Consumer law reform – following Oz but not all the way

The Consumer Law Reform Bill, expected to be introduced into Parliament before the middle of this year, will pick up aspects of the Australian legislation but will not follow it as slavishly as originally proposed. 

The direction the Bill will take was indicated last week by the Minister of Consumer Affairs, John Boscawen.  Chapman Tripp’s commentary on the initial reform options is available here.

This Brief Counsel explains what we should see in the Bill and what hasn’t made the cut.

Unfair contract terms and unconscionable conduct out

While harmonisation with Australia was presented in the discussion document as a key driver of reform, some ideas taken directly from the Australian Consumer Law will not make it into the Bill.  The omissions include the proposed bans on unfair contract terms and unconscionable conduct.  The Government has decided to shelve these proposals for now given the business community’s equivocal response and the lack of evidence that the problem justifies the likely increase in compliance costs. 

We may yet follow the Australians down this path, however.  Cabinet has directed the Ministry of Consumer Affairs to revisit the unfair contract terms issue in 2014, taking into account what happens in Australia over the next three years. 

We think this caution is justified as the Fair Trading and Consumer Guarantees Acts already provide adequate protection in most circumstances.  The Consumer Law Reform aims for better regulation through less regulation.  Focussing on areas which benefit most from reform and leaving those parts of the law which are well understood and work is consistent with that objective.

Key changes

Key changes include:

  • a prohibition on unsubstantiated promotional claims.  Businesses will need to be able to substantiate all claims, including “obvious” claims which may not have previously been the subject of substantiation
  • regulation of all unsolicited direct sales via the telephone and in person.  For transactions over $100, written and verbal statements of a consumer’s rights (including cancellation rights) must be given to the consumer, regardless of whether the transaction is made via cash, credit card or other credit mechanism.  This obligation extends the application of the Door to Door Sales Act to unsolicited direct sales generally and not just credit agreements
  • auctioneers to be subject to a licensing and registration system under the Fair Trading Act.  Certain exemptions will apply for fundraising or charity auctions and for auctioneers licensed under other regimes, such as the Real Estate Agents Act and Motor Vehicle Sales Act
  • sales by traders through internet auction to be subject to the Consumer Guarantees Act (this is the “Trade Me” exception, currently encapsulated in Jackie Blue’s private member’s bill), and
  • disclosure statements to be required for extended warranties, indicating the benefits the warranty provides over and above the statutory guarantees within the Consumer Guarantees Act.  A seven working day cooling-off period will apply to all extended warranty purchases.

Unsafe goods regulations

The Bill will beef up the Ministry’s ability to regulate unsafe consumer products.  Product recall notices (including voluntary notices) will have to be submitted to the Ministry for publication on its website.  The Ministry’s “backstop” power to issue unsafe goods notices and require compulsory recalls will be extended where “reasonably foreseeable use or misuse will or may cause injury to any person”.  What is “reasonably foreseeable” will depend on the circumstances, but the Ministry has used lasers as an example in that they are designed for use in astronomy but have been used to attack cars and even planes.

In addition, the Minister may require that recalled unsafe products are destroyed where there is a risk that they will be made available for sale. 

Enhanced enforcement powers

The Fair Trading Act will be amended to extend to the Commerce Commission (Commission) the range of enforcement tools it has at its disposal under other legislation, such as the Commerce Act and Securities Act.  The Commission will be empowered to:

  • issue infringement notices for a specific number of minor, obvious breaches of the Fair Trading Act
  • accept, and enforce through the courts, enforceable undertakings from businesses, and
  • apply to the District Court to ban, for up to ten years, an individual from being a director, promoter or manager of a company that has been convicted of two or more offences under the Fair Trading Act within a ten year period. 

The jurisdiction of the Disputes Tribunal will be widened to include the ability to consider breaches of section 9 of the Fair Trading Act (e.g. allegations of misleading and deceptive conduct generally).   

Carrier’s liability

Carriers, such as couriers or other service providers transporting goods owned by another person, will no longer be entitled to contract out of the Consumer Guarantees Act. 

The Bill requires carriers to offer the limited carrier’s risk option where the party to the contract of carriage is a consumer.  The carrier’s cap on liability under this option is increased from $1500 to a maximum of $2500 per item carried.  If the limited carrier’s liability option is not used, the service guarantees under the Consumer Guarantees Act will apply for the benefit of consumer consignors and consignees. 

Carriers will not be permitted to limit their liability to consumers under the Consumer Guarantees Act in the contract of carriage, unless the contract provides stricter liability or more advantageous remedies than the Act – a position consistent with section 43(6) of the Act which limits the circumstances in which a business may contract out.

Electricity and gas distributors and transmission companies

The Bill will transfer liability for the quality of electricity and gas from the retailer to the distributor or transmission provider.  A retailer’s indemnity against suppliers will not apply where the retailer has already received compensation under the Electricity Industry Act or the Gas Act or if the defect in supply was caused by failure to follow regulations or rules under those Acts. 

Next steps

We expect the Bill to be in Parliament by the middle of the year with a view to being passed before the election.  Although some of the more controversial and challenging proposals have been dropped, this is still chunky reform which will touch a broad range of businesses.

While we await the draft Bill, we will monitor and comment on developments across the Tasman under the new Australian Consumer Law.

Our thanks to Kelly McFadzien for writing this Brief Counsel. 

For further information, please contact the lawyers featured.

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