Since January 1 2011, businesses have had to come to grips with new laws and impending new laws addressing treatment of vulnerable consumers which for the first time in Queensland include unfair contract terms. In our second Legal Business Bulletin for 2011, we identify some of the changes to increase accountability, transparency in business dealings and efficient market operations writes Alicia Hill, Principal
The introduction into the Competition and Consumer Act (CCA) of the Australian Consumer Law (ACL) has seen business review and readjust business systems to attempt to ensure compliance particularly with the CCA unfair contract terms regime. How some have approached this is discussed in this article.
Who is considered vulnerable?
The Australian Competition and Consumer Commission (ACCC) identified a list of possible factors that could render a consumer vulnerable including:
Click here for list
Not all individuals possessing these characteristics will fall into the category of a vulnerable consumer, however, these are indicators that the ACCC says may be present to indicate persons to whom special consideration should be afforded. Businesses have used this as a starting point to analyse their customers to identify the prospects of encountering such vulnerable customers.
Position of power
When dealing with consumers, businesses will often be in a position where they have greater knowledge of the impact of a particular transaction or contract than their consumers. While this will not prove to be an issue in most situations, the CCA emphasises that it is important to remember that not all consumers are the same and that some have special needs and requirements that ought to be addressed.
Businesses now had to implement specific training programmes for staff, review and in some instances amend or justify particular terms in standard terms and conditions or remove terms which would be deemed to be unfair dealing with consumers who are vulnerable or disadvantaged.
What does the law now say about vulnerable consumers?
The ACL contains general and specific protections for consumers which cover areas including misleading or deceptive conduct, unconscionable conduct and unfair contract terms.
Unfair Contractual Terms
It is the unfamiliar area of unfair contract terms which has caused the most concerns in Queensland business operations despite guidance being available from Victorian case law.
A term of a consumer contract would be considered unfair if:
- it would cause a significant imbalance of the parties’ rights and obligations;
- it is not reasonably necessary to protect the legitimate interests of party who is advantaged by the term; or
- it would cause detriment to the customer if it was applied or relied upon.
Businesses have reviewed their terms to ensure that they are clear, concise and legible. Litigation on the issue from Victoria has provided some guidance in relation to these criteria.
In the case of Jetstar Airways Pty Ltd v Free  VSC 539 (Jetstar), the meaning of an unfair term was discussed. There Justice Cavanough concluded that the phrase ‘significant imbalance’ in relation to parties’ rights means something not to different from a substantial discrepancy.
It has been suggested that a way to determine whether there has been a substantial discrepancy in the rights of the parties’ is to see if the term has ‘gone beyond the reasonable expectations of the consumer’.
Second, a contractual term that exists to protect the legitimate interests of the party is less likely to be considered unfair.
The specific facts of any transaction will need to be considered, however, as a general rule, a term that responds to the inherent risks in a transaction will not be considered unfair.
In contrast, a term that seeks to exploit the situation by incorporating aspects not envisaged in the original negotiation will be difficult to sustain as not being unfair.
Businesses have gone to some lengths to document the reasons for inclusion of terms and how these protect their legitimate business interests, where it has been considered damaging to business operations for removal of standard terms and conditions of what might otherwise be described as ‘unfair terms’.
Third, a term of a contract that would result in detriment to the consumer if it were relied upon is generally going to be unfair. This was the situation in the Jetstar decision where the consumer was forced to pay an additional fee of approximately $700 in order to change the name on her seat allocation.
At trial this was held to constitute detriment, however, on appeal it was indicated that in situations where the term was common in the particular industry (like a transfer fee on budget airfares), then it was less likely to be deemed unfair.
Therefore, as a general rule contract terms will be unfair if they:
- permit one party to terminate the contract but not the other;
- penalise only one party for breach or termination of contract;
- allow one party to vary the terms of the contract; or
- allow one party to limit the other’s right to sue.
There are many more examples of unfair contractual terms and ultimately the courts will decide whether a term is unfair.
In order to protect your business, if it has not been completed already a business should ensure that :
- all terms are reasonable and do not significantly disadvantage the customer; or
- that there is a sufficient business case justification for having what may, on its face, be an unfair business term.