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.
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:
A term of a consumer contract will be void (but may be severed) if the contract:
Whether the contract would be considered a standard-form contract, depends on the following factors:
A term will be considered unfair if :
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:
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.
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”.