A.
The “unfair contract terms” legislation under the Competition and Consumer Act 2010 was introduced on 1 July 2010, which reflects that:
- The Australian Consumer Law (ACL) replaces all previous Commonwealth, state and territory consumer protection legislations.
- The Schedule 2 to the Competition and Consumer Act 2010 (the Act) contains the Australian Consumer Law.
- The aspects of the ACL are further contained in the Australian Securities and Investments Commission Act 2001 (ASIC Act), to protect consumers of financial products and services.
Applicability of “unfair contract terms”
The “unfair contract terms” law applies to “consumer contracts”, which is defined as a contract for:
- the supply of goods or services; or
- the sale or grant of an interest
in land to an individual who acquires it wholly or predominantly for personal, domestic or household use or consumption.
Under the ASIC Act, a similar definition of a consumer contract applies in relation to financial products and services.
The “unfair contract terms” laws do not apply to a contract to supply goods or services or financial products or services from one business to another for business use.
When is term of consumer contract unfair?
A term of a consumer contract is unfair if:
- it causes a significant disparity in the parties’ rights and obligations, arising under the contract
- it is not reasonably necessary to protect the legitimate interests of the party that would be advantaged by the term.
- it would cause detriment (whether financial or otherwise) to a party when applied or relied upon.
Definition of “unfair” terms
In deciding whether a term in a standard form consumer contract is unfair, the court will apply the three limbed test for unfairness as stated under Schedule 2, Section 24(1) and Section 12BG of the ASIC Act.
A term of a consumer contract is unfair if –
The term would cause a significant imbalance in the parties’ rights and obligations arising under the contract.
- The claimant is required to prove that, on the balance of probabilities, a term of a consumer contract would cause a significant imbalance in the parties’ rights and obligations arising under the contract.
- This would involve a factual assessment of the available evidence.
The term is not reasonably necessary to protect the legitimate interests of the party that would be advantaged by the term.
- For this test the party advantaged by the term needs to provide evidence to the court to show why it is necessary for the contract to include the term.
- In such cases evidence might include materials related to the business’s costs and structure, the need for the mitigation of risks or particular industry practices to the extent that such material is relevant.
- The meaning of legitimate interest is open to interpretation by the court.
The term would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
- Detriment is not limited to financial detriment.
- The court is allowed to consider situations where delay or distress is suffered by the consumer as a result of the unfair term.
How to determine whether a term of a standard form consumer contract is unfair?
While determining whether a term of a standard form consumer contract is unfair, a court must take into consideration:
The extent to which the term is transparent
In order to determine whether a term is transparent the court takes into consideration the following parameters:
- Whether the term is expressed in reasonably plain language?
- Whether the term is legible?
- Whether the term is presented clearly?
- Whether the term is readily available to any party affected by the term?
It is to be noted that
- A term that does not meet the transparency requirement will not necessarily be unfair.
- Transparency, on its own account, will not necessarily overcome underlying unfairness in a contract term.
The contract as a whole
The fairness of a particular contractual term cannot be considered in isolation but must be assessed in light of the contract as a whole.
When is “unfair contract terms” not applicable to standard form consumer contract terms?
The “unfair contract terms” laws do not apply to standard form consumer contract terms that:
- define the main subject matter of a consumer contract
- set the up-front price payable under the contract or
- are required, or expressly permitted, by a law of the Commonwealth or a state or territory.
Case Study: Victorian case of Director of Consumer Affairs Victoria v Craig Langley Pty Ltd & Matrix Pilates and Yoga Pty Ltd
In this case Judge Harbison stated:
“Terms of a consumer contract which have been the subject of genuine negotiation should not be lightly declared unfair. This legislation is designed to protect consumers from unfair contracts, not to allow a party to a contract who has genuinely reflected on its terms and negotiated them, to be released from a contract term from which he or she later wishes to resile.”
The following consumer contracts are excluded:
- certain shipping contracts
- contracts that are constitutions of companies, managed investment schemes or other kinds of bodies or
- contracts covered by the Insurance Contracts Act 1984.
Remedies in cases where unfair terms is applied in a consumer contract-
The court can make to redress the loss or damage suffered by non-party consumers by:
- an order declaring all or part of a contract to be void.
- an order varying a contract or arrangement as the court sees fit.
- an order refusing to enforce all or any of the terms of a contract or arrangement.
- an order directing the respondent to refund money or return property to a non party consumer
- an order directing the respondent to repair or provide parts for a product provided under a contract at their expense.
The party to a standard form consumer contract may apply to the court for a declaration that a term of the contract is an unfair term.
If a court makes a declaration that a term is unfair and a party subsequently seeks to apply or rely upon the unfair term, it is a contravention of the ACL or the ASIC Act, and the court may grant the following remedies:
- an injunction (Schedule 2, Part 5-2, Section 232 of the Act; Section 12GD of the ASIC Act)
- an order to provide redress to non party consumers (Schedule 2, Part 5-2, Section 239 of the Act; Section 12GNB of the ASIC Act)
- any other order or orders that the court thinks appropriate (Schedule 2, Part 5-2, Section 243 of the Act; Section 12GM of the ASIC Act).
