Unfair Contract Terms:The Victorian Experience

Dr Elizabeth LanyonDirector Policy and LegislationConsumer Affairs Victoria

What do you see?

It’s all in the point of view!

Unfair Contract Terms Part 2-3

• Rest of ACL: familiar threshold of $40,000 and then goods or services of a kind ordinarily acquired for personal domestic and household use or consumption

• More limited scope than rest of ACL:– Must be a consumer contract that is a standard form contract– One of the parties is an individual – Must acquire goods or services (including land) wholly or predominantly

for personal domestic or household use or consumption

• Apply to contracts entered into on or after the commencement of the provisions

• Or terms varied after that date

What is an unfair term?

• A term in a consumer contract is unfair if :– it would cause a significant imbalance in the parties’ rights 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– It would cause detriment whether financial or otherwise to a party if it

were to be applied or relied on.

• Court must take into account the extent to which the term is transparent and the contract as a whole

• List of indicative factors (reproduced from UK and Vic Act) s 7

UCT provisions do not apply to terms that:

– define the main subject matter of the contract – set the upfront price payable under the consumer contract

– are required or expressly permitted by a law of the Commonwealth or a state or territory but only to that extent

– Some special contracts eg shipping, insurance, constitutions

Effect of an unfair term?

• An unfair term or prohibited unfair term in a consumer contract (that is a standard form contract) is void.

• Contract will continue to bind parties if capable of operating without the term

• Both regulator & individual party to a contract can seek:– declarations – injunctions – non party redresswith respect to unfair contract terms

The Victorian Experience So Far

Industry sectors…

• Mobile phones• Hire cars• Fitness centres• ISPs• Major events (eg Grand Prix, M2006,

M2007)• Carpet and curtain retailers• Domestic building contracts• Tenancy agreements (incl. REIV) • Foxtel• Car Parks

• Car and Goods Auctions• Advanced Hair Studio• Interstate Taxi Trucks• Internet Education• Retirement Villages • P & O Cruises• Dymocks rewards card• Coles Myer Giftcards

****ACL GuideVic Guides, ASIC guidance UK bulletins, EU cases, court cases UK and Vic

Standard Form Contract

• No definition of standard form contract

• Rebuttable presumption that contract is a standard form contract

• In determining whether a contract is a standard form contract, the Court may consider any relevant matters, but must consider whether:

– one of the parties has all or most of the bargaining power relating to the transaction

– the contract was prepared by one party before any discussion relating to the transaction commenced

– another party was, in effect, required to accept or reject the terms in the contract (other than the ‘excluded terms’) in the form in which they were presented (that is, on a ‘take it or leave it’ basis)‑ ‑ ‑ ‑

– another party was given an effective opportunity to negotiate the terms of the contract (other than the ‘excluded terms’)

– the terms of the contract (other than the ‘excluded terms’) take into account the specific characteristics of another party or the particular transaction; and

– any other matter prescribed by the regulations.

Indicative Factors

• permits the supplier but not the consumer to avoid or limit performance of the contract• permits the supplier but not the consumer to terminate the contracts• penalises the consumer but not the supplier for a breach or termination of the contract• permits the supplier but not the consumer to renew or not renew the contract• permits the supplier to assign the contract to the consumer’s detriment without the consumer’s

consent

• permits the supplier to vary the price without the right of the consumer to terminate the contract• permits the supplier but not the consumer to vary the terms of the contract• permits the supplier unilaterally to vary the characteristics of the goods or services to be supplied

under the contract

• permits the supplier unilaterally to determine whether the contract has been breached or to interpret its meaning

• limits the supplier’s vicarious liability for its agents

• limits the consumer’s right to sue the supplier• limits the evidence the consumer can produce in legal proceedings on the contract• imposes the evidential burden on the consumer in such legal proceedings.

Lessons from Victoria

• Senior management need to be involved to ensure timely and appropriate response to Consumer Affairs Victoria’s concerns and monitor progress closely

– Inappropriate delegation may cause escalation in compliance action – Senior management likely to be more experienced with contract negotiation to

achieve balance of rights and obligations and understand allocation of risk issues.- Involve in house counsel or external lawyers in review of terms

– UCT focuses on construction of clause not on practice or on usual implementation of term. Liability issues may require legal advice.

• View review of terms as a positive opportunity to improve competitive edge, improve consumer satisfaction and reduce complaints.

• A simpler and clearer contract also assists staff.

Typical Issues

• Completely one sided contracts where all supplier’s obligations depend on statutory guaranties

• Unilateral variation

• Failure to itemise all costs and penalties on termination

• Termination for “any” breach

• Purported exclusion of all liability for loss

• Debiting arrangements

What about these terms?

• Should the vehicle booked be unavailable through unforseen circumstances, XX reserves the right to substitute an alternative vehicle without prior notification and at no extra cost, save for any additional running costs pertaining to the substitute vehicle. This shall not constitute a breach of contract and does not entitle the customer to a refund

• We can cancel the contract if you are in breach of any of the terms of this agreement

Terms 2

Where your equipment causes a fault in your service, we can charge you a call-out fee and our reasonable charges for rectifying the fault.

Now

Where your equipment causes a fault in your service that we need to repair, we can charge you a call out fee and our reasonable charges for repairing the fault. We will tell you the amount of the call-out fee and the hourly rates [supplier] charges for rectifying faults before we commence work.

Terms 3

a) Our records are sufficient proof that a charge is payable unless they are shown to be incorrect

(b) Any claim that charges in a bill are incorrect must be made within 12 months of the bill’s due date.

Now

We are required by various industry codes to ensure that our bills are accurate and verifiable and we are committed to complying with these requirements. Our records are sufficient proof that a charge is payable unless they are shown to be incorrect

Terms 4

We may change [our terms] without your agreement.

Now

We cannot change the monthly access fee, minimum monthly fee or any early termination fee that applies to your service during the term of your fixed length contract without your consent. Unless your current fixed length contract ends and you have not agreed to enter into another fixed length contract for your service including as part of an individually negotiated agreement, you will become a casual customer for that service. As a casual customer, we can vary all of the terms of your contract for that service if we follow the process outlined below under [name and number of clause].