Key points
- The Federal Government has introduced into Parliament its proposed legislation to prohibit unfair contract terms.
- The prohibition against unfair contract terms has been significantly narrowed and now excludes standard form contracts used in business to business dealings.
Australian consumer law – unfair contract terms
In our e-Alert! National Prohibition of Unfair Contract Terms, dated 27 May 2009, we outlined the Federal Government's proposed unfair contract terms law, detailed in the Draft Exposure Bill of the Trade Practices Amendment (Australian Consumer Law) Bill 2009 (Draft Exposure Bill).
The Federal Government has now introduced the new Trade Practices Amendment (Australian Consumer Law) Bill 2009 (Bill) into Parliament. The Bill, which will amend both the Trade Practices Act 1974 and the Australian Securities and Investment Commission Act 2001(ASIC Act), significantly narrows the prohibition against unfair contract terms compared to the Draft Exposure Bill.
Narrower prohibition
The prohibition against unfair contract terms will now apply only to unfair terms in standard form contracts for the supply to an individual of goods or services (including financial services), or a sale or grant of an interest in land where that supply, sale or grant is wholly or predominantly for personal, domestic or household use or consumption.
As a result of this legislative amendment, standard form contracts used in business to business dealings (including franchise agreements and business loans) will fall outside the scope of the new prohibition.
Exceptions
The Bill has also expanded the exemptions previously available under the earlier Draft Exposure Bill and now expressly exempts contracts that establish the constitution of a company, a managed investment scheme or other similar body.
Penalties
The Bill introduces pecuniary penalties for contraventions of the unfair contract terms provisions of the Australian Consumer Law and the ASIC Act. Those penalties will be up to $27,500 for companies and $5,500 for individuals.
Senate Committee
The Senate has referred the Bill to the Senate Economics Legislation Committee which is seeking submissions from interested individuals and organisations. The closing date for submissions is 31 July 2009. The Committee is due to report by 7 September 2009.
Recommended action
All businesses which regularly use standard form contracts to supply individuals with goods or services which are acquired for personal, domestic or household use or consumption, should review the terms of their contracts to ensure compliance with the Bill.
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.