Introduction
Cases involving attempted circumvention of oppressive (and usually unfair) contract terms fill the legal books.
Availed of frequently was common law contract construction jurisprudence strictly construing indemnity, exemption and limiting terms. Equitable remedies too – based on mistake, misrepresentations, conscionable conduct, estoppel, duress, undue influence and unconscionable dealing – have been pleaded to temper the strict effects of a contract.
Statutory inroads – e.g. Contracts Review Act 1980 (NSW) – were sparse. A significant advance in consumer protection came in 1974 with the enactment of the Trade Practices Act 1974 (Cth).
Since then there have been two principal pieces of legislation enacted by the Commonwealth to protect consumers in Australia apropos of oppressive contract terms. They were the Australian Consumer Law (ACL) – which was enacted as a schedule to the Competition and Consumer Act 2010 (Cth), and adopted and applied more broadly under the Fair Trading Act 1989 (Qld) – and the Australian Securities and Investment Commissions Act 2001 (Cth) (ASIC Act).
The ASIC Act focuses on regulating financial services and markets to ensure their integrity and stability, while the ACL focuses on protecting consumers from unfair practices in commercial transactions. They have a common aim: namely, to protect the interests of consumers and maintain confidence in the Australian marketplace. They do this in different ways, and with different areas of emphasis.
The point of this article is to canvass the field of operation of the ACL and ASIC Act in vitiating “unfair” terms in contracts. There are other apt provisions of the ACL – including in s 21, concerning “unconscionable conduct” – but they are not canvassed herein.
Such “unfair contract terms” provisions are contained in ACL Chapter 2 Part 2.3, and in ASIC Act Part 2, Division 2, Sub-division BA.
2010 Enactment
The regulation of unfair contract terms was enacted in 2010 in the ACL,[1] taking effect on 1 January 2011. These provisions, if invoked, operated to vitiate any term of (1) a “consumer contract” (2) that was “unfair” (3) if the contract was a “standard form contract”. Importantly, the balance of the contract remained enforceable.
These protections were designed to comprehend the circumstance whereby, in order to acquire a product, the consumer was required to accept the terms and conditions offered at the time a product was purchased, in effect on a “take it or leave it” basis. How often do we see this in everyday life when something is purchased on the internet!
Standard form contracts are commonly used as a cost-efficient option when conducting business as they avoid the transaction costs associated with negotiating terms. Consumers and small businesses, however, often lack the resources and bargaining power to effectively review and negotiate terms in standard form contracts placing them in a vulnerable position which can be exploited.
Such standard terms and conditions can impose some onerous obligations and remove substantial rights. For example, they may obviate rights (such as excluding the provisions of the Sale of Goods legislation), add hidden expenses (such as automatic renewals), permit unilateral actions or termination, or afford the opposing party a liability release or right of indemnity.
The plain intent of this legislation was to furnish some reasonable protection to consumers where there was in place a fixed standard form contract.
What constitutes a “standard form contract” was not defined. Section 27 of the ACL[2] expressed a number of matters which a court must take into account when determining whether an agreement is a standard form contract.
- whether there is an inequality in bargaining power;
- is it a pre-prepared contract previously used by the party proposing it on other occasions;
- was it prepared by one party before any discussion relation to the transaction occurred between the parties;
- was it offered on a take it or leave it basis;
- was there no effective opportunity to negotiate the terms of the contract; and
- were the specific characteristics of the other party or the particular transaction not considered.
If a “standard form contract” was being used, the next essential requirement for triggering the protection of the unfair terms provisions is that the impugned term is contained in a “consumer contract”.
Under the ACL a “consumer” was defined to have certain characteristics. They are that the goods or service had a value of not more than $40,000 (from July 2021, $100,000) or were for personal, domestic or household use or consumption.[3]
The provisions applied a different definition to “consumer contract” from that given to a “consumer”. A “consumer contract” was to be a contract for the supply of goods or services or the sale or grant of an interest in land to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption. Importantly, no monetary limit applied.
The final and critical requirement was that the term was “unfair”.
A similar approach was taken in the ASIC Act although it applied to a consumer contract which was in a standard form and which was for a financial product or was for the supply or possible supply of financial services. It required that the acquisition was wholly or predominantly one for personal, domestic or household use or consumption.
Under these reforms in both the ACL and the ASIC Act, any term that was found to be “unfair” was void.
This initial (2010) approach to protecting consumers against unfair terms proved to have three major shortcomings:
- First, it was narrow in application. It only applied to individuals, not to small businesses which were frequently impacted by unfair terms.
- Second, the term consumer contract led to some confusion as it differed from the general definition given and used in other parts of the legislation.
- Finally, it was ineffective as the likelihood of a consumer taking on a supplier was slight and in any event a finding against a supplier did not prevent it from continuing to engage in the same practice.
2016 and 2023 Amendments
To remedy such shortcomings, amendments were enacted in 2016 by the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth).
This Act amended both the ASIC Act and the ACL to extend the unfair contract term protections to comprehend any small business which had less than 20 employees, and used standard form contracts valued below a prescribed threshold.
Such threshold was, initially, if the upfront price payable under the contract did not exceed $300,000 (for contracts lasting up to and including one year in duration) or otherwise did not exceed $1 million.[4]
Further reforms were undertaken in 2022 with enactment of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022, which amended the ACL and ASIC Act to strengthen and clarify the unfair contract terms provisions. These amendments came into force on 9 November 2023.
Such amendments:
- expanded the class of contracts that are covered by the unfair contract terms provisions, particularly by expanding what constitutes a small business;
- relaxed the matters which were required to be considered in order to determine whether the contract was a standard form contract; and
- provided penalty provisions and increased the powers of the courts to grant injunctions so that a court could restrain a person from entering into any future contract that contained a term that is the same or similar in effect to a term that has been declared an unfair contract term.
Small business
The definition of what constituted a “small business contract” was greatly expanded. Such contract is defined in s 23(4) of the ACL:
A contract is a small business contract if:
(a) the contract is for a supply of goods or services, or a sale or grant of an interest in land; and
(b) at least one party to the contract satisfies either or both of the following conditions:
(i) the party makes the contract in the course of carrying on a business and at a time when the party employs fewer than 100 persons;
(ii) the party’s turnover, worked out under subsection (6) for the party’s last income year (within the meaning of the Income Tax Assessment Act 1997) that ended at or before the time when the contract is made, is less than $10,000,000.
In determining the number of employees, a casual employee did not count unless employed on a regular and systematic basis, and a part-time employee fell to be counted as an appropriate fraction of a full-time employee.
When considering a company’s turnover there were exclusions when calculating this amount which are set out in s 23(6).
Determining how to calculate the number of full-time employees and a business’ turnover, on occasions, may be difficult.
The test for what constitutes a “small business contract” is slightly different in the ASIC Act. There, such contract is one where the upfront price payable under the contract is no more than $5 million and where at least one party to the contract makes the contract in the course of carrying on a business and at the time employs fewer than 100 persons or its turnover for the lost income year that ended at or before the time the contract was made was less than $10 million.[5]
The expanded definition of “small business” only applies to contracts which were entered into, renewed, or varied after 8 November 2023. Contracts entered into between 12 November 2016 and 8 November 2023 attract the earlier limited definition of what constitutes a small business. The unfair terms provisions do not apply to small businesses if the standard form contract was entered into prior to 12 November 2016.
It only requires “at least one party” to invoke the prerequisite of being a small business to activate the provisions: a small business may be a consumer of goods or services but also it may also be a supplier of them to someone who otherwise would not qualify to take advantage of these protections.
Standard form contract
Some latitude was afforded when determining whether a contract was a “standard form contract”.
Section 27(3)[6] provides that a contract can be determined to be a standard form contract despite a party having the opportunity to negotiate minor changes to the terms of the contract or if the other party had the opportunity to select a term from a range of options determined by the other party or whether a party to the other contract was given the opportunity to negotiate its terms.
The introduction of penalties
A notable change was the inclusion of penalty provisions. A finding of an unfair term may have the following consequences, which can be imposed by a court:
- The court may order the contravener to pay a penalty.[7] A penalty may be ordered not only against a person who commits the contravention but also against a person who has attempted to commit a contravention or who was knowingly concerned with the contravention. Under the ACL, for a person who is not a body corporate, the penalty is not to exceed $2,500,000. For a person who is a body corporate, the penalty is not to exceed the greater of $50 million or three times the benefit obtained from the contravention and 30% of the body corporate’s adjusted turnover during the period of the contravention. Similar penalties under the ASIC Act are found in ss 12 GBC and 12 GBCA
- The court may order a person to undertake community service or implement a compliance programme and implement an educational and training programme.[8]
- The court may order a person to make an advertisement in terms specified by the court.[9]
- The court may order that a person be disqualified from managing corporations for a period that the court considers appropriate.[10]
- The court may make such order as it thinks appropriate to prevent a term that is the same or substantially similar in effect to the term that has been declared unfair from being used in a future contract to which the respondent is a party.[11]
Contracts or terms which are excluded
There are a number of contracts or terms which are excluded from the unfair contract terms provisions. They are listed in section 28 and 28A of the ACL.
These include contracts of particular subject matter (e.g. marine salvage) and terms which define the main subject matter of the contract, terms which set an upfront price[12] and terms which are expressly required by a State or Commonwealth law.
When is a Term Unfair?
The broad prescription of what amounts to an “unfair” contract term is contained in s 24(1):
A term of a consumer contract or small business contract is unfair if:
(a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
(emphasis added)
Note these requirements are conjunctive, not disjunctive. Thus each must be proved, the second attracting an onus in the party advantaged.
More assistance is provided by s 24(2) and (3):
(2) In determining whether a term of a contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following:
(a) the extent to which the term is transparent;
(b) the contract as a whole.
(3) A term is transparent if the term is:
(a) expressed in reasonably plain language; and
(b) legible; and
(c) presented clearly; and
(d) readily available to any party affected by the term.
(emphasis added)
In order to assist with determining whether a term is unfair, s 25 provides examples of unfair terms. The section provides:
Without limiting section 24, the following are examples of the kinds of terms of a consumer contract or small business contract that may be unfair:
(a) a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract;
(b) a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract;
(c) a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract;
(d) a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract;
(e) a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract;
(f) a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract;
(g) a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract;
(h) a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning;
(i) a term that limits, or has the effect of limiting, one party’s vicarious liability for its agents;
(j) a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party’s consent;
(k) a term that limits, or has the effect of limiting, one party’s right to sue another party;
(l) a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract;
(m) a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract;
(n) a term of a kind, or a term that has an effect of a kind, prescribed by the regulations.
There is a common theme running through these enacted “examples”. Unfairness must be factually based on something which results in one party being placed in a more favourable position than another. This, of course, is made more complex because in any commercial transaction there are good deals and bad deals. But there are a number of markers which indicate that a bad deal may also be “unfair”.
This issue was addressed recently, and comprehensively, in ASIC v Auto & General Insurance Company Limited (ASIC v Auto).[13] There ASIC, as plaintiff, unsuccessfully challenged an insured “notification” obligation clause in a raft of standard insurance policies. Jackman J wrote of ASIC Act s 12BG(1) – that being the analogue of ACL s 24(1) referred to above:
[65] In dealing with the issues which arise concerning the construction and application of s 12BG, I propose to follow the order which was adopted by the High Court in Karpik v Carnival plc [2023] HCA 39; (2023) 98 ALJR 45 at [29]–[32] and also at [51]–[60]; that is, to take each of the three elements in s 12BG(1) in turn, and then deal with the issue of transparency under s 12BG(2)(b) and s 12BG(3). It is to be observed that the extent to which the term is transparent is not one of the three criteria set out in s 12BG(1), but is a matter which the court must take into account pursuant to s 12BG(2)(b). I also note that s 12BG(2)(c) provides that the court must take into account the contract as a whole, which I have done so far in these reasons in relation to identifying the relevant term on its proper construction, and which I continue to do in what follows.
[66] Three general comments concerning s 12BG(1) may be made at the outset. First, the reference to “a term of a contract” in the opening words of s 12BG(1) means in general the term on its proper construction; that is, the meaning-content of the term: see Australian Competition and Consumer Commission v Smart Corporation Pty Ltd [2021] FCA 347; (2021) 153 ACSR 347 at [71] (Jackson J). That is made clear by the reference in s 12BG(1)(a) to “the parties’ rights and obligations arising under the contract”, which means their legal rights and obligations as properly and definitively construed. Similarly, one can only determine whether a term “would cause a significant imbalance” (para (a)), whether it is “reasonably necessary” (para (b)) or whether it “would cause detriment” (para (c)), if one knows what the term actually means on its proper construction. Subsection 12BG(1) does not ask whether the three criteria are satisfied by a construction which may be arguable, but ultimately found to be erroneous. While I accept that the reference to “a term of a contract” includes the language actually used in expressing the term, subs 12BG(1) is concerned principally with the meaning of those words on their proper construction. The term in question is not merely the words actually used, nor is it those words taken in isolation from the contract as a whole. By contrast, s 12BG(3) is focused on the manner of expression and presentation of the term, although as I explain later in these reasons, s 12BG(3) does encompass questions of ambiguity and lack of clarity in meaning from the perspective of consumers. It is common ground between the parties that the notion of a “term” as used in ss 12BF and 12BG includes not just the written language but also its meaning content (T30.09–18; 35.27–30).
[67] Second, both parties proceeded on the basis that s 12BG(1) is concerned with an assessment of the relevant term in the context of the legal environment in which the term operates, comprising both statutory and non-statutory law (T120.16–27). Accordingly, I will apply the criteria in s 12BG(1) in the context of the legal environment applicable to contracts of insurance, which necessarily includes the ICA. I will deal below with the way in which ss 13–14 and 54–5 of the ICA affect the analysis of the term in question in these proceedings. However, it is worth noting at this point the long title of the ICA which in my view is an appropriate description of its subject-matter, namely:
An Act to reform and modernise the law relating to certain contracts of insurance so that a fair balance is struck between the interests of insurers, insureds and other members of the public and so that the provisions included in such contracts, and the practices of insurers in relation to such contracts, operate fairly, and for related purposes.
[68] Nonetheless, ASIC submits that a premise of the Amending Act, which rendered contracts of insurance governed by the ICA subject to ss 12BF and 12BG of the ASIC Act, must have been that the unfair contracts terms regime in the ASIC Act would have work to do in respect of consumer insurance contracts. In other words, ASIC submits that the criteria in s 12BG(1) of the ASIC Act may be satisfied, and a term may be found to be unfair, notwithstanding the ameliorative operation of the ICA. ASIC draws attention to a paper published by the Commonwealth Department of Treasury in June 2018 entitled “Extending Unfair Contract Terms Protections to Insurance Contracts”, which noted that one of the objectives of the then-proposed model was to “increase incentives for insurers to improve the clarity and transparency of contract terms, and remove potentially unfair terms from their contracts” (p 2). The defendant draws attention to the discussion in that paper of terms that may be considered unfair, and the proposal that examples specific to insurance contracts be added to the list set out in s 12BH of the ASIC Act, suggesting (at p 18) that the following kinds of terms be added to that list of examples:
- terms that permit the insurer to pay a claim based on the cost of repair or replacement that may be achieved by the insurer, but could not be reasonably achieved by the policyholder;
- terms which make the insured’s ability to make a claim conditional on the conduct of a third-party over which the insured has no control; and
- terms in a contract that is linked to another contract (for example, a credit contract) which limit the insured’s ability to obtain a premium rebate on cancellation of the linked contract.
[69] ASIC also draws attention to the Replacement Explanatory Memorandum, Financial Sector Reform (Hayne Royal Commission Response — Protecting Consumers (2019 Measures)) Bill (Cth) (Replacement Explanatory Memorandum), which preceded the Amending Act and indicated an intention that the unfair contract terms regime should operate “independently” of the duty of utmost good faith under the ICA and contemplated that “some scenarios may give rise to relief under both sets of provisions” (para 1.49).
[70] Third, although there is no express provision to this effect, it is the time of entry into the contract that is the relevant time of assessment of the criteria set out in s 12BG(1): Karpik v Carnival plc at [52]; Australian Competition and Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436 at [168] (Banks-Smith J).
Significant imbalance
What amounts to a “significant imbalance” in the parties’ rights and obligations arising under the contract is a question of fact.
Such imbalance is essentially a function of the terms of the contract, not the disparate size or financial standing of each party. If the terms of the contract are so weighed in favour of one party as to tilt that parties’ rights and obligations significantly in its favour, there is a “significant imbalance”, without regard to any surrounding circumstances.
The surrounding circumstances may explain why there is an imbalance, but the court need only be interested in determining whether in fact there was an imbalance as reflected in the contract.
A significant imbalance may be shown by terms which grant to one party a beneficial option or discretion or power or impose on the consumer a disadvantageous burden or risk or duty.[14]
In ASIC v Auto, Jackman J wrote (at [71]):
The following principles have been stated in the authorities dealing with s 12BG(1)(a) of the ASIC Act and s 24(1)(a) of the ACL (noting that where I refer below to Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377 at [54], it should be borne in mind that that passage in the judgment of Gilmour J was quoted with approval in Australian Competition and Consumer Commission v Servcorp Ltd [2018] FCA 1044 at [15] (Markovic J) and in Australian Competition and Consumer Commission v Smart Corporation Pty Ltd [2021] FCA 347; (2021) 153 ACSR 347 at [65] (Jackson J)):
(a) significant imbalance relates to the substantive unfairness of the contract: ACCC v CLA Trading at [54(b)];
(b) significant imbalance requires consideration of the relevant term, together with the parties’ other rights and obligations arising under the contract: Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd [2015] FCA 1204 at [51](2015) 239 FCR 33 at [51] (Edelman J); Australian Competition and Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436 at [45] (Banks-Smith J);
(c) the word “significant” means “significant in magnitude”, or “sufficiently large to be important”, “being a meaning not too distant from substantial”: ACCC v CLA Trading Pty Ltd at [54(e)];
(d) a significant imbalance exists if the term is so weighted in favour of one party as to tilt the party’s rights and obligations significantly in its favour, and this may be by granting to that party a beneficial option or discretion or power: ACCC v Chrisco Hampers Australia Ltd at [47]–[49]; ACCC v CLA Trading Pty Ltd at [54(d)];
(e) a term is less likely to give rise to a significant imbalance if there is a meaningful relationship between the term and the protection of a party, and that relationship is reasonably foreseeable at the time of contracting: Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224 at [31] (Moshinsky J);
(f) a useful factor in the analysis is the effect that the contract would have on the parties with the term included, and the effect it would have without it: ACCC v CLA Trading Pty Ltd at [54(c)];
(g) another relevant factor is whether the contract gives one party a right without imposing on that party a corresponding duty or without giving any substantial corresponding right to the counterparty: ACCC v Chrisco Hampers Australia Ltd at [53].
Can the term be justified
If a term which might appear to be disadvantageous or unfair can be justified “reasonably necessary” in order to protect the “legitimate interests” of the party, it is not “unfair”.
What amounts to a legitimate interest which is so justified is a question of fact and as such will differ between cases. Section 24(4) creates a presumption that a term is not reasonably necessary, but the party claiming that a term is necessary to protect its legitimate interests may rebut that presumption.
In ASIC v Auto, Jackman J wrote:
[86] The authorities concerning s 24 of the ACL establish the following relevant principles:
(a) the meaning of “legitimate interests” depends on the business of the supplier, including the circumstances of the business and the context of the contract as a whole: ACCC v Ashley & Martin Pty Ltd [2019] FCA 1436 at [48](Banks-Smith J); and
(b) what is “reasonably necessary” usually involves an analysis of the proportionality of the term against the potential loss sufferable, and may take into account other options that might be available to the party in terms of protecting its business and which are less restrictive to the other party to the contract: ACCC v Ashley & Martin Pty Ltd at [51]–[59]; ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224 at [58(h)]; ACCC v Smart Corporation Pty Ltd [2021] FCA 347; (2021) 153 ACSR 347 at [67] (Jackson J).
[87] The onus is on the defendant to prove that the term is reasonably necessary to protect its legitimate interests: s 12BG(4).
Detriment
Does the term create a financial or other “detriment” to a party if it is enforced?
In ASIC v Auto, Jackman J wrote:
[95] The criterion set out in s 12BG(1)(c) has been construed as requiring only that the application of, or reliance on, the relevant term would be disadvantageous to the consumer in some way, whether financial or otherwise: ACCC v Smart Corporation Pty Ltd at [68] (Jackson J). The test is not one of “significant detriment”, although the nature and extent of the detriment are not irrelevant: Karpik v Carnival plc [2023] HCA 39; (2023) 98 ALJR 45 at [57].
[96] ASIC advances two main arguments concerning the criterion of detriment, again putting to one side the argument which it makes on the lack of transparency. First, ASIC submits that the Notification Clause imposes a burden upon the insured consumer with which it must comply, and that is itself a form of disadvantage. Second, ASIC submits that any reliance upon the Notification Clause by the defendant will necessarily be detrimental to the consumer, irrespective of whether ss 54 and 55 of the ICA apply to limit the defendant’s rights. ASIC submits that any reliance upon the Notification Clause by the defendant will necessarily involve the reduction of the consumer’s claim (in whole or in part), or the cancellation of the consumer’s policy, and each of those things is properly characterised as a detriment. ASIC submits that the fact that s 54 may lessen the detriment to the consumer, by reducing the defendant’s liability to the extent that its interests were prejudiced by the consumer’s breach of the term, does not mean that the reduction of liability is not a detriment to the consumer, and there is no requirement that the detriment be significant or substantial. Accordingly, ASIC submits that any reduction in the defendant’s liability to indemnify the insured consumer is disadvantageous to the consumer and therefore constitutes a detriment.
[97] In relation to that second line of argument, the defendant submits that once the Notification Clause is given its proper construction, and in light of s 54, the defendant’s powers are significantly limited in ways designed to protect the insured, such that the application of the Notification Clause can be expected to yield an outcome which is entirely fair. In my view, those submissions miss the essential point, which, as ASIC submits, is whether the term would cause detriment in the sense of some disadvantage to the consumer which need not necessarily be significant. Even if that disadvantage represents a fair outcome, it is nevertheless a disadvantage. Accordingly, I regard the criterion of detriment in s 12BG(1)(c) as satisfied on the basis of the second line of argument advanced by ASIC. In those circumstances, it is not necessary for me to consider whether the first line of argument, which relies on the burden of the insured consumer having to comply with the term, is itself sufficient to constitute a detriment within the meaning of para (c).
Transparency
As to “transparency”, in ASIC v Auto, Jackman J wrote:
[101] In my view, the concept of a term being “expressed in reasonably plain language” does include, in its ordinary and natural meaning, the concept of clarity of meaning, and accordingly an ambiguity in meaning will point towards a lack of transparency. It must be borne in mind that the concept of a term being “transparent” is a question of degree, reflected in the language of s 12BG(2)(b) which refers to “the extent to which” the term is transparent. For that reason, the absence of reference to an implied term is no more than a factor in determining the degree to which a term lacks transparency, depending on the circumstances, including the significance of the implied term to the criteria set out in s 12BG(1).
[102] Further, there is now a significant body of case-law which supports that construction. In Australian Consumer and Competition Commission v ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Ltd) [2015] FCA 368 , North J found at [953] that a term requiring a refund lacked transparency to a significant extent where the basis on which a fee was to be calculated and the cost of medication was not disclosed to the patient at all. In ACCC v Chrisco Hampers Australia Pty Ltd at [79]–[88], Edelman J dealt with the language of the particular term in that case not being plain, which his Honour described at [79] as being a matter that reduced the transparency of the term. Edelman J referred to the term in that case not clearly identifying the amounts that would be direct debited by Chrisco under the term, or the means by which those amounts would be determined: [81]. His Honour made a finding as to the proper construction of the term, but said that while that was the best construction, the point would not be plain to a consumer: [85]. His Honour then identified other respects in which the term would not be plain to a consumer: [86]–[88]. In ACCC v Servcorp Ltd , Markovic J considered a term to lack transparency where it did not clearly disclose “the nature and extent of the obligations” (at [49]) or where there was a lack of “transparency as to the way it would be applied” (at [56]). In ACCC v Ashley & Martin Pty Ltd, Banks-Smith J found that the meaning of a clause was “somewhat obscure”, although her Honour did identify its meaning: at [113]. That “obscurity” was then used to find a lack of transparency, which was said to add to an imbalance in the parties’ rights: at [157]. Her Honour’s approach was endorsed by Jackson J in ACCC v Smart Corporation Pty Ltd at [72]. In Carnival plc v Karpik [2022] FCAFC 149; (2022) 294 FCR 524 at [3], Allsop CJ said that notions of “significant imbalance” and the “legitimate interest” of the benefitting party must also be assessed by reference to “the clarity and availability of understanding found within the transparency of the term” (emphasis added).
[103] Accordingly, I accept the submission by ASIC that the question whether a term is expressed in a manner which allows consumers readily to know and understand the parties’ rights and obligations is an aspect of the concept of “transparent”. I also accept ASIC’s submission that the Notification Clause as it appears in the defendant’s PDSs does lack transparency to a significant degree in this sense. Although I have expressed a clear view on the proper construction of the Notification Clause, I am not able to say that consumers generally would have reached that construction, nor that they would have reached it with the level of conviction with which I have expressed my views. Further, few consumers would be aware of ss 13 and 54 of the ICA, and few consumers would have considered the impact of those provisions on the Notification Clause.
Conclusion
The “unfair contract terms” remedy prescribed by the ACL and the ASIC Act afford additional measures to challenge objectively oppressive terms of a standard form contract.
The recent amplification of the application provisions gives much wider scope to such remedy if the prerequisites are satisfied.
The inherent flexibility of the term “unfair” creates greenfield opportunities for litigators to plead, and their clients to benefit, by way of relief from harsh uncommercial terms.
That stated, further appellate treatment of the prerequisites of this remedy, inexorably, will be forthcoming. The full reasons in ASIC v Auto – in which ASIC filed a notice of appeal on 24 April – may be found here.
[1] Trade Practices Amendment (Australian Consumer Law) Act (no 1) 2010
[2] These terms are replicated in the ASIC Act.
[3] ACL s 3.
[4] ACL s 23(4)
[5] ASIC Act, s12BF(7) and (8)
[6] ACL s 27(3) and ASIC Act s 12BK
[7] ACL s 224 and ASIC Act s 12GBB
[8] ACL s 246 and ASCI Act s 12 GLA
[9] ACL s 247 and ASIC Act s 12GLB
[10] ACL s 248 and ASIC Act s 12GLD
[11] ACL s 243B and ASIC Act s 12GNF
[12] In in the ASIC Act in excess of that permitted
[13] [2024] FCA 272.
[14] Director General of Fair Trading v. First National Bank [2001] UKHL 52