ACL unfair contract provisions commence on 1 July 2010

What is a standard form consumer contract?

Standard form: The expression ‘standard form’ is not defined but guidance is provided in the legislation.¹ Factors will include the relative bargaining power between the parties and whether both parties had an effective opportunity to negotiate the terms of the contract.²

Consumer contract:

• Consumer contracts will include contracts for:
  • the supply of goods and services
  • a sale or grant of an interest in land
  • financial products, or
  • financial services.
• Such contracts must be wholly or predominantly for personal, domestic, household use or consumption.
• Consumer contracts must be with an individual.³

Unfair terms

Unfairness will be determined based on a range of factors, including: whether the term was clearly expressed; whether it was reasonably necessary to protect a party’s interests; the relative balance in the parties’ rights and obligations and the likely detriment if the term were relied on.

For more guidance please refer to our diagram on what constitutes an unfair term.

Effect on contracts entered into after 1 July 2010

Where a standard form consumer contract is entered into after 1 July 2010, a party to the contract or the ACCC or ASIC may apply to a court to have term(s) declared to be unfair and void.

Although an unfair term is void, the contract continues to bind the parties if it is capable of operating without the unfair term.

If the party attempts to rely on or enforce a term which has been declared unfair, the party may be subject to any one or more of the following remedies: injunction, payment of damages, compensation order, or a ‘class order’ to redress loss suffered by other parties to the same standard form consumer contract. (Class orders cannot be for payment of damages).

Effect on contracts already in existence on 1 July 2010

Contracts which are already in existence on 1 July 2010 will only be subject to the unfair contract terms provisions if the contracts are renewed or varied.

Renewal: The unfair contract terms provisions will apply from the date of renewal.

Variation: The legislation is unclear, but a likely interpretation is that the variation itself can be assessed as a standard form consumer contract (eg was it simply imposed on the consumer, or was it negotiated?) in which case the conduct in relation to the variation itself must not be unfair. In addition, the terms that have been varied must also not be unfair. The remaining terms remain unaffected.

Contracting parties using standard form consumer contracts

If you are using standard form consumer contracts you need to ensure you have reviewed contracts that may fall within the definition of standard form consumer contracts to check:

• which terms are at risk of being declared ‘unfair’
• what are the implications for your business if you are unable to enforce these terms, and
• whether you need advice on ensuring contractual terms and processes comply with the ACL.

This article was written by John Carter, Consultant, Sydney and Alison Williams, Knowledge Sharing Consultant, Perth.

Endnotes

1. See now Schedule 2 of the Trade Practices Act 1974 (Cth)
2. Section 7, Schedule 2 TPA and section 12BK ASIC Act
3. Section 3, Schedule 2 TPA and section 12BF ASIC Act. In the ASIC Act, ‘A consumer contract is a contract at least one of the parties to which is an individual whose acquisition of what is supplied under the contract is wholly or predominantly an acquisition for personal, domestic or household use or consumption’

More information

For information regarding possible implications for your business, contact