Suppliers outside New South Wales

New South Wales has introduced a new law that requires suppliers, before they supply goods or services, to take reasonable steps to ensure that the consumer is aware of the substance and effect of any term or condition relating to the supply that may substantially prejudice the interests of the consumer (consumer disclosure rules).  “Consumer” can include certain business purchases as well as personal purchases.

 

This change to the Fair Trading Act applies not only to suppliers located in NSW, but also to conduct within or outside NSW that:

(a)  is in connection with goods or services supplied in NSW; or

(b)  affects a person in NSW; or

(c)  results in loss or damage in NSW.

This means that the law applies to suppliers located outside NSW who supply goods or services to consumers in NSW (including online).  Suppliers in other Australian States may not be aware of these changes.

This law came into effect on 1 July 2020, but NSW Fair Trading has not penalised businesses for its first six months.  This transitional period ended on 31 December 2020, so penalties may now apply for breaches.

 

Reasonable steps

This is a substantial change to how many companies do business.  It is often the case that contracts contain clauses that prejudice the interests of the other party, sometimes substantially.  To comply with this law the supplier must either:

  • Delete the term; or
  • Take reasonable steps to make sure that the consumer is aware of the term.

There are no specific requirements for what amounts to “reasonable steps”, but NSW Fair Trading suggests that the disclosure should be:

  • Clear and easy to understand;
  • Easily accessible so that the consumer does not need to seek out the information; and
  • A standard part of each transaction.

Examples of appropriate disclosures include:

  • Short, plain English summaries on the front page of a contract;
  • Providing information in short chunks at key times eg on the information or payment pages;
  • Scrollable text boxes on screens;
  • Comics, illustrations or icons to highlight and explain relevant information.

To determine whether a consumer is aware of the term, NSW Fair Trading recommends that the supplier check with them, either by:

  • Asking them;
  • Getting the consumer to initial the explanation in the contract;
  • Checking a box online.

 

Terms that may substantially prejudice

The legislation gives the following four examples of terms that may substantially prejudice the interests of the consumer (although contracts may contain other such terms):

  • the term excludes the liability of the supplier; or
  • the term provides that the consumer is liable for damage to goods that are delivered; or
  • the term permits the supplier to provide data about the consumer, or data provided by the consumer, to a third party in a form that may enable the third party to identify the consumer; or
  • the term requires the consumer to pay an exit fee, a balloon payment or other similar payment.

Term (a) – exclusion of liability clauses are common in contracts – where one party claims that it will not have to compensate the other party for some or all loss that it causes.

Term (c) – providing consumer data to a third party – these clauses are commonly found in privacy statements.

Term (d) – An “exit fee” is a payment to end a contract.  A “balloon payment” is a large final payment at the end of a loan to clear the debt.

 

Consequences of breach

Breaches of the consumer disclosure rules are punishable by fines of up to $110,000 (for corporations) and $22,000 (for individuals) for breaches.  Suppliers can also be ordered to compensate the consumer for any loss or damage they have suffered.  Penalty notices of $1,100 per offence (for corporations) or $550 (for individuals) can also be issued.

The NSW Civil and Administrative Tribunal can hear certain claims by consumers against suppliers where goods or services were, or would be, supplied in NSW.  NCAT has previously been prepared to hear a claim against Swiss company eBay International AG on the basis that it supplied services in NSW – the use of the eBay website and related services.  This means that a supplier outside NSW could have to pay compensation to a NSW consumer for breach of the consumer disclosure rules.

 

Rules can apply to business consumers

It is important for businesses to realise that the consumer disclosure rules can apply to some business purchases as well as individual purchases.  The rules apply to consumers as defined in the Australian Consumer Law (ACL), which means that they apply to:

 

  • goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption – for any price – even if they were actually purchased for a non-domestic purpose;
  • goods or services for a price of not more than (currently) $40,000 for a non-domestic purpose;
  • a vehicle or trailer acquired for use principally to transport goods – for any price (domestic cars are already covered by paragraph (a) above).

 

The rules will not apply in some business circumstances eg:

  • where goods are acquired for re-supply;
  • where goods will be used up or transformed in the course of production, manufacture or repairing other goods.

 

Increase of limit for non-domestic goods and services

From 1 July 2021 the cut-off figure of $40,000 is scheduled to increase substantially to $100,000, which means that many more business contracts will be caught by the NSW consumer disclosure rules.  This increase also applies to the consumer guarantee provisions of the ACL – which impose guarantees of, for example, acceptable quality and fitness for purpose in contracts for the supply of goods or services.

There is an error with the drafting of this increase to $100,000.  It is supposed to apply to supplies of both goods and services, but currently only applies to goods.  However, I do not recommend relying on this error.  It is possible that the Federal Government may fix it, even retrospectively, so that the increase to $100,000 applies to both goods and services from 1 July 2021.

 

Unfair terms in standard form contracts

For some years businesses have been subject to the provisions of the ACL which void unfair terms in standard form consumer contracts and small business contracts.  There is an overlap between these provisions and the consumer disclosure rules.  However, rather than a consumer having to wait for a Court to declare a particular term void, the NSW rules impose a positive obligation on businesses to make clear, upfront disclosure of terms that may substantially prejudice the interests of the consumer (instead of them being buried in the fine print).  Failure to do so is punishable by penalties.

 

Other issues

A second part of the consumer disclosure rules requires the disclosure of financial incentives, such as commissions, payable to an intermediary, such as a travel agent or comparator website, when a consumer is purchasing goods or services.  This is beyond the scope of this blog, but I am happy to provide further information upon request.

An update to the issue of unfair terms in standard form consumer and small business contracts is a recent announcement of Government Ministers who have decided that these terms will be made unlawful and subject to penalties.  This, however, is not yet law.

 

Action to take

Businesses who deal with parties in NSW need to review their contracts immediately for compliance with the consumer disclosure rules, if they have not done so already.

With the ACL consumer guarantees to apply to many more business contracts from 1 July 2021, a full review of standard form contracts is also important.  I can assist businesses to make their contracts compliant. https://ipbymargaret.com.au/contact/

 

This information sheet provides general information only, and is not intended as legal advice specific to your circumstances.  Please seek the advice of a legal professional if you have any particular questions.

 

Liability limited by a scheme approved under Professional Standards Legislation

 

© Margaret Ryan, Melbourne, Australia, 2021

Categories: Consumer law