10 August 2017

ACCC Car Markets Study

The ACCC has released a draft report on New Car Retailing Industry – a market study.

The draft report states
Buying a new car is a significant purchase for a consumer. The purchase of a car and its ongoing maintenance account for around five per cent of total average household expenditure annually, typically making it second only to housing expenditure in importance. Well-informed consumers and competitive new car retailing markets are therefore likely to deliver considerable benefits.
Market studies are used by the Australian Competition and Consumer Commission (ACCC) to help promote effective competition in markets. Studies are normally undertaken where a number of concerns about market conduct have been raised, and a detailed examination of market characteristics could help to determine whether market intervention, including new policy proposals, regulatory solutions or enforcement action is warranted. 
The ACCC’s market study into the new car retailing industry is in response to a number of concerns raised with the ACCC and other fair trading agencies about how new car retail markets are operating. The issues raised include those complaints received by the ACCC and other Australian Consumer Law (ACL) agencies about defects with vehicles, misrepresentations to consumers, and issues in post-sale service markets. This draft report considers these and other issues raised with the ACCC through the course of this study. It details the ACCC’s findings from almost 12 months of investigation, consultation and research. It contains a number of key findings and recommendations for improving consumer protection and promoting competition in new car retailing and associated markets....
New car retailing
New car retailing activities cover more than just the sale of new cars at a car dealership. They extend to:
  • activities that occur prior to the sale, such as the advertising of new cars and representations made about car performance or emissions 
  • activities that occur at the time of the sale, including the sale of finance and insurance products, representations on standard manufacturer warranties, and the sale of additional warranties 
  • post-sale activities which are closely linked to the new car sale, such as regular maintenance and the cost of spare parts for the new car.
The sale of a new car also triggers consumer guarantees under the ACL which relate to post-sale activities. These statutory rights cover what consumers can expect from a good or service and the remedies available to them if something goes wrong.
The new car retailing supply chain
A number of entities are involved in the new car retailing supply chain, including:
  • car manufacturers, usually large multi-national firms that produce cars, parts and tools, and distribute their products through new car dealers 
  • new car authorised dealers are usually in franchise agreements with car manufacturers to supply as well as repair and service new cars 
  • independent businesses that repair and service new cars, or produce or supply parts and tools.
New car retailing is a significant sector of the Australian economy:
  • Around 1.1 million new cars were sold at more than 1500 new car dealers operating more than 3500 retail outlets in 2016. Car dealer revenues in 2016–17 are estimated at $64 billion. 
  • New car sales also have flow on effects for car servicing and repairs, crash repairs and replacement parts. Around 40 000 manufacturer-authorised and independent car repair and service businesses will earn revenues of around $18 billion in 2016–17 and close to 11 000 crash repair businesses are expected to earn revenues of $6.8 billion. 
The ACCC’s key market observations 
Analysis for this study has revealed a number of problems that are harming consumers and hindering effective competition in the new car retailing industry.
Three key observations arising from this study are: The law offers protections for consumers when purchasing new cars, but there are material deficiencies in the way that consumers are able to enforce their rights, and the way these rights are represented to them by manufacturers and dealers. The ACL provides protections to consumers through the consumer guarantees. Despite these protections, there are a number of systemic problems in the new car industry preventing consumers from obtaining the remedies to which they are entitled when their car experiences a problem. The biggest obstacle to consumers not receiving the remedies to which they are entitled under the ACL is the failure of manufacturers’ complaints handling systems and policies across the new car industry to adequately take consumer guarantees into account.
ACCC response: The ACCC will continue to address non-compliance with the ACL by manufacturers or dealers, including enforcement action where appropriate. The ACCC has recently instituted proceedings in the Federal Court against Ford, and has accepted a court enforceable undertaking from Holden in relation to its concerns about alleged ACL non- compliance issues. The ACCC will also work with other ACL regulators and the industry to publish guidance for consumers on their rights in the event there is a problem with their new car, including guidance for dealers to distribute to consumers at the point of sale. The ACCC also supports the legislative amendments to the ACL proposed in the ACL Review aimed at providing greater clarity and to address any uncertainties about the application of consumer guarantees. Concerns remain about the effect of limited access to information and data required to repair and service new cars. The repair and service of new cars is increasingly reliant on access to electronic information and data produced by car manufacturers. Independent repairers, which are not authorised or affiliated with car manufacturers, are reliant on car manufacturers voluntarily sharing information and data. Around one in ten new car buyers have their car repaired or serviced with an independent repairer. The ACCC is of the view that the competitive discipline imposed by independent repairers on the aftermarkets for the repair and servicing of new cars remains valuable and of benefit to consumers.
While voluntary commitments have been offered by car manufacturers to provide independent repairers with the same technical information to repair and service new cars that they provide to their dealers, problems with the breadth, depth and timeliness of the technical information offered appear to be enduring.
ACCC response: The ACCC considers that consumers benefit from competitive aftermarkets. As voluntary commitments to share technical information have not been successful in meeting their aims and there has been only a limited improvement in access, the ACCC recommends regulatory intervention to mandate the sharing of technical information with independent repairers on ‘commercially fair and reasonable terms’. Consumers are not receiving accurate information about the fuel consumption or emissions performance of new cars. Current fuel consumption and emissions testing procedures rely on laboratory testing rather than testing in real-world driving conditions. Manufacturers may therefore claim results for fuel consumption and emissions based on laboratory tests that are significantly better than can be achieved in real-world driving conditions. This is unlikely to meet consumer expectations and has the potential to be misleading.
Research from the Australian Automobile Association and consulting engineers, ABMARC, indicates that real-world fuel consumption is on average 25 per cent higher than official laboratory test results. The size of the gap between laboratory and real-world fuel consumption tests is not consistent across car types or brands, and has been increasing in recent years, casting doubt on the comparative value of fuel consumption figures currently displayed in fuel consumption labelling.
Consumer detriment may also occur when manufacturers fail to appropriately qualify fuel consumption claims. While the information supplied through mandatory fuel consumption labelling is primarily designed to help consumers make comparisons between different cars, the use of absolute values for fuel consumption and emissions may contribute to consumer misunderstanding.
ACCC response: The ACCC supports moves to enhance the quality of information supplied to consumers currently being considered by the Ministerial Forum into Vehicle Emissions, including the introduction of a more realistic laboratory test and real driving emissions testing. The ACCC has directed its analysis and recommendations towards addressing these three issues. A number of other issues are also addressed in the report, and the ACCC also seeks comment on these issues.
Key Findings and Recommendations
Chapter 2: New car retailing industry characteristics
Car manufacturers and authorised dealers are typically active in both the manufacture and supply of new cars and in the supply of aftermarket services, including car servicing, repairs and supply of parts and tools.
Manufacturers and authorised dealers generally earn higher profit margins from aftermarket services than from new car sales. For dealers, although parts sales and repair and service account for 15 per cent of revenue, these aftermarket services contribute to 49 per cent of gross profit.
A common pricing strategy for car manufacturers and authorised dealers is to discount new car prices to maximise sales of aftermarket services. This strategy reflects that consumers have more choices available at the time of the new car sale than they do in aftermarkets for repair, service and replacement parts after the sale.
Retail markets for the supply of new cars in Australia are generally competitive, primarily indicated by low market concentration of car brands and dealers.
Competition in markets for the supply of aftermarket services is less competitive as a result of factors including:
  •  the ability and incentives of car manufacturers and their dealers to impede competition in profitable aftermarkets by controlling access to necessary inputs such as the technical information needed to repair and service a new car 
  • consumer misunderstanding about warranty and servicing requirements (including the misconception that manufacturer warranties require new cars to be serviced at a dealership), and 
  • high costs of switching once consumers have purchased a particular brand and make of car.
Chapter 3: Consumer guarantees and warranties
The ACL provides statutory protections for consumers
The ACL is Australia’s national law for fair trading and consumer protection and plays a critical role in providing protections to consumers in their dealings with business and in the event that there is a problem with a good or service, including new cars. The consumer guarantees provided by the ACL cannot be displaced.
Manufacturer warranties provided with the purchase of a new car, and extended warranties offered by the dealer or a third party, provide additional protection to consumers in some circumstances.
Together, the ACL and state and territory legislation, along with manufacturers’ warranties, collectively provide consumers with an extensive suite of consumer rights to remedies or other forms of redress in the event that a new car is defective or fails to perform as promised.
The recent review of the ACL has proposed a number of amendments to enhance the law and provide greater clarity to address any uncertainties about the application of consumer guarantees. The proposed amendments include reforms aimed at assisting consumers understand and choose a remedy if things go wrong with a good or when a good, including a new car, has multiple and ongoing issues.
While the proposed ACL reforms would strengthen and provide greater clarity about the application of consumer guarantees, the existing law already provides remedies for faulty cars. This study has found that consumers are encountering difficulties enforcing consumer guarantees when problems occur with new cars. The ACCC views these issues as chiefly a compliance problem associated with manufacturers’ complaints handling systems failing to adequately take consumer guarantees into account.
Draft recommendation 3.1
The ACCC supports the amendments proposed by CAANZ in the recent ACL Review to enhance the ACL and address any uncertainties about the application of consumer guarantees. Of particular relevance to issues arising in this study, the ACCC supports proposals 1, 2 and 3 in the final report on the ACL Review:
Proposal 1: Where a good fails to meet the consumer guarantees within a short specified period of time, a consumer is entitled to a refund or replacement without needing to prove a ‘major failure’. 
Proposal 2: Clarify that multiple non-major failures can amount to a major failure. 
Proposal 3: Enhance disclosure in relation to extended warranties by requiring:
  • agreements for extended warranties to be clear and in writing 
  • additional information in writing about what the ACL offers in comparison to the extended warranties 
  • a cooling-off period of ten working days (or an unlimited time if the supplier has not met their disclosure obligations) that must be disclosed and in writing.
Draft recommendations on proposed amendments to enhance the ACL
Consumers are not receiving balanced information about their rights
Consumers are not receiving adequate information about consumer guarantees at the point of sale of a new car. The information provided is generally very limited and is usually not provided in a form consumers can retain, and refer to later.
An oral explanation is not sufficient. Consumers need information in a form that can be referred to at any time during their ownership of their car. The ACCC considers that it is best practice for dealers to provide an explanation about consumer guarantees in writing.
A balanced provision of written information about consumer guarantees requires not only an explanation of the statutory rights available to consumers, but also an explanation of the statutory obligations of manufacturers and dealers. It also requires an explanation of the potentially complex interaction between consumer guarantees and other consumer rights available under warranty in the event of a problem with the car.
Most consumers have a reasonable level of awareness of their consumer rights when they purchase goods or services in Australia. There are a variety of sources of information for consumers seeking to improve their understanding of their rights with respect to the purchase of a new car.
This study has found that many consumers face difficulties in understanding the application of the consumer guarantees to their new car purchase and the distinction between consumer guarantees and warranties. Such difficulties impact the ability of consumers to accurately assess the value of any additional consumer protections offered by extended warranty products compared to the rights they already have under the consumer guarantees or the manufacturer warranty.
ACCC action on consumer understanding of their rights
ACCC action 3.1 
The ACCC will work with manufacturers and dealers to develop a concise and simple explanation of consumer guarantees and their interaction with warranties, which should, as industry best practice, be provided to consumers at the point of sale of a new car.
This appears to be in part the result of a focus by dealers at the point of sale on the manufacturer’s warranty and the potential sale of an extended warranty. Dealers have commercial incentives, as the result of commission-based remuneration, to maximise their sales of extended warranties.
The majority of consumers take their new cars to manufacturer authorised dealers for repairs and service. This appears to be, in part, the result of a mistaken belief that the manufacturer’s warranty requires them to only use an authorised dealer.
Contributing to this misunderstanding are direct and implied representations made by a number of manufacturers in their logbooks and service manuals to the effect that authorised dealers must carry out services or repairs (or that original equipment (OE) parts must be used). Many of these representations are likely to contravene the provisions of the ACL, and may also raise competition concerns under the CCA. 
ACCC action 3.2 
To assist consumers better understand their rights when it comes to new car defects and failures, the ACCC will work with other ACL regulators to publish an updated version of Motor vehicle sales and repairs - an industry guide to the Australian Consumer Law (August 2013) to ensure that this publication addresses the issues identified in this study, including specific guidance on criteria for determining a ‘major failure’. Guidance may also be designed for use by businesses, including dealers, regarding their rights and obligations under the ACL.
ACCC action 3.3
Instances of misleading or deceptive conduct, or misrepresentations, in relation to the use of independent repairers or non-OE spare parts will be targeted through action by the ACCC, including enforcement action where appropriate.
ACCC action on consumer understanding of their rights
Consumers face significant obstacles to enforce their ACL rights
A significant body of evidence suggests systemic failures in the ability of consumers to enforce their consumer guarantee rights after the purchase of a new car. The ACCC has seen many examples of practices by manufacturers in dealing with consumer complaints that raise concerns under the ACL provisions, including the failure of manufacturers’ complaints handling systems to adequately take consumers’ ACL rights into account.
The ACCC has identified five key issues contributing to the difficulties experienced by consumers in enforcing their consumer guarantees:
- manufacturers’ focus on warranty obligations to the exclusion of their consumer guarantee obligations 
- manufacturers’ responses to ‘major failures’ 
- the widespread use of non-disclosure agreements by manufacturers when resolving complaints 
- the lack of effective independent dispute resolution options for consumers, and 
- particular features of the commercial arrangements between manufacturers and dealers
Manufacturers’ complaint handling systems require dealers to check whether a car is under warranty before decisions are made as to an appropriate response to the customer’s complaint. This means interactions with the consumer take place within the manufacturer’s warranty framework to the exclusion of the consumer guarantees.
There is a dominant ‘culture of repair’ underpinning manufacturers’ systems and policies for dealing with car defects and failures, even where cars have known and systemic mechanical failures which would entitle a consumer to a replacement or refund under the consumer guarantees.
The widespread use of non-disclosure agreements when resolving consumer complaints suggests that consumers are not entitled to their consumer guarantee and warranty rights unless a non-disclosure agreement is signed when this is not the case. Non- disclosure agreements also substantially reduce information in the marketplace for new buyers about defects and safety issues that are common to a particular car.
Independent dispute resolution options are providing little incentive for manufacturers to improve their ACL compliance. These options do not effectively enable consumers to obtain the remedies they are entitled to under the consumer guarantees. This creates little incentive for a manufacturer or dealer to offer these remedies at an earlier stage in a dispute.
Given the nature of commercial relationships between dealers and manufacturers, dealers are frequently in the challenging position of balancing their ACL obligations to customers, safeguarding their own financial interests and maintaining a long term commercial relationship with their manufacturer. These commercial arrangements can have the effect of denying or making it difficult for consumers to readily access the remedies to which they are entitled.
ACCC action on the consumer experience of enforcing their rights 
The ACCC has recently instituted proceedings in the Federal Court against Ford, and it has also accepted a court enforceable undertaking from Holden, in relation to its concerns about alleged ACL non-compliance issues.
ACCC action 3.4
Manufacturers’ complaints handling systems, policies and practices that do not comply with the consumer guarantee requirements of the ACL will continue to be targeted through action by the ACCC and fair trading agencies, including enforcement action where appropriate. Such action may also address any instances of non-compliance by dealers. The ACCC is particularly concerned about manufacturers and dealers engaging in conduct that may be misleading or unconscionable.
Chapter 4: Accessing technical information to repair and service new cars
Technical information for servicing and repairing new cars is not widely available
The nature of technical information to repair and service new cars is rapidly changing, with digital files and codes, and appropriate diagnostic tools, now often necessary to complete a car repair or service.
Independent repairers have continuing problems accessing technical information for new cars. Few car manufacturers provide equivalent access to the technical information provided to their authorised dealers and preferred repairer networks, and many provide very little or no information at all.
Independent repairers may be able to obtain technical information from sources other than the car manufacturer in Australia; however, the information is commonly incomplete, not applicable to Australian models, or offers no security of ongoing supply.
Car manufacturers may have legitimate concerns about the sharing of some security- related technical information to repair and service new cars. Regardless, in other jurisdictions this information and data is securely shared with independent repairers.
The ACCC has informed itself on these issues through consideration of a range of evidence including submissions from stakeholders, site visits and the reports of an automotive technical expert engaged by the ACCC to further examine the submitted claims of stakeholders, which found that access to technical information for independent repairers is inconsistent. Existing voluntary methods of information sharing are not effective
Key industry associations, including the FCAI, have voluntarily agreed to a set of aims and principles to ensure there is ‘a fair and reasonable competitive market within the car repair and service industry.’ The principles of the Heads of Agreement place voluntary obligations on car manufacturers to, in general, share with independent repairers, on ‘commercially fair and reasonable’ terms, the technical information they provide to their dealers.
Broadly, most car manufacturers in Australia are not fully sharing technical information consistently with the aims and principles of the Heads of Agreement.
The Heads of Agreement has several shortcomings which hinder its aims and principles of improving access to technical information from being achieved in a fair and efficient way.
The ACCC has concluded that the net effect of the Heads of Agreement, across the industry, in improving access to technical information for new cars has been limited, and that the Heads of Agreement is ineffective in providing access that is consistent with its stated aims and principles.
Effective information sharing would enhance competition and improve consumer outcomes
As discussed in chapter 2, car manufacturers have an incentive to limit access by independent repairers to technical information to steer service work to authorised dealers and repair work to preferred repairer networks.
This is impacting the ability of independent repairers to effectively and efficiently compete in the aftermarkets for the repair and servicing of new cars.
It is also causing detriment to consumers in the form of increased costs, inconvenience and delays when having their new car repaired or serviced.
Consumer switching in the new car market is unlikely to provide strong competitive discipline on manufacturers and dealers in aftermarkets, and any benefit of competition in the sale of new cars to consumers does not offset the impact of less competitive aftermarkets. The ACCC’s view is that consumers benefit from competitive aftermarkets for the repair and servicing of new cars. Developments in other jurisdictions offer pathways for reforms in Australia
In foreign jurisdictions, regulatory interventions have made the technical information necessary for independent repairers to repair and service new cars more widely available.
EU regulations requiring independent repairers to have ‘easy, restriction-free and standardised access’ to information and data to repair and service new cars have generally been successful in meeting those aims. In the US recent state legislation has stimulated further voluntary national changes to improve access.
The EU and the US models are specific to their regulatory environments and geographically distinct markets. Elements of these models, such as secure processes to access security-related information and access to technical information by intermediaries to develop informational products and diagnostic tools, should be considered in Australia. However, outright adoption of other models may not be appropriate.
Draft recommendation 4.1
A mandatory scheme should be introduced for car manufacturers to share with independent repairers technical information, on commercially fair and reasonable terms. The mandatory scheme should provide independent repairers with access to the same technical information which car manufacturers make available to their authorised dealers and preferred repairer networks. The mandatory scheme should place an obligation on car manufacturers and other industry participants to achieve the aims and principles set out in the Heads of Agreement (including those in relation to training and reinforcing existing statutory obligations on independent repairers to ensure repairs and servicing are carried out correctly to car manufacturers’ specifications to assure the safety of consumers). The mandatory scheme should, subject to the type of regulation used, address the following operational matters: 
Real time access 
Car manufacturers should make available to independent repairers, in real time, the same digital files and codes, such as software updates and reinitialisation codes, made available to dealers to repair or service new cars. 
Obligations on sharing technical information should apply to all car manufacturers in Australia.
Consideration should be given to including options for relevant intermediaries to access technical information from car manufacturers on commercially fair and reasonable terms. 
All relevant terms, conditions and exclusions should be defined in the regulation, for instance, defining diagnostic tools and their relevance to facilitating access to technical information, as well as defining security-related information. 
Dispute resolution
Any dispute resolution processes should be timely and accessible by all relevant stakeholders.
Any dispute resolution processes should be subject to compulsory mediation and binding arbitration by an independent external party. 
Key stakeholders should meet regularly to discuss the rapidly changing nature of repair and service information. Security-related information and data
Similar to the EU or US models, a process for the secure release of security-related technical information should be established or authorised under the mandatory scheme. 
Appropriate options to enforce the terms of any regulation, if appropriate, should be included (e.g. penalties). 
Draft recommendations on access to technical information for new cars
Chapter 5: Parts needed to repair and service new cars
Access to parts is sometimes restricted
Car manufacturers and dealers sometimes restrict access to certain parts for legitimate reasons that may benefit consumers. This includes parts which can compromise vehicle security and encourage theft. However, a further motive for restricting access may be to steer more repair and service work back to authorised dealers and preferred repairer networks. This can reduce competition for servicing or repair work and raise prices.
The lack of transparency and consistency across manufacturers about what are security- related parts means that access restrictions can be arbitrary, increasing uncertainty and cost for independent repairers. It could also undermine the intent of reforms to promote access to technical information needed to repair and service cars.
Draft recommendation 5.1
OE manufacturer-branded parts and accessories should be generally available to independent repairers on commercially fair and reasonable terms. Car manufacturers should develop policies which clearly outline any parts subject to restricted access on security-related grounds. These policies should be publicly available. The FCAI is well-placed to work with manufacturers to examine whether there is benefit in agreeing a standard definition and detailed classification system for ‘security-related’ parts to provide certainty to parts customers.
ACCC action 5.1
Refusals by car manufacturers to supply security-related parts for repair and service will be monitored and addressed through action by the ACCC, including enforcement action where appropriate.
Draft recommendations and actions on parts
High margins are earned on supply of spare parts
Anecdotal evidence and submissions to this study suggest that parts prices in Australia are rising relative to the cost of new cars, and that Australia has high parts prices relative to some overseas jurisdictions.
Detriments from high parts prices could include distortions in decisions about repairing cars; for example, high parts prices might cause cars to be ‘written off’ when it may be more efficient to repair them.
There is limited competition to supply certain spare parts for repair and service. In addition, consumers have a limited ability to switch to alternative suppliers of parts in many instances and these factors may lead to high prices.
However, parts prices should be considered within a broader context of supply of new cars and other aftermarket services. Manufacturers and dealers discount prices of new cars to capture a greater share of parts sales, which attract much higher margins.
Request for further information
The ACCC seeks further information on the issue of transparency in parts prices, and whether the withdrawal of retail price lists by some or all manufacturers would harm competition or increase costs in parts markets.
Chapter 6: Fuel consumption, emissions and the ACL
Consumers are not well informed about fuel consumption and emissions tests
Fuel consumption is a significant factor for consumers when buying a car, second only to price and model. The environmental impact of new cars is also important to one in five consumers. For this reason, new car buyers need to be able to rely on the accuracy of claims made by manufacturers and dealers about the fuel consumption and emissions of particular car models.
Representations to consumers about fuel consumption and emissions are made by manufacturers and dealers in a variety of ways. While they have no discretion about displaying mandatory labels, they do control claims made in promotional and advertising materials or at the point of sale. ACCC research for this study indicates that manufacturers are not always appropriately qualifying these claims, and that many consumers believe that advertised fuel consumption and emissions figures are likely to be attained in real-world driving conditions, when this is not the case.
In addition, some consumers may not understand that fuel consumption and emissions values are intended for comparative purposes only. Even when representations are qualified, these consumers may still believe that the advertised figures will be attained.
Request for further information
The ACCC welcomes views on whether general consumer education or awareness initiatives about how fuel consumption and CO2 emissions are measured (and what factors influence them) should be considered.
Draft recommendations on fuel consumption and CO2 emissions claims
Draft recommendation 6.1
Changes to the fuel consumption label affixed to new cars should be considered to improve the comparative use of the information supplied. Introducing a star-rating system or annual operating costs may minimise the extent to which consumers interpret an ‘absolute’ fuel consumption/emissions value as equivalent to what they would achieve in real-world driving conditions.
There are material discrepancies between fuel consumption and emissions test and real-world results
Current fuel consumption and emissions testing procedures rely on laboratory testing rather than testing in real-world driving conditions. Manufacturers may therefore claim results for fuel consumption and emissions based on laboratory tests that are significantly better than can be achieved in real-world driving conditions. This is unlikely to meet consumer expectations and has the potential to be misleading.
Research from the Australian Automobile Association and consulting engineers, ABMARC, indicates that real-world fuel consumption is on average 25 per cent higher than official laboratory test results. The gap between laboratory and real-world fuel consumption tests is not consistent across car types or brands, and has been increasing in recent years. This casts significant doubt on the comparative value of absolute fuel consumption figures currently displayed in fuel consumption labelling.
The Australian Government is currently reviewing possible new measures to address vehicle emissions under the Ministerial Forum on Vehicle Emissions. The Forum is considering a number of measures to improve the integrity of vehicle emissions testing, including the introduction of a more realistic laboratory test for fuel consumption and emissions, and for vehicle emissions, on road testing. 
Draft recommendations on the fuel consumption and emissions discrepancy 
Draft recommendation 6.2 
The ACCC supports measures to enhance the quality of information supplied to consumers currently being considered by the Ministerial Forum into Vehicle Emissions, including the replacement of the current fuel consumption and emissions testing regime with the new Worldwide Harmonised Light Vehicles Test Procedure, a more realistic laboratory test, and the introduction of an on-road ‘real driving emissions’ test. 
Chapter 7: Other issues 
This study considered a number of additional issues, including telematics in cars, car performance and representations about the advertised year of a new car.
Draft findings on telematics
The impact of telematics on competition and consumers is likely to become more acute as telematics technology becomes more prevalent. The ACCC will continue to monitor emerging issues in this area.
The voluntary Heads of Agreement and codes of practice governing information-sharing in relation to technical information provides a process, as yet unused, for the signatories to discuss issues associated with access and ownership of data generated by telematics technology. 
Draft recommendation on telematics 
Draft recommendation 7.1 
The ACCC supports the Productivity Commission’s recommendations in its final report on Data Availability and Use for a comprehensive right for consumers to access digitally held data about themselves, including to direct data custodians to copy that data to a nominated third party which may address some of the concerns that were raised about the impacts of telematics technology on new car purchasers. 
Draft findings on car performance 
 Submissions to this study have pointed to a few examples of misleading claims in relation to car performance. However, submissions have not provided evidence that this issue is systemic.
The current laws prohibiting false, misleading and deceptive conduct under the ACL provide adequate consumer protection in relation to this issue.
Draft findings on the advertised year of a new car
Submissions to this study have provided limited evidence of systemic misleading behaviour by manufacturers or dealers in relation to the advertised year of new cars. The current laws prohibiting false, misleading and deceptive conduct under the ACL provide adequate consumer protection in relation to this issue.

09 August 2017

Sumption and Sovereignty

'The Judicial Individuality of Lord Sumption' by James Lee in (2017) 40(2) University of New South Wales Law Journal scrutinises
the role of the individual judge on the United Kingdom Supreme Court through an analysis of the jurisprudence of Lord Sumption JSC. The examination of the Court’s recent decisions demonstrates that his Lordship is a leading figure on the Supreme Court. It is argued that key cases and extra-curial speeches mark Lord Sumption as a proponent of judicial conservatism, and two 2016 case studies from private law are used to develop this thesis: Patel v Mirza [2016] UKSC 42 on the defense of illegality and Willers v Joyce (No 1) [2016] UKSC 43 on the tort of malicious prosecution. The article concludes that the study has broader implications for the dynamics of judging, both individually and collectively, in a court of final appeal.
'Sovereignty as a Right and as a Duty: Kant's Theory of the State' by Jacob Weinrib in Claire Finkelstein and Michael Skerker (eds), Sovereignty and the New Executive Authority (Oxford University Press, Forthcoming) comments
 Critics of Immanuel Kant’s legal and political philosophy argue that his theory of the state collapses into one of two extremes. For some, Kant is a quietist who regards positive law as the instantiation of justice and thereby deprives himself of a moral standpoint for the criticism of positive law. For others, Kant is an anarchist who denies the authority of law whenever it deviates from the demands of justice. I argue that these interpretations are the opposing products of a common error: the failure to distinguish between Kant’s justification of the right of the state to exercise public authority and his corresponding theory of a perfectly just state. Once these aspects of his theory of the state are disentangled, Kant’s transformative vision comes into view. Far from reducing the idea of a state to either an authoritative fiat or a utopian vision of justice, Kant offers a standpoint for recognizing (1) the public authority of existing states, (2) the standard of justice for assessing the moral adequacy of those states, and (3) the ongoing duty of existing states to direct the exercise of public authority to the deepest possible fulfillment of public justice.

08 August 2017

Data Breach

'Can Data Breach Claims Survive the Economic Loss Rule?' by Catherine M Sharkey in (2017) 66(2) DePaul Law Review comments
Data security breach cases are fertile ground to explore the impact of the economic loss rule and to challenge the conceptual underpinnings of this judge-made doctrine. The extent to which the economic loss rule serves as a formidable barrier to credit card data security breach cases depends upon the underlying state law; in particular, whether a state adopts the majority or minority position on the rule, as well as how it defines various exceptions thereto. Upon closer examination, it becomes clear that the rule operates in a fundamentally distinct manner in the ‘stranger paradigm’ as compared to the ‘contracting parties paradigm’. What makes the credit card data security breach cases so vexing is that they often straddle the stranger/contracting parties paradigms. The credit card data breach cases can be reframed in a coherent way that defers to contractual allocation of risk and responsibility but nonetheless allows tort liability to be deployed when needed to ensure the internalization of third-party costs. Seen from a broader regulatory perspective – especially taking into account state statutory provisions relating to enforcement of private industry standards in the credit card arena – the economic loss rule functions as a boundary-policing doctrine between tort and regulation as alternative mechanisms to regulate private parties. Moreover, as a more robust third-party liability insurance market emerges in response to a greater threat of tort liability, insurers will engage in further risk management, exerting more potent regulatory control.
'Perspectives on Privacy, Data Security and Tort Law' by Robert L Rabin in (2017) 66 DePaul Law Review asks
In 2014, did you shop at any of these retailers who had consumer records compromised: Target (70 million records), or EBay (145 million records), or Home Depot (56 million records)? Did you have a health insurance plan through Anthem or Blue Cross prior to 2015 (80 million records)? Did you have a bank or credit card account with JP Morgan Chase prior to 2015 (83 million records)? Have you applied to work in the federal government in the past fifteen years (21.5 million records)?
Rabin responds
If you answered Yes to any of these questions, there is a good chance that your personal data has been stolen, leaked, exposed, or otherwise revealed to an unauthorized third party as part of a data breach. Since 2005, more than 900 million records have been improperly exposed or accessed as a result of 5.041 million data breaches in the United States alone.  In 2015, $15 billion was stolen from 13.1 million American consumers who were victims of identity theft, much of which could be traced back to data breaches. Corporations and governments also suffer: In 2014, the estimated cost per record lost or stolen due to data breach was $145. Given that over 85 million records were lost or stolen in 2014, corporations undoubtedly face substantial costs from data breaches. Even apart from data breaches, consumers face privacy risks from the misuse or misappropriation of their data by corporations. Data breaches can be traced to three main causes: (1) malicious or criminal attack; (2) system glitch or malfunction; or (3) human error. In 2014, approximately 47% of data breaches resulted from malicious or criminal attacks, 29% from system glitches, and 25% from human error. Breaches due to malicious attacks were more expensive to resolve ($170 per record) compared to those that stemmed from glitches ($142 per record) or human error ($137 per record).
Certain industries are more affected by data breaches than others.  In 2014, 42% of data breaches stemmed from the education sector, though these breaches only resulted in 9.7% of the total number of exposed records. In the same year, 33% of the total number of breaches came from the business sector (not including finance or healthcare), but these breaches resulted in nearly 80% of exposed records. The remaining breaches fall within the financial, health-care, or government sectors. Unsurprisingly, data breaches affect each of these industries differently. The education and healthcare sectors, for example, suffer the greatest costs-per-record-per-breach, at $300 and $363 per record respectively, where the average cost per record released for any given data breach is around $154.
Estimating the effects of a data breach on individual consumers is more difficult. As noted, an increasing number of Americans have become victims of various forms of identity theft, which often results in monetary loss and a decrease in an individual’s credit score. Beyond identity theft, data breach victims are likely to feel that they need to mitigate future harm by replacing credit cards, closing accounts, and obtaining continuous credit monitoring. At a more basic level, consumers who have been victims of data breaches feel that their privacy has been violated. Little survey work has been published on these subjects, but it seems beyond dispute that data breaches have tangible effects that are widely felt among the American population.
Several recent cases help illustrate the risks and challenges posed by data breaches. During the 2014 holiday shopping season, hackers stole at least 70 million records from Target. Hackers obtained credit card information from 40 million consumers who shopped at Target between November 2014 and December 2014 by installing malware on Target’s systems. The same hackers also stole up to 70 million additional customer records, including mailing and email addresses, phone numbers, and names. In the months following the data breach, it was revealed that Target’s security system — installed by the well-reputed computer security firm FireEye — detected the breach before any data had been stolen. For somewhat unexplained reasons, Target’s security officials declined to intervene — in fact, they had even turned off a FireEye feature that would have automatically deleted the malware from the system (again for unexplained reasons). The result of this reportedly conventional and relatively unsophisticated malware attack was the loss of 70 million records, touching nearly one in three American consumers. Target did not realize that it had been hacked until federal law enforcement officials notified them on December 12, 2014, by which time it was too late. In July 2015, the White House revealed that the records of 21.5 million people were stolen as a result of a data breach of the Office of Personnel Management (OPM). “Every person given a [federal] government background check for the last 15 years was probably affected,” according to OPM. Hackers were able to steal names, social security numbers, biometric fingerprint data, travel information, addresses, and other sensitive personnel information as part of the OPM data breach. As in the Target case, there were warning signs over a period of years indicating that OPM’s computer systems were antiquated and at serious risk of intrusion, yet no action was taken to secure the vast amount of personal data until it was too late. The hack has since been blamed on elements associated with the Chinese government.The U.S. government has provided victims with credit and identity theft monitoring for three years, but this likely provides little comfort to national security experts concerned about the potential intelligence ramifications of government employees’ sensitive personnel files in the hands of the Chinese government. The OPM case shows that the negative effects of data breaches go far beyond identity theft and monetary loss. Anthem, one of the largest health insurers in the United States, suffered a data breach in 2015 that resulted in the exposure of 80 million patients’ records, including “names, social security numbers, birthdays, addresses, emails and employment information.” There was no evidence that sensitive medical records were stolen as part of the breach, but the loss of protected personal information was substantial. Investigators suspect that Chinese state-sponsored hackers were behind the Anthem breach as well. As in the OPM case, Anthem has provided victims with credit monitoring and identity theft protection.
Consumers face threats to their personal privacy wholly separate from the types of unauthorized data breaches described above. Most notably, consumers face risks that their personal privacy will be violated by unauthorized corporate access, misuse, or misappropriation of their data. These claims of corporate misconduct can be grouped under a separate umbrella of “data misuse” issues. Data breaches relate to the unauthorized access to personal information by a third party. Data misuse or misappropriation, by contrast, involves the authorized — at least at some level—access to information by the party that holds that information for unauthorized commercial or other purposes.
Statistics on the scope of this problem are hard to come by, given the less public nature of the problem and the less tangible and immediate nature of the harm. In many cases, corporations sell or transfer consumer data to a third party without clear authorization from the consumer. One prominent example was the ChoicePoint debacle of 2005. In that case, ChoicePoint, a prominent data trader, admitted to selling personal information of 163,000 California residents—which they possessed legally—to identity thieves. At least 800 consumers had their identities stolen because of this incident. This case raised difficult data privacy dilemmas: ChoicePoint existed to sell personal information to legitimate businesses, but instead, they provided this information to a ring of identity thieves who had registered fake companies. The Federal Trade Commission’s (FTC) enforcement action resulted in a $15 million settlement, which was the largest civil penalty in the FTC’s history at that time.
In addition to improper sales to a third party, some data misuse cases focus on a corporation’s use of consumer data for its own purposes—generally to provide targeted ads or products to consumers. In 2012, it was revealed that Google had placed tracking cookies on Safari users’ computers to collect data on their web browsing preferences in order to provide targeted advertisements. Google then used this information to better target ads to users, in turn making their ad products more valuable to potential ad buyers. Presumably in response to consumer pressure, Safari, an Apple browser, created a tool to limit both the creation of cookies and the ability of cookies to track web browsing habits. In violation of a previous FTC settlement and its public pronouncements, however, Google proceeded to override the Safari tool and continued to use cookies to track Safari users. The result was extended litigation that eventually resulted in a $22.5 million FTC settlement.
A similar case was brought against Facebook for its use of members’ images in targeted advertisements known as “Sponsored Stories.” Unlike the case against Google, this was not a regulatory action brought on unfair competition grounds, but rather a class action brought on Right of Publicity grounds. The principal claim in this case, Fraley v. Facebook, Inc. — which is discussed further in the next section — was that Facebook misappropriated the plaintiffs’ images in paid advertisements without consent, and in so doing, unwillingly drafted them as unpaid and unknowing spokespersons for Facebook products. After the court denied Facebook’s motion to dismiss on newsworthiness grounds, the parties settled for $20 million.
Despite the successes just mentioned, the continuing problems of data breaches, data misuse, and the consequent failure of current laws to adequately deal with the problems is widely acknowledged. Notwithstanding the widespread recognition of the problems, there is little consensus on the appropriate legal mechanisms to prevent or punish data breaches or provide compensation to those harmed by such breaches. This Article surveys one approach to dealing with these problems: The pathways available through tort law.
But tort, of course, is not the only strategy for addressing the data breach concerns. Current legal approaches to dealing with data breaches can be divided into three main categories. First, regulatory strategies aimed at setting standards of data protection through stateBut tort, of course, is not the only strategy for addressing the data breach concerns. Current legal approaches to dealing with data breaches can be divided into three main categories. First, regulatory strategies aimed at setting standards of data protection through state and federal laws, and enforced either through the courts or federal administrative agencies. Second, information disclosure laws that require entities suffering data breaches to reveal to victims that their information has been lost or stolen, with the general hope that the market will favor companies with fewer breaches and thus provide competitive incentives for companies to protect data. And finally, ex post tort liability that allows victims to sue for damages, with the twofold goal of compensating victims and shifting the incentives of companies holding private data toward better data protection practices.
Before turning to tort (the third of these approaches), I will provide an overview in Part II of the regulatory enforcement and information disclosure strategies for addressing the problem of data breach. And following my assessment of tort remedies in Part III, I will offer some concluding thoughts, in a final Part, including a brief reprise on the potential for more proactive federal regulatory action under the mandate of the FTC.

Turing and a Fourth Law of Robotics

'Halting, Intuition, Heuristics, and Action: Alan Turing and the Theoretical Constraints on AI-Lawyering' by Jeffrey M. Lipshaw in Savannah Law Review (Forthcoming) comments
This is a reflection on the relationship of lawyering and artificial intelligence. Its goal is a better understanding of the theoretical constraints of the latter. The first part is an assessment of one particular and crucially important aspect in the theory of machine thinking – determining if the program being run will reach a conclusion. This is known as the “Halting Problem.” One question at the far reaches of AI capability is whether any physical machine presently conceivable could always, on its own, for every possible program, determine whether the program will ultimately generate an answer. The essence of the Halting Problem is that the answer to that specific question is “no.” Hence, unless a human programs the machine to decide it short of a final answer being generated, the machine won’t itself be able to decide whether it had thought enough and it was time to fish or cut bait. The second part is a philosophical reflection on what it means to decide something as opposed merely to think about it. Humans don’t have a Halting Problem. Even if they think as logically and formally as a machine, they also act. The thesis is that humans seem always in the case of every problem to be able to stop thinking and start doing, even if they don’t know whether the thinking is or will ever be complete. The third part is an assessment of what a law school of the future ought to look like, given this moderate view of the interaction between thinking machines and deciding humans.
'Toward a Fourth Law of Robotics: Preserving Attribution, Responsibility, and Explainability in an Algorithmic Society' by Frank A. Pasquale in (2017) 78 Ohio State Law Journal comments 
Jack Balkin makes several important contributions to legal theory and ethics in his lecture, “The Three Laws of Robotics in the Age of Big Data.” He proposes “laws of robotics” for an “algorithmic society” characterized by “social and economic decision making by algorithms, robots, and AI agents.” These laws both elegantly encapsulate, and add new principles to, a growing movement for accountable design and deployment of algorithms. My comment aims to 1) contextualize his proposal as a kind of “regulation of regulation,” familiar from the perspective of administrative law, 2) expand the range of methodological perspectives capable of identifying “algorithmic nuisance,” a key concept in Balkin’s lecture, and 3) propose a fourth law of robotics to ensure the viability of Balkin’s three laws.


'Authoritarian Liberalism: From Schmitt via Ordoliberalism to the Euro' by Werner Bonefeld in (2017) 43(4-5) Critical Sociology 747 examines
the market liberal veracity of Hayek’s view that a dictatorship may be more liberal in its policies than an unlimited democratic assembly. Hayek’s warning about the potentially illiberal character of democratic government is key to the German ordoliberal thinking that emerged in the context of the crisis of the Weimar Republic. The ordoliberal thinkers were keenly aware of Schmitt’s political theology and argued with him that the state is the predominant power in the relationship between market and state, conceiving of this relationship as free economy and strong state. They maintained that the establishment of social order is the precondition of free economy; law does not apply to disorder and does not create order. The liberal state is the ‘concentrated force’ of that order. The contribution argues that ordoliberalism is best characterized as an authoritarian liberalism and assesses its contemporary veracity in relation to the European Union.
Bonefeld states
The program of liberalism ... summed up in a single word, should read ‘property’, that is, private property in the means of production ... All other demands of liberalism derive from this basic demand. (Von Mises, 1985: 137) It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. (Von Mises, 1985: 51) ...
The term ‘authoritarian liberalism’ was coined by the German Jurist Hermann Heller in a 1933 publication about the rightist Von Papen government of 1932. His account explored Carl Schmitt’s ‘Strong State and Sound Economy’ (1998) as the theoretical manifestation of the authoritarian turn of liberal thought. Heller characterized the turn towards authoritarianism as a demotion of democratic government ‘in favour of the dictatorial authority of the state’ (Heller, 2015: 296).  Schmitt’s stance was by and large shared by the founding thinkers of German ordoliberalism. They too identified the democratic character of the Weimar Republic as the root cause of the crisis of Weimar, arguing that mass democracy is tyrannical in its consequences.
In the context of Weimar, the authoritarian reassertion of the state was thus not only meant to overcome the ‘lamentable weakness’ (Friedrich, 1955: 512) of the liberal state. It was also meant to reorder the socio-economic relations to achieve free economy. Authoritarian liberalism conceives of the state as ‘market police’ (Rüstow, 1942). According to Heller (2015) it posits the state in its pure liberal form as the organized force and concentrated power of the system of liberty, enforcing market freedom and sustaining depoliticized socio-economic relations. Depoliticization is an eminently political practice. To Schmitt and the ordoliberals ‘the Leviathan was and had to be there first’ (Streek, 2015: 363); and rightly so: by its own logic, and as Adam Smith had already argued, free economy descends into ‘bloodshed and disorder’ (Smith, 1976: 340) unless the state civilizes its conduct by means of law, police, and fabrication of the moral sentiments of the system of private property. The freedom to compete presupposes ‘market police with strong state authority’ (Rüstow, 1942: 289) to sustain it. The strength of the state as market police depends on its independence from society. Its capacity to neutralize democracy and civilize the conduct of a free labour economy depends on the state as the independent and concentrated power of society.
In the late 1920s/early 1930s, the critique of mass democracy was part of the rightist reaction to the Weimar Republic. In the 1950s, it became part of the ‘anti-totalitarian’ idea that mass democ- racy leads to unfreedom, and that for the sake of an open society democracy needed to be fettered. As Willgerodt and Peacock (1989: 6) put it, ‘those who rely on the rules for liberal decisions, irrespective of the results of these decisions, must answer the question: how can it be guaranteed that these decisions will not destroy the liberal rules?’. In this perspective, freedom needs to be protected against the enemies of freedom even if they move formally within the legal bounds of a free society and secure parliamentary majorities by free elections. That is, ‘trust in freedom must be accompanied by a distrust of forces that abolish freedom or interfere with it’ (Lenel, 1989: 21). Surveillance is the condition of trust. Recognition of the enemies of freedom depends on the certainty of indivisible socio-economic values and political norms that recognize free economy as a ‘universal form of existence’ (Eucken, 2004: 321).
There can be no doubt. Relativism has no values to defend. It succumbs, they say, to ‘trouble makers’ (Röpke, 2009: 50). In this remarkable manner, the rightist denunciation of Weimar democracy established itself as a militant defence of post-war democracy. ‘Militant democracy’ rejects liberality as an open invitation to the enemy within. Instead it demands the curtailment of democracy ostensibly in order to protect it against attack and communist overthrow.
In the 1970s the authoritarian liberal critique of democracy came to the fore again in the context of the then economic crisis. The debate focused by and large on Britain. It argued that the crisis had been brought about by an excess of democracy that had let to an overloaded interventionist state, which had stifled the economy with crisis-ridden consequences. Its crisis-diagnosis entailed the prescription for resolving the crisis. The economy had to be set free by rolling back the state and by curtailing the democratic excess. Its stance formed the theoretical foundation of the incoming Thatcher government in 1979.
However, in Europe, the most sustained effort in neutralizing mass democracy occurred in the form of European monetary union, which created the world’s only state-less currency. The government of the Euro is to all intents and purposes entirely removed from the territorially regimented democratic sovereigns. It sets in place a market liberal framework for the conduct of policy in the federated and democratically constituted member states. The paper lays out the argument that capitalist political economy entails the liberal state as market police. This conception of the state excludes the idea of mass democracy as the constitutive basis of the liberal rule of law. The next section introduces Schmitt’s authoritarian stance and examines the ordoliberal critique of mass democracy. The following section presents the neoliberal account of a crisis of democracy in the 1970s. The conclusion summarizes the argument with reference to the elements of authoritarian liberalism in the governance of the Euro. I hold that the European monetary union amounts to a system of imposed liberty, which strengthens the liberal character of the member states. It also tends to nationalize the critique of ‘liberty’ in the form of powerful neo-fascist political movements and parties, including populist nationalist rejection fed by impotent rage and pitiful delusions about ‘land and sea’, as in the case of Brexit.

07 August 2017

Mandatory Reporting

The COAG Health Ministers meeting of 4 August resulted in a communique with the following items
Strengthened penalties and prohibition orders under the Health Practitioner Regulation
National Law Health Ministers agreed to proceed with amendments to the Health Practitioner Regulation National Law (the National Law) to strengthen penalties for offences committed by people who hold themselves out to be a registered health practitioner, including those who use reserved professional titles or carry out restricted practices when not registered. Ministers also agreed to proceed with an amendment to introduce a custodial sentence with a maximum term of up to three years for these offences. These important reforms will be fast tracked to strengthen public protection under the National Law. Preparation will now commence on a draft amendment bill to be brought forward to Ministers for approval, with a view to this being introduced to the Queensland Parliament in 2018. The Western Australian Parliament is also expected to consider legislative changes to the Western Australian National Law.
Amendment to mandatory reporting provisions for treating health practitioner
Health Ministers agree that protecting the public from harm is of paramount importance as is supporting practitioners to seek health and in particular mental health treatment as soon as possible.
Health Ministers agreed that doctors should be able to seek treatment for health issues with confidentiality whilst also preserving the requirement for patient safety.
A nationally consistent approach to mandatory reporting provisions will provide confidence to health practitioners that they can feel able to seek treatment for their own health conditions anywhere in Australia.
Agree for AHMAC to recommend a nationally consistent approach to mandatory reporting, following discussion paper and consultation with consumer and practitioner groups, with a proposal to be considered by COAG Health Council at their November 2017 meeting, to allow the amendment to be progressed as part of Tranche 1A package of amendments and related guidelines.
National human biomonitoring program
Health Ministers noted that human biomonitoring data can play a key role in identifying chemicals which potentially cause adverse health effects and action that may need to be taken to protect public health. Health Ministers agreed that a National Human Biomonitoring Program could be beneficial in assisting with the understanding of chemical exposures in the Australian population.
Accordingly, Ministers agreed that the Australian Health Ministers’ Advisory Council will explore this matter in more detail by undertaking a feasibility assess ment of a National Human Biomonitoring Program.

Driverless Vehicles

The National Transport Commission (NTC) last year released a paper on Regulatory reforms for automated road vehicles.

The Commission has recently released a discussion paper on Regulatory options to assure automated vehicle safety in Australia, outlining four regulatory options to govern the safety of driverless cars and other autonomous vehicles in Australia:
  • Continuing the current approach
  • Self-certification
  • Pre-market approval
  • Accreditation.
The paper states
Automated vehicles that do not require human driver input into the driving task for at least part of the journey are expected to arrive on our roads from around 2020. Currently there is no explicit regulation covering these automated driving functions. Manufacturers are aiming to ensure automated driving functionality improves road safety, but this technology may also create safety risks for road users. The purpose of this paper is to seek feedback on:
  • whether there is a need for explicit regulation of automated driving functions, above existing transport and consumer law 
  • if there is a need for regulation, what form this should take.
We are seeking feedback from governments, road safety experts, automated vehicle manufacturers, technology providers, insurers and other stakeholders on these questions. This paper examines:
  • how safety of automated vehicle functions should be assessed 
  • the options for a safety assurance system 
  • the criteria that should be used to decide among those options
  •  institutional arrangements, road access and compliance.
Based on the feedback we receive, we will make recommendations to transport ministers in November 2017 on the preferred approach and the next steps to implement any required changes to legislation.
Australian governments have started work to remove legislative barriers to increasingly automated road vehicles. These barriers relate primarily to road traffic laws that implicitly require a human driver. Without further action, once these barriers have been removed, governments would have no regulatory mechanism to proactively ensure automated driving technologies are safe.
Automated driving technologies are progressively undertaking more of the driving task, and it is likely this technology will improve road safety, mobility, productivity and environmental outcomes. However, the technology is highly innovative and diverse and requires further testing and evaluation. From a regulatory perspective, there are four key issues:
  • Should governments have a role assuring the safety of automated vehicles? 
  • What are our measures of safety, and what is the level of safety required? 
  • How does a safety assurance system balance safety outcomes with innovation, certainty and regulatory efficiency?
  • Where does a safety assurance system fit within the existing regulatory framework for road transport, and how does it interact with existing laws?
In November 2016 the Transport and Infrastructure Council directed the National Transport Commission (NTC) to develop a national performance-based assurance regime designed to ensure the safe operation of automated vehicles. This will form a key component of an end-to-end regulatory framework to support the safe commercial operation of automated vehicles. Based on the feedback to this discussion paper, the NTC will recommend a preferred approach to ministers in November 2017, along with the next steps on regulatory reforms to support this approach.
In the absence of agreed Australian or international standards specific to automated vehicle technologies, governments need to consider the uncertain safety outcomes associated with different applications of automated driving, and whether the safety risk justifies additional government oversight and regulatory intervention. In Australia this type of oversight would be in addition to existing general consumer and product liability laws as well as extensive regulation covering vehicle standards and vehicle operation.
As the performance of the vehicle technology becomes increasingly safety-critical, new regulatory approaches may be needed to ensure initial and ongoing safety. Such approaches will need to cover all potential technology providers, from traditional automotive manufacturers to companies and individuals developing after-market devices to modify existing vehicles.
There is a risk that, without a national and coordinated response to automated vehicle reform, Australia’s complex regulatory framework will result in inconsistent regulation or over-regulation of automated vehicles across states and territories.
Regulatory options for safety assurance of automated vehicle functions
The NTC has developed four regulatory options for consultation for the safety assurance of automated vehicle functions. These are based on our assessment of the current regulatory framework and a review of safety literature and international developments. The four options are:
1. Continue current approach – no additional regulatory oversight, with an emphasis on existing safeguards in Australian Consumer Law and road transport laws. 
2. Self-certification – manufacturers make a statement of compliance against high-level safety criteria developed by government. This could be supported by a primary safety duty to provide safe automated vehicles. 
3. Pre-market approval – automated driving systems are certified by a government agency as meeting minimum prescribed technical standards prior to market entry. 
4. Accreditation – accreditation agency accredits an automated driving system entity. The accredited party demonstrates it has identified and managed safety risks to a legal standard of care.
We are seeking feedback on these regulatory options, recognising that the regulatory solution may draw upon elements across these options. Stakeholders are also welcome to propose new regulatory options. ... 
In many ways, the regulatory options reflect the risk appetite of the community and how the optimum role of government is perceived and understood by the community. In broad terms, the greater the risk appetite, the less we need explicit regulation, or a proactive role for governments to ensure automated vehicle safety.
In line with developments in other countries, the NTC proposes that the safety risks are sufficiently high or unknown to warrant some level of regulatory oversight and government involvement in the safety assurance system. ...
We have proposed eight assessment criteria against which the regulatory options for the safety assurance system have been evaluated. ... 
Proposed assessment criteria for the design of the safety assurance system
1. Safety 
  • The model should support automated vehicle safety, including the ongoing safety over the full lifespan of the vehicle. 
  • The model should provide certainty about who is responsible for testing, validating and managing safety risks. 
2. Innovation, flexibility and responsiveness 
  • The model should be technology-neutral and allow innovative solutions 
  • The model should allow government to respond and adapt to the changing market and evolving technology.  
3. Accountability and probity 
  • The model should ensure the decision-making process is transparent, accountable and, where appropriate, appealable. 
  • There should always be an entity (whether an individual or a corporation) that is legally accountable for the automated driving system.
4. Regulatory efficiency 
  • The assurance process should be as efficient as possible and result in the least cost for industry and government, proportionate to the risk. 
  • The process of assurance should minimise structural, organisational and regulatory change necessary to implement the model. 
5. International and domestic consistency 
  • The model should support a single national approach, or state-based approaches that are nationally consistent. 
  • The model should be adaptable if and when there is international consistency. International approval processes and standards should be recognisable. 
6. Safe operational design domain 
  • The model should be able to take into consideration the operational design domain of an automated driving system. 
7. Other policy objectives 
  • The model should be able to support non-safety policy objectives including cybersecurity, traffic management, environmental protection and the provision of data for enforcement or insurance purposes. 
8. Timeliness  
  • The model should be able to be implemented and operational when the technology is ready.
Our initial assessment of the regulatory options suggests there are significant disadvantages associated with not developing a safety assurance system and continuing with the current approach (see Table 2). This is primarily because the ADRs do not have regard to automated driving technologies. Furthermore, existing safeguards, including vehicle recall powers, are focused on the technical integrity of the vehicle and do not consider environmental or human performance safety factors. This may lead to road safety risks, particularly in relation to vehicle modifications and after-market fitment.
Self-certification is a light-touch approach that, like the ‘continue current approach’ option, relies on existing safeguards but could introduce voluntary or mandatory compliance with automated vehicle safety principles and criteria. Showing compliance with these criteria would allow automated driving system entities to demonstrate to government that their vehicles are safe and therefore suitable to be registered under state and territory laws. Self-certification could be supported by a legislated primary safety duty for manufacturers, suppliers and automated driving system entities to provide safe automated vehicles.
Pre-market approval possibly provides the highest certainty for government and consumers that automated vehicles will be safe. However, this option is also regulation- and resource intensive and could stifle safety-related innovation if testing standards and procedures do not keep pace with technology changes.
Accreditation provides a comprehensive, risk-based and proven framework within which safety can be regulated. It focuses on outcomes, risk management and continuing improvements to safety. The accreditation model has demonstrated safety benefits in other high-risk industries including mining, rail and aviation. However, accreditation would involve a major reform of road safety, includes substantial set up costs and is not an approach that other countries are known to be exploring. ...
The paper comments
Implementation issues
A number of key issues need to be considered in implementing an approach to the safety assurance of automated vehicle functions, in particular:
  • how to evaluate and validate safety
  •  institutional arrangements to support the approach 
  • how to manage access to the road network 
  • how to ensure compliance with the requirements of the approach selected.
How to evaluate and validate safety
Evaluation and validation of automated vehicle safety is a foundation issue for the development of the safety assurance system. The proportionate and appropriate role of a government agency to test the safety claims made by a manufacturer or technology provider will largely depend on the regulatory model adopted in Australia.
We are seeking feedback on whether safety should be defined and measured according to the rate of technical failure and incidents that result in harm to people, or be based on an agreed metric of safety such as crash rates.
The NTC is proposing that the onus be placed on the automated driving system entity to demonstrate the methods they have adopted to identify and manage safety risks.
Institutional arrangements to support the approach
If there is a role for government in safety assurance for automated vehicle functions? Which government body will have that role? Responsibility for motor vehicle safety regulation is currently shared between the Commonwealth and the states and territories. The current mix of regulatory responsibilities adds complexity to the development of a safety assurance system and the potential institutional arrangements to oversee the safety assurance system. We are seeking feedback on institutional arrangements, including the types of government entities that could support a safety assurance system.
Institutional arrangements are heavily dependent on the safety assurance option chosen, therefore the NTC is proposing that institutional models are further developed after a regulatory option has been agreed.
How to manage access to the road network
For the foreseeable future, automated vehicle functionality will be limited to parts of the road network (for example, only sealed roads). This raises the question of the role of registration authorities and road managers (including local governments) in managing access to the road as part of the safety assurance system. We are seeking feedback on the role of road managers and whether registration authorities and road managers should authorise automated vehicle access to their road network in addition to safety assurance processes.
The NTC is proposing that a national approach should be adopted that incorporates automated vehicle registration and network access into the safety assurance process. However, access issues should be further explored once a regulatory model has been agreed.
How to ensure compliance
How do governments ensure compliance with any safety assurance system? We are seeking feedback on how to ensure compliance – including what regulation (if any) is needed to ensure automated driving system entities and other parties comply with safety obligations.
We suggest that compliance could be ensured through a primary safety duty for parties to provide safe automated vehicles with associated penalties and/or specific sanctions and penalties for the automated driving system entity.
The best way to ensure compliance will depend significantly on the regulatory model agreed. Sanctions and penalties in road traffic laws could also cover automated driving system entities through the NTC reforms to driver legislation.
Consultation questions
1. Should government have a role in assessing the safety of automated vehicles or can industry and the existing regulatory framework manage this? What do you think the role of government should be in the safety assurance of automated vehicles? 
2. Should governments be aiming for a safety outcome that is as safe as, or significantly safer than, conventional vehicles and drivers? If so, what metrics or approach should be used? 
3. Should the onus be placed on the automated driving system entity to demonstrate the methods they have adopted to identify and mitigate safety risks? 
4. Are the proposed assessment criteria sufficient to decide on the best safety assurance option? If not, what other assessment criteria should be used for the design of the safety assurance system? 
5. Should governments adopt a transitional approach to the development of a safety assurance system? If so, how would this work? 
6. Is continuing the current approach to regulating vehicle safety the best option for the safety assurance of automated vehicle functions? If so, why? 
7. Is self-certification the best approach to regulating automated vehicle safety? If so, should this approach be voluntary or mandatory? Should self-certification be supported by a primary safety duty to ensure automated vehicle safety? 
8. Is pre-market approval the best approach to regulating automated vehicle safety? If so, what regulatory option would be the most effective to support pre-market approval? 
9. Is accreditation the best approach to regulating automated vehicle safety? If so, why? 
10. Based on the option for safety assurance of automated vehicle functions, what institutional arrangements should support this option? Why? 
11. How should governments manage access to the road network by automated vehicles? Do you agree with a national approach that does not require additional approval by a registration authority or road manager? 
12. How should governments ensure compliance with the safety assurance system?