With the new consumer protection provisions of the Competition and Consumer Act 2010 (Cth) (“the Act”) well and truly in force now, businesses in Australia should have considered whether the standard form contracts used by them contain ‘unfair terms’ as defined in the Australian Consumer Law (“the ACL”), contained at Schedule 2 of the Act. However, the reality is that there are likely to be many businesses still using what the Act categorises as ‘unfair terms’.

What Makes an ‘Unfair Term’ Voidable?

The ACL includes (among other things) 3 general protections for consumers. Protection for consumers against ‘misleading and deceptive conduct’ and ‘unconscionable conduct’ are both retained and the new 3rd general protection is in relation to ‘unfair terms’ in ‘standard form contracts’ entered into by consumers.

Section 23 of the ACL provides that a term of a consumer contract is void if:  

  • The term is unfair; and
  • The contract is a standard form contract.  

‘Consumer Contract’

The ACL provides that a ‘consumer contract’ is a contract for:

  • a supply of goods or services; or
  • a sale or grant of an interest in land, to an individual whose acquisition of the goods, services or interests is wholly or predominantly for personal, domestic or household use or consumption.

‘Standard Form Contract’

The ACL does not exhaustively define what a ‘standard form contract’ is, however it does provide matters to take into account when considering whether a contract in question is a standard form contract.

If the contract is pre-prepared, not specifically ‘tailored’ for the particular transaction and the consumer is not given the opportunity to negotiate the terms; it is likely to be a standard form contact. A couple of common examples are mobile phone contracts and gym membership contracts.

‘Unfair’

‘Core terms’ of the contract, for example, the up front price of goods sold to a consumer, are excluded from the ‘unfair terms’ provisions of the ACL. This means that a consumer who considers he/she paid too much for a product or service does not have the ability to avoid the obligation to pay the price agreed to.  

When the Bill for the introduction of the unfair terms was introduced, the minister said that:

“[the reform] is not about undoing bad bargains and letting consumers walk away from poor choices…it is about ensuring that a business assesses its risk properly and does not use its stronger bargaining position to simply push all the risk away from itself”.

The ACL provides that a term will be unfair if:

  • it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
  • it is not necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.  

The Court must also consider the transparency of the term. This does not mean that a term that is clearly brought to the consumer’s attention is not unfair. It does however provide that, where a term in question is buried in the fine print of a contract, it will go towards establishing that it is unfair.

The ACL provides a list of examples of the types of terms that may be unfair, depending on the circumstances. The list is lengthy, however a few examples are:  

  • a term that permits one party (but not the other) to avoid or limit performance of the contract;
  • a term that has the effect of penalizing one party (but not the other) for a breach or termination of the contract;
  • a term that permits one party (but not the other) to vary the terms of the contract; and
  • a term that limits one party’s right to sue the other party.

What are the Consequences?

Should a term in a contract be found to be an ‘unfair term’, an injunction can be made preventing its enforcement. Further, should a business seek to rely on or enforce an ‘unfair term’; the other party to the contract (or the ACCC) will be in a position to bring an action for damages against that business under the ACL.

Comment

If you are a consumer and are aggrieved by what you think might be an ‘unfair term’ in a standard form contract you have entered into, we would encourage you to seek legal advice on the point.

Alternatively, if you operate a business using standard form contracts where any of the terms have been called into question under the ‘unfair terms’ provisions in the ACL, we would also encourage you to seek legal advice