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Unfair_contract_terms

Unfair contracts or terms are unenforceable

From January 2011, as part of the new Australian Consumer Law, a national unfair contracts legal regime affects contracts with consumers.

Section 23 of the new Competition and Consumer Act 2010 makes a term in a consumer contract void if the term is unfair and the contract is a standard form contract.

Let's examine those prerequisites from a consumer's perspective.

1. Am I a consumer?

You are a consumer if you acquire goods or services to an amount that does not exceed $40,000. Goods or services costing more than $40,000 are covered if they are of a kind ordinarily acquired for personal, domestic or household use or consumption.

2. Do I have a consumer contract?

A consumer contract is defined under section 23 to be a contract for the supply of goods or services, or 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. It does not apply to contracts that are for financial products or supply of financial services.

The section does not apply to contracts between businesses. However there is potential for it to apply when one of the parties is a sole trader, to the extent that the contract relates to goods or services acquired wholly or predominantly for the sole trader’s personal domestic or household use (ie as a consumer). For example, under the Act, a vehicle or trailer acquired for use principally in the transport of goods on public roads is identified as a consumer purchase. If a sole trader purchases a vehicle or trailer, predominantly for personal or domestic or household use, then that purchase is a consumer transaction.

3. Is my contract a standard form contract?

There is no definition of a standard form contract. However, in essence it is a one-sided “take it or leave it” type contractual transaction. Before a transaction takes place, contract wording is prepared by the party holding the bargaining power. No scope for negotiation is available before customer acceptance is requested.

Under the Act, if a consumer claims that a contract is a standard form contract, then it will be up to the other party to disprove that claim. Thus the compliance burden and legal onus of proof will tend to be on businesses supplying to consumers.

Online and offline transactions for consumer goods often bear the above characteristics.

What is an unfair term?

unfair_contract_terms_unenforceableThe unfair contracts regime is focused on the substance of the provisions in a contract. This contrasts with procedural unfairness laws, such as unconscionable conduct of a party to a contract.

Examples of unfair terms are those that permit one party (but not others) to - terminate the contract, vary the characteristics of the goods or services, or limit liability.

A term is unfair if:

  • it causes a significant imbalance in the parties’ rights and obligations;
  • is not reasonably necessary to protect the party to be advantaged by the term; and
  • it would cause detriment to the other party if the term was relied on.

Terms which are not transparent may be unfair. A court may take into account a range of factors to determine if a term is unfair. It must take into account the contract as a whole and consider indicators as to whether or not a claimed "unfair" term is transparent. Questions that may be asked are - is it written in plain language, legible, presented clearly, and readily available to the party affected.

Terms that define the main subject matter of the contract, set the upfront price payable by the consumer, or are otherwise expressly required or permitted by law are not affected by this law.

Consumers who merely change their minds are not able to rely on the unfair terms law to escape contractual obligations.

Existing contracts not affected

Section 23 of the Competition and Consumer Act 2010 does not operate retrospectively. Thus it does not affect standard form contracts entered into prior to January 2011, but it will affect an existing standard form contract if the contract is renewed or varied after this date.

Practical consequences

Given these changes in law, to check or improve their enforceability, clients involved in contracting should review and revise with their lawyers:

  1. client standard form contracts
  2. client contract terms, ie clause wording and clause libraries
  3. standard form contracts offered by others
  4. contract-related procedures, including for negotiation and project management of contractual transactions.

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