Within the ACL, there is a list of terms that are likely to be considered unfair under the unfair contract provisions.

Section 25 provides as follows:

In introducing the legislation, the Australian Treasury stated that the examples that may constitute unfair contract provisions, have been based on relevant case precedents in other jurisdictions (such as under the Victorian Legislation and the United Kingdom legislation).^[1]

It is worth noting that the list of terms contained within s. 25 are indicative of an unfair term only, and do not serve to act as prima facie evidence as to the unfairness of the term. Therefore, the inclusion of a term in s. 25 does not prohibit its use and serves only to provide guidance to consumers and businesses alike.^[2] However, as noted by Professor Carter, the practical impact of this list of terms is that those terms will be presumed to be unfair, what else would be the point of including them?^[3]

We will examine the terms listed in s. 25.

3.4.1 A term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract

On the introduction of the ACL, Victorian Consumer Affairs (“VCA”) indicated that terms might be less likely to be considered unfair, if they prefaced in a way that ensures the consumer understands the effect of the term on their rights under the contract.^[4]

3.4.2 A term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract

The AAPT case discussed above dealt with a clause that allowed one party a unilateral right to terminate the contract. Justice Morris found that an immediate termination clause for any breach of the contract in a mobile phone contract had the potential to be too broad in application and was thus found to be unfair.

A customer may have breached the agreement in a manner which is inconsequential, yet faces the prospect of having the service terminated. Further, if the customer changes his or her address (which will not necessarily be the address for receipt of billing information) this will also provide a ground to AAPT to terminate the Agreement. Because these provisions are so broadly drawn, and are one sided in their operation, they are unfair terms within the meaning of the FTA.^[5]

Furthermore, the VCA has indicated that terms stating that the consumer cannot cancel the contract under any circumstance, or only with the business’ consent, regardless of the business’s actions or omissions in relation to the transaction, may also be found to be unfair.^[6]

3.4.3 A term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract

The VCA has indicated that s. 25(1)(c) may be used to find that terms imposing penalties for trivial breaches of contract by a consumer are unfair.

Commentators have suggested that the presence of a clause requiring the consumer to pay an amount in order to terminate a contract, where the amount payable exceeds the actual cost to the business of dealing with the termination, is likely to be unfair.^[7] This is because the general law on liquidated damages must only subject consumers to damages that are justifiable, rather than damages that are imposed as penalties. The termination fee must be a genuine pre-estimate of the supplier’s loss.^[8] The assessment is made prospectively at the time of contract, and as such, it is irrelevant if the termination fee is ultimately more than the actual loss suffered by the consumer.^[9]

3.4.4 A term that permits, or has the effect of permitting, one party (but not another) to vary the terms of the contract

An example of an unfair unilateral variation clause was identified in the VCAT case of Director of Consumer Affairs Victoria v Trainstation Health Clubs Pty Ltd (Civil Claims) (decided under the Victorian Legislation).^[10] The Tribunal found that a clause in a consumer contract allowing a health club operator to unilaterally change the location of the club within a 12km radius of the original location was unfair. The term was found to be unfair as it was not a term that the consumer’s attention is specifically drawn, and which has the potential to operate in a way that disadvantages the consumer.^[11]

3.4.5 A term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract

A term that allows only the business a right of renewal will unfairly disadvantage the consumer and may be found to be unfair. The consumer may suffer detriment where a contract is not renewed or is automatically renewed without the consumer’s consent.

An example of an automatic renewal clause is often found in continuing contracts, such as the contract with a water or electricity provider. Where the business unilaterally decides not to renew the contract without providing notice to the consumer, the consumer is likely to suffer detriment in being without that service.

An automatic renewal clause will not be held to be unfair where the automatic renewal of the contract is reasonably necessary. Such as in the circumstance mentioned above of water and energy providers, and where the automatic renewal does not cause a significant imbalance between the parties. The VCA has stated that provided the consumer, prior to the expiration of the contract, is given the right not to have the contract renewed or is not required to pay a fee if they wish to withdraw from the agreement following the automatic renewal, the term is unlikely to be considered unfair.^[12]

3.4.6 A term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract

An example of the potential operation of s. 25(1)(f) may arise where there is a term in a consumer contract allowing the business to charge a price on delivery for goods that is a higher price than quoted to the consumer at the time the order was placed.

The VCA indicated that a variation clause detailing the upfront price payable under the contract would be less likely to be considered unfair if consumers were able to end the contract if they did not agree to the variation.^[13] This means the consumer should not be left worse off for having entered into the contract.

3.4.7 A term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, or the financial goods or services to be supplied under the contract

The AAPT case mentioned throughout is relevant to the operation of this provision. In the AAPT case, a term in a contract for mobile phone services allowed AAPT to ‘vary a Supplier or its products, or vary [AAPT’s] charges from time to time without notice to you [the consumer]’.^[14] Member Morris found the term was unfair, stating:

This term causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer. For example, it would enable AAPT to reduce the number of calls that a person could make pursuant to a prepaid mobile phone service which the person had entered into in good faith. This term was an unfair term.^[15]

The VCA has stated that if the intention of a business by including a unilateral variation clause in the contract is to permit changes that are limited in scope, and the consumer understands and agrees to the changes in advances, the term is less likely to be found to be unfair.^[16] In order to ensure the compliance with these requirements, the business should make clear to the consumer:

• the variation that might be made and in what circumstances;
• defining how far the variation can extend; and
• the business should provide the consumer with a right to terminate the contract without penalty if the business cannot supply the goods as agreed under the contract.^[17]

3.4.8 A term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning

The VCA provided an example of the operation of this provision. Where a contract contains a term that limits any testing of a product that the consumer alleges to be faulty to testing conducted by the business, the term may be found to be unfair. A fairer term in this circumstance would be a term referring the faulty product to independent assessment.^[18]

3.4.9 A term that limits, or has the effect of limiting, one party’s vicarious liability for its agents

Vicarious liability is of central importance for effective consumer protection, as it will generally be the staff of the business with which the consumer engages when entering into the contract in question. Thus, the inclusion of a provision that effectively limits a company’s vicarious liability for the action of its employees or sales staff may be regarded as unfair.

3.4.10 A term that permits, or has the effect of permitting, on party to assign the contract to the detriment of another party without that party’s consent

In the VCAT case of Director of Consumer Affairs Victoria v Backloads.com Pty Ltd (Civil Claims),^[19] Tribunal Member Harbison found that a term in a removalist contract allowing the removalist company to ‘assign its rights and the rights of any persons on behalf of whom it is acting, to collect all charges and payments from Clients to the Contractor’ was unfair under the Victorian Legislation.^[20] It was held to be unfair as it ‘had the object or effect of assigning rights in respect of the contract to an unidentified non-party’ and because it ‘created uncertainty for the consumer because the “Contractor” is not a party to the […] contract’.^[21]

3.4.11 A term that limits, or has the effect of limiting, one party’s right to sue another party

The VCA has stated that a term that requires a consumer to bring legal proceedings in a foreign court may be considered unfair under this provision of the ACL.^[22] This obligation would place an undue burden on the consumer when attempting to enforce the contract.

3.4.12 A term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract

A conclusive evidence term stipulates that, documents produced by one party to the contract (for example, invoices of amounts owing issued by the business) is prima facie evidence of their contents. These terms may have the effect of deterring a consumer accessing legal remedies and are therefore likely to be found to be unfair.

A term that has the effect of limiting the consumer’s perception of their legal rights is also likely to be unfair under this provision. For example, a term that specifies that evidence available for presentation is limited to the contract itself and excludes any evidence on pre-contractual negotiations may have the effect of altering the consumers’ understanding of their rights. While Court rules may allow the presentation of such evidence in certain circumstances, if a consumer is not aware of the rules of evidence, they may be deterred from taking action against the business or in seeking legal advice in relation to the matter because of the term.^[23]

3.4.13 A term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract

The VCA has indicated that a term that requires a consumer to provide evidence of unreasonable or potentially unprovable elements of a dispute, such as the authority of a staff member of the business to make representations where such information is in the hands of the business not the consumer, may be unfair.^[24]

This provision has the same effect as s. 25(1)(l) above – the term need not limit the consumer’s rights, but merely limit the consumer’s perception of their legal rights to constitute an unfair term.^[25]

3.4.14 A term of any kind, or a term that has the effect of any kind, prescribed by the regulations

The elements to be considered by the Minister as contained in s. 25(2) must ensure that consumer, business, and public interests are all considered before a term is listed as unfair.