Wednesday, 23 June 2010
Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) 2010
The Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) 2010 will mean that all consumers will have the same rights, all businesses will have the same obligations and, for the first time, all regulators around Australia will have the same powers to enforce consumer laws. As the minister indicated when introducing this bill, it is the most far-reaching reform in this area since the introduction of the Trade Practices Act in 1974 by the then Attorney-General, Lionel Murphy, which in turn was one of the defining pieces of legislation under the Whitlam government. The Murphy legislation dealt with monopoly, with anti-competitive and restrictive practices. Earlier acts, one dating back as far as 1906 and influenced by the American antitrust act, and another in 1965, had done that but they had fallen into disuse because of constitutional problems. The TPA also dealt for the first time with consumer protection.
The Murphy legislation was introduced into the lower house by Minister Kep Enderby on 25 October 1973 and he described its purpose with precision:
Restrictive trade practices have long been rife in Australia. Most of them are undesirable and have served the interests of the parties engaged in them, irrespective of whether those interests coincide with the interests of Australians generally. These practices cause prices to be maintained at artificially high levels. They enable particular enterprises or groups of enterprises to attain positions of economic dominance which are then susceptible to abuse; they interfere with the interplay of competitive forces which are the foundation of any market economy; they allow discriminatory action against small businesses, exploitation of consumers and feather bedding of industries.
In consumer transactions unfair practices are widespread. The existing law is still largely founded on the principle known as caveat emptor, meaning that the buyer beware. That principle was far more appropriate for transactions conducted in village markets than for modern consumer oriented transactions of today. It has ceased to be appropriate as a general rule. Now the marketing of goods and services is conducted on an organised basis and by trained business executives, the untrained consumer is often no match for the businessman who attempts to persuade the consumer to buy goods or services on terms and conditions suitable only to the vendor. The consumer needs protection of the law and this bill will provide such protection.
That is a long quote but it shows that the Attorney-General, Lionel Murphy, knew what he was doing, and at the time he pronounced the old principle of caveat emptor to be dead.
The Prime Minister at the time, Gough Whitlam, was well aware of the significance of the new legislation. I saw something in his book about his own government recently. He said:
The Act was far more than an amended version of earlier legislation. The approach to restrictive trade practices was completely changed, making the practices illegal by force of the legislation itself. The Trade Practices Commission was established to administer the provisions of the Act and these now included offences concerning monopolisation, exclusive dealing, price discrimination, restraints of trade by agreement or arrangement, anti-competitive mergers and consumer protection. The latter was covered under part V of the Act concerned.
He goes on to give some further details. He concludes this passage in the book The Whitlam Government with these words:
Businessmen recovered from their hysteria long before the Liberals in the Federal parliament.
Some form of intervention in markets has existed since the earliest times to protect consumers from fraud, through weights and measures regulations and, from the late 19th century, through sale of goods legislation, which sought to ensure fairness by implying conditions into consumer contracts. In the 1930s the emergence of the tort of negligence provided consumers with some form of legal protection against careless manufacturers who caused them harm. During the 20th century, but especially since the Second World War, as the mass market exploded, a consumer movement, led at first by women’s groups, began to develop. It was able for the first time to advocate a broad consumer interest in the market and to provide the kind of knowledge that would allow buyers to make informed choices about the fitness of products that they were purchasing.
The Australian Consumers Association was established in 1959, and with it the magazine Choice, and that was critical to a movement that developed some real political influence. A most useful article in the Treasury’s Economic Roundup entitled ‘Harnessing the demand side: Australia’s consumer policy’, by Hally-Burton, Shirodkar, Winckler and Writer, reminded me that it was the Labor MPs Barry Jones and Barry Cohen who brought Ralph Nader to Australia in 1969, amid great fanfare, to raise consciousness of consumer product safety. Those two Labor MPs both became ministers for consumer affairs later.
Consumer protection legislation was introduced at around this time in New South Wales, and then in other state jurisdictions, to set up consumer credit arrangements and to provide consumer protection and also some anticompetitive protections, like the prohibition of collusive tendering and bidding. The states were not, therefore, at first sympathetic to Murphy’s Trade Practices Act, seeing consumer protection as their established business. Later, however, they agreed to adopt so-called mirror legislation to reflect the consumer provisions in part V of the Trade Practices Act. Commonwealth and state agreements about the administration of consumer law were put in place. They brought some benefits, but the system was nevertheless clumsy and incomplete. To quote the Productivity Commission, the framework established:
… leads to variable outcomes for consumers, added costs for businesses and a lack of responsiveness in policy making.
… gaps and inconsistencies in the policy and enforcement tool kit and weaknesses in redress mechanisms for consumers.
Dr Steven Kennedy of the Treasury has pointed out that Australia’s general consumer laws consist of 13 acts covering the same broad subject matter, including two national laws in the form of the consumer provisions of the Trade Practices Act 1974 and the ASIC Act 2001, eight state and territory fair trading acts, plus, in three jurisdictions, another three laws dealing with generic protection for consumers, and some general consumer provisions in another eight state and territory laws about the sale of goods. Every jurisdiction has also got a number of sector-specific consumer protection laws. The bill before us, together with the previous consumer bill now in the Senate, replaces almost all of that.
Probably the most influential review of the Trade Practices Act was the Hilmer committee inquiry into national competition policy, published in 1993, which led in turn to an agreement between the Commonwealth and the states on the need for microeconomic reform of government trading entities and the professions and to the establishment by the Hawke government of the Australian Competition and Consumer Commission to replace the Trade Practices Commission—although that body, the TPA, was generally seen to have had many successes.
Issues of fairness and of economic efficiency have always been present in some form in consumer law policy. They existed together in the Trade Practices Act. However, Hilmer was quite explicit, perhaps more so than policymakers had previously been, that the protection of consumers and the development of more efficient markets through competition were complementary policy ideas. The National Competition Policy was not just about elimination of barriers to competition; it was about enhancing consumer welfare by making markets more efficient.
The bill before us represents a part of what has been an exemplary process of national cooperative action to harmonise laws and to coordinate enforcement. The Council of Australian Governments agreed to the creation of the Australian Consumer Law in October 2008 upon the recommendation of the Ministerial Council on Consumer Affairs, which was in turn based upon a powerful report by the Productivity Commission.
In recent years, initiatives to harmonise state and Commonwealth laws across the board, but especially those affecting commerce, have gathered pace to match the rapid emergence of a national market. That need is generally recognised by ministers. The Productivity Commission was told by groups as diverse as the consumer journal Choice, the consumer credit legal centres, the Real Estate Institute of Australia and the Australian Retailers Association that Australia’s policy framework had failed to reflect the fact that our market is now national in character.
The need to establish institutional arrangements that reflect the national market is beyond argument, and the need is met with this bill. It should be acknowledged that the bill has been drafted on the basis of the best practices in place across all jurisdictions. The bill includes general consumer protections mostly based on the Trade Practices Act provisions concerning misleading and deceptive conduct. The broad prohibition on misleading and deceptive conduct under section 52 of the Trade Practices Act establishes the norm for business conduct in the marketplace and it has been retained. The bill includes provisions prohibiting unconscionable conduct and the minister has indicated that, in a later bill, the government will make further amendments to these provisions in response to an inquiry by the Senate Economics Committee. Prohibitions on specific conduct that is a generally accepted as being unfair include making false or misleading representations concerning a variety of situations in commerce, employment and land transactions. Similarly, there is a prohibition on unsolicited dealing, on participation in pyramid schemes and on referral selling where a benefit associated with the referral is contingent upon another event.
The bill creates a national legislative scheme for consumer guarantees to replace state legislation concerning implied conditions and warranties in consumer transactions, and that has been based upon the successful New Zealand legislation. The bill introduces a national consumer safety system for consumer goods and product related services to replace existing provisions in both the Trade Practices Act and state consumer laws. The Commonwealth will have the power to make standards. All ministers will be able to impose interim safety bans in their own jurisdiction but only the Commonwealth will be able to make a ban permanent and apply nationally.
Consumers will be able to recover losses for damage suffered as a result of goods or services being supplied contrary to a safety ban. The Commonwealth will be able to make national information standards. The bill creates a national statutory liability scheme to enable consumers to recover losses for damage suffered as the result of a defect. It provides for—and this is especially important—a national approach to enforcement, better allowing regulators to deal with unprincipled operators. A full suite of remedies is available to allow flexible and appropriate levels of action and enforcement: criminal offence provisions for specific contravention but also, among others, civil pecuniary penalties, injunctions, compensation orders, orders seeking redress and adverse publicity orders.
I see with some sadness that the intention of the bill is also to change the name of the Trade Practices Act to the Competition and Consumer Act. A lot of people are comfortable and familiar with the old name, and some of us will feel a little uncomfortable with the new name. However, I suppose the government is entitled to do this. After all, the most important historical changes to legislation in this area have all been Labor initiatives.