Fair Trading Amendment (Unfair Contract Terms) Bill 2010

Fair Trading Amendment (Unfair Contract Terms) Bill 2010

Introduction Print

EXPLANATORY MEMORANDUM

561411

BILL LA INTRODUCTION 14/4/2010

General

The Bill amends Part 2B (Unfair Terms in Consumer Contracts) of the Fair Trading Act 1999 to align its provisions with the unfair contract terms provisions in the Trade Practices Amendment (Australian Consumer Law) Act 2010 of the Commonwealth (the Commonwealth Act), which will form part of the new Australian Consumer Law.

Consistent with the Commonwealth Act, Part 2B is amended so that it only applies to consumer contracts that are standard form contracts. The national definition of consumer contract is adopted for the purposes of Part 2B. Astandard form contract is no longer defined, but guidance is provided as to the factors to be considered in determining whether a contract is a standard form contract. The methodology in the Commonwealth Act for determining if a term is unfair, which amongst other things, takes explicit account of the legitimate interests of the party who would be advantaged by the term in question, and the extent to which the term is transparent, is adopted.

Also consistent with the Commonwealth Act, terms which define the main subjectmatter of the contract; set the upfront price payable under the contract; or are required or expressly permitted by law, are specified to be unaffected by section 32Y(1) of Part 2B. Specific contractual arrangements such as shipping and marine contracts are excluded from the application of Part 2B, as are constitutions of bodies such as companies.

Finally, consequential amendments are made to a number of provisions to ensure consistency between Part 2B and the language and approach of the unfair contract terms provisions of the Australian Consumer Law.

Clause Notes

Clause 1sets out the purpose of the Bill, which is to amend the Fair Trading Act 1999 in relation to unfair contract terms.

Clause 2provides that the Bill comes into operation on a day to be proclaimed. The clause does not specify a default commencement date: open-ended commencement is required to enable the amendments to Part 2B to be proclaimed to come into operation at the same time as the unfair contract terms provisions of the Australian Consumer Law are proclaimed to commence by the Commonwealth (scheduled for 1 July 2010).

Clause 3provides that the Fair Trading Act 1999 is called the Principal Act.

Clause 4substitutes section 1(bb) of the Fair Trading Act 1999 to clarify that one of the purposes of the Bill is to provide for the regulation of unfair terms in consumer contracts.

Clause 5amends section 32U of the Fair Trading Act 1999 to repeal the definitions of prescribed unfair term, standard form contract and unfair term, and to insert definitions of constitution, consumer contract, interest, rely on, ship, transparent, unfair, and upfront price, to reflect their use in the amended provisions of Part 2B.

Clause 6substitutes new sections 32V and 32VA for section 32V of the Fair Trading Act 1999 to expand the range of contractual terms and contracts to which the provisions of Part 2B do not apply, consistent with the Commonwealth Act.

Proposed section 32V sets out terms, in addition to terms required or expressly permitted by law, which are unaffected by section 32Y(1) of the Fair Trading Act 1999. These are terms that—

define the main subject matter of the contract; and
set the upfront price payable under the consumer contract.

Terms that define the main subject matter of the contract are excluded because where a party has decided to purchase goods or services that are the subject matter of the contract, they should not be able to later challenge the fairness of that term, given that they chose to enter into the contract on that basis. Similarly, where a party has decided to enter into a contract on the basis of the upfront price, which they may also have negotiated, they should not be able to later challenge the upfront price as unfair.

Proposed section 32VA sets out contracts to which Part 2B of the Fair Trading Act 1999 will not apply. These are—

a contract for marine salvage or towage;
a charterparty of a ship; or
a contract for the carriage of goods by ship (which includes a contract covered by a sea carriage document under the Hague Rules).

A contract that is the constitution of a company, a managed investment scheme or other kind of body is also outside the application of Part 2B.

Shipping contracts are already subject to a body of maritime law which deals with contractual terms. Constitutions of companies and other bodies are already regulated under other legal regimes, such as the Corporations Act 2001 of the Commonwealth.

Clause 7substitutes sections 32W and 32X of the Fair Trading Act 1999.

New section 32W sets out a methodology for determining if a term of a consumer contract is unfair. Section 32W(1) provides that a term of a consumer contract is unfair if three tests are satisfied.

The first test, set out in section 32W(1)(a), requires the court or the Victorian Civil and Administrative Tribunal (VCAT) to consider whether the term would cause a significant imbalance inthe parties' rights and obligations under the contract. A party claiming that a term is unfair is required to demonstrate, on the balance of probabilities, that as a factual matter, the term would cause a significant imbalance.

The second test, set out in section 32W(1)(b), requires a consideration of whether the term is reasonably necessary to protect the legitimate interests of the party who would be advantaged by it. Section 32W(4) introduces a presumption that a term is not reasonably necessary in order to protect the legitimate interests of the party that would be advantaged by it, unless that party proves otherwise.

The third test, set out in section 32W(1)(c), requires consideration of whether a term would cause financial or non-financial detriment to a party if it were to be applied or relied on. Requiring a court or VCAT to consider whether detriment has existed or would exist in the future ensures that the party claiming that the term is unfair has to make out more than a hypothetical case that they are disadvantaged by the term. However, a term does not need to be enforced in order to be unfair.

Section 32W(2) sets out guidance for the court or VCAT in its determination of whether a term of a consumer contract is unfair under section 32W(1). A court or VCAT may take into account any matter that it thinks relevant; however, section 32W(2) provides that a court or VCAT must consider the extent to which the term in question is transparent, and the contract as a whole.

Section 32W(3) provides that a term is transparent if it is expressed in reasonably plain language; legible; presented clearly; and readily available to any party affected by it.

A court or VCAT is required to consider transparency because a lack of transparency in a consumer contract may be a strong indication of a significant imbalance in the rights and obligations of the parties under the contract.

New section 32X sets out an indicative list of examples of unfair terms. The list is not exhaustive, and recognises that additional terms may be prescribed by regulations. Consistent with the Commonwealth Act, new section 32X(2) provides that, before recommending the making of a regulation to prescribe an additional example of an unfair term, the Minister must take into consideration the detriment that a term of that kind would cause to consumers; and the impact on business generally of prescribing that kind of term; and the public interest.

Clause 8amends section 32Y of the Fair Trading Act 1999.

Clause 8(1) substitutes the heading for section 32Y.

Consistent with the Commonwealth Act, clause 8(2) substitutes sections 32Y(1) to limit the application of Part 2B to unfair terms in standard form consumer contracts. New section 32Y(1) provides that a term of a consumer contract is void if the term is unfair, and the contract is a standard form contract.

Also consistent with the Commonwealth Act, which does not enable terms to be prescribed as unfair, clause 8(3) repeals section 32Y(2).

Clause 8(4) substitutes section 32Y(3) of the Fair Trading Act 1999,to replicate the language of the equivalent provision in the Commonwealth Act.

Clause 8(5) replaces section 32Y(5) of the Fair Trading Act 1999 with new sections 32Y(5) and (6).

In substituting new 32Y(5), clause 8(5) repeals existing subsection (5), consistent with the Commonwealth Act, which does not enable terms to be prescribed as unfair.

New section 32Y(5) replicates the national definition of consumer contract, for the purposes of Part 2B. A consumer contract is defined to be a contract for—

a supply of goods or services; or
a sale or grant of an interest in land—

to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.

Although interests in land that are provided, granted or conferred in trade or commerce already come within the definition of services in section 3 of the Fair Trading Act 1999, and would be covered by new section 32Y(5)(a), paragraph (b) has been included for the purposes of consistency with the Commonwealth Act.

New section 32Y(6) clarifies that in section 32Y(5)(b), a reference to the sale or grant of an interest in land is a reference to the sale or grant of an interest in land in trade or commerce.

Clause 9Consistent with the unfair contract terms provisions in the Commonwealth Act, which do not enable terms to be prescribed as unfair or contain offences relating to the use of prescribed unfair terms, clause 9 repeals section 32Z of the Fair Trading Act 1999.

Clause 10substitutes the heading of section 32ZA and section 32ZA(1) of the Fair Trading Act 1999.

Consistent with similar provisions of the Commonwealth Act, new section 32ZA(1) provides that the Director or any other person may apply for an injunction against any person who is applying or relying on, or purporting to apply or rely on, a term of a consumer contract that is a standard form contract that has been declared under section 32ZC(1) to be an unfair term.

Clause 10(3) repeals section 32ZA(4), consistent with the Commonwealth Act. The Commonwealth Act only enables a court to grant an injunction in relation to a term of a consumer contract that has been declared to be an unfair term. Theinjunction power does not extend to similar terms or to a termhaving like effect.

Clause 11repeals section 32ZB of the Fair Trading Act 1999, consistent with the Commonwealth Act, which does not include powers to require the supply of information in relation to consumer contracts.

Clause 12substitutes section 32ZC(1) of the Fair Trading Act 1999, which concerns declarations by the Supreme Court, the County Court or VCAT, to reflect amendments made to limit Part 2B's application to consumer contracts that are standard form contracts, and to align the language in 32ZC(1) with the equivalent provision in the Commonwealth Act.

Clause 12(1) substitutes section 32ZC(1) to provide that the Director of Consumer Affairs Victoria or a party to a consumer contract may apply for an order declaring that a term of such a contract is an unfair term.

Also consistent with the Commonwealth Act, clause 12(3) inserts new section 32ZC(1A) to clarify that an order under section 32ZC(1) may only be made if the consumer contract is a standard form contract.

Clause 12(2) consequentially amends section 32ZC(4) to reflect the changes in the language of 32ZC(1).

Clause 13repeals section 32ZD of the Fair Trading Act 1999, consistent with the Commonwealth Act, which does not enable a court to give an advisory opinion on matters relating to unfair contract terms.

Clause 14substitutes section 32ZDA of the Fair Trading Act 1999 for the equivalent provision in the Commonwealth Act, which provides that if a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless another party to the proceeding proves otherwise.

New section 32ZDA(2) provides guidance for the court or VCAT in its determination of whether a contract is a standard form contract. It provides that a court or VCAT may take into account a list of factors, including whether one of the parties has all or most of the bargaining power concerning the transaction, or whether the contract was prepared by one party before any discussion took place between the parties concerning the transaction. It also provides that further factors may be prescribed in regulations.

Clause 15inserts new transitional clause 20 into Schedule 3 to the Fair Trading Act 1999.

Clause 20 provides that the amendments introduced by the Bill only apply to contracts entered into on or after the date the amendments come into operation. Part 2B as in force prior to the commencement of the Bill continues to apply to contracts entered into before the commencement of the Bill.

Clause 20(4) provides that where a contract is either renewed or varied on or after the commencement of the Bill, Part 2B of the Fair Trading Act 1999, as amended, applies to the contract as renewed, or the term as varied, on and from the day on which the renewal or variation takes effect, in relation to conduct that occurs on or after the renewal or variation day.

Clause 16repeals section 165(1)(ab) of the Fair Trading Act 1999, as it is no longer proposed to enable terms to be prescribed as unfair terms for the purposes of Part 2B.

Clause 17provides for the automatic repeal of the Bill on the first anniversary of the day on which it comes into operation. Section15(1) of the Interpretation of Legislation Act 1984 provides that the repeal does not affect the continuing operation of the amendments.