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Summary of Unfair Contracts Clauses

20 June 2010


In March 2010, the Trade Practices Act was amended to create protections from unfair contracts for consumers. The clauses declared in contracts to be unfair are straightforward. It's about balance in contracts. The legislation passed with support from all political parties. The things that make contracts unfair for consumers are also the same things that make contracts unfair for businesses, particularly small business and self-employed people when they deal with large organizations, including government. Below are items that show how the law is creating protections from unfair contracts for consumers. These same protections could and should be applied (at least) to self-employed and small business people.
  • Trade Practices Act amendments March 2010
  • Victorian Fair Trading Act 2003
  • Productivity Commission Report discussion May 2008


Trade Practices Amendment (Australian Consumer Law) Bill (No. 1) 2010

[As passed by both Houses (March 2010). Legislation here]

3 Meaning of unfair
    (1) A term of a consumer contract is unfair if:
      (a) it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and
      (b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
      (c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
    (2) In determining whether a term of a consumer contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following:
      (b) the extent to which the term is transparent;
      (c) the contract as a whole.
    (3) A term is transparent if the term is:
      (a) expressed in reasonably plain language; and
      (b) legible; and
      (c) presented clearly; and
      (d) readily available to any party affected by the term.
    (4) For the purposes of subsection (1)(b), a term of a consumer contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise.

4 Examples of unfair terms
    (1) Without limiting section 3, the following are examples of the kinds of terms of a consumer contract that may be unfair:
      (a) a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract;
      (b) a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract;
      (c) a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract;
      (d) a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract;
      (e) a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract;
      (f) a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract;
      (g) a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract;
      (h) a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning;
      (i) a term that limits, or has the effect of limiting, one party's vicarious liability for its agents;
      (j) a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party's consent;
      (k) a term that limits, or has the effect of limiting, one party's right to sue another party;
      (l) a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract;
      (m) a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract;
      (n) a term of a kind, or a term that has an effect of a kind, prescribed by the regulations.
    (2) Before the Governor General makes a regulation for the purposes of subsection (1)(n) prescribing a kind of term, or a kind of effect that a term has, the Minister must take into consideration:
      (a) the detriment that a term of that kind would cause to consumers; and
      (b) the impact on business generally of prescribing that kind of term or effect; and
      (c) the public interest.


Victorian Fair Trading (Amendment) Act 2003 Act No. 30/2003

[PDF here]

32X. Assessment of unfair terms
Without limiting section 32W, in determining whether a term of a consumer contract is unfair, a court or the Tribunal may take into account, among other matters, whether the term was individually negotiated, whether the term is a prescribed unfair term and whether the term has the object or effect of---
    (a) permitting the supplier but not the consumer to avoid or limit performance of the contract;
    (b) permitting the supplier but not the consumer to terminate the contract;
    (c) penalising the supplier but not the consumer for a breach or termination of the contract;
    (d) permitting the supplier but not the consumer to vary the terms of the contract;
    (e) permitting the supplier but not the consumer to renew or not renew the contract;
    (f) permitting the supplier to determine the price without the right of the consumer to terminate the contract;
    (g) permitting the supplier unilaterally to vary the characteristics of the goods or services to be supplied under the contract;
    (h) permitting the supplier unilaterally to determine whether the contract had been breached or to interpret its meaning;
    (i) limiting the supplier's vicarious liability for its agents;
    (j) permitting the supplier to assign the contract to the consumer's detriment without the consumer's consent;
    (k) limiting the consumer's right to sue the supplier;
    (l) limiting the evidence the consumer can lead in proceedings on the contract;
    (m) imposing the evidential burden on the consumer in proceedings on the contract.


Productivity Commission Report: Discussion on unfairness

[8 May 2008. Report here]

Page 403 Volume 2
What are unfair terms in a contract?
"Unfair contract terms are typically defined as those conditions that disadvantage one party (usually consumers), but that are not reasonably necessary for the protection of the legitimate interests of the other (usually the supplier) (SCOCA 2004, p. 8). Examples of such 'unfair'1 terms include reserving the right to vary the contract at any time for any reason, or removing liability for interruptions in supply."

Key points
  • Unfair consumer contract terms are those that disadvantage consumers, but that are not reasonably necessary for the protection of the legitimate interests of suppliers.
  • There are sound in-principle rationales for proscribing unfair contract terms that cause consumer detriment:
    • fairness in contracts is a valued ethical principle, recognised in long standing common law and in broad statutes against unconscionability; and
    • consumers often do not read (what are often complex and long) contracts and may mistakenly ignore the risks that some suppliers will use particular terms against them. This can result in inefficient risk bearing by firms and consumers.
  • However, such rationales are not, by themselves, a sufficient reason for proactive intervention.
  • 'Unfair' terms appear to be widespread in contracts. While there is only limited evidence concerning the extent of their exploitation and the accompanying detriment for consumers, some emerging information suggests the detriment is likely to be non-trivial.
  • Existing national laws for dealing with unfair contract terms are slow, costly and uncertain in their application. Various industry codes and some state laws bar unfair or unjust contract terms, and there is a risk that more fragmented and inconsistent approaches to the problem are impending. A clear, nationally consistent approach would provide some benefits.
  • But there would also be some costs from a law against unfair terms.
    • There would be some (probably low) administrative and compliance costs.
    • The upfront prices of contracts could be expected to rise somewhat.
    • There would be a risk of unintended impacts for the bulk of consumers if it incidentally weakens the capacity of (non-rogue) businesses to appropriately deal with those few consumers who act in bad faith.
  • There is little evidence in Victoria or in the many countries that have enacted laws against unfair contract terms, of significant business compliance costs or adverse unintended commercial consequences. Some businesses have supported such regulation, as have the bulk of participants in this inquiry.
  • Proper design of any intervention, including limits to its application, clear definitions of, and guidelines about, unfair terms, and a focus on dealing with terms that cause detriment, is likely to increase the prospective net benefits from policy intervention


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