Transcript Slide 1

Australian Consumer Law
Strategic Risk Management For Schools
Presented by:
Josh Simons
Partner
8233 5428
[email protected]
77934341_1
Liam Gaunt
Senior Associate
8233 5602
[email protected]
The Plan
• Background and context
• The role of the Australian Consumer Law
• Application to schools
• Flash points
• Specific Risk Analysis & Discussion
• Component pricing
• Unfair contract terms
• Unconscionable conduct
• Misleading & deceptive conduct
The Australian Consumer Law
• Part of the Competition and Consumer Act 2010
• Formerly the Trade Practices Act 1974
• The Competition and Consumer Act, in general, prohibits businesses
from:
• misleading, deceiving or acting unfairly in business; and/or
• behaving anti-competitively.
Broad reaching
• Competition and Consumer Act regulates any activity in Trade or Commerce
• Many aspects of a school’s business clearly in trade or commerce:
• Competing for enrolments
• Advertising
• Education is highly competitive:
• Expectations growing
• Embracing competition
Who is watching?
• The regulator – Australian Competition and Consumer Commission
• Enforces the Competition and Consumer Act
• Well funded, aggressive litigant
• Picks strategic targets
• Publicity-driven
• Consumers
• Parents/Students
• High expectations
• Competitors
• The person sitting next to you
• Alternative educational institutions
The Australian Consumer Law
• The Australian Consumer Law:
• is part of the Competition and Consumer Act
• has standardised a raft of varying State and Territory legislation
• introduces new enforcement mechanisms
• specifically regulates certain kinds of problematic conduct
• Increased certainty is good for business,
but also makes it easier for consumers:
• Litigation under consumer laws in Australia
increasing at a rate of about 25% per/year
• Cases in education are increasing
Flashpoints For Independent Schools
• Three pillars of Australian Consumer Law for independent schools:
Misleading
Unconscionable
Consumer
Conduct
Conduct
Rights
Advertising &
Enrolment
Standard of
Promotion
Contract
Education
Consumer
Standard of
Expectations
Facilities
Fee
Disclosures
Why Comply?
Infringement
• Serious penalties can be incurred for breaches of consumer protection
laws:
• Corporate and individual liability
• Financial penalties:
• $1.1 million per offence for misleading and deceptive conduct (regulator)
• $500,000 individually (regulator)
• Damages and associated litigation costs (competitor/customer)
• Prohibition on school indemnifying officers and employees who are
found liable:
• Sales manages, marketing managers, CEO/CFO/COO etc.
Investigation
• Clients who have been through even a short ACCC investigation tell us
that the stress, cost and administrative burden of dealing with the
investigation outweighed any penalty or damages
• ACCC has substantive investigation powers, similar to police:
• Search
• Interview
• Compelled to provide documents or answer questions
• If the ACCC senses unfair business conduct it does not hesitate to:
• Investigate (issue requests for information etc.)
• Seek public settlement
• Litigate
Enhanced ACCC Powers
• The Australian Consumer Law provides enhanced ‘rapid fire’ powers to
the ACCC, including:
• Substantiation notices (must provide evidence for a representation)
• On the spot fines (C: $3,300 - $6,600 & I: $600 - $1320)
• Public warning notices
REPUTATION
COST protection
• Reputation damage associated with breaching consumer
laws is significant
• Seen as cheating
• Consumer trust
• Substantiation notices will change the landscape:
“You have said your school has the most university acceptances.
Why?”
Risk 1: Component Pricing
Component Pricing – Material Change
• School fees are rarely a one-size fits all ‘lump sum’ payment
• Has not been industry practice to provide a single price…
Component Pricing – School Fees
• For the purposes of the Australian Consumer Law, school fees and
charges are no different to retail goods sale prices, airline tickets or
rental contracts
• All known fees must be fully disclosed as one single price
Component Pricing – The Law
• Section 48 - Illegal to advertise components of a price without
also prominently specifying the total single price.
• Single Price - minimum quantifiable consideration for the
supply of goods under that contract
• What is quantifiable?
• Readily convertible to a dollar amount at the time the
representation is made
Component Pricing – Display Prominence
• Section 48(5)- Any single figure price that schools need to display
must be displayed in a 'prominent way'.
• The single price should be displayed at least as prominently as
the other components of the price.
$1 + $1 = $2
$1 + $1 =
$2
Component Pricing – The Old…
• Fees payable for James during year 8 will be:
• Tuition:
$16,000
• Application fee:
$375
• Resource fee:
$1,700
• Compulsory building fund
$500
• You will be invoiced in four equal instalments at the start of each term
• A voluntary old scholars levy of $300 will be added to the first invoice.
You can elect not to pay this.
Component Pricing – Now
• Fees payable for James during year 8 will be:
• Tuition:
$16,000
• Application fee:
$375
• Resource fee:
$1,700
• Compulsory building fund
$500
• TOTAL
$18,575 for year 8
• You will be invoiced in four equal instalments at the start of each term
• A voluntary old scholars levy of $300 will be added to the first invoice.
You can elect not to pay this.
Some issues…
• Are voluntary contributions properly stated to be voluntary?
• Can payment be made without incurring a credit card or payment fee?
• Can the costs of required text books or materials be quantified?
• What is the minimum enrolment term?
• When is the price representation being made?
• Are scholarship terms clear about what they do and do not include and
for how long?
Increasing disclosure
• Different detail depending on the time of
disclosure:
• General ‘prospectus’ – base fees only
• Quote or offer – increased disclosure
• Enrolment contract – high level of detail
Voluntary fees
• Proper disclosure of voluntary or ‘avoidable’
costs and an indicative or actual price
must still be provide:
• Administration fees
• Late fees
• Anticipated/Actual costs for ‘extras’ selected
by a student (if known)
• Compliance with overarching false,
misleading and deceptive conduct
provisions contained in the ACL (section 18)
Component Pricing – Assessing single price
Risk 2: Unfair Contract Terms
The contract is your business.
• Previously, there was little regulation that would interfere with
the terms of the contract between the school and the student:
• Illegal terms
• Unconscionability
• Misrepresentation
• Levels of regulation were relatively low. Once the contract signed,
hard to over-turn and terms could generally be enforced.
• Now - specific regulation of each term of a consumer contract
including enrolment contracts.
New scrutiny
• Unfair = unenforceable
• The enrolment contract is the document that underpins a school’s
right to payment.
• Central to the school’s revenue and rights and obligations as
between business and consumer.
• In addition to enrolment contracts, there may be other consumer
contracts entered into on an ‘ad hoc’ basis:
• Boarders
• Equipment hire/loan/sale (Information Technology etc.)
Unfair Contract Terms
• ACL introduced new laws in July 2010 regarding unfair contract
terms
• The apply to ‘consumer contracts’ for the supply of goods or
services to an individual (i.e. student/parent)
• Does not apply to a contract entered before 1 July 2010 unless it
is renewed or varied after this date
• Assume all contracts covered
• Can strike out individual terms, whole contract might be
reasonable – but that’s not the test
Overview
• Applies only to standard form consumer contracts
• Meaning of unfair
• 3 – limb test
• Transparency
• Contract as a whole
• Grey list
• Consequences
• Contracts void
• Breach of act
What Are Standard Form Consumer
Contracts?
• Does not apply to business to
business contracts
• Unlikely to benefit school
• Applies to contract for supply of
goods/services to an individual
acquiring goods/services for
personal/domestic use.
• Must be a ‘standard form’ contract:
• All consumer contracts assumed to be
standard form unless it can be shown
that the terms were ‘negotiated’.
What is an unfair term?
• Any term of a standard form consumer contact that is unfair will
be unenforceable
• Three tier test for unfair:
• it would cause a significant imbalance in the parties'
rights and obligation arising under the contract; and
• it is not necessary to protect the legitimate interest of
the party who would be advantaged by the term; and
• it would cause detriment (whether financial or
otherwise) to a party if it were to be applied or relied
on.
Transparency and the ‘whole contract’
• Each term should be individually assessed in light of the
imbalance, legitimate interest, detriment test.
• In determining whether a contract term is unfair, the courts must
take into account:
• The transparency of the term
• Fine print and technical language may be unclear and
will not help
• The contract as a whole
• Terms will be considered in relation to the entire
document and the context in which they appear
What kind of terms are unfair?
• The ACL prescribes a ‘grey list’ of potentially
unfair contract terms (see section 25).
• Terms that appear on the grey list are not
exhaustive or illegal, but are a kind
of term that ‘raises a flag’.
• Review enrolment contracts in light of the
grey list. Do you have a potential problem?
Exceptions
• The following terms cannot be found to be unfair:
• Terms that define the main subject matter of the contract
A consumer can’t claim a clause obliging them to acquire
goods or services is unfair (ie. change of mind)
• Terms that set the upfront price payable under the contract
A consumer can’t claim the price being charged is unfair to get out of
paying
• Terms that are required by law
A consumer can’t claim a requirement to hold a certain kind of
insurance is unfair, if required by law
Terms in favour of the school only…

Avoid or limit performance of the contract

Certain exclusion clauses
The School is not responsible for ensuring that adequate subject diversity
is available during the Term to meet SATAC tertiary entry requirements

Terminate the contract

Right to terminate for inconsequential customer breach
The School reserves the right to expel a student who engages in serious
misconduct or who fails any subject

Vary the contract

Term requiring consumer to accept increased fees or penalties or reduced
benefits
The School may close the swimming pool and gymnasium in the event
that operating costs become too high

Renew or not renew the contract

Right to unilaterally decide not to renew continuing contract without
adequate notice
At the end of each academic year, the School will notify the Student as to
whether or not they will be permitted to continue at the school based o
an assessment of academic performance and other relevant criteria
Penalties and limitations of rights

To determine whether the contract has
been breached

Reservation of discretion about a meaning
Serious misconduct has the meaning provided in the Student Guidelines.
In the event of any dispute about the Student Guidelines, the school will
decide whether or not the misconduct is serious.

Assignment without consent

Term permitting assignment of contact without consent, and where
assignment will cause detriment
This enrolment contact may be assigned by the school to another
independent school at any time, whereupon the Student will be enrolled
at that school.

Disclaim liability for agent

Term disclaiming liability for representations made by an agent
The School takes no responsibility whatsoever for representations made
by agents to the Student, including any international recruiting agency
engaged by the School.

Right to sue

Term excluding or limiting a party’s right to sue
The Student must not commence legal proceedings under or in
connection with this agreement. The School’s total labiality to the
Student under this agreement is equal to one term’s fees.
Consequences
• What happens if my term is unfair?
• Unfair term will be void
• Serious risk
• Contract as a whole may continue if capable of setting void
term aside
• All or nothing on important terms?
• Court may make remedial orders if a party seeks to rely on an
unfair term
• e.g. injunctions and damages
Workshop
Risk 3: Unconscionable Conduct
Unconscionable Conduct
• Schools must deal fairly with consumers and other businesses.
• Harsh or oppressive conduct can be illegal. Rule of thumb:
“conduct so unreasonable that it goes against good conscience”
• Applies in both business-consumer dealings and businessbusiness:
• Students/Parents
• Suppliers/Contractors
What is unconscionable conduct?
• Special disadvantage required:
• poor reading or writing skills;
• poor English;
• disadvantage because of his or her age;
• is ill or has a disability;
• lacks business know-how or acumen; or
• is in a vulnerable financial situation.
What is unconscionable conduct?
• Primary risk for schools relates to financial obligations and terms
of enrolment contract:
• Less focus on terms of contract now (unfair contracts)
• Increased focus on circumstances surrounding execution of
contract and creation of obligations.
• Flash points
• International students/parents
• Grandparents paying fees etc.
• Students paying their own way
• Dealings in the absence of parents (if any)
• Pressure applied to secure agreement
How is unconscionability assessed?
• The relative bargaining strengths of the parties
• Any use of undue influence, pressure or unfair tactics
• Whether the weaker party could have understood any
documentation used
• Whether the school imposed conditions not reasonably necessary
to protect legitimate interests
• How much the weaker party would have had to pay to buy
equivalent products or services from another school
Risk management
• People must be given the opportunity to make an informed
decision in a fair and balanced environment
• Allow time for people to consider offers and terms – take them
home and come back
• Recommend they seek independent advice
legal/accounting/financial
• High numbers of international enrolments? Consider translations
and/or staff who can liaise in another language
• Don’t try and enforce rights over and above agreed enrolment
terms
Case Study
• ACCC v Black on White Pty Ltd (trading as Australian
Early Childhood College) (2001) 110 FCR 1
• College acted inconsistently with terms to chase payment:
• College told students that they could cancel their enrolment
and face a $100 cancellation fee.
• Enrolment form said students would forfeit entire tuition fee.
• College enforced the letter of the contract on a number of
occasions, keeping up to $9,000 in tuition fees.
• Conduct was found to be unconscionable
Case Study
• ACCC v Keshow (2005) ASAL 55-142
• Keshow promoted and supplied educational materials in
indigenous communities in NT
• Customers signed a periodic payment form which authorised
deductions to be made indefinitely
• The goods were often not provided or where provided, were
often inadequate
• Exploited the customers' lack of commercial experience, by
failing to explain the periodic payment form and failing to
supply goods or supplying inadequate goods
Workshop
Risk 4: Misleading & Deceptive Conduct
Misleading & Deceptive Conduct – Not just
advertising
• Flash points:
• Advertising
• School prospectus and other materials
• Website representations
• School tours/information sessions
• Answers to questions specifically asked by parents/students
• Closing the deal
• Will explain the principles in an advertising context for ease of
explanation
Misleading & Deceptive Conduct
• The CCA prohibits conduct that is false, misleading or deceptive
(or is likely to mislead or deceive)
• Extremely broad application
• Advertising, pre-contract discussions, business-to-business, provision
of goods or services…
• Intent to mislead or deceive is not necessary (inadvertent
breaches are common)
• No-one needs to have actually been misled
Misleading & Deceptive Conduct
• Many kinds of statements can be misleading:
• Untrue claims about a school’s goods or services
curriculum, facilities, performance
• Incorrect information
payment terms, ability to terminate
• Forgetting to highlight relevant exclusions
application closing dates, refund of application fees
• Not correcting a misunderstanding
availability of a subject
• Making predictions about future matters
the gym will be rebuilt in 2012; we will teach legal studies again in
2012
Misleading & Deceptive Conduct (cont)
• Critical test: Overall impression:
• Verbal comments can trump contracts
• Disclaimers or complex terms may not be effective
• Any impression (implied or explicit) must be factually accurate
• Always have evidence available to back up a claim that is made
Misleading & Deceptive Conduct (cont)
• Small print disclaimers and
exclusion clauses should be used
carefully…
• Important exclusions,
qualifications or terms should not
be hidden or left to the enrolment
contract
Comparative Advertising
• Comparisons between pricing (was/now) and other moment in time issues
• Comparisons between schools, between student performance or facilities
(direct or indirect)
• Increasing use in education markets
• Highly effective advertising – of particular interest to ACCC as consumers
generally rely on objective statements and believe them
Comparative Advertising
• High risk, and easy to get wrong:
• Relies on moment-in-time currency that may change (must be accurate
each and every time the representation is made)
• Comparison may no longer be correct if competitor makes a small
change
• Can be hard to fully explain limitations or context of data relied on
• Competitors hate it
Puffery – Common Practice
• The CCA does not stifle creativity or aggressive marketing
• Puffery as a legal term refers to promotional statements and claims
that express statements that have no objective meaning
• Claim should be almost impossible to substantiate, such that no
reasonable consumer would take such exaggeration at face value
Puffery (Cont)
• Good puffery:
• “The brightest school in the Universe”
• Most exciting curriculum…
• Best education…
• in the universe
•in the universe
• in Australia
•in Australia
• in South Australia
•in South Australia
• in Adelaide
•in Adelaide
Puffery (Cont)
Testimonials
• Specific new offence to deal with testimonials
• The wonder mop is the best thing to happen to my life
• The Smart School taught my kids life skills and book smarts…
• My school understands me. They have made me ready for higher
education
• Cannot make a false or misleading representation concerning:
• A testimonial by any person
• A representation that purports to be a testimonial
• Any comment purported to be made by them must have actually
been made and must not be false or misleading
• Keep on file!
Testimonials
• Cannot use someone for a testimonial if they didn’t go to the school!
• Need a real testimonial from a parent or student
• Cannot use a testimonial that makes misleading statements or
representations
• “I went there and became a millionaire. If you go there, so will you!”
• This will be enforced:
• Good fit for the ACCC to use ‘substantiation notices’
• Very embarrassing if first one caught
Testimonials today!
• Recent ACCC decision against Allergy Pathway Pty Ltd concerning
posts on their facebook wall from clients which were then used by
Allergy Pathway on their website
• Some of these posts were deemed to be misleading
• ACCC determined that even though the company didn’t post the
testimonial themselves, they were responsible for them once they
used them as a promotional tool
Misleading & Deceptive Conduct – Not just
advertising
• Concepts have been explained within advertising context for ease of
understanding
• Apply equally to other representations made to parents/students
prior to, after and during the enrolment contract
• “you told me…” – “we were promised” – “this hasn’t lived up to
expectations…”
Workshop
Where has it gone wrong
Confidential settlement
• Brighton Grammar School
• Allegation was made in Victorian Civil and Administrative
Tribunal
• failure to deliver on a promise to improve reading
• Confidential settlement was reached
• Indicates risk for schools
• School later sued in another claim ($400,000 fees). Similar
allegations
Tips…
• Don’t makes promises where there is no reasonable basis to
make them
• Paper work must be thorough
• In the Brighton case, extensive notes were maintained on any
issues relating to the particular children which helped in
defence
• Included notes of conversations with the parent on a range of
issues on numerous occasions during the students
• Special assistance promises are more dangerous than generic
statements about what the school offers
US example
• Alsides v Brown Institute 592 N.W.2d (Minnesota Court of
Appeals, 1999)
• Students brought claims for poor quality of education,
including breach of trade practices
• Held: Misleading conduct
• School contravened deceptive trade practices law for
falsely advertising that students would receive specific
amounts of computer training on state-of-the-art
equipment.
Case Study – threats of litigation
• Similarly, RMIT faced claims of a similar nature (not litigated)
• A group of international students raised concerns that they
were misled into paying premiums for courses that failed to
live up to the hype of university promotions
• Claims that supervised teaching hours fell far short of
what is promoted on the university website
• No legal action taken, unknown if any settlement reached
What does it mean for you?
• Keep promotional material general, including in relation to:
• Specific qualities of education
• Class sizes
• Specific resources that will be available or used
• Specific courses or subjects that will be offered
Subsequent discounts
Offender:
Thorn Australia Pty Ltd – Now RR Australia
Limited
Conduct:
Failure to disclose terms & conditions
•
'Rent Two, Get One Rent Free' television advertising
•
The company did not disclose, or sufficiently disclose, the advertised offer
was subject to terms and conditions.
Subsequent discounts
1.
The free rental only applied to the third item with the lowest rent
2.
It only applied to selected items and was based on a minimum 18
month rental contract
3.
Only available while the consumer continued to rent the original two
items.
Don’t make the same mistake:
•
Review any:
•
sibling or family discount policies to make sure they are clear, fair and
accurate
•
scholarship terms and conditions
Poor advertising
• ACCC v Zanok Technologies [2009] FCA 1124
• IT business Zanok Technologies placed advertisements on
employment websites
• There were no jobs
• Applicants were encouraged to sign up to an IT training course
costing $4,700 in order to secure employment (which was not
guaranteed)
• Held: Zanok engaged in misleading and deceptive conduct
Misleading & Deceptive Conduct - Checklist
• Ensure that the overall impression is true and accurate,
not just a single statement
• Substantiation of all claims is essential – must be able to
show a proper basis for claims
• Record, file and keep
• Choose an appropriate medium to convey messages
• Complex – written
• Disclaimers, qualifications and contract terms must
only explain a representation, not contradict it
Misleading & Deceptive Conduct - Checklist
• Silence is no longer golden! Correct misapprehensions
or misunderstandings immediately
• Industry jargon and technical explanations must be
avoided – plain English
• Comparisons to other school’s or industry standards must
be carefully scrutinised or avoided.
• Always use a single price – if it’s not part of the single
price, you shouldn’t expect to collect it
Discussion Question 1
• A student at your school is struggling to grasp basic literacy, and
you suspect that the child might be dyslexic
• Her parents make an appointment to see the class teacher
• They are upset about her lack of progress and ask when they can
expect her reading and writing skills to improve.
What are the risk areas presented by responding to this question?
Discussion Question 1
• Reassure that her progress is being monitored closely
• The teacher should maintain a file note of the meeting (risk
management)
• The teacher should not promise that her literacy will
improve, particularly if there is suspicion of any underlying
learning difficulties
Discussion Question 2
• The Business Development manager proposes a draft school
prospectus for the next year that states:
Our goal is to have all students achieve their first
course preference for tertiary education.
• For this phrase to appear, what process should be followed?
Discussion Question 2
• Use of the word assists in neutralising claim
• Review previous acceptance figures; Keep on file
• Need to review market circumstances; More places? Less places?
• If the goal is realistic and achievable because last year was 95%
based on a similar composition and performance of students, then
a reasonable basis is held.
• Compare the year 11 class results with year 12 class results
where 95% was achieved – is this a ‘good year’?
• Be in a position to respond to a question: “why is that goal
possible”
The Smart School has consistently produced the
brightest students in South Australia for the last ten
years.
*Subject to minimum enrolment. Not
offered in 2012
The only school
teaching Latin from
year 6*
School fees
start from $30
per day
“The teachers are the best! We all love The Smart
School.” Tom Jones - Year 7, Junior School Captain
How can The Smart School improve their
advert?
• Would need evidence of testimonial from the boy in the
advertisement. Should be limited to his view only
• “The Smart School has consistently produced the brightest
students over the past ten years”
• Claims such as this must be able to substantiated. What
statistics could validate such a claim?
• The time reference to time makes it more measurable
How can The Smart School improve their
advert?
• “Only school to teach Latin*”
• The disclaimer contradicts the headline
• Not offered in 2012 is a direct contradiction
• Subject to enrolment is ok provided Latin has been taught in
previous years, and the school reasonably expects it to be
taught next year (ie. Teacher is available etc.)
• Comparison to other schools that could quickly become outdated
if this advert was placed on a bus shelter
How can The Smart School improve their
advert?
• “School fees from $30 per day”
• The price provides a component pricing risk because it
assumes a one day enrolment period based on $8.95 being
the minimum etc.
• What fee should be represented? Year 1 or Year 7? Should it
be explained?
The Smart School produces bright students
*Subject to minimum enrolment.
The only school
teaching Latin from
year 6*
Year 1 school
fees start from
$3,000 per term
“The teachers are the best! I love The Smart
School.” Tom Jones - Year 7, Junior School Captain
Discussion