Unfair Contract Prohibition changes in Trade Practices Act
Consumer law nationally has been radically changed with the passing of new laws that prohibit standard form consumer contracts which contain unfair terms. These changes are likely to have a significant impact on SMEs and how they interact with their customers.
Unfair Contract Prohibition has been inserted into the Trade Practices Act 1974 and took effect on 1 July 2010. This articles aims to explain the changes and what they mean for SMEs.
What is a consumer contract?
The prohibition on unfair terms will only apply to a “consumer contract”. A consumer contract is defined as a contract between a supplier and a person who is acquiring the product wholly or predominantly for personal, domestic or household use or consumption. This means that in deciding whether a particular person is a “consumer” it is necessary to know the reason for which the individual person is acquiring the product.
This is different to the current prohibition on unfair terms in consumer contracts under the Victorian Fair Trading Act 1999 (Vic), which defines a consumer contract as an agreement for goods or services of the kind ordinarily acquired for personal, domestic or household use or consumption and is acquired for one of those purposes. Under this definition both the nature of the product and the purpose of the individual person must be for personal, domestic or household use or consumption.
This means that the definition of consumer contract under the new provisions will be broader and may capture more contracts than those that fall within the Victorian legislation. This highlights the need for companies who operate in Victoria and currently comply with the unfair contracts provisions of the Fair Trading Act to review their standard form contracts for products that might not ordinarily be acquired by consumers but there is a possibility that the product would be acquired by a person who intends to use it for personal, domestic or household use or consumption.
Some examples of products which are likely to fall within the definition of a “consumer contract” include airline tickets, gym memberships, non-business telecommunications contracts, “off the plan” domestic property contracts, home delivery terms and conditions and computer licensing terms for individuals.
[Next: What is a "standard form" consumer contract?]
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