KAHNS
LAWYERS 

Client Newsletter
(Autumn Edition 2011)

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IN THIS ISSUE:

We begin by drawing your attention to the new Australian Consumer Law and the legislation revamping and renaming the Trade Practices Act. We offer some practical advice on the Personal Property Security Act and our current issue also details new litigation procedures introduced and then repealed in the Civil Procedure Act.

  • Australian Consumer Law..................................................................................... 2
  • Personal Property Security Act.............................................................................. 4
  • New Litigation Procedures Introduced - And Repealed.......................................... 6

 

 

 

Clients should not act only on the basis of material contained in this newsletter because the contents are of a general nature only and may be liable to misinterpretation in particular circumstances. Changes to legislation occur quickly. Do not act on any of the contents of this newsletter without first obtaining specific advice from our office.

 

A number of the articles contained in this newsletter have been obtained from the Law Institute of Victoria.

 

Please note:  Should you wish to receive future copies of newsletters electronically please contact our office via our e-mail address:   [email protected] confirming your request and providing details of your e-mail address. 

 

 

 

Level 5, 461 Bourke Street, Melbourne VIC 3000

PO Box 13226, Law Courts PO, Melbourne Victoria 8010

Telephone: +61 (3) 9642 1833  Facsimile: +61 (3) 9642 0018

Email: [email protected]    Website:www.kahns.com.au

 

Australian Consumer Law

On 24 June 2010, the Federal Parliament passed legislation renaming the Trade Practices Act 1974 as the Competition & Consumer Act 2010 ('CCA') effective from 1 January 2011. It is the culmination of five years of reform activity set in train by the Howard Government in 2005. The CCA contains the new Australian Consumer Law ('ACL') and is said to be the most comprehensive change to the Trade Practices Act since its inception. So what is new about the CCA ?

The first obvious change has been the complete re-sorting of all the sections. In particular, the whole of Part V which dealt with consumer protection, has been repealed and largely rewritten as schedule 2 to the new CCA. Hence, old familiar sections are renumbered - section 52 misleading and deceptive conduct is now section 18 in schedule 2. But there have been additional changes to the law apart from just renumbering sections.

The ACL has added laws concerning unfair terms in contracts, which Victoria has implemented by passing its own Unfair Contract Terms Act 2010 which implements parts of the ACL. Other States have enacted similar legislation. Some definitions have changed, and some sections have been reworded to accommodate different overlapping laws under the old TPA and equivalent State legislation. There are also new consumer guarantee provisions to replace implied warranties, a new national regime for unsolicited consumer agreements, simplified national rules for lay-by agreements, a new product safety regime and new provisions concerning information standards on goods and services. We review each of these areas briefly below.

Change of Definitions

Some of the principal changes include -

New National Law on 'Unfair Terms'

The new sections 23-28 in schedule 2 of the CCA largely mirror the equivalent sections which previously existed under State laws. In essence, terms of 'standard form consumer contracts' that are unfair, in that they cause significant imbalance in parties' rights and obligations and not in good faith to the detriment of a consumer, is a breach of the Act.

Not all of these expressions have been defined. However, the ACCC has published a guide and how it intends to enforce the sections. Section 25 of the ACL also sets out a non-exhaustive list of the sort of terms that will be considered 'unfair' -including rights reserved for one party but not the other such as termination, penalties, assignment, legal action, renewal etc. Only a court can hold a contract term to be unfair. Of note, if one party alleges that a contract is 'standard form' then the onus of proof is reversed onto the defendant to prove that it is not 'standard form'. While this term is not defined in the ACL, section 27 sets out some clues as to its meaning -did the consumer have the right to negotiate the terms, was the contract pre-prepared before discussions, was it tailored for a specific consumer. After lobbying, the government agreed to remove application of these sections for business to business contracts.

Statutory Consumer Guarantees

The new ACL introduces a number of consumer guarantees which replace the implied warranties and conditions contained in the old TPA Part V. There are two obvious changes -firstly, the term 'merchantable quality' has been replaced with the term 'acceptable quality'. This is more than mere semantics, since the ACL defines at section 54 the tests for what is "acceptable". The definition is subject to a "reasonable consumer" test and takes into account -the nature of the goods, the price, statements on the label/packaging, & sales representations. The difference to "merchantable" quality is that now goods must be of a durable quality for a "reasonable period after purchase", as compared to the old test of "time of purchase". Also, the use of the goods need only be a "common use" as opposed to "normal use", which may prove to be more semantic in nature.

Secondly, by bringing the guarantees into the CCA, rather than implying them into contracts with consumers, it means that the ACCC can now police the provision of guarantees rather than parties having to take complaints to Court.

New Regime for Unsolicited Consumer Agreements & Unfair Practices

The new ACL creates basic rules concerning unsolicited consumer agreements. The Act regulates how consumers may be approached, disclosure obligations, consumer rights to terminate, post-termination behaviour by suppliers, and making void any terms that seek to exclude consumer's rights. Given the nature of unsolicited agreements in the main, such changes will mostly be welcomed.

Some other unfair practices are specifically dealt with under the new ACL as well -misleading testimonials, false prize offers, timely supply of goods, phony rebates, multiple pricing and non-itemised bills have all been specifically singled out in various sections of the new ACL.

New Product Safety Regime

The new ACL effectively nationalises the State systems for the recall of faulty products and product safety standards. But in addition, it introduces some new obligations on suppliers, such as a mandatory reporting of serious incidents where consumer goods or services have been associated with death, serious injury or illness.

Oddly, the new ACL provides that where a supplier undertakes a compulsory recall of a product, it can elect whether to repair, replace or refund the goods. But under a voluntary recall programme, where the goods are 'unsafe' then this is defined to be a 'major failure' under the statutory guarantees, and so it is the consumer who can choose what action a supplier must take. So far, the ACCC has indicated that it will not apply to voluntary recalls, but it remains to be tested.

New Enforcement Powers for the ACCC

The new ACL also increases the enforcement powers available to the ACCC as regulator. In summary, the principal changes are as follows -

What Next?

There are a number of steps necessitated by the re-writing of the old TPA -

  1. Review of all contractual documents to update references to the 'TPA'. Further, if standard form contracts are used for consumer customers, then they will need to be reviewed for specific changes.
  2. Review warranties to ensure that they meet the standards now laid out in the ACL. In particular, care should be taken to note the difference between 'acceptable' and 'merchantable' levels of quality.
  3. Moderate any unsolicited sales behaviour to ensure that it complies with the CCA's new requirements and restrictions.
  4. Review product recall and safety programmes.

The reforms to the old TPA probably are "the most comprehensive changes since its inception in 1974" in the hyperbole of the Federal Minister. Certainly, while there has been a strengthening of the laws protecting consumers, many of the changes are largely semantic, and getting used to the new CCA and ACL will be as much about committing new section numbers and wording to memory as much as anything else.

Personal Property Security Act

On 14 December 2009, the Federal Parliament passed a new Act entitled the Personal Property Securities Act 2009 ("PPSA"). Although it was intended to commence from May 2011, the government has been unable to implement the legislation nor publish regulations. The latest implementation date announced is October 2011 but it is possible this will be pushed back further into early 2012.

The PPSA will aim to bring together various Commonwealth and State laws to create a single security register to regulate security interests in personal property. It is based on a similar model existing in the USA and New Zealand, among other places.

The term "personal property" is defined under the PPSA to mean all property other than land and fixtures. The term "security interest" is defined to mean any interest that secures payments or performance of an obligation and includes, retention of title arrangements, fixed and floating charges, bills of sale, chattel mortgages, finance leases, assignments over book debts and charges over intellectual property.

From the commencement of the PPSA, all new and existing security interests must be registered on the national register. There will be a 24 month transition period following commencement and during this time an existing security interest will retain its priority it had prior to the commencement of the PPSA. Failure to register security interests during the transition period will mean that a secured party will lose priority to another secured party that has recorded its interest on the register.

The practical effect of this is that a later created mortgage debenture over all of a company's assets will take priority in securing those assets over an earlier unregistered interest such as retention of title in goods.

The lack of published regulations as to how the PPSA will operate in practice leaves considerable uncertainty at present. However, the PPSA is proposed to have the following features: -

Purchase Money Security Interests

One potential problem which has been addressed under the PPSA, is where a specific asset has been acquired subsequently and using a specific finance contract. The normal rule, that the first registered interest takes priority over subsequent registered interests, is exempted where a particular item is subject to a security interest with respect to the purchase money, such as a hire purchase contract. Such interests are known as purchase money security interests (PMSI) under the PPSA and are created where secured party provides finance for the acquisition of goods either through hire purchase, lease finance or bailment. Any PMSI must be registered within 15 business days of creation and applies only to the extent of the value given to the grantor including interest and credit charges. PMSl's take priority over any registered non PMSI security interest, even ones registered earlier.

The end of fixed and floating charges

As seems to be the way of legislators, the new PPSA of course changes the names of certain familiar concepts. Hence, the terms "fixed" and "floating" charges cease to exist and "crystallisation" of floating charges is no longer relevant because the charge attaches to the assets upon registration. The new expression is that floating charges become security interests over "circulating assets" which is defined to include book debts. Fixed charges will be replaced by PMSI's.

Suppliers will no longer be able to rely on standard retention of title clauses to recover property which has not been paid for by a customer. Retention of title interests will be required to be registered and it is expected that only one registration will be needed with respect to each customer to cover multiple transactions. Again, until the regulations are published, it is unclear precisely how this will work. Obviously, this could create a huge administrative burden to suppliers who deal with many customers and will have to register a security interest with respect to every customer in place of their existing retention of title clauses in their standard terms and conditions.

The old notion of tracing will continue to have relevance although the PPSA redefines the term as "accession". Essentially, goods that become part of other goods without losing their character in those other goods continue to be subject to any pre-existing security interest.

Other forms of security interest

There are certain interests that are deemed to be security interests under the PPSA. For instance any lease or bailment of 90 days or more over serial numbered goods or a lease over property for a term of greater than 12 months (including over-holding periods) is deemed to be a security interest. All finance leases and hire purchase contracts are deemed to be security interests. The definition of "personal property" under the PPSA includes intellectual property (but not domain names). While licences to use intellectual property are not security interest per se, they can be used as collateral to found a security interest.

Generally, all of the rules of enforcement for secured creditors continue as they have in the past with respect to the repossession, sale and recovery of secured assets.

What next?

Until the publication of regulations by the government, it remains to be seen what processes will be required in order to migrate to the considerable changes to be introduced under the PPSA.

Certainly, the two most important areas will be requiring a complete review of all documentation to ensure that it is brought up to date to recognise the fundamental changes introduced by the PPSA, and secondly, setting in place processes to ensure that all secured interests are registered within the specific time periods laid out under the PPSA and the proposed regulations.

For some businesses, the changes will be far reaching and expensive to implement, particularly for suppliers who are used to dealing with a large number of customers (especially trade customers) and have happily relied on a retention of title clause in standard terms for many years.

For parties acquiring goods, it will be necessary to develop the habit of searching the security register to ensure that "clear" title is being transferred. This raises one of the fundamental weaknesses in the system that hopefully the regulations will address. That is, it is not necessary to lodge the security document under which secured interest is claimed with the ITSA, but it will be sufficient to lodge a form (yet to be released) which claims a particular interest. Therefore, it is unclear how a purchaser or financier can be sure that existing charges and other securities which are claimed under the register are in fact valid and it is unclear what system if any will be put in place to verify such claims.

Conclusion

The PPSA and its as yet unpublished regulations are set to introduce a fundamental change in the way that Australians deal with assets and claim security interests in them. While a generous 24 months transition period has been allowed for under the PPSA, there remains considerable uncertainty as to how the PPSA processes will operate in practice and we shall continue to provide updates in this area as the regulations are released by the government.

 

New Litigation Procedures Introduced -And Repealed


Prior to its defeat in the November 2010 election, the Brumby government passed the Civil Procedure Act 2010, which introduced additional administrative processes for parties and their lawyers before they commenced litigation.

The purpose of the Act is to discourage litigation except as a last resort, by making it necessary for parties to justify why they are issuing proceedings and having their lawyer certify that their case is worthy to be issued.

Accordingly, as from 1 January 2011, the Act requires each party personally to certify with its first substantive document filed (normally a writ or defence) that it has read and understood the"overarching obligations" and the "paramount duty" as defined in the Act. Section 7 of the Act defines that "overarching purpose" of the Act and the rules of court as being "to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute, including through determination by the court, agreement being between the parties or any appropriate dispute resolution." The "paramount duty" is defined in section 16 as a duty "to the court to further the administration of justice", being the most important of all the overarching obligations.

In addition, the legal practitioner for each party must also certify with the first substantive document filed, that each allegation, denial or non-admission in that document has a proper basis. "Proper basis" for an allegation or denial must be based on a reasonable belief as to the truth or untruth of the allegation or denial. "Proper basis" of a non-admission means that the practitioner does not know whether a fact alleged is true or untrue. The rules of court provide forms for each of these certificates.

There are sanctions for contravening the overarching obligations including orders for costs, compensation for financial loss arising and orders that a person take steps to remedy any contravention.

The Act also provided case management for cases that have been issued as a means of advancing the culture of directions already present in most court lists. In addition, there are new rules in relation to discovery of documents which commence from 1 January 2011 including new forms and various requirements to ensure proper discovery is made by parties. This means seeking to avoid either discovering too many documents to swamp an opposing party or not discovering enough documents in order to withhold relevant evidence. Again, the idea is to ensure that discovery of documents in cases is also conducted subject to the "overarching obligations" and the "paramount duty". The test for summary judgment has also been made more difficult and requires evidence that the case being attacked for summary judgment has "no real prospect of success".

The Act also provides for pre-litigation alternative dispute resolution to be undertaken for any action commencing on or after 1 July 2011. For any case sought to be issued from 1 July 2011, the plaintiff would be required to demonstrate that it had taken "reasonable steps" to resolve the dispute. This was part of the Act's objective to build a culture in which litigants are discouraged from going to court without having at least tried to resolve their cases.

Presumably, the former government saw potential savings in encouraging parties to bear the cost of resolving disputes themselves and without the help of a government funded court system. The Act defined "reasonable steps" to include the exchange of appropriate pre-Iitigation correspondence, information and documents critical to the resolution of the dispute (without defining what they may be), and considering options for resolution of the dispute including negotiations or appropriate dispute resolution (without defining what they may be).

It was concern over the extra costs of these proposed pre-Iitigation ADR steps that led the Baillieu Government to draft the Civil Procedure & Legal Profession Amendment Bill 2011 which is presently before Parliament. It repeals the 2010 Act in so far as the Act required pre-Iitigation ADR and will be proclaimed before 1 July 2011. The opposition has opposed the Bill on the grounds that it was "undemocratic and un-Australian ...because we stand proudly on behalf of those who cannot afford the big lawyers at the big end of town" (Hansand, 2 March 2011).

Perhaps the opposition will take heed of some facts -firstly, most lawyers do not work in "big" firms. An overwhelming majority work in small firms in the city, suburbs and country. Secondly, adding further compliance steps inevitably adds extra legal costs. Thirdly, encouraging parties to do initial negotiations without legal representation helps big litigants (often government departments) who can afford legal advice early to "bully" smaller litigants. Hence, the historic tension between the legal profession and "big" governments. The Courts are subsidised and have developed effective systems for managing costs in the great majority of cases.

Of course, increasing the compliance certification and procedural steps also increases the costs of litigation, so it will be of interest to see whether the surviving parts of the Act are successful in increasing "access to justice". It will also be interesting to see how effectively the Act's aim to make litigants more honest in their conduct of proceedings actually becomes a reality.

 

 

Level 5, 461 Bourke Street, Melbourne VIC 3000

PO Box 13226, Law Courts PO, Melbourne Victoria 8010

Telephone: +61 (3) 9642 1833  Facsimile: +61 (3) 9642 0018

Email: [email protected]    Website:www.kahns.com.au