Business & Commercial

Unfair Contract Terms


Brisbane Lawyers

Aitken Whyte Lawyers Brisbane - Business and Commercial Lawyers And Solicitors for Brisbane, Queensland

National Unfair Contract Terms

The Trade Practices Amendment (Australian Consumer Law) Bill 2009

The Bill is the first stage of the Commonwealth Government’s implementation of the national consumer policy framework. It amends the Trade Practices Act to establish the Australian Consumer Law as a schedule to that Act. As well as introducing new penalties, enforcement powers and consumer redress options, the Bill also introduces national unfair contract terms provisions.

What contracts will the unfair contract terms provisions apply to?

The unfair contract provisions contained in the Bill will apply only to “standard-form consumer contracts”, i.e. contracts, in which at least one of the parties is an individual, and the contract is made predominantly for personal, domestic or household purposes.

The unfair contract provision in the Trade Practices Act applies to contracts entered into for the supply of goods and services, or a sale or grant of an interest in land. In the context of the ASIC Act, the consumer contract must be for the supply of financial services. Both Acts require that the contract be entered into predominantly for personal, domestic or household purposes.

The provisions of the Bill do not apply to business-to-business contracts (however, the Government  indicated that those contracts will also be considered at a later time). The Bill’s provisions will also not apply to the contracts of:

  • salvage or towage.
  • ship charter parties or carriage of goods by ship and
  • company and managed investment scheme constitutions.

How will the new provisions apply?

A term of a consumer contract will be void (but may be severed) if the contract:

  • is a standard-form contract, and
  • the term is ‘unfair’.

What is a standard-form contract?

Whether the contract would be considered a standard-form contract, depends on the following factors:

  • whether one of the parties has all or most of the bargaining power in the transaction;
  • whether the contract was prepared by one party before the negotiations commenced;
  • whether the other party was required to either accept or reject the terms of the contract, as opposed to negotiating the terms of the contract (excluding the upfront price); and
  • whether the terms of the contract take into account the specific characteristics of the transaction.

What will be considered ‘unfair’?

A term will be considered unfair if :

  • the term causes a “significant imbalance” in the parties’ rights and obligations under the contract (a question of fact); and
  • the term is not reasonably necessary to protect the legitimate interests of a party to the contract (to negate this presumption, it would have to be established that the “legitimate interest” of the party was greater than the detriment caused to the consumer).

In determining whether a term is unfair, the court must also take into account the extent to which the term would cause detriment to one of the parties, and the extent to which the term is “transparent” (meaning expressed legibly in plain English), having regard to the contract as a whole.

The Bill provides examples of types of terms that may be considered unfair. These include terms that allow one party to a contract, but not the other party to:

  • avoid performance of the contract;
  • terminate the contract;
  • renew (or not renew) the contract;
  • vary the upfront price payable;
  • vary the goods, services, or financial services to be supplied; or
  • limiting vicarious liability or another party’s right to sue.

However, terms that define the “subject matter” of the contract or establish the “upfront price” are excluded from the operation of this section.

What is the “upfront price”?

The “upfront price” is defined as the consideration provided for the supply or sale under the contract which is disclosed when the contract is entered into. In the context of the ASIC Act the upfront price means the total amount owing under the credit contract (including both principal and interest), as long as it is disclosed at or before the time the contract was made. It may also extend to the cash price payable for goods or services, as well as a series of future payments.

In determining whether or not a payment forms the “upfront price”, a key consideration will be the “transparency” of the disclosure of the payment, such that the consumer understands the price to be paid.

Commencement

It is intended that the Australian Consumer Law will commence on 1 January 2010, at which time the unfair contract terms provisions will apply to all standard-form contracts entered into on or after that date. The provisions will not apply retrospectively to standard-form consumer contracts under the Trade Practices Act and the ASIC Act entered into before 1 January 2010, unless those contracts have been renewed or varied after that date.

Accordingly, businesses may now wish to consider reviewing the terms of any standard-form contracts if they contain any possibly unfair terms, and if so, if those terms would be considered “reasonable necessary”.

Office Location and Contact Details

Brisbane
Aitken Whyte Lawyers
Level 2, 303 Adelaide Street, Brisbane
Ph: +617 3229 4459
Fax: +617 3211 9311
E: enquiries@awbrisbanelawyers.com.au