Publications >Unfair contracts Regime – issues for form contracts

 

The unfair contracts Regime (Regime) comes into effect on 1 July 2010 as a result of the Trade Practices Amendment (Australian Consumer Law) Bill (Bill) which received Royal assent on 15 April 2010. The effect of the Regime is that terms in standard form consumer contracts (Consumer Contracts) may be declared void. This may affect many Australian businesses that sell products or services to consumers online.

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What is a standard form Consumer Contract?

The Bill has the effect of limiting the Regime to standard form Consumer Contracts.  Consumer Contracts are those for the acquisition of goods or services that are wholly or predominantly for personal, domestic or household use or consumption.  Unfortunately the Bill does not define what a standard form Consumer Contract is, however a court must have regard to a number of factors to answer this question, including whether:

	the bargaining power in relation to the transaction is held by one of the parties;
	the contract was prepared before any negotiation between the parties;
	one party was required to accept of reject the terms of the contract that was presented to them.

 

These criteria would seem to apply to a wide range of contracts presented to consumers where the consumer must accept or reject the terms that they are presented with.  It is not limited purely to online contracts.

 

What are unfair contract terms?

The Regime provides that the term a Consumer Contract will be deemed to be unfair if it causes significant imbalance in the parties rights and obligations arising under the contract that is not necessary to protect the interests of the party who receives the advantage of the term.  The contract issuer (supplier) has the onus of proving that the term is reasonably necessary to protect their legitimate interests.
In determining whether a term is unfair, Courts will have regard to the following factors:

	the extent to which the term would cause (or it's likely to cause) detriment to the other party;
	the transparency of the term;
	the contract as a whole; and
	any other matters that it thinks fit.

 

The Bill includes examples of unfair terms including by way of example:

 

	allowing one party to unilaterally vary the contract;
	allowing one party to unilaterally terminate the contract;
	penalising one party only for breach or termination but not the other;
	allowing only one party to unilaterally determine whether the contract has been breached; or
	limiting or controlling a party’s right to sue the other.

 

What's the extent of the detriment?

The detriment may be merely inconvenience or distress as it is not necessary for it to be just financial.  The extent to which a contract term is determined to be detrimental is yet to be tested by the Courts, however numerous possibilities in the software and online sectors present themselves.  For example a term that makes users upgrade to a new version of software when released by the supplier requiring consumers to do something like a loose data or upgrade at a cost, may fall into this category.  Terms where financial loss is suffered unnecessarily or penalties imposed may (or may not) as the case may fall into this category.

 

Ongoing developments

The Regime provides for the issuance of Regulations that deem particular types of terms to be unfair.  Therefore it will be important for issuers of standard from contracts to monitor developments in order to avoid the potential of having terms of their contacts declared void.

 

 

"The information contained in this article is general in nature and cannot be regarded as anything more than general comment. Readers of this article should not act on the basis of this comment without consulting one of Rostron Carlyle's legal practitioners who will consider their particular circumstances".

 

 

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