Unfair Contract Terms:
The Victorian Experience
Dr Elizabeth Lanyon
Director Policy and Legislation
Consumer Affairs Victoria
What do you see?
It’s all in the point of view!
Unfair Contract Terms Part 2-3
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Rest of ACL: familiar threshold of $40,000 and then goods or services of a kind
ordinarily acquired for personal domestic and household use or consumption
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More limited scope than rest of ACL:
– Must be a consumer contract that is a standard form contract
– One of the parties is an individual
– Must acquire goods or services (including land) wholly or predominantly
for personal domestic or household use or consumption
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Apply to contracts entered into on or after the commencement of the
provisions
Or terms varied after that date
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What is an unfair term?
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A term in a consumer contract is unfair if :
– it would cause a significant imbalance in the parties’ rights and
obligations arising under the contract; and
– the term is not reasonably necessary to protect the legitimate interests
of the party who would be advantaged by the term
– It would cause detriment whether financial or otherwise to a party if it
were to be applied or relied on.
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Court must take into account the extent to which the term is transparent
and the contract as a whole
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List of indicative factors (reproduced from UK and Vic Act) s 7
UCT provisions do not apply to terms that:
– define the main subject matter of the contract
– set the upfront price payable under the consumer contract
– are required or expressly permitted by a law of the Commonwealth
or a state or territory but only to that extent
– Some special contracts eg shipping, insurance, constitutions
Effect of an unfair term?
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An unfair term or prohibited unfair term in a consumer contract (that is
a standard form contract) is void.
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Contract will continue to bind parties if capable of operating without
the term
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Both regulator & individual party to a contract can seek:
– declarations
– injunctions
– non party redress
with respect to unfair contract terms
The Victorian Experience So Far
Industry sectors…
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Mobile phones
Hire cars
Fitness centres
ISPs
Major events (eg Grand Prix, M2006,
M2007)
Carpet and curtain retailers
Domestic building contracts
Tenancy agreements (incl. REIV)
Foxtel
Car Parks
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Car and Goods Auctions
Advanced Hair Studio
Interstate Taxi Trucks
Internet Education
Retirement Villages
P & O Cruises
Dymocks rewards card
Coles Myer Giftcards
****ACL Guide
Vic Guides, ASIC guidance UK bulletins, EU cases, court cases UK and Vic
Standard Form Contract
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No definition of standard form contract
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Rebuttable presumption that contract is a standard form contract
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In determining whether a contract is a standard form contract, the Court may
consider any relevant matters, but must consider whether:
– one of the parties has all or most of the bargaining power relating to the
transaction
– the contract was prepared by one party before any discussion relating to the
transaction commenced
– another party was, in effect, required to accept or reject the terms in the
contract (other than the ‘excluded terms’) in the form in which they were
presented (that is, on a ‘take-it-or-leave-it’ basis)
– another party was given an effective opportunity to negotiate the terms of
the contract (other than the ‘excluded terms’)
– the terms of the contract (other than the ‘excluded terms’) take into account
the specific characteristics of another party or the particular transaction; and
– any other matter prescribed by the regulations.
Indicative Factors
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permits the supplier but not the consumer to avoid or limit performance of the contract
permits the supplier but not the consumer to terminate the contracts
penalises the consumer but not the supplier for a breach or termination of the contract
permits the supplier but not the consumer to renew or not renew the contract
permits the supplier to assign the contract to the consumer’s detriment without the consumer’s
consent
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permits the supplier to vary the price without the right of the consumer to terminate the contract
permits the supplier but not the consumer to vary the terms of the contract
permits the supplier unilaterally to vary the characteristics of the goods or services to be supplied
under the contract
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permits the supplier unilaterally to determine whether the contract has been breached or to
interpret its meaning
limits the supplier’s vicarious liability for its agents
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limits the consumer’s right to sue the supplier
limits the evidence the consumer can produce in legal proceedings on the contract
imposes the evidential burden on the consumer in such legal proceedings.
Lessons from Victoria
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Senior management need to be involved to ensure timely and appropriate response to
Consumer Affairs Victoria’s concerns and monitor progress closely
– Inappropriate delegation may cause escalation in compliance action
– Senior management likely to be more experienced with contract negotiation to
achieve balance of rights and obligations and understand allocation of risk issues.
- Involve in house counsel or external lawyers in review of terms
– UCT focuses on construction of clause not on practice or on usual
implementation of term. Liability issues may require legal advice.
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View review of terms as a positive opportunity to improve competitive edge, improve
consumer satisfaction and reduce complaints.
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A simpler and clearer contract also assists staff.
Typical Issues
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Completely one sided contracts where all supplier’s obligations depend
on statutory guaranties
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Unilateral variation
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Failure to itemise all costs and penalties on termination
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Termination for “any” breach
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Purported exclusion of all liability for loss
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Debiting arrangements
What about these terms?
• Should the vehicle booked be unavailable through unforseen
circumstances, XX reserves the right to substitute an alternative
vehicle without prior notification and at no extra cost, save for
any additional running costs pertaining to the substitute vehicle.
This shall not constitute a breach of contract and does not entitle
the customer to a refund
• We can cancel the contract if you are in breach of any of the
terms of this agreement
Terms 2
Where your equipment causes a fault in your service, we can
charge you a call-out fee and our reasonable charges for
rectifying the fault.
Now
Where your equipment causes a fault in your service that we need
to repair, we can charge you a call out fee and our reasonable
charges for repairing the fault. We will tell you the amount of the
call-out fee and the hourly rates [supplier] charges for rectifying
faults before we commence work.
Terms 3
a) Our records are sufficient proof that a charge is payable unless
they are shown to be incorrect
(b) Any claim that charges in a bill are incorrect must be made
within 12 months of the bill’s due date.
Now
We are required by various industry codes to ensure that our bills
are accurate and verifiable and we are committed to complying
with these requirements. Our records are sufficient proof that a
charge is payable unless they are shown to be incorrect
Terms 4
We may change [our terms] without your agreement.
Now
We cannot change the monthly access fee, minimum monthly fee or
any early termination fee that applies to your service during the term
of your fixed length contract without your consent. Unless your
current fixed length contract ends and you have not agreed to enter
into another fixed length contract for your service including as part
of an individually negotiated agreement, you will become a casual
customer for that service. As a casual customer, we can vary all of
the terms of your contract for that service if we follow the process
outlined below under [name and number of clause].