Australian Consumer Law

Section 18 of the ACL prohibits conduct, in trade or commerce, that is misleading or deceptive or is likely to mislead or deceive. It is a broad, general provision that applies to almost all forms of communication that take place in the course of business. The prohibition applies even if there was no intention to mislead or deceive – it is no defence to say that the misleading conduct was an ‘honest mistake’.

The concept of ‘misleading’ someone is broad and may include lying to them, leading them to a wrong conclusion, creating a false impression, leaving out or hiding important information and making false or inaccurate claims. The following types of representations can be misleading or deceptive, depending on the circumstances in which they are made:

• representations that cause confusion or uncertainty if they would lead an ordinary reasonable member of the target audience into error;

• silence where what is not mentioned may be an important element in creating an accurate overall impression;

• representations as to future matters if there were no reasonable grounds for making the representation;

• statements that are literally true if the statement conveys a secondary meaning that is false; and

• statements of opinion if the opinion was not held honestly or had no rational basis.

A consumer that has suffered loss or damage as a result of a breach of s 18 will be entitled to seek damages under s 236 of the ACL.

In addition to the blanket prohibition of misleading or deceptive conduct under s 18, s 29 of the ACL prohibits certain types of false or misleading representations about goods and services. The  prohibited representations  are listed in s 29 and include false or misleading representations in relation to quality, sponsorship, price, the availability of spare parts, place of origin and the existence or effect of any warranty or guarantee. These apply to dealing with other businesses as well as consumers.

Section 29 requires the identification of  a ‘representation’ which may be active or passive and may arise as a result of statements made orally, or in writing. The requirement of a representation in s29 means that it differs from s 18, which refers more broadly to ‘conduct’. Notwithstanding this distinction, courts have found that a representation can still arise as an implication from conduct in certain circumstances.

Another important difference is that, unlike contraventions of s 18 which only entitles affected consumers to damages, a contravention of s 29 of the ACL may also constitute an offence giving rise to significant penalties.

Comparative advertising

Comparative advertising occurs where a company compares their goods or services to another company’s goods or services. Whilst comparative advertising can be very effective, there are three major risks associated with these types of promotions:

• it can be difficult to ensure that the comparison is accurate;

• the goods or services being compared must be sufficiently similar to justify the comparison; and

• the comparison must be valid for the life of the advertisement or promotion.

It is important to be vigilant when engaging in comparative advertising, as competitors generally keep a close eye on comparative advertising and will alert the ACCC to any potentially misleading comparisons.

Bait advertising

Section 35 of the ACL prohibits persons from advertising goods or services for supply at a specified price when there are reasonable grounds to believe or the person ought to be aware that they will not be able to offer those goods or services in reasonable quantities for a reasonable time. Bait advertising generally involves offering goods or services at cheap prices in order to attract customers’ interest, but the goods or services are offered in such small quantities that most customers would not be able to purchase them.

An offer to supply goods at a special price must be made for a period and in quantities that are reasonable, having regard to:

• the nature of the market in which the business is being carried on; and

• the nature of the advertisement.

An organisation can reduce its risk of engaging in bait advertising by:

• anticipating the likely demand for an advertised good or service when determining the quantities that should be made available at the special price;

• keeping in mind the extent of the advertisement, noting that a heavy advertising campaign will translate into a greater take up of the offer at the offer price; and

• outlining the specifics of the offer in the advertisement, for example, ‘200 widgets will be available for 2 weeks only’.

Fine print and qualifications

It is important to ensure that the overall message conveyed by an advertisement is accurate and includes any qualifications to the main message necessary for accuracy. However, a disclaimer in fine print will not necessarily be sufficient to avoid liability for misleading conduct. When drafting fine print, the following rules apply:

• you cannot correct a misleading main statement with fine print;

• you can qualify a potentially ambiguous but not misleading main statement with an appropriate disclaimer if it is appropriately brought to the customer’s attention;

• it is insufficient to say that ‘conditions apply’ – the limitation or qualification must be explained appropriately for the context;

• very important conditions, limitations or qualifications should be brought to the customer’s attention, not just be hidden in the small print; and

• the relevant qualifications should be provided at the same time as the main message.

Any qualifications must be in a font size and colour that is legible and sufficiently prominent, having regard to the size of the main message and material.

Component pricing

Component pricing occurs when a business advertises its price in component parts (e.g. $20,000 + on road costs), rather than as a single, all-inclusive figure (e.g. $22,500 drive away).

Section 48 of the ACL requires companies and persons to prominently specify the single figure price a consumer must pay to purchase the good or service. The single figure price is the ‘minimum quantifiable consideration’ for the supply of the good or service at the time of the representation and must include:

• any charges payable by the person unless they are optional and not pre-selected for the customer (see below);

• any tax, duty, fee or levy, including GST; and

• any other amount payable in relation to the supply of the goods or services.

Optional charges associated with any extras that are pre-selected for the customer must be included in the single figure price. For example, if an airline advertises a flight for sale and the carbon offset is pre-selected for customers on the airline’s booking system, the advertised single price must include the carbon offset charge.

When advertising component prices, the single figure price must be easily identifiable and be specified at least as prominently as the most prominent of the other components of the price. However, this does not apply when services are being supplied and:

• the contract provides for the supply of the services for the term of the contract;

• the contract provides for periodic payments of the services to be made during the term of the contract; and

• if the contract also provides for the supply of goods, the goods are directly related to the supply of services.

For example, a company may offer telecommunications at the cost of $20 per month, provided that the customer enters into a contract for the provision of those services for a minimum of 24 months. The single price for those services is $480 ($20 x 24 months).  The company must state the $480 single price prominently, but may display the $20 per month price more prominently.

Was / now pricing

‘Was / now pricing’, also known as ‘strike through pricing’, occurs when a business advertises a good or service by reference to the price at which the good or service has previously been advertised or sold. For example, an item for sale will be tagged ‘was $220 / now only $75’ or $220 now $75. This type of pricing represents to consumers that they are likely to save an amount by purchasing the good during a specific period, being the difference between the higher and lower prices advertised.

Was / now pricing may be misleading or deceptive if:

• the good or service was not offered for sale at the ‘was’ price for a reasonable period before the sale commenced, or at all; or

• the good or service was rarely or never sold at the ‘was’ price before the sale commenced, for example, because the business has an established practice of discounting its products.

What is considered to be a ‘reasonable period’ will depend on the circumstances, including the type of product and the usual frequency of price changes for that product.

The ACCC vigilantly monitors was / now pricing to ensure that corporations are not engaging in misleading or deceptive pricing behaviour.

Drip pricing

Drip pricing occurs where a headline price is advertised, but a number of additional elements, such as credit card surcharges and booking fees, increase that price as the customer proceeds through the sales process. It generally occurs in relation to online sales of goods or services.

Drip pricing is sometimes considered to be misleading because:

• the headline price is gradually qualified and increased until the final, larger price for the particular good or service is arrived at; and

• the overall effect of this process is that the headline price is initially and repeatedly emphasised, whilst less attractive aspects, such as booking and service fees, were de-emphasised and only disclosed piecemeal and late in the process.

In order to avoid misleading consumers with drip pricing, it is important to:

• advertise prices as being “from” a particular amount;

• where relevant, clearly express that advertised prices are subject to fees and surcharges or subject to conditions;

• make the relevant terms and conditions that will lead to price increases readily accessible and available to consumers, for example, through links or pop up boxes; and

• ensure that it is possible for a consumer to purchase the good or service at the advertised headline price, for example, by allowing the consumer to elect a payment method that is not subject to surcharges.

As always with misleading or deceptive conduct, the overall impression created by the advertisement is key. Any qualifications or conditions must be clearly expressed and obvious to the consumer.

Unit pricing

The Unit Pricing Code is a mandatory industry code that applies to:

• grocery retailers with more than 1,000 square metres of floor space who sell the minimum range of food-based grocery items; and

• online retailers who sell the minimum range of food-based grocery items.

The minimum range of food-based grocery items means that the retailer must sell all of these categories of food product: bread, breakfast cereal, butter, eggs, flour, fresh fruit and vegetables, fresh milk, meat, rice, sugar and packaged food.

Such retailers must display the ‘unit price’ for all grocery items by displaying the price of a good as a standard unit of measurement, as follows:

• if sold by volume – per 100 millilitres;

• if sold by weight – per 100 grams, except for fruit and vegetables – per kilogram;

• if sold by length – per metre; and

• if sold by number – per item for a pack of 40 or fewer items or per 100 items for a pack of 41 or more items.

Certain products are exempt from unit pricing, including electrical items, furniture, toys, alcoholic beverages and books, magazines and stationery.

The courts will consider the allegedly misleading conduct as a whole, including any disclaimers. To be effective, a disclaimer must clearly be brought to the attention of the parties concerned and must be clear, prominent and unambiguous. A disclaimer will not be effective if it contradicts the main representation being conveyed.

Exclusion clauses that seek to oust the operation of s 18 of the ACL have been held to be ineffective. However, the courts will have regard to exclusion clauses if they can be said to bear on the question of whether or not a party relied on the relevant representations in engaging in the detrimental conduct. To this extent, acknowledgments in a contract that a party has made its own inquiries into certain matters or has not relied on certain information provided to it by the other party may be effective in avoiding liability under s 18 of the ACL by proving an absence of reliance.

Like other regulators around the world, the ACCC is prioritising ‘greenwashing’ and closely scrutinising environmental and sustainability claims made by businesses. The ACCC has provided the below guidance to businesses when making environmental and sustainability claims:

• ensure that your claims are clear and specific, including detail on the specific part of the product or process being referred to;

• avoid vague (e.g. ‘green’) or technical language, as well as claims which are technically true only if certain conditions are met;

• only rely on robust, up to date standards;

• consider the entire lifecycle of a product and identify if your claim only relates to one aspect of the product lifecycle;

• do not hide or downplay negative impacts that, notwithstanding the claimed environmental benefits, may also result from the product or process being referred to;

• be transparent about your products and environmental policies;

• transparency may require that information about environmental indicators (e.g. energy use and emissions, types of materials used and how they are sources, water usage and pollution, etc) is publicly available in an easy accessible and understandable format; and

• consider collaborating with reputable third-party certification bodies, but take care not to misrepresent the meaning or significance of any certification this is obtained.

If your business is making representations to consumers about the sustainability or environmental impact of its products or services, be sure that you can substantiate those claims to the ACCC with credible evidence.

A contract is a ‘consumer contract’ if the contract is:

• for the supply of goods, services or a sale or grant of an interest in land; and

• to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.

A contract is a ‘small business contract’ if:

• the contract is for the supply of goods, services (including financial services and financial products as defined in the ASIC Act) or a sale or grant of an interest in land;

• at the time the contract was entered into, at least one party to the contract is a business (including a not for profit business) that employs less than 20 persons; and

• the upfront price payable under the contract is less than $300,000 or, if the duration of the contract is more than 12 months, less than $1 million.

The upfront price payable under a contract is the consideration that will be provided under the contract. It does not include any consideration that is contingent on the occurrence or non-occurrence of a particular event, for example, amounts payable in the event an option is exercised by one party or in the event of default. The ACCC has also expressed the view that it is unlikely to include any amount that is not calculable at the time of entry into the contract, such as commissions or royalties that are based on a percentage of future sales.

However, from 10 November 2023 the definition of a ‘small business contract’ will be expanded and will apply to all contracts with business that have:

• fewer than 100 employees; or

• an annual turnover of less than $10 million.

The ACL prescribes a number of factors that must be taken into account when determining if a contract is a ‘standard form contract’. These include:

• whether there is an imbalance in the bargaining power between the parties to the transaction;

• whether the contract was prepared by one party before any discussion relating to the transaction;

• whether the contract is presented to a party on a ‘take it or leave it’ basis;

• whether a party was given an effective opportunity to negotiate the terms; and

• whether the terms of the contract take into account the specific characteristics of another party.

A contract will be presumed to be a standard form contract unless a party to the proceedings proves otherwise.

In order for a term to be unfair under this regime, it must be shown that the term:

• would cause significant imbalance in the parties’ rights and obligations arising out of the contract;

• is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and

• would cause detriment, financial or otherwise, to a party if it were to be applied or relied upon.

The ACL also requires courts to have regard to the contract as a whole and to consider whether the term is transparent when determining whether it is unfair. A term will be regarded as transparent if it is expressed in reasonably plain language, presented clearly and is readily available to any party affected by the term.

The ACL identifies a number of terms that may be regarded as unfair, including terms that:

• permit or have the effect of permitting one party but not the other, to avoid or limit performance of the contract, terminate the contract, vary the contract, assign the contract or renew or not renew the contract;

• penalise or have the effect of penalising one party, but not the other, for a breach or termination of the contract; or

• permit or have the effect of permitting one party to vary the upfront price payable, without the right of another party to terminate the contract, to unilaterally vary the characteristics of the bargain or to unilaterally determine whether the contract has been breached.

The unfair contracts regime does not apply to a term of a contract that:

• defines the main subject matter of the contract;

• sets the upfront price payable under the contract; or

• is a term required or expressly permitted by a law of the Commonwealth, a State or Territory.

The unfair contracts regime also does not apply to contracts of marine salvage or towage, a charter party of a ship, a contract for the carriage of goods by ship or constitutions of companies and managed investment schemes.

Currently, the  ACL does not make it unlawful to include unfair terms in contracts. Rather, it deems terms within consumer and small business contracts to be void to the extent that they are unfair. Either the consumer, small business or the ACCC will need to apply to the Federal Court for a declaration that a contractual term is an unfair contract term under the legislation. If a declaration is obtained, the consumer or small business can seek a compensation order against the party that has attempted to enforce the term.

The ACCC has the power to issue information gathering notices in cases of suspected unfair contract terms. 

However, from 10 November 2023, it will be unlawful to include unfair contract terms in contracts and contraventions will be liable to pecuniary penalties. 

To minimise the risk that a contractual term could be considered unfair, and therefore attract civil penalties, it is recommended that businesses identifyy terms which are at risk of being unfair and consider the necessary steps to address the risks. This may include making one or more of the following revisions:

• making the term more explanatory so a reader understands its purpose;

• simplifying complex drafting; or

• making a clause more reasonable.

Alternatively, consider deleting the term from the contract if the term is rarely relied on or significantly imbalanced. It can be helpful to record any changes made to a term and I particular the reasoning for the clause being changed in a particular way, for future reference.

The ACL provides consumers with nine consumer guarantees in relation to goods and three consumer guarantees in relation to services. These guarantees cannot be excluded in any way either by the consumer or the supplier and they apply whenever ‘consumers’ in Australia are supplied with goods and services.

Guarantees regarding goods

Title: Guarantee that the supplier will provide clear title to the goods, unless otherwise disclosed.

Match description: Guarantee that the goods will match their description.

Express warranties: Guarantee that any express warranty given by a manufacturer or supplier will be complied with.

Undisturbed possession: Guarantee that the consumer’s possession of the goods will not be disturbed (except for disclosed securities, charges or encumbrances).

Acceptable quality: Guarantee that the goods will be of acceptable quality, except where there has been prior disclosure of defects or where the defects were caused by the consumer or where prior examination ought to have revealed the defects.

Repairs and spare parts: A manufacturer guarantees that repairs and spare parts will be available for a reasonable period post supply, except where unavailability is disclosed.

Undisclosed securities: Guarantee that the goods are free of undisclosed securities.

Match sample: Guarantee that goods will match any sample or demonstration model, that the consumer will have a reasonable opportunity to compare the goods with the sample and that the goods are free from any defect that would not be apparent on reasonable examination and would cause the goods not to be of acceptable quality.

Fitness for purpose: Guarantee that the goods will be fit for any purpose disclosed to the consumer or represented by the supplier, except where the consumer did not, or it was unreasonable for the consumer to rely on the skill or judgment of the supplier.

Guarantees regarding services

Due care and skill: Guarantee that the services will be rendered with due care and skill.

Fitness for purpose: Guarantee that the services will be fit for their intended purpose or result, except where the consumer did not, or it was unreasonable for the consumer to rely on the skill or judgment of the supplier.

Reasonable time for supply: Guarantee that the services will be provided within a reasonable time, except where the time of performance is stated in the contract or to be determined.

Consumers are defined very broadly under the ACL for the purposes of the consumer guarantee provisions. A ‘consumer’ is a person who acquires goods or services:

• for $100,000 or less;

• of a kind ordinarily acquired for personal, domestic or household use or consumption; or

• that consist of a vehicle or trailer acquired for use principally in the transport of goods on public roads.

Purchases of goods for re-supply or for the purpose of use or transformation in the production or manufacture of other goods are excluded.

Importantly, businesses may also be regarded as a consumer for the purposes of the regime if their purchases satisfy one of the requirements described above. Businesses may however be able to limit their liability under s 64A of the ACL for a failure to meet a consumer guarantee if the good or service is not of a kind ordinarily acquired for personal, domestic or household use or consumption.

Calculating the $100,000 threshold

In applying the $100,000 threshold, there are a number of ‘unbundling’ provisions that apply. Generally speaking, individual items may be considered separately in determining whether they fall under the $100,000 threshold if they are available for sale separately.  For example, the supply of $2 million worth of laptops, each worth $2,000, to a corporation is likely to be covered by the ACL consumer guarantees given laptops can be purchased individually and are goods that are of a kind ordinarily acquired for personal, domestic or household use or consumption.

The consumer guarantees apply to both goods and services. A ‘good’ is defined very broadly in the ACL and includes, but is not limited to, raw materials, manufactured products, agricultural produce, software and second hand products. The definition of a ‘service’ is equally broad and includes any right, benefit, privilege or facility provided, contracts in relation to the performance of work, use or enjoyment of facilities or contracts in relation to banking or lending activities.

Certain goods and services are specifically excluded from coverage under the consumer guarantees regime. These include:

• goods and services that were bought before 1 January 2011 (Note: These are covered by state statutory implied conditions and warranties in force before 1 January 2011 that may also operate alongside the consumer guarantees);

• goods and services that cost more than $100,000 and are not of a kind ordinarily acquired for personal, domestic or household use or consumption;

• goods that were bought at auctions or at one-off sales by private sellers such as at garage sales and fetes;

• goods that are bought for the purpose of on-selling or re-supplying;

• goods that are used as part of a business to manufacture, produce or repair something else or otherwise used on other goods or fixtures;

• services for the transportation or storage of goods for a consumer’s business, trade, profession or occupation; and

• insurance contracts.

The consumer guarantees apply to Australian citizens, persons ordinarily resident in Australia and to corporations that are incorporated in Australia or carry on business within Australia. In particular, ‘suppliers’ and ‘manufacturers’ of goods and services are required to comply with the statutory consumer guarantees regime.

Whilst most businesses appreciate the application of the regime to transactions with retail customers, they are often unaware that the regime may equally apply to various situations that might ordinarily be considered outside the scope of the ACL. For instance, activities of overseas manufacturers, importers and online retailers may be covered by the ACL consumer guarantees in certain circumstances.

Manufacturers and suppliers

A manufacturer of a good includes the following:

• a person who grows, extracts, produces, processes or assembles the good;

• a person who holds themselves out to the public as the manufacturer of the good;

• a person who causes or permits the name of that person, their business name, market or brand to be applied to goods supplied by that person;

• a person who causes or permits another person to hold out the first person to the public as the manufacturer of the goods; and

• a person who imports goods into Australia at a time when the manufacturer of the goods does not have a place of business in Australia.

Businesses should be aware that it is possible for multiple entities along the supply chain to be regarded as the ‘manufacturer’ for the purpose of the ACL. It is also possible for a person to be regarded as a manufacturer even where that person explicitly makes a statement claiming otherwise.

The definition of a ‘supplier’ is equally broad under the ACL and includes any person who supplies by way of sale, exchange, lease, hire or hire purchase any goods as well as any person who provides, grants or confers a service.

For a breach of most of the consumer guarantees relating to goods, if the failure is not major and can be remedied, the consumer may require the supplier to remedy the failure within a reasonable time. The supplier can choose to provide the consumer with a repair, replacement or refund for the goods. If the failure is major, consumers can elect to have the supplier replace the item or provide a refund, or the consumer can retain the good and recover compensation for the loss in value of the goods or services due to the failure by action against the supplier.

For services, if the failure is not major the consumer may require the supplier to remedy the failure within a reasonable time. If the supplier fails to do that, the consumer may remedy the failure and claim reasonable costs or terminate the service contract. If the failure is major, the consumer may terminate the service contract, or retain the contract and recover compensation for any reduction in the value of the services below the price paid or payable, by action against the supplier.

Regardless of whether a failure is major or minor, the consumer is also entitled to recover damages for any reasonably foreseeable loss or damage suffered by the consumer because of the failure to comply with the guarantee, directly from the supplier. This is the case for a breach of a guarantee relating to goods or to services.

Manufacturers’ liability

If the guarantee of acceptable quality, supply of goods by description, repairs and spare parts or express warranties has been breached, an ‘affected person’ may recover damages for reduction in value of the goods or reasonably foreseeable loss or damage caused by the failure, directly from the manufacturer. ‘Affected person’ is defined to mean a consumer who acquires the goods, a person who acquires the goods from the consumer (other than for the purpose of re-supply) or a person who derives title to the goods through or under the consumer.

Where the supplier incurs costs complying with a consumer guarantee because the manufacturer caused the good not to be of acceptable quality or to not match its description, or because the good is unfit for a purpose specified to the manufacturer, the manufacturer may be liable to indemnify the supplier for those costs. If the goods are not of a kind ordinarily acquired for personal, domestic or household use, the manufacturer’s liability is limited to an amount equal to the least of the cost of replacing the goods, obtaining equivalent goods or having the goods repaired, unless it would be unfair or unreasonable for the liability to be so limited.

If a manufacturer supplies goods directly to the consumer (by way of sale, exchange, lease, hire or hire-purchase), the manufacturer will be considered a ‘supplier’ for the purposes of the consumer guarantees, and the manufacturer will be subject to the remedies set out in the section above.

What constitutes a major failure?

A major failure is defined as one where:

• the consumer would not have acquired to goods if they knew of the failure;

• the goods depart significantly from their description, sample or demonstration model; or

• the goods are unfit for any disclosed purpose or are unsafe.

The subjective nature of the definition of a ‘major failure’ creates uncertainty as to the threshold required for a fault to be regarded as a major failure. A lack of guidance from the ACCC and the courts has meant that the concept remains uncertain and untested.

Who is responsible for providing the primary remedy?

Either the supplier or manufacturer could be liable for the primary remedy, depending on the entity that transacts with the consumer.

If the supplier has the contract of sale and supplies goods or services that fails to meet one or more of the consumer guarantees, the supplier is responsible for offering the primary remedy.

If the manufacturer sells goods directly to the consumer and the goods fail to meet one or more consumer guarantees, the manufacturer is responsible for offering the primary remedy.

Secondary remedies

The compensation payable for a failure to comply with the guarantee is the reduction in the value of the goods due to the failure to comply with the statutory guarantee, being the lower of the price paid or payable by the consumer of the goods and the average retail price of the goods at the time of supply.

Who is responsible for providing the secondary remedy?

Depending on the circumstances as well as the consumer guarantee that has not been met, either the manufacturer or the supplier may be liable for providing the secondary remedy.

In addition to the secondary remedy, businesses should also note that:

• consumers are entitled to reasonably foreseeable damages suffered as a result of a failure to meet a consumer guarantee; and

• suppliers are entitled to be indemnified by the manufacturer if that supplier becomes liable for offering a remedy and/or damages to the consumer for a failure to meet a consumer guarantee.

Accordingly, irrespective of who offers the consumer a remedy, the manufacturer is likely to bear the final cost of any loss arising from a failure to meet a consumer guarantee.

Penalties

Potential penalties for contraventions of the ACL, which can be imposed on both businesses and individuals, are harsh and as of 10 November 2022, the maximum penalties for a breach of the ACL have been increased, as summarised in the table below:

Additionally, the courts have been increasingly willing to impose large penalties for breaches of the ACL to better achieve general and specific deterrence.

Private parties that have suffered loss as a result of contraventions of the ACL may also bring actions seeking damages for the loss incurred.