The Australian Unfair Contract Terms Law: The Rise of Substantive Unfairness as a Ground for Review of Standard Form Consumer Contracts

Abstract

In 2010, the Commonwealth Parliament passed legislation implementing a national consumer law, the Australian Consumer Law (‘ACL’). These reforms include a regime regulating unfair terms in standard form consumer contracts, the unfair contract terms law (‘UCTL’). This piece outlines the important aspects of the UCTL, including the test for determining whether a term is unfair, the examples provided in the legislation of the kinds of terms that may be unfair, and the matters which the court must take into account in determining whether a term is unfair. The UCTL, along with similar provisions in the United Kingdom and Victoria, is then examined in light of both classical contract theory and behavioural economics, with attention given to how these regimes deal with both substantive and procedural fairness. Drawing on behavioural economics, this piece argues that, as consumers’ ability to make rational decisions when presented with complex problems is significantly limited, measures designed to ensure procedural fairness, for example through requirements of transparency and clarity in contract terms, are not sufficient to protect consumers entering into standard form contracts. It is argued that regulation of the substantive fairness of contract terms, as envisaged under the UCTL, is necessary for an effective consumer protection regime in Australia.

Keywords: consumer law, consumer contracts, unfair contract terms law

JEL Classification: K00, K19, K39