New disclosure requirements in NSW for suppliers of goods or services

On 1 January 2021, NSW Fair Trading will enforce a new law that forces business in NSW to disclose to consumers whether:

• a term or condition of their contract substantially prejudices the interests of the consumer;
• the business is sending or selling consumers’ information to a third party; or
• the business receives a commission or other benefit when recommending the consumer buys a good or service from a third party.

There are no exemptions from these disclosure requirements.

This new law is unique in that it is an amalgam of consumer, privacy, and secret commissions laws. It reflects the rise in a concern by regulators that business are not doing enough to deal with consumers fairly and protect consumers’ information.

Failure to comply with this new law will, if prosecuted, result in penalties for companies and individuals.

What is the new law?

Before selling a consumer goods or services, a business must take reasonable steps to ensure the consumer is aware of the effect of any term or condition in their contract that may substantially prejudice the consumer’s interests.

What amounts to “substantial prejudice”?

A term may substantially prejudice the interests of a consumer if it:

• Excludes the liability of the supplier - eg, the supplier is not liable for any consequential loss
• Places liability on the consumer for damage to goods during delivery – eg, the supplier is not liable for any damage to the goods during delivery to the consumer
• Permits the supplier to provide data to a third party which many enable the third party to identify the consumer - the supplier may share your information with a third party.
• Requires the consumer to pay an exit fee, balloon payment, etc. - on cancelling your membership you will need to pay the outstanding membership period

This list of the type of terms that may substantially prejudice the interests of a consumer is not exhaustive.

This new law goes further than the unfair contract terms regime under the ACL by imposing a positive obligation on the business to bring terms against the consumer’s interest to their attention. Currently, the unfair contract terms regime makes any unfair term in a standard form consumer contract void. Reforms are however underway with penalties likely to apply to unfair contract terms in a standard form consumer contract. This law also applies to any consumer contract – not just standard form contracts.

Financial incentives must also be disclosed

The new law also requires disclosure in a situation where [A] pays [B] (the referrer) in return for [B] encouraging [C] (the consumer) to acquire goods or services from [A]. For example a consumer approaches a car dealer to buy a car and the dealer recommends a particular insurance product, for which the dealer is paid a commission.  Failing to disclose the commission is currently a criminal offence (the Crimes Act 1900 (NSW) prohibits “secret commissions”).

The new law requires intermediaries (eg, brokers) that receive a financial incentive under an arrangement to take reasonable steps to ensure a consumer is aware of the financial incentive they receive.  While an intermediary is required to disclose the existence of the arrangement, they are not required to disclose the details of it, including its nature and value.

What constitutes “reasonable steps”?

Before a consumer signs a contract, the business must take reasonable steps to make the required disclosures. 

It is not enough to disclose the existence of a prejudicial term or incentive arrangement but the businesses must take reasonable steps to ensure the consumer understands the effect of the term / arrangement. There is no definition of what constitutes taking “reasonable steps” but the following are likely sufficient:

For prejudicial terms

• using plain English summaries on the front page of a contract;
• requiring consumers to initial a summary of relevant terms on the front page of an agreement;
• for an online sales having a pop-up box explaining certain terms with examples; or
• using colours, illustrations or icons to highlight key terms.

For commission or referral arrangements

• including an appropriate disclosure of referral arrangements on quotations;
• directing the consumer’s attention to appropriate signage;
• when online, disclosing relevant referral arrangements in pop-up boxes; or
• putting an automatic disclaimer on the bottom of emails.

What is reasonable depends on the circumstances, for example more complex terms or onerous terms will require more to ensure the consumer understands the terms.

What is the definition of a “consumer”?

The term “consumer” has the same definition as under the Australian Consumer Law (ACL). That is, a party is a consumer if the party purchases goods or services that are:

• valued at less the $40,000; or
• valued at more than $40,000 but are of a kind ordinarily acquired for personal, domestic or household use or consumption; or
• a car or trailer.

From 1 July 2021, the monetary threshold of $40,000 will increase to $100,000 (for more information see our related article). As such, the new obligations will apply to a much broader range of transactions from mid-next year. 

What are the consequences for breaching the new law?

There is a fine of $22,000 for individuals and $110,000 for corporations who breach this law. Penalty notices may also be issued for suspected contraventions, of $550 for individuals and $1,100 for corporations.

What should you do now if you supply goods or services in NSW?

You should do three things:

First, identify whether your consumer contract has one-sided terms that seem likely to substantially prejudice a consumer.  If you have contract terms like this, you can either:

• amend the provision to reduce its prejudicial effect;
• if you want to keep the term, work out what steps you should take to bring the provision to the consumer’s attention.

Second, work out whether you are selling or providing your customers’ information to a third party. If you are, you need to disclose this.

Third, identify whether you have an arrangement where you receive a financial incentive for referring your customers to another supplier for goods or services. If have an arrangement like this, you need to disclose to the consumer that you will receive a benefit from the referral.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).