Since 2010, the Australian Consumer Lawhas provided protection for consumers and small businesses against unfair contract terms (UCTs) contained in standard form contracts.
In November 2020, following consultation with the public, legislators announced a further strengthening of the UCT protections.
The UCT protections will continue to apply only to standard form contracts issued to consumers and small businesses.
What are unfair contracts?
A term contained in a standard form contract will be considered to be unfair in the following circumstances:
- If it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
- If it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; or
- It would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
What are the upcoming reforms?
From 5 April 2021, the new Unfair Contract Terms law will for the first time apply to all insurance contracts the subject to the Insurance Contracts Act 1984. As a result of the reforms, the UTC protections will extend to insurance policies such as car insurance, home and contents insurance, travel insurance and life insurance.
The second round of reforms, for which a commencement date has not yet been announced, will include a range of further protections, including:
- Introducing penalties and fines for breaches of the UCT law. Currently there are no penalties for UCT, with the only consequence being that the unfair term is unenforceable;
- Increasing eligibility for the protections by expanding the definition of small business and removing the requirement for a contract to be below a certain threshold; and
- Improving clarity on when the protections apply, including a clearer definition of a ‘standard form contract’.
The reforms are a positive step for the further protection of consumers, and a timely reminder for businesses to review their standard form contracts to ensure they do not contain any unfair contract terms contrary to the Australian Consumer Law.