AIG Regulatory update

Commercial law firm, HWL Ebsworth, have released their annual Automotive Industry Group Regulatory Update, providing their view on new, current and proposed legislation.

The 25-page document deals with amendments to Australian Consumer Law (ACL), unfair contract provisions and The Motor Vehicle Standards (Cheaper Transport) Bill 2014, as well as policy matters such as the ASIC inquiry into flex commissions, the proposed cap on insurance commissions and competition policy.

Unfair contracts

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Act) took effect in November. It amends both the ACL and the Australian Securities and Investments Commission Act 2010 (ASIC Act) to extend unfair contract term protections to small businesses.

Under the new legislation an unfair term in a standard form small business contract entered into or renewed after 12 November is void. Australia will be the only jurisdiction in the world applying this type of regime to business-to-business contracts.

A small business contract is defined as one where at least one of the businesses employs fewer than 20 people and the upfront price of the contract is no more than $300,000 – or $1 million if the contract is for more than 12 months.

“Despite the narrow definition of a small business contract, the ACCC takes the view that the new unfair contracts legislation will apply to all motor vehicle distributors,” the document reads.

“Unlike the Motor Dealers and Repairers Act in NSW, the new legislation does not apply to conduct by distributors relating to a term of a Dealer Agreement. Section 25 of the New Unfair Contracts Legislation provides examples of terms that may be unfair, including:

a)    terms that enable one party (but not another) to avoid or limit performance of the contract.
b)    terms that enable one party (but not another) to terminate the contract.
c)    terms that penalise one party (but not another) for breaching or terminating the contract.
d)    terms that enable one party (but not another) to vary the terms of the contract, e.g. franchise standards and manuals.”

Relevance to Dealers

The new legislation applies to standard form Dealer Agreements entered into or renewed on or after 12 November 2016.

“Dealers entering into new agreements will have greater power to negotiate and challenge provisions that are potentially unfair under the new legislation,” the report says.

ACCC report

In November, the Australian Competition and Consumer Commission (ACCC) released its report of common unfair contract terms, which included several contract terms of concern in the franchising sector that includes motor vehicle retailing, such as the right to unilaterally vary operations manuals.

“The ACCC is of the view that terms that allow one party to unilaterally vary key aspects of the franchise agreement, especially in a largely unrestrained manner, are likely to raise concerns under the unfair contract terms law,” the ACCC report reads.

“While operations manuals are usually a separate document from the franchise agreement, they often set out substantive rights and obligations of the franchisee during the term of their franchise. Franchise agreements often incorporate the terms of the operations manual into the agreement, and otherwise require the franchisee to comply with the terms of such manuals.

“The ACCC strongly recommends that franchisors ensure that appropriate limits are placed on any terms which enable them to unilaterally vary franchise agreements and/or operations manuals, or risk action under the unfair contract terms law.”

Relevance to Dealers

The HWL Ebsworth update states that the ACCC believes that terms of a Dealer Agreement that allow a franchisor to unilaterally vary key aspects of a Dealer Agreement, especially in a largely unrestrained manner, are likely to raise concerns under the unfair contract terms law.

“The ACCC is concerned about terms that grant a franchisor an unreasonable power to terminate a franchise agreement, e.g. on notice without any breach by a Dealer of the terms of the Dealer Agreement or where there are breaches by a Dealer of the Dealer Agreement but where there is no regard to the severity of the breaches or whether the franchisee had remedied them,” the lawyers’ report says.

The Motor Vehicle Standards (Cheaper Transport) Bill 2014

This legislation was introduced into Senate in July 2014 before being referred to the Senate Environment

Legislation Committee.

There are no currently mandatory fuel efficient or carbon dioxide standards in place in Australia. The Bill intends to improve fuel efficiency of new cars purchased in Australia by establishing legally binding vehicle carbon emissions efficiency standards a seller or vehicle importer is required to meet.

The vehicle carbon emissions efficiency standards will be applied as an average across a seller’s fleet of new and passenger and light commercial vehicles when more than 1,000 cars are sold in a year. Penalty charges apply to sellers or vehicle importers whose fleet average exceeds the vehicle commission standards.

Relevance to Dealers

“Under the Bill, manufacturers, importers or sellers of new light passenger vehicles and commercial vehicles who sell more than 1,000 vehicles in a year are required to meet a specified carbon emission standard as an average across its fleets,” the HWL Ebsworth report says.

“The seller of a vehicle whose fleet averages exceed the vehicle commission standard must pay a charge.”
Following an enquiry, the Senate Environment Legislation Committee recommended that the Bill not be passed due to industry concern. The Bill is currently before the Senate.

The Tax Laws Amendment (Small Business Restructure Roll-over) Act 2016

Taking effect in July 2016, the Act introduces a roll-over to allow small businesses to change their legal structure without incurring a capital gains tax liability.

“The roll-over is restricted to circumstances where there has been no change in the ultimate economic ownership of assets resulting from the transfer of the assets between small business entities,” the HWL Ebsworth report says.

Relevance to Dealers

For those Dealers considered ‘small businesses’ the proposed law will reduce red tape and provide greater flexibility to grow and change the legal structure in which they operate without triggering adverse taxation consequences.

Proposed insurance commissions cap

“In the absence of authorisation by the ACCC the proposed conduct by the insurers would likely run the risk of contravening the cartel conduct and other prohibitions against exclusive dealing in breach of the Competition and Consumer Act”, the HWL Ebsworth report says.
“If the ACCC approves the authorisation then the insurers can proceed to introduce the proposed restriction on commissions through a voluntary code of conduct. If the ACCC rejects the authorisation application the insurers can appeal to the Australia Competition Tribunal to have the decision reviewed.”

Parallel imports

Legislation is currently being drafted for introduction into Parliament. The Government’s planned reforms to the Motor Vehicles Standards Act (Cth) are expected to be introduced in 2018. The reforms will commence 12 months after the passage of legislation, with a transition period to enable businesses to adapt to new arrangements. The personal new vehicle imports scheme will commence in 2018.

New car retailing industry market study

The ACCC will conduct a market study to review industry practices, including compliance with consumer guarantee obligations and the ability of consumers to enforce their rights. The study will also address interaction between consumer guarantees, manufacturer’s warranties and Dealer extended warranties.

Other issues to be studied are the effect on competition and on consumers of post-sale service arrangements (such as servicing and repair), availability and access to repair and service information and data for new cars, and false, misleading and deceptive practices in fuel consumption, carbon dioxide (CO2) emissions, noxious emissions and car performance

“The ACCC would like to determine if car manufacturers and Dealers understand their consumer guarantee obligations and whether consumers are able to exercise their rights,” HWL Ebsworth say.

The representations made to consumers about fuel consumption and energy are a key issue. The ACCC has received a number of complaints from consumers who have experienced significantly higher fuel consumption than their car’s labelled or advertised values.

The ACCC is concerned that fuel consumption figures, which are derived from testing conducted under an international framework – New European Driving Cycle (NEDC) – do not mimic real-life driving conditions and exclude factors such as road, traffic and weather conditions that would otherwise affect the results.

“Under the ACL, businesses must not make statements that are incorrect or engage in misleading or deceptive conduct,” the report says.
“To prevent any claims about the fuel consumption of vehicles being misleading, businesses must be able to substantiate them.”

ACL review

After receiving more than 160 submissions and 100 online comments in response to its Issues Paper, Consumer Affairs Australia and New Zealand is expected to provide a final report to the Legislative and Governance Forum on Consumer Affairs by March 2017.

Competition Policy review

“While directly applicable to Dealers in their own industry, this may be relevant to dealings with financiers,” the report says.
“Proving in court a likely effect on competition is still going to be a hugely complex and expensive exercise, however. Most small businesses may have difficulty in running this type of litigation against bigger and better resourced companies.”

ACCC investigation into capped price servicing

One of the ACCC’s more recent enforcement endeavours has been the recent conclusion of an investigation into Kia Motors Australia Pty Limited (Kia) in relation to false representations made regarding capped priced servicing. The ACCC found that Kia’s advertising of capped price servicing was false and misleading. In particular, Kia represented on its website that “the capped price applicable for each service is the maximum you will pay for your scheduled service”. However, prior to the ACCC’s intervention, Kia’s terms and conditions allowed scheduled service prices to be amended at any time and, in fact, these prices had been changed by Kia four times since 2012.

As a result of the investigation, Kia provided a number of undertakings to amend its terms and conditions relating to the promotion of its capped priced servicing promotions.

Relevance to Dealers

“The ACCC now intends to review other capped price service offers made to consumers by vehicle manufacturers to assess whether any similar issues arise. In light of this investigation, Dealers must ensure that all representations made to the public are true, in line with all the retailer’s terms and conditions, and cannot be seen to be misleading to consumers,” the HWL Ebsworth report concludes.

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