In summary:

  • After a review of key industries, the ACCC has identified a wide variety of terms in standard form consumer contracts that it considers may amount to unfair contract terms under the ACL.
  • All businesses that make use of standard form consumer contracts need to be mindful of the ACL and the prospect of ACCC enforcement action. To the extent that it has not already been done, it is important for businesses to review their standard terms to ensure compliance with the unfair contract terms regime and other ACL requirements.

On 25 February 2013 we issued a Corrs In Brief – “Business beware: The ACCC renews its commitment to enforcement” – to report that the Australian Competition and Consumer Commission (ACCC) had released its Compliance and Enforcement Policy for 2013 (Policy). The Policy sets out the ACCC’s approach to ensuring compliance with the Competition and Consumer Act 2010 (CCA) and the Australian Consumer Law (ACL) and contains important insights into where the ACCC’s regulatory eye will be focused over the coming year.

Both the Policy, and our recent experience with ACCC enforcement, make it clear that the ACCC’s attention is increasingly directed towards enforcement in the consumer protection arena.  An important part of that focus is the unfair contract terms regime, which was enacted in 2010 and which regulates business interaction with consumers by way of standard form consumer contracts. 

It is therefore no surprise that the ACCC has used the occasion of its National Consumer Congress (an annual event hosted by the ACCC involving consumer groups, community organisations and government) on 15 March 2013 to announce the results of its industry review of unfair contract terms (Review).[1]

In summary, the ACCC identified a wide variety of problematic terms in standard form consumer contracts in all of the key industries that were subject to the Review.  Many of these terms have been amended or deleted as a result of the ACCC’s efforts.

The Review marks a line in the sand for the ACCC.  Although in conducting the Review the ACCC took a compliance-led approach, giving the relevant businesses an opportunity to “change their ways”, in future the ACCC is likely to take a more enforcement-led approach.  There is now a window of opportunity open to all businesses to ensure that their standard form consumer contracts are in line with the ACL and won’t be subject to ACCC enforcement action.

Unfair contract terms under the ACL

The national unfair contract term regime came into effect on 1 July 2010 as part of the wider ACL reforms.  Under the regime a consumer or the ACCC may seek a declaration from the court that a term of a standard form consumer contract is unfair and therefore void.

The test for whether or not a term is unfair has three elements, all of which must be satisfied:

  • the term would cause a significant imbalance in the parties’ rights and obligations under the contract;
  • the term is not reasonably necessary to protect the legitimate interests of a party to the contract (the party seeking to rely on the term must prove that is it reasonably necessary); and
  • the term would cause detriment to a party to the contract if it were to be applied or relied upon.

In determining whether a term is unfair, the court may take into account such matters as it thinks fit.  However, to assist the court the ACL includes a non-exhaustive list of terms that may be considered unfair (for example, a term that permits one party to vary the terms of the contract, or a term that penalises one party for a breach or termination of the contract).[2] The court must also take into account the extent to which the term is transparent (i.e. expressed in reasonably plain language, legible, presented clearly and readily available) and it must consider the term within the contract as a whole. 

Terms which set the upfront price payable by the consumer and the subject matter of a contract, and terms expressly required or permitted by law, are excluded from the regime and cannot be declared unfair.

Review findings

The Review had two broad aims:

  • first, to evaluate compliance with the unfair contract terms regime in key industries; and
  • second, to work with the relevant businesses to bring about positive changes to standard form consumer contracts where necessary (for example, to delete terms which the ACCC considered unfair).

The ACCC assessed contracts in the airline, telecommunications, fitness and vehicle rental industries and, in conjunction with Consumer Affairs Victoria, contracts used by online traders and travel agents.  These sectors appear to have been targeted because they suffer from what is claimed to be relatively high levels of consumer complaints and there is the potential for widespread consumer harm if unfair contract terms within them are allowed to persist.

The Review identified particular concerns in relation to terms which:

  1. Allow the business to change the contract without the consumer’s consent.
  2. Cause confusion about the agency arrangements that apply and seek to absolve the agent from liability.
  3. Restrict the consumer’s right to terminate the contract, or provide unnecessary or burdensome obstacles to termination.
  4. Suspend or terminate the services being provided to the consumer under the contract (even where the term was included to prevent on-selling, fraud or other illegal activity).
  5. Make the consumer liable for things that would ordinarily be outside of their control (for example, unauthorised usage).
  6. Prevent the consumer from relying on representations made by the business or its agents, particularly where contracts are long and complex.
  7. Place limitations on the consumer’s rights which are inconsistent with the ACL’s consumer guarantee regime.
  8. Remove the consumer’s credit card chargeback rights when buying the service through an agent (a chargeback is a reversal of a credit card transaction).

Having identified these concerns, the ACCC reports that substantial improvements have been achieved; in most cases, businesses under review chose to amend or delete the problematic terms.  In the airline industry, for example, the ACCC reports that 79% of problematic terms identified have now been amended or deleted as a result of the Review.  However, the ACCC has foreshadowed further action – including the possibility of court proceedings – against those businesses, particularly in the travel agent and vehicle rental industries, who have chosen not to change their consumer agreements in response to the ACCC’s concerns.

Broader ACL issues

In the context of the Review the ACCC also identified a number of concerns outside the unfair contract terms regime and these serve as a reminder that standard form consumer contracts can raise issues under other aspects of the ACL.  For example, terms that seek to exclude liability or limit consumers’ rights – a particular concern for the ACCC during the Review –may fall foul of the unfair contract terms regime, the consumer guarantee regime and, to the extent that they give a false impression about a consumer’s rights, will contravene the prohibition against misleading or deceptive conduct. 

Implications

Although the businesses directly affected by the Review have been given an opportunity to modify their behaviour ahead of any ACCC enforcement action, there is no guarantee that other businesses will be given that same chance.  Indeed, the ACCC has explicitly stated that the release of the Review’s outcomes marks the end of the ACCC’s emphasis on compliance and a transition to a more enforcement-led approach.  That approach is sure to include an increased willingness to initiate court proceedings to affect change. 

In the aftermath of the Review, all businesses that make use of standard form consumer contracts are presented with an opportunity to review their standard terms for compliance not only with the unfair contract terms regime but the full range of ACL requirements.  Businesses that operate in high-profile consumer markets, or that make use of the kinds of terms identified in the Review, need to be particularly mindful of the ACL and the prospect of ACCC action.