12 Unfair contract terms
When is a term ‘unfair’? continued
What will a court consider in
determining whether or not a term is
unfair?
In determining whether a term of a standard form
consumer contract is unfair, a court may consider
any matter that it thinks relevant. It must take
into consideration:
• the extent to which the term is transparent;
and
• the contract as a whole.
A transparent term
A lack of transparency in a term of a standard
form consumer contract may cause a significant
imbalance in the parties’ rights and obligations.
A term is considered to be transparent if it is:
• expressed in reasonably plain language
• legible
• presented clearly
• readily available to any party affected by the
term.
Again, it is important to note that only a court
can determine what a transparent term is for the
purposes of the unfair contract terms provisions.
Examples of terms that may not be considered
transparent include terms that are hidden in
fine print or schedules, phrased in legalese or in
complex or technical language, or are ambiguous
or contradictory.
A term that is not transparent will not necessarily
be unfair. Further, transparency alone will not
necessarily overcome underlying unfairness in a
contract term.
The United Kingdom’s unfair contract terms
provisions use the term ‘plain and intelligible
language’ rather than ‘transparent’.
Reference: The Unfair Terms in Consumer Contracts
Regulations (UK) Regulation
Despite the difference in terminology, the finding
of Lord Bingham in Director General of Fair Trading
v First National Bank may provide some guidance:
‘Transparency requires that the terms should be
expressed fully, clearly and legibly, containing
no concealed pitfalls or traps. Appropriate
prominence should be given to terms which might
operate disadvantageously to the customer.’
Legal reference: Director General of Fair Trading v First
National Bank [] AC ; [] UKHL
The ‘contract as a whole’
The fairness of a particular contractual term
cannot be considered in isolation but must be
assessed in light of the contract as a whole.
Some terms that might seem quite unfair in one
context may not be unfair in another. Conversely,
if a particular term was decided by a court in one
case to be fair, this does not mean it will always
be fair.
An apparently unfair term may be regarded
in a better light when seen in the context of
other counterbalancing terms. For example,
a potentially unfair term may be included in a
consumer contract but may be counterbalanced
by additional benefits—such as a lower price—
being offered to the customer.
However, even if a contract contains terms that
favour the consumer, such favourable terms
may not counterbalance an unfair term if the
consumer is unaware of them. Examples include
implied terms, or terms hidden in fine print, in
a schedule or in another document, or written
in legalese. This may result in an information
imbalance in favour of the business.
Legal reference: Director of Consumer Affairs Victoria
v AAPT Ltd (Civil Claims) [] VCAT
In considering the contract as a whole, a
court will often need to balance the legitimate
commercial interests of the business against the
detriment the term would cause to a consumer if
it were enforced.
Some businesses often include terms that allow
them to make unilateral changes to the contract
or limit the extent of what they are promising,
with no resultant remedy for the consumer.
These terms may sometimes appear to be unfair.
However, businesses use these terms to manage
risk and keep their costs low. For example, if a
business had to renegotiate with every customer
when its circumstances changed, this would
be expensive and the business would probably
need to increase its prices to offset the cost of
potential renegotiations. In these circumstances,
the management of risk and minimising cost
may be viewed by a court as legitimate business
interests. However, this will always depend on
the particular circumstances.