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Recent updates to the Australian Consumer Law: School contracts and unfair terms

The Australian Consumer Law (ACL) is set out in Schedule 2 of the Competition and Consumer Act 2010 (the Act). It is a national law that aims to protect consumers and ensure fair trading in Australia.

The Australian Competition and Consumer Commission (ACCC) administers and enforces the Act along with state and territory regulators (such as Fair Trading in NSW, which administers the Fair Trading Act 1987 (NSW)).

The ACL sets certain standards for businesses and provides rights for consumers (consumer guarantees), including:

1. a national unfair contract terms law covering standard form consumer and small business contracts;
2. a national law guaranteeing consumer rights when buying goods and services;
3. a national product safety law and enforcement system;
4. a national law for unsolicited consumer agreements covering door-to-door sales and telephone sales;
5. simple national rules for lay-by agreements; and
6. penalties, enforcement powers and consumer redress options.

Schools must be aware of changes to the unfair contract provisions of the ACL that are scheduled to come into effect on 9 November 2023.

Application of ACL to independent schools

In the 2022 case of Brindabella Christian Education v Respondent XD, the ACT Civil & Administrative Tribunal found that certain terms of an independent school’s enrolment contract were unfair in accordance with the ACL, including:

1. the school’s ability to unilaterally change the enrolment conditions and the fee structure; and
2. the notice provisions, which required the parents to give one term’s written notice to withdraw the student.

As a result of the Tribunal’s decision, the unfair terms were unenforceable by the school, despite the parents of the student having read and signed the enrolment contract.

If a term of a ‘standard form consumer contract’ is found by a court or tribunal to be unfair, that term is ‘void’, meaning it is treated as if it does not exist. The rest of the contract remains in operation (provided that the contract still makes sense without any of the unfair terms). Under the current unfair contract term regime, the consumer parent can only seek recovery of any losses arising from an unfair term. There is no penalty imposed on the business for including the unfair term in the contract.

Amendments to the ACL

From 9 November 2023, significant changes to the unfair contract provisions in the ACL will come into effect. From that date, there will be substantial penalties for proposing, applying or relying on an unfair contract term, with the maximum financial penalty (for each unfair term) now potentially upwards of $50 million (depending on the benefit derived from the unfair conduct or total revenue of the school).

The changes will apply to:

1. standard form contracts made or renewed on or after 10 November 2023; and
2. a term of a contract that is varied or added on or after 10 November 2023.

After 9 November 2023, a school will still not be able to rely on an unfair contract term currently in a contract but will not be subject to a penalty.

For the new unfair contract term regime to be found not to apply, the onus will be on the school to establish that a contract is not a standard form contract. It is clear that school enrolment contracts have a commercial character and are considered to be consumer contracts. They are also generally offered on a ‘take it or leave it’ basis, with limited opportunity to negotiate. Further, the new amendments extend the scope of what will be considered a ‘standard form’ contract (even where there may be some negotiation) so limit the ability for a school to establish that the enrolment contract is not a standard form contract.

A term of an enrolment contract will be unfair where it:

1. would cause a significant imbalance in the parties’ rights and obligations under the contract;
2. is not reasonably necessary to protect the legitimate interests of the school; and
3. would cause detriment (financial detriment, delay or distress) to the parents, if it is relied on.

A school’s enrolment contract needs to be fair, as it is the foundational document that formalises the partnership between the school and parents. While it is necessary to include provisions relating to payment of fees and required notice to terminate a student’s enrolment, these terms must be reviewed carefully to ensure they are not unfair. Failing to take action to remove unfair terms will not only be a reputational risk but also, from 9 November 2023, a significant financial risk.

Further, the amendments to the ACL have also extended the protections given to small businesses by changing this definition. Following the amendments, a small business will be defined as a business with 100 or fewer employees or with annual turnover of less than $100,000.   As a result, schools need to carefully review their standard form contracts, including those used with small business suppliers, to ensure they meet the new requirements.

We have been updating the enrolment conditions for many schools in recent times. If you would like specific advice regarding your school’s enrolment contract, please contact Stephanie McLuckie.