The reforms involve the implementation of a single national consumer law based on the Trade Practices Act 1974 (Cth) which will be renamed the Competition and Consumer Act (New Act).
The New Act will apply nation-wide and replace each of the current state and territory fair trading statutes. It is expected that the New Act will reflect many of the unfair contract terms currently found in Victoria's Fair Trading Act 1999.
The national approach to consumer protection reflects the fact that in the past decade the number of retail businesses operating nationally has increased from 47 to 53 per cent and, since 2003, there has been a 70 per cent increase in the number of firms that operate nationally1.
A test for fairness
The aim of the reforms is to give regulators and consumers the power to challenge unfair contract terms in non-negotiated standard form contracts.
Under the proposed reforms, an unfair contract term will be one which:
- causes a significant imbalance in the parties' rights and obligations arising under the contract; and
- is not reasonably necessary to protect the legitimate interests of the supplier.
What contract terms might be considered "unfair" or "detrimental"?
The government's consultation paper identifies a number of standard form contract terms which are considered likely to cause consumer detriment. These include clauses that:
- permit the supplier to unilaterally vary the terms of the contract;
- prevent the consumer from cancelling a contract;
- require the payment of fees when the service is not provided;
- exclude liability for harm resulting from the supplier's or its agents' actions;
- require consumers who breach a contract term or terminate early to pay penalties, such as additional payments, interest or indemnity legal costs) which do not reflect the suppliers' reasonable costs; and
- deem that certain information has been provided to the consumer prior to the agreement being made, regardless of whether or not that information was actually provided.
The mere presence of these terms will not automatically expose a contract to challenge or the supplier to action by the regulator. Rather, these consequences may follow where it can be established that the consumer has suffered, or is likely to suffer, detriment.
What types of contract would be covered by the 'unfair' contract provisions?
The proposed reforms will only apply to standard form, non-negotiated, contracts. Where a contract is alleged to be a standard form contract, the supplier will have an opportunity to prove that it is not and therefore not covered by the New Act.
The 'unfair' contract provisions will apply to all suppliers of goods or services which use standard form, non-negotiated contracts in their dealings with individual consumers or other businesses.
The consultation paper identifies a number of industries which are expected to be particularly impacted by the changes. These include:
- utility services (electricity, gas, water and sewerage);
- communications services (telephony and internet);
- banking and financial services, including credit agreements;
- software end user licences, e-commerce transactions and online auctions;
- public and private transport services, including airline, bus and rail tickets;
- subscription services, including pay television, magazine and newspaper;
- leisure services, including health and fitness centre memberships, event tickets; and
- residential and retail tenancies.
Standard form employment contracts are not covered by the proposed reforms.
The New Act is expected to commence on 1 January 2010. As that date approaches, all businesses should review the terms of any standard form, non-negotiated contracts which they use and assess compliance with the proposed new regime.