What you need to know about proposed changes to the Australian Consumer Law

• Consumer Affairs Australia and New Zealand (CAANZ) commenced a scheduled review of the Australian Consumer Law (ACL) in 2015. In April 2017, CAANZ released its final report into the ACL, recommending 19 different amendments (Final Report).[1]
• Parliament has responded to the Final Report by releasing an exposure draft amendment bill (Draft Bill)[2] and an amendment bill on penalties (Penalties Bill).[3] While public consultation on the Draft Bill is open until 28 February 2018, the majority of the changes in the Penalties Bill will, if passed, take effect by 1 July 2018. 
• Many of the 14 proposed amendments in the Draft Bill are technical in nature. The more significant amendments include extending the unconscionable conduct protections to publicly-listed companies, strengthening voluntary recall requirements, introducing new mandatory text requirements for warranties against defects and easing the evidentiary requirements for private litigants. We discuss these proposed amendments below.
• The most significant change proposed in the Penalties Bill is increasing the maximum penalties under the ACL to align them with the penalties that apply under Part IV of the Competition and Consumer Act 2010 (Cth).

1. Significant increase of the maximum penalties under the ACL 

The current maximum civil pecuniary penalty, and fine for criminal offences, under the ACL is $1.1 million for a corporation or $220,000 for an individual.

CAANZ considered that the current ACL penalties:

• are not sufficient to deter breaches for highly profitable conduct, as some businesses simply view these penalties as a “cost of doing business”; [4] and
• are not consistent with the competition law penalty regime, which provide for considerably higher maximum penalties and which can take into account the benefit gained from the breach or the size of the corporation in question.[5]

The Penalties Bill responds to the recommendations by CAANZ by significantly increasing the maximum civil pecuniary and criminal offence penalties that apply to corporations from $1.1 million to the greater of:

• $10 million; or
• if the court can determine the total value of the benefit obtained from the offence, three times the value of that benefit; or
• if the court cannot determine the value of the benefit, 10% of the corporation’s annual turnover in the preceding 12 months.

The Penalties Bill increases the maximum penalty for individuals from $220,000 to $500,000.

These increases will apply to most provisions under the ACL which attract a fine or pecuniary penalty for breach, including provisions relating to unconscionable conduct, unfair practices (such as making false or misleading representations), referral selling, non-compliance with a recall notice and various product safety provisions. The clear message is that breaches of the ACL provisions are to be viewed as seriously as breaches of the prohibitions dealing with cartels and other anti - competitive conduct.

2. Extending unconscionable conduct provisions to publicly-listed companies

The ACL prohibits a person (which includes a corporation) from engaging in unconscionable conduct in trade or commerce.[6]

The provisions are intended to prevent persons from engaging in practices that go against good conscience as judged against the norms of society.[7] However, these statutory protections have never applied to publicly-listed companies.

Historically, public listing was seen as a “reasonable indication of a trader’s size and ability to protect its own interests.”[8] However, CAANZ considered this view of publicly-listed companies being capable of protecting their own interests, and therefore not deserving of protection from unconscionable conduct, outdated. As noted in the Final Report: “public listing is not necessarily a reflection of a trader’s size, level of resourcing or its ability to withstand unconscionable conduct.”[9]

Further, given that the unconscionable conduct provisions already protect some privately-owned companies that may be larger or better resourced than some listed companies, the laws provide “inconsistent levels of protection for traders of comparable size and resources.”[10]

The Draft Bill removes the exemption for listed public companies under the relevant provisions of both the ACL and the Australian Securities and Investments Commission Act 2001 (Cth).

These changes will impact on any business that engages in unconscionable conduct toward a publicly listed business. The latter will no longer be prevented from bringing an unconscionable conduct claim.

Determining whether conduct is unconscionable will continue to be influenced by the relationship between the parties, including the relative strengths of their bargaining positions.

3. Strengthening voluntary recall notification obligations

CAANZ did not consider that the requirement to notify the Commonwealth Minister if a business voluntarily takes action to recall a product[11] is working as intended for two reasons:

1. The provisions give businesses the flexibility to determine whether their remedial action is a “recall” and therefore whether their conduct triggers a requirement to notify the Commonwealth Minister; and
2. The penalties for failing to notify the Commonwealth Minister are generally lower than the costs businesses face in notifying the public of a recall.

To overcome the first of these problems, the Draft Bill removes the ability for companies to “craft” their remedial action by defining a “recall” as follows:

Any corrective action taken by a person engaged in trade or commerce to mitigate safety risks of the consumer goods, which may include action taken to remove the consumer goods from distribution, sale or consumption.

The Draft Bill’s explanatory materials provide guidance on the types of action which might constitute a recall, including:

• Withdrawing faulty products from sale at any level of the supply chain;
• Modifying a product so that it is no longer faulty; or
• Notifying customers of the fault.

For these actions, a business will be required to notify the Commonwealth Minister of the recall and comply with its other obligations under the ACL in relation to removing the unsafe product from the market.

The Draft Bill also adopts recommendations about increasing the financial penalties that apply for failing to notify the Commonwealth Minister of a recall, proportionate to other ACL penalties.

The Draft Bill substantially increases the penalty imposed on a corporation for failing to notify a recall from $16,500 to the greater of:

• $165,000; or
• If the court can determine the total value of the benefit obtained by not notifying, three times the value of that benefit.

The Draft Bill also increases the penalty that applies for individuals that fail to notify tenfold, from $3,300 to $33,000.

4.  New mandatory text requirements for warranties against defects 

Currently, the ACL prescribes what a warranty against defects must address, including an obligation to include mandatory text advising consumers that the warranty against defects is additional to their rights under the ACL.[12]

However, the mandatory text created a ‘gap’ in the law because it only covered warranties against defects for goods, not services. The Draft Bill proposes revised mandatory text to cover the supply of services and a slightly amended version for the supply of goods and services together.

If the Draft Bill is passed, any business that provides warranties against defects in relation to its services (or both its goods and services) will need to review and update its warranty documentation to include the revised mandatory text. It is likely that the legislation will provide a ‘transition period’ in which to do so, as was the case when the mandatory text was first introduced in 2012.

5. Easing the evidentiary requirements for private litigants

Currently, litigants in consumer law actions are able to use a court’s findings of fact from previous proceedings as prima facie, non-conclusive evidence of those facts in their own cases.[13] These are known as the ‘follow-on’ provisions, and they are intended to help reduce court costs for private litigants.

However, these ‘follow-on’ provisions only apply to findings of fact made by a court. They do not apply to facts which are admitted or agreed between the parties.

This stands in contrast to similar provisions found in the competition law, which were recently amended to allow litigants to rely on admissions of fact made in other proceedings.[14] These amendments followed recommendations made The Harper Review, that identified that the effectiveness of the ‘follow-on’ provisions as a means of reducing court costs would be enhanced if they included both admissions and findings of fact.[15]

CAANZ considered that the rationale for the ‘follow-on’ provisions under both regimes is “essentially the same”[16] and that these extensions should therefore apply in a consumer law context as well.

The Draft Bill adopts this recommendation by extending the ‘follow-on’ provisions found in the Competition and Consumer Act 2010 (Cth) to include admissions of fact. As a result, both private litigants and regulators will be able to rely on admissions made by the respondent as well as facts established by the court in earlier proceedings as evidence in their own case.

If passed, this change may impact a company’s willingness to cooperate or settle matters with the ACCC, as any admission it makes may be used as prima facie evidence of that fact in subsequent proceedings, including actions brought by private litigants.

Next steps

The Draft Bill is an exposure draft open for public consultation until 28 February 2018. It is possible that some of the amendments proposed in the Draft Bill will be revised following consultation. Submissions can be made electronically to The Treasury’s Consumer Policy Unit.

Parliamentary debate on the Penalties Bill is ongoing and set to resume on 26 February 2018.

We anticipate that further bills may be introduced into Parliament this year relating to other recommendations made in the Final Report. We will keep you informed of these developments as they unfold.