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The first step towards the implementation of a single national consumer law, to be known as the Australian Consumer Law (ACL), will soon be completed when the Trade Practices Amendment (Australian Consumer Law) Bill 2009 (Bill) is passed. This article examines the unfair contract terms provisions in the Bill that will apply to standard form consumer contracts.
The ACL will form the new Schedule 2, Part 2 of the Trade Practices Act 1974. The ACL also amends the Australian Securities and Investments Act 2001 in relation to financial products including loan contracts.
The Unfair Contract Provisions
The Bill contains provisions which deem void unfair contract terms that are included in standard form consumer contracts, being contracts for:
- the supply of goods or services; or
- a sale or grant of an interest in land;
to an individual wholly or predominantly for personal, domestic or household use or consumption.
The Bill does not apply the provisions to business-to-business contracts.
Unfair?
A term in a consumer contract is unfair if the term:
- causes a significant imbalance in the parties’ rights and obligations arising under the contract;
- is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
In finding that a term in a consumer contract is unfair, a court will consider all of the circumstances of the contract. The court must take into account the extent to which a term is transparent (ie. is the term expressed in plain language and presented clearly) and the contract as a whole.
The Bill includes a ‘grey list’ of contract terms which may be unfair, including terms permitting the supplier, without negotiation, to:
- avoid or limit performance of the contract;
- vary the terms of the contract;
- renew or not renew the contract;
- vary the characteristics of the goods or services supplied under the contract; and
- limit the ability of the customer to sue.
Terms defining the main subject matter of the contract or the upfront price of goods or services are not subject to the new provisions. However, terms that require further payments such as exit fees are not exempt. A term that penalises, or has the effect of penalising, one party (but not another party) for a default or termination of the contract is an example of a term which is more likely to be found to be unfair.
Consequences
Generally businesses should review standard form business-to-consumer contracts to ensure that they comply with the new unfair contract terms provisions.
The unfair contract term provisions of the ACL are scheduled to apply on a date not before 1 July 2010. Contracts entered into before the commencement date will not be subject to the new provisions, unless such a contract is renewed or varied after that date (and then the provisions will only apply to individual contract terms as varied from the day the variation takes effect).
Businesses found to have included an unfair term in a consumer contract will also be exposed to enhanced remedies provided under Schedule 2 of the Bill.
We will keep you updated on the passage of the Bill through the Senate and any other further amendments to the Bill.
This article has been prepared for the general information of clients and contacts of PLN Lawyers Sydney and the affiliated firms of the Pacific Legal Network. While it deals with and comments on the law in specific areas it is not intended nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.
PLN News February 2010
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