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According to Australian consumer laws, terms in a consumer contract are unfair if they cause a significant imbalance in the parties rights and obligations. It must also not be reasonably necessary to protect the legitimate interests of the party who the term would have advantaged. If the Court finds a term ‘unfair’, it will be void and not binding. However, the rest of the contract will continue to be binding.

What Is The Law?

The Australian Consumer Law protects consumers from any unfair terms in their consumer contracts.

The Australian Securities and Investment Commission (ASIC) also administers the law prohibiting unconscionable or misleading and deceptive conduct in contracts. You must also give additional protection to consumers and investors by giving the courts the power to find that a term is unfair.

These laws covering unfair contract terms only apply to contracts entered into or varied after 1 July 2010. 

What Types of Contracts Do Unfair Contract Term Provisions Apply To?

For the law to protect a contract under unfair contract terms law, it must be a ‘standard form’ consumer contract for goods and services.

Consumer contracts are contracts for the supply of goods or services or the sale or grant of an interest in land. The person acquiring the goods or services must be an individual who will be using it completely or predominantly for personal, domestic or household use.

The contract must also be a ‘standard form’ consumer contract; where only one party sets the terms and conditions. Most often, the party providing the contract is the provider of the goods and services. The result is that the other party cannot negotiate the contract and are in a “take it or leave it” position. In these situations, speak with a commercial solicitor to get the right advice on how to proceed.

Parties commonly use such contracts across various industries, including:

  • telecommunications;
  • utilities;
  • domestic building; and
  • finance.

In addition, consumers and investors regularly enter into standard form contracts for financial services on a day-to-day basis for things like credit cards and home loans. 

The Court does not consider individually negotiated contracts to be ‘standard form’, so unfair contract terms laws do not cover them.

What Contracts Do the Law Not Cover? 

Unfair contract laws do not cover all consumer contracts. 

The unfair contract terms provisions do not cover insurance contracts regulated under the Insurance Contracts Act 1984. They also do not apply to constitutions of companies, managed investment schemes or superannuation funds, nor do they cover contracts for the shipping of goods.

Similarly, the Act does not cover some specific terms. The law does not cover the following terms:

  • terms which define the main subject matter of the contract;
  • terms that set the upfront price payable under the contract; or
  • any terms which Commonwealth, state or territory laws require or permit.

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How Do I Know If a Term Is Unfair?

You must consider the fairness of a term in the context of the contract as a whole. As a party to the contract, you have a responsibility to protect your own interests. That includes being on the lookout for terms you may think are unfair.

To do this, you might want to ask yourself whether the term:

  • causes a significant imbalance between your rights and obligations and those of the other party;
  • is reasonably necessary to protect the legitimate interests of the other party;
  • only applies to one party but not the other where it should apply to both parties;
  • causes you any detriment (financial or non-financial burden) if the other party tries to enforce the term; or 
  • is transparent and in reasonably plain language, legible, presented clearly and readily available to all parties. 

These questions can help you recognise a potentially unfair term. However, it is important to note that the final decision on whether a term is unfair can only be made by a Court.

What Are My Options? 

If you think a term is unfair, you can make a complaint to the Australian Competition and Consumer Commission. If it is a financial service, you can make a complaint to the Australian Financial Complaints Authority. However, these bodies do not function to endorse contract terms or state that terms are unfair. It is up to the courts to determine whether a term is fair or not.

Key Takeaways

Consumer contracts are entered into all the time, and the law protects consumers by offering considerable protection against unfair terms. For a contract to be protected under unfair contract terms law, it must be a ‘standard form’ consumer contract. Indeed, a contract term is unfair if it causes a significant imbalance between your rights and obligations and those of the other party. It must not be reasonably necessary to protect the legitimate interests of the other party. It is important to remember that unfair contract term laws do not protect individually negotiated contracts and contracts between businesses.

If you need help reviewing a contract, get in touch with LegalVision’s commercial contract lawyers on 1300 544 755 or fill out the form on this page. 

Frequently Asked Questions

What is a ‘standard form contract’?

This is a contract where one party has set the terms and presented them to the other. Such a contract puts the party being offered the agreement in a ‘take it or leave it’ position. 

What are some examples of unfair contract terms?

Some examples are terms that allow one party, but not the other, to limit their obligations, terminate the contract, vary the contract or be penalised for breaching the contract.

What terms are not covered by unfair contract term laws?

Terms such as those that set out price, define the product or service being provided or are required or permitted by another law are typically not covered by unfair contract term laws.

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