Consultation begins on whether Australia needs a prohibition on unfair practices

• The Australian Government is consulting on whether Australia should introduce a prohibition on unfair practices.
• The consultation paper proposes four different policy options and seeks views on the benefits and costs of each of these.
• Submissions are due by 29 November 2023.
• Once the consultation process has concluded and a preferred option has been identified, any changes to the Australian Consumer Law must be passed by Parliament. The preferred option is not likely to be announced until 2024.

Consultation begins on unfair practices 

The Australian Government has released a Consultation Regulation Impact Statement (CRIS) on protecting consumers from unfair trading practices.  The CRIS seeks further evidence on the nature and extent of consumer and small business harm from unfair practices and feedback on four different policy options designed to address those harms.

What are unfair practices?

"Unfair trading practices" are business practices that are believed to be causing "significant and growing" harm to consumers and small businesses, but are not covered by existing provisions of the Australian Consumer Law (or competition law).

The CRIS includes a non-exhaustive list of examples of potentially unfair trading practices.  Some of these include:

• inducing consumer consent or agreement to data collection through concealed data practices;
• exploiting bargaining power imbalances in supply chain agreements including by unilaterally varying supply terms at short notice;
• omitting or obfuscating material which distorts consumers' expectations or understanding of the product or service offered; 
• "click-wrap" consents that result in harmful or excessive tracking or collection of data;
• adopting business practices or designing a product or service in a way that dissuades a consumer from exercising their contractual or other legal rights;
• practices that make it difficult to opt out of or cancel goods or services; 
• online designs known as "dark patterns" which manipulate consumer choice and experience; and
• providing limited mechanisms for redress.

The CRIS notes that although these practices are partly driven by the growing importance of digital platforms, they are not confined to the digital economy.

The ACCC has been lobbying for an unfair practices prohibition for some time, commencing in 2019 in its Digital Platforms Inquiry final report, up to and including recent speeches by ACCC Chair Ms Gina Cass-Gottlieb.  The ACCC believes that Australia is falling behind other OECD nations such as Singapore, the United Kingdom and European Union, all of which have an unfair practices prohibition.

Options for change

The CRIS presents four policy options to address the perceived problem of unfair practices.  These are:

• maintaining the status quo;
• amending the statutory prohibition on unconscionable conduct;
• introducing a general prohibition on unfair trading practices; and
• introducing a combination of general and specific prohibitions on unfair trading practices.

Option 1 – status quo

This option proposes no legislative changes would be made.  While canvassing this option, the CRIS suggests this is unlikely to be the preferred outcome, as "regulators would be limited in their ability to respond to unfair trading practices".

Option 2 – amend the statutory prohibition on unconscionable conduct

Under this option, the core of the prohibition on unconscionable conduct in section 21 of the ACL would be retained.  However, the prohibition would be extended to capture "unfair conduct" as a factor or element that must be assessed in determining whether conduct is unconscionable in connection with the supply or acquisition of goods or services.  The prohibition on unconscionable conduct could also be made prospective, so it applies to conduct that is "likely to be" unconscionable (similar to the prohibition on misleading or deceptive conduct).

An alternative approach which the CRIS also raises is to add the concept of unfairness to the unconscionable conduct provision itself.

The advantage of the former option is that it retains the body of case law which has developed on the current unconscionable conduct prohibition.

This option does not specifically consider penalties but presumably the existing significant potential penalties for unconscionable conduct would continue to apply to the expanded range of conduct.

Option 3 – a new general prohibition on unfair trading practices

The third option which the CRIS proposes is to introduce a new "general" prohibition on unfair trading practices, which would apply to businesses across all sectors.  

The paper does not, however, propose a definition of "unfair" in this context and stakeholder views are sought on what constitutes an appropriate definition of "unfair".  If this option was selected, this definition would be determined by the policy development process, drawing on international jurisdictions and stakeholder feedback.  Some stakeholders may be frustrated by this opacity and find it difficult to opine on Option 3 in the absence of this definition.  It is conceivable that stakeholders may be in favour of Option 3 under one definition of unfair, but against it under another.  This is likely to make it difficult for Treasury to analyse and reconcile views on Option 3.

Notably, Option 3 also wraps up the proposed general prohibition unfair practices with proposed penalties for contravening the prohibition.  Under this option, penalties equivalent to those which will shortly apply to unfair contract terms would apply to this new prohibition.  Whether it is appropriate for penalties to apply to a general prohibition on unfair practices is something that will require careful consideration.

Option 4 – a new general prohibition on unfair practices and specific prohibitions

This option is described as both the most comprehensive and the most targeted approach.  Under this option, a general prohibition would be introduced (per Option 3) but in addition to this, a list of prohibitions of specific conduct would be added.  

The specific prohibitions would be intended to provide clarity on certain practices which are not permitted and to complement the general prohibition.  The list could be updated over time.

This combined regulatory approach is used in a number of overseas jurisdictions and the CRIS cites some examples of specific prohibitions introduced in those jurisdictions.  The CRIS also notes that none of these jurisdictions have introduced specific prohibitions without also having a stand-alone prohibition in place.  This suggests that specific prohibitions alone are not considered a good option, most likely as it is not possible to exhaustively capture all types of conduct which is of concern.

Under Option 4, penalties would apply to the general prohibition and the specific prohibitions.

Consumers and small business dealings would both be covered by the protections

The CRIS appears to proceed on the basis that the protections arising from options 3 and 4 would apply to dealings with consumers and small businesses.  For these purposes, a "small business" will be one which employs fewer than 100 persons or has a turnover for the last income year of less than $10 million.  This threshold is consistent with the recent amendments to unfair contract terms.  

Option 2 does not specifically refer to consumers or small businesses, as this does not form part of the language of the existing prohibition on unconscionable conduct.  It is unclear if this would form part of the proposed amendments but assuming it would not, this may mean that the changes under Option 2 have even wider application than under Options 3 and 4.

When will the changes be made?

Treasury has just commenced its public consultation process on the issues explored in the paper.  The consultation process intends to gather additional data and evidence on the extent of the problem, as well as seeking views on the proposed policy options.

Treasury will hold targeted meetings with key stakeholders and interested parties and written submissions are also invited by 29 November.  Once this process concludes, a Decision Regulation Impact Statement will be produced to discuss the results and to identify a preferred policy option.

As the ACL is a law administered jointly by jurisdictions, it can only be amended with agreement of the Commonwealth and 4 other states or territories (including at least 3 states) following a period of formal consultation.  A Bill to amend the ACL will be prepared and publicly consulted on before being introduced into the Commonwealth Parliament.  No timeframe has yet been announced, other than the fact that the Decision Regulation Impact Statement is likely to be published in 2024.

What about the ASIC Act?

The CRIS is confined to the ACL and does not consider similar reform of the Australian Securities and Investment Commission Act 2001 (Cth), which will be considered through a separate process in 2024.

Authors: Tihana Zuk, Partner; and Amanda Tesvic, Expertise Counsel.