Unfair Terms of Consumer Contracts
Section 23 of the Australian Consumer Law (ACL), which is contained within Schedule 2 to the Competition and Consumer Act 2010 (Cth) states that a term of a consumer contract will be void if the term is unfair and the contract is a standard form contract.
What is a Consumer Contract?
A consumer contract is a contract for a supply of goods or services or a 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.
A contract with a consumer for the provision of health services, aged care services, pharmaceuticals, medical devices and/or retirement living services would be a consumer contract.
What is a Standard Term Contract?
If a party alleges that a contract is a standard term contract, it will be presumed to be one unless the other party proves otherwise: ACL, section 27.
In determining whether or not a contract is a "standard term contract", a court may take into consideration matters it thinks relevant, including:
- Whether one of the parties has all or most of the bargaining power relating to the transaction;
- Whether the contract was prepared by one party prior to discussions;
- Whether the other party was required to accept or reject the contract;
- Whether a party was given an effective opportunity to negotiate the terms of the contract; and
- Whether the contract takes into account specific characteristics of the other party.
What is Unfair?
A term in a contract will only be unfair if three tests are satisfied: ACL, section 24(1), namely if the term:
- causes a significant imbalance in the parties' rights and obligations under the contract;
- is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
- causes financial or other detriment to a consumer if it were relied on.
What is an example of an unfair contractual term?
Section 25 of the ACL sets out examples of unfair terms, including:
- one party (but not the other) can:
- avoid or limit the performance of the contract;
- terminate the contract;
- penalise for a breach or termination of the contract;
- vary the terms of the contract or the upfront price payable or the services to be supplied;
- renew or not renew the contract;
- assign the contract to the detriment of the other without the other's consent; or
- terms that limit or has the effect of permitting:
- one party's right to sue another party – this applies to limitation of liability clauses; or
- one party's vicarious liability for its agents.
Small Business Contracts
From 12 November 2016 under the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015, the unfair contract provisions will be extended to small business contracts.
These will include small businesses to whom health and aged care providers subcontract services.
What is a Small Business Contract?
A contract is a "small business contract" if:
- the contract is for a supply of goods or services, or a sale or grant of an interest in land; and
- at the time the contract is entered into, at least one party to the contract is a business than employs fewer than 20 persons (including casual employees who are employed on a regular and systemic basis); and
- the upfront price payable under the contract does not exceed $300,000; or
- the contract is more than 12 months and the upfront price payable under the contract does not exceed $1 million.
The provisions do not apply to terms that:
- define the subject matter of the contract, such as the product or service to be supplied;
- set the upfront price payable under the contract; or
- is required or permitted by another law.
There are some contracts to which the unfair contracts provisions do not apply including:
- financial services or for financial products, including insurance contracts, however, private health insurance contracts are covered;
- constitutions of companies; and
- contracts for the shipping of goods.
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.