Retailers should already be complying with the first set of new,
national consumer laws relating to unfair consumer contracts
introduced in July 2010. This is the first of a two-part guide
designed to assist retailers to understand and comply with their
obligations under the harmonised national consumer protection laws.
The Australian Consumer Law comprises three pieces of
legislation:
- The Trade Practices Amendment (Australian Consumer Law) Act
(No 1) 2010 (Cth) (Act). Provisions relating
to unfair contract terms came into effect from 1 July this year.
- The Trade Practices Amendment (Australian Consumer Law)
Bill (No 2) 2010 (Cth), expected to take effect in its current
form on 1 January 2011.
- The Competition and Consumer Legislation Amendment Bill
2010 (Cth). Although this is yet to be passed by parliament,
it is also expected to commence on 1 January 2011.
The focus of this article is the Act. In summary, the Act:
How will the Act apply?
The unfair contract terms provisions will apply to contracts
between retailers and consumers that:
- are consumer contracts;
- are in standard form;
- relate to the supply of goods and/or services; and
- are entered into, varied or renewed after 1 July 2010.
- What is a consumer contract? A 'consumer
contract' is a contract for the supply of goods and/or services for
an individual's wholly or predominantly personal, domestic or
household use or consumption.
- What is a standard-form contract? The Act does
not define the term 'standard-form contract'. However, it is
generally understood that such a contract will be one that has been
prepared by one party to the contract and is not subject to
negotiation between the parties.
-
Are any contractual terms exempt from the Act?
The new regime does not apply to terms in a standard-form contract
that: (i) define the main subject matter of a consumer contract;
(ii) set the 'upfront price' payable under the contract; and (iii)
constitute terms required, or expressly permitted, by law.
Threshold questions: contracts affected by the new consumer
laws
- What is a consumer contract? A 'consumer
contract' is a contract for the supply of goods and/or services for
an individual's wholly or predominantly personal, domestic or
household use or consumption.
- What is a standard-form contract? The Act does
not define the term 'standard-form contract'. However, it is
generally understood that such a contract will be one that has been
prepared by one party to the contract and is not subject to
negotiation between the parties.
- Are any contractual terms exempt from the Act?
The new regime does not apply to terms in a standard-form contract
that: (i) define the main subject matter of a consumer contract;
(ii) set the 'upfront price' payable under the contract; and (iii)
constitute terms required, or expressly permitted, by law.
In the retail setting, consumer contracts that are likely to
come within the operation of the Act include lay-by contracts and
hire purchase agreements.
Unfair terms
The three-step test for 'unfairness'
A term of a contract is 'unfair' if the term:
- would cause a significant imbalance in the parties' rights and
obligations arising under the contract;
- is not reasonably necessary to protect the legitimate interests
of the party who would be advantaged by the term; and
-
would cause detriment (whether financial or otherwise) to a
party if it were to be applied or relied upon.
Examples of terms that may be considered unfair
The Act includes a non-exhaustive list of the types of terms in
a consumer contract that may be considered unfair. The list serves
as a guide only and does not create a presumption that specific
types of terms will be void. Any assessment of a term, including a
term on the list, is still subject to the unfairness test referred
to above. Examples include:
Considerations of a court in determining whether a contract is
'unfair'
A court may take into consideration any matter that it considers
relevant in determining whether a term in a consumer contract is
unfair. However, the court must consider the extent to which the
term would cause detriment (financial or otherwise) to the party if
it were relied on, the extent to which the term is transparent, and
the contract as a whole.
The effect of including an unfair term
A term in a consumer contract that is unfair will be void.
However, the contract will continue to bind the parties if the
unfair term can be severed, with the balance of the contract
operating without that term.
Enforcement of the Act
The Act introduces new civil penalties, new enforcement powers
for regulatory bodies and the power for courts to order redress for
consumers affected by breaches of the Act. Importantly, the Act
expands the powers of the ACCC. The Act gives the ACCC new
enforcement powers including the ability to issue or seek civil
monetary penalties, disqualification orders, substantiation
notices, infringement notices, refunds for consumers, public
warning notices and court orders requiring a supplier to provide
redress. It appears likely that the ACCC and state and territory
consumer protection agencies will work together to ensure
compliance with the new regime.
In this context, the role of tribunals and courts will be to
determine whether a term is unfair and to order the appropriate
relief if a contravention of the Act has occurred. It will not be
the role of the ACCC, ASIC or any other regulator to determine
whether a term is unfair.
Conclusion
To ensure against exposure under the Act, retailers should
carefully review their standard-form contracts to make sure that
terms within those contracts do not cause a significant imbalance
in the parties' rights, are necessary to protect the legitimate
interests of the parties, and would not cause detriment to a party
if relied on. In short, terms must not fall within the definition
of an 'unfair' term in the Act.
This article first appeared in Inside Retailing.
Author: Tamsyn Hutchinson, Cornwall Stodart