There are currently the following two separate pieces of unfair contract terms legislation which are proposed to apply to regulated credit contracts:
- a Victorian bill, extending the Victorian Unfair Contract Terms Legislation to regulated credit contracts, which is currently before Victorian Parliament; and
- unfair terms provisions to be enacted as part of the proposed Federal Uniform Consumer Law, which is the subject of a recent discussion paper, "An Australian Consumer Law: Fair Markets - Confident Consumers."
The federal legislative model is intended to introduce national unfair terms legislation and proposes that credit contracts will be covered. Under the proposed model, a term will be unfair "when it causes a significant imbalance in the parties' rights and obligations arising under the contract, and is not reasonably necessary to protect the legitimate interests of the supplier." This definition places importance on the business' reasons for including a provision in the contract.
The federal provision, as currently proposed, will only relate to standard form, non-negotiated contracts. It will require all of the circumstances of the contract to be considered, taking into account the broader interests of consumers, as well as the particular consumers affected. Where a particular term is deemed unfair, the term will be voided only for contracts of those consumers or class of consumers subject to detriment.
The discussion paper sets out particular terms which it says "may be problematic as they are likely to cause consumer detriment", including:
- clauses that permit the supplier to unilaterally vary the terms of the contract;
- clauses that permit the supplier to change the price of the goods or services contracted;
- clauses that permit the supplier to unilaterally determine whether a breach of the contract has occurred or to interpret the contract’s meaning;
- clauses that allow the supplier to assign the contract to the consumer’s detriment, without the consumer’s consent;
- clauses that require consumers who breach a contract term or terminate early to pay penalties, in the form of specific additional payments, additional interest or indemnity legal costs, which do not reflect the suppliers’ reasonable costs; and
- clauses that deem something as a fact or that something will be a fact, such as an acknowledgment that certain information has been provided to the consumer prior to the agreement being made, regardless of whether or not it was.
The Victorian bill, which, we understand, could be passed by parliament as early as March 2009, would remove the exemption for regulated credit contracts from the unfair terms provisions in the Victorian Fair Trading Act 1999. In contrast to the proposed federal model, the Victorian bill would consider a term in a credit contract unfair if, contrary to the requirements of good faith and in all the circumstances, it caused a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer. The Victorian Bill contains a number of provisions intended to ensure that acts undertaken under terms subsequently found to be unfair are not invalidated by such a finding ( so for example unilateral variations made under a clause that is subsequently found to be unfair will still be valid).
Any form of unfair contract legislation applying to regulated credit contracts which is introduced will require credit providers subject to the legislation to review their standard contract terms in order to ensure they do not run the risk of falling foul of the legislation. If the proposed Victorian legislation is introduced, it is likely to have a national impact because so many credit providers operate nationally. This means they are likely to have to review and modify their standard contracts nationally, even though the legislation only applies in Victoria. However, a similar exercise will need to be undertaken in relation to the Federal legislation as its introduction becomes more imminent. This exercise will not be onerous if the practical impact of both pieces of legislation is identical or substantially similar. However, if it is not, then, in effect credit providers will need to undertake a similar, potentially costly exercise twice and have to ensure that both unfair terms regimes are accommodated in their contracts. Until the content and text of the federal model is finalised, it will be too early to determine the extent to which compliance with the Victorian bill will also amount to sufficient compliance with the federal model.
The date for the finalisation of the text of the Australian Consumer Law is 30 June 2010 and the Federal Government has invited submissions in relation to the discussion paper, closing Tuesday 17 March 2009.
Please contact your nearest Clayton Utz team member if you would like further information on the Victorian bill or the Federal proposal, or if you would like to assist us in preparing a submission.