Whilst legislation introducing changes to the Australian merger regime have captured significant attention, the Australian Government is also pursuing a significant reform agenda in respect of the Australian Consumer Law (ACL) components of the Competition and Consumer Act 2010 (Cth) (CCA).
The Australian Government has recently announced a number of consumer law reform initiatives in the areas of AI, unfair practices and consumer guarantees.
Our key takeaways are:
- ACL as focus of reform: the announced initiatives demonstrate the broad scope of the ACL as a means to regulate consumer interactions with businesses including in respect of emerging technologies.
- Introduction of an unfair trading prohibition is a significant expansion of the ACL: this proposed reform will significantly expand the scope of the ACL and have economy wide implications.
- Opportunity to actively engage in reform process: We expect the Federal Government to seek comment on draft bills implementing the unfair trading practices and consumer guarantee reforms, and to consult on the design of any AI-specific reforms resulting from this AI review.
Several recent, high-profile ACCC cases have been brought under the flexible, technology-neutral laws in the ACL which, since 2022, attract increased penalties of at least $50m per contravention. ACL compliance considerations shape business decisions in Australia.
In our view, serious engagement by industry with consultation processes is important to ensuring that reforms achieve their purpose and do not have unintended economic and business impacts.
Consumer law reform initiatives
Review of AI and the Australian Consumer Law
On 15 October 2024, the Government announced a new review of AI and the ACL to explore the application of the ACL in relation to AI-enabled goods and services. This review forms part of the Federal Government’s review of laws to address AI related risks and harms.
The discussion paper focuses on AI-enabled goods or services, which it defines as goods and services which, when made available to consumers, involve a consumer directly interacting with an AI system. It provides a number of examples in smart home devices, automotive, healthcare, education and training, entertainment, business solutions and transport sectors. The examples provided are likely just a small fraction of the products and services that may be impacted as AI technology evolves and matures.
The paper builds on the Safe and responsible AI in Australia discussion paper and seeks engagement on:
- how adapted the ACL is for supporting consumers and businesses to manage potential consumer law risks of AI-enabled goods and services;
- the application of well-established ACL principles to AI-enabled goods and services;
- remedies available to consumers of AI-enabled goods and services under the ACL; and
- the mechanisms for allocating liability among manufacturers and suppliers of AI-enabled goods and services.
The Government notes that key properties of AI technology (in particular, continuous learning capabilities, autonomous decision-making and ‘black box’ models) could augment consumer risks, including in relation to consumer guarantees, product safety and misleading and deceptive conduct. While these risks do not necessarily mean that reforms to the ACL are required, the Government identifies certain complexities in the application of the ACL to AI-enabled goods or services. These include:
- Definitional uncertainty: while ‘computer software’ is a good under the ACL, it is not clear whether this definition extends to software in the context of AI-enabled goods and services. This question is critical to determining the precise set of consumer guarantees and manufacturer liability provisions that will apply to a given product, and also has broader relevance to new forms of digital products (e.g. apps, cloud services, etc.) which similarly challenge the traditional conception of software as a tangible good.
- Application of existing consumer guarantees: the Government notes stakeholder concerns over the application of principle-based consumer guarantees (e.g. ‘fitness for purpose’, ‘acceptable quality’ and ‘due care and skill’ standards) to AI-enabled goods and services. For example, it may be challenging to apply ‘acceptable quality’ standards where AI models continuously evolve through fine-tuning or self-learning.
Additionally, some stakeholders have suggested new consumer guarantees to better cover digital products generally (potentially covering AI-enabled goods and services as well). These include consumers guarantees related to cyber security, interoperability and obligations for manufacturers to provide software updates. In respect of cyber security, we note that some of the risks may be addressed by: (1) the ‘secure-by-design’ and ‘secure-by-default’ principles within the Government’s 2023-2030 Australian Cyber Security Strategy, (2) proposed mandatory cyber security standard for Internet of Things devices and (3) the proposed mandatory guardrails for high-risk AI.
- Access to remedies: AI characteristics (including complexity, opacity and self-learning capabilities) may increase barriers to consumers accessing remedies under the ACL. Stakeholders have raised concerns with the evidentiary burden for consumers to obtain remedies for consumer guarantees failures or compensation under the manufacturer liability regime. Additionally, defences available to manufacturers may be inappropriate in the context of AI-enabled goods or services.
The ACL is a principles-based, technology-neutral framework that may be capable of adapting to some of the complexities described above without legislative reform. That will need to be assessed in the context of the Government’s broader reform agenda across privacy, cyber security, mandatory guardrails for high-risk AI and other sector-specific measures (see our previous articles here and here for further detail). We also expect that the Government will further consider the appropriateness of alternative tools, such as regulator guidance or AI-specific mandatory safety standards which can be established through existing mechanisms in the ACL.
Reform to supplier indemnification under consumer guarantees
On 16 October 2024, a consultation paper regarding a proposal to introduce new civil prohibitions and penalties for breaches of the consumer guarantees and supplier indemnification (CGSI) provisions of the ACL was released. This consultation builds on earlier consultations and surveys that identified difficulties obtaining consumer guarantee remedies.
The consultation paper seeks stakeholder feedback in relation to the proposed prohibitions, as well as the approach to penalties. The proposed reforms will:
- prohibit suppliers’ from refusing to provide remedies (for a major failure under the consumer guarantee);
- prohibit failures by manufacturers to indemnify suppliers;
- make it unlawful for manufacturers to retaliate against suppliers are seeking indemnification for consumer guarantee failures; and
- introduce civil penalties, and infringement notices for contraventions of the above prohibitions.
Stakeholder feedback is being sought on a range of issues relating to these proposed reforms, including:
- whether any aspects of the consumer guarantees need to be clarified before introducing prohibitions and penalties, especially regarding the practical application of concepts like ‘reasonable consumer’ and ‘major failure’;
- The scope of any prohibitions on the failure to provide a remedy;
- the appropriate amounts for maximum penalties and infringement notices;
- whether depreciation should be factored in when determining refund amounts, given that currently, consumers are entitled to a replacement or full refund even after extended use of a product; and
- how consumers handle low-cost versus high-value goods when seeking remedies for consumer guarantee failures.
Announcement of specific unfair trading practices reforms
On 16 October 2024, the Commonwealth Government announced that it will introduce a new prohibition on unfair trading practices. It follows the Government’s announcement earlier this year that it supported reform ‘in principle’, now with the promise for legislated general and specific prohibitions.
The Government’s media release offered a non-exhaustive list of practices the reforms aim to address in light of cost-of-living pressures, such as ‘subscription traps’, ‘drip pricing’, ‘dynamic pricing’ and ‘deceptive online practices’.
The exact details of the reforms including timing are currently unknown. Treasury will consult on the design before the Federal Government legislates a general prohibition on unfair trading practices.
For further information, please contact:
Patrick Gay, Partner, Herbert Smith Freehills
Patrick.Gay@hsf.com
