The issue
The Australian Consumer Law operates to void 'unfair' contract terms in certain types of contracts between businesses and consumers. This regime applies to consumer contracts which are:
- in a standard form;
- for the supply of goods, services, or an interest in land;
- to an individual; and
- for personal, domestic or household use.
The Australian Competition and Consumer Commission has been fairly lenient while businesses adjust to the new regime. However, the ACCC has recently indicated that it will now be taking a more forceful approach to ensure compliance by businesses.
When is a contract term considered unfair?
A contract term is unfair if:
- it creates a significant imbalance in each parties' rights and obligations;
- it is not reasonably necessary to protect the legitimate interests of the party who is advantaged by the term; and
- it would cause detriment if it were to be applied or relied upon.
It is also relevant whether the particular term is expressed in clear, easy to understand language, and was readily available to the consumer.
An example of where a term was found to be unfair is the recent NSW case of Malam v Graysonline [2012] NSWCTTT 197, which was heard in the Consumer, Trader and Tenancy Tribunal. In this case, the consumer had clicked 'yes' to agree to terms and conditions for an online purchase. One such term purported to remove the purchaser's rights to return the goods, even if they were damaged prior to collection. In finding that this term was unfair, the tribunal also considered it relevant that this term was buried within a thirteen page online document.
Other examples of unfair terms, provided in legislation and case law, include:
- terms that penalise one party for a breach of contract, but not the other party,
- terms that unreasonably limit one party's liability for matters within their control, or
- terms that allow one party to unilaterally terminate or vary the terms of the contract.
Terms found to be unfair are void and unenforceable, although the remainder of the contract can be valid.
Practical Tip
Any standard form contracts currently used by your business should be examined, bearing in mind the criteria for unfairness as above. In particular, consider:
- do any terms create an unreasonable imbalance in the rights and responsibilities of each party?
- is the wording clear and transparent?
- are important terms buried by the volume of the document?
Often, there is a fine balance to be struck between legitimately protecting your business interests and unreasonably preventing consumers from receiving a fair deal.
If you have any queries regarding your business contracts or trading terms, please feel free to call Mitchell Zadow on 1300 205 506.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
Liability limited by a scheme approved under Professional Standards Legislation.
Mitchell is the Managing Principal of our law practice.
He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.
