On 1 January 2011, the long-standing and well-known Trade Practices Act 1974 (Cth) was renamed the Competition and Consumer Act 2010 (Cth). With the new moniker came sweeping improvements to Australian fair trading and consumer protection legislation, now unified by intergovernmental agreement of the States and the Territories into a single national law called the Australian Consumer Law (‘the ACL‘).
The ACL replaces the consumer protections provisions of the old Act, the State and Territory Fair Trading Acts and door-to-door sales legislation. The ACL operates as a law of the Commonwealth and as a law of each State and Territory by enactment of its provisions by each State and Territory government.
Unfair contract terms
One notable aspect of the ACL is the introduction of a new prohibition against unfair contract terms (‘UCTs’) in consumer contracts.
The prohibition applies only to consumer contracts which are standard form contracts. A consumer contract is a contract for the supply of goods, services, or interests in land to individuals whose purpose for the acquisition for personal, domestic or household use or consumption. This would necessarily exclude any contracts which are for business or investment purposes.
A number of factors are relevant to determining whether a consumer contract is a standard form contract, including:
- whether the contract was subject to negotiations before being entered into by the parties;
- whether one of the parties has all or most of the bargaining power; and/or
- whether one party was, in effect, required to accept or reject the contract in the form presented to it.
What contract terms are unfair?
Unfortunately, there is no black-and-white rule for determining whether a contract term is unfair. The ACL provides that when determining whether a term is unfair, a court will consider the contract as a whole and look to the transparency or accessibility of the term in question.
This suggests a ‘substance over form’ approach which we believe to be a positive aspect of the new law. However, it remains to be seen where the courts will draw the line between fair and unfair contract terms given the wording of the legislation. Pragmatically, the structure of UCTs prohibition promotes a case-by-case assessment.
Some examples of unfair contract terms
Despite the subjected nature of the prohibition, the law makers have included a number of examples of terms that would likely be considered to be unfair. These include terms which:
- permit one party (but not the other) to terminate the contract;
- permit one party (but not the other) to vary the terms of the contract, including the upfront price payable under the contract;
- penalise one party (but not the other) for a breach of termination of the contract; and
- limit one party’s right to sue another party, or a party’s vicarious liability for its agents.
What is the effect of a contract term being unfair?
Where a contract term is found to be unfair, it will be void and unenforceable. If the contract containing the unfair term does not contain a severance clause providing for the severing of any illegal term from the contract, then the entire contract will be void.
Given the significant impact which the voiding of contracts could have on the businesses, we strongly recommend that all businesses which routinely use standard form contracts undertake a complete review of all of their contracts in order to avoid substantial costs in the future.
20 Jul 2011