Australia: New disclosure obligations on businesses dealing with consumers in NSW, come into full force from 2021

Since the introduction of the amendments, NSW Fair Trading indicated they would take an “educational” approach to compliance and enforcement to help businesses adapt, expiring on 31 December 2020. For many businesses, with so much going on in 2020, the new disclosure requirements and the end of the grace period may have understandably slipped under the radar.

It is therefore critical that affected businesses review their existing contracts and disclosure practices to ensure they are compliant with the new requirements.

What businesses are affected

The new laws apply to businesses that are dealing with “consumers” in NSW.  Businesses located outside NSW but whose customers include consumers in NSW will also be affected. At this time these are NSW-specific changes that have not been adopted by other jurisdictions.

For the purpose of these provisions, “consumer” has the same meaning as in section 3 of the Australian Consumer Law.  Accordingly, the new disclosure obligations will apply to the supply of goods and services where:

• the amount payable does not exceed $40,000 (noting that this threshold will increase to $100,000 from 1 July 2021);
• the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or
• the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads.

Disclosure of substantially prejudicial terms

The Fair Trading Legislation Amendment (Reform) Act 2018 (NSW) introduced new sections 47A and 47B to the Fair Trading Act 1987 (NSW) (the Act).

Section 47A requires a business, before supplying a consumer with goods or services, to take “reasonable steps” to ensure that the consumer is aware of the “substance and effect” of terms or conditions of contracts with consumers that may “substantially prejudice” the interests of the consumer.

Section 47A(2) provides a non-exhaustive list of examples of terms and conditions that may substantially prejudice the consumer. These include terms which:

• exclude the liability of the supplier;
• provide that the consumer is liable for damage to delivered goods;
• permit the supplier to provide data about the consumer, or data provided by the consumer, to a third party in a form that may enable the consumer to be identifiable by the third party; and
• require the consumer to pay an exit fee, a balloon payment, or other similar payment.

NSW Fair Trading has introduced guidance on this requirement (the Guidance) which goes further than what is set out in section 47A.  The Guidance says that substantially prejudicial terms include “at least” terms which “limit the liability of the supplier” (not just “exclude”) as well as those falling within the other three categories listed in section 47A(2).  The Guidance also provides various examples by reference to the categories listed in section 47A(2).

Section 47A(3) provides that regulations may be introduced to set out the types of terms covered by section 47A, relevant exemptions from the disclosure requirement, and what may constitute “reasonable steps” taken by suppliers to ensure consumers are aware of the substance and effect of terms or conditions relating to the supply of goods or services.

As yet no such regulations have been passed.  See below for further information on what may constitute “reasonable steps” under the new laws.

Disclosure of intermediary arrangements

Under the new section 47B, before an “intermediary” acts under an “arrangement” that provides for the intermediary to receive a “financial incentive”, the intermediary must take “reasonable steps” to ensure the consumer who will be supplied with the goods or services is aware of the existence of the arrangement.

An “intermediary” means a person who arranges contracts for the supply of goods or services as an agent, or who refers consumers to another supplier of goods or services under an arrangement that provides for a financial incentive.  Examples set out in the Guidance include real estate agents, travel agents and mortgage brokers.

A “financial incentive” means a commission or referral fee, or any other kind of payment which may be prescribed in future regulations.

An “arrangement” can be formal (such as a written contract) or less formal (including a verbal agreement).  Specific examples provided in the Guidance include commission and referral arrangements.  Section 47B aims to address perceived conflicts of interest in these kinds of arrangements.

The Guidance clarifies that intermediaries do not need to disclose the nature or value of the financial incentive.

Section 47B(2) provides for the following matters to be addressed in regulations:

• what may or may not constitute reasonable steps taken by intermediaries to ensure consumers are aware of the existence of arrangements that provide for intermediaries to receive financial incentives; and
• any other requirements in relation to the way in which intermediaries must make consumers aware of the existence of arrangements under which intermediaries receive financial incentives.

As yet no such regulations have been passed.  See below for further information on what may constitute “reasonable steps” under the new laws.

“Reasonable steps” test

According to the Guidance, in order for the steps taken to be reasonable in the context of the new sections 47A and 47B, the steps must be:

• appropriate in the circumstances; and
• sufficient to create awareness in the consumer.

As a general rule, disclosures should also be “clear, upfront and automatic”. In this context,

• “clear” means easily understood;
• “upfront” means the consumer is not required to seek out the information themselves; and
• “automatic” means the disclosure is a standard part of each transaction.

Key issues for businesses to work through include determining what level of disclosure is required before supply is made and how the business will demonstrate it provided the required level of disclosure.

Consequences for breach

Significant penalties can be imposed on businesses and individuals for contravention of these provisions (up to $110,000 per contravention for corporations and $22,000 per contravention for individuals).

Next steps

We recommend that businesses whose customers include consumers in NSW:

• review their existing contracts to determine whether the above disclosure obligations may apply to them;
• review their contracting processes and, in particular, how the business highlights to customers potentially prejudicial terms (or, if applicable, how the business highlights receiving a financial incentive as an intermediary); and
• if applicable, make the required changes to ensure that reasonable steps are being undertaken to ensure compliance with these new requirements before 1 January 2021.

The new laws also need to be considered in the context of existing requirements under the nationally implemented Australian Consumer Law which include transparency considerations as part of applying the unfair terms test in addition to the well-known prohibitions on misleading and deceptive conduct and false or misleading representations. The new disclosure requirements highlight the increased emphasis on calling out substantially prejudicial terms to consumers.

Additionally, and as previously reported by us, on 9 December 2020 the Federal Government recommended significant reforms to Australia’s unfair contract terms (UCTs) laws.  If passed, the reforms will result in UCTs being illegal and will give the Federal Court the power to impose significant penalties for breaches.

Now is an opportune time to ensure that any standard form contracts and contracting processes are compliant, transparent and up to date.

Please contact us if you would like further information regarding how these new obligations may impact your business, or for assistance implementing these additional requirements.

This alert was prepared with the assistance of Jeremy Hardy and Andrew Chih.

1 Fair Trading Act 1987 (NSW) s 47A.

2 Fair Trading Act 1987 (NSW) s 47B.