Only two cases have been reported in Australia since the law on unfair contract terms came into effect on 1 July 2010 as part of the Australian Consumer Law ("ACL") in the Competition and Consumer Act (Cth) 2010. Each case provides further clarity on when a term in a consumer contract will be unfair. In summary, an unfair term in a consumer contract will be void and may potentially render the entire contract void. Have you reviewed your business' consumer contracts to ensure that there are no terms that could in any way be deemed to be unfair?
The ACL includes examples of when a term in a standard form consumer contract will be considered to be unfair. In addition, in March 2013, the ACCC released a report on an industry review of the Unfair Contract Terms and listed some further guidelines on what terms the ACCC considers to be unfair terms in consumer contracts. Information on what is an unfair contract terms, the test for determining whether or not a term is unfair and the ACCC guidelines in this area are addressed in my article titled "Unfair Contract Terms: A sleeper no more".
The examples in the ACL and the ACCC report must now be considered together with the two Australian decisions in this area. A summary of these are set out below. These cases demonstrate how the unfair contracts test may be satisfied to prove that an unfair term is included in a consumer contract. A UK decision is also referred to below to provide additional guidance in this area.
Case 1: ACCC action against NRM Corporation P/L and NRM Trading P/L
In this decision, the ACCC was successful in proving that both NRM Corporation Pty Ltd and NRM Trading Pty Ltd included the following unfair contract term in their consumer contracts as the fees for termination caused a significant imbalance in the parties' contractual rights:
'The customer must give 30 days written notice to terminate the contract. However, this makes the consumer liable to pay multiple fees, including an administration fee of 15%.'
Case 2: Customer actions against Graysonline.com
In this case, the customer was successful in bringing a CTTT action against graysonline.com. The consumer contract included a term that excluded liability for damage to any goods sold to the customer by graysonline.com and the terms were some 13 pages. The customer proved that this term was unfair to the customer, was confusing, included inconsistent terms in the contract and the CTTT found that the terms were not reasonably necessary to protect the interests of graysonline.com. The CTTT ruled that the term be void.
UK Guidance
Similar unfair contract terms provision exists in the UK, which may provide some insight into how the ACCC and the Courts in Australia may also assess whether a term is unfair. Terms in the UK that were held to be unfair include:
- terms that locked consumers into a fixed membership period of one year, with early termination triggering an obligation to pay all fees payable during the minimum period;
- terms that impose a termination fee based on the number of monthly payments left under the contracts term with no discount of the fee for accelerated payment; and
- terms that permitted the contract to be terminated by the service provider for minor breaches, such as several days late payment, by the customer.
The UK decisions indicate that prominence should be given to terms that operate against the consumer. UK decisions have held that the supplier cannot, deliberately or unconscionably, take advantage of a consumer's weak bargaining power, lack of experience, unfamiliarity with subject matter or the necessity of the contract to the consumer.
What should you do?
If any of the contracts that your business issues to individual consumers are standard form contracts, these contracts should be reviewed promptly using the three elements test set out above to ensure that it would comply with the unfair contract terms provisions in the ACL.
If you have any questions about the unfair contract terms or how they may affect you, the team at Coleman Greig can assist you. We can also provide you with details advice on how the CCA affects your business and deliver training sessions including compliance training for your relevant staff. If you need assistance with respect to the ACL or review of your contract, please contact:
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.
