A guide to the unfair contract terms law

1 June 2010

A guide to the unfair contract terms law, a new publication developed jointly by the Australian Competition and Consumer Commission (ACCC), the Australian Securities and Investments Commission (ASIC) and state and territory consumer protection agencies, was released today.

The guide will assist businesses, consumers and their advisors to understand the rights and obligations contained in the new unfair contract terms (UCT) law which commences on 1 July this year.

Many industries – including telecommunications, health and fitness, travel, utilities and building – use standard form contracts and it is common for consumers to be offered the same or a similar 'standard form' contract that is generally not subject to negotiation.

"The UCT law is designed to address the detriment that can arise in circumstances where consumers are offered contracts on a 'take it or leave it' basis and those contracts contain terms that are unfair," ACCC deputy chair Peter Kell said today.

"The ACCC will seek suppliers' cooperation to remove terms that may be unfair from consumer contracts," Mr Kell said.

"Where necessary, the ACCC will take further steps, including enforcement action, if faced with a contract term it believes to be unfair to consumers," he said.

On commencement, the ACCC will seek compliance with the UCT provisions and will review standard form consumer contracts where consumer harm is evident. The ACCC also considers the UCT provisions will form an important additional tool to its consumer protection toolkit.

"Ultimately the ACCC cannot endorse or 'OK' a term in a standard consumer contract, but this guide will help businesses to understand the operation of the new law," Mr Kell said.

The ACCC is also developing additional guidance for small business and consumers to further their understanding of this new law and these materials will be available from 1 July.

More information about the new UCT provisions is available via the For Consumers and For Businesses sections of the ACCC website www.accc.gov.au. A guide to the unfair contract terms law is available on the publications section of the website.

The UCT law is part of the Trade Practices Amendment (Australian Consumer Law) Act (No.1) 2010 which was passed by Parliament in March 2010 and applies to standard form consumer contracts.
 
From 1 July 2010, standard form consumer contracts that are entered into, or terms of existing contracts that are renewed or varied after that date, will be subject to the unfair contract terms law.

Under the law, a term in a standard form consumer contract is considered to be unfair if:

  • it causes significant imbalance in the parties' right 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, and
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

The court must also consider how transparent the term is within the contract and the contract as a whole when decided whether the term is unfair and therefore void.

While a term declared by the court to be unfair will be void, the contract will continue to bind the parties to the contract, to the extent that the contract is able to operate without the unfair term.

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Release number: 
NR 114/10
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