Alert

Who does this affect?

All businesses using standard form consumer contracts in Australia, regardless of industry sector.

What do you need to do?

Review your standard form consumer contracts and identify terms that may be “unfair”. Determine if and how they can be amended to comply with the new regime. We can help.

Author
Caroline Coops  
Partner

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Caroline Coops  
Partner
T +61 3 9643 4097

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Sydney
Sharon Henrick  
James Moore  

Melbourne
Amanda Bodger  
Katherine Forrest  

Perth
Nicholas Creed  

Brisbane
Aaron Bourke  

Canberra
Stephen Jaggers  

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The Government has circulated its proposed amendments to the national unfair terms regime contained in the Trade Practices Amendments (Australian Consumer Law) Bill 2009 that is currently before the Senate (Bill). Our Alert on the current Bill can be found here.

The proposed amendments are yet to be formally announced by the Government or tabled in the Senate which next sits on 16 November 2009.

The proposed amendments, if adopted, would:

• delay the introduction of the national unfair contract terms regime to 1 July 2010 (from 1 January 2010);

• insert as part of the definition of an “unfair term” a requirement that the term “would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied upon”;

• clarify that, if an existing standard form consumer contract is varied after 1 July 2010, the regime will only apply to the varied term (and not to the contract as a whole);

• remove the ability of the Government (via the Minister) to ban terms outright as “prohibited terms”; and

• clarify that a Court cannot declare a term of a consumer contract to be unfair unless it is a “standard form contract”.

Delayed commencement date

The delay in the commencement date of the unfair terms regime is a sensible step. With the legislation not yet passed, the previous proposed commencement date of 1 January 2010 is simply not feasible and would have imposed unreasonable pressure on Australian businesses. Many of these business will have to complete a wholesale review of their standard form consumer contracts, and simply could not do so in less than 2 months.

Introduction of detriment into the test of an unfair term

The Bill as originally introduced into Parliament, does not include a requirement for a consumer to suffer detriment as an element in the definition an unfair term itself. Instead, “the extent to which the term would cause detriment to a party if it were to be applied or relied on” is a factor the court must consider when assessing unfairness. This means that, while a court is required to consider whether there is detriment, it is not required to find that detriment actually exists in order to declare a term unfair. This approach contrasts with the Victorian and UK regime, where detriment is an actual element of unfairness.

The Government now proposes to include detriment as an element of an unfair term, so that a term in a standard form consumer contract will be now be “unfair” if:

• it causes a significant imbalance in the parties’ rights and obligations arising under the contract;

• 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 (whether financial or otherwise) to a party if it were to be applied or relied upon.

Again, this is a sensible step as it will mean that a court will not be able to find that a term is unfair unless it would in fact cause detriment to a consumer if it is relied upon.

However, the fact that detriment may still be non-financial means that there remains uncertainty as to what is required in order to satisfy the detriment element (for example, the explanatory material to the Bill and the Second Reading Speech cite irritation, inconvenience and distress as forms of non financial detriment).

Clarification of transitional arrangements

The amendments to clarify that, if an existing standard form consumer contract is varied after 1 July 2010, the regime will only apply to the varied term (and not to the contract as a whole) are also welcome. Without this clarification, even a trivial variation post-commencement, such as changing a product name or other housekeeping changes, would expose the entire contract to the regime. When you consider how frequently many businesses make non-material, even beneficial, changes to their standard form contracts, one queried whether this was a sensible outcome.

Removal of ability for terms to be “prohibited”

The removal of the ability of the Minister to prohibit terms reflects the reality that it would have been a near impossible task for the Minister to determine what term should be blacklisted. The question of what is an unfair term turns on many subjective elements such as the nature of the parties, the balance of power between them and the remainder of the contract in which the term appears. It is simply not the case that any particular term could be said to always be unfair, regardless of the circumstances in which it is used, and the Government’s proposal to remove this power recognizes this fact.

Amendments proposed by Senator Xenophon

Senator Xenophon has separately proposed amendments to the Bill that would, if adopted:

• reintroduce business-to-business contracts into the regime, where the upfront price payable for the goods, services or interest in land under the contract does not exceed $2 million;

• remove detriment and transparency from the list of factors the Court must take into account when assessing unfairness;

• introduce a safe harbour scheme, allowing the regulator to "authorise" model industry contracts, model contract terms, specific various to a standard form contract or specific contract terms of a standard form contract;

• apply the regime to insurance contracts, even if they are covered by the Insurance Contracts Act 1984 (Cth); and

• prohibit outright terms that enable (or have the effect of enabling) one party to charge a fee for receiving payment in person or in cash and enable (or have the effect of enabling) one party to transfer personal information about another party to a person outside Australia without the other party's written, informed content.

Next steps

The Senate next sits on 16-19 November and on 23-26 November. The Senate notice papers and orders of business for the 16 November sitting have not yet been made available so it is unclear if the amendments will be tabled and debated then.

It is likely that the Opposition will support the amendments based on their comments in the House of Representatives, so it remains likely that the Bill will be passed this year.