Unfair contract terms

The unfair contract terms law

In March 2010, the first part of the Australian Consumer Law (ACL) was passed as the Trade Practices Amendment (Australian Consumer Law) Act (No.1) 2010. The Act introduced a single, national consumer law which applies the same way nationally as in each state and territory.
The introduction of a national unfair contract terms law is one of the most important consumer reforms in the new ACL.
Effective as of 1 July 2010, the unfair contract term laws provide the ACCC, ASIC and state and territory consumer protection agencies with an important tool to address the systemic problems that have developed from the use of standard form contracts.
Although businesses may use standard terms in consumer contracts to protect their legitimate commercial interests and improve efficiency, the UCT laws are designed to ‘level the playing field’ in circumstances where consumers may suffer loss or other detriment due to a fundamental imbalance in bargaining power.

What is unfair?

One of the significant aspects of the UCT provisions is that they provide for a focus on substantive unfairness in consumer markets. In this way the unfair contract term law differs from unconscionable conduct provisions, where the focus is ultimately on the process through which a trader deals with a consumer.
A term in a standard form consumer contract is unfair if:

it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
the term is not reasonably necessary 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.

When deciding whether a term is unfair, the court must also consider the contract as a whole, and how transparent the term is within the contract.

How will the new law be enforced?

To help industry, business and legal practitioners understand the UCT provisions, the agencies have developed a joint publication, the Guide to the Unfair Contract Terms Laws (PDF) or as audio files Guide to the Unfair Contract Terms Laws—Audio.
While the ACCC and ASIC has enforced the unfair contract terms provisions from 1 July 2010, the implementation of the ACL by the states and territories may vary. Many states and territories, however, do intend to implement the legislation at the same time as the ACCC and ASIC.
Although regulators such as the ACCC may seek the cooperation of business in removing terms considered potentially unfair, it is not the role of any regulator to endorse contract terms or to state categorically that they are unfair. Only a court can determine if a term is unfair or not. A term declared by a court to be unfair is not binding on the consumer.
The laws apply to contracts that are entered into on, or after, 1 July 2010, and to terms of existing contracts that are renewed or varied on or after 1 July 2010.

For more information

The ACCC and state and territory consumer protection agencies can provide general information on the unfair contract terms laws as they relate to everyday goods.
ASIC can provide similar information in relation to financial products and services (such as some insurance contracts, and contracts for credit cards and mortgage brokers).