13.1.1 Court enforceable undertakings

The Commerce Commission uses settlement agreements when a person in trade voluntarily admits that they have breached the Fair Trading Act and gives an undertaking to amend its behaviour. Settlement agreements provide an alternative to litigation and have a number of benefits for businesses in that they are more efficient and avoid the associated expense of court proceedings. They can also significantly speed up the process of obtaining compensation for the victims of the breach.

At present, settlement agreements can be problematic for the Commission if a business chooses to disregard the settlement agreement at a later time. The Commission cannot enforce the settlement agreement as it is not an affected party (this would be the affected consumers). The Commission’s only option is to take further court action based on the original cause of action, which is time-consuming and expensive. This may fall outside the specified time period set out in section 40(3) of the Fair Trading Act, currently set at 3 years, or in the Limitation Act 1950 for civil proceedings⁸¹.

If the Fair Trading Act had formal provision for undertakings with the Commerce Commission that are enforceable, it would mean that if a business chooses to disregard the undertaking, they will be in breach of the undertaking (not the original cause of action) and this breach can be taken to court by the Commission. Such a provision would make their settlement procedure more transparent and flexible and would incentivise the Commission to use undertakings in preference to prosecution.

The Australian Trade Practices Act (and proposed Australian Consumer Law) has a court enforceable undertakings provision. We understand that the Australian Competition and Consumer Commission uses undertakings in preference to taking court action.
 

Footnotes

80 Ministry of Consumer Affairs, Review of the Enforcement of Consumer Protection Law: An Initial Think Piece (July 2005) and Review of the Redress and Enforcement Provisions of Consumer Protection Law: International Comparison Discussion Paper (May 2006).

81 The Limitation Bill, which will replace the Limitation Act 1950, is due to be reported back from the Justice and Electoral Committee in May 2010. The aim of this Bill is to encourage claimants to make claims without undue delay, and protect defendants from the unjust pursuit of stale claims.