Chapter 11

Dealing with consumers

 Learning objectives

11.1 Why do consumers deserve additional legal protection?

11.2 When marketing and selling to consumers, what kinds of
conduct are prohibited?
11.3 What are the consequences of getting caught engaging in
the prohibited conduct?
11.4 What are the consequences of a business failing to protect
consumers’ information privacy?
11.1 Protecting consumers
 Why protect consumers?

• Consumers are seen to be entitled to additional protection under

Australian law because when dealing with a business they are
usually at a disadvantage.
• The traditional rules of contract law offer little assistance to a
consumer who is disadvantaged because of this inequality of
bargaining power: the general rule is caveat emptor.
• Consumer protection legislation seeks to address the fundamental
imbalance in bargaining power between business and consumers.
 Examples of consumer protection:

• Implying additional terms into certain contracts to protect the

consumer
• Prohibiting certain types of conduct by businesses, or
• Closely regulating certain types of transactions with consumers,
such as those involving the handling of consumers’ personal
information.
• There are often significant criminal and civil consequences for
businesses that are found to have contravened consumer
protection laws, as well as the possibility of unwelcome media
attention.
 Why protect consumers? continued

In consumer transactions, unfair practices are widespread. The existing law is

still founded on the principle known as caveat emptor — meaning ‘let the
buyer beware’. The principle may have been appropriate for transactions
conducted in village markets. It has ceased to be appropriate as a general
rule. Now the marketing of goods and services is conducted on an organised
basis and by trained business executives. The untrained consumer is no match
for the businessman, who attempts to persuade the consumer to buy goods or
services on terms and conditions suitable to the vendor. The consumer needs
protection by the law and this Bill will provide such protection.
Senator the Hon L K Murphy QC, Senate Parliamentary Debates, 30 July 1974
11.2 Dealing with consumers
 Consumer protection regulation

• The Australian Consumer Law (ACL) is a Schedule to the Competition and

Consumer Act 2010 (Cth).
• The ACL protects consumers by prohibiting:
• misleading or deceptive conduct generally
• unconscionable conduct
• unfair terms
• various specific forms of prohibited conduct.
• The ACL is administered and enforced by the Australian Competition and
Consumer Commission (ACCC) and by the various State and Territory
consumer protection agencies.
 Meaning of ‘consumer’

• A person is a consumer if they have acquired goods or services:

• of a kind ordinarily acquired for personal, domestic or
household use or consumption
• that have not been acquired for the purpose of re-supply or for
use in a manufacturing process.
 Misleading or deceptive conduct

• A person must not, in trade or commerce, engage in conduct that

is misleading or deceptive or is likely to mislead or deceive: ACL s
18.
• In establishing a breach of the section, the intention of the person
is irrelevant.
• Liability cannot be avoided by use of a disclaimer.
• The range of remedies provided by the ACL for breach of the
section is much wider than that available at common law for
misrepresentation or breach of contract.
 Misleading or deceptive conduct

• The section can be relied upon not only by consumers but also by
interested members of the public and by other businesses,
including competitors.
• Gillette Australia Pty Ltd v Energizer Australia Pty Ltd (2002)
 Misleading or deceptive conduct

• An action for contravention of ACL s 18 may be brought in

conjunction with, or as an alternative to, an action for:
• negligence
• passing off
• defamation
• breach of contract or
• misrepresentation.
 Misleading or deceptive conduct

Requirement 1: Business has engaged in conduct

• A business will ‘engage in conduct’ if it makes a statement or a

claim or a promise, performs an action, or refuses to do any of
these things.

• In certain circumstances, even silence can be conduct.

• Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2)
(1989)
 Misleading or deceptive conduct

Requirement 2: The conduct was in trade or commerce

• Conduct that takes place in a non-commercial context will not be

in breach of s 18.
• Concrete Constructions (NSW) Pty Ltd v Nelson (1990)
• Durant v Greiner (1990)
 Misleading or deceptive conduct

• A statement that is literally true can still be misleading or

deceptive.

• A statement that is not literally true is not necessarily misleading

or deceptive.
 Misleading or deceptive conduct

Requirement 3: The conduct was misleading or deceptive

• ‘Mislead’ is usually interpreted as simply meaning ‘to lead astray’
or ‘to lead into error’, and ‘deceive’ is interpreted as ‘to cause to
believe what is false’.
• In deciding whether conduct is misleading or deceptive the court
will use an objective test.
• Taco Company of Australia Inc v Taco Bell Pty Ltd (1982)
 Misleading or deceptive conduct

• First, it is necessary to identify the relevant section (or sections) of the public
(which may be the public at large) by reference to whom the question of
whether the conduct is, or is likely to be, misleading or deceptive falls to be
tested.
• Second, once the relevant section of the public is established, the matter is
to be considered by reference to all who come within it, including the astute
and the gullible, the intelligent and the not so intelligent, the well educated
as well as the poorly educated, men and women of various ages pursuing a
variety of vocations.
Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
 Misleading or deceptive conduct

• Broadly speaking, it is fair to say that the question is to be tested

by the effect on a person, not particularly intelligent or well-
informed, but perhaps of somewhat less than average intelligence
and background knowledge, although the test is not the effect on
a person who is, for example, quite unusually stupid.

Annand & Thompson Pty Ltd v TPC (1979)

 Unconscionable conduct

• A business will engage in unconscionable conduct if it unfairly

takes advantage of another person’s special weakness or disability.
• There are two types of unconscionable conduct prohibited by the
ACL:
• unconscionable conduct generally: ACL s 20
• unconscionable conduct when supplying goods or services to,
or acquiring goods or services from, a person other than a
listed public company: ACL s 21.
 Unfair terms

• A term of a contract will be unfair in contravention of ACL s 23 and

therefore void if:
• the contract is a consumer contract
• the contract is a standard form contract
• the term is unfair.
 Unfair terms

• According to ACL s 24(1), a term of a consumer contract is ‘unfair’

if :
• it causes a significant imbalance in the parties’ rights and
obligations arising under the contract
• it is not reasonably necessary to protect the legitimate interests
of the business
• it would cause detriment to the consumer.

• Director of Consumer Affairs Victoria v AAPT Limited [2006]

 Specific protections

• A business must not make a false or misleading representation:

• that its goods are of a particular standard, quality, value, grade,
composition, style or model or have had a particular history or
particular previous use
• that its goods are new
• that it has a sponsorship, approval or affiliation it does not have
• with respect to the price of its goods or services
 Specific protections

• A business must not make a false or misleading representation:

• concerning the availability of facilities for the repair of its goods
or of spare parts for its goods
• concerning the place of origin of its goods or
• concerning the existence, exclusion or effect of any condition,
warranty, guarantee, right or remedy: ACL s 29.
 Specific protections

• A business must not engage in bait advertising: ACL s 35.

• A business engages in bait advertising when it advertises a

product at a price that is likely to attract buyers to its premises
when it knows or should know that it is likely to run out of stock
very quickly.
 Specific protections

• A business must not accept payment from a buyer when it either

does not intend to supply the product or it knows or should know
that it will be unable to provide the product within the specific
time or a reasonable time: ACL s 36.
 Specific protections

• A pyramid scheme is a type of product distribution scheme

whereby a participant makes a profit or receives a commission for
the sale of each product to a buyer; the participant is also
rewarded for the introduction of other participants to the scheme,
usually by receiving a commission for each new participant.
Specific protections
 Specific protections

• A business is prohibited from participating in, or inducing others

to participate in, a pyramid selling scheme: ACL s 44.
 Consumer guarantees

• The ACL Part 3-2 implies into contracts for the sale of goods to
consumers guarantees that:
• the seller has title: ACL s 51
• the consumer will have undisturbed possession: ACL s 52
• there are no undisclosed securities: ACL s 53
• the goods are of acceptable quality: s 54
• the goods are fit for any disclosed purpose: s 55
• the goods correspond with their description: s 56
 Consumer guarantees

• The ACL implies into contracts for the sale of goods to consumers
guarantees that:
•  the goods correspond with any sample or demonstration
model in quality, state or condition: s 57
• the manufacturer will ensure that repair facilities and spare
parts are reasonably available: s 58
• the manufacturer will comply with any express warranties given
in relation to the goods: s 59.
 Consumer guarantees

• The ACL implies into contracts for the supply of services to

consumers guarantees that:
• the services will be rendered with due care and skill: s 60
• the services, and any product resulting from the services, will
be fit for any disclosed purpose: s 61
• the services will be supplied to the consumer within a
reasonable time: s 62.
• Unlike the terms implied by the SGA, these guarantees cannot be
excluded.
 Information standards

• ACL Part 3-4 regulates the use of information standards for goods
or services.
• An information standard sets out the form and content of the
information that must accompany the supply of goods or services
(for example, on the product packaging): ACL s 134.
• A business must not, in trade or commerce, supply goods or
services if the relevant information standard has not been
complied with: ACL ss 136–7.
 Manufacturers’ liability

• ACL Part 3-5 imposes a range of obligations and liabilities upon

manufacturers.
• ACL imposes strict liability upon the manufacturers of defective
goods if:
a) the manufacturer supplies the goods in trade or commerce
b) the goods have a safety defect
c) the individual suffers injuries because of a safety defect: ACL s
138.
11.3 Consequences of
contravention
 Consequences

• If a business breaches a general prohibition it may be the subject

of a civil action (e.g. it can be sued for compensation) but there
are no criminal penalties.
• If a business breaches one of the specific prohibitions it may be
the subject of both a civil action and a criminal penalty such as a
fine (up to $1.1 million for companies and $220 000 for
individuals).
• Penalties are also imposed for breach of any of the consumer
guarantees.
 Consequences

• Remedies that can be granted by a court for contravention of the

ACL include:
• pecuniary penalties
• injunctions
• an order that the defendant pay damages to any person who
has suffered loss because of the contravention
• a compensation order for injured persons
 Consequences

• Remedies that can be granted by a court for contravention of the

ACL include:
• an order declaring a contract void, varying a contract, refusing
to enforce a contract, ordering a refund, ordering
compensation, ordering repair of the goods, or ordering the
provision of services
 Consequences

• Remedies that can be granted by a court for contravention of the

ACL include:
• non-punitive orders including orders directing the defendant to
perform a community service, directing them to establish
compliance and education programs for their employees,
requiring them to disclose information, or requiring them to
place an advertisement
• an adverse publicity order
• an order disqualifying a person from managing a corporation.
 Consequences

• Where a business has failed to comply with a consumer guarantee and the
non-compliance is not a major failure, the consumer can require the
business to remedy the failure within a reasonable time.

• The business can remedy the non-compliance by:

• curing the defect in title (if any)
• repairing the goods
• replacing the goods or
• providing a refund.
 Consequences

• Where the non-compliance is a major failure or cannot be

remedied, the consumer can reject the goods (that is, return the
goods for a refund or a replacement) or require the business to
pay to the consumer the difference between the value of the
goods and the price paid for them.

• The consumer also has rights against the manufacturer.

11.4 Consumer privacy
Types of privacy
 Information privacy

• Personal information about individuals has commercial value.

• However, when dealing with an individual’s personal information,
a business must comply with its obligation to respect the
individual’s privacy.
• The Privacy Act 1988 (Cth) originally applied only to
Commonwealth government departments. The Act now applies if
a business has an annual turnover of more than $3 million.
 Australian Privacy Principles

• In 2012, the Privacy Amendment (Enhancing Privacy Protection)

Act 2012 (Cth) enacted a single set of Australian Privacy Principles
(APPs) that apply to both the private sector and the public sector.
These changes commenced in March 2014.
• The APPs seek to ensure that businesses that hold information
about individuals handle that information responsibly. They also
give individuals some control over the way information about
them is handled.
 Australian Privacy Principles

• The APPs are drafted in a way that is technology-neutral, and they

apply equally to conventional, electronic and digital environments
 Privacy protection

• The Privacy Act’s APPs protect:

• personal information: information or an opinion about an
individual whose identity is apparent, or can reasonably be
ascertained, from the information or opinion
 Privacy protection

• The Privacy Act’s APPs protect:

• sensitive information: information or an opinion about an
individual’s racial or ethnic origin, political opinions,
membership of a political association, religious beliefs or
affiliations, philosophical beliefs, membership of a professional
or trade association, membership of a trade union, sexual
preferences or practices, criminal record or health.
 13 Australian Privacy Principles

• There are thirteen APPs:

• APP 1 — Open and transparent management of personal
information
• APP 2 — Anonymity and pseudonymity
• APP 3 — Collection of solicited personal information
• APP 4 — Dealing with unsolicited information
• APP 5 — Notification of collection of personal information
• APP 6 — Use and disclosure of personal information
 13 Australian Privacy Principles

• APP 7 — Direct marketing

• APP 8 — Cross-border disclosure of personal information
• APP 9 — Adoption, use or disclosure of government related
identifiers
• APP 10 — Quality of personal information
• APP 11 — Security of information
• APP 12 — Access to personal information
• APP 13 — Correction of personal information.
 Infringement

• If an individual thinks that a business has breached the APPs, they

can complain to the Office of the Australian Information
Commissioner.
• When the office receives the complaint the individual will, in most
cases, be referred back to the business to give the business a
chance to resolve the complaint itself.
 Infringement

• If the business and the customer cannot resolve the complaint,

the Office will conciliate the complaint.
• The Privacy Commissioner can make a formal determination,
enforceable by the Federal Court of Australia.
• If a business fails to comply with its own stated privacy policy it
also risks being found to have breached ACL s 18.