Australia: Commonwealth Unfair Contract Terms Legislation
Regulation and Compliance Update

Just when you thought you had all the regulation you could handle, the Trade Practices Amendment (Australia Consumer Law) Bill 2009 has been passed and is awaiting assent and the Trade Practices Amendment (Australian Consumer Law) Bill (No.2) 2010 has been introduced to the lower house.

Trade Practices Amendment (Australia Consumer Law) Bill 2009 (Bill No.1)

Among other things, Bill No.1 amends the Trade Practices Act 1974 (TPA) and Australian Securities and Investment Commission Act 2001 (ASIC Act) to prohibit unfair contract terms in consumer contracts. Bill No. 1 may commence as early as 1 July 2010.

Key provisions

Aside from the introduction of unfair contract term provisions, the key features of Bill No.1 include the:

• introduction of pecuniary penalties
• ability for regulators to initiate proceedings on behalf of non-party consumers
• ability for regulators to 'name and shame' companies
• ability for regulators to issue infringement notices
• ability for regulators to issue substantiation notices

• with respect to the contravention (or reasonably suspected contravention) of certain provisions of the TPA and ASIC Act (including unconscionable conduct and some consumer protections).

What is unfair contract terms legislation again?

To refresh your memory, Bill No.1 states that a term of a consumer contract will be unfair if the term:

1. would cause significant imbalance in the parties' rights and obligations arising under the contract
2. is not reasonably necessary in order to protect the legitimate interests of the party who be advantaged by the term; and
3. would cause detriment (whether financial or otherwise) to a party if the term were to be applied or relied on. This requirement was added by the Senate amendments. Previously this was just a factor that the court had to take into account - now the term must cause detriment to be found unfair.

A 'consumer contract' is a contract for the supply of goods or services (or sale or grant of an interest in land) to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption. The Bill only applies to standard form contracts and will not impact business to business contracts.

Unfair contract terms relating to financial products including credit will be regulated by similar provisions in the ASIC Act.

Each of the states will pass corresponding legislation. Remember, unfair contract terms legislation is not new, it has been in existence in Victoria for some time - and at common law, contract terms which are unfair or unconscionable have always been prohibited.

You should ensure that all standard contracts with consumers have been reviewed to ensure they contain no unfair terms. Many standard clauses (such as default occurring if rates are not paid on due date) are potentially unfair. It is insufficient to say that you will never rely on those clauses, as there may be reputational damage if on audit several clauses in standard agreements are found to be unfair.

But wait, there's more...

Trade Practices Amendment (Australian Consumer Law) Bill (No.2) 2010 (Bill No.2) completes the government initiative to create national consistency among consumer laws. When passed, Bill No.2 will change the name the TPA Act to the 'Competition and Consumer Act 2010'. No start date is known and there may be amendments before this law is passed.

The main purpose of Bill No.2 is to:

• provide consistency among state legislation relating to consumer protection
• replace existing Commonwealth, State and Territory laws relating to product safety
• replace existing Commonwealth, State and Territory laws relating to consumer guarantees and warranties
• alter the existing TPA provisions with changes taken from the existing Commonwealth, State and Territory laws
• enhance enforcement powers.

Bill No.2 deals with a range of consumer issues including:

• misleading or deceptive conduct
• unconscionable conduct
• consumer guarantees and warranties
• unsolicited selling
• lay-by sales
• manufacturer liability.

The explanatory memorandum for Bill No.2 states that Bill No.2 is expected to come into force on 1 January 2011.

Misleading and deceptive conduct

Bill No.2 seeks to broaden the concept of 'misleading and deceptive' conduct by applying it not only to corporations, but also to individuals.

Unconscionable conduct

Similarly, with respect to 'unconscionable conduct', Bill No.2 widens the scope of this prohibition by applying it to individuals as well as corporations. Bill No.2 also refers to 'unconscionable conduct' within the 'unwritten law' of the States and Territories. Bill No.2 goes on to provide examples of what matters may be taken into account when determining unconscionability in both business-to-consumer dealings and business-to-business dealings. These include:

• the bargaining power of the parties
• whether the conditions of the supplier are reasonably necessary
• whether there was any undue influence or pressure
• whether the documents are understandable
• whether the supplier has acted consistently.

Bill No.2 distinguishes between dealings between consumers, business consumers and small businesses and provides different examples for each.

Breach of the unconscionable conduct provisions can result in fines of $1.1m for companies and $220,000 for individuals.

Unsolicited selling (or door-to-door sales)

Bill No.2 seeks to create uniformity among the states with respect to 'door-to-door' sales (including telephone sales).

Bill No.2 sets out:

• permitted visiting hours
• obligation to leave on request
• duty to produce identification
• cooling off period requirements
• requirements for a valid contract
• consumer termination provisions
• post-contractual behaviour.

This legislation will be important for anyone who conducts business through unsolicited marketing.

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