Unfair Terms

Unfair terms … narrower than planned

The Trade Practices (Australian Consumer Law) Bill 2009 was introduced into Parliament last week and contains the new unfair terms laws which, if passed, will enter into force on 1 January 2009.  They are, however, considerably watered down from the original proposed unfair terms laws.

The original draft prohibited all unfair terms in standard form contracts – whether goods or services were to be supplied to individuals or businesses.  Then Chris Bowen announced some modifications as a result of ‘consultation’ – suddenly there was to be a ‘threshold’ of $2m, above which the laws would not apply.  The bill, however, curtails the law significantly – according to the new law, the unfair terms provisions apply only to consumer contracts, defined as contracts for ‘(a) a supply of goods or services; or (b) a sale or grant of an interest in land; to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.’

Wow.  What a change.  The law is now NARROWER than the existing unfair terms law in Victoria; Victoria restricts the unfair terms prohibitions to consumer contracts, defined in a similar manner to that described above BUT it applies to ALL consumer contracts, not just standard form contracts.

There was no clear announcement of this monumental back-down on the breadth of the federal unfair terms law.  At least not until last week’s second reading speech by Dr Craig Emerson, where he stated (my emphasis):

“We have consulted, and we have listened. And this is reflected in the provisions set out in this bill, which differ in key respects from those that the government exposed in May, particularly in respect of the exclusion of business-to-business transactions.

In relation to the question of whether business-to-business contracts—and particularly those involving small businesses—should be included under the unfair contract terms provisions, the government is currently reviewing both the unconscionable conduct provisions of the Trade Practices Act and also the Franchising Code of Conduct.

Both of these reviews cover issues relating to the protections afforded to businesses in circumstances where they are dealing with other businesses with greater bargaining power and market power. In responding to these reviews, the government is seeking the views of businesses—large and small—about the effectiveness of our current laws. The government will further consider this issue when these reviews are completed.

The government has also indicated its intention that this bill should be referred to a senate committee, and this issue will—no doubt—be further considered as part of that process.”

So,the breadth may possibly expand again … we await yet another senate review (let’s hope it’s better than the last one dealing with cartels … maybe they will demonstrate some understanding of this law … then again, that might be being a tad optimistic).

I don’t really have much difficulty with the law being limited to consumers; it is consumers who are most likely to purchase in bulk using standard forms without reading their contracts or, even if they did, without having any bargaining power to make changes to blatantly unfair terms.  But this is quite a monumental change from the original draft provisions which captured ALL standard form contracts and a more adequate explanation from the government about the reasons for this change is needed.

See also the Government’s Australian Consumer Law Home Page.

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2 thoughts on “Unfair terms … narrower than planned

  1. Hi Julie

    I am certainly very disappointed over the narrowing of the coverage for consumers, being limited to standard form contracts.

    I also believe that businesses should receive a better deal, and that the law should apply to ALL CONSUMERS and ALL SMALL BUSINESSES for ALL CONTRACTS.

    From a consumer perspective, as expressed by both funded consumer organizations and by individual citizens, the entire slant and focus of both the stated objective and the content of the national retail energy laws and rules (NERL and NERR) reflects preoccupation with process rather than a “wellbeing framework” as espoused by the Australian Treasury (p. 3 Dr. Steven Kennedy’s speech 27 Nov 2009).

    The national consumer policy objective of the ACL is to improve consumer well-being, empowerment and protection, fostering effective competition and enabling the confident participation of consumers in markets in which both consumers and suppliers trade fairly.”

    By contrast the proposed national retail energy provisions have included a diluted version of a consumer protection regime for retail energy by focusing on economic efficiency for the alleged long-term protection of consumers, an unsubstantiated claim that appears top be regularly used to justify continuing dilution of consumer protection wherein the wellbeing of consumers is insufficiently considered, if at all.

    The ACL philosophy embraces a commitment to protection for the Australian people at large and is not focused merely on certain segments of the community deemed to be in “most need.”

    The proposed National Energy Law and Rules appear to fail to embrace the concept of a market in which “both consumers and suppliers trade fairly, or the concept of wellbeing empowerment and protection for all Australians, as is reflected in operational detail and in apparently deliberate omission of certain provisions adopted at state jurisdictional level and at risk of being perpetuated within national energy laws.

    There are many other ways in which the proposed energy-specific laws fail to align with generic policy objectives including in relation to standard term and deemed contracts, statutory consumer guarantees, and proper protection under proposed exempt authority regimes.
    I cite directly from and support the recently published views of Associate Professor Frank Zumbo (“Australian consumer law reforms fall short” Business Dynamics, 18 March 2010), to whom I have previously written in connection with concerns about consumer law provisions.

    “University of New South Wales Associate Professor Frank Zumbo has come out swinging at proposed national consumer laws that water down existing legislation in Victoria.
    While moves to a national consumer law framework are to be welcomed, it’s very disappointing that the new national law dealing with unfair contract terms has been watered down from the longstanding Victorian legislation in the area.

    The Victorian legislation, modelled on legislation in the United Kingdom, represents best practice in dealing with unfair contract terms and should have simply been copied at the Federal level.
    Instead, changes to the new national unfair contract terms law making it much harder to prove the existence of an unfair contract term will disadvantage consumers.
    It’s also disappointing that the Federal Government did not accept proposals for the availability of “safe harbours” under the new national unfair contract terms law. The provision of safe harbours under national law would have enabled businesses to voluntarily approach the ACCC for approval of consumer contracts or terms. If obtained, the ACCC approval would have operated to safeguard businesses from legal action in relation to the approved contract or term. Safe harbours would have provided businesses and consumers with certainty about the use of approved contracts or terms.
    Finally, the last minute removal of small businesses from the operation of the new national law dealing with unfair contract terms will disappoint those small businesses on the receiving end of unfair contract terms used by larger businesses. Unfair terms in retail leases, franchise agreements and supply agreements will escape scrutiny under the new national law and give unscrupulous larger businesses the green light to continue using unfair terms in contracts with small businesses.”

    As an individual stakeholder, I wish to add my disappointment to those of numerous community organizations about outcomes.

    Under the heading “Selected comparative law considerations” (pp100-102) I expressed disappointment that the MCE had chosen to implicitly endorse by default grossly flawed jurisdictional provisions that represent conflict and overlap within and outside of energy provisions and represent poorest practice, citing one particular example to analyze in extraordinary, and providing substitution by way of several case studies, one in particular of which I had had extensive experience as a third party nominated representative for a particularly vulnerable and disadvantaged end-consumer of utilities unjustly deemed to be a consumer of energy, where in fact it was heated water supplies that were provided by the energy suppliers (distributor and retailer and/or their servants, contractors or associated body corporate entities).
    Failure to properly clarify the proper contractual parties (in all the case studies cited being the original developer and/or private or public housing Owners’ Corporation or Landlord working collusively with energy providers).

    I have already commented on the drawbacks of continuing confusion created by discrepant provisions, terminology and metrological provisions co-operating with a supposed national framework. I will refrain from commenting in detail here again but refer those interested to my submission 2010 to the National Energy Law and Rules Second Exposure Draft (National Energy Customer Framework NECF2)

    I refer to the Forum for Consumers and Business Stakeholders hosted by the Standing Committee of Officials of Consumer Affairs (SCOCA) held on 27 November 2009, the date that coincided with the publication of the Australian Treasury’s Unconscionable Conduct Issues Paper; and with the publication of the Second Draft Exposure of the National Energy Retail Laws and Rules (NERL and NERR) together known as the National Energy Consumer Framework (NECF2), which the Ministerial Council on Energy expects to have rubber-stamped through the South Australian Parliament this Spring, albeit that all 41 responders to that arena have expressed disappointment in the context of slant, focus and workable detail within the operational design.

    At the ACL Forum mentioned above, Dr. Steven Kennedy, General Manager, Competition and Consumer Policy Division of the Australian Treasury introduced the proposed ACL as
    “the largest overhaul of Australian Consumer law in 25 years” intended to introduce a single national consumer law that will apply consistently in all Australian jurisdictions.” Dr. Kennedy spoke of the template scheme implemented in the 1980s based on Part V of the TPA 1974 as an attempt to address the identified need and benefits of a national approach to consumer law. However, he observed that:
    “earlier attempts to embrace the benefits of consistency were short-lived since the individual state and federal governments “all pursued their own improvements to consumer laws leading to divergence, duplication and complexity.”

    That approach led to confusion to businesses and consumers; increased time and monetary costs and compromised market confidence.

    The proposed National Energy Law and Rules appear to fail to embrace the concept of a market in which “both consumers and suppliers trade fairly, or the concept of wellbeing empowerment and protection for all Australians, as is reflected in operational detail and in apparently deliberate omission of certain provisions adopted at state jurisdictional level and at risk of being perpetuated within national energy laws.

    There are many other ways in which the proposed energy-specific laws fail to align with generic policy objectives including in relation to standard term and deemed contracts, statutory consumer guarantees, and proper protection under proposed exempt authority regimes.
    I cite directly from and support the recently published views of Associate Professor Frank Zumbo (“Australian consumer law reforms fall short” Business Dynamics, 18 March 2010), to whom I have previously written in connection with concerns about consumer law provisions.

    “University of New South Wales Associate Professor Frank Zumbo has come out swinging at proposed national consumer laws that water down existing legislation in Victoria.

    While moves to a national consumer law framework are to be welcomed, it’s very disappointing that the new national law dealing with unfair contract terms has been watered down from the longstanding Victorian legislation in the area.
    The Victorian legislation, modelled on legislation in the United Kingdom, represents best practice in dealing with unfair contract terms and should have simply been copied at the Federal level.

    Instead, changes to the new national unfair contract terms law making it much harder to prove the existence of an unfair contract term will disadvantage consumers.

    It’s also disappointing that the Federal Government did not accept proposals for the availability of “safe harbours” under the new national unfair contract terms law. The provision of safe harbours under national law would have enabled businesses to voluntarily approach the ACCC for approval of consumer contracts or terms. If obtained, the ACCC approval would have operated to safeguard businesses from legal action in relation to the approved contract or term. Safe harbours would have provided businesses and consumers with certainty about the use of approved contracts or terms.

    Finally, the last minute removal of small businesses from the operation of the new national law dealing with unfair contract terms will disappoint those small businesses on the receiving end of unfair contract terms used by larger businesses. Unfair terms in retail leases, franchise agreements and supply agreements will escape scrutiny under the new national law and give unscrupulous larger businesses the green light to continue using unfair terms in contracts with small businesses.”

    As an individual stakeholder, I wish to add my disappointment to those of numerous community organizations about outcomes.

    Under the heading “Selected comparative law considerations” (pp100-102) I expressed disappointment that the MCE had chosen to implicitly endorse by default grossly flawed jurisdictional provisions that represent conflict and overlap within and outside of energy provisions and represent poorest practice, citing one particular example to analyze in extraordinary, and providing substitution by way of several case studies, one in particular of which I had had extensive experience as a third party nominated representative for a particularly vulnerable and disadvantaged end-consumer of utilities unjustly deemed to be a consumer of energy, where in fact it was heated water supplies that were provided by the energy suppliers (distributor and retailer and/or their servants, contractors or associated body corporate entities).
    Failure to properly clarify the proper contractual parties (in all the case studies cited being the original developer and/or private or public housing Owners’ Corporation or Landlord working collusively with energy providers).

    I have already commented on the drawbacks of continuing confusion created by discrepant provisions, terminology and metrological provisions co-operating with a supposed national framework. I will refrain from commenting in detail here again but refer those interested to my submission 2010 to the National Energy Law and Rules Second Exposure Draft (National Energy Customer Framework NECF2)

    Of particular concern to me is the conflict inherent within proposed energy provisions to be named National Energy Law and Rules (see my submission to the NECF2 Package March 2010 and one other from an individual focused on similar matters).

    Within the proposed national laws the MCE has both explicitly (by requiring adoption of existing energy Codes at jurisdictional level) and implicitly endorsed provisions that will be inconsistent with all other energy laws as well as with numerous other provisions, and will contain mandated energy standard form contracts that contain inherent unfair terms in relation to deemed contracts imposed on those who receive no energy at all, but rather a composite water product from which the heating component cannot possibly be separated (the bulk hot water arrangements introduced by the Victorian Essential Services Commission and replicated inconsistently in several other states.

    These provisions are unfairly imposing contractual status on the wrong parties – end users of heated water instead of the Owners’ Corporations (body corporate entities) commissioning billing and metering services. Energy providers and/or their contracted metering providers are creatively using water meters to pose as gas or electricity meters and charging for the alleged supply of energy which does not even enter the abodes of those deemed to be contractually liable. This is the equivalent of using an oil funnel to weigh a bag of apples.

    There are numerous gaps in provisions all round which will leave the marketplace in a state of sustained confusion.

    None of the new laws is cross-referenced to others. Electricity and gas are goods for the purposes of the ACL and current sale of goods acts which will be superseded. The full suite of protections should be provided. Water should also be included.

    Stakeholders cannot possibly attain certainty over these issues and be confident that there will be no conflict and overlap between schemes or confusion as to how metrology, contractual, unfair practices and the like will operate.

    On the brink of adoption of a new improved national generic law reflecting significant amendments to the TPA, divergence from the concept of “a single law, multiple jurisdictions” is evident in both individual state and federal jurisdictions in attempts to formulate and implement a national energy consumer law adopting a tripartite governance model (distributor-retailer-customer).

    The goal of adopting a unified national consumer protection objective reflected in both generic and industry-specific laws appears to be already fading into the distance. One example is the proposed National Energy Law and Rules (NERL and NERR) encapsulated into the Second Exposure Draft of the National Energy Customer Framework Package (NECF2) published on 27 November 2009 with submissions published in mid-March 2009 following workshops/information sessions held on 3 and 4 February 2010.

    The disappointment and concern of all 41 stakeholders responding to the National Energy Law and Rules encapsulated in the NECF2 Package are accessible on the website of the Department of Energy and Resources (DRET) which provides a Secretariat Service to the Ministerial Council on Energy. The consumer focus and slant appear to have disappeared from the NECF2 Package, despite the perhaps understandable perceptions of those from industry, who would like to see even more light-handed approaches; focus on “economic efficiency” alone in the alleged “long-term protection of consumers”
    Although different groups of stakeholders have expressed conflicting perspectives about the perceived inadequacies of the proposed national energy laws there is unity on these issues:

    a) perceived significant shortcomings in meeting a single national consumer protection objective (taking account also of proposed generic laws still under discussion

    b) identification of a wide range of inconsistencies, duplication, lack of clarity and lack of workable detail in a large number of crucial aspects of the law.

    In his published paper by Professor Stephen G. Corones, “Consumer guarantees in Australia: putting an end to the blame game. Queensland (Vol 9 No. 2 (QUTLJJ) http://eprints.qut.edu.au/)

    refers to the second exposure draft of the National Energy Customer Framework (NECF2), mentioning the original goal that
    “the operation of the NECF and the Australian Consumer Law would be consistent and complementary.”

    He shows how this has not occurred in practice with reference to current proposals at Second Draft stage. Under Section XII Prof Corones observes that though the “marketing rules under the NECF will align with the ACL, Part 7 of the NECF will establish a small compensation claims regime.
    Professor Corones describes the focus of his article as being on the proposed consumer guarantee component of the ACL, referring to the review undertaken by the Commonwealth Consumer Affairs Advisory Council (CCAAC) in mid-2009, and the 33 written submissions received in response to the Issues Paper and to the National Education and Information Taskforce (NEIAT) paper “Baseline Study for Statutory Warranties and refunds.”
    See

    http://www.treasury.gov.au/documents/1682/RTF/Report_CCAAC_091029.rtf

    Part 3 of Professor Corones’ paper examines as an example only

    “what the new consumer guarantees will mean for consumers and traders in Australia by reference to defects in the quality of electricity supplied.”

    especially in situations where outage or fluctuation has occurred and highlights decisions made in the New Zealand High Court in this regard.

    Prof. Corones observes the CCAAC recommendation that statutory consumer guarantees
    “should apply to all products and services supplied in domestic consumers, including electricity gas and telecommunications.”
    More difficult is the situation where gas or electricity is deemed to be supplied under either standard or deemed model contracts or coerced market contracts where no supply of such a commodity is made at all to the end-consumer, who receives instead a heated water product reticulated in water pipes (see submission by Madeleine Kingston and separate submission by Kevin McMahon to the NECF2 2nd Exposure Draft 2010.
    This matter has not been clarified in the proposed energy laws and there is insufficient inclusion within the generic laws to cover such a situation. The public expected that the commitment to ensure complementary non-conflicting generic and industry-specific laws to be adopted, eliminating any confusion.

    Though Model Terms and Conditions for both Deemed and Standard Contracts are proposed within the NECF these are not consistent with the spirit, intent and letter of drafted provisions within generic laws, which remain the subject of enquiry and report by the responsible Senate Committee.
    In addition, the proposed energy laws have decreed that a deemed contract will only exist for the cycle of two billing periods after which a market or standard contract must be adopted.
    In the case of dispute as to who the correct contractual party should be (for example Owners Corporation or end-user of a composite water product – heated water in the absence of any legal traceability or flow of energy to the presumed consumer (termed residential customer), this raises instant problems for which urgent clarification is required – but which the MCE has apparently refused to consider covering within its proposed national energy laws.

    The term “residential customer” is substituted for consumer in the NECF. That term is defined as “a customer who purchases energy principally for personal household or domestic use at premises.”

    I have put forward that failure to distinguish between residential premises and other premises (such as the common property areas of multi-tenanted dwellings under the control of privately or publically rented multi-tenanted dwellings has resulted in unjust imposition of deemed contractual status on the wrong parties and distortion of rights under proposed revisions to statutory and implied warranty protections under generic laws.

    Examples of such distortions of fair and just protections under either standard form of “deemed contracts” are provided in my various submissions to the public arena, most recently discussed in my submission to the Second Exposure Draft of the National Energy Law and Rules (NECF2).

    I demonstrated in my submission to the NECF2 Package how looseness in the use of terminology, and failure to adequately address the issues of conflict and overlap with other regulatory schemes

    Hope this helps to add the perspectives of someone who has fruitlessly battled for fairer provisions especially within the energy arena.

    Regards

    Madeleine

  2. Hi Julie

    Following my blog above, I thought I would let you know that the Australian Energy Regulator has made a decision to perpetuate anomalies and substantive unfair terms imposed on end-users of heated water supplied not with energy but with heated water that is centrally heated, after being fired by a single gas meter or electricity meter.

    The new definition adopted within standard term “Reference Service Agreement Terms” between a gas distributor and a gas retailer (or third party) is as follows:

    “Customer means an end consumer of energy. A Customer includes any end consumer of hot water in a residential unit where hot water is supplied through a centralised gas fired hot water system”

    Such a definition, where there is no direct supply of energy is:

    1. Inconsistent with the concept of “flow of energy” within the National Energy Retail Law;

    2. Inconsistent with the concept of legal traceability of goods within the spirit and intent of National Trade Measurement provisions, and subject to the lifting of remaining utility exemptions

    3. Inconsistent with the definition of sale of goods under generic laws and at common law

    My view is that the mere existence in different provisions, of different definitions of the term customer and the failure to distinguish between the Body Corporate who requests the services provided and the end-consumer of heated water (not of energy) gives rise to confusion.

    However, such existence within the types of standard form Agreements between say Distributors and Users or Third Parties, does not validate the definition for the purposes of sale of goods – in my view.

    Gas and electricity are not services – they are goods. The reference concept used in the context described above and within the provisions of the Reference Service Agreements sanctioned by the AER as an intrinsic part of the JGN Gas Access Agreement (or others similar is to my way of thinking invalid in relation to sale of goods – in this case gas and cannot be validated by mere repetition of an alternative definition of the term customer of energy – as one who receives heated water in a residential unit where hot water is supplied through a centralised gas fired hot water system
    The alleged or implied contract for sale and/or supply of energy cannot possibly be performed – since the party allegedly supplying energy cannot possibly to “what is necessary to enable the (alleged or implied) contract (to supply energy) to be performed.”

    As you have observed elsewhere, there is also the question of “implied standard terms” – without the need for inquiry into the actual intent of the parties. In some cases, if there is a clear intention to the contrary, the terms will not be implied. – some implied terms include that the materials are of good quality, fit for purpose and that contracts for professional services will be supplied will be provided with reasonable care.

    I am particularly concerned about diluted consumer protections, with further weakening as a result of what I can only describe as flawed energy provisions that fail to take into account the fundamentals of comparative law; common law precepts, best practice and the intent and spirit of trade measurement laws and inherent tenancy protections. Increasingly the carve out from proposed generic laws of protections afforded to goods such as gas and electricity make inaccessible to most individual consumers affordable and accessible legal remedies, or for that matter any other form of redress.

    Please see my extensive submission to the AER’s Jemena Gas Networks (JGN) NSW Ltd (formerly Australian Gas and Light Company Ltd – AGL) Gas Access Determination and more awaiting publication next week.

    Could you clarify please?

    For further discussion please contact me on mkin2711@bigpond.net.au

    Kind regards

    Madeleine Kingston

    mkin2711@bigpond.net.au

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