Australia: Commonwealth Unfair Contract Terms Legislation Commences 1 July 2010
Regulation and Compliance Update

The start date for the unfair contract terms provisions of the Trade Practices Amendment (Australia Consumer Law) Act (No 1) 2010 has been confirmed to be 1 July 2010.

To refresh your memory, this Act amends the Trade Practices Act 1974 (TPA) and Australian Securities and Investment Commission Act 2001 (ASIC Act) to prohibit unfair contract terms in consumer contracts.

The Act states that a term of a consumer contract will be unfair if the term:

1. would cause significant imbalance in the parties' rights and obligations arising under the contract;
2. is not reasonably necessary in order to protect the legitimate interests of the party who will be advantaged by the term; and
3. would cause detriment (whether financial or otherwise) to a party if the term were to be applied or relied on.

A 'consumer contract' is a contract for the supply of goods or services (or 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.

The Act only applies to standard form contracts and will not impact business to business contracts.

Unfair contract terms relating to financial products including credit will be regulated by similar provisions in the ASIC Act.

Each of the states will pass corresponding legislation, however the changes to the ASIC Act and TPA that take effect on 1 July 2010 will impact all corporate entities from this date.

Unfair contract terms legislation is not new, it has been in existence in Victoria for some time – and at common law, contract terms which are unfair or unconscionable can be varied or set aside. However, ASIC is likely to be a much more active regulator.

You should ensure that all standard contracts with consumers have been reviewed to ensure they contain no unfair terms. Many standard clauses (such as default occurring if rates are not paid on due date) are potentially unfair. It is insufficient to say that you will never rely on those clauses, as there may be reputational damage if on audit several clauses in standard agreements are found to be unfair.

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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.