From 1 January 2021, businesses dealing with consumers in New South Wales are liable to penalties if they do not disclose to consumers:
- terms of contracts that substantially prejudice the interests of the consumer;
- if the business receives a commission or referral fee when recommending the consumer buys goods or services of a third party.
What businesses are affected?
The legislation applies to businesses (companies and individuals) whether located inside New South Wales or not that are dealing with “consumers” in New South Wales.
Who is a consumer?
A “consumer” has the same meaning as under the Australian Consumer Law (ACL). The term includes individuals and companies who purchase:
- goods or services that cost less than $40,000 (this threshold will increase to $100,000 from 1 July 2021 in line with amendments to the ACL); or
- goods or services that are of a kind ordinarily acquired for personal, domestic or household use or consumption; or
- a vehicle or trailer used primarily to transport goods on public roads.
When does a term “substantially prejudice” the interests of a consumer?
The legislation does not include a definition of what constitutes a term which “may substantially prejudice the interests of [a] consumer”. Nor does the legislation include an exhaustive list of terms that may substantially prejudice the interests of a consumer. Rather it provides the following examples of terms that may substantially prejudice the interests of a consumer:
- a term which excludes the liability of the supplier;
- a term which provides that a consumer is liable for damage to delivered goods;
- a term which permits the supplier to provide data to a third party (the data being about the consumer or provided by the consumer) which may enable the third party to identify the consumer;
- a term which requires the consumer to pay an exit fee, balloon payment or similar payment.
In the absence of a definition or an exhaustive list of the terms, it is unclear when a term will be regarded as a term that may substantially prejudice the interests of a consumer.
The NSW Department of Fair Trading has issued guidance regarding this issue which appears to go further than the legislation (the guide refers to terms which limit the supplier’s liability whereas the legislation refers to terms which exclude a supplier’s liability). However, it is important to keep in mind that the list in the legislation is non-exhaustive.
The legislation also contemplates that the regulations may provide for the type of terms or classes of terms:
- that may substantially prejudice the interests of consumers, and
- that do not substantially prejudice the interests of consumers,
but as yet, there are no relevant regulations.
What are the obligations of businesses regarding “substantially prejudicial” terms?
Businesses must, before supplying a consumer with goods or services, take reasonable steps to ensure that they are aware of the substance and effect of any “substantially prejudicial” terms.
What constitutes “reasonable steps”?
There is no guidance in the legislation as to what constitutes “reasonable steps”. And while the legislation contemplates that the regulations may provide for:
- what may or may not constitute reasonable steps taken by suppliers to ensure consumers are aware of the substance and effect of “substantially prejudicial” terms; and
- any other requirements in relation to the way in which consumers must be made aware of “substantially prejudicial” terms,
this has not occurred.
According to the NSW Department of Fair Trading, “reasonable steps” means taking actions that “one would reasonably expect would create awareness in a consumer” and should be:
- appropriate in the circumstances; and
- sufficient to create awareness in the consumer.
The Department suggests the following examples of how businesses might disclose “substantially prejudicial” terms:
- using short, plain English summaries on the front page of a contract;
- providing information in short chunks at key times for the customer. i.e. on the information or payment page;
- when online, making information appear on screen in a scrollable text box; and
- using comics, illustrations or icons to highlight and explain relevant information.
Disclosures of commissions and referral fees
“Intermediaries” must take reasonable steps to make consumers aware of any commission or referral arrangements where they receive a commission or referral fee from another supplier.
However, intermediaries do not need to disclose the nature or value of the commission or referral fee.
An “Intermediary” is a person who:
- arranges contracts for the supply of goods or services as an agent, or refers consumers to another supplier of goods or services;
- under an arrangement that provides a financial incentive.
Again the disclosure needs to take place before the intermediary acts under such an arrangement. According to the NSW Department of Fair Trading, “reasonable steps” might include:
- adding a disclosure on quotations provided to the customer;
- directing a customer’s attention to appropriate signage;
- when online:
- disclosing relevant information on the same page as the product or service’s description;
- having the disclosure appear in a pop-up box;
- adding an automatic disclaimer on the bottom of emails.
What are the penalties for a breach?
There is a fine of up to $110,000 for corporations and $22,000 for individuals who breach this law.
Penalty notices may also be issued for suspected contraventions of $1,100 for corporations and $550 for individuals.
What businesses need to do if they supply goods or services to NSW consumers
If your business supplies goods or services to NSW consumers, you should:
Step 1 Identify any terms which might “substantially prejudice” the interests of a consumer.
Step 2 Consider what “reasonable steps” you need to take to alert consumers of these terms before supplying the consumer with the relevant goods or services.
Step 3 Take those reasonable steps.
In light of the lack of guidance in the legislation, steps 1 and 2 will not be easy and much will depend on the nature of your business and how you supply your goods and services.
What else you should keep in mind
As stated above, on 1 July 2021, the definition of “consumer” under the ACL will be amended. Currently, the definition includes any person who acquires goods or services which are not a kind ordinarily acquired for personal, domestic or household use for an amount not exceeding $40,000. This monetary threshold will be increased to $100,000 on 1 July 2021. This change will clearly be relevant in determining which consumer contracts are relevant for the task of identifying any terms which might “substantially prejudice” the interests of a consumer.
Additionally on 6 November 2020, Commonwealth and state and territory consumer affairs ministers agreed to strengthen the existing unfair contract term protections in the ACL. These measures include making unfair contract terms unlawful and giving courts the power to impose civil penalties. Please see our update detailing these changes here. Although this regime deals with unfair contract terms in standard form agreements, and is therefore narrower in scope than the relevant NSW provision, there will be some overlap.