LTT Business Bulletin - August 2017
More from LTT
Tean Kerr, Partner at Lander & Rogers, covers what you
need to know about changes to unfair contract provisions
On 12 November 2016, the unfair contract provisions in the Australian Consumer Law were expanded to cover not just contracts between businesses and individual consumers, but businesses and small businesses. This will have a profound impact on Australian business because it significantly increases the scope of the unfair contract provisions. This change in the law makes it essential for businesses to review their contracts for any provisions that might be unfair.
Key points about the unfair contract provisions
In summary, a contract will be subject to the unfair contract provisions if:
- It is a contract for supply of goods or services or for a sale or grant of an interest in land (for instance, a lease);
- The contract is a standard form contract (discussed below);
- A party to the contract is either an individual who acquired the goods, services or land for personal or household use, or a small business. A small business is a business that (at the time of the contract) employs fewer than 20 people; and
- The upfront price payable under the contract is less than $300,000, or the contract has a duration of more than 12 months and the upfront price payable is less than $1 million.
The legislation does not define ‘standard form contract’. The factors that a court will consider include:
- Was the contract prepared prior to the business offering to sell to the consumer/small business?
- Was the contract provided on a ‘take it or leave it basis’?
- Does the contract take into account the specific characteristics of the parties or the particular transaction?
What makes a contractual term unfair?
Section 24 of the Australian Consumer Law states that a contractual term is unfair if:
- it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- it is not reasonable necessary in order to protect the legitimate interests of the party who would be advantaged by it; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
In deciding whether a contractual term is unfair, courts will consider the extent to which the particular term is transparent (i.e. expressed in reasonably plain language, legible, presented clearly and readily available to any party), and will consider the contract as a whole.
The Australian Competition and Consumer Commission (ACCC) reviewed standard-form contracts from a variety of industries and highlighted ‘terms of concern’ in those contracts. The most common ‘terms of concern’ were terms that allowed the contract provider to:
- unilaterally vary terms in an unconstrained manner;
- rely on broad and potentially unreasonable powers to protect themselves against loss and damage; or
- unreasonably cancel or end an agreement.
Recent cases considering unfair contractual terms
The courts have not yet determined an unfair contract case involving a small business contract. However, examples of unfair contract terms include:
- Chrisco sold Christmas hampers to consumers who often paid for them in instalments. Chrisco’s standard form contract allowed it to continue to collect instalments after a particular hamper was paid for in full and apply them to next year’s hamper. Given that the term was not transparent, and Chrisco was not required to pay the customer any interest on the money it collected in advance if the customer decided to not purchase another hamper, the term was unfair and void.
- Get Qualified Australia (GQA), a company that assisted customers to obtain formal industry qualifications, advertised that if a customer did not obtain formal qualifications, the customer would receive a full refund. However, GQA applied a 25% ‘administration fee’ and also made refunds subject to certain eligibility criteria which customers were not informed of in advance. The Federal Court found that the ACCC had a good arguable case that these terms were unfair contract terms and granted a freezing order against GQA. GQA subsequently entered into liquidation.
What do I need to do?
If your business uses standard form contracts, then now is the time to review them and identify whether any of the terms could potentially be unfair. Lander & Rogers would be glad to review your business’s contracts and provide you with advice about what needs to be done in terms of updating them. If your contractual terms are updated, then you will need to consider how to update any existing agreements between your business and your customers. The recent amendments to the law mean that you should consider not just contracts between your business and individual consumers, but also between your business and a small business.
Likewise, if you own a small business and believe that your business is subject to an unfair contract, get in touch with Lander & Rogers, who will be able to provide you with legal advice and assistance.