Test Unfair contract terms

The Australian Consumer Law outlaws unfair terms in standard form consumer contracts. So let's define those things. What is a standard form consumer contract and what makes a term unfair?

Almost every Australian adult will have signed a standard form consumer contract at least once in their lives. Their things like:

• your mobile phone contract
• signing up for broadband or a gym membership
• buying a plane ticket or a concert ticket.

In deciding if a contract is standard form or not, a court would consider:

• is the bargaining power between the 2 parties balanced or imbalanced
• was the contract prepared by 1 party without consultation with the other
• is it offered on a take it or leave it basis—that is, does the business have a pre-prepared contract and the consumer can either agree to it in full or not at all
• has there been an effective opportunity to negotiate between the parties
• and
• do those terms take into account the specific transaction or the parties to the transaction?

So there are many transactions a consumer might undertake that involve standard form consumer contracts. They all have terms and conditions attached to them that have been written without the input of the consumer. They are offered on a take it or leave it basis.

So now we know what kind of contracts this law applies to, what makes a term unfair?

The tests are:

• whether the term would cause a significant imbalance between the rights and obligations of the parties involved in the transaction
• if the term would cause detriment if it were applied or relied on—the detriment doesn't have to be financial detriment, the court can consider things like distress or inconvenience suffered by the consumer
• seeing if the term is reasonably necessary to protect the legitimate interests of the party advantaged by that term.

So, for example, a sporting venue might place a condition on entry that prohibits patrons from bring bottle tops into the venue. Patrons may think this is so the venue can make money on drinks. However, the reason the condition exists is to avoid significant liability issues when patrons flick bottle tops into the crowd. The tops could hit other patrons in the eye and cause severe eye injuries resulting in the venue being sued. When the term is looked at in this context, it's there to protect the legitimate business interests, so it doesn't necessarily seem unfair as originally considered.

Another example might be the terms used to reclaim loss by a company that leases or hires goods to consumers. Imagine that a consumer hires a car but gets it scratched. If the car rental company included a term in their contract that enabled them to lay claim to the personal property of the consumer in the event of the damage, that term might be considered to be unfair.

All the car rental company requires to protect its legitimate business interests are terms that allow for the consumer to be billed for the reasonable costs of fixing the scratch.

For a court to rule that a term is unfair and remove it from the contract, all 3 of these fairness tests have to be proven on the balance of probabilities. That means that there needs to be at least greater than 50% chance that:

• the term will cause a significant imbalance between the rights and obligations of the parties involved in the transaction
• the term would cause detriment if it were to be applied or relied on
• or
• the term is not reasonably necessary to protect legitimate interests of the party advantage by the term.

So what happens if a term is unfair?

Well, essentially it means that the term is void and treated as if it never existed in the contract at all.

The rest of the contract is still binding to the extent that it can operate without the unfair term or terms.

This ensures that the law cannot be used as a quick fix by people who want to get out of contracts simply to avoid other contractual obligations.

Only a court can declare if a term in a contract is unfair.

Courts will consider if the term is transparent, which means it must be expressed in reasonably plain language, be legible and clearly presented. Courts also consider the contract as a whole so that the terms are not taken out of context.

So, let's recap unfair contract terms.

Terms in a standard form consumer contract are not legally binding if they are considered unfair.

A standard form contract is most easily identifiable as a pre-prepared contract offered by a business to a consumer on a take it or leave it basis.

A term may be considered unfair if:

• it would cause a significant imbalance between the rights and obligations of the parties under the contract
• it is not necessary to protect the legitimate interests of the party, relying on it
• and
• it would cause detriment if it were to be relied upon.

If a term is deemed unfair, it is treated as if it never existed. The rest of the contract is still binding to the extent that it can operate without that term.