Australia – Quarterly Consumer Law Update: Small Business “Unfair Contracts” Law Passed, Drip Pricing In The Spotlight And Other Key Developments.

Further topics identified by the ACCC for consideration by the review include:

Public consultation for the review is expected to commence in early 2016, and we will work with our clients to develop submissions on areas of concerns, and proposals for how such concerns might be addressed. 

 

It is a matter for the Parliament to review whether the maximum available penalty of $1.1 million for each contravention of Pt 2-2 of the ACL by a body corporate is sufficient when a corporation with annual revenue in excess of $22 billion acts unconscionably. The current penalties are arguably inadequate for a corporation the size of Coles. Justice Gordon, ACCC v Coles [2014] FCA 1405 at [106] 

 

Unfair contracts regime extended to dealings with small businesses

 

On 20 October 2015, the Commonwealth Parliament passed the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015, which extends to small businesses the unfair contracts protections that are currently afforded to consumers under the ACL and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). Businesses that use "standard form contracts" when dealing with "small businesses" – whether as customer or supplier – now have just under 11 months to ensure that terms of those contracts are not susceptible to challenge on the basis that they are "unfair".

 

It has now been confirmed that the extended unfair contracts regime will take effect on 12 November 2016 (ie
12 months after the Bill received Royal Assent). The regime will apply where at least one party to a standard form contract is a small business when the contract is entered into.

 

• A small business is defined as a business that employs fewer than 20 persons (excluding casual employees, unless they are employed on a regular and systematic basis).
• The laws will only apply to standard form contracts, though there is a rebuttable presumption that a contract is a standard form contract unless proven otherwise. The regime will only apply to contracts which do not exceed certain defined value thresholds – specifically, where the "upfront price payable" is less than $300,000 for contracts of 12 months or less, or $1 million for contracts of 12 months or longer. There are still challenges to work through regarding the application of this "upfront price payable" threshold.
• A term will be unfair if it causes a significant imbalance in the parties' rights and obligations under the contact, if it is not reasonably necessary to protect the legitimate interests of the party who would benefit from the term, and if it would cause detriment to a party if it were relied on. Any term that is "unfair" may be declared void. Importantly, there is a rebuttable presumption that a term is not reasonably necessary to protect the legitimate interests of the party who would benefit from it, unless proven otherwise.

 

The laws will apply to contracts that are entered into or renewed on or after 12 November 2016 and to terms of existing contracts that are varied after that date. Some exemptions will also apply. For further details on how the unfair contracts regime applies to small businesses, see our Competition Law News publication of 21 October 2015, Unfair contracts regime extended to dealings with small businesses.

 

ACCC continues focus on online "drip pricing"

 

The ACCC remains focused on reviewing "drip pricing" practices, particularly in the online marketplace, following two recent enforcement actions concerning online pricing in the travel and tourism industries. Drip pricing occurs where additional fees are gradually disclosed (or "dripped") after advertising an initial "headline" price at the beginning of an online purchasing process, which can result in consumers being charged a higher price than the original advertised price, and be false or misleading on that basis.

In addition, the ACCC has joined an international initiative involving consumer protection agencies globally, which is focused on these online pricing issues in the travel, tourism and leisure sectors.

 

Recent ACCC enforcement action in this area serves
 

as a reminder to take care in advertising components of prices, even where a disclaimer is included which states that the advertised price is a component of the total price payable. Notably, the ACCC has pursued a number of drip pricing cases based on the prohibitions on misleading or deceptive conduct and false/misleading representations either alone or in conjunction with the specific laws on component pricing – accordingly, it is important to remember that compliance with the component pricing rules alone will not necessarily be sufficient to ensure that particular pricing practices do not breach the ACL. 

 

Airline industry

 

On 17 November 2015, following proceedings brought by the ACCC, the Federal Court found that two airlines had each engaged in misleading or deceptive conduct and made false or misleading representations concerning the price of particular airfares advertised through their respective online platforms. Neither of these cases were pleaded under the component pricing prohibition in s 48 of the ACL.

 

As the Court accepted that some, but not all, of the representations outlined by the ACCC were false or misleading, the case is useful in distinguishing appropriate pricing practices from conduct which is more likely to contravene the ACL, and in highlighting how the Federal Court considered representations made using different types of consumer interface (eg consumer facing emails, full websites and mobile versions of websites). Final orders have not yet been made and we will report on those in our next edition of Consumer Law Quarterly. 

Airline 1

 

Contravened ACL

Representations made on the airline's website in 2013 and its mobile site in 2014 which did not alert consumers to the booking or service fee which applied for several conventional payment methods such as most credit cards and PayPal, until the "payment" stage of the transaction at the very end of the booking process. As a result, the initial price representation was misleading or deceptive and false or misleading.

 

Did not contravene ACL

Representations made on the airline's website in 2014 which disclosed a booking or service fee which applied for several conventional payment methods such as most credit cards and PayPal at the same time as the specific dollar amount for particular flights, along with a pop-up box making an appropriate disclosure as to the additional fee.

Additionally, representations made in the airline's promotional emails which advertised a headline price for airfares, but which disclosed the existence and amount of the booking or service fee under a bold orange heading entitled "Things you need to know".

 

Airline 2

 

Contravened ACL

Representations made on the airline's mobile site in 2014 in which consumers either had to locate additional links which were not prominently displayed in order to ascertain the compulsory booking or service fee, or were not alerted to such a fee until the end of the booking process.

 

Did not contravene ACL

Representations made on the airline's website and in its emails in 2014, which described airfares as available "from" a specified headline price and made prominent disclosures as to the booking or service fee applicable when paying by credit card, debit card or PayPal. 

 

Accommodation & tourism services – Airbnb and eDreams

 

In October 2015, Airbnb Ireland (Airbnb) and Vacaciones eDreams, SL (eDreams) provided court enforceable undertakings to the ACCC concerning their pricing practices, following concerns raised by the ACCC regarding the companies' use of drip pricing online. 

 

Airbnb

 

Conduct of concern

Since November 2012, Airbnb did not disclose mandatory service fees charged by Airbnb and (in some cases) mandatory cleaning fees on key pages of its booking platform, until a customer was prompted to confirm the booking and make payment.

 

Summary of key undertakings

For a period of 3 years, Airbnb will not represent a headline price for an accommodation listing that could be booked by Australian consumers without including mandatory fees (where they are quantifiable) and disclosing the existence of fees (where they are not quantifiable). 

 

eDreams

 

Conduct of concern

eDreams is an online travel and accommodation booking service business. Between January and December 2014, eDreams displayed headline prices on its website, mobile site and App, for certain domestic flights which did not include mandatory quantifiable "Service fees" (presumably for the eDreams booking service) or "Payment fees", which related to the payment method chosen.

Some of eDreams' advertisements represented that purchases could be made at the headline price without additional fees, while others included the words "service fees not included".

 

Summary of key undertakings

For a period of 3 years, eDreams will ensure its online platforms:

 

• allow prices advertised to be booked using at least one fee free payment method;
• provide clear information about conditions of availability of prices; and
• display a feature allowing customers to update the headline price when they select a particular payment method. 

 

The undertakings given by Airbnb and eDreams provide some guidance on the ACCC's view of what is required to ensure advertised prices do not mislead consumers.

 

Businesses with online promotional, booking or payment processes, and businesses with prices that are "built" over time based on a consumer's preferences, should take care:

 

• in advertising prices: if a headline price may or will differ from the price the customer is actually charged, consider how to bring this to the consumer's attention to ensure that advertisements are not misleading;
• during a booking process: ensure that any additional fees or charges are disclosed clearly, and at an appropriate point, to ensure that headline prices are not misleading; and
• during design and legal review of promotional material: consider representations about pricing across all of the contexts and platforms in which they will appear, including by having regard to the text and presentation of mass market advertisements, emails, mobile sites and full websites.

 

That's settled: Civil penalties able to be agreed again between regulators and respondents

 

On 9 December 2015, the High Court unanimously overturned the decision of the Full Federal Court in Director, Fair Work Building Industry Inspectorate v CFMEU [2015] FCAFC 59 (CFMEU), that courts ought not have any regard to submissions from parties regarding an agreed civil pecuniary penalty, or the range within which such a penalty should fall.

 

Prior to the Full Court's decision, it had been common practice for the ACCC and respondents to resolve proceedings in consumer law and other matters by the offer of an agreed joint submission to the court on penalty, in exchange for admissions of liability. The ability of the ACCC to agree a proposed penalty in exchange for cooperation has been a fundamental element of the ACCC's leniency programs. Courts have often awarded penalties consistently with the agreed proposed penalties, acknowledging the important public policy involved in quickly and efficiently resolving disputes.

 

However, in May 2015, this practice was brought to a halt – the Full Federal Court held that the principles enunciated by the High Court in Barbaro v R [2014] HCA 2 (Barbaro) (being that it was not the role or duty of the prosecutor in a criminal prosecution to suggest an appropriate length of sentence, or the range within which the sentence should fall) applied to civil penalty proceedings and that the court should therefore not receive, or act on, submissions from parties on an agreed penalty or the range within which a penalty should fall.

 

The High Court decision has now reinstated the previous position where courts may properly accept submissions as to an agreed penalty, and may make orders consistently with those submissions where the proposed outcome is within an acceptable range. In coming to this conclusion, the High Court emphasised the differences between civil penalty proceedings and criminal prosecutions (and, in particular, the role of a regulator in contrast to a prosecutor). The High Court observed that it is desirable for regulators and respondents to agree penalties, as a regulator's (including the ACCC's) willingness to agree a particular penalty often reflects a practical assessment by the regulator that the public interest (and enforcement of the regulatory regime) is best served by settling the proceedings.

 

First contested ACL unfair terms case: Chrisco term found to be unfair

 

On 10 November 2015, judgment was delivered in the first contested unfair terms case under the ACL.

 

Justice Edelman found that Chrisco Hampers Australia Ltd (Chrisco) had contravened the ACL in connection with the sale of its Christmas hampers to consumers by lay-by agreement. Chrisco markets its products, including Christmas Hampers, on television, the internet, and printed catalogues and supplies its goods to consumers across Australia, including to regional areas and remote Indigenous communities.

 

In 2014, Chrisco sold a "HeadStart Plan" under which consumers could lay-by Christmas hampers, with payments automatically deducted from their account. Terms relating to the HeadStart Plan were included in Chrisco's standard terms and conditions. The HeadStart term allowed Chrisco to rollover the customer's 2014 payment plan into the new year, and thereby continue withdrawing funds from a customer's account even after the consumer had fully paid for their lay-by order. Any amounts in excess of the current year's payment price would be applied as credit for next year's order, and were fully refundable if the customer chose to cancel the payment plan. The HeadStart term would continue to apply (and money would continue to be deducted) unless the customer opted out of the term; the consumer could obtain a refund if they chose to cancel the payment plan.

 

It was agreed by the parties that the relevant contract was a standard form, consumer contract.

 

The Court found that the HeadStart term was unfair because it caused a significant imbalance in the rights and obligations of Chrisco and its consumers, on the basis that:

 

• it created a right for Chrisco to withdraw money from the customer's bank account without any corresponding right for the consumer such as a discount on a future order;
• there was no obligation on Chrisco to pay interest on the amounts withdrawn if a consumer sought a refund of overdrawn amounts, or to apply a discount for consumers who decided to purchase the subsequent 2015 hamper;
• the financial detriment suffered by consumers was not necessary to protect Chrisco's legitimate interests; and
• the HeadStart term was not adequately transparent, including because the amounts to be debited in the ongoing payments were unclear, the "opt-out" and options to cancel and obtain a refund were not adequately explained, and the font size of the HeadStart term was very small and not readily apparent to the consumer.

 

The Court also found that Chrisco made false or misleading representations to consumers that they could not cancel their lay-by agreement after making their final payment, in circumstances where the ACL gives consumers the right to terminate a lay-by agreement at any time prior to delivery of the goods.

 

The Court also held that the ACCC had not proven a further allegation that Chrisco’s conduct contravened the lay-by termination charge provision in the ACL, under which a supplier must ensure a lay-by termination charge payable does not exceed the supplier's reasonable costs in relation to the agreement. The ACCC did not lead any evidence of termination charges actually charged, instead arguing that the ACL imposes an obligation on the supplier to have adequate systems in place to ensure that a termination charge will never exceed its reasonable costs, and that Chrisco did not have these systems in place. The Court found that the correct characterisation of the term is that it is breached if, in a particular case, the supplier charges a termination charge which is more than its reasonable costs. Accordingly, the ACCC did not succeed on this point.

 

What to take away?

 

The case makes clear the ACCC's focus on, and approach of the Federal Court in analysing, the "unfair terms" regime under the ACL. It highlights the risks associated with using terms in standard form contracts that may be challenged as "unfair". Businesses should review terms which may be considered to be unfair, and consider whether they are reasonably necessary to protect their legitimate business interests. Businesses should also consider whether terms in standard form contracts are transparent (being mindful of font size, font type, colour, text location and content of any dealings with customers in relation to the contract), drafted in plain language, and clearly identify and explain terms that will substantially affect their consumer (or, after 12 November 2016, small business) counterparty. 

 

ACCC pursues VET FEE-HELP providers

 

The ACCC has recently commenced three sets of proceedings in relation to misleading conduct and unconscionable conduct by VET FEE-HELP providers.

 

The ACCC and the Commonwealth (for the Department of Education and Training) have instituted proceedings in the Federal Court against Unique International College Pty Ltd (Unique), Phoenix Institute of Australia Pty Ltd (Phoenix) and Cornerstone Investment Aust Pty Ltd, trading as Empower Institute (Empower) (together, the Colleges) following joint investigations by the ACCC and NSW Fair Trading into the conduct of private colleges.

 

The Colleges sell VET FEE-HELP diploma courses, costing from around $15,000 to $25,000 per course, using face-to- face marketing including door-to-door sales. It is alleged that Unique, Phoenix and Empower were paid approximately $57 million, $100 million and $90 million respectively by the Commonwealth in respect of enrolments.

 

In all cases, it is alleged that the Colleges made false or misleading representations and engaged in unconscionable conduct, in breach of the ACL, when marketing and selling VET FEE-HELP funded courses. The ACCC and the Commonwealth allege the Colleges represented to prospective students that they would receive a free laptop and that the courses were free (or were free if the consumer did not earn more than about $50,000 per annum). However, the laptop they received was allegedly on loan and students enrolled in the courses incurred a VET FEE-HELP debt payable to the Commonwealth Government. Repayment of this debt would commence if they earned more than a specified amount in a financial year ($54,126 in the 2014/2015 financial year).

 

It is also alleged that the Colleges' dealings were unconscionable as they targeted the most vulnerable groups in the Australian community, including consumers from remote areas and from low socio-economic backgrounds. In some cases, the consumers had very poor literacy and numeracy skills and some could not use a computer. Only a very small portion of the consumers who signed up to the courses completed them.

 

The ACCC is seeking redress for affected consumers by cancelling VET FEE-HELP debts. They will also seek orders for the Colleges to repay course fees to the Commonwealth in respect of any VET FEE-HELP loans cancelled by court order, pecuniary penalties, declarations, injunctions, corrective notices and orders requiring the implementation of a consumer law compliance program as well as costs.

 

The ACCC and NSW Fair Trading are continuing to investigate the conduct of other private colleges in the education sector .

Consumer guarantees in the driver's seat: Chrysler to remedy consumer complaints

 

Fiat Chrysler Australia (Chrysler) has provided an administrative undertaking to the ACCC in response to an investigation by the ACCC into a number consumer guarantee complaints regarding Chrysler vehicle faults and Chrysler (and its dealers') complaints handling processes. The complaints addressed a number of issues concerning Chrysler's vehicles (including Jeep, Alfa Romeo, Fiat and Chrysler), including delays in sourcing spare parts and failing to adequately address consumer complaints.

 

Pursuant to the undertaking, Chrysler has committed to:

 

• establish a consumer redress program, in which Chrysler will:
• identify and contact customers who made a complaint in respect of the relevant vehicle issues during the relevant period (namely, 1 January 2013 to 31 December 2014), and who were refused a particular remedy by Chrysler, excluding those customers who were satisfied that their complaint was resolved or where the complaint was resolved by a Court or Tribunal;
• offer the consumer the option of having their complaint independently reviewed to determine whether the outcome was in accordance with the consumer law; and
• where a review finds that is not the case, provide or procure that the relevant dealer provide a remedy recommended by the independent reviewer, on Chrysler's behalf, consistent with the rights provided under the ACL.
• report to the ACCC on the number of reviews it has undertaken and the outcomes reached, in respect of the consumer redress program outlined above;
• review its current complaints handling process, including the handling of previous complaints; and
• implement an ACL compliance program, which includes a complaint handling system.

 

The ACCC will continue to monitor Chrysler's compliance with the undertaking, and, in particular, its implementation of the consumer redress program. 

 

The case serves as a reminder that the ACCC continues to monitor compliance by suppliers and manufacturers with the consumer guarantee provisions under the ACL. Businesses should ensure that goods and services supplied to consumers comply with the consumer guarantees, including that the relevant good or service is of acceptable quality and fit for purpose (ie free from defects, safe and durable, as expected by the reasonable consumer). Businesses should be aware that non-compliance with a guarantee may, in some circumstances, give the consumer rights against both the supplier and the manufacturer, and may also give the supplier rights as against the manufacturer under the ACL.

 

Other misleading and unconscionable conduct – wrap up

 

In the last quarter of 2015 the ACCC has continued its focus on enforcing the law in relation to misleading and unconscionable conduct, with misleading fine print disclaimers, false "free" offers and credence claims in consumer food products at the fore. We have selected some key cases to highlight below. 

 

Key developments – misleading advertising

 

Use of "free" in advertising

 

ACCC v Hillside (Australia New Media) Pty Ltd t/as Bet365 & ors

 

In September, the Federal Court found that the UK and Australian operators of Bet365 engaged in misleading or deceptive conduct and made false or misleading representations on their website when offering "$200 Free Bets" to new customers when the offer was in fact limited by terms and conditions, including that the customer had to pay a deposit and risk that deposit before being entitled to make a free bet. The Court found that the relevant qualifying conditions were not prominently brought to the attention of consumers so as to qualify the dominant "free" message. A penalty hearing will take place in May 2016. The "free bet" claims were discovered as part of an ACCC sweep of "free" representations on websites targeting Australian consumers.

 

More "free range" claims

 

ACCC v RL Adams Pty Ltd

 

In September, the Federal Court declared, by consent, that RL Adams Pty Ltd t/as Darling Downs Fresh Eggs engaged in false and misleading or deceptive conduct in representing that certain eggs were "free range", in circumstances where laying hens were unable to move around freely. RL Adams was ordered to pay a pecuniary penalty of $250,000, publish corrective advertising, establish an ACL compliance program and contribute to the ACCC's costs. This case is part of a series of cases brought by the ACCC against misleading claims of "free range" by egg producers.

 

Misleading food claims – protein

Uncle Toby's Oats

 

The manufacturer and distributor of Uncle Tobys oats products, Cereal Partners Australia Pty Ltd (CPA) has paid penalties of $32,400, following the issue of infringement notices by the ACCC. CPA had represented on product packaging and during a television commercial that its oats products contained a significant amount of protein, including that the oats were a "Naturally Rich in Protein* Superfood". Fine print disclaimers indicated that the products were rich in protein when prepared with a certain quantity of skim milk, however, the ACCC considered that these disclaimers did not correct the overall false impression conveyed that the oats were themselves high in protein.

 

Misleading food

claims – "less fat"

Arnott's Light & Crispy Shapes

 

Arnott's has paid infringement notices totalling $51,000 and provided a court enforceable undertaking in relation to certain comparative representations it made regarding the fat content of Shapes Light & Crispy.

Arnott's admitted that between October 2014 and July 2015 it represented through various forums that four varieties of Shapes Light & Crispy contained 75% less saturated fat content than original Shapes, when in fact Shapes Light & Crispy contain approximately 60% less saturated fat than original shapes. A fine print disclaimer which identified that the 75% comparison was to potato chips cooked in palm oil, was insufficient to correct the misrepresentation.

Arnott's undertook that for a period of three years it will not make comparisons between its products and third party products without ensuring the comparisons are clear and appropriate. Arnott's also undertook to publish corrective notices and to implement a three-year supplementary compliance program. 

 

Misleading "savings" claims

Epharmacy

 

Epharmacy Group has paid penalties of $32,400, following the issue of infringement notices by the ACCC, after representing online that customers would save money off the RRP of particular "Healthy Care" branded products advertised on the Chemist Warehouse, My Chemist or Epharmacy websites. The ACCC considered that those representations were false or misleading because the products had never been sold at the RRP by the retailers advertising those prices or by any other retailers.

 

New Proceedings – unconscionable conduct and related allegations in consumer and business-to- business dealings

 

ACCC v Woolworths

 

The ACCC has instituted proceedings in the Federal Court against Woolworths Limited (Woolworths), alleging it engaged in unconscionable conduct in dealings with its suppliers, in contravention of the ACL.

 

The ACCC alleges that in December 2014, Woolworths developed a strategy to reduce its expected half-year gross profit shortfall by 31 December 2014. It is alleged that under the strategy, Woolworths sought to obtain payments from 821 “Tier B” suppliers to its supermarket business.

 

The ACCC alleges that Woolworths’ category managers and buyers contacted a number of the Tier B suppliers and asked for payments from those suppliers of amounts which ranged from $4,291 to $1.4 million. It is alleged that agreeing to a payment would be seen as “supporting” Woolworths.

 

The ACCC alleges that these requests were made in circumstances where Woolworths was in a substantially stronger bargaining position than the suppliers, did not have a contractual entitlement to seek the payments, and either knew it did not have, or was indifferent to whether it had, a legitimate basis for requesting a payment from the Tier B supplier.

 

The ACCC is seeking injunctions, an order requiring the refund of the amounts paid by suppliers, a pecuniary penalty, a declaration, and costs.

 

These proceedings follow broader investigations by the ACCC into allegations that supermarket suppliers were being treated inappropriately by the major supermarket chains.

 

International Services

ACCC v Multimedia

 

In December, the ACCC commenced proceedings against Multimedia International Services Pty Ltd t/as The Community Network, a supplier of digital advertising services to small businesses across Australia. The ACCC alleges that Multimedia:

 

• engaged in unconscionable conduct in relation to two small businesses, including refusing to release them from contracts for advertising services (which Multimedia had failed to provide), then pursuing them for non-payment, threatening legal action and (in one instance) engaging debt collectors;
• made false or misleading representations to small business that the key terms were disclosed on the front page of the contract, that the contract was for a period of two years and the location where advertisements would be shown was set out on the front page, without sufficiently disclosing the existence of onerous roll-over and cancellation conditions and a term permitting Multimedia to unilaterally change the location of the advertisements; and
• made false or misleading representations to three small businesses about the location where their advertisements would be shown and the conditions under which that location could be changed, as well as wrongly accepting payments from those three small businesses at a time when it had reasonable grounds to believe it would not be able to provide its advertising services within a reasonable time.

 

The ACCC is seeking declarations, injunctions, pecuniary penalties, a compliance program and costs.