Unfair Contracts: ACCC to bring test cases?

After three years of little public action, the Australian Competition and Consumer Commission (ACCC) has issued a report in which it has announced it is moving to an "enforcement response" to resolve issues it perceives in relation to unfair contracts. 

The national unfair contract terms laws were the first part of the Australian Consumer Law to come into effect on 1 July 2010.  The laws allow a court or consumer tribunal to declare terms of standard form consumer contracts to be void if they are 'unfair'.  For these purposes, a term is unfair if it would cause a significant imbalance in the parties' rights and powers, goes beyond what is reasonably necessary to protect a supplier's legitimate interests, and would cause detriment if relied upon.  When considering whether a term is unfair, a court can also consider the transparency of the term (i.e. how clearly it is expressed and whether it was brought to the customer's attention) and the 'contract as a whole'.

These laws have far reaching implications for any business that uses standard form consumer contracts.  Despite this (or, perhaps, because of it), and despite the fact that the laws have now been in place almost 3 years, the ACCC's approach to enforcement to date has been very 'soft touch' - it has brought no test cases and provided little or no guidance on its approach to particular 'difficult' clauses.  Nevertheless, the ACCC has quietly reviewed a range of contracts being used in industries such as the airline, telecommunications, vehicle rental and fitness industries.   It has now issued a report, entitled 'Unfair Contract Terms:  Industry review outcomes', describing some of the changes it has negotiated with suppliers and some of the types of clauses it thinks are likely to be 'unfair'.

The ACCC has also sounded the warning that the period of 'soft touch' enforcement is over.  The inference is clear: the ACCC now intends to bring test cases where it has been unable to negotiate resolutions with suppliers in relation to clauses that it considers unfair.

The ACCC's report provides a useful summary of the types of terms that the ACCC considers may be unfair under the law.  These include the following:

• Terms that allow the business to change contract terms without consent.  Contracts for the provision of services for a term, such as telecommunications or gym contracts, sometimes include provisions allowing the business to amend the contract, even if it causes detriment to the customer, without notice or compensation.  The ACCC considers that such clauses will almost always be unfair.  The ACCC has also clarified that it does not consider it to be a satisfactory answer to show that such terms are never implemented in practice.
• Terms that unfairly restrict the customer's right to cancel the contract.  Many contracts seek to 'lock in' customers for a term.  Such clauses must be carefully drafted to ensure that they do not restrict the consumer's right to terminate in the event of a major breach of the contract or non compliance with a statutory consumer guarantee.  The ACCC also expressed the view that where there are early termination or exit fees, such fees must be displayed prominently and transparently to ensure the customer is aware of the duration of the contract and any early termination fees prior to entering into the agreement.
• Terms that allow the business to terminate the contract.  Some contracts for the supply of products or services allow suppliers to unilaterally suspend supply.  Even where a customer is provided a refund or not charged while services are suspended, the ACCC considers such terms to be potentially unfair.  If a business legitimately needs to be able to cancel or suspend a service, the relevant contractual term should be expressed to operate only in the particular circumstances that justify it. 
• Terms that limit a consumer's rights under the consumer guarantees.  Products or services purchased by consumers under standard form consumer contracts are likely to be covered by consumer guarantees.  Therefore, overly broad exclusions or limitations of liability are likely to be unenforceable.  Such clauses may also mislead consumers regarding their rights, exposing the business to a possible fine.  Exclusions and limitations of liability should be aligned with the remedies available to consumers under the ACL. 

In the report, the ACCC places considerable emphasis on the transparency of contract terms, urging businesses to 'consider opportunities for reducing the length and complexity of their standard form consumer contracts to improve transparency and accessibility'.  Ironically, the inability to use expressions such as "to the extent permitted by law" and the need to limit powers to particular circumstances normally means that drafting for unfair contract laws makes for a longer contract, not shorter.  Nevertheless, whilst clear drafting will not necessarily save an inherently unfair term, in our experience clear and concise drafting is a significant factor in assessing whether a term is unfair.  In addition to the drafting, businesses should consider the way in which the terms are presented (particularly the type size, colour and font used), the time and method by which terms are provided to customers and whether particularly onerous terms (such as minimum terms and early termination fees) are specifically brought to consumers' attention prior to purchase. 

There is a range of drafting techniques that can be used to make important contractual provisions resistant to challenge.  The announcement by the ACCC that its period of 'compliance review focus' has ended should be timely reminder to all businesses that use standard form contracts to review their contracts and consider amendments to protect important terms that may be vulnerable to challenge.

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Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 3 April 2013. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.