PRINCIPLES BASED REVIEW OF THE LAW OF NEGLIGENCE

Submission by the CONSUMER LAW CENTRE VICTORIA

August 2002

Consumer Law Centre Victoria Level 7, 20 Queen Street Melbourne Vic 3000 Telephone: (03) 9629 6300 Email: info@clcv.net.au

Submission to the Review Panel on the Law of Negligence

The Consumer Law Centre Victoria (CLCV) is one of Australias leading consumer advocacy and public interest organisations. The CLCV seeks to advance the interests of low income and vulnerable consumers. The CLCV undertakes research, policy development, lobbying, law reform activities, education, public interest test case litigation and conducts a large consumer casework legal practice. The Centre is currently working on a range of consumer issues, including banking, telecommunications, insurance, utilities, pay day lending and fringe credit, regulation of lawyers, public transport, fair trading and access to justice issues. The CLCV welcomes the opportunity to make this submission to the Review Panel (the Panel). It is the intention of the CLCV to raise briefly in this submission a number of matters of concern and to expand upon these matters by way of oral submission before the Panel.

1. Executive Summary
By way of introduction, the CLCV supports and endorses fully the submission made to the Panel by the Australian Consumers Association (ACA). While the CLCV understands and respects the terms of reference of the Principles Based Review of the Law of Negligence (the Review), it is submitted that the Panel should also be mindful of whether the lack of causative evidence available to support the proposed reforms of negligence law in Australia indicate that a cautious approach ought to be taken on reform. According to the terms of reference: The award of damages for personal injury has become unaffordable and unsustainable as the principal source of compensation for those injured through the fault of another. It is desirable to examine a method for the reform of the common law with the objective of limiting liability and quantum of damages arising from personal injury and death. The CLCV does not share this view, and is concerned that the perceived insurance crisis that has led to this Review, has not been caused by an increasing number of claims, but rather is the result of mismanagement and poor practices within the insurance industry itself. In our submission, if the Panel intends to recommend the introduction of considerable intrusions into the laws of negligence, which consequently have the potential to severely limit consumer protection in this country, then it is imperative that the premise upon which this Review is founded be thoroughly tested. To date, the insurance industry has been unable to provide evidence to support its argument that extensive negligence law reform will result in lower insurance premiums. Accordingly, we concur with the comments made in the ACA submission, specifically that public liability insurance premiums have increased dramatically for a number of reasons, including the collapse of HIH, natural disasters and other catastrophic world events, declining returns on the investments of Australian insurers and the concomitant cyclical nature of the profitability of the insurance industry and costs associated with prudential requirements. The restrictive time frame within which this Review is taking place does not reflect the unsettled nature of these issues, nor does it allow a sufficient period of time to enable the consequences of the reform proposals to be properly addressed. The CLCV submits further that the terms of reference providing the framework for this Review fail
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to adequately address the tension arising from the need to protect and promote access to justice and consumer rights, and the counterveiling public interest in ensuring that insurance premiums are affordable for the majority of consumers. It is submitted that any proposed restriction on the operation of the Trade Practices Act 1974 (the Act) cannot be legitimately advanced unless we grapple with these competing public interests. The CLCV is gravely concerned that the proposed reforms of the Act will significantly unwind decades of development in common law and statutory consumer rights and protections, and will have the effect of lowering the standard of care afforded to consumers by service providers and manufacturers of goods.

2. Trade Practices Act 1974

2.1 Misleading and deceptive conduct

The CLCV is strongly opposed to any amendments to the Act that seek to remove the right of consumers to take action for misleading and deceptive conduct resulting in personal injury or death. In this respect, we fully support the submissions made to the Panel by the Australian Competition and Consumer Commission (ACCC). If the right to seek compensation for misleading and deceptive conduct is removed, not only will this severely restrict the fundamental rights of Australian consumers to access to justice, but it will also result in lowered consumer confidence, which will in turn impact on the overall economic efficiency of the market. We are unaware of any compelling evidence to support claims by the insurance industry that awards made in respect of personal injury claims under the Act are contributing to the problems confronting the industry at the present time. The CLCV supports the ACCCs view that there cannot be any net gains to society in the event that consumers are permitted to contract out of statutory protections against misleading or deceptive conduct. If section 52 of the Act is watered down, this creates the potential for suppliers and manufacturers to misrepresent the risks associated with the goods or services provided, inducing consumers to waive their rights in completely inappropriate circumstances. The implied warranties under the Act are there to ensure that goods and services are delivered to consumers at a proper standard, and therefore represent the minimum level of protection within the Australian consumer protection framework. Indeed, the stated purpose of the Act is to enhance the welfare of Australians though the promotion of competition and fair trading and provision for consumer protection, and any reform of the Act should necessarily consider this underlying aim. The Act incorporates a significant public interest element, which needs to be weighed against the public interest satisfied by affordable insurance premiums. Every time an individual consumer successfully brings a claim alleging breach of the Act, be it in relation to misleading and deceptive conduct (section 52), unconscionable conduct (Part IVA) or defective products (Part VA) there is a wider public interest being served. It is a fundamental right that consumers be allowed to continue to pursue this avenue to achieve a just outcome in the event of injury or death as a result of commercial conduct contrary to the public interest. 2.2 Waivers and voluntary assumption of risk

With respect to waivers and the voluntary assumption of risk, we submit that consumers are not necessarily in the best position to gauge the risks involved in the activities which they undertake, nor are they necessarily able to afford to insure against the consequences of those risks. Permitting individual consumers to assume risk, effectively overriding statutory protections, will create a situation in which suppliers can reduce their standards of care and diligence, while the costs to consumers in avoiding and minimising risk will increase. It is seriously concerning if one contemplates the consequences to which this may lead. For example, if a bungy jumping company
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is able to exclude all risk when contracting with consumers. At the present time, and as a direct consequence of the current negligence law regime, service providers and manufacturers are aware of their obligations in relation to consumers, and the consequences of failing to fulfil those obligations. This sense of obligation must be maintained if consumer confidence is to be maintained. Further, it must be recognised that individual consumers, particularly minors, or those with an intellectual or physical disability, or those from culturally or linguistically diverse backgrounds, will have even more difficulty appreciating the nature of the risk they are assuming by waiving their rights to claim in the event of injury. In our view, even well informed consumers should be unable to waive their right to claim in the event that a supplier fails to exercise due care and skill in a high risk activity. Accordingly, with respect to the proposed amendment to section 68 of the Act, while acknowledging that there may be limited circumstances in which consumers should be allowed to assume risks, it is submitted that the Trade Practices Amendment (Liability for Recreational Services) Bill 2002 fails to adequately address the form in which waivers will be provided, and the differing levels of risk associated with various recreational activities. In our submission, the current negligence law regime spreads the costs of risk appropriately and fairly in the sense that the party most able to absorb the costs of the risk, and the party with the requisite expertise to mitigate that risk, primarily the manufacturer or supplier, bears that risk. Consumers share the burden through the costs of goods and services and insurance premiums. Altering this equilibrium will arguably result in increased costs for consumers, and society as a whole, with low income and vulnerable consumers being those most likely to be disproportionately disadvantaged.

3. Options for reform

As discussed above, the CLCV is strongly opposed to any amendments of the Act which will have the effect of lowering safety standards and which will impede the rights of consumers to access to justice. However, if the proposed reforms are to proceed, we recommend that they be limited to the following options: 1. Restrict the amount of damages recoverable for personal injuries to the extent necessary to ensure consistency with restrictions applied under the State and Territory personal injury regimes. 2. Make allowance for the contributory conduct of the claimant when calculating an award of damages. 3. Allow for the voluntary assumption of risk by a consumer in relation to high risk activities, but only in circumstances where the consumer is able to fully appreciate the consequences of the waiver, and the supplier of the service has met a basic standard of care, submitted to an enhanced safety regime and made all necessary disclosures to the consumer. We concur with the ACCCs submission that the contractual exclusion of the implied warranties under the Act should not be permitted in respect of all recreational services or all types of services. In conclusion, the CLCV submits that the Review ought to approach the reform of negligence law with caution. The welfare of Australian consumers should be the Panels paramount consideration, not the commercial interests of the insurance industry. The sweeping reforms proposed require a far greater gestation period than that contemplated by the Review process. If there is indeed a need to reform the negligence law regime in Australian, then the long term effects of reform necessitate considerable consideration.

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