Week 9

AUSTRALIAN CONSUMER LAW

(ACL) GENERAL PROTECTIONS
 Intended Learning Outcomes

At the end of this session, you should be able to:

1. Identify who is a consumer under the ACL

2. Distinguish
General protections

Specific protections

3. Understand the details of general protections

Misleading and deceptive conduct

Unconscionable conduct

Unfair terms
 Why protect consumers?
 Consumer are protected by tort law & contract law
 They are also entitled to additional protection under consumer law.
 Why ?
 In dealing with a business, consumers are usually at a disadvantage.
 Traditional contract law - little protection:
o Caveat emptor rule - a buyer is responsible for the condition
and quality of the good/service.
o Only contracting parties can sue or be sued.
o A party may limit its liability by a disclaimer.
 Consumer law seeks to fix the fundamental imbalance of bargaining
power between businesses and consumers.
 Why protect consumers?

Consumers

Barga
Inform ining powe
ation a r Businesses
symm
etry

Australian Consumer Bad

Law (ACL) products
rade
ad t ices
B ct
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 Australian Consumer Law (ACL)
 ACL is a national law, effective from 1 January 2011.

Previously, consumers were protected by the Trade

Practices Act 1974, and state and territory laws.

 The ACL is part of the Competition and Consumer Act

2010 (Cth) (Schedule 2)

 The ACL is enforced by

• the Australian Competition and Consumer

Commission (ACCC) and

• States and Territories’ consumer protection

agencies.
 Basic Consumer Protections under the ACL

Misleading or deceptive conduct

General
Protections Unconscionable conduct
Unfair terms

Guarantees for Consumer Goods

Contract
Consumer guarantees

Specific
protections Guarantees for Consumer Services
Contract

Product safety
(defective goods)
 Who is a ‘consumer’ ? (ACL s 3)
• 'Consumer’ – a crucial concept. Generally, a person can only be protected
by the ACL if he/she is a consumer.

• A person is a consumer if he/she acquires goods or services…

o for $40,000, or less OR

o if the price is more than $40,000, the goods or services were of a

kind ordinarily acquired for personal, domestic or household use or
consumption.

o the goods consisted of a vehicle or trailer acquired for use

principally in the transport of goods on public roads.

o The goods/services are

o NOT acquired for re-supply;

o NOT acquired for using or transforming them, in trade or

commerce:

(i) in a process of production or manufacture; or

(ii) in repairing or treating other goods.

Is the buyer a consumer if he/she buys … ?

o Clothing to wear

o Clothing to re-sell for profit

o Milk for drinking

o Milk to make commercial cakes

o A $39,000 machinery used to produce commercial beer (in trade or

commerce)

o A $2 million car

o A $200 table for use at home.

o A set of furniture worth $ 50,000 for office use.

How about ?

o RMIT spends $1 million to buy carpet for its Melbourne Campus.

o RMIT spends $1 million to buy 5000 computers for its Melbourne

Campus.

o RMIT spends $1 million to buy 5000 computers and re-sell them

to its students.

o An Auto repair shop spends $ 100,000 to buy a machine which is

used to lift cars and trucks.
Can a company be a consumer?

• Yes.
• Either a natural or
an artificial legal
person can be a
consumer.
GENERAL PROTECTIONS

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 General Protections

Consumers are protected against…

1. Misleading or deceptive conduct (s 18 ACL),

2. Unconscionable conduct (ss 20 and 21 ACL),

and

3. Unfair terms (ss 23 - 28 ACL).

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 1. ACL Section 18 - Misleading or Deceptive Conduct

• ACL Section 18 prohibits misleading and deceptive

conduct as follows

A person must not, in trade or commerce, engage

in conduct that is misleading or deceptive or is
likely to mislead or deceive.
 Elements of ACL Section 18

A business has engaged in misleading or

deceptive conduct if …

1)The business has a conduct

2)The conduct is in trade or commerce

3)The conduct is misleading or deceptive

 Requirement 1: the business has a conduct

• A business has a conduct if it …

• makes a statement, a claim, or a promise,
o “Our household appliances are made in Italy”
o “This food is organic”
o “This is a wonderful place to live”
• performs an action

• Even silence can be conduct:

• In Henjo Investments v Collins Marrickville (1989),
o Henjo sold a restaurant to Collins.
o Collins counted and found that the restaurant had 120 seats.
o Henjo did not tell Collins that the restaurant is licensed by the local
council for only 80 people.
o Court’s decision: silence is a conduct.
 Requirement 2: The conduct of the business was
in trade or commerce

• A conduct takes place in trade or commerce if it is part of

an ongoing business, and involves selling or buying,
particularly for profit.

o Examples: buying and selling cars, advertising goods or

services.

• A conduct will NOT be in trade or commerce if it involves

o private, one-off sales;

o statements in the educational or political context.

 Durant v Greiner (1990)
• Before an election, when talking about future of a school,
the premier of NSW said that the school would not be
closed down.
• However, when elected, he himself closed down the
school.
• The residents sued him for misleading and deceptive
conduct.
• Did the premier’s conduct take place in trade or
commerce ?
 Requirement 3: The conduct of the business was
misleading or deceptive

• A conduct is misleading or deceptive if it

o would lead an ordinary reasonable person into error, or

o causes him/her to believe in what is false.

• Misleading or deceiving someone may include …

o lying,

o making false or inaccurate claims,

o creating a false impression,

• What is your impression about
price ?
o omitting important information.
• $1 ?
 Given v Pryor (1980)

• The seller (Pryor) advertised that the land on sale is a

“wonderful place to live”;

• However, zoning law prohibited development of houses in that

area;

• The court decided that the advertisement was misleading.

(because it gave the impression that houses could be

built in the area)
 ACCC v TPG Internet Pty
Ltd (2011) ATPR 42

• TPG advertised on TV that ‘Unlimited ADSL2+ $29.99/month’.

• In fact, the offer was qualified:
that price was available only when bundled with home phone
service for an additional $30/month.
• This means that the minimum monthly charge is $59.99.
• However, the additional charges were disclosed in small print under the
headline offer.
• Decision of the Court:
The ‘dominant message’ of the advertisements gave the misleading
impression that the entire cost of the service was $29.99/month
only.
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 Misleading or Deceptive ?
Objective Test (Taco Bell Test )

• To decide whether a conduct is misleading or deceptive, the court/you

will apply the objective test:
• If an ordinary reasonable person would be led into error or caused to
believe in what is false, the conduct is misleading or deceptive.
• The intention of the business is irrelevant.
(Taco Company of Australia Inc. v Taco Bell Pty Ltd (1982))

• Exercise:
 You have an electronic store
 You advertise that “Our iPhones were assembled in America”
 A lot of customers believe that
 In fact, the iPhones in your store were assembled in China.
 Actually, you truly believe that your iPhones were assembled in America.
 Is your statement misleading or deceptive ?
 What if no one believes in your advertisement ? Is your statement misleading ?
 Objective Test
• A true statement can still be misleading or deceptive.
o A shop advertises that “We are selling organic food” .

o However, the shop’s vegetables are not free of pesticides and harmful chemicals.

o Is the statement misleading or deceptive ?

o What is your impression about ‘organic food’ ?

o But the statement is literally true - ‘organic’ refers to living things, and vegetables are
living things => vegetables = organic food

• An untrue statement may not be misleading or deceptive.

o “Redbull gives you wings!”;

o Of course, Redbull does not ACTUALLY give you wings;

o It is just salesmanship, puffery, not misleading – A reasonable person will not take it
seriously.
 Let’s apply section 18…

• Adams company produced and sold eggs under the brands ‘Free Range Eggs’.
• Eggs are free range if the hens that lay the eggs run freely outdoors.
• However, Adams’ hens were permanently kept inside the locked barns and were
not free to run around the farm.
• Has Adams engaged in misleading or deceptive conduct ?
o Has Adams engaged in a conduct ?
o Was the conduct in trade or commerce ?
o Was the conduct misleading or deceptive ?

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 Notes

• ACL section 18 can be used by anyone, i.e., by either

o consumers, or

o non-consumers (such as interested members of the public,

other businesses, including competitors)

(but the business must be in trade or commerce)

(Eveready Australia Pty Ltd v Gillette Australia Pty Ltd (2000))

• Liability cannot be avoided by a disclaimer.

• A misleading or deceptive conduct may also (but not always) be

enforceable under common law as a breach of a contract or
misrepresentation. However, the ACL provides more remedies.
 2. Unconscionable Conduct

The ACL prohibits unconscionable conduct under

two sections:

• Section 20, and

• Section 21 (not examinable)

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 ACL Section 20

 What does section 20 prohibit ?

 Unconscionable conduct generally
• If a conduct is unconscionable under common law, it may ALSO violate section 20.
• Section 20 is thus a reconfirmation of the concept of unconscionable conduct under common
law –
• Why there is such a duplication ?
• The ACL provide more remedies (termination + damages/compensation).
 A business will engage in unconscionable conduct under section 20 if
1) The business has a conduct
2) The conduct of the business is in trade or commerce
3) The conduct of the business is unconscionable within the meaning of common law, i.e.
o One party has a special weakness or disadvantage;
o The other party is aware, or should be aware, of that special weakness or disadvantage;
o The other party takes unfair advantage of that special weakness or disadvantage.
 NOTE: Section 20 can be used by both consumers and non-consumers (but the business must
be in trade or commerce)
 Let’s apply section 20…

ACCC v Lux Pty Ltd [2004] FCA 926

• A door-to-door salesman (working for Lux) sold a vacuum

cleaner to a woman for $945.

• The woman was illiterate and unable to understand commercial

matters in any depth.

• Can section 20 be applied ?

1) Did the business have a conduct ?

2) Was the conduct of the business in trade or commerce ?

3) Was the conduct of the business unconscionable within the

meaning of common law ? 27
 ACL Section 21 (not examinable)

• Section 21(1)(a) prohibits unconscionable conduct affecting

consumers
• A business must not, in trade or commerce, in connection with the supply of goods
or services to a person, engage in conduct that is unconscionable.
• A business will engage in unconscionable conduct under section 21
if
1) The business has a conduct
2) The conduct of the business is in trade or commerce
3) The conduct is in connection with the supply of goods or services
4) The buyer is not a listed public company,
i.e. a company whose shares are traded on a stock exchange (a listed public
company is not a consumer under section 21).
5) The conduct of the business is unconscionable
(taking into consideration various factors listed in ACL section 22(1), for example,
the respective bargaining strengths of the parties; whether the consumer
understood documents relating to the transaction; etc.)
 Unfair terms

Under ACL section 23, a term of a consumer

contract will be void if:

o The term is “unfair”; and

o The contract is a standard form contract.

 Unfair Terms

According to ACL s 24(1), a term is ‘unfair’ if one of these conditions is satisfied:

1) The term causes a significant imbalance in the parties’ rights and obligations
• i.e. the term gives the business, not the consumer, a lot of advantages
2) The term is NOT necessary to protect the interests of the business
• Some terms seem unfair, but are necessary to protect the business’s interests. In
that case, the terms are NOT unfair under section 24.
o Example: a term in a gym membership contract allowing the gym to
terminate the contract immediately if the customer misbehaves in the gym.
• However, a business may include a term that is NOT necessary to protect its
interests.
o Example: a term in an internet service contract specifies that the customer
cannot terminate the contract within 25 years.
o It would be reasonable if, say, 1 or 2 years.
3) The term would cause detriment to the consumer.

Detriment = loss, damage, disadvantage, or injury.

• Examples:
 A term requires an elderly person who is living alone
and has never used a computer to make monthly
rental payment via internet banking.
 Similarly, a term requires a student who lives 200 km
away from the landlord, to make monthly rental
payment in cash and in person.
 Examples of unfair terms

 A term that allows only the business (but not the

consumer) to …
• terminate the contract,
• limit or avoid the responsibilities,
• renew or reject renewal to the contract;
• a term that limits one party’s right to sue another
party;
• change the price of goods or services without allowing
the consumer to terminate the contract.

 For more examples, see ACL s 25.

 Director of Consumer Affairs Victoria v AAPT
Limited (2006)

• A mobile phone contract offered by AAPT to a consumer

contained some terms that permit AAPT to immediately
terminate the contract if there is a breach by the
customer, no matter how unimportant.

• AAPT even had the right to terminate the contract should

the customer change the address.

• Are these terms unfair ?

 Standard Form Contract - ACL S27

 The contract that is not negotiated by the parties but prepared &
provided to the consumer by the business on the basis of ‘take it or leave
it’.
 Examples:
• An internet service contract (provided by, e.g., Vodafone)
• A carriage contract (provided by, e.g., Jetstar)
• A car sales agreement (prepared by a car dealer)
 Standard Form Contract – ACL S27

 Commonly in the written form.

 However, the ACL does not specify that a standard form

contract must be in writing.

 If a consumer alleges that a contract is a standard form

contract, it is presumed to be a standard form contract
unless the business proves otherwise.

(ACL s 27(1) )
 Effect of an unfair term in a standard form contract

 An unfair term in a standard form consumer contract is

“void”.

 It is treated as if it had never come into existence.

(ACL S23)

 Review questions:

1. Would the ACL section 23 apply if a term is unfair,

but not included in a standard form contract ?

2. All standard form contracts contain unfair terms.

True or False ?