Introduction to the consumer protection in the Australian Consumer Law
This section covers the main consumer protection provisions in the Australian Consumer Law (ACL), as well as the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’).
These provisions regulate or prohibit a range of unfair trade practices, including:
- misleading or deceptive conduct (s 18 ACL; s 12DA ASIC Act);
- the making of false representations in relation to the sale of goods and services (s 29 ACL; s 12DB ASIC Act);
- unconscionable conduct (ss 20, 21 ACL; ss 12CA, 12CB ASIC Act); and
- unfair terms in consumer contracts and standard form consumer contracts (ss 23–28 ACL; ss 12BF–12BM ASIC Act).
Consumers may find that a remedy is more easily obtained in Victoria under the ACL&FTA’s application of the ACL. This is because the Victorian Civil and Administrative Tribunal (VCAT) (where Victorian consumer disputes are generally heard) is a less formal venue than a court and legal representation is usually not permitted for consumer and trader disputes relating to amounts under $15 000.
For more information about making a complaint or obtaining a remedy at court, see Chapter 7.4: Taking action as a consumer.
Types of goods or services regulated
Generally, the ACL applies to a ‘consumer’. Section 3 states that a person is taken to have acquired particular goods or services as a consumer if, and only if:
- the amount payable for the goods or services is less than $100 000 (note that prior to 1 July 2021, this threshold was $40 000); or
- the goods or services were of a kind ordinarily acquired for personal, domestic or household use or consumption; or
- the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads.
However, this definition does not apply if the person acquired goods:
- for the purpose of re-supply; or
- for the purpose of using them up or transforming them, in trade or commerce:
i in the course of a process of production or manufacture; or
ii in the course of repairing or treating other goods or fixtures on land (s 3(2) ACL).
If a person is claimed to be a consumer in any proceeding, then it is presumed that they are a consumer unless the contrary is established (s 3(10) ACL).
While it is intended that the ACL’s consumer protections apply across the entire economy, there are some exemptions.
For example, insurance contracts cannot be made the subject of relief under the ACL or the ASIC Act, except in relation to the prohibition on unfair contract terms in the ASIC Act (s 15 Insurance Contracts Act 1984 (Cth)). Also, Part 3–2 of the ACL, which covers consumer guarantees, does not apply to insurance contracts (s 63(b) ACL).
Contracts for the supply of electricity and gas are also excluded from some aspects of coverage (see ss 35, 36, 39 Electricity Industry Act 2000 (Vic); ss 42, 43, 46 Gas Industry Act 2001 (Vic); and the Energy Retail Code).
Misleading or deceptive conduct
Section 18 of the ACL states that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive. The effect of section 18 is the same as that of section 52 of the previous TP Act and, as such, the existing jurisprudence relating to section 52 remains applicable under the ACL.
The terms ‘misleading’ and ‘deceptive’ are not defined in either Act, and the courts have not given a precise definition of misleading or deceptive conduct. The overall impression created by the alleged conduct determines whether it is likely to lead a significant number of people into error or has the tendency to deceive such persons. In general, misleading someone may include conduct ranging from lying to them, to making false or inaccurate claims, to creating a false impression, to leading them to a wrong conclusion, to omitting important information.
Importantly, it is not necessary to establish that the trader intended to mislead or deceive. A person or corporation may have engaged in conduct that was misleading or deceptive even if they have acted honestly and reasonably.
An objective test is used to decide whether conduct is misleading or deceptive. The court or tribunal will consider whether the conduct was likely to mislead or deceive members of the class or group of persons to whom the conduct was directed.
Silence may constitute misleading or deceptive conduct, but this depends on the circumstances of the case. For example, the courts have held that a failure to disclose information is not misleading where it was not deliberately withheld. Silence or omission might be considered misleading if it can be shown that there is a reasonable expectation of disclosure (s 2(2) ACL; see Demagogue Pty Ltd v Ramensky  FCA 557).
Recent cases have held that ‘the test of reasonable expectation is not satisfied by an appeal ‘to vague notions of fairness or some concept of optimal disclosure’ ‘ (ACCC v AGL South Australia  FCA 1369 at ; ACCC v LG Electronics Pty Ltd  FCA 1047). In the ACCC v LG Electronics matter, the court held that, in the context of consumers complaining about faulty televisions, there was no reasonable expectation that the consumer guarantee rights in the ACL would be disclosed.
‘Puffery’ is enthusiastic or exaggerated claims used by advertisers to promote products and services and it is obvious that the claims should not be taken seriously. The courts have held that ‘puffery’ does not constitute misleading or deceptive conduct. Generally, a statement is considered to be ‘puffery’ if no reasonable person would take it seriously or act upon it. Examples of puffery include phrases such as ‘making your dreams come true’ or ‘best ever’.
The prohibition on misleading or deceptive conduct also extends to representations about future matters. The ACL requires a person who has made a statement about a future matter to show that they had reasonable grounds for making it, or it will be taken to be misleading (s 4 ACL).
Disclaimers and fine print
A person or corporation cannot rely on a disclaimer or exclusion clause protecting them against a misleading or deceptive conduct claim. However, in some circumstances, an express disclaimer that is prominently displayed may exclude liability for making misleading or deceptive statements in an advertisement.
In Butcher v Lachlan Elder Realty Pty Ltd  HCA 60, an advertisement containing two disclaimers was held to make it sufficiently clear that the real estate agent was not the source of the misleading information in its advertisement for a property and that it was simply passing on information supplied by others. In these circumstances, the real estate agent was held not to be liable for the misleading statements contained in the advertisement.
Similarly, in ACCC v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd  FCA 676, GlaxoSmithKline (GSK) was alleged to have made false or misleading representations in the marketing of Voltaren Osteo Gel and Voltaren Emulgel pain relief products. Despite having the same active ingredients, Osteo Gel was often sold at a significiantly higher retail price than Emulgel. In response to the ACCC’s concerns, GSK amended the Osteo Gel packaging to include the words, ‘Same effective formula as Voltaren Emulgel’. The court found that the inclusion of these words meant that the representations were not misleading.
In contrast, in ACCC v Telstra Corporation Ltd  FCA 1904, Telstra made various claims about its Next G mobile network, including that it had ‘coverage everywhere you need it’. In its defence, Telstra argued that some of the advertisements directed consumers to its website, where various disclaimers about the extent of its network’s coverage could be found. The court held that these disclaimers did not prevent the conduct from being misleading or deceptive, as Telstra did not sufficiently communicate the information to potential customers.
Prohibition of misrepresentations
Section 29 of the ACL prohibits making false representations in relation to a large number of matters with respect to goods or services, such as:
- standard, desirability, quality or value;
- history, age or place of origin;
- sponsorship, performance characteristics, accessories, uses of benefits;
- approval or affiliation;
- availability of repairs or spare parts;
- existence, exclusion or effect of any condition, warranty, guarantee, right or remedy; and
- testimonials by any person.
Representations in relation to the sale of land
In connection with the sale or grant of an interest in land, section 30 of the ACL contains similar (although not so broad prohibitions) preventing:
- making a representation that a person has a sponsorship or affiliation they do not have; or
- making a false or misleading representation about the nature of the interest in land, price, location, characteristics or use that can be made of the land, or availability of facilities.
There are different types of unconscionable conduct under the ACL and ASIC Act.
The two main types of unconscionable conduct are:
- unconscionable conduct under the ‘unwritten law’ (s 20 ACL; s 12CA ASIC Act); and
- statutory unconscionability (s 21 ACL; s 12CB ASIC Act).
Importantly, section 20 of the ACL (and s 12CA ASIC Act) does not apply to conduct that is prohibited by sections 21 of the ACL.
1 Unconscionability under the ‘unwritten law’
Section 20 of the ACL (and s 12CA ASIC Act) states that a person must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law from time to time.
This section appears to refer to the doctrine of unconscionable dealing as it has been interpreted in case law. However, the courts have not yet settled on what constitutes unconscionable conduct ‘under the unwritten law’ as referred to in section 20, and it may go beyond the doctrine of unconscionable dealing to include other equitable doctrines (e.g. equitable estoppel (where a court will not grant legal relief to a party that has not acted fairly)).
Unconscionable dealing, as interpreted in case law, occurs where two requirements are satisfied:
- one party to a contract or transaction is under a ‘special disability’ (see ‘Types of special disability’, below); and
- the other party takes unfair advantage of that disability, either with knowledge of that disability or where the other party has ‘closed their eyes’ to the disability.
Although not an express requirement, the courts more readily hold that a party has taken unconscionable advantage of a person where the transaction is extremely disadvantageous to that person.
Types of special disability
The courts have found that a special disability existed and was exploited by the other party to the transaction, in a variety of circumstances.
For example, in Blomley v Ryan  HCA 81 at , Justice Fullagar of the Federal Court described the range of circumstances to include:
… poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary.
In that case, the court set aside a contract for the sale of a farm for less than its true value because the purchasers were held to have taken advantage of the farmer’s drunkenness when he signed the contract.
Commercial Bank of Australia Ltd v Amadio  HCA 14
The Amadios, an elderly couple, signed a guarantee with the bank on behalf of their son. They thought their son’s business was prosperous, when in fact it was in financial difficulties. The bank enhanced the business’s appearance of solvency by selectively honouring cheques that overdrew its account. When the son’s business failed, the bank sought to enforce the guarantee against the Amadios. The guarantee was set aside by the court as unconscionable. It was held that the guarantee was ‘manifestly disadvantageous’ to the Amadios and that the bank must have known this and took no steps to ensure that the Amadios were properly advised in relation to the transaction.
Collection House Ltd v Taylor  VSC 49
An employee of Collection House contacted Taylor in 2001 about a debt that was incurred in 1992. The employee claimed that if the debt was not paid legal action might be taken against Taylor. Taylor then agreed to pay $5000 to settle the debt. However, the next day she sought the advice of a financial counsellor and discovered that the debt was, in fact, statute barred (for an explanation of this term, see ‘Statute-barred debts’ in Chapter 5.2: Are you in debt?). Collection House was also aware that Taylor was in difficult personal and financial circumstances at the time.
Justice Nettle of the Victorian Supreme Court upheld the decision at VCAT that Collection House had engaged in unconscionable conduct in breach of (the then) section 7 of the FTA. He held that Taylor had been at a special disadvantage because of her lack of knowledge of the matters at issue and that Collection House had wrongly exploited its position of advantage.
2 Statutory unconscionability
In addition to the above, section 21 of the ACL (and s 12CB ASIC Act) states that:
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of financial services to a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
Statutory unconscionability is broader than unconscionability within the meaning of the unwritten law. For example, section 21 of the ACL (and s 22CB ASIC Act) is not intended to be limited to the equitable or common law doctrines of unconscionable conduct (see s 21(4)(a); s 12CB(4)(a) ASIC Act). This means that claimants will not have to establish that they were at a ‘special disadvantage’ through factors like infirmity, age or a difficulty understanding English, before a court would recognise that unconscionable conduct has occurred. This has been confirmed by the full Federal Court in ACCC v Quantum Housing Group  FCAFC 40.
An interpretative principle also clarifies that courts can examine the terms and the manner and extent to which the contract is carried out. This principle makes it clear that unconscionable conduct is not limited to the bargaining practices leading to the formation of a contract. Unconscionable conduct can also be apparent in the way in which a party exercises its rights under a contract or in the way in which a party behaves once a contract is made. It can also apply to the way in which contracts are renewed, renegotiated or terminated (see s 21(4)(c) ACL; s 12CB(4)(c) ASIC Act).
Another interpretative principle provides that the prohibition on unconscionable conduct applies to systemic conduct or patterns of behaviour and that there is no need to identify a person at a disadvantage in order to attract the prohibition (see s 21(4)(b) ACL; s 12CB(4)(c) ASIC Act). Unconscionable conduct is not limited to individual transactions or events. A pattern of systematic conduct or patterns of behaviour occurring over a period of time – which might include an accumulation of minor incidents – can also amount to unconscionable conduct.
Considerations to be taken into account
Section 22 of the ACL (and s 12CC ASIC Act) lists the factors a court needs to take into account:
- the respective bargaining strengths of the parties;
- whether the consumer was required to comply with conditions not reasonably necessary for the protection of the other party;
- whether the consumer understood documents relating to the transaction;
- whether any undue influence or unfair tactics were used against the consumer;
- the price and circumstances under which the consumer could have acquired the goods or services from a third party;
- whether the supplier’s conduct was consistent with similar transactions with other customers;
- the requirements of any applicable code, if the consumer reasonably believed it would apply;
- whether the supplier failed to disclose any conduct or risks that might affect the consumer;
- if there was a contract between the parties, the terms of the contract, whether the parties complied with its terms and whether the terms were negotiable; and
- the extent the parties acted in good faith.
These factors are only a guide and the list is not exhaustive. Conduct may be considered to be unconscionable where there has been serious misconduct or something clearly unfair or unreasonable (see ACCC v Lux Distributors Pty Ltd  FCAFC 90, below).
As with misleading or deceptive conduct, the prohibition applies to any conduct, not just conduct at the time of entering into a contract. However, the majority of the case law to date has dealt with procedural unfairness – that is, matters leading up to the formation of a contract, rather than with the substantive unfairness of a contract itself. Moreover, the case law highlights the unsettled nature of what is meant by unconscionable conduct under the ACL.
ACCC v Keshow  FCA 558
Members of Aboriginal communities in the Northern Territory entered into agreements for the supply of children’s educational materials and household goods with a supplier. The supplier arranged for the consumers to enter into open-ended periodic payment authorities for payment upon receipt by the consumer of the goods. The court found that the consumers were required to comply with conditions that were not reasonably necessary to protect the supplier’s legitimate interests. Both entering into the transactions and the receipt of the periodic payments was found to be unconscionable within the meaning of section 51AB of the TP Act.
ACCC v Excite Mobile  FCA 350
Excite Mobile supplied mobile telephone services promoted through telemarketing calls, including to Aboriginal communities without comprehensive mobile coverage. A gift of a free holiday and mobile phone was offered as an incentive to signing up a 24-month plan. The plan consisted of a minimum monthly fee, however, customers were also restricted by a daily cap of $2.20 a day for calls and texts on the monthly plan. The daily cap was only disclosed after the customer had agreed to the terms of the contract. In the event of the customer wishing to terminate the contract within the mandatory cooling-off period of 10 days, they were required to pay a $75 ‘cooling-off fee’. If the phone or its packaging were damaged when returned, the customer was required to pay for the phone outright ($195). Payments were to be by direct debit; telemarketers obtained consent to debit these payments and in the event an account remained outstanding, the amount owing would be withdrawn from the customer’s account. The court found that the sales method, including the daily cap, the direct debit arrangement and the ‘cooling-off charges’, amounted to unconscionable conduct.
ACCC v Lux Distributors Pty Ltd  FCAFC 90
An employee of Lux used existing customer databases to contact householders, including the five witnesses who were elderly women in their 80s and 90s. The call was ostensibly to offer a free maintenance check on the householder’s existing vacuum cleaner, but was in reality a ruse to get a ‘foot in the door’.
At each premises, the Lux representative tested the customer’s existing vacuum cleaner and conducted a test that compared that vacuum cleaner with a near-new demonstration model. The representative used the results of the demonstration together with other selling techniques to convince the customer to buy a new Lux model.
The trial judge determined that the conduct was not unconscionable as it did not involve a significant element of ‘moral obloquy’, which involves deliberate wrongdoing. The judge noted that a sale should not generally be regarded as unconscionable merely because the purchaser has been persuaded to proceed against their better judgment where the contract contains specific terms that allow it to be cancelled (as an unsolicited agreement, the contract included a mandatory cooling-off period). The decision was overturned on appeal.
The full Federal Court found that while ‘moral tainting’ is relevant, whether conduct is against conscience should be considered by reference to the norms of society. The court noted that today’s norms and standards require businesses that wish to gain access to people’s homes for direct selling to exhibit honesty and openness in what they are doing. The court found that the relative bargaining strengths between Lux and the consumers and the deception combined to show that the sales were a result of pressure tactics. On that basis, the conduct was found to be unconscionable. The court also paid particular regard to two aspects of Lux’s conduct: the failure to comply with the door-to-door selling requirements; and the ‘deceptive ruse’ used to enter the women’s homes.
ACCC v Kobelt  HCA 18
The respondent, Mr Koblet, operated a general store in Mintabie, South Australia, called ‘Nobbie’s Mintabie General Store’. The store sold second-hand cars, food, groceries and fuel. Most of Mr Koblet’s customers were Indigenous Anangu people who lived in two remote communities. These customers were poor and had low leves of literacy and numeracy.
From 2008, Mr Koblet supplied a form of credit to his customers called the ‘book-up’ credit system. The system involved payment for goods being deferred in whole or in part, subject to the customer giving Mr Koblet their bank keycard and the PIN linked to the bank account. This bank account had to be the account into which the customer’s wages or Centrelink payments were credited.
Very few transactions were documented carefully or at all. Most of the ‘book-up’ credit was supplied so customers could purchase second-hand cars. Because Mr Koblet withdrew the customers’ wages or Centrelink payments as soon as they were credited to their bank accounts, the customers had no money to buy groceries. However, Mr Koblet would let customers use a portion of what he had withdrawn during a particular pay period (up to 50 per cent) to purchase groceries. This meant that customers were tied to using his store.
The trial judge found that Mr Koblet’s conduct was unconscionable and contrary to section 12CB or the ASIC Act. This decision was overturned by the full Federal Court. Then the majority of the High Court found that the conduct was not unconscionable.
The High Court determined that the ‘book-up’ system had advantages for the Anangu people unrelated to their lack of education and financial acumen (including the capacity to deal with a bust and boom economy, to avoid paperwork, and to avoid the ‘demand sharing’ or ‘humbugging’ of economic resources by relatives that is characteristic of many Indigenous societies).
It was also held that Mr Koblet did not act systematically in bad faith, and that he was willing to negotiate with customers if they needed money. It was pivotal that customers could end their relationship with Mr Koblet by cancelling their bank cards and chose to continue their relationship. In contrast, the minority judges found the conduct was unconscionable because Mr Koblet took advantage of the Anangu customers’ special disadvantage and the system was discriminatory and unfair.
Most consumer disputes are resolved through alternative dispute resolution or ombudsmen schemes, rather than through the courts (see Chapter 7.4: Taking action as a consumer).
Some of these schemes issue guidance or approach documents about how they resolve disputes. For example, the Credit and Investments Ombudsman – who previously dealt with complaints against certain lenders, brokers and other financial firms (and who was replaced by the Australian Financial Complaints Authority on 1 November 2018) – has issued ‘Position statement 8: unconscionable conduct’. This document states that asset lending – which involves lending only on the basis of the value of the security, without considering whether the consumer can afford the repayments – significantly increases the likelihood that a financial firm has engaged in unconscionable conduct.
However, recent case law has found ‘that assset-based lending is not, by itself, unconscionable conduct unless there is something about the transactions which, in all the circumstances of the cases, makes it so’ (Jams 2 Pty Ltd v Stubbings  VSCA 200).
Unfair contract terms
The ACL and the ASIC Act regulate unfair contract terms in standard form contracts that were entered into after 1 January 2011. For consumer contracts entered into before that date, unfair contract terms were regulated by the Victorian FTA.
There are a number of differences between the national unfair contract term laws and the previous Victorian unfair contract term laws. The discussion below outlines the approach taken by the ACL and the ASIC Act.
Since 12 November 2016, the unfair contract term provisions in both the ACL and ASIC Act have applied to certain small business contracts. From 5 April 2021, unfair contract terms also apply to insurance contracts that were previously exempted from the regime.
What is an unfair term?
The ACL and the ASIC Act provide that unfair terms in covered contracts are void. A term is ‘unfair’ when:
- it causes a significant imbalance in the parties’ rights and obligations arising under the contract;
- it is not reasonably necessary to protect the legitimate interests of the supplier; and
- it causes financial or non-financial detriment to a party (s 24(1) ACL; s 12BG(1) ASIC Act).
A court must consider the transparency of the term and the contract as a whole in determining whether a term is ‘unfair’ (s 24(2) ACL; s 12BG(3) ASIC Act).
Terms that relate to the main subject matter of the contract cannot be challenged under these provisions. For insurance contracts, the main subject matter of the contract describes what is being insured. Terms that relate to the upfront price of the contract also cannot be challenged. However, payments made under a contract that are contingent on the occurrence or non-occurrence of an event are examinable under the unfair contract terms provisions (s 26 ACL; s 12BI ASIC Act).
To what contracts do ‘unfair term’ laws apply?
The unfair term laws only apply to standard form consumer contracts and small business contracts. A ‘consumer contract’ is an agreement for the supply of goods or services, or the sale or grant of an interest in land, that is wholly or predominantly for personal, domestic or household use or consumption (s 23(3) ACL; s 12BF(3) ASIC Act). This means that the agreement must relate to goods or services that are usually meant for consumers, rather than businesses, and that they are being supplied for use by consumers, rather than businesses. The court will look at the terms of a contract to work out what the purpose of use is, not the intention of the supplier (see Director of Consumer Affairs Victoria v AAPT Ltd (Civil Claims)  VCAT 1493).
Since 16 November 2016, unfair terms laws have also applied to small business contracts. A ‘small business contract’ is an agreement for the supply of goods or services, or the sale or grant of an interest in land, and both the following apply:
- at least one party to the contract must be a business that employs fewer than 20 employees;
- the upfront price payable under the contract must be less than $300 000 or, if the contract has a duration of more than 12 months, $1 million (s 23(4) ACL; s 12BF(4) ASIC Act).
The laws do not define ‘standard form contracts’, but in broad terms, a standard form contract will typically be one that has been prepared by one party to the contract and is not subject to negotiation between the parties; that is, it is offered on a ‘take it or leave it’ basis. Standard form contracts are typically used in many consumer sectors, including telecommunications, finance, gyms, motor vehicles, travel and utilities.
In deciding whether a contract is a standard form consumer contract, a court may consider any matter it thinks is relevant. The court must take into account:
- whether one of the parties has all or most of the bargaining power;
- whether the contract was prepared by one party before any discussion occurred about the transaction;
- whether one party was required to either accept or reject the contract on the terms as presented;
- whether the other party was given any real opportunity to negotiate the terms of the contract; and
- whether the terms of the contract take into account the specific characteristics of the other party or the particular transaction (s 27(2) ACL; s 12BK(2) ASIC Act).
Further, a consumer contract is presumed to be standard form unless the business relying on the term proves otherwise (that is, it is a rebuttable presumption that a consumer contract is standard form) (s 27(1) ACL; s 12BK(1) ASIC Act).
The ACL provisions apply to all other consumer contracts, except for:
- certain shipping contracts; and
- the constitutions of companies and managed investment schemes (s 28 ACL).
Examples of unfair terms
A non-exhaustive, indicative ‘grey-list’ of examples of types of terms that may be unfair is included in the provisions (s 25 ACL; s 12BH ASIC Act). These examples are subject to the unfair terms test and provide statutory guidance on issues of concern. They do not deem or presume particular types of terms to be unfair. Further examples may be added to this list by regulation.
This ‘grey-list’ includes:
- a term that permits one party (but not the other) to avoid or limit performance of the contract;
- a term that permits one party (but not the other) to terminate the contract;
- a term that penalises one party (but not the other) for a breach or termination of the contract;
- a term that permits one party (but not the other) to vary the terms of the contract;
- a term that permits one party (but not the other) to renew or not renew the contract;
- a term that permits one party to vary the upfront price payable without the right of the other to terminate the contract;
- a term that permits one party unilaterally to vary the characteristics of the goods or services to be supplied, the interest in land to be sold or granted, or the financial products or services to be supplied;
- a term that permits one party unilaterally to determine whether the contract has been breached or to interpret its meaning;
- a term that limits one party’s vicarious liability for its agents;
- a term that permits one party to assign the contract to the detriment of the other without the other’s consent;
- a term that limits one party’s right to sue another party;
- a term that limits the evidence one party can adduce in proceedings relating to the contract; and
- a term that imposes the evidential burden on one party in proceedings relating to the contract.
The ACCC, ASIC and the state and territory consumer protection agencies have prepared A Guide to the Unfair Contract Terms Law, which provides further information about the unfair contract term laws, how they apply and the effect of the law. The guide is available on the ACCC’s website.
In 2013, the ACCC published the Unfair Contract Terms report, which details the outcomes of its compliance activities with respect to unfair contract terms. The report indicated that many businesses amended standard form contracts as a result of certain ACCC activities.
The types of contract terms that were the focus of the ACCC report were:
- terms that allow the business to change the contract without consent from the consumer;
- terms that cause confusion about the agency arrangements that apply and that seek to unfairly absolve the agent from liability;
- terms that unfairly restrict the consumer’s right to terminate the contract;
- terms that suspend or terminate the services being provided to the consumer under the contract;
- terms that make the consumer liable for things that would ordinarily be outside of their control;
- terms that prevent the consumer from relying on representations made by the business or its agents;
- terms seeking to limit consumer guarantee rights;
- terms that remove a consumer’s credit card chargeback rights when buying the service through an agent.
ASIC has also published an information sheet that includes examples of unfair contract terms relevant to insurance. Potential unfair terms include those that allow the insurer under a home building policy to settle a claim by paying the amount it would cost the insurer to rebuild or repair the home, rather than the amount it would cost the insured.
ACCC v Bytecard Pty Ltd  FC no. VID301
Bytecard (better known as NetSpeed Internet Communications) was a provider of internet access services throughout Australia. The case concerned the terms and conditions in NetSpeed’s standard contract in use from 1 January 2011 to April 2013.
The ACCC was concerned that a number of terms were unfair terms of a consumer contract, and hence void under section 23 of the ACL. Under its terms, NetSpeed was able to:
- unilaterally vary the amount payable under its contracts without prior notice, however it did not have to allow consumers to terminate to avoid the obligation to pay the varied amount or an opportunity to negotiate;
- require the consumer to indemnify NetSpeed in any circumstances (including where the consumer was not in breach of the contract and any loss may have been caused by NetSpeed’s breach and even wilful misconduct), yet there was no corresponding term applicable to NetSpeed;
- terminate its contracts at any time without cause, while the consumer’s right to terminate was subject to conditions.
It was agreed that each of the terms are unfair as they would cause a significant imbalance in the parties’ rights and obligations arising under the contract. Also, the terms were not reasonably necessary to protect NetSpeed’s legitimate interests, and they would cause detriment (financial or otherwise) to a consumer if applied or relied on by NetSpeed.
ACCC v Chrisco Hampers Australia Ltd  FCA 1204
Chrisco offered contracts that allowed its customers to purchase Christmas hampers by paying for the hampers in instalments throughout the year. Chrisco’s order form contained a term that provided that where a customer had fully paid for an order in one year, the customer would automatically roll into a ‘HeadStart Plan’ for the next year. This term allowed Chrisco to continue withdrawing payments from a customer’s bank account or credit card. The money withdrawn could be put towards any future orders made by the customer. If a customer did not place another order, the money would be refunded without interest. Chrisco’s contract gave customers an opportunity to opt out of the HeadStart Plan.
The court found that the term was unfair because it caused a significant imbalance in the parties’ rights and obligations arising under the contract. The judge found that although the HeadStart term gave Chrisco a right to withdraw money from customers’ accounts, customers did not have any corresponding right under the contract.
The judge also noted that Chrisco’s customers were generally low- to middle-income earners and the goods in the hampers were generally priced above retail prices.
ASIC v Bendigo & Adelaide Bank Ltd  FCA 716
The Federal Court found that clauses in certain small business loans that fell within the following categories were unfair:
- indemnity clauses – where the customer must compensate the bank if any liability is incurred in circumstances that are, among other things, not of material risk to the bank, not in the customer’s control, and could have been mitigated by the bank;
- event of default clauses – where the bank can declare an event or circumstance as constituting the customer’s default; this allows the bank to take certain actions (e.g. cancelling the loan facility);
- unilateral variation and termination clauses – the bank had a one-sided discretion to cancel or reduce the loan facility even though the customer is compliant with their loan repayments, and to impose a termination fee on the customer regardless of the reason for the termination;
- conclusive evidence clauses – the bank can place an evidential buren on the customer for matters that the bank is better positioned to provide evidence for.
The court also noted the lack of transparency of the relevant terms, including:
- multiple cross-references within the indemnity clause;
- catch-all drafting phrases (e.g. ‘without limitation’);
- instances where a defined term had no relation to its actual definition;
- clause headings and clause locations that were not logical or transparent; and
- the use of convoluted ‘legal language’ (including phrases such as ‘manifest error’ and ‘legal expenses on a full indemnity basis’.
Effect of an unfair contract term
As stated, an unfair contract term is ‘void’. This means that it should be treated as if it had never come into existence. Consumers can therefore rely on these provisions as a defence to debt collection or contract enforcement actions. Importantly, a contract containing an unfair term or a prescribed unfair term will continue to bind the parties if it can exist without that term, even though the term itself is void.
Consumers can also commence their own action to enforce their rights or to recover loss or damage incurred for breach of the unfair contracts laws.
The ACCC, ASIC and state and territory consumer protection agencies also have power to apply to a court for a declaration that a term of a contract is an unfair term.
If a court makes such a declaration, it may also order:
- an injunction;
- an order prohibiting payment or transfer of moneys or other property;
- an order to provide redress to non-party consumers; or
- any other order the court thinks appropriate.