Australia

Fair Trading and Other Acts Amendment Act 2009 became law on 10 June 2009.

This Act:

extends the Victorian Fair Trading Act 1999 provisions regarding unfair contract terms to include consumer credit contracts, mortgages, guarantees, and leases from 11 June 2009
requires credit providers who provide UCCC regulated finance to Victorian residents to belong to an ASIC approved external dispute resolution scheme from 1 July 2009 (this is in addition to the existing requirement to be a registered credit provider in Victoria). Lenders who are not currently members of a scheme need to act promptly.

Victoria has implemented these initiatives to cover the gap until the Commonwealth take over of the regulation of credit.

Unfair Contracts

The Act provides that an unfair term in a consumer credit contract is unenforceable.

Injunctions preventing the use of unfair contract terms and orders in relation to such terms may be applied for in the Supreme Court, County Court, or the Victorian Civil and Administrative Tribunal (VCAT).

The court or VCAT can make a variety of orders in relation to unfair contract terms including:

payments of damages or restitution
variation of the contract, refund of money paid under the contract, or an order for the return of property
specific performance, rescission, rectification
an order that a provision cannot be enforced or that a debt is, or is not, owing.

While the Commonwealth legislation and the Victorian legislation are fairly similar, there are some important differences. The table below highlights these differences.

Provision	Commonwealth Legislation	Victorian Legislation
Definition of 'unfair'.	A term of a standard form contract is unfair if: the term would cause a significant imbalance in the parties' rights and obligations arising under the contract the term is not reasonably necessary to protect the legitimate interests of the party advantaged by the term.	A term in a consumer contract is to be regarded as unfair if in all the circumstances, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer.
Definition of 'standard form contract'.	None provided, but if a claimant states that a contract was a standard form contract, it is up to the respondent to prove otherwise	A consumer contract that has been drawn up for general use in a particular industry, whether or not the contract differs from other contracts used in that industry. There is also a presumption that a contract is a standard form contract unless the contrary can be established.
Matters the court must take into account when determining whether a term is unfair.	Matters include: the extent to which the term would cause, or whether there is a substantial likelihood that the term would cause, detriment (whether financial or otherwise) to a party if the clause was to be applied or relied on how transparent the clause is the contract as a whole.	None specified.
Matters the court may take into account when determining whether a term is unfair.	Whether the clause allows one party (but not the other) to: limit or avoid performance terminate the contract be penalised for breach of termination vary the terms of the contract renew or not renew vary the upfront price payable without the right of the other party to terminate vary the goods or services to be supplied or the land to be sold or granted unilaterally determine that a breach has occurred limit that party's vicarious liability for its agents assign to that other party's detriment without the other party's consent limit one party's right to sue limit the evidence one party can adduce in proceedings relating to the contract impose the evidential burden on the other party Any other matters referred to in the regulations.	Whether the term was individually negotiated. Whether the term is prescribed by the regulations (none currently prescribed). Whether the term has the object or effect of permitting the supplier to: avoid or limit performance terminate penalise the consumer for breach or termination vary the terms renew or not renew determine the price without allowing the consumer to terminate unilaterally vary the goods or services to be supplied limit vicarious liability for its agents assign the contract to the consumer's detriment without the consumer's consent limit the consumer's right to sue limit the evidence the consumer can lead in proceedings impose the evidential burden on the consumer in court proceedings.
Effect if term is found to be 'unfair'.	An unfair term of a standard form contract is void.	An unfair term in a consumer contract is unenforceable if the contract is a consumer credit contract and void if the contract is any other form of contract.
Prescribed unfair terms	None currently prescribed.	None currently prescribed. It is an offence to use a prescribed unfair contract term.
Exceptions	Exceptions include: terms which define the main subject of the contract (i.e. a consumer cannot buy goods and then later assert that they changed their mind and it was unfair that they had to proceed with the purchase, or borrowed money and then later claimed it was unfair that the lender enforced the mortgage) terms which set the upfront price payable under the contract (ie the consideration for the supply or sale provided it is disclosed at or before the contract is entered into) terms required by law contracts of service (that is, employment contracts).	None specified.
What contracts are impacted?	All standard form contracts, including business to business contracts. Contracts which on or after 1 January 2010 are: entered into renewed, in relation to conduct occurring after the renewal varied, in relation to conduct occurring after the variation.	All contracts to supply goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption, for the purposes of the ordinary personal, domestic or household use or consumption of those goods or services. Contracts which on or after the day after the Bill receives royal assent are: entered into renewed.

Gadens Lawyers can assist lenders review their documents to determine whether any changes are required to avoid challenge as an unfair contract term. We have already worked with Consumer Affairs Victoria reviewing credit contract terms and so are uniquely placed to assist you.

By Elise Ivory

For more information, please contact:

Sydney
Jon Denovan	t (02) 9931 4927	e jdenovan@nsw.gadens.com.au
Elise Ivory	t (02) 9931 4810	e eivory@nsw.gadens.com.au
Melbourne
Peter Nadalin	t (03) 9252 2577	e pnadalin@vic.gadens.com.au
Doug Scobie	t (03) 9252 7760	e dscobie@vic.gadens.com.au
Brisbane
Brian McPherson	t 07 3114 0250	e bmcpherson@qld.gadens.com.au
Deborah Bean	t 07 3231 1567	e dbean@qld.gadens.com.au
Perth
David Albrecht	t (08) 9323 0910	e dalbrecht@wa.gadens.com.au
Maxine Blount	t (08) 9323 0963	e mblount@wa.gadens.com.au
Adelaide
Wendy Jones	t (08) 8233 0645	e wjones@sa.gadens.com.au
Lucy Richards	t (08) 8233 0614	e lrichards@sa.gadens.com.au

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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