Australian Consumer Law imposes penalties for unfair consumer contracts

After much debate the unfair contracts amendments to the Trade Practices Act have now been passed by both Houses of Federal Parliament. The amending act received Royal Assent on 14 April 2010. We expect these new unfair contracts provisions to commence on or shortly after 1 July 2010.

Australian Consumer Law

This legislation amends the Trade Practices Act to implement a national consumer law regime known as the Australian Consumer Law which will address unfair contract terms and includes penalties, enforcement powers and consumer redress options.

There are more changes in the pipeline but this part of the Australian Consumer Law deals with unfair contract terms and penalites.

How it will work

Under the Australian Consumer Law some unfair contract terms will be void. In other words they will be treated as being deleted from the contract.

For this to happen the following elements need to be satisfied -

• the contract must be a consumer contract;

• the contract must be a standard form contract; and

• a term of the contract must be unfair.

If the contract cannot work without the unfair term, the entire contract will be void.

What is a consumer contract?

The Australian Consumer Law describes a 'consumer contract' as "a contract for -

(a) a supply of goods or services; or

(b) a sale or grant of an interest in land;

to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption."

Importantly this only extends to contracts you make with an individual. They must be acquiring your goods or services for personal, domestic or household use or consumption. Contracts between companies were included in the original draft but removed before the Act was passed.

What is a standard form contract?

Mostly common sense will tell you whether or not you are using a standard form contract. There is a presumption that a contract is a standard form contract if one party to proceedings alleges that it is. It is then up to the other party to prove otherwise.

The Australian Consumer Law does not specifically define what a standard form contract is.

However, it lists some matters that a court can take into account in determining whether a contract is a standard form contract. These include -

• the relative bargaining power of the parties;

• whether the contract was prepared by one party before any discussions between the parties about the transaction;

• whether a party was given an opportunity to negotiate the terms;

• whether the terms of the contract take into account the specific characteristics of the party or transaction.

What is an unfair term?

A term is unfair if -

• it causes a significant imbalance in the parties\' rights and obligations;

• it is not reasonably necessary in order to protect the legitimate interests of the party;

• it would cause a detriment to the other party if relied on.

In deciding whether a consumer contract is unfair a court must take into account the extent to which the term is presented clearly and legibly, is in reasonably plain language and is readily available to the parties. A court must also look at the contract as a whole.

The Australian Consumer Law gives some examples of the kinds of terms that may be unfair. These include terms where -

• one party may change the price without the other having the right to terminate;

• one party but not the other decides whether or not the contract is renewed;

• one party may vary the characteristics of goods or services to be supplied without the consent of the other.

Specifically excluded are terms to the extent that they define the main subject matter of the contract or set the price. Also included are terms required or expressly permitted by law.

How this affects you

If you supply goods or services, or sell real estate, to individuals and you use a standard form contract then you are affected. Standard form contracts you might be using include:

• printed forms containing your standard trading terms;

• contracts dealing with of the plan sales of real estate;

• other contracts for the supply of goods or services that follow a standard form (even if not produced by a professional printer).

What you should do?

Review your documents and talk to your Bartier Perry contact about how we can help you identify and deal with clauses you need to change.

Watch out for our next Bulletin about the penalties for non-compliance.