Not Fair! Regulator Sues for Unfair Contract Terms

Under the Australian Consumer Law, an unfair term in a standard form consumer contract is void.

The Supreme Court of Western Australia recently considered unfair terms in the decision Commissioner for Consumer Protection v Starland Management Pty Ltd¹.

The facts

Starland Management Pty Ltd (Starland) is in the business of providing short-term rental accommodation.

Starland provides its services in accordance with its standard form terms and conditions (T&Cs).

The T&Cs included various one-sided terms, including:

• Automatic renewal of a four-week term should the customer fail to give 21 days’ notice of departure date.
• Authority for Starland to debit the customer’s credit card for money due in excess of the bond.
• All amounts paid are non-refundable, even if cancelled well ahead of time.
• Any late payments entitles Starland to terminate without notice and forfeit the bond and any rent paid in advance.
• Rent will continue to be charged until the customer returns all keys.
• If the customer re-enters the property after check-out, entire bond is forfeited.

The Commissioner for Consumer Protection (Commissioner) became aware of these terms and commenced proceedings out of the Supreme Court of Western Australia.

The decision

Prior to a final hearing, Starland admitted the allegations made by the Commissioner and agreed final orders, subject to the Court’s approval.

In considering the orders proposed by the parties, the Court set out the relevant test to determine whether a term within a standard form consumer contract is unfair as follows:

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

The Court accepted the parties’ agreed orders and declared that all terms the subject of the proceedings were unfair (and therefore, void). A common theme arising out of the impugned terms was that the penalty for breach was disproportionate to the damages suffered by Starland. That is, those terms were not reasonably necessary to protect Starland’s legitimate interests.

The Court made orders:

• restraining Starland from relying on those unfair terms;
• requiring Starland to refund a previous customer; and
• requiring Starland to pay a proportion of the Commissioner’s costs of the proceedings.

Lavan comment

When preparing standard form consumer contracts, care must be taken to ensure that the terms are not “unfair” for the purposes of the Australian Consumer Law.

Not only will those terms be void and unenforceable, they may also expose you to regulatory action and penalties.

Ultimately, the legislative framework is designed to protect consumers, in circumstances where they have little bargaining to push back on standard form contracts. Although it may be tempting to include robust contractual protections in your standard terms, we recommend seeking legal advice with respect to such provisions to ensure they remain enforceable when called upon.

If you require assistance in this regard, do not hesitate to contact Iain Freeman or Andrew Sutton.

¹ Commissioner for Consumer Protection v Starland Management Pty Ltd as director of Rolf Gerard Voulon [2022] WASC 96.