Last week the Australian government launched a discussion paper which takes aim at organisations that use "take it or leave it" standard form contracts and the technology sector is squarely in its sights.
Software licences, telecommunications agreements and website terms and conditions are just some examples of how organisations are able to manage their risk in high volume/low value transactions by using "take it or leave it" standard form contracts.
When was the last time you negotiated an online agreement? Probably it was the same time you read the agreement before clicking on the "I Agree" button. That is - Never! However the government's proposed new Australian Consumer Law will seek to offer protection to consumers by voiding unfair terms in consumer contracts. A laudable aim however, there is a balance which needs to be struck.
The benefits of the proposed laws are:
- Savings: The Productivity Commission reported that there is a $4.5 billion cost to business of complying with the current consumer law regime, a pastiche of inconsistent state laws and the Federal Trade Practices Act. The new laws will save businesses that expense.
- Clarity: A uniform national law will bring clarity as companies will have the same obligations throughout Australia and consumers will have the same entitlements to protection no matter their location.
The main areas of concern for business are:
- Uncertainty: The proposed laws are the result of an agreement by the Council of Australian Governments. As part of the agreement, COAG defined an "unfair" term in a consumer contract as one which causes a significant imbalance in the parties' rights and obligations under the contract, and is not reasonably necessary to protect the legitimate interests of the supplier.
The concern for business is that this definition is capable of very broad interpretation. The law should step in to amend a contract agreed between two parties only in rare cases where the terms are so harsh and unfair as to violate public policy. To allow too many provisions of contracts to be attacked will create risk and uncertainly for vendors, resulting potentially in higher costs for consumers.
The new laws will need to clearly define what is an unfair term of a contract. That way business can assess and manage its risk via the wording of the contract and not face the uncertainty of contractual provisions involving tens of thousands of customers being overturned.
The concern is that the legislation will not clearly set out the parameters and will leave the job to the courts. This creates uncertainty as companies wrestle with simple questions about their terms and condition. For example, how much is fair for a cancellation fee? Does $35 risk being unfair or should it be $25 or less?
- What is a consumer: The discussion paper asks if the unfair contracts provisions should be extended to business to business agreements and not just be restricted to agreements between companies and individuals. This has the potential to significantly widen the scope for standard form agreements to be attacked, thus creating uncertainty and risk for business, especially in the areas of telecommunications, software and franchising.
- Review SFOAs: The Minister for Competition Policy and Consumer Affairs, Chris Bowen, hopes to fast track the new provisions into law by January 1, 2010. Organisations will have to review their existing terms and conditions to ensure compliance with the new laws taking into account this timeframe. An exception to this may be organisations that have operated in Victoria where similar unfair contracts provisions have already made it into law, however, much will depend on the final form of the legislation.
- Risks for foreign vendors: The impact of the laws will likely be that any consumer based in Australia would be entitled to the protections of the new laws. Therefore it is critical that any vendors (including those based outside Australia) selling products or services over the internet must adjust their terms and conditions to ensure that they do not fall foul of the new provisions.
Certainly there are good public policy reasons why the law should step in and correct unfair contracts in certain cases. However, it is a question of balancing fairness, consumer diligence and business efficacy. The Minister has invited comments in response to the paper by March 17, 2009.
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