The Australian Competition and Consumer Commission (ACCC) has
exercised its powers for the first time to take action against a
business that it considers has sought to enforce unfair contract
terms. Two recent cases – one in Australia and one in the
UK - shed light on the types of contract terms that may be likely
to attract regulatory attention.
Recap of the "unfair contract terms" law
A national regime prohibiting the enforcement of "unfair
contract terms" in standard form contracts was introduced in
July 2010. The regime is contained in The Australian Consumer Law
(ACL), Schedule 2 to the Competition and Consumer Act 2010 (Cth)
and applies to all standard form contracts entered into on or after
1 July 2010.
The aim of the "unfair contract terms" law is to
address the imbalance in negotiating power that allows one party to
include in a standard form contract a term that is
"unfair". Broadly speaking, a standard form contract is
one that is pre-prepared by one party to the agreement and whose
terms are not open to negotiation by the other party. A term will
be unfair if the term:
would cause significant imbalance in the parties' rights
and obligations under the contract;
is not reasonably necessary to protect the legitimate interests
of the party who would be advantaged by the term; and
would cause detriment to a party if it were to be applied or
Under the ACL, an unfair term included in a standard form
contract will be void.
here for further detail regarding the unfair contract terms
First Australian case
The ACCC has taken action under the unfair contracts provisions
against NRM Corporation Pty Ltd and NRM Trading Pty Ltd
(collectively NRM), which acquired the "AMI" business.
The contract in question is a long term consumer contract regarding
the provision of medication and services to treat male sexual
Under the contract's terms, the customer is required to give
30 days' written notice in order to terminate the contract and,
in doing so, becomes liable to pay a number of fees including a
fixed administrative fee of 15 per cent of the contract's
price. The ACCC alleges that the fees act as a penalty against a
consumer who terminates the contact, causing a significant
imbalance in the parties' contractual rights.
The matter is being heard in the Federal Court in Melbourne, and
its outcome will provide guidance to businesses about what a Court
considers does and does not constitute an "unfair term"
in a standard form contract
Unfair contract terms provisions similar to the Australian
provisions exist in the United Kingdom, and were recently used as
the basis for action in Office of Fair Trading v Ashbourne
Management Services Ltd  EWHC 1237 (Ch). Although Australian
courts are not bound by the UK courts' decision, the case
provides insight into how the ACCC and courts might assess the
fairness of a contract term.
The alleged unfair terms were contained in a standard form
consumer contract used by a company that managed the memberships of
gym and health club service providers. Among the terms held to be
unfair were those that:
locked consumers into a fixed membership period of one year or
more (with termination triggering an obligation to pay all fees
payable during the minimum period), as such terms took advantage of
a prospective member's tendency to overestimate how often they
would use the gym at the time of taking up a membership. The
circumstances in which a customer can terminate or suspend their
membership, and any termination fees payable, are relevant to this
imposed a termination fee based on the number of monthly
payments left under the contract's term, with no discount of
the fee for accelerated payment; and
permitted the contract to be terminated by the service provider
for minor breaches, such as several days' late payment, by the
As the ACCC turns its focus towards businesses that seek to
enforce unfair contract terms, it is a timely reminder for
companies to "sanity check" their standard form consumer
here for a checklist of "recommendations for
businesses" in relation to the review process. Preventative
measures taken now can avoid ACCC attention and action, and the
consequences of a term of a standard form contract entered into by
large numbers of consumers being unenforceable, and the
accompanying adverse publicity.
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.
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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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