Consumer Protection / Unfair Terms

Bill to amend Unfair Terms legislation in Victoria

The Fair Trading and Other Acts Amendment Bill 2008 proposes to amend Part 2B of the Fair Trading Act 1999 (Vic)  dealing with unfair terms.  The Bill had its second reading on 4 December 2008 and, if passed, will make some significant changes – in particular, it will extend the operation of the unfair terms legislation to consumer credit contracts and, more importantly, will remove the ‘good faith’ element from the definition of unfair terms.

‘Good Faith’
Currently, section 32W of the Fair Trading Act provides that ‘A term in a consumer contract is to be regarded as unfair if, contrary to the requirements of good faith and, in all the circumstances, it causes a significant imbalance in the parties’ rights and obligations arising under the contract to the detriment of the consumer.’  Although there has been little judicial interpretation of this legislation (which came into operation in late 2003), the meaning of ‘good faith’ in this context was discussed by Justice Morris in Director of Consumer Affairs Victoria v AAPT Ltd (Civil Claims) [2006] VCAT 1493 where he said, amongst other things, that ‘the manner in which the Parliament has referred to the requirements of good faith is curious … the manner of expression suggests that the phrase is either surplusage or simply performs an adjectival role, designed to assist in the assessment of whether a term in a consumer contract causes an imbalance which is ‘significant’.’  Concluding that it was unlikely parliament intended it to be surplusage, his Honour went on to consider in detail possible interpretations of good faith and how it might be used to assist in determining whether or not a term causes ‘significant’ imbalance in the parties’ rights and obligations.

Justice Morris’ view was, however, recently overturned by Justice Cavanough int he Victorian Supreme Court.  In Jetstar Airways Ltd v Free [2008] VSC 539, Justice Cavanough held that the ‘contrary to good faith’ requirement was a separate and distinct limb element of the ‘unfair term’ test and not merely to be used to assist in determining the primary test of ‘significant imbalance’.

The proposal to remove reference to ‘good faith’ is a positive one (clause 5 of the bill would omit the words ‘contrary to the requirements of good faith and’ from s 32W).  The term has simply caused confusion and made it unnecessarily difficult to establish the unfairness of a term.

Credit contracts
Currently Part 2B does not apply to contracts which are regulated by the Consumer Credit Code.  If passed, this bill will remove that exemption.

Other amendments
The bill also proposes a number of other amendments to Part 2B

  • it creates a presumption that Part 2B applies where that has been alleged (shifting the onus to the defendant to prove otherwise – this is significant given the restrictive definition of consumer in this Part) (clause 10 of the Bill)
  • it amends s 32ZA and s 32ZC to enable the Director of Consumer Affairs Victoria to apply to the Supreme Court or County Court (in addition to VCAT) for an injunction against a person using an unfair term in a consumer contract or a declaration that a contract is a consumer contract or standard form contract or contains an unfair term or (in the case of standard form contracts) a prescribed unfair term
  • inserts a new clause 32ZC(4) enabling a Court or Tribunal to make remedial orders (including damages, restitution, property transfers, contractual variations, specific performance etc) where they have made a declaration (on application by the Director) that a term is unfair
  • makes clear that both non-punitive corrective advertising orders (clause 11) and punitive adverse publicity orders (clause 12) may be made if a person is found guilty of an offence under the FTA

The Victorian Parliament next sits on 3 February

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