Federal Court considers application of unfair contract terms in the ASIC Act

22 March 2024

This week the Federal Court of Australia (Jackman J) considered the application of the unfair contract term provisions of the ASIC Act to a standard form contract of insurance.

In ASIC v Auto & General Insurance Company Ltd [2024] FCA 272, ASIC contended that the "duty to disclose" provisions across 1.3 million insurance contracts made by Auto & General was an unfair contract term pursuant to s12BG of the ASIC Act. The relevant clause required an insured to "tell us if anything changes" in respect of an insured's circumstances.

Jackman J held that:

a) the clause did not create an imbalance of the parties rights. The duty to disclose changes was "simply a reflection of the the nature of the contract";

b) the clause was reasonably necessary to protect the defendant's interests. An insurer has a legitimate interest in being able to "choose which risks it will insure against, and the information-gathering process ensures that the defendant is not covering risks" it is unwilling to insure; and

c) the clause did impose detriment on the insured in the sense that the defendant's liability could be reduced by operation of the clause if an insured did not make necessary disclosures.

In argument concerning how the transparency of the clause (or lack of it), informs the assessment of unfairness, Jackman J considered that because the term was reasonably necessary to protect the defendant's legitimate interests, the "lack of transparency in the term does not yield any different result."

The proceedings were dismissed.

Richard McHugh SC and Naomi Oreb appeared for the defendant, Auto & General Insurance, on instructions from Gilbert + Tobin

Link to judgment