roundtable on consumer law - submission: an australian

Roundtable on Consumer Law

Submission

Australian Government Discussion Paper

An Australian Consumer Law Fair markets:

Confident consumers

16 March 2009

Consumer Law Roundtable Submission

Submitted to: SCOCA Australian Consumer Law Consultation Competition and Consumer Policy Division The Treasury Langton Crescent PARKES ACT 2600 Cc: Hon Chris Bowen MP Minister for Competition Policy and Consumer Affairs PO Box 6022�Parliament House� Canberra ACT 2600

By Email: [email protected]: [email protected] / [email protected] (& hard copy)

To reply: Please contact Professor Justin Malbon, Law School, Monash University, Clayton 3800. Phone (03) 99059758; email: [email protected]

mailto:[email protected]




The Roundtable on Consumer Law The Roundtable on Consumer Law consists of a group of legal academics, along with members from government and industry, who have met on an annual basis over the past 3 years to present and analyse papers delivered by Roundtable members.

The most recent Roundtable was hosted by Monash University, with the assistance of its Centre for Regulatory Studies, in February 2009. Previous Roundtables were held at the University of Sydney (2006) and Griffith University (2007).

The purpose of the Roundtable was to draw together academics, regulators and lawyers working in the area of consumer law. The Roundtable was intended to provide a platform for contemporary consumer law scholarship and for collectively exploring current issues in consumer law.

The participants at the 2009 Roundtable applaud the proposal to introduce a national prohibition on unfair terms in consumer contracts. A national prohibition on unfair contract terms will provide a timely response to terms that are unfair in substance, whereas prohibitions on unconscionable conduct apply primarily to the process through which the contract is made, and will bring Australia more into line with developments in the European Union (EU) and other major trading partners (such as Japan).

This submission collects together the views of a number of the members of the Roundtable. Given the time constraints in presenting this submission, it does not present an agreed position by the members. Rather, this document offers a range of views to assist the Government in finalising the legislation which is due mid-year. The views in this document therefore are not necessarily the views of all members on all issues canvassed. Some may also make separate Submissions.

Members of the Roundtable include:

Professor David Cousins, Law School, Monash University

Arlen Duke, Law School, University of Melbourne

Lynden Griggs, Law Faculty, University of Tasmania

Nicola Howell, Law School, Queensland University of Technology

Professor Justin Malbon, Law School, Monash University

Bronwyn Naylor, Law School, Monash University

Associate Professor Luke Nottage, Law School, University of Sydney

Paul O’Shea, Law School, University of Queensland

Dr Jeannie Paterson, Law School, Monash University

Professor Gail Pearson, Faculty of Economics and Business, University of Sydney

Lisa Spagnolo, Law School, Monash University

Associate Professor Eileen Webb, Law School, University of Western Australia

Professor Chris Willett, de Montfort University, Leicester

Therese Wilson, Law School, Griffith University


Should the TPA be renamed? If so, what name should it have, if not the Competition and Consumer Act?

Yes, the Act should be renamed. The proposed new name, the Competition and Consumer Act is appropriate as it neatly describes the Act’s area of coverage, and aligns it with the name of the regulator, the ACCC.

A number of members of the Roundtable have suggested, however, that the new Act be entitled the Consumer and Competition Act. The rationale is that although the name Competition and Consumer fits neatly with the name of the federal regulator, it is not just the ACCC that will be administering the Australian Consumer Law. The State and Territory consumer agencies, which have done the bulk of the work in consumer protection in the past, will also have an active involvement and recognition of this would arguably place the word consumer before competition. Moreover, the objective is to enhance consumer welfare not to promote competition as an end in itself. This would again suggest that consumer should precede competition.

Numerous private contracts between parties mention the “Trade Practices Act”. Consideration should be given to inserting a deeming provision in the new Act stating that unless there is evidence suggesting the parties intend otherwise, it is to be presumed that an agreement between parties that refers to the “Trade Practices Act”, such reference is to be taken to be a reference to the “Competition and Consumer Act”.

Please set out any views on whether the types of terms described in this chapter should be banned in the initial text of the Australian Consumer Law

[See attachments A and B for further discussion on this issue]

The Federal, State and Territory Governments are to be commended on the proposal to introduce national unfair contract terms provisions into the proposed new Australian Consumer Law. This will bring Australia into line with world’s best practice, and will harmonise with the European Communities’ law on this topic.

We agree that a term should be considered unfair when it causes a significant imbalance in the party’s rights and obligations arising under the contract, and it is not reasonably necessary protect the legitimate interests of the supplier.

We are concerned, however, about the apparent proposal that remedies will only be available where the claimant shows detriment, or substantial likelihood of detriment, to consumers. This will throw an extremely heavy evidential burden upon the claimant. The proposal departs from the UK provisions, which merely require that detriment is caused to the consumer. The UK Unfair Terms in Consumer Contracts Regulations 1999 state in part:

5. (1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.

According to Lord Bingham in the House of Lords decision of Director General of Fair Trading v. First National Bank:


There are three independent requirements [under regulation 5]. But the element of detriment to the consumer may not add much. But it serves to make clear that the directive is aimed at significant imbalance against the consumer, rather than the seller or supplier.1

According to the UK Office of Fair Trading’s Unfair Contract Terms Guidance2, which sets out the OFT’s policies and procedures regarding unfair contract terms:

In assessing fairness, we take note of how a term could be used. A term is open to challenge if it is drafted so widely that it could cause consumer detriment. It may be considered unfair if it could have an unfair effect, even if it is not at present being used unfairly in practice and there is no current intention to use it unfairly.

That is, it is understood in the UK and that the challenged provision must adversely affect the consumer and not the seller. This is not seen in the UK as imposing an evidential burden upon the claimant to establish consumer detriment. The proposal as it appears in the Discussion Paper suggests that the claimant must produce evidence establishing detriment. The Productivity Commission in its report admitted that evidence of detriment was difficult to establish:

The evidence about the detrimental use of unfair terms is of variable quality. Much of the cited evidence is anecdotal, a deficiency noted by the ACCC and the recent NSW inquiry into unfair contracts by the NSW Legislative Council Standing Committee on Law and Justice . …The evidence about the overall extent of detriment suffered by consumers is also limited. (Vol.2 p.152)

If the new law places an evidential burden upon the claimant to establish detriment or likely detriment, this will likely render the proposed reforms largely a nullity. Regulators will be extremely hesitant to challenge an unfair term because of the high cost of empirically establishing detriment, and because of the low prospects of success. To succeed in the action, a respondent seller would merely lead evidence that they had never used or were never intending to use the impugned term and that there is no evidence a consumer had been harmed by the term. In practice, however, sellers may use apparently dormant unfair terms as a way of intimidating consumers without actually needing to use them formally. In any event, it will be difficult to prove that consumers were being intimidated by the term, even if a seller had actually used the unfair term against consumers.

The relative ease by which an unfair terms action could be defeated by sellers may well embolden them to continue including unfair terms in contracts. It may well create an environment worse than when the reforms were introduced.

The Productivity Commission appeared to be concerned that a Regulator might unnecessarily extend its resources in pursuing contract clauses that in the technical or abstract sense might appear to cause detriment, but which in fact rarely if ever cause detriment. The Productivity Commission’s concerns may be alleviated by inserting a provision in the new law requiring that there be an independent assessment after three years of the operation of the new legislation to determine whether the regulators have in fact used the new unfair terms provisions to needlessly pursue allegedly unfair clauses that in fact cause no problem in practice.3 Knowing that their actions would be subject to review may well moderate the behaviour of regulators so that they focus on contract provisions which are generally considered to be used against consumers in practice. But in any event, there has been little evidence – if at all – that the OFT in the UK (or 1 [2001] UKHL 52 (25th October, 2001) at para 36. 2 www.oft.gov.uk/shared_oft/reports/unfair_contract_terms/oft311.pdf 3 See also the Appendix, where one proposal in relation to product safety regulation provisions is to include a commitment to regular reviews of market and regulator trends (internationally as well as domestically).


counterparts throughout the EU, or Victoria for that matter) are over-zealously focusing on unfair terms that are not causing manifest detriment in the marketplace.

A further approach would involve including a provision in the new legislation which provides a regulation making power for listing unfair terms. The listed terms would include those set out in the Discussion Paper. The legislation would provide, in addition, that a contract term which is in the nature of or has the effect of those set out in the regulation is presumed to be an unfair term. The evidential burden in proving that a term listed in the regulation does not or is unlikely to cause consumer detriment would be on the respondent.

________________________________

See Attachments A and B to this submission, which include draft papers by Professor Willett which provide insights into the UK lessons regarding unfair terms, and which also provides commentary on possible directions for Australia on unfair terms.

In attachment B Professor Willett argues for a new design for dealing with unfair terms. A number of members of the Roundtable believe it is better to largely conform to the UK and Victorian models as they have been in operation for at least 5 years without causing significant difficulty. In any event, this appeared to be the basis of the agreement between the Federal and State and Territory governments.

Prohibition on Unfair Conduct

There is a trend in the UK and Europe towards principles-based regulation, particularly relevant in this context being provisions which seek to ban unfair trading conduct. This is reflected for example in the European Commission Directives on Unfair Contract Terms and Unfair Commercial Practices. It is reflected also in UK Consumer Credit Act 2006 provisions, which introduced the unfair relationships test to the Consumer Credit Act 1974.

A general unfair conduct provision has also existed in the USA Federal Trade Commission Act for many years. Under section 5 of this Act, unfair or deceptive acts or practices in or affecting commerce can be declared illegal. The unfairness provision has been subject to different and sometimes controversial interpretation in the past, but its application of has been reasonably settled since the Commission’s Policy Statement of 1980. The unfairness authority has however been little used by the FTC under Republican administrations. Consumer groups in the USA have recently written to the FTC seeking greater use of its unfairness authority4.

General provisions prohibiting unfair conduct have the advantage of flexibility in being able to deal with all conduct likely to be considered unfair, including new conduct which evolves out of changing market circumstances. It means it is not necessary to proscribe all forms of conduct considered at any particular time to be unfair.

There is a case for extending the general consumer law in Australia to include a broader unfair conduct provision than currently exists under the guise of the unconscionable conduct provisions. The unconscionable conduct provisions of the Trade Practices Act only prohibit conduct which may be considered extremely unfair. The courts have also tended to focus narrowly on procedural rather than substantive unfairness considerations in their interpretation of these provisions. An example of conduct that might be caught

4 Consumer action, Consumer coalition list goals for Obama’s FTC, December 2008, http;//www.consumer-action.org/coalition/articles/consumer_coalition_lists_goals_for


by a general unfairness provision may be the high pressure selling of some property marketeers. This behaviour may not go so far as to be deceptive or involve harassment or coercion. And it may also not reach the high hurdle of the unconscionable conduct provisions. But it may still be unfair, especially when it targets vulnerable or disadvantaged consumers.

In its review of Australia’s consumer policy framework the PC considered but did not at this time support a general unfair conduct law. Its explanation of wanting to see how the European Unfair Commercial Practices Directive operated was not very convincing. There have been calls in the past for such a provision, particularly from the Reid Committee in 1997,5 which was especially concerned about small business disadvantage, and submissions from three States and consumer agencies supported its introduction.

More recently, a Senate economics committee noted that: “It would be expected that when the Commonwealth consults with the community on the details of the new national consumer law, that it would give further consideration to reform proposals surrounding Part IVA of the Trade Practices Act as well as mooted proposals to legislate along the lines of the EC’s Unfair Commercial Practices Directive.”6

Despite this, no mention of a possible unfair conduct provision was made in the paper issued by the Minister on the new national generic consumer law.7

________________________________

See also the attachments to this submission, which include draft papers by Professor Willett which provide insights into the UK lessons regarding unfair terms, and which also provide commentary on possible directions for Australia on unfair terms.

Should a new definition of ‘consumer’ specifically deal with small businesses and farming undertakings?

The TPA currently contains s. 66A, which states that the UN Convention on the International Sale of Goods (CISG, in effect throughout Australia) prevails to the extent of any inconsistency with Division 2 of Part V (Conditions and Warranties implied into consumer sales). By definition, such sales would rarely be caught within the CISG’s sphere since Art. 2(a) excludes from its default application any sale of goods for “personal, family or household use” unless the seller did not know and ought not to have known they were for such use. However, some situations could exist due to the expansive definition of “consumer” (especially by some Australian courts recently) under s. 4B of the present TPA, basically requiring either (a) goods valued less than $40,000 or (b) goods more valuable than that but ordinarily for personal or household use. For example, a complete exclusion of liability under an international sale governed by CISG would prevail if the subject matter were within situation (a), but also (b) where:

(i) Australian courts may have developed a test concluding that the goods were usually for personal use (eg Bunnings v Laminex [2006] FCA 682) but courts

5 Australia, House of Representatives Standing Committee on Industry, Science and Technology, Finding a Balance; Towards Fair Trading in Australia, May 1997. 6 The Senate, Standing Committee on Economics, The need, scope and content of a definition of unconscionable conduct for the purposes of Part VA of the Trade Practices act 1974, December 2008, p.31. 7 The Hon. Chris Bowen MP, Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, An Australian Consumer Law; fair markets-confident consumers, 17 February 2009.


and commentators applying CISG may consider such goods not to be for such use; or

(ii) Australian courts had so decided and the test under CISG would usually lead to the same conclusion, but the seller did (reasonably) know that the buyer was not purchasing the goods for such personal use in that particular case.

Relevant considerations for determining “personal” use under CISG, which may no longer overlap with those applied by Australian courts interpreting TPA s. 4B) and thus giving rise to problem (b)(i) above, would be the nature of the goods, the quantity, the manner of purchase, and whether the goods were exclusively intended for personal purposes. And leading especially to problem (b)(ii), depending on which party relies on application of the CISG, the burden falls on the buyer as to intended purpose, but on the seller as to knowledge.8

It is important that the conditions and warranties in Division 2 of Part V do not apply to CISG contracts of sale, since the CISG, where applicable, aims to imply its own default set of obligations and remedies. These are intended to be applied uniformly except to the extent modified by agreement between commercial parties. It does not operate on the basis of classification of terms into categories of conditions, warranties or, for that matter, intermediate terms, but instead, distinguishes between fundamental and non-fundamental breaches, with some mechanisms for “upgrading” certain breaches. The implication of TPA warranties in addition would unbalance this structure and the global uniformity achieved by the CISG. It would also arguably impinge on Australia’s treaty obligations as a signatory to the Convention.

If the definition of “consumer” within the new legislation is broadened so as to include businesses, the previously largely redundant s. 66A will be required to avoid the above problem. However, the wording used within s. 66A could cause confusion within the courts. This has already been the case with the equivalent Victorian provision, in Playcorp Pty Ltd v. Taiyo Kogyo Ltd [2003] VSC 108, because the court literally perceived the legislation as continuing to allow application of the domestic Goods Act if it could not detect an “inconsistency.” The Goods Act was in fact displaced by the CISG in that case, but the wording of the legislation led the court into an error of law:.9 In regard to Division 2 Part V, it would therefore be preferable to clearly state that application of Division 2 is excluded where the CISG applies. Application of other divisions of the TPA to CISG contracts, such as Part V, Division 1 (misleading & deceptive conduct) & Part IVA (unconscionability) should also be considered. These actions were not caught by s. 66A previously. As validity issues are excluded from the CISG’s scope under Art. 4(a), the current Part IVA presents no problems, and can apply in tandem. The same is true of proposed unfair contract terms, which, like unconscionability matters, can be characterized as issues going to validity for CISG purposes. Liability for products causing personal injury which is excluded from the CISG’s sphere by Art. 5, so there is no overlap there. However, Part V, Division 1 is more problematic, as some of the issues covered in a contracting situation overlap. For example, if there has been a misleading statement regarding the product, that statement 8 OGH, Austria, 11 February 1997, 10 Ob 1506/94, CLOUT Case No. 190, translation at http://cisgw3.law.pace.edu/cases/970211a3.html; Franco Ferrari, Specific Topics of the CISG in the Light of Judicial Application & Scholarly Writing, 15 J.L. & Com. 1, 70-77 (1995); Bruno Zeller, Is the Sale of Goods (Vienna Convention) Act the Perfect Tool to Manage Cross Border Legal Risks faced by Australian Firms?, 6(3) Murdoch U. Electronic J. of L. [51]-[56] (1999), http://www.murdoch.edu.au/elaw/issues/v6n3/zeller63_notes.html#n89. 9 Lisa Spagnolo, The Last Outpost, Melbourne J. Internat’l L. (forthcoming 2009).


will, more so than under Australian contract law, be likely to form part of the contract and therefore remedies for breach will fall within the CISG regime. However, it is conceivable that there may be some situations in which the CISG will not apply but the conduct might be caught by s. 52. The overlap between TPA misleading & deceptive claims and CISG actions has not been grappled with by Australian courts.10

The extent of pre-emption of (analogous) domestic misrepresentation torts by the CISG is still controversial. While there are cases in other jurisictions and views to the contrary11, most commentators disagree. The better view is that the CISG pre-empts negligent misrepresentation actions but not proprietary torts. The statement is given legal effect as part of the contract, and thus falls within the scope of the CISG’s functional ambit concerning contractual interests. Domestic laws will therefore be pre-empted unless they protect clearly separate interests to those involved in what is now the contractual bargain. Thus in particular, domestic actions arising from statements about the goods or their qualities will be displaced by the application of the CISG because it “covers the field”.12

The situation could be made clearer. A provision dealing with the application of Part V Division 1 where the CISG applies could be inserted to provide clarity on the issue, but in less definite terms than for Division 2. However, the problems of the “inconsistency” type provision should be avoided. Perhaps this could best be addressed by a section that asserts that if the CISG provides a remedy on the basis of predominantly the same facts, Division 1 Part V is excluded, and further, that such exclusion will be effective even if the remedy or action pursuant to the CISG is unsuccessful for reasons including but not limited to failure to give any notice required by the CISG, or expiry of the limitations period applicable to the CISG remedy or action. The latter would prevent the CISG structure being usurped by the domestic legislation every time a party failed to comply with the requirements under the CISG that notice must be promptly given of non-conformity in order to preserve the claim for damages (or unilateral right to price reduction), and the maximum limitation of 2 years for notice of non-conformity: Arts 39. However, if the CISG would not provide a remedy in any case, because the statements or conduct in question for some reason did not give rise to obligations under the CISG, then Division 1 Part V would continue to apply as an alternative to/in tandem with CISG actions ie. concurrently. This achieves a suitable balance between the objectives of ensuring the integrity of the CISG regime including its pre-emptive effect where it overlaps with domestic law, and the need to ensure Division

10 See Perry Engineering Pty Ltd v. Bernold AG [2001] SASC 15 (ss. 51A & 52 claims unsuccessful); Summit Chemicals Pty Ltd v. Vetrotex Espana SA [2004] WASCA 109, at [23]-[24] & [35](non-specific reliance on TPA); discussed in Spagnolo, Last Outpost (above), at §6; see generally, Joseph Lookofsky, In Dubio Pro Conventione?, 13 Duke J. Comp. & Internat’l L. 263; Peter Schlechtriem, The Borderland of Tort and Contract – Opening a New Frontier?, 21 Cornell Int’l L.J. 467; Sonja Kruisinga, (Non-) Conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: A Uniform Concept? 187-213 (2004). 11 Geneva Pharmaceuticals Technology Corp. v. Barr Laboratories Inc., US Dist. Ct. (New York), 10 May 2002; Miami Valley Paper LLC v. Lebbing Engineering & Consulting GmbH, US Dist. Ct (ohio), 10 October 2006; Lookofsky, In Dubio (above), at 286 & Lookofsky, Understanding the CISG, 76 (3rd (worldwide) edn, 2008)), 12 John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed., at 261-2; Schlechtriem, Borderland (above), at 473; Schlechtriem, Uniform Sales Law – The Experience with Uniform Sales Laws in the Federal Republic of Germany, Juridisk Tidskrift 1 (1991/2)(stating that were it otherwise, the uniformity achieved by the CISG would be in “grave danger”); M. Joachim Bonell & Fabio Liguori, The UN Convention on the International Sale of Goods: A Critical Analysis of Current International Case Law – 1997 (Part 1), Uniform L. Rev. 385, n.36 (1997).


1 applies when the circumstances giving rise to the TPA action would not fall within the CISG’s sphere in any event. It would also provide clearer guidance to courts.

The above suggestions should be considered particularly if the definition of “consumer” is to be extended to include businesses, but should also be considered as providing greater certainty in what is currently an uncertain area: the overlap of Division 1, Part V & CISG.

Should a new definition of ‘consumer’ specifically deal with small businesses and farming undertakings?

The definition of a small business needs to be simple and straightforward. We suggest that a small business be defined as one that has 20 full-time employees or less. If the business is a manufacturer, it should be defined as a small business if it has 100 full-time employees or less. Under these proposed definitions there is no need for additional inclusions or exclusions. For example, there is no need to treat farmers differently. In most cases they should be considered a small business. Most farmers have less than 20 full-time employees. Similarly, a person operating their own trucking business should be considered a small business. Most owner operators have less than 20 employees if they are operating their own small business.

Should a new definition of ‘consumer’ exclude any purchases for business purposes, regardless of the existence of monetary limits? Alternatively, should business consumers be entitled to protections available under the Australian Consumer Law, such as implied conditions and warranties?

Should a new definition retain the exclusion in relation to ‘resupply’?

Are there other approaches to the way that ‘consumer’ can be defined?

The question asks if business consumers should be entitled to the protection of Australian Consumer Law implied terms. The Sale of Goods regimes protect business sales through implied terms. It is possible to exclude these terms in a business sale. The TPA does not permit the exclusion of the implied terms. The TPA protection will apply only if the sale meets the definition of a consumer sale. Some business transactions fall within this definition.

If the TPA definition were altered to exclude all purchases for business purposes this protection would be lost. The question turns on which sales should receive the protection of non-excludable implied terms.

Irrespective of the prescribed amount and irrespective of whether the goods are “of a kind ordinarily acquired for personal, domestic or household purposes”, an objective test, the goods will not be the subject of a consumer sale under the TPA in certain circumstances. These are if the goods are acquired for resupply. Neither will the goods be the subject of a consumer sale if they are acquired for the purpose of using them up or transforming them in production, manufacture, repairing or treating other goods. The using up or transformation must occur in trade or commerce.

The assumption is that if goods are for resupply or for use in manufacture or the like, then the buyer does not require the protection of non excludable implied terms. These matters all go to the actual purpose of the buyer.


It seems fair to exclude such business buyers from a non-excludable implied terms regime. However there may be an argument that small business buyers should be protected. This would be in line with the extension of other protections such as the prohibition of unconscionable dealing to small business.

The definition of a person who acquires goods as a consumer in TPA Section 4B of the TPA does not exclude all purchases for business purposes. Goods which are under the prescribed amount and which are bought for business purposes but not for resupply eg a computer for keeping accounts in a small business would fall within the definition and the supply of such goods would be protected by the TPA implied terms.

There is a distinction between the protection under the TPA and the NSW FTA and the NSW SGA, which also has a definition of a consumer sale. That definition refers to goods “of a kind commonly bought for private use or consumption”, like the TPA and FTA definitions, an objective test. Here the modifier is that the goods are sold to a person who does not buy in the course of a business. There are some transactions that will be a consumer transaction for the TPA and FTA but will not be a consumer transaction for the SGA.

The following illustrates the difference. Cutlery for eating will be goods of a kind ordinarily acquired for personal, domestic or household use. Supposing a hotel were to order a quantity of cutlery for use in the hotel. This is not for the purpose of resupply or for the purpose of using up or transforming the goods. Thus the goods will be part of a consumer sale for the purposes of the TPA and FTA. For the SGA, however, the goods are sold to someone buying in the course of a business and will fall outside a consumer sale.

In the case of the computer and the cutlery, both used for business purposes, it seems fair that they should continue to receive the protection of the implied terms.

This is an argument for retaining resupply and transforming or using up as a modifier rather than excluding all transactions with a business purpose from the definition of a consumer sale.

On the other hand, this would maintain a divergence from the regime in the EU, or in Japan’s Consumer Contracts Act 2000, which simply exclude transactions for a commercial purpose.

If we retain “resupply” etc in Australia’s new Consumer Law, we should however consider extending it (or similar concept) from products to services. Consider for example a firm that buys gym or club memberships as “perks” for its employees or even outside contractors. These services are for “resupply” or for a “commercial purpose”, and should arguably be treated like goods purchased for such purposes.

Do businesses operating across Australia use different terms and conditions for lay-by sales depending on whether there is regulation? If so, please provide examples of these terms and conditions.

Does the level of complaints about lay-by sales received by such businesses vary across jurisdictions depending on the existence of regulation?

Should the Australian Consumer Law include a provision regulating lay-by sales? If so, should this provision reflect the current regulatory approaches used in NSW, Victoria and/or the ACT?


The Australian Consumer Law should include a provision to regulate lay-by sales. Anecdotally there is an increase in lay by sales, particularly as individuals reduce their use of credit cards.

The best option would be a combination of NSW and Victorian provisions.

What is a lay-by sale? There needs to be a resolution of whether the application is constrained by requiring the goods to be sold to a consumer or requiring the goods to be of a kind ordinarily used for personal domestic or household purposes. It may be best to require a consumer sale. This would favour the NSW definition.

The disclosure statement: The Victorian section is more detailed and is preferred.

The right to cancel:

Buyer: The Victorian section is preferred;

Seller: The NSW section is preferred.

But note that the time to rectify non-payment of the instalment is 14 days in Victoria and only 7 days in NSW. Fourteen days is preferred.

Change of terms: The Victorian section is preferred.

Goods must be available: The Victorian section is preferred

Effect of cancellation of the lay-by sale: Combine the Victorian and NSW provisions for maximum protection

Contracting Out: The NSW section is preferred.

Preservation of the buyer’s remedies: The NSW section is preferred.

Should the Australian Consumer Law modify the existing form of section 54 of the TPA along similar lines to section 16 of the Victorian FTA?

If an approach like that in section 16 of the Victorian FTA were adopted, should a ‘reasonable time’ be defined? If so, what would a reasonable time be?

It is suggested that to amend s54 of the Trade Practices Act 1974 (C’th) in line with the wording of s16 of the Fair Trading Act 1999 (Vic) would improve the message delivered by this prohibition. There is no doubt that the phrase ‘free’ has a powerful impact on the mind of the consumer, (Australian Competition and Consumer Commission v Nationwide News Pty Ltd (1996) ATPR 41-519, 42,495). For this reason, the ACCC in its most recent release of its educational brochure Advertising and Selling (ACCC, Advertising and Selling, 5th ed., 2007, p46, accessible at www.accc.gov.au) has highlighted three practices where the word ‘free’ has been used inappropriately. These include:

i) indicating that the item is ‘free’, but not including shipping and handling costs;

ii) the cost of the so called ‘free item’ is already included in the price of the item which the consumer is purchasing; and

iii) what is in fact being offered is merely the opportunity to win a further prize.

http://www.accc.gov.au/


Whilst the non-delivery of the prize (as specifically countenanced by s16 of the Victorian legislation) is arguably encompassed within the wording of s54 (see for example TPC v Calderton Corp Pty Ltd [1994] ATPR 41-306), the addition of the second clause of s16 to s54 (‘…does not within a reasonable time from the making of the offer provide a gift, prize or item which is in accordance with the offer’) in no way detracts or reduces the consumer harm. In many ways, it makes explicit the most obvious example of the harm that the consumer would incur. There is no need to define to define the meaning of a ‘reasonable time’. The period will differ according to the nature of the item, and other provisions within the consumer protection regime (eg s56, phrase ‘reasonable grounds’ within bait advertising legislation) already use a similar phrase without any apparent consumer harm. The ACCC will also have the opportunity to provide business with some guidance on the meaning of a ‘reasonable time’.

Should the provisions in section 51A of the TPA be extended to include presumptions in relation to ‘false’, ‘misleading’ or ‘deceptive’ representations for inclusion in the Australian Consumer Law

The answer is yes. Initially, a future representation could only be misleading if it was knowingly false or the maker was reckless as to its veracity (TN Lucas Pty Ltd v Centrepoint Freeholds Pty Ltd (1984) 1 FCR 110). With the introduction of this provision in 1986, this limitation was overcome, with the explanatory memorandum ([72]) indicating the difficulties that had been had in establishing recklessness without a formal admission of guilt by the accused. However, it is important that s51A merely facilitates proof, it does not of its own accord establish any new cause of action (Cream v Bushcolt Pty Ltd (2004) ATPR ¶42-004). Accordingly, any extension to s51A to cover false and deceptive representations as well as conduct will not harm consumer protection, and may simply provide additional support to the person enforcing and relying on this provision. Critically, the provision is not one-sided. With the considered view that it merely operates as an evidential burden and that it can provide or operate as a defence to an allegation of the making of a misleading representation (see Fubilan Catering Services Ltd v Compass Groups (Australia) Pty Ltd [2007] FCA 1205; BC200706381, [545]; P. Gillies, “Misrepresentations as to Future Matters – current issues in interpretation”, (2009) 17 TPLJ 25), the provision may assist those in responding to an allegation. It should also be noted that the extension of s51A to cover false or deceptive misrepresentations may not overcome the problems highlighted at fn110 of An Australian Consumer Law in relation to ACCC v Purple Harmony Plates Pty Ltd [2001] FCA 1062, [21]. The difficulty in that case appeared to be how s53(c) was drafted, rather than the applicability of s51A. The view of the Court was that s53(c) was not expressed in terms of making a misleading or likely to mislead representation. Accordingly, s51A did not apply to s53(c).

Should the provisions of section 51A of the TPA be amended to further clarify their relationship with the accessorial liability provisions of the TPA?

[See Attachment C for further discussion]

It is submitted that further changes should be made to assist in the interpretation of s51A and its relation with the accessorial liability provisions of the TPA. Currently, the Full Federal Court decision of Quinlivan v ACCC (2004) ATPR 42-102 governs this


interpretation and whilst this has provided some level of certainty, the complexity leaves itself open to further argument before a differently constituted court. This case established three principles:

i) Section 51A does not detract from the principle that actual knowledge of the essential elements of the contravention is required to invoke s75B;

ii) Reversal of the onus does not apply where the liability under s75B is invoked; and,

iii) Implicit within s51A is the notion that where the corporation has reasonable grounds for making a representation, there will be no breach of, for example, s52 (misleading and deceptive conduct).

See also Hatt & Ors v Magro (2007) WASCA 24; BC200704368. By contrast to this position, ACCC v Global Prepaid Communications Pty Ltd (2006) ATPR ¶42-103 considered that where corporate liability was concerned, the resolution of the matter should be determined by reference to s51A, including any accessorial liability. It would be simpler to codify or, at least rationalise why the differences, such as reversal (or not) of onus of proof, and differences in applicability between the natural and corporate person should remain. Presently, in the absence of any sound justification, the matter is unreasonably complicated by the divergence that exists between primary and accessorial liability and by the natural and corporate person. On this latter point, explanation for the difference is also unclear where Fair Trading legislation includes an equivalent to s51A, but with reference to the ‘person’, rather than the ‘corporation’.

1. The Interpretation of s51A

The applicable burden of proof:

• The initial Amendment and Revision Bills, and input from Parliamentary debates and materials, indicate that the original intention behind the introduction of s51A was to reverse the persuasive burden of proof.

• Concerns raised in the Senate as to the impact such a reversal could have on individual rights saw the Revision Bill resubmitted with s51A(2) in its present form. It is generally accepted that, at least in the Parliament’s view, the provision concerned the evidential and not the persuasive burden.

• Case law is divided on whether the evidential or persuasive onus is the appropriate standard. Although there is no binding decision on the issue, it seems that, on balance, judicial opinion favours the view that s51A(2) refers to the evidential burden.

Comment:

When considering s51A(2), the rationale behind the introduction of s51A should be reflected upon. The provision was introduced to alleviate the evidential burden on an applicant where a statement as to a future matter was alleged to be misleading. The reversal of the persuasive burden would seem to accord with this intention and, in the view of the government of the day, was the most appropriate means of achieving this goal. While such a development would have placed a significant burden on the respondent, the rationale behind the provision, to curb the use of misleading statements relating to the future and encourage persons making such statements to do so cautiously would have been complied with.


Arguably, the amendments in the Senate and some judicial interpretation has effectively transformed s51A from a provision aimed at assisting applicants overcome difficulties in establishing the misleading nature of future representations to a provision which provides a defence for and/or few meaningful obligations on the representor. The discussion into the new Australian Consumer Law could usefully re-examine the rationale behind s51A and determine whether the persuasive or evidential onus is the most appropriate.

2. Adopting the Evidential Burden

If adopting the evidential burden is regarded as the more appropriate course, there has been debate as to the standard of proof the respondent must satisfy. The alternatives are:

(i) that only some evidence must be adduced; and

(ii) that the respondent’s onus is satisfied by proof the representation as to a future matter was made on reasonable grounds.

It seems authority favours the necessity to establish the representation was made on reasonable grounds.

Therefore:

(i) If the respondent does not call evidence as to reasonable grounds the deeming provisions will apply and the representation will be regarded as misleading; or

(ii) If the respondent does call evidence, he or she must establish to the civil standard that he or she had reasonable grounds for making the representation.

Note that in relation to (i), there have been concerns expressed as to the plight of a respondent that claims the representation was not made at all.

Comment:

Again the rationale for s51A should be considered. Regarding the standard of proof, it seems appropriate, especially as s51A(2) in its present form was a compromise from the original position of the persuasive onus, that the respondent should establish reasonable grounds to the recognised standard. The alternative view, to simply provide some evidence, would seem to undermine the provision’s purpose and its effectiveness. It is suggested that the status of the provision should be clarified to communicate that satisfying the onus requires proof of reasonable grounds. Clarification regarding the action a respondent should take when the claim is that the statement was not made at all could also be considered.

The next concern is the effect of discharging the evidential burden. Again there is debate as to whether s51A provides a substantive defence to a respondent or is merely has an evidential operation.

Therefore:

(i) If s51A operates as a defence, once the onus of proof is satisfied the matter is concluded;

(ii) If s51A operates as an evidential provision, recourse could still be had to s52.


Comment:

Case authority and academic opinion is divided as to whether s51A provides a substantive defence or whether it merely has evidential value. Again there has been no definitive decision but, on balance, it seems the view that the provision provides a defence has found favour. If this is the case, simply discharging the onus will be sufficient to exonerate the respondent. Discussion into the new Australian Consumer Law should consider whether this is appropriate or whether it should be made clear that the provision is evidentiary only and applicants will still have the opportunity to have the matter determined under s52, despite the discharge of the onus.

3. The interrelationship between s51A and the accessorial liability provisions

• Different considerations apply depending on whether the applicant is targeting a corporation as primary contravener or an individual as an accessory. This will be the case even if the facts reveal that the actions of the corporation were those of the accessory.

• The reversal of the onus of proof in s51A will occur only when a corporation is made primarily liable. It is inapplicable to accessories - Section 51A(2) cannot be utilised to establish the contravention by the principal in a case which proceeds only against the accessories.

• It has been suggested that an alternative approach could be adopted where s 51A(2) applies but for the limited purpose of assessing whether there has been a contravention by the principal.

• As the ancillary liability provisions are drawn from the criminal law, the applicant bears the onus of demonstrating the respondent had actual knowledge that the representation was made, that it was misleading and that the corporation had no reasonable grounds for making it.

• The state and territory Fair Trading Acts contain provisions equivalent to s51A which are applicable to both corporations and non-corporate entities. Interestingly, it seems there is some inconsistency between these provisions regarding the onus of proof.

• Most, although not all, state and territory FTA’s contain ancillary provisions equivalent to those under the TPA.

Comment:

The discussions should consider whether it is appropriate that different standards are applicable to corporate and non-corporate persons, for contravention of the same provision, for example s52. The provisions of section 51A of the TPA should be amended to further clarify their relationship with the accessorial liability provisions of the TPA. The prospect of a uniform national laws means that the situation under the state and territory FTAs should be adopted and that the reversal of the onus in s51A should apply to corporations and individuals who bear primary responsibility. As to whether accessories should also have to satisfy the s51A onus, the discussions would need to consider the consequences of removing the protections available to accessories. For consistency’s sake this would seem appropriate but possibly undermining protections derived from the criminal law for individuals may cause some disquiet.


4. The Scope of s51A

It is suggested that it is desirable to extend the range of representations referred to in s51A to incorporate false and deceptive representations.

The discussions into a new Australian Consumer Law should take the opportunity to clarify some issues regarding the scope of s51A which remain unanswered, for example, whether a statement of current opinion is a representation as to a future matter and whether remaining silent can amount to a future representation? Clarification of issues with regard to pleading s51A would be desirable.

Should the Australian Consumer Law include a provision providing for minimum standards for consumer documents? If so, what should these standards be?

[See Attachment D for further discussion]

It is submitted that the Australian Consumer Law should include a provision providing for minimum standards of clarify in consumer documents such as that in the Corporations Act requiring documents to be presented in a ‘clear, concise and effective manner’. There are limits on the ability of consumers to make use of information. Nonetheless, information rules remain an important part of a regulatory framework driving competition and choice in the marketplace. Clear information about contract terms may also assist in clarifying the parties’ respective rights should a dispute eventuate between consumers and suppliers.

Should the Australian Consumer Law include a provision requiring a supplier to return replaced parts along the lines of section 162 of the Victorian FTA?

This should be included at a minimum.

Australia should also add a new statutory warranty requiring a supplier to inform consumers, on request and to a reasonable extent, what the defect was in the goods that the supplier may have repaired or replaced under its express or statutory warranties regarding merchantability or the like. If this warranty is breached, the consumer should be allowed to terminate the contract and not accept the repaired or replaced goods, even if those goods are later proven to be merchantable or to meet other warranties. The House of Lords recently implied such a term, even as a matter for business efficacy involving agricultural machinery for farming, in J & H Ritchie v Lloyd (Scot) [‘07]UKHL 9.13

13 Lord Rodger reasoned as follows:

“[37] … the question is whether a term obliging them to do so is to be implied into the agreement between the parties. Normally, when I put my clock in for repair, for instance, I do not stipulate that the clockmaker must tell me what is wrong with it. But, usually, once he has inspected it, he will contact me to let me know what the problem is, how long the repair will take and what it is likely to cost, so that I can decide what to do. At the very least, I cannot be expected to pay for a repair without knowing what I am paying for. So a term about supplying such information on request would be readily implied. Here the appellants were not


Consumer Product Safety Regulation

Although it is difficult to work out the Australian Governments’ present position, there appears to be a major gap in the new consumer product safety regime proposed in the Consultation Paper. There needs to be a clear commitment to updating the TPA and State/Territory regimes, which date back to the 1970s and 1980s, to reflect current best practice in other similar industrialised democracies. At the least, Australia should add a duty on suppliers to inform the regulators if they become aware of a serious product related accident – as in the US, the EU, Japan and soon Canada. The PC recommended a version for Australia as long ago as 2006 (and again in 2008) but this seems to have fallen of the Governments’ agenda.

Australia should also now reconsider adding a General Safety Provision (GSP), or at least add into the new legislation a commitment to regular reviews of product safety trends and evolving global standards.

The Appendix includes further analysis of these points. A broader lesson is that although it is politically and bureaucratically convenient – and, to be fair, perhaps hard enough – to say “we should restore more uniform nation-wide legislation by adding ‘best practice’ from the States to the TPA”, what Australia should really be aiming for is a “regime that adopts best practice world-wide”.

Better Resources and Capacity for Consumer Enforcement Agencies

Another broader point is that adding more consumer “law in the books” will not magically transform itself into better “law in action”. The Consultation Paper does not evidence much commitment yet on the part of the Australian Governments to bolster resources and capacity within agencies who will help lead or collaborate in actually making the new substantive provisions actually work in practice.

This is particularly disturbing because in December 2008 Choice published a report, Good practice in consumer protection enforcement, which found: 14

• There is currently no agreed measure of what counts as good consumer protection enforcement;

• There are no consistent approaches to reporting how well the agencies are doing.

going to have to pay for the inspection and repair. So that basis for an implication is missing. But other circumstances are relevant. The respondents were taking the appellants' property to inspect it: an owner who surrenders his property for inspection in this way can surely insist on being told the outcome of the inspection. More particularly, in this case, the respondents were the very people who had supplied the harrow in a defective state. The appellants were surely entitled, at the very least, to insist on being told what the respondents had now discovered which they had not discovered before they originally supplied the harrow. Moreover, a refusal by the respondents' representatives to provide that information would inevitably undermine the appellants' trust and confidence in the respondents' due performance of the contract. In these circumstances I am satisfied that business efficacy required the implication of a term that, if asked, the respondents would tell the appellants what their inspection had shown to be wrong with the harrow and what they had done to put it right. The respondents' outright refusal to supply that information constituted a material breach of the inspection and repair agreement, entitling the appellants to rescind it and to refuse to collect the harrow, even though - as the sheriff principal found - it had actually been repaired to a factory gate standard.” 14 http://choice.com.au/viewArticle.aspx?id=106646


• Of 12 regulators that Choice evaluated against a Good Practice Model, none of the regulators is providing “good” performance on consumer protection enforcement.

Australia’s new Consumer Law might even include at least some elements of this Good Practice Model.

ATTACHMENT: A

By Professor Chris Willett

******DRAFT: WORK IN PROGRESS – INCOMPLETE***

Unfairness under the Consumer Protection from Unfair Trading Regulations

1. Introduction

The Unfair Commercial Practices Directive (UCPD) was adopted in 2005;1 and requires member states to empower bodies to take preventive action against unfair business to consumer practices.2 This has been implemented by copying out the unfair practices concept into the Consumer Protection From Unfair Trading Regulations (CPUTR) 2008;3 and defining such practices as forms of ‘Community infringement’ under the Enterprise Act (EA), thereby providing enforcement authorities with the powers to seek enforcement orders against such practices.4 This sits alongside the pre-existing powers to seek enforcement orders against other practices that represent ‘Community infringements’ and those that represent ‘Domestic infringements’.5

This chapter considers the concept of unfairness in the CPUTR; in particular what it adds to regulatory ideas of unfairness in the financial services sector.

The regime clearly catches financial service transactions; covering, as it does, any ‘commercial transaction’ in relation to ‘any goods or service including immovable property, rights and obligations.’6 Indeed, financial services transactions are given special

1 2005/29/EC; and see generally U. Bernitz and S. Weatherill (eds), The Regulation of Unfair Commercial Practices Under EC Directive 2005/29: New Rules and New Techniques (Oxford, Hart Publishing, 2007); H. Collins (ed) The Forthcoming EC Directive on Unfair Commercial Practices: Contract, Consumer and Competition Law Implications (Hague and London, Kluwer International, 2004); R. Schulze and H. Schulte-Nolke, Analysis of National Fairness Laws Aimed at Protecting Consumers in Relation to Commercial Practices, available at http://www.europa.eu.int/comm./consumers/cons int/safe shop/fair bus pract/green pap comm./studies/unfair practices en.pdf; G. Howells, H-W. Micklitz, T. Wilhelmsson, European Fair Trading Law: The Unfair Commercial Practices Directive (Aldershot, Ashgate, 2006); C. Willett, Fairness in Consumer Contracts, (Aldershot, Ashgate, 2007), chapter 9 2 See articles 3 and 11 3 CPUTR 2008, SI 1277, regs. 3-7 4 Enterprise Act 2002, s. 212 and Schedule 13 (as amended by CPUTR, regulation 26). Acting unfairly within the meaning of the Directive has also been criminalised (CPUTR, regulations 8-12), subject to the traditional defences based on the default of another, due diligence and innocent publication of an advertisement (CPUTR, regulations 16-18); while the pre-existing criminal measures on false statements as to goods, services and prices have been repealed (CPUTR, Schedule 4, Part 1). For the full background to consultation on, and implementation of, the Directive see http://www.berr.gov.uk/consultations/page39674.html5 Enterprise Act, 2002, Ss. 211-212. ‘Domestic infringements’ cover actions amounting to breaches of traditional domestic norms, including breaches of contract and duty and of criminal law standards; while ‘Community infringements’ cover actions in breach of EU consumer protection directives. 6 CPUTR, reg. 2

http://www.europa.eu.int/comm./consumers/cons%20int/safe%20shop/fair%20bus%20pract/green%20pap%20comm./studies/unfair%20practices%20en.pdf

http://www.europa.eu.int/comm./consumers/cons%20int/safe%20shop/fair%20bus%20pract/green%20pap%20comm./studies/unfair%20practices%20en.pdf

http://www.berr.gov.uk/consultations/page39674.html


treatment; in that they are excluded from the ‘internal market clause’,7 which, when applicable, will prevent member states from exceeding the level of protection provided for in the Directive. It is expressly provided by art 3 (9) that in relation to ‘financial services’:8

‘Member States may impose requirements which are more restrictive or prescriptive than this Directive in the field which it approximates’9

2. Coverage, Regulatory Context and the General Notion of Unfairness

The unfairness concept is of particular importance because of the sheer range of activities it regulates within any given transaction. It catches ‘any act, omission, course of conduct, representation or commercial communication ... by a trader, which is directly connected with the promotion, sale or supply of a product to ... consumers’.10 Such a practice may be ‘before, during or after’ a transaction.11

What we have then is a ‘cradle to grave’ approach, applicable to promotion, negotiation, conclusion, performance and enforcement of the contract. It covers practices such as advertising, promotion, persuasion and negotiation at the pre-contractual stage; post contractual alterations or variations; performance, delivery etc by the trader; performance, payment etc by the consumer; complaint handling; after sales service; and enforcement by either party.

This new regime sits alongside other regimes which can also be described, to varying degrees, as taking a cradle to grave approach; but which are focussed specifically on the financial services sector. First of all, there is the general clause in the Consumer Credit Act (CCA) which focuses on ‘unfair credit relationships’. Such a relationship can be caused by (a) the way the lender has exercised or enforced his rights or (b) anything done or not done by the lender before or after the agreement.12 Then there are the Treating Consumers Fairly (TCF) principles, developed and administered by the Financial Service Authority (FSA);13 and the Banking Code.14 These two regimes are ‘cradle to grave’ in the sense that their commitments to treat customers fairly are applicable across the course of the relationship.15

In addition to these ‘cradle to grave’ approaches there are, of course, a range of specific ‘fairness-oriented’ requirements and constraints. So, for example, there are requirements to disclose certain specific elements of information at certain pre and post contractual 7 Art 4 8 As defined in Directive 2002/65/EC on Distance Marketing of Financial Services; i.e. (as per art 2 (b)), ‘any service of a banking, credit, insurance, personal pension, investment or payment nature’ 9 Art 3 (9) allows member states the same leeway in relation to immovable property; meaning that, even if mortgages were not found to be covered by the financial services definition, they would be covered in any event 10 Reg. 2 (1) 11 Reg. 2 (1) 12 CCA, s. 140 (1) (b) and (c) 13 FSA, Treating customers fairly-towards fair outcomes for consumers, July 2006; see also J. Black, M. Hopper and C. Band, “Making a Success of Principles Based Regulation” (2007) Law and Financial Markets Review 191 14 For detailed information see http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=14015 Both refer to issues that arise both pre and post contractually (see, for example, TCF Outcome Three, p. 3, on providing clear and appropriate information ‘before, during and after the point of sale’ and Banking Code, section 2-‘Fairness Commitment’-on advertising and promotional literature that is clear and not misleading and, also, on dealing ‘quickly and sympathetically with things that go wrong’). Of course, neither these, nor the CCA regime, necessarily focus on all of the same issues as those relevant to the new CPUTR regime and some possible divergences will be alluded to below

http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=140


points;16 consumers have cancellation rights in certain circumstances;17 the contract terms must not be unfair;18 and there are specific information based and other protections in the context of enforcement action against consumers.19

Under our new regime unfairness is conceptualised first of all by a kind of ‘master clause’, which defines as unfair practices that are ‘contrary to the requirements of professional diligence’ and likely to ‘materially distort the economic behaviour’ of consumers.20 However, it then goes on to provide that, in particular, practices are unfair where they are either misleading or where they are aggressive.21 Here, I will deal with the misleading and then aggressive concepts; before turning to the various consumer ‘benchmarks’ applicable to the unfairness concept.

3. Misleading Actions and Omissions

(i) Introduction-Misleading Actions

A practice is misleading where it is either a ‘misleading action’ (positive provision of misleading information)22 or a ‘misleading omission’ (failure to provide material information).23 The misleading action concept broadly reflects that in the (now repealed) Control of Misleading Advertisement Regulations (CMAR) (whether the practice ‘deceives or is likely to deceive’24). It is broader than the CMAR concept in applying right across the relationship and not being restricted (as was CMAR) to statements promoting the goods or services.25 However, as already indicated, the CCA general clause, TCF regime and Banking Code also apply right across the relationship. The TCF regime refers to giving ‘clear’ information ‘before, during and after the point of sale’;26 and the Banking Code refers to not being ‘misleading’ at the pre-contractual stage and to keeping consumers informed as to changes in interest rates, charges and terms.27 As to the CCA, we have seen that there can be an unfair relationship based on anything done or not done before or after the agreement; which surely covers misleading behaviour. How the new misleading action concept compares to the CCA, TCF and Banking Code regimes is a matter requiring much more detailed analysis than there is space for here.

However, one question is whether the TCF regime actually goes further than the new misleading actions concept in that the TCF regime also focuses on the ‘suitability’ of advice28 and the financial products meeting the ‘expectations’ generated.29 There might be scope for debate as to whether there has always been a ‘misleading’ statement as such

16 See CCA, s. 44 on the form and content of advertisements and CCA, ss. 77-79 on information as to the amounts paid and payable under credit agreements. 17 See, for example, CCA, ss. 67-73; and the Financial Services (Distance Marketing) Regulations 2004, reg. 9 18 Unfair Terms in Consumer Contracts Regulations 1999 19 See CCA, s. 76 on pre-enforcement information; and also the equitable rules on forfeiture, on which see the chapter by S. Nield ..... 20 Reg. 3 (3) 21 Reg. 3 (4) (a)-(c); and there is an Annex of practices that are, in all circumstances, regarded as unfair (regulation 3 (4) (d) and Schedule 1). 22 Reg. 5 23 Reg. 6 24 CMAR, reg. 2 (2) and CPUTR, reg. 5 (2) (a) 25 CMAR, reg. 2 (1) 26 TCF, Outcome 3, p. 3 27 Section 2 28 TCF, Outcome Four, p. 3 29 Outcome Five, p. 3


where advice is unsuitable or expectations are generated but not met by product performance.

Another potential restriction on the protective effects of the new misleading action concept is that the practice must not only be likely to deceive, it must also be likely to cause the average consumer30 to take a ‘transactional decision’ that he would not take otherwise.31 It may well be that this is a fairly easy hurdle to clear; the idea being that any action that would be likely to deceive in a material way will generally be taken to have such an effect on transactional decision making. However, we cannot be sure of this; and, in any case, the greater the number of conceptual hurdles that have to be crossed, the more difficult it is in practice for regulators to persuade businesses that a practice satisfies the criteria.

(ii) Misleading Omissions

There is a misleading omission where the trader omits: ‘..material information [that the average consumer needs, according to the context, to take an informed transactional decision] and …. [this] causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise.’32

Where invitations to purchase are concerned, particular types of information are deemed (expressly) to be ‘material’, and therefore needed for an informed decision.33 There were, of course, similar requirements to disclose particular types of information in the pre-existing regimes applicable to various types of financial services contracts.34 Here, however, the focus is on the general ‘consumer needs’ test that (beyond these specific instances) determines what must be disclosed.

The omissions rule rejects the idea that consumers must exercise total self reliance in discovering whatever they think might be important; they are to be helped to make more informed decisions.35 Such an approach is clearly premised on recognition that businesses often have limited incentives to highlight issues;36 and that, for a variety of reasons, consumers have limited capacity to work out what they need to know and to search for it.37

By comparison with trading sectors in general (and leaving aside requirements to disclose specific pieces of information), requiring disclosure based on the informational ‘needs’ of the consumer does represent a more protective approach than has generally existed in pre-existing law. Sometimes, a failure to provide information can amount to a misrepresentation38 or fall foul of (now repealed) rules on false trade descriptions and 30 Or average member of the relevant benchmark group of consumers, on which see further below 31 Regs. 2 (2)-(5) and 5 (1). This ‘average consumer’ is not part of the notion of a misleading practice under the TCF principles; and neither is it used in relation to unfairness under the CCA test. 32 Regs. 6 (1) and 6 (3) (a). Even if information is provided there is still a misleading omission if it is hidden, unclear, unintelligible, ambiguous or untimely (reg. 6 (1) (b) and (c)). 33 Information as to the main characteristics of the goods/services; the price and other charges; the identity and address of the trader; any cancellation right; and arrangements for payment, delivery, performance and complaint handling if they depart from the requirements of professional diligence (reg. 6 (4)). 34 See, e.g. the Financial Services (Distance Marketing) Regulations 2004, regs. 7 (1), 8 (1) and Schedule 1 35 See C. Willett, Fairness in Consumer Contracts, supra, note 1, 2.4.2.2 and 2.4.3.4 36 See OFT, Consumer Detriment under Conditions of Imperfect Information, OFT Research Paper 11, prepared by London Economics, August 1997; and (in particular relation to banking) P. Cartwright, Banks, Consumers and Regulation, (Oxford, Hart Publishing, 2004), chapter 3. 37 C. Willett, supra, note 1, 2.4.2.2. 38 See, for example, Dimmock v Hallett (1866) 2 Ch. App. 21 and Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ. 15.


misleading advertising.39 However, the starting point for these rules is/was not consumer need as such; but, rather, the positive provision of incorrect information. What tends to be required under these rules is some statement or representation that in some way does not tell the whole truth and therefore triggers an obligation of disclosure.40 This model retains a significant freedom-oriented ethic; the trader being liable only when there has been some form of voluntary ‘assumption of responsibility’ and the consumer (beyond such situations) having the (self reliant) responsibility to assess what information may be required and seek it out. By contrast, as we have seen, under the new concept the question is whether the consumer ‘needs’ the information to take an informed decision; whether the trader has in any way assumed responsibility for the information would appear to be irrelevant.

In fact, the approach under the TCF initiative seems to fall somewhere in the middle. The idea is that consumers should be ‘kept appropriately informed before, during and after the point of sale’;41 so, there is no need for some form of ‘half truth’ in order to trigger a disclosure requirement. At the same time, what is ‘appropriate’ might be something to be decided not only from the perspective of consumer needs, but also taking into account the interests of the trader; whereas the ‘needs’ formula is squarely focussed on the consumer interest.42

Of course, the type of information required under the TCF and Banking regimes may often provide a good indication as to what is ‘needed’ under the new regime. So, for instance, the TCF regime refers to (pre contractual) information to aid understanding of the product;43 ongoing information as to product performance;44 and information as to changes to terms and conditions.45 It seems likely that such information would be regarded as ‘needed’ under the new regime. More generally, there is a theme here of disclosure where key benefits and risks are concerned; and this approach is often to be found in other European systems with more of a disclosure tradition46 (this being relevant to the extent that the ECJ chooses to draw upon such traditions in developing an autonomous Community approach to omissions).

The next question is whether the ‘needs’ test moves beyond the notion of risks associated with the product or service as such, and focuses on risks associated with the trader, e.g. risks (to consumers making significant deposits) of impending trader insolvency, or risks posed by a history of poor customer care (in particular where this involves consistent breaches of consumer protection laws). There is certainly no requirement to disclose such information under the TCF and Banking Code initiatives. However, it might be argued that such information is sometimes needed (at least in extreme cases) in order to allow for informed decisions as to whether to deal with the trader in question.

39 Cottee v Douglas Seaton [1972] 1 WLR 1408 40 See Spice Girls Ltd v Aprilia, supra, note 38 and R v Ford Motor Co. [1974] 1 WLR 1221 41 TCF Outcome Three, p. 3 42 The Banking Code does not contain a general disclosure rule applicable to all stages of the transaction; although there are commitments to give information on specific issues, such as the nature of various products (section 3.1), interest rates, charges and changes to terms and conditions (see sections 4-6). 43 TCF, p. 12 44 ibid 45 On the latter see also the Banking Code, section 6 46 See, for example, the Danish Marketing Practices Act, s. 2 (1) and the Finnish Consumer Protection Act, Chapter 2, s. 1.


Another issue arises in relation to consumer rights.47 One of the most vital forms of information for consumers (in particularly at the post contractual stage of a dispute) is information as to the rights that are available and how to enforce them. Such rights are not matters that are likely to have been noticed and ‘logged’ by the ‘average consumer’ at the formation stage (not being core matters as to subject matter or price). In fact, the issue as to disclosure of rights arose recently when the House of Lords considered whether a term was made unfair (at least in part) by the failure of the Bank (at the stage of seeking a judgement in relation to consumer debts) to draw the attention of consumers to court review processes (which would only take place if the consumer asked for them expressly) which would (potentially) have protected consumers from the effects of the term (a term allowing the bank to recover contractual interest on top of the amount awarded in the judgement).48 The House of Lords (in denying that any such obligation existed) said that this was not a common practice, it was not required by independent rules of law and that what was needed was that the law be reformed so that the consumer be informed of these matters independently.49

However, surely considerations such as these have any place under a test based on consumer ‘need’, which must surely focus squarely on the importance of the information to the consumer and his ability to access it if it is not provided. It is certainly arguable that consumers may need the sort of information under analysis in the above case in order to make an informed decision, i.e. a decision as to whether to ask for a review that might significantly reduce their liabilities.

For all that has been said above about how the misleading omissions rule may be more protective than pre-existing approaches, there is a key limitation on the potential effectiveness of the omissions rule. This is because of the severe limitations on consumer information processing powers that are highlighted by behavioural science research.50 Essentially the point is that consumers will often simply not focus on and digest the information that is provided. First of all there may be a large quantity of information to be processed prior to the decision in question;51 meaning that consumers focus only on the core aspects of the transaction. Further, consumers may suffer from over optimism and an inclination to discount future risks.52 This may be partly because of factors such as the very positive general marketing messages, the deeply embedded nature of consumption culture, prior psychological commitment to purchases53 and the particular way in which certain risks and benefits are ‘framed’.54 Of course, these problems are most intense at the pre-contractual stage; so it may be that there is more chance of consumers taking notice of information (e.g. as to rights) that is provided at the enforcement stage.

47 Neither the TCF principles nor the Banking Code focus on disclosure of consumer rights. 48 First National Bank v. DGFT [2001] 3 WLR 1297 49 See Lord Bingham at 1310 50 See I. Ramsay, Consumer Law and Policy, Oxford: Hart, 2007, 71-85; and G. Howells, The Potential and Limits of Consumer Empowerment by Information, Journal of Law and Society, 32 (3), 2005, 349. 51 On quantity, in particular, see Better Regulation Executive and the National Consumer Council, Warning: Too Much Information Can Harm (Interim Report, 2007) 52 So called ‘hyperbolic discounting’, on which see S. Frederick, G. Lowenstein and T. O’Donoghue “Time Discounting and Time Preference: A Critical Review” (2002) XL Journal of Economic Literature 351. 53 See C. Willett, supra, note 1, at 2.4.2.2. 54 See I. Ramsay, supra, note 50, at 73-4


4. Aggressive Practices (i) Introduction

A practice is aggressive if: ‘.. in its factual context, taking account of all its features and circumstances … it significantly impairs or is likely to impair the average consumer’s freedom of choice or conduct in relation to the product concerned, through the use of harassment, coercion or undue influence; and … it thereby causes him or is likely to cause him to take a transactional decision that he would not have taken otherwise’.55

As a concept that can be enforced by preventive means, several introductory comparisons can be made with pre-existing approaches. First of all, it appears to be a broader principle-providing the potential to cover a broader range of practices-than anything in the TCF initiative or the Banking Code. Although these might be said to address certain enforcement practices that could be viewed as aggressive,56 neither contains a general principle against aggressive practices. Second, the CCA general clause is very open textured57 and so is capable of covering a very broad range of practices (possibly more than the aggressive practices concept in that it is not restricted to specific forms of aggression and there is no requirement that there be an impact on transactional decision making). However, the aggressive practices clause may provide a useful complement to this; in providing a more focussed approach to aggressive practices, that highlights particular elements of aggression, i.e. coercion, harassment and undue influence. Third, the aggressive practices concept catches practices that may well not have been caught by the pre-existing powers under the EA. These allow the seeking of a Stop Now’ Order against a so called ‘domestic infringement’. In very broad terms, this covers a range of behaviour that breaches private law, criminal and statutory standards.58 As far as ‘coercion’ and ‘undue influence’ are concerned, we would think of private law concepts such as duress and undue influence; and ask whether behaviour of this nature would count as a domestic infringement. In fact, it is unclear whether either undue influence or duress do indeed represent domestic infringements. They are certainly not acts in respect of which ‘an enactment’ (i.e. legislation) provides for a civil remedy or sanction;59 (the rescission remedy being grounded in equity). Neither are they acts or omissions making an agreement ‘void or unenforceable’;60 rather they make contracts voidable. The only other plausible basis on which they could be covered is that they amount to acts or omissions that are ‘in breach of a non-contractual duty …. owed .. by virtue of …. [a] .. rule of law and enforceable by civil proceedings’61 Yet, there must be a serious doubt as to whether there can be said, as such, to be a ‘duty’ not to exert undue influence or act in a way that amounts to duress; the first instinct being that that ‘non–contractual duty’ refers to a duty in tort or restitution.

By contrast with coercion and undue influence, preventive control of harassment is not new for the UK, at least in terms of theoretical availability. The Protection from Harassment Act (PFHA) 1997 makes harassment a criminal offence.62 This, in turn, means that it is a domestic infringement and that there has been power to seek ‘stop now 55 Reg. 7 (1) 56 See the discussion of barriers to consumer enforcement and aggressive trader enforcement below at section 4 (iii). 57 See above at Section 2 58 s. 211 59 This is the criterion for coverage by Enterprise Act, s. 211 (2) (c) 60 Enterprise Act, s. 211 (2) (e) 61 Enterprise Act, s. 211 (2) (c) 62 ss. 1 and 2


orders’ to prevent it.63 However, it must be borne in mind that the harassment concept in the PFHA (although potentially covering trader behaviour towards consumers) is essentially aimed at the problem of ‘stalking’ and it does not appear that much attention has been given to the concept of harassment by local authority or OFT enforcers in the consumer context.

(ii) Aggression, Choice and Informed Decision Making

In deciding whether a practices uses coercion, harassment or undue influence, account is to be taken of: (a) its timing, location, nature or persistence;

(b) the use of threatening or abusive language or behaviour; (c) the exploitation by the trader of any specific misfortune or circumstance of such gravity as to impair the consumer’s judgment, of which the trader is aware, to influence the consumer’s decision with regard to the product; (d) any onerous or disproportionate non-contractual barrier imposed by the trader where a consumer wishes to exercise rights under the contract, including rights to terminate a contract or to switch to another product or another trader; and

(e) any threat to take any action which cannot legally be taken.64

It is also very important to focus on the precise ways in which it is imagined that any given practice affects consumer choice. After all, practices are only aggressive if there is a restriction on freedom of choice that is likely to lead to a transactional decision that would not otherwise be taken.

One notion of choice constraint seems to be that of uninformed decision making. This certainly seems to be the issue where undue influence is concerned. It is true that the above definition refers more generally to whether undue influence (or coercion or harassment) restricts the ‘freedom of choice’ of the consumer. However, where undue influence is concerned, the restriction of choice that leads to an actual or likely transactional decision cannot be just any restriction of choice. It must, specifically, be a restriction of choice that results from an information problem. We know this because the undue influence (that must lead to the restriction of choice) is (separately) defined in terms of:

‘exploiting a position of power in relation to the consumer so as to apply pressure, even without using or threatening physical force, in a way which significantly limits the consumer’s ability to make an informed decision’.65

The model, in other words, (as with misleading practices) is one in which there is impairment of the ability of consumers to reflect fully (or at all) on decisions, although here the cause of the impairment is not a misleading omission as such; but, rather, trader exploitation of a position of power through pressure.

We then turn to the more general ‘freedom of choice’ concept applicable in cases of coercion and harassment. Whatever this may mean beyond informed decision making,66 it

63 EA, s. 211 (2) (a) 64 reg. 7 (2) 65 reg. 7 (3) (b). 66 See section 4 (iii) below


is arguable that ‘freedom of choice’ requires informed decision making as a basic minimum. This conclusion is premised on the view that a choice is not free (at least in the sense arguably intended in a consumer protection measure) if there are not at least the conditions for the consumer to understand what is on the table.

To sum up, the trader may be viewed67 as exploiting a position of power through pressure that is likely to prevent consumers from reflecting properly on the decision in question. In such a case, there will be undue influence as there is no ‘informed decision’. However, even where there is not the necessary power relationship, trader actions that prevent consumers from reflecting on the decision may (depending on application of the listed factors) be sufficient to amount to coercion or harassment; on the basis that if there is no informed decision, there is no ‘freedom of choice’.

In terms of particular applications, one can imagine various possibilities. There might be high pressure sales of financial products where the effect is that consumers are unlikely to reflect adequately on the benefits and risks of the transaction. The problem will often derive from the fact that the salesperson creates the need for a quick decision (e.g. because the consumer is made to feel that otherwise he will not escape the attentions of the salesperson or the salesperson will not leave his house or because there are promised benefits only available to those making an early commitment).68 Another possible problem is that an insurance salesperson exploits concerns or emotions relating to risks that consumers or their families face, with the result that consumers do not properly reflect on the benefits and costs of the insurance.69

Post contractually, there might also be the possibility for exploitation of emotions or concerns. Here, the consumer may be struggling with existing commitments and the trader might exploit the consumer’s concern over this to persuade him (without proper reflection on the risks) to take on further commitments that expose the consumer to the same or perhaps greater risks.70

Another possibility (where the consumer is in default) is that the trader threatens to take action that cannot legally be taken,71 e.g. to take criminal proceedings72 or to take action for money that is not legally owed (in both cases unless the consumer pays the amount demanded). Here the informed decision making problem lies in the fact that the consumer may pay what is demanded without appreciating that there is no actual risk of the action threatened as it cannot legally be taken.

So, in all of the above cases there is the notion of the trader creating a situation in which the consumer may not make an informed decision (whether in the sense that he does not reflect adequately on the risks or in the sense that he does not understand the limits of the legal powers that can be applied against him). Of course, it has long been recognised that where credit and other financial services contracts are made at home or by distance selling, then (even in the absence of any proven pressure, harassment or coercion) there is a risk that consumers may not have fully reflected on the decision; and, for this reason,

67 In light of the guidelines 68 See guideline (a) above 69 See guideline (c) above 70 See OFT/BERR Guidance on the CPUTR, 2008 (available at http://www.oft.gov.uk/shared_oft/business_leaflets/cpregs/oft1008.pdf ), at 8.4 71 See guideline (e) above 72 See Law Commission, A private right of redress for unfair commercial practices, November, 2008, at para. 2.77, where this is cited as a form of aggressive practice.

http://www.oft.gov.uk/shared_oft/business_leaflets/cpregs/oft1008.pdf


there are rights to cancel the contract for a certain period after its conclusion.73 However, the question now is how to react to cases where pressure, harassment or coercion is proven.74

What model of informed decision making is at work here? One possibility is a model based on transparency. So, at the very least, the nature of the transactional decision and the risks associated with it must be made very transparent. In some cases, there would also need to be a cancellation period to give an extended opportunity for the consumer to reflect on the risks.75 In short, on this model, traders would always be able to engage in harassment, coercion or pressure, so long as there was a sufficient degree of transparency and, sometimes, the chance to cancel (this transparency/period for reflection being viewed as guaranteeing informed decision making, the presence of such informed decision meaning that there is not an aggressive practice).

There is no space to investigate this matter fully here. However, it seems likely that the model is more protective than this; in particular if we interpret the concept of informed decision making in the light of the consumer protection and confidence goals of the UCPD.76 So, it seems likely that the harassment, coercion or pressure can be viewed as having the potential for such a significant impact on the consumer that standardised transparency (and even time for reflection) will not necessarily be enough to create the conditions for an informed decision. The case for such an approach is strengthened if we bear in mind (i) the information processing difficulties likely to be faced by consumers when dealing with standardised literature from traders77 and the fact that these are likely to be exacerbated by the harassment, coercion or pressure and (ii) the empirical research as to the limited impact of cancellation periods.78

Another matter needing further consideration is the extent to which the notion of informed decision making is viewed not only in light of the harassment, coercion or pressure, but also in light of the substantive risks involved in the decision. On such an approach, the more the substantive risk increases, the greater reflection is called for; and, on this basis, transparency/time for reflection may not be viewed as enough to guarantee the requisite level of informed decision making. In other words, even although transparency/time for reflection may have been sufficient if the focus was solely on the degree of harassment, coercion or pressure, such factors may not be enough due to the substantive risks involved. There is no space to consider this issue in full. However, once again, if we interpret the concept of informed decision making in the light of the consumer protection and confidence goals of the UCPD, there seems a reasonable prospect that the substantive risks to the consumer would be considered relevant to the

73 See the Consumer Credit Act 1974, ss. 67-73; Cancellation of Contracts made in a Consumer’s Home, Work etc. Regulations 2008, SI 1816, reg. 7; and the Financial Services (Distance Marketing) Regulations 2004, SI 2095, reg. 9 74 This may occur in contracts where there is no cancellation right. Equally, it might occur in cases where the result is not a contract at all (but nevertheless involves a ‘transactional decision’ and is therefore covered by the CPUTR), e.g. the above situation in which the consumer is simply being pressured to pay a debt that is owed. Further, as will be suggested below, a cancellation right (whether a short statutory one or a longer one applied in cases of aggression) will not necessarily ensure informed decision making (especially where there has been aggression). 75 In contracts where there is already a statutory cancellation period, the added problem of the harassment, pressure or coercion would surely mean that the least that would be required would be an extension of this period 76 Arts 1 and 4 77 i.e. those that were discussed above at section 3. 78 See the discussion by Ramsay, supra, note 50, at 345-6


way in which we view informed decision making in the context of the aggressive practices concept.

(iii) Aggression, Choice and Substance

Thus far, we have been discussing those cases in which the actions of the trader have restricted the consumer’s scope to reflect properly on the risks, burdens etc involved in the decision in question (or possibly the consumer is threatened with an action that-unbeknownst to him-cannot be taken); and considering whether transparency/time for reflection is sometimes (or even often) not enough to cure the problem, i.e. to ‘reinstate’ informed consent. However, there seem to be a quite separate category of cases in which the fundamental problem is not that consumers are not well enough informed about risks or not well enough informed about the legality of what is being threatened. The problem, rather, is that that the trader creates a situation in which there are substantively unreasonable consequences for the consumer if he takes a certain decision; so that he may decide, as a result, to take another decision. The point is that the substantively unreasonable consequence does not become substantively reasonable just because it is clear, so that the basic issue is not informed consent; and transparency does not provide a solution.

Certainly, it seems that there is potential for such cases to be recognised under the aggressive practices concept. As we have seen, in the case of harassment and coercion, the question is whether there is a restriction on ‘freedom of choice or conduct’. While, as suggested above, this may include cases in which freedom of choice is restricted in the sense that there is not an informed decision; it arguably also covers cases in which choice is restricted in that taking a certain decision involves a substantively unreasonable consequence.

There may be support for this analysis in that one of the guidelines, as we have already seen, is whether there is a threat to take action that cannot lawfully be taken.79 Sometimes (as in the example given above) this is an informed decision making problem in that the consumer does not realise that the action cannot be taken. However, it could be that, for example, a trader threatens to break a contract with the consumer if the consumer does not agree to some change. Breaking a contract can be viewed as ‘unlawful’; but is the threat to do so necessarily one that causes an informed decision making problem? The consumer may well know that the trader is not entitled to break the contract. The problem, rather, is that if the trader breaks the contract then, in practice, the consumer will suffer a loss of some type and may only recoup this loss if he goes to the trouble of taking court action. In short, there is an unreasonable consequence for the consumer; so, rather than facing this prospect, the consumer may decide to agree to the change.

There seems also to be support for ‘substantively unreasonable consequences’ model in the guidance that refers to whether the trader imposes:

‘any onerous or disproportionate non-contractual barrier imposed by the trader where a consumer wishes to exercise rights under the contract ..’80

79 reg. 7 (2), guideline (e). 80 Guideline (d); and see the similar TCF principle to the effect that consumers should not face ‘unreasonable post-sale barriers’ when they wish to ‘submit a claim or make a complaint’ (Outcome 6).


Here, again, the issue does not seem to be whether the consumer is informed or not. Indeed, he is likely to be perfectly well aware as to what barriers he faces; and he may also be perfectly well aware as to what he stands to lose if he does not enforce his rights. The problem, rather, is that he may decide to give up on enforcing his rights due to the trouble, costs etc involved in taking whatever unreasonable steps are required in order to enforce these rights. The further significance of this example is that it is a case where there is not necessarily anything independently unlawful about what the trader is doing. In the case of the threat to break the contract (above), there is a threat to do something which, in itself, can be viewed as being unlawful; while, here, the erection of the barrier to enforcement is not, independently, unlawful.

If this is indicative of a more general approach, it could have implications for the approach to enforcement by the trader. It could mean that there is an aggressive practice where, although the consumer may owe the money in question (so that there is nothing unlawful in seeking to recover it), the means of enforcement are considered to involve unreasonable substantive consequences for the consumer (and the threat, or actuality, of these consequences can be said to be such as to impair, significantly, the freedom of choice of the consumer, making it likely that he will decide to make immediate payment). This may provide an explanation for examples that the OFT views as aggressive. These include pressurising the consumer to perform, pay up etc81 by contacting him at unreasonable times and/or places (e.g. late at night, at work etc);82 and requiring consumers to discuss debts by making contact on premium rate telephone lines.83 Again, the consumer may be perfectly well informed as to what is required; so that the problem is not that he is uninformed in this sense. Equally, the trader may be legally owed the money, so that the problem is not that the trader is taking action in respect of a ‘debt’ that the consumer does not really owe (the consumer being uninformed in that he believes it is legally due). Further, the type of enforcement action being threatened may be normal civil proceedings; so that the problem is not that the trader is threatening a type of action that he cannot take (the consumer being uninformed in the sense that he does not realise this). The problem is simply that the consumer may decide to pay up rather than face the substantively unreasonable impact of home/work contact or needing to pay for premium rate calls.

What is being suggested, then, is that any form of enforcement by the trader could be regarded as aggressive where what is being done/proposed/threatened etc (if the consumer does not pay the debt) is unreasonable (even although it is not necessarily independently unlawful84). Such a principle could be of particular assistance given the greater than normal numbers of consumers that may find themselves in default in the (extraordinary) current economic circumstances. It could, conceivably, mean that there is an aggressive practice where the trader threatens immediate court action (giving little or no leeway or scope for an alternative solution or compromise) unless there is immediate payment. Such a threat might be considered unreasonable (especially where consumers have already paid significant parts of the debt, where they are suffering from drop in income etc). This might lead consumers to make the payment; when a compromise (whether reducing the amount or giving more time to pay) might have been more

81 i.e. to take a ‘transactional decision’ to do so. 82 OFT/BERR, supra, note 70, at para. 8.11. 83 OFT/BERR, ibid, para 8.11, note 29 and OFT Debt Collection Guidance, July 2003 (updated December 2006), at 2.2 (h). 84 as long as this unreasonableness is likely significantly to restrict freedom of choice and cause the consumer to decide to cave in to the demands


reasonable. Of course, where cases actually go to court there are powers85 allowing the court to review matters and potentially protect consumers (whether from full payment, immediate payment, forfeiture of property etc). The problem is that consumers will not benefit from these protections if they cave in at an earlier stage;86 so it is potentially significant if there is a control over trader actions that might cause this to happen. Certainly, the TCF initiative does not seem, expressly, to require traders to offer leeway/seek a compromise before action. The Banking Code does say that ‘with your co-operation we will develop a plan with you for dealing with your financial difficulties’;87 which may well address the issue. Treating uncompromising enforcement as unfair would also be in keeping with the recently agreed Civil Justice Council Protocol applicable to mortgage arrears. This recommends that there should be discussion, for instance as to whether the causes of arrears are temporary or long term and whether payment could be made within a reasonable time.88

5. Consumer Benchmarks

One of the key features of the CPUTR regime is the way in which practices are assessed by reference to various consumer ‘benchmarks’. Generally, the benchmark is the ‘average consumer’ (presumably meaning the average member of the general body of consumers). So the question is whether such a consumer would be likely to be deceived by a practice (misleading action); would need information to make an informed decision (misleading omissions); or would have his freedom of choice significantly impaired (aggressive practices).89 However, this benchmark is varied either (i) to the average member of a ‘clearly identifiable group’ that is ‘particularly vulnerable to the practice or the underlying product because of their mental or physical infirmity, age or credulity in a way which the trader could reasonably be expected to foresee’90 or (ii) to the average member of a particular group at which a practice is directed.91 The pre-existing regulatory regimes do not contain any such clearly articulated benchmarking approach.92 So, it is of particular importance to consider some of its implications.

It seems clear that the issue will often be the procedural abilities of the average member of the relevant benchmark group. So, for instance, in order to decide whether consumers need information to make an informed decision,93 we must consider how capable they

85 E.g. rules against forfeiture, and rules under the CCA, ss. 127-140, as amended by relevant provisions of the CCA 2006. 86 Of course, one reason that consumers may pay up immediately is that they may not realise that the courts have such powers that could protect them. However, it does not seem correct to therefore say that the problem is simply one of uninformed decision making. The powers in question may or may not be exercised in favour of the consumer and the court action generally involves stresses and risks (including a judgement being issued and the attendant problems of obtaining future credit, for example). So, taking court action (where no leeway or solution is explored) may be viewed, in some cases, as substantively unreasonable (whatever the consumer does or does not know about his rights in court). 87 14.2 88 Civil Justice Council, October, 2008, available at http://www.civiljusticecouncil.gov.uk/files/cjc-new-pre-action-protocol-mort-poss-cases.pdf; particular options that are recommended for discussion are extending the term, changing the type or deferring payment of interest due under, the mortgage and capitalising the arrears. 89 And in all cases the question is also whether the transactional decision making of this same average consumer would be affected-see the various provisions above. 90 reg. 2 (5) 91 reg. 2 (4) 92 Although there is some reference in the TCF initiative to considering the impact of practices on different target groups of consumers (2.15) 93 The issue where misleading omissions are concerned

http://www.civiljusticecouncil.gov.uk/files/cjc-new-pre-action-protocol-mort-poss-cases.pdf

http://www.civiljusticecouncil.gov.uk/files/cjc-new-pre-action-protocol-mort-poss-cases.pdf


are of working out for themselves what they need to know and searching it out. To decide when informed decision making is compromised by pressure, coercion or harassment, we must assess consumer ability to withstand such tactics and fully assess the risks. The general average consumer benchmark certainly allows for consideration of such questions. What guidance there is focuses on the notion of a consumer that is ‘reasonably well informed and reasonably circumspect’;94 and there is a rich vein of ECJ case law applying this concept.95 It must be said, of course, that the main focus of this case law has been on assessing whether consumers would be misled by positively provided information. So, while the case law may be of help in developing the misleading action concept, it may be of less use in assessing the procedural questions relevant to the other concepts, i.e. how capable consumers are of working out for themselves what they need to know and searching it out and how capable they are of withstanding pressure, coercion or harassment and remaining capable of calmly assessing the risks. However, the basic point is that the general average consumer concept seems flexible enough to accommodate consideration of these procedural questions.

The alternative consumer benchmarks also seem to allow for consideration of procedural abilities. This line of enquiry is certainly demanded in the case of members of groups vulnerable based on ‘mental or physical infirmity, age or credulity’, it being obvious that such factors may affect the procedural abilities referred to. So, there might be actions or omissions that would not be misleading (or practices that would not be aggressive) when assessed against the ‘average member of the general body of consumers’ benchmark. However, if the practice affects a clearly identifiable group of consumers that the trader can reasonably foresee would have the procedural limitations mentioned, the practice is to be assessed by reference to the (more limited) procedural abilities of the average member of such a group. In other words, a higher standard of fairness ends up being set; a standard based on the procedural needs of more vulnerable groups. So, for example, more information may be required to avoid there being found to be a misleading omission; and trader selling or enforcement tactics are more likely to be viewed as likely to affect informed decision making (and, therefore, to be aggressive).

In order to work out when this should happen, it will be vital to work out when the market contains a ‘clearly identifiable group’ that traders can ‘reasonably be expected to foresee’ have these limitations. Clearly many practices affecting children, the elderly and the infirm will be covered. However, a key question is whether consumers with poor financial literacy could be viewed in this light. If they are, then (given that such consumers are certainly a part of the market for many financial services) this could end up raising the standard of protection applicable to all in the market in question.

In the other benchmark scenario (i.e. where certain groups are targeted) there is, in fact, no reference to particular characteristics. However, it must surely be intended that we take into account the procedural abilities of members of such groups. Here, then, the result could be higher levels of protection; but only for members of the group with the more limited procedural abilities at which the practice is directed. Of course, the result could also (potentially) be a lower level of protection where the average member of the particular targeted group is viewed as having greater procedural abilities than the average member of the general body of consumers. 94 Preamble to the UCPD, recital 18/reg. 2 (2) 95 See, for example, Case C–210/96, Gut Springheide GmbH v. Oberkreisdirektor des Kreises Steinfurt (1998) ECR I–4657 (para. 37); Verein gegen Unwesen in Handel und Gewerbe v. Mars BmbH, C–470/93 [1995] ECR 1–1923; Estee Lauder v. Lancaster C–220/98; and see S. Weatherill, “Who is the ‘average consumer’”, in Bernitz and Weatherill, supra, note 1 for a review of the cases.


A key question here will be when a practice is ‘directed at’ a particular group; although in some cases the nature of the product and the marketing may make it fairly obvious that groups such as children or the elderly are the target, so that a higher standard of procedural fairness is demanded. Again, however, there is question of those with poor financial literacy-when can a practice be viewed as ‘directed at’ such a group, thereby triggering application of a higher standard of procedural fairness?

Of course, sometimes the issue goes beyond the procedural abilities of consumers. Substance may also be relevant. So, for example, we saw above that the substantive risks of the transaction as a whole are possibly relevant to the question of informed decision making under the aggressive practices concept;96 and that the question (again under the aggressive practices concept) as to whether there is a restriction on freedom of choice may depend on whether taking a certain decision involves a substantively unreasonable consequence.97

This would logically suggest that when we consider the practice from the point of view of the average member of a given benchmark consumer group, we consider (in addition to procedural abilities) the impact on the average member of this group of the substantive risks or consequences in question. This might, in turn, mean that account is taken of the financial resources of the average member of the benchmark group. This sort of approach may, in fact, only be able to be taken where the general body of consumers or particularly targeted groups are concerned. The other benchmark group, as we have seen, is one in which there is particular vulnerability to the practice based on reasonably foreseeable ‘mental or physical infirmity, age or credulity’, i.e. apparently not on the basis of reasonably foreseeable weaknesses (e.g. poverty, unemployment etc) that could cause substantive risks or consequences to have a more serious impact.

It seems, then, that substantive risks and consequences (when relevant) should be assessed by reference to the financial resources of the average member of either (i) the general body of consumers or (ii) a group at whom the practice was directed. In relation to this second category, as in the case of procedural abilities, the average member of such a group may have more or less in the way of financial resources than the average member of the general body of consumers; and, depending upon this, the result could be that a lower or a higher standard of fairness is applied than would otherwise be the case. A very important question in this context is as to when, exactly, groups who are particularly financially vulnerable will be regarded as having been targeted by a practice (and, thereby, benefit from a higher level of protection). The nature and marketing of some loans may make it clear they are directed at low income consumers.98 However, there may be a more difficult question at the enforcement stage. Many of the consumers who are in arrears of some kind have particularly limited financial resources (this often being the cause of the arrears building up). One could say that, as long as the same enforcement practices are used for members of all income groups who happen to be in arrears, such a practice cannot be said to be ‘directed at’ those badly off consumers who just happen to be the ones that are normally affected. On the other hand, it could be said that a practice is indeed ‘directed at’ those that are, in reality, normally affected by it. On this latter approach, it is the particularly weak financial position of these consumers that informs

96 See above at section 4 (ii). 97 See above at section 4 (iii). 98 So, arguably, in deciding whether there has been aggressive selling, account needs to be taken of the fact that the substantive risks involved in such a transaction are greater for low income consumers than for the general body of consumers (meaning that the degree of scope for reflection required for informed decision making is greater and, consequently, that there is less tolerance of trader action that might compromise this scope for reflection).


how we determine whether the substantive consequences of certain decisions have such an unreasonable impact that freedom of choice is significantly impaired. In short, an enforcement practice may well be aggressive unless it displays a fairly high level of sensitivity to the very weak financial position of most of those that are on the receiving end of it.

6. Concluding Comments

This paper has highlighted various key aspects of the new concept of unfairness emanating from the UCPD. It has been suggested that this concept may make some important contributions to the framework of protection in the financial services sector, e.g. in relation to non-disclosure, pressure selling, being obstructive in the face of consumer complaints and being uncompromising in dealing with defaulting consumers.

Also, the paper has sought to illustrate how the standards of fairness required on these various issues can increase based on the particular procedural and substantive vulnerabilities of particular categories of consumers. Inter alia, this could mean that the standard of fairness expected of traders is particularly high when dealing with consumers who are in arrears.

A question for the future in relation to the unfairness concept is whether a practice can be unfair even where it is not misleading or aggressive as such; but on the basis that it simply involves an abuse of superior bargaining power. The issue here is whether this might be said to put it in breach of the ‘master clause’ on ‘professional diligence’.99

A further question is as to the impact of the concept on private law. Although the Directive is said to be ‘without prejudice to contract law and, in particular, to the rules on the validity, formation or effect of a contract’,100 it is hard to imagine that the concept of unfairness will not, ultimately, have some impact on the private law of contract. First of all, it seems inevitable that it will have an impact on contracting practice, as traders shape the way that they interact with consumers by reference to this regulatory backdrop. Second, it would be remarkable if courts were not pressed by at least some lawyers to develop common law concepts such as misrepresentation, duress and undue influence in ways that reflect the unfairness concept from the UCPD; and it would be surprising if this did not meet with at least a degree of sympathy. Third, the government has already considered the introduction of private law remedies for breach of the unfairness standard in the Directive; and the issue has now been given an initial review by the Law Commissions;101 It is therefore vital to better understand the concept in order to inform the debate surrounding any possible reception into private law (whether this is an incremental, common law reception or a statutory reception).

There is no space here to develop the issue. However various points seem to arise: (i) that the omissions concept is almost certainly broader than the existing notion of misrepresentation, which takes disclosure requirements as exceptional;102 (ii) that the sort of practices identified above as potentially aggressive seem to be outside what would generally be taken to count as equitable relational based undue influence;103 (iii) that threats to do something unlawful would already be caught by economic duress, but that it

99 See above at section 2 100 Art 3 (3) 101 Supra, note 72 102 See section 3 (ii) above and see Law Commission, supra, note 72, at 2.43-2.64. 103 Normally a relationship of trust is needed (see generally RBOS v Etridge (No 2) [2001] 4 All ER 449 and this will not usually exist in routine financial services cases (see also Law Commission, ibid, at 2.73) .


is more difficult to say just to what extent economic duress currently covers lawful threats to do unreasonable things;104 (iv) that the rescission remedy might need to be developed to allow for the setting aside of a ‘transactional decision’ short of a contract; (v) that interconnected issues as to fault and damages need to be resolved. Should there be the same damages for negligent and fraudulent practices that are misleading?105 Should there be damages/an indemnity for innocently misleading practices? Should there be damages for omissions and, if so, what role should fault play?106 Should there be damages for aggressive practices; and, if so, what, if any, notion of fault should this be based on?

104 i.e. the sort of things that may well be covered by the new concept-see above at section 4 (iii). There is certainly some recognition that duress can cover threats of lawful action where what is being demanded is unreasonable or unconscionable (see R v. Attorney General for England and Wales [2003] UKPC 22). See the Law Commission view (ibid, 2.75) that threats may be illegitimate (and therefore caught by duress) on the simple basis that they breach the CPUTR 105 This already being an issue of controversy (J. Poole and J. Devenney, "Reforming Damages for Misrepresentation: The Case for Coherent Aims and Principles", [2007] Journal of Business Law 269-305); which there is now an opportunity to resolve in the context of any reform of private law remedies. 106 See Law Commission, supra, note 72, 2.63

Individually Negotiated Terms

Professor Chris Willett

The Basic Concept

Regulation 5 (1) (following Article 3 (1) in the Directive) excludes from the test of fairness terms that have been individually negotiated. This exclusion was not included in the initial drafts of the directive;1 but was inserted after the intervention of the Council between the 1992 draft and the adoption of the final Directive in 1993.2 This can be seen as veering towards the German tradition as originally contained in the German Standard Contracts Act of 1976. The German legislation actually goes further in that it excludes terms which are not ‘standard’, so that it will not regulate a term which has been produced on the spot by the trader (as this is not a standard term) even although the term may not have been the product of any negotiation between the parties but may still simply have been imposed by the trader. Notwithstanding this distinction the approach of German law and the Directive share a common theme. The idea of the Directive seems to be that if a term has been negotiated then the transactions costs which standard terms seek to avoid have actually been incurred and that the result should be that a term which is fair and efficient. The assumption of German law seems to be that even if a term has not been negotiated the fact that it is non standard suggests that it could have been. As such there was an opportunity to negotiate a fair and efficient term and the law should not interfere.3 However, the German Standard Contract Terms Act while only applying to standard terms applies to both consumer and commercial contracts. The Directive, in only applying to consumer contracts (while restricting the application to individually negotiated terms), seems to have been an attempt to strike a compromise between the German and French traditions. The French legislation of 1978 applies only to consumer contracts but applies to terms whether or not they are standard or individually negotiated.4 The position in the UK under the Unfair Contract Terms Act is in fact somewhere between these two positions. All of the controls we have discussed above in relation to consumer contracts apply whether or not the term is individually negotiated. However, in commercial contracts certain controls only apply where the contract was on one party’s written standard terms of business.5

Regulation 5 (2) following Article 3 (2) of the Directive says that “a term shall always be described as not individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term”. The text of Article 3 (2) of the Directive actually then goes on to give pre-formulated standard contract terms as specific examples of terms which will always be regarded as non individually negotiated. A standard term which has not been influenced by the consumer is obviously the most typical example of an individually negotiated term. However it is also clear that a non standard written or non written term which has not been the subject

1 See OJ 1990 C243/2 and OJ 1992 C73/7 2 For a fuller history of the position taken in different drafts see M. Teneiro, The Community Directive on Unfair Terms and National Legal Systems (1995) 3 European Review of Private Law 273 3 See Tenreiro and Karsten, Unfair Terms in Consumer Contracts: Uncertainties, Contradictions and Novelties of a Directive, European Commission The Unfair Terms Directive 5 years on 1-3/7/99 pages 8-9 4 5 These are the controls under s. 3 of terms excluding or restricting liability for breach of contract and terms allowing a party to offer a contractual performance substantially different from that reasonably expected or no performance at all


of negotiation will not be treated as a term which has been individually negotiated and will be subject to the unfairness test.

Regulation 5 (3) following the second paragraph of Article 3 (2) is badly drafted and causes some confusion. It says that “notwithstanding that a specific term or certain aspects of it in a contract has been individually negotiated, these Regulations shall apply to the rest of a contract if an overall assessment of it indicates that it is a pre-formulated standard contract”. This of course could be taken to suggest that if there are some negotiated terms in a contract then the question as to whether other terms in this contract are to be excluded from the fairness test is no longer whether these other terms have been individually negotiated or not but whether overall the contract is a pre-formulated standard one. This actually seems to be a restatement of the position in German law under the Standard Terms Act of 1976 which, as we have said, only controls terms contained in a standard contract and does not control terms contained outside a standard contract even if these terms have not been negotiated. Within this approach it is easy to see the logic in saying that the more terms within a contract which have been negotiated the larger looms the question as to whether the overall package is a standard contract at all.6 It is clear however that the intention of the Directive as indicated by Article 3 (1) and Recital 12 to the preamble (which also refers to non individually negotiated terms and not to standard contracts) was only to exclude individually negotiated terms and not to exclude terms simply on the basis that they are not contained in pre-formulated standard contracts.7 So if the exclusion is not to be removed in the UK then the current law should be amended to make this point clear (however it seems likely that it will be removed-see below).

Regulation 5 (4) places the burden of proof on the trader to show that a term has been individually negotiated. So for example the trader may be able to introduce evidence to show that the parties worked from a blank sheet of paper towards an agreed term; or from the initial starting point of a term suggested by one of the parties, through negotiation, to a finally agreed term which differs from this initially suggested term; or from a standard term through negotiation to an amendment of this standard term by hand writing or otherwise. However what is quite clear from Article 3 (2) and Regulation 5 (2) is that if the finally agreed term is a pre-formulated standard term which has not been in any way amended then it can not be treated as having been individually negotiated. So it cannot be said, for example, that there has been negotiation simply because the consumer has studied the term and indicated contentment with it. The possibility that an unmodified standard term could in some circumstances be treated as individually negotiated had been left open by the text of the third paragraph of Article 3 (2) of the directive which says that where a seller or supplier “claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him”. This could be taken to imply that it would be possible to prove that an unmodified standard term had nevertheless been individually negotiated. However the UK provision in Regulation 5 (4) avoids this problem by simply referring to the burden of proof being on the seller or supplier to establish that the term is individually negotiated, and making no reference to the standard term issue.

Critique and Protective Interpretation The exclusion of individually negotiated terms seems to miss the point that even if a term

6 See Westfellen, DB 1977, page 947 and Locher Recht der AGB page 27 7 See T. Wilhelmson, The Scope of the Directive: Non Negotiated Terms in Consumer Contracts, European Commission, The Unfair Terms Directive Five Years On, 1-3/7/1999 at page 3


has been individually negotiated between the consumer and the trader this does not mean that there has necessarily been overall procedural fairness.8 For example, although the term resulting from the negotiation may be more transparent than would be normal for the typical standard term, the consumer may not have fully understood what he was giving up by agreeing to the term in question. In addition, although the process of negotiation no doubt implies that there was some element of choice, it does not necessarily mean that the choices were reasonable. Further, the fact that the consumer negotiated does not mean that he was in a strong enough bargaining position to protect his interests. In addition individual negotiation will not mean that the resulting term is fair in substance.9

Notwithstanding these points it may be that it is possible to approach the concept of individual negotiation in such a way as to minimize the detrimental effects on consumers and the extent to which fairness is undermined. We know that the Directive aims to assure consumer protection and consumer confidence and in particular to do so via the enhancement of transparency.10 In the light of these goals it can be argued that even where a consumer has had some input in relation to a term then the term should only be treated as having been individually negotiated if this input is both informed and substantial. For the consumers input to be informed the consumer should have some knowledge of what rights and remedies he will be giving up by agreeing to the term. As to whether the consumers input was substantial there may have to be some evidence that the process was more than a mere formality i.e. that the trader and consumer did actually “engage” with each other in a meaningful way. There appears to be some support for this approach in the German courts. In a German Court of Appeal decision it has been held that “negotiation” should involve the consumer, with reasonable efforts, being able to recognise the available choices, and that there should be some opportunity to influence the substance of the term.11 The fact that the resulting term is in substance unfair to the consumer will not of course prove that there was no meaningful consumer input. However it may help to establish that there was not.

This sort of approach to the concept of individual negotiation would mean that if terms are to be excluded from the test of fairness then at least the consumer will have been well informed at the stage of agreeing to the term as to what he stood to gain and what he stood to lose.

The Future

The question now is whether or not the exclusion of individually negotiated terms should be retained. The first significant point in this connection is that the vast majority of terms will be standard terms and therefore will not be individually negotiated. We could therefore conclude that the individually negotiated term exclusion does not cause significant problems for consumers and therefore there is no real need to remove it; and indeed that to do so might unfairly prejudice traders who have quite genuinely negotiated a fair term and then later find themselves faced with a vexatious claim to the effect that the term is unfair. However a genuine negotiation on the principles which I have outlined above will usually weigh heavily in favour of a finding of fairness so that the consumer will not normally succeed with such a claim. In addition, in a case where has been genuine negotiation but there are still reasons for finding the term to be unfair it is

8 On which see 2.4.3.4 above 9 On which see 2.4.3.2-3 10 See 3.4.3-4 above 11 CLAB database, No DE002814


arguable that the mechanism for reaching such a conclusion should be open. A further reason for removing the exclusion is that its presence, and the uncertainty as to its precise scope, may cause confusion which can be exploited by traders to the detriment of consumers. Traders may develop techniques to give the impression to consumers that negotiation has taken place; and even if these techniques do not represent genuine individual negotiation within the meaning of the Directive/Regulations the trader may be able to persuade the consumer that they do. In the 2000 report by the Commission on the Directive12 there are two examples of such practices already being used. One example involves contracts including terms by virtue of which the consumer declares that he has negotiated and accepted the traders terms and conditions. When the parties are in dispute the trader is then in a position to refer back to this term and claim that its effect is that the terms are indeed individually negotiated. Another example involves the use of terms which are in fact standardized terms but which do not exist in a pre-printed form. They are then reproduced on a case by case basis for each individual consumer in order to give the impression that they are tailor made for that consumer and possibly then to lead to the argument that they have therefore been the subject of negotiation between the trader and that consumer. In order to avoid the possible detriment to consumers that might be caused by such practices it might be wise to remove the individually negotiated terms exclusion.

It is also important to remember the point made above to the effect that the existence of individual negotiation will not necessarily prevent there being procedural unfairness or unfairness in substance. It is true that if there has been negotiation this will at least mean that the consumer is aware of the existence of the term, although as noted above, the likely impact of the term may remain intransparent to the consumer. Negotiation may imply some form of choice, e.g. in the way of one price for term X and another lower price for the less favourable term Y. However, even if this is the case, neither alternative may be reasonable in the particular circumstances. In addition, although bargaining of a sort will have taken place where there has been negotiation, it will still often be the case that many consumers will lack the expertise or experience to effectively protect their interests. The result may be that substantively unfair terms are sometimes the result of the negotiation. This is even more likely to be the case where the most vulnerable consumers are concerned.

The Law Commissions propose that the new regime should not exclude individually negotiated terms.13 One reason given by the Law Commissions relates to the uncertainty as to exactly when a term has been individually negotiated.14 Another reason is that consumers may not appreciate the implications of having negotiated a term.15 A further reason is that the OFT provided evidence to the effect that some traders are seeking to exploit the exclusion,16 i.e. by arguing that terms are negotiated when they are not. Then there is the fact that the protection already given by UCTA is to be preserved. This means that the exemption clauses which are controlled by UCTA, (whether or not they have been individually negotiated), would still be controlled under the new regime whether or not they have been individually negotiated. So, although such clauses are only controlled by the UTCCR where they have not been individually negotiated they will be controlled by the new regime whether or not they have been individually negotiated.

12 EC Commission 2000 (COM) 2248 final at p 14 13 Consultation Paper, 4.52, 9.9; Report, 3.50-3.55; and see discussion by H. Beale, Unfair Terms:Proposals for Reform in the UK (2004) 27 Journal of Consumer Policy, 289, 292-3 14 Report, 3.52 15 ibid 16 ibid


Confusion might then be caused if terms imposing obligations/liabilities on the consumer (the other category of term controlled by the UTCCR) were only controlled if they were not individually negotiated.17

The result of removing the exclusion may be marginal in practice. However, it will mean a more full blooded fairness approach, i.e. one that recognises that even where there has been individual negotiation there is still the possibility of unfairness procedurally and in substance. If the exclusion is not to be removed then (as suggested above) the very least that should happen is that precise criteria for a term to qualify as having been individually negotiated should be laid down, so as to remove uncertainty that may be exploited to the detriment of consumers. Important among these criteria should be the need for the input of the consumer to have been both informed and substantial. This would at least guarantee a modicum of procedural fairness.

17 See Consultation Paper, 4.43 and H. Beale, Unfair Terms:Proposals for Reform in the UK (2004) 27 Journal of Consumer Policy, 289, 293

ATTACHMENT B

The Limits of Transparency and Consent in Relation to Contract Terms: European and Australian Approaches

Professor Chris Willett


1. Introduction Currently, the law on unfair terms in consumer contracts is undergoing reform in both the EU and in Australia. In the EU there is a proposal for a new Consumer Rights Directive (CRD);1 which would bring together, with some amendments, the existing Directives on unfair contract terms,2 consumer sales,3 distance selling4 and doorstep selling.5 In Australia, there is a proposal for a federal law on unfair terms;6 which would provide for a more tailored approach to the problem than the existing rules on unconscionable contracts7 and on unfair trade practices.8 Some of the core concepts in these proposals seem to bring into focus fundamental issues as to the role (and limits) of consent in regulating consumer contract terms; and the other values (such as fairness in substance, access to justice and competition) that are involved.

Essentially, it is argued that both approaches accept (but the proposed Australian approach will make rather clearer) that, where ancillary terms are concerned, and these are sufficiently unfair in substance, term transparency cannot produce a degree of consent that is regarded as sufficient to legitimise the terms. (Of course, the notion that term transparency cannot produce a sufficient degree of consent based legitimacy is grounded in a particular underlying ethic of fairness). However, it is also argued that transparency does have other roles to play, i.e. in recognising a right to a chance to understand terms, in furthering market discipline and in relation to post contractual access to justice; and that these separate functions are most clearly recognised by the Australian approach, although the EU is edging towards providing a more solid conceptual foundation for these separate functions.

It is further argued that both systems are also converging on recognising the limits of consent as a legitimating factor, by limiting the scope of the exclusion from control of ‘core’ price terms (this being an exclusion that, at least in significant part is based on a notion that there is a richer form of consent to core terms). However, it is also suggested that there remain difficult questions as where the line is, and should be, drawn; these

1 2 3 4 5 6 7 8


involving choices as to whether consent should take primacy over market and/or substantive legal control.

2. Transparency, Consent and Other Aspects of Fairness

First of all, here, we must consider what we mean by saying that terms are not transparent. Then, however, we must consider what sorts of policy choices are involved in deciding how to respond to lack of transparency. Core to this is how readily transparency is viewed as providing a consent based legitimacy for enforcing terms; and also, whatever the answer to this first question, what other goals it is considered might be achieved by transparency.

The basic ‘package’ of transparency problems can be summarised as follows: The ancillary terms of many standard form contracts may be expressed in unclear, possibly legalistic, language and in small, and otherwise difficult to read, text. There may be a considerable degree of complexity, poor structuring and poor cross referencing. This may also be compounded by the fact that consumers have little time to read the terms before making the contract; and may have little understanding of the legal context or how the term might affect them in practice.9 A further problem is that consumers do not tend to have experience as to the types of standard terms used; nor do they tend to have experience as to the way in which these terms are interpreted and applied in practice by traders.10

What are the implications of these problems for the core idea of the consent based legitimacy of the terms? Fundamentally, the issue is that consumers may not be aware of the risks inherent in the substantive terms. This may mean that they cannot rationally compare the terms on offer with those of other traders; and that they are unaware of the need to seek to negotiate for better terms or to protect their interests in some other way (e.g. by insurance).11 Of course, if the underlying ethic is one at the extreme end of the self reliance scale, then the response is that, as long as the level of transparency is such that the consumer has a basic awareness that terms exist12 then the consumer should be free to decide what to do. He should be free to decide whether or not to enter the contract. He can make this choice based on having made no investigation as to the meaning and implications of the terms. In such circumstances he should be free to choose not to enter the contract based on the risk of the unknown; and he should be free to enter the contract while taking the risk that these terms are damaging to his interests. Equally, he can make the choice as to whether to enter the contract based on having acquired further information about the terms. This may result in the consumer having a fairly full understanding as to the risks; and he should then be free to decide whether

9 See Willett (2007), 2.3.2.1. 10 See Wightman (2003), 169-70. 11 12 This often tends to be all that is required under common law incorporation rules (on which see below at 8.1.3). Where unsigned documents are concerned the provisions in question are usually treated as having been incorporated into the contract where the consumer is deemed to have had ‘reasonable notice’ of them; and this usually means no more than reasonable steps having been taken to make consumers aware of the existence of the provisions. It is not usually relevant to consider the type of language, print or overall contractual structuring, cross referencing etc; whether there is time to read and understand them; or whether particularly onerous, unusual or important terms have been drawn to the attention of the consumer (although the latter is required where onerous or unusual terms are concerned). Provisions in signed documents are incorporated based on the signature; again without any of the above questions being asked (and with no requirement to draw the attention of the consumer to onerous or unusual terms)


these are acceptable risks. Alternatively, his investigations may leave him little more the wiser; but, again, he should be free to decide how to proceed.13

In other words, on a notion of consent grounded in an ethic at the extreme end of the self reliance scale, consent is not tainted (its legitimacy is not under question) simply because of the transparency problems. By contrast, if the underlying ethic is more grounded in fairness, the fundamental agenda is to balance the interests of the parties and protect those of a party that viewed as being in a weaker position. As such, there tends to be a focus on whether there are factors that make it unrealistic to expect consumers to overcome the problems of lack of transparency by self reliant means.14 The fairness conclusion is that this is not realistic for a variety of reasons: distraction by prior psychological commitment to the purchase; the lesson from normal experience that terms do not usually come into play; the range of other, more core, choices to be made about the purchase; lack of legal and technical expertise; underestimation, and general lack of ability to assess, any future risks that are posed by the terms; the knowledge that traders will be unlikely to agree to any changes in any case; the possible perception that the terms have a legal sanction and represent ‘the law’; and the ‘transactions costs’ (including time) involved in reading and trying to them.15

So, if the underlying ethic involves at least a degree of fairness, then terms that are not transparent are viewed as seriously tainting any notion of consent-it is seriously called into question that non transparent terms have any real degree of consent based legitimacy. But then there is a fairness approach that goes further. It says that the very same factors that have just been mentioned are also likely to make it unlikely that consumers will read, digest and understand terms even where they are transparent.16 This perspective is increasingly supported by the research of behavioural scientists.17 The implication, of course, is that the consent based legitimacy of transparent terms is also called into question. This question becomes even more important where terms are particularly detrimental (to the consumer) in substance. If there is a strong fairness ethic, then there is a concern to protect the substantive interests of consumers. As such, if terms are sufficiently unfair in substance, the view would be that term transparency cannot produce a degree of consent that is regarded as sufficient to legitimise the terms. (Of course, such an approach represents a yet more significant incursion on self reliant values than an approach in which transparency is transparency is required, but consumers are then expected to exercise self reliance in acquainting themselves with the terms so as to make a more informed decision).

However, even if, from a strongly fairness-oriented perspective, transparency cannot produce a degree of consent that is regarded as sufficient to legitimise certain terms that are substantively detrimental, this does not mean that transparency cannot be viewed as having other roles to play. First of all, it may be viewed as a basic social right that consumers should be placed in a position that they have at least a chance of understanding what they are agreeing to (even although this does not, in itself, legitimise the use of the terms). This could also be put in the language of autonomy; and this may be of significance to the extent that we think that autonomy is an important value in legal regulation of contracting. On one version of autonomy, consumers must at least have a reasonable opportunity of understanding what they are agreeing to. Of course, this is a

13 14 15 16 17


fairness-oriented, ‘assisted’ version of autonomy; as opposed to a freedom-oriented, self reliant version of autonomy.

Second, transparency can be viewed as being important in furthering market discipline. Even if the average consumer cannot take advantage of transparency (and even if we wish, in any case, to protect consumers from certain substantive outcomes) there may be a section of consumers who have the time, resources and education to overcome the lack of transparency and gain a good understanding of the terms and their implications. This so-called “active margin” of consumers may then exert market discipline on traders with the result that terms are more substantively fair and/or that there is improved choice.18 Of course, this all depends upon there being a sufficiently large margin of consumers that reads and digests terms and makes market choices on this basis.19 It must be seriously questionable as to whether such a margin will often exist. It seems more likely that many of those who are ready and able to take positive steps to protect their interests will tend not to do so until there is a dispute. Such consumers may well scrutinise terms and/or seek advice as to their meaning when the trader seeks to rely upon the terms. This may enable such consumers to persuade traders to agree a compromise that is more favourable than what will be achieved by those who do not scrutinise and question the terms.20 However, these will be individual victories and will not serve to discipline what traders offer in general. Nevertheless, there seems to be no reason why the chance of market discipline should not be increased by insisting on transparency.

Finally, transparency can be viewed as independently important in potentially helping consumers to protect their interests’ post contractually, potentially enhancing their access to justice, when there is some form of dispute. Even if there is little chance that consumers will ever really make much real pre contractual use of transparency, behavioural science research seems to suggest that consumers are much more likely to make use of information at the post contractual phase.21 This is perhaps not so surprising. At this point they are at least not affected by distracting factors such as the psychological commitment to the purchase and the positive advertising signals. In addition, they do not have the other decisions to make as to the basic desirability of the purchase. Also, there is a dispute, so the underestimation of risks factor is out of the equation-it has now been demonstrated that there were substantial risks. Further, there is a need to find some solution to the problem; so there may be more likelihood that consumers will focus on reading terms to discover what rights they have.

This implies that terms voluntarily used by the trader that actually give rights to consumers should be transparent (i.e. clear and not misleading in their expression, in decent sized print, available, reasonably prominent etc). To elaborate on the sort of terms being referred to here, I have in mind, for example, terms more or less reflecting the legal default position or even the mandatory position (or possibly improving on it), e.g. terms describing the consumer’s right to claim damages or terminate for no performance or terms describing a statutory right to cancel. Obviously, these rights need to be clear to consumers if they are to be able to understand them and be more likely to take advantage of them. Another scenario here is that there is a term that in some way deviates from the default position to the detriment of the consumer. So, the term might exclude or restrict obligations or liabilities that would normally be owed by the trader to the consumer; or it might add to the obligations or liabilities that the consumer would otherwise owe to the 18 See M.J. Trebilcock, ibid 19 See the discussion by W. Whitford, Contract law and the Control of Standardised Terms in Consumer Contracts: An American report (1995) 3 European Reviw of Private Law, 193, at 195-199 20 Ibid 21


trader. This, of course, is the sort of term that is potentially going to be viewed as being unfair in substance. However, even if we do not believe that such a term can necessarily be legitimised by transparency (because consumers will not pay attention to it at the time of the contract being made), it may be of post contractual assistance to consumers that the term is very clear, so that they can see what the trader is claiming the right to do. However, although this may be enough to generate a sense of unfairness in some consumers and make them more likely to dispute the trader’s right to do this. The more likely result in a lot of cases will be that the consumer is duped into believing that the trader must be entitled to do what the contract says. As such, what is needed, in addition, if post contractual self protection and access to justice are taken seriously, is that the message is conveyed as to where these terms stand relative to the general legal position. This would imply a requirement to give a clear indication as to the way in which the term is altering the position relative to the legal norm, e.g. by stating the legal norm in clear terms and then indicating what is being provided for as compared with this. It might also imply a requirement to actually indicate that the terms are subject to a test of unfairness.

Enhancing post contractual self protection and access to justice also leads us to focus on terms that give the consumer a right to, in some way, self protect against other provisions that may be detrimental. So, for instance, a term may be included that gives the trader the right to increase the price from the initially agreed price. However, it may also be provided, whether in the same term or elsewhere in the contract, that if this power is exercised, the consumer has the right to respond by cancelling the contract. In fact, if there is not such a balancing provision then the term allowing for the price increase may well be viewed as unfair in substance. Indeed, it may well be one of those terms that is viewed as being sufficiently unfair in substance as to be viewed as unable to be legitimised by pre-contractual transparency and therefore to be, in the final analysis, unfair.22 However, the point here is that it is vital for the consumer to be able to be aware of the right to respond to a price increase by cancelling; so it is vital that this right is clearly expressed in a way that connects it easily to the price increase issue.

There is another way in which consumers can be helped to self protect and obtain access to justice in post contractual dispute situations. We have just been discussing contractual rights that can help consumers self protect, i.e. the right to respond to a price increase by exercising a contractual right to cancel. However, it may be that there are legal rights that could, in a broader sense, protect the consumer from the effects of the term. So, for example, there might be a term that results in consumers owing some onerous financial obligation to the trader. At the same time, quite apart from court powers to assess the fairness of term as such, there might be a power available to a court to review the general financial circumstances of consumers and, possibly to reduce what they must pay and/or to give a longer time to pay it. Such a power might reduce the severity of the impact of the term in question. It is therefore a power that (from a fairness point of view) we might wish to be transparent to consumers, so as to increase the chances that they will ask for it to be exercised.

There is a final point that relates to all of the above agendas in relation to transparency. There may well be a good case for standardisation across whole trade sectors, both in relation to the language and structure of presentation (the transparency element) and in relation to the substance of the terms.23 Standardised presentation does at least mean that, if terms are read, they may be slightly easier to understand as consumers become 22 Such a term is one of those in the EU that is one the ‘indicative and non-exhaustive list of terms that may be regarded as unfair’ (para. 1 ()); and, under the CRD, such a term would actually be ‘presumed to be unfair’ (...). In Australia, 23


used to seeing the information presented in this way; while substantive standardisation reduces the confusion caused by differences in substance. The result may be that the ‘right to information’ and post contract access to justice agendas are more likely to be successful in practice. Of course, standardisation of the substantive terms does implicitly give up on the idea that market discipline is really likely to be effective (given that market discipline is intended to result in substantive control through competition-choice-over the substantive offerings.

3.

(i) Introduction

The above discussion shows that one way of viewing consumer contract terms is (i) that where there is sufficient unfairness in substance, term transparency cannot produce a degree of consent that is regarded as sufficient to legitimise the terms; and (ii) that, nevertheless, term transparency can be viewed as being of value in terms of a basic consumer right, market discipline and post contractual awareness of rights/access to justice. The gist of the following discussion is that point (i) is accepted within both the EU and Australian approaches, but made more explicit by the Australian approach; that support for point (ii) has a solid conceptual foundation in the Australian approach; and that while point (ii) seems to be accepted in practice in UK application of the EU approach, its conceptual basis is somewhat unstable.

(ii) EU Approaches to the Two Issues

The UTD unfairness test says that a term is unfair if: ‘contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer’24

There is a fairly broadly accepted view that the concept of ‘significant imbalance in rights and obligations to the detriment of the consumer’ is fundamentally focussed on the substantive features of the terms. 25 The idea, which seems to reflect various national traditions, as well as national understandings of the EU test,26 seems, broadly to be that terms may violate this element of the test by allocating the substantive rights and obligations in ways that are unduly detrimental to the consumer (e.g. by adding to the responsibilities of the consumer by comparison with the legal default position or subtracting from the responsibilities of the trader relative to the default position); where there cannot be said to be a counterbalancing substantive benefit27 for the consumer

24 Art. 3 (1); which also provides that, in order to be subject to the test, the term must be one that has not been individually negotiated (a requirement that that does not exist in the proposed Australian legislation). This obviously raises separate issues as to the underlying attitude to consent and fairness. These are beyond the scope of this paper, but see ... 25 H. Collins, Good Faith in European Contract Law (1994) 14 Oxford Journal of Legal Studies 229 at 249; R. Brownsword, G. Howells and T. Wilhelmsson, 1996, Between Market and Welfare: Some Reflections on Article 3 of the EC Directive on Unfair Terms in Consumer Contracts, in C. Willett (ed) Aspects of Fairness in Contract, Blackstone, 25, at 45; H. Beale, 1995, Legislative Control of Fairness, in J. Beatson and D. Friedmann (eds), Good Faith and Fault in Contract Law, OUP, 1995, 231, 243 26 See the German, Greek etc and OFT and HL approaches; or by giving undue discretion to the trader-see HL and me 27 The ECJ seems to have given a central role to the question as to whether there are any benefits for the consumer (see Freiburger ....).


(whether in the term itself or in another provision of the contract or another contract on which this one is dependent28).

Then we turn to the ‘good faith’ element of the test. There is a view to the effect that it has no role that is independent from significant imbalance, i.e. that the only question is whether there is a significant imbalance and that if there is such a significant imbalance then there is also automatically a violation of good faith.29 This view is something of an elaboration of the point that a key reason for good faith being used as a part of the test was simply to reflect those national traditions30 that were tied to the good faith concept; so that good faith can be viewed simply as a label that explains to these national traditions what is meant by the significant imbalance/detriment concept. There is a difficulty with this view given that there appear to be positive guidelines on good faith in the preamble to the UTD. It is said that:

‘the assessment … of the unfair character of terms … must be supplemented by a means of making an overall assessment of the different interests involved; whereas this constitutes the requirement of good faith; whereas in making an assessment of good faith, particular regard shall be had to the strength of the bargaining position of the parties, whether the consumer had an inducement to agree to the term and whether the goods or services were sold or supplied to the special order of the consumer; whereas the requirement of good faith may be satisfied by the seller or supplier where he deals fairly and equitably with the other party whose legitimate interests he has to take into account.’31

The key word above seems to be ‘supplemented’. If the assessment as to unfairness is to be supplemented by these various criteria that are germane to good faith, it seems it seems impossible to avoid the conclusion that violation of good faith is, at least something of, an independent requirement (whether independent from significant imbalance or, with the same practical result, in determining when an imbalance is ‘significant’32) . Now, it does not necessarily follow from this that transparency has a potential role to play in legitimising terms. It is true that transparency is a recognised element of good faith in certain systems.33 It is also true that ‘dealing fairly and equitably’ and taking into account ‘legitimate interests’ could both be viewed as requiring transparency as a necessary element of good faith but also, sometimes, accepting transparency as a sufficient element for good faith. However, transparency is not mentioned in this recital and the ‘fair and equitable’ and the ‘legitimate interests’ concepts could, plausibly, refer to a further review (building on the significant imbalance/detriment question) of the degree of unfairness in substance. Also, of course, even if these concepts cover transparency, one view might be that, while transparency is necessary for fair, equitable, legitimate interest respecting (good faith) behaviour, it is never sufficient; or, at least, certainly not where there is a sufficient degree of unfairness in substance.

However, the problem is that the issue is left unclear; so that the fundamental question as to the role of consent based legitimacy is unclear. There is considerable scope for debate as to whether a sufficient degree of unfairness in substance can, indeed, ever be 28 See art. 4 (1), which emphasises the relevance of other terms in this and other contracts ‘on which it is dependent’ 29 M. Tenreiro, The Community Directive on Unfair Terms and National Legal Systems (1995) 3 European Reviewof Private Law, 273, 279; and S. Smith (1994) 47 Current Legal Problems, 1, 8 30 31 Recital 16 to the Preamble to the Directive says that 32 See C. Willett, and on this approach in Australia, below at 33


legitimised by transparency; and, indeed, whether, even if transparency cannot legitimise unfairness that crosses a certain threshold, whether this threshold is lower where there is transparency.

The proposed CRD would, in fact, remove the reference to the idea that the significant imbalance/detriment test is ‘supplemented’ by the criteria in the preamble.34 This would slightly strengthen the argument that these good faith criteria might be viewed as simply describing what significant imbalance is; therefore being essentially focussed on substantive elements; and, therefore, not contemplating transparency as a legitimating element. However, the issue would remain far from clear.

This uncertainty can also be found in the approach of the UKHL in Director General of Fair Trading v First National Bank.35 The view is certainly that the significant imbalance/detriment element is essentially about substantive rights and obligations. Lord Bingham said that: “The requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties' rights and obligations under the contract significantly in his favour. This may be by the granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty.”36 Lord Bingham said that the indicative list of terms provided guidance as to unfairness in substance.37 He also said that whether a term caused a significant imbalance to the detriment of the consumer was a question that involved looking not only at the term in question but also at the contract as a whole, i.e. at the other terms of the contract.38 The other significant discussion of the test of unfairness came from Lord Steyn. He shared the view of Lord Bingham that the ‘significant imbalance’ element of the test related to matters of substantive unfairness,39 although he did not elaborate as to what form such substantive unfairness might take. However, Lord Bingham equated good faith with ‘fair and open dealing’.40 Lord Bingham said that ‘fair’ dealing:

‘requires that the supplier should not, whether deliberately or unconsciously, take advantage of the consumer’s necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract [or] weak bargaining position...’.41 Although the reference to the trader acting ‘unconsciously’ does seem to confirm that there is no question of good faith being viewed as a subjective, ‘good conscience’ requirement; 42 the suggestion could be of a need for particular weakness when it comes to such matters as necessity, indigence etc that affect consumer self protection 34 35 [2001] 3 WLR 1297 36 ibid 37 ibid 38 1307-8 39 at 1313 40 [2001] 3 WLR 1297 at 1308 41 [2001] 3 WLR 1297 at 1308 42 This is a concern that has tended to exist in common law jurisdictions such as the UK and Australia, where good faith has such connotations due to its limited use as an objective fairness requirement and its more frequent use as a measure of subjective good conscience, e.g. in relation to the ‘good faith purchaser’ in relation to transfer of title issues.


(procedural) abilities. This would obviously wholly undermine any notion of routine control of terms used against the average consumer. Of course, it is also quite plausible to suggest that he simply meant that consumers (as a class) are presumptively treated as suffering from the various weaknesses listed (i.e. these are weaknesses relative to the trader); and that traders are to be viewed as taking advantage of these if they use terms that are unduly detrimental in substance to consumer interests.

However, while the above issue is important, it goes to the role of procedural weakness/fairness in a broad sense. Our focus here is on the role of transparency and consent, which brings us to Lord Bingham’s reference to ‘openness’. In fact, this carries forward from earlier views expressed by Lord Bingham as to the meaning of good faith in civilian systems; when he had referred to good faith as being, inter alia, about ‘coming clean’ and ‘laying one’s cards face upwards on the table’43 (i.e. as being about transparency). In the First National Bank case Lord Bingham said that ‘openness’ meant that terms should be ‘expressed fully, clearly and legibly’; not containing ‘concealed pitfalls or traps’; and being given ‘appropriate prominence’ where they might ‘operate disadvantageously’ to the consumer.44

Lord Steyn approved Lord Bingham’s views as to good faith.45 However, he also said that: ‘Any purely procedural or even predominantly procedural interpretation of the requirement of good faith must be rejected’.46

So, it appears that, for Lord Steyn, procedural fairness (including transparency as defined by Lord Bingham) was relevant, but that consideration of the substantive features of the terms was at least (if not more) important than such procedural matters. Of course, Lord Bingham could also be said to see substance as relevant; to the extent that he was (as we saw above) concerned that ‘advantage’ should not be taken of consumer (procedural) weaknesses (advantage taking being evidenced by unfair substantive terms).

However, we return to the core question: Did the HL believe that if a term was sufficiently unfair in substance, then it could not be legitimised by transparency? Lord Steyn may have hinted at this, by his rejection of a ‘purely or even predominantly’ procedural approach; but he was no more explicit than this. Of course, the HL did not need to answer the question; because they did not accept that the term did cause a significant (substantive) imbalance in rights and obligations. The CA did take the view that certain terms could be sufficiently unfair in substance as to violate good faith irrespective of procedural fairness;47 but, the position of the HL remains unclear. It does seem routinely to be taken by the OFT that certain terms are unfair and must be made fairer in substance, irrespective of transparency.48 However, the stability of this position remains unclear.

One suspects that this position will ultimately be accepted. However, even if it is, there remains the question as to whether the presence of transparency as a relevant factor in the test, will mean that a greater degree of unfairness in substance will be taken to be required where there is transparency than would be the case where transparency played

43 Interfoto Picture Library v Stiletto Visual Programmes Ltd [1989] QB 433, at 44 [2001] 3 WLR 1297 at 1308 45 [2001] 3 WLR 1297 at 1313 46 ibid 47 48


no role in the test. In short, consent would be treated as a legitimating factor in relation to terms that it might not be viewed as legitimating otherwise.

The ECJ might be read to take the position that terms can be sufficiently unfair in substance as to be unfair; given that they say that if there is no benefit at all to the consumer (this presumably referring to substantive benefit) then they are prepared to conclude that the term is unfair.49 However, in the case involving the term to which they were referring, no argument seems to have been raised as to transparency. Nevertheless, let us suppose that this would make no difference. Of course, then the question is as to what threshold is set by the ECJ. There is a clear agenda to leave as much as possible to be decided by national courts within the national legal framework; so there might be a temptation to restrict the conclusion of ‘no benefit at all’ to the most extreme cases. This, then returns us to the possibility that, in applying a test containing transparency, transparency and the consent viewed as following it are treated, if not always, at least too readily, as legitimating unfairness in substance.

Next-position in Oz re removal of good faith and the advantages in this.

Next-position on a separate right to transparency which does not clearly enough exist in EU, but does seem to in Oz

Next-the improving position on core proce definitions in EU , the CA case etc; and the Oz up front approach.

49

ATTACHMENT C

The 2009 review of Australian consumer law – an opportunity to ‘realign’ s51A Trade Practices Act 1974(Cth) to assist applicants.

Eileen Webb1


Introduction

On February 17 2009, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs released an information and consultation paper (the Consultation Paper) entitled An Australian Consumer Law: Fair markets - Confident consumers. The Consultation Paper was in response to the flurry of activity surrounding Australian consumer law in 2008, in particular, the Productivity Commission’s Report into Australia’s Consumer Policy Framework2 and the Council of Australian Governments (COAG) agreement to a new consumer policy framework3 The new consumer policy framework will include a new national consumer law based on the provisions of the Trade Practices Act 1974 (TPA), a new provision to regulate unfair contract terms, enhanced enforcement powers and better redress mechanisms for consumers.

The Consultation Paper4, contained inter alia, 26 questions that interested parties were invited to address regarding the proposed new Consumer law framework. Questions 17 and 18 referred to particular issues relevant to s51A of the Trade Practices Act 1974 (Cth)5.

1 Faculty of Law, The University of Western Australia. This paper is a work in progress. 2 Productivity Commission 2008, Review of Australia’s Consumer Policy Framework, Final Report, Canberra.http://www.pc.gov.au/projects/inquiry/consumer/docs/finalreport 3 The new consumer policy framework was proposed by the Ministerial Council on Consumer Affairs (MCCA). 4 The paper was developed by the Standing Committee of Officials of Consumer Affairs (SCOCA) and

was aimed at informing the public about the reform process and about the detail of COAG’s agreed

reforms (unfair contract terms, new penalties, enforcement powers and remedies, and redress). The paper

also outlined suggestions as to how the TPA could be augmented, if appropriate, by incorporating

additional provisions based on best practice from state and territory legislation, for example, door-to-door

trading or telemarketing: Media Release 17 February 2009 An Australian Consumer Law: Fair markets -

Confident Consumers; http://www.treasury.gov.au/contentitem.asp?ContentID=1482 5 Trade Practices Act 1974 - Sect 51a Interpretation (1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

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Section 51A – an overview

Section 51A6 is an adjectival provision7 which assists in the interpretation of Part V, Division 1 of the Trade Practices Act 1974 (Cth). While s51A does not define a norm of conduct8 nor provide an independent cause of action separate from s52 or other sections in Part V9, the provision facilitates proof10 in relation to a particular form of misrepresentation11: those with respect to12 future matters13.

Section 51A(1) provides that where a corporation makes a representation with respect to any future matter14 and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. The corporation will be deemed not to have had reasonable grounds unless it adduces evidence to the contrary15. Reasonable grounds are assessed at the time of the representation16. Therefore, s51A casts the burden of proof on the representor and, if that burden is not discharged, a breach of s52 is established by the applicant proving the representation as to the future matter and the fact that it did not come to pass17.

Despite s51A’s presence in the TPA since 198618several issues involving the scope19 and interpretation of s51A20, and the provision’s interrelationship with the accessorial liability provisions of the TPA21, are unresolved.

This article suggests that the examination of an Australian consumer law would be enhanced by a clarification of these outstanding questions regarding s51A. While two of the issues, the extension to other terminology in Part V, Division 1 and the

(3) Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead. 6 Fair Trading Act 1985 (Vic), s 10A; Fair Trading Act 1987 (NSW), s 41; Fair Trading Act 1987 (SA), s 54; Fair Trading Act 1987 (WA), s 9; Fair Trading Act 1989 (Qld), s 37; Fair Trading Act 1990 (Tas), s 11; Consumer Affairs and Fair Trading Act 1990 (NT), s 41; Fair Trading Act 1992 (ACT), s 11. 7 Gillies P, “Misrepresentations as to future matters – current issues in interpretation (2009) 17 TPLJ 25,25 8 Section 51A is relevant to s52 and other relevant provisions of Part V Div 1. It is also applicable to Part IVA. 9 SS 76,80,82(1),87 Ting v Blanche (1993) ATPR 41-282; Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR 46-179 at 54,432, cf Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513-514 Fubilan Catering Services Limited v Compass Group (Australia) Pty Limited 2007 FCA 1276; University of Western Australia v Gray (No 20) 2008 FCA 498; Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 7) [2008] FCA 1364. 10 Ting v Blanche (1993) ATPR 41,282 11 In Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 7) [2008] FCA 1364 at [96] Collier J noted: “Section 51A in that respect is a subset of section 52: Phoenix Court Pty Ltd (1997) ATPR 46-179, Sykes 88 FCR 511 at 514, Quinlivan v Australian Competition & Consumer Commission [2004] FCAFC 175 at [5]”. 12 This expression has been described as “words of the widest possible scope.” Smith v Federal Commissioner of Taxation (1988) 164 CLR 513,533; Ting v Blanche (1993) ATPR 41,282,41,764 13 This includes the doing of, or the refusing to do, any act. Future matter is not defined – it seems the term refers to anything that is to occur in the future, a prediction or projection. Miller 1.51A.15 14 Note the discussion of ‘with respect to’ in Sykes v Reserve Bank of Australia (1998) 88 FCR 511 per Emmett J in dissent and recently in Seven Network Limited v News Limited (2007) FCA 1062 at [3113]. 15 S51A(2) 16 Sykes v Reserve Bank of Australia (1998) 88 FCR 511... 17 Phoenix Court Pty Ltd (1997) ATPR 46-179 per Goldburg J 18 No. 17 of 1986 (13 May 1986) 19 Note discussion by Miller at 1.51A.15. 20 For excellent overviews and discussion of these issues see: Gillies P Representations as to the future: Section 51A of the Trade Practices Act 1974 – Plaintiff’s sword or defendant’s shield, (2005) UNDALR 99; Pearce M, “Accessorial liability for misleading or deceptive conduct” (2006) 80 ALJ 104; Gillies P, “Misrepresentations as to future matters- current issues in interpretation” (2009) 17 TPLJ 25 21 Ibid

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interrelationship with the accessorial liability provisions, are specifically referred to in the Discussion Paper, it is suggested that there is also an opportunity to clarify several other unresolved issues. The exercise could also assess whether the present judicial interpretation of s51A is consistent with the rationale for the introduction of the provision22 and/or whether there has been a contradictory shift in focus, particularly in relation to the efficacy of the provision to representees.

The Issues considered in this article

After a brief discussion of the interrelationship between ss52 and 51A and the evolution of s51A, particularly s52A(2) into its present form, the following issues will be examined:

The Interpretation of s51A

• The applicable burden of proof: Does the requirement to adduce evidence of reasonable grounds involve a reversal of the legal (persuasive) burden of proof or the evidential burden?

• Judicial interpretation: Have decided cases effectively transformed s51A from a provision aimed at assisting applicants overcome difficulties in establishing the misleading nature of future representations to a provision which provides a defence for and/or few meaningful obligations on the representor?

The Scope of s51A

• Extension of the scope of s51A: Would it be desirable to extend the range of representations referred to in s51A to incorporate false and deceptive representations?

• Clarification of undetermined issues: Should the discussions into a new Australian Consumer Law take the opportunity to clarify some issues regarding the scope of s51A which remain unanswered, for example, whether a statement of current opinion is a representation as to a future matter and whether remaining silent can amount to a future representation?

The interrelationship between s51A and the accessorial liability provisions

• Criminal and civil liability under Part V, Division 1: How have safeguards imported from the criminal law affected accessorial liability for contraventions of s52 via s51A?

• Actual v constructive notice: What is the extent and nature of knowledge required of an accessory?

• Extension to accessories: Does the reversal of the onus of proof in s51A also apply to accessories pursuant to s75B?

• The equivalent FTA provisions: What light can the interpretation of the equivalent provisions in State and Territory FTA’s which do not make such a distinction shed on this discussion?

22 Reading speech...


• The desirability of consistency: Is it appropriate that, on some views, different standards are applicable to corporate and non-corporate persons, for contravention of the same provision, for example s52?

Background

Sections 52 and 51A

Section 52(1) prohibits corporations in trade or commerce from engaging in conduct which is misleading or deceptive or likely to mislead or deceive. The provision’s impact has been considerable due to the breadth of the provision itself and its subsequent application to diverse areas of the law23. Rather than creating liability in itself, s52 establishes a norm of conduct24. Conduct will only be misleading or deceptive or likely to mislead or deceive if there is a nexus between such conduct and any actual or anticipated misconception or deception25. Section 52 does not confer any entitlement to a remedy for breach or anticipated breach26. Therefore, non-compliance with s52 will see an aggrieved party seek remedies pursuant to Part VI of the TPA. Only civil remedies are available for contraventions of s52; unlike most other provisions of Part V Division 1, s52 does not have an equivalent provision under Part VC which renders an offending party liable for criminal penalties.

Constitutional limitations dictate that the principal contravener must be a corporation27 unless the circumstances of the case permit an extension of liability to natural persons.28 The State and Territory Fair Trading Acts contain provisions equivalent to s52 which are applicable to corporations and individuals29.

An applicant must establish that certain representations30 were made, that those representations were misleading or deceptive and that the applicant relied on those representations31. Generally, the onus of proof will be on the applicant unless the conduct under consideration relates to a future matter. If so, s51A necessitates that the respondent should call evidence to establish the representation was made on reasonable grounds.

23 Section 52 is “a comprehensive provision of wide impact.” Brown & Anor v Jam Factory Pty Ltd & Anor (1981) ATPR 40-213 per Fox J at 42,928. 24 Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) ATPR 41-269 Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at [40]) (Butcher). 25 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202 26 Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 27 The Trade Practices Act relies on a number of Commonwealth heads of power under the Constitution, in particular the Corporations power (s51(xx)) of the Australian Constitution. 28 In particular ss6(2),(3). 29 Fair Trading Act 1999 (Vic), sec 9-11; Fair Trading Act 1987 (NSW), sec 42; Fair Trading Act 1987 (SA), sec 56; Fair Trading Act 1987 (WA), sec 10; Fair Trading Act 1989 (Qld), sec 38; Fair Trading Act 1990 (Tas), sec 14; Consumer Affairs and Fair Trading Act 1990 (NT), sec 42; Fair Trading Act 1992 (ACT), sec 12; 30 Several cases have noted that the term conduct is not co-extensive with representation in s 52 per Lockhart and Gummow JJ in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 504, Butcher v Lachlan Elder Realty (2004) 218 CLR 592 per Gleeson CJ, Hayne and Heydon JJ at 603, McHugh J at 622) however engaging in conduct does include making representations McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2, (2008) ATPR 42-213. 31 Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470; McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2, (2008) ATPR 42-213

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Future representations prior to s51A

Section 51A reverses the onus of proof in matters involving future representations. The provision was introduced in response to evidentiary hurdles applicants faced when trying to establish that representations which related to a future matter were misleading or deceptive32.

Prior to the introduction of s51A in 1986, there was concern as to how false or misleading statements, representations or predictions about future matters33would be addressed by Part V, Division 1, particularly by s52. Put simply, if matters transpire so that a promise, prediction or opinion34 proves to be incorrect will the representor be held to engage in misleading or deceptive conduct?

Clearly, statements involving past or present fact attracted the operation of s5235. The focus of the provision was the misleading or deceptive nature of the relevant conduct and it was unnecessary to consider the state of mind of the representor36; indeed, even a statement made honestly could, in appropriate circumstances, be regarded as misleading37. However, the situation regarding predictions and promises, and some opinions38, was problematic. A statement relating to the future could contain an implied statement as to past or present fact39 or may represent implicitly that the person has a present intention to make good the promise and that the person has the means to do so40. The courts were quick to acknowledge that the mere fact a representation as to future conduct or a future event does not come to pass will not necessarily make the statement misleading41. It was recognised that, in such cases, although the statements relate to the future, they are based on the present state of mind of the person making the statement42. Generally, intention to mislead or deceive is not a necessary element of conduct proscribed by s 5243 and liability imposed by s 52 is unrelated to fault44.

32 Explanatory memorandum 33 Explanatory Memorandum to the Amendment Bill contained the following discussion of cl 21 and the proposed s 51A: [72] Discussed in McGrath at 34 An opinion will not contravene s 52 in circumstances where the statement simply proves to be incorrect; Global Sportsman. Statements of honest opinion have been held to be outside the ambit of s 52; Bonney Forge Ply Ltd v Press & Shear Machinery Pry Ltd (1988) ATPR 40— 869. However, where the person stating the opinion does not genuinely hold the belief expressed in the opinion (Global Sportsman) or the opinion does not have a reasonable basis (RAJA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993)41 FCR 164; 112 ALR 511) there will be a contravention of s 52. 35.In relation to opinions relating to past or existing fact the main issue is discerning whether the statement is one of fact or opinion see Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1; 111 ALR 61 36 37 38 39 Hunt Contracting Co Pty Ltd v Roebuck Resources NL (1992) 110 ALR 183; ATPR 41—193. 40 James v ANZ Banking Group Ltd (1986) 64 ALR 347; Bell v Australasian Recyclers (WA) Pty Ltd (1986) ATPR 40—644 41 James v ANZ Banking Group Ltd (1986) 64 ALR 347; Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82; 55 ALR 25 (Global Sportsman). 42 Ting v Blanche (1993) 118 ALR 543; ATPR 41-282; Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; (2004) ATPR 46-248; 62 IPR 184; Aust Contract R 90-196; Sykes v Reserve Bank of Australia (1998) 88 FCR 511 [PDF]; 158 ALR 710; (1999) ATPR 41-699; Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525; ATPR 41-534; Jacques v Cut Price Deli Pty Ltd (1993) ATPR (Digest) 46-102; ASC 56-221. The maker of the statement must have had a particular state of mind at the time the statement was made and there must have been some foundation for that belief; Global Sportsman 43 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 228; Queensland Citrus...Collier at..[97].

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Decided cases concluded that such representations would only be misleading or deceptive if the representor knew the representation was false or would not be fulfilled or had made the representation recklessly.45 It was also acknowledged that some statements could be misleading if they were not appropriately qualified.46. Therefore, the non-occurrence of the matter about which an opinion, prediction or promise was proffered did not determine whether the representation was misleading; the crucial issue was the state of mind of the person making the statement47. It was recognised that it was difficult to obtain such proof in the absence of the representor’s admission48. Section 51A was directed at easing the evidentiary burden on representees in these circumstances. Section 51A’s role is to ease the representee’s evidentiary burden by deeming statements relating to the future to be misleading.

Interpretation of s51A

The applicable burden of proof

Section 51A(2) states that the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation. There has been debate as to whether the evidence adduced must satisfy the evidential or persuasive burden of proof. This issue is significant because, depending on the conclusions drawn, different responsibilities fall to the representor and representee and the respective cases are impacted upon accordingly49. Clearly, from the representor’s perspective, bearing the evidential burden is far less onerous than satisfying the persuasive burden50. On the other hand, a representee’s onus would be dramatically lightened if relieved of the legal burden. This conclusion will also lead to ‘flow-on’ effects impacting on both parties51.

Therefore, it is useful to examine the parliamentary intention behind the insertion of s51A into the Act and the judicial interpretation of the provision.

Section 51A’s progress through parliament

Section 51A(2), as originally proposed in the Trade Practices Amendment Bill 1986 52(the Amendment Bill), stated that the corporation bore the persuasive onus of establishing 44 Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd [1982] HCA 44; 149 CLR 191 at 197 Queensland Citrus at...[97] 45 For example in Thompson v Mastertouch TV Service Pty Ltd (No 3) (1977)15 ALR 487 at 495 Frank J noted ... "a prediction or statement as to the future is not false within the words of [s 59(1)] if it proves to be incorrect unless it is a false statement as to an existing or past fact which may include the state of mind of the person making the statement or of a person whose state of mind may be imputed to the person making the statement." ; see too T N Lucas Pty Ltd v Centrepoint Freeholds Pty Ltd (1984) 1 FCR 110 ; ATPR 40-440. 46 Wheeler Grace & Pierucci Pry Ltd v Wright (1989) 16 IPR 189; ATPR 40—940 per Lee J; The misleading or deceptive conduct may be found in the failure to qualify the statement or disclose the risk of non-fulfilment; Famel Ply Ltd v Burswood Management Ltd (1989) 15 ACLR 572; ATPR 40—962; Truth about Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (1998) ATPR 41—633. Note however the comments of Allsop J in Evans Deakin Pty Ltd v Sebel Furniture Ltd [2003] FCA 171 at [627] it does not follow that any statement in any commercial context which can be characterised as a promise must be accompanied by any existing legal or factual qualification; Citrus Queensland at [476]. 47 Heydon... 48 Explanatory Memorandum to the Amendment Bill [72] 49 50 Gillies... 51 52 Trade Practices Amendment Bill 1986


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that a corporation had reasonable grounds for making a representation as to a future matter53. This was the preferred option of the Attorney General54, and the government55, throughout the legislation’s progress56. However, by the time the Amendment Bill was withdrawn57 and the subsequent Trade Practices Revision Bill 1986 (the Revision Bill) became law58, any ensuing reversal of the onus of proof in s51A appeared to be limited, in the parliament’s view, to the evidential burden59. This compromise was reached primarily due to Senate concerns60 that a general reversal of the onus of proof “trespassed unduly on personal rights and liberties”61, given that some of the provisions in Division 1 extended to criminal liability62. In Re McGrath; Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd 63 Allsop J noted at [175]-[176]:

Thus, the enactment history of s 51A(2) reveals that the Senate perceived a difference between an "absolute reversal of the onus of proof" (which it found "objectionable") and the reversal of the "evidential onus of proof" (which it did not find objectionable and to which the provision was directed). It also reveals that the Senate's concern was with the operation of Div 1 of Pt V of the TP Act in the criminal law context. It also reveals that the Attorney-General did not consider the changes to derogate "significantly" from the protection provided for; though it is clear that he perceived a difference....This immediate enactment history, however, does temper any assumption that Parliament intended s 51A(2) simply to reverse the onus of proof, without regard for the specific words used by it for the effect of the provision on the onus of proof.”

However, while s51A(2) was passed in its present form, the discussion reveals that there were strongly held views on both sides and that a clear intention of the legislature cannot be discerned64.

53 54“In my opinion, it is clear that, without reversing the persuasive onus of proof, the Act is ineffective to deal with predictions and forecasts. Therefore, consistent with the Commonwealth's policy stated above, as the state of mind of the defendant when making the prediction is a matter peculiarly within the knowledge of the defendant, I consider the reversal of the persuasive onus of proof is permissible in this case.” This statement was recorded in the Committee...’s report see McGrath at ..... 55 When the amended Bill went to parliament it was noted 56 Indeed, even after the Senate reservations were taken into account and s51A(2) was passed in its present form the Attorney General noted at Australia, House of Representatives, Debates (1986) Vol HR 148, p 2989: Amendment No. 2 places an evidential burden on the defendant to adduce that it had reasonable grounds for making its prediction. This amendment arose as a result of the concern of the Senate Standing Committee for the Scrutiny of Bills. Whilst the Government would prefer that the proposed section be not altered, it considers that this amendment does not derogate significantly from the protection sought. (Emphasis added) 57 APH, House of Representatives, Debates (1986) Vol HR 147, p 1624. 58 The Trade Practices Revision Bill (1986) stated at [...]:

Division 1 o f Part V of the Principal Act deals with unfair practices, As the law currently stands, it appears that a statement relating to future events, such as a prediction of future profits, is not covered by the Division unless it is based on past or existing facts or it can be proved that the person making the statement did not believe that it was true or was recklessly indifferent as to the truth of the forecast. A new section 51A is to be inserted by clause 21 whereby representations made by a corporation about the future will be deemed misleading unless the corporation has reasonable grounds for making the representation. The onus of proving that reasonable grounds existed for the making of the representation will rest on the corporation.58

59 60 Initally concerns of the ....The government pressed ahead with the persuasive onus but the matter was raised again by Senator Janine Haines APH, (Senate, Debates (1986) Vol S 114, p 1863) 61 Senate Committee...McGrath [170] 62 63 [2008] FCAFC 2; (2008) 165 FCR 230 [PDF]; ATPR 42-213 (Emmett J & Allsop J) 64 Stone J at...McGrath at [74].



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Judicial interpretation

There has been debate as to whether s51A reverses the evidential burden of proof65 or the persuasive or legal burden66. This discussion has played out in the parliament during debates concerning the Amendment Bill and the Revision Bill (see above) and before the courts. Case law is divided over the exact nature of the onus which s51A casts on the maker of a future representation67 although, on balance, it seems the courts have tended to conclude that s51A refers to the evidential burden68. However, it is important to note though that, on at least one view, the issue has not come squarely before a court so as to enable a binding determination to be made as to the appropriate burden of proof.69

To date, several cases have concluded that s51A involves a reversal of the persuasive burden of proof70. However, it seems the weight of authority leans towards the reference in s51A(2) being relevant to the evidential onus71.

Even in cases where the evidential onus has been favoured, there has been discussion as to whether the representor simply has to submit some evidence of reasonable grounds72 or whether a particular standard has to be satisfied. It seems that the representor must establish on the usual balance of probabilities that there were reasonable grounds for making the representation73. In so doing, in Sykes v Reserve Bank of Australia74 Heerey J held that the representor needed to show:

• Some facts or circumstances

• Existing at the time of the representation

65 The evidential burden requires a party to adduce evidence which is “capable of being left to the jury or court”; McNicol SB, Mortimer D; Evidence 3rd Edition; 2005 LexisNexis Butterworths, Australia, 1.24 The litigant is obliged to produce sufficient evidence on a claim or defence to enable a judge to allow it to be presented to the fact finder in reaching the ultimate decision in the case: Arensen K, Bargaric M, Rules of Evidence in Australia 2005 LexisNexis Butterworths, Australia para 2.1. 66“ The legal burden refers to the obligation of a litigant to ultimately persuade the fact finder that certain facts which are essential to establishing a claim or defence are true , or suffer the consequence of having the fact finder determine the claim or defence has not been proved.” Arensen K, Bargaric M, Rules of Evidence in Australia 2005 LexisNexis Butterworths, Australia para 2.1. 67 The conclusions in the various cases have been discussed recently by Allsop J in Re McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2, (2008) ATPR 42-213.and also in articles by Pearce and Gillies (Pearce M, “Accessorial liability for misleading or deceptive conduct” (2006) 80 ALJ 104; Gillies P, “Misrepresentations as to future matters- current issues in interpretation” (2009) 17 TPLJ 25 While this article will summarise the competing views, given the depth in which the cases were analysed in the McGrath and in the before mentioned articles it would be superfluous to repeat these discussions in significant depth here. 68 McGrath... 69 70 Australian Competition and Consumer Commission v IMB Group Pty Ltd (1999) ATPR 41-704 at [13]; Blacker v National Australia Bank [2000] FCA 681 at [83]; Kaye [2004] FCA 1363 at [133]; Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2006] ATPR 42-096; Lewarne v Momentum Productions Pty Ltd [2007] FCA 1136. 71 Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 127672 ACCC v Universal Sports Challenge Ltd [2002] FCA 1276 at [46] Indeed it would seem this does not mean that the onus of proof (which otherwise lies with the applicant) is reversed, but merely requires the corporation to go into evidence – see heydon... 73 Lewarne v Momentum Productions Pty Ltd [2007] FCA 1136 at [82], Ting [1993] FCA 524; 118 ALR 543 at 552, Bowler v Hilda Pty Ltd (1998) 153 ALR 95 at 108 and 117, Sykes 88 FCR 511 at 513-514, Adelaide Petroleum NL & Ors v Poseidon Limited & Ors (1988) 10 ATPR 40-901 at 49,700, Phoenix Court Pty Ltd (1997) ATPR 46-179 (and cf other cases in support of this proposition listed at Miller, 29th ed para 1.51A.37. 74 (1998) 88 FCR 511 at 513,







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• On which the first respondent in fact relied

• Which are objectively reasonable and

• Which support the representation made.

Although such a conclusion concurs, to some degree, with the legislative history of the provision, it is suggested that such a result undermines the objective of s51A: to alleviate the burden of proof on applicants alleging that future representations are misleading. The rationale behind s51A(2) as originally proposed was to transfer the onus of proof because of the very real problems associated with establishing the misleading nature of future representations. The provision was aimed at assisting representees. In the view of the government of the day, transfer of the persuasive burden was an appropriate measure and in the circumstances justified. The compromise position eventually adopted dilutes what could have been a valuable asset in a representees arsenal. It seems to defeat the purpose of the provision if the corporation need only provide cursory evidence and that discharges the onus.

Discussion regarding the Australian Consumer Law could again reconsider whether the representor should bear the evidential or legal burden of proof. In so doing the discussion should consider the original intention behind the proposed s51A(2) and that the evidential burden places only a relatively minor obligation on the representor. Concerns as to safeguarding rights derived from the criminal law are persuasive however, in most cases, it is civil liability under s52 which is attracted. Finally, there is inconsistency in the state and territory FTA’s as to the standard adopted in the equivalent provisions of s51A(2). In a national consumer law this inconsistency would have to be addressed one way or the other.

Does s51A provide a defence to a representor?

Case authority and academic opinion is divided as to whether s51A provides a substantive defence or whether it merely has evidential value75. Gillies suggests that the present law supports the view that s51A provides a substantive defence; arguably another assistance to the representor to the detriment of the representee76. Therefore, if the representor establishes that it had reasonable grounds for making the future representation under consideration, it will be freed from liability under s51A and from liability under s 5277

On the other hand reference should be made to the comments of Colin Lockhart78at 4.23 which notes:

"Dicta to the effect that statements as to the future which lie outside the ambit of s 51A are, for that reason alone, incapable of being misleading ...appear, with respect, to be at odds with the express words of the provision …Rather, s 51A would appear to expand the range of promises

75 Gillies, op cit at 30 76 Gillies op cit pp30-32 77Ting v Blanche [1993] FCA 524; (1993) 118 ALR 543 at 552, Quinlivan FCAFC 175 at [6].) 78 Lockhart C, The Law of Misleading or Deceptive Conduct, 2003, Butterworths para 4.23 This extract was cited in Magro…




and predictions which may contravene s 52, by providing for an additional, procedurally advantageous means of proof of breach ...79” (footnotes omitted)

Gillies also notes that if the provision was merely of evidentiary value, the representee would be benefited because:

“Its role in these terms is limited to deeming the representation to be misleading , in the absence of contrary evidence...from the corporation that it had reasonable grounds for making the statement.”

Again this comes back to the rationale behind the section seemingly being in conflict with the judicial interpretation of the provision. To date, there is no binding decision and comments on this issue have been obita80. However, there have been frequent references in various judgements that s51A(2) is a ‘concession’ in favour of representors81 Indeed in Hatt v Magro82it was noted that:

“...it has been accepted that s51A(2),by negative implication, has the effect that , if a person adduces evidence that he or she had reasonable grounds for making a representation as to future conduct, then the representation will no longer be taken to be misleading.”

In relation to the impact such a finding may have on accessorial liability, it was noted in Quinlivan v Australian Competition and Consumer Commission 83 that:

Accordingly, where s 75B or s 80 accessorial liability is in issue in relation to a representation with respect to a future matter, the existence or otherwise of reasonable grounds will be relevant. If reasonable grounds exist, there will have been no contravention and thus no question of accessorial liability will arise. However, as against the accessorial respondent, the onus will be on the applicant to show the respondent had actual knowledge that • the representation was made and • it was misleading or • the corporation had no reasonable grounds for making it. (at [15])

Again, clarification of the role of s51A, especially in light of the present interpretations which seem to favour the representor rather than the representee, would be beneficial.

Scope of s51A

Extension to false and deceptive representations

Section 51A is applicable to Part V, Division 1. The Division addresses an array of representations. Not all the provisions address misleading representations, the subject of s51A, and refer to false and deceptive representations or variations thereof. Given that the rationale for s51A was to facilitate proof in relation to future representations it is inconsistent that there is a reversal of the onus of proof in relation to provisions containing the term misleading and not in relation to other like terms. There does not seem to be an explanation for this anomaly.

79 (cf Lake Koala Pty Ltd v Walker [1991] 2 Qd R 49 at 58 per Connolly J (Qld SC)). "Accordingly I am of the view that s. 51A(1) and (2) do not, in the circumstances of the case operate so as to reverse the burden of proof. This however does not mean that the plaintiff may not yet make out its case under s. 52(1) and this is plainly the intention of s. 51A(3).Connolly – 1991 2 QdR 49 at 58

80 Gillies 31 81 Ting v Blanche (1993) 118 ALR 543 at....find it...Sykes v Resreve Bank of Australia (1998) 88 FCR 511 at 514 Bowler v Hilda Pty Ltd (1998) 8 FCR 191 at 106,215 (check) King v GIO Australia Holdings (2001) 184 ALR 98 Quinlivan v ACCC (2004) 160 FCR 1 at [14] 82 [2007] ATPR 42-169 at [38] 83 [2004] FCAFC 175



The provisions in section 51A of the TPA should be extended to include presumptions in relation to ‘false’, ‘misleading’ or ‘deceptive’ representations for inclusion in the Australian Consumer Law. It is suggested that, subject to the comments elsewhere in this article regarding the nature and effectiveness of reversal of the burden of proof, such a development has the potential to enhance the representee’s rights and alleviate some of the difficulties in establishing proof. Also, it would seem that representors could utilise such an amendment as the s51A ‘defence’84, of showing reasonable grounds to rebut a finding of a miseading representation would extend to other terminology. Greater scope...

Clarification of undetermined issues

The discussions into a new Australian Consumer Law should take the opportunity to clarify some issues regarding the scope of s51A which remain unanswered. Several ‘grey’ areas are unresolved and are the subject of conflicting judicial opinion.

Statements of existing state of mind relating to the future

One issue with the interpretation of s 51A has been whether a representation may be catagorised as relating to a future matter, thus attracting the operation of s 51A, even if that representation is at the same time a representation as to the existing state of mind of the person making the statement. The distinction is, of course, crucial in establishing which party bears the onus of proof. In Jacques v Cut Price Deli Pty Ltd85 representations were made during negotiations for the purchase of a franchise in a shopping centre. The representations were made in relation to turnover, gross profit margins and profitability of the business. There was also a specific representation as to the agent’s state of mind as to the future turnover etc of the business. A distinction was drawn between the character of certain representations, those which were ‘true’ representations which would come under s 51 and another representation which involved a person’s present state of mind.

On the other hand, in Ting v Blanche86the applicants sought relief regarding a real estate agent’s representations as to rental and ease of letting of commercial premises. The applicants claimed that the representations were caught by s 51A as representations as to future matters. The respondents referred to the Jacques decision and claimed that the representations merely demonstrated the maker’s ‘state of mind’ at the time of making the statement. Hill J concluded that a representation may be a representation as to a future matter even if it is also impliedly a representation as to the existing state of mind of the maker. His Honour stated at ALR 553; ATPR 41,764:

Whatever may be the ease where there is an express representation as to the maker’s state of mind concerning a future matter, it is not, in my opinion correct to treat a representation as to an event or conduct in the future, he that in the form of a prediction or otherwise, as not being a representation with respect to a future matter merely because it implies a representation as to the maker’s present state of mind.

Therefore a representation as to future rental, for example, will be a representation with respect to a future matter even if it is also impliedly a representation as to an existing

84 See discussion under...above... 85 (1993) ATPR (Digest) 46—102 86


state of mind. His Honour justified this interpretation due to the ‘very wide’ language of s 51A, in particular the use of the words ‘with respect to’87.

This issue remains unresolved88.

Contractual promises

Similarly clarification as to the circumstances where a contractual promise attracts the operation of s51A89would be beneficial.

Remaining silent

Pursuant to ss52 and s4(2) silence may, in some circumstances, amount to misleading or deceptive conduct90. It remains unclear whether the failure to say something will amount to a representation as to a future matter91

Interaction with s53A

It seems the interpretation of s 51A(3) concludes that s 51A does not have the effect that in a claim under s 53A(1)(b) there is no contravention where the representor does have reasonable grounds.92

Pleadings

It is uncertain whether s51A must be pleaded for the provision to be invoked. Again there are two views; the first which suggests that s51A should be pleaded and that a party seeking to rely on s51a should make it clear it is doing so93. An alternative view is that such pleading is unnecessary94. It has been suggested that the ‘prudent pleader’ will refer to the provision95but, again, clarification would be welcome.

The interrelationship between s51A and the accessorial liability provisions

The Consultation Paper queries whether the provisions of s51A should be amended to further clarify their relationship with the accessorial liability provisions of the TPA. Clarification would be welcome as there are significant differences in the statutory provisions and procedure relevant to corporate principals and individuals identified as accessories. Indeed, more consistency could be a desirable outcome. At present when a breach of s52 is alleged against a corporation and there is also a claim also against an accessory:

“…the plaintiff must prove against the accessory what it is not necessary to prove against the corporation - the absence of reasonable grounds for making the representation96.”

87 : see Miba Ply Ltd v Nescor Industries Group Pty Lid(1996) 141 ALR525. 88 Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; (2004) ATPR 46-248; 62 IPR 184; Aust Contract R 90-196; Sykes v Reserve Bank of Australia (1998) 88 FCR 511 [

89 Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217; (1990) ATPR 41-049; ASC 56-009. 90 Ramensky... 91 : Edgar v Farrow Mortgage Services Pty Ltd (1992) ATPR (Digest) 46-096. 92 Heydon... 93 WA v Bond Corp Holdings Ltd 91990) 99 ALR 125 at 129; University of WA v Gray [2008]...per French J 94 Cummings v Lewis (1993) 41 FCR 559 at 568 95 Lockhart at 4.29 96 Magro at 67 per Steytler...Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175; (2004) ATPR 42-010 at [13].

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The interaction between s 51A and s 75B(1) has been considered in several cases97, culminating in the decision in ACCC v Quinlivan98. In summary, it appears s51A and its reference to reasonable grounds is applicable only to the corporate principal. To succeed in an action against an accessory the applicant must show the alleged accessory had actual knowledge that the representation was made and it was misleading or the corporation had no reasonable grounds for making it99. Decided cases suggest that s 51A has no application to accessories100.

What is the extent and nature of knowledge required of an accessory?

It seems that s75B and s80 import the requirements of the criminal law101 and therefore require the applicant to demonstrate that the representor intentionally participated in the contravention102and had actual, and not merely constructive, knowledge of the essential elements of an alleged contravention103. Interestingly, it does appear that a failure to inquire in combination with suspicious circumstances may lead to the conclusion that there was the requisite knowledge104 Section 51A does not detract from this 97 Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276; Australian Competition and Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439; King v GIO Australia Holdings u 98 In Yorke v Luca98 the High Court noted that the words "aided, abetted, counselled or procured" in s75B are taken from the criminal law where they are used to designate participation in a crime as a principal in the second degree or as an accessory before the fact98. To summarise the High Court’s discussion, their Honours held that although s75B deals with civil rather than criminal liability, the words used in s75B should be interpreted according to their meaning in criminal law98. Therefore, a person will be guilty of the offences of aiding and abetting or counselling and procuring the commission of an offence only if he/she intentionally participates in the offence98. The requisite intent requires knowledge of the essential matters which go to make up the offence. This is the case whether or not he/she knows that the matters under consideration amount to a crime98. Section 75B will only be applicable where a person has intentionally aided, abetted, counselled or procured a contravention by the representor of s5298. Simply making representations is insufficient as there must be knowledge of the falsity.98

99 Magro...

100 He said that MrMagro could not rely on the deeming provisions in s 51A(2) in order to establish an absence of reasonable grounds on the part of the Club. He relied, in this last respect, upon Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175; (2004) ATPR 42-010 which, he said, supported the proposition that s 51A(2) did not apply to persons who were said to be liable solely as accessories under s 75B.

101 Yorke v Lucas (1985) 158 CLR 661; North East Equity Pty Ltd v Proud Nominees Pty Ltd[2007] FCA 1587 In Quinlivan, the Full Federal Court (Heerey, Sundberg and Dowsett JJ) concluded (at [10]) that:

" ... s 51A does not detract from the Yorke principle that actual knowledge of the essential elements of the contravention is required if s 75B ... is to apply. Where the contravening conduct involves misrepresentation, whether as to a future matter or not, this principle requires actual knowledge by the accessorial respondent of the falsity of the representation. This is an essential matter which must be alleged and proved ... " 102 Magro... 103 Yorke v Lucas (1985) 158 CLR 661 at 668; Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 at 5.

104 Magro Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 at 667, 670 per Mason ACJ, Wilson, Deane and Dawson JJ, at 677 per Brennan J; Giorgianni v The Queen [1985] HCA 29; (1985) 156 CLR 473; Pereira v Director of Public Prosecutions [1988] HCA 57; (1988) 63 ALJR 1.



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conclusion105. Therefore, to establish a misrepresentation actual knowledge is required on the part of the alleged accessory that a false representation had been made106. There is no reversal of the onus of proof where s75B or s80 are utilised. Therefore, s51A will not be applicable to this circumstance and an alleged accessory is not obliged to show reasonable grounds107.

Does the reversal of the onus of proof in s51A also apply to accessories pursuant to s75B?

Different considerations will apply depending on whether the applicant is targeting a corporation as primary contravener or an individual as an accessory. This will be the case even if the facts reveal that the actions of the corporation were those of the accessory108, although it has been suggested that a corporation’s primary and ancilliary liability should be determined in accordance with s51A 109. The reversal of the onus of proof will occur only when a corporation is made primarily liable. This will not be the case with an accessory. In the latter case, the applicant bears the onus of demonstrating the representor had actual knowledge that the representation was made, that it was misleading and that the corporation had no reasonable grounds for making it110.

In Quinlivan it was noted that the reversal of onus in s 51A(2) does not apply where accessorial liability under s 75B is relied on. It was noted that it was implicit in s 51A(1) that there will be no contravention of s 52 where a corporation has reasonable grounds for making a representation with respect to a future matter. The court then stated:(at [15]):

"Accordingly, where s 75B ... accessorial liability is in issue in relation to a representation with respect to a future matter, the existence or otherwise of reasonable grounds will be relevant. If reasonable grounds exist, there will have been no contravention and thus no question of accessorial liability will arise. “

It has been held that s 51A(2) cannot be relied upon to establish the contravention by the principal in a case which proceeds only against the accessories111

Discuss competing views...

The equivalent FTA provisions

Each state and territory has equivalent provisions to 51A but reference is made to persons not corporation. For example, a corporation and a natural person can be principally liable for a contravention of the equivalent of s52. In this case, there is no need to establish knowledge. However, in instances where an individual is targeted as an

105 Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 106 Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1; Su v Direct Flights International Pty Ltd [1999] FCA 78 at [38]; Fernandez v Glev Pty Ltd [2000] FCA 1859 107 Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276. Per Emmett J; Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1; 108 Pearce...Gillies... 109 ACCC v Global Prepaid Communications Pty 110 See Australian Competition and Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439 at [303].); Quinlivan... 111 Universal Sports at [43] - [45] (where Emmett J regarded s 51A(2) as having no relevance in such a case); and see also Quinlivan at [11].


accessory an individual can avail themselves of a 51A(2) equivalent112. Note that s 51A(2) is replicated in the terms of two State and one Territory FTA113 while provisions elsewhere have adopted the unamended proposed s51A(2) in the Amendment Bill and the Revision Bill. This factor should also be considered during deliberations as to the new Australian consumer law because a national law will have to determine whether to retain the present s51A. If this is the case, the law in several states and territories will be altered because of adherence to the provisions of the original s51A(2)114.

In relation to equivalent provisions of s75B in the state and territory FTA’s, if an accessory does not have the level of involvement to be a principal, the requirement for actual knowledge discussed above is applicable. If there is no equivalent of s75B in the state legislation115there will be no liability at all for such a person. Of course, no question of accessorial liability will arise if the corporation has established that there are reasonable grounds for making the future representation116.

Conclusions/discussion

112 Gillies at 34; Houghton v Arms (2006) 225 CLR 553 113 : the Fair Trading Act 1987 (SA), s 54(2), the Fair Trading Act 1990 (Tas), s 11(2) and the Fair Trading Act 1992 (ACT), s 11(2). 114 McGrath... 115 Queesnland, South Australia 116 Quinlivan

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCAFC/2008/2.html?query=fta1992117 s

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCAFC/2008/2.html?query=fta1992117 s

http://www.austlii.edu.au/au/legis/sa/consol_act/fta1987117/

http://www.austlii.edu.au/au/legis/sa/consol_act/fta1987117/s54.html

http://www.austlii.edu.au/au/legis/tas/consol_act/fta1990117/

http://www.austlii.edu.au/au/legis/tas/consol_act/fta1990117/

http://www.austlii.edu.au/au/legis/tas/consol_act/fta1990117/s11.html

http://www.austlii.edu.au/au/legis/act/consol_act/fta1992117/

http://www.austlii.edu.au/au/legis/act/consol_act/fta1992117/

http://www.austlii.edu.au/au/legis/act/consol_act/fta1992117/s11.html

ATTACHMENT D

Product Safety Regulation in the proposed Australian Consumer Law

Although it is difficult to work out the Australian Governments’ present position, there appears to be a major gap in the proposed new consumer product safety regime. There needs to be a clear commitment to updating the TPA and State/Territory regimes, which date back to the 1970s and 1980s, to reflect current best practice in other similar industrialised democracies. At the least, Australia should add a duty on suppliers to inform the ACCC if they become aware of a serious product related accident – as in the US, the EU, Japan and Canada. Australia should also now reconsider adding a General Safety Provision (GSP), or at least add into the new legislation a commitment to regular reviews of product safety trends and evolving global standards.

Dr Luke Nottage*

Where Does Australia Really Now Stand?

In the 17 February 2009 consultation paper entitled An Australian Consumer Law and developed by the Standing Committee of Officials of Consumer Affairs (SCOCA),1 Chapter 8 on “A national regulatory regime for product safety” (contained in Part II – “Agreed Reforms”) begins: “In May 2008, MCCA agreed to a new model for the regulation of product safety in Australia. This model was endorsed by COAG at its July 2008 meeting. The new model will be underpinned by national application legislation.”

The Council of Australian Governments communiqué of 3 July 2008 mentions only that:2

“COAG today took a significant step in streamlining the processes associated with ensuring the safety of consumer products. COAG has agreed that the Commonwealth will assume responsibility for the making of permanent product bans and standards under the Trade Practices Act 1974. States will retain powers to issue interim product bans.”

The Ministerial Council on Consumer Affairs (MCCA) communiqué of 23 May 2008 adds to this:3

“• The Australian Competition and Consumer Commission and the State and Territory offices of fair trading will share responsibility for enforcement of the product safety law.

* Associate Professor, Sydney Law School; Program Director (Comparative and Global Law), Sydney Centre for International Law. Thanks to participants in the 3rd Consumer Law Roundtable, Melbourne, 20 February 2009. 1 Available via http://www.treasury.gov.au/contentitem.asp?ContentID=1482. See the summary by Jocelyn Kellam in the current issue of the Australian Product Liability Reporter, based on http://www.claytonutz.com/areas_of_law/controller.asp?aolstring=30&na=1943. 2 http://www.coag.gov.au/coag_meeting_outcomes/2008-07-03/docs/communique20080703.pdf at p3. Regrettably, the COAG website does not yet have any Subject Heading for “consumer law” or “consumer product safety”: cf www.coag.gov.au/coag_meeting_outcomes/issues_by_subject.cfm 3 http://www.consumer.gov.au/html/download/MCCA_Meetings/Meeting_19_23_May_08.pdf at p2.

http://www.treasury.gov.au/contentitem.asp?ContentID=1482

http://www.claytonutz.com/areas_of_law/controller.asp?aolstring=30&na=1943

http://www.coag.gov.au/coag_meeting_outcomes/2008-07-03/docs/communique20080703.pdf

http://www.coag.gov.au/coag_meeting_outcomes/issues_by_subject.cfm

http://www.consumer.gov.au/html/download/MCCA_Meetings/Meeting_19_23_May_08.pdf


• Any jurisdiction may refer a proposal for a permanent ban or standard to the ACCC and there will be requirements for the ACCC to communicate its assessment to the Commonwealth Minister and to MCCA.”

The next section of the MCCA communiqué, entitled “Review of Australia’s Consumer Policy Framework”, appears to commit the Ministers to developing a new nation-wide regime based generally on the March 2008 Final Report of the Productivity Commission (“PC”), while undertaking further assessment (through SCOCA) and stakeholder consultation regarding its specific features. However, this section does not clearly commit to implementing even all the Recommendations contained in the PC’s final Report regarding consumer product safety. Nor does the 17 February 2009 consultation paper pick up on all those original Recommendations.

In particular, the PC’s final Report had stated (emphasis added): 4 Recommendation 8.2

Consistent with the recommendations in the Productivity Commission’s Review of the Australian Consumer Product Safety System [2006], Australian Governments should:

• develop a hazard identification system for consumer product incidents;

• introduce mandatory reporting requirements for voluntary product recalls; and

• require suppliers to report products associated with serious injury or death or products which have been the subject of a successful product liability claim or multiple out-of-court settlements.

…

Recommendation 8.3

Drawing on the mechanisms proposed in recommendation 8.2 and on the baseline study examining product related

accidents prepared for the Ministerial Council on Consumer Affairs, Australian Governments should monitor trends in

product safety, including any impacts of the civil liability reforms, with a view to assessing whether the incentives to supply safe products continue to be adequate.

Supplier’s Duty to Notify if Serious Injury

Even if the Australian Governments do plan still to add into the new generic Consumer Law a notification duty on suppliers, the last bullet point in the PC’s Recommendation 8.2 is quite ambiguous. At first blush, it seems to envisage two duties, triggered simply by (a) knowledge of products associated with serious injury or death, and (b) products involved in a successful product liability claim or multiple settlements. But this Recommendation is supposed to be consisted with the PC’s 2006 Review5 recommendations (and at p 186 of its 2008 Report the PC noted that the latter “was not a supplementary review of Australia’s product safety arrangements”). The 2006 Review in fact recommended a notification duty triggered by (a) knowledge of products associated with serious injury or death, or – only “if that should not be adopted” – (b) products involved in a successful product liability claim or multiple settlements.6

4 At http://www.pc.gov.au/projects/inquiry/consumer/docs/finalreport, Vol 2 at p188 (also in summary in Vol 1). 5 At http://www.pc.gov.au/projects/study/productsafety/docs/finalreport. 6 2008 Report, p 186. See also Recommendation 9.3 of the PC’s 2006 Review, op cit, discussed at pp 217-26 of the latter. That text shows that the PC’s original Discussion Draft had favoured (a), but by the final

http://www.pc.gov.au/projects/inquiry/consumer/docs/finalreport

http://www.pc.gov.au/projects/study/productsafety/docs/finalreport


At a minimum, Australian Governments should include a duty triggered by (a) knowledge of products associated with serious injury or death, as in Japan since late 2006.7 We should also consider a duty triggered when the supplier ought to have known about a serious product related accident, not just when it had actual knowledge. By contrast, a duty triggered solely by (b) seems pointless. There have been only a few dozen product liability judgments under Part VA of the Trade Practices Act since 1992 (with many proving unsuccessful anyway).8 “Tort reforms” since 2002 have further reduced personal injury filings, and hence the chance for multiple settlements.9 Even a settlement, let alone a judgment, may take years to eventuate. A duty to notify should be triggered much earlier, so firms (in question and in the relevant industry), regulators and then consumers can work to prevent injury ever arising.

However, there is an argument for setting a second duty to notify regulators triggered by a successful product liability claim or settlement. This is because not all such cases necessarily involve personal injury. Consumers can claim under TPA Part VA for example solely for consequential loss to other products ordinarily for personal or household use. But because such liability is triggered only by an unsafe or defective product, it can also serve as an early warning signal about possible future personal injury from such a product.

There are some parallels in longstanding multiple duties to notify under s15(b) of the Consumer Product Safety Act in the US.10 New legislation presently before the Canadian Parliament also provides for a dual notification requirement.11 Under cl 14(2) of its Consumer Product Safety Bill, “A person who manufactures, imports or sells a consumer product for commercial purposes shall provide the Minister and, if applicable, the person from whom they received the consumer product with all the information in their control regarding any incident related to the product within two days after the day on which they become aware of the incident”. Cl 14(1) defines “incident” to include (emphasis added):

“(a) an occurrence in Canada or elsewhere that resulted or may reasonably have been expected to result in an individual’s death or in serious adverse effects on their health, including a serious injury;

(b) a defect or characteristic that may reasonably be expected to result in an individual’s death or in serious adverse effects on their health, including a serious injury; …”.

Review it had been persuaded by Submissions and further analysis that net benefits were likely to come instead from (b). Note also that the PC considered “serious” injury to involve hospital admission. 7 Nottage, L. “Product Liability and Safety Regulation” in Gerald McAlinn (ed) Japanese Business Law (Kluwer, The Hague) 221-262; Nottage, L. “Product Safety Regulation Reform in Australia and Japan: Harmonising Towards European Models?” [2008] Yearbook of Consumer Law / Sydney Law School Research Paper No. 07/28 http://ssrn.com/abstract=986528. 8 Nottage, L. and J. Kellam, “Happy 15th Birthday, Part VA TPA! Australia's Product Liability Morass” 15 Competition and Consumer Law Journal (2007) 26-73 / Sydney Law School Research Paper No. 07/35 http://ssrn.com/abstract=988595. 9 Recommendation 9.3 of the 2006 Review, op cit, had added the requirement of a “verifiable initiating action to commence litigation” leading to settlement. 10 As noted already in the PC’s 2006 Review (op cit), one is triggered if the product contains a defect which could create a substantial product hazard to consumers; another, if it creates an unreasonable risk of serious injury or death. 11 Bill C-6 had its first reading in Parliament on 29 January 2009: http://www2.parl.gc.ca/HousePublications/Publication.aspx?DocId=3633883&Language=e&Mode=1&File=53#8.

http://ssrn.com/abstract=986528


http://www2.parl.gc.ca/HousePublications/Publication.aspx?DocId=3633883&Language=e&Mode=1&File=53#8

http://www2.parl.gc.ca/HousePublications/Publication.aspx?DocId=3633883&Language=e&Mode=1&File=53#8


Incidentally, the reporting duty on Australian suppliers should similarly extend to injuries arising outside Australia – or at least in any countries with which Australia concludes a Free Trade Agreement.12

The EU’s Product Safety Directive (revised in 200113) offers an alternative formulation that also captures situations of both actual and likely injury. This deserves serious consideration in this country too, as it also influenced reform discussions for example in Canada. Article 5(3) of the Directive imposes a duty to notify triggered if the supplier knows or ought to know that there are risks of their products proving unsafe, as defined in Article 3(2).

GSP and Regular Reviews

Article 3(1) of that Directive goes on to require suppliers not to supply unsafe goods – a “general safety provision (GSP)”. The Canada Consumer Product Safety Bill also provides for a GSP. Under cl 7(a), “no manufacturer or importer shall manufacture, import, advertise or sell a consumer product that … is a danger to human health or safety …”. Under cl 8(a), “no person shall advertise or sell a consumer product that they know … is a danger to human health or safety”.14

In its 2006 Review,15 the PC decided that there was insufficient evidence that the benefits of imposing this extra duty outweighed its costs. Three years later, it is time for Australian Governments to reconsider that view, considering many subsequent product safety failures (eg involving goods from China) and reform debates for example in Canada.

At the least, Australia’s new legislation should include a provision requiring regular (at least five-yearly) governmental reviews of key features of product safety trends and legislation in our major trading partners, such as the need for a GSP. Formal ongoing reviews are a common practice in the EU, and increasingly in Japan.16 Recall also that Recommendation 8.3 of the PC’s final Report (cited above) called for monitoring of product safety trends, including impact of the tort reforms. Such reviews will be greatly facilitated by a duty to notify regulators about serious product-related accidents, as proposed by the PC and elaborated above.

12 The disclosure by Fonterra (formerly the NZ Dairy Board) to the NZ government last year, voluntarily but against the backdrop of the new China-NZ FTA, helped lead – albeit belatedly – to proper recalls and other measures to address melamine-contaminated milk products from its Sanlu subsidiary in China. See http://www.eastasiaforum.org/author/lukenottage/, updated/edited in Nottage, L “Economics, Politics, Public Policy and Law in Japan, Australasia and the Pacific: Corporate Governance, Financial Crisis, and Consumer Product Safety in 2008” [2009] Ritsumeikan Law Review / Sydney Law School Research Paper No. 08/134 http://ssrn.com/abstract=1295064. 13 2001/95/EC, at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32001L0095:EN:HTML 14 Op cit. Cl 2 defines such a danger as “any unreasonable hazard — existing or potential — that is posed by a consumer product during or as a result of its normal or foreseeable use and that may reasonably be expected to cause the death of an individual exposed to it or have an adverse effect on that individual’s health — including an injury — whether or not the death or adverse effect occurs immediately after the exposure to the hazard, and includes any exposure to a consumer product that may reasonably be expected to have a chronic adverse effect on human health.” 15 Op cit, chapter 5. 16 See already eg a January 2009 report on implementation of the revised Directive, which was to be implemented in all EU member states by 2004: http://ec.europa.eu/consumers/safety/prod_legis/docs/report_impl_gpsd_en.pdf .

http://www.eastasiaforum.org/author/lukenottage/


http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32001L0095:EN:HTML

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32001L0095:EN:HTML

http://ec.europa.eu/consumers/safety/prod_legis/docs/report_impl_gpsd_en.pdf


Australian consumers live in a similarly open economy and deserve equal treatment to counterparts in our major trading partners. And better information flows are a basic premise for more legitimate and efficient “responsive regulation”.17 Fortunately, we still have time to get these aspects right, and finally get an updated product safety regime that goes beyond the TPA and state/Territory legislation dating back to the 1970s and 1980s, and which adopts global best practice in the 21st century. The 17 February 2009 consultation paper proposes this timetable:18

• by 30 June 2009: finalisation of the Inter-Governmental Agreement (covering the Australian Consumer Law and including product safety);

• by 30 June 2010: finalisation and agreement of the text of the legislation for the Australian Consumer Law, including the product safety reforms; and

• by 31 December 2010:

– the Australian Parliament is to have passed legislation for the Australian Consumer Law (including product safety) and amend the TPA;

– the Parliaments of the States and Territories are to have passed application Acts to apply the Australian Consumer Law (including product safety) in their own

jurisdictions; and

– commencement of the Australian Consumer Law in all Australian jurisdictions.

17 Ayres, I. and J. Braithwaite, Responsive Regulation (Oxford, OUP, 1992). More generally on the comparative history, policy rationales and forms of product safety regulation (compared eg to product liability regimes and market incentives), see Nottage, L. “Product Safety” in Geraint Howells, Iain Ramsay & Thomas Wilhelmsson (eds) Handbook of International Consumer Law and Policy (Edward Elgar, Cheltenham) in press – and manuscript available on request. 18 Op cit, pp 11-12.

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