The Federal Government has released draft legislation to
prohibit unfair contract terms.
The proposed law will apply to all standard form
The proposed law will apply to both consumer and business to
Australian consumer law – unfair contract terms
On 11 May 2009 the Federal Government released its exposure
draft of the Trade Practices Amendment (Australian Consumer Law)
Bill 2009 (Bill).
The Bill will amend both the Trade Practices Act 1974
and the Australian Securities and Investments Commission Act
2001 to prohibit the use of unfair contract terms in business
and financial dealings.
The proposed law will apply to all standard form contracts used
in dealing with consumers and businesses. Unless amended, the
proposed law will have a significant impact upon almost all
standard form contracts.
Any standard form contract term which is unfair will be deemed
void under the Bill. A term will be unfair if it:
causes a significant imbalance in the parties' rights and
is not reasonably necessary in order to protect the legitimate
interests of the party that benefits from the term.
The Bill reverses the onus of proof by deeming contract terms
not to be reasonably necessary to protect the legitimate interests
of the business, unless proved otherwise.
Certain matters are to be taken into account in considering
whether a term is unfair including:
the extent to which, or whether there is a substantial
likelihood that the term may cause detriment if relied upon
the extent of transparency in the term eg expressed in plain
language and legible.
The Bill contains examples of unfair terms such as terms which
allow only one party to limit liability, determine a breach,
terminate, penalise the other party for a breach or termination,
assign, or unilaterally vary certain terms of the contract.
Under the Bill the relevant Minister will also have power to
prohibit by regulation certain contract terms.
The Minister is not constrained by any legislative criteria when
exercising this intrusive power, nor is the Minister required to
consult with the business community before promulgating regulations
to prohibit specific contract terms.
The inclusion of a prohibited term within a standard form
contract will contravene the Trade Practices Act, exposing
the business to a pecuniary penalty.
Terms which define the main subject matter of the contract, set
upfront prices or which are required or permitted by law are
excluded from the operation of the Bill.
The Bill is planned to be introduced into Parliament in June
2009 and the provisions are expected to become effective from 1
All businesses which utilise standard form contracts should
proceed to review the terms of their contracts to ensure compliance
with the Bill.
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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