Unfair Contract Terms Case Study

Contract law is one of the pillars of Australia’s legal system. It provides certainty for individuals and entities that financial agreements, or any agreement to do with payment or consideration of some form, can be legally enforced through the courts. A contract is made up of terms, which can be either stated or implied. It is these terms that state the obligations and rights of each party to the contract, so naturally the negotiation of terms is often the longest process involved in drafting a complex contract.

On October 9, 2003, Victoria introduced Australia’s first legislation forbidding unfair contract terms. The legislation was successful and resulted in the widespread removal of contract terms that were considered unfair from contracts commonly used in several key industries. Consumer Affairs Victoria is the state body responsible for enforcing these laws where they apply to consumers, which is often the case as consumers traditionally have little to no ability to negotiate the terms of contracts with large organisations.

This Victorian legislation provided the basis for Commonwealth unfair contract terms laws which came into effect on July 1, 2010. The four case studies listed below demonstrate how the legislation was applied in Victoria, in that the four organisations examined below had to change the terms of key contracts in order to satisfy the requirements of the unfair terms legislation.

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2007 World Swimming Championships

2007’s World Swimming Championships were held in Melbourne, and organised by the World Swimming Championship Corporation (WSCC). When the WSCC drafted the terms of purchase for the event’s ticket sales, they included conditions which allowed the WSCC to change venues or reschedule events after tickets had been bought. Under these conditions, people who purchased tickets were not entitled to a refund should the WSCC reschedule an event or change venues. If a venue change occurred, ticket holders could request to exchange their tickets for another event.

According to the WSCCs draft of its 2007 attendance conditions, ticket holders could only have their purchase refunded if:

  • They had purchased a ticket for an event that was cancelled and not rescheduled;
  • The entire 2007 World Swimming Championships happened to be cancelled; or
  • They were entitled by ‘operation of the law’ to a refund.

Consumer Affairs Victoria intervened to enforce changes to the WSCC’s 2007 attendance conditions. As a result of the intervention, ticket holders could have their ticket refunded if:

  • Changes were made post-purchase to the date or venue originally scheduled for an event;
  • A session’s starting time was altered by more than two hours from the time originally advertised when the ticket was purchased;
  • A session was cancelled after it had started, for reasons that were within the WSCC’s control;
  • Events included in a session were substantially altered post-purchase.

Consumer Affairs Victoria also enforced other changes to the contract drafted by the WSCC, including changing several terms that sought to exclude the WSCC from certain liabilities.

AAPT

In late 2004, Consumer Affairs Victoria brought a case against AAPT, a telecommunications provider over unfair terms in AAPT’s mobile phone contracts. The case was brought before the Victorian Civil and Administrative Tribunal (VCAT), with findings indicating that many of AAPT’s terms were indeed unfair.

Originally, AAPT had given itself the power to:

  • Vary its contracts unilaterally;
  • Continue charging customers even if services had been suspended;
  • Change suppliers, products, and charges without any notice; and
  • Immediately terminate contracts.

AAPT voluntarily changed the terms of its contracts to reflect the requirements of the unfair contracts terms legislation following the VCAT hearing, and applied these changes retrospectively in May 2005. This was the first case of its kind in Australia.

Foster’s 2006 Australian Formula 1 Grand Prix

In 2006, the Australian Grand Prix Corporation (AGPC) changed its attendance conditions to ensure that ticket sales were subject to fair terms. Consumer Affairs Victoria assisted the AGPC with drafting and reviewing the changes.

These changes resulted in:

  • Narrowing exclusions of liability which the AGPC had sought in contracts drafted in previous years;
  • The removal of terms which allowed the AGPC to unconditionally vary significant aspects of the Grand Prix;
  • The conditions of sale being altered to more clearly express circumstances where ticket holders were eligible for a refund;
  • Alterations which ensured that the AGPC was appropriately applying the recreational services waiver; and
  • A clearer expression of terms and conditions in general.

Consumer Affairs Victoria reported that the AGPC was highly responsive, timely, and generally positive in its cooperation regarding the changes.

Foxtel

Foxtel implemented a revised set of terms and conditions for its subscription-based pay T.V service contracts on 1 January 2006 as a result of discussions with Consumer Affairs Victoria. Further changes were implemented in August 2006 and March 2007 following additional requests made by Consumer Affairs Victoria.

After rolling out its digital service, Foxtel was the subject of hundreds of enquiries and 50 written complaints to Consumer Affairs Victoria relating to billing issues and the terms of customer contracts.

After being engaged by Consumer Affairs Victoria, Foxtel agreed to alter its contracts to ensure that they:

  • Clearly explained the company’s obligations to maintain, repair, or replace faulty equipment; and
  • Included a clear explanation of Foxtel’s obligations regarding the installation and removal of equipment.

These case studies demonstrate how important it is that businesses and organisations draft their contracts in accordance with contract law, and that contracts are reviewed by experts in contract law before they are implemented.

Contact LGM Advisors and speak to a contract lawyer Melbourne expert today on (03) 9832 0608 or by email at marketing@lgmadvisors.com.au.