This section covers the main Under the Australian Consumer Law, a person who buys goods or services for less than $40 000 or for personal or home use. protection provisions in the Australian Consumer Law (ACL), as well as the ASIC A written law made by parliament. Also called an ‘Act of parliament’, ‘statute’ or legislation.. These provisions regulate or prohibit a range of unfair trade practices, including:
- Something done by a manufacturer or seller that is unfair, dishonest or likely to mislead a consumer when buying goods or services. (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);
- Behaviour that takes unfair advantage of a vulnerable person in a contract or other transaction. The vulnerability can be due to factors such as poor education, disability, language difficulties or being affected by alcohol. (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 A body set up to hear and decide disputes, usually with less formality and less strict rules of evidence than in a court proceeding. (VCAT) (where Victorian consumer disputes are generally heard) is a less formal venue than a An independent body that hears legal claims brought by parties and decides between them. Serious cases are heard by a judge and jury, or just a judge. Less-serious cases are heard by a magistrate. 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 $40 000 (note that this A document that sets out what a person wants to happen to their money and other property after they die. change to $100 000 on 1 July 2021); 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 (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 Claimed but not proved. For example, the police can allege in court that a car was stolen, but they then have to prove it with evidence. If you say a person did something illegal you are making an allegation. Unless you can back it up, you will not be able to win a court case about it. 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 Providing information to another person or institution as required by a contract or other legal process. (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 The review of the decision of a lower court by a higher court. If an appeal is successful, the higher court can change the lower court’s decision. ‘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 A binding promise made as reassurance that another person will carry out their legal obligations (e.g. paying a debt). The person making the promise is called a guarantor. If the person being guaranteed fails to pay, the guarantor becomes responsible for the debt. 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 An order made by the Supreme Court of Victoria or the High Court of Australia prohibiting a body from acting outside its authority. See also jurisdiction; prerogative writ; ultra vires. of 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 A term in a contract which tries to exclude rights or avoid liabilities. It is also sometimes called a ‘limitation clause’. Many of these clauses are void, especially in consumer contracts. protecting them against a misleading or deceptive conduct claim. However, in some circumstances, an express disclaimer that is prominently displayed may exclude Legal responsibility, enforced by civil or criminal courts. 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 All the property a person has, including real property and personal property. It is often used to describe property belonging to someone who has died, or the property of a bankrupt. A person who acts for someone else. They can make decisions, carry out tasks or make agreements for the other person. For example, if you ask someone to bid for you at an auction they will be acting as your 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 (1) A defendant’s response to the legal claims made against them in court by a prosecutor or plaintiff. (2) A lawful excuse for conduct: for example, causing minor injuries to someone while saving them from certain death. (3) ‘The defence’ is also a way of referring to the defendant and their legal team., 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, A promise in a contract. For example, a promise by a manufacturer that goods will be repaired or replaced if they turn out to be faulty., 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 are:
- unconscionable conduct under the ‘unwritten law’ (s 20 ACL; s 12CA ASIC Act); and
- Found in a statute of delegated legislation. For example, a statutory authority or body is aperson or organisation that has special powers given by parliament to do work for the public benefit. 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 A framework, set of rules, procedural steps, or test, often established through precedent in the common law, through which judgments can be determined in a given legal case. of unconscionable dealing as it has been interpreted in Law based on the reasons judges have given for their decisions in court cases, and which judges in later, similar cases are bound to follow. Under the doctrine of precedent, lower courts, such as the Magistrates’ Court of Victoria, are bound to follow relevant decisions of higher courts, such as the Supreme Court of Victoria. Case law is also called ‘common law’ and ‘judge-made 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 (1) In general, not being permitted (being stopped) from making a particular argument or claim in court. (2) Equitable estoppel: stopping someone going back on what they did or said they would do, when what they said has been relied on by another person who would be disadvantaged if the situation changed. (where a court will not grant legal relief to a A person or organisation directly involved in a court case. Parties include the plaintiff or applicant, the defendant, and any third party added to the action, but not independent witnesses. that has not acted fairly)).
Unconscionable dealing, as interpreted in case law, occurs where two requirements are satisfied:
- one party to a An agreement that the law will enforce. 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 To make people obey a law or the terms of an agreement, using police powers or court orders. 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 Money that is owed by one person or business to another. 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, A law made by parliament, either state or Commonwealth. Also called an Act, and Act of parliament or legislation. 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 (1) The system of law developed by the English courts through precedent and adopted in ‘common law countries’ in the British Commonwealth (as opposed to Roman law (civil law) or ecclesiastical law). (2) The case law made by judges in that system. (3) Case law that is not part of the law of equity. (4) Historically, the rules of law common to all people in England, as distinct from local or customary laws. 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.
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 In Victoria, a child or young person under 18. See also infant. 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 Taking unfair or improper advantage of the weakness of another person. The influence is to make them agree to do or not to do something they would not do of their own free will. 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 Required by law to be done; a law that must be strictly complied with. Under mandatory reporting, people in particular jobs to tell a government agency if they know an offence is being committed – for example, doctors and teachers must report child abuse. Mandatory sentencing requires judges to give an automatic jail term for certain offences. The time allowed for a purchaser to change their mind and legally withdraw from a contract after signing it. A contract to buy a house or a car in Victoria will often have a cooling-off period of three business days (excluding weekends and public holidays) after signing the contract. 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 To agree to something being done, to approve an action or arrangement. See also informed 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  FCAFC90
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 The first step in agreeing to make a legally binding agreement. An offer must be accepted before there can be a legally enforceable contract. For example, a person can offer to sell their car for $5000 and a buyer can accept the offer and pay that purchase price. a free Money paid to a person to financially support them. When a couple has separated both parents have a duty to support their children, and a court can order a parent to make regular payments to support the children. Maintenance for a spouse is now less common, and must be applied for within 12 months of a divorce. It is usually covered in a final settlement of all property. 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 A document or thing that is provided as evidence in a court case or referred to in a sworn statement. For example, a gun might be produced as an exhibit in a criminal case, and a bank statement might be produced in a civil case. 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 (1) A defendant in a civil case that has been appealed to a higher court. (2) A person against whom some originating motion has been issued by an applicant. See also appellant., 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 A debt that does not have to be paid until some future time. Being allowed to pay later, in the future, for something you are getting now. 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 The ability to understand and be held responsible by the law for your actions. It also refers to a person’s ability to understand and agree to something, such as to undergo medical treatment. Full legal capacity is reached at 18 years of age, when a child becomes an adult. 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 A way of resolving a dispute outside the court system. There are different kinds of alternative dispute resolution, including arbitration, negotiation and mediation. 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 A public official appointed to investigate citizens’ complaints against government departments and statutory authorities. A specialised ombudsman resolves consumer complaints in a particular industry, for example the banking ombudsman for the banking industry. See also statutory authority. – 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 Money or property promised to be handed over as a guarantee for repayment of a loan, or as a guarantee that a defendant will meet their bail conditions., 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 will 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 Having no legal effect. A void agreement has something wrong with it, so it cannot be a legally binding contract. For example, a verbal agreement to buy land would be void, because the law says those contracts have to be in writing.. 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 and upfront price of the contract will not be able to be challenged under these provisions. 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 An approach to dispute resolution where both parties discuss the matter in dispute between them, with the aim of reaching a settlement through a consensus, compromise or agreement. See ADR (alternative dispute resolution); arbitration; conciliation; mediation. 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 Capable of being proved wrong in court. Compare deemed. 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).
As a consequence of the operation of section 15 of the Insurance Contracts Act 1984 (Cth), the provisions do not apply to insurance contracts regulated by that Act, although this will change from 5 April 2021.
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 The end of something. Contracts terminate when the parties have done what they agreed. A contract can also be terminated without being completed, for example if one party breaks the contract, or it is impossible to carry out. 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 To take legal action in a civil case. another party;
- a term that limits the Material presented to a court to prove or disprove a fact. It can include what witnesses say as well as documents and other objects. one party can To present evidence to a court. This may be done by showing something to the court, such as a document or an object, or by asking a witness questions. 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 (www.accc.gov.au).
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 Formal delivery of legal documents to a person to tell them there are court proceedings against them which they must defend, or to make sure a witness in a case knows when they have to go to court to give evidence. through an agent.
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:
- A promise to pay compensation to cover losses or expenses that may arise in the future if some stated event occurs. For example, if a business partnership ends and one partner continues to run the business, they generally agree to indemnify the others against any claims against the business in the future. Insurance contracts also indemnify the insured against stated risks. clauses – where the customer must compensate the bank if any liability is incurred in circumstances that are, among other things, not of Relevant or important. For example, material evidence is something that helps to prove an argument in a criminal case. risk to the bank, not in the customer’s control, and could have been mitigated by the bank;
- event of Failure to do something that is legally required. For example, a person who fails to make a payment on their car is in default on the loan; if they continue to be in default the creditor may issue a default summons to take the debtor to court. 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 Power to choose whether to do something or not. For example, a judge may have discretion to allow a party extra time to complete a document if it would be unfair to enforce the legal time limit. 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 A court order that directs a person to do, or not to do, something. For example, a court can order a developer not to demolish a historic building. An injunction may be interim (operative until further order) or perpetual (continuing indefinitely).;
- 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.