Unfair Terms in Standard Form Consumer Contracts - Void

Posted: 26/06/2010 From 1 July 2010, the new ‘Unfair Contracts’ provisions in the Trade Practices Act 1974 (Cth) (“Act”) commence operation (“Provisions”). The Provisions will apply to standard form consumer contracts that are entered into, renewed or varied on or after 1 July 2010. For a contract to be considered a standard form consumer contract under the Act, the contract must be: • one for the supply of goods or services or for the sale or grant of an interest in land that is wholly or predominantly for personal, domestic or household use or consumption; • prepared solely by one party to the contract; and • not subject to negotiation between the parties (i.e. a ‘take it or leave it’ basis), (“Contract”). The court has discretion to set aside a term of a Contract if the court is of the opinion that the term: • causes a significant imbalance in the parties’ rights and obligations under the Contract; • is not reasonably necessary to protect the legitimate interests of the party advantaged by it; and • causes detriment to the party disadvantaged by it. Whether a term of a Contract is unfair will be determined by a court in all the relevant circumstances. However, the Australian Competition and Consumer Commission has provided some guidance on the types of terms of a Contract may be regarded as unfair, namely terms that: • allow a business to unilaterally alter the terms of the Contract after it has been agreed; or • permit a business to avoid performance of its obligations under the Contract at its discretion and without liability; or • allow a business to immediately terminate the Contract for an inconsequential breach; or • forbid cancellation of the Contract by the consumer in all circumstances; or • impose penalties on the consumer for trivial breaches; or • allow a business to renew the Contract without the consumer’s consent; or • allow a business to independently assess and determine whether it has properly performed its obligations under the Contract; or • allow a business to independently decide the meaning or interpretation of a term of the Contract; or • disclaim the responsibility or liability of a business for representations made by its agents to prospective consumers; or • exclude or limit the consumer’s right to sue the business; or • limit the evidence that a consumer can present in proceedings against the business. Importantly, terms of a Contract that relate to the subject matter of the Contract or the price payable are generally beyond the court’s discretion to class that term as unfair.