Companies face crackdown on unfair contract terms as consumer laws pass

Companies will face tough penalties for the use of unfair terms in standard contracts, after the Senate passed what Federal Competition Minister Craig Emerson has described as the biggest change to consumer laws in 35 years.

But in a series of last-minute changes to the new laws, with Emerson backing dropping a proposal to include a “blacklist” of unfair contract laws in the legislation, instead replacing this with a “grey list” of terms that are not illegal but will be discouraged.

The new laws will help protect unfair contract terms, such as unfair exit fees, penalty fees and clauses that permit one party to unilaterally change or cancel a contract. These are typically found in “standard form” contracts used by companies including gyms and phone companies.

The new laws will also harmonise consumer law across Australia by replacing 17 Commonwealth, State and Territory laws. The Productivity Commission has estimated this streamlining will save up to $4.5 billion a year.

David Jacobsen, commercial and corporate lawyer and partner of Langes+, says businesses which deal directly with consumer will need to review their contracts to make sure they are not unfair.

“There may not be substantial amendments required, but the fact is that reviews will be needed and this is the start of the program, because changes around product safety, guarantees and warranties and conditions are next.”

The decision to drop the blacklist came about as a result of the consultations with the Opposition. Emerson says a similar blacklist existed in Victoria, but no terms were ever added to the list.

The consent of the Senate will be required to add any terms to the grey list.

But competition and consumer law expert Frank Zumbo of the University of New South Wales says the Victorian law and the backlist power should simply have been copied for the federal laws.

“Why reinvent the wheel? I am certainly not aware of any complaints about the Victorian legislation,” Zumbo says.

“The blacklist power was there to be used in appropriate circumstances. The fact that it hadn’t been used shows it shouldn’t have worried anyone. “

Zumbo also remains disappointed that Emerson excluded business-to-business contacts from the new laws in the middle of last year.

“That’s just very disappointing for small business, as small businesses are very similar to consumers in the lack of bargaining power they have and are often on the receiving end of unfair contract terms. “

Insurers have controversially received a carve-out from the new consumer laws, but Corporate Law Minister Chris Bowen has released an options paper to target the sea of hard or unfair contract terms in standard form contracts.

Zumbo says this is encouraging.

“There is no justification for giving insurers a blanket exemption from unfair contract laws.”