Saturday, 16 May 2009

Blast from the Past Case Summary

American Banana Co. v United Fruit Co. 213 US 347 (1909)

The “Blast from the Past Case Summary” is a new feature for this blog. I would like to feature interesting and remarkable cases that are sometimes overlooked in antitrust and consumer protection law textbooks.

The first case in this series is American Banana Co. v United Fruit Co. which was decided by the US Supreme Court at the turn of the century with the legendary Justice Oliver Wendell Holmes delivering the Court’s judgment. I found the most striking aspect of this case to be the extreme lengths which United Fruit Company went to try to sabotage their competitor, American Banana.

Facts: The plaintiff, American Banana Company (American), alleged that prior to setting up its own company, the plaintiff, United Fruit Company (United) had engaged in a concerted scheme to monopolise the US banana trade. American alleged that United had acquired a number of its major competitors with the aim of reducing competition. United was also accused of entering into restrictive agreements with its remaining competitors to regulate the quantity of bananas to be purchased and the price to be paid. United set up a selling company with its competitors which fixed the prices of all bananas sold by the combining parties.

In 1903, a person called McConnell set up a banana plantation in Panama which at that time was part of the United States of Columbia. He also started building a railway to facilitate the export of his bananas. After setting up his plantation, McConnell was approached by United and advised that he had to either enter into a restrictive agreement with United or cease his business. McConnell refused.

Two months later, at the alleged instigation of United, the Governor of Panama recommended to his government that the territory through which McConnell’s railroad was to run be transferred to the administration of Costa Rica. This recommendation was accepted by the government of Panama. Subsequently, United and the government of Costa Rica started to interfere with McConnell’s operations.

In June 1904 (after a civil war in which Panama revolted and become an independent state), American acquired McConnell’s business and continued with the construction work. However, in July, United persuaded Costa Rica soldiers and officials to seize part of the American plantation and part of its banana inventory. Construction and operation of American’s plantation and railway also ceased.

In August 1904, a person called Astua took ex-parte proceedings in a Costa Rica court claiming he was the lawful owner of the American banana plantation. It would appear that Astua took this action at the instigation of United. Astua obtained judgment that he was the owner of the American plantation. Subsequently, representatives of United bought the American plantation from Astua.

United approached the government of Costa Rica to ask them to withdraw their soldiers from the plantation. Unfortunately, for United, the government of Costa Rica did not withdraw its soldiers and remained in possession of the plantation.

American took action seeking treble damages for a breach of section 1 of the Sherman Act against United and the government of Costa Rica.

Issues: Does the Sherman Act apply to the acts of United towards American banana interests in Panama and Costa Rica? Could the acts of the governments of Panama and Costa Rica be subject to an anti-trust suit under the Sherman Act?

Decision: The US Supreme Court decided that the Sherman Act did not apply to the acts of United towards American in Panama and Costa Rica. In his judgment, Justice Holmes stated:

For another jurisdiction, if it should happen to lay hold of the actor, to treat him according to its own notions rather than those of the place where he did the acts, not only would be unjust, but would be an interference with the authority of another sovereign, contrary to the comity of nations, which the other state concerned justly might resent.

It is apparent that this statement of principle by Justice Holmes no longer represents good law as far as the extraterritorial reach of US antitrust laws is concerned. It is now well established that US antitrust laws do have extraterritorial application based on whether the relevant overseas conduct has an effect on US commerce. This “effect” test for determining jurisdiction was first formulated in United States v Aluminium Company of America (ALCOA) 148 F 2d 416 (2nd Cir., 1945).

Justice Holmes also denied American’s claims against the government of Costa Rice on the following basis – 

The fundamental reason why persuading a sovereign power to do this or that cannot be a tort is not that the sovereign cannot be joined as a defendant or because it must be assumed to be acting lawfully...The fundamental reason is that it is a contradiction in terms to say that, within its jurisdiction, it is unlawful to persuade a sovereign power to bring about a result that it declares by its conduct to be desirable and proper. It does not, and foreign courts cannot, admit that the influences were improper or the results bad. It makes the persuasion lawful by its own act. The very meaning of sovereignty is that the decree of the sovereign makes law.
In other words, an antitrust action directed against the acts of a sovereign cannot be successful, as the acts of the sovereign, within its jurisdiction, cannot be held to be unlawful. Whenever a sovereign acts to pass a law or achieve some other result, these acts are lawful if done within the sovereign’s jurisdiction.

Justice Holmes may have stated the rule concerning the lawfulness of sovereign acts too broadly. In many jurisdictions, a sovereign’s power is subject to the limitations contained in its Constitution. Sovereign power may also be limited by external laws and treaties which the sovereign has voluntarily agreed to be bound by, such as United Nations conventions and international courts. However, in these circumstances the sovereign also retains the power to free itself from these external limitations if it so chooses.

Monday, 4 May 2009

Australian Consumer Law: Fair Markets – Informed Consumers


The Federal Minister for Competition Policy and Consumer Affairs, Mr Chris Bowen recently released a report entitled Australian Consumer Law: Fair Markets – Informed Consumers (ACL).[1] The main purpose of this report is to seek comment on a range of changes to consumer protection laws in Australia in an attempt to create a truly national consumer protection law system.

The most notable aspect of the report is that it does not seek any comment on a number of significant additions to the ACCC’s enforcement powers in the consumer protection area. Indeed, it appears that the Federal Government has already decided that additional powers identified in the ACL Report will be provided to the ACCC.[2]

The granting of these additional powers to the ACCC will have an immense impact on its ability to combat breaches of the consumer protection laws. On the other hand, there are real questions about whether granting these additional powers will tilt the balance of power too far in favour of the ACCC in its dealings with business.

What is being proposed?

The ACL proposes four main changes to the existing consumer protection law system -

1. introduction of a range of new enforcement powers and remedies for the ACCC.

2. introduction of unfair contract terms legislation

3. introduction of a new product safety system

4. a range of miscellaneous changes to standardise consumer protection laws across Australia

New enforcement powers and remedies for the ACCC

The new enforcement powers being proposed for the ACCC are - 

  • substantiation notices 
  • public warning powers 
  • infringement notices 
The new remedies which will be available to the ACCC in consumer protection matters are – 
  • civil pecuniary penalties 
  • disqualification orders 
  • non-party redress 
Substantiation notices

A substantiation notice is described in the ACL as a notice which “requires a supplier to provide a consumer regulator with a basis for representations that it makes regarding its goods and services”.[3] A substantiation notice would require that the trader provide specific information to the ACCC within a particular time.

The main advantage of substantiation notices for the ACCC is that it will lower the factual threshold it needs to satisfy itself that a trader may have engaged in a contravention of the consumer protection provisions of the TPA. Currently, the ACCC requests information from a trader either on a voluntary basis or pursuant to section 155 notice. The limitation of a voluntary request for information is that the trader is not required to provide the information and does not have to provide the information within a particular timeframe. However if the trader does provide information voluntarily to the ACCC is has an obligation to ensure that such information is accurate and complete.[4]

The ACCC will often choose to issue a section 155 notice to a trader to compel the production of information and documents rather than seek documents voluntarily. However, in order to issue a section 155 notice, the Chairman of the ACCC must satisfy himself that he has reason to believe that the trader has information or documents which relates to a matter which constitutes or may constitute a contravention of the TPA. While the requirement to form a “reason to believe” does not involve a very high burden for the ACCC, of particular matters it does present a problem.

Where traders are making exaggerated health or medical claims about their products, for example about the ability of their product to cure cancer or other life threatening diseases, it is often difficult for the ACCC to satisfy itself that it has reason to believe unless it first obtains expert medical advice. Unfortunately, the process of locating a suitably qualified expert, retaining and briefing this expert and then obtaining an expert report can take a considerable period. Consequently, the ACCC is often prevented from taking quick action against such bogus traders.

Another area where the ACCC is often unable to move quickly is where a trader makes exaggerated claims about the financial returns which can be made from a particular business venture. The ACCC often needs to obtain expert opinion on the reasonableness of the claimed financial returns before seeking to issue a section 155 notice to a trader.

In both of the types of cases described above, the availability of a substantiation notice will give the ACCC the ability to move much more quickly against traders which have made what, in the ACCC’s opinion, are outlandish claims about the uses and benefits of their goods or services. It is very important to move quickly in these types of cases, because often such traders are simply operating a scam in which they will seek to dupe a number of vulnerable consumers into paying substantial sums of money before transferring the money out of the jurisdiction, liquidating their company and simply vanishing.

The main concern of business about the ACCC having access to a substantiation notice power is that the ACCC may seek to use this power in situations where it is inappropriate. For example, in many consumer protection matters a section 155 notice may be issued in response to customer evidence. While obtaining such evidence does take time, it also provides a valuable cross- check on the initial allegation. When an initial allegation is received from a consumer about a trader’s conduct, it is important to corroborate that account from evidence obtained from other, unrelated consumers to ensure that the original evidence has not been fabricated or misrepresented. The concern is that the ACCC may opt to simply issue a substantiation notice to a trader because this would be simpler and quicker rather than carrying out a preliminary investigation of the allegation

Public warning powers

The ACL also proposes that the ACCC be provided with the power to issue a public warning about a trader. In this regard, the ACL states that “public warnings are (to be) issued to inform the public of potentially harmful conduct taking place in the very short term”.[5]

On the basis of the ACL, it would appear that the public warning power is to be directed against are “...’fly-by-night’ operators, itinerant traders and financial, investment and property spruikers and advisors who often move across state and territory borders.”[6] Therefore, the focus would appear to be on bogus traders which are simply seeking to misappropriate money from consumers and then vanish, making subsequent legal action against them all but impossible.

It is proposed that the public warning power would be subject to certain protocols to govern its use and prevent its misuse. These protocols are likely to be based on existing safeguards contained in state legislation in respect of public warning powers.[7] For example, the decision to issue a public warning will only be exercised in very blatant situations of misleading and deceptive conduct, bordering on fraud. In addition, the decision to issue a public warning is likely to be subject to a public interest test and must be exercised in accordance with the principles of natural justice. It may also be the case that a person subject to a public warning power will have the right to take legal action against the ACCC for defamation in the event that the public warning power has been exercised inappropriately or without a proper basis.

There are a number of concerns about the introduction of a public warning power.

The first concern is that the power may be exercised by the ACCC in inappropriate circumstances. Clearly, a public warning issued about a trader by the ACCC is likely to have the effect of preventing consumers from dealing with that trader. Another likely consequence will be that current customers of that trader, which may have had no particular concern about the trader before the public warning was issued, may now want their money back from the trader believing that trader to be disreputable. This could jeopardise the financial position of the trader in circumstances where it has not been found by a Court to have engaged in any illegal conduct.
The second concern is that even if there is a right for a trader to take action against the ACCC for defamation in circumstances where the ACCC has inappropriately exercised this power, the trader may simply not be able to afford to take such legal action. This is likely to be particularly true where the effect of the public warning has been to significant damage the trader’s business. The right of legal action against the ACCC may be an illusionary right if the company cannot fund the action.

Infringement notices

The most controversial new power being proposed is the power of the ACCC to issue infringement notices. The ACCC will have the power to issue a notice stating that a corporation has engaged in conduct in breach of a provision of the consumer law provisions and requiring that corporation to pay a penalty.[8] It is likely that infringement notices will only be issued for less serious contraventions of the consumer protection laws.

A number of state consumer protection agencies currently have the power to issue infringement notices. These infringement notices can be issued in relation to administrative breaches and less serious substantive breaches. ASIC also has the power to issue infringement notices in respect of breaches of the Corporations Act 2001.[9]

The proposed power to issue infringement notices is controversial because it raises separation of powers issues – namely the blurring of executive and judicial functions. The power to impose a pecuniary penalty on a corporation for a breach of legislation is the exercise of a judicial function, which should properly reside in the Courts, rather than a federal government department, such as the ACCC, which forms part of the executive.

While it is not yet clear how the infringement power will operate, it is likely that a corporation which is the subject of an infringement notice will have the right to challenge the notice in court if they do not believe they have contravened the relevant provision of the consumer protection law.

One would assume that in order to issue an infringement notice, the ACCC would require quite strong evidence that the trader had engaged in a contravention of the TPA. Therefore, while the power to issue an infringement notice may mean that the ACCC does not need to incur the added expense of running litigation, it is unlikely to avoid the expense of having to conduct a full investigation. 

One area where the infringement notice may be used in a cost effective way, is where a corporation has admitted that it has contravened a provision of the consumer protection law. In these types of matters, the ACCC does not need to conduct a full investigation, as it can rely instead on the corporation’s admissions. An infringement notice could be issued to the trader on the basis of its admissions, thus saving both the ACCC and the trader investigation and litigation costs.

New remedies available to the ACCC

Pecuniary penalties

The most significant new remedy being proposed is the power of the ACCC to seek a pecuniary penalty for a contravention of the consumer protection law provisions.[10] Currently, the ACCC can seek injunctions, declarations, non-punitive orders and compensation in a civil consumer protection case. Currently, if the ACCC wishes to obtain a penalty for a contravention of the consumer protection provisions it must take a criminal prosecution.

The ACL points out that civil penalties are not currently available under either federal or state consumer protection legislation. This is seen as “significant gap in the range of enforcement options available to consumer regulators”.[11] Reference is also made to the greater deterrent effect that access to civil penalties will have on corporations which may be tempted to breach the consumer protection law provisions.[12]

Access to civil penalties for contraventions of consumer law provisions will have a significant impact on the ACCC’s enforcement activities. Civil penalties will give the ACCC considerably more leverage in dealing with corporations which have contravened consumer protection laws. For example, the ACCC will be able to propose a smaller civil penalty in a settlement in return for the corporation agreeing to provide other remedies such as compensation to consumers or corrective advertising.

Another area where the availability of civil penalties will improve the ACCC’s enforcement outcomes is in relation to fly by night operators. Often these types of operators will obtain a significant amount of money from consumers, transfer the money out of the country and then liquidate the company. The ACCC is often faced with the prospect of taking legal action against a company in liquidation and former directors and managers of the company, seeking only injunctions and declarations. Further, the ACCC will not be able to proceed against the company in liquidation unless it has leave of the Court which will often require the consent of the liquidator. Generally, the liquidator will only consent if the ACCC legal action is not going to cost the company in liquidation any money. In these circumstances, the only effective remedy the ACCC can obtain is an injunction against the directors and managers seeking to prevent them from engaging in similar conduct in the future.

If the ACCC has access to civil penalties, it will be able to achieve much better specific and general deterrence. First, a successful civil penalties action against former directors and managers will have the effect of depriving these individuals of some of their ill-gotten gains from their contravention of the TPA. Second, if these individuals failed to pay the civil pecuniary penalty, the ACCC may be able to take action to bankrupt them which would prevent them from taking on director roles for a period.

Disqualification orders

The ACL also proposes the introduction of disqualification orders for individuals who have engaged in conduct in breach of the consumer protection law.[13] The ACL states these orders may “ban or restrict individuals from participating in specific activities for specific periods of time, including managing corporations or undertaking specific business conduct”.[14] Disqualification orders are already available for contraventions of the restrictive trade practices provisions of the TPA.

The introduction of a disqualification order for breaches of consumer protection law is a significant reform. The ACCC often deals with individuals who set up a succession of different companies so that they can continue to engage in the same type of illegal conduct. Currently, all the ACCC can do to prevent these people from repeating their illegal conduct is to obtain an injunction to prevent them from engaging in the same type of conduct. It is relatively easy for an individual to change their conduct slightly to avoid the terms of the injunction, particularly if the Court’s injunction has been drafted quite narrowly. The disqualification order would be a much better way to prevent these types of individuals from setting up new companies to continue engaging in illegal conduct.

The availability of disqualification orders will also give the ACCC much greater leverage in settlement negotiations with companies and their directors/management. The ACCC could advise a company that it would not pursue disqualification orders against particular directors or managers in return for the company’s agreement to other orders such as a higher corporate civil or individual penalty or agreement to pay compensation for consumers.

Non-party redress

The final proposed order in the ACL is non-party redress. The ACL Report describes non-party redress as the power to seek an order from the Court to “seek redress for persons who are not parties to the particular action”.[15] The ACL specifically refers to the Full Federal Court decision in Medibank Private Ltd v Cassidy[16] where it was held that there was no power in the TPA to order a business to provide redress to non-parties to a proceeding.

Currently there are two ways that the ACCC can get financial redress for consumers for a contravention of the consumer protection provisions of the TPA. It can either take an action under section 87(1B) of the TPA or a class action under the Federal Court Act.

In the past, the ACCC has shown a clear preference for proceedings under section 87(1B). This is because under such proceedings the ACCC remains in control of the legal action and can decide when to settle and on what terms. However, under FCA, the class controls the legal proceedings and can decide when and on what terms to settle the litigation. The ACCC is often attempting to achieve other outcomes in its litigation, in addition to compensation for consumers, and it may not want to settle the litigation on the same terms as a class would.

There are a number of difficulties associated with seeking compensation under section 87(1B) of the TPA. There are two ways to run proceedings under section 87(1B) which are described by the ACCC as the one-step approach and the two-step approach.

The one-step approach has the ACCC seeking compensation as part of its initial case, along with other remedies such as injunctions, declarations and non-punitive orders. The main problem with this approach is that the ACCC must obtain written consents from all persons it wishes to represent for compensation before it commences the litigation. Getting these written consents prior to institution of legal proceedings often presents major logistical problems, particularly if there are more than 10 consumers.

The alternative is the two-step approach, in which the ACCC takes legal action for a limited range of remedies and foreshadows that it will be seeking compensation for consumers under section 87(1B) in a follow up action. This is a much simpler approach as the ACCC will not need to get consents from consumers until after it has won the first action.

The two-step approach also has some drawbacks. First, because compensation can only be obtained after the second successful action by the ACCC, there will be a considerable delay before consumers obtain their compensation. Second, there is often a risk that the company against which the ACCC takes legal action will not have sufficient funds to pay compensation after the initial legal action has been concluded. In some cases, the company may even go into administration a consequence of the costs associated with the initial ACCC action.

The new provisions concerning obtain non-party redress will solve a number of these problems. Of central importance is that consumers which have suffered loss will not need to become parties to the litigation in order to get compensation. In addition, ACCC litigation of matters involving a large number of disaffected consumers will be much less complex.

Unfair contracts

The ACL also proposes the introduction of unfair contracts legislation.[17] There are two main aspects to this proposed legislation –
specific unfair contracts legislation which will give the ACCC and individuals the right to challenge unfair terms in standard form contracts
banning of particular terms in standard form contracts on the basis that they are unfair.

Unfair contract terms legislation

The ACL defines unfair contract terms as terms that “cause a significant imbalance in the parties’ rights and obligations under a contract and are not reasonably necessary to protect the legitimate business interests of the supplier”.[18] The ACL also makes reference to the unfair contract terms legislation which currently exists in the UK and Victoria.

The justification for the introduction of unfair contract term legislation appears to be the finding by the Productivity Commission that the consumer detriment from unfair contract terms is likely to be “non-trivial”.[19] In its report, the PC found that from 5% to 15% consumers may be detrimentally affected by unfair contract terms.[20] If this statistic is correct, it would demonstrate that unfair contract terms are indeed a significant problem as effectively one in six consumers is being adversely affected by unfair contracts.

One surprising conclusion reached by the PC was that businesses had not identified major costs associated with the introduction of unfair contract terms in the EU, UK and Victoria.[21]

The description of unfair contract term legislation suggests that there will be a two-step process in applying the legislation – a contract terms will be considered unfair if -

1. the relevant term causes a significant imbalance in the parties’ rights and obligations

2. the relevant term is not reasonably necessary to protect legitimate interests of supplier[22]
The first step in determining whether a contract term is unfair will be to assess whether the term causes a significant imbalance in the rights and obligations of the parties. This suggests that the courts will have to consider what the effect of one particular contractual term will be on the respective legal positions of each party to the contract. It is not a case of considering whether the cumulative effect of a number of contractual terms will create a significant imbalance, but rather whether one contractual term in isolation will have that effect.

For example, a term which allowed one party to vary unilaterally the terms of the contract may be seen as providing that party with significantly greater rights than the other party to the contract. Another example would be a clause which excluded the right of one party to take legal action against the other party to the contract for negligence.

The second step in applying the unfair contract term test would be to ascertain whether the term is reasonably necessary protect the legitimate interests of the supplier. This step could be broken down into two separate issues. First, one must identify what the legitimate interests of the supplier are in entering into the contract. This will involve a consideration of whether for example, it is legitimate for a supplier to limit their liability and, if so, to what extent. Second, one will have to consider whether the term is reasonably necessary to protect that legitimate interest. For example, a Court may find that while it is legitimate for a supplier to attempt to exclude liability for certain acts, it may find that the relevant contractual term goes beyond was is reasonably necessary to protect the suppliers’ legitimate interest because it seeks to exclude all liability.

The main concern about the test outlined about to determine whether a contract term is unfair is that it is likely to be quite difficult to apply in practice. In particular, it is likely to be quite difficult to determine what the suppliers “legitimate interests” are and also what is considered to be “reasonably necessary” to protect those interests.

The ACL proposes three limitations on the unfair contract term legislation.

First, remedies under the legislation will only be available where the claimant can show that the contractual term is likely to cause detriment, or a substantial likelihood of detriment, to the consumer. Detriment is not limited to financial detriment.[23] In other words, remedies will not be available to claimants in relation to unfair contract terms if they are not likely to result in any consumer detriment. This will prevent claimants, including the ACCC, from taking action in relation to a particular term which appears unfair on its face but which the supplier is not proposing to enforce against the consumer.

While this requirement will limit access to the unfair contract terms legislation, claimants still have considerable scope to argue that there is a “substantial likelihood” of detriment in circumstances where the supplier has not indicated an intention to enforce the allegedly unfair contract term. A better approach would be to limit access to unfair contract terms remedies to situations where the supplier has enforced or expressed their intention to enforce the allegedly unfair contract term against a consumer. This would limit the application of the legislation to only genuine disputes and avoid theoretical debates about whether there was a “substantial likelihood” of detriment.

The second limitation is that the unfair contract term legislation will only apply to standard, non-negotiated contracts.[24] The onus will be on the supplier to prove that the contract is not a standard contract. This is a necessary limitation on the scope of the legislation which is aimed at addressing the problems arising from contracts which are not subject to any negotiation of the contract terms. Even though this limitation will exclude many contracts from the purview of the legislation, it will still mean than tens of thousands of standard form contracts will be within the scope of the legislation.

The third limitation is that claims that the upfront price for a good or service is unfair are excluded from the operation of the legislation.[25] This appears to be a sensible limitation as an upfront price should not be considered unfair, as the consumer would normally be aware of the price before signing the contract. The only qualification to this is where the supplier does not disclose the full costs of the good or service to the consumer. The failure by a supplier to state the full upfront cost of the good or service would contravene other provisions of the TPA, including the new section 53A.

The ACL also refers to one additional feature of the proposed unfair contract term legislation – namely that in considering whether a contract term is unfair “all of the circumstances of the contract (are) to be considered, taking into account the broader interests of consumers, as well as the particular consumers affected”.[26] The ACL suggests that the purpose of this additional feature will be to facilitate private and ACCC representative actions for damages. In other words, the Court will be required under the legislation to consider whether a wider ban on an unfair contract term may be appropriate if it is in “the broader interests of consumers”.

The main areas of enforcement activity for the ACCC once the unfair contract legislation is introduced are likely to include the car rental, fitness club and telecommunications industries. Many of the examples of potentially unfair contract terms in the ACL have been drawn from standard form contracts in these industries.

The main objections to the unfair contract terms legislation are that –

  • there is no clear evidence that there is a need for such legislation
  • the scope of the proposed legislation appears to be too broad 
  • the enforcement of the legislation may put a significant strain on the ACCC’s resources. 
The Federal Government has not demonstrated the need for this legislation. While most consumers who sign a standard form contract would (if they actually read the contract) no doubt find that many of the contract terms appear to be quite unfair, the reality is that many of these allegedly unfair terms will rarely be enforced. Either the contract will performed without the need for legal action by the supplier or the supplier will choose not to enforce a term which is allegedly unfair. Therefore, a legitimate criticism of the unfair contract legislation is that before any such legislation is introduced, steps should be taken by the Federal Government to ascertain whether a significant problem with unfair contract terms exists in the community.

Also as stated above the proposed legislation is likely to be too broad as it focuses on “substantial likelihood” of detriment, rather than on allegedly unfair terms which have been or are going to be enforced by the supplier against the consumer. It is arguable that the “significant likelihood” requirement is too vague a test to limit the scope of the legislation effectively.

Finally, there must be significant concerns that the ACCC’s role in investigating alleged unfair contract terms in standard form contracts will put a significant strain on its enforcement resources. It is likely that unfair contract term investigations will be quite resource intensive.

Banning unfair contract terms

The ACL also proposes that mechanisms be put in place to ban unfair contract terms from all standard form contracts.[27] While there is no discussion of the policy reasons behind banning allegedly unfair contract terms, the main justification would probably be that there are certain contractual terms which are so clearly and objectively unfair that they should be banned.

The ACL discusses a number of contract terms which may be considered to be clearly and objectively unfair including –
  • terms retaining title in goods to suppliers even though the goods cannot be removed from the consumers’ premises without damage [28] 
  • terms denying the existence or validity of pre- or post-contractual representations made to consumers [29] 
  • terms deeming something to be a fact when it is not actually factual or true [30] 
  • terms under which consumers’ acknowledge that they have read or understood the contract [31] 
  • conclusive evidence terms [32] 
  • terms requiring consumers’ to pay more than the suppliers’ reasonable enforcement costs [33] 
While it is difficult to see how some of the contract terms listed would be anything but unfair, one common objection which had been raised to the idea of banning contract terms is that any unfairness may depend on the context of the relevant transaction. A contract term cannot be banned unless regard is also had to the particular context in which the contract clause applies. On the other hand, by banning particular terms the ACCC will not have to take enforcement action in relation to the same contract term in numerous different types of standard form contracts. Rather the ACCC could take steps to have the particular unfair contract term banned from all standard form contracts.

One possible concern about the proposed mechanism for banning unfair contract terms is that it appears that the power will be exercised by the relevant Minister on the advice of the ACCC. A more transparent approach could be to require the ACCC to take legal action in the Federal Court seeking a declaration that particular contract term was unfair. If the ACCC was successful in obtaining a declaration that a particular contract term was unfair, it would be able to use this finding as a basis for making a recommendation to the Minister that the unfair term be banned in all standard form contracts. This may introduce more accountability to the process of banning a contract terms as being unfair.

Product Liability

The ACL also proposes the introduction of a national regulatory regime for product safety. Under this system, the ACCC will be responsible for recommending permanent bans of unsafe products to the relevant Minister. State and Territory consumer affairs departments will be responsible for recommending temporary bans of no more than 60 days of unsafe products within their jurisdictions. The ACCC will be responsible for determining whether a recommendation should be made to the Minister that a temporary ban is made permanent.[34]

These proposed changes to the administration of product safety laws are significant. Currently, there is a great degree of duplication of effort in relation to product safety between the ACCC and state consumer protection agencies. Further, the level of coordination between these agencies in terms of their product survey work is quite poor. On more than one occasion, this lack of coordination has resulting in some finger pointing when an unsafe product slips through the regulatory safety net, as occurred during the Mattel toy recalls.

One clear implication of the proposed reforms is that the ACCC will have to increase its skill base in the enforcement of product safety standards. Currently the ACCC utilises its general enforcement investigators to conduct product safety surveys and investigations. These investigators have no specific training in relation to the particular standards they are enforcing, which is a concern particularly in relation to some of the more complex standards. The simplest way for the ACCC to acquire the necessary skills is for highly experienced and specialised investigators from state consumer affairs departments to transfer to the ACCC to form the core of a new dedicated product safety enforcement area.

Miscellaneous proposed reforms

The ACL outlined a number of other proposed changes to the consumer protection laws which are aimed at achieving harmonisation. Many of these proposed changes are relatively uncontroversial.

For example, consideration is being given to standardising the definition to the term “consumer” in consumer protection legislation.[35] Currently, there are a number of different definitions of the term “consumer” in Federal and State consumer protection legislation. These definitions of “consumer” differ quite significantly. It stands to reason, that such significant inconsistencies in foundational definitional issues, such as the term “consumer”, must create unnecessary costs and complexity for businesses which operate on a national basis.

Other suggested changes include whether to–
  • harmonise door-to-door legislation [36] 
  • introduce specific legislation concerning telemarketing into the ACL [37] 
  • introduce specific legislation in relation to third-party trading schemes into the ACL [38] 
  • introduce specific legislation banning mock auctions [39] 
  • to change the current provisions of the TPA in relation to pyramid selling to make them more effective [40] 
  • to consider banning dual pricing under the ACL [41] 

The proposals contained in the ACL will result in a radical transformation of consumer law protection in Australia. The proposed changes in the ACL will provide the ACCC with both a significant extension of its investigatory and enforcement powers in dealing with businesses and access to a number of new and powerful remedies.

With the power to issue substantiation notices, public warning notices and infringement notices, the ACCC will have extensive powers to take aggressive and pre-emptive enforcement action against businesses which have contravened the consumer protection laws. The ACCC’s access to pecuniary penalties and disqualification orders will provide it with significantly more leverage in settlement negotiations with companies accused of breaching the consumer protection laws.

The main substantive legislative change proposed under the ACL is the introduction of the unfair contract terms laws. This legislation will have far-reaching consequences for most Australian business involved in retail transactions with consumers. All businesses using standard form contracts will have to review the terms of these contracts prior to the introduction of the legislation to remove or redraft any terms which are at risk of being found to be unfair. Indications are that the task of identifying unfair contract terms is going to be anything but a straightforward exercise.

[1] An Australian Consumer Law : Fair Markets Confident Consumers, 17 February 2009 (ACL)-
[2] For example see Speech of The Hon. Chris Bowen, Minister for Competition Policy and Consumer Affairs, Australian Consumer Law – The Future, Address to the Monash Centre for Regulatory Studies, 17 February 2009,
[3] ACL, op. cit., p. 46.
[4] See section 137.1 of the Criminal Code.
[5] ACL, op. cit., p. 47.
[6] Ibid.
[7] Ibid., p. 51.
[8] Ibid.
[9] Ibid.
[10] See ACL, op. cit., pp. 43-45.
[11] Ibid., pp. 44-45.
[12] Ibid., p. 45
[13] Ibid.
[14] Ibid.
[15] Ibid., p. 52.
[16] [2002] FCAFC 290.
[17] ACL, op. cit., pp. 29-42.
[18] Ibid., p. 29.
[19] Ibid.
[20] Productivity Commission, Review of Australian Consumer Policy Framework, Appendix D, Box. 7.3
[21] Ibid., pp. 434-435.
[22] ACL, op. cit., p. 30
[23] Ibid., p. 32.
[24] Ibid.
[25] Ibid., p. 34.
[26] Ibid.
[27] Ibid., pp. 35-42.
[28] Ibid., p. 35.
[29] Ibid.
[30] Ibid.
[31] Ibid., p. 36.
[32] Ibid., p. 37.
[33] Ibid., p. 40.
[34] Ibid., pp. 53-54.
[35] Ibid., pp. 63-66.
[36] Ibid., pp. 67-72.
[37] Ibid., pp. 72-74.
[38] Ibid., pp. 79-80.
[39] Ibid., p. 80.
[40] Ibid., pp. 85-87.
[41] Ibid., pp. 88-89.