The Government has announced that the start date for the ‘unfair contract terms’ provisions of the Trade Practices Amendment (Australian Consumer Law) Bill (No. 1) 2010 at the Commonwealth level will be 1 July 2010.

It is intended that the remainder of the Australian Consumer Law (ACL), including the unfair terms provisions at the state and territory level (meaning that all persons will need to comply), will commence on 1 January 2011. In preparation, this article reviews the new ‘unfair contract terms’ provisions of the above Bill.

Unfair contract terms

The new unfair contract terms regime aims to prevent, amongst other things, companies from using standard form contracts to onerously burden consumers with terms ‘tucked away in the fine print.’1

Under the new provisions, a term in a consumer contract is void if:

  • the term is ‘unfair’ (see below)
  • the contract is in a standard form contract, and
  • in the context of the Australian Securities and Investment Commission Act 2001 (Cth), the contract is a financial product or a contract for the supply, or possible supply, of services that are financial services.

Our update of 11 November 2009 described some proposed amendments to the unfair terms aspects of the Bill. Those proposed amendments were debated and passed by Parliament on 17 March 2010. The ‘Supplementary Explanatory Memorandum and Corrections to the Explanatory Memorandum’, which relates to these amendments, stated that the amendments:

  • provide that a term in a consumer contract can only be unfair if it would cause detriment (financial or otherwise) to a party  
  • remove the consideration of whether a term would cause detriment, or a substantial likelihood thereof, from the considerations that a court must have regard to in determining whether a term of a consumer contract is unfair  
  • remove the power for the Minister to prohibit terms by regulation  
  • provide that the Minister must take into account certain factors in prescribing by regulation an example of an unfair term  
  • provide that the unfair contract terms provisions cannot commence on a date before 1 July 2010, and  
  • clarify that the unfair contract terms provisions apply to consumer contract terms varied on or after commencement as varied.

While the amendments are welcome, the new regime will have a significant effect on parties who contract on standard terms. Going forward, a term in a consumer contract will be ‘unfair’ if it is found that the term causes a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term, and would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Arguably, because of the presumptions built into the legislation, this means that parties who contract on standard terms will have to justify all their terms, that is, to establish that all the terms of their contracts are reasonably necessary in order to protect their legitimate interests. In addition, albeit with an important exception (the exclusion of a term that sets the upfront price payable under the contract from the meaning of ‘unfair term’), a provision relating to the price payable for the product or service provided under the contract may also be contested as an ‘unfair term’. This has already been the subject of litigation pursuant to the equivalent provisions under English law.2

Related articles

Further details on the ACL can be found in our articles:

  • ‘Unfair contract terms – guidance from the ACCC’3  
  • ‘Competition & Market Regulation Update March 2010’4  
  • ‘The new Australian Consumer Law – it has arrived!’5  
  • ‘Unfair terms legislation passes the Senate’6  
  • ‘Australian Consumer Law: Issues Paper on the law of unconscionable conduct’7  
  • ‘Australian Consumer Law: unconscionable conduct: comments on the recent Issues Paper’8  
  • ‘Unfair contract terms: Update on the Trade Practices Amendment (Australian Consumer Law) Bill 2009’9  
  • ‘New national consumer law’10