WHY ONLINE TRADERS NEED TO UNDERSTAND CONSUMER LAW?
Advertising and consumer law is an essential part of e-commerce. Whatever economic model you use, as an online trader, when you publish information about products and/or services you are offering to potential customers, you must comply with advertising and consumer law.
When you sell goods or supply services you must comply with consumer laws. Whether you plan on advertising online by buying ads on search engines and/or engaging in direct marketing through email you need to have a basic understanding of the rules which operate in the jurisdiction or jurisdictions in which you trade.
Under Australian consumer law a consumer is defined as a person who purchases goods/services up to the value of $40,000 of a kind normally acquired for the purpose of domestic, household or private use. Therefore if you were purchasing industial equipment you may escape the application of consumer law.
In a similar vein if you are acquiring goods so that you can re-supply or onsell them or use them in the course of your business to produce, repair or manufacture goods then this would not qualify you as as a consumer . Goods you acquire at an auction, where an auctioneer acts as your agent, would also take you outside the application of the legislation.
As a business you are involved in the supply of goods to consumers when you sell, exchange, re-supply, lease, hire or hire-purchase to a consumer, and are therefore subject to Australian consumer law.
As long as you are involved in ‘trade or commerce’, which means that you are in a trading or commercial relationship or conduct a business or professional activity, including non-profit, you will be required to abide by consumer law. It is only where you are selling goods on a one-off basis as a private person such as selling your crafts at a fete or holding a garage sale where you would be excluded from the application of the legislation.
Internet advertising and consumer law will shape decisions about what kind of content and representations you can legitimately make on your website, including the placement of that information.
As a online business you should be familiar with the laws which regulate advertising both in your home country, and ideally when engaging in cross-border transactions, the laws of the countries in which you trade.
IS INTERNET LAW DIFFERENT FROM THE LAW RELATING TO OFFLINE TRANSACTIONS?
The laws relating to the online environment are similar to laws regulating advertising and sales of products and/or services in print, newspaper and broadcasting mediums.
However there are additional concerns in relation to internet advertising operating in a global marketplace, as consumer and other laws can differ from country to country. Whilst comparative advertising is legal in both Australia and the United States, it is prohibited in some European countries.
Some courts have made decisions to the effect that just being on the world wide web means a business is trading globally. As transactions can occur on a potentially global scale this can give rise to uncertainty for both consumers and advertisers where disputes arise.
Even if a party involved in a dispute with your business commences legal action in their country’s courts, it doesn’t necessarily mean that their courts will automatically hear the dispute and apply their country’s laws to resolve it.
There are complicated ‘choice of law‘ rules which determine which laws are to be applied to a dispute, in addition to rules which determine whether a particular countries’ courts have jurisdiction to hear the dispute. (the forum)
It is advisable for an online business to include terms in their contracts displayed on their website stating that the laws and courts of their country will apply to disputes. This reduces uncertainty associated with what laws and courts will resolve cross-border transactions. However they are not necessarily conclusive, and what laws and courts decide disputes depends on a number of circumstances.
ADVERTISING ON THE INTERNET
In the past before the advent of the internet, international magazines had conducted advertising campaigns abroad targeting countries outside their place of publication. This is analogous to ads served on the internet.
The advent of satellite television, global news providers and the world wide web as new marketing mediums has exposed advertisers and publishers to a global market.
The way that you structure your website, the features you display, the language it is written is and what countries you make yourself available to do business with may influence your business’ legal liability and exposure to other countries’ consumer and other laws. There is a body of case law which has developed in the United States, Europe and Commonwealth countries which is used to determine whether a website can be said to be ‘reaching out’ to or ‘targeting’ consumers in different countries, which is used not just in the resolution of consumer transactions, but is also relevant to deciding trade mark infringement actions on the internet.
DO REGULATORS BECOME INVOLVED IN RESOLVING INTERNATIONAL DISPUTES/COMPLAINTS?
In recent years, the Australian Competition and Consumer Commission (ACCC), Australia’s federal consumer regulator and watchdog, has stepped in and dealt with a number of complaints from Australian consumers concerning products they have purchased from websites hosted from other countries.
This occurred for example when Australian consumers purchased tickets as a result of a scam conducted by a website for an event at the Sydney Opera House, and more recently in relation to tickets for the Beijing Olympics and FIFA football world cup.
The ACCC has dealt with an increasing number of complaints from Australian consumers about products purchased from other countries. Conversely there have also been complaints from overseas about products purchased from Australia.
The ACCC and other regulators are useful sources of information and assistance in resolving disputes, particularly where they involve widespread scams, however there are limits to the ability of regulators to resolve disputes.
Ordinary consumer transactions between businesses and consumer overseas are most commonly resolved by the parties to the transaction.
WHAT IS ICPEN?
Icpen is an acronym for the International Consumer Protection and Enforcement Network of trade practice law enforcement authorities from around the globe.
ICPEN is involved in trade practices and other consumer protection activities and identifies scams which use spam to target victims.
The demand for consumer protection in relation to false internet advertising in cross-border transactions, (particularly where it involves spam), may be more likely to be addressed by a combination of national laws and international bi-lateral and multilateral agreements between countries which co-operate in their investigation and enforcement activities. This is because legal action is often impractical.
However once again ordinary consumer cross-border transactions about the quality or standard of consumer goods, purchased on ebay or through independent websites will usually have to be dealt with by the parties involved. This is a good reason for businesses to be aware of the regulatory landscape and implement strategies to order to avoid disputes and protect themselves from liability.
EXPOSURE TO LAWS OF OTHER COUNTRIES?
Internet advertisers need to ensure their advertising content complies with overseas laws if they intend to engage in trade in overseas markets. Businesses firstly need to decide where they want to trade, and implement strategies to minimise their risk to being exposed to the consumer and other laws of foreign jurisdictions.
Having identified which countries you wish to operate in, you can take some simple measures to indicate where you do business. For example you can prominently display to prospective purchasers within the text of your webpage and in your contractual terms, the countries to which offers to sell goods/services apply to minimise your exposure to a worldwide audience.
Another way of signalling to an internet user that the website is only offering goods and/or services to certain countries is by using customised drop down software within your checkout process listing only the countries you intend to trade with.
AUSTRALIAN CONSUMER LAW
At the very least if you are a business operating in Australia you need to have an awareness of Australian consumer law.
Australian consumer law will apply to businesses which sell, lease or hire new or second hand goods, or provide services to consumers. It also applies to businesses which make or put together goods or place their name on goods sold to consumers or import goods for resale.
AUSTRALIAN CONSUMER LAW REFORM
Business operating prior to 1 January 2011 would be aware of the fact that there were approximately seventeen national, state and territory consumer laws, in operation in Australia, including a number of consumer law provisions scattered throughout various pieces of legislation.
Australian consumer legal rights and obligations have been rationalised and are set out clearly, to beapplied uniformly throughout Australia. National consumer laws make compliance easier for businesses.
The Trade Practices Amendment (Australian Consumer Law) Bill (No. 2) 2010 amended Australia’s federal consumer legislation, including the Trade Practices Act 1974 (Cth), the Australian Securities and Investments Commission Act 2001 and the Corporations Act 2001, with a view to introducing a single national consumer law to be called the Australian Consumer Law.
OVERVIEW OF THE NEW AUSTRALIAN CONSUMER LAW
In addition to making changes to the law, the Act also changed the name of the Trade Practices Act to the Competition and Consumer Act 2010.
The new Act contains both general and specific consumer protections, including prohibitions against misleading and deceptive conduct and unconscionable conduct, and provisions covering unfair practices associated with consumer transactions.
Australian Consumer Law includes specific protections relating to:-
– statutory consumer guarantees, warranties and refunds
– unsolicited selling including door-to-door sales, mail and telemarketing
– lay-by agreements, including gift cards and vouchers
– product safety law
– information standards including advertising and pricing
Many of the general consumer protections are substantially the same as those in the former Trade Practices Act 1974 (Cth), although the legislation has been drafted so that it is more user friendly and easier to comprehend. These prohibitions will operate on a similar basis as those in the former Trade Practices Act.
For example, one of the most well known provisions in the old Trade Practices Act, namely the prohibition prohibiting persons in trade or commerce from engaging in misleading or deceptive conduct and unconscionable conduct towards consumers or businesses. It will continue to operate on the almost the same basis as the former provision contained in the TPA.
The case law which has already evolved associated with the interpretation of these consumer protections, and the equivalent State and Territory fair trading laws, will be of continuing relevance to the application of Australian Consumer Law.
CHANGES TO AUSTRALIAN CONSUMER LAW
As stated above the new Australian consumer law introduces a scheme of statutory consumer guarantees which reform existing laws, and a new standard consumer product safety law for consumer goods and product related services.
Businesses need to be familiar with the Australian Consumer Law providing for specific consumer protections covering unfair practices/contracts, safety of consumer goods and product related services, information standards and the liability of manufacturers for goods with safety defects
Whilst there used to be a series of implied conditions and warranties in the Trade Practices Act regarding consumer guarantees, this was believed to be confusing.
A single set of statutory consumer guarantees has been substituted which is clearer and provides more effective protection for consumers relating to their rights when purchasing goods and/or services. It also makes legal obligations clearer to businesses.
The reforms are accompanied by changes to administrative and enforcement of the law, including better provision of information to consumers and businesses.
The new Australian Consumer Law prescribes new information standards for goods and services, requiring suppliers to provide and present information in a particular manner when supplying particular goods and services.
The Australian Consumer Law introduces a national law dealing with unsolicited sales practices, including door-to-door selling, telephone sales and other forms of direct selling which don’t occur in a retail context. These provisions replace existing regulations relating to unsolicited sales but do not affect provisions covering the Do Not Call Register Act 2006 (Cth) and associated legislation.
The law contains express supplier obligations about the way in which consumers are approached and the making of contracts, including permitted visiting hours, the disclosure of the purpose and identity of the supplier, duties imposed on suppliers to leave premises on request and informing a consumer of their right to terminate the agreement.
The new Australian Consumer Law contains explicit disclosure obligations for suppliers about the making of agreements, express consumer rights and obligations, a 10 day termination right setting out the grounds for termination and express supplier obligations around post-contractual conduct.
Under the national consumer product safety law, the Commonwealth can designate safety standards for the supply of certain goods or services and the power to impose interim and permanent bans on goods or services which pose a risk to consumer safety.
All Commonwealth and State Ministers are able to recall goods which create a risk of injury to any person, publish safety warning notices to inform consumers about safety investigations or warn consumers of the potential dangers with using particular goods and services.
Where a supplier voluntarily recalls a product due to potential safety risks they are legally obliged to notify the Commonwealth Minister who will publish details about the recall on the internet.
Suppliers have new reporting obligations to the ACCC if they become aware that a consumer good or related service has been associated with a death or serious injury. Businesses may become aware of incidents through consumer complaints, legal proceedings or other means.
A business is not however required to investigate, or apprise itself of an incident they don’t become aware of in the ordinary course of their business. Nor does a business have to report such incidents where the defect isn’t the cause of the incident.
The new national consumer product safety law is supplemented by a national liability scheme enabling consumers to recover against manufacturers of goods containing safety defects, for any loss or damage suffered as a result of the defects.
It is based on the manufacturers liability provisions of the Trade Practices Act and contains a number of defences for manufacturers against action that has been brought against them.
Offences, enforcement and remedies
The Australian Consumer Law adopts a national approach to enforcement which means regulators can take action against businesses. Breaches of specific consumer protections in the law have associated criminal offence provisions.
These include unfair practices, unsolicited consumer agreements, lay-by sales, safety of goods and product-related services and information standards.
Regulators can accept undertakings from businesses instead of issuing penalties, and have the power to issue substantiation notices and public warning notices. There are a range of remedies for breach of provisions including civil monetary penalties, injunctions, damages, compensation orders, adverse publicity orders or disqualification of persons from managing corporations.
The Australian Consumer Law provides a range of defences to alleged breaches of consumer protection provisions in certain circumstances relating to the publication of advertisements or the supply of certain goods or product related services that aren’t compliant with a safety or information standard outside Australia.
Remedies for consumer guarantees
General remedies will still be available under the law, and consumers can take action against suppliers of goods and services, including action against manufacturers of goods, where a relevant guarantee is not complied with. The provisions cover rejected and replaced goods, and the termination of contracts.
The ACCC can issue infringement notices for most breaches of the Commonwealth Australian Consumer Law. Infringement notices include penalties that can be paid to avoid court action being taken by the ACCC. The fines are not enforceable by a court and non-payment can result in the ACCC pursuing court action for the breach leading to the infringement notice defaulted on.
Product safety investigation and enforcement
There are provisions providing for enhanced entry, search and seizure powers for the ACCC in relation to product safety concerns, information gathering powers and the ability to make application to a Court for the destruction of goods posing a risk of consumer injury.
CUSTOMER WARRANTIES AND GUARANTEES
Consumers are now given guarantees when purchasing goods and services, including the right to repairs, replacements and refunds, even if they don’t have a warranty or extended warranty. All goods supplied to consumers must be of ‘acceptable quality’, which means fit for the purpose they were intended for, not defective, safe and have an acceptable appeareance and finish. If a consumer is shown a sample or demonstration model and given a description of the goods the goods must match both.
Suppliers of goods must guarantee that goods match descriptions or samples supplied and this applies irrespective of whether the customer had the opportunity to inspect the goods prior to purchase. The matching applies to colours, sizes, and may apply to fabrics such as curtain samples or carpet samples. Where the goods fail to meet a guarantee the consumer has the right to a remedy from either the supplier or manufacturer where the goods aren’t of acceptable quality, don’t match the description, or meet any additional promises or express warranties made in respect of them and may depending on the circumstances claim consequential loss.
The consumer has the right to reject or return the goods, and must inform the supplier of their intention to do so, although a consumer can forfeit their right to reject goods if they lose, destroy or discard the goods or allow an unreasonable amount of time to pass before asserting their rights. If the costs of returning goods is significant the supplier must collect the goods from the consumer.
Where the consumer is faced with a major failure in the goods, they get to choose whether to reject the goods ad receive a refund, request a replacement if available, or to retain the goods and request compensation for the diminutionn in value of the goods due to the problem with the goods. A refund cannot be refused because the goods weren’t returned in their originally packaging.
If the consumer wants the goods repaired and the supplier can’t repair them within a reasonable time the consumer can take the goods elsewhere and claim the reasonable costs from the supplier including other associated costs.
A major failure occurs when a reasonable consumer with knowledge of the failure, would not have purchased the goods had they been aware of the failure. A major failure also occurs where goods don’t match the description or sample, are unfit for the purpose they were intended for or are unsafe. On the other hand if the failure is a ‘minor failure’ the consumer doesn’t have the right to return the goods and demand a refund.
The above are just some of the features of the statutory customer guarantee. Detailed guides on the various details of the new consumer law protection provisions are available on the Consumer Affairs Victoria website.
GENERAL PROTECTIONS UNDER AUSTRALIAN CONSUMER LAW
As stated above, many of the general consumer protections are substantially the same as those in the former Trade Practices Act 1974 (Cth) which businesses are still required to comply with. A brief overview of the main protections follows.
The main protection is that which provides that a corporation shall not in trade or commerce engage in conduct that is misleading or deceptive or which is likely to mislead or deceive.
WHAT KIND OF CONDUCT MIGHT BE MISLEADING OR DECEPTIVE UNDER STATE OR COMMONWEALTH LAW?
The prohibition against making misleading statements applies to either past or present statements of fact. Intention is irrelevant, therefore it doesn’t matter whether the person making a statement had an intention to mislead or deceive or actually believed the accuracy of the statement/s made.
The important question is whether or not the statement, as a matter of fact, contained or conveyed a meaning which was deceptive or had a tendency to mislead or deceive.
This means inaccurate statements are covered in addition to promises, predictions or opinions expressed, and statements can be made either explicitly or impliedly.
In determining whether a representation in an advertisement is a question of fact, you need to examine the form and substance to assess what it would convey to the relevant section of the public to whom it was directed.
STEPS IN DETERMINING WHETHER A STATEMENT IS LIKELY TO MISLEAD OR DECEIVE
1. Identify the characteristics of the target population to whom the conduct is directed.
2. Evaluate the statement from the perspective of all persons who fall within the class identified
3. Assess the statement or representation against the standard of ‘ordinary reasonable members’ of the section of the public. It will be easier to prove that a statement may be misleading or deceptive if directed at a relatively unsophisticated audience such as the general public, as opposed to say a small segment of the population with special knowledge or expertise.
4. Evidence of the fact a person has in fact been misled is persuasive but not conclusive in establishing whether a statement is misleading or deceptive.
This section under review (check back later)
SPECIFIC FALSE REPRESENTATIONS UNDER THE TPA
As stated above the TPA contains specific prohibitions against making false claims regarding certain matters in relation to the supply or possible supply of goods and/or services or in their promotion. These include representations regarding land, employment, investments and prohibitions on selling techniques. It isn’t necessary to demonstrate knowledge a statement is false or intention to mislead to make out a breach of certain specific prohibitions. The fact they are incorrect is sufficient:
Goods are of a certain standard or quality
Claims that goods are of a particular quality, value, composition, style, model or standard or have a particular history or use. s53(a) & (aa), s12(a)(b) FTA. A statement that goods are new . s53(b) & s12(1)(c).
Sponsorship or approval
Representations goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have. s53(c), s12(e).
Representations regarding the price of goods/services. s53(e), s12(g). These representations may extend to modes of payment and either the cost or availability of acquiring credit and goods and services tax payable.
Representations regarding availability of spare parts or repairs of goods is prohibited under s53(ea), s12(i).
Place of origin
Representations concerning the place of origin of goods s53(eb), s12(i). There are different tests for what ‘made in Australia’ means. It could mean substantially manufactured in Australia, acquired their character in Australia, or where all processes resulting in their production took place in Australia. All tests have been applied depending on the nature of the relevant goods under consideration. There are certain defences and the Act won’t be contravened where the goods have been substantially transformed in the country designated. Where 50% or more of the cost of production or manufacture occurred in the country designated the representation this will be a defence to a false country of origin claim.
Need for goods/services
Making a false or misleading representation concerning the need for any goods or services is prohibited under s53(f), s12(g)
Conditions and warranties
Making a representation concerning the existence, exclusion or operation of a condition, warranty, guarantee or remedy s53(g), s12(h). The seller cannot try to exclude the operation of statutory implied conditions and warranties for example relating to the merchantability of goods or fitness for purpose. The unavailability of refunds would also breach statutory implied conditions entitling a purchaser to a return of the price.
Representations regarding sale of land
Representations in connection with the sale or grant of an interest in land or in relation to the promotion of same, eg the nature of the interest in the land, price payable, location, characteristics of the land, use to which the land may be put and availability of facilities. The offering of gifts, prizes with the intention of not providing them as offered is also prohibited as are representations that the corporation has sponsorship or affiliations that it does not have.
Representations regarding employment
Representations as to the profitability of a business carried on from a person’s residence or risk of other material particular of a business activity requiring the performance of work whether or not money is invested or not.
1. offering gifts, prizes or other free items in connection with the supply of goods or services or their promotion with the intention of not providing them.
2. Bait advertising of goods/services at a particular price if there are reasonable grounds for believing they wouldn’t be available to be offered at that price or only in limited quantities.
3. referral selling involves motivating a consumer to purchase goods/services by representing they will obtain a rebate, commission or some other benefit in exchange for providing the names of other customers.
4. receiving payment for goods without intending or having the ability to supply goods/services as ordered.
5. pyramid selling
6. inertia selling
Remedies available in respect of breaches of the TPA range from injunctions to corrective advertising, damages awarded for loss, contractual remedies and criminal penalties.
reasonable reliance on information supplied by another person
act or default of another person or some action beyond the control of the defendant