Australia: National Unfair Contract Terms Provisions – Consultation Paper Released For Public Comment

Last Updated: 14 May 2009

Article by Alison Deitz and Phillip Kong

On 11 May 2009, the Australian Federal Government released for public comment its consultation paper on draft national unfair contract terms provisions entitled "The Australian Consumer Law – Consultation on draft provisions on unfair contract terms".

The draft legislation is released following from the Productivity Commission's Review of Australia's Consumer Policy Framework in May 2008 and the subsequent Council of Australian Governments (COAG) agreement to implement a single national consumer law in October 2008. It is proposed that the new national consumer law be called the Australian Consumer Law. One of the changes under the Australian Consumer Law is to include provisions which regulate unfair terms in standard contracts, including loan contracts, lease contracts and finance broking contracts. A copy of the consultation paper can be accessed from the Treasury's website.

Proposed national unfair contract term provisions

The draft national unfair contract terms provisions are set out in the exposure draft of the Trade Practices Amendments (Australian Consumer Law) Bill 2009 which will amend the Trade Practices Act 1974 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and they include the following features:

  • they will be implemented as part of the new Australian Consumer Law, generally, and as part of the ASIC Act, in respect of financial services (loan contracts will be regulated as financial services under the ASIC Act)
  • they will apply to individual consumers as well as business-to-business transactions
  • A non-exhaustive, indicative 'grey-list' of types of terms that may considered to be unfair – some examples of unfair terms:
    • a term that permits, or has the effect of permitting, one party (but not the other party) to avoid or limit performance of the contract
    • a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract
    • a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract
    • a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract
    • a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract
    • a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract
    • a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the land to be sold or granted, under the contract
    • a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning
    • a term that limits, or has the effect of limiting, one party's vicarious liability for its agents
    • a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party's consent
    • a term that limits, or has the effect of limiting, one party's right to sue another party
    • a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract
    • a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract
    • a term of a kind, or a term that has an effect of a kind, prescribed by the regulations.
  • It is not intended to ban unilateral variation clauses. The Consultation Package states that:

    "With respect to long-term and ongoing standard form contracts, many businesses have a legitimate need to amend terms in their contracts unilaterally in order to take account of market conditions.

    "The inclusion of these examples is not intended to suggest or indicate a desire to prohibit unilateral variation terms, nor does the list have this effect. Indeed, the need for the unilateral variation of contract terms is expressly contemplated by legislation in specific contexts, including Division 1 of Part 4 of the Uniform Consumer Credit Code (UCCC). While unilateral variation clauses may be justified, such terms must be used in a manner which is reasonably necessary in order to protect the legitimate business interests of the party advantaged by the term".
  • A regulation-making power for the Minister to prohibit terms in a standard-form contract that are considered to be, in all circumstances unfair;
  • The exclusion of terms 'required, or expressly permitted, by a law of the Commonwealth or a State or Territory';
  • It will apply to all:
    • new standard-form contracts entered into on or after the commencement date (1 January 2010)
    • contracts that are renewed or varied on or after the commencement date, to the extent of the renewal or variation.

Test for unfairness

  • A term is deemed to be 'unfair' when:
    • it causes a significant imbalance in the parties' rights and obligations arising under the contract; and
    • it is not reasonably necessary to protect the legitimate interests of the supplier;
  • There is a rebuttable presumption that a term is not reasonably necessary in order to protect the interests of the party who would be advantaged by the term, unless that party can prove otherwise. This has the effect that once the issue has been raised by a customer, the supplier must show, on the balance of probabilities, that the use of the term in the standard form contract was reasonably necessary to protect their legitimate business interests.
  • In determining whether a term is unfair, the court may take into account such matters which it thinks relevant and it also must take into account the following matters:
    • the extent to which it would cause, or there is substantial likelihood that it would cause, detriment (financial or otherwise) to a party if the term were to be relied on
    • the extent to which the term is transparent
    • the contract as a whole.
  • Requirement to consider the "transparency" of the term:
    • a term is transparent if it is expressed reasonably in plain language, legible, presented clearly and readily available to any party affected by them
    • the transparency of a term is a consideration that a court must take into account when determining whether a term is "unfair".
  • An unfair term of a standard form contract is void but the contract continues to bind the parties if it is capable of operating without the unfair term.

Standard-form contracts

  • The provisions relate only to standard-form contracts:
    • Standard-form contract is not defined
    • There is a rebuttable presumption that a contract is a standard-form contract in circumstances where it is alleged by the customer that a contract is in a standard form. The supplier must then show, on the balance of probabilities, that the contract is not in a standard form.
  • In determining whether or not a contract is a standard-form contract, a court may take into account all the circumstances of the contract that it thinks relevant but must also take into account the following factors:
    • One of the parties has all or most of the bargaining power relating to the transaction
    • The contract was prepared by one party before any discussion relating to the transaction commenced
    • Another party was required to accept or reject the terms in the contract in the form in which they were presented on a take-it-or-leave-it basis
    • Another party was given an effective opportunity to negotiate the terms of the contract
    • The terms of the contract take into account the specific characteristics of another party or the particular transaction
    • Any other factors prescribed by regulations.

Upfront price of the goods or services

  • The provisions exclude the upfront price of the goods or services - upfront price for loan contracts include interest rate and the repayment of both the principal and the interest of the loan.

The unfair contract terms provisions will be included in a Bill which is scheduled to be introduced into the Australian Parliament in June 2009. This legislation will also include new enforcement powers for the Australian Competition and Consumer Commission, another key plank in the Australian Consumer Law agreed by COAG in October 2008.

The unfair contract terms provisions are anticipated to commence on 1 January 2010 at the Commonwealth level. This would allow the state and territory governments to apply the provisions in their jurisdiction by the end of 2010.

As part of the COAG agreement on a national unfair contract terms provision, Australia's consumer enforcement agencies will issue common national guidance in relation to the enforcement of the unfair contract terms provisions. The national guidance will be available prior to the commencement of the unfair contract terms provisions.

What does this mean for you?

All businesses, including financial institutions and finance broking businesses, will need to review their terms and conditions in their standard contracts for all types of customers, including credit contracts, leases and finance broking contracts to ensure compliance with the new unfair contract terms provision.

Submissions close on the 22nd May 2009. Please let us know if you need our assistance in making a submission.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.