Alan L Tyree

Section 74 TPA and payment services

Abstract: Section 74(2) of the Trade Practices Act imposes non-excludable warranties on the supply of services. This note argues that Terms and Conditions of payment systems that are less favourable to the customer than the terms of the EFT Code of Conduct may be in breach of the implied warranty.

Section 74(2) of the Trade Practices Act 1974 imposes a not-excludable warranty that services will be “reasonably fit for that purpose or are of such a nature and quality that they might reasonably be expected to achieve that result”. The purpose and the result referred to are ones which the consumer makes known to the supplier.

The section comes into operation if the services are supplied to a “consumer” in the course of business amd the consumer makes known to the supplier the purpose or the desired result. A person acquires the services as a “consumer” if the price for the services is under $40,000. Where services are only used for one purpose, it may be taken that the consumer has made known to the supplier the purposes for which they were acquired.

Clauses that purport to restrict, avoid, or modify the effects of section 74, or which have that effect, are void.1 In addition, if the clauses are seen as an attempt to exclude the non-excludable warranties of the Trade Practices Act, then the Terms and Conditions may be seen as misleading within the meaning of section 52 or 53 ( g ) of the act. 2

Section 74 ( 2 ) at first sight imposes a warranty similar to the "fitness for purpose" warranty familiar from the sale of goods. However, the imposed obligation may be more onerous because of the sections reference to "result".

It is clear that a customer of a financial instution who uses a payment system is acquiring a service to which s74(2) applies. The purpose of this note is to explore the content of the implied warranties.

It seems obvious that a customer who uses a payment system expects to achieve several "results", among them:

  1. Payment instructions should be strictly followed, resulting in timely payment of the right amount to the right person;
  1. The customer's account will not be used or debited for payments not ordered by the customer;

Although these seem like minimal expectations, Terms and Conditions often include clauses that purport to achieve different results. For example, some Terms and Conditions of computer banking purport to make the customer responsible for all messages received by the bank which appear to have originated with the customer. Terms such as this place the customer at a substantial disadvantage when compared with the terms required by the EFT code of conduct ( where the customer's liability is limited in the absence of customer fault ) or the situation where the customer's signature is forged on a cheque ( where the bank bears full liability in the absence of customer fault ).

In this context, it is noteworthy that the Attorney General's Expert Group recommended against the adoption of Article 13 of the UNCITRAL Model Law on Electronic Commerce. This article included rules which allowed the "addressee" of electronic message to assume that the message originated with the "originator", even though the message is "forged". This would place the addressee in a position more favourable then the position of addressee in a paper-based system and was, for that reason, recommended against by the Expert Group. 3

The demands of section 74 are that the service be "reasonably fit" and that it might be "reasonably expected" to achieve results. At one time we might have had difficulty with the question of what is "reasonable". However, we now have over 12 years experience with the Electronic Funds Transfer Code of Conduct, the code agreed upon by industry, consumer and government representatives. The operation of the code has been monitored by the Australian Payments Systems Council and has been subject to the recent review by a Treasury and Trade Practices Commission Task Force. This review commenced in 1994 and a draft report was issued in 1995. After receiving submissions and comments, the task force then held bilateral meetings with a number of industry and consumer organisations. Later that year, a further meeting at which industry and consumer representatives were present was held. Finally, the task force circulated draft amendments to the code in an attempt to achieve consensus on recommendations. The report of the task force was issued in 1998. 4

With this experience, including the continual review and monitoring of the Code, the Code itself may clearly be taken as a guideline to what is "reasonable" in the provision of a payment service. Of course, since the Code is directed at transactions initiated by card and PIN, not all of its clauses will be relevant to every payment system. However, many of the Code's clauses concerning disputed transactions, unauthorised transfers and information disclosure are of general application, and clauses which fall short of the standards required in the Code might well be challenged as "unreasonable".

The Task Force expressed the view that problems arising from telephone and computer banking should be addressed as a matter of urgency and recommended that a new working party be established to examine the issues and to propose appropriate solutions. This might involve amending the Electronic Funds Transfer Code of Conduct to cover new payments systems, or, alternatively, a new code might be developed. In the meantime, the existing code and section 74 of the Trade Practices Act might be used to encourage reasonable standards in Terms and Conditions of Use.

Section 68
TPC v Radio World Pty Ltd ( 1989 ) ATPR 40-973.
Electronic Commerce Expert Group, "Electronic Commerce: Building the Legal Framework", April, 1998. The report is available at
Electronic Funds Transfer, Report by the Treasury and Australian Competition and Consumer Commission on the Operation of the EFT Code of Conduct, AGPS 1998.