21 - John Carter Article on Competition and Consumer Act

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The Commercial Side of AustralianConsumer Protection Law

J W Carter*

This article discusses the reforms of Australian consumer protection lawproposed in the Trade Practices Amendment (Australian Consumer Law) Bill(No 2) 2010 (Cth) and other legislation which create a national consumerprotection regime for Australia termed the ‘Australian Consumer Law’. Thearticle argues that the Australian Consumer Law fails to meet the goals ofconsumer protection, for example, by providing the same protection forcommercial acquirers of goods and services as is afforded to those whoacquire goods and services for personal use.

Introduction

Context

The Australian Parliament currently has before it the Trade PracticesAmendment (Australian Consumer Law) Bill (No 2) 2010 (Cth) (the Bill).The principal objective of the Bill is to replace the consumer protectionprovisions currently found in the Trade Practices Act 1974 (Cth) (TPA) andthe ‘Australian Consumer Law’ (ACL)1 with a new and greatly expandedACL. As part of these changes, the TPA will be renamed the Competition andConsumer Act 2010 (Cth) (CCA).

A key ingredient of the reforms is replacement of the implied termsprovisions of Pt V, Div 2 of the TPA — derived ultimately from the Sale ofGoods Act 1893 (UK) — with a regime of ‘consumer guarantees’. Variousopinions have been expressed on how far the law will be changed if the Billis enacted in its current form. The Explanatory Memorandum2 to the secondreading of the Bill explains the basis on which the Regulatory ImpactStatement (RIS) was prepared in relation to the replacement of the impliedterms provisions with consumer guarantees:3

The RIS discusses the impact of implementing the [Commonwealth ConsumerAffairs Advisory Council] recommendations, including the costs and benefits ofmoving from a system of implied conditions and warranties to statutory consumer

* Professor of Commercial Law, University of Sydney; General Editor, Journal of Contract

Law; Consultant, Freehills. This article draws on submissions made by Freehills to theCommonwealth Treasury in relation to some of the reforms discussed in the paper. However,the views expressed are my personal views and are not to be attributed to the University ofSydney or Freehills. An earlier version of this article was presented at the Law SummerSchool, University of Western Australia, 26 February 2010. I wish to thank the referee forthe valuable comments on the article.

1 Unless otherwise indicated, references to provisions of the ACL are to the sections proposedby the Bill.

2 Parliament of the Commonwealth of Australia, Explanatory Memorandum: Trade Practices

Amendment (Australian Consumer Law) Bill (No 2) 2010 (Cth), 2010 (Explanatory

Memorandum).3 Explanatory Memorandum, para 25.8.

221


guarantees. Given that the proposal does not involve a change in the substantiverights and obligations of businesses or consumers, the only cost is transitional innature. On the other hand, the benefits of reduced complexity and uncertainty willbe enduring, as will be the reduced costs of compliance for businesses, particularlythose businesses that trade in more than one State or Territory of Australia.

Submissions by Treasury to a Senate Economics Legislation Committeeappointed to consider the Bill apparently also expressed the view that there areno substantive changes.4 However, as explained below, it is clear that the Billwill have quite significant effects.

Elements of the Current Regime

From a legal perspective, the principal source of consumer protection underAustralian law is the TPA. Many of its provisions are direct sources ofprotection for consumers. At present there are six main sources of directprotection in the TPA:

(1) various prohibitions on ‘unfair practices’ (such as misleading ordeceptive conduct) and three separate prohibitions onunconscionable conduct;

(2) Pt V, Div 2 — relating primarily to the implication of terms inconsumer contracts;

(3) Pt V, Div 2A — relating to the liability of manufacturers;5

(4) an unfair contract terms regime — stated in the ACL;6

(5) a private enforcement regime directed primarily to remedies inrelation to contravention of the TPA; and

(6) an extensive enforcement regime administered by the AustralianCompetition and Consumer Commission (ACCC).7

Each source will be included — as redrafted — in the ACL.Many provisions in the TPA have analogues in other legislation.8 There are

also many specific pieces of consumer protection legislation, as well asconsumer protection provisions in general statutes, at the state and territorylevel.9 Other provisions of the TPA — such as those in Pt IV — provideindirect protection through promoting competition in the marketplace. And, ofcourse, the common law also has a consumer protection dimension. Although,by definition, this has been found wanting, it nevertheless provides part of thebackground against which the proposed Australian consumer protectionregime — as expressed in the ACL — must be considered.

4 See Senate Economics Legislation Committee, Trade Practices Amendment (Australian

Consumer Law) Bill (No 2) 2010 (Cth), Canberra, May 2010, §2.6 (‘Treasury noted thatthere is nothing . . . different from the existing law’). But see Submission by the Treasury tothe Senate Economics Legislation Committee, Trade Practices Amendment (AustralianConsumer Law) Bill (No 2) 2010 (Cth), 11 May 2010, p 3 (in ‘some key areas . . . theprovisions (but not the policy intent) of the ACL differ’).

5 This operates in addition to a product liability regime.6 Inserted by the Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010

(Cth).7 Inserted by the Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010

(Cth).8 Principally, the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC

Act) and the fair trading legislation of most, but not all, jurisdictions.9 See, eg Pt 8 of the Sale of Goods Act 1923 (NSW).

222 (2010) 26 Journal of Contract Law


The ACL

At present, the scope of the ACL is limited to an unfair contract terms regimebased on Pt 2B of the Fair Trading Act 1999 (Vic) and an extended (andcoercive) enforcement regime administered by the ACCC.10 The Billsubstantially increases the scope of the ACL. The ACL will include provisionsbased on the TPA and supplemented by what has been termed ‘best practice’11

of the fair trading legislation of the states and territories. The end result willbe a single law which is also to be adopted by the states and territories in placeof the current consumer protection provisions of fair trading legislation.12

The reforms in the ACL are based on various reports, most of which havebeen the subject of submissions by interested parties.13 Surprisingly, however,the Bill was first made public when presented to Parliament. Given theabsence of prior public exposure, and that the CCA is proposed to come intoforce on 1 January 2011, it might be said that the ACL has been presented tothe Australian public as a fait accompli.14 At the same time, further reformsare already before Parliament.15

Issues

From a consumer protection perspective, the most surprising feature of theBill is that it continues to treat many commercial transactions as worthy of‘consumer protection’. However, the Bill is also disappointing from a genuineconsumer protection perspective. The opportunity which was available to theAustralian Government to enact a genuine — and simplified — consumerprotection regime has been lost, to the detriment of business, consumers andthe Australian economy. The principal purpose of this article is to considerwhat might be termed the ‘commercial side’ of consumer protection which theTPA embodies. A secondary consideration is the extent to which (genuine)consumers are not adequately protected by the new regime.

Space does not permit a full analysis of the Bill. This article thereforeconcentrates on three areas:

(1) the prohibitions on misleading or deceptive conduct andunconscionable conduct;

10 The unfair contract terms regime will enter into force on 1 July 2010.11 See Explanatory Memorandum, pp 13–14 and §§6.3, 23.3.12 The need for a national cooperative approach arises from the constitutional limitations on

the scope of the TPA which have required it to focus primarily on the contracts and conductof corporations.

13 See, eg The Australian Consumer Law: Consultation on Draft Unfair Contract Terms

Provisions, Canberra, 11 May 2009 (Consultation Paper); Commonwealth ConsumerAffairs Advisory Council, Issues Paper, Consumer Rights: Statutory Implied Conditions and

Warranties, Canberra, July 2009 (Issues Paper); Commonwealth Consumer AffairsAdvisory Council, Final Report, Consumer Rights: Reforming Statutory Implied Conditions

and Warranties, Canberra, October 2009 (Final Report).14 The Bill is 388 pages long, and the Explanatory Memorandum runs to 669 pages. It may also

be noted that major reforms are being proposed at a time when business must cope with noless fundamental reforms in the areas of consumer credit and personal property security.

15 Competition and Consumer Legislation Amendment Bill 2010 (Cth). Cf Competition andConsumer Policy Division Treasury, Issues Paper, The Nature and Application of

Unconscionable Conduct Regulation: Can Statutory Unconscionable Conduct be Further

Clarified in Practice?, Canberra, November 2009 (Unconscionable Conduct Issues Paper).

The Commercial Side of Australian Consumer Protection Law 223


(2) the unfair contract terms regime; and(3) the consumer guarantees regime.

An Ideal Regime?

There is no doubt that the sources of consumer protection referred to above arehigh points of the Australian consumer protection landscape. That they do notachieve a satisfactory regime can be taken for granted since, otherwise, thegovernment would not be debating the ACL. It is certainly timely that theAustralian Government should be replacing major components of the TPA,including the implied terms provisions. Everyone will benefit from thereplacement of the various (and varied) state and territory fair tradinglegislation which currently reflect the TPA. However, given that this reform isfundamental, it must be a great disappointment that the plan is to bring thelegislation into operation on 1 January 2011. Clearly, there will be insufficienttime for the commercial community to take account of the legislation in itscontracting, marketing, purchasing, systems and insurance arrangements.

What constitutes an ‘ideal’ consumer protection is a matter on which no twopeople are likely to be in full agreement. However, at a minimum, any regimemust go some way to achieving four goals:

(1) dedicated operation — achieved by a sensible definition of‘consumer’;

(2) a high level of intelligibility, so that it is capable of being understoodby those benefited and burdened by the regime, as well as those whoadminister it;

(3) the imposition of compliance standards which are reasonably capableof being met; and

(4) in terms of rights and remedies, reasonably balanced.

These goals form the basis for the discussion below. Unfortunately, themajor ills of Australian consumer protection will not be cured by the Bill.Indeed, there is every reason to believe that the wrong treatment has beenchosen and that the ACL does not come close to meeting any of the four goals.

Who Is a ‘Consumer’?

Introduction

The reference in the title of this article to the ‘commercial side’ of consumerprotection ought, logically, to suggest a concern with the compliance impactof the ACL on suppliers (including manufacturers) of goods and services.16 Itis, after all, counter-intuitive to think of a commercial party as being on the‘consumer’ side of the contract. Although the compliance impact on businessis important, it has not been the way of the TPA for the concept of consumerto be restricted to persons who acquire goods or services for personal ordomestic use. Nor will it be the way of the ACL.

Ever since the consumer protection wave began to form in the 1960s,academics, law reform bodies and parliaments have all wrestled with the

16 The unfair contract terms regime also applies to contracts relating to land. That raises furtherimplications with which it is not possible to deal in this article.



concept of ‘consumer’, and the ‘correct’ definition for consumer protectionpurposes. It has for some time been recognised that a ‘small business’ is inmany contexts as much a ‘consumer’ as Ms Carlill was at the end of the 19thcentury. A narrow definition of ‘consumer’ is apt to shut out small business.But, of course, from an inequality of bargaining perspective, size is relative.Even a substantial corporation may suffer from the inequality of bargainingthat offends small business when contracting with a large public corporationor a government. Nevertheless, it would seem self-evident that a desire toprotect small business is no excuse for protecting big business, including incases where they acquire goods or services from members of the smallbusiness community. It would seem equally self-evident that the protectionafforded to small business cannot be the same as that afforded to corporationsin general or the ordinary consumer. Yet, the TPA does all of this in the nameof consumer protection. So also will the ACL. What has been missing is a‘dedicated’ regime which is restricted to consumers who do not acquire goodsor services for commercial purposes.

Definition in the TPA and ACL

Section 4B of the TPA, which purports to define ‘Consumer’17 for thepurposes of the Act is often spoken of as if it stated a single definition. Thatis incorrect. Embedded within s 4B are a great many definitions. None arecouched in terms of the characteristics of the ‘consumer’. Also incorrect is theassumption that whenever the TPA refers to ‘consumer’ the intention is toinvoke the s 4B definition.18 The primary relevance of s 4B is to the impliedterms provisions. Other sections of the TPA are referenced to, state or employtheir own ‘consumer’ concepts.19

For the purposes of comparison with the ACL, four of the definitionsembedded in s 4B of the TPA may be noted:20

(1) a contract for the supply of goods at a price which does not exceed$40,000 to a person (including a corporation) which does not acquirethe goods for the purpose of resupply;

(2) a contract for the supply of services at a price which does not exceed$40,000 to a person (including a corporation);

(3) a contract for the supply (no matter what the price) of goods of a kindordinarily acquired for personal, domestic or household use orconsumption to a person (including a corporation) which does notacquire the goods for the purpose of resupply; and

(4) a contract for the supply (no matter what the price) of services of akind ordinarily acquired for personal, domestic or household use orconsumption to a person (including a corporation).

Under the Bill there is a substantial change. The ‘definition’ is even moreabstract than under the TPA. For the purpose of the consumer guarantees

17 I use the capitalised version of ‘Consumer’ to describe any person who is a consumer for thepurposes of the consumer guarantee provisions of the ACL or s 4B of the TPA.

18 Cf Issues Paper, p 11 (belief that definition of consumer same for implied terms andmanufacturers liability provisions).

19 See further below, text at n 24.20 Each has been simplified slightly.



regime (replacing implied terms), a consumer is a person who enters into acontract for the supply of goods or services of a kind ordinarily acquired forpersonal, domestic or household use or consumption. From the perspective ofa person who acquires goods or services for personal use, the result is a mostpeculiar regime. Four points may be made. First, the immediate impact is todelete the first two definitions identified above. Therefore, where a personacquires goods or services which are not of a kind ordinarily acquired forpersonal, domestic or household use or consumption, that person cannot be aconsumer. At a stroke, the ACL will deprive persons who acquire goods orservices for personal use of protection simply on the basis that they happen toacquire a particular kind of goods or services. In the case of a supply of goodsby sale, such consumers will be forced to look to the sale of goods legislation.But for other categories of supply — including the supply of services —consumers will need to know their common law of contract and be contentwith their common law rights.

Second, the extensions achieved by definitions (3) and (4) will continue toapply under the ACL. If the goods or services are of a kind ordinarily acquiredfor personal, domestic or household use or consumption commercialacquisitions of goods or services are protected to the same extent as a genuineconsumer acquisition. The only significant limitation is that (as under theTPA), in relation to goods, the acquisition must not have been for the purposeof resupply. From the perspective of any implicit concern to protect smallbusiness acquirers there are disturbing anomalies. For example, assume thatSmall Business Pty Ltd purchases 50 personal computers at a price of $50,000from an importer for resupply. Small Business Pty Ltd is not a Consumer —because it has acquired for the purpose of resupply. If it sells the computersto Big Business Ltd for $70,000 for use by its employees in the course of itsbusiness, Big Business Ltd is a Consumer. Like the implied term provisionsof the TPA, the consumer guarantees of the ACL will therefore protect bigbusiness as much as small business, and allow Big Business Ltd to portrayitself as a consumer when acquiring goods from Small Business Pty Ltd. Thebasis is a purely circumstantial consideration, namely, that the goods are of akind ordinarily acquired for personal, domestic or household use orconsumption.

Third, where a commercial supplier wishes to contract on its standardterms, it may be impossible for the supplier to know in advance whether allcustomers will be Consumers. Apart from the uncertain meaning of ‘personal,domestic or household use or consumption’21 — the supplier may be unawarewhich of its customers are acquiring for resupply. The concept of Consumeris linked with the ability to limit liability. If the supplier gets it wrong, thesupplier may be liable to pay a pecuniary penalty.22

Fourth, the oddities of the application of the TPA in favour of Consumersmay also have a direct adverse impact on consumers. If A hires a cement

21 See, eg Atkinson v Hastings Deering (Queensland) Pty Ltd (1985) 6 FCR 331; Cavalier

Marketing (Australia) Pty Ltd v Rasell (1990) 96 ALR 375; Minchillo v Ford Motor Co of

Australia Ltd [1995] 2 VR 594 at 616–17.22 See s 151(1)(m) of the ACL (replacing s 75AZC(1)(k) of the TPA). See further below, text

at n 52.



mixer for a week in order to mix cement for a path at his or her house, A isnot a Consumer. There are no direct statutory restrictions on the supplier’s useof exclusion clauses.23

If nothing else, this overinclusive approach devalues the ACL regime as aconsumer protection regime. People who acquire goods or services forpersonal use do not have the benefit of a dedicated regime. Rather, it is onewhich they share with Australia’s largest corporations.

Other Definitions of ‘Consumer’

The ACL will continue the confused and confusing technique of havingdifferent definitions of consumer for different ingredients of the regime whichwas a feature of the TPA. Five illustrations may be given. First, there is aconcept of ‘consumer contract’ for the purposes of the unfair terms regime.This is expressed by s 23 of the ACL24 in terms of the acquisition of goods,services or an interest in land ‘wholly or predominantly for personal, domesticor household use or consumption’.

Second, for the purposes of product liability provisions, ‘consumer goods’are defined by s 2 of the ACL as ‘goods that are intended to be used, or areof a kind likely to be used, for personal, domestic or household use orconsumption, and includes any such goods that have become fixtures since thetime they were supplied’.

Third, s 21 of the ACL refers to ‘consumer’ in the context of the prohibitionof unconscionable conduct as a ‘person’ to whom goods or services aresupplied.25

Fourth, s 22 — which prohibits unconscionable conduct in businesstransactions — refers to a concept of ‘business consumer’.26

Fifth, s 2 refers to a ‘non-party consumer’.27

This is, of course, all quite bewildering. Some very fine distinctions aredrawn, for example, between goods ‘of a kind ordinarily acquired forpersonal, domestic or household use or consumption’ and goods ‘that areintended to be used, or are of a kind likely to be used, for personal, domesticor household use or consumption’. The concepts are frequentlycounter-intuitive. Whatever lawyers may make of it, the concepts are wellbeyond the reach of ordinary consumers. For example:

• a ‘consumer contract’ is not a contract entered into by a person whois a Consumer;

23 If the supply is made under a standard form contract the unfair terms regime of the ACL willapply.

24 Currently, s 2 of the ACL.25 Section 21(5) then proceeds to define ‘goods or services’ as ‘goods or services of a kind

ordinarily acquired for personal, domestic or household use or consumption’; and s 21(6)states that a ‘reference in this section to the supply or possible supply of goods does notinclude a reference to the supply or possible supply of goods for the purpose of resupply orfor the purpose of using them up or transforming them in trade or commerce’. TheCompetition and Consumer Legislation Amendment Bill 2010 (Cth) proposes deletion of theprohibition.

26 The concept has no content and is merely internal shorthand.27 Currently defined by s 4(1) of the TPA (as added by the Trade Practices Amendment

(Australian Consumer Law) Act (No 1) 2010 (Cth)).



• ‘consumer goods’ are not goods supplied to a person who is aConsumer;28

• a ‘business consumer’ is not a Consumer who acquires goods orservices in the course of a business; and

• a ‘business consumer’ is not a person who acquires goods or servicesin the course of a business under a ‘consumer contract’.

A Simple Solution?

It is difficult, as a matter of principle, to understand why in a reform whichmakes fundamental changes to Australian law the decision was not taken torationalise the central concept of ‘consumer’. Putting that obvious point to oneside, there is simply no reason to treat the commercial acquisition of goods orservices as acquisition by a consumer. The key consideration is whether thegoods or services are acquired for personal use. There is, in fact, a verystraightforward way in which substantial uniformity in the ACL could beachieved.

The unfair contract terms regime of the ACL employs a much moreconstrained — and more logical — definition of consumer. Section 23 restrictsthe concept to ‘an individual’ who acquires goods, services or an interest inland ‘wholly or predominantly for personal, domestic or household use orconsumption’. This definition highlights the absurdity of using goods orservices ‘of a kind ordinarily acquired for personal, domestic or household useor consumption’ as a sufficient basis for saying that a person is a Consumer.Adoption of the concept in s 23 as the general definition would remove theanomalies inherent in the concept of Consumer. It would also deliverconsumer protection to consumers who acquire goods or services which arenot of a kind ordinarily acquired for personal, domestic or household use orconsumption. At the same time it would remove the ‘consumer protection’currently afforded to corporations.

One source of confusion has been the desire to protect small business. Thefact that Small Business Pty Ltd acquires goods or services in the course of abusiness is not of itself a basis for saying that it cannot be a consumer for somepurposes. Thus, the overinclusive definition of Consumer may be considerednecessary in order to protect Small Business Pty Ltd. What seems to have beenignored is that small business is protected only where it is an end-user. Whereit all goes horribly wrong is that Small Business Pty Ltd must afford consumerprotection to corporations who acquire goods or services for business use.29

There are — and always have been — good reasons to allow freedom ofcontract in dealings between commercial parties. There is simply no policybasis for giving all corporations — large and small — rights against a smallbusiness supplier on the basis that the corporations are Consumers. There are,of course, ways to protect Small Business Pty Ltd without also protectingbusiness consumers who are not small business consumers.

28 Contrary to the view expressed by the Senate Economics Legislation Committee, Trade

Practices Amendment (Australian Consumer Law) Bill (No 2) 2010 (Cth), Canberra, May2010, p 1 as part of its first recommendation that the Bill be passed.

29 See further below, text before n 38.



Misleading or Deceptive Conduct

Section 52 of the TPA, which prohibits conduct ‘in trade or commerce’ that is‘misleading or deceptive or is likely to mislead or deceive’, appears in Pt Vof the TPA. That part of the TPA has the heading ‘Consumer Protection’. It is,however, now a matter of history that by a bare majority the High Court ofAustralia held in Concrete Constructions (NSW) Pty Ltd v Nelson30 that theheading does not control the operation of s 52.

Without doubt, the prohibition on misleading or deceptive conduct is one ofthe most important consumer protection measures of Australian law.31

However, the approach — confirmed by the ACL — of making the remediesfor contravention of the prohibition available to business has done untolddamage to the Australian law of contract.32 Its use as a consumer protectionmeasure has been marginalised as business has used it as a means to relief inrelation to complex commercial transactions such as a contract for the sale ofa business,33 and as an alternative to the tort of passing off.34 As with theconcept of Consumer itself, the prohibition on misleading or deceptiveconduct is quite insensitive to the needs of small business. Although, inessence, the prohibition does no more than provide relief by way of damagesin relation to innocent misrepresentation, by treating the prohibition as statingan inviolable norm of conduct, exclusions and limitations of liability havebeen deemed ineffective as contrary to public policy.35

Easily Understood?

Introduction

A consumer protection regime is addressed to consumers. It ought therefore tobe intelligible to consumers. If that goal is satisfied, the regime will also beeasily understood by those burdened by the regime and those who administerit, in Australia the ACCC. So far as the TPA is concerned, there isincontrovertible evidence that it is not understood by any interested party.

That the consumer protection regime of the TPA is incomprehensible toconsumers is obvious. Consumers are unlikely to understand matters such as:

• the definition of Consumer in s 4B;• the drafting of the implied terms provisions as ‘conditions’ and

‘warranties’;• the use in the implied terms provisions of concepts such as

‘supply . . . by description’, ‘merchantable quality’ and‘supply . . . by sample’;

30 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; 92 ALR 193.31 Analogues of s 52 of the TPA are included in the fair trading legislation of the states and

territories as well as the Australian Securities and Investments Commission Act 2001 (Cth)and the Corporations Act 2001 (Cth).

32 See David Harland, ‘Misleading or Deceptive Conduct: the Breadth and Limitations of theProhibition’ (1991) 4 JCL 107; David Harland, ‘The Statutory Prohibition on Misleading orDeceptive Conduct in Australia and its Impact on the Law of Contract’ (1995) 111 LQR 100.

33 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; 120 ALR 16.34 See Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501

at 632; [2009] FCA 1220 at [591].35 See below, text at n 56.



• the drafting, and sheer complexity, of the manufacturers liabilityprovisions; and

• the concept of ‘rescission’ in s 75A.

Not only are consumers confused by the TPA, so also are most suppliers,particularly retailers. Contractual terms which contravene the TPA are ingeneral use in suppliers’ standard terms. Many standard terms of businessinclude provisions which are (at the very least) misleading. Retailers regularlyrefer Consumers to manufacturers for defects in goods for which they areliable in contract to the Consumer. It is not that all such suppliers areunscrupulous — and aided and abetted by their lawyers. In most cases it issimply that people do not understand the regime.

The same explanation must, of course, be given in relation to the efforts ofthose entrusted with law reform and law enforcement agencies. It is notdifficult to find illustrations of the expression of doubtful understandings ofthe TPA. Three will suffice. The first appears in a statement about remediesmade in one of the documents on which the Bill is based:36

If a good [sic] does not meet a statutory implied term after a consumer has ownedit for some time or used it a lot, it is still a breach of contract. However, in thesecases the consumer may not be entitled to claim a refund, but may still be entitledto another form of remedy from the seller for the breach of contract, such as:

• the replacement of the goods, or the supply of equivalent goods; or• repair of the goods, or paying for the cost of repair.

There is a confusing ambiguity in the ugly statement ‘has owned it for sometime or used it a lot’. In general, the time of delivery is the relevant time fordetermining whether the supplier has breached one of the implied terms. Inaddition, notwithstanding the statement quoted above, under the TPA there isno right:

• to have goods replaced;• to the supply of equivalent goods;• to have goods repaired; or• to payment of the cost of repair.

Surprisingly, the only right which the Consumer necessarily enjoys if animplied term has been breached — to be compensated for breach of contract— is omitted from the statement.

The second occurs in an enforcement agency’s attempt to explain the TPAconsumer protection regime:37

If a seller of goods or services does not meet any one of the obligations [created bya term implied by the TPA], it is a breach of their contract with the consumer. Whenthis happens, consumers are entitled to a remedy from the seller. The type of remedydepends on the circumstances but may include repair or replacement of goods,compensation for loss or damage, a refund or having an unsatisfactory serviceperformed again.

In fact, nowhere does the TPA provide for ‘repair or replacement of goods’ or‘having an unsatisfactory service performed again’. Bearing in mind that the

36 Issues Paper, p 6.37 Australian Competition and Consumer Commission, Warranties and Refunds: A Guide for

Consumers and Business, Canberra, 2009.



document is intended to be a guide to both consumers and business, thestatement says a good deal, including about how difficult it is to understand theTPA.

Third, consider also the following statement, taken from a law enforcementagency’s website:

Every effort is made to ensure that the material on this site is accurate and up to date.However, the [enforcement agency] does not guarantee or warrant the accuracy,completeness or currency of the information provided.

Is it appropriate that agencies whose task it is to protect consumers include ontheir websites express disclaimers addressed to those who are seeking toobtain guidance about the legislation which the agencies police? There is nocommitment to consumer protection and the term seems more thanquestionable from the perspective of the unfair contract terms regime of theACL.

Small business is again prejudiced. It is possible to obtain reliable advice onthe operation of the TPA, and to draft contracts in accordance with the Act.But that advice is very expensive to obtain. It is quite simply well beyond thereach of small business. There is, therefore, the spectre of Small Business PtyLtd obtaining agreement from a commercial buyer to a given set of terms incircumstances where the commercial buyer has obtained advice that several ofthe terms in the contract are void as contravening the TPA. Knowing that theywill not impact on any claim it is able to make as a Consumer, the commercialbuyer is quite happy to agree to the terms. Small Business Pty Ltd is ignorantof its position, and its costings and insurance arrangements are therefore basedon misconceptions.38 The same will be true under the provisions of the ACLproposed by the Bill.

Legislating on the Basis of Misconceptions

The ACL will simplify some aspects of the current regime. However, becauseit continues the TPA’s inappropriate approach to ‘consumer’, the TPA hasengendered drafting which is based on incorrect assumptions. Because itincludes further protection for commercial and ordinary consumers alikewhich is based on reports which included a great many misconceptions, theACL will add further confusion.

Apart from the example given earlier,39 reference may be made to the beliefthat the unconscionable conduct provisions do not state norms of conduct. Theassessment of the impact of privity of contract on consumers, and the need forfurther ‘reform’, also appear to be based on a misconception. It has beensaid:40

Consumers should not be forced to prove which firm in the supply chain isresponsible for a fault or defect in the goods supplied. Manufacturers and retailersshould assume joint responsibility for the quality of the goods and services theysupply, and the common law privity of contract doctrine should not be a barrier torecovery by the consumer.

38 It cannot be misleading or deceptive conduct for the commercial buyer not to point out thatSmall Business Pty Ltd’s terms are contrary to the TPA.

39 Above, text at n 36.40 Final Report, p 5.



This was used as part of the justification for a proposal to create jointliability for suppliers and manufacturers of goods.41 The concept of a‘manufacturer’ of services is a novel one. In relation to goods, under thecommon law a consumer is not required to prove who, as between retailer andmanufacturer, was responsible for defects in the goods. So far as the claimagainst the retailer is concerned, because liability for breach of a term impliedby the TPA in relation to a supply of goods is strict, the retailer will always beliable. Rights against a manufacturer under the manufacturers liabilityprovisions of the TPA are additional rights. They are valuable indeed if theretailer does not have sufficient assets to meet a claim in contract. Since aconsumer may have no privity of contract with a manufacturer of goods, theusual basis for suing the manufacturer at common law is the tort fornegligence.42 In contrast, a Consumer’s contractual rights under the impliedterms provisions of the TPA do not require proof that a retailer of defectivegoods was negligent. Except where the retailer is insolvent, the consumer doesnot need to claim against the manufacturer.43 Unless the manufacturer hasmade independent statements in relation to the goods, the prospect of aconsumer having rights against the manufacturer but not against the retailerunder the consumer protection regime of the TPA is remote in the extreme.And, of course, there is no reason why the retailer should be liable for themanufacturer’s independent statements.

The ACL as a Standard Form Contract

The unfair contract terms regime of the ACL includes an idea which is veryrelevant to the drafting of the ACL. The regime is concerned with terms instandard form contracts. One of the objectives is to ensure that standard formcontracts are drafted in terms which are ‘transparent’, that is, ’expressed inreasonably plain language’, ‘presented clearly’ and ‘readily available to anyparty affected’ by the terms.44 So far as both business and Consumers areconcerned, the ACL (particularly in relation to the consumer guaranteeprovisions) is a standard form contract. It is intended to bind suppliers andConsumers. Individual suppliers and Consumers have played no role in thedrafting of its provisions. It operates, like the standard form contracts to whichthe unfair contract terms regime is directed, on a ‘take it or leave it’ basis.

It would therefore seem quite proper for the government to subject itself tothe standards to which it requires suppliers to conform in their standard formcontracts. The ACL, or at the very least the consumer guarantee provisions,should be drafted in terms which are ‘expressed in reasonably plain language’,‘presented clearly’ and ‘readily available to any party affected’ by its terms.Judged by those standards, the current regime of the TPA fails miserably.Whether the ACL is much of an improvement is in my view very doubtful.

41 Whether the ACL actually achieves that position is doubtful.42 Grant v Australian Knitting Mills Ltd [1936] AC 85 is a classic example.43 Nevertheless, the impact of Pt V, Div 2A is that a consumer will often be entitled to claim

damages from a manufacturer without having to prove negligence.44 See ACL, s 24(3). (The current provision is s 3(3).)



Simplification

One of the objectives of the Bill is to simplify the consumer protection regimewhich is currently expressed in the TPA on the familiar basis of implied terms.To that end, the states and territories will replace the corresponding provisionsof their fair trading legislation so that, instead of nine separate enactments45

(17 if the sale of goods legislation is included), there will be only one.However, there is no guarantee of success, even in relation to the replacementof the condition-warranty distinction by the consumer guarantees regime.There are at least five problems. First, as noted above, the various concepts ofconsumer will continue to be a source of complexity.

Second, there is no current proposal (by state and territory legislation) torestrict the operation of the sale of goods legislation. Accordingly, unless it isclear that Consumers will always have better rights under the ACL, the eightstatutes which comprise the sale of goods legislation will remain applicableand relevant as sources of rights and remedies.

Third, the lack of commitment to a simplified definition of Consumer whichdoes not embrace commercial transactions is itself a source of complexity.Indeed, given that it will be commercial Consumers who litigate their rights,the continued operation of the sale of goods legislation will necessarily leadto complex claims. Even the modest goal of reducing the range of relevantlegislation will fail to be met. For those (including small business) who supplygoods or services to commercial Consumers nine separate enactments may berelevant.

Fourth, at face value the replacement of the condition-warranty distinctionwith a range of consumer guarantees is a positive step. Of course, the contentof many of the statutory guarantees is fashioned by reference to the oldimplied terms, but they will not be drafted as conditions and warranties.However, the reform is largely ‘window dressing’. The problem is not just that‘guarantee’ is another lawyers’ word (effectively used as a synonym for‘warranty’),46 it is also that there is no direct conferral of rights. There is still— as under the current regime — a three-step approach. The Consumer must:

(1) identify the relevant guarantee;(2) determine that the guarantee has been breached; and(3) work out what rights and remedies are available.

That leads to the fifth point, which is in my view a crucial failure in theACL. In practice, the only right which consumers care about is their right toreturn goods and obtain a refund or replacement goods. That right should beconferred directly. There is no need for a ‘guarantee’. Not only does the ACLfail to confer a direct right, where there is a failure to meet a consumerguarantee the consumer must determine whether the failure is a ‘majorfailure’. Thus, s 259 of the ACL states:

(1) A consumer may take action under this section if:

45 In fact, since the fair trading legislation in several jurisdictions do not include implied termsprovisions, the number is somewhat fewer.

46 According to the Oxford English Dictionary, 2nd ed, OUP, Oxford, 1989, one derivation for‘warant’ is ‘garante’. And one meaning of ‘warrant’ is ‘To guarantee (goods, an article soldor made) to be of the quality, quantity, etc specified’.



(a) a person (the supplier) supplies, in trade or commerce, goods to theconsumer; and

(b) a guarantee that applies to the supply under Subdivision A ofDivision 1 of Part 3-2 (other than ss 58 and 59(1)) is not compliedwith.

(2) If the failure to comply with the guarantee can be remedied and is not a majorfailure:

(a) the consumer may require the supplier to remedy the failure within areasonable time; or

(b) if such a requirement is made of the supplier but the supplier refusesor fails to comply with the requirement, or fails to comply with therequirement within a reasonable time — the consumer may:

(i) otherwise have the failure remedied and, by action against thesupplier, recover all reasonable costs incurred by the consumerin having the failure so remedied; or

(ii) subject to s 262, notify the supplier that the consumer rejectsthe goods and of the ground or grounds for the rejection.

This is, of course, analogous to the common law concept of fundamentalbreach of an intermediate term.47 That is, however, a concept more pertinentto commercial than consumer contracts. It seems patently obvious thatadopting the analogy is not adequate from a consumer protection perspective.

The approach of the ACL will therefore perpetuate the familiar scenario ofretailers requiring Consumers to have goods repaired rather than replace themor accept a return of the goods. In this respect, the ACL is too narrow. Underthe TPA, a breach of condition is a sufficient basis for rejection of goods anda refund of the price. The Consumer may choose to accept replacement goods,or indeed agree to permit the supplier to have goods repaired. But theConsumer is not obliged to do so. Under the ACL, some former breaches ofcondition will take effect as minor failures in respect of which the supplier isentitled to repair the goods. The Consumer is entitled to compensation, butConsumers do not care about rights to damages. Nor are they impressed witha right to have new goods repaired. Given that the sale of goods legislationwill remain applicable, commercial buyers in particular are likely to continueto assert their automatic rights of rejection of goods for breach of condition.Consumers of goods for personal use should do the same.

Is Compliance Possible?

Introduction

It goes without saying that it is impossible to comply with a consumerprotection regime which is incomprehensible. For a supplier whose contractincludes terms which are, for example, void under the TPA,48 the implicationsof an incomprehensible regime are serious indeed. At the very least, the

47 Derived from Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.48 See s 68 of the TPA.



supplier will have engaged in misleading or deceptive conduct. The suppliermay also be liable in damages.49 And it may also be liable to a criminalpenalty.50

The ACL continues this uncompromising approach to compliance. Inaddition to the coercive enforcement regime which already exists under theACL, a consumer may claim damages if a supplier:51

[makes] a false or misleading representation concerning the existence, exclusion oreffect of any condition, warranty, guarantee, right or remedy (including a guaranteeunder Division 1 of Part 3-2)

And the supplier commits a criminal offence — one of strict liability — bymaking such a false or misleading representation.52

The ACL adds another prohibition, namely, in relation to making:53

a false or misleading representation concerning a requirement to pay for acontractual right that:

(i) is wholly or partly equivalent to any condition, warranty, guarantee, right orremedy (including a guarantee under Division 1 of Part 3-2); and

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

Again, the supplier commits a criminal offence — one of strict liability — bymaking such a false or misleading representation.54 Since it seems difficult todraft a service contract which does not contravene this prohibition, suchcontracts may well become a thing of the past for Australian consumers.Equally, however, those who achieve drafting which is consistent with theprohibition will have the luxury of being able to deny liability under thecontract until the promisee’s consumer guarantee rights have been exhausted.

Unfortunately, this is just the tip of the iceberg so far as the ability tocomply with the ACL is concerned.

A Bridge Too Far

The prohibition in s 52 of the TPA has been embraced with enthusiasm by thecourts. It has been described as a ‘norm of conduct’.55 And so it is.Unfortunately, however, it is a norm of conduct with which it is impossible tocomply all the time. To make matters worse, s 51A, an evidentiary provision,states that ‘where a corporation makes a representation with respect to anyfuture matter; . . . the representation shall be taken to be misleading’. And thefinal nail was hammered in the coffin of Australian commerce by the decision

49 On the basis of contravention of s 53(g) of the TPA. See, eg Australian Competition and

Consumer Commission v Bill Express Ltd (ACN 090 059 564) (in liq) (2009) 259 ALR 483at 503; [2009] FCA 1022 at [86].

50 Under s 75AZC(1)(k) of the TPA.51 Section 29(1)(m) of the ACL (replacing s 53(g) of the TPA).52 Section 151(1)(m) of the ACL (replacing s 75AZC(1)(k) of the TPA). The penalty is

$1,100,000 ($220,000 if the person is not a body corporate).53 Section 29(1)(n) of the ACL.54 Section 151(1)(n) of the ACL. The penalty is $1,100,000 ($220,000 if the person is not a

body corporate).55 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 520; 158 ALR 333 at 353 per

Gummow J.



of the courts to treat any provision of a contract which purports to exclude orlimit liability for contravention of s 52 as invalid on the basis of publicpolicy.56

Although the ACL continues the prohibition on misleading or deceptiveconduct, s 51A has been replaced with a slightly more sensible provision. Thepresumption in relation to a representation with respect to a future matterremains, but s 4(2) of the ACL provides that a ‘person is taken not to have hadreasonable grounds for making the representation, unless evidence is adducedto the contrary’.

Most academics welcomed the prohibition on misleading or deceptiveconduct, and have applauded the unyielding approach of the courts to itsapplication. And, of course, it cannot be denied that not engaging inmisleading or deceptive conduct is a standard of conduct to which we shouldall aspire. The problem is that, just as we cannot do so in our ordinary life, soit cannot be done in trade or commerce. A person engages in misleading ordeceptive conduct if a statement which is false is made in trade or commerce.If loss or damage is suffered, damages may be claimed as of right under theACL. It is irrelevant that there was no knowledge of the falsity and nointention to mislead. But nobody can be right all the time. Think of what itwould mean if the ‘in trade or commerce’ requirement were taken away fromthe prohibition on misleading or deceptive conduct. Politicians are apt to makevarious representations in relation to future matters in election campaigns.Imagine what fun could be had with the aid of s 51A — on the basis that thepolitician was deemed to have engaged in misleading or deceptive conduct!And consider the position of those responsible for the reports which haveinfluenced the drafting of the ACL, and which contain a great number ofstatements about the law of contract and the operation of the implied termprovisions of the TPA which appear to be misleading.57 Similar commentsmay be made in relation to the ACCC document referred to above.58

Consider also the following statement, taken from a law enforcementagency’s website:

The contents of this web site are intended for informational purposes only.The . . . Government shall in no event accept any liability for loss or damagesuffered by any person or body due to information provided on this site or linkedsites.

The information on the . . . Government web site is provided on the basis thatpersons accessing the web site undertake responsibility for assessing the relevanceand accuracy of its content.

Again, it may be questioned whether it is appropriate for governments —whose task it is to protect consumers — to include on their websites expressdisclaimers to those who are seeking to obtain guidance about the legislationfor which they are responsible. But from a misleading or deceptive conductperspective, the use of the disclaimer must assume that the conduct does notoccur ‘in trade or commerce’, or that the privileged position of the Crown

56 See, eg Byers v Dorotea Pty Ltd (1986) 69 ALR 715; Alan Davis Group Pty Ltd v Rivkin

Financial Services Ltd (2005) 216 ALR 766 at 775; [2005] NSWSC 369 at [51].57 Above, text at n 36.58 Above, text at n 37.



(under the TPA) permits the disclaimer. But it might at least be asked whetherthere is any justification for deeming users to ‘undertake responsibility forassessing the relevance and accuracy of its content’, particularly given that(for much of the information) users may find it difficult to assess the accuracyof content.

Without going into the details, four problems created by the prohibition onmisleading or deceptive conduct may be mentioned. First, although it has aconsumer protection purpose, a great many of the reported cases on theprohibition have concerned disputes between corporations.59

Second, because exclusion and limitation clauses are contrary to publicpolicy, if a contract for the sale of a business for, say, $5 billion includes awarranty of the accuracy of the company accounts, but the accounts containa material error, the agreed limitations of liability for breach of warranty donot bind the buyer in a claim for relief based on misleading or deceptiveconduct. Therefore, although the buyer freely agreed to the limitations ofliability, and notwithstanding that the seller agreed to the price on that basis,the buyer is free to renege on its agreement. The seller’s damages liability isnot limited by the contractual provision or by the principles of tort orcontract.60

Third, there is an important difference between liability for fraud andliability for innocent misrepresentation. Under the common law, the onlyremedy for innocent misrepresentation is rescission of the contract.61 But, incases of deceit, damages can be claimed. Not only does the prohibition onmisleading or deceptive conduct remove that distinction, it also alters the test.Under the common law, the test for whether a representation is fraudulent iswhether the statement, as its maker believed it would be understood, conveysa false impression. For the purposes of the ACL (as under s 52 of the TPA),the test is how a reasonable person in the position of the representee wouldinterpret it.62 It is therefore no defence for the representor to prove that, in thesense that the representor believed it would be understood, the representationwas not misleading. Although that may seem a minor point, it is actually avery significant difference. In effect, an applicant for relief in respect ofmisleading or deceptive conduct has all the remedies of a person induced tocontract by fraud. That includes the benefit of the public policy rule in relationto exclusions of liability. In addition, not only is the applicant freed from theevidentiary burden of a claim for fraud, but honest mistake is not a defence forthe respondent.63

59 Above, text at n 33.60 One of the themes of the decisions (repeated time after time) is that little reliance can be

placed on common law analogies. See, eg Elna Australia Pty Ltd v International Computers

(Aust) Pty Ltd (No 2) (1987) 16 FCR 410 at 419; 75 ALR 271 at 280; Henville v Walker

(2001) 206 CLR 459 at 501; 182 ALR 37 at 68; Murphy v Overton Investments Pty Ltd

(2004) 216 CLR 388 at 407; 204 ALR 26 at 37; [2004] HCA 3 at [44]. Cf Marks v GIO

Australia Holdings Ltd (1998) 196 CLR 494 at 510; 158 ALR 333 at 344.61 Of course, under Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 a person

may be liable in damages for an innocent misrepresentation made in breach of a duty of care.62 See, eg Australian Competition and Consumer Commission v Bill Express Ltd (ACN 090

059 564) (in liq) (2009) 259 ALR 483 at 501; [2009] FCA 1022 at [76].63 Contrast the defences under the misrepresentation legislation: Civil Law (Wrongs) Act 2002

(ACT), s 174(3)(a); Misrepresentation Act 1972 (SA), s 7(2)(a).



Fourth, the courts have found it impossible to explain the operation ofs 51A and the interaction between s 52 and the idea that a contractual promisemay be a representation in relation to a future matter.64 Indeed, there arestatements in some cases which suggest that, in Australia, where a contract isentered into in trade or commerce, there is a presumption that each and everyexpress promise is misleading or deceptive conduct.65 That remains theposition under the ACL.

Unfair Terms

Included in the current unfair contract terms regime of the ACL is a set ofexamples of terms which may be unfair. Although there is no presumption thatsuch terms are unfair, that will be their impact in practice. Even if that is notcorrect66 — and there would seem little point in having the examples unlessthey operated in that way — it must still be correct to say that to have anyutility for those affected by the regime the examples must be clear and to thepoint. To use the description in the ACL in relation to standard form contracts,the examples must be ‘transparent’.67

At various times in the discussion of the proposals for unfair terms reform,reference was made to Pt 2B of the Fair Trading Act 1999 (Vic) — where anunfair terms regime was first enacted in Australia — and the derivation of thematters referred to in s 32X of the Fair Trading Act 1999 (Vic) from theexamples of potentially unfair terms in the Unfair Terms in ConsumerContracts Regulations 1999 (UK).68 That is, however, something of adistortion. Although it is easy to see parallels between the list in s 32X and theUnfair Terms in Consumer Contracts Regulations 1999 (UK), the terms areradically different. Similarly, because the examples in the unfair contractterms regime of the ACL have been copied from the matters listed in s 32X,they also differ markedly from the Unfair Terms in Consumer ContractsRegulations 1999 (UK).

Of course, there is no reason why an Australian consumer protection regimein relation to unfair contract terms should adopt the same examples as thoseapplicable in the United Kingdom. Equally, however, it would be misleadingto support this aspect of the ACL on the basis that similar legislation has beenin force — without apparent difficulties — in other jurisdictions, if there arein fact major differences. There are major differences. And all thosedifferences are contrary to the interests of both business and consumers. Threeexamples from the list set out in s 25 of the ACL69 may be given to illustratethe point. The first example is stated in s 25(b): ‘a term that permits, or has theeffect of permitting, one party (but not another party) to terminate the

64 See J W Carter, Carter on Contract, LexisNexis Butterworths, Sydney, §21-050.65 See Diane Skapinker and J W Carter, ‘Breach of Contract and Misleading or Deceptive

Conduct in Australia’ (1997) 113 LQR 294.66 The Parliament of the Commonwealth of Australia, Explanatory Memorandum: Trade

Practices Amendment (Australian Consumer Law) Bill (No 2) 2009 (Cth), 2009, §2.52denies the existence of a presumption.

67 Above, text at n 44.68 Itself derived from the European Directive of 1993.69 The current provision of the ACL is s 4 (as enacted by the Trade Practices Amendment

(Australian Consumer Law) Act (No 1) 2010 (Cth)).



contract’. The problem with the example is that it is indeterminate. Contractsinevitably contain termination clauses which are not bilateral. No-one couldsuggest that a term is unfair because it entitles the supplier but not theconsumer to terminate for fundamental breach by the consumer. What ismissing in the example is a statement of the focus of the termination clause,that is, the basis for termination. A corresponding example in the Unfair Termsin Consumer Contracts Regulations 1999 (UK) is:

authorising the seller or supplier to dissolve the contract on a discretionary basiswhere the same facility is not granted to the consumer, or permitting the seller orsupplier to retain the sums paid for services not yet supplied by him where it is theseller or supplier himself who dissolves the contract.

Unlike the example in the ACL, this is not indeterminate. It has particularfocal points which make sense from a consumer protection perspective.

The second is the example stated in s 25(k): ‘a term that limits, or has theeffect of limiting, one party’s right to sue another party’.70 That examplewould apply to any exclusion or limitation of liability. The impact would seemto be that a supplier must be in a position to justify any exclusion or limitationof liability. A corresponding example in the Unfair Terms in ConsumerContracts Regulations 1999 (UK) is:

excluding or hindering the consumer’s right to take legal action or exercise any otherlegal remedy, particularly by requiring the consumer to take disputes exclusively toarbitration not covered by legal provisions, unduly restricting the evidence availableto him or imposing on him a burden of proof which, according to the applicable law,should lie with another party to the contract.

Again, unlike the example in the unfair terms regime, this has specificreference points. It is only right that the supplier should be required to justifysuch terms. But the ACL is not so discriminating.

The third example is expressed in s 25(i): ‘a term that limits, or has theeffect of limiting, one party’s vicarious liability for its agents’. The firstquestion which comes to mind is why on earth a consumer protection regimewould include an example drafted in terms of ‘vicarious liability’. How manyconsumers are likely to understand it? More substantively, of course, theprincipal basis of liability for a corporation is an act or omission of anemployee. Does the example therefore simply add another basis forchallenging any exclusion or limitation of liability?71 The correspondingexample in the Unfair Terms in Consumer Contracts Regulations 1999 (UK)is:

limiting the seller’s or supplier’s obligation to respect commitments undertaken byhis agents or making his commitments subject to compliance with a particularformality.

70 See also the example in s 25(a) which refers to ‘a term that permits, or has the effect ofpermitting, one party (but not another party) to avoid or limit performance of the contract’.Compare the examples in s 25(h), (i), (l) and (m), all of which in one way or another relateto exclusion or limitation clauses and analogous provisions.

71 Contrast Australian Competition and Consumer Commission, A Guide to the Unfair

Contract Terms Law, Canberra, 2010, p 20, which treats the example as limited to adisclaimer of liability or responsibility for ‘representations made to prospective consumersby . . . agents at the point of sale’.



That is, of course, a very different kettle of fish. The example suggests that a

consumer can put in issue a provision under which the supplier is entitled to

question contracts made on its behalf by its agents.

Ultimately, the impact of the unfair contract terms regime of the ACL on

exclusions and limitations of liability is somewhat limited. Most recipients of

goods or services under ‘consumer contracts’ to which the unfair terms regime

of the ACL applies are also Consumers.72 As such, at present they have the

benefit of non-excludable rights under implied terms provisions of the TPA.

Clearly, the supplier has no power to exclude or limit liability for breach ofany of the implied terms. The upshot is that the principal relevance ofexclusions and limitations of liability to contracts to which the examples in theunfair terms regime currently relate is where the exclusion or limitationapplies to an express obligation of a supplier. It must be a considerabledisincentive to suppliers who would otherwise be willing to undertake expressobligations additional to those implied by law that any qualification to theexpress term will have to be justified.

Matters will change when the Bill comes into force. The unfair contractterms regime will be the same as the current regime. However, under the ACLthe implied terms provisions of the TPA will be replaced by the consumerguarantees regime. Of course, so far as implied consumer guarantees areconcerned the impact is largely the same. However, the consumer guaranteesregime also includes express guarantees.73 Contracting out of liability for thebreach of those guarantees is prohibited in the same way as it is prohibited inrelation to implied consumer guarantees. There is, therefore, no question of aConsumer having to establish that an exclusion or limitation of liability fallingwithin one or more of the examples in s 25 is an unfair term. The exclusionor limitation is void.74 Since any limitations of a supplier’s liability will in factbe void, examples referable to that concept will be irrelevant in relation toconsumer contracts for the supply of goods or services of a kind ordinarilyacquired for personal, domestic or household use or consumption. This willlead to very odd situations:

(1) if an individual Consumer acquires goods under a ‘consumercontract’ any exclusion or limitation of liability is void and the unfaircontract terms regime is irrelevant;

(2) because individuals who acquire goods (or services) not of a kindordinarily acquired for personal, domestic or household use orconsumption under a ‘consumer contract’ are not Consumers — andhave no statutory guarantees under the ACL — they must establishthat an exclusion or limitation of liability is an unfair term; and

(3) where a corporation is a Consumer — because it has acquired goodsof a kind ordinarily acquired for personal, domestic or household useor consumption — the corporation does not have the benefit of the

72 As recipients of goods or services of a kind ordinarily acquired for personal, domestic orhousehold use or consumption.

73 This concept is very broadly defined. See below, text following n 84.74 See ss 64, 276 of the ACL. See further below, text at n 85.



unfair contract terms regime but no question of fairness can arisebecause it has the benefit of a statutory prohibition on all exclusionsand limitations.

The compliance burden for suppliers of goods and services to Consumersand under consumer contracts will be enormous under the ACL. Just howmany suppliers will actually understand the impact of the various regimeswhich will be put in place by the ACL is impossible to judge. However, it willnecessarily take some time. Unfortunately, suppliers have only until 1 January2011 to work their way through the provisions and make the necessaryadjustments to their contracting, marketing, purchasing, systems andinsurance arrangements. If they get it wrong — or simply fail to meet thedeadline — they will be exposed not only to claims for damages fromConsumers, and be liable for criminal penalties, they will also be exposed toclass actions and the coercive regime which the ACCC administers under theACL. It is therefore worth making the point again that the compliance burdenwould be reduced considerably by the simple expedient of abandoning thedefinition of Consumer in favour of general application of the concept ofconsumer utilised (as ‘consumer contract’) in the unfair contract terms regime.

Unconscionable Conduct

There are various prohibitions on unconscionable conduct in the TPA:

• conduct which is unconscionable within the meaning of the unwrittenlaw, from time to time, of the states and territories (s 51AA);

• conduct, in trade or commerce, in connection with the supply orpossible supply of goods or services of a kind ordinarily acquired forpersonal, domestic or household use or consumption, which is‘unconscionable’ (s 51AB); and

• unconscionable conduct in certain business transactions (s 51AC).

The position under the TPA is dramatically different from the position underthe general law. Under the general law of contract, unconscionable conduct isrelevant in various contexts. The two main examples are estoppel (whereunconscionable conduct is the basis on which a person who has reasonablyrelied on a non-contractual promise or representation may obtain relief), andthe Amadio75 principle (under which relief is available against a person whotakes unconscionable advantage of some special disability under whichanother suffers when entering into the contract). Three features are important.First, unconscionable conduct prevents a person from invoking their legalrights. Under the Amadio principle, although the contract is not void, the legalrights of the party who engaged in unconscionable conduct are qualified by therelief available to the other party. The rights of the party affected by theconduct are subject to the usual restrictions such as restitutio in integrum,‘affirmation’ of the contract, laches and so on. Similarly, in relation toestoppel, the legal rights of the party estopped are qualified by the ‘equity’ ofthe case. In each case, but particularly in respect of estoppel, the person foundto have engaged in unconscionable conduct has (by definition) acted inaccordance with their legal rights.

75 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; 46 ALR 402.



Second, under the Amadio principle unconscionable conduct is a vitiatingfactor under which the party affected is entitled to rescind the contract andobtain consequential relief. In relation to estoppel, unconscionable conductprecludes a person from going back on a promise or representation, and reliefis determined on that basis. There is an element of discretion in responding tothe unconscionable conduct and the general law requires the court’s remedialresponse to be proportionate to the conduct.

Third, although there is an obvious public policy element in the control ofunconscionable conduct, neither in the context of estoppel nor under theAmadio principle is it a legal wrong to engage in unconscionable conduct.Accordingly, there is no entitlement to common law damages. Indeed,compensation or restitution is not available as of right.

The position is radically different under the TPA. Because the TPA prohibitsunconscionable conduct, damages may be claimed as of right under the TPAin relation to loss caused by the conduct.76 The same is true under the ACL,where each of the three prohibitions referred to above will be replaced byprovisions designed to make it easier to establish unconscionable conduct.77

Indeed, prior to the Bill the TPA was amended to make a pecuniary penaltypayable for contravention of the unconscionable conduct prohibitions.78 Thatposition will continue under the ACL, as amended by the Bill. It is not easyto justify the right to claim damages. It is even more difficult to justify theimposition of a pecuniary penalty for conduct which will generally amount tono more than the unconscionable assertion of legal rights.

Under the general law it is always difficult to determine whether or not aperson has acted unconscionably. It is no easier under the TPA. Consider ss 21and 22 of the ACL. In relation to the former, five specific factors may be takeninto account (under s 21(2)). And in relation to the latter, there are no less than12 such factors (under s 22(2)).79 How a person is expected to know that heor she is engaging in unconscionable conduct is anyone’s guess. When it isalso borne in mind that the concept is ultimately subjective, and thatcorporations more often than not deal with their customers as members of aclass, rather than as individuals, the prospect of a corporation knowing that ithas engaged in unconscionable conduct is remote indeed.80

As if the right to damages, and the potential imposition of pecuniarypenalties were not a sufficient deterrent, the ACCC has further enforcementpowers in relation to contravention of the prohibitions on unconscionableconduct. These include:81

• disqualification orders;

76 See s 82. Further orders are available (at the discretion of the court) under s 87.77 See Pt 2-2 of the ACL.78 See TPA, s 76E (added by the Trade Practices Amendment (Australian Consumer Law) Act

(No 1) 2010 (Cth)).79 Section 21 will be repealed by the Competition and Consumer Legislation Amendment Bill

2010 (Cth).80 The Competition and Consumer Legislation Amendment Bill 2010 (Cth) proposes an

interpretation provision under which a person who engages in a ‘system of conduct orpattern of behaviour’ may be found to have engaged in unconscionable conduct even thoughthere is no ‘victim’ of the conduct.

81 The relevant provisions were added by the Trade Practices Amendment (AustralianConsumer Law) Act (No 1) 2010 (Cth), Pts 2-6.



• substantiation notices;• obtaining orders to redress loss or damage suffered by non-party

consumers;• infringement notices; and• public warning notices.

In theory, commercial suppliers of goods and services can put in placeprocedures to ensure that they do not engage in unconscionable conduct.Whether that is possible in practice is difficult to know. But one thing is clear,to consider the actual position of each individual with whom a corporationdeals is impossible. Even when dealing with other corporations, a supplier (orcustomer) may have hundreds of customers (or suppliers). The cost tobusiness, and therefore consumers, must surely far outweigh any benefit to thecommunity.

No pecuniary penalty is payable for contravention of the prohibition onmisleading or deceptive conduct. Given the importance attached to thatprohibition, it might be asked why contravention of that prohibition is notsubject to the full rigour of the enforcement regime which applies oncontravention of the prohibitions on unconscionable conduct. The answer, itappears,82 is that the prohibitions on unconscionable conduct do not state anorm of conduct. That is, obviously, not correct.83 However, if it was correctit would more logically justify the inclusion of misleading or deceptiveconduct and the exclusion of unconscionable conduct, that is, exactly thereverse of the position under the ACL.

Is it Balanced?

Introduction

In the discussion above there are several illustrations of lack of balance in thevarious regimes of the ACL. The definition of Consumer — which determinesthe scope of the contractual protection afforded to consumers — is unbalancedboth in terms of whom it does protect and those that it does not protect. Peopleare denied protection on the cirumstantial basis that they acquire for personaluse goods which are not of a kind ordinarily acquired for personal use.Commercial consumers, including public listed companies, are protected asConsumers on a circumstantial basis, namely, that the goods or servicesacquired are goods or services of a kind that are ordinarily acquired forpersonal use.

The approach of the ACL to misleading or deceptive conduct andunconscionable conduct also lacks balance. In relation to the former, thefailure to draw any distinction between misleading or deceptive conduct in acommercial and a consumer context provides benefits which are neithernecessary from a consumer protection perspective nor reasonable in scope.

82 See the Minister’s Second Reading Speech, Trade Practices Amendment (AustralianConsumer Law) Bill 2009 (Cth).

83 See, eg Jefferson Ford Pty Ltd (ACN 005 629 897) v Ford Motor Co of Australia Ltd (ACN

004 116 223) (2008) 246 ALR 465 at 487; [2008] FCAFC 60 at [87]. Cf Unconscionable

Conduct Issues Paper, p 7 which adopts the view that the concept refers to a ‘pejorativemoral judgment’.



The coercive enforcement regime is also quite disproportionate to the‘seriousness’ of the conduct.

However, the most significant lack of balance lies in the consumerguarantees regime.

Consumer Guarantees Regime

The impact of the definition of Consumer in the ACL is most acutely felt inapplication of the proposed consumer guarantees regime. Lack of balancearises in several respects. Three points have already been made from thatperspective:

(1) it denies consumer protection to ordinary consumers who happen toacquire goods or services which are not of a kind ordinarily acquiredfor personal, domestic or household use or consumption;

(2) it deprives consumers of the automatic right to reject goods (andterminate the contract) for what would formerly have been a breachof condition; and

(3) it treats acquisition of goods and services for commercial use asbeing on a par with acquisition for personal use.

It necessarily follows from the third point that commercial Consumers arein a privileged position, not only in dealings with their suppliers but also bycomparison with commercial consumers who do not enjoy the benefit of theACL. The extent of this lack of balance has gone unnoticed.84 Two areas standout. The first is the approach to express ‘warranties’.

Relevantly, s 2 of the ACL defines ‘express warranty’ in terms of threeelements:

(1) ‘an undertaking, assertion or representation’ relating to the quality,state, condition, performance or characteristics of goods;

(2) that the undertaking etc was given or made in connection with thesupply of goods, or in connection with the promotion of the supplyor use of goods; and

(3) that the natural tendency of the undertaking etc was to induceacquisition of the goods.

It follows that, notwithstanding the presence of the prohibition on misleadingor deceptive conduct, the ACL deems every representation having a naturaltendency to induce a contract for the supply of goods to be an expresswarranty.

The significance of the approach can be seen in s 59(2) of the ACL, whichcreates a statutory guarantee that the supplier will comply with any expresswarranty. Two points follow from this. The first is the application of s 64. Thatprovision renders void any contractual term which purports to exclude, restrictor modify the consumer guarantee provisions of the ACL, a right conferred bysuch a provision or the liability of a person for a failure to comply with the

84 Virtually all the examples of the operation of the ACL in the Explanatory Memorandum

concern the acquisition of goods or services for personal use. There is no attempt to explainthe impact of the ACL on commercial contracts. The RIS was in fact prepared on the basisthat the consumer guarantees regime has no impact on commercial contracts. See above, textat n 3 and further below, text at n 97.



guarantee.85 It would be a major step to declare void all exclusions or

limitations of liability in contracts under which Consumers acquire goods for

personal use. It is nothing short of remarkable that the freedom of contract in

relation to such terms should also be denied to suppliers supplying to

commercial acquirers of goods. On several occasions,86 those who have

promoted the ACL have made the point that this aspect of the ACL is based

on the Consumer Guarantees Act 1993 (NZ). The point has not however been

made that s 43 of that Act permits commercial consumers to contract out of

the legislation. Indeed, the Senate Economics Legislation Committee

expresses87 the view that the impact of s 3(2) of the ACL is that s 3 will not

apply ‘if the goods are used in trade or commerce’, so that the ACL has the

‘same effect’ as the ‘exemption’ under the New Zealand Act. However, that isclearly wrong. The relevant part of s 3(2) states that a person is a Consumerunless the acquisition is for the purpose of using the goods up or transformingthem in the course of a process of production or manufacture or in the courseof repairing or treating other goods or fixtures on land. That is much morelimited than the Consumer Guarantees Act 1993 (NZ). Moreover, under thatAct express ‘warranties’ by a supplier do not take effect as statutoryguarantees.88

Lack of balance is also shown in another aspect of the ACL’s consumerguarantees regime which has no counterpart in the Consumer Guarantees Act1993 (NZ). Under s 259(4) of the ACL, a consumer may, by action against thesupplier, recover damages for any loss or damage suffered by the consumerbecause of the failure to comply with the guarantee if it was ‘reasonablyforeseeable’ that the consumer would suffer such loss or damage as a result ofsuch a failure. Accordingly, in place of the rule in Hadley v Baxendale89

Consumers are entitled to invoke the remoteness criterion applied under thetort of negligence. Although it has, of course, been debated whether there isany difference of substance between ‘reasonably foreseeable’ loss and lossfalling within the first limb of the rule in Hadley v Baxendale,90 the HighCourt of Australia91 has agreed with the House of Lords92 in saying that thereis! And it clearly follows that any thoughts of linking the extent of liability to

85 See also s 276 of the ACL. Section 139A(3) of the ACL (replacing s 68B of the TPA) createsan exception for ‘recreational services’. However, the exception applies only if the exclusionor limitation is limited to liability for death or physical or mental injury of an individual.Apparently, Australian public policy places a higher premium on the recovery ofcompensation in respect of economic loss than recovery in respect of death or personalinjury!

86 See, eg Submission by the Treasury to the Senate Economics Legislation Committee, TradePractices Amendment (Australian Consumer Law) Bill (No 2) 2010 (Cth), 11 May 2010,p 22 (‘provisions are essentially based on similar provisions’ of the New Zealand Act).

87 The Senate Economics Legislation Committee, Trade Practices Amendment (AustralianConsumer Law) Bill (No 2) 2010 (Cth), Canberra, May 2010, §4.79.

88 See s 13. Under s 6 of the Contractual Remedies Act 1979 (NZ), misrepresentations takeeffect as warranties for the purpose of damages assessment.

89 (1854) 9 Ex 341 at 354; 156 ER 145 at 151.90 See H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791.91 Astley v Austrust Ltd (1999) 197 CLR 1 at 23, 28; 161 ALR 155 at 170, 174.92 Koufos v C Czarnikow Ltd [1969] 1 AC 350.



the risks voluntarily assumed by a contracting party,93 can be forgotten in thecontext of consumer guarantees.

It might be pointed out that the liability for failure to comply with aconsumer guarantee is statutory, not contractual. From that perspective thereis no reason why the extent of liability should be defined by reference toprinciples of contractual damages. However, a guiding feature of the ACL wasallegedly simplification and amalgamation, not major change. In any event,there seems no point in basing express guarantees on the concept of an expresswarranty if the principles of damages for breach of warranty are thenside-stepped. Similarly, whatever the merits of the approach in relation tocontracts with genuine consumers, the treatment of both express warrantiesand pre-contractual representations as statutory guarantees has no publicpolicy basis in the commercial context.

Conclusions

If nothing else, the sketch of some of the important features of the Australianconsumer protection in the ACL — actual and proposed — shows that thecompliance burden on business is excessive and its scope misconceived.

Consumer protection is important. But things must be put in perspective.Rights should not be given to corporations in the name of consumerprotection. Acquisition of goods or services in the course of a business is nota consumer acquisition. Even if protection should be extended to smallbusiness consumers, the idea that a multi-million dollar contract should be aconsumer contract because the goods or services are of a kind ordinarilyacquired for personal, domestic or household use or consumption isnonsensical.

Similarly, the idea which the regime in relation to misleading or deceptiveconduct suggests, namely, that innocent mistakes should expose a person tounlimited liability just because the mistake occurs in trade or commerce is badenough, but to call that ‘consumer protection’ when no consumer may beinvolved is itself misleading. For the same reason, deeming all representationswhich induce a contract to be statutory warranties which cannot be excludedand which carry a potentially unlimited liability is out of place in thecommercial context, and quite unnecessary even in a consumer protectionregime because of the prohibition on misleading or deceptive conduct.

The TPA is incomprehensible, not only to those who are protected by it andsubject to it, but also, it appears, to those charged with administering it. Thecost burden of such a regime is enormous and ever increasing as the screwsare tightened with every piece of legislation which is passed. Consumers must,of course, ultimately pay the price of this. And, given the protection affordedto big business, the whole regime discourages competition.94 To say that thetime has come for simplification and rationalisation is an understatement.There is no improvement under the ACL. Valuable rights are taken away whileothers are added to the ultimate benefit of commercial Consumers. Whatever

93 See Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61; [2008]UKHL 48.

94 Cf Nicola v Ideal Image Development Corp Inc (2009) 261 ALR 1 at 15–16; [2009] FCA1177 at [60].



simplification has occurred, the value is far outweighed by the increase inliability for suppliers. The compliance costs, in proportion to the total revenueof corporations, are disproportionate, favouring big business at the expense ofsmall business.

As under the TPA, there is no sign of give and take in the ACL. Allconsumers have bad experiences, and quite frightening statistics have beenproduced as to the cost of the imperfect regime of the TPA to business andconsumers in relation to mobile phones and other electronic goods.95 Yet,anyone who takes a moment to consider their own consumer protectionmisfortunes in comparison to their total expenditure as consumers would findit negligible both in terms of frequency and amount. Many of the consumerswhose woes are the subject of statistics — mobile phones and other electronicgoods — are in fact well-off. They purchase hundreds of dollars of goods andservices every week. In the course of a year families spend many thousandsof dollars, and in all but a few isolated instances the contracts are performedwithout mishap. Any comparison between the troubling statistics and totalAustralian consumer expenditure — whatever the figure is — would show thatAustralians do very well indeed. Consumers neither need nor desire extensiverights to a range of remedies. Nor do they want or need lawyers to draftconsumer protection legislation which only lawyers can explain. Whatconsumers want is the ability to return defective goods and get their moneyback. The ACL does not achieve that modest goal. The extended remedies ofcompensation count for very little. Those who are benefited are commercialConsumers. Given all differences between the ACL and the consumerprotection regime of the TPA, it cannot be correct to say that ‘proposal doesnot involve a change in the substantive rights and obligations of businesses orconsumers’.96 Accordingly, Parliament is considering the Bill without thebenefit of any RIS.97

Postscript

On 24 June 2010 the Australian Parliament passed the Trade PracticesAmendment (Australian Consumer Law) Bill (No 2) 2010 (Cth) as an‘uncontentious Bill’.

Several amendments were made, and adopted without debate. Theamendment most relevant to the article is the extension of the concept of‘consumer’ (for the purposes of the consumer guarantees regime) to include aperson who acquires goods (other than for resupply) or services at a pricewhich does not exceed $40,000.

95 See National Education and Information Advisory Task Force, National Baseline Study on

Warranties and Refunds, October 2009.96 See above, n 3.97 Which appears to be contrary to the National Competition Policy See cl 5(1) of the

Competition Principles Agreement.


21 - John Carter Article on Competition and Consumer Act

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