The Trade Practices (Australian Consumer Law) Bill 2009 was introduced into Parliament last month and contains the new unfair terms laws which, if passed, will enter into force on 1 January 2009. They are, however, considerably watered down from the original proposed unfair terms laws and the Government has provided insufficient explanation for this change.
The bill is the first step toward creating a new 'Australian Consumer Law' which will consolidate all key consumer protection laws (currently overlapping at national and state levels) into a single national consumer law and follows recommendations made by the Productivity Commission.
Currently, only Victoria operates an unfair terms regime. In Victoria unfair terms are prohibited in consumer contracts (narrowly defined) where, in all the circumstances, they cause "significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer." The definition originally added a requirement that it be 'contrary to the requirements of good faith', but the ambiguity caused by the reference to good faith resulted in the removal of this element earlier this year.
The propsed national law - which will replace the Victorian law in that state - is narrower. The key difference is that it applies only to standard form contracts (Victorian law applies both to standard form and negotiated contracts); in practice, as most consumer contracts are of this nature, this will not unduly limit the operation of the provision - however, it may provide some scope for avoidance of the provision. In the absence of any adequate definition of 'standard from contract' it slo remains unclear precisely what will be classified in this way: will a standard form contract with some negotiated terms still be classified as a standard form contract? This will no doubt cause some business uncertainty for a number of years.
Regardless of what is held to constitute a 'standard form contract' the prohibition contained in the current bill is much narrower than the law originally proposed by the Government; when first announcing the national regime, the Government stated that it would apply to ALL standard form contracts - there would be no monetary limit and it would apply to consumer and business-to-business contracts. Naturally the more equal the bargaining power between the parties, the less likely a negotiated term would be considered unfair but, where this unfairness could be demonstrated the party subjected the unfair term would have recourse to the law. Big business was naturally unhappy and, following a period of consultation (in which interested parties were given a whole 11 days to respond to draft legislation), the Government announced in June that it would limit the unfair terms prohibition to standard-form contracts where the up-front price payable for the goods or services did not exceed $2m. An exclusion was also added for shipping contracts. This was designed to provide some protection to small business but not to business generally.
It appears this did not go far enough. Without any genuine explanation, the Government, when introducing the bill, limited its application to consumer contracts, narrowly defined as 'a contract for ‘(a) a supply of goods or services; or (b) 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.’ (this is narrower than the definition of consumer contract applicable to other provisions of the Trade Practices Act). Consequently, business-to-business transactions are excluded from the new law entirely.
This is a significant backdown. The Government claims it will revisit business-to-business contracts following reviews of the unconscionable conduct provisions of the TPA and the Franchising Code of Conduct, but there has been no genuine explanation regarding the dramatic change in scope of the provision.
There should be no great concerns about the limitation of the the provision to individual - as opposed to business - consumers, although there is some merit in extending the law to small business consumers who lack the power to negotiate 'unfair' terms out of standard form business contracts. More troubling is the process of the Government in proudly announcing in May that it would introduce unfair terms legislation for ALL standard form contracts and, without genuine explanation, introducing a bill two months later which eliminates business-to-business transactions - no matter the power imbalance - altogether. For a Government that aims to 'consult' on everything, little information is ever provided about the effect - if any - the consultation has had on the government and the reasons for any changes made. More work needs to be done in reporting on the impace of the consultation process if anyone is to feel confident that "consultation" serves any genuine purpose.