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Unfair terms

The Australian Consumer Law (contained in schedule 2 of the Competition and Consumer Act 2010 (previously named the Trade Practices Act) incorporates a national unfair terms regime. The two key provisions are sections 23 and 24.

Section 23

Unfair terms of consumer contracts

(1) A term of a consumer contract is void if:

(a) the term is unfair; and

(b) the contract is a standard form contract.

(2) The contract continues to bind the parties if it is capable of operating without the unfair term.

(3) A consumer contract is a contract for:

(a) a supply of goods or services; or

(b) 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.

Section 24

Meaning of unfair

(1) A term of a consumer contract is unfair if:

(a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and

(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

(2) In determining whether a term of a consumer contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following:

(a) the extent to which the term is transparent;

(b) the contract as a whole.

(3) A term is transparent if the term is:

(a) expressed in reasonably plain language; and

(b) legible; and

(c) presented clearly; and

(d) readily available to any party affected by the term.

(4) For the purposes of subsection (1)(b), a term of a consumer contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise.

Consumer contracts

As was the case under the previous Victorian law prohibiting unfair terms, the prohibition only extends to consumer contracts. A ‘consumer contract’ is defined for this purpose as a contract for a 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." (section 23, above) The acquisition must be by a natural person (an 'individual') and, to determine the actual use of the goods or services acquired the courts (at least if they follow precedent established under the Victorian law: Director of Consumer Affairs Victoria v AAPT Limited (Civil Claims) [2006] VCAT 1493 at para 30) will look at the purpose of the agreement, rather than the subjective intention of either of the parties, ‘ascertained by reference to the terms of the agreement, which will reflect the intention of all the parties to the agreement’ (para 30) and it will be sufficient if goods or services are acquired substantially for personal, household or domestic use, even if not acquired solely for that purpose. (para 27 AAPT)

Standard form contracts

Unlike the previous Victorian law, the prohibition applies only to 'standard form' contracts. This is not defined in the Act, but section 27 does provide a list of factors the court may consider, including whether or not one party was effectively ‘required to either accept or reject the terms of the contract ... in the form in which they were presented’ and ‘whether another party was given an effective opportunity to negotiate the terms of the contract’. Where a consumer alleges a contract is a standard form contract it will be presumed that it is unless the other party proves otherwise (s 27(1))

Unfair term

A term of a consumer contract is an ‘unfair term’ if it would ‘cause significant imbalance in the parties’ rights and obligations under the contract’ and ‘it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term’ and ‘it would cause detriment ... to a party if it were to be applied or relied on’ (section 24). There is a legal presumption that a term of a consumer contract is not ‘reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise' (section 24(4)).

Both procedural and substantive unfairness will be relevant.

ACCC, Australian Consumer Law
- A Guide to the Unfair Contract Law Terms (2011)

Unfair Contract Terms in Australia
Jeannie Paterson (Thomson Reuters 2011)

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