Government restrictions imposed in light of COVID-19 have left many businesses dealing with the fall-out from cancelled events, suspended services and delays in the supply of products and services. As a result, businesses across all sorts of industries are now facing consumers requesting refunds for products and services they purchased prior to the restrictions.
Notwithstanding the current chaos, businesses still need to pay particular mind to the applicable rights and obligations under the Australian Consumer Law (ACL) when dealing with consumers. It is important to remember that businesses that breach the ACL may face serious consequences, with penalties for contraventions potentially reaching up to $10 million for corporate entities (or 10% of the annual turnover of the company).
To alleviate some of the confusion for businesses during this time, and to minimise the risk of breaches, the ACCC has recently provided some high-level guidance for businesses navigating their way around their ACL obligations in the context of the COVID-19 restrictions. Additionally, the ACCC has established a task force which will, among other things:
- oversee and respond to COVID-19-related issues, such as refund issues for consumers (from cancelled travel to being charged ‘freeze’ fees for closed fitness centres); and
- monitor businesses who may be profiting from excessive pricing (also known as price gouging) on goods which are in high demand, such as hygiene and food products.
Some of the key obligations and rights that businesses should be aware of under the ACL which might be impacted by the COVID-19 pandemic are discussed further below.
What obligations do businesses have to refund monies to consumers or other businesses?
Customers are not automatically entitled to a refund under the ACL if an event or service is cancelled because of the current government restrictions.
However, the ACCC has reminded businesses to be mindful of the terms and conditions of any contract or agreement entered into with consumers (including oral contracts). Consumers and businesses may have rights under contract law which exceed the available statutory consumer rights under the ACL, as there may be express terms in a contract or agreement with the consumer which impose particular obligations on businesses to provide refunds or particular remedies that might not ordinarily be required under the ACL. For more information on the impact of COVID-19 on contracts, including the impact and application of the doctrine of frustration, click here.
It is also recommended that businesses consider any existing policies that they may have in respect of refunds and/or cancellations, and be mindful of any representations which may have been made on social media platforms, websites, or through advertising. Failure to honour terms in existing policies or promises made by representation may put businesses at risk of engaging in misleading or deceptive conduct.
Beyond any strict legal obligations which may exist, businesses should also consider whether there is a risk that a failure to offer an appropriate remedy or solution to a consumer could cause reputational damage to the business.
In light of the above, businesses may wish to consider offering, for example, postponement of events or services, vouchers or credit notes, or full or partial refunds, even if those remedies might not ordinarily be available under the ACL or under the business’ existing policies. However, if such an approach is taken, care must be taken to honour whatever is offered, to avoid engaging in misleading or deceptive conduct.
When can businesses retain a customer’s deposit or upfront payment?
Businesses may have terms in their contracts with consumers which would ordinarily allow for the retention of deposits or upfront payments in the event of cancelled services (or for other reasons included in the terms). Although businesses may wish to enforce those terms in order to retain monies paid by consumers, they do need to consider whether those terms may be ‘unfair’.
The ACCC has indicated that terms which may allow businesses to retain a full deposit or payment, without actually delivering the underlying goods or services, could in some cases be considered ‘unfair’ under the unfair contract terms regime of the ACL. To enforce that position, a party to the contract must seek an order from the Court which declares the term to be ‘unfair’, and therefore void and unenforceable.
An exception to the above is when a business can demonstrate that it was reasonably necessary to retain the full amount to protect legitimate business interests. For example, it may be appropriate for a business to retain the money in circumstances where it is to cover costs already incurred.
It is important to note that the unfair contract terms regime is only applicable to particular types of standard form contracts. The contract must be for the supply of goods or services, one of the parties to the contract must be a small business, and the upfront price under the contract must not exceed more than $300,000 or $1 million if the contract is for more than 12 months. Although it usually arises in relation to business to consumer contracts, some business to business contracts may also be caught by the unfair terms regime (for example, dealings with certain suppliers).
For contracts which are not captured by the unfair contract terms regime, businesses will still need to consider the terms of the contract, and any common law rights which may arise (as discussed above), when deciding whether it is appropriate to retain monies paid in advance of delivery of goods or services.
Can businesses accept payment for goods or services which they may not be able to supply?
Businesses should only accept payment or consideration for goods and services they can supply within the specified period or, if no time period has been specified, within a reasonable time. Failure to provide goods or services within a reasonable time after the acceptance of payment (or otherwise within the agreed time period) may constitute wrongly accepting payment in contravention of the ACL.
Additionally, businesses should be careful about representations they make about their ability to provide products or services. For example, if a business makes a representation that a product is available, it could be found to be engaging in misleading and deceptive conduct if that is not in fact the case. A business may be able to avoid liability if it can demonstrate that there were reasonable grounds to make the representation at the time it was initially made to a consumer (for example, products may have been expected to be imported into Australia, but were unexpectedly halted as a result of COVID-19). However, it is important to note that as a representation is made afresh each time that a consumer is exposed to it, reliance on an advertisement that was accurate the first time it appeared cannot be maintained if the representation is no longer accurate (e.g. an online advertisement may need to be taken down if the situation has changed since launched and the contents of the advertisement are no longer accurate).
In the event a business has accepted payment for goods or services it cannot supply, the business may need to demonstrate that it took reasonable steps to supply the goods or services, and that the failure to supply was beyond the control of the business (for example, by an act of a third party, or unresolvable delays due to the impact of COVID-19).
In circumstances where the supply of a good/service is compromised, businesses should offer consumers alternative/ replacement products or services where it is possible to do so. If a consumer does not accept the replacement product or service, the business should refund that consumer’s payment.
Current government restrictions have also seen the temporary closure of many fitness related businesses (for example, gyms and Pilates or yoga studios). As noted above, the ACL prohibits the taking of payment for services where there are reasonable grounds to believe those services will not be supplied. As such, even though the closure of those businesses is due to government-imposed restrictions, businesses which charge membership fees in exchange for a service must nonetheless cease taking payment of those fees if those services cannot be provided, unless a member has expressly provided consent to the ongoing debit of those fees. Businesses should not charge freeze or holding fees as a result of the government restrictions. This position is also applicable to other businesses with a subscription service model (e.g. meal provider services) that are not currently able to supply services to their members.
There are however some circumstances where businesses may be able to continue to take membership fee payments, namely if they are still able to provide a service to their members (for example, online gym classes). However, members still need to provide their agreement to receive those modified services – businesses cannot simply substitute the modified services for the services the consumer originally agreed to purchase without first obtaining consent.
Can businesses increase prices for goods and services that are in demand during the pandemic?
Generally, suppliers are able to set their own prices for goods and services based on supply and demand, and prices should be reflective of the market, although there are provisions under the ACL which prevent businesses from price gouging (i.e. excessive pricing of goods and services).
When businesses are considering price increases in the current climate, they will need to be mindful that there are circumstances where excessive pricing may be considered unconscionable, and/or in breach of the ACL. Businesses should also consider whether increasing prices on goods and services will impact the health and safety of vulnerable people. Increasing prices on goods which could be construed as exploiting vulnerable persons may be considered unconscionable conduct.
Businesses need to be clear and truthful about why prices on goods may have increased. Making misrepresentations or misleading claims about price increases for products or services to consumers may also result in a breach of the ACL. For example, if businesses increase the price of particular goods which are not in demand, or say that prices have increased due to a supply shortage or additional costs because of COVID-19, but those claims are not true, they may face penalties for those misrepresentations.
In response to COVID-19 the Australian Federal Police now have specific new powers under the Biosecurity Act 2015 (Cth) to prevent price gouging on particular goods used for minimising exposure to hazards and germs (i.e. disposable face masks, gloves and hand sanitiser). It is now an offence to resell or offer to resell these products, if purchased in a retail transaction, at a price greater than 20 per cent of the original price paid.
Usually, businesses are prohibited under the Competition and Consumer Act 2010 (Cth) 2010 (CCA) from engaging in cartel conduct (i.e. businesses impermissibly acting together, instead of competing with each other). However, in the wake of the pandemic, the ACCC has granted interim authorisations letting supermarkets work together with food suppliers, manufacturers, and transport and logistics providers, to assist in the supply of goods to consumers (and in particular to those most vulnerable or in rural areas). The interim authorisations provide statutory protection against conduct that might otherwise raise concerns under the CCA. Although businesses such as Coles, Woolworths and Aldi will be working together in some respects, the authorisation does not allow them to agree on retail prices for products.
There are also provisions under the CCA which prohibit suppliers with a substantial degree of market power from engaging in conduct where the purpose, or likely effect, of that conduct is to substantially lessen competition. As such, misuse of market power to charge excess prices for goods may also cause businesses to be in breach of these provisions.
In short, care should be taken by businesses when setting prices to ensure that those prices are generally reflective of market forces, without taking undue advantage of the existing circumstances.
Businesses should be aware of their obligations under the ACL to refund consumers when they are unable to provide services or products.
If an event or service is cancelled as a result of the current government restrictions, customers are not automatically entitled to a refund under the ACL. However, consumers may still be entitled to a refund under contract law or applicable policies of the business, or because of representations made by the business.
Businesses should not accept payment for goods or services unless they can supply them in a reasonable time frame to consumers. If a service or good is no longer available, businesses should consider offering an alternative good or service, or refund the payment if it is not possible to provide an alternative.
Businesses should not charge membership or subscription fees for services they cannot offer to consumers, or charge freeze or holding fees if the membership or subscription service has been impacted by COVID-19.
Businesses should not increase the prices of their products or services excessively in response to the COVID-19 pandemic unless there is a specific and genuine reason to do so.
How can we assist?
HWL Ebsworth’s Competition and Consumer Law team has extensive experience in advising businesses regarding their obligations and rights under the ACL, contract and common law. If you are concerned about how to manage any aspect of your business in light of the government restrictions, such as enforcing any rights you may have, or whether you are in potentially in breach of any obligations, please contact us for further information on how we can assist you.
This article was written by Peter Campbell, Partner, Rebecca Sandford, Special Counsel and Alexandra Douvartzidis, Solicitor.