With announcements today and over the past week, the Australian Government has kicked off a raft of consumer and product safety law reform, putting unfair trading practices, dynamic pricing and artificial intelligence (AI) squarely on the agenda. Additionally, the government has started consulting on proposed reforms to the Franchising Code, including $10 million+ penalties for certain breaches of franchisor obligations. Read on below for the key takeaways from the last eight days:

1. Proposed ban on dodgy trading practices: The government announced today it is gearing up to legislate a general prohibition on unfair trading practices, specifically calling out subscription traps, hidden fees, dynamic pricing, deceptive online practices, requiring unnecessary information for consumers to purchase online, and businesses being difficult to contact when consumers have a problem with products or services. 
2. Consultation on consumer guarantees and supplier indemnification: Today, the government released a consultation paper seeking feedback on new penalties for suppliers who refuse to provide remedies for faulty products, as well as manufacturers who shirk their indemnification responsibilities for goods under the Australian Consumer Law (ACL).
3. AI and the ACL: Yesterday, the government announced its review of the ACL in the age of AI, canvassing feedback on whether further work is needed to strengthen existing laws (or introduce new AI-specific laws) to address the unique risks and harms associated with artificial intelligence.
4. New draft product safety legislation: The government is also consulting on amendments to the Competition and Consumer Act 2010 (Cth) (CCA) and ACL that ensure Australian safety standards stay up-to-date with changes overseas and enable the regulator to request proof of compliance with safety standards from businesses.
5. Franchising Code of Conduct exposure draft released: The government is consulting on its draft Franchising Code of Conduct, which proposes to introduce hefty penalties for additional breaches of certain franchisor obligations including to act in good faith, to create and update disclosure documents and disclose materially relevant facts.

Proposed ban on unfair trading practices

The government today announced that it proposes to ban unfair trading practices under the ACL. This comes almost a year after it consulted on the nature of unfair trading practices in Australia and policy options to address this issue as we reported here. 

The government’s areas of focus include trading practices which can distort purchasing decisions or result in additional costs, particularly in relation to concert tickets, hotel room bookings and gym memberships, noting “Australians are fed up with businesses using tricky tactics that make it difficult to end subscriptions or add hidden fees to purchases”.

The government’s actions will address practices including:

• ‘subscription traps’ that use arduous and confusing steps to make cancelling a subscription difficult;
• ‘drip pricing’ practices where fees are hidden or added throughout the stages of a purchase;
• deceptive and manipulative online practices that aim to confuse or overwhelm consumers, omit or hide material information, or create a false sense of urgency or scarcity – this can include warnings that a customer only has limited time to purchase a product;
• dynamic pricing where a product’s price changes during the transaction process;
• requiring consumers to set up an account and provide unnecessary information to make an online purchase; and
• where a business makes it difficult for a consumer to contact them when they have a problem with their product or service.

Treasury will consult on the design of the proposed ban (which we expect will include exposure draft legislation, as distinct from the Government’s consultation process in August – November last year on unfair trading practices) before the government legislates a general prohibition on unfair trading practices.

Consultation on protections under the consumer guarantees and supplier indemnification provisions of the ACL

Today, the government also began consulting on reforms to strengthen protections for consumers and small businesses under the consumer guarantees and related supplier indemnification provisions of the ACL. See our earlier reporting on the ACCC’s calls for reform here and the Competitive Edge podcast titled ‘Safety Not Guaranteed’ dated 29 May 2024. 

The consultation paper notes that:

1. There is a substantial body of evidence that many consumers are finding it difficult to obtain remedies from suppliers and manufacturers for consumer guarantee failures. The consultation paper cites the 2023 Australian Consumer Survey, which found that 31% of surveyed consumers have not had their problem resolved, while of the 69% of those whose issues were resolved, a third of those were not satisfied with the resolution. 
2. The difficulties involved in seeking a remedy can lead to poorer outcomes for consumers and the economy, as non-compliant suppliers and manufacturers transfer costs to the consumer. For low-cost goods, consumers are unlikely to enforce their statutory rights when it is cheaper and easier to ‘just buy another one’ or to pay for someone to fix it. For high-value goods, such as motor vehicles, many consumers who experience defects with their new or used vehicle can find it difficult to obtain a remedy for a consumer guarantees failure. Reasons for this include difficulty understanding the processes involved in making a complaint, the time-consuming and costly application process for pursuing a complaint through a court or tribunal, and the cost and difficulty in gathering evidence that a tribunal will accept, such as expert reports.
3. Suppliers of goods also have a statutory right to indemnification (reimbursement) from manufacturers when the supplier provides a consumer guarantee remedy, and the manufacturer was responsible for the failure. However, some suppliers face:
   1. difficulty obtaining indemnification, as manufacturers refuse to acknowledge or deny the existence of suppliers’ rights to indemnification; and/or 
   2. retaliatory behaviour, such as termination of contracts, increased prices, withdrawal of supply, or less favourable terms and conditions if they seek indemnification. 

The proposed reforms include:

1. Introducing penalties for:
   1. suppliers who refuse to provide consumers with a remedy such as a repair, replacement or refund when required under law; and
   2. manufacturers who fail to indemnify a supplier when they are liable to under the ACL for consumer guarantees failures they are responsible for, or who retaliate against a supplier for seeking indemnification for a consumer guarantees failure.

Under this proposal, if a court determined a contravention had occurred, the court would have the power to impose a civil pecuniary penalty up to the maximum set under the law.

2. Empowering the ACCC (and potentially state and territory regulators) to issue infringement notices where it has reasonable grounds to believe that a supplier has contravened the law by not providing a consumer guarantees remedy or that a manufacturer has contravened the law by failing to indemnify a supplier when they are liable to under the ACL for a consumer guarantees failure they are responsible for, or by retaliating against a supplier for seeking indemnification for a consumer guarantees failure.

The government is also seeking feedback on aspects of the consumer guarantees and supplier indemnification regime that could be clarified, including:

1. Do aspects of the existing consumer guarantees regime need to be clarified prior to the introduction of prohibitions and penalties? Which aspects of the consumer guarantees regime are unclear? How could they be clarified?
2. Should there be greater clarity about whether there has been a ‘major failure’ or not? Which aspects of the criteria for determining whether there has been a major failure are unclear? How should they be clarified?
3. Should all or only certain failures to provide a consumer guarantee remedy be a contravention of the ACL? For example, only in cases of major failures? Why or why not?
4. Should civil prohibitions and penalties for failures to provide a consumer guarantees remedy be applied economy-wide, or for new motor vehicles only?
5. When should a manufacturer’s failure to provide supplier indemnification be a contravention of the law? Should it apply to all failures or only in cases of major failures? Why or why not? 

Submissions are due on 14 November 2024.

New government review of AI and the ACL

Yesterday, the government announced a new review of AI and the ACL. 

The discussion paper explores the application of the ACL to AI‑enabled goods and services and is part of the government’s ongoing work to strengthen existing laws to address risks and harms from AI, alongside possible mandatory guardrails shaping the development and use of AI in high risk settings.

The discussion paper notes that the development of AI-enabled goods and services does not automatically necessitate changes to the ACL. On one hand, the technology-neutral language and broad applicability of the ACL has led some stakeholders to suggest that the ACL is fit for purpose and well suited to protect consumers using AI-enabled goods and services when considered alongside other relevant legal frameworks, such as anti-discrimination and privacy laws. On the other hand, other stakeholders have expressed that the unique characteristics of AI require new consumer guarantees and point to the unique harms posed by AI misuse such as bias and discrimination based on protected attributes, disinformation, and the spread of extreme content. 

While the cyber security risks of certain AI-enabled goods will be captured by the government’s ongoing implementation of the 2023-2030 Australian Cyber Security Strategy, some stakeholders are calling for bespoke consumer protections, as has been adopted in the UK where, under the Consumer Rights Act 2015 (UK), separate consumer protections are provided for consumer digital content such as software, apps, e‑books, and streaming services and include specific remedies for damage to a device or to other digital content.

The discussion paper seeks stakeholder views on issues including:

1. the appropriateness of existing consumer protections under the ACL for consumers of AI‑enabled goods and services;
2. the application of existing ACL provisions to new and emerging AI‑enabled goods and services;
3. remedies for consumers and liability for suppliers and manufacturers of AI‑enabled goods and services under the ACL; and
4. the mechanisms for allocating liability among manufacturers and suppliers of AI-enabled goods and services. 

Submissions are due by 12 November 2024.

New exposure draft legislation on product safety regulation

On 11 October 2024, the government released exposure draft legislation on product safety for consultation. 

According to the draft legislation and explanatory materials, the draft legislation proposes to amend the CCA and ACL to improve the flexibility and enforceability of safety standards and information standards by: 

1. Allowing safety standards and information standards to incorporate matters in instruments and other writings as they exist at a particular time or from time to time, including international standards. Currently, the Minister is empowered to make safety standards and information standards that make provision in relation to a matter by applying, adopting or incorporating, with or without modification, any matter contained in any other instrument or writing (an incorporated instrument) as in force or existing at a particular time or from time to time. The proposed amendment is intended to ensure that standards and other instruments or writings that are incorporated into information standards and safety standards stay up to date, and businesses are not prevented from using the latest and safest Australian or overseas standards that are available.
2. Replacing the Minister’s ability to declare a safety standard pursuant to section 105 or information standard pursuant to section 135, with a broader ability to make a safety standard pursuant to section 104 or information standard under section 134. 
3. Updating requirements relating to the nomination of alternative methods of compliance with safety standards. Currently, if a safety standard specifies alternative methods of compliance and the regulator gives the relevant supplier a written request to nominate which set of requirements they intend to comply with, the supplier is required to give the regulator written notice specifying the requirements the supplier intends to comply with. The amendments introduce a civil penalty of up to $50,000 for a body corporate, and $10,000 for a person that is not a body corporate will apply:
   1. for breach of the requirement to nominate an alternative standard under new subsection 108(2); or
   2. if a supplier nominates a set of requirements, by written notice or other means (this may include a requirement in a safety standard to nominate the chosen alternative requirement on the consumer good itself, for example), and the person has not complied, is not complying or will not be able to comply with that set of requirements. 
4. Allowing the regulator to request certain information and documents in relation to compliance with safety standards and information standards. The amendments introduce a power for the regulator to request, in writing, information or documents to determine whether a person has complied, is complying, or will comply with a safety standard that is in force for consumer goods or product-related services of a particular kind or an information standard that is in force for goods or services of a particular kind. A civil penalty provision applies if a person does not give the regulator the requested information and documents within the time period specified in the request. The maximum pecuniary penalty that a court may order for breach of this civil penalty provision is $50,000 for a body corporate and $10,000 for a person that is not a body corporate.

Submissions are due by 25 October 2024.

Franchising Code of Conduct exposure draft regulations 

On 9 October 2024, the government commenced consultation on the exposure draft of the Competition and Consumer (Industry Code‑Franchising) Regulations 2024.The draft seeks to remake the Competition and Consumer (Industry Codes – Franchising) Regulations 2014 (current Code) which sunsets on 1 April 2025, and implement the government’s response to Dr Michael Schaper’s Independent Review (Review) of the Franchising Code of Conduct (Code). Accordingly, the new Code is due to commence on 1 April 2025.

For context, the Review found that the current Code (which is mandatory and appears as Schedule 1 of the Regulations) is generally fit for purpose and should extend beyond its sunset date, with non-regulatory changes to improve the broader operating environment through enhanced information and guidance on best practice. The Review also found that a significant barrier to addressing persistent issues is that that the ACCC is only able to act after harm has occurred, not before. 

The government agreed, or agreed in principle, to all 23 recommendations of the Review, including changes to the Code to:

1. ensure the Code remains fit for purpose; 
2. simplify and streamline existing obligations; 
3. extend key protections; and 
4. promote best behaviour. 

Broadly, the government’s response will take a staged approach, which seeks to implement quicker changes in the short-term whilst analysing the legal and regulatory changes to improve fairness and reduce regulatory burden in the longer term. 

The new purpose of the new Code will be to:

1. regulate the conduct of participants in franchising towards other participants in franchising, in particular to address the imbalance of power between franchisors and franchisees and prospective franchisees; 
2. improve standards of conduct and practice in the industry to minimise disputes through better disclosure of information, to inform decision making, and setting out requirements for franchise agreements; and 
3. provide a fair and equitable dispute resolution procedure for disputes arising under this Code or a franchise agreement.

The exposure draft regulations and the explanatory statement, propose to include civil penalty provisions for all substantive obligations placed on franchisors (beyond those that are already subject to a civil penalty), to ensure that enforcement is consistent across the Code. The reforms will not change those obligations that are already subject to the ‘super penalties’ (being the greater of $10 million, three times the value of a benefit if it can be determined , or 10% of the adjusted turnover of the body corporate in the preceding 12 months if the benefit cannot be determined). 

However, the reforms will make all other substantive obligations subject to a civil penalty of 600 penalty units, such as:

• Statements with respect to disclosure documents and the Code: Before a franchisor can enter into, renew, transfer or extend the term or the scope of a franchise agreement, it has to receive a written statement from the franchisee, prospective franchisee or prospective transferee stating that it has received, read and had a reasonable opportunity to understand the disclosure document and this Code;
• Prohibition on release from liability: A franchisor must not require a franchisee to sign a general release from liability or a waiver of any representations made by the franchisor;
• Restraints of trade clause if franchise agreement not extended: A franchisor must not enter into an agreement that includes a restraint of trade clause that would apply in the circumstances specified. This aligns with the broader approach in the Code of providing that franchisors must not include certain content in a franchise agreement;
• Jurisdiction for settling disputes: A franchisor must not enter into a franchise agreement with a clause that requires a party to bring proceedings or seek mediation of a dispute in any jurisdiction, other than that in which the franchised business is based; and
• Retrospective variation of franchise agreements: A franchisor must not retrospectively vary a franchisee agreement without the consent of the franchisee. 

Note the value of a Commonwealth penalty unit will increase from $313 to $330 on the 14th day after the Crimes and Other Legislation Amendment (Omnibus No.1) Bill 2024 receives Royal Assent), which will also apply to the penalty units under the current and new Code. 

Under the proposed reforms, the dispute resolution mechanism will remain largely the same as under the current Code, including the procedural framework for the initiation and conduct of dispute resolution processes involving multiple franchisees that have a corresponding dispute with a franchisor. The proposed new Regulations will provide the Australian Small Business and Family Enterprise Ombudsman (the Ombudsman) with the power to publicise the names of franchisors who refuse to engage in the alternative dispute resolution (ADR) process. To encourage meaningful participation in the ADR process, the proposed new Regulations will empower the Ombudsman to publish franchisors’ names in any way that it thinks appropriate to draw attention to the behaviour of the franchisor, but it does not have the power to publish the specific outcomes of ADR as there are legal obligations around disclosure of what has been agreed to in the ADR process.

Next steps

For interested parties wishing to make submissions to any of the above consultations, details and deadlines are as follows:

1. Proposed ban on dodgy trading practices: The Treasury will consult on the design of the draft legislation, the timeframe for which has not yet been confirmed. 
2. Consultation on consumer guarantees and supplier indemnification: Submissions are due on 14 November 2024. Following consultation, the government will work with states and territories to settle a final reform proposal in the first half of 2025.
3. AI and the ACL: Submissions are due on 12 November 2024.
4. New draft product safety legislation: Submissions are due by 25 October 2024. The reforms are due to commence the day after the legislation receives Royal Assent, the timing of which has not yet been indicated.
5. Franchising Code of Conduct exposure draft released: Submissions are due by 29 October 2024.

We will publish more detailed updates on each of the above consultations as further information becomes available – watch this space.