Australia: Australian Consumer Law and unfair contract terms: What is "unfair"?

Last Updated: 4 June 2013
Article by Trent Sleeman


The Competition and Consumer Act 2010 (Cth), containing the Australian Consumer Law ("ACL"), came into effect on 1 July 2010. The ACL's purpose is so that courts or consumer tribunals (such as QCAT in Queensland) have the power to declare terms of a standard form consumer contract to be void if they are unfair to the consumer.

The criteria for a term to be declared "unfair" are:

  • it would cause a significant imbalance in the parties' rights and powers;
  • it goes beyond what is reasonably necessary to protect a supplier's legitimate interests;
  • it would cause detriment if relied upon;

The court or tribunal may also consider the transparency of the term and more broadly the effect of the contract as a whole, which are discretionary rather than mandatory points of consideration.

In the three years since the ACL took effect, the Australian Competition and Consumer Commission ("ACCC") has been involved in few enforcements of the ACL on behalf of consumers. It has brought no test cases and has provided very little indication of what its approach towards potentially unfair contract terms may be.

Unfair Contract Terms: Industry review outcomes ("the Report")

In recent months, the ACCC has conducted a review of a number of contracts being used in prominent industries including the airline, vehicle rental and telecommunications industries. Following this review, it issued a March 2013 report "Unfair Contract Terms: Industry review outcomes" ("the Report") providing some examples of the clauses it considers likely to be unfair.

What does the Report uncover?

The Report flagged a number of common consumer contract terms which, by their nature, are potentially "unfair". Such terms included those that:

  • allow the business to change the contract without consent from the consumer: for example, terms which allow subscription fees for services provided to be increased, or terms which allow terms and conditions to be amended without notice;
  • cause confusion about the agency arrangements that apply and seek to unfairly absolve the agent from liability: for example, terms which are unclear as to agency arrangement between a travel agent and a tour company and do not make it clear which party is liable in the event of a failure to provide the services;
  • unfairly restrict the consumer's right to terminate the contract: for example, termination clauses which seek to hold a consumer to a contract after installation of particular goods has started, even if the provider fails to deliver essential elements of the contract;
  • suspend or terminate the services being provided to the consumer under the contract: for example, where telecommunications providers allow themselves the right to terminate a consumer's access at any time and without notice;
  • make the consumer liable for things that would ordinarily be outside their control: for example, online businesses which have terms putting the onus on the consumer to ensure all information provided is correct, and using this to absolve liability for inaccuracies that are minor;
  • prevent the consumer from relying on representations made by the business or their agents before signing the contract: for example, terms which broadly state that the customer does not rely on any statement, representation or promise given by the service provider;
  • seek to limit consumer guarantee rights: for example, supply agreements in which the supplier seeks to limit the consumer's legal right to refunds or warranties; or
  • remove a consumer's credit card chargeback rights when buying the service through an agent: for example, supply agreements where the goods received by the consumer are not those described or are incomplete or inadequate for the purpose represented.

The ACCC consulted with a number of businesses during the review, and reports that many of these businesses have elected to make important changes to their standard contracts in light of the ACCC's input. However some of the businesses were advised to change their clauses but have either not yet done so or have shown an inclination to not make the recommended changes. The ACCC has foreshadowed potential action against some of these businesses.

This review and consultation process of the ACCC, as well as the Report itself, will have considerable consequences for the many businesses which issue standard form contracts. For example, contracts such as mobile phone plans and supply agreements, which often contain onerous restrictions or provisions on a consumer, ought to be scrutinised closely by the companies involved as they will come under close examination following the Report, should any of these terms be litigated or any complaints made.

How does this affect my business?

Businesses can proactively ensure they comply with the ACCC's renewed approach to enforcement of the ACL by focusing on the drafting of their contract terms, as a clear, concise and well-drafted term is likely to be easier to defend and/or enforce than an ambiguous one which may be considered "unfair". At the very least, it will pay for businesses to conduct a review of their standard form consumer contracts as they currently stand, and consider making any changes that will ensure they do not fall foul of the Report's findings.

Such an approach will go a long way towards ensuring compliance with the ACL and will minimise the likelihood of complaints or disputes over potentially unfair terms, leading to healthier business relationships with customers and minimal legal costs in the long run.

ClarkeKann have an experienced commercial law and litigation team available to assist with the drafting of contract terms and any disputes arising out of the interpretation of such terms.

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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Trent Sleeman
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