The unfair contracts regime under the Australian Consumer Law (ACL) applies to “consumer contracts”, namely those contracts entered into by an individual acquiring goods or services predominantly for personal, domestic or household use or consumption. It also applies to “standard form” consumer contracts. Such forms are regularly used by rental car companies, telecommunications companies and gyms, for example.

However, the Motor Dealers and Repairers Act, 2013 (NSW) provides for a system which applies to all contracts, not just standard form ones, between manufacturers supplying vehicles to a motor dealer. That will include purely business, rather than consumer, contracts and will apply to contracts between two companies.

Companies should immediately review their contracts as these laws have retrospective application, so they apply to existing contracts.

A term will be considered unfair according to the Act if it:

  • Would cause a significant imbalance in the parties’ rights and obligations.
  • Is not reasonably necessary to protect the interests of the advantaged party.
  • It would cause financial or other detriment to a party if relied on.

The Act provides some examples of terms which may be unfair, namely:

  • a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract
  • a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract
  • a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract
  • a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract
  • a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods to be supplied under the contract
  • a term that permits, or has the effect of permitting, one party unilaterally to vary the goods required to be sold or the place at which goods are required to be sold by the motor dealer
  • a term that unreasonably limits, or has the effect of unreasonably limiting, the assignment by the motor dealer of the motor dealer’s rights under the contract or the sale of the motor dealer’s business
  • a term that limits, or has the effect of limiting, one party’s rights to sue another party.

It is noteworthy that, unlike the unfair contract terms regime in the ACL, there is no exception for a term which defines the main subject matter of the contract, or sets the upfront price payable under the contract or is a term required or expressly permitted, by a law of the Commonwealth, a State or Territory.

In addition, the legislation prohibits “unjust conduct” which is conduct of a manufacturer in connection with a motor vehicle supply contract with a motor dealer which is dishonest or unfair, or which is authorised by an unfair term of a supply contract.

A major development in the legislation is that a ‘motor industry group’ may act on behalf of a motor dealer or dealers in an application to the Small Business Commissioner or to the Consumer, Trader and Tenancy Tribunal. The explanation for this given in the speeches introducing the legislation is that some motor dealers had indicated they do not and will not take action in relation to unfair contract terms due to the fear of reprisals, including the loss of business.

However, before an application is made either by the industry group or the dealer to the Tribunal, a complaint must first be made to the NSW Small Business Commissioner, which involves a mediation, and if unresolved, a certification by the Commissioner that the dispute cannot be resolved.

The unfair terms/unjust conduct provisions have come into immediate force and apply to contracts and conduct in place before 27 November 2013.