Unfair Contract Terms

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The Australian Consumer Law (“ACL”) seeks to protect consumers, businesses and the community in the promotion of fair trading.

Small businesses regularly enter into agreements for goods and services. The ACL provides protection against unfair contract terms in standard form contracts between small businesses and consumers. The law has now been extended such that the protection against unfair terms also applies to standard form contracts between small businesses and other businesses.

If you are a small business, and not an individual consumer, these protections will apply to your business if the standard form contract was entered into or renewed on or after 12 November 2016. If an existing standard form contract is varied on or after this date, the law will apply to the varied terms.

A standard form contract is one that has been prepared by one party to the contract in circumstances where the other party has little or no opportunity to negotiate the terms. To fall within the ambit of the extension, the standard form contract must:

  • Be for the supply of goods or services;
  • Involve at least one of the parties being a small business. A small business is one that employees fewer than 20 employees, including casual employees employed on a regular and systematic basis; and
  • The upfront price payable under the contract is no more than $300,000 or $1 million if the contract is for more than 12 months.

A term is considered “unfair” where it:

  • Causes a significant imbalance in the parties’ rights and obligations; and
  • Is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
  • Would cause financial or non-financial detriment if it were relied on by the small business.

In determining whether a term is unfair, the transparency of the term must be considered as well as the overall rights and obligations of each party under the contract. A potentially unfair term may be counterbalanced by additional benefits offered to the other party.

Examples of terms that may be unfair, include terms that: allow one party to unilaterally vary the terms of the contract; enable one party to protect themselves against loss or damage at the expense of the other party by imposing broad indemnities or excessive limitations of liability; or allow one party but not the other to terminate the contract.

Only a court or tribunal can determine whether a term is unfair. If a court or tribunal finds that a term is ‘unfair’, the term will be void. That is, it will no longer be binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.

While the unfair contract term laws cover most standard form contracts and terms, there are a number of exceptions which can exclude certain contracts and terms.

For more information visit the Australian Competition and Consumer Commission’s website.

If you think a term in your contract is unfair, or would like to review your business’ standard terms and conditions to ensure you are compliant with the amendments to the Australian Consumer Law,

Call us on 07 3252 0011.

This article was written by Brooke Nickerson (Law Clerk) & James Tan (Associate).