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Australian Consumer Law David Littlejohn Special Counsel 21 March 2014 3350069v1
Trade Practices Act 1974 Competition and Consumer Act 2010 Schedule 2: Australian Consumer Law (“ACL”) 2 Development of Australian consumer legislation
Protection Fair trading Consistency Simple, clear and concise law 3 Purpose of the legislation
Freedom of contract Equal footing/bargaining power Free to walk away Genuine negotiation Literacy 4 Assumptions in the current consumer market
Standard form contracts Little opportunity for negotiation “Take it or leave it” 5 Realities of the consumer market
Information asymmetry Opportunity to read Literacy 6 Realities of the consumer market (continued
Goods Services Interest in land Financial products or services Personal, domestic or household use 7 Consumer contracts
The elements of a standard form contract are generally considered to consist of a pre-printed form offered on a “take it or leave it” basis to all consumers for that particular type of transaction. 8 Standard form contracts
Subject matter of contract Upfront price Terms required by law 9 Terms to which section 23 does NOT apply
Under the ACL, a term is unfair if: it 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; and it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.31 10 When is a term unfair?
Significant imbalance in the parties’ rights and obligations arising under the contract 11 Significant imbalance
“Reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term” 12 Reasonably necessary
Would the term cause detriment if it were to be applied or relied upon? It is not necessary that a term be enforced to be found that it is unfair. The detriment caused by the term does not need to cause purely financial detriment. 13 Detriment
14 The effect of “unfairness” in a contract The term once declared as being ‘unfair’ is void. If the term is not a fundamental term of the contract and is severable from the contract the term will be void and the contract will continue to operate as if the unfair term did not exist. If however, the term is an essential part of the contract and the contract is impossible to perform in the absence of the unfair term, the unfair term invalidates the entire contract.52 The assessment as to whether the contract can continue to operate without the term rests solely with the court.
15 Mobile phone contracts Suppliers should ensure their contracts do not contain any of the following unfair contract terms, which Consumer Affairs Victoria considers unfair. These are terms that: give suppliers the right to unilaterally vary prices and other terms and conditions restrict the liability of the supplier or its employees or agents. penalise the consumer for breach or termination of a contract. prevent or restrict the consumer’s dispute resolution options.
16 Gym membership contracts Suppliers should ensure their contracts do not contain any of the following contract terms, which Consumer Affairs Victoria considers unfair. These are terms that: result in the automatic renewal of memberships allow the health and fitness centre to vary any or all aspects of the services it provides make it difficult for consumers to terminate memberships penalise consumers for terminating memberships - penalise consumers for breach of contract.
17 Unfair contract term: Yes or No?