UNFAIR CONTRACT TERMS AND ONLINE CONTRACTS

CRAIG SUBOCZ SOLICITOR

Introduction

In 2003, the Victorian Government amended the Fair Trading Act 1999 (Vic) to protect consumers from ‘unfair contract terms’ in ‘consumer contracts’.  The Government considered that consumers need protection in situations where the supplier offered goods or services under a standard set of terms and conditions that heavily favoured the supplier.

When a person visits a website to purchase products or services from the supplier, the person generally does not have an opportunity to negotiate the terms of the supply.  This is a typical situation where the Act’s prohibition against unfair terms might apply.  Therefore, a supplier trading via a website should ensure that the terms of supply do not contain terms that would be considered unfair under the Act.

What are ‘unfair contract terms’?

Under the Act, a ‘consumer contract’ is an agreement under which goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption are supplied for such purposes.  The Act further defines the concept of an ‘unfair contract term’ as follows:

A term in a consumer contract is to be regarded as unfair if, contrary to the requirements of good faith and in all the circumstances, it causes a significant imbalance in the rights and obligations arising under the contract to the detriment of the consumer.

In Director of Consumer Affairs v AAPT Ltd (2006), the President of the Victorian Civil and Administrative Tribunal found that AAPT’s supply of mobile telephony services to its customers was the supply of services of a kind ordinarily acquired for personal, domestic or household use or consumption, and the supply was for such purpose, notwithstanding AAPT’s argument that its services were acquired for purposes other than personal, domestic or household use or consumption.

Further, the President determined that the expression ‘contrary to the requirements of good faith’ in the definition of ‘unfair contract term’ is designed to assist in assessing whether a term in a consumer contract causes a ‘significant imbalance’ between the parties’ respective positions.  Thus, the President found that “there is no separate requirement of ‘good faith’ in consumer contracts; rather ‘good faith’ is a touchstone which might be employed in determining whether a term” is unfair.

The Act provides assistance in determining whether a term is an unfair contract term by setting out matters that may be taken into account for the purpose of making such a determination including whether the term has the object or effect of:

·                          permitting the supplier but not the consumer to avoid or limit performance;

·                          permitting the supplier but not the consumer to terminate the contract;

·                          penalising the consumer but not the supplier for breach of the contract;

·                          permitting the supplier but not the consumer to vary the terms of the contract; or

·                          permitting the supplier but not the consumer to renew or not renew the contract.

Effect of an unfair contract term

A term that is found to be unfair is void and cannot be enforced by the supplier.  To the extent that the contract can exist without the unfair term, the contract remains binding and enforceable.  A supplier who uses an unfair contract term may be subject to injunctions and other penalties under the Act.

Online contracts and unfair contract terms

Contracts between suppliers and customers of ‘consumer products’ entered into online are, depending on the circumstances, likely to bind the parties in the same way that paper contracts are binding, particularly after the recent decision of the Supreme Court of New South Wales in Peter Smythe v Vincent Thomas [2007] NSWSC 844 concerning an aeroplane sold via eBay.

A supplier offering consumer products or services to Victorian consumers under an online contract should be careful to avoid including any ‘unfair contract terms’ in the contract.  Consumers generally do not have the opportunity to negotiate the terms of a contract made online, which are usually presented on a ‘take it or leave it’ basis.  At most, a consumer will be invited to positively assent to the terms of the contract through some means, such as clicking an ‘I accept’ button.  For example, AAPT Ltd made its contracts for the supply of its telephony services available via its website.

Assessing whether a certain term is unfair depends on the circumstances.  As consumers generally cannot negotiate the terms of a contract made online, suppliers trading online should be particularly careful to follow the principle of ‘good faith’ when preparing the contract.  For example, limitations of liability may need to be restricted to situations where the delay or non-performance of the contract is due to factors outside the reasonable control of the supplier, not in all situations.  Similarly, if the supplier wants the right to terminate the contract for convenience, it may be necessary for the supplier to extend the same right to the consumer.

Thus, it is important for suppliers to avoid including in their online contracts:

·                          terms that provide unilateral rights to the supplier, particularly the right to unilaterally amend the contract;

·                          limitations of liability that benefit the supplier but not the consumer;

·                          terms that transfer risk to the consumer where the supplier is objectively better able to manage the risk;

·                          punitive dispute resolution provisions; and

·                          terms which impose unexpected financial burdens upon the consumer.

Conclusion

Electronic commerce is a growing means of distributing consumer goods and services in Australia.  Courts have recognised that contracts formed online may be as valid and binding as their paper equivalents.  Suppliers need to recognise that the Act applies to their online contracts with consumers for the supply of goods or services.  Therefore, suppliers trading online should review their online contracts and take steps to remove any ‘unfair contract terms’ from such contracts.