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January 16, 2014

Apple gives warranty undertaking

The Australian Competition and Consumer Commission has accepted a court enforceable undertaking from Apple Pty Limited (Apple) following an investigation into Apple’s consumer guarantees policies and practices, and representations about consumers’ rights under the Australian Consumer Law (ACL).

The ACCC was concerned that Apple had made a number of false or misleading representations to a number of consumers regarding their consumer guarantee rights, including that Apple was not required to provide a refund, replacement or repair to consumers in circumstances where these remedies were required by the consumer guarantees in the ACL.

The ACCC was also concerned that on occasions these representations may have arisen from Apple staff and representatives misapplying Apple’s policies, including its 14 day return policy and its 12 month limited manufacturer’s warranty.

In the undertaking Apple has publicly acknowledged that, without limiting consumers’ rights, Apple will provide its own remedies equivalent to those remedies in the consumer guarantee provisions of the ACL at any time within 24 months of the date of purchase.

To avoid any doubt, Apple has also acknowledged that the Australian Consumer Law may provide for remedies beyond 24 months for a number of its products.

From 1 January 2012 suppliers of consumer goods and services must include standard wording in warranties against defects: Schedule 3 of The Trade Practices (Australian Consumer Law) Amendment Regulations 2010 (No. 1).

The rules make it clear that supplier warranties are in addition to 12 basic statutory consumer guarantees. A requirement to pay for a contractual right to which a consumer is already entitled by law will be a false and misleading representation.

The Regulations were made pursuant to Section 102 of the Australian Consumer Law which is contained in Schedule 1 of Trade Practices Amendment (Australian Consumer Law) Act (No. 2) 2010.

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Posted 16th January 2014 by David Jacobson in Consumer Law, Marketing

January 10, 2014

Management of online review platforms

The Australian Competition and Consumer Authority (ACCC) has released guidelines concerning the use and management of online review platforms.

Review platforms are sites which specialise in presenting product reviews about a range of businesses. Consumers expect reviews to be independent and genuine to help them make more informed purchasing decisions.

The publication discusses the impact of user-generated comments and business reviews on consumer behaviour. The ACCC was of the view that both positive and negative reviews are susceptible to misuse and have the potential to distort public perception.

The ACCC is concerned that there is an increase in paid for and fake reviews.

Businesses and review platforms that do not remove reviews that they know to be fake risk breaching the Competition and Consumer Act 2010.

Reviews may mislead consumers if they are presented as impartial, but were written by the reviewed business, a competitor, someone paid to write the review who has not used the product or someone who has used the product but written an inflated review to receive a financial or non-financial benefit.

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Posted 10th January 2014 by David Jacobson in Consumer Law, Marketing, Web/Tech

December 12, 2013

Andrews v ANZ: bank exception fees case update

The question of whether bank exception fees were unlawful penalties or lawful service fees is in issue in the representative action of Andrews v Australian and New Zealand Banking Group Limited.

On 6 September 2012 the High Court of Australia made a declaration to the effect that certain fees were capable of characterisation as penalties even though they were not charged for a breach of contract (see note here ).

The trial in the Federal Court has concluded and a judgment is expected by April 2014.

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Posted 12th December 2013 by David Jacobson in Consumer Law, Financial Services

November 20, 2013

Case note: no price fixing in mortgage broking

In Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2013] FCA 1206 the Federal Court of Australia dismissed an action by the ACCC alleging that Australian and New Zealand Banking Group Limited (ANZ) had breached the price fixing provisions of the Trade Practices Act 1974 (the Act), now the Competition and Consumer Act 2010 (CCA).

UPDATE 17 December 2013: ACCC to appeal

The ACCC alleged that in 2004 the ANZ Bank sought to limit the amount of a refund a mortgage broker, Mortgage Refunds Pty Ltd, could provide to its customers in respect of arranging ANZ home loans. Mortgage Refunds was an Approved Originator with Australian Financial Group Ltd (“AFG”) with which ANZ had an originator agreement.

At the time ANZ complained that Mortgage Refunds' business model of refunding upfront commissions to borrowers (of up to $1200) breached the originator agreement which required that an Approved Originator must not “induce or cause to induce any party to apply for loan products by offering gifts or prizes or other inducements of whatever kind, without the prior written approval of the bank”. They agreed to limit refunds to $600 (the same as ANZ's loan establishment fee which ANZ branches could waive).

Justice Dowsett rejected the ACCC’s submission that the ANZ's conduct was motivated by a desire to prevent competition between its in-house and tied channels and the brokers.

After considering extensive evidence from broking industry experts and economists, the Court had to decide whether ANZ and Mortgage Refunds were competing in the same market: was supply of the loan product distinct from the supply of loan arrangement services? In other words were the 2 channels, brokers which advised borrowers on a range of loan products from various lenders, and branches, which sold only ANZ loans, in competition?

Justice Dowsett concluded "that ANZ branches and franchisees did not participate in any market in which the brokers provided loan arrangement services to potential borrowers. That finding leads to the conclusion that ANZ was not, in any relevant sense, in competition with Mortgage Refunds."

He observed that:

"ANZ’s action left Mortgage Refunds with the capacity to offer a refund up to the amount of the loan approval fee charged by ANZ. The only difficulty which Mortgage Refunds seems to have had with the limit was the problem with its advertising. The different level of refund for ANZ products, as compared to that for the products of other lenders, led borrowers who chose ANZ products to press Mortgage Refunds for higher refunds. As far as the evidence goes, ANZ in-house and tied channels did not generally waive the loan approval fee, whilst Mortgage Refunds always allowed its refund. Thus, in most cases, it would still have been offering a distinct benefit which the in-house and tied channels were not offering. It may be that from the point of view of ANZ Mortgage Group, the advantage of its proposed solution lay in ANZ’s capacity to say to the in-house and tied channels that they could waive the loan approval fee at their expense, as it had suggested on at least one occasion, even if it suspected that they would not want to do so....

I should make one other point. ACCC’s submission assumes that channel neutrality is inevitably motivated by an anti-competitive purpose. Yet there is logic in the proposition that an up-stream supplier may simply wish to avoid damaging and pointless conflict between distribution channels. In taking action in response to Mortgage Refunds’ conduct, ANZ initially sought to enforce, as against AFG, the terms of the originator agreement. The subsequent “re-instatements” were, in fact, on more favourable terms than those contained in that agreement. ANZ approved the offering of a not-insubstantial refund which, as far as the evidence goes, the branches would not generally match. In order to demonstrate the existence of a competitive relationship by reference to conduct, one must show that a desire to hinder competition is a likely reason for such conduct. For what it is worth, I am simply unconvinced that ANZ’s conduct was so motivated. Having regard to the apparently isolated nature of the conduct and the limited nature of the restraint imposed, I am inclined to the view that ANZ was trying to keep the branches happy rather than seeking to restrain perceived competition. That view is, of course, based on all of the evidence in the case. "

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Posted 20th November 2013 by David Jacobson in Consumer Law, Financial Services, Trade Practices

October 30, 2013

Current regulatory issues for financial services providers

The regulators' panel discussion at Mutuals 2013 (APRA, ASIC and Treasury) raised some points of general relevance to FSP's:

  • There are no terms of reference yet for Joe Hockey's Financial System Inquiry but all will be revealed soon;
  • The new Government has not yet made a final decision on the details of the Financial Stability Fund Deposit Levy (including whether franking credits can be used to pay it);
  • the scope of the new Government's moratorium on regulation: it will not apply to regulations required to meet international obligations or anything already on the agenda or urgent unforeseen circumstances. The moratorium is only on new issues.
  • there are limits on the adequacy of disclosure as a tool for consumer protection. Disclosure should be "multi-layered". When it does not work regulators may step in;
  • ASIC is concerned with the "assymetry" of hybrid investments targeted at retail investors: the promoters treat it as "at risk" equity while investors treat it as debt. This is a particular risk for SMSFs.

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Posted 30th October 2013 by admin in Compliance, Consumer Law, Corporations Act, Financial Services

October 14, 2013

Case note: Do Not Knock Sticker means “go away”

In Australian Competition and Consumer Commission v AGL Sales Pty Ltd [2013] FCA 1030 the Federal Court of Australia decided that a Do Not Knock Sticker (see here) conveyed a request for a door to door salesperson for AGL to leave premises for the purposes of section 75(1) of the Australian Consumer Law.

Section 75 of the Australian Consumer Law requires that a dealer who calls on a person at any premises for the purposing of negotiating an unsolicited consumer agreement must leave the premises immediately on the request of:
(a) the occupier of the premises, or any person acting with the actual or apparent authority of the occupier; or
(b) the person (the prospective consumer) with whom the negotiations are being conducted.

Failure to comply with requirements can lead to maximum penalties of $50,000 for a body corporate and $10,000 for an individual.

The question was whether the sticker was a "request".

Even though the ‘Do Not Knock Sign’ did not contain an express request to leave the premises Justice Middleton decided that "it was an on-going or continuing request directed to all salespersons who came to the door.... the words “DO NOT KNOCK” were clearly visible on (the) door. A pictorial depiction of a fist knocking with a line through it was also clearly visible. There is no ambiguity to the message conveyed to a salesperson (to whom they were directed) by these words and images – the message was an unambiguous request to leave the premises, without knocking on (the) door"

Justice Middleton concluded that:

" By directing the salesperson not to knock and stating that the salesperson was not welcome on the premises, it conveyed a clear direction that the salesperson was not authorised to carry out the purpose for which he had entered the premises and therefore that he should immediately leave the premises. If the occupier of the premises had made similar oral statements to the salesperson, it would have constituted a “request” for the salesperson to leave. No different result should follow by reason of the fact that the statements were contained in a sign displayed on the front door of the premises. "

The case has been adjourned for further hearing in relation to penalty.

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Posted 14th October 2013 by David Jacobson in Consumer Law, Marketing, Trade Practices

August 21, 2013

ACCC v Lux Distributors: what is unconscionable conduct?

In Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 the Federal Court Full Court declared that in selling its vacuum cleaners Lux engaged in conduct that was unconscionable in contravention of section 21 of the Australian Consumer Law.

Lux's sales telephone script called for its representatives to arrange to attend at elderly women's homes for the purpose of making “a free maintenance check” on the householder’s existing vacuum cleaner. When a representative arrived he would not tell the homeowner that he was there to sell a vacuum cleaner. The sales presentation lasted more than 1 1/2 hours with the goal of pressuring customers to buy expensive products.

The Australian Consumer Law has no definition of unconscionable conduct.

In the context of "unsolicited consumer agreements" (door to door sales) the court decided that "The word “unconscionability” means something not done in good conscience" and the purpose of the section is "consumer protection directed at the requirements of honest and fair conduct free of deception. Notions of justice and fairness are central, as are vulnerability, advantage and honesty."

It concluded:
"The task of the Court is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values. .... Here, however, they can be seen to be honesty and fairness in the dealing with consumers. ...These laws of the States and the operative provisions of the ACL reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. These considerations are central to the evaluation of the facts by reference to the operative norm of required conscionable conduct."

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Posted 21st August 2013 by David Jacobson in Consumer Law, Trade Practices

August 9, 2013

Case note: contract terms declared unfair

Under Part 2.3 of the Australian Consumer Law (ACL) unfair contract terms in standard form consumer contracts are void. The contract will continue to bind the parties, however, if it can still operate without the unfair term.

In Australian Competition and Consumer Commission v Bytecard Pty. Limited (judgment not yet available online) the Federal Court declared that a number of clauses in ByteCard's standard form consumer contracts for internet access services were unfair and therefore void.

The Federal Court declared, by consent, that 4 clauses of ByteCard’s standard terms and conditions are unfair contract terms. The unfair contract terms:

  • enabled ByteCard to unilaterally vary the price under an existing contract without providing the customer with a right to terminate the contract;
  • required the consumer to indemnify ByteCard in any circumstance, even where the contract has not been breached and the liability, loss or damage may have been caused by ByteCard’s breach of the contract; and
  • enabled ByteCard to unilaterally terminate the contract at any time with or without cause or reason.

The terms were considered unfair as they:

  • created a significant imbalance in the parties’ rights and obligations;
  • were not reasonably necessary to protect ByteCard’s legitimate interests; and
  • if applied or relied upon by ByteCard, would cause detriment to a customer.

The decision gives an indication of what types of clauses the ACCC is taking an interest in and guidance when determining whether similar terms could be unfair or not.

“Standard form” is not defined in the legislation, but it usually means that the same terms are offered to all without negotiation.

In May 2013 the ACCC published a report on the outcome of its industry review of unfair contract terms.

The ACCC reviewed standard form consumer contracts in the airline, telecommunications, fitness and vehicle rental industries, as well as some contracts commonly used by online traders. A select number of standard form contracts used by prominent travel agents were also examined.

The law does not apply to insurance contracts, because the Insurance Contracts Act 1984 (Cth) provides that an insurance contract cannot be the subject of relief under any Commonwealth Act on grounds of unfairness. However the Commonwealth Government introduced the Insurance Contracts Amendment (Unfair Terms) Bill 2013 into Parliament prescribing that general insurance contracts are also subject to the Australian Consumer Law. The Bill lapsed with the calling of the election.

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Posted 9th August 2013 by David Jacobson in Consumer Law, Insurance, Web/Tech

July 29, 2013

Franchising Code of Conduct changes

The Commonwealth Government has issued its Response to the Review of the Franchising Code of Conduct (Background).

Amendments agreed to by the Government include:

  • The Government will amend the Code to ensure that when franchisees are provided with notice of the franchisor's intention to renew or extend a franchise agreement, they are reminded of their entitlement to request a disclosure document under the provisions of the Code.
  • there will be an alternative short-form disclosure document.
  • The Government will amend the Code to require additional disclosure of the respective rights of the franchisor and franchisee to conduct and benefit from online sales, including any ability or intention of the franchisor to conduct online sales.
  • The Code be amended to require franchisors to provide prospective franchisees with a short summary of the key risks and matters they should be aware of when going into franchising
  • Subject to certain conditions being met, restraint of trade clauses in the franchise agreement which prevent the franchisee from carrying on a similar business in competition with the franchisor, will not be enforceable by the franchisor against the franchisee.
  • There will be a refinement of disclosure of the risks of potential unforeseen capital expenses
  • The Code will be amended to make the administration of marketing funds more transparent and ensure that marketing and advertising funds are spent on legitimate expenses related to the marketing and advertising of the franchise system.
  • with respect to yearly audit, the Government accepts that, if 75 per cent of franchisees agree an audit is not required for a particular year, then it may be an unjustified compliance cost to require a franchisor to arrange an audit. The Government will provide an exemption in these circumstances
  • The Code will be amended to include an express obligation by the parties to act in good faith. The ACCC will provide education about the meaning of this obligation.
  • the Government will legislate to ensure that the ACCC has the power to seek pecuniary penalties for Code breaches. The Government will undertake further detailed consideration of the appropriate maximum pecuniary penalty, and will consider whether different maximum penalties should be prescribed for different breaches of the Code to reflect that more serious breaches should attract higher penalties.
  • The Competition and Consumer Act will be amended to allow the ACCC to use its powers under section 51ADD of the CCA (its random audit powers) to assess a franchisor’s compliance with all aspects of the Code, not just to require the production of documents created under the Code.

There will be further consultation about standard contract terms for automotive dealerships.

The Government does not agree to amend the Code to state that marketing or other cooperative funds are to be treated as trust funds or held in a trust account.

The Coalition has indicated its support for the changes. To implement this Government response, amendments will be needed to both the Competition and Consumer Act 2010 (Cth) and the Trade Practices (Industry Codes – Franchising) Regulations 1998 (the Code).

It is expected that the changes foreshadowed in this Government response will only apply to franchise agreements entered into after the passage of legislation through Parliament. This excludes changes to the enforcement regime; pecuniary penalties and infringement notices will be able to be sought by the ACCC for all breaches of the Franchising Code from a particular commencement date.

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Posted 29th July 2013 by David Jacobson in Business Planning, Consumer Law, Trade Practices

July 12, 2013

HP misleading advertising penalty

Australian Competition and Consumer Commission v Hewlett-Packard Australia Pty Ltd [2013] FCA 653 confirms the approach of the Federal Court in Apple and Optus in assessing and imposing consumer law penalties proposed by consent of the parties.

The Federal Court declared that Hewlett-Packard Australia Pty Ltd made false, misleading or deceptive representations in breach of the Australian Consumer Law to consumers and retail suppliers of its products.

The ACCC and HPA agreed on a $3million penalty and $200,000 costs order against HPA which the court approved.

The parties also reached agreement on the terms of an injunction and corrective advertising (including on HP's website).

HPA admitted to six contraventions of sections 18 (Misleading or deceptive conduct) and 29(1)(m) (False or misleading representations about goods or services) of the ACL.

HPA admitted that when consumers contacted helpdesks operated by HPA (HPA Helpdesks) in relation to HPA Computer Products not of merchantable or acceptable quality, staff employed at the HPA Helpdesks made representations, in accordance with the internal policies, guidelines and scripts developed and implemented by HPA (HPA Guidelines), to the effect that:

  • the remedies available to consumers for those HPA Computer Products were limited to remedies available from HPA at its discretion (Remedy Limitation Representation);
  • consumers must have HPA Computer Products not of merchantable or acceptable quality repaired by HPA multiples times before consumers were entitled to receive a replacement HPA Computer Product (Repair Condition Representation);
  • the warranty period for those HPA Computer Products was limited to a specified express warranty period (Limited Warranty Period Representation); and
  • after the expiry of a specified express warranty period, HPA would repair HPA Computer Products not of merchantable or acceptable quality on condition that consumers paid for such repairs (Payment Condition Representation).

HPA also admitted that when retail suppliers contacted HPA, from time to time staff employed at HPA made representations to the effect that HPA was not liable to indemnify the retail suppliers if, without HPA’s prior authorisation, retail suppliers provided consumers with a refund or replacement (Retail Supplier Representation).

Further, HPA represented on a webpage of the HPA Online Store that consumers could not return or exchange HPA Computer Products purchased through the HPA Online Store not of acceptable quality unless otherwise agreed by HPA, at its sole discretion (Online Remedy Discretion Representation).

Justice Buchanan stated:

"It is accepted by the respondent not only that the contraventions identified by the statement of agreed facts and by the outline of joint submissions were serious ones but that declarations, injunctions and other coercive orders should be made as a result....

I see no reason to doubt that the pecuniary penalty agreed by the parties is an appropriate one. The maximum penalty available for the totality of the six contraventions admitted by the respondent is $6.6 million. The parties have agreed that the admitted contraventions should be the subject of a pecuniary penalty of $3 million. A penalty of that order of magnitude is the equivalent of $500,000 for each admitted contravention, if the matter was to be assessed in that fashion. In my view, that reflects an acknowledgement of the seriousness of the respondent’s conduct, both with respect to the individual contraventions and with respect to the total penalty to be imposed, which penalty I am satisfied does not contravene the totality principle. I am also satisfied that the penalty is sufficient to mark the Court’s disapproval of the respondent’s conduct and to satisfy the requirements of general and specific deterrence....

The parties have agreed that the respondent should pay the applicant’s costs in the amount of $200,000. There is no reason to think that an order for costs in this amount is inappropriate."

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Posted 12th July 2013 by David Jacobson in Consumer Law, Marketing, Trade Practices, Web/Tech
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