Ryland, Michael --- "Compliance with the Trade Practices Act" [1995] ALRCRefJl 13; (1995) 67 Australian Law Reform Commission Reform Journal 60

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COMPLIANCE WITH THE TRADE PRACTICES ACT

The ALRC Report

The Australian Law Reform Commission (ALRC)'s Report on Compliance with the Trade Practices Act 1974' has been very well received - so much so that an editorial in the Australian Financial Review (6 July 1994) described it as smart law and good economics' - high praise indeed!

Michael Ryland, ALRC Commissioner, provides an overview of this 1994 report.

What is in the Report?

The Report is principally about compliance with the consumer protection provisions of Part V of the Trade Practices Act 1974 (TPA).

Terms of reference

The ALRC was directed to review the sanctions, penalties, remedies and other provisions in the TPA relating to compliance with Part V, having regard to the need for effective compliance, difficulties that had been experienced, and the need for quick, cost effective and fair remedies.

The ALRC was also asked to consider whether any of its recommendations in relation to the consumer protection provisions in Part V should be applied to the provisions on restrictive trade practices in Part IV or those on unconscionable conduct in Part IVA.

Submissions

The message given to the ALRC in submissions and consultations was that generally the TPA is working well. The fair trading principles are effective and well regarded.

Both consumers and businesses were keen to have a regime of penalties and remedies that encouraged voluntary compliance with the fair trading principles as part of a competitive market place (some business groups submitted that the existing regime was adequate for this purpose, but this was not the general view).

If there is a breach of the consumer protection provisions, consumers also made it clear that their primary concern is to have the goods or services replaced or to get their money back, and to be compensated for any damage suffered.

The ALRC's recommendations

The ALRC responded with a series of recommendations based on two principal themes.

Voluntary compliance

The ALRC report is strongly in favour of voluntary compliance. It is preferable for misunderstandings, disagreements and disputes to be resolved at the point of sale rather than on the steps of the court. This will generally provide the quickest and most cost-effective remedy'.

With this approach in mind, the report recommends an increase in the role of the Trade Practices Commission (TPC) in educating consumers and businesses, and in developing corporate compliance programs and codes of conduct (recommendations 3 and 8).

In addition, there are recommendations to increase the incentives for consumers to assert and enforce their rights - thus encouraging earlier and voluntary compliance by giving a higher priority to compensation to consumers and ensuring that they can get goods and services replaced (recommendations 7, 11, 14 and 15).

Pyramid of enforcement

Beyond voluntary compliance, the ALRC Report favours providing a series of enforcement options, ranging from the simple and quick such as consumer assertion of rights and TPC warnings,to the severe, such as criminal penalties. Generally the simple and quick options can be expected to be used often, and the severe options only rarely - but with considerable deterrent effect. This is sometimes called the pyramid of enforcement' approach (as show in the diagram).

Providing a wide range of enforcement options allows a graduated response to contraventions of the TPA. Regulatory authorities like the TPC can be flexible, filtering out contraventions that call for the full weight of the legal process from those that can be resolved with a quicker, simpler procedure. This is in the interests of the community as a whole, businesses and the TPC itself.

On the basis of this approach the report recommends that Part V include civil penalties as well as retaining the existing criminal penalties (recommendations 25-28), and that the maximum monetary penalties for criminal offences be increased to reflect their seriousness (recommendation 45).

The report also recommends some novel penalties and remedies which focus on the changes an organisation must make to its practices, and in some cases its management, to ensure compliance in the future. These include:

• Corporate probation orders: a court order requiring a corporation to make an internal investigation of the contravention, take appropriate disciplinary action and file a detailed and satisfactory compliance report with the court (recommendation 35).
• Community service orders: a court order requiring an offender to undertake a project of community service that is related to the contravention (recommendation 36).
• Adverse publicity orders (recommendation 37).
• Prohibitions on managers: an order prohibiting an individual involved in a contravention of the TPA from managing a corporation for a specified period (recommendations 24 and 41).

In addition the ALRC has recommended amending the TPC's administrative powers. The report recommends that the TPC's investigative powers under section 155 should be extended so that the TPC can give a private litigant relevant information it has obtained under that section (recommendation 52) and can require information or conduct a search under that section even where it may not have a reasonable belief that a false or misleading claim has been made (recommendation 55).

National consumer protection laws

Much of the enforcement of the fair trading principles by consumers relies on State and Territory consumer protection laws (eg their Fair Trading Acts) and is dealt with in commercial tribunals and local courts. The ALRC's Report therefore highlights the importance of a national scheme of consumer protection laws.

It recommends that the Ministerial Council on Consumer Affairs should commence development of this scheme (recommendation 1).

Implementation of the report: the current position

The federal government responded to the report in May 1995. In summary, the main recommendations and the thrust of the report were agreed to or accepted in principle. A number of matters were left for further investigation. The recommendations on new remedies and administrative powers were not accepted.

It will be necessary to amend the TPA to implement the recommendations that have been accepted. At the time of writing it is not known when amending legislation will be introduced into Parliament.

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