

Reminders:

Assignment

Your assignment must be submitted by 11am on Friday 14 September