The Australian Consumer Law (ACL) (Part 2-3) aims to improve protection for consumers by removing unfair terms in consumer contracts. 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.
The law applies to contracts between consumers and businesses, known as ‘standard form consumer contracts’. Most insurance contracts are not covered. (These are currently regulated by the Insurance Contracts Act 1984 (Cth).) The law aims to reduce cases where consumers suffer a loss or other disadvantage due to unfair contract terms.
Standard form contracts
Generally, a standard form contract is one that:
- is prepared by the business
- contains a set of generic terms and conditions
- is not negotiated between parties
- is presented on a ‘take it or leave it’ basis.
Consumers enter standard form contracts every day, typically for home loans, credit cards, mobile phones, gym memberships, travel and health insurance and utilities.
A term is said to be unfair if:
- the contract term is one-sided and greatly favours the business over the consumer, and
- there is no satisfactory commercial reason why the business needs such a term, and
- the consumer will suffer financial loss, inconvenience or other disadvantage if the term is enforced.
Types of unfair terms
The law contains a list of the types of terms that may be considered unfair. Contracts can still include these terms, as they are not banned, but when used in certain circumstances they could be unfair.
Some examples are:
- terms that allow the business to make changes to important parts of the contract, such as increasing charges or varying the type of product to be supplied, with no right for the consumer to cancel the contract without penalty
- terms that avoid, limit, or restrict the liability of a supplier, its employees or agents for a breach of the contract
- terms that require consumers who breach the contract or end it early to pay an excessive amount in compensation or cancellation charges.
Decisions on unfair terms
Only a court or the Consumer, Trader and Tenancy Tribunal (CTTT) can decide if a term is unfair. The court or CTTT must consider:
- whether the term meets the three tests of unfairness
- how the term was expressed in the contract (for example, it may be hidden in fine print or written in hard to understand legal language)
- the contract as a whole – a term that seems unfair may be reasonable if it is balanced by other terms offering benefits such as lower prices.
If a court or tribunal finds that a term is unfair, it is void. The term is treated as if it never existed and cannot be enforced or relied on. However, the contract will still bind the consumer and trader if it can operate without the unfair term.