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Australian Consumer Law starts next month.

07/06/2010

A new National Consumer Law proscribing unfair contracts takes effect on 1 July 2010. They are part of a broader national approach to consumer law.

The Trade Practices Amendment (Australian Consumer Law) Act 2009 is the first stage of the introduction of a single national consumer law known as the Australian Consumer Law.  The new laws are contained in the Trade Practices Amendment (Australian Consumer Law) Act 2009 and

  • apply to standard form consumer contracts.
  • apply to contracts for the supply of goods or services to an individual whose acquisition is wholly or predominantly for personal, domestic or household use or consumption.
  • excludes business-to-business contracts (except in the case of a sole trader who buys something predominantly for  personal, domestic or household use and occasional business use).
  • only applies to ‘standard form contracts’ ( typically be a contract that has been prepared by the business and is offered on a ‘take it or leave it’ basis).
  • apply to contracts entered into or renewed  or varied on or after 1 July 2010.
  • target unfair terms.

Unfair terms in standard-form consumer contracts will be void.   A term will be treated as unfair if:

  • it would cause a significant imbalance in the parties’ rights and obligations arising under the contract, and
  • the term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term, and
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied upon.

An indicator of an unfair terms is whether the term is transparent – that is, whether it is:

  • expressed in reasonably plain language
  • legible
  • presented clearly
  • readily available to the party affected by the term.

Some  examples of unfair terms are clauses that permit one party  to unilaterally:

  • avoid or limit performance of the contract
  • terminate the contract
  • vary the terms of the contract
  • vary the upfront price payable under the contract without the consumer being able to terminate it
  • renew or not renew the contract
  • vary the characteristics of the interest in land sold or granted under the contract
  • unilaterally determine whether the contract has been breached or to interpret its meaning
  • limit vicarious liability for its agents
  • assign a contract to a third party to the detriment of the other party without their consent
  • limit the right of one of the parties to sue the other party
  • limit the evidence that one party can adduce in proceedings relating to the contract or to impose the evidential burden on one party in proceedings.
  • penalise a party for breach or termination of the contract. In this context arguably even a genuinely compensatory provision (like default interest) will be of the nature of a penalty for non-performance.

Some examples of terms that are not unfair are terms that:

  • set the upfront price payable under the contract, or
  • define the main subject matter of the contract, or
  • are terms required, or expressly permitted, by a law of the Commonwealth or a State or Territory
  • terms in certain shipping contracts
  • terms in constitutions of companies, managed investment schemes or other kinds of bodies
  • terms in certain insurance contracts.

The new laws do not prohibit standardised consumer contracts.  Consumers can escape a contract which is a poor choice or bad deal.  They protect consumers at the mercy of businesses in a stronger bargaining position. Risks can no longer be unfairly allocated to consumers by virtue of their weaker bargaining position

Before 1 July, all businesses operating in Australia should:

  • review contracts to check for terms (particularly those that preserve discretionary or unilateral rights) that may be regarded as unfair;
  • assess whether those terms should be varied or removed from the contract;
  • ensure that contracts are expressed in plain language, be legible and presented clearly;
  • any term advantageous to the business should  not disproportionate to legitimate business interests; and
  • ensure all contracts have a clause allowing unfair terms to be severed from the contract.


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