Consumer Protection / Reports and Inquiries / Unfair Terms

Unfair Terms Consultation

Chris Bowen MP is at it again releasing yet another consultation paper – this time on Unfair Terms in Consumer Contracts.  It is titled: The Australian Consumer Law: Consultation on draft provisions on unfair contract terms.  The consultation paper contains a Draft Bill – the ‘Trade Practices Amendment (Australian Consumer Law) Bill 2009: Unfair and prohibited contract terms.  The plan is to introduce legislation in June 2009 with the prohibition to commence on 1 January 2010.  This will be the first Bill implementing part of the Australian Consumer Law (ACL) – a second bill implementing the bulk of the ACL will be introduced in early 2010.

The new law will prohibit unfair terms in standard form contracts (not limited to ‘consumer’ contracts) and provide remedies where the claimant can show detriment or substantial likelihood of detriment to the consumer.  A term will be deemed unfair ‘when it causes a significant imbalance in the parties’ rights and obligations arising under the contract and it is not reasonably necessary to protect the legitimate list interests of the supplier’ – a ‘grey-list’ of types of terms that might be considered unfair will be included.

Victoria has already had unfair terms legislation for some time.  This legislation will in some ways water down the existing Victorian provisions (which will be repealed when the ACL enters force).  The Victorian provisions apply to all ‘consumer contracts’ (defined narrowly in the Fair Trading Act for purposes of unfair terms provisions) not just to standard form contracts.

However, in some respects the new law will be broader than the Victorian law. First, it is not restricted to ‘consumer’ contracts.  Second, it will not contain a reference to ‘good faith’, which does form part of the Victorian definition of an unfair term and has caused some confusion and potentially limited the scope of the prohibition.  The Victorian definition states (in s 32W): ‘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.’  The Productivity Commission originally recommended retaining the ‘good faith’ reference, but the current model, adopted by the MCCA removes the requirement because of the ‘uncertain application of the principle at common law’.  UPDATE: Note that legislation passed earlier this year (assented to on 10 June) has removed the good faith element from the Victorian unfair terms provision.

The proposed definition of unfair term in a standard form contract is one that ‘would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term’.

In many other respects the draft bill is remarkably similar to the Victorian unfair terms legislation.

The consultation paper also details how the Australian Consumer law will operate.  It notes that the National Partnership Agreement to Deliver a Seamless National Economy (NPA) commits all Australian governments to pass legislation to implement a national consumer law by the end of 2010′.  Like the national competition policy, the TPA will be amended to create a schedule including the ACL and provide for jurisdiction of the courts, modification of the ACL etc.  The states and territories will introduce legislation to apply the ACL as part of their laws and make modifications to give effect to the ACL, ‘including repealing existing provisions which deal with matters under the ACL’.

The consultation paper calls for submissions and comments generally on the draft unfair contract terms provisions – it doe snot ask any specific questions.  Submissions close on 22 May (less than a fortnight to comment!)

See Press Release.

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  1. Pingback: Topics about Fairtrade » Archive » Unfair Terms Consultation

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