David Bushby (Tasmania, Liberal Party) Share this | Hansard source

I rise to also speak to the Trade Practices Amendment (Australian Consumer Law) Bill 2009 and note that I have been waiting to do so since at least November—it has been in the red every week since November. It is good to see that the government has finally got its priorities in order to enable a bill to be debated which may have some chance of being passed.

There are clearly circumstances where two parties to a standard form contract have unequal bargaining power and the party with the greater bargaining power includes terms which may prove to be unfair to the party holding less power. There is no doubt that at times this imbalance of bargaining power has been employed, and it continues to be employed, by unscrupulous businesses to the unfair detriment of consumers and, at times, small businesses. In my view, the consequences of such action by an unscrupulous party justify intervention by legislators to protect the unfairly impacted party from the consequences of having to comply with unfair terms.

In an overall sense, I am persuaded by the arguments of the Law Council of Tasmania and others at the Senate Economics Committee inquiry into this bill that the circumstances as to what constitutes ‘unequal bargaining power’ and ‘unfair’ will vary depending on the circumstances relating to each of the parties, their reasons for entering the contract and their level of understanding and ability to consider and accept the consequences of the terms to which they are agreeing. As such, I am of the view that the principles-based approach to addressing the very real mischief that needs to be addressed may prove to be unsophisticated in practice, may lead to the creation of unnecessary uncertainty for both business and consumers, may actually preclude many terms in contracts that are, in the circumstances, fair, and may even allow the inclusion as fair of some terms that, were the particular circumstances to be examined, could be considered unfair.

I welcome the move to nationalise the approach to consumer protection in the area of consumer trade law and recognise that the rationalisation of jurisdictions dealing with this issue will result in some savings for businesses that operate across state borders. However, I am also of the opinion that the problems in compliance and certainty introduced as part of this legislation will add to the costs of many of the goods and services provided under the standard form contracts affected. Ultimately, this cost will be passed on to all consumers of such goods and services as a cost of addressing actual detriment to a subset of such consumers, and, more pointedly in the context of the legislation as written, as a cost of addressing the possibility of detriment arising from the mere presence of an unfair term in such a contract.

A number of specific matters were put forward by submitters to the economics inquiry that raise issues in my mind with respect to the effect of the proposed legislation. The primary issue raised by all business submitters was that of uncertainty. On the basis of the evidence received, it is arguable that anyone who signs up to a standard form contract—as alluded to by Senator Joyce—will be able to allege that its terms were unfair if they find later that they do not like the contract, they do not like the product, a new product comes out and they want to get that, their circumstances have changed, or for any other reason they no longer wish to remain a party to that contract. Under this bill, once they have alleged that such a contract contains unfair terms, the onus of proof shifts entirely to the business to prove otherwise. This is clearly a recipe for anyone not wanting to meet their obligations under a standard term contract to make an unfair allegation and thereby shift the onus of proving the contract is fair onto the other party. The clear impact of this will be the removal of any degree of certainty a business might assume would apply upon such a contract being entered. Let’s face it: that is the reason parties enter standard form contracts, or any contract really—to set out, for certainty’s sake, the basis on which two or more parties will conduct a transaction. If that degree of certainty is removed, it will render many, if not all, forms of standard form contracts unenforceable.

If the legislation turns out to have this impact, the primary advantage of standard form contracts—that being the removal of the costs and the time involved in negotiating the respective rights of parties for common goods and services, which coincidentally reduces transaction costs and, hence, prices—would evaporate. The only possible outcome then would be a revision of the manner and terms on which parties to such transactions contract or higher prices for those goods and services.

Uncertainty resulting from this legislation is exacerbated by the lack of a clear definition for the terms ‘standard form contract’ and ‘company’s legitimate interests’. This lack of certainty also increases the personal risk to directors of companies, who will no longer be able to rely on the enforceability or even legality of standard form contracts drafted by their employees.

Issues were also raised during the inquiry regarding the start dates of the obligations under the proposed legislation. If business as a whole is to ensure that its standard form contracts are fully reviewed and brought into line with what they understand to be required, longer lead times will be required than have been provided—particularly given the uncertainty surrounding definitions and what needs to be included to ensure that such contracts comply with the legislation. It seems to me that a longer transition period, maybe 12 months, would be more workable. In this regard it is worth noting evidence that it took some 12 months for the disruption caused by the introduction of equivalent provisions in both the UK and Victorian legislation to work through the consequent confusion caused by the lack of clarity in the definition of what constituted an unfair term. It is also worth noting that, as also noted by Senator Joyce, the government’s reasoning for removal of business-to-business contracts from the effect of this legislation was that it was too vague and likely to lead to uncertainty. Surely, if this is the case between businesses, it could be said to also apply to standard form contracts between businesses and consumers.

Many industry sectors are already very heavily regulated, including, but not limited to, the insurance industry, which has long been regulated in reflection of the potential for insureds to be treated unfairly as a consequence of differing levels of bargaining power, and more recently the financial services sector has also come under heavy regulation. In recognition of the specific protections already built into the insurance legislation, the insurance sector has been exempted from the effect of this legislation. This is a controversial decision but in my opinion the correct one. Although I acknowledge there remain many issues of unfairness in the way some insurance contracts are applied, I do not consider this proposed legislation to be the best way of addressing those issues. In many cases it is the application of insurance terms that is unfair, not necessarily the terms themselves, and it is this that needs to be better addressed in the context of the regulation of the insurance industry. In that context it is worth noting evidence from the Insurance Council of Australia that over 98 per cent of insurance claims are paid out without question and only 0.065 per cent of claims go to the Insurance Ombudsman. In terms of the financial services industry, it seems to me that there is a strong case that their current and very recent regulation requires them already, through their fiduciary and common law obligations, to treat their clients fairly and, indeed, to prefer the rights of investors over those of their shareholders. It may be that extending this legislation to cover their industry will not add to existing consumer protection but will add to the cost of the services they provide to consumers, costs that will again ultimately have to be paid by consumers.

These two examples highlight my preferred approach to addressing the issue of unscrupulous exploitation of unequal bargaining power in standard form contracts. That is, in those industries that are already regulated, I am persuaded that it would be preferable to use that regulation to ensure that consumers are treated fairly. If the current legislation is not up to scratch then tweak it so that it is. Where industries are not regulated, it would be appropriate to apply such a law as proposed as a ‘catch-all’ to ensure all remaining consumers are protected from unfair provisions, subject, of course, to fixing the issues highlighted by Senator Joyce and me today.

Professor Zumbo at the hearing suggested that one way to improve certainty is to provide what he described as ‘safe harbours’. As the legislation currently stands, there is scope for grey lists to be compiled with terms that may or may not be unfair. This fails to provide any certainty, and in fact the identification of terms that might be considered unfair will probably add to uncertainty. As I understand it, Professor Zumbo suggests that if a business were able to get their standard form contract signed off as compliant with the Australian Consumer Law by an appropriate regulator, with such a sign-off providing them with protection against an unfair term allegation, it would vastly improve business certainty. Despite my view that what is actually unfair depends on the specific circumstances of a case, I am attracted to Professor Zumbo’s suggestion as it would significantly improve certainty of the enforceability of contracts if a general test of unfairness could be applied to standard form contracts prior to their being entered into.

Evidence was also received at the inquiry that there is a need for the Australian Consumer Law to cover business to business transactions. It is clear to me that there are also situations where small businesses lack bargaining power, are effectively ‘consumers’, and are just as subject as individuals to unscrupulous activities when entering into standard form contracts. Indeed, in many circumstances, busy small business operators can be easier prey for the unscrupulous than well-informed consumers. As such, there is clearly a need for a legislative framework that provides equivalent relief for small business from inappropriate and unfair contract terms in situations where there is clearly unequal bargaining power. The Australian Consumer Law as proposed, however, may not deliver that relief in a way that will be of net benefit to either of the parties involved, for the reasons already discussed, whether in respect of individual consumers or business, and in that sense the removal of business-to-business contracts from the scope of the proposed legislation was probably, in my view, the correct decision.

At the hearings Treasury was asked about the extent to which existing remedies contained in the Trade Practices Act already provided protection against unscrupulous conduct of the sort the proposed legislation is intended to curb, such as that provided under section 51AB. Treasury’s view was that the proposed unfair contracts aspect of the Australian Consumer Law would provide additional avenues of redress for consumers. Other witnesses stated that the section 51AB remedies were rarely used, in part because of cost, and also because they possibly are not fully tested in terms of their ability to offer remedies for matters such as unscrupulous behaviour by a party with unequal bargaining power in a standard form contract. Of interest is the evidence by Treasury that all remedies available to be pursued under the Australian Consumer Law can be pursued in state based forums. As such, one of the major benefits that I see in this legislation is that it has the potential to reduce to a significant extent one of the major barriers to justice, that being the cost and ease of access to it. Because those with unscrupulous intentions often fail to pay the degree of attention to legal requirements than those of more pure intentions, I consider that in many ways this is a more important development, as it would vitally improve the ability of consumers, individuals and small businesses, who are the victims of unscrupulous dealings to have access to remedies. If state jurisdictions ensure there are appropriate low-cost dispute resolution forums in place that offer consumers access to all remedies available under the Australian Consumer Law, it may well be the case that remedies such as those already contained in section 51AB may prove far more effective than they have so far proven to be.

The proposed Australian Consumer Law is in itself a significant step forward in terms of consumer protection. However, with respect to the unfair contracts section of the proposed Australian Consumer Law, it is my view that the specifics of that proposal do not provide the best way to address the very real and serious issues that do occur between parties of unequal bargaining power, as the uncertainty and other consequences appear likely to be to the benefit of neither party. Many industry sectors are already regulated. To the extent that the regulation fails to fully address unfair contract issues within each of those sectors, consideration should be given to amendments to those regulations to provide a fair balance.

Debate interrupted.