New unfair contracts laws come into force on 1 January 2010

The Trade Practices Amendment (Australian Consumer Law) Bill 2009 (ACL) was introduced to Parliament in June 2009 with the purpose of implementing the national unfair contract terms provisions. The provisions will come into effect on 1 January 2010. It is important for organisations to consider its application now and take any necessary steps to ensure compliance by 1 January 2010. Organisations with standard contracts for consumers need to consider the application of this new law now.

The ACL will apply to standard form consumer contracts and should a term of such a contract breach these provisions that term will be unfair and rendered void. Remedies such as damages or an injunction are expected to be available under the Trade Practices Act 1974 (Cth) against a party trying to enforce an unfair term.

A consumer contract is defined as being a contract for a supply of goods or services or for the sale or grant of an interest in land to an individual and is for personal, domestic or household use or consumption. This means that business to business contracts will be excluded from the scope of the unfair contract terms provision, except in respect of soletraders.

The contract must also be in a ‘standard form' for the unfair contract terms to be applicable. Various factors will be considered when determining whether the contract is in a standard form including whether one of the parties has all or most of the bargaining power, whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties and whether one party was required to either accept or reject the terms of the contract as opposed to negotiating them. There is a rebuttable presumption that a contract is a standard form contract and as such the party alleging that it is not a standard form contract will carry the burden of proving this.

To determine whether a term is unfair the following must be considered:

• whether the term causes a significant imbalance in the rights and obligations of the parties, and
• whether the term is reasonably necessary to protect the legitimate interest of a party to the contract.

The Bill sets out a non-exhaustive list of examples of types of terms that may be considered unfair and includes terms that confer a unilateral right of termination or right to vary the terms of the contract, terms that penalise one party but not the other for breach of contract and terms that permit one party (but not the other) to avoid or limit performance of the contract.

There is also provision in the Bill for specific contract terms to be prohibited in the regulations, however, at present none have been proscribed.

The ACL has a wide ambit of operation and has the potential to impact upon a number of different day to day consumer transactions. Although the ACL is not yet enacted or in force it is important to consider the Bill and its possible implications for your business now. If you deal with individuals or sole traders or have clients that do, any standard form contracts should be reviewed carefully to determine if they contain any potentially unfair terms and amended if necessary prior to 1 January 2010.