Archives for June 2021

Customers of larger Australian business will have access to greater protections under the Australian Consumer Law (ACL) in the new financial year. This comes as the threshold for what constitutes a “consumer” under the ACL is reformed.

Who is currently a consumer?

As mentioned in a previous article a consumer is currently defined under the ACL as a person who acquired a good or service for less than $40,000, or, if the good or service was acquired for more than that, a person who acquired a good or service for ordinary personal, domestic, or household use or consumption.

Consumer guarantees

The ACL sets out protections for consumers known as statutory consumer guarantees. The guarantees stipulate that goods will:

• Be of an acceptable quality;
• Be fit for purpose;
• Comply with their description;
• Correspond with the sample or demonstration (if given);
• Comply with any express warranties;
• Have clear title;
• Be free from securities; and
• Come with undisturbed possession.

They also require that services be:

• Provided with due care and skill;
• Fit for a particular purpose; and
• Delivered within a reasonable time.

Breaching these guarantees entitles consumers to remedies under the ACL such as repair, replacement, refund, cancellation and compensation.

What is happening?

Amendments to the ACL effected by the Treasury Laws Amendment (Acquisition as Consumer—Financial Thresholds) Regulations 2020 have increased the monetary threshold for determining whether a person acquires goods or services as a “consumer” under section 3(1)(a) of the ACL from $40,000 to $100,000. This same increase will also become apparent in section 12BC(3)(a) of the Australian Securities And Investments Commission Act 2001 (Cth).

These changes will take effect on 1 July 2021.

What does this mean?

This increase in threshold will have several implications on suppliers of goods and services (particularly those regularly dealing with transactions between $40,000 and $100,000):

• Contract terms that misrepresent these new consumer rights’ will be void under the ACL and suppliers could incur potential penalties.
• Warranties must comply with consumer protection regulations which incorporates mandatory text that must be included in the document.
• Employees may not be up to date with new consumer guarantees.

Recommendations

Businesses whose goods and services have traditionally fallen outside the scope of the ACL because of the current monetary threshold should do the following:

• Review standard supply contracts and warranties to ensure no misrepresentations are made and the appropriate limitation of liability provisions are in place;
• Ensure staff are re-trained in compliance with the consumer guarantees to make certain they do not misrepresent or mislead consumers; and
• Consider your business’ expanded range of obligations, and check whether you need to implement any new processes or reallocate funds to prepare for the changes.

If you have any questions or concerns related to consumer guarantees or the ACL, please do not hesitate to contact us.

Statutory unconscionable conduct is prohibited by section 21 of the Australian Consumer Law (ACL), which provides that a person must not act unconscionably in the supply or acquisition (or possible supply or acquisition) of goods and services. Unconscionable conduct is also prohibited under general common law principles. Under common law, a person will act unconscionably where they knowingly exploit or take advantage of a special disadvantage or disability of another party.

In the recent case of Australian Competition Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40, the Federal Court widened the scope of statutory unconscionable conduct by holding that a person does not need to exploit a special disadvantage in order to be found guilty of unconscionable conduct under the ACL.

Background

Quantum Housing Group Pty Ltd (Quantum) engaged in the business of arranging investments that qualified for National Rental Affordability Scheme (NRAS) incentives. The Australian Competition Consumer Commission (ACCC) commenced proceedings against Quantum, alleging that Quantum had made false and misleading representations and engaged in unconscionable conduct by pressuring investors to use property managers approved by Quantum.

The ACCC argued that Quantum:

• issued misleading correspondence to its investors aimed at breaking up the relationships between its investors and their property managers;
• told their investors that they would not be eligible for NRAS incentives if they did not appoint property managers approved by Quantum (which was not the case); and
• failed to disclose its commercial links to the property managers that it was recommending.

At trial, Quantum admitted to breaching the ACL by making false and misleading representations and engaging in unconscionable conduct. However, the trial judge held that Quantum was not liable for statutory unconscionable conduct as it had not taken advantage of or exploited a pre-existing vulnerability, disadvantage or disability of its investors.

Federal Court Appeal

On appeal by the ACCC, the Federal Court held that:

• while “some form of exploitation of or predation upon some vulnerability or disadvantage of people will often be a feature of conduct which satisfies the characterisation of unconscionable conduct” under the ACL, the existence of a special disadvantage and the exploitation of such disadvantage is not an essential element of statutory unconscionable conduct; and
• conduct will be unconscionable where it is “a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience”.

Accordingly, whether or not conduct will be deemed to be unconscionable for the purposes of the ACL will depend on how the conduct compares to acceptable commercial behaviour. It will likely be unconscionable to act in a way:

• that is systematically dishonest;
• entirely in bad faith in undermining a bargain;
• involving misrepresentation, commercial bullying or pressure and sharp practice, using a superior bargaining position;
• contrary to an industry code; or
• using significant market power to extract an undisclosed benefit.

In light of the above, the Federal Court found Quantum’s conduct to be unconscionable, as, despite the fact that their investors had no special vulnerability or disadvantage, Quantum’s conduct exhibited a dishonest lack of good faith. Accordingly, Quantum was found to have engaged in statutory unconscionable conduct and to have breached the ACL.

Next Steps

In light of the decision of the Federal Court, businesses engaging in trade or commerce will need to ensure that they always engage in commercially acceptable behaviour, regardless of whether or not their customers or clients a subject to a special disadvantage or disability.

If you have any questions or concerns related to unconscionable conduct and what may constitute commercially acceptable behaviour, please do not hesitate to contact us.