Chapter 1 — Current provisions

Consumer protection law

Australia’s consumer protection law prohibits businesses from engaging in unfair trading practices that are detrimental to consumers. These laws regulate the supply of goods and services between Australian suppliers and purchasers.

Responsibility for consumer protection regulation is shared. At the Commonwealth level, the general provisions are set out primarily in Part V, Divisions 1, 1AAA and 1A of the TPA and replicated in the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) for the financial services sector. Each State and Territory has broadly replicated the key provisions of the TPA in an equivalent Fair Trading Act.

A breach of the consumer protection provisions may also be a criminal offence. As a general rule, criminal offences are applied to conduct that attracts society’s moral condemnation. The consumer protection offence provisions are set out in Part VC of the TPA. These criminal offences broadly replicate most, but not all, of the consumer protection provisions dealing with unfair trading practices. The notable difference in the application of the criminal offence provisions is that a contravention of the general prohibitions against misleading or deceptive conduct and unconscionable conduct is not a criminal offence.

The structure of the consumer protection law, with the criminal offence provisions replicating the terms of the civil provisions, creates a situation whereby it is at the discretion of the enforcement agency to decide whether a criminal or civil response is the most appropriate response to a specific breach of the law. The two are not mutually exclusive but are pursued through separate court proceedings.

Consumer protection enforcement

The consumer protection law currently includes a number of enforcement mechanisms which can be broadly divided into two categories: civil remedies and criminal penalties. The civil remedies are generally restorative in nature and provide some form of compensation or redress for consumers and/or limit ongoing detriment. They include injunctions, damages and community service orders. In contrast, the criminal penalties are designed to punish parties engaging in breaches of the law.

The consumer protection law allows for actions by individual consumers, businesses and the appropriate consumer protection enforcement agency. The consumer protection enforcement agencies are statutory authorities with responsibility for enforcement of the law and, in some respects, have access to a broader range of actions and remedies than individual consumers or businesses. At the Commonwealth level, the key consumer protection enforcement agencies are the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC). These two bodies are independent of the Australian Government and determine their own enforcement priorities. Responsibility for enforcement of the consumer protection law at the state and territory level rests with the relevant Office of Fair Trading, or equivalent.

The focus of this discussion is on the ability of the consumer protection enforcement agencies to respond to breaches of the law. Therefore, the ability of consumers and businesses to use the enforcement mechanisms is not considered further in this paper.

Civil remedies

Civil remedies have traditionally been used to enforce private rights between individuals. As such, they have traditionally been focused on restoration — to put the innocent party in the place they would have been, or as close thereto as possible, but for the breach. The consumer protection law contains a range of civil remedies potentially available when a business has not complied with the law. The civil remedy sought in a specific case will depend on the objectives of the enforcement action. For example, a consumer protection enforcement agency may be able to ask a court to order an injunction so as to prevent conduct continuing or require certain action to be taken or, in some jurisdictions, prohibit a trader from trading for a period or allow them to trade on specified conditions. In addition, or alternatively, a consumer protection enforcement agency may be able to ask a court, depending on the specific legislation, to make an order for the payment of compensation to the businesses or consumers that have suffered loss or damage as a result of the breach of the law³ and/or could ask for a court order that a contract be rescinded, set aside or varied. Other court orders that could be made at the request of a consumer protection agency, depending on the specific legislation, include community service orders, probation orders, ‘adverse publicity’ orders or orders for corrective advertising. In civil proceedings, a number of types of enforcement mechanism can be sought simultaneously.

Criminal penalties

Imprisonment is not available as a sanction for a criminal contravention of the consumer protection law (except in NSW). A defendant convicted of a criminal offence can only be ordered to pay a monetary fine (currently a maximum of $220,000 for individuals or $1.1 million for companies under the TPA). However, an individual may face other consequences if a criminal conviction is recorded, including limitations on the ability to travel and disqualification from corporate directorships and certain public offices. There is also a level of social stigma that attaches when a criminal conviction is recorded which applies equally to businesses and individuals.

At the Commonwealth level, criminal prosecutions can only be initiated by the Director of Public Prosecutions (DPP). This independent statutory authority is responsible for enforcement of the criminal offence provisions in all Commonwealth legislation. Generally the DPP will initiate a criminal prosecution for a breach of the consumer protection law at the request of the consumer protection enforcement agency; however the DPP makes the decision as to whether to prosecute independently of the consumer protection enforcement agency, based on its own enforcement priorities. While the DPP’s enforcement priorities are generally similar to those of the consumer protection enforcement agency, there may be differences.

The consumer protection enforcement agency will need to undertake the initial investigation and provide the relevant evidence to the DPP. Therefore, initiating a prosecution requires a high level of cooperation and coordination between the consumer protection enforcement agency and the relevant DPP. In contrast to the Commonwealth position, some state and territory Offices of Fair Trading can initiate criminal proceedings on their own behalf.

The current criminal offence provisions in the consumer protection law are strict liability offences. This means that to prove the offence, the prosecution does not need to prove that a business carried out conduct knowingly, recklessly or dishonestly. If it can show the particular conduct in breach of the law occurred, it is possible to establish that the offence has been committed. However, while these provisions are strict liability, they are not absolute and the defendant may have access to defences such as mistake of fact.⁴ The enforcement agency therefore needs to give consideration to whether the specific breach is sufficiently serious to warrant the non-legal consequences of imposing a criminal penalty, or whether it would be more appropriate to respond using the civil enforcement mechanisms.

The selection of an appropriate enforcement mechanism in a given case is at the discretion of the enforcement agency. In some cases, the DPP may also have a discretion to prosecute. Enforcement agencies will consider a number of factors when deciding which type of mechanism to use (that is, civil or criminal), including: the level of consumer detriment; the need to act quickly to stop the conduct and prevent further consumer detriment; the nature of the contravention (for example, whether the conduct involves a repeat or blatant contravention); and overall objectives for any enforcement action (whether it is appropriate to punish the offender, stop the conduct and/or try to obtain consumer redress).

Adequacy of the current enforcement mechanisms

Available enforcement mechanisms should ensure that the ultimate cost of engaging in the illegal conduct outweighs its perceived benefits. Only when the costs are perceived to outweigh the benefits will contravening conduct be effectively deterred. In determining the costs of a particular course of conduct, a business will consider a number of factors, including the punishment, the likelihood of detection and prosecution and the likely cost (including from adverse publicity) of the court finding the conduct to be in breach of the law. Where an enforcement agency has difficulties in effectively utilising these enforcement mechanisms and/or cannot obtain appropriate restitution, some businesses may have an incentive to engage in conduct in breach of the law, to the detriment of both consumers and competition more generally.

There may be a number of situations in which an enforcement agency considers it is unable to respond effectively to a breach of the law. For example, the breach of the law may be sufficiently serious that a penalty may be appropriate but the associated consequences of a criminal penalty (such as disqualification from certain professions) are not appropriate. Alternatively, there may be circumstances where the breach of the law is sufficiently serious that a penalty is appropriate, but it is also necessary to stop the contravening conduct to limit ongoing consumer detriment. In other cases, the conduct, in being aimed at or affecting consumers generally, rather than being aimed at an individual consumer, is ‘economic’ in nature. Such conduct may be deserving of an economic penalty, particularly one that recoups for society the economic gains made by the offender from the conduct and seeks to change market conduct, but is not deserving of the moral condemnation appropriate to the criminal law where someone has been personally victimised by conduct.

Nature of civil remedies

Civil remedies are designed to limit ongoing detriment and provide compensation for parties who have suffered loss or damage as a result of a breach of the law. They are not traditionally designed to punish conduct occurring in breach of the law. Key objectives of a consumer protection agency’s decision to begin enforcement action are usually the desire to limit ongoing consumer detriment and the long-term desire to change market conduct. For this reason, consumer protection agencies will usually have a preference for civil remedies as they can stop illegal conduct quickly and may be able to provide appropriate redress for consumers. However, traditional civil remedies may not be a sufficient deterrent to stop future breaches of the law by other parties and hence civil penalties have become a feature of a number of areas of business regulation.⁵

In some circumstances consumer protection enforcement agencies may be able to use civil court action to obtain a monetary remedy, or some other form of compensation, for individual consumers. For an enforcement agency to seek compensation for specific consumers, the individual consumers must be named in the application to the court, or have provided their written consent to the proceedings.⁶ The courts have noted that they lack jurisdiction to make an award for damages where individual consumers are not named. Consequently, the damages awarded by the courts may be less than the profit earned by the breach of the law. As a result, even where courts award an injunction and/or damages against a business, it may not provide sufficient incentive to stop future breaches of the law, either by the business in breach of the law or by other businesses.

Nature of criminal penalties

Criminal penalties are designed to impose a penalty on defendants who contravene the law. They typically only apply to conduct that attracts society’s moral condemnation. In the existing consumer protection law, imprisonment is not generally available as a criminal penalty, and an enforcement agency can only apply for a monetary penalty.

Stopping contravening conduct and providing consumer redress

As criminal penalties are not restorative in nature, they do not always provide an appropriate mechanism to stop quickly conduct that is causing consumer detriment, nor do they provide an appropriate mechanism for seeking consumer redress. Criminal court enforcement action is designed to punish and deter breaches of the law, not to provide redress for victims of the breach.⁷ Therefore, an application for a criminal penalty will not necessarily stop the contravening conduct, nor provide consumer redress.⁸ Whilst it may be theoretically possibly to stop conduct and/or obtain compensation in criminal proceedings, the experience of enforcement agencies has been that courts are reluctant to do so. Consequently, a consumer protection enforcement agency may need to consider instituting separate civil proceedings to seek monetary redress, or some other form of compensation, and to stop conduct in breach of the law to limit further consumer detriment. This would involve instituting two sets of legal proceedings for substantially the same conduct. This is not only expensive for the defendant; it imposes additional costs on enforcement agencies concerned and the judicial system, both of which are costs borne by the public.

Rules of evidence

Special rules and procedures govern the collection of information and material to be used as evidence in a legal proceeding.⁹ Different rules apply for the collection of evidence to be used in criminal and civil proceedings. The rules governing the collection of evidence for use in a criminal proceeding are generally much stricter than those governing the collection of evidence for use in a civil proceeding, to protect the rights of the accused.

The criminal evidence rules protect important rights and introduce additional complexity for an investigating agency. These rules apply to all criminal proceedings, not just the consumer protection offences.

A number of legal privileges apply to protect the rights of an accused. Legal privileges apply to limit the scope of the information a defendant may otherwise be required to provide. Two common legal privileges are legal professional privilege and the privilege against self-incrimination. In civil proceedings, the application of these privileges can be limited by the terms of the legislation. Nevertheless, civil actions do not necessarily abrogate all privileges. For example, under the TPA, legal professional privilege applies in all cases including civil proceedings.

In addition, the evidential burden associated with criminal prosecutions in a criminal court is different from the evidential burden in a civil court for a civil case. In a criminal case, the prosecution must prove the facts to the strictly applied standard of ‘beyond a reasonable doubt’. However, the facts of a civil case need only be proved to the flexible standard of ‘on the balance of probabilities’.

Issues to consider Are the existing enforcement mechanisms available to consumer protection agencies effective? If not, what are the problems and how significant are they?

³ Note, however, that the court is not empowered to make refund orders in favour of persons who are not named in the proceedings — ACCC v Danoz Direct Pty Ltd [2003] FCA 881; Medibank Private Ltd v Cassidy [2002] FCAFC 290.

⁴ Trade Practices Act 1974 (Cth), section 85.

⁵ For example, Part VI of the Trade Practices Act 1974 (Cth) imposes pecuniary penalties for breaches of the restrictive trade practices provisions of the legislation.

⁶ Trade Practices Act 1974 (Cth), subsection 87(1B). See also Medibank Private Limited v Cassidy [2002] FCAFC 290.

⁷ The Proceeds of Crime legislation does not apply to breaches of Part VC unless the matter is a serious indictable offence, which under the Crimes Act is something that draws a penalty of 12 months imprisonment or more. No such provision exists in the TPA. Section 21B of the Crimes Act 1914 provides that where a person is convicted of a federal offence the court may, in addition to the penalty, order the offender to make reparation to any person in relation to the loss suffered. However, this is not the main focus of criminal proceedings.

⁸ Trade Practices Act 1974 subsection 79 (4) provides that in a proceeding for contravention of Part VC, the court may grant an injunction under section 80 in relation to conduct that is alleged to constitute a contravention. However, this is not the main focus of criminal proceedings.

⁹ See for example, Evidence Act 1995 (Cth).

Next: Chapter 2 - Options for Possible Change
Previous: Introduction