Standing Committee on Law and Justice

Debate resumed from 27 September 2007.

The Hon. CHRISTINE ROBERTSON [2.33 p.m.]: I am pleased to commence debate on the thirty-second report of the Standing Committee on Law and Justice entitled "Unfair Terms in Consumer Contracts", which was tabled in this House on 23 November 2006. First, I thank my fellow committee members for their assistance in producing this bipartisan report. The five recommendations in the report and the report were adopted unanimously. The Hon. John Della Bosca, the then Minister for Commerce, referred the inquiry to the committee on 28 August 2006. The committee was asked to inquire into and report on the incidence and impact of unfair consumer contracts, the current legal and regulatory environment in New South Wales and the adequacy of that framework. The committee was also asked to consider the effectiveness of specific purpose legislation for dealing with this issue in other jurisdictions, including the United Kingdom's Unfair Terms in Consumer Contracts Regulations 1999 and part 2B of the Victorian Fair Trading Act 1999.

The committee received submissions from a wide variety of stakeholders and held a public hearing at which it took evidence from representatives of the Office of Fair Trading, consumer advocacy groups, the banking sector and Consumer Affairs Victoria, which is the Victorian Government's equivalent of this State's Office of Fair Trading. The terms of reference for this inquiry asked the committee to examine the prevalence of four types of unfair contractual terms. These were terms that allow the supplier to vary the goods and services supplied to the consumer, terms that penalise the consumer and not the supplier when there is a breach of the contract, terms that allow the supplier to suspend services but continue to charge the consumer, and terms that permit the supplier but not the consumer to terminate the contract. The committee received a substantial amount of evidence that all four of these unfair terms are prevalent in consumer contracts. The committee was also informed that these terms and others like them create a significant imbalance between the supplier and the consumer to the detriment of the consumer.

The committee also received evidence that the widespread use of standard form contracts has contributed to the increase in unfair terms in consumer contracts. Standard form contracts are often used by the mobile phone, cable television, Internet and hire car industries. These contracts do not allow for a process of negotiation between the two parties. While standard form contracts provide a convenient and economic way for a consumer to engage a service provider, the committee was advised that they often leave the consumer open to unfair terms if the contracts are lengthy and not in plain English. The committee heard a great deal about these contracts during the inquiry. They are incredibly lengthy and contain complex legal language, which made it very difficult for members of the committee to analyse them, which demonstrated the problems they cause.

New South Wales has no specific unfair consumer contract legislation. Consumers must seek redress from unfair contract terms at either common law or under certain statutory provisions. In this report the committee has examined the effectiveness of the New South Wales Contracts Review Act 1980, the New South Wales Fair Trading Act 1987 and the Commonwealth Trade Practice Act 1974 in relation to compensation or protection from unfair contractual terms. The committee also examined the effectiveness of the common law as a remedy.

The committee heard overwhelming evidence that this State's current regulatory framework does not adequately address unfair terms in consumer contracts. The committee was informed that instigating legal action can be costly and time consuming for consumers and that this kind of litigation occurring on a case-by-case basis cannot affect systemic change. In addition, a number of legal academics and practitioners told the committee this framework has an emphasis on procedural rather than substantive fairness. That is, if the contract has been issued and agreed to following due process it does not matter if the content of the contract can be deemed unfair. That is an interesting point. The committee also examined the usefulness of industry-specific codes in providing consumers with protection against unfair terms. The committee heard evidence that, while some industry-specific codes provide useful guidance in relation to contract fairness, they are limited to the specific industries that have devised them and often do not comprehensively address the issue of unfair terms.

The majority of organisations and individuals who made submissions or gave evidence to the committee during the inquiry argued the need for specific purpose legislation to protect New South Wales consumers against unfair contractual terms. The committee was advised that national regulations to protect consumers from unfair contract terms have been canvassed by the Ministerial Council on Consumer Affairs, but that the process appears to have stalled. Most inquiry participants who expressed support for specific purpose legislation for New South Wales also favoured national legislation.

One of the reasons is that many commercial organisations now have a national base. It would therefore be incredibly difficult if different States had different regulations. Given the uncertainty about whether a national response to the issue would eventuate, those participants advocated for New South Wales to enact its own legislation. The committee has concurred with the strong majority view expressed throughout the inquiry that because national legislation is not foreseeable in the immediate future, New South Wales should proceed with its own legislation. Accordingly, the committee has recommended that the Government seek an amendment to the Fair Trading Act 1987 to establish a scheme to protect consumers against unfair contract terms.

The terms of reference required the committee to examine part 2B of the Victorian Fair Trading Act 1999 and the United Kingdom Unfair Terms in Consumer Contracts Regulations 1999. Both pieces of legislation prevent the use of unfair terms in consumer contracts, which are both monitored by their respective consumer affairs bodies. Under part 2B of the Victorian Fair Trading Act 1999, the use of unfair terms in a consumer contract will result in the terms being deemed void, and the rest of the contract may continue to bind the parties only if it is capable of existing without the unfair terms. The Director of Consumer Affairs Victoria, Dr David Cousins, who gave evidence to the committee, also noted that part 2B provides industry with a broad standard to guide businesses.

The other role that the Victorian department carried out was to support business and other organisations in writing up their contracts in plain English so that they make sense and are fair in the long term. The department did not simply deliver a new process; it also assisted people to deliver on that process. Similarly, under the United Kingdom legislation, if a term is found to be unfair it is not legally binding on the consumer. If a service provider refuses to accept that the term is unfair, a consumer can take legal action.

The vast majority of evidence presented to the committee suggested that each of these pieces of legislation successfully limits the use of unfair terms in consumer contracts without imposing unnecessary burdens on the industries that must comply with them. The Victorian model was favoured by most of the submission makers and witnesses who advocated for the introduction of specific purpose legislation in New South Wales. A number of inquiry participants emphasised the need for consistency between jurisdictions in implementing specific unfair terms legislation—these days most organisations are nationwide; they do not belong to just one State—particularly in the absence of a national scheme. Therefore, the committee has recommended that the Government model its amendment to the Fair Trading Act to establish a scheme for the protection of consumers in relation to unfair terms in consumer contracts on part 2B of the Victorian Fair Trading Act 1999.

Given the expertise of Consumer Affairs Victoria in implementing the Victorian scheme, the committee has also recommended that the Government consult with the Victorian Government to draw upon its experiences in designing and implementing specific consumer protection legislation. The evidence the committee received during this inquiry was of a particularly high standard and many participants had useful suggestions to make about possible amendments in light of experiences in both the United Kingdom and Victoria. The committee also recommends that when developing the amendment to the Fair Trading Act the Government consider the views articulated to the committee concerning appropriate inclusions in the New South Wales scheme as set out in the report. The committee has also recommended that the Government established a task force to design the new scheme, including industry representatives, representatives of the Office of Fair Trading and other relevant stakeholders.

Before I conclude I thank everybody who worked so well on this inquiry. When we were first given the terms of reference we knew there were community issues, but we probably expected it to be a fairly routine inquiry. However, as witnesses gave us information we recognised there were quite a few issues to be worked through with individual businesses and with consumer protection organisations before we could, in a blasé way, say we must introduce this protection. We realised it was quite a complex issue. Apart from, I think, two interest groups there was a consensus from the witnesses—who were a broad cross-section of people interested in the issue—that the issue needed addressing as soon as possible.

We have had a Government response to our report and recommendations. The Government's response endorsed the report and our recommendations and has referred the recommendation that the amendment be introduced back to the department for it to further investigate the need and how it will deliver on that. The work of this committee was comprehensive and the evidence we received will strongly endorse the Government's following through on the introduction of this legislation as soon as it can. Finally, I reiterate my thanks to my fellow committee members for their bipartisan approach to the production of this unanimous report. I also thank those who contributed to this inquiry. A large number of submission makers and witnesses provided a clear and succinct analysis of the issues and their perspective on them, which greatly assisted the committee's understanding of this area of law. I thank Miss Rachel Callinan, Miss Victoria Pymm and Miss Dora Oravacz of the secretariat for their assistance in the production of this report.

The Hon. DAVID CLARKE [2.44 p.m.]: The report entitled "Unfair Terms in Consumer Contracts" from the Standing Committee on Law and Justice is important because it deals with a festering issue that has caused untold difficulty and hardship for a significant portion of the people of New South Wales. For too long there has been an unlevel field in the area of consumer contracts. For too long New South Wales consumers have had no alternative, if they are seeking to purchase goods and services, to enter into contracts that all too often placed them at an unfair disadvantage in relation to the supplier of the goods and services. For too long consumers have been faced with the unilateral variation of price or goods and services description without notice to the consumer.

For too long consumers have been confronted with contracts the terms of which penalise consumers but not suppliers. For far too long and too often the consumer public of New South Wales has had no realistic alternative other than to enter contracts that allow the supplier to unilaterally suspend services or even terminate the contract altogether without a reciprocal right by the consumer. Hardly a day goes by without further outrageous examples coming to light of consumers being negatively impacted upon as a result of unfair terms incorporated into consumer contracts. The Legal Aid Commission has observed:

Unfair terms in consumer contracts are an endemic problem for consumers in society today.

Examples can be found across the board; in the provision of financial services to insurance car hire agreements to mobile phone contracts to computer sales and on and on. The experience of the Commission is that unfair terms in consumer contracts are so widespread and have such an impact that legislative reform is demanded.

The inquiry conducted by the Standing Committee on Law and Justice certainly found widespread evidence of a detrimental impact of unfair consumer contracts on New South Wales consumers. This was particularly evident in contracts dealing with mobile phones, cable television, gym membership and banking services. It was the clear and unambiguous view of the standing committee that the New South Wales Fair Trading Act 1987 be amended to establish a scheme for the protection of consumers in relation to unfair terms in consumer contracts. After what I believe is a thorough and detailed consideration of the legislative approach to this problem in other jurisdictions, it is the committee's view that such amendment should be based on the consumer protection contained in the Victorian Fair Trading Act 1999.

It is the standing committee's recommendation that in preparing the amendments required to the New South Wales Fair Trading Act 1987 the New South Wales Government should create a task force within the New South Wales Office of Fair Trading to develop an appropriate scheme—a task force inclusive of all relevant stakeholders, particularly consumer and industry representatives. I do not propose to traverse all the evidence that came before the committee or the reasons that led the committee to come to the conclusion it did because members can read the transcripts and the report for themselves. However, I stress that the use of unfair terms in consumer contracts is a source of great injustice to the consumer public of South Wales. It is fair to say that virtually every consumer in New South Wales will at one time or another find that unfair contractual terms contained in standard form contracts will act to their detriment. Clearly this is a problem that needs to be and should be redressed.

The Standing Committee on Law and Justice has acted in the best interests of the people of New South Wales by virtue of its inquiry and recommendations. As the deputy chairman of the standing committee, I am pleased to have been part of its deliberations. As one who endorses the committee's report, I hope that the New South Wales Government acts with speed and diligence in carrying out its recommendations.

The Hon. KAYEE GRIFFIN [2.48 p.m.]: I congratulate the Standing Committee on Law and Justice on its report entitled "Unfair Terms in Consumer Contracts". I will comment briefly on some of the headings in chapter 2 of the report that go to the heart of the concerns the committee was faced with—what kinds of terms are considered to be unfair, terms that allow the supplier to unilaterally vary goods and services, penalties against consumer but not supplier for breach of contract, terms allowing supplier to suspend services but continue to charge the consumer, terms that permit the supplier but not the consumer to terminate the contract and other types of unfair terms. Chapter 2 also relates to the use of standard form contracts. I refer to the inability to seek advice or negotiate and the imbalance in bargaining power, the lack of alternatives to standard form contracts, the additional documentation, the excessive length of the contract, the on-line format and the lack of plain English.

Those issues are of concern to all of us who have to sign contracts for a range of services that these days we take very much for granted. This has been necessary. One notes from the executive summary and other parts of the report that a significant amount of information was gathered with respect to the Victorian Government's experiences and the committee has taken that information into account in its recommendations. I congratulate the committee on this important inquiry and support the comments that the New South Wales Government should take up the committee's recommendations as soon as possible.

The Hon. CHRISTINE ROBERTSON [2.50 p.m.], in reply: I thank the Hon. David Clarke and the Hon. Kayee Griffin for their contributions to the debate. First, I comment on the functioning of upper House committees. The terms of reference dictated that the committee investigate the Victorian and British systems with respect to this process. The committee and secretariat worked incredibly hard to ensure we had all the information necessary to deliver recommendations to suit the people of New South Wales without members actually flying to those destinations. It would have been exciting for members of the committee to visit London to gather the information but, like other committees of the upper House of the New South Wales Parliament, we did our level best to gather the relevant information without it being too much expense on the parliamentary pocket.

This is not to say that at some time in the future it will not become necessary for a committee or perhaps a subcommittee to undertake such travel, but I point out that the upper House committees of the New South Wales Parliament bring down important recommendations for the people of New South Wales in a sensible fashion. The terms of reference certainly would have suggested to other organisations that we could have enjoyed a nice holiday but we did not do so. We worked hard on the recommendations without doing that. I thank the Hon. Rick Colless, the Hon. Amanda Fazio, the Hon. Greg Donnelly and Ms Lee Rhiannon who participated diligently in the inquiry. I trust that the Government will enjoy implementing the committee's recommendations.

Question—That the motion be agreed to—put and resolved in the affirmative.

Motion agreed to.