CHAPTER 19 COMMONWEALTH CONSUMER PROTECTION LAWS 2011 Thomson

CHAPTER 19 COMMONWEALTH CONSUMER PROTECTION LAWS 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

NOTE: Students should be aware that much of the material in Chapter Nineteen of AGBL has been superseded by the Australian Consumer Law which became law on 1 st January 2011. The Australian Consumer Law (ACL) is Schedule 2 to the Competition and Consumer Act 2010, which replaces the Trade Practices Act 1974. Therefore material in Chapter 19 should be considered carefully in the light of major changes to the law. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

TO WHOM DOES THE TRADE PRACTICES ACT APPLY? • Trading or financial corporations • Commonwealth departments or instrumentalities • It also extends to individuals who (see s 4 B of the Act) : – engage in interstate trade and commerce – use postal or telegraphic services to conduct business – trade with a Territory – engage in contracts involving intellectual property rights 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

CONSUMERS UNDER THE TRADE PRACTICES ACT • A person is a consumer if that person: – acquires goods or services of less than $40, 000 in value; or – acquires goods or services (of any value) of a kind ordinarily acquired for personal, domestic or household use; or – acquires a commercial road vehicle (of any value); and – the goods or services were not acquired for resupply, or use or transformation in trade or commerce. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

UNCONSCIONABLE CONDUCT IN CONSUMER CONTRACTS • Sections 51 AA-AC of the Trade Practices Act prohibit unconscionable conduct where there is a discrepancy in bargaining power between a consumer and a supplier of goods and services. • There is no definition of what constitutes “unconscionable conduct”, but ss 51 AB(2) and 51 AC(3) provide a checklist as an indicator of what may constitute such conduct. • Students should also be aware of the wider common law concept of unconscionable conduct in common law contracts and under the NSW Contracts Review Act 1980. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

INDUCTRY CODES OF CONDUCT • Section 51 AD (Part IVB) prohibits breaches of prescribed Codes of Practice. • These Codes are mandatory or voluntary. • If mandatory, then non-compliance is punishable by fines under the Act. • The Franchising Code of Conduct (see Ch 5, “Legal aspects of Business”) is an example of such a mandatory Code. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

SECTION 52 • This section is a broad “catch-all” in that it relates to: – conduct that is misleading or deceptive, or likely to mislead or deceive; – conduct not specifically prohibited in the other sections in Part V; – injunctions (only for ACCC action; damages are available in private actions). 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

REMEDIES FOR SECTION 52 • It is not necessary to show under s 52 that the conduct was deliberate. • Therefore, there are no criminal penalties for a breach of s 52; the offender cannot be fined. The usual remedies for a breach of s 52 are: – damages – injunctions – corrective advertising orders – voiding of contracts. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

TYPES OF CONDUCT CAUGHT BY SECTION 52 • Conduct can include: – statements that are literally true – predictions, made specifically actionable by s 51 A – promises – statements of opinion – deliberate inaction – puffs – professional advice 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

OTHER TYPES OF MISLEADING CONDUCT • Deceptive land sales (s 53 A) • Misleading conduct in relation to employment (s 53 B) • Offering gifts and prizes (s 54) • Misleading conduct about services (s 55 A) • Bait advertising (s 56) • Referral selling (s 57) • Accepting payment without intending to supply as ordered (s 58) 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

OTHER TYPES OF MISLEADING CONDUCT CONT’D • False statements about home businesses (s 59) • Harassment and coercion (s 60) – Note: Pyramid selling is now prohibited in Pt V, Div 1 AAA • Unsolicited credit cards (s 63 A) • Unsolicited goods and services and involuntary directory entries (s 64) 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

IMPLIED CONDITIONS AND WARRANTIES Like the Sale of Goods Act, the Trade Practices Act provides implied conditions and warranties in consumer transactions: Implied condition Sale of Goods Act Trade Practices Act 1. seller has a right to sell 17 69 2. goods correspond with description 18 70 3. merchantable quality 19(2) 71(1) 4. fitness for a particular purpose 19(1) 71(2) 5. sale by sample 20 72 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

PENALTIES AND REMEDIES UNDER PART V Pecuniary penalties – $220, 000 for a breach by an individual – $1. 1 million for breaches by a corporation Note that breaches of the unfair practices provisions (Div 1) of the Act attract criminal sanctions. – Injunctions: s 80 – court can make orders for corrective advertising: s 80 A – damages: s 82 – court can make probation orders, community service orders and corrective advertising orders (breaches of Pt 1 VA) : s 86 C – orders for renegotiation of a contract: s 87 – administrative undertakings: s 87 B 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

PENALTIES AND REMEDIES UNDER PART V CONT’D • In July 2001 Part VC was inserted into the Act • As a result, civil and criminal consequences of contraventions of the consumer protection provisions will be divided between Part V and the new Part VC 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

IMPLIED CONDITIONS AND WARRANTIES CONT’D Implied Condition Sale of Goods Act Trade Practices Act Implied warranty 1. quiet enjoyment 17 69 2. free from encumbrances 17 69 3. all encumbrances known to seller to be disclosed — 69 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

WARRANTIES IN RELATION TO THE SUPPLY OF SERVICES: SECTION 74 • The Trade Practices Act, unlike the Sale of Goods Act (which applies to goods only) also applies to the performance of services. • The services must be supplied with “due care and skill” and any materials supplied in connection with those services will be reasonably fit for the purpose for which they are supplied. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

PART VA – DEFECTIVE GOODS LIABILITY • Under this Part, manufacturers and importers are liable for defective goods. • Section 75 AE makes a manufacturer strictly liable for damage or injury in four distinct situations. • The manufacturer is only liable when the defect causes the damage. • Proceedings must be commenced within three years of the plaintiffs becoming aware of the loss or damage and of the identity of the manufacturer. • Students should note ACCC v Glendale Chemicals where a consumer who was injured because of packaging problems, successfully pursued the defendant company and received damages under s 75 AE. • 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

CONSTITUTIONAL LIMITS • The Trade Practices Act generally only applies to the conduct of trading or financial corporations, except where the Constitution extends the application to: – overseas or interstate activity; or – supplying goods or services to a Commonwealth body; or – using postal or telegraphic services to conduct business; or – conducting business with a Territory; or – engaging in dealings involving intellectual property. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

PURPOSES OF TRADE PRACTICES ACT • To encourage and promote competition: Part 1 V • To protect consumers: Part V • Two important concepts that characterise Part 1 V are: – What is a market? – What is competition? 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

ENFORCEMENT AGENCIES • Australian Competition and Consumer Commission (ACCC) • National Competition Council • Federal Court of Australia • Australian Competition Tribunal 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

WHAT IS A MARKET? • A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them: Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

WHAT IS COMPETITION? Competition may be many things: • number and size of suppliers • degree of market concentration • barriers to entry in a market • how do products differ? • vertical integration between customers and suppliers • can firms act independently? 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

PENALTIES AND ENFORCEMENT RESTRICTIVE TRADE PRACTICES • Pecuniary penalties (other than s 45 D, 45 DB, 45 E or 45 EA, which attract penalties of up to $750, 000) are up to $10 million for a corporation and $500, 000 for an individual • Injunctions • Order sale of shares or assets: see s 50 • Award damages if action is within three years of breach • Other ancillary orders such as voiding or varying a contract • Administrative undertakings under s 87 B 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

PART IV PROVISIONS • 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

PART IV PROVISIONS CONT’D Section 45 EA: Section 46 A: Section 47: Section 48: Section 50: Section 51: Section 88: Section 93: the giving of effect to an agreement under s 45 E is proscribed by this section misuse of market power (monopolisation) misuse of market power by a corporation with power in the trans-Tasman market exclusive dealing resale price maintenance mergers and acquisitions exemptions authorisations notifications 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

CONFLICTING CASES ON SECTION 45 • In Trade Practices Commission v Email Ltd, two companies made electrical appliances. They issued matching price lists, submitted identical tenders, and adopted the same price variations. The Commission alleged that the companies were in breach of s 45. • The court accepted evidence that the parallel pricing was the product of market forces, competition and commercial necessity. It dismissed the prosecution. Independently held beliefs or hopes are not an understanding. • 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

CONFLICTING CASES ON SECTION 45 CONT’D • In Trade Practices Commission v David Jones (Australia) Ltd, the evidence showed that there had been a meeting between a manufacturer of manchester products and several retailers at which it was agreed to raise the prices of those products in accordance with a list distributed at the meeting. Other evidence showed that goods were then sold in accordance with those prices. • The court held that there was sufficient circumstantial evidence to justify a finding that there was an agreement in breach of s 45. • 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

OTHER RESTRICTIVE TRADE PRACTICES PROVISIONS • Section 45 A prohibits the fixing of prices. • Sections 45(2) and 45 D– 45 E prohibit various types of boycotts which may be heard by the Australian Industrial Relations Commission, since they usually involve unions. Refer Mc. Carthy v ARRA and Australian Meat Industry Employees Association v Mudginberri Station Pty Ltd 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

OTHER RESTRICTIVE TRADE PRACTICES PROVISIONS CONT’D • Section 46 prohibits the misuse of market power. • Case study for section 46 is QWI v BHP, where it was held that BHP wrongly used its position of market dominance to hinder a competitor from competing freely in the market for wire fencing. • Section 47 is the exclusive dealing prohibition which covers restrictions placed on trading freedom of customers and by customers on suppliers. • One of the more serious types of exclusive dealing is “third line forcing” (section) 47(6) • Notifications may be sought for exclusive dealing conduct • 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition

RESTRICTIVE TRADE PRACTICES PROVISIONS CONT’D • Section 48 prohibits resale price maintenance • This section prohibits specifying a benchmark price, below which goods and services may not be sold • Loss-Leader Selling is a defence for this prohibition • Students should note Ron Hodgson v Westco Motors Pty Ltd 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. Power. Point slides to accompany A Guide to Business Law, 19 th Edition