Guide to Unfair Contract Terms Law Word

8/10/2019 Guide to Unfair Contract Terms Law Word

1/34

A guide to the unfair contract terms law

1


2/34

This publication was developed by: Australian Capital Territory Office of Regulatory Services Australian Competition and Consumer Commission Australian Securities and Investments Commission Consumer Affairs and air Trading Tasmania

Consumer Affairs !ictoria "ew South #ales air Trading "orthern Territory Consumer Affairs Office of Consumer and $usiness Affairs South Australia %ueensland Office of air Trading #estern Australia &epartment of Commerce' Consumer (rotection

Copyright Commonwealth of Australia 2010

2


3/34

This wor) is copyright* +ou may download' display' print and reproduce this material inunaltered form only ,retaining this notice- for your personal' non.commercial use or use withinyour organisation* Apart from any use as permitted under the Copyright Act 1968 ' all otherrights are reserved* Re/uests and in/uiries concerning reproduction and rights should beposted at the Commonwealth Copyright Administration website at ag*gov*au0cca or addressedto:

Commonwealth Copyright Administration Attorney.1eneral2s &epartment3.4 "ational Circuit$arton ACT 5677IS$" 89 ; 85; 9 58;

3


4/34

Contents

Introduction 4

1 What sorts of contracts does the law apply to? 6

#hat is a contract< 6 #hat is a consumer contract< 6 #hat is a standard form contract< 6 #hat if there is a dispute about whether a contract is standard form< 9

2 What standard form consumer contracts or terms are e empt? !

Terms e=cluded from the unfair contract terms laws Contracts e=cluded from the unfair contract terms laws 8

" When is a term #unfair$? 10

>eaning of ?unfair2 ;7 #hat will a court consider in determining whether or ;;

not a term is unfairorris F found:

This term causes a signi!icant im$a&ance in the parties< rights and o$&igations arising under thecontract to the detriment o! the consumer' or e amp&e it "ou&d ena$&e AA7T to reduce thenum$er o! ca&&s that a person cou&d ma e pursuant to a prepaid mo$i&e phone ser#ice "hichthe person had entered into in good !aith' This term "as an un!air term'

If the intention of a unilateral variation clause is to permit changes that are limited in scope andthe consumer understands and agrees to the changes in advance' it may be less li)ely to beconsidered unfair* This may involve:

B setting out clearly the variation that might be made and in what circumstances

B defining how far the variation can e=tend or

B providing the consumer with the right to terminate the contract without penalty if thebusiness cannot supply the product or service agreed to in the contract*

The ability to unilaterally vary the characteristics of the goods or services to be supplied maybe fair where notice of such variation is given and the consumer is offered the option ofterminating the contract for a period after the notice is given* or e=ample' in thetelecommunications industry' s* 4*;*3,d-,i=- of the Telecommunications Consumer (rotectionsCode ,C65 :5779- notes that a term may be unfair if its effect is to permit a business tounilaterally vary the characteristics of goods or services during a fi=ed term contract on lessthan 5; days notice to the consumer without offering the consumer the right to terminate theagreement within D5 days of the date of notice*

In some circumstances' there may be a legitimate interest for including the term* An e=ampleof this may be a provisional sum clause in a domestic building contract' where the consumerre/uests variations to the furnishing or material that is used*

A term that permits or has the effect of permitting one party unilaterally to determinewhether the contract has &een &reached or to interpret its meaning 5D

A term that allows a business to reserve the right to determine whether it has performed itscontractual obligations properly may be considered unfair* Such a term would allow thebusiness to unfairly refuse to ac)nowledge that it has breached its obligations' thereby denyingredress to the consumer* An e=ample might be a term that limits any testing or inspection of analleged faulty product to testing or inspection by the business* In this situation' it may beconsidered fairer for the term to provide for the product or service to be independentlyassessed*

Also' a term of a standard form consumer contract may be unfair where it allows a business toreserve the right to decide the meaning or interpretation of a contractual term* The business iseffectively able to manipulate the contract to its best advantage in a way that maydisadvantage a consumer* Such a term gives rise to the same obHections as a unilateral right tovary terms*

23


24/34

A term that limits or has the effect of limiting one party$s )icarious lia&ility for itsagents 54

Consumers often rely on what is said to them by a sales representative' employee or agent ofa business before or when they are entering into a contract* A contractual term that see)s todisclaim the business2s responsibility or liability for representations made to prospectiveconsumers by its agents at the point of sale may be unfair* 56

55* The Act' Sch 5' (art 5.3' s* 54,;-,g-E ASIC Act' s* ;5$G,;-,g-*53* J5776K !CAT ;D83 at J4DK*5D* The Act' Sch 5' (art 5.3' s* 54,;-,h-E ASIC Act' s* ;5$G,;-,h-*54* The Act' Sch 5' (art 5.3' s* 54,;-,i-E ASIC Act' s* ;5$G,;-,i-*56* "ote that where limited liability terms are re/uired or e=pressly permitted by a law of theCommonwealth or a state or territory' such terms will not come within the ambit of the unfaircontract terms provisions*

24


25/34

A term that permits' or has the effect of permitting' one party to assign the contract to thedetriment of another party without that other party2s consent 59

If a business is sold' its contractual relationships with its customers are often ?assigned2 to thepurchaser of the business* In certain circumstances' this may be considered unfair if theassignment detrimentally affects a consumer2s rights under those contracts*

or e=ample' in the !ictorian case of &irector of Consumer Affairs !ictoria v $ac)loads*com(ty td ,Civil Claims-' 5 Fudge Garbison found that a term in a removalist contract that allowedthe removalist company to ?assign its rights and the rights of any persons on behalf of whom itis acting' to collect all charges and payments from Clients to the Contractor2 was unfair for thepurposes of the air Trading Act 1999 ,!ic-* Fudge Garbison stated that the term was unfairbecause it ?has the obHect or effect of assigning rights in respect of the contract to anunidentified non.party2 and because it ?creates uncertainty for the consumer because theMContractorN is not a party to the removalist services contract2*

Alternatively' an assignment clause may be less li)ely to be considered unfair if it operates incircumstances where a consumer2s rights under the contract will not be detrimentally affectedby the assignment* 58 or e=ample' with respect to credit agreements' many lenders have a

legitimate interest in assigning contracts under securitisation arrangements*A term that limits or has the effect of limiting one party$s right to sue another party 37

A term which could be used even if that is not the intention to prevent or hinder a consumer from enforcing his or her rights against the business when the business has breached thecontract may place the consumer at a significant disadvantage and conse/uently may beconsidered unfair* =cluding or limiting one party2s right to sue another under a contract mayhave the effect of allowing one party to act unreasonably or negligently towards the otherwithout any legal conse/uences* This may be unfair* Terms that re/uire a consumer to bringlegal proceedings in a foreign court may also be unfair*

A term that limits or has the effect of limiting the e)idence one party can adduce inproceedings relating to the contract 3;

Including a term in a contract that has the effect' or potential effect' of limiting the evidence thata consumer can present in proceedings against the business may be unfair because it limitsthe consumer2s legal rights or their perception of their legal rights in court proceedings* Ane=ample of such a term may be one that limits presentable evidence to the contract itself ande=cludes any evidence on pre.contractual negotiations* #hile court rules may allow thepresentation of such evidence in certain circumstances' consumers may not be aware of therules of evidence and may be deterred from ta)ing action against another party' includingsee)ing legal advice' because of the term*

A term that imposes or has the effect of imposing the e)idential &urden on one party inproceedings relating to the contract 35

The effect of this provision is similar to that of restricting the evidence that a party could rely onin court proceedings it creates the potential for a party to be deterred from ta)ing actionagainst another party* or e=ample' a term that re/uires a consumer to prove unreasonable orpotentially unprovable elements of a dispute' such as the authority of a staff member of thebusiness to ma)e representations where such information is in the hands of the business notthe consumer' may be unfair*

25


26/34

59* The Act' Sch 5' (art 5.3' s* 54,;-,H-E ASIC Act' s* ;5$G,;-,H-*5 * J5778K !CAT 94D at JDK*58* "ote that where assignment clauses are re/uired or e=pressly permitted by a law of theCommonwealth or a state or territory' such terms will not come within the ambit of the unfaircontract terms provisions*37* The Act' Sch 5' (art 5.3' s* 54,;-,)-E ASIC Act' s* ;5$G,;-,)-*3;*The Act' Sch 5' (art 5.3' s* 54,;-,l-E ASIC Act' s* ;5$G,;-,l-*35* The Act' Sch 5' (art 5.3' s* 54,;-,m-E ASIC Act' s* ;5$G,;-,m-*

26


27/34

A term of a )ind' or a term that has an effect of a )ind' prescribed by the regulations 33

The 1overnor.1eneral may ma)e regulations setting out types of terms or terms that have acertain effect that may be unfair* $efore ma)ing such regulations' the minister must ta)e intoconsideration:

B the detriment that a term of that )ind would cause to consumers

B the impact on business generally of prescribing that )ind of term or effectB the public interest*

The elements to be considered by the minister must ensure that consumer' business andpublic interests are all considered before a term' or term that has an effect of a )ind' is listed asunfair*

4

4 33*The Act' Sch 5' (art 5.3' s* 54,;-,n- and s* 54,5-E ASIC Act' s* ;5$G,;-,n- and s* ;5$G,5-*

27


28/34

74* nforcement of the law

,ummary

nforcement of the unfair contract terms laws is shared between the ACCC' ASIC and thestate and territory consumer protection agencies* The agencies wor) together to ensure aconsistent approach to compliance and enforcement*Individual consumers can also see) to enforce their rights under the law*

8nfair terms in contracts for consumer goods and ser)ices

The unfair contract terms laws for consumer goods and services are enforced by bothCommonwealth and state and territory consumer protection agencies*

At the Commonwealth level' the ACCC has responsibility for enforcing the unfair contract termslaws ,e=cept in relation to financial services and products see below-* The states andterritories also enforce these laws in their respective Hurisdictions* Regardless' the unfaircontract terms laws under the Act will continue to apply at the Commonwealth level*

The agencies wor) together to ensure a consistent approach to compliance and enforcement*

8nfair terms in contracts for financial products and financial ser)ices

ASIC is the Commonwealth regulator of financial products and services* ASIC leadsenforcement of the unfair contract terms laws in the ASIC Act in relation to financial productsand services* 3D The consumer protection provisions of the Act do not apply to financial productsand services*

rom time to time' enforcement matters involve both general issues and issues relating tofinancial products and services* unctions can be delegated to the most appropriate agency todeal with a particular matter*

-he role of the courtsThe role of the courts is to determine whether a term in a standard form consumer contract isunfair and to order the appropriate relief if a contravention of the unfair contract terms laws hasoccurred or is deemed to have occurred* Although regulators will as) businesses to co.operateby removing terms considered to be unfair' it is not the role of any regulator to endorse contractterms or to state categorically that they are unfair* Only a court can determine whether a termof a standard form consumer contract is unfair*

The court to which an enforcement action may be brought by a regulator or a consumer maydiffer depending on which agency ta)es action' or where the consumer and0or business arebased*

Some state and territory consumer protection legislation also allows action to be brought in atribunal rather than a court*

9emedies that may &e sought

on/party consumer redress

The ACCC and ASIC have power under the Act and ASIC Act respectively to apply to the courtto see) certain orders for the benefit of persons that are not parties to proceedings where:

B the respondent is a party to a consumer contract and advantaged by a term of the contractin relation to which the court has made a declaration that it is an unfair term

B the declared term has caused or is li)ely to cause a class of people to suffer loss ordamage

B the class includes people who have not been a party to enforcement action in relation to the

28


29/34

declared term*

3D* ASIC has released guidance for mortgage lenders that sets out how the "ational CreditCode and unfair contract terms provisions apply to mortgage early termination fees ,e=it fees-*Regulatory 1uide 557 =ar&y termination !ees !or residentia& &oans unconsciona$&e !ees andun!air contract terms is available at asic*gov*au*

29


30/34

The orders that the court can ma)e to redress the loss or damage suffered by non.partyconsumers include all or any of the following:B an order declaring all or part of a contract to be void ,either before or after the date that theorder is made-

B an order varying a contract or arrangement as the court sees fit ,either before or after thedate that the order is made-

B an order refusing to enforce all or any of the terms of a contract or arrangement

B an order directing the respondent to refund money or return property to a non partyconsumer

B an order directing the respondent to repair or provide parts for a product provided under acontract at their e=pense

B an order directing the respondent to provide services to the non.party consumer at theire=pense

B an order directing the respondent to terminate or vary an interest in land that was created or

transferred by the contract*State and territory consumer protection agencies may be able to ta)e similar proceedingsunder the relevant legislation*

5eclaration that a term is #unfair$

The ACCC' ASIC or a party to a standard form consumer contract may apply to the court for adeclaration that a term of the contract is an unfair term ,see Sch 5' (art 4.5' s* 547 of the Actand s* ;51$A of the ASIC Act-*

State and territory legislation also allows for similar actions by the relevant consumerprotection agency or by consumers themselves*

If a court ma)es a declaration that a term is unfair and a party subse/uently see)s to apply orrely upon the unfair term' it is a contravention of the AC or the ASIC Act' and the court maygrant one of the following remedies:

B an inHunction ,Sch 5' (art 4.5' s* 535 of the ActE s* ;51& of the ASIC Act-

B an order to provide redress to non.party consumers ,Sch 5' (art 4.5' s* 538 of the ActE s*;51"$ of the ASIC Act-

B any other orders the court thin)s appropriate ,Sch 5' (art 4.5' s* 5D3 of the ActE s* ;51> ofthe ASIC Act-*

Can consumers ta e action?

The Act and the ASIC Act both provide for consumers to commence private actions to enforcetheir rights or to recover loss or damage incurred for specific breaches of each Act*

@nder the Act and ASIC Act' a party to a standard form consumer contract can apply to thecourt for a declaration that a term of such a contract is unfair* If the court finds the term to beunfair' it can ma)e a declaration that the term is void*

@ltimately' only a court can determine whether a term to a standard form consumer contract isunfair*

In some instances' unfair contract term disputes may be able to be resolved through e=ternaldispute resolution schemes*

30


31/34

1lossary and abbreviations

claimant A person who brings a claim* 1enerally thiswill be a consumer or regulator*

Commonwealthminister ,orminister-

The Commonwealth minister responsible for competition policy and consumer affairs*

inHunction An order by the court for a party to do' or torefrain from doing' certain acts*

non.party (ersons that are not parties to proceedings*

respondent A person who refutes a claim* 1enerally thiswill

!CAT !ictorian Civil and Administrative Tribunal

A&&re)iations

ACCC Australian Competition and Consumer Commissionthe Act Competition and Consumer Act 57;7 ,Cth-A,IC Australian Securities and Investments CommissionA,IC Act Australian Securities and Investments Commission Act 577; ,Cth-

31


32/34

Contacts

Australian Competition and Consumer Commission1(O $o= 3;3;Canberra ACT 567;T*;377 375 475accc*gov*au

Australian Capital Territory:ffice of 9egulatory ,er)ices1(O $o= ;4Canberra ACT 567;T*,75- 6579 7D77ors*act*gov*au

"ew South #ales,W ;air -rading

(O $o= 895(arramatta "S# 5;5DT*;3 35 57fairtrading*nsw*gov*au

"orthern TerritoryConsumer Affairs

1(O $o= ;955&arwin "T 7 7;T*; 77 7;8 3;8consumeraffairs*nt*gov*au

%ueensland:ffice of ;air -rading1(O $o= 3;;;$risbane % & D77;T*;3 %1O! ,;3 9D 6 -fairtrading*/ld*gov*au

South Australia:ffice of Consumer < =usiness Affairs1(O $o= ;9;8

Adelaide SA 477;T*,7 - 57D 8999ocba*sa*gov*au

Tasmania:ffice of Consumer Affairs < ;air -rading1(O $o= ;5DD

32


33/34

Gobart TAS 977;T*;377 64D D88consumer*tas*gov*au

33


34/34

!ictoriaConsumer Affairs >ictoria1(O $o= ;53>elbourne 377;T*;377 44 ; ;consumer*vic*gov*au

#estern Australia5epartment of Commerce

oc)ed $ag ;DCloisters S/uare #A 6 47T*;377 37 D7 4Dcommerce*wa*gov*au

Australian ,ecurities and In)estments Commission(O $o= 8 59,in your capital city-T*;377 377 637asic*gov*au

Documents

Guide to Unfair Contract Terms Law Word