17/11/2015

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That’s unfair!Contracts, pricing &

the Australian Consumer Law

Dr Michael Schaper, ACCC Deputy Chair

Outline

The ACCC: Who we are & what we do

Unfair contract terms: Coming soon!

Pricing: What your clients need to know

Scams: Tax time and crowdfunding

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1.The ACCC: What We Do

• National regulator: oversees laws on consumer protection,

equitable competition, product safety, infrastructure access

• Also regulates some specific industries (such as energy,

telecommunications), industry codes (franchising, horticulture)

and price monitoring (airports, postage, stevedoring)

• An independent statutory agency within the Treasury portfolio

• Dual educative and enforcement function

• Enforcement agency…does not set policy

Legal Framework

• Principal legislation: Competition & Consumer Act 2010 (previously known as Trade Practices Act 1974). Includes the Australian Consumer Law

• Laws apply across the country

• Apply to all activities “in trade or commerce” – legal structure is usually irrelevant

• Covers both goods and services

• Activities of government often exempt

• Generally cannot impose penalties: court-based litigation (but can issue infringement notices)

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Competition &

Consumer Act

2010

Applies to all businesses -

including professionals

Many accountants run small firms

Accountants are trusted advisors for small businesses

Governs most day-to-day business-to-business, business-

to-consumer transactions

Why is the Competition & Consumer

Act Relevant to Accountants?

2. Unfair Contract Term Laws

• Currently apply to standard form

consumer contracts

• Protect consumers from unfair

terms where they have little or no

opportunity to negotiate

• The government proposes

extending the unfair contract

protections to cover small

businesses

Hire a car, book a

holiday, or top up

your phone account

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What is an Unfair Contract Term?

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Standard form consumer contracts cannot contain

terms that:

cause a significant imbalance in consumer’s rights

are not reasonably necessary to protect the business’s interests, and

cause any detriment to the consumer

The Federal Court looks at transparency and the contract as a whole before deeming a term unfair.

Unfair term is void (treated as though it never existed), however the rest of contract will continue to bind.

Terms that set out the price are not covered. Price terms are exempt from unfair contract terms.

An Example: ByteCard

In 2013, the Federal Court declared clauses in ByteCard standard form consumer contracts unfair and therefore void.

ByteCard is an ISP that provides internet connectivity, domain registration, hosting and web design

The unfair contract terms:

• enabled ByteCard to unilaterally vary the price without providing the customer with a right to terminate the contract

• indemnify ByteCard in any circumstance

• enabled ByteCard to unilaterally terminate the contract at any time

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Unfair contract terms Law

for Small Business

NEW Small Business

Unfair Contract Terms Law

Applies to standard form contracts

One of the parties to contract has less than 20 employees

Upfront price is less than $300,000 ($1 million for multi-year contracts).

Laws enforced by ASIC (financial products and services) and ACCC

and state/territory ACL regulators (every-day goods and services)

https://www.youtube.com/watch?v=0b9vZIgn7owhttps://www.youtube.com/watch?v=0b9vZIgn7ow

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Time To Get Ready…

• New law applies to any standard form B2B contracts entered

into or renewed from 12 November 2016

• Some industries of focus: advertising, telcos, franchising,

commercial leases, independent contracting (IT consultants,

engineers, architects)

• Potentially problematic areas: unilateral variations, automatic

rollovers, liability limitations, wide-ranging indemnities

• Check your client contracts now

3. Pricing

Can a supplier stop me from discounting?

What is drip pricing?

What information do I have to display to

customers?

When is was /now pricing misleading?

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Advertising & Selling

• Two fundamental rules apply:

1. you must not engage in conduct that is likely to mislead or deceive

2. you must not make false or misleading claims or statements.

• The overall impression created is important

PENALTIES

Misleading or deceptive conduct: injunction, damages

False or misleading misrepresentations: Up to $1.1 million for corporations and

$220,000 for individuals

You should always display the single total price of a product or service

You must not show a price that is only part of the cost, unless you also prominently advertise the single total price

The single total price must include any tax, duty, fee, levy or other additional mandatory charges (e.g. GST or airport tax)

This single price is the minimum total cost that can be quantified (or calculated) at the time

Component Price Advertising

$40 + fees and charges $40 + $3 booking fee + $4.30 GST = $47.30

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March 2015: iiNet Limited pays $204,000 in

penalties following ACCC infringement notices for

Naked Broadband Plan advertisements

The Age

27 September 2014

Plus $11/mth

handset payment

$81/mth

December 2014:

Telstra paid an

infringement notice

penalty of $102,000

after the ACCC

considered an

advertisement

misrepresented the

price of the phone

and phone plan bundle.

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Imposing Minimum Resale Prices

• Retailers should be free to set their own prices.

• It is illegal for suppliers to:

– put pressure on businesses to charge their RRP or any other set price (e.g. by threatening to stop supplying to firm)

– stop resellers from advertising, displaying or selling goods from the supplier below a specified price

• There is nothing wrong with suppliers using a RRP list - as long as prices on that list are really just recommended (not enforced!)

Exam

ple In December 2014, Italiatech and TMO

admitted to restricting the resale prices of bicycle parts and accessories which prevented Australian retailers from competing effectively with international online sellers.

Was / Now Pricing

Key

co

nsid

era

tio

ns • Would a consumer have paid the ‘was’ price for a reasonable

period before the sale?

• What is ‘reasonable’ will depend on the type of product or market and usual frequency of price changes.

• Savings must be genuine: statements are likely to be misleading if the product had not been offered for sale at the ‘was’ price

• Using ‘was/now’ pricing, where there were very little or no sales at the ‘was’ price is likely to be risky

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Drip Pricing

• …a headline price is

advertised at the start of

an online purchasing

process and additional

fees and charges which

may be unavoidable are

then incrementally

disclosed.

In October 2015, the ACCC accepted undertakings from

Airbnb & eDreams to improve pricing practice.

The ACCC considers they failed to adequately disclose

mandatory fees on key pages of their online booking platforms.

Be upfront: Always display the single total price of a product or service

Set your own prices: Do not agree with competitors to fix prices, share markets, restrict output or rig bids

You are free to discount: Suppliers can use a RRP list as long as prices on that list are really just recommended

Don’t rely on small print: You can’t rely on disclaimers as an excuse for a misleading overall message

Be genuine: When using two price (was/now) comparisons savings must be real

Golden Rules for Pricing

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Government Response to Financial System

Inquiry: Credit Card Surcharges

4. Scams

Tax-time scams

• threatening and persistent phone calls which claim that failure to immediately settle a tax debt could result in arrest or jail time

Crowdsourcing fraud

• people chip-in funds for a new product, the entrepreneur offers incentives and refunds to backers but cuts and runs with the money

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NEW

Follow the ACCC

on LinkedIn

5. Need More Info?

Small business helpline 1300 302 021

www.accc.gov.au/smallbusiness

Small Business Info Network

Sign up at www.accc.gov.au/sbin

Publications

Small Business in Focus

The Franchisee Manual