The Australian Consumer Law (ACL), came into effect on 1 January 2011. The ACL is part of the renamed the Competition and Consumer Act 2010 formerly known as the Trade Practices Act 1974 (TPA).
The ACL is creating new statutory liability for directors which means new liability exposures for directors and officers.
For us Brokers and our clients there are more new risks which could impact on their Directors & Officers Liability policy. These include unconscionable conduct, false representations in relation to the supply of goods, breach of certain consumer safety provisions and not complying with the substantiation notice. On top of this, an innocent director or officer can be held liable if they’re involved in someone else’s contravention. They can also face significant fines if they are knowingly concerned in breaches of the legislation.
Of concern is that their existing D&O insurance covers these breaches? At the moment, nothing prevents us from arranging D&O insurance to cover breaches of the consumer protection provisions, but there are restrictions on what insurance will cover. D&O policies vary and the policy might not cover the offences.
It is suggested that we review our client’s D&O insurance to make sure of the protections they have in place. Your clients should also review their organisation’s contracts that rely on the TPA or make important reference to it just because the Act has changed its name. However many contracts these days have standard guides to interpretation or provisions which say that if we refer to a statute, then in this contract, that reference should be taken to include any newly enacted form of that statute or change in name of that statute.
Some contracts will not have that kind of provision or perhaps you might be a bit uncertain. There might also be a contract that relies upon a particular clause or section of the old TPA where that section has now been amended. That might mean that because the law has changed, you can’t rely on the old reference because
it wasn’t what the parties originally agreed on. This includes some Professional Indemnity policies which refer only to Section 52 of the TPA (deceptive and misleading conduct).
The new law requires numerous changes related to consumer warranties and terms and conditions. Consumer contracts may also risk being unfair under the new contract rules. With changes also having been made to consumer safety provisions, clients involved in consumer products should review their risk and insurance positions and their back-to-back indemnities from suppliers.
My suggestion is for us to check on our client’s insurers regarding their own policy wordings if it appears not to adjust to these changes. Also for our own client’s to speak to a good reputable Solicitor expert in these areas regarding their own business contracts. Would not want any problems later on would we?