• A term of a consumer contract is void if the term is unfair, and the contract is a standard form contract. The unfair contract terms provisions only apply to standard form contracts.
  • The Australian Consumer Law, which falls under the Competition and Consumer Act 2010 (Cth) (Act), protects consumers from unfair contracts. The law applies only to consumer contracts and contracts that are in standard form.
  • If a term is deemed 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.

Standard Form Contract

A standard form contract is a contract that is the same or very similar offered to different consumers. Standard form contracts are protected against unfair contract terms. Standard form contracts are prepared in advance for consumers to sign and are offered on a ‘take it or leave it’ basis to all consumers. Businesses that use such standard form contracts will not negotiate on contract terms with consumers.

Examples of common standard-form contracts are:

  • mobile phone contracts;
  • gym memberships;
  • airline tickets;
  • concert tickets; and
  • utilities.

A consumer contract is presumed to be a standard form contract unless the business relying on the term proves otherwise.

Exceptions

Some exceptions apply where standard form consumer contracts or terms are exempt from the provisions. For example, terms that require the an upfront price to be paid under the contract or terms that are required by law may be exempt. Contracts that are constitutions of companies, managed investment schemes or other kinds of bodies may be exempt. Contact a LegalVision lawyer to find out whether your business’ contract is exempt.

Key Issues

  • If a contract is deemed unfair, a court will deem the term itself void. The entire contract will continue to bind the parties if it is capable of operating without the unfair term.
  • There are three things that the court will consider when determining whether a contract is unfair: whether there is a significant imbalance, whether the term was reasonably necessary to protect legitimate interests, and whether the term would cause detriment.
  • Enforcement of the unfair contract terms is shared between the ACCC, ASIC, and the state and territory consumer protection agencies.

Meaning of Unfair

A term of a consumer contract is unfair if it falls under one of the three subsections in the Act:

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

Significant Imbalance

In determining whether a contract has a significant imbalance to one party, an examination into the extent to which the term is transparent and the contract as a whole will be considered.

Examples of Unfair Contracts

The following terms would be considered unfair under the regime:

  • a term that allows the business to vary the contract but not the consumer;
  • a term that allows the business to change the price without giving the consumer the choice to end the contract;
  • a term that allows the business to change the goods or services supplied without giving the consumer a choice to end the contract; and
  • a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract, avoid or limit performance of the contract, vary the terms of the contract, or renew or not renew the contract

Frequently Asked Questions about Unfair Contracts

Q: What determines if a contract is transparent?
A: The term must be expressed in reasonably plain language, legible, presented clearly, and readily available to any party affected by the term.

Q: Are insurance contracts a standard form contract?
A: Insurance contracts are currently exempt from the unfair contracts laws. Moreover, contracts for financial products and financial services are not covered.

Q: What happens if a contract term is declared void?
A: The particular term will be considered void from its inception. If the other party to the contract attempts to enforce the term after a declaration is made, then the Act provides that the party to the consumer contract can seek an injunction preventing the other party from attempting to enforce the unfair term.

Q: What happens if I signed a contract before 1 July 2010 before the new laws came into effect?
A: The law covering unfair contracts terms will only apply to contracts entered into or varied after 1 July 2010. However, if the contract was renewed or varied afterwards, the new provisions will apply.

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