The Australian Consumer Law has prohibited unfair contract terms in standard form contracts entered into (or existing contracts that are varied or renewed) between businesses where at least one party to the contract is a small business since November 2016.
The law applies to standard form contracts for the supply of both goods and services and to the sale of land or the grant of an interest in land. It applies where at least one of the businesses is a small business, being defined as a business that employees less than 20 employees, and where the upfront price payable is not more than $300,000, or $1 million if the contract is for more than 12 months. Payments are upfront if they are capable of calculation at the time the contract is entered into and includes contingency payments.
Standard form contracts are contracts which are offered on a “take it or leave it basis” where the recipient has little or no opportunity to negotiate the contract terms.
Terms that are determined to be unfair by a court or tribunal will be void and the parties will not be bound by that term. The rest of contract will continue to be binding on the parties.
What is an Unfair Term?
A term may be unfair if:
- the term would cause a significant imbalance in the parties’ rights and obligations;
- the term is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
- the term would cause detriment, whether financial or otherwise, to a party if it were applied and relied upon.
Terms that may be unfair are:
- terms that enable only one of the parties to avoid or limit their obligations under the contract;
- terms that enable only one of the parties to terminate the contract;
- terms that penalise only one of the parties for breaching or terminating the contract; or
- terms that enable only one of the parties to vary the terms of the contract.
In deciding whether a term is unfair the courts will consider the term’s transparency, including whether it is written in plain language, legible, clearly presented and readily available to the party affected by the term. For example, unfair terms may be written in exceedingly small print or hidden in schedules or written in unduly necessary complicated language.
The law does not apply to terms that set the upfront price payable under the contract, terms that define the contract’s main subject matter or terms that are expressly required by law.
An example of an unfair contract term would be a contract that allows a service provider to change their pricing at any time during the term of the contract without giving the small business party an opportunity to cancel the contract.
If you think a term in your contract may be unfair you can ask the other party to amend or remove the term. For further assistance visit the ACCC website – www.accc.gov.au/smallbusiness or contact Fleur Craig of Armour-Craig Legal on (03) 5636 4986 for advice.