Luke Hartsuyker (Cowper, National Party, Deputy Manager of Opposition Business in the House) Share this | Hansard source

I welcome the opportunity to speak on the Trade Practices Amendment (Australian Consumer Law) Bill 2009. This bill forms part of the government’s intention to move towards a single national consumer law, which the coalition supports in principle. It seeks to provide increased protection for consumers by voiding unfair terms in standard form contracts between businesses and consumers. Standard form contracts typically cover mobile phones, bank accounts and gym memberships and are non-negotiable. If the consumer wishes to take advantage of the goods or services on offer, he or she has to accept the contract provided without negotiation.

A contract term will be unfair where there is a significant imbalance between the parties’ rights and obligations and the term is not reasonably necessary to protect the legitimate interests of the supplier. The bill also extends to enforcement options for the Australian Competition and Consumer Commission and the Australian Securities and Investment Commission for specified consumer protection matters. The government originally consulted on including business-to-business contracts as well as business-to-consumer contracts, but these provisions were removed.

Following the commencement of the bill’s second reading, it was referred by the government to the Senate Standing Committee on Economics, which reported on 7 September. Minister Emerson later explained that business-to-business provisions were removed because they would, among other things, create uncertainty—the same argument used by opponents of the fair contracts provision as regards consumers. Business-to-business contracts will now be considered as part of the review of the Trade Practices Act and the Franchising Code of Conduct. The legislation is intended to apply from 1 January 2010.

Some sections of the small-business community wish to see business-to-business provisions restored; however, many stakeholders believe the issues in this area are too varied and widespread to be dealt with in the way originally proposed. There are also major concerns about the effect of the bill, as it stands, on contract law creating widespread uncertainty and increasing costs. The coalition is on the record as supporting a single national consumer law, replacing differing regimes currently operating in each state and territory. This would bring benefits to both businesses and consumers, reducing costs and providing more clarity about the rights and obligations wherever goods are bought and sold.

Many goods and services are purchased by way of standard form contract. As I said earlier, they are typically goods and services such as mobile phones, bank accounts and gym memberships. The contracts are non-negotiable. If the consumer wants that particular good or service, he or she has to accept the contract as it stands. The contract includes clauses such as those which would allow the provider to vary the terms and conditions, as banks do when providing mortgages. The contracts may include clauses such as in relation to the cancellation of a contract before its term, which the consumer may find unreasonable. Consumers can, of course, use the principle of buyer beware. They can shop around for a better deal or a less onerous contract, or they may decide that, even though they do not like some of the terms and conditions in the contract, they will put up with them because the deal on offer is so good. In principle, we would instinctively wish to strengthen the hand of the consumer in these situations, but the consumer has, to some extent, the remedy in their own hands already by deciding whether or not to accept that particular contract.

In practice, we nearly all have bank accounts, we nearly all have mobile phones and many of us have gym memberships. Therefore, what has been lacking is some indication of the size of the problem that the government seeks to address. What is clear is that standard form contracts are widespread. Also, there is a strong similarity between contracts used in certain sectors such as mobile phones, thus diminishing the consumer’s ability to find alternatives. This point provides strong justification for some form of action. There is little point in the buyer being aware if that same buyer has no alternative.

Now I would like to consider the issue of business-to-business contracts, which were originally proposed to be included in this bill. A broad section of the small-business community welcomed the inclusion of business-to-business contracts and was dismayed when the government decided instead to refer the matter to the reviews of the Trade Practices Act and the Franchising Code of Conduct. There is clearly a case for regarding small businesses in the same light as consumers when they are buying goods or services to consume themselves, or when buying goods for sale when they have no ability to negotiate over the terms of purchase of those goods. For example, many members of this House will have received letters from newsagents, for example, in support of the inclusion of business-to-business contracts in this legislation.

The Australian Newsagents Federation has some 2,100 members, nearly all of whom employ fewer than 20 staff, and most of whom employ five or fewer. They are subject to standard-form contracts in their dealings with major companies, such as News Ltd, Fairfax Holdings and Hallmark Cards, and the majority of key contractual terms are presented on a take it or leave it basis. For major items of their stock they can go to no other suppliers. In addition, they may be subject to a standard-form contract covering the lease of their premises in a shopping centre. Like consumers, and other small businesses, they do not have easy or cheap access to legal advice or representation and, even if they did, their market position would not allow them to negotiate a better deal.

Small businesses acting as suppliers to supermarkets are often in the position of taking or leaving the terms that a particular supermarket has on offer. There is a wide range of possible problems here, not least of which is determining what constitutes a ‘small business’ for these purposes. The government consulted on the basis of contract value, contracts with a value of more than $2 million being exempt from the unfair contracts provisions.

It has been pointed out to the government that many consulting firms, particularly in the field of engineering, would generally be considered as small businesses but would routinely tender for contracts with a value far greater than $2 million. Furthermore, when dealing with government agencies and corporations, these firms are subject to contract terms relating to risk and liability which can only be described as onerous, if not unfair. One can see why many small businesses would jump at the prospect of legislation which tries to redress the commercial imbalance in this area and why they were dismayed when the change in tactic was introduced to remove business-to-business contracts through reviews of the Trade Practices Act and the Franchising Code of Conduct.

The government’s reasons for adopting this tactic were that the initial proposals would create uncertainty in business dealings, would potentially increase costs and would possibly jeopardise small-business funding, arguments which could equally apply to the business-to-consumer proposals. This is also the position taken by the big-business and legal communities in relation to this legislation. The Council of Small Business Organisations of Australia, in its submission to the Senate, has concluded that it can accept the removal of business-to-business contracts provided, firstly, that the TPA is amended to include business-to-government contracts; secondly, that all government procurement and contracting officers should allow suppliers to negotiate their own contractual terms; thirdly, that the government implements the Prime Minister’s commitment to introduce ‘fresh ideas for small business on government procurement’; and, fourthly, that consideration is given to a ‘fair contracts bill’ covering the area in which small businesses are unable to negotiate.

We should also bear in mind that small businesses use standard-form contracts in their dealings with consumers. So while the small-business lobby was very keen to have business-to-business contracts included under this legislation, they are also mindful of the fact that they would be businesses issuing such contracts to consumers. In the absence of business-to-business provisions in this bill, the government needs a clear and comprehensive strategy to address this wide range of concerns.

The legal consequences in relation to this bill are worthy of some note here. Some stakeholders, particularly in financial services, have grave concerns about the proposed contracts regime. Their reservations include, firstly, that there is no requirement for a consumer to show actual detriment in seeking to have a term of a contract declared void; secondly, that the burden of proof does not lie with the complainant; thirdly, that there is no provision for a court to consider the consumer benefit which may flow from an impugned term; and, fourthly, that there will be high compliance costs and confusion arising from the application of the law to existing contracts that may be renewed or varied after commencement of this legislation.

To a considerable extent, provisions of the Australian Consumer Law mirror the provisions of the existing unconscionable conduct regime in part IVA of the Trade Practices Act, and will overlap to a lesser extent with the consumer protection provisions of part V. The most notable difference is that, under part IVA, it must be shown that it would be unfair for a party to seek to rely on a term, whereas under the Australian Consumer Law a term may be voided whether or not its use would be unfair in practice.

The unconscionable conduct provisions have been in place for 20 years. There is no demonstrated argument that they are inadequate to protect consumers. Many contracts include terms providing rights and remedies to both parties. Only terms in favour of a business are prima facie examinable under the bill.

The Australian Consumer Law, as it stands, will create a great deal of uncertainty. The law of contract arose in order to give certainty to transactions—that certainty enables businesses to engage in other transactions, including credit transactions based on a business’s contract book. The introduction of a new standard of contractual review may have significant unforeseen consequences. The reforms may also result in frivolous and vexatious claims and in additional regulatory cost. The costs associated with this will ultimately be borne by consumers.

The application of the law to interests in land may be especially problematic. Existing property law recognises the uniqueness of any interest in land and applies special remedies, including forfeiture of deposits, specific performance, foreclosure, registration of caveats et cetera, which may be extremely difficult to characterise as necessary for the protection of the ‘legitimate interests’ of a business as opposed to other remedies. The uncertainty flowing from this could be immense.

The Law Council, in its submission to the Senate Economics Legislation Committee, raised the question of the definition of a ‘consumer contract’. It favoured using the definition in section 4B of the TPA which hinges on whether the good or service being supplied is ‘of a kind ordinarily acquired for personal, domestic or household use or consumption’. The benefits of this definition would be not to require an additional and potentially difficult inquiry into the purpose for which the good or service was acquired. It would also afford some protection to businesses when the goods or services were not being acquired for sale to a customer, such as retail electricity supply or phone services.

The definition in the bill applies only to ‘individuals’ which would exclude small business contracts. The Law Council also raised concerns about the government’s ability to ban contract terms outright. Its view is that whether a term is unfair or not depends entirely upon the circumstances of the case, and an ability to ban outright would mean that a case-by-case assessment would not occur. One example would be a clause that allowed a unilateral variation. Such a variation might seem fair but in terms of ongoing service contracts for, say, gas or electricity it would be reasonable to expect the supplier to vary the terms from time to time without having to separately negotiate and agree with potentially millions of customers. The Law Council also takes issue with the banning process, saying it lacks independent or stakeholder consultation, avoids parliamentary scrutiny, and thus lacks adequate safeguards for the exercise of a power that could have widespread detrimental effects.

The Senate Economics Committee spent much time discussing the exclusion of insurance contracts from the current legislation on the grounds that such contracts are covered by separate legislation under the Insurance Contracts Act. The industry representatives made the point that they were already subject to a high degree of regulation and that much of the anecdotal evidence provided related to what might be described as the unfair implementation of contract terms, rather than terms which might be unfair as proposed under the Australian Consumer Law. The coalition would not favour imposing another legislative layer on the insurance industry, however we support the committee’s view that a review of the Insurance Contracts Act would be timely, taking into account new measures on other standard form contracts, particularly with the reported entry of Australia Post and Coles into the market.

I would like to turn now to enforcement powers. Debate has concentrated on the unfair contracts provisions of this bill but the new enforcement powers of the ACCC and ASIC are also of some concern. The consumer protection provisions of the Trade Practices Act and the ASIC Act are currently enforced through civil remedies such as injunctions and other orders and, in certain circumstances, criminal sanctions. The explanatory memorandum states that the lack of availability of civil pecuniary penalties and disqualification orders for enforcement of consumer law represents a significant gap in the range of enforcement options available to the ACCC and ASIC. At present, the ACCC and ASIC are unable to obtain compensation for consumers when bringing criminal action alone. If a matter is serious enough to warrant a penalty the ACCC or ASIC must institute both civil and criminal proceedings in order to secure any type of compensation. Civil pecuniary penalties and disqualification orders are designed to provide an alternative to this duplicative process and provide timely and proportionate resolutions to instances of illegal conduct that do not call for criminal sanctions to be sought.

The proposed civil penalties will apply to unconscionable conduct, misleading or deceptive conduct, participation in pyramid selling, product safety and product information and substantiation notices as defined by the provisions of the sections of the Trade Practices Act. The maximum penalty will be $1.1 million for corporations and $220,000 for individuals. The enforcement provisions of this bill greatly increase the powers of the ACCC to act not just as a cop on the beat but also as a judge and jury. The coalition has not been impressed with the recent performance of the ACCC and there must be concerns about the way in which it would apply these powers in a quasi-judicial role. Its recent application of anti-cartel measures and the criminalisation aspects of the measures continues to cause some concern. There are existing legal remedies for most of these areas covered by the bill and the extended powers can be seen as unwelcome and unnecessary intervention by government agencies. Again, quoting the Law Council’s submission to the Senate Economics Committee:

… the new enforcement powers should only be introduced where there is a sound policy basis for doing so and where existing enforcement measures are clearly insufficient to achieve the same outcomes. The Committee—

the Trade Practices Committee—

remains unconvinced as to the policy justification for introducing some of the proposed enforcement powers.

Once again, the coalition favours measures that result in appropriate and timely redress but we will watch very carefully the operation of these new enforcement powers.

In conclusion, in general we support the bill, both in its general aim of unifying Australian consumer law and its specific aim of strengthening the hand of the consumer when the ability to exercise choice is limited by the dominant use of standard form contracts. However, we have some specific concerns and we will seek to have these addressed when the bill is debated in the Senate.

We would propose to have discussions with the government with regard to the following changes: firstly, the deletion of the provision for prohibition of contractual terms—that is, clause 6 of the bill; secondly, the deletion of both the provisions providing for the reversal of the onus of proof—that is, clauses 3(4) and 7(1); and thirdly, in clause 3(2)(a) the omission the words ‘or there is substantial likelihood that it would cause detriment (whether financial or otherwise)’, substituting the words ‘a significant disadvantage’.

We also have concerns with the implementation date and note that, given that it is currently late in the year, the implementation of standard form contract legislation will provide difficulties for many firms which have large numbers of standard form contracts. The government should give consideration to deferring the commencement date for those contractual terms until perhaps the middle of next year, 1 July 2010.

Given that we accept the principle of taking action on the use of unfair terms, an opportunity has been lost in this legislation to extend the protection to small business. Consideration should be given to amending the bill to adopt the definition of ‘consumer contract’ used in section 4B of the Trade Practices Act. Again, this would provide more clarity, avoid creating a second legal definition of such contracts and, crucially, provide protection to small businesses in contracts where they are, in effect, acting as a consumer. We also seek more clarity on the issue of ‘transparency’ and its bearing on the unfairness or otherwise of contractual terms. The explanatory memorandum suggests that a lack of transparency indicates a lack of fairness but it appears that a contractual term may be both transparent and unfair.

More precision on these issues would greatly assist the legal and business communities, small business in particular, and lead to a speedy resolution of the issues in the courts. The consultation process for this legislation has revealed a range of problems in the area of business-to-smallbusiness contracts and particularly in government-to-smallbusiness contracts. We note the government’s review of unconscionable conduct provisions of the Trade Practices Act and the Franchising Code of Conduct with regard to unfairness in business-to-business contracts. We also note the views of stakeholders that a similar review of the dealings of Commonwealth, state and territory governments with small business in particular with regard to unfair contract terms is necessary and we call on the government to set up such a review.

Certainly the coalition supports the broad thrust of this legislation and we look forward to ongoing negotiations with the government to further improve the legislation in the Senate.

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