As a consumer, it’s likely that you enter into a number of contracts every day - even if you don’t realise it. Each time you make a purchase, hire a tradesperson, book a holiday, join the gym, top up your phone account, or download music, you are entering a contract.

A contract is any agreement you make with another party that is intended to be legally enforceable. A contract, generally, doesn’t have to be in writing; it can be verbal or agreed to with the click of a mouse. Often it involves the payment of money, but not always.

Terms and conditions set out the rights and responsibilities of each party to the contract. While you may have the opportunity to negotiate before you agree, these days it is common for you to be offered the same or a similar contract as everyone else: this is known as a standard form contract.

Although businesses may use standard form contracts to improve efficiency, it is important that businesses takes account of your consumer rights when preparing their contracts.

New laws protecting you from unfair terms in standard form consumer contracts came into effect on 1 July 2010. The law applies to contracts that are entered into on, or after, 1 July 2010, and to terms of existing contracts that are renewed or changed on or after 1 July 2010.

The new law offers you increased protection in circumstances where you have little or no opportunity to negotiate with the business.

Remember that contracts are legal agreements. You should do your best to understand your rights and obligations under any contract before you agree to it. Ask questions and seek independent advice if there is anything you are unsure about or don’t understand. If the contract doesn’t meet your needs, don’t be afraid to negotiate or shop around. If the business gives you an explanation of particular terms or words in the contracts, ask them to put the explanation in writing and attach it to the contract.

How can I tell if a term in my contract is unfair?

The following questions can help you recognise a potentially unfair term, but it is important to note that the final decision on whether a term is unfair can only be made by a court.

Does the term cause a significant imbalance between your rights and obligations and those of the business?

Does the business have more power than you? Are you penalised if the contract is terminated (through no fault of your own) but the business is not? Can the business change important terms of the contract without asking you? Can only the business decide if the contract has been breached?

Is the term reasonably necessary to protect the legitimate interests of the business?

While it may appear to you that a term is unfair, the business may have a genuine commercial reason for including it. However it is up to the business to prove to the court that it has a good reason.

Would the term cause you detriment (financial or non-financial) if the business tried to enforce it?

Would you lose money or suffer inconvenience, delay or distress if the term was enforced?

How transparent is the term?

Can you understand what the term says? Is the term presented clearly and expressed in reasonably plain language? Or is it hidden in fine print or written in complex technical language?

The fairness of a term must be considered in the context of the contract as a whole.

For example, what is unfair in one context might not be unfair in another. You might have extra rights or benefits in the contract that balance the potential unfairness of a term.

Are there any terms or contracts that the law does not apply to?

Most terms in standard form consumer contracts are covered by the unfair contract terms law. However, terms in consumer contracts that set the price or define the product or service being supplied are exempt from the test for unfairness in the law.

Terms that are required or permitted by another law, such as terms limiting liability permitted by the Australian Consumer Law (contained in a schedule to the Competition and Consumer Act 2010), are also exempt.

There are also contracts for certain goods or services that this law does not apply to, including:

Most insurance contracts, such as car insurance, home and contents insurance and consumer credit insurance contracts (which may be covered under the Insurance Contracts Act 1984). However, some insurance contracts, including private health insurance, are covered by the new law.
Constitutions, including the constitutions of many superannuation funds, companies, and managed investment schemes.
Contracts for the shipping of goods.

What can you do if there is an unfair term in your contract?

If you think a term in your contract is unfair and you cannot resolve the issue with the business, you have several options.

ACCC, ASIC and state and territory consumer protection agencies

The ACCC and state and territory consumer protection agencies can provide you with general information on the unfair contract terms law as they apply to everyday goods and services.

The Australian Securities and Investment Commission (ASIC) can provide similar information about contracts for financial products and services (such as some insurance contracts, and contracts for credit cards and mortgage brokers).

These agencies can also take legal action through the courts to have a term declared to be unfair, which if successful will result in the term being removed from the contract.

The ACCC and ASIC may also apply to a court for various orders, including compensation for consumers and orders to stop a business from doing something.

Alternative dispute resolution schemes

Alternative dispute resolution schemes can help consumers to resolve issues with businesses without going to court. Ombudsman services, for example, provide dispute resolution services in many industries including telecommunications, finance, and energy and water supply services.

You can also search the ACCC’s online Consumer and Business Directory for the contact details of over 1600 private, community and government organisations that offer consumer and business complaint-handling services, including industry associations, businesses, government agencies and independent mediation services.

Take action yourself

If you think a term in your contract is unfair, you can take legal action yourself through the courts. This can include legal action to recover money or to compensate for damage that you have suffered because of the unfair term. You should consider seeking legal advice if you are considering this option. Your lawyer or local community legal centre may be able to provide you with information and assistance to take action yourself.

Remember only a court makes the final decision about the fairness of a term and the contract will continue to operate to the extent that it can without the unfair term.

For further information

The ACCC and state and territory consumer protection agencies can provide general information on the unfair contract terms laws as they relate to everyday goods.

The ACCC has also produced the Consumers and unfair contract terms publication.

ASIC can provide similar information in relation to financial products and services (such as some insurance contracts, and contracts for credit cards and mortgage brokers).

Unfair contract terms