In the lead up to the festive season, the Federal Court has confirmed that Chrisco’s lay-by agreement included an unfair contract term in breach of the Australian Consumer Law (ACL).

The term under scrutiny allowed Chrisco to continue to take direct debit payments from consumers even after their lay-by had been completely paid off. The term provided that the direct debits would only cease when the consumer opted out.

The Federal Court concluded that this term caused a significant imbalance between the rights and obligations of Chrisco and the consumer and accordingly breached the ACL. While a penalty has not yet been determined, given the increasing force of the ACCC, we would expect that significant penalties will be imposed, together with injunctions and a cost order against Chrisco.

With businesses in the retail sector facing their busiest time of the year, it is extremely important to ensure that all standard form contracts comply with the ACL. In so far as lay-bys are concerned, businesses need to be aware that under the ACL:

consumers have a right to terminate a lay-by at any time prior to delivery of the goods;
any lay-by termination fee charged by the retailer cannot exceed the retailer’s reasonable costs resulting from the termination of the lay-by;

  1. the amount of the termination fee should be clearly stated in the lay-by agreement;

  2. the retailer must refund the deposit and all other amounts paid (less the termination fee) if the consumer terminates the lay-by;

  3. if the consumer terminates the lay-by and the total amount paid on the lay-by does not cover the termination fee, the consumer is required to pay the termination fee.

Any contract term that attempts to contravene these rights and obligations will be in breach of the ACL.


The unfair contract term regime is currently limited to protecting consumers in the business to consumer relationship. However, as of 12 November 2016, new laws take effect which extend the consumer protections under the unfair contract term regime to small businesses that enter into standard form contracts prepared by other businesses.

Small businesses who will receive these protections are those that:

  1. employ less than 20 people; and

  2. are entering into a standard form contract for a term of 12 months or less that is worth up to $300,000; or

  3. are entering into a standard form contract for a term of more than 12 months that is worth up to $1million.

In preparation for the commencement of these new laws:

  1. All businesses, regardless of their size or customer base, should be ensuring that their standard form contracts comply with the ACL – any unfair terms should be deleted.

  2. Small businesses should closely scrutinise standard form contracts before agreeing to their terms. While small businesses will not have access to the ACL unfair contract term protections until November next year, there is nothing to stop them from seeking amendments to terms that are drafted so significantly in the other party’s favour that it becomes uncommercial or too risky to agree to those terms.

If you would like your contracts reviewed, please contact:

Joanne D’Andrea
Harwood Andrews
T: 03 5226 8567

Nicole Stornebrink
Harwood Andrews
T: 03 5225 5209