The issues of 'detriment' and 'transparency'
This chapter looks at two issues that the courts must take into account
in determining whether a consumer contract is unfair: the extent to which a
term would cause 'detriment'; and the extent to which a term is 'transparent'.
Factors that the court must take into account
Subsection 3(2) of the bill provides that while a Court may take into
account any matters it considers relevant in finding that a consumer contract
is unfair, the Court must take into account:
the extent to which it would cause detriment, or a substantial
likelihood of detriment (whether financial or otherwise) to a party if the term
was to be applied or relied on;
the extent to which a term is transparent; and
the contract as a whole.
Subsection 3(3) of the bill states that a term is transparent if the
expressed in reasonably plain language; and
presented clearly; and
readily available to any party affected by the term.
Detriment (financial or otherwise), or a substantial likelihood of
On the issue of 'detriment' (subsection 3(2a)), the Explanatory
Memorandum (EM) states that the court is required to have regard to whether the
term subject to challenge has caused detriment to consumers (individually or as
a class), or a substantial likelihood thereof.
In terms of the bill's reference to 'a substantial likelihood of
detriment', the EM states:
By requiring evidence of a 'substantial likelihood of
detriment', the provision requires more than a hypothetical case to be made out
by the claimant. In this context, a claimant does not need to have proof of
having suffered actual detriment, but that there is a substantial likelihood of
detriment relating to the application of or reliance on the term.
In this regard, a term does not need to be enforced in order
to be unfair, although the possibility of such enforcement may impact on the
decisions made by the party that would be disadvantaged by the term's practical
effect, to that party's detriment.
Subsection 3(2a) also states that detriment is not limited to financial
detriment. The EM notes: 'This is designed to allow the Court to consider
situations where there may be other forms of detriment that have affected or
may affect the party disadvantaged by the practical effect of the term'.
If a court finds that a term is unfair and there is only a substantial
likelihood of detriment arising from the application of or reliance on that
term, then it is likely that the remedies available would be limited to a
declaration that the term is an unfair term and an injunction preventing the
party advantaged by it applying or relying on it, or purporting to do so.
Recall from chapter 2 that the Productivity Commission had recommended a
provision referring to 'material detriment' to consumers. Several submitters
were critical of subsection 3(2a) of the bill on the basis that its broader
definition of 'detriment' will create considerable uncertainty for all parties.
A substantial likelihood of
The Law Council of Australia was among several submitters expressing
concern at the bill's reference to 'a substantial likelihood of detriment'. It
noted, and concurred with, the Productivity Commission's finding that if a term
is unfair, usually there is no detriment caused by it; it is only when the term
is going to be implemented and relied on.
The National Australia Bank (NAB) also criticised the bill for straying
from the Productivity Commission Review's yardstick of 'material detriment'. It
argued that the bill's reference to 'a substantial likelihood of detriment'
creates 'an unacceptable degree of risk and uncertainty for business and
consumers'. The NAB recommended that the definition be amended to require proof
of material detriment.
The Australian Bankers' Association (ABA) has expressed its concern that
'there is no requirement that a claimant suffer detriment in order for a term
to be found to be unfair or for redress to be available'. It also argued that a
term should only be unfair where it causes actual material detriment.
The Association of Building Societies and Credit Unions (ABACUS) argued
in both its submission and in verbal evidence to the committee that the concept
of detriment should play a greater role in the meaning and the test of
unfairness than the bill would have. To this end, one suggestion it made was
that the courts should be required to take into account the consumer benefit
from a contract term in determining whether or not it is unfair.
Mr Mark Degotardi, Head of Public Affairs at ABACUS, argued that if the
bill's test is not refined to actual consumer detriment:
The risk that we face and the uncertainty that we must
consider as a risk is that under the proposed regime anyone can bring an
unfairness claim, and that means that anyone can simply say, ‘I think there is
a substantial likelihood of detriment.’ Whether that case is subsequently
proved or not, the cost for us in either defending or dealing with those claims
on the uncertainty around our contracts, many of which actually have consumer
benefits—we use standard form contracts.
A different view was put by Associate Professor Frank Zumbo. He argued
that as 'detriment' is a possible consequence of unfairness, it is only
relevant to questions of damages or compensation that may flow from an unfair
contract term. It is not relevant to considering whether or not the contract
term is unfair.
Significantly, this distinction has been acknowledged by Treasury. Mr
Writer explained that the concept of detriment in the bill:
...is purely a remedy. It does not determine unfairness. It
goes to the question of what redress might be provided. The definition of
‘unfair’ does not refer to the question of detriment or make the existence of
detriment determinative of that unfairness.
Non financial detriment
The committee also discussed the issue of non-financial detriment.
Treasury told the committee that the concept of non-financial detriment is 'not
a particularly difficult concept to define'. Treasury provided the following
If I as a consumer...have a contract with somebody to deliver a
sofa to my house and I expect and am given the reasonable expectation that that
might be delivered in two weeks and it takes eight, the detriment I might have
suffered there is the lack of a sofa for six weeks. I am not necessarily going
to quantify that in a financial sense with the business concerned, but the
detriment is there still in that I have been compelled to sit on the floor or
on my broken sofa. The provisions are simply designed to give recognition to
the fact that a consumer may not want a payment. They may want recognition of
that detriment. They may want an apology. They may want to some other form of
Treasury explained that:
...the point of the legislation is to require courts not to arbitrate
that question but simply to have regard to the fact that I may have been inconvenienced
in a way that is not necessarily easy to place a cost on...
Treasury told the committee that there will be occasions when, although
the customer is not paying a price when they are inconvenienced, it clearly has
a value. He added:
So when we say it is ‘non-financial’ we are simply saying it
is not an amount of money that can be transferred, but certainly your time is
valuable and if you lost time by being inconvenienced that would probably be
regarded as non-financial detriment.
The Association of Building Societies and Credit Unions (ABACUS) has
argued that the list of matters that the court must take into account 'should
be broadened and made more balanced'. Specifically, it claimed that the court
should be required to consider the extent of any benefits associated with the
use of the term to either the claimant or to other parties to contracts
including similar terms. The court must weigh these benefits against consumer
The issue of transparency
As noted earlier, subsection 3(2b) of the bill states that in
determining whether a consumer contract term is 'unfair', a court must take
into account 'the extent to which the term is transparent'. The EM notes that a
lack of transparency in the terms of a consumer contract 'may be a strong
indication of the existence of a significant imbalance in the rights and
obligations of the parties under the contract'. It adds, however, that the
extent to which a term is not transparent 'is not, of itself, determinative of
the unfairness of a term in a consumer contract and the nature and effect of
the term will continue to be relevant'.
Further, Treasury confirmed to the committee that a contract term can be
transparent, but still unfair.
The committee's feedback on the bill's 'transparency' provision was
mixed. The ABA supported the inclusion of the clause on transparency. It
emphasised the importance of the courts considering 'a range of circumstances
specific to each individual contract and parties to that contract'. The
Association noted that the bill 'appears to support this view' given the proposed
provisions specify that a court may take into account 'such matters as it thinks
relevant', and must take into account the extent to which the term is
The Consumer Action Law Centre argued that the transparency clause is
'the only part of the Bill's definition of "unfair" that was not in
the MCCA-agreed model for UCT provisions and was not foreshadowed in the
consultation information paper of February 2009'. The two other matters in
subsection 3(2) of the bill—detriment and the contract as a whole—are both
'reasonable and in accord with the MCCA model'.
The Centre explained that the unfair contract laws are a negotiation
problem (a substantive issue), not a disclosure problem (a procedural issue).
In this context, the availability, legibility and presentation of contract
terms is irrelevant: the key obstacle is the inability of consumers to
negotiate the terms of standard form contracts proposed by suppliers.
The Centre feared that despite the government's good intentions in
introducing the 'transparency' test, the test may substantially undermine the
operation of the provisions. It could mean that the courts will regard a term
...“less unfair”, and thus possibly not unfair at all, if it
has been clearly typed out in the contract, regardless of whether it is
realistic to expect the consumer to have read, understood or negotiated over that
contract term, and regardless of the extent of the unfairness of the content
and effect of that term. Despite the EM's statements, the provision is not
drafted in terms of a court being required to take into account the extent to
which a term is not transparent but the extent to which it is.
Associate Professor Zumbo has also argued that the bill's reference to
whether or not a contract term is transparent in section 3(3) should be
deleted. As with the 'detriment' provision, he argued that the test for
transparency should be distinct from whether or not the contract term is
unfair. Indeed, he argued that a contract term may be transparent but drafted
by the larger party in a way that represents a significant imbalance in
contractual rights of that party and which goes beyond what is reasonably
necessary to protect its legitimate interests.
The contract as a whole
In terms of proposed section 3(2)(c) concerning 'the contract as a
whole', the Consumer Action Law Centre told the committee that:
...one of the strengths of this law from the point of view of
business, based on the concerns that they are expressing about uncertainty and
flexibility, is it requires consideration of the contract as a whole. It is
difficult to see how a process that looked at a clause could do that without
then looking at the entirety of the contract.
The Law Council of Australia has similarly emphasised the need for an
approach which requires an assessment of all the relevant circumstances in
every case. It noted that other regulators have taken the view that a term may
be fair in one context but unfair in another.
Significantly, the Law Council made these observations in the context of
its concerns with the bill's provisions to prohibit certain contract terms (see
chapter 7). While recognising these concerns, the committee highlights that
section 3(2)(c) does provide for flexibility in the courts' interpretation of
unfair contract terms.
Safeguards and safe harbours
The committee recognises it is important that this legislation minimises
any uncertainty that may arise for businesses in setting standard form
contracts. By and large, it believes that the bill does provide adequate
safeguards to ensure that consumers do not challenge contract terms
For example, this chapter has noted that some witnesses have argued that
the 'detriment' provision should be made more central to the unfairness test
and should be sharpened to focus on material detriment: others consider it
irrelevant to a test of unfairness. The committee believes the bill strikes the
right balance. The Productivity Commission argued that 'there are sound
economic and ethical rationales for proscribing unfair contract terms that
cause consumer detriment'.
The committee agrees with the Ministerial Council on Consumer Affairs that the
courts should be allowed to take into account non-financial forms of detriment
such as inconvenience, delay or emotional distress.
On the issue of 'transparency', some submitters supported the clause on
the basis that the courts must consider the range of circumstances specific to
each individual contract and parties to that contract. Others considered
transparency a matter of procedural (rather than substantive) unfairness, and
therefore irrelevant to the test of an unfair contract term. Again, the
committee believes the transparency of a contract is a matter that the courts
should take into account given that unfairness may be exacerbated by the lack
of transparency in a term.
Notwithstanding these and other checks, the committee is interested to
pursue the proposal of a 'safe harbour'.
A safe harbour would operate by allowing a business to gain authorisation from
the regulator to ensure that a term is beyond challenge. The Consumer Action
Law Centre has cautioned that a safe harbour may have limited impact in that a
court must take into account a contract as a whole when considering a
particular term. It noted that any change to other terms of the contract would
probably require the business to go back and seek approval for the new
The committee believes the idea of a safe harbour could be considered
and suggests that the ACCC and ASIC consider the merit of a safe harbour for
certain contract terms.
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