The COVID-19 pandemic presents a range of new compliance challenges for business under the Australian Consumer Law (ACL).
We consider what the current crisis means for business and the enforcement of the ACL by the Australian Competition and Consumer Commission (ACCC) in relation to three key consumer law issues of pricing, the consumer guarantee regime and unfair contract terms issues.
The COVID-19 pandemic has created widespread shortages of – and in some cases, increased prices for – essential goods and services.
In other jurisdictions, governments and consumer agencies have implemented various measures to control ‘profiteering’ or ‘price gouging’. For example, in the US, President Trump has issued an executive order giving the Department of Justice powers to take action against hoarding and price gouging that threatens the availability of medical supplies. Similarly, the UK Competition and Markets Authority has published guidance indicating that it will take action against price gouging under UK law where appropriate.
In Australia, concerns around the hoarding and re-sale of essential medical supplies such as masks, gloves, and hand sanitiser have prompted the Federal Government to issue a direction under biosecurity legislation that prohibits price gouging (in this case, defined as reselling at a greater than 20% margin) and limits exports in relation to those specific products. Beyond that, however, there are no direct controls on the pricing of goods or services under Australian law. In that context, the ACCC has frequently acknowledged that there is nothing inherently unlawful about high prices – even prices that are unreasonably or unfairly high in times of crisis.
However, high pricing could be unlawful in that it may, in certain circumstances, amount to prohibited unconscionable conduct under the ACL. To be ‘unconscionable’, conduct must be more than merely unreasonable or unfair, and must be against good conscience according to the norms of society. Generally, this has required deliberate dishonesty affecting a particularly vulnerable or disadvantaged consumer.
It is difficult to envisage circumstances in which a supplier would be regarded by the ACCC or a court as acting unconscionably where it acts honestly and simply charges relatively high prices to its customers (particularly where those prices reflect increasing input costs). Nevertheless, the ACCC is currently focused on business behaviours that may ‘exploit the crisis either to unduly enhance their commercial position or harm consumers’, and in this environment high pricing in a sensitive sector may well prompt an ACCC investigation. For that reason, suppliers of essential goods or services should consider whether:
- some of their customers have some misapprehension (such as wrongly believing that there is a shortage) that the supplier has or may have caused;
- those customers have some vulnerability or disadvantage; and
- the prices being charged (and margins achieved) to those customers would be regarded as exploitative or harmful in some way, including because they would effectively restrict access to the essential goods or services.
Finally, if concerns around price gouging intensify, then the Federal Government could conceivably trigger the price restriction and/or price monitoring provisions in the Competition and Consumer Act 2010 (Cth). Those provisions:
- allow the Minister, or the ACCC with approval of the Minister, to declare that specific goods and services require ACCC approval for price increases; and
- provide for ACCC monitoring of prices, costs and profits in the supply of goods or services in a particular industry (in recent years, the ACCC has been directed to monitor, for example, retail fuel and electricity prices).
Suppliers should also consider the sales and marketing claims they make in relation to their prices. Where inaccurate claims are made they will breach the ACL, which prohibits misleading or deceptive conduct generally, and particular false and misleading representations in relation to the prices of goods or services. An obvious example, highlighted by the ACCC, is claiming that a price increase is a result of shortages or disruptions in supply caused by the pandemic, where there are in fact no shortages or disruptions.
A further consideration for business is the practical application of the consumer guarantee regime in the ACL during the pandemic. That regime imposes guarantees in relation to the supply of goods and services to consumers, including that goods will be of acceptable quality, and provides for various remedies including refunds and repairs. Generally, where a failure to meet a consumer guarantee is minor, the supplier can choose the remedy: a repair, replacement or refund. However, where the failure is major (i.e. where the consumer would not have made the purchase in view of the defect or other issue), the consumer has the option of a refund, replacement or compensation for the drop in value of the goods.
While social distancing measures are in place, consumers will naturally have a greater reluctance to physically present goods for repair or replacement, and will have a stronger-than-usual preference for refunds – creating an additional incentive for them to claim that a failure to meet a consumer guarantee is major. Of course, businesses may wish to adopt a more generous approach to refunds at this time. However, businesses should be mindful of establishing potentially unhelpful consumer expectations that persist after the current crisis is over.
On related issues, the ACCC has released guidance that suggests its attitude will be that:
- where a business is unable to supply a good or service as a result of government mandated rules (e.g., business closures, social distancing or lockdown rules), there is no automatic expectation of a refund;
- where a business does not supply goods or services of its own accord, there is an expectation that consumers will be given refunds if requested; and
- where the nature of a good or service necessarily and materially changes as a result of pandemic-related measures (e.g. where a particular service cannot continue to be delivered in person, but may be delivered online), there is an expectation that a business will not continue to charge for it if the consumer no longer wishes to continue.
Unfair contract terms
Under the unfair contract terms regime in the ACL, terms in standard-form consumer and small business contracts that cause a significant imbalance in the parties’ rights and obligations, are not reasonably necessary to protect a legitimate interest, and would cause detriment if relied upon, can be declared void by a court on the application of the ACCC.
The ACCC is currently fielding a large number of queries, particularly from small business, about the impact of inconvenient terms such as those that make it difficult to terminate a contract or cease paying for goods or services. The ACCC will carefully consider whether such clauses should now be considered unfair under the ACL, for example on the basis that a small business has been forced to close as a result of the COVID-19 pandemic through no fault of its own, no longer has any need for the goods services, and will now suffer a greater or more apparent detriment if the terms are relied upon.
At the same time, however, the COVID-19 pandemic represents an opportunity to revisit terms that might, in ordinary circumstances, be more likely to be regarded as unfair. For example, the ACL sets out examples of terms that may be unfair, including terms that enable one party (but not the other) to limit their obligations under, or vary the terms of, the contract. These terms are usually regarded as high risk from an unfair contract terms perspective, and in recent years have generally been removed or omitted. However, where a business cannot reliably predict the impacts of the COVID-19 pandemic or related government measures on its ability to supply goods or services (or its business more broadly), it may well be legitimate to include greater flexibility in its standard-form contracts.
This article is part of our insight series COVID-19: Navigating the implications for business in Australia and beyond. To get notified by email when new COVID-19 insights are released, please subscribe for COVID-19 updates.
This article was originally co-authored by Alistair Newton.
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.