Contract LawTechnology

Consumer Protection Laws and Business

consumer protection laws

Mark Adair provides practical answers to common questions that his small and medium enterprise clients regularly ask in relation to compliance with consumer protection laws and business.

Q: I’m a busy director. Can you give me a 60 second summary of the consumer protection laws my business needs to consider when supplying goods or services?

A: There are lots of consumer protection laws in Australia that your business needs to consider. If your business supplies goods or services to consumers in Australia some of the key risks you need to be aware of and manage are:

  • advertising or other representations that your business makes relating, for example, to the price, value or the quality of any goods and services must not be false, misleading or deceptive
  • there are a number of ‘consumer guarantees’ that will automatically apply to goods and services you sell to individuals (and in some cases to businesses). Any provision which purports to exclude the implied consumer guarantees is invalid and may be illegal
  • any standard form contracts your business uses must not contain ‘unfair terms’ that are unreasonable or cause significant imbalance in the parties rights under the contract.
  • failing to comply with the consumer protection provisions of the Australian Consumer Law may result in costly and time consuming statutory enforcement action by the regulators, legal action, negative publicity, and loss of reputation.

Q: What should I keep in mind when advertising my goods/services? Is there any difference between advertising in my local newspaper, on the internet or on prime-time TV?

A: No matter how you communicate with consumers, whether via newspaper, internet, TV, celebrity endorsements or sales pitch, you must provide them with accurate and truthful messages about the goods and services that you are offering.

The ACL (Australian Consumer Law) prohibits conduct by a corporation that is misleading or deceptive, or would be likely to mislead or deceive a reasonable consumer. If the overall impression left by an advertisement, statement or other representation made by your business creates a misleading impression in the consumer’s mind – such as to the price, value or the quality of any goods and services, such conduct is likely to be unlawful. You may have to produce information to the regulator to substantiate any claims or representation you make about the goods and services you advertise.

For example, it would be unlawful for a store to advertise something as ‘free’ without informing its customers that there are in fact hidden charges or taxes payable.

Q: As a result of the consumer protection laws do I have to offer a consumer guarantee with all goods and services that my business offers?

A: Every business that provides goods or services to consumers in Australia, whether they are doing business in a traditional high street store or online must provide consumers with a number of non-excludable guarantees that automatically apply to the goods and services it supplies. These guarantees include that goods must be fit for purpose, safe and of acceptable quality and services must be delivered completely and rendered with adequate care and skill.

A breach of a consumer guarantee provides the consumer with particular rights depending on the severity of the breach. For example, if there is a major failure with a jacket to the extent that the jacket does not meet the consumer guarantee requirement of being fit for purpose, the consumer may elect to receive a repair, replacement or refund.

Q: I take it in the consumer protection laws the consumer guarantees only affect individuals and do not apply to business-to-business transactions as well. Is this correct?

A: Surprisingly no, under the legislation a person, or a business, will be considered a ‘consumer’ if they purchase:

  • goods or services that cost less than $40,000; or
  • goods or services that cost more than $40,000 but are of a kind ordinarily acquired for domestic, household or personal use or consumption.

A purchaser will not be considered a consumer if goods are purchased to be resold or to be transformed into a product that is sold. This means that a business that purchases a computer which costs less than $40,000 for use in their corporate office will be considered a consumer and the consume guarantees will apply to the computer. But if the same business purchases a computer with the intention of reselling it to consumers it will not be considered a consumer.

Q: Can I exclude the consumer guarantees through a limitation of liability clauses or exclusion clauses that my lawyer has drafted for me?

No. A term in a contract that has the intent of excluding, restricting or modifying liability for breach of a consumer guarantee is automatically void and may be a breach of the Australian Consumer Law. Generally, the only time you may limit your liability for breach of a consumer guarantee is where the goods or services are not of the kind ordinarily acquired for personal or domestic household use or consumption.

Q: Do I need to amend any of my company’s product warranties against defects documents and if so what action do I need to take and when?

A: All documents that give a warranty against defects – including manufacturer warranty cards, terms and conditions of sale, and warranties given on product packaging must contain certain information about your business and details about the warranty. A document evidencing a warranty against defects must also reproduce the following statement in its entirety:

“Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure.”

You should review your consumer product warranty documents to ensure they comply.

Q: Under the consume protection laws what is an ‘unfair term’ and how to I avoid falling foul of this provision?

A: The Unfair Contract Terms consumer protection laws are important and your business must be aware of them. A term in a standard form contract will be deemed unfair and void if it:

  • would cause a significant imbalance in the parties’ rights and obligations arising under a contract;
  • is not reasonably necessary to protect the legitimate business interests of the party who would be advantaged by the term (the supplier); and
  • would cause financial or non-financial detriment to a party if it were to be applied or relied on.

If your business contracts with an individual (not a business) who is acquiring a good or service wholly or predominately for personal, domestic or household use or consumption using standard form contracts your business is likely to be affected by the unfair terms provisions. You should review the terms of your standard form contracts to ensure that they do not include any unfair terms. You should pay attention to unilateral termination clauses, terms which exclude or limit liability, and unilateral rights of variation as these often contain unfair terms. Finally, if you do attempt to rely on an unfair term this can result in enforcement action by the regulator.

The government is proposing to extend the existing consumer unfair contract term protections for standard form contracts to small businesses. The Extending Unfair Contract Term Protections to Small Businesses consultation paper states that: “a legal framework that appropriately addresses unfair contracts terms should ensure that businesses that supply small business compete with each other on price and quality without passing inappropriate levels and types of risk to their small business counter parties. In turn, this should stimulate innovation and growth by efficient small businesses that would then be able to compete with larger businesses on a level playing field.” The government is now considering all submissions that were made in response to the consultation paper before it decides whether it will propose to amend the law.

Q: What are the penalties and enforcement powers available if an organisation breaches the consumer protection laws? How can I stop this happening to my business?

A: Rather than relying on remedies for breach of contract, the Australian Consumer Law provides a number of other remedies the regulators may exercise including:

  • Issuing public warning notices if the regulators have reasonable grounds to suspect (as opposed to definite proof) that certain provisions of the ACL have been breached.
  • Issuing infringement notices for minor contraventions – these consist of an ‘on-the-spot fine’ and may include a public statement by the regulator about the payment of the fine.
  • Use of civil pecuniary penalty provisions of up to $1.1 million for corporations and up to $220,000 for individuals.
  • Seeking disqualification of a director from managing a corporation for failing to comply with the ACL.

One of the best ways to avoid any enforcement action under the consumer protection laws is for your business to enact standard company-wide procedures to deal with consumer complaints and train appropriate personnel to act promptly and escalate any complaints when necessary.

Summary

It is important that your business is aware of the various consumer protection laws and how they affects your business and your daily interactions with consumers. You should review the terms on which your business contracts for the supply of goods and services to consumers (which may include business-to-business contracts), how your business responds to consumer complaints, and assess any marketing materials and other documents to ensure compliance with the ACL across all aspects of your business.

 

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