Unfair contract terms
in Consumer Standard
Form Contracts
Module 4(c)
Winter 2014
©MNoonan2009
This presentation and Copyright therein is the
property of Maureen Noonan and is prepared
for the benefit of students enrolled in the
Commercial Transactions course conducted by
the Law Extension Committee and is available
for their individual study. Any other use or
reproduction, including reproduction by those
students for sale without consent is prohibited.
©MNoonan2009
Australian Consumer Law
 Unfair Contract provisions commenced
1/7/2010.
 Remainder of ACL commenced 1/1/2011. ACL is
Schedule 2 to CCA.
©MNoonan2009
Unfair Contract Terms
Long history and difficulties in defining area
warranting attention.
Now in ACL.
See also Victorian Fair Trading Act.
Other countries? UK Unfair Terms in Consumer
Contracts Regulation 1999 made pursuant to
European directive on Unfair Terms in Consumer
Contracts 1993.
©MNoonan2009
Unfair contract terms
S. 23 ACL
A term of a consumer contract is void if the
term is unfair and the contract is a
standard form contract
NOTE similarity to s. 32Y of Victorian Fair
Trading Act
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Unfair contract terms
What is a consumer contract?
s. 23(3)
A consumer contract is a contract for
 A supply of goods or services or
 A sale or grant of an interest in land
 To an individual whose acquisition of the goods,
services or interests is wholly or predominantly for
personal domestic or household use or consumption
Note this is different to definition of consumer s.2
The subjective purpose of person is what is relevant.
Note that businesses excluded other than “sole traders”.
See ASIC Act s. 12BF for financial products and services.
©MNoonan2009
Unfair contract terms
What is a standard form contract?
Not defined, and if alleged, it is presumed to be
one unless proven otherwise.
Expressly excluded in s. 28 are:
Contract of marine salvage or towage
Charter party of a ship
Contract for carriage of goods by ship
Constitutions of a company managed investment
scheme or other kind of body
©MNoonan2009
Unfair contract terms
Standard form contract
Not defined, but in deciding whether a contract is a
standard form one or not, court must consider (s.27):
 Whether 1 party has all or most of the bargaining power
 Whether the contract was prepared by 1 party before any
discussion
 Whether another party was required to accept or reject
the terms
 Whether another party was given an effective opportunity
to negotiate terms
 Whether terms take into account specific characteristics
of another party or particular transaction
 Any other matter prescribed by regulations
NOTE similarity with 32ZDA of Victorian Fair Trading Act
©MNoonan2009
Unfair contract terms
What does “unfair” mean? S.24
1. If, it would cause significant imbalance in rights
and obligations
2. Not reasonably necessary to protect legitimate
interests of party advantaged
3. It would cause detriment (financial or
otherwise) if applied or relied upon
NOTE similarity to s. 32W of Victorian Fair Trading
Act.
©MNoonan2009
Unfair contract terms
What does “unfair” mean? S.24
In determining whether unfair, a court may
consider any relevant matter, but must consider
The extent to which the term is transparent
A term is transparent if
 expressed in reasonably plain language; and
 legible and
 presented clearly and
 readily available to any party affected by the term
The contract as a whole.
©MNoonan2009
Examples of unfair terms s.25
Permits one party to avoid or limit performance
Permits unilateral termination
Penalises one party but not another for breach or termination
Permits one party but not another to vary terms
Permits one party but not another to renew or not
Permits one party to vary the upfront price without giving the other party the right to
terminate
Permits one party to unilaterally vary characteristics
Permits one party to unilaterally determine breach
Limits the liability of a party for its agents
Permits one party to assign to detriment of other party without consent
Limits one party’s right to sue another party
Limits the evidence one party can adduce in proceedings on the contract
Imposes the evidential burden on one party in proceedings
Has an effect prescribed in regulations
NOTE similarity to s. 32X of Victorian Fair Trading Act
©MNoonan2009
Terms excluded s. 26
The following terms are excluded from the unfair
regime
To the extent that the term---- Defines the main subject matter of the contract;
or
 Sets the upfront price payable
 Is a term required or expressly permitted by law
©MNoonan2009
Effect of term being held unfair
 There may be prohibited terms in regulations. Use of
such a term will be a contravention of Act
 Only court can determine whether a term in a standard
contract is unfair.
 Proceedings can be commenced in Federal Court by a
party to the contract (s.250ACL) or regulator (s.250ACL)
 Court can order an injunction (s.80 CCA), prohibiting
payment or transfer of money or other property (s.87A
CCA), to provide redress to non party consumers
(87AAA CCA) and such other orders as it considers
appropriate (s.87CCA).
©MNoonan2009
Unfair terms – FTA Victoria
While ACL Unfair terms legislation is new, similar
provisions have existed in Part 2B of the Victorian Fair
Trading Act since 2003.
Some Victorian decisions may therefore be of assistance in
understanding the application of the new ACL provisions,
developing reasoning and argument and identifying
unfair terms.
See also Unfair Terms in Consumer Contracts Regulations
1999 (UK) pursuant to EU Directive, mentioned in AAPT
with reference to some cases.
©MNoonan2009
Director of Consumer Affairs Victoria v.
AAPT Limited [2006] VCAT 1493
Director requested declaration and injunction re
AAPT terms, since replaced and giving older
contracts benefits of new terms retrospectively.
Not granted because no consequence in these
circumstances.
However, substantial discussion of the meaning of
unfair, relevance of “good faith” and history of
provisions.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
Removalist Contract for household items
a consumer contract
because
Contract was for services of a kind ordinarily acquired
for personal, domestic or household use or
consumption for the purposes of their ordinary
personal, domestic or household use or
consumption.
Many unfair terms found in contract
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
“2(e) This agreement shall be governed by and interpreted
and enforced in accordance with the laws applicable in the
Australian Capital Territory. This agreement shall be
deemed to have been entered into in the ACT”
UNFAIR because:
Contrary to fact and reality because Contract in Victoria
Term has object or effect of limiting consumer’s right to sue or
deterring non ACT consumers from enforcing contractthereby creating a significant imbalance in the parties’ rights
and obligations to the detriment of the consumer.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
“8(b) If the information supplied is incorrect, inadequate, inaccurate or varied
after a quotation has been given, the Company may at its discretion perform
the work strictly as per its quotation or vary its charges in accordance with a prorata adjustment based on the variation in the specified quantity, volume or
weight of the goods plus any variation of estimated loading and unloading times
charged at the time rate.”
UNFAIR (s.32W) because:
 Object or effect of penalising consumer by permitting company in its discretion
to perform contract as originally agreed without regard to consumer desire or
need to vary contract.
 Permits company to determine or vary or determine and vary price without right
of consumer to terminate (s. 32X(f)), permits unilateral variation of
characteristics of services (s. 32X(g), permits company to unilaterally determine
whether contract has been breached or to interpret its meaning
 Term creates uncertainty for the consumer, and only the consumer-no mutualitythereby creating a significant imbalance in parties rights and obligations.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
“9(b) The Company hereby assigns its rights and the rights of any persons
on behalf of whom it is acting, to collect all charges and payments from
Clients to the Contractor. The Contractor agrees to issue invoices and to
collect all such charges and payments directly from Clients.”
UNFAIR (s.32W) because:



Term has object or effect of assigning rights to an unidentified non
party…and to permit that unidentified party to issue invoices and
collect all charges payable by the consumer
It creates uncertainty for the consumer because the “Contractor” is
not a party to the removalist services contract
It has the object or effect of permitting supplier to assign the contract
to consumer’s detriment without consent of consumer (s. 32X(j)).
Thereby creates a significant imbalance in parties’ rights and obligations to
the detriment of the consumer.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
“10(a) All goods of the Client, or carried on behalf of the Client, that are
received by the Company shall be subject to a general lien for any
monies owed by the Client or the owner of the goods to the Company or
the Contractor as a result of this agreement or any previous agreement
between the Company and the Client or the owner of the Goods.”
UNFAIR (s.32W) because:
 Imposes general lien for monies owed by a non party to the contract
and in respect of other contracts. Unreasonable.
 Imposes a broad general lien in circumstances where contract requires
payment on or before pick up and in a manner seeking to overcome the
common law limitations on imposition of a lien. Unreasonably excessive
to protect legitimate interests of respondents.
 Inconsistent with 9(b)
 Purports to extend operation of general lien to benefit of Contractorunidentified non-party
 Imposes an unreasonable burden on consumers, given effect of 8(b),
8(c) and 11(c), which create uncertainty for consumer.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
“10(b) In order to exercise its rights under the aforementioned
lien, the Company shall have the right to seize or retain or
to defer or refuse delivery of any goods that are the subject
of this lien should circumstances arise that make it
reasonable to conclude that the Client is unwilling or unable
to pay any due charges in the required form or at the
required place or time.”
UNFAIR (s.32W) because:
Inconsistent with 9(b)
See also 10(c)
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
“10(c)Where the charges of the Company remain unpaid for a minimum
period of 28 days, the Company may give 28 days written notice by
certified or registered mail to the last known address of the Client of
intention to sell. If the amount owing is not paid within that further period
the Company may open any packages, DISPOSE OF THE GOODS or
SELL ALL OR ANY OF THE GOODS by auction or by private treaty at
its absolute discretion. Out of any monies arising the Company may
retain its charges and all charges and expenses of the detention and
sale. It shall credit the surplus, if any, to the person entitled to it. Any
such sale shall not prejudice or affect any other rights that the Company
may have to recover any outstanding charges due or payable in respect
of such service or the said detention or sale.”
UNFAIR (s.32W) because:
Having assigned rights to collect, terms 10(b) and (c) inconsistently purport
to permit enforcement of lien.
10(b) and (c) each impose unreasonable burden on consumers given effect
of 8(b), and (c), 9(b) and 11(c), which create uncertainty. No mutualitycertainty of contract only removed for consumer.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
Terms 10(a), (b) and (c) each have object or effect of:
1.
Penalising consumer but not company for breach of contract
(s. 32X(c))
2.
Permitting Company to unilaterally determine whether contract
has been breached or to interpret its meaning (s. 32X(b)
Thereby creating significant imbalance in parties’ rights and
obligations arising under the contract to the detriment of
the consumer.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
11(a) Movement of incorrect goods. The Client shall provide
an authorised representative who will be responsible for
ensuring that the correct goods are loaded. Whether or not
such a representative is provided, and WHETHER OR
NOT the Client provided the Company with a LIST of
ITEMS to be moved, the Client shall pay all reasonable
additional charges whatsoever resulting from the
movement of incorrect goods or non-movement of goods
that the Client intended to have moved”.
Unfair (s.32W) because
11(a) penalises consumer for the movement of “incorrect
goods” or non movement of goods even if consumer
provides a correct list and even if the movement of the
“incorrect goods” or non movement of goods is due to the
fault or negligence of Company.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
11(b) If there is no-one in attendance at the place for
delivery of the Goods the Company shall be entitled at its
discretion to leave the Goods at that place or to return at a
later time until delivery is completed, storing the Goods at
any convenient place in the meantime, and the Client
agrees to pay any reasonable additional charges incurred
thereby to the Company”.
Unfair (s.32W) because
11(a) and (b) impose unreasonable burden on consumer given
the effect of 8(b), (c) and 11(c), which create uncertainty
for consumer.
11(b) has object or effect of permitting Company to leave
goods at place for delivery even if no one there. i.e.
abandoning goods. Unreasonable.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
11(c) The method, route and time by which the carriage of
Goods or provision of services under this contract are
performed shall be at the absolute discretion of the
Company.”.
Unfair (s.32W) because
Term has object or effect of permitting Company in absolute
discretion to determine time of performance. Inconsistent
with conditions implied into contract by law. Unreasonably
excessive, broad, unqualified discretion going to issues at
the heart of the contract.
Term creates uncertainty-right to unilaterally vary time without
notice to consumer-no certainty to bargain. No mutuality.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
Terms 11(a), (b) and (c) each have object or effect of:
 Permitting company, but not consumer to limit
performance (s. 32X(a)).
 Permitting company, but not consumer to vary
terms of contract (s. 32X(d)) and
 Permitting Company to unilaterally vary
characteristics of services to be supplied under
contract (s. 32X(g))
All of these things create a significant imbalance in
parties’ rights and obligations to detriment of
consumer.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
“14(b) The Client recognises that there are always risks involved in the movement
of any Goods or the provision of services under this contract, many of which are
outside the Company’s or the Client’s control. All basic quoted prices are for the
provision of carriage and other services whereby the Client understands and
accepts that there are such risks, accepts any financial detriment or other losses
that may result from the performance or non-performance of such work and agrees
that the Company shall NOT be responsible or liable for such losses. The effect of
this sub-clause may be varied where the Client chooses a Transit Protection option
(See Clause 15) or where it is otherwise agreed in writing.”
Term is unfair (s. 32W) because:
 Term has the object or effect of unreasonably limiting Company liability for
matters which are or were under their control.
 Term confers an unreasonable benefit upon Company by purporting to exempt it
for failure to provide the services or failing to provide them at an appropriate
standard, where such failure is attributable to routine and foreseeable factors such
as its delay and other factors within it’s control.
 Term has object or effect of limiting consumer right to sue (s.32X(k))
Thereby creating a significant imbalance to the detriment of the consumer.
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
“14(c).Save as expressly provided in these conditions the Company shall
not be liable to the Client for any loss or damage suffered by the Client
directly or indirectly caused by:
(i) any damage loss or destruction to Goods whilst in the possession of the
Company whether in transit (which includes, amongst other things, any
packing, handling, installation, removal, assembly or erection), or in
storage or after they have been delivered or mis-delivered;
(ii) a mis-delivery, delay in pickup or delivery, or non-delivery of Goods;
(iii) the carriage of Goods by a route other than the shortest or usual route;
(iv) any failure to collect Cash on Delivery (COD) on behalf of the Client;
and this clause shall apply whether or not any such occurrence was due to
any wilful, fraudulent negligent or other act or omission of the Company.”
Term is unfair (s. 32W) because:
 Term has the object or effect of limiting liability for any loss or damage
suffered
 Term has object or effect of limiting consumer right to sue (s.32X(k))
Thereby creating a significant imbalance to the detriment of the consumer
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
“14(f).The Client shall INDEMNIFY the Company against any action, claim, suit,
fine or demand brought by any third party, the Client or the Contractor against the
Company as a result of or in connection with any breach by the Client of any term
of this contract or the occurrence of any of the events listed in this clause or
clauses 10, 12,14 and this indemnity shall extend to the reasonable solicitor client
costs of the Company in defending any action and in enforcing this indemnity.”
Term is unfair (s. 32W) because:
 Term has the object or effect of requiring indemnity for loss or damage arising
from the exercise of a lien over goods not owned by the consumer and charges or
payments arising other than from the removalist services contract or loss or
damage by wilful, fraudulent etc act or omission of Company.
Term confers unreasonable benefit on Company by purporting to make consumer
liable for consequences of proceedings by consumer, contractors and any third
party arising out of a breach of contract by Company, even if negligence or fraud.
Term imposes unreasonably excessive solicitor client costs
 Term has object or effect of limiting consumer right to sue (s.32X(k))
Thereby creating a significant imbalance to the detriment of the consumer
©MNoonan2009
DCA v. Backloads.com Pty Ltd
VCAT C5253/2007
In addition to the specific unfair clauses, it was also found:
1. Contract printed in a font too small and contrary to s.
163(3)(b).
2. Not clearly expressed- it creates confusion, uncertainty or
doubt -contrary to s. 163(3)(c) -because of references to
Contractor (confers rights, assigns) who is not a party,
contains a variety of terms that are inconsistent -11(c) and
14(a)-11(c) inconsistent with 32JA(1) FTA (implied
condition services reasonably fit for purpose made known).
3. It empowers the Company to abandon goods
4. Some terms refer to incorrect references
5. Terms likely to mislead consumers as to where they have
to initiate proceedings-ACT?
6. Uses terms contrary to fact-law of ACT.
©MNoonan2009
Free v. Jetstar Airways P/L
[2007] VCAT 1405
Free booked 2 tickets from Melbourne to Honolulu
and return on the internet…names of herself and
her sister, selected “Jet Saver” cheap fare and
paid.
Shortly before travel, sister unable to go. Ms Free
wanted her niece to go instead. She requested
change to name. Informed that was only possible
if she were to pay a “change fee” of $75/person/flt
plus fare difference on the date of change.
Free claimed term was unfair and Jetstar engaged in
unconscionable conduct.
©MNoonan2009
Free v. Jetstar Airways P/L
[2007] VCAT 1405
“JETSAVER FARE RULES
2.1 Subject to availability and payment of all applicable amounts, changes
can be made to your Booking as follows. Changes to the origin and
destination of travel are not permitted.
2.2 Your new fare will be at least the amount of the fare you originally
purchased, and may be more. At the time your Booking is changed you
must pay the difference (if any) between the fare you originally
purchased and the fare available on the date of the change. This will
apply to all date, time and name changes.
2.3 Date, time and Passenger name changes may be made by telephoning
Jetstar Telephone Reservations…A change fee* is payable for each
change, for each passenger flight segment change…
*Current Jetstar fees and a summary of fare types can be found at
jetstar.com/faretypes.html.
©MNoonan2009
Free v. Jetstar Airways P/L
[2007] VCAT 1405
Contract was “consumer contract”.
Term not individually negotiated. Free could make booking on those terms
or not.
That part of the term requiring the fare difference was unfair –indiscriminate
(whether genuine personal reason or resale), and created
imbalance….and therefore void…delete “and name” from 2.2 and “or
Passenger Name Change” from first column on “Fare Types”.
Otherwise contract remained in effect. Note that this makes void only
part of a term, and not the whole term.
Jetstar explained that main reason for term was to discourage travel agents
buying blocks of cheap fares and then reselling.
Change fee OK to compensate for admin.
No unconscionable conduct. Complaint is about terms of contract, not any
relevant conduct.
©MNoonan2009
DCAV v. Craig Langley P/L & Matrix Pilates
and Yoga P/L [2008] VCAT 1332
In response to complaints in relation to contracts used in the
fitness industry, the Director sought declarations and
injunctions restraining Defendants from using certain terms in
contracts.
Declarations and injunctions granted.
Various terms unfair
Terms of contract not clearly expressed
Terms created confusion
©MNoonan2009
DCAV v. Craig Langley P/L & Matrix Pilates
and Yoga P/L [2008] VCAT 1332
“2 (i)..If fees are not paid on the due date, you agree that we may continue
to debit the nominated account with the total amount due without
notice to you…
(ii) In the event that you do not pay the amount payable under this
Agreement within 31 calendar days of the due date expressed on the
Agreement, the Club and the Billing Agent may at their discretion
terminate the Membership and this Agreement. Upon such termination
of this Agreement, all amounts outstanding shall become immediately
due and payable without further notice of demand…
(iii) I/We authorise the business to vary the amount of the payments from
time to time as provided for in the business agreement. I/We authorise
Ezi Debit to vary the amount of the payments upon instructions of the
Business. I/We do not require Ezi Debit to notify me/s of such
variations to the debit agreement.”
©MNoonan2009
DCAV v. Craig Langley P/L & Matrix Pilates
and Yoga P/L [2008] VCAT 1332
Terms 2(i),(ii) and (iii) unfair terms because:
In situations where relevant payment or obligation to make payment is
bona fide in dispute they enable gym to recover payment and deny
opportunity to raise dispute or stop payment.
Power to debit for “total amount due” in (ii) enables gym to debit for more
than the “payment due” without notice
Unilateral ability to vary amount of payments and destroy the bargain
Authorises a third party Billing Agent to terminate without notice and in its
unfettered discretion
THEREFORE they
Penalise consumer but not gym for breach
Permit gym unilaterally to determine breach and to interpret meaning
Permit gym to terminate but not consumer
Permit unilateral variation of characteristics of services.
Create significant imbalance
©MNoonan2009
DCAV v. Craig Langley P/L & Matrix Pilates
and Yoga P/L [2008] VCAT 1332
“You can only cancel your membership prior to the
expiry of the minimum term if you become medically
incapacitated, or if you relocate to an area not within
20ikm of the studio or if we make changes to the
contract, which adversely affect you…..”
©MNoonan2009
DCAV v. Craig Langley P/L & Matrix Pilates
and Yoga P/L [2008] VCAT 1332
Term unfair because:
It enables gym to avoid liability for breach that would
otherwise entitle consumer to cancel or require refund
It false or misleadingly represents the exclusion of a
condition/warranty right or remedy elsewhere in the act
It has object or effect of preventing or deterring consumer
from pursuing or exercising rights
Where consumer cancels agreement term enables gym to
refuse to make any refund, which in some circumstances
constitutes a penalty
It impliedly reserves a right for the gym, but not consumer to
unilaterally vary any term of the contract
All of which create significant imbalance
©MNoonan2009
DCAV v. Craig Langley P/L & Matrix Pilates
and Yoga P/L [2008] VCAT 1332
Also various other unfair terms relating to fees and
the term of the agreement.
Also agreement not clearly expressed. A large
number of words or phrases used which were not
defined or appeared to be different terminology to
mean the same thing or using the same terminology
to mean different things.
Variety of terms used which were ambiguous or
inconsistent with other terms.
©MNoonan2009
Unfair terms-Insurance Contracts
s.15 of the Insurance Contracts Act (ICA) operates to exclude operation
of ACL.
“(1)A contract of insurance is not capable of being made the subject of
relief under:
(a)Any other Act; or
(b)a State Act; or
(c)An Act or Ordinance of a Territory.
(2) Relief….means (a) the judicial review of a contract on the ground that
it is harsh, oppressive, unconscionable, unjust unfair or inequitable; or (b)
relief for insureds from the consequences in law of making a
misrepresentation; but does not include relief in the form of
compensatory damages.”
©MNoonan2009
Unfair terms-Insurance Contracts
Considerable controversy over whether insurance contracts should be
covered by ACL unfair provisions.
Senate Economics and Legislation Committee concluded that
consumers are not provided with adequate protection in insurance
contracts under existing law.
Insurance Industry argues the reverse-s.14ICA prevents a party from
relying on a provision if to do so would be to fail to act with the
“utmost good faith”. Ss. 35,37 prevent reliance on unusual and “non
standard” clauses if not previously drawn to attention of insured. Ss.
21, 21A, 26, 28 include safeguards. Ss. 44, 46,47 prevent insurers
from relying on certain clauses.s.53 renders void provisions that
permit insurers to vary terms to the prejudice of anyone but
themselves. S.54 restricts the extent to which an insurer can rely on
an act or omission of insured.
©MNoonan2009
Unfair terms-Insurance Contracts
Proposed amendments will be implemented
See later Insurance module
©MNoonan2009
Exam Q September 2012
81 year old Michael signed up to Kim’s Gym for “a
little light exercise…” but found he had entered
into a 3 yr contract with onerous terms.
Students were expected to analyse the contract
and to assess whether the provisions covering
unconscionable or unfair contract terms in the
ACL would have been able to assist Michael.
©MNoonan2009