Australian Consumer Law and the new Unfair Contract Terms Law

On 14 April 2010, the Governor-General provided the Royal Assent to the Trade Practices Amendment (Australian Consumer Law) Act (No. 1) 2010.

The Bill amends the Trade Practices Act 1974 to implement the Australian Consumer Law (ACL) regime which addresses unfair contract terms, penalties, enforcement powers and consumer redress options, as well as amending the Australian Securities and Investments Commission Act 2001 to include corresponding provisions applicable to financial services.

It is presently expected that the ACL regime will commence on 1 July 2010. It is understood to affect standard form consumer contracts within the Commonwealth’s legislative power for acquiring goods, services and interests in land as well as the provision of financial services. The states have agreed at COAG to pass complementary legislation with effect from 1 January 2011 within their jurisdiction. Presently, this legislation has not been introduced into the Queensland Parliament.

The regulatory regime established in the ACL is applicable to a consumer contract where at least one of the parties acquiring goods, services or financial products or services is an individual and the supply is predominantly for personal, domestic or household use or consumption. A term of such a contract, other than a term defining the main subject matter of the contract or setting an upfront price payable under the contract, is void under the legislation if:

• The term is unfair according to the ACL in light of the statutory examples; and
• The contract is a standard form contract.

The contract under the legislation continues to bind the parties if it capable of operating without the void term.

The legislation proposes that a term is unfair if:

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

In considering whether a term is void, the court must consider the extent to which the term is transparent and the contract as a whole.

Examples given in the legislation of terms which may be unfair include:

• a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract;
• a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract;
• a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract;
• a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract;
• a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract;
• a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract;
• a term that permits, or has the effect of permitting, one party unilaterally to vary financial services to be supplied under the contract;
• a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning;
• a term that limits, or has the effect of limiting, one party’s vicarious liability for its agents;
• a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party’s consent;
• a term that limits, or has the effect of limiting, one party’s right to sue another party;
• a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract; and
• a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract.

The Queensland Law Society will keep members updated on the commencement of the ACL and any Queensland legislation extending its application.