COMMERCIAL AND PROPERTY UPDATE – JULY 2010
New Unfair Contracts Legislation
The Commonwealth government has passed amendments to the Trade Practices Act 1974 (Cth), to introduce provisions governing unfair contract terms. The amendments are made with the intent of offering protection to consumers and apply to contracts between a commonwealth corporation and an individual who acquires goods or services wholly or predominantly for personal, domestic, household use or consumption. The legislation introduces significant alterations to the party’s freedom to contract on terms as they see fit and also to the familiar principle of caveat emptor, or “buyer beware”.
Examples of contracts to which the legislation may apply include real estate purchases (including off the plan contracts), leases of residential land, easements and covenants over land, licences to occupy residential land, by-laws in a community titles title scheme, retirement village contracts (and accompanying long term leases), loan finance (both in respect of land and goods) and electricity, gym or phone contracts. As a result of the new provisions the standard REIQ contracts for House and Land and Dwellings in a Community Titles Scheme in Queensland have been amended.
The legislation provides that unfair terms within standard form contracts made, renewed or varied after 01 July 2010, as determined by a court, will be void. The contract will continue to be binding to the extent that the contract is capable of operating in the absence of the term.
A term will be unfair if it:
a) causes a significant imbalance in the parties’ rights and obligations arising under the contract; and
b) it is not reasonably necessary to protect the legitimate interests of the business; and
c) it would cause detriment to the other party if it were to be applied or relied upon.
In determining whether a term is unfair a court must consider whether:
a) one party has all the bargaining power;
b) a contract is prepared prior to any discussion between the parties;
c) one party has an opportunity to negotiate the terms of the contract; and
d) the terms take into account the specific characteristics of the consumer or the transaction.
The ASIC and the ACCC have provided the following examples of terms that may be offensive to the new provisions:
a) ability to unilaterally vary fundamental terms of the contract (including the price or the characteristics of the goods);
b) ability to assign the contract without detriment or consent of the other party;
c) limitations on a party’s right to sue;
d) a term that permits one party (but not another) to terminate the contract without material cause;
e) term that permits one party to vary the upfront price without the right of the other party to terminate; and
f) a term that limits vicarious liability for the actions of agents.
The law excludes certain terms from its operation, including the upfront price and the terms that define the main subject matter of the contract. Other specifically listed exclusions include contracts for the purchase of shares or for an interest in a managed investment scheme and insurance contracts. Consequences for non-compliance with the amendments include the issuing of infringement notice or a public notice. ASIC or the ACCC can seek a declaration that a term is unfair and, if so declared, it is a contravention to apply or then rely on the term. Substantial penalties can apply.
The Queensland Government will be putting forward local legislation that is scheduled to come into effect 01 January 011. It is recommended that clients or consumers who are considering entering, amending or renewing standard form contracts that may be subject to the legislation seek advice to review the existing terms of the offered contract to identify clauses that may be at risk of non-compliance with the newly amended provisions.
In the event that you are seeking legal advice, the above statement of the law should be tailored to your specific circumstances and if you have any queries regarding these issues or would like to discuss any other matters, please feel free to contact a member of our Commercial Law team.
DISCLAIMER: This update contains general information only. It is not all inclusive and should not be considered legal advice. You should always obtain legal advice for your specific circumstances before relying on general information.