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The end of the beginning: How will the ‘new normal’ affect businesses’ consumer law obligations?

20 May 2020

#Dispute Resolution & Litigation, #COVID-19

Published by:

Michael Gu

The end of the beginning: How will the ‘new normal’ affect businesses’ consumer law obligations?

The COVID-19 pandemic has caused many businesses to consider the impact on their existing business and the resultant legal implications. Much of the commentary and legal analysis has, understandably, been directed towards the effect of COVID-19 either as an unforeseeable common law ‘frustrating event’ or a trigger for force majeure clauses to avoid contractual obligations[1].

However, as Australia begins to ease restrictions and businesses gradually ramp up economic activity, it is clear that the new economic landscape, at least for the foreseeable future, will be radically different. Adapting to this ‘new normal’ is becoming the cliché of these uncertain times.

Businesses that adopt a ‘business as usual’ approach as restrictions begin to ease risk ignoring or minimising their ongoing obligations under the Australian Consumer Law (ACL) and consequently, risk exposure to liability for contravening the ACL[2].

Most businesses are familiar with the prohibition against engaging in ‘misleading or deceptive conduct’ by creating a misleading impression about products or services that they provide. Businesses that contravene the misleading and deceptive conduct provisions under the ACL may be liable for a ‘smorgasbord’ of remedies in individual or class actions by consumers.

However, there is also a lesser known prohibition in the ACL[3] – the “wrongly accepting payment” provision. This provision specifically prohibits businesses from charging for services they do not intend, or are unable, to provide.

Breaches of this provision attract substantial pecuniary penalties in actions directly by the Australian Competition and Consumer Commission (ACCC), in addition to compensation to consumers[4] .

The ACL prohibition on charging ‘fees for no service’

The wrongly accepting payment provision in the ACL provides that suppliers must not, in trade or commerce, accept payment for goods or services where, when the payment is accepted:

  • the supplier does not intend to supply those goods or services [s 36(1)]
  • the supplier intends to supply ‘materially different’ goods or services [s 36(2)]; or
  • there are reasonable grounds for believing that the goods or services cannot be supplied within the time specified or within a reasonable time [s 36(3)].

The ACCC takes a particularly dim view of breaches of this provision. Recently, the Federal Court approved a $6 million settlement between Bupa Aged Care and the ACCC for charging vulnerable aged care residents for additional services that were not provided or only provided in part, in addition to Bupa undertaking a compensation scheme requiring it to pay compensation to the affected residents estimated to be worth $18.3 million[5]. Similarly, in 2012, the ACCC secured a $2.5 million penalty against a telecommunications company for signing up and charging 350 customers who lived in a remote region where there was no mobile coverage[6].

Under the ‘new normal’, businesses may not be able to rely on COVID-19 to avoid performance

Since the standard of intent and reasonableness under the wrongly accepting payment provision is objective[7], businesses cannot operate under an assumption of ‘business as usual’ and ‘hope for the best’. The ACL requires that businesses determine, with reasonable certainty, whether they can supply goods or services at the time that they accept payment for them.

The ACCC is unlikely to allow the ongoing uncertainty in the COVID-19 climate to alter or avoid performance indefinitely as COVID-19 conditions is no longer an unexpected shock, but rather becomes a fact of life. Just as insurance providers restrict claims for ‘known events’, as COVID-19 becomes a ‘known event’ in the regulatory sphere, businesses must ensure that they do not enter consumer transactions under which they will charge for goods or services they cannot reasonably expect to supply.

Consequently, in a world where face-to-face interactions are either restricted or prohibited, businesses will need to consider the impact that any restrictions may have on their ability to supply goods and services, moving forward. For example, if an outbreak of Australian COVID-19 cases required the government to reintroduce the more draconian restrictions, would the businesses’ terms and conditions entitle the customer to a refund? Alternatively, could the terms and conditions permit the goods and services to be delivered in a different manner? For instance, if restrictions were reintroduced and gyms were required to close, could the membership terms and conditions be drafted in a manner which requires the member to pay (perhaps at a reduced rate) for access to classes or training programmes online? Will event promoters expect customers to pay for events they broadcast online? Will private tutors or music teachers expect customers to pay for lessons through video call?

Businesses need to do their due diligence to make sure they are not charging ‘fees for no service’

Businesses need to ‘know their business’ – to gain a clear understanding of the goods and services they will be able to provide, and the circumstances in which they will be able to supply, by:

  • assessing arrangements with suppliers, subcontractors, delivery service providers
  • keeping abreast of the regulatory environment, especially given the piecemeal and unpredictable lifting of restrictions by states and territories, and the risk of restrictions being reimposed if COVID-19 outbreaks become uncontrolled
  • assessing whether changes in COVID-19 restrictions change the inherent requirements of the supply of goods or services
  • creating a business continuity plan in case restrictions are reintroduced.

Businesses also need to ‘know their customers’—to be sufficiently agile and provide options for their customers, by:

  • making existing customers aware of their business continuity plan
  • communicating clearly with customers to let them know of disruptions or changes in plans – in particular, making customers aware of their rights if the business becomes unable to supply goods or services, or if it intends to supply goods or services in a ‘materially different’ way
  • updating pro forma agreements, or standard terms or conditions, to avoid the effect of making customers pay ‘fees for no services’.

Effective disclosure and communication with customers is crucial to ensure regulatory compliance. As in the COVID-19 business climate, sunlight is the best disinfectant to prevent businesses falling foul of their ongoing regulatory obligations.

As states and territories are easing restrictions at different rates, there cannot be a one-size-fits-all approach. Business continuity arrangements that are possible in one state or territory may not be possible in others.

Holding Redlich is experienced in resolving ACL disputes and is able to advise on the ACL implications of contracts to provide tailored solutions in these uncertain times.

Authors: Kim MacKay, Joshua Fetherstonhaugh & Michael Gu

[1] Force majeure and COVID-19 – what you need to know now
[2] Competition and Consumer Act 2010 (Cth) sch 2 (‘Australian Consumer Law’), section 18.
[3] Australian Consumer Law, section 36.
[4] The higher of: $10 million; 3 times the value of the benefit; or 10 per cent of the business’ annual turnover if the value of the benefit cannot be determined.
[5] ACCC v Bupa Aged Care Australia Pty Ltd [2020] FCA 602.
[6] ACCC v EDirect Pty Ltd (in liq) (2012) 206 FCR 160.
[7] ACCC v EDirect Pty Ltd [2008] FCA 65; Barton v Westpac Banking Corporation (1983) 76 FLR 101.

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Michael Gu

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