20 Aug 2010

Unfair contractual terms - the new consumer defence

Randal Dennings talks to BRR Media about the changes to Australian consumer protection laws, from a series of State-based regimes to a single national consumer law and the effect they've had on organisations.

Transcript

Unfair contractual terms - the new consumer defence
David Bushby, BRR Media
 
Randal Dennings, Partner, Financial Services, Clayton Utz

David Bushby
Welcome to BRR Media. Australian consumer protection laws are undergoing significant transformation from a series of state-based regimes to a single national consumer law. With the first tranche of this new Australian consumer law now in effect we are joined by Randal Dennings who is the lead partner for the national Compliance division at Clayton Utz. He's here to discuss in particular the new unfair terms regime and the changes and effect that they've had on organisations. Thanks for joining us Randal.

Randal Dennings
Thanks a lot David.

David Bushby
Randal if we can just kick off with the new unfair terms regime which came into effect in July this year, why were these introduced?

Randal Dennings
Well David it was felt by the regulators that there was gap in the current protection for consumers. That gap is really between the concept of misleading and deceptive conduct and, on the other hand, unconscionable dealings or catching people by surprise if they can't understand the language or are aged etc. It was felt that there was a gap that you could have standard form consumer contracts drafted in such a way as to not give the consumer a fair go, and so it was decided that if you had a standard form consumer contract that there needed to be legislation introduced nationally to ensure that there was a requirement that those form of contracts had to be a fair balancing of the interest of consumers and suppliers.

David Bushby
So certainly standard form contracts are covered, how broad does the regime go?

Randal Dennings
That's a good question David. The regime covers all consumer contracts that are standard form contracts and both of those expressions are defined. In essence a standard form contract is a take it or leave it type contract - you go to a gym or a hire car or to get a loan and the form of contract is prepared and handed to you. I think there's a standard form that's pretty well understood and indeed the legislation flips over the onus of proof and says if you're trying to say you haven't got a standard form contract it's up to you to be able to show that that's the case.

David Bushby
So if you do have a standard form contract and you're covered what are the changes or what does the regime do?

Randal Dennings
It really focuses on contracts for the supply of goods or services, or sales of an interest in land, to an individual who acquires it for their personal domestic or household usage or purposes. It's really coming down to the individual consumer acquiring it, so to answer your question it covers a wide range of government, retail, and financial services contracts that are entered into by individuals with their supplier.

David Bushby
And for the changes that have come into effect it's only been early days but have you seen any impact at the moment that these changes may have had. Have we seen for instance contracts being challenged or have businesses largely met the new standards?

Randal Dennings
Even though the federal legislation commenced on the 1st of July, we've seen a bit of an understanding as to what has happened a little bit earlier than that with some earlier state-based legislation principally in Victoria.

What we found was quite a methodical approach to the standard form contracts, starting with the likes of hire car industries and mobile phone contracts and gyms and things of that nature. What we found was that the approach of the regulator in Victoria was to talk to those industries and have a consultative approach to say look we've got concerns with these types of clauses. They were then taken on board by industry and the contracts altered.

Going back to using that Victorian experience which was so successful, suppliers didn't want to have two types of contracts so they would change all their contracts. That was really the genesis I suppose of having a national regime.

As you say it's early days for the federal regime but already we've seen the contracts are being altered and people are really looking afresh at their contracts and saying well geez do we really need these contractual terms, because this legislation really focuses on, well, what does the contract say, rather than what you do with the contract or how you actually go about implementing things. It really comes down to what the contract itself says, so this is starting to kick in.

David Bushby
Well it sounds like a fair bit of ground work was laid prior to this new regime but even so have any concerns or perhaps unintended consequences come out of the woodwork so far?

Randal Dennings
Well yes David some of the definitions that are in the legislation are novel. Federal legislation is quite different to the old legislation in Victoria - and indeed elsewhere - and so you fall into situations where some contracts you'd think would be consumer contracts but when you look at them quite closely you might find that perhaps they're not. An example of that can be a mortgage - if you have a mortgage in place for a personal loan, and if you technically go through the analysis, there's an argument that it is in fact not caught. 

What we're finding is a lot of people have clauses in their contracts which would be quite swooping in nature. For example I can vary these contracts by giving a notice to you and that was necessary to cover a whole range of things that could happen (like change of computer systems or business models or things of that nature). Now people are looking at it and saying well gee if that clause falls down and the consequences of those changes are that the clauses are void, then I'm gonna be fixed into contracts that can't be altered, so I better make sure I'm very specific in the drafting to make sure I can vary in only certain circumstances. So there's a real need to reā€‘evaluate your contracts and see what in fact they need to say to meet your legitimate needs.

David Bushby
Just finally Randal, with all that in mind are there any areas businesses need to pay particular attention to or need improvement?

Randal Dennings
Look what we've seen in practice David is that people have been really focusing on those high-risk consumer contracts - ones where clients are doing a lot of business with consumers where they have, say, securitised their income streams or they really need to have those contracts to stack up and be able to be relied upon for forward orders and things of that nature. The risks that we see is that if you're in a situation where those particular provisions are rendered void then suppliers might be finding themselves locked into contracts they never intended themselves to be locked into. It's certainly worthwhile looking at those risks and adopting lower risk drafting to ensure you haven't got any difficulties with that new regime.

David Bushby
Some very good insights we'll leave it there for now but thank you again for your time today Randal.

Randal Dennings
No problems David thanks a lot for the opportunity.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.