The new Australian Consumer Law (ACL) prohibits standard form consumer contracts from containing terms which are deemed unfair. Such terms will be void and unenforceable.

The unfair contract terms provisions under the ACL apply to standard form consumer contracts entered into on, or after, 1 July 2010 and terms of existing contracts renewed or varied on or after that date.

A term of a standard form consumer contract is unfair if the term:

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

The ACL provides examples of the kinds of contract terms that will be deemed unfair. Such terms include those which:

• allow one party, but not the other, to avoid performing the contract or limit performance;
• allow one party, but not the other, to terminate the contract;
• penalise one party, but not the other, for breach or termination of the contract;
• allow one party, but not the other, to vary, renew or not renew the contract;
• allow one party to increase the price under the contract but not allow the other party to terminate;
• allow one party, but not the other, to determine whether the contact has been breached or how it should be interpreted;
• allow one party, but not the other, to vary the characteristics of the goods, service or interest in land under the contract;
• limit one party’s right to sue the other, or limit one party’s vicarious liability for its agents; or
• allow one party to assign the contract without the other party’s consent and to the other party’s detriment.

A court or tribunal, in considering whether terms are unfair, may take into account such matters as it thinks relevant, but must take into account the clarity and presentation of the relevant term as well as the contract as a whole.

What is a standard form consumer contract?

Consumer contracts are contracts for the supply of goods and services, or for the sale or grant of an interest in land, to an individual for personal, domestic or household use.

A consumer contract is presumed to be in standard form if a party to the proceedings alleges that it is so and the other party does not prove otherwise.

In determining whether a contract is in standard form, a court or tribunal may take into account such matters as it thinks relevant, but must take into account the bargaining position of the parties, whether the contract was prepared before or after discussion about the transaction, if any negotiation about its terms took place and whether the terms of the contract reflect the particular characteristics of the parties or the transaction itself.

What does this mean for my contracts?

Many contracts will be caught by these new provisions. However, if the contract is capable of operating without the unfair term, then it will continue to be binding on the parties. This should not be relied upon.

The practical effect of the ACL is that clients should check their contracts to ensure that they remain enforceable and adopt best practice.

Not all types of contract will be subject to these provisions. The unfair contract terms provisions do not apply to contracts which do not meet the definition of consumer contracts or are not in standard form as determined by the applicable tests.

The ACL expressly excludes the application of the unfair contract terms provisions to certain contracts, such as constitutions, marine salvage or towage contracts and contracts for the carriage of goods by ship.

Clients should be aware of the other provisions of the ACL regime which have a much broader ambit and catch many business to business contracts. These include unfair practice provisions, consumer guarantees, safety and information standards as well as manufacturer liability provisions. Each of these areas will be addressed in further client bulletins within the ACL Series.

The ACL also now incorporates the misleading and deceptive conduct and unconscionable conduct provisions as contained in the Trade Practices Act 1974 (Cth) respectively. The provisions have been mirrored in the ACL but now apply to both corporations and natural persons.

For more information, please contact Gary Rogers on +61 (0)2 9300 3101 (direct), or +61 (0)411 110 303 (mobile), or by email at grogers@blueprintlaw.com.au, or click to call by Skype.