Consumer Law Reform Bill will make major changes

POSTED BY Barbara Versfelt
Rick Shera
04 April 2013

posted in Legislation | The Low Down | Consumer Law

VIEWED 4204 TIMES

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The Consumer Law Reform Bill (CLRB) had its second reading in Parliament on 12 December 2012 and should be passed sometime this year. It will make major changes to various consumer laws, which will affect all of us as consumers, and most businesses, especially if they operate in the B2C environment online.

In particular, the CLRB introduces a new prohibition under the Fair Trading Act 1986 (FTA) on the use of "unfair contract terms” in standard form consumer contracts. Standard form contracts are contracts a Court determines have not been subject to effective negotiation between the parties. The classic example therefore is your typical online terms of service/end user licence agreement –" take it or leave it” if you want to use the service. Those will almost certainly be considered by a Court to be standard form contracts and therefore subject to unfairness scrutiny. Standard terms of trade (usually written in 6 point font on the back of invoices) are another example.

Similar regimes have been implemented in the UK and Australia with case law also developing in the US and they have caused headaches for businesses, especially in the early stages.

The regime will not be directly enforceable by consumers but instead will rely on the Commerce Commission seeking a declaration that a term in a standard form contract is unfair. In doing so, the Court must be satisfied that the term:

  • would cause a significant imbalance in a parties' rights and obligations under the contract;
  • is not reasonably necessary in order to protect the legitimate interests of the party who would be disadvantaged by the term; and
  • would cause detriment (whether financial or otherwise) to a party if it were applied, enforced or relied on.

Types of clauses that have been held to be unfair in overseas regimes, include:

  • Clauses which allow one party to unilaterally change the terms of the contract;
  • Clauses which absolve the service provider from all responsibility even for total failure of service;
  • Clauses which seek to force a consumer to engage in in person litigation or arbitration in another country.

However, the CLRB provides that a term cannot be declared to be unfair to the extent that it defines the main subject matter of the contract or sets the upfront price payable under the contract.

It will be an offence under the FTA for person in trade to "apply, enforce or rely on an unfair contract term”. It would seem however that an offence will not be committed by a party unless they continue to use a term in a standard form consumer contract after it has been declared unfair by the Court.

The CLRB will increase the penalties currently available under the FTA with the maximum penalty per offence for companies being increased to $600,000. The Court will also be able to ban directors, who are convicted of 2 or more breaches of the FTA, from being a director, promoter or being involved in trade for up to 10 years.

The CLRB currently provides for a 6 month phase in period so expect to see more news on this once the Bill has passed.

POSTED BY Barbara Versfelt
Rick Shera
04 April 2013

posted in LegislationThe Low DownConsumer Law

VIEWED 4204 TIMES

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