On 14 March 2013, the Australian Competition and Consumer Commission (ACCC) issued its report on the outcomes of its industry review into unfair contract terms and signalled its intention to take enforcement action against those businesses whose standard form consumer contracts contain unfair terms.
What is the prohibition on unfair contract terms?
Section 23 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL) prohibits terms of a standard form consumer contract which are unfair. This prohibition on unfair terms applies only to standard form contracts with individual consumers for goods, services or the sale or grant of interests in land, which are for personal, domestic or household use or consumption. It doesn't apply to:
- contracts with other businesses or government bodies;
- shipping contracts (charter parties, marine salvage or towing, carriage of goods);
- company constitutions;or
- contracts for financial services or products (which are covered by an equivalent prohibition in the ASIC Act).
What is a standard form consumer contract?
Standard form consumer contracts will be familiar to most businesses who deal with consumers. They are in contracts in which:
- the business has all or most of the bargaining power;
- the business has prepared the contract before any discussion with the consumer;
- the consumer is required to either accept or reject the contract without an opportunity to negotiate the terms; and
- the terms of the contract do not take into account any specific characteristics of the particular consumer or transaction.
Standard form contracts are commonly used in industries such as the fitness, travel, airline, telecommunications, vehicle rental industries as well as by online traders. It was these industries which were the subject of an extensive national review by the ACCC in conjunction with Consumer Affairs Victoria.
When will a contract term be unfair?
An unfair contract term is one which:
- would cause a significant imbalance in the parties' rights and obligations arising under the contract;
- is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the terms; and
- would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
There is a presumption that a term of a consumer contract is not reasonably necessary to protect the legitimate interests of the party who seeks to rely on it, unless that party proves otherwise.
In determining whether a term is unfair, a court must look at the term in the context of the entire contract and must consider the extent to which it is transparent (i.e. expressed in reasonably plain language, legible, presented clearly, and readily available to the consumer).
An unfair contract term is void and cannot be enforced or relied upon.
What was the outcome of the ACCC review?
The ACCC's review concentrated on eight "key issues" which were terms that:
- allow the business to change the contract without consumer consent;
- cause confusion about agency arrangements which apply and seek to unfairly absolve the agent from any liability;
- unfairly restrict the consumer's right to terminate the contract;
- provide for suspension or termination of the services being provided to the consumer under the contract;
- make the consumer liable for things that would ordinarily be outside of their control;
- prevent the consumer from relying on representations made by the business or its agents;
- seeking to limit consumer guarantee rights; and
- seek to remove the consumer's right to a credit card chargeback facility when buying the goods or service through an agent.
The ACCC found that in the majority of industries reviewed, most businesses changed their standard form contracts to ensure compliance with the prohibition on unfair terms. However, they found a number of instances where it regarded the terms of standard form consumer contracts to be unfair.
What should be done as a result of the ACCC review?
Given the ACCC's stated intention to commence enforcement action, it is, in the words of the ACCC "a good time for businesses across all sectors to undertake a comprehensive review of their standard form consumer contracts, and more broadly, their customer handling processes and practices, to ensure that the contractual arrangements in place with their customers are consistent with the new national unfair contract provisions. Such a review will also allow businesses to ensure that their general customer handling processes and practices promote conduct by the business on a day to day basis which is compliant with the broader consumer protection provisions of the ACL."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.