The terms of a consumer contract may be void if they are deemed to be unfair. The Commonwealth Competition and Consumer Act 2010 contains provisions which protect consumers from unfair terms in standard contracts. Unfair terms, once deemed as such, are treated as though they never existed. They cannot be enforced or relied upon. If the contract is able to be performed without the unfair term being present, then the contract itself is still binding.
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Standard Form Contract
Unfair contract terms protections apply to standard form consumer contracts. A standard form contract is one which is offered to many different consumers and is identical or almost identical each time it is offered. They are usually prepared in advance, and function on a ‘take it or leave it’ basis with alterations unable to be made at the behest of the consumer.
Common examples of such contracts include:
- Gym memberships;
- Mobile phone and internet contracts;
- Concert or event tickets;
- Utilities contracts.
There are exemptions which exclude some contracts or terms from the unfair contract terms provisions of the Act. Terms that specify an upfront price to be paid are exempt, as are terms that are included as a legal requirement.
- If a contract is deemed by a court to be unfair, the court will declare the offending term void whilst maintaining the contract itself if it is capable of functioning without the unfair term.
- A court will examine three things when deciding if a term is unfair; whether it creates a significant imbalance between the parties, whether the term is necessary to protect the legitimate interests of the party who has included it in the contract, and whether or not the term will cause unreasonable detriment.
- Unfair contract terms legislation is enforced by a number of bodies, including ASIC, the ACCC, and various state and territory agencies responsible for consumer protection.
Meaning of unfair
An unfair term is one that:
- Creates a substantial imbalance in the rights and obligations of the parties under the contract;
- Is not reasonably required to protect the genuine lawful interests of the party that introduced the term or would be advantaged by it;
- Would cause significant detriment to a party if it were relied upon.
Examples of unfair contracts
Examples of unfair terms could be, a term that:
- Allows a business to vary the contract, without enabling the consumer to do so;
- Allows a business to change the price of something without letting the consumer first choose to end the contract;
- Allows a business to alter the services or goods supplied under the contract without allowing the consumer a choice to terminate the contract; and
- Permits one party but not the other to terminate the contract, or alter/limit its performance etc.
Frequently Asked Questions
What makes a contract transparent?
In order for a contract to be transparent, its terms must be expressed in plain, reasonable, legible language. The terms must also be readily available to anyone that may be affected by them.
Are insurance contracts an example of standard form contracts?
Currently, insurance contracts are exempt from unfair contract provisions. Generally, contracts for financial products or services are exempt from the laws.
What happens if one of the terms to a contract is declared void?
That term will be considered as having been void from its inception. If a party attempts to enforce that term, they will not be able to. If the contract is able to be performed without the void term, then it will continue to bind the parties.
What if I signed a contract before the unfair contract terms provisions came into effect on 1 July 2010?
The new laws only apply to contracts entered into, or altered/varied after 1 July 2010.