Sales & Marketing

29 Sep 2009

Consumer Law – Is Radical Reform Set to Jump the Ditch?

Just across the Tasman the Australian Government is reforming consumer law. The wide-ranging changes will impose new burdens on manufacturers and suppliers. The Australian Government says this will save its consumers up to AUD$4.5 billion a year.

These changes will have a run-on effect for Kiwi businesses - and not just those operating in Australia. A similar scoping exercise is already under way in New Zealand, which may well follow Australia's lead as part of a push to harmonise trans-Tasman law. Such a change will affect all New Zealand businesses who deal directly with consumers.

This FYI briefly introduces the proposed Australian model to you, focuses on what "unfair terms" are, and looks at what the changes across the ditch mean for your business in New Zealand.

What Is The Proposed Australian Consumer Law?

What are the changes?

Thirteen different Australian consumer laws will be reduced to one national law. The Trade Practices Amendment (Australian Consumer Law) Bill 2009 (Bill) is the first step to achieve this rationalisation. This Bill sets the ground work of the new consumer law.

What are the "unfair term" provisions of the Bill all about?

"Unfair terms" will become illegal in consumer contracts.

Unfair terms provide more power and flexibility to one party (the supplier) than the other (the consumer). They are often found in standard form contracts that are presented on a “take it or leave it” basis, where the consumer has little or no bargaining power.

The test for unfairness weighs up the contract terms. It considers whether there's a significant imbalance in the parties' rights, and whether the terms are reasonably necessary to protect the legitimate interests of the supplier. A Court may also look at the detriment to the consumer, the transparency of the terms, and the contract as a whole.

Here's just a few examples of unfair contract terms from the non-exhaustive list contained in the Bill. Suppliers cannot:

• change the terms of the contract without the consumers consent (including price);
• make consumers pay for goods and services that are not provided;
• prevent a consumer from cancelling a contract; or
• limit the consumer's right to take legal action against the supplier.

Why are the Australians changing the law?

The main reason is to harmonise consumer law across Australia and thereby help to create a "seamless national economy". The different consumer laws in place at the moment make Australian business unnecessarily confusing, complex, and costly.

The Australian Government also wants to provide more protection to consumers. Making unfair contract terms illegal reduces the risk of consumer exploitation and should allow consumers more flexibility and choice.

When will the Australian consumer law changes come into effect?

This Bill is expected to pass into law on 1 January 2010, with a second Bill (focusing on a national product safety regulatory framework and various other amendments to existing laws) being introduced in early 2010.

The entire framework will apply in all Australian states and territories by 1 January 2011.

How Will Australian Consumer Law Reform Affect Uou?

Are you a Trans-Tasman business operating in Australia?

If you sell goods or services to Australian consumers, your Australian contracts will have to comply with the new framework. If they don't, you run the risk of becoming one of the ACCC's first test cases. We recommend that you review and update your consumer contracts well before the changes come into force.

At the same time, ensure that your Australian and New Zealand consumer contracts reflect the laws of each country to your benefit. For example, unfair terms in contracts are not yet prohibited in New Zealand.

Will New Zealand consumer law change to harmonise with Australia?

In 2006, the New Zealand Labour-led Government considered prohibiting unfair terms in consumer contracts. While never adopted, the policy and drafting work has continued behind the scenes.

In July 2009, New Zealand's Consumer Affairs Minister Heather Roy announced her desire to simplify our consumer law by implementing a "one law, one door" policy. As in Australia, this means combining and rationalising the numerous existing laws that deal with different consumer rights.

In researching this article, we asked the Ministry of Consumer Affairs whether New Zealand will harmonise its consumer law with Australia, and whether unfair terms are still on the agenda here. A senior analyst told us that New Zealand will wait for Australia to finalise its framework before considering harmonisation. With Australian reform under way, and the "one law, one door" policy being actively developed in New Zealand, it is fair to say that unfair contract terms are on the cards.

Accordingly, anyone who sells goods and services directly to consumers needs to keep a sharp eye on the developments in Australia and New Zealand consumer law over the coming months.

What Should You Do Now?

When consumer law or policy starts shifting and changing, it is always wise to review and update your consumer contracts. When was the last time you undertook a review with your lawyer? Can you remember exactly what your consumer contracts say? Does that still work for you? Pick up the phone and make a time with your lawyer to review and update your consumer contracts.

If you deal directly with consumers in Australia, have your Australian lawyer review and update your consumer contracts. We can refer you to excellent Australian lawyers who specialise in this area of law, if need be.

If you operate in Australia and New Zealand, we can "New Zealand-ise" your Australian contracts. This will ensure that your contracts reflect the differences in the law to your benefit, while complying with the law in each country.

Finally, monitor the development of the "one law, one door" policy in New Zealand so that you can have your say on any proposed changes to New Zealand's consumer law.

Authors

Peter Stubbs

Partner - Corporate & Commercial

DDI: +64 9 977 5010

Mobile: +64 21 955 230

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Gwendoline Keel

Senior Associate - Corporate & Commercial

DDI: +64 9 977 5201

Mobile: +64 21 242 6639

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Craig Nelson

Senior Associate - Corporate & Commercial

DDI: +64 9 977 5185

Mobile: +64 21 918 309

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