On 1 July 2020, amendments to the Fair Trading Act 1987 (NSW) (“Act”) were introduced to require businesses and intermediaries to comply with disclosure obligations. The ‘grace period’ for these new provisions ended on 1 January 2021, and thus the obligations and associated penalties are now fully in force.
To whom do the requirements apply?
The requirements apply to businesses or intermediaries who are located in NSW or who have customers located in NSW.
The definition of ‘customers’ is the same as is found in the Australian Consumer Law, and encompasses:
- A purchase of less than $40,000 (although from 1 July 2021, this will increase to $100,000); or
- A purchase of goods that are of a kind ordinarily required for personal, domestic or household use or consumption; or
- A purchase of goods consisting of a vehicle or trailer acquired for use principally in the transport of goods on public roads.
The provisions do not provide for any exceptions to these requirements.
What do they mean?
Businesses must ensure that customers are aware of any terms and conditions in their contract with the business that may ‘substantially prejudice’ the customer’s interest before the goods or services are supplied or the transaction is finalised.
The Act provides examples of clauses which may ‘substantially prejudice’ the customer. These include:
- Limiting the liability of the customer (for example, where an indoor recreation centre includes a term in its contract with customers stating that it is not liable for any injury occurring in relation to participation in the activities they provide);
- Providing that the customer is liable for damaged goods (for example, where a shipping company includes in their contract that the customer bears the risk of transporting the goods and that the shipping company is not liable for any loss, detriment or damage suffered by the customer or by any other person);
- Permitting the company to provide data about or provided by the customer to a third party in a form which may allow the customer to be identified by that third party (for example, a term in a contract with a customer allowing information to be passed on to third parties such as Google Analytics); and
- Requiring the customer to pay an exit fee, balloon payment or similar payment (for example, a gym including a term in their contract requiring an exit fee to be paid when terminating a membership).
Other terms that may be ‘substantially prejudicial’ include automatic rollover clauses, minimum notice provisions for termination or when prescribing a jurisdiction outside NSW in a jurisdiction clause.
Intermediaries must take reasonable steps to make customers aware if the intermediary has commission or referral arrangements with another supplier. They are not required to disclose the nature or value of the financial incentive, and no disclosure is required if the arrangement does not involve a financial incentive.
The Act defines ‘reasonable steps’ as actions that one would reasonably expect would create awareness in a customer. They must be appropriate in the circumstances, and sufficient to create the required awareness. The Fair Trading Regulation may also choose to elaborate on the definition of ‘reasonable steps’ but has not as yet done so.
The disclosure to the customer must be:
- easy to understand;
- upfront (not requiring the customer to seek out the information themselves); and
- automatic (a standard part of each transaction).
How can you comply with them?
The easiest way to comply with the disclosure obligations is for customers to acknowledge that they are aware of the disclosure. Depending on the circumstances, this could be done verbally, through initialling a specific page or clause in a contract, or by checking a box on a web form. The contents of the acknowledgement should specify that the customer understands the effect of the terms that may substantially prejudice them or the existence of the commission or referral arrangements.
Penalties for non-compliance
The Act provides for a penalty of up to $110,000 for corporations and $22,000 for individuals.
NSW Fair Trading can also issue a penalty notice of $1,100 for corporations and $550 for individuals for each offence.
What should businesses do to ensure compliance?
To ensure compliance, businesses should undertake the following step:
- Examine their customer base (as well as potential customers) to identify if they operate in NSW or have customers located in NSW;
- Locate any terms in their contracts with customers that may substantially prejudice the customer. Businesses can then:
- amend the terms so as to no longer be substantially prejudicial; or
- ensure that the term is brought to the customer’s attention before the goods or services are purchased;
- Identify if they are selling or providing any information about customers to third parties. If so, they must then disclose this to the customer; and
- Identify if they act as an intermediary and receive a financial benefit for doing so. If so, they must disclose this to the customer.